HYPERCOM CORP (Form: 8-K, Filing Date: 08/09/2001)pdf.secdatabase.com/2786/0000950153-01-500844.pdf · Lender"), and the Holdout Lender shall have no right to refuse to be replaced

Business Address2851 W KATHLEEN RDPHOENIX AZ 850236025045000

Mailing Address2851 WEST KATHLEEN ROADPHOENIX AZ 85023

SECURITIES AND EXCHANGE COMMISSION

FORM 8-KCurrent report filing

Filing Date: 2001-08-09 | Period of Report: 2001-07-31SEC Accession No. 0000950153-01-500844

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FILERHYPERCOM CORPCIK:1045769| IRS No.: 860828608 | State of Incorp.:DE | Fiscal Year End: 1231Type: 8-K | Act: 34 | File No.: 001-13521 | Film No.: 1702608SIC: 3578 Calculating & accounting machines (no electronic computers)

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UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): July 31, 2001

HYPERCOM CORPORATION(Exact Name of Registrant as Specified in its Charter)

Delaware 1-13521 86-0828608

(State or Other Jurisdiction (Commission (IRS Employerof Incorporation) File Number) Identification No.)

2851 West Kathleen Road, Phoenix, Arizona 85053(Address of Principal Executive Offices) (Zip code)

Registrant�s telephone number, including area code (602) 504-5000

Not Applicable.(Former Name or Former Address, if changed since last report.)

Item 5. Other Events.

On August 2, 2001, Hypercom Corporation closed a $45 million financing package with a lending group led by Foothill CapitalCorporation, a wholly-owned subsidiary of Wells Fargo & Company. The new debt facility replaces the Company�s existing principal lending



facility. It will be used for general corporate purposes, including satisfaction of working capital and capital expenditure needs. Concurrentwith the financing, the Company raised $18.4 million in privately-placed common equity.

DEBT FACILITY

The new lending facility has a total borrowing capacity of up to $45 million consisting of:

� $25 million revolving loan with Foothills Capital Corporation; and

� $20 million term loans with Ableco Finance LLC.

The borrowers are Hypercom Corporation and seven other domestic subsidiaries, and guarantors consist of two of the Company�s foreignsubsidiaries and its microticket leasing subsidiary, Golden Eagle Leasing, Inc. (�Golden Eagle Leasing�).

Terms of the Revolving Loan:

The Revolving Facility has a term of 3 years, bears interest at the prime rate announced by Wells Fargo plus 2%, or 8%, whichever isgreater, and provides for $6 million of letter of credit availability

The borrowing base is the lesser of:

� $25 million;

� amount of Borrowers� domestic collections over the 60 day period prior to closing; or

�sum of 85% of eligible accounts, less dilutions, plus 85% of eligible foreign accounts, plus lesser of (i) $7.5 million, (ii) sum of25% of raw inventory plus 50% of finished goods or (iii) 100% of liquidation value of Borrowers� assets.

� At closing, $12 million was available under this facility, after repayment of existing debt and payment of closing costs.

-2-

Term Loans:

The term loans consist of:

�Term A: $5 million, due within one year of closing, with an interest rate of the greater of prime plus 3% or 10%. The first principalpayment is due on the seventh month following closing, with six equal principal installments due thereafter.

�

Term B: $15 million, due within three years of closing, with an interest rate of the greater of prime plus 7% or 14%. The firstprincipal payment is due on thirteenth month following closing, with $250,000 installments due until maturity, at which time allamounts are due thereunder.

�On all loans, collateral includes a first priority security interest in all assets (except real property) of the Borrowers, including apledge of stock of guarantor subsidiaries.

� On all loans, events of default are customary and include breach of EBITDA and other financial covenants:

�There are minimum EBITDA with Golden Eagle Leasing contribution and minimum EBITDA without Golden Eagle Leasingcontribution provisions.



� Tangible net worth must equal progressive thresholds set forth in the loan documents.

� Senior debt and total debt to EBITDA ratios must equal 4:1.

Various of the terms used above are defined in the loan documents.

Fees:

Fees payable under these facilities consist of:

� Commitment fee of $250,000

� Closing fee of $650,000

�Annual fee of $450,000, if no term loans outstanding as of first anniversary of closing; $900,000 for each year in which the termloans are outstanding

� Servicing fee of $10,000 per month

� Unused revolving loan fee of .375% of unused portion of revolving loan.

-3-

Warrants:

In connection with the financing, Hypercom issued a Series C warrant to Abelco Holding LLC, parent of Abelco Finance, to purchase375,000 shares of the Company�s Common Stock at an exercise price of $4.00 per share. The number of warrant shares increases by 350,000for each six month period that the term loans remain outstanding. Additionally, the Company issued a Series D warrant to Roth CapitalPartners LLC to purchase 312,477 shares of the Company�s Common Stock at an exercise price of $5.33 share, and paid Roth a fee of$2.5 million for acting as placement agent in the refinancing.

EQUITY INFUSION

On July 30 and August 2, 2001:

�On July 30, 2001, several individuals that purchased $3.4 million convertible notes in June of this year converted the notes into1,088,342 shares of Hypercom�s common stock at a conversion price of $3.16 per share.

� On August 2, 2001, some of those same individuals purchased 1,745,201 shares for $7.5 million, or $4.2975 per share.

�On August 2, 2001, Michelle Investments LLC, which provided $15 million in interim debt financing (with warrants) to Hypercomin June of this year, purchased 2,475,248 shares for $7.5 million, or $3.03 per share.

Funds from these stock purchases were used to pay off existing debt and for general working capital purposes.

The foregoing transactions were effected pursuant to Section 4(2) of the Securities Act of 1933, governing non-public transactions. All ofthe investors are accredited investors within the meaning of Rule 501(a) under the Securities Act.

See the press release attached as Exhibit 99.1 hereto, including the information under �Forward-Looking Statements.�

UPDATE ON SECURITIZATION



On or about May 24, 2001, Golden Eagle Leasing securitized approximately $45 million of its equipment leases (based on total discountedcontract balances as of the closing date). The securitization was accomplished through the sale by Golden Eagle Leasing of these receivablesto a newly formed bankruptcy remote company, Golden Eagle Funding Corp. (�GEF�) and privately placed to accredited investors byRothschild, Inc.

GEF issued notes in the principal amount of approximately $32 million. The notes are secured by the lease receivables. The interest rate onthe notes is 8.58% and the notes mature on November 16, 2006. There are additional credit enhancements, including excess collateralization(the notes are approximately 66% of the balance due on the underlying leases) and the funding of a reserve account (as of closing equal toapproximately 4% of the balance due on the leases).

-4-

MicroFinancial Incorporated, an unaffiliated entity (�MFI�), has been appointed as master servicer for the portfolio. Golden Eagle Leasinghas been appointed subservicer and performs day to day subservicing. In the event of a default by Golden Eagle Leasing under thesubservicing agreement, MFI would assume the responsibilities of servicer. Events of default include (i) the failure of Golden Eagle Leasingto comply with certain reporting requirements, (ii) if Hypercom is no longer the parent of Golden Eagle Leasing, (iii) if the average ratio ofconsolidated lease income of Golden Eagle Leasing to its consolidated interest expense is less than 1.2 to 1 and (iv) if Golden Eagle Leasingfails to have credit facilities in an aggregate amount of at least $20 million dollars at any time after August 24, 2001, and $30 million afterJanuary 24, 2001. Although there can be no assurance in this regard, Hypercom anticipates obtaining the $20 million in financing required byAugust 24, 2001, or obtaining an extension of this condition.

Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.

(c) Exhibits

Exhibit Number Description

10.1 Loan and Security Agreement dated July 31, 2001 by and among Hypercom Corporation, its subsidiaries andFoothill Capital Corporation.

10.2 Warrant to Abelco Holding LLC, dated August 2.

10.3 Warrant to Roth Capital Partners LLC, dated July 31, 2001.

10.4 Stock Purchase Agreement dated July 31, 2001 by and between Michelle Investments LLC and HypercomCorporation.

10.5 Stock Purchase Agreement dated July 30, 2001 by and between Local Investors and Hypercom Corporation.

99.1 Press Release dated August 2, 2001.

-5-

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned hereunto duly authorized.



HYPERCOM CORPORATION

Date: August 9, 2001 /s/ Jonathon E. KillmerJonathon E. KillmerExecutive Vice President, ChiefFinancial Officer, Chief OperatingOfficer and Chief AdministrativeOfficer and Secretary

Exhibit List

Exhibit Number Description

10.1 Loan and Security Agreement dated July 31, 2001 by and among Hypercom Corporation, its subsidiaries andFoothill Capital Corporation.

10.2 Warrant to Abelco Holding LLC, dated August 2, 2001.

10.3 Warrant to Roth Capital Partners LLC, dated July 31, 2001.

10.4 Stock Purchase Agreement dated July 31, 2001 by and between Michelle Investments LLC and HypercomCorporation.

10.5 Stock Purchase Agreement dated July 30, 2001 by and between Local Investors and Hypercom Corporation.

99.1 Press Release dated August 2, 2001.



1EXECUTION COPY

EXHIBIT 10.1

LOAN AND SECURITY AGREEMENT

BY AND AMONG


AND

EACH OF ITS SUBSIDIARIES THAT ARE SIGNATORIES HERETO

AS BORROWERS,

THE LENDERS THAT ARE SIGNATORIES HERETO

AS THE LENDERS,

AND

FOOTHILL CAPITAL CORPORATION

AS THE ARRANGER AND ADMINISTRATIVE AGENT

DATED AS OF JULY 31, 2001

2LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this "Agreement"), is entered into asof July 31, 2001 between and among, on the one hand, the lenders identified onthe signature pages hereof (such lenders, together with their respectivesuccessors and assigns, are referred to hereinafter each individually as a"Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL CORPORATION, aCalifornia corporation, as the arranger and administrative agent for the Lenders("Agent"), and, on the other hand, HYPERCOM CORPORATION, a Delaware corporation("Parent"), and each of Parent's Subsidiaries identified on the signature pageshereof (such Subsidiaries are referred to hereinafter each individually as a"Borrower", and individually and collectively, jointly and severally, as the"Borrowers").

NOW, THEREFORE, for good and valuable consideration, the receipt andsufficiency of which are acknowledged, the parties agree as follows:

1. DEFINITIONS AND CONSTRUCTION.

1.1 DEFINITIONS. As used in this Agreement, the following terms shallhave the following definitions:

"Ableco" means Ableco Finance LLC, a Delaware limited liabilitycompany, or one or more of its Affiliates.

"Account Debtor" means any Person who is or who may becomeobligated under, with respect to, or on account of, an Account, chattel paper,or a General Intangible.

"Accounts" means all of Borrowers' now owned or hereafter acquiredright, title, and interest with respect to "accounts" (as that term is definedin the Code), and any and all supporting obligations in respect thereof.

"Additional Documents" has the meaning set forth in Section 4.4.

"Administrative Borrower" has the meaning set forth in Section17.9.



"Advances" has the meaning set forth in Section 2.1.

"Affiliate" means, as applied to any Person, any other Person whocontrols, is controlled by, or is under common control with, such Person. Forpurposes of this definition, "control" means the possession, directly orindirectly, of the power to direct the management and policies of a Person,whether through the ownership of Stock, by contract, or otherwise; provided,however, that, for purposes of the definitions of Eligible Accounts and EligibleForeign Accounts and Section 7.14: (a) any Person which owns directly orindirectly 10% or more of the securities having ordinary voting power for theelection of directors or other members of the governing body of a Person or 10%or more of the partnership or other

1

3ownership interests of a Person (other than as a limited partner of such Person)shall be deemed to control such Person; (b) each director (or comparablemanager) of a Person shall be deemed to be an Affiliate of such Person; and (c)each partnership or joint venture in which a Person is a partner or jointventurer shall be deemed to be an Affiliate of such Person.

"Agent" means Foothill, solely in its capacity as agent for theLenders hereunder, and any successor thereto.

"Agent's Account" means an account at a bank designated by Agentfrom time to time as the account into which Borrowers shall make all payments toAgent for the benefit of the Lender Group and into which the Lender Group shallmake all payments to Agent under this Agreement and the other Loan Documents;unless and until Agent notifies Administrative Borrower and the Lender Group tothe contrary, Agent's Account shall be that certain deposit account bearingaccount number 323-266193 and maintained by Agent with The Chase Manhattan Bank,4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021000021.

"Agent Advances" has the meaning set forth in Section 2.3(c)(i).

"Agent's Liens" means the Liens granted by Borrowers to Agent forthe benefit of the Lender Group under this Agreement or the other LoanDocuments.

"Agent-Related Persons" means Agent together with its Affiliates,officers, directors, employees, and agents.

"Agreement" has the meaning set forth in the preamble hereto.

"Applicable Prepayment Premium" means an amount equal to (a)during the period of time from and after the Closing Date up to the date that isthe first anniversary of the Closing Date, 3% multiplied by the Maximum RevolverAmount, (b) during the period of time from and including the date that is thefirst anniversary of the Closing Date up to the date that is the secondanniversary of the Closing Date, 2% multiplied by the Maximum Revolver Amount,and (c) during the period of time from and including the date that is the secondanniversary of the Closing Date up to the Maturity Date, 1% multiplied by theMaximum Revolver Amount, provided that the Applicable Prepayment Premium will bewaived if the Obligations hereunder are refinanced entirely with a facilityprovided (in whole or in part) or agented by Wells Fargo.

"Assignee" has the meaning set forth in Section 14.1.

"Assignment and Acceptance" means an Assignment and Acceptancesubstantially in the form of Exhibit A-1.

"Authorized Person" means any officer or other employee ofAdministrative Borrower.

2

4"Availability" means, as of any date of determination, if such

date is a Business Day, and determined at the close of business on theimmediately preceding Business Day, if such date of determination is not aBusiness Day, the amount that Borrowers are entitled to borrow as Advances underSection 2.1 (after giving effect to all then outstanding Obligations and allsublimits and reserves applicable hereunder).

"Bank Group Pay-Off Letter" means a letter from the Existing



Lenders agreeing to release the Existing Lenders' Liens in and to the propertiesand assets of Borrowers, in form and substance acceptable to Agent.

"Bank One" means Bank One, Arizona, N.A., a national bankingassociation.

"Bank One Cash Collateral Agreement" means the agreement in formand substance satisfactory to Agent between Parent and Bank One, pursuant towhich Parent shall provide $500,000 of cash collateral with respect to theoutstanding letter of credit issued by Bank One until such time as the exposurewith respect to such letter of credit is reduced in accordance with the terms ofsuch agreement.

"Bank One Pay-Off Letter" means a letter from Bank One agreeing torelease its Liens in and to the properties and assets of Borrowers other thanLiens with respect to the Headquarters Real Property or created pursuant to theBank One Cash Collateral Agreement, in form and substance acceptable to Agent.

"Bankruptcy Code" means the United States Bankruptcy Code, as ineffect from time to time.

"Base Rate" means, the rate of interest announced within WellsFargo at its principal office in San Francisco as its "prime rate", with theunderstanding that the "prime rate" is one of Wells Fargo's base rates (notnecessarily the lowest of such rates) and serves as the basis upon whicheffective rates of interest are calculated for those loans making referencethereto and is evidenced by the recording thereof after its announcement in suchinternal publication or publications as Wells Fargo may designate.

"Benefit Plan" means a "defined benefit plan" (as defined inSection 3(35) of ERISA) for which any Borrower or any Subsidiary or ERISAAffiliate of any Borrower has been an "employer" (as defined in Section 3(5) ofERISA) within the past six years.

"Board of Directors" means the board of directors (or comparablemanagers) of Parent or any committee thereof duly authorized to act on behalfthereof.

"Books" means all of each Borrower's now owned or hereafteracquired books and records (including all of its Records indicating,summarizing, or evidencing its assets (including the Collateral) or liabilities,all of its Records relating to its business operations or financial condition,and all of its goods or General Intangibles related to such information).

3

5"Borrower" and "Borrowers" have the respective meanings set forth

in the preamble to this Agreement.

"Borrowing" means a borrowing hereunder consisting of Advances (orterm loans, in the case of the Term Loan) made on the same day by the Lenders(or Agent on behalf thereof), or by Agent in the case of an Agent Advance, ineach case, to Administrative Borrower.

"Borrowing Base" has the meaning set forth in Section 2.1.

"Borrowing Base Certificate" means a certificate in the form ofExhibit B-1.

"Business Day" means any day that is not a Saturday, Sunday, orother day on which national banks are authorized or required to close.

"Capital Lease" means a lease that is required to be capitalizedfor financial reporting purposes in accordance with GAAP.

"Capitalized Lease Obligation" means any Indebtedness representedby obligations under a Capital Lease.

"Cash Equivalents" means (a) marketable direct obligations issuedor unconditionally guaranteed by the United States or issued by any agencythereof and backed by the full faith and credit of the United States, in eachcase maturing within 1 year from the date of acquisition thereof, (b) marketabledirect obligations issued by any state of the United States or any politicalsubdivision of any such state or any public instrumentality thereof maturingwithin 1 year from the date of acquisition thereof and, at the time of



acquisition, having the highest rating obtainable from either S&P or Moody's,(c) commercial paper maturing no more than 1 year from the date of acquisitionthereof and, at the time of acquisition, having a rating of A-1 or P-2, orbetter, from S&P or Moody's and (d) certificates of deposit or bankers'acceptances maturing within 1 year from the date of acquisition thereof either(i) issued by any bank organized under the laws of the United States or anystate thereof which bank has a rating of A or A2, or better, from S&P or Moody'sor (ii) certificates of deposit less than or equal to $100,000 in the aggregateissued by any other bank insured by the Federal Deposit Insurance Corporation,or (e) shares of any money market mutual fund that (i) has at least 95% of itsassets invested continuously in the types of investments referred to in theclauses above, (ii) has net assets of not less than $500,000,000, and (iii) hasthe highest rating obtainable from either S&P or Moody's.

"Cash Management Bank" has the meaning set forth in Section2.7(a).

"Cash Management Account" has the meaning set forth in Section2.7(a).

"Cash Management Agreements" means those certain cash managementservice agreements, in form and substance satisfactory to Agent, each of whichis among Administrative Borrower, Agent, and one of the Cash Management Banks.

4

6"CFC" means a controlled foreign corporation (as that term is

defined in the IRC).

"Change of Control" means (a) any "person" or "group" (within themeaning of Sections 13(d) and 14(d) of the Exchange Act) other than a PermittedHolder becomes the beneficial owner (as defined in Rule 13d-3 under the ExchangeAct), directly or indirectly, of 20%, or more, of the Stock of Parent having theright to vote for the election of members of the Board of Directors, or (b) amajority of the members of the Board of Directors do not constitute ContinuingDirectors, or (c) any Borrower ceases to directly own and control 100% of theoutstanding capital Stock of each of its Subsidiaries extant as of the ClosingDate, except to the extent any Borrower ceases to directly own 100% of itsSubsidiaries as a result of the consummation of a transaction expresslypermitted by this Agreement.

"Chattel Paper" means all of Borrowers' now owned or hereafteracquired right, title, and interest with respect to "chattel paper" as that termis defined in the Code, and any and all supporting obligations in respectthereof.

"Cirrilium Accounts" means Accounts owed to Cirrilium Corporation.

"Closing Date" means the date of the making of the initial Advance(or other extension of credit) hereunder.

"Closing Date Business Plan" means the set of Projections ofBorrowers for the fiscal year ending December 31, 2001, December 31, 2002 andDecember 31, 2003 (for each such fiscal year period, on a quarter by quarterbasis), in form and substance (including as to scope and underlying assumptions)reasonably satisfactory to Agent.

"Code" means the California Uniform Commercial Code, as in effectfrom time to time.

"Collateral" means all of each Borrower's now owned or hereafteracquired right, title, and interest in and to each of the following:

(a) Accounts,

(b) Books,

(c) Equipment,

(d) General Intangibles,

(e) Inventory,

(f) Investment Property,



(g) Negotiable Collateral,

5

7(h) Real Property Collateral,

(i) money or other assets of each such Borrower that now orhereafter come into the possession, custody, or control of any member of theLender Group, and

(j) the proceeds and products, whether tangible or intangible, ofany of the foregoing, including proceeds of insurance covering any or all of theforegoing, and any and all Accounts, Books, Equipment, General Intangibles,Inventory, Investment Property, Negotiable Collateral, Real Property, money,deposit accounts, or other tangible or intangible property resulting from thesale, exchange, collection, or other disposition of any of the foregoing, or anyportion thereof or interest therein, and the proceeds thereof.

"Collateral Access Agreement" means a landlord waiver, baileeletter, or acknowledgement agreement of any lessor, warehouseman, processor,consignee, or other Person in possession of, having a Lien upon, or havingrights or interests in the Equipment or Inventory, in each case, in form andsubstance satisfactory to Agent.

"Collections" means all cash, checks, notes, instruments, andother items of payment of Borrowers constituting proceeds of Accounts.

"Commitment" means, with respect to each Lender, its RevolverCommitment, its Term Loan Commitment, or its Total Commitment, as the contextrequires, and, with respect to all Lenders, their Revolver Commitments, theirTerm Loan Commitments, or their Total Commitments, as the context requires, ineach case as such Dollar amounts are set forth beside such Lender's name underthe applicable heading on Schedule C-1 or on the signature page of theAssignment and Acceptance pursuant to which such Lender became a Lenderhereunder in accordance with the provisions of Section 14.1.

"Compliance Certificate" means a certificate substantially in theform of Exhibit C-1 delivered by the chief financial officer of Parent to Agent.

"Continuing Director" means (a) any member of the Board ofDirectors who was a director (or comparable manager) of Parent on the ClosingDate, and (b) any individual who becomes a member of the Board of Directorsafter the Closing Date if such individual was appointed or nominated forelection to the Board of Directors by a majority of the Continuing Directors,but excluding any such individual originally proposed for election in oppositionto the Board of Directors in office at the Closing Date in an actual orthreatened election contest relating to the election of the directors (orcomparable managers) of Parent (as such terms are used in Rule 14a-11 under theExchange Act) and whose initial assumption of office resulted from such contestor the settlement thereof.

"Control Agreement" means a control agreement, in form andsubstance satisfactory to Agent, executed and delivered by the applicableBorrower, Agent, and the applicable securities intermediary with respect to aSecurities Account or a bank with respect to a DDA.

6

8"Copyright" shall have the meaning ascribed to such term in the

United States Copyright Act of 1976, as amended, and includes unregisteredcopyrights.

"Copyright Security Agreement" means a copyright securityagreement executed and delivered by each Borrower and Guarantor to Agent, theform and substance of which is satisfactory to Agent.

"Daily Balance" means, with respect to each day during the term ofthis Agreement, the amount of an Obligation owed at the end of such day.

"DDA" means any checking or other demand deposit accountmaintained by any Borrower or any Guarantor.

"Default" means an event, condition, or default that, with thegiving of notice, the passage of time, or both, would be an Event of Default.



"Defaulting Lender" means any Lender that fails to make anyAdvance (or other extension of credit) that it is required to make hereunder onthe date that it is required to do so hereunder.

"Defaulting Lender Rate" means (a) the Base Rate for the first 3days from and after the date the relevant payment is due, and (b) thereafter, atthe interest rate then applicable to Advances.

"Designated Account" means account number 4496835166 ofAdministrative Borrower maintained with the Designated Account Bank, or suchother deposit account of Administrative Borrower (located within the UnitedStates) that has been designated as such, in writing, by Administrative Borrowerto Agent as provided in Section 2.9.

"Designated Account Bank" means Wells Fargo, whose office islocated at 100 West Washington Street, Phoenix, Arizona 85003, and whose ABAnumber is 1210-00248, or such other Designated Account Bank (located within theUnited States) that has been designated as such, in writing, by AdministrativeBorrower to Agent as provided in Section 2.9.

"Dilution" means, as of any date of determination, a percentage,based upon the experience of the immediately prior 90 days, that is the resultof dividing the Dollar amount of (a) bad debt write-downs, discounts,advertising allowances, credits, or other dilutive items with respect to theAccounts (excluding Cirrilium Accounts) during such period, by (b) Borrowers'Collections with respect to Accounts during such period (excluding extraordinaryitems) plus the Dollar amount of clause (a).

"Dilution Reserve" means, as of any date of determination, anamount sufficient to reduce the advance rate against Eligible Accounts by onepercentage point for each percentage point by which Dilution is in excess of 5%.

7

9"Disbursement Letter" means an instructional letter executed and

delivered by Administrative Borrower to Agent regarding the extensions of creditto be made on the Closing Date, the form and substance of which is reasonablysatisfactory to Agent.

"Disposition" means any transaction, or series of relatedtransactions, pursuant to which any Borrower or any Subsidiary of a Borrowersells, assigns, transfers or otherwise disposes of any property or assets(whether now owned or hereafter acquired) to any other Person, in each case,whether or not the consideration therefor consists of cash, securities or otherassets owned by the acquiring Person, excluding any (a) issuances of capitalstock or debt securities, including, without limitation, Subordinated Debt and(b) Permitted Dispositions.

"Dollar Equivalent" means, as of any date of determination, forany amount denominated in a currency other than Dollars, such amount multipliedby the spot rate of exchange for such currency into Dollars as announced byWells Fargo.

"Dollars" or "$" means United States dollars.

"Due Diligence Letter" means the due diligence letter sent byAgent's counsel to Administrative Borrower, together with AdministrativeBorrower's completed responses to the inquiries set forth therein, the form andsubstance of such responses to be satisfactory to Agent.

"EBITDA" means, with respect to any fiscal period, a Person andits Subsidiaries' consolidated net earnings (or loss), excluding extraordinarygains and non-cash losses and foreign currency translation gains and non-cashlosses, plus interest expense, income taxes, and depreciation and amortizationfor such period, as determined in accordance with GAAP, provided that withrespect to Parent, any non-cash charges against earnings described on ScheduleE-1 shall be added back to consolidated net earnings (or loss).

"Eligible Accounts" means those Accounts created by one ofBorrowers in the ordinary course of its business, that arise out of its sale ofgoods or rendition of services, that comply with each of the representations andwarranties respecting Eligible Accounts made by Borrowers under the LoanDocuments, and that are not excluded as ineligible by virtue of one or more ofthe criteria set forth below; provided, however that such criteria may be fixed



and revised from time to time by Agent in Agent's Permitted Discretion toaddress the results of any audit performed by Agent from time to time after theClosing Date. In determining the amount to be included, Eligible Accounts shallbe calculated net of customer deposits and unapplied cash remitted to Borrowers.Eligible Accounts shall not include the following:

(a) Accounts that the Account Debtor has failed to pay within 90days of original invoice date or Accounts with selling terms of more than 60days,

8

10(b) Accounts owed by an Account Debtor (or its Affiliates) where

50% or more of all Accounts owed by that Account Debtor (or its Affiliates) aredeemed ineligible under clause (a) above,

(c) Accounts with respect to which the Account Debtor is anemployee, Affiliate (other than Concord Equipment Sales, Inc. and itsSubsidiaries), or agent of any Borrower,

(d) Accounts arising in a transaction wherein goods are placed onconsignment or are sold pursuant to a guaranteed sale, a sale or return, a saleon approval, a bill and hold, or any other terms by reason of which the paymentby the Account Debtor may be conditional,

(e) Accounts that are not payable in Dollars,

(f) Accounts with respect to which the Account Debtor either (i)does not maintain its chief executive office in the United States or Canada, or(ii) is not organized under the laws of the United States or any state thereofor any province thereof, or (iii) is the government of any foreign country orsovereign state, or of any state, province, municipality, or other politicalsubdivision thereof, or of any department, agency, public corporation, or otherinstrumentality thereof, unless (y) the Account is supported by an irrevocableletter of credit reasonably satisfactory to Agent (as to form, substance, andissuer or domestic confirming bank) that has been delivered to Agent and isdirectly drawable by Agent, or (z) the Account is covered by credit insurance inform, substance, and amount, and by an insurer, satisfactory to Agent,

(g) Accounts with respect to which the Account Debtor is either(i) the United States or any department, agency, or instrumentality of theUnited States (exclusive, however, of Accounts with respect to which theapplicable Borrower has complied, to the reasonable satisfaction of Agent, withthe Assignment of Claims Act, 31 USC Section 3727), or (ii) any state of theUnited States (exclusive, however, of (y) Accounts owed by any state that doesnot have a statutory counterpart to the Assignment of Claims Act or (z) Accountsowed by any state that does have a statutory counterpart to the Assignment ofClaims Act as to which the applicable Borrower has complied to Agent'ssatisfaction),

(h) Accounts with respect to which the Account Debtor is acreditor of any Borrower, has or has asserted a right of setoff, has disputedits liability, or has made any claim with respect to its obligation to pay theAccount, to the extent of such claim, right of setoff, or dispute,

(i) Accounts with respect to an Account Debtor whose totalobligations owing to Borrowers exceed 10% of all Eligible Accounts, to theextent of the obligations owing by such Account Debtor in excess of suchpercentage, provided, however, that Accounts with respect to any Account Debtorthat is publicly traded on a primary stock exchange in the United States orEurope, including the exchanges listed on Schedule E-2, shall be EligibleAccounts so long as such Account Debtor maintains a market capitalization

9

11of at least $1 billion, to the extent such Accounts owing to Borrowers do notexceed 20% of all Eligible Accounts,

(j) Accounts with respect to which the Account Debtor is subjectto an Insolvency Proceeding has gone out of business, or as to which a Borrowerhas received notice of an imminent Insolvency Proceeding or a materialimpairment of the financial condition of such Account Debtor,

(k) Accounts, the collection of which, Agent, in its Permitted



Discretion, believes to be doubtful by reason of the Account Debtor's financialcondition,

(l) Accounts that are not subject to a valid and perfected firstpriority Agent's Lien,

(m) Accounts with respect to which (i) the goods giving rise tosuch Account have not been shipped and billed to the Account Debtor, or (ii) theservices giving rise to such Account have not been performed and billed to theAccount Debtor,

(n) Accounts composed of a "retainage" or "hold-back" from theamount due, to the extent of the amount of such "retainage" or "hold-back," or

(o) Accounts that represent the right to receive progress paymentsor other advance billings that are due prior to the completion of performance bythe applicable Borrower of the subject contract for goods or services.

"Eligible Finished Goods Inventory" means Inventory of Borrowersconsisting of first quality finished goods held for sale in the ordinary courseof Borrowers' business located at one of the business locations of Borrowers inthe continental United States, that complies with each of the representationsand warranties respecting Eligible Inventory made by Borrowers in the LoanDocuments, and that is not excluded as ineligible by virtue of one or more ofthe criteria set forth below; provided, however, that such criteria may be fixedand revised from time to time by Agent in Agent's Permitted Discretion toaddress the results of any audit or appraisal performed by Agent from time totime after the Closing Date. In determining the amount to be so included,Inventory shall be valued at the lower of cost or market on a basis consistentwith Borrowers' historical accounting practices. An item of Inventory shall notbe included in Eligible Finished Goods Inventory if:

(a) a Borrower does not have good, valid, and marketable titlethereto,

(b) it is not located at one of the locations in the United Statesof America set forth on Schedule E-3,

(c) it is located on real property leased by a Borrower or in acontract warehouse, in each case, unless it is subject to a Collateral AccessAgreement executed by the mortgagee, lessor, warehouseman, or other third party,as the case may be,

10

12(d) it is not segregated or otherwise separately identifiable from

goods of others,

(e) it is not subject to a valid and perfected first priorityAgent's Lien, or

(g) it consists of goods that are defective, obsolete or slowmoving, restrictive or custom items, work-in-process, or goods that constitutespare parts, packaging and shipping materials, supplies used or consumed in aBorrower's business, bill and hold goods, defective goods, "seconds," orInventory acquired on consignment.

"Eligible Foreign Accounts" means those Accounts that are notEligible Accounts that are created by one of Borrowers in the ordinary course ofits business, that arise out of its sale of goods or rendition of services withrespect to which the Account Debtor is not organized under the laws of, or doesnot maintain its chief executive office in, the United States or any statethereof, that comply with each of the representations and warranties respectingEligible Foreign Accounts made by Borrowers under the Loan Documents, and thatare not excluded as ineligible by virtue of one or more of the criteria setforth below; provided, however, that such criteria may be fixed and revised fromtime to time by Agent in Agent's Permitted Discretion to address the results ofany audit performed by Agent from time to time after the Closing Date. Indetermining the amount to be included, Eligible Foreign Accounts shall becalculated net of customer deposits and unapplied cash remitted to Borrowers.Eligible Foreign Accounts shall not include the following:

(a) Accounts that the Account Debtor has failed to pay within 90days of original invoice date or Accounts with selling terms of more than 45days,



(b) Accounts owed by an Account Debtor (or its Affiliates) where50% or more of all Accounts owed by that Account Debtor (or its Affiliates) aredeemed ineligible under clause (a) above,

(c) Accounts with respect to which the Account Debtor is anemployee, Affiliate, or agent of any Borrower,

(d) Accounts arising in a transaction wherein goods are placed onconsignment or are sold pursuant to a guaranteed sale, a sale or return, a saleon approval, a bill and hold, or any other terms by reason of which the paymentby the Account Debtor may be conditional,

(e) Accounts that are not payable in Dollars,

(f) Accounts with respect to which the Account Debtor is thegovernment of any foreign country or sovereign state, or of any state, province,municipality, or other political subdivision thereof, or of any department,agency, public corporation, or other instrumentality thereof,

11

13(g) Accounts with respect to which the Account Debtor is a

creditor of any Borrower, has or has asserted a right of setoff, has disputedits liability, or has made any claim with respect to its obligation to pay theAccount, to the extent of such claim, right of setoff, or dispute,

(h) Accounts with respect to an Account Debtor whose totalobligations owing to Borrowers exceed 10% of all Eligible Foreign Accounts, tothe extent of the obligations owing by such Account Debtor in excess of suchpercentage, provided, however, that Accounts with respect to any Account Debtorthat is publicly traded on a primary stock exchange in the United States orEurope, including the exchanges listed on Schedule E-2, shall be EligibleAccounts so long as such Account Debtor maintains a market capitalization of atleast $1 billion, to the extent such Accounts owing to Borrowers do not exceed20% of all Eligible Accounts,

(i) Accounts with respect to Account Debtors organized in any oneforeign country or sovereign state whose total obligations owing to Borrowersexceed 15% of all Eligible Foreign Accounts, to the extent of the obligationsowing by such Account Debtors in excess of such percentage,

(j) Accounts with respect to which the Account Debtor is subjectto an Insolvency Proceeding, has gone out of business, or as to which a Borrowerhas received notice of an imminent Insolvency Proceeding or a materialimpairment of the financial condition of such Account Debtor,

(k) Accounts, the collection of which, Agent, in its PermittedDiscretion, believes to be doubtful by reason of the Account Debtor's financialcondition,

(l) Accounts that are not subject to a valid and perfected firstpriority Agent's Lien,

(m) Accounts with respect to which (i) the goods giving rise tosuch Account have not been shipped and billed to the Account Debtor, or (ii) theservices giving rise to such Account have not been performed and billed to theAccount Debtor,

(n) Accounts composed of a "retainage" or "hold-back" from theamount due, to the extent of the amount of such "retainage" or "hold-back," or

(o) Accounts that represent the right to receive progress paymentsor other advance billings that are due prior to the completion of performance bythe applicable Borrower of the subject contract for goods or services.

"Eligible Inventory" means Eligible Finished Goods Inventory andEligible Raw Materials Inventory.

"Eligible Raw Materials Inventory" means Inventory of Borrowersconsisting of first quality raw materials held for the production of finishedgoods in the ordinary course

12



14of Borrowers' business located at one of the business locations of Borrowers inthe continental United States, that complies with each of the representationsand warranties respecting Eligible Inventory made by Borrowers in the LoanDocuments, and that is not excluded as ineligible by virtue of one or more ofthe criteria set forth below; provided, however, that such criteria may be fixedand revised from time to time by Agent in Agent's Permitted Discretion toaddress the results of any audit or appraisal performed by Agent from time totime after the Closing Date. In determining the amount to be so included,Inventory shall be valued at the lower of cost or market on a basis consistentwith Borrowers' historical accounting practices. An item of Inventory shall notbe included in Eligible Raw Materials Inventory if:

(a) a Borrower does not have good, valid, and marketable titlethereto,

(b) it is not located at one of the locations in the United Statesof America set forth on Schedule E-3,

(c) it is located on real property leased by a Borrower or in acontract warehouse, in each case, unless it is subject to a Collateral AccessAgreement executed by the mortgagee, lessor, warehouseman, or other third party,as the case may be,

(d) it is not segregated or otherwise separately identifiable fromgoods of others,

(e) it is not subject to a valid and perfected first priorityAgent's Lien, or

(f) it consists of goods that are defective, obsolete or slowmoving, restrictive or custom items, work-in-process, goods that constitutespare parts, packaging and shipping materials, supplies used or consumed in aBorrower's business, bill and hold goods, defective goods, "seconds," orInventory acquired on consignment.

"Eligible Transferee" means (a) a commercial bank organized underthe laws of the United States, or any state thereof, and having total assets inexcess of $500,000,000 or has a rating of A or A2, or better, from S&P orMoody's, (b) a commercial bank organized under the laws of any other countrywhich is a member of the Organization for Economic Cooperation and Developmentor a political subdivision of any such country and which has total assets inexcess of $500,000,000 or has a rating of A or A2, or better, from S&P orMoody's, provided that such bank is acting through a branch or agency located inthe United States, (c) a finance company, insurance company, or other financialinstitution or fund that is engaged in making, purchasing, or otherwiseinvesting in commercial loans in the ordinary course of its business and having(together with its Affiliates) total assets in excess of $500,000,000 or has arating of A or A2, or better, from S&P or Moody's, (d) any Affiliate (other thanindividuals) of a Lender that was party hereto as of the Closing Date, or anyfund, money market account, investment account or other account managed by aLender or an

13

15Affiliate of such Lender, and (e) any other Person approved by Agent (whoseapproval shall not be unreasonably withheld, conditioned or delayed).

"Environmental Actions" means any complaint, summons, citation,notice, directive, order, claim, litigation, investigation, judicial oradministrative proceeding, judgment, letter, or other communication from anyGovernmental Authority, or any third party involving violations of EnvironmentalLaws or releases of Hazardous Materials from (a) any assets, properties, orbusinesses of any Borrower or any predecessor in interest, (b) from adjoiningproperties or businesses, or (c) from or onto any facilities which receivedHazardous Materials generated by any Borrower or any predecessor in interest.

"Environmental Law" means any applicable federal, state,provincial, foreign or local statute, law, rule, regulation, ordinance, code,binding and enforceable guideline, binding and enforceable written policy orrule of common law now or hereafter in effect and in each case as amended, orany judicial or administrative interpretation thereof, including any judicial oradministrative order, consent decree or judgment, to the extent binding onBorrowers, relating to the environment, employee health and safety, or HazardousMaterials, including CERCLA; RCRA; the Federal Water Pollution Control Act, 33



USC Section 1251 et seq; the Toxic Substances Control Act, 15 USC, Section 2601et seq; the Clean Air Act, 42 USC Section 7401 et seq.; the Safe Drinking WaterAct, 42 USC. Section 3803 et seq.; the Oil Pollution Act of 1990, 33 USC.Section 2701 et seq.; the Emergency Planning and the Community Right-to-Know Actof 1986, 42 USC. Section 11001 et seq.; the Hazardous Material TransportationAct, 49 USC Section 1801 et seq.; and the Occupational Safety and Health Act, 29USC. Section 651 et seq. (to the extent it regulates occupational exposure toHazardous Materials); any state and local or foreign counterparts orequivalents, in each case as amended from time to time.

"Environmental Liabilities and Costs" means all liabilities,monetary obligations, Remedial Actions, losses, damages, punitive damages,consequential damages, treble damages, costs and expenses (including allreasonable fees, disbursements and expenses of counsel, experts, or consultants,and costs of investigation and feasibility studies), fines, penalties,sanctions, and interest incurred as a result of any claim or demand by anyGovernmental Authority or any third party, and which relate to any EnvironmentalAction.

"Environmental Lien" means any Lien in favor of any GovernmentalAuthority for Environmental Liabilities and Costs.

"Equipment" means all of Borrowers' now owned or hereafteracquired right, title, and interest with respect to equipment, machinery,machine tools, motors, furniture, furnishings, fixtures, vehicles (includingmotor vehicles), tools, parts, goods (other than consumer goods, farm products,or Inventory), wherever located, including all attachments, accessories,accessions, replacements, substitutions, additions, and improvements to any ofthe foregoing.

"ERISA" means the Employee Retirement Income Security Act of 1974,as amended, and any successor statute thereto.

14

16"ERISA Affiliate" means (a) any Person subject to ERISA whose

employees are treated as employed by the same employer as the employees of aBorrower under IRC Section 414(b), (b) any trade or business subject to ERISAwhose employees are treated as employed by the same employer as the employees ofa Borrower under IRC Section 414(c), (c) solely for purposes of Section 302 ofERISA and Section 412 of the IRC, any organization subject to ERISA that is amember of an affiliated service group of which a Borrower is a member under IRCSection 414(m), or (d) solely for purposes of Section 302 of ERISA and Section412 of the IRC, any Person subject to ERISA that is a party to an arrangementwith a Borrower and whose employees are aggregated with the employees of aBorrower under IRC Section 414(o).

"Event of Default" has the meaning set forth in Section 8.

"Excess Availability" means the amount, as of the date anydetermination thereof is to be made, equal to Availability minus the aggregateamount, if any, of all trade payables of Borrowers aged in excess of the earlierof (i) 60 days from due date and (ii) their historical levels with respectthereto, and all book overdrafts in excess of their historical practices withrespect thereto, in each case as determined by Agent in its PermittedDiscretion.

"Exchange Act" means the Securities Exchange Act of 1934, as ineffect from time to time.

"Existing Lenders" means the lenders party to that certain CreditAgreement, dated as of August 31, 2000, by and between Parent, the banks andfinancial institutions party thereto, Bank One, as administrative agent andissuing bank, and Fleet National Bank, as documentation agent.

"Family Member" means, with respect to any individual, any otherindividual having a relationship by blood (to the second degree ofconsanguinity), marriage, or adoption to such individual.

"Family Trusts" means, with respect to any individual, trusts orother estate planning vehicles established for the benefit of Family Members ofsuch individual and in respect of which such individual serves as trustee or ina similar capacity.

"Fee Letter" means that certain fee letter, dated as of even date



herewith, between Borrowers and Agent, in form and substance satisfactory toAgent.

"Fee Split Letter" shall mean that certain letter agreement, datedas of the Closing Date, between Agent and Ableco, setting forth, among otherthings, the allocation to Ableco of certain fees payable by Borrowers to Agentpursuant to the Fee Letter and establishing certain relationship agreementsbetween the Lenders.

"FEIN" means Federal Employer Identification Number.

15

17"Foothill" means Foothill Capital Corporation, a California

corporation.

"Foreign Subsidiary Guarantor" means the Subsidiaries listed onSchedule F-1 hereto and any CFC that becomes a guarantor of the Borrowers'Obligations hereunder in accordance with the terms hereof.

"Funding Date" means the date on which a Borrowing occurs.

"Funding Losses" has the meaning set forth in Section 2.13(b)(ii).

"GAAP" means generally accepted accounting principles as in effectfrom time to time in the United States, consistently applied.

"GEL Administrative Services Agreement" means the AdministrativeServices Agreement between Parent and Golden Eagle in form and substancesatisfactory to the Agent.

"General Intangibles" means all of Borrowers' now owned orhereafter acquired right, title, and interest with respect to generalintangibles, payment intangibles, contract rights, rights to payment, rightsarising under common law, statutes, or regulations, choses or things in action,goodwill, patents, trade names, trademarks, servicemarks, Copyrights,blueprints, drawings, purchase orders, customer lists, monies due or recoverablefrom pension funds, route lists, rights to payment and other rights under anyroyalty or licensing agreements, infringement claims, computer programs,information contained on computer disks or tapes, software, literature, reports,catalogs, money, deposit accounts, insurance premium rebates, tax refunds, andtax refund claims, and any and all supporting obligations in respect of any ofthe foregoing, and any other personal property other than goods, Accounts,Investment Property, and Negotiable Collateral.

"Golden Eagle" means Golden Eagle Leasing, Inc., an Arizonacorporation.

"Golden Eagle Financing" means a financing in an aggregate amountof at least $10,000,000.

"Governing Documents" means, with respect to any Person, thecertificate or articles of incorporation, by-laws, or other organizationaldocuments of such Person.

"Governmental Authority" means any federal, state, local, or othergovernmental or administrative body, instrumentality, department, or agency orany court, tribunal, administrative hearing body, arbitration panel, commission,or other similar dispute-resolving panel or body.

"Guarantor" and "Guarantors" means Golden Eagle, each ForeignSubsidiary Guarantor and any party or parties that become a guarantor orguarantors of the Borrowers' Obligations hereunder in accordance with the termshereof.

"Guarantor Security Agreement" means a security agreement executedand delivered by each Guarantor to Agent, in the form attached hereto as ExhibitG-1, provided

16

18that Foreign Subsidiary Guarantors shall only be required to execute and deliversuch an agreement pursuant to Section 3.2(a).



"Guaranty" means a general continuing guaranty executed anddelivered by each Guarantor to Agent, in the form of the general continuingguaranty attached hereto as Exhibit G-2.

"Hazardous Materials" means (a) substances that are defined orlisted in, or otherwise classified pursuant to, any applicable laws orregulations as "hazardous substances," "hazardous materials," "hazardouswastes," "toxic substances," or any other formulation intended to define, list,or classify substances by reason of deleterious properties such as ignitability,corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EPtoxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,natural gas liquids, synthetic gas, drilling fluids, produced waters, and otherwastes associated with the exploration, development, or production of crude oil,natural gas, or geothermal resources, (c) any flammable substances or explosivesor any radioactive materials, and (d) asbestos in any form or electricalequipment that contains any oil or dielectric fluid containing levels ofpolychlorinated biphenyls in excess of 50 parts per million.

"Headquarters Real Property" means the Real Property of Parentlocated at 2851 West Kathleen Road, Phoenix, Arizona.

"Hedging Obligations" means, with respect to any Person, theobligations of such Person under (a) interest rate swap agreements, interestrate cap agreements and interest rate collar agreements, (b) other agreements orarrangements designed to protect such Person against fluctuations in interestrates, and (c) any foreign currency futures contract, option or similaragreement or arrangement designed to protect such Person against fluctuations inforeign currency rates, in each case to the extent such obligations are incurredin the ordinary course of business.

"Hypercom Asia Group" means Hypercom Far East Ltd., a corporationorganized under the laws of Hong Kong, Hypercom Electronics Manufacturing(Shenzhen) Co. Ltd., a corporation organized under the laws of China, andHypercom Asia Ltd., a corporation organized under the laws of Hong Kong.

"Hypercom Brazil" means Hypercom do Brasil Industria e ComercioLimitada, a corporation organized under the laws of Brazil.

"Indebtedness" means (a) all obligations of a Person for borrowedmoney, (b) all obligations of a Person evidenced by bonds, debentures, notes, orother similar instruments and all reimbursement or other obligations of a Personin respect of letters of credit, bankers acceptances, interest rate swaps, orother financial products, (c) all obligations of a Person under Capital Leases,(d) all obligations or liabilities of others secured by a Lien on any asset of aPerson, irrespective of whether such obligation or liability is assumed, (e) allobligations of a Person for the deferred purchase price of assets (other thantrade debt incurred in the ordinary course of a Person's business and repayablein accordance with

17

19customary trade practices), and (f) any obligation of a Person guaranteeing orintended to guarantee (whether directly or indirectly guaranteed, endorsed,co-made, discounted, or sold with recourse to a such Person) any obligation ofany other Person.

"Indemnified Liabilities" has the meaning set forth in Section11.3.

"Indemnified Person" has the meaning set forth in Section 11.3.

"Initial Lenders" means the Lenders on the Closing Date.

"Insolvency Proceeding" means any proceeding commenced by oragainst any Person under any provision of the Bankruptcy Code or under any otherstate or federal bankruptcy or insolvency law, assignments for the benefit ofcreditors, formal or informal moratoria, compositions, extensions generally withcreditors, or proceedings seeking reorganization, arrangement, or other similarrelief.

"Intangible Assets" means, with respect to any Person, thatportion of the book value of all of such Person's assets that would be treatedas intangibles under GAAP.

"Intercompany Advance" means loans, advances or transfers of cash



or Inventory in the ordinary course of business from Parent to one of itsSubsidiaries or from one of Parent's Subsidiaries to Parent or anotherSubsidiary of Parent.

"Intercompany Subordination Agreement" means a subordinationagreement executed and delivered by each Borrower and Guarantor to Agent, theform and substance of which is satisfactory to Agent.

"Intercompany Transfer Agreement" means the intercompany agreementbetween Parent, Hypercom Far East, Ltd. and Hypercom Electronics Manufacturing(Shenzhen) Co., Ltd. regarding the ownership of account receivables andinventory in form and substance satisfactory to Agent.

"Inventory" means all Borrowers' now owned or hereafter acquiredright, title, and interest with respect to inventory, including goods held forsale or lease or to be furnished under a contract of service, goods that areleased by a Borrower as lessor, goods that are furnished by a Borrower under acontract of service, and raw materials, work in process, or materials used orconsumed in a Borrower's business.

"Investment" means, with respect to any Person, any investment bysuch Person in any other Person (including Affiliates) in the form of loans,guarantees, advances, or capital contributions (excluding (a) commission,travel, and similar advances to officers and employees of such Person made inthe ordinary course of business, and (b) bona fide Accounts arising from thesale of goods or rendition of services in the ordinary course of businessconsistent with past practice), purchases or other acquisitions forconsideration of Indebtedness or Stock, and any other items that are or would beclassified as investments on a balance sheet prepared in accordance with GAAP.The amount of any Investment shall be

18

20the original cost of such Investment plus the cost of all additions thereto,without any adjustments for increases or decreases in value, or write-ups,write-downs or write-offs with respect to such Investment, less, in the case ofany loan or advance, any repayment of the principal thereof.

"Investment Property" means all of Borrowers' now owned orhereafter acquired right, title, and interest with respect to "investmentproperty" as that term is defined in the Code, and any and all supportingobligations in respect thereof.

"IRC" means the Internal Revenue Code of 1986, as in effect fromtime to time.

"Issuing Lender" means Foothill or any other Lender that, at therequest of Administrative Borrower and with the consent of Agent agrees, in suchLender's sole discretion, to become an Issuing Lender for the purpose of issuingL/Cs or L/C Undertakings pursuant to Section 2.12.

"L/C" has the meaning set forth in Section 2.12(a).

"L/C Disbursement" means a payment made by the Issuing Lenderpursuant to a Letter of Credit.

"L/C Undertaking" has the meaning set forth in Section 2.12(a).

"Lender" and "Lenders" have the respective meanings set forth inthe preamble to this Agreement, and shall include any other Person made a partyto this Agreement in accordance with the provisions of Section 14.1.

"Lender Group" means, individually and collectively, each of theLenders (including the Issuing Lender) and Agent.

"Lender Group Expenses" means all (a) costs or expenses (includingtaxes, and insurance premiums) required to be paid by a Borrower under any ofthe Loan Documents that are paid or incurred by any one or more members of theLender Group, (b) fees or charges paid or incurred by any one or more members ofthe Lender Group in connection with the Lender Group's transactions withBorrowers or Guarantors, including, fees or charges for photocopying,notarization, couriers and messengers, telecommunication, public record searches(including tax lien, litigation, judgment, and UCC searches and includingsearches with the patent and trademark office, the copyright office, or thedepartment of motor vehicles), filing, recording, publication, appraisal



(including periodic Collateral appraisals or business valuations) to the extentof the fees and charges (and up to the amount of any limitation) contained inthis Agreement, real estate surveys, real estate title policies andendorsements, and environmental audits, (c) actual costs and expenses incurredby any one or more members of the Lender Group in the disbursement of funds toor for the account of Borrowers (by wire transfer or otherwise), (d) chargespaid or incurred by any one or more members of the Lender Group resulting fromthe dishonor of checks, (e) reasonable

19

21costs and expenses paid or incurred by the Lender Group to correct any defaultor enforce any provision of the Loan Documents, or in gaining possession of,maintaining, handling, preserving, storing, shipping, selling, preparing forsale, or advertising to sell the Collateral, or any portion thereof,irrespective of whether a sale is consummated, (f) audit fees and expenses ofany one or more members of the Lender Group related to audit examinations of theBooks to the extent of the fees and charges (and up to the amount of anylimitation) contained in this Agreement, (g) reasonable costs and expenses ofthird party claims or any other suit paid or incurred by any one or more membersof the Lender Group in enforcing or defending the Loan Documents or inconnection with the transactions contemplated by the Loan Documents or any oneor more members of the Lender Group's relationship with any Borrower or anyguarantor of the Obligations, (h) Agent's and each Lender's reasonable fees andexpenses (including attorneys fees) incurred in advising, structuring, drafting,reviewing, administering, or amending the Loan Documents, and (i) Agent's andeach Lender's reasonable fees and expenses (including attorneys fees) incurredin terminating, enforcing (including attorneys fees and expenses incurred inconnection with a "workout," a "restructuring," or an Insolvency Proceedingconcerning any Borrower or Guarantor or in exercising rights or remedies underthe Loan Documents), or defending the Loan Documents, irrespective of whethersuit is brought, or in taking any Remedial Action concerning the Collateral.

"Lender-Related Person" means, with respect to any Lender, suchLender, together with such Lender's Affiliates, and the officers, directors,employees, and agents of such Lender.

"Letter of Credit" means an L/C or an L/C Undertaking, as thecontext requires.

"Letter of Credit Usage" means, as of any date of determination,the aggregate undrawn amount of all outstanding Letters of Credit.

"Lien" means any interest in an asset securing an obligation owedto, or a claim by, any Person other than the owner of the asset, whether suchinterest shall be based on the common law, statute, or contract, whether suchinterest shall be recorded or perfected, and whether such interest shall becontingent upon the occurrence of some future event or events or the existenceof some future circumstance or circumstances, including the lien or securityinterest arising from a mortgage, deed of trust, encumbrance, pledge,hypothecation, assignment, deposit arrangement, security agreement, conditionalsale or trust receipt, or from a lease, consignment, or bailment for securitypurposes and also including reservations, exceptions, encroachments, easements,rights-of-way, covenants, conditions, restrictions, leases, and other titleexceptions and encumbrances affecting Real Property.

"Loan Account" has the meaning set forth in Section 2.10.

"Loan Documents" means this Agreement, the Cash ManagementAgreements, the Copyright Security Agreement, the Control Agreements, theDisbursement Letter, the Due Diligence Letter, the Fee Letter, the GuarantorSecurity Agreements, the

20

22Guaranty, the Intercompany Subordination Agreement, the Letters of Credit, theOfficers' Certificate, the Patent and Trademark Security Agreement, the StockPledge Agreement, the Trademark Security Agreement, the Warrant, any note ornotes executed by a Borrower in connection with this Agreement and payable to amember of the Lender Group, and any other agreement entered into, now or in thefuture, by any Borrower, or any Guarantor, and the Lender Group in connectionwith this Agreement.

"Material Adverse Change" means (a) a material adverse change in



the business, prospects, operations, results of operations, assets, liabilitiesor condition (financial or otherwise) of Borrowers taken as a whole, (b) amaterial impairment of either the Parent's ability individually, or theBorrowers' ability taken as a whole, to perform its obligations under the LoanDocuments to which it is a party or of the Lender Group's ability to enforce theObligations or realize upon the Collateral, or (c) a material impairment of theenforceability or priority of the Agent's Liens with respect to the Collateralas a result of an action or failure to act on the part of a Borrower or aGuarantor.

"Maturity Date" has the meaning set forth in Section 3.4.

"Maximum GEL Advance Amount" means, in the aggregate from andafter the Closing Date, the sum of (a) $7,500,000 and (b) the net cash proceedsof any equity issuance by the Parent after the Closing Date.

"Maximum GEL Quarterly Advance Amount" means, for any fiscalquarter, the amount set forth opposite such quarter in the following table:

<TABLE><CAPTION>

Applicable Period Maximum Amount----------------- --------------

<S> <C>For the quarter ending $1,000,000September 30, 2001

For the quarter ending $1,000,000December 31, 2001

For the quarter ending $1,400,000March 31, 2002

For the quarter ending $1,400,000June 30, 2002

For the quarter ending $1,000,000September 30, 2002 and each quarterending thereafter

</TABLE>

"Maximum Revolver Amount" means $25,000,000.

21

23"Maximum Term Loan A Amount" means $5,000,000.

"Maximum Term Loan B Amount" means $15,000,000.

"Michelle Equity Purchase Agreement" means an agreement betweenMichelle Investments and Parent, pursuant to which Michelle Investments willpurchase $7,500,000 of equity of the Parent for consideration of the forgivenessof $7,500,000 of Indebtedness, in form and substance acceptable to Agent.

"Michelle Investments" means Michelle Investments LLC.

"Michelle Pay-Off Letter" means a letter from Michelle Investmentsagreeing to release its Liens in and to the properties and assets of Borrowers,in form and substance acceptable to Agent.

"Mortgages" means, individually and collectively, one or moremortgages, deeds of trust, or deeds to secure debt, executed and delivered byBorrower in favor of Agent, for the benefit of the Lender Group, in form andsubstance satisfactory to Agent, that encumber the Real Property Collateral andthe related improvements thereto.

"Negotiable Collateral" means all of Borrowers' now owned andhereafter acquired right, title, and interest with respect to letters of credit,letter of credit rights, instruments, promissory notes, drafts, documents, andchattel paper (including electronic chattel paper and tangible chattel paper),and any and all supporting obligations in respect thereof.

"Net Auction Sale Value" means the net auction sale value of



Borrowers' Eligible Inventory as determined by Agent or an appraisersatisfactory to Agent.

"Net Proceeds" means with respect to any Disposition by anyBorrower or any Subsidiary of a Borrower, the excess, if any, of (i) theaggregate amount received in cash (including any cash received by way ofdeferred payment pursuant to a note receivable, other non-cash consideration orotherwise, but only as and when such cash is so received) in connection withsuch Disposition, over (ii) the sum of (A) the principal amount of anyIndebtedness which is secured by any such asset (other than Indebtedness assumedby the purchaser of such asset) or which is required to be, and is, repaid inconnection with the Disposition thereof (other than Indebtedness hereunder), (B)the reasonable out-of-pocket expenses, costs and fees incurred by such Borroweror Subsidiary, as the case may be, in connection with such Disposition, and (C)federal and state transfer taxes incurred in connection with such Disposition,whether payable at such time or thereafter.

"Non-Borrower Subsidiary" means a Subsidiary of Parent that is nota Borrower other than Golden Eagle or any Subsidiary of Golden Eagle.

"Obligations" means all loans (including the Term Loan),Advances, debts, principal, interest (including any interest that, but for theprovisions of the Bankruptcy Code,

22

24would have accrued), contingent reimbursement obligations with respect tooutstanding Letters of Credit, premiums, liabilities (including all amountscharged to Borrowers' Loan Account pursuant hereto), obligations, fees(including the fees provided for in the Fee Letter), charges, costs, LenderGroup Expenses (including any fees or expenses that, but for the provisions ofthe Bankruptcy Code, would have accrued), lease payments, guaranties, covenants,and duties of any kind and description owing by Borrowers to the Lender Grouppursuant to or evidenced by the Loan Documents and irrespective of whether forthe payment of money, whether direct or indirect, absolute or contingent, due orto become due, now existing or hereafter arising, and including all interest notpaid when due and all Lender Group Expenses that Borrowers are required to payor reimburse by the Loan Documents, by law, or otherwise. Any reference in thisAgreement or in the Loan Documents to the Obligations shall include allamendments, changes, extensions, modifications, renewals replacements,substitutions, and supplements, thereto and thereof, as applicable, both priorand subsequent to any Insolvency Proceeding.

"Officers' Certificate" means the representations and warrantiesof officers form submitted by Agent to Administrative Borrower, together withBorrowers' completed responses to the inquiries set forth therein, the form andsubstance of such responses to be satisfactory to Agent.

"Originating Lender" has the meaning set forth in Section 14.1(e).

"Overadvance" has the meaning set forth in Section 2.5.

"Parent" has the meaning set forth in the preamble to thisAgreement.

"Participant" has the meaning set forth in Section 14.1(e).

"Patent and Trademark Security Agreement" means a patent andtrademark security agreement executed and delivered by each Borrower andGuarantor to Agent, the form and substance of which is satisfactory to Agent.

"Permitted Discretion" means a determination made in good faithand in the exercise of reasonable (from the perspective of a secured asset-basedlender) business judgment.

"Permitted Dispositions" means (a) so long as no Event of Defaultshall have occurred and be continuing, sales or other dispositions in theordinary course of business of Equipment that is substantially worn, damaged, orobsolete, (b) sales of Inventory to buyers in the ordinary course of business orin a manner that constitutes a Permitted Intercompany Advance, (c) the use ortransfer of money or Cash Equivalents in a manner that is not prohibited by theterms of this Agreement or the other Loan Documents, (d) the licensing on anon-exclusive basis, of patents, trademarks, Copyrights, and other intellectualproperty rights in the ordinary course of business, (e) so long as no Event ofDefault shall have occurred and be continuing, sales of Equipment in the



ordinary course of business to the extent the net proceeds of such sales areused to purchase new Equipment within 90 days of

23

25such sale, provided that the aggregate fair market value of the Equipment soldpursuant to this clause in any one year shall not exceed $1,000,000, (f)Permitted Intercompany Advances, or (g) sales, transfers, grants or otherconveyances of accounts or chattel paper and related equipment or othercollateral in the ordinary course of business by Golden Eagle to a Person in thebusiness of purchasing loans or in connection with a securitization or otherfinancing transaction.

"Permitted Golden Eagle Indebtedness" means the Golden EagleFinancing and any other Indebtedness of Golden Eagle incurred after theincurrence of such Indebtedness, provided that such Indebtedness shall beincurred in the ordinary course of business pursuant to a financing facilitywith respect to the sale, transfer, grant or other conveyance of accounts orchattel paper and related equipment and other collateral.

"Permitted Holder" means George Wallner, and his Family Members,and his Family Trusts.

"Permitted Intercompany Advances" means an Intercompany Advance,so long as (a) no Default or Event of Default exists at the time of the makingof such Intercompany Advance or would exist after giving effect thereto, (b)after giving effect to the making of such Intercompany Advance, the Person thatis acting as the lender with respect thereto is Solvent, (c) with respect toIntercompany Advances from or to a Borrower or Guarantor, the IntercompanySubordination Agreement is in full force and effect with respect to the proposedIntercompany Advance, (d) after giving effect to the making of such IntercompanyAdvance, the Person that is acting as the borrower with respect thereto isSolvent, (e) if a Non-Borrower Subsidiary is the Person acting as the borrowerwith respect to such Intercompany Advance, after giving effect to suchIntercompany Advance, (i) the Non-Borrower Subsidiaries do not have cash, CashEquivalents or other liquid current assets in excess of $7,000,000 (or theDollar Equivalent thereof) in the aggregate, (ii) Hypercom Brazil does not havecash, Cash Equivalents or other liquid current assets in excess of $5,000,000(or the Dollar Equivalent thereof) in the aggregate and (iii) Hypercom AsiaGroup does not have cash, Cash Equivalents or other liquid current assets inexcess of $2,000,000 (or the Dollar Equivalent thereof) in the aggregate, and(f) if Golden Eagle is the Person acting as the borrower with respect to suchIntercompany Advance, (i) the aggregate amount of Intercompany Advances made toGolden Eagle from and after the Closing Date (after giving effect to theproposed Intercompany Advance) by the Borrowers does not exceed the Maximum GELAdvance Amount, (ii) the aggregate amount of such Intercompany Advances in anyfiscal quarter does not exceed the Maximum GEL Quarterly Advance Amount, and(iii) Borrowers have Availability of not less than $3,000,000 after givingeffect thereto, and (iv) with respect to any such Intercompany Advance madeafter the date 180 days after the Closing Date, the Golden Eagle Financing shallhave been consummated within 180 days after the Closing Date.

"Permitted Investments" means (a) investments in Cash Equivalents,(b) investments in negotiable instruments for collection, (c) advances made inconnection with purchases of goods or services in the ordinary course ofbusiness, and (d) investments by any Borrower in any other Borrower providedthat if any such investment is in the form of

24

26Indebtedness, such Indebtedness investment shall be subject to the terms andconditions of the Intercompany Subordination Agreement.

"Permitted Liens" means (a) Liens held by Agent for the benefit ofAgent and the Lenders, (b) Liens for unpaid taxes that either (i) are not yetdelinquent, or (ii) do not constitute an Event of Default hereunder and are thesubject of Permitted Protests, (c) Liens set forth on Schedule P-1, (d) theinterests of lessors under operating leases, (e) purchase money Liens or theinterests of lessors under Capital Leases to the extent that such Liens orinterests secure Permitted Purchase Money Indebtedness and so long as such Lienattaches only to the asset purchased or acquired and the proceeds thereof, (f)Liens arising by operation of law in favor of warehousemen, landlords, carriers,mechanics, materialmen, laborers, or suppliers, incurred in the ordinary courseof business and not in connection with the borrowing of money, and which Liens



either (i) are for sums not yet delinquent or (ii) are the subject of PermittedProtests, (g) Liens arising from deposits made in connection with obtainingworker's compensation or other unemployment insurance, (h) Liens or deposits tosecure performance of bids, tenders, or leases incurred in the ordinary courseof Borrowers' business and not in connection with the borrowing of money, (i)Liens granted as security for surety or appeal bonds in connection withobtaining such bonds in the ordinary course of Borrowers' business, (j) Liensresulting from any judgment or award that is not an Event of Default hereunder,(k) with respect to any Real Property, any easements, rights of way, and zoningrestrictions that do not materially interfere with or impair the use oroperation thereof by Borrowers and (l) Liens on assets of Golden Eagle securingPermitted Golden Eagle Indebtedness.

"Permitted Protest" means the right of the applicable Borrower toprotest any Lien (other than any such Lien that secures the Obligations), taxes(other than payroll taxes or taxes that are the subject of a United Statesfederal tax lien), or rental payment, provided that (a) a reserve with respectto such obligation is established on the Books in such amount as is requiredunder GAAP, (b) any such protest is instituted promptly and prosecuteddiligently by the applicable Borrower in good faith, and (c) Agent is satisfiedin its Permitted Discretion that, while any such protest is pending, there willbe no impairment of the enforceability, validity, or priority of any of theAgent's Liens.

"Permitted Purchase Money Indebtedness" means, as of any date ofdetermination, Purchase Money Indebtedness incurred after the Closing Date in anaggregate amount outstanding at any one time not in excess of $5,000,000.

"Permitted Restricted Payments" means dividends, loans, oradvances to Parent to enable Parent to make payment of its general operatingexpenses and federal, state, local and foreign tax obligations then due andowing and incurred in the ordinary course of business if and so long as Parent(a) immediately uses the proceeds of such dividends, loans, or advances solelyto satisfy such obligations and (b) does not use any of the proceeds of suchdividends, loans or advances to satisfy the obligations of any other Personthrough the satisfaction of a guaranty or otherwise.

25

27"Person" means natural persons, corporations, limited liability

companies, limited partnerships, general partnerships, limited liabilitypartnerships, joint ventures, trusts, land trusts, business trusts, or otherorganizations, irrespective of whether they are legal entities, and governmentsand agencies and political subdivisions thereof.

"Personal Property Collateral" means all Collateral other thanReal Property.

"Phoenix Investors" means the Persons identified as lenders in thePhoenix Investors Loan Agreement.

"Phoenix Investors Conversion Agreement" means the agreementpursuant to which the Phoenix Investors convert all obligations owed by Parentto the Phoenix Investors into equity of the Parent on the Closing Date.

"Phoenix Investors Loan Agreement" means the Loan Agreement, datedJune 4, 2001, among Parent, the lenders party thereto and George R. Wallner.

"Phoenix Investors Equity Purchase Agreement" the stock purchaseagreement, dated as of July 31, 2001, among Parent and certain of the PhoenixInvestors, pursuant to which certain of the Phoenix Investors will purchase$7,500,000 of Stock of Parent.

"Preferred Stock" means, as applied to the capital stock of anyPerson, the capital stock of any class or classes (however designated) that ispreferred as to the payment of dividends, or as to the distribution of assetsupon any voluntary or involuntary liquidation or dissolution of such Person,over shares of capital stock of any other class of such Person.

"Projections" means Parent's forecasted (a) balance sheets, (b)profit and loss statements, and (c) cash flow statements, all prepared on aconsistent basis with Parent's historical financial statements, together withappropriate supporting details and a statement of underlying assumptions.

"Pro Rata Share" means, as of any date of determination:



(a) with respect to a Lender's obligation to make Advances andreceive payments of principal, interest, fees, costs, and expenses with respectthereto or to participate in Letters of Credit, to reimburse the Issuing Lender,and to receive payments of fees with respect thereto, (x) prior to the RevolverCommitment being reduced to zero, the percentage obtained by dividing (i) suchLender's Revolver Commitment, by (ii) the aggregate Revolver Commitments of allLenders, and (y) from and after the time that the Revolver Commitment has beenterminated or reduced to zero, the percentage obtained by dividing (I) theaggregate principal amount of such Lender's Advances by (II) the aggregateprincipal amount of all Advances,

(b) with respect to a Lender's obligation to make the Term Loan Aand receive payments of interest, fees, and principal with respect thereto, (i)prior to the

26

28making of the Term Loan A, the percentage obtained by dividing (x) such Lender'sTerm Loan A Commitment, by (y) the aggregate amount of all Lenders' Term Loan ACommitments, and (ii) from and after the making of the Term Loan A, thepercentage obtained by dividing (x) the principal amount of such Lender'sportion of the Term Loan A Amount by (y) the Term Loan A Amount, and

(c) with respect to a Lender's obligation to make the Term Loan Band receive payments of interest, fees, and principal with respect thereto, (i)prior to the making of the Term Loan B, the percentage obtained by dividing (x)such Lender's Term Loan B Commitment, by (y) the aggregate amount of allLenders' Term Loan B Commitments, and (ii) from and after the making of the TermLoan B, the percentage obtained by dividing (x) the principal amount of suchLender's portion of the Term Loan B Amount by (y) the Term Loan B Amount, and

(d) with respect to all other matters as to a particular Lender(including the indemnification obligations arising under Section 16.7), thepercentage obtained by dividing (i) such Lender's Revolver Commitment plus theunpaid principal amount of such Lender's portion of the Term Loan Amount, by(ii) the aggregate amount of Revolver Commitments of all Lenders plus the TermLoan Amount; provided, however, that in the event the Revolver Commitments havebeen terminated or reduced to zero, Pro Rata Share shall be the percentageobtained by dividing (A) the principal amount of such Lender's Advances plus theunpaid principal amount of such Lender's portion of the Term Loan Amount by (B)the principal amount of all outstanding Advances plus the Term Loan Amount.

"Purchase Money Indebtedness" means Indebtedness (other than theObligations, but including Capitalized Lease Obligations), incurred at the timeof, or within 20 days after, the acquisition of any fixed assets for the purposeof financing all or any part of the acquisition cost thereof.

"Ratio of Senior Debt to EBITDA" means, for any fiscal quarter theratio determined by dividing (i) Senior Debt outstanding at the end of each suchquarter by (ii) (A) with respect to the quarter ending September 30, 2001,EBITDA of Parent excluding Golden Eagle and Subsidiaries of Golden Eagle for the3-month period ending on such date multiplied by 4, (B) with respect to thequarter ending December 31, 2001, EBITDA of Parent excluding Golden Eagle andSubsidiaries of Golden Eagle for the 6-month period ending on such datemultiplied by 2, (C) with respect to the quarter ending March 31, 2002, EBITDAof Parent excluding Golden Eagle and Subsidiaries of Golden Eagle for the9-month period ending on such date multiplied by 4/3 and (D) with respect toeach fiscal quarter thereafter, EBITDA of Parent excluding Golden Eagle andSubsidiaries of Golden Eagle for the 12 month period ending as of the end ofsuch fiscal quarter.

"Ratio of Total Debt to EBITDA" means, for any fiscal quarter theratio determined by dividing (i) Total Debt outstanding at the end of each suchquarter by (ii) (A) with respect to the quarter ending September 30, 2001,EBITDA of Parent for the 3-month

27

29period ending on such date multiplied by 4, (B) with respect to the quarterending December 31, 2001, EBITDA of Parent for the 6-month period ending on suchdate multiplied by 2, (C) with respect to the quarter ending March 31, 2002,EBITDA of Parent for the 9-month period ending on such date multiplied by 4/3and (D) with respect to each fiscal quarter thereafter, EBITDA of Parent for the



12 month period ending as of the end of such fiscal quarter.

"Real Property" means any estates or interests in real propertynow owned, hereafter acquired or leased by any Borrower and the improvementsthereto.

"Real Property Collateral" means (a) the parcel or parcels of RealProperty identified on Schedule R-1, (b) any Real Property hereafter acquired byBorrower and (c) the Headquarters Real Property upon the delivery of a Mortgagewith respect thereto pursuant to Section 3.2(e).

"Record" means information that is inscribed on a tangible mediumor which is stored in an electronic or other medium and is retrievable inperceivable form.

"Remedial Action" means all actions taken to (a) clean up, remove,remediate, contain, treat, monitor, assess, evaluate, or in any way addressHazardous Materials in the indoor or outdoor environment, (b) prevent orminimize a release or threatened release of Hazardous Materials so they do notmigrate or endanger or threaten to endanger public health or welfare or theindoor or outdoor environment, (c) perform any pre-remedial studies,investigations, or post-remedial operation and maintenance activities, or (d)conduct any other actions authorized by 42 USC Section 9601.

"Report" has the meaning set forth in Section 16.17.

"Required Availability" means Excess Availability and unrestrictedcash and Cash Equivalents of Borrowers in an aggregate amount of not less than$3,000,000.

"Required Lenders" means, at any time, Lenders whose Pro RataShares aggregate 51% as determined pursuant to clause (d) of the definition of"Pro Rata Share."

"Required Library" means, as of any date of determination, the setor collection of existing Copyrights of Parent relating to the software andfirmware of Borrowers embedded, incorporated, bundled or licensed in combinationwith the Borrower's ICE product, any future versions of the ICE product or otherproprietary products developed or produced by Borrowers.

"Required Term Loan Lenders" means, as of any date ofdetermination, so long as any Term Loan Amount is outstanding, Lenders holding51% of the outstanding Term Loan Amount, and, if no Term Loan Amount isoutstanding, means Required Lenders.

"Revolver Commitment" means, with respect to each Lender, itsRevolver Commitment, and, with respect to all Lenders, their RevolverCommitments, in each case as such Dollar amounts are set forth beside suchLender's name under the applicable heading on

28

30Schedule C-1 or on the signature page of the Assignment and Acceptance pursuantto which such Lender became a Lender hereunder in accordance with the provisionsof Section 14.1.

"Revolver Usage" means, as of any date of determination, the sumof (a) the then extant amount of outstanding Advances, plus (b) the then extantamount of the Letter of Credit Usage.

"Risk Participation Liability" means, as to each Letter of Credit,all reimbursement obligations of Borrowers to the Issuing Lender with respect toan L/C Undertaking, consisting of (a) the amount available to be drawn or whichmay become available to be drawn, (b) all amounts that have been paid by theIssuing Lender to the Underlying Issuer to the extent not reimbursed byBorrowers, whether by the making of an Advance or otherwise, and (c) all accruedand unpaid interest, fees, and expenses payable with respect thereto.

"SEC" means the United States Securities and Exchange Commissionand any successor thereto.

"Securities Account" means a "securities account" as that term isdefined in the Code.

"Senior Debt" means, as of any date of determination, the sum of



(a) Advances outstanding as of such date, (b) the Term Loan Amount and (c) theLetter of Credit Usage.

"Settlement" has the meaning set forth in Section 2.3(d)(i).

"Settlement Date" has the meaning set forth in Section 2.3(d)(i).

"Solvent" means, with respect to any Person on a particular date,that such Person is not insolvent (as such term is defined in the UniformFraudulent Transfer Act).

"Stock" means all shares, options, warrants, interests,participations, or other equivalents (regardless of how designated) of or in aPerson, whether voting or nonvoting, including common stock, preferred stock, orany other "equity security" (as such term is defined in Rule 3a11-1 of theGeneral Rules and Regulations promulgated by the SEC under the Exchange Act).

"Stock Pledge Agreement" means a stock pledge agreement, in formand substance satisfactory to Agent, executed and delivered by Parent and eachBorrower and Guarantor that owns Stock of a Subsidiary of Parent.

"Subordinated Debt" means Indebtedness of Borrower, the principalof which will not mature or be subject to a sinking fund within one year of theMaturity Date, and the repayment terms and conditions and subordinationprovisions of which are satisfactory to

29

31Agent in its reasonable discretion, it being understood that Agent will consultwith the other Lenders regarding such repayment terms and conditions andsubordination provisions.

"Subsidiary" of a Person means a corporation, partnership, limitedliability company, or other entity in which that Person directly or indirectlyowns or controls the shares of Stock having ordinary voting power to elect amajority of the board of directors (or appoint other comparable managers) ofsuch corporation, partnership, limited liability company, or other entity.

"Tangible Net Worth" means, as of any date of determination, theresult of (a) the total stockholder's equity of Parent and its Subsidiaries,minus (b) the sum of (i) all Intangible Assets of Parent and its Subsidiaries,(ii) all prepaid expenses of Parent and its Subsidiaries, and (iii) all amountsdue to Parent and its Subsidiaries from Affiliates.

"Taxes" has the meaning set forth in Section 16.11.

"Term Loan" means the Term Loan A or the Term Loan B.

"Term Loan A" has the meaning set forth in Section 2.2(a).

"Term Loan A Amount" means, as of any date of determination, theoutstanding principal amount of the Term Loan A.

"Term Loan A Commitment" means, with respect to each Lender, itsTerm Loan A Commitment, and, with respect to all Lenders, their Term Loan ACommitments, in each case as such Dollar amounts are set forth beside suchLender's name under the applicable heading on Schedule C-1 or on the signaturepage of the Assignment and Acceptance pursuant to which such Lender became aLender hereunder in accordance with the provisions of Section 14.1.

"Term Loan Amount" means the Term Loan A Amount plus the Term LoanB Amount.

"Term Loan B" has the meaning set forth in Section 2.2(b).

"Term Loan B Amount" means, as of any date of determination, theoutstanding principal amount of the Term Loan B, plus the then extant Term LoanB PIK Amount.

"Term Loan B Commitment" means, with respect to each Lender, itsTerm Loan B Commitment, and, with respect to all Lenders, their Term Loan BCommitments, in each case as such Dollar amounts are set forth beside suchLender's name under the applicable heading on Schedule C-1 or on the signaturepage of the Assignment and Acceptance pursuant to which such Lender became aLender hereunder in accordance with the provisions of Section 14.1.



30

32"Term Loan B PIK Amount" means, as of any date of determination,

the amount of all interest accrued with respect to the Term Loan B Amount thathas been paid-in-kind by being added to the balance thereof in accordance withSection 2.6(a)(iii).

"Term Loan Commitment" means the Term Loan A Commitment and theTerm Loan B Commitment. "Total Commitment" means, with respect to each Lender,its Total Commitment, and, with respect to all Lenders, their Total Commitments,in each case as such Dollar amounts are set forth beside such Lender's nameunder the applicable heading on Schedule C-1 or on the signature page of theAssignment and Acceptance pursuant to which such Lender became a Lenderhereunder in accordance with the provisions of Section 14.1.

"Total Debt" means, as of any date of determination, the aggregateprincipal amount determined on a consolidated basis in accordance with GAAP of(a) Senior Debt, (b) all obligations of Parent and its Subsidiaries for borrowedmoney and (c) all obligations of Parent and its Subsidiaries under CapitalLeases, provided that Total Debt shall not include (i) any Indebtedness incurredpursuant to a securitization of leases by Golden Eagle or (ii) the Wallner Notesor Wallner Replacement Note.

"Underlying Issuer" means a third Person which is the beneficiaryof an L/C Undertaking and which has issued a letter of credit at the request ofthe Issuing Lender for the benefit of Borrowers.

"Underlying Letter of Credit" means a letter of credit that hasbeen issued by an Underlying Issuer.

"United States" means the United States, the District of Columbiaand each of the fifty states and any territory of the United States.

"Voidable Transfer" has the meaning set forth in Section 17.7.

"Wallner Notes" the promissory notes issued by Parent to George R.Wallner in an aggregate principal amount of $3,500,000 to be cancelled andreplaced by the Wallner Replacement Note.

"Wallner Replacement Note" means the note payable issued by Parentto George R. Wallner in consideration for the delivery and cancellation of theWallner Notes in an aggregate principal amount of $3,100,000, which by its termsshall be subordinated to the Obligations and mature not less than 18 monthsafter the Maturity Date.

"Wallner Subordination Agreement" means the subordinationagreement between the Agent and George R. Wallner in form and substancesatisfactory to the Agent.

"Warrant Shares" means the shares of Parent common stock, parvalue $.001 per share, to be issued pursuant to the Warrant.

31

33"Warrants" means the common stock purchase warrant in form and

substance satisfactory to Ableco, issued by Parent to Ableco Holdings LLCpursuant to Section 3.1, together with the rights to purchase Common Stock ofthe Parent provided thereby and all warrants covering such stock issued upontransfer, division or combination of, or in substitution for, any thereof.

"Wells Fargo" means Wells Fargo Bank, National Association, anational banking association.

1.2 ACCOUNTING TERMS. All accounting terms not specifically definedherein shall be construed in accordance with GAAP. When used herein, the term"financial statements" shall include the notes and schedules thereto. Wheneverthe term "Borrowers" or the term "Parent" is used in respect of a financialcovenant or a related definition, it shall be understood to mean Parent and itsSubsidiaries on a consolidated basis unless the context clearly requiresotherwise.

1.3 CODE. Any terms used in this Agreement that are defined in the Codeshall be construed and defined as set forth in the Code unless otherwise defined



herein.

1.4 CONSTRUCTION. Unless the context of this Agreement or any otherLoan Document clearly requires otherwise, references to the plural include thesingular, references to the singular include the plural, the term "including" isnot limiting, and the term "or" has, except where otherwise indicated, theinclusive meaning represented by the phrase "and/or." The words "hereof,""herein," "hereby," "hereunder," and similar terms in this Agreement or anyother Loan Document refer to this Agreement or such other Loan Document, as thecase may be, as a whole and not to any particular provision of this Agreement orsuch other Loan Document, as the case may be. Section, subsection, clause,schedule, and exhibit references herein are to this Agreement unless otherwisespecified. Any reference in this Agreement or in the other Loan Documents to anyagreement, instrument, or document shall include all alterations, amendments,changes, extensions, modifications, renewals, replacements, substitutions,joinders, and supplements, thereto and thereof, as applicable (subject to anyrestrictions on such alterations, amendments, changes, extensions,modifications, renewals, replacements, substitutions, joinders, and supplementsset forth herein). Any reference herein to any Person shall be construed toinclude such Person's successors and assigns. Any requirement of a writingcontained herein or in the other Loan Documents shall be satisfied by thetransmission of a Record and any Record transmitted shall constitute arepresentation and warranty as to the accuracy and completeness of theinformation contained therein.

1.5 SCHEDULES AND EXHIBITS. All of the schedules and exhibits attachedto this Agreement shall be deemed incorporated herein by reference.

2. LOAN AND TERMS OF PAYMENT.

2.1 REVOLVER ADVANCES.

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34(a) Subject to the terms and conditions of this Agreement, and

during the term of this Agreement, each Lender with a Revolver Commitment agrees(severally, not jointly or jointly and severally) to make advances ("Advances")to Borrowers in an amount at any one time outstanding not to exceed suchLender's Pro Rata Share of an amount equal to the lesser of (i) the MaximumRevolver Amount less the Letter of Credit Usage or (ii) the Borrowing Base lessthe Letter of Credit Usage. For purposes of this Agreement, "Borrowing Base," asof any date of determination, shall mean the result of:

(i) the lesser of

(A) the sum of:

(1) 85% of the amount of EligibleAccounts, less the amount, if any, ofthe Dilution Reserve, plus

(2) the lesser of (y) $4,000,000 and(z) up to 85% of Eligible ForeignAccounts, plus

(3) an amount equal to the least of:

(x) $7,500,000,

(y) the sum (1) up to25% of the cost ofEligible Raw MaterialsInventory and (2) up to50% of the cost ofEligible Finished GoodsInventory, net ofcustomary reserves, and

(z) 100% of the NetAuction Sale Value, and

(B) 110% of Borrowers' Collections for theimmediately preceding 60 day period.

(b) Anything to the contrary in this Section 2.1 notwithstanding,



Agent shall have the right to establish reserves in such amounts, and withrespect to such matters, as Agent in its Permitted Discretion shall deemnecessary or appropriate, against the Borrowing Base, including, and additionalreserves with respect to (i) sums that Borrowers are required to pay (such astaxes, assessments, insurance premiums, or, in the case of leased assets, rentsor other amounts payable under such leases) and has failed to pay under anySection of this Agreement or any other Loan Document, and (ii) amounts owing byBorrowers to any Person to the extent secured by a Lien on, or trust over, anyof the Collateral (other than any existing Permitted Lien set forth on ScheduleP-1 which is specifically identified thereon as entitled to have priority overthe Agent's Liens), which Lien or trust, in the Permitted Discretion of Agentlikely would have a priority superior to the Agent's Liens (such as Liens ortrusts in favor of landlords, warehousemen, carriers, mechanics, materialmen,laborers, or suppliers, or Liens or trusts for ad valorem, excise, sales, orother taxes where given priority under applicable law) in and to such item ofthe Collateral. In addition to the foregoing,

33

35Agent shall have the right to have the Inventory reappraised by a qualifiedappraisal company selected by Agent from time to time after the Closing Date forthe purpose of redetermining the Net Auction Sale Value of the EligibleInventory portion of the Collateral, which appraisals, so long as no Default orEvent of Default shall have occurred and is continuing, shall be conducted atBorrowers' expense no more frequently than one time during any 12 month period,and, after the occurrence and during the continuance of a Default or an Event ofDefault, at Borrowers' expense as frequently as Agent shall determine. Basedupon the results of any such redetermination, and any other information receivedfrom the collateral reporting required under Section 6.2, Agent may, in itsPermitted Discretion, redetermine the Borrowing Base.

(c) The Lenders with Revolver Commitments shall have no obligationto make additional Advances hereunder to the extent such additional Advanceswould cause the Revolver Usage to exceed the Maximum Revolver Amount.

(d) Amounts borrowed pursuant to this Section may be repaid and,subject to the terms and conditions of this Agreement, reborrowed at any timeduring the term of this Agreement.

2.2 TERM LOANS.

(a) Subject to the terms and conditions of this Agreement, on theClosing Date each Lender with a Term Loan A Commitment agrees (severally, notjointly or jointly and severally) to make term loans (collectively, the "TermLoan A") to Borrowers in an amount equal to such Lender's Pro Rata Share of theTerm Loan A Amount. The Term Loan A shall be due and payable on the followingdates and in the following amounts:

<TABLE><CAPTION>

Date Installment Amount---- ------------------

<S> <C>February 1, 2002 $833,333

March 1, 2002 $833,333April 1, 2002 $833,333May 1, 2002 $833,333

June 1, 2002 $833,333July 1, 2002 $833,335

</TABLE>

The outstanding unpaid principal balance and all accrued and unpaid interestunder the Term Loan A shall be due and payable on the earlier to occur of (i)the first anniversary of the Closing Date and (ii) the date of termination ofthis Agreement, whether by its terms, by prepayment, or by acceleration. Allamounts outstanding under the Term Loan A shall constitute Obligations. Anyprincipal amount of the Term Loan A which is repaid or prepaid by Borrowers maynot be reborrowed.

34

36(b) Subject to the terms and conditions of this Agreement, on the



Closing Date each Lender with a Term Loan B Commitment agrees (severally, notjointly or jointly and severally) to make term loans (collectively, the "TermLoan B") to Borrowers in an amount equal to such Lender's Pro Rata Share of theTerm Loan B Amount. The Term Loan B shall be due and payable in equal monthlyinstallments of $250,000, payable on the first day of each month, commencing onAugust 1, 2002 until the Term Loan B is repaid in full. Notwithstanding theforegoing, the outstanding unpaid principal balance and all accrued and unpaidinterest under the Term Loan B shall be due and payable on the date oftermination of this Agreement, whether by its terms, by prepayment, or byacceleration. All amounts outstanding under the Term Loan B shall constituteObligations. Any principal amount of the Term Loan B which is repaid or prepaidby Borrowers may not be reborrowed.

(c) If (A) no Event of Default shall have occurred and becontinuing or would result from any proposed prepayment and (B) after givingeffect to any such proposed prepayment, Borrowers have Excess Availability in anaggregate amount at least equal to $5,000,000, Borrowers may, at any time andfrom time to time, prepay all or a portion of the Term Loan A or the Term Loan Bwithout penalty or premium. Each prepayment shall be accompanied by the paymentof accrued interest to the date of such prepayment on the amount prepaid, shallbe in a minimum amount of $1,000,000 and an amount that is in an integralmultiple of $500,000 and shall be applied against the remaining installments ofprincipal due, first, on the Term Loan A prepaid in the inverse order ofmaturity and, second on the Term Loan B prepaid in the inverse order ofmaturity.

2.3 BORROWING PROCEDURES AND SETTLEMENTS.

(a) PROCEDURE FOR BORROWING. Each Borrowing shall be made by anirrevocable written request by an Authorized Person delivered to Agent (whichnotice must be received by Agent no later than 10:00 a.m. (California time) onthe Business Day prior to the date that is the requested Funding Date in thecase of a request for an Advance or the Term Loan specifying (i) the amount ofsuch Borrowing, and (ii) the requested Funding Date, which shall be a BusinessDay. At Agent's election, in lieu of delivering the above-described writtenrequest, any Authorized Person may give Agent telephonic notice of such requestby the required time, with such telephonic notice to be confirmed in writingwithin 24 hours of the giving of such notice.

(b) MAKING OF ADVANCES.

(i) Promptly after receipt of a request for aBorrowing pursuant to Section 2.3(a), Agent shall notify theLenders, not later than 1:00 p.m. (California time) on theBusiness Day immediately preceding the Funding Date applicablethereto, by telecopy, telephone, or other similar form oftransmission, of the requested Borrowing. Each Lender shall makethe amount of such Lender's Pro Rata Share of the requestedBorrowing available to Agent in immediately available funds, toAgent's Account, not later than 10:00 a.m. (California time)

35

37on the Funding Date applicable thereto. After Agent's receipt ofthe proceeds of such Advances or the Term Loan, as applicable,upon satisfaction of the applicable conditions precedent set forthin Section 3 hereof, Agent shall make the proceeds thereofavailable to Administrative Borrower on the applicable FundingDate by transferring immediately available funds equal to suchproceeds received by Agent to Administrative Borrower's DesignatedAccount; provided, however, that, subject to the provisions ofSection 2.3(g), Agent shall not request any Lender to make, and noLender shall have the obligation to make, any Advance (or itsportion of the Term Loan) if Agent shall have actual knowledgethat (1) one or more of the applicable conditions precedent setforth in Section 3 will not be satisfied on the requested FundingDate for the applicable Borrowing unless such condition has beenwaived, or (2) the requested Borrowing would exceed theAvailability on such Funding Date.

(ii) Unless Agent receives notice from a Lender onor prior to the Closing Date or, with respect to any Borrowingafter the Closing Date, at least 1 Business Day prior to the dateof such Borrowing, that such Lender will not make available as andwhen required hereunder to Agent for the account of Borrowers the



amount of that Lender's Pro Rata Share of the Borrowing, Agent mayassume that each Lender has made or will make such amountavailable to Agent in immediately available funds on the FundingDate and Agent may (but shall not be so required), in relianceupon such assumption, make available to Borrowers on such date acorresponding amount. If and to the extent any Lender shall nothave made its full amount available to Agent in immediatelyavailable funds and Agent in such circumstances has made availableto Borrowers such amount, that Lender shall on the Business Dayfollowing such Funding Date make such amount available to Agent,together with interest at the Defaulting Lender Rate for each dayduring such period. A notice submitted by Agent to any Lender withrespect to amounts owing under this subsection shall beconclusive, absent demonstrable error. If such amount is so madeavailable, such payment to Agent shall constitute such Lender'sportion of the requested Advance on the date of Borrowing for allpurposes of this Agreement. If such amount is not made availableto Agent on the Business Day following the Funding Date, Agentwill notify Administrative Borrower of such failure to fund and,upon demand by Agent, Borrowers shall pay such amount to Agent forAgent's account, together with interest thereon for each dayelapsed since the date of such Borrowing, at a rate per annumequal to the interest rate applicable at the time to the Advancescomposing such Borrowing. The failure of any Lender to make itsportion of any Advance on any Funding Date shall not relieve anyother Lender of any obligation hereunder to make

36

38available its portion of the requested Advance on such FundingDate, but no Lender shall be responsible for the failure of anyother Lender to make available its portion of the requestedAdvance to be made by such other Lender on any Funding Date.

(iii) Agent shall not be obligated to transfer to aDefaulting Lender any payments made by Borrowers to Agent for theDefaulting Lender's benefit, and, in the absence of such transferto the Defaulting Lender, Agent shall transfer any such paymentsto each other non-Defaulting Lender member of the Lender Groupratably in accordance with their Commitments (but only to theextent that such Defaulting Lender's portion of the Advance wasfunded by the other members of the Lender Group) or, if sodirected by Administrative Borrower and if no Default or Event ofDefault had occurred and is continuing (and to the extent suchDefaulting Lender's Advance was not funded by the Lender Group),retain same to be re-advanced to Borrowers as if such DefaultingLender had made Advances to Borrowers. Subject to the foregoing,Agent may hold and, in its Permitted Discretion, re-lend toBorrowers for the account of such Defaulting Lender the amount ofall such payments received and retained by it for the account ofsuch Defaulting Lender. Solely for the purposes of voting orconsenting to matters with respect to the Loan Documents, suchDefaulting Lender shall be deemed not to be a "Lender" and suchLender's Commitment shall be deemed to be zero. This Section shallremain effective with respect to such Lender until (x) theObligations under this Agreement shall have been declared or shallhave become immediately due and payable, (y) the non-DefaultingLenders, Agent, and Administrative Borrower shall have waived suchDefaulting Lender's default in writing, or (z) the DefaultingLender makes its Pro Rata Share of the applicable Advance and paysto Agent all amounts owing by Defaulting Lender in respectthereof. The operation of this Section shall not be construed toincrease or otherwise affect the Commitment of any Lender, torelieve or excuse the performance by such Defaulting Lender or anyother Lender of its duties and obligations hereunder, or torelieve or excuse the performance by Borrowers of their duties andobligations hereunder to Agent or to the Lenders other than suchDefaulting Lender. Any such failure to fund by any DefaultingLender shall constitute a material breach by such DefaultingLender of this Agreement and shall entitle Administrative Borrowerat its option, upon written notice to Agent, to arrange for asubstitute Lender to assume the Commitment of such DefaultingLender, such substitute Lender to be acceptable to Agent. Inconnection with the arrangement of such a substitute Lender, theDefaulting Lender shall have no right to refuse to be replaced



hereunder, and agrees to execute and deliver a completed form ofAssignment and Acceptance Agreement in favor of

37

39the substitute Lender (and agrees that it shall be deemed to haveexecuted and delivered such document if it fails to do so) subjectonly to being repaid its share of the outstanding Obligations(including an assumption of its Pro Rata Share of the RiskParticipation Liability) without any premium or penalty of anykind whatsoever; provided further, however, that any suchassumption of the Commitment of such Defaulting Lender shall notbe deemed to constitute a waiver of any of the Lender Groups' orBorrowers' rights or remedies against any such Defaulting Lenderarising out of or in relation to such failure to fund.

(c) AGENT ADVANCES.

(i) Agent hereby is authorized by Borrowers and theLenders, from time to time in Agent's sole discretion, (1) afterthe occurrence and during the continuance of a Default or an Eventof Default, or (2) at any time that any of the other applicableconditions precedent set forth in Section 3 have not beensatisfied, to make Advances to Borrowers on behalf of the Lendersthat Agent, in its Permitted Discretion deems necessary ordesirable (A) to preserve or protect the Collateral, or anyportion thereof, (B) to enhance the likelihood of repayment of theObligations, or (C) to pay any other amount chargeable toBorrowers pursuant to the terms of this Agreement, includingLender Group Expenses and the costs, fees, and expenses describedin Section 10 (any of the Advances described in this Section2.3(c) shall be referred to as "Agent Advances"); provided, thatnotwithstanding anything to the contrary contained in this Section2.3(c), the aggregate principal amount of Agent Advancesoutstanding at any one time, when taken together with theaggregate principal amount of Overadvances made in accordance withSection 2.3(g) outstanding at any time, shall not exceed an amountequal to the lesser of (x) 10% of the Borrowing Base then ineffect and (y) $2,000,000. Each Agent Advance is an Advancehereunder and shall be subject to all the terms and conditionsapplicable to other Advances, except that all payments thereonshall be payable to Agent solely for its own account (and for theaccount of the holder of any participation interest with respectto such Agent Advance).

(ii) The Agent Advances shall be repayable byBorrowers on demand and secured by the Agent's Liens granted toAgent under the Loan Documents, shall constitute Advances andObligations hereunder, and shall bear interest at the rateapplicable from time to time to Advances.

(d) SETTLEMENT. It is agreed that each Lender's funded portion ofthe Advances is intended by the Lenders to equal, at all times, such Lender'sPro Rata Share

38

40of the outstanding Advances. Such agreement notwithstanding, Agent and the otherLenders agree (which agreement shall not be for the benefit of or enforceable byBorrowers) that in order to facilitate the administration of this Agreement andthe other Loan Documents, settlement among them as to the Advances and the AgentAdvances shall take place on a periodic basis in accordance with the followingprovisions:

(i) Agent shall request settlement ("Settlement")with the Lenders on a weekly basis, or on a more frequent basis ifso determined by Agent, (1) for itself, with respect to each AgentAdvance, and (2) with respect to Collections received, as to eachby notifying the Lenders by telecopy, telephone, or other similarform of transmission, of such requested Settlement, no later than2:00 p.m. (California time) on the Business Day immediately priorto the date of such requested Settlement (the date of suchrequested Settlement being the "Settlement Date"). Such notice ofa Settlement Date shall include a summary statement of the amount



of outstanding Advances and Agent Advances for the period sincethe prior Settlement Date. Subject to the terms and conditionscontained herein (including Section 2.3(b)(iii)): (y) if aLender's balance of the Advances and Agent Advances exceeds suchLender's Pro Rata Share of the Advances and Agent Advances as of aSettlement Date, then Agent shall, by no later than 12:00 p.m.(California time) on the Settlement Date, transfer in immediatelyavailable funds to the account of such Lender as such Lender maydesignate, an amount such that each such Lender shall, uponreceipt of such amount, have as of the Settlement Date, its ProRata Share of the Advances and Agent Advances, and (z) if aLender's balance of the Advances and Agent Advances is less thansuch Lender's Pro Rata Share of the Advances and Agent Advances asof a Settlement Date, such Lender shall no later than 12:00 p.m.(California time) on the Settlement Date transfer in immediatelyavailable funds to the Agent's Account, an amount such that eachsuch Lender shall, upon transfer of such amount, have as of theSettlement Date, its Pro Rata Share of the Advances and AgentAdvances. Such amounts made available to Agent under clause (z) ofthe immediately preceding sentence shall be applied against theamounts of the applicable Agent Advance and, together with theportion of such Agent Advance representing such Lender's Pro RataShare thereof, shall constitute Advances of such Lenders. If anysuch amount is not made available to Agent by any Lender on theSettlement Date applicable thereto to the extent required by theterms hereof, Agent shall be entitled to recover for its accountsuch amount on demand from such Lender together with interestthereon at the Defaulting Lender Rate.

(ii) In determining whether a Lender's balance ofthe Advances and Agent Advances is less than, equal to, or greaterthan

39

41such Lender's Pro Rata Share of the Advances and Agent Advances asof a Settlement Date, Agent shall, as part of the relevantSettlement, apply to such balance the portion of payments actuallyreceived in good funds by Agent with respect to principal,interest and fees payable by Borrowers and allocable to theLenders hereunder, and proceeds of Collateral. To the extent thata net amount is owed to any such Lender after such application,such net amount shall be distributed by Agent to that Lender aspart of such next Settlement.

(iii) During the period between Settlement Dates,Agent with respect to Agent Advances, and each Lender (subject tothe effect of letter agreements between Agent and individualLenders) with respect to the Advances other than Agent Advances,shall be entitled to interest at the applicable rate or ratespayable under this Agreement on the daily amount of funds employedAgent or the Lenders, as applicable.

(e) NOTATION. Agent shall record on its books the principal amountof the Advances owing to each Lender and Agent Advances owing to Agent, and theinterests therein of each Lender, from time to time. In addition, each Lender isauthorized, at such Lender's option, to note the date and amount of each paymentor prepayment of principal of such Lender's Advances in its books and records,including computer records, such books and records constituting conclusiveevidence, absent manifest error, of the accuracy of the information containedtherein.

(f) LENDERS' FAILURE TO PERFORM. All Advances (other than AgentAdvances) shall be made by the Lenders contemporaneously and in accordance withtheir Pro Rata Shares. It is understood that (i) no Lender shall be responsiblefor any failure by any other Lender to perform its obligation to make anyAdvance (or other extension of credit) hereunder, nor shall any Commitment ofany Lender be increased or decreased as a result of any failure by any otherLender to perform its obligations hereunder, and (ii) no failure by any Lenderto perform its obligations hereunder shall excuse any other Lender from itsobligations hereunder.

(g) OPTIONAL OVERADVANCES. (i) Any contrary provision of thisAgreement notwithstanding, the Lenders hereby authorize Agent and Agent may, butis not obligated to, knowingly and intentionally, continue to make Advances to



Borrowers notwithstanding that an Overadvance exists or thereby would becreated, so long as (A) after giving effect to such Advances, the Revolver Usagedoes not exceed the Borrowing Base by more than an amount equal to the lesser of(1) 10% of the Borrowing Base then in effect and (2) $2,000,000, (B) aftergiving effect to such Advances the outstanding Revolver Usage (except for andexcluding amounts charged to the Loan Account for interest, fees, or LenderGroup Expenses) does not exceed the Maximum Revolver Amount, (C) the aggregateprincipal amount of Overadvances made pursuant to this Section 2.3(g) when takentogether with the aggregate principal amount of Agent Advances made pursuant toSection 2.3(c) does not exceed at any time an amount equal to the lesser of (1)10% of the Borrowing Base

40

42then in effect and (2) $2,000,000, and (D) at the time of the making of any suchAdvance, Agent does not believe, in good faith, that the Overadvance created bysuch Advance will be outstanding for more than 120 days. The foregoingprovisions are for the exclusive benefit of Agent and the Lenders and are notintended to benefit Borrowers in any way. The Advances that are made pursuant tothis Section 2.3(g) shall be subject to the same terms and conditions as anyother Advance except that the rate of interest applicable thereto shall be therate applicable to Advances under Section 2.6(c) hereof without regard to thepresence or absence of a Default or Event of Default.

(i) In the event Agent obtains actual knowledge thatthe Revolver Usage exceeds the amounts permitted by the precedingparagraph, regardless of the amount of, or reason for, suchexcess, Agent shall notify Lenders as soon as practicable (andprior to making any (or any additional) intentional Overadvances(except for and excluding amounts charged to the Loan Account forinterest, fees, or Lender Group Expenses) unless Agent determinesthat prior notice would result in imminent harm to the Collateralor its value), and the Lenders with Revolver Commitments thereuponshall, together with Agent, jointly determine the terms ofarrangements that shall be implemented with Borrowers and intendedto reduce, within a reasonable time, the outstanding principalamount of the Advances to Borrowers to an amount permitted by thepreceding paragraph. In the event Agent or any Lender disagreesover the terms of reduction or repayment of any Overadvance, theterms of reduction or repayment thereof shall be implementedaccording to the determination of the Required Lenders.

(ii) Each Lender with a Revolver Commitment shall beobligated to settle with Agent as provided in Section 2.3(d) forthe amount of such Lender's Pro Rata Share of any unintentionalOveradvances by Agent reported to such Lender, any intentionalOveradvances made as permitted under this Section 2.3(g), and anyOveradvances resulting from the charging to the Loan Account ofinterest, fees, or Lender Group Expenses.

2.4 PAYMENTS.

(a) PAYMENTS BY BORROWERS.

(i) Except as otherwise expressly provided herein,all payments by Borrowers shall be made to Agent's Account for theaccount of the Lender Group and shall be made in immediatelyavailable funds, no later than 11:00 a.m. (California time) on thedate specified herein. Any payment received by Agent later than11:00 a.m. (California time), shall be deemed to

41

43have been received on the following Business Day and anyapplicable interest or fee shall continue to accrue until suchfollowing Business Day.

(ii) Unless Agent receives notice fromAdministrative Borrower prior to the date on which any payment isdue to the Lenders that Borrowers will not make such payment infull as and when required, Agent may assume that Borrowers havemade (or will make) such payment in full to Agent on such date inimmediately available funds and Agent may (but shall not be sorequired), in reliance upon such assumption, distribute to each



Lender on such due date an amount equal to the amount then duesuch Lender. If and to the extent Borrowers do not make suchpayment in full to Agent on the date when due, each Lenderseverally shall repay to Agent on demand such amount distributedto such Lender, together with interest thereon at the DefaultingLender Rate for each day from the date such amount is distributedto such Lender until the date repaid.

(b) APPORTIONMENT AND APPLICATION.

(i) Except as otherwise provided with respect toDefaulting Lenders and except as otherwise provided in the LoanDocuments (including letter agreements between Agent andindividual Lenders), aggregate principal and interest paymentsshall be apportioned ratably among the Lenders (according to theunpaid principal balance of the Obligations to which such paymentsrelate held by each Lender) and payments of fees and expenses(other than fees or expenses that are for Agent's separateaccount, after giving effect to any letter agreements betweenAgent and individual Lenders) shall be apportioned ratably amongthe Lenders having a Pro Rata Share of the type of Commitment orObligation to which a particular payment relates. All paymentsshall be remitted to Agent and all such payments not relating toprincipal or interest of specific Obligations (other than paymentsconstituting the payment of specific fees), and all proceeds ofAccounts or other Collateral received by Agent, shall be appliedas follows:

A. first, to pay any Lender GroupExpenses then due to Agent under the Loan Documents,until paid in full,

B. second, to pay any Lender GroupExpenses then due to the Lenders under the LoanDocuments, on a ratable basis, until paid in full,

C. third, to pay any fees then due toAgent (for its separate account, after giving effectto any letter agreements between Agent and theindividual Lenders) under the Loan Documents untilpaid in full,

42

44D. fourth, to pay any fees then due to

any or all of the Lenders (after giving effect toany letter agreements between Agent and individualLenders) under the Loan Documents, on a ratablebasis, until paid in full,

E. fifth, to pay interest due inrespect of all Agent Advances, until paid in full,

F. sixth, ratably to pay interest duein respect of the Advances (other than AgentAdvances) until paid in full,

G. seventh, so long as no Event ofDefault has occurred and is continuing or, if anEvent of Default has occurred and is continuing andAgent agrees in its sole discretion, to pay interestdue in respect of the Term Loans until paid in full(if an Event of Default has occurred and iscontinuing, the priority of the payment of intereston the Term Loan Amount, including the Term Loan BPIK Amount, is deferred to item "thirteenth" below),

H. eighth, to pay the principal of allAgent Advances until paid in full,

I. ninth, so long as no Event ofDefault has occurred and is continuing or, if anEvent of Default has occurred and is continuing andAgent agrees in its sole discretion, to payscheduled principal payments due in respect of the



Term Loans until paid in full (if an Event ofDefault has occurred and is continuing, the priorityof payment of scheduled principal payments isdeferred to item "fourteenth" below),

J. tenth, to pay the principal of allAdvances until paid in full,

K. eleventh, if an Event of Defaulthas occurred and is continuing, to Agent, to be heldby Agent, for the ratable benefit of Issuing Lenderand those Lenders having a Revolver Commitment, ascash collateral in an amount up to 105% of the thenextant Letter of Credit Usage until paid in full,

L. twelfth, if an Event of Default hasoccurred and is continuing, to pay any fees then dueto any or all of the Lenders under the LoanDocuments, on a ratable basis, until paid in full,

M. thirteenth, if an Event of Defaulthas occurred and is continuing, to pay interest duein respect of the Term Loans, including the TermLoan B PIK Amount, until paid in full,

43

45N. fourteenth, if an Event of Default

has occurred and is continuing, to pay theoutstanding principal balance of the Term Loansuntil the Term Loans are paid in full,

O. fifteenth, to pay any otherObligations until paid in full, and

P. sixteenth, to Borrowers (to bewired to the Designated Account) or such otherPerson entitled thereto under applicable law.

(ii) Agent promptly shall distribute to each Lender,pursuant to the applicable wire instructions received from eachLender in writing, such funds as it may be entitled to receive,subject to a Settlement delay as provided in Section 2.3(d).

(iii) In each instance, so long as no Default orEvent of Default has occurred and is continuing, Section 2.4(b)shall not be deemed to apply to any payment by Borrowers specifiedby Borrowers to be for the payment of specific Obligations thendue and payable (or prepayable) under any provision of thisAgreement.

(iv) For purposes of the foregoing, "paid in full"means payment of all amounts owing under the Loan Documentsaccording to the terms thereof, including loan fees, service fees,professional fees, interest (and specifically including interestaccrued after the commencement of any Insolvency Proceeding),default interest, interest on interest, and expensereimbursements, whether or not the same would be or is allowed ordisallowed in whole or in part in any Insolvency Proceeding.

(v) In the event of a direct conflict between thepriority provisions of this Section 2.4 and other provisionscontained in any other Loan Document, it is the intention of theparties hereto that such priority provisions in such documentsshall be read together and construed, to the fullest extentpossible, to be in concert with each other. In the event of anyactual, irreconcilable conflict that cannot be resolved asaforesaid, the terms and provisions of this Section 2.4 shallcontrol and govern.

2.5 OVERADVANCES AND PREPAYMENTS. If, at any time or for any reason,(i) the amount of Obligations owed by Borrowers to the Lender Group pursuant toSections 2.1 and 2.12 is greater than either the Dollar or percentagelimitations set forth in Sections 2.1 or 2.12, or (ii) the Obligations aregreater than 130% of Borrowers' Collections for the immediately preceding 90-day



period (in each case, an "Overadvance"), in each case, Borrowers immediatelyshall pay to Agent, in cash, the amount of such excess, which amount shall beused by Agent to reduce the Obligations in accordance with the priorities setforth in Section 2.4(b). In addition, Borrowers hereby promise to pay theObligations

44

46(including principal, interest, fees, costs, and expenses) in Dollars in full tothe Lender Group as and when due and payable under the terms of this Agreementand the other Loan Documents.

(b) Upon any Disposition by any Borrower or its Subsidiaries,Borrowers promptly (and in any event within 2 Business Days) shall pay to Agent,in cash, an amount equal to 100% of the Net Proceeds received by such Person inconnection with such Disposition to the extent that the aggregate amount of NetProceeds received by all Borrowers and their Subsidiaries shall exceed for allsuch Dispositions since the Closing Date $250,000, which amount shall be appliedby Agent in accordance with Section 2.5(f). Nothing contained in this subsection(b) shall permit any Borrower or any of its Subsidiaries to make a Dispositionof any property other than in accordance with Section 7.4.

(c) Upon the loss, destruction or taking by condemnation of anyCollateral, Borrowers promptly (and in any event within 2 Business Days) shallpay to Agent, in cash, an amount equal to 100% of the insurance or otherproceeds received by any Borrower or any of its Subsidiaries in connectiontherewith, net of any reasonable expenses incurred in collecting such netproceeds, which amount shall be applied by Agent in accordance with Section2.5(f), except to the extent such proceeds are disbursed by Agent pursuant toSection 6.8(b).

(d) Upon the receipt by any Borrower or any of its Subsidiaries ofany tax refund or the proceeds of any judgment, settlement or otherconsideration of any kind in connection with any cause of action, Borrowerspromptly (and in any event within 2 Business Days) shall pay to Agent, in cash,an amount equal to 100% of the net proceeds received, which amount shall beapplied by Agent in accordance with Section 2.5(f).

(e) Upon the receipt of any Collections from the Account Debtorsset forth on Schedule 2.5(e) with respect to the Accounts of such AccountDebtors existing on the date hereof, Borrowers promptly (and in any event within2 Business Days) shall pay to Agent, in cash, an amount equal to (i) prior tothe date six months after the Closing Date, 50% and (ii) from and after the datesix months after the Closing Date, 100%, of such Collections received, whichamount shall be applied by Agent in accordance with Section 2.5(f).

(f) Prepayments received by Agent pursuant to this Section 2.5shall be applied, so long as no Event of Default shall have occurred and becontinuing, (i) first, to pay the principal of Term Loan A until paid in full,such payments to be applied to the scheduled payments of the Term Loan A inorder of maturity, (ii) second, to pay the principal of Term Loan B until paidin full, such payments to be applied to the scheduled payments of the Term LoanB in order of maturity, and (iii) third, to pay the principal amount of allAgent Advances until paid in full, (iv) fourth, to pay the principal of allAdvances until paid in full and (v) fifth, in accordance with Section 2.4(b). Ifan Event of Default shall have occurred and be continuing, prepayments receivedby Agent pursuant to this Section 2.5 shall be applied at the discretion of theAgent (x) in accordance with the first

45

47sentence of this subsection (f) or (y) to the Advances or the Term Loans,provided that Agent shall establish a permanent reserve with respect to theAdvances made to Borrowers pursuant to Section 2.1(b) equal to the amount of anysuch prepayment of Advances.

2.6 INTEREST RATES AND LETTER OF CREDIT FEE RATES, PAYMENTS, ANDCALCULATIONS.

(a) INTEREST RATES. Except as provided in clause (c) below,

(i) all Obligations (except for undrawn Letters ofCredit and the Term Loan Amount) that have been chargedto the Loan Account pursuant to the terms hereof shall



bear interest on the Daily Balance thereof at a per annumrate equal to the greater of (A) during any calendarmonth, (1) if Term Loans are outstanding at any timeduring such month, a per annum rate equal to the BaseRate plus 2%, or, (2) if the Term Loans are fully paidprior to the first day of such month, a per annum rateequal to the Base Rate plus 1%, and (B) 8%;

(ii) the Term Loan A Amount shall bear interest onthe amount thereof outstanding from time to time at a perannum rate equal to the greater of (A) the Base Rate plus3% and (B) 10% (to the extent that interest accruedhereunder at the rate set forth herein would be less thanthe foregoing minimum daily rate, the interest ratechargeable hereunder for such day automatically shall bedeemed increased to such minimum rate)

(iii) the Term Loan B Amount (inclusive of any TermLoan B PIK Amount) shall bear interest on the amountthereof outstanding from time to time at a per annum rateequal to the greater of (A) (1) prior to the firstanniversary of the Closing Date, the Base Rate plus 7%or, (2) from and after the first anniversary of ClosingDate, if the Term Loan B is not fully paid on or beforesuch first anniversary, then a per annum rate equal tothe Base Rate plus 9%, and (B) (1) prior to the firstanniversary of the Closing Date, 14% (2) from and afterthe first anniversary of the Closing Date, if the TermLoan B is not paid in full prior to such firstanniversary, then 16% (to the extent that interestaccrued hereunder at the rate set forth herein would beless than the foregoing minimum daily rates set forth inclauses (B)(1) or (B)(2), the interest rate chargeablehereunder for such day automatically shall be deemedincreased to the minimum rate); provided, however, that,so long as no Event of Default has occurred and iscontinuing, that portion of such interest equal to 3% perannum shall, in the absence of an

46

48election by Borrowers to pay such interest in cash, bepaid-in-kind by being added to the principal balance ofthe Term Loan Amount (inclusive of any Term Loan B PIKAmount theretofore so added); provided, further, however,that Borrower may, on or prior to the date that is 5Business Days prior to the due date thereof, elect to payall accrued and unpaid interest under this Section2.6(a)(iii) in cash.

(b) LETTER OF CREDIT FEE. Borrowers, jointly and severally, shallpay Agent (for the ratable benefit of the Lenders with a Revolver Commitment,subject to any letter agreement between Agent and individual Lenders), a Letterof Credit fee (in addition to the charges, commissions, fees, and costs setforth in Section 2.12(e)) which shall accrue at a rate equal to 1.5% per annummultiplied by the Daily Balance of the undrawn amount of all outstanding Lettersof Credit.

(c) DEFAULT RATE. Upon the occurrence and during the continuationof an Event of Default (and at the election of Agent or the Required Lenders),

(i) all Obligations (except for undrawn Letters ofCredit ) that have been charged to the Loan Account pursuant tothe terms hereof shall bear interest on the Daily Balance thereofat a per annum rate equal to 3% above the per annum rate otherwiseapplicable hereunder, and

(ii) the Letter of Credit fee provided for aboveshall be increased to 3% above the per annum rate otherwiseapplicable hereunder.

(d) PAYMENT. Interest, Letter of Credit fees, and all other feespayable hereunder shall be due and payable, in arrears, on the first day of eachmonth at any time that Obligations or Commitments are outstanding. Borrowers



hereby authorize Agent, from time to time, without prior notice to Borrowers,to, and Agent agrees that it will, charge such interest and fees, all LenderGroup Expenses (as and when incurred), the charges, commissions, fees, and costsprovided for in Section 2.12(e) (as and when accrued or incurred), the fees andcosts provided for in Section 2.11 (as and when accrued or incurred), and allother payments as and when due and payable under any Loan Document (includingthe installments due and payable with respect to the Term Loans) to Borrowers'Loan Account, which amounts thereafter constitute Obligations hereunder andshall accrue interest at the rate then applicable thereto. Any interest not paidwhen due shall be compounded by being charged to Borrowers' Loan Account andshall thereafter constitute Obligations hereunder and shall accrue interest atthe rate then applicable thereto.

(e) COMPUTATION. All interest and fees chargeable under the LoanDocuments shall be computed on the basis of a 360 day year for the actual numberof days elapsed. In the event the Base Rate is changed from time to timehereafter, the rates of

47

49interest hereunder based upon the Base Rate automatically and immediately shallbe increased or decreased by an amount equal to such change in the Base Rate.

(f) INTENT TO LIMIT CHARGES TO MAXIMUM LAWFUL RATE. In no eventshall the interest rate or rates payable under this Agreement, plus any otheramounts paid in connection herewith, exceed the highest rate permissible underany law that a court of competent jurisdiction shall, in a final determination,deem applicable. Borrowers and the Lender Group, in executing and deliveringthis Agreement, intend legally to agree upon the rate or rates of interest andmanner of payment stated within it; provided, however, that, anything containedherein to the contrary notwithstanding, if said rate or rates of interest ormanner of payment exceeds the maximum allowable under applicable law, then, ipsofacto, as of the date of this Agreement, Borrowers are and shall be liable onlyfor the payment of such maximum as allowed by law, and payment received fromBorrowers in excess of such legal maximum, whenever received, shall be appliedto reduce the principal balance of the Obligations to the extent of such excess.

2.7 CASH MANAGEMENT.

(a) Borrowers shall (i) establish and maintain cash managementservices of a type and on terms reasonably satisfactory to Agent at one or moreof the banks set forth on Schedule 2.7 (each a "Cash Management Bank"), andshall request in writing and otherwise take such reasonable steps to ensure thatall of its Account Debtors forward payment of the amounts owed by them directlyto such Cash Management Bank, and (ii) deposit or cause to be depositedpromptly, and in any event no later than the first Business Day after the dateof receipt thereof, all Collections (including those sent directly by AccountDebtors to a Cash Management Bank) into a bank account in Agent's name (a "CashManagement Account") at one of the Cash Management Banks.

(b) Each Cash Management Bank shall establish and maintain CashManagement Agreements with Agent and Borrowers, in form and substance acceptableto Agent. Each such Cash Management Agreement shall provide, among other things,that (i) all items of payment deposited in such Cash Management Account andproceeds thereof are held by such Cash Management Bank as agent orbailee-in-possession for Agent, (ii) the Cash Management Bank has no rights ofsetoff or recoupment or any other claim against the applicable Cash ManagementAccount, other than for payment of its service fees and other charges directlyrelated to the administration of such Cash Management Account and for returnedchecks or other items of payment, and (iii) it immediately will forward by dailysweep all amounts in the applicable Cash Management Account to the Agent'sAccount.

(c) So long as no Default or Event of Default has occurred and iscontinuing, Administrative Borrower may amend Schedule 2.7 to add or replace aCash Management Account Bank or Cash Management Account; provided, however, that(i) such prospective Cash Management Bank shall be satisfactory to Agent andAgent shall have consented in writing in advance to the opening of such CashManagement Account with the prospective Cash Management Bank, and (ii) prior tothe time of the opening of such Cash

48

50Management Account, Borrowers and such prospective Cash Management Bank shall



have executed and delivered to Agent a Cash Management Agreement. Borrowersshall close any of their Cash Management Accounts (and establish replacementcash management accounts in accordance with the foregoing sentence) promptly andin any event within 30 days of notice from Agent that the creditworthiness ofany Cash Management Bank is no longer acceptable in Agent's reasonable judgment,or as promptly as practicable and in any event within 60 days of notice fromAgent that the operating performance, funds transfer, or availability proceduresor performance of the Cash Management Bank with respect to Cash ManagementAccounts or Agent's liability under any Cash Management Agreement with such CashManagement Bank is no longer acceptable in Agent's reasonable judgment.

(d) The Cash Management Accounts shall be cash collateralaccounts, with all cash, checks and similar items of payment in such accountssecuring payment of the Obligations, and in which Borrowers are hereby deemed tohave granted a Lien to Agent.

2.8 CREDITING PAYMENTS; FLOAT CHARGE. The receipt of any payment itemby Agent (whether from transfers to Agent by the Cash Management Banks pursuantto the Cash Management Agreements or otherwise) shall not be considered apayment on account unless such payment item is a wire transfer of immediatelyavailable federal funds made to the Agent's Account or unless and until suchpayment item is honored when presented for payment. Should any payment item notbe honored when presented for payment, then Borrowers shall be deemed not tohave made such payment and interest shall be calculated accordingly. Anything tothe contrary contained herein notwithstanding, any payment item shall be deemedreceived by Agent only if it is received into the Agent's Account on a BusinessDay on or before 11:00 a.m. (California time). If any payment item is receivedinto the Agent's Account on a non-Business Day or after 11:00 a.m. (Californiatime) on a Business Day, it shall be deemed to have been received by Agent as ofthe opening of business on the immediately following Business Day. From andafter the Closing Date, Agent shall be entitled to charge Borrowers for oneBusiness Day of 'clearance' or 'float' at the rate applicable under Section 2.6on all Collections that are received by Borrowers (regardless of whetherforwarded by the Cash Management Banks to Agent). This across-the-board oneBusiness Day clearance or float charge on all Collections is acknowledged by theparties to constitute an integral aspect of the pricing of the financing ofBorrowers and shall apply irrespective of whether or not there are anyoutstanding monetary Obligations; the effect of such clearance or float chargebeing the equivalent of charging one Business Day of interest on suchCollections.

2.9 DESIGNATED ACCOUNT. Agent is authorized to make the Advances andthe Term Loan, and Issuing Lender is authorized to issue the Letters of Credit,under this Agreement based upon telephonic or other instructions received fromanyone purporting to be an Authorized Person, or without instructions ifpursuant to Section 2.6(d). Administrative Borrower agrees to establish andmaintain the Designated Account with the Designated Account Bank for the purposeof receiving the proceeds of the Advances requested by Borrowers and made byAgent or the Lenders hereunder. So long as no Default or Event of Default hasoccurred and is continuing, Administrative Borrower may add or

49

51replace, the Designated Account Bank or the Designated Account on 30 days priorwritten notice to Agent; provided, however, that (i) such prospective DesignatedAccount Bank shall be satisfactory to Agent and Agent shall have consented inwriting in advance to the opening of such Designated Account with theprospective Designated Account Bank, and (ii) prior to the time of the openingof such Designated Account, Borrowers and such prospective Designated AccountBank shall have executed and delivered to Agent a Control Agreement. Unlessotherwise agreed by Agent and Administrative Borrower, any Advance or AgentAdvance requested by Borrowers and made by Agent or the Lenders hereunder shallbe made to the Designated Account.

2.10 MAINTENANCE OF LOAN ACCOUNT; STATEMENTS OF OBLIGATIONS. Agentshall maintain an account on its books in the name of Borrowers (the "LoanAccount") on which Borrowers will be charged with the Term Loan, all Advances(including Agent Advances) made by Agent or the Lenders to Borrowers or forBorrowers' account, the Letters of Credit issued by Issuing Lender forBorrowers' account, and with all other payment Obligations hereunder or underthe other Loan Documents, including, accrued interest, fees and expenses, andLender Group Expenses. In accordance with Section 2.8, the Loan Account will becredited with all payments received by Agent from Borrowers or for Borrowers'account, including all amounts received in the Agent's Account from any CashManagement Bank. Agent shall render statements regarding the Loan Account to



Administrative Borrower, including principal, interest, fees, and including anitemization of all charges and expenses constituting Lender Group Expensesowing, and such statements shall be conclusively presumed to be correct andaccurate and constitute an account stated between Borrowers and the Lender Groupunless, within 30 days after receipt thereof by Administrative Borrower,Administrative Borrower shall deliver to Agent written objection theretodescribing the error or errors contained in any such statements.

2.11 FEES. Borrowers shall pay to Agent the following fees and charges,which fees and charges shall be non-refundable when paid (irrespective ofwhether this Agreement is terminated thereafter) and shall be apportioned amongthe Lenders in accordance with the terms of letter agreements between Agent andindividual Lenders:

(a) UNUSED LINE FEE. On the first day of each month during theterm of this Agreement, an unused line fee in the amount equal to 0.375% perannum times the result of (a) the Maximum Revolver Amount, less (b) the sum of(i) the average Daily Balance of Advances that were outstanding during theimmediately preceding month, plus (ii) the average Daily Balance of the Letterof Credit Usage during the immediately preceding month,

(b) FEE LETTER FEES. As and when due and payable under the termsof the Fee Letter, Borrowers shall pay to Agent the fees (including any fees tobe paid in the form of warrants) set forth in the Fee Letter, and

50

52(c) AUDIT, APPRAISAL, AND VALUATION CHARGES. For the separate

account of Agent, audit, appraisal, and valuation fees and charges as follows,(i) a fee of $850 per day, per auditor, plus reasonable out-of-pocket expensesfor each financial audit of a Borrower performed by personnel employed by anyLender, provided, however, that so long as no Event of Default shall haveoccurred and be continuing, Borrower shall not be obligated to pay such fees andexpenses in respect of more than four financial audits of Borrower in anycalendar year, (ii) if implemented, a one time charge of $3,000 plusout-of-pocket expenses for expenses for the establishment of electroniccollateral reporting systems, (iii) except for the limitation provided herein, afee of $1,500 per day per appraiser, plus reasonable out-of-pocket expenses, foreach appraisal of the Collateral performed by personnel employed by any Lender,and (iv) the actual charges paid or incurred by any Lender if it elects toemploy the services of one or more third Persons to perform financial audits ofBorrowers, to appraise the Collateral, or any portion thereof, or to assess aBorrower's business valuation, provided, however, that so long as no Event ofDefault shall have occurred and be continuing, Borrower shall not be obligatedto pay such fees and expenses in respect of more than one enterprise valuationduring any 12-month period or any such evaluation after the Term Loan has beenpaid in full.

2.12 LETTERS OF CREDIT

(a) Subject to the terms and conditions of this Agreement, theIssuing Lender agrees to issue letters of credit for the account of Borrowers(each, an "L/C") or to purchase participations or execute indemnities orreimbursement obligations (each such undertaking, an "L/C Undertaking") withrespect to letters of credit issued by an Underlying Issuer (as of the ClosingDate, the prospective Underlying Issuer is to be Wells Fargo) for the account ofBorrowers. To request the issuance of an L/C or an L/C Undertaking (or theamendment, renewal, or extension of an outstanding L/C or L/C Undertaking),Administrative Borrower shall hand deliver or telecopy (or transmit byelectronic communication, if arrangements for doing so have been approved by theIssuing Lender) to the Issuing Lender and Agent (reasonably in advance of therequested date of issuance, amendment, renewal, or extension) a noticerequesting the issuance of an L/C or L/C Undertaking, or identifying the L/C orL/C Undertaking to be amended, renewed, or extended, the date of issuance,amendment, renewal, or extension, the date on which such L/C or L/C Undertakingis to expire, the amount of such L/C or L/C Undertaking, the name and address ofthe beneficiary thereof (or of the Underlying Letter of Credit, as applicable),and such other information as shall be necessary to prepare, amend, renew, orextend such L/C or L/C Undertaking. If requested by the Issuing Lender,Borrowers also shall be an applicant under the application with respect to anyUnderlying Letter of Credit that is to be the subject of an L/C Undertaking. TheIssuing Lender shall have no obligation to issue a Letter of Credit if any ofthe following would result after giving effect to the requested Letter ofCredit:



(i) the Adjusted Letter of Credit Usage would exceedthe Borrowing Base less the then extant amount of outstandingAdvances, or

51

53(ii) the Letter of Credit Usage would exceed

$6,000,000, or

(iii) the Letter of Credit Usage would exceed theMaximum Revolver Amount less the then extant amount of outstandingAdvances.

Borrowers and the Lender Group acknowledge and agree that certainUnderlying Letters of Credit may be issued to support letters of credit thatalready are outstanding as of the Closing Date. Each Letter of Credit (andcorresponding Underlying Letter of Credit) shall have an expiry date no laterthan 30 days prior to the Maturity Date and all such Letters of Credit (andcorresponding Underlying Letter of Credit) shall be in form and substanceacceptable to the Issuing Lender (in the exercise of its Permitted Discretion),including the requirement that the amounts payable thereunder must be payable inDollars. If Issuing Lender is obligated to advance funds under a Letter ofCredit, Borrowers immediately shall reimburse such L/C Disbursement to IssuingLender by paying to Agent an amount equal to such L/C Disbursement not laterthan 11:00 a.m., California time, on the date that such L/C Disbursement ismade, if Administrative Borrower shall have received written or telephonicnotice of such L/C Disbursement prior to 10:00 a.m., California time, on suchdate, or, if such notice has not been received by Administrative Borrower priorto such time on such date, then not later than 11:00 a.m., California time, on(i) the Business Day that Administrative Borrower receives such notice, if suchnotice is received prior to 10:00 a.m., California time, on the date of receipt,and, in the absence of such reimbursement, the L/C Disbursement immediately andautomatically shall be deemed to be an Advance hereunder and, thereafter, shallbear interest at the rate then applicable to Advances under Section 2.6. To theextent an L/C Disbursement is deemed to be an Advance hereunder, Borrowers'obligation to reimburse such L/C Disbursement shall be discharged and replacedby the resulting Advance. Promptly following receipt by Agent of any paymentfrom Borrowers pursuant to this paragraph, Agent shall distribute such paymentto the Issuing Lender or, to the extent that Lenders have made payments pursuantto Section 2.12(c) to reimburse the Issuing Lender, then to such Lenders and theIssuing Lender as their interest may appear.

(b) Promptly following receipt of a notice of L/C Disbursementpursuant to Section 2.12(a), each Lender with a Revolver Commitment agrees tofund its Pro Rata Share of any Advance deemed made pursuant to the foregoingsubsection on the same terms and conditions as if Borrowers had requested suchAdvance and Agent shall promptly pay to Issuing Lender the amounts so receivedby it from the Lenders. By the issuance of a Letter of Credit (or an amendmentto a Letter of Credit increasing the amount thereof) and without any furtheraction on the part of the Issuing Lender or the Lenders with RevolverCommitment, the Issuing Lender shall be deemed to have granted to each Lenderwith a Revolver Commitment, and each Lender with a Revolver Commitment shall bedeemed to have purchased, a participation in each Letter of Credit, in an amountequal to its Pro Rata Share of the Risk Participation Liability of such Letterof Credit, and each such Lender agrees to pay to Agent, for the account of theIssuing Lender, such Lender's Pro Rata Share of any payments made by the IssuingLender under such Letter of Credit. In consideration and in furtherance of theforegoing, each Lender with a Revolver Commitment hereby

52

54absolutely and unconditionally agrees to pay to Agent, for the account of theIssuing Lender, such Lender's Pro Rata Share of each L/C Disbursement made bythe Issuing Lender and not reimbursed by Borrowers on the date due as providedin clause (a) of this Section, or of any reimbursement payment required to berefunded to Borrowers for any reason. Each Lender with a Revolver Commitmentacknowledges and agrees that its obligation to deliver to Agent, for the accountof the Issuing Lender, an amount equal to its respective Pro Rata Share pursuantto this Section 2.12(b) shall be absolute and unconditional and such remittanceshall be made notwithstanding the occurrence or continuation of an Event ofDefault or Default or the failure to satisfy any condition set forth in Section3 hereof. If any such Lender fails to make available to Agent the amount of suchLender's Pro Rata Share of any payments made by the Issuing Lender in respect ofsuch Letter of Credit as provided in this Section, Agent (for the account of the



Issuing Lender) shall be entitled to recover such amount on demand from suchLender together with interest thereon at the Defaulting Lender Rate until paidin full.

(c) Each Borrower hereby agrees to indemnify, save, defend, andhold the Lender Group harmless from any loss, cost, expense, or liability, andreasonable attorneys fees incurred by the Lender Group arising out of or inconnection with any Letter of Credit; provided, however, that no Borrower shallbe obligated hereunder to indemnify for any loss, cost, expense, or liabilitythat is caused by the gross negligence or willful misconduct of the IssuingLender or any other member of the Lender Group. Each Borrower agrees to be boundby the Underlying Issuer's regulations and interpretations of any UnderlyingLetter of Credit or by Issuing Lender's interpretations of any L/C issued byIssuing Lender to or for such Borrower's account, even though thisinterpretation may be different from such Borrower's own, and each Borrowerunderstands and agrees that the Lender Group shall not be liable for any error,negligence, or mistake, whether of omission or commission, in followingBorrowers' instructions or those contained in the Letter of Credit or anymodifications, amendments, or supplements thereto. Each Borrower understandsthat the L/C Undertakings may require Issuing Lender to indemnify the UnderlyingIssuer for certain costs or liabilities arising out of claims by Borrowersagainst such Underlying Issuer. Each Borrower hereby agrees to indemnify, save,defend, and hold the Lender Group harmless with respect to any loss, cost,expense (including reasonable attorneys fees), or liability incurred by theLender Group under any L/C Undertaking as a result of the Lender Group'sindemnification of any Underlying Issuer; provided, however, that no Borrowershall be obligated hereunder to indemnify for any loss, cost, expense, orliability that is caused by the gross negligence or willful misconduct of theIssuing Lender or any other member of the Lender Group.

(d) Each Borrower hereby authorizes and directs any UnderlyingIssuer to deliver to the Issuing Lender all instruments, documents, and otherwritings and property received by such Underlying Issuer pursuant to suchUnderlying Letter of Credit and to accept and rely upon the Issuing Lender'sinstructions with respect to all matters arising in connection with suchUnderlying Letter of Credit and the related application.

53

55(e) Any and all charges, commissions, fees, and costs incurred by

the Issuing Lender relating to Underlying Letters of Credit shall be LenderGroup Expenses for purposes of this Agreement and immediately shall bereimbursable by Borrowers to Agent for the account of the Issuing Lender; itbeing acknowledged and agreed by each Borrower that, as of the Closing Date, theissuance charge imposed by the prospective Underlying Issuer is .825% per annumtimes the face amount of each Underlying Letter of Credit, that such issuancecharge may be changed from time to time, and that the Underlying Issuer alsoimposes a schedule of charges for amendments, extensions, drawings, andrenewals.

(f) If by reason of (i) any change in any applicable law, treaty,rule, or regulation or any change in the interpretation or application thereofby any Governmental Authority, or (ii) compliance by the Underlying Issuer orthe Lender Group with any direction, request, or requirement (irrespective ofwhether having the force of law) of any Governmental Authority or monetaryauthority including, Regulation D of the Federal Reserve Board as from time totime in effect (and any successor thereto):

(i) any reserve, deposit, or similar requirement isor shall be imposed or modified in respect of any Letter of Creditissued hereunder, or

(ii) there shall be imposed on the Underlying Issueror the Lender Group any other condition regarding any UnderlyingLetter of Credit or any Letter of Credit issued pursuant hereto;

and the result of the foregoing is to increase, directly or indirectly, the costto the Lender Group of issuing, making, guaranteeing, or maintaining any Letterof Credit or to reduce the amount receivable in respect thereof by the LenderGroup, then, and in any such case, Agent may, at any time within a reasonableperiod after the additional cost is incurred or the amount received is reduced,notify Administrative Borrower, and Borrowers shall pay on demand such amountsas Agent may specify to be necessary to compensate the Lender Group for suchadditional cost or reduced receipt, together with interest on such amount fromthe date of such demand until payment in full thereof at the rate then



applicable to Advances hereunder. The determination by Agent of any amount duepursuant to this Section, as set forth in a certificate setting forth thecalculation thereof in reasonable detail, shall, in the absence of manifest ordemonstrable error, be final and conclusive and binding on all of the partieshereto.

2.13 CAPITAL REQUIREMENTS. If, after the date hereof, any Lenderdetermines that (i) the adoption of or change in any law, rule, regulation orguideline regarding capital requirements for banks or bank holding companies, orany change in the interpretation or application thereof by any GovernmentalAuthority charged with the administration thereof, or (ii) compliance by suchLender or its parent bank holding company with any guideline, request ordirective of any such entity regarding capital adequacy (whether or not havingthe force of law), will have the effect of reducing the return on such Lender'sor such holding company's capital as a consequence of such Lender's Commitmentshereunder to a level

54

56below that which such Lender or such holding company could have achieved but forsuch adoption, change, or compliance (taking into consideration such Lender's orsuch holding company's then existing policies with respect to capital adequacyand assuming the full utilization of such entity's capital) by any amount deemedby such Lender to be material, then such Lender may notify AdministrativeBorrower and Agent thereof. Following receipt of such notice, Borrowers agree topay such Lender on demand the amount of such reduction of return of capital asand when such reduction is determined, payable within 90 days after presentationby such Lender of a statement in the amount and setting forth in reasonabledetail such Lender's calculation thereof and the assumptions upon which suchcalculation was based (which statement shall be deemed true and correct absentmanifest error). In determining such amount, such Lender may use any reasonableaveraging and attribution methods.

2.14 JOINT AND SEVERAL LIABILITY OF BORROWERS.

(a) Each Borrower is accepting joint and several liabilityhereunder and under the other Loan Documents in consideration of the financialaccommodations to be provided by the Agent and the Lenders under this Agreement,for the mutual benefit, directly and indirectly, of each Borrower and inconsideration of the undertakings of the other Borrowers to accept joint andseveral liability for the Obligations.

(b) Each Borrower, jointly and severally, hereby irrevocably andunconditionally accepts, not merely as a surety but also as a co-debtor, jointand several liability with the other Borrowers, with respect to the payment andperformance of all of the Obligations (including, without limitation, anyObligations arising under this Section 2.14), it being the intention of theparties hereto that all the Obligations shall be the joint and severalobligations of each Person composing Borrowers without preferences ordistinction among them.

(c) If and to the extent that any of Borrowers shall fail to makeany payment with respect to any of the Obligations as and when due or to performany of the Obligations in accordance with the terms thereof, then in each suchevent the other Persons composing Borrowers will make such payment with respectto, or perform, such Obligation.

(d) The Obligations of each Person composing Borrowers under theprovisions of this Section 2.14 constitute the absolute and unconditional, fullrecourse Obligations of each Person composing Borrowers enforceable against eachsuch Borrower to the full extent of its properties and assets, irrespective ofthe validity, regularity or enforceability of this Agreement or any othercircumstances whatsoever.

(e) Except as otherwise expressly provided in this Agreement, eachPerson composing Borrowers hereby waives notice of acceptance of its joint andseveral liability, notice of any Advances or Letters of Credit issued under orpursuant to this Agreement, notice of the occurrence of any Default, Event ofDefault, or of any demand for any payment under this Agreement, notice of anyaction at any time taken or omitted by Agent or Lenders under or in respect ofany of the Obligations, any requirement of diligence and, generally, to

55



57the extent permitted by applicable law, all demands, notices and otherformalities of every kind in connection with this Agreement (except as otherwiseprovided in this Agreement). Each Person composing Borrowers hereby assents to,and waives notice of, any extension or postponement of the time for the paymentof any of the Obligations, the acceptance of any payment of any of theObligations, the acceptance of any partial payment thereon, any waiver, consentor other action or acquiescence by Agent or Lenders at any time or times inrespect of any default by any Person composing Borrowers in the performance orsatisfaction of any term, covenant, condition or provision of this Agreement,any and all other indulgences whatsoever by Agent or Lenders in respect of anyof the Obligations, and the taking, addition, substitution or release, in wholeor in part, at any time or times, of any security for any of the Obligations orthe addition, substitution or release, in whole or in part, of any Personcomposing Borrowers. Without limiting the generality of the foregoing, eachBorrower assents to any other action or delay in acting or failure to act on thepart of any Agent or Lender with respect to the failure by any Person composingBorrowers to comply with any of its respective Obligations, including, withoutlimitation, any failure strictly or diligently to assert any right or to pursueany remedy or to comply fully with applicable laws or regulations thereunder,which might, but for the provisions of this Section 2.14 afford grounds forterminating, discharging or relieving any Person composing Borrowers, in wholeor in part, from any of its Obligations under this Section 2.14, it being theintention of each Person composing Borrowers that, so long as any of theObligations hereunder remain unsatisfied, the Obligations of such Personcomposing Borrowers under this Section 2.14 shall not be discharged except byperformance and then only to the extent of such performance. The Obligations ofeach Person composing Borrowers under this Section 2.14 shall not be diminishedor rendered unenforceable by any winding up, reorganization, arrangement,liquidation, reconstruction or similar proceeding with respect to any Personcomposing Borrowers or any Agent or Lender. The joint and several liability ofthe Persons composing Borrowers hereunder shall continue in full force andeffect notwithstanding any absorption, merger, amalgamation or any other changewhatsoever in the name, constitution or place of formation of any of the Personscomposing Borrowers or any Agent or Lender.

(f) Each Person composing Borrowers represents and warrants toAgent and Lenders that such Borrower is currently informed of the financialcondition of Borrowers and of all other circumstances which a diligent inquirywould reveal and which bear upon the risk of nonpayment of the Obligations. EachPerson composing Borrowers further represents and warrants to Agent and Lendersthat such Borrower has read and understands the terms and conditions of the LoanDocuments. Each Person composing Borrowers hereby covenants that such Borrowerwill continue to keep informed of Borrowers' financial condition, the financialcondition of other guarantors, if any, and of all other circumstances which bearupon the risk of nonpayment or nonperformance of the Obligations.

(g) The provisions of this Section 2.14 are made for the benefitof the Agent, the Lenders and their respective successors and assigns, and maybe enforced by it or them from time to time against any or all of the Personscomposing Borrowers as often as occasion therefor may arise and withoutrequirement on the part of any such Agent, Lender, successor or assign first tomarshal any of its or their claims or to exercise any of its or their

56

58rights against any of the other Persons composing Borrowers or to exhaust anyremedies available to it or them against any of the other Persons composingBorrowers or to resort to any other source or means of obtaining payment of anyof the Obligations hereunder or to elect any other remedy. The provisions ofthis Section 2.14 shall remain in effect until all of the Obligations shall havebeen paid in full or otherwise fully satisfied. If at any time, any payment, orany part thereof, made in respect of any of the Obligations, is rescinded ormust otherwise be restored or returned by any Agent or Lender upon theinsolvency, bankruptcy or reorganization of any of the Persons composingBorrowers, or otherwise, the provisions of this Section 2.15 will forthwith bereinstated in effect, as though such payment had not been made.

(h) Each of the Persons composing Borrowers hereby agrees that itwill not enforce any of its rights of contribution or subrogation against theother Persons composing Borrowers with respect to any liability incurred by ithereunder or under any of the other Loan Documents, any payments made by it tothe Agent or the Lenders with respect to any of the Obligations or anycollateral security therefor until such time as all of the Obligations have beenpaid in full in cash. Any claim which any Borrower may have against any other



Borrower with respect to any payments to any Agent or Lender hereunder or underany other Loan Documents are hereby expressly made subordinate and junior inright of payment, without limitation as to any increases in the Obligationsarising hereunder or thereunder, to the prior payment in full in cash of theObligations and, in the event of any insolvency, bankruptcy, receivership,liquidation, reorganization or other similar proceeding under the laws of anyjurisdiction relating to any Borrower, its debts or its assets, whethervoluntary or involuntary, all such Obligations shall be paid in full in cashbefore any payment or distribution of any character, whether in cash, securitiesor other property, shall be made to any other Borrower therefor.

(i) Each of the Persons composing Borrowers hereby agrees that,after the occurrence and during the continuance of any Default or Event ofDefault, the payment of any amounts due with respect to the indebtedness owingby any Borrower to any other Borrower is hereby subordinated to the priorpayment in full in cash of the Obligations. Each Borrower hereby agrees thatafter the occurrence and during the continuance of any Default or Event ofDefault, such Borrower will not demand, sue for or otherwise attempt to collectany indebtedness of any other Borrower owing to such Borrower until theObligations shall have been paid in full in cash. If, notwithstanding theforegoing sentence, such Borrower shall collect, enforce or receive any amountsin respect of such indebtedness, such amounts shall be collected, enforced andreceived by such Borrower as trustee for the Lender Group, and such Borrowershall deliver any such amounts to Agent for application to the Obligations inaccordance with Section 2.4(b).

3. CONDITIONS; TERM OF AGREEMENT.

3.1 CONDITIONS PRECEDENT TO THE INITIAL EXTENSION OF CREDIT. Theobligation of the Lender Group (or any member thereof) to make the initialAdvance or the Term Loans

57

59(or otherwise to extend any credit provided for hereunder), is subject to thefulfillment, to the satisfaction of Agent, of each of the conditions precedentset forth below:

(a) the Closing Date shall occur on or before August 3, 2001;

(b) Agent shall have received all financing statements required byAgent, duly executed by the applicable Borrowers, and Agent shall have receivedsearches reflecting the filing of all such financing statements;

(c) Agent shall have received each of the following documents, inform and substance satisfactory to Agent, duly executed, and each such documentshall be in full force and effect:

(i) the Bank Group Pay-Off Letter, together with UCCtermination statements and other documentation evidencing thetermination by Existing Lenders of the Existing Lenders' Liens inand to the properties and assets of Borrowers,

(ii) the Bank One Cash Collateral Agreement,

(iii) the Bank One Pay-Off Letter, together with UCCtermination statements and other documentation evidencing thetermination by Bank One, in its individual capacity, of its Liensin and to the properties and assets of Borrowers other than itsLiens with respect to the Headquarters Real Property,

(iv) the Cash Management Agreements,

(v) the Copyright Security Agreement,

(vi) the Disbursement Letter,

(vii) the Due Diligence Letter,

(viii) the Guarantor Security Agreements,

(ix) the Guaranties,

(x) the Fee Letter,



(xi) the Fee Split Letter,

(xii) the GEL Administrative Services Agreement,

(xiii) the Intercompany Subordination Agreement,

(xiv) the Intercompany Transfer Agreement,

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60(xv) the Michelle Equity Purchase Agreement,

(xvi) the Michelle Pay-Off Letter, together with UCCtermination statements and other documentation evidencing thetermination by Michelle Investments of its Liens in and to theproperties and assets of Borrowers,

(xvii) the Mortgages,

(xviii) the Officers' Certificate,

(xix) the Patent and Trademark Security Agreement,

(xx) the Phoenix Investors Conversion Agreement,

(xxi) the Phoenix Investors Equity PurchaseAgreement,

(xxii) the Stock Pledge Agreement, together with allcertificates representing the shares of Stock pledged thereunder,as well as Stock powers with respect thereto endorsed in blank,

(xxiii) the Wallner Subordination Agreement, and

(xxiv) the Warrants.

(d) Agent shall have received a certificate from the Secretary ofeach Borrower (i) attesting to the resolutions of such Borrower's Board ofDirectors authorizing its execution, delivery, and performance of this Agreementand the other Loan Documents to which such Borrower is a party and authorizingspecific officers of such Borrower to execute the same, and (ii) certifying thenames and true signatures of the officers of such Borrower authorized to signeach Loan Document to which such Borrower is a party;

(e) Agent shall have received copies of each Borrower's GoverningDocuments, as amended, modified, or supplemented to the Closing Date, certifiedby the Secretary of such Borrower;

(f) Agent shall have received a certificate of status with respectto each Borrower, dated within 25 days of the Closing Date, such certificate tobe issued by the appropriate officer of the jurisdiction of organization of suchBorrower, which certificate shall indicate that such Borrower is in goodstanding in such jurisdiction;

(g) Agent shall have received certificates of status with respectto each Borrower, each dated within 30 days of the Closing Date, suchcertificates to be issued by the appropriate officer of the jurisdictions (otherthan the jurisdiction of organization of such Borrower) in which its failure tobe duly qualified or licensed would constitute a Material Adverse Change, whichcertificates shall indicate that such Borrower is in good standing in suchjurisdictions;

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61(h) Agent shall have received a certificate from the Secretary of

each Guarantor (i) attesting to the resolutions of such Guarantor's Board ofDirectors authorizing its execution, delivery, and performance of the LoanDocuments to which such Guarantor is a party and authorizing specific officersof such Guarantor to execute the same, and (ii) certifying the names and truesignatures of the officers of such Guarantor authorized to sign each LoanDocument to which such Guarantor is a party;

(i) Agent shall have received copies of each Guarantor's GoverningDocuments, as amended, modified, or supplemented to the Closing Date, certified



by the Secretary of such Guarantor;

(j) Agent shall have received a certificate of status with respectto each Guarantor, dated within 25 days of the Closing Date, such certificate tobe issued by the appropriate officer of the jurisdiction of organization of suchGuarantor, which certificate shall indicate that such Guarantor is in goodstanding in such jurisdiction;

(k) Agent shall have received certificates of status with respectto each Guarantor, each dated within 30 days of the Closing Date, suchcertificates to be issued by the appropriate officer of the jurisdictions (otherthan the jurisdiction of organization of such Guarantor) in which its failure tobe duly qualified or licensed would constitute a Material Adverse Change, whichcertificates shall indicate that such Guarantor is in good standing in suchjurisdictions;

(l) Agent shall have received a certificate of insurance, togetherwith the endorsements thereto, as are required by Section 6.8, the form andsubstance of which shall be satisfactory to Agent;

(m) Agent shall have received Collateral Access Agreements withrespect to the following locations: (i) St. Louis, Missouri, and (ii) Phoenix,Arizona;

(n) Agent shall have received opinions of (i) Borrowers' counseland (ii) Borrower's Missouri local counsel, each in form and substancesatisfactory to Agent;

(o) Agent shall have received satisfactory evidence (including acertificate of the chief financial officer of Parent) that all tax returnsrequired to be filed by Borrowers and Guarantors have been timely filed and alltaxes upon Borrowers, Guarantors or their respective properties, assets, income,and franchises (including Real Property taxes and payroll taxes) have been paidprior to delinquency, except such taxes that are the subject of a PermittedProtest;

(p) Borrowers shall have the Required Availability after givingeffect to the initial extensions of credit hereunder;

(q) Agent shall have completed its business, legal, and collateraldue diligence, including (i) a collateral audit and review of Borrowers' booksand records and verification of Borrowers' representations and warranties to theLender Group, the results of

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62which shall be satisfactory to Agent, (ii) an inspection of each of thelocations where Inventory or Equipment is located and (iii) an audit and reviewof Borrower's management information systems and controls, the results of whichshall be satisfactory to Agent;

(r) Agent shall have received completed reference checks withrespect to Borrowers' senior management, the results of which are satisfactoryto Agent in its sole discretion;

(s) Agent shall have received an appraisal of the Net Auction SaleValue applicable to Borrowers' Inventory, the results of which shall besatisfactory to Agent;

(t) Agent shall have received Borrowers' Closing Date BusinessPlan;

(u) Borrowers shall pay all Lender Group Expenses incurred inconnection with the transactions evidenced by this Agreement;

(v) Parent shall have received aggregate gross proceeds of atleast $7,500,000 pursuant to the Phoenix Investors Equity Purchase Agreement;

(w) Borrowers shall have received all licenses, approvals orevidence of other actions required by any Governmental Authority in connectionwith the execution and delivery by Borrowers of this Agreement or any other LoanDocument or with the consummation of the transactions contemplated hereby andthereby; and

(x) all other documents and legal matters in connection with the



transactions contemplated by this Agreement shall have been delivered, executed,or recorded and shall be in form and substance satisfactory to Agent.

3.2 CONDITIONS SUBSEQUENT TO THE INITIAL EXTENSION OF CREDIT. Theobligation of the Lender Group (or any member thereof) to continue to makeAdvances (or otherwise extend credit hereunder) is subject to the fulfillment,on or before the date applicable thereto, of each of the conditions subsequentset forth below (the failure by Borrowers to so perform or cause to be performedconstituting an Event of Default):

(a) promptly following the Closing Date (but in no event laterthan 10 days after the Closing Date), Borrowers shall deliver to the InitialLenders a listing of the unencumbered assets of each of their CFCs and within 45days of the Closing Date, use their best efforts to take such action andexecute, acknowledge and deliver such further agreements, instruments or otherdocuments as any Initial Lender may reasonably require in order to subject tovalid and perfected Liens any of the assets of such CFCs, provided that InitialLenders, Parent and Borrowers agree that Parent and Borrowers shall not berequired to take any action at such time that will cause any CFC to recognize amaterial deemed dividend under Section 956 of the IRC or otherwise suffer anymaterial tax liability or which would violate any existing agreement to whichsuch CFC is a party;

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63(b) promptly following the Closing Date (but in no event later

than 5 days), Borrowers shall cooperate with Agent to file an executed originalof this Agreement (and such other Loan Documents as may be required) with theregister of companies maintained by Companies House in England and Wales;

(c) within 30 days of the Closing Date, Agent shall have receivedevidence of the cancellation of the Wallner Notes and the issuance of theWallner Replacement Note in lieu thereof;

(d) within 30 days of the Closing Date, Parent and the InitialLenders shall amend this Agreement to add a negative covenant in form andsubstance satisfactory to Parent and each Initial Lender with respect to themonthly operating expenses of Parent and its Subsidiaries with which Parent andits Subsidiaries will be required to comply until the Term Loan is paid in full;and

(e) within 30 days of the Closing Date, Parent and the Borrowerswill (i) execute and deliver a Mortgage (subject to obtaining the necessaryconsents thereto) granting a second priority Lien subordinate to the Lien ofBank One with respect to the Headquarters Real Property, which Lien will bereleased by Agent at the request of Parent if the Term Loan has been paid infull and no Event of Default shall have occurred and be continuing and (ii) usetheir best efforts to obtain all necessary consents related thereto.

3.3 CONDITIONS PRECEDENT TO ALL EXTENSIONS OF CREDIT. The obligation ofthe Lender Group (or any member thereof) to make any Advances or the Term Loans(or to extend any other credit hereunder) shall be subject to the followingconditions precedent:

(a) the representations and warranties contained in this Agreementand the other Loan Documents shall be true and correct in all material respectson and as of the date of such extension of credit, as though made on and as ofsuch date (except to the extent that such representations and warrantiesexpressly relate solely to an earlier date);

(b) no Default or Event of Default shall have occurred and becontinuing on the date of such extension of credit, nor shall either result fromthe making thereof;

(c) no injunction, writ, restraining order, or other order of anynature prohibiting, directly or indirectly, the extending of such credit shallhave been issued and remain in force by any Governmental Authority against anyBorrower, Guarantor, Agent, any Lender, or any of their Affiliates; and

(d) no Material Adverse Change shall have occurred.

3.4 TERM. This Agreement shall become effective upon the execution anddelivery hereof by Borrowers, Agent, and the Lenders and shall continue in fullforce and effect for a term ending on July 31, 2004 (the "Maturity Date"). Theforegoing notwithstanding, the Lender Group, upon the election of the Required



Lenders, shall have the

62

64right to terminate its obligations under this Agreement immediately and withoutnotice upon the occurrence and during the continuation of an Event of Default.

3.5 EFFECT OF TERMINATION. On the date of termination of thisAgreement, all Obligations (including contingent reimbursement obligations ofBorrowers with respect to any outstanding Letters of Credit) immediately shallbecome due and payable without notice or demand. No termination of thisAgreement, however, shall relieve or discharge Parent or Borrowers of theirduties, Obligations, or covenants hereunder and the Agent's Liens in theCollateral shall remain in effect until all Obligations have been fully andfinally discharged and the Lender Group's obligations to provide additionalcredit hereunder have been terminated. When this Agreement has been terminatedand all of the Obligations have been fully and finally discharged and the LenderGroup's obligations to provide additional credit under the Loan Documents havebeen terminated irrevocably, Agent will, at Borrowers' sole expense, execute anddeliver any UCC termination statements, lien releases, mortgage releases,re-assignments of trademarks, discharges of security interests, and othersimilar discharge or release documents (and, if applicable, in recordable form)as are reasonably necessary to release, as of record, the Agent's Liens and allnotices of security interests and liens previously filed by Agent with respectto the Obligations.

3.6 EARLY TERMINATION BY BORROWERS. Borrowers have the option, at anytime upon 60 days prior written notice by Administrative Borrower to Agent, toterminate this Agreement by paying to Agent, for the benefit of the LenderGroup, in cash, the Obligations (including either (i) providing cash collateralto be held by Agent for the benefit of those Lenders with a Revolver Commitmentin an amount equal to 105% of the then extant Letter of Credit Usage, or (ii)causing the original Letters of Credit to be returned to the Issuing Lender), infull, together with the Applicable Prepayment Premium (to be allocated basedupon letter agreements between Agent and individual Lenders). If AdministrativeBorrower has sent a notice of termination pursuant to the provisions of thisSection, then the Commitments shall terminate and Borrowers shall be obligatedto repay the Obligations (including either (i) providing cash collateral to beheld by Agent for the benefit of those Lenders with a Revolver Commitment in anamount equal to 105% of the then extant Letter of Credit Usage, or (ii) causingthe original Letters of Credit to be returned to the Issuing Lender), in full,together with the Applicable Prepayment Premium, on the date set forth as thedate of termination of this Agreement in such notice. In the event of thetermination of this Agreement and repayment of the Obligations at any time priorto the Maturity Date, for any other reason, including (a) termination upon theelection of the Required Lenders to terminate after the occurrence of an Eventof Default, (b) foreclosure and sale of Collateral, (c) sale of the Collateralin any Insolvency Proceeding, or (iv) restructure, reorganization or compromiseof the Obligations by the confirmation of a plan of reorganization, or any otherplan of compromise, restructure, or arrangement in any Insolvency Proceeding,then, in view of the impracticability and extreme difficulty of ascertaining theactual amount of damages to the Lender Group or profits lost by the Lender Groupas a result of such early termination, and by mutual agreement of the parties asto a reasonable estimation and calculation of the lost profits or damages of theLender Group, Borrowers shall pay the Applicable Prepayment

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65

Premium to Agent (to be allocated based upon letter agreements between Agent andindividual Lenders), measured as of the date of such termination.

4. CREATION OF SECURITY INTEREST.

4.1 GRANT OF SECURITY INTEREST. Each Borrower hereby grants to Agent,for the benefit of the Lender Group, a continuing security interest in all ofits right, title, and interest in all currently existing and hereafter acquiredor arising Personal Property Collateral in order to secure prompt repayment ofany and all of the Obligations in accordance with the terms and conditions ofthe Loan Documents and in order to secure prompt performance by Borrowers of



each of their covenants and duties under the Loan Documents. The Agent's Liensin and to the Personal Property Collateral shall attach to all Personal PropertyCollateral without further act on the part of Agent or Borrowers. Anythingcontained in this Agreement or any other Loan Document to the contrarynotwithstanding, except for Permitted Dispositions, Borrowers have no authority,express or implied, to dispose of any item or portion of the Collateral.

4.2 NEGOTIABLE COLLATERAL. In the event that any Collateral, includingproceeds, is evidenced by or consists of Negotiable Collateral, and if and tothe extent that perfection or priority of Agent's security interest is dependenton or enhanced by possession, the applicable Borrower, immediately upon therequest of Agent, shall endorse and deliver physical possession of suchNegotiable Collateral to Agent.

4.3 COLLECTION OF ACCOUNTS, GENERAL INTANGIBLES, AND NEGOTIABLECOLLATERAL. At any time after the occurrence and during the continuation of anEvent of Default Agent or Agent's designee may (a) notify Account Debtors ofBorrowers that the Accounts, chattel paper, or General Intangibles have beenassigned to Agent or that Agent has a security interest therein, or (b) collectthe Accounts, chattel paper, or General Intangibles directly and charge thecollection costs and expenses to the Loan Account. Each Borrower agrees that itwill hold in trust for the Lender Group, as the Lender Group's trustee, anyCollections that it receives and immediately will deliver said Collections toAgent or a Cash Management Bank in their original form as received by theapplicable Borrower.

4.4 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. At any time upon therequest of Agent, Parent or Borrowers shall execute and deliver to Agent, anyand all financing statements, original financing statements in lieu ofcontinuation statements, fixture filings, security agreements, pledges,assignments, endorsements of certificates of title, and all other documents (the"Additional Documents") that Agent may request in its Permitted Discretion, inform and substance satisfactory to Agent, to perfect and continue perfected orbetter perfect the Agent's Liens in the Collateral (whether now owned orhereafter arising or acquired), to create and perfect Liens in favor of Agent inany Real Property acquired after the Closing Date, and in order to fullyconsummate all of the transactions contemplated hereby and under the other LoanDocuments. To the maximum extent permitted by applicable law, Parent and eachBorrower authorizes Agent to execute any such Additional Documents in Agent's orthe applicable Borrower's name and authorize Agent to file such

64

66executed Additional Documents in any appropriate filing office. In addition, onsuch periodic basis as Agent shall require, Borrowers shall (a) provide Agentwith a report of all new patentable, copyrightable, or trademarkable materialsacquired or generated by Borrowers during the prior period, (b) cause allpatents, Copyrights, and trademarks acquired or generated by Borrowers that arenot already the subject of a registration with the appropriate filing office (oran application therefor diligently prosecuted) to be registered with suchappropriate filing office in a manner sufficient to impart constructive noticeof Borrowers' ownership thereof, and (c) cause to be prepared, executed, anddelivered to Agent supplemental schedules to the applicable Loan Documents toidentify such patents, Copyrights, and trademarks as being subject to thesecurity interests created thereunder.

4.5 POWER OF ATTORNEY. Parent and each Borrower hereby irrevocablymakes, constitutes, and appoints Agent (and any of Agent's officers, employees,or agents designated by Agent) as Parent's or such Borrower's true and lawfulattorney, with power to (a) if Parent or such Borrower refuses to, or failstimely to execute and deliver any of the documents described in Section 4.4,sign the name of Parent or such Borrower on any of the documents described inSection 4.4, (b) at any time that an Event of Default has occurred and iscontinuing, sign Parent's or such Borrower's name on any invoice or bill oflading relating to the Collateral, drafts against Account Debtors, or notices toAccount Debtors, (c) send requests for verification of Accounts, (d) endorseParent's or such Borrower's name on any Collection item that may come into theLender Group's possession, (e) at any time that an Event of Default has occurredand is continuing, make, settle, and adjust all claims under Parent's or suchBorrower's policies of insurance as to Collateral and make all determinationsand decisions with respect to such policies of insurance, and (f) at any timethat an Event of Default has occurred and is continuing, settle and adjustdisputes and claims respecting the Accounts, chattel paper, or GeneralIntangibles directly with Account Debtors, for amounts and upon terms that Agent



determines to be reasonable, and Agent may cause to be executed and deliveredany documents and releases that Agent determines to be necessary. Theappointment of Agent as Agent's or each Borrower's attorney, and each and everyone of its rights and powers, being coupled with an interest, is irrevocableuntil all of the Obligations have been fully and finally repaid and performedand the Lender Group's obligations to extend credit hereunder are terminated.

4.6 RIGHT TO INSPECT. Agent and each Lender (through any of theirrespective officers, employees, or agents) shall have the right, from time totime hereafter to inspect the Books, and the books and records of Parent, eachBorrower and each Guarantor and to check, test, and appraise the Collateral inorder to verify Parent's, Borrowers' and Guarantors' financial condition or theamount, quality, value, condition of, or any other matter relating to, theCollateral; provided however, that so long as no Event of Default has occurredwhich is continuing, any such inspection, check, test or appraisal shall beconducted during normal business hours in a manner so as not to interfereunreasonably with Parent's, any Borrower's or any Guarantor's businessoperations.

4.7 CONTROL AGREEMENTS. Parent and each Borrower agrees that it willnot (and will cause each of its Subsidiaries not to) transfer assets out of anySecurities Accounts other

65

67than as permitted under Section 7.19 and, if to another securities intermediary,unless each of the applicable Borrower (or Guarantor, as applicable), Agent, andthe substitute securities intermediary have entered into a Control Agreement. Noarrangement contemplated hereby or by any Control Agreement in respect of anySecurities Accounts or other Investment Property shall be modified by Borrowers(or Guarantors, as applicable) without the prior written consent of Agent. Uponthe occurrence and during the continuance of a Default or Event of Default,Agent may notify any securities intermediary to liquidate the applicableSecurities Account or any related Investment Property maintained or held therebyand remit the proceeds thereof to the Agent's Account.

5. REPRESENTATIONS AND WARRANTIES.

In order to induce the Lender Group to enter into thisAgreement, Parent and each Borrower makes the following representations andwarranties to the Lender Group which shall be true, correct, and complete, inall material respects, as of the date hereof, and shall be true, correct, andcomplete, in all material respects, as of the Closing Date, and at and as of thedate of the making of each Advance (or other extension of credit) madethereafter, as though made on and as of the date of such Advance (or otherextension of credit) (except to the extent that such representations andwarranties expressly relate solely to an earlier date) and such representationsand warranties shall survive the execution and delivery of this Agreement:

5.1 NO ENCUMBRANCES. Each Borrower and Guarantor has good andindefeasible title to its Collateral and its Real Property, free and clear ofLiens except for Permitted Liens.

5.2 ELIGIBLE ACCOUNTS AND ELIGIBLE FOREIGN ACCOUNTS. The EligibleAccounts and Eligible Foreign Accounts are bona fide existing paymentobligations of Account Debtors created by the sale, delivery and unconditionalacceptance of Inventory or the rendition and unconditional acceptance ofservices to such Account Debtors in the ordinary course of Borrowers' business,and such Accounts are unconditionally owed to a Borrower without defenses,disputes, offsets, counterclaims, or rights of return or cancellation. As toeach Eligible Account and each Eligible Foreign Account, such Account is notexcluded as ineligible by virtue of one or more of the excluding criteria setforth in the definition of Eligible Accounts or Eligible Foreign Accounts, asapplicable.

5.3 ELIGIBLE INVENTORY. All Eligible Inventory is of good andmerchantable quality, free from any defects. As to each item of EligibleFinished Goods Inventory, such Inventory is not excluded as ineligible by virtueof one or more of the excluding criteria set forth in the definition of EligibleFinished Goods Inventory. As to each item of Eligible Raw Materials Inventory,such Inventory is not excluded as ineligible by virtue of one or more of theexcluding criteria set forth in the definition of Eligible Raw MaterialsInventory.



5.4 EQUIPMENT. All of the Equipment is used or held for use in Parent'sor Borrowers' business and is fit for such purposes. All equipment of Borrowers'Subsidiaries is used or held for use in their business and is fit for suchpurposes.

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685.5 LOCATION OF INVENTORY AND EQUIPMENT. The Inventory and Equipment

are not stored with a bailee, warehouseman, or similar party and are locatedonly at the locations identified on Schedule 5.5.

5.6 INVENTORY RECORDS. Parent, each Borrower and each of itsSubsidiaries keeps correct and accurate records itemizing and describing thetype, quality, and quantity of its Inventory and the book value thereof.

5.7 LOCATION OF CHIEF EXECUTIVE OFFICE; FEIN. The chief executiveoffice of Parent, each Borrower and each of its Subsidiaries is located at theaddress indicated in Schedule 5.7, and each Borrower's FEIN is identified inSchedule 5.7.

5.8 DUE ORGANIZATION AND QUALIFICATION; SUBSIDIARIES

(a) Each Borrower and Guarantor is duly organized andexisting and in good standing under the laws of the jurisdiction of itsorganization and qualified to do business in any state where the character ofits business or the ownership of its assets make such qualification orregistration necessary, except where the failure to be so qualified could notreasonably be expected to have a Material Adverse Change.

(b) Set forth on Schedule 5.8(b), is a complete andaccurate description of the authorized capital Stock of Parent and eachBorrower, by class, and, as of the Closing Date, a description of the number ofshares of each such class that are issued and outstanding. Except as describedin Schedule 5.8(b), no shares of capital stock of Parent or any Borrower aresubject to preemptive rights or any other similar rights or any liens orencumbrances suffered or permitted by Parent or such Borrower, as the case maybe. Other than as described on Schedule 5.8(b), there are no Liens,subscriptions, options, warrants, or calls relating to any shares of Parent's oreach Borrower's capital Stock, including any right of conversion or exchangeunder any outstanding security or other instrument. Neither Parent nor anyBorrower is subject to any obligation (contingent or otherwise) to repurchase orotherwise acquire or retire any shares of its capital Stock or any securityconvertible into or exchangeable for any of its capital Stock. Each share ofcapital stock has been duly and validly issued and is fully paid andnon-assessable.

(c) Set forth on Schedule 5.8(c), is a complete andaccurate list of Parent's and each Borrower's direct and indirect Subsidiaries,showing: (i) the jurisdiction of their organization; (ii) the number of sharesof each class of common and preferred Stock authorized for each of suchSubsidiaries; and (iii) the number and the percentage of the outstanding sharesof each such class owned directly or indirectly by Parent or the applicableBorrower. All of the outstanding capital Stock of each such Subsidiary has beenvalidly issued and is fully paid and non-assessable.

(d) Except as set forth on Schedule 5.8(c), there areno Liens, subscriptions, options, warrants, or calls relating to any shares ofany Borrower's Subsidiaries' capital Stock, including any right of conversion orexchange under any

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69outstanding security or other instrument. No Borrower or any of its respectiveSubsidiaries is subject to any obligation (contingent or otherwise) torepurchase or otherwise acquire or retire any shares of any Borrower'sSubsidiaries' capital Stock or any security convertible into or exchangeable forany such capital Stock.

5.9 DUE AUTHORIZATION; NO CONFLICT.

(a) As to Parent and each Borrower, the execution,delivery, and performance by Parent and each such Borrower of this Agreement and



the Loan Documents to which it is a party have been duly authorized by allnecessary action (corporate or otherwise) on the part of Parent or suchBorrower, as the case may be.

(b) As to Parent and each Borrower, the execution,delivery, and performance by such Borrower of this Agreement and the LoanDocuments (including, without limitation, the issuance of the Warrant Shares bythe Parent) to which it is a party do not and will not (i) violate any provisionof federal, state, or local law or regulation applicable to any Borrower, theGoverning Documents of Parent or any Borrower, or any order, judgment, or decreeof any court or other Governmental Authority binding on Parent or any Borrower,(ii) conflict with, result in a breach of, or constitute (with due notice orlapse of time or both) a default under any material contractual obligation ofParent or any Borrower, (iii) result in or require the creation or imposition ofany Lien of any nature whatsoever upon any properties or assets of Parent or anyBorrower, other than Permitted Liens, or (iv) require any approval of anyinterestholders of Parent or any Borrower or any approval or consent of anyPerson under any contractual obligation of Parent or any Borrower.

(c) Other than the filing of financing statements,the execution, delivery, and performance by Parent and each Borrower of thisAgreement and the Loan Documents to which Parent or such Borrower is a party donot and will not require any registration with, consent, or approval of, ornotice to, or other action with or by, any Governmental Authority or otherPerson.

(d) As to Parent and each Borrower, this Agreementand the other Loan Documents to which Parent or such Borrower is a party, andall other documents contemplated hereby and thereby, when executed and deliveredby Parent or such Borrower will be the legally valid and binding obligations ofParent or such Borrower, as the case may be, enforceable against Parent or suchBorrower in accordance with their respective terms, except as enforcement may belimited by equitable principles or by bankruptcy, insolvency, reorganization,moratorium, or similar laws relating to or limiting creditors' rights generally.

(e) The Agent's Liens are validly created, perfected,and first priority Liens, subject only to Permitted Liens

(f) The execution, delivery, and performance by eachGuarantor of the Loan Documents to which it is a party have been duly authorizedby all necessary action on the part of such Guarantor.

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70(g) The execution, delivery, and performance by each

Guarantor of the Loan Documents to which it is a party do not and will not (i)violate any provision of federal, state, or local law or regulation applicableto such Guarantor, the Governing Documents of such Guarantor, or any order,judgment, or decree of any court or other Governmental Authority binding on suchGuarantor, (ii) conflict with, result in a breach of, or constitute (with duenotice or lapse of time or both) a default under any material contractualobligation of such Guarantor, (iii) result in or require the creation orimposition of any Lien of any nature whatsoever upon any properties or assets ofsuch Guarantor, other than Permitted Liens, or (iv) require any approval of suchGuarantor's interestholders or any approval or consent of any Person under anymaterial contractual obligation of such Guarantor except for those consents thefailure to have could not reasonably be expected to have a Material AdverseEffect.

(h) The execution, delivery, and performance by eachGuarantor of the Loan Documents to which such Guarantor is a party do not andwill not require any registration with, consent, or approval of, or notice to,or other action with or by, any Governmental Authority or other Person.

(i) The Loan Documents to which each Guarantor is aparty, and all other documents contemplated hereby and thereby, when executedand delivered by such Guarantor will be legally valid and binding obligations ofsuch Guarantor, enforceable against such Guarantor in accordance with theirrespective terms, except as enforcement may be limited by equitable principlesor by bankruptcy, insolvency, reorganization, moratorium, or similar lawsrelating to or limiting creditors' rights generally.

5.10 LITIGATION. Other than those matters disclosed on Schedule 5.10,there are no actions, suits, complaints, investigations or proceedings pending



or, to the best knowledge of Parent or any Borrower, threatened against Parentor any Borrower, or any of their Subsidiaries, as applicable, except for (a)matters that are fully covered by insurance (subject to customary deductibles),and (b) matters arising after the Closing Date that could not reasonably beexpected to result in a Material Adverse Change.

5.11 NO MATERIAL ADVERSE CHANGE. All financial statements relating toBorrowers or any Guarantor that have been delivered by Borrowers or anyGuarantor to the Lender Group have been prepared in accordance with GAAP(except, in the case of unaudited financial statements, for the lack offootnotes and being subject to year-end audit adjustments) and present fairly inall material respects, Borrowers' (or such Guarantor's, as applicable) financialcondition as of the date thereof and results of operations for the period thenended. There has not been a Material Adverse Change with respect to Borrowers(or any Guarantor, as applicable) since the date of the latest financialstatements submitted to the Lender Group on or before the Closing Date.

5.12 FRAUDULENT TRANSFER.

(a) each Borrower and each Guarantor is Solvent.

69

71(b) No transfer of property is being made by any

Borrower or any Guarantor and no obligation is being incurred by any Borrower orany Guarantor in connection with the transactions contemplated by this Agreementor the other Loan Documents with the intent to hinder, delay, or defraud eitherpresent or future creditors of any Borrower or Guarantor.

5.13 EMPLOYEE BENEFITS. None of Parent, Borrowers, any of theirSubsidiaries, or any of their ERISA Affiliates maintains or contributes to anyBenefit Plan.

5.14 ENVIRONMENTAL CONDITION. Except as set forth on Schedule 5.14, (a)none of Parent's or Parent's Subsidiaries' properties or assets has ever beenused by such Persons or, to Parent's or any Borrower's knowledge by previousowners or operators in the disposal of, or to produce, store, handle, treat,release, or transport, any Hazardous Materials, where such production, storage,handling, treatment, release or transport was in violation, in any materialrespect, of applicable Environmental Law, (b) none of Parent's or Parent'sSubsidiaries properties or assets has ever been designated or identified in anymanner pursuant to any environmental protection statute as a Hazardous Materialsdisposal site, (c) none of Parent or Parent's Subsidiaries have received noticethat a Lien arising under any Environmental Law has attached to any revenues orto any Real Property owned or operated by Parent or Parent's Subsidiaries, and(d) none of Parent or Parent's Subsidiaries have received (orally or in writing)a summons, citation, notice, or directive from the Environmental ProtectionAgency or any other federal or state governmental agency concerning any actionor omission by Parent or any of its Subsidiaries resulting in the releasing ordisposing of Hazardous Materials into the environment.

5.15 BROKERAGE FEES. Other than Roth Capital Partners, Parent andBorrowers have not utilized the services of any broker or finder in connectionwith Borrowers' obtaining financing from the Lender Group under this Agreementand no brokerage commission or finders fee is payable by Parent or Borrowers inconnection herewith.

5.16 INTELLECTUAL PROPERTY. Parent and each of Parent's Subsidiariesowns, or holds licenses in, all of such Person's intellectual property rightsthat are necessary to the conduct of its business as currently conducted.Attached hereto as Schedule 5.16 is a true, correct, and complete listing of allpatents, patent applications, trademarks, trademark applications, Copyrights,Copyright registration and Copyright registrations applications as to whichParent and each of Parent's Subsidiaries is the owner or is an exclusivelicensee. Parent and Parent's Subsidiaries have no Copyrights (other thanimmaterial Copyrights) from which they are deriving revenues other than thosethat have been registered, or for which Parent or Parent's Subsidiaries havesubmitted an application for registration, with the United States CopyrightOffice and that are the subject of a copyright security agreement that has beenfiled with the United States Copyright Office.

5.17 LEASES. Parent and each of Parent's Subsidiaries enjoy peacefuland undisturbed possession under all leases material to the business of Parentor Parent's Subsidiaries and to which Parent or Parent's Subsidiaries are a



party or under which Parent

70

72or Parent's Subsidiaries are operating. All of such leases are valid andsubsisting and no material default by Parent or Parent's Subsidiaries existsunder any of them.

5.18 DDAS. Set forth on Schedule 5.18 are all of the DDAs of Parent andeach of Parent's Subsidiaries, including, with respect to each depository (i)the name and address of that depository, and (ii) the account numbers of theaccounts maintained with such depository.

5.19 COMPLETE DISCLOSURE. All factual information (taken as a whole)furnished by or on behalf of Parent or Borrowers in writing to Agent or anyLender (including all information contained in the Schedules hereto or in theother Loan Documents) for purposes of or in connection with this Agreement, theother Loan Documents or any transaction contemplated herein or therein is, andall other such factual information (taken as a whole) hereafter furnished by oron behalf of Parent or Borrowers in writing to the Agent or any Lender will be,true and accurate in all material respects on the date as of which suchinformation is dated or certified and not incomplete by omitting to state anyfact necessary to make such information (taken as a whole) not misleading in anymaterial respect at such time in light of the circumstances under which suchinformation was provided. On the Closing Date, the Closing Date Projectionsrepresent, and as of the date on which any other Projections are delivered toAgent, such additional Projections represent Parent's and Borrowers' good faithbest estimate of their future performance for the periods covered thereby. Thereis no fact or circumstance known to Parent or any Borrower that has or couldreasonably be expected to have a Material Adverse Change.

5.20 INDEBTEDNESS. Set forth on Schedule 5.20 is a true and completelist of all Indebtedness of Parent and each of its Subsidiaries outstandingimmediately prior to the Closing Date that is to remain outstanding after theClosing Date and such Schedule accurately reflects the aggregate principalamount of such Indebtedness and the principal terms thereof.

5.21 TRANSFER PRICING BETWEEN AFFILIATES. Parent and each Borrower isin compliance with and utilizes the arms-length standard for course of dealingtransactions applicable to Affiliates as contemplated in Section 482 of theCode, as amended and the regulations promulgated thereunder, such that nomaterial amount of Taxes are due and owing and unpaid as a result of any suchtransaction or series of transactions.

6. AFFIRMATIVE COVENANTS.

Parent and each Borrower covenants and agrees that, so long asany credit hereunder shall be available and until full and final payment of theObligations and termination of this Agreement, Parent and Borrowers shall andshall cause each of their respective Subsidiaries to do all of the following:

6.1 ACCOUNTING SYSTEM. Maintain a system of accounting that enablesParent and Borrowers to produce financial statements in accordance with GAAP andmaintain records

71

73pertaining to the Collateral that contain information as from time to timereasonably may be requested by Agent. Parent and Borrowers also shall keep aninventory reporting system that shows all additions, sales, claims, returns, andallowances with respect to the Inventory.

6.2 COLLATERAL REPORTING. Provide Agent (with copies for each Lender)with the following documents at the following times in form satisfactory toAgent:

<TABLE><S> <C>Weekly and (a) a sales journal, collection journal, and creditUpon Each register since the last such schedule and aBorrowing calculation of the Borrowing Base as of such date,Request and



(b) notice of all returns, disputes, or claims.

Monthly (not (c) Inventory reports specifying each Borrower's costlater than the of its Inventory, by category, with additional detail10th day of each showing additions to and deletions from themonth) Inventory,

(d) a detailed calculation of the Borrowing Base(including detail regarding those Accounts that arenot Eligible Accounts),

(e) a detailed aging, by total, of the Accounts,together with a reconciliation to the detailedcalculation of the Borrowing Base previously providedto Agent,

(f) a summary aging, by vendor, of Borrowers'accounts payable and any book overdraft, and

(g) a calculation of Dilution for the prior month.

Quarterly (h) a detailed list of each Borrower's customers insuch detail as Agent shall reasonably require,

(i) a report regarding each Borrower's accrued, butunpaid, ad valorem taxes,

Upon request by (j) copies of invoices in connection with theAgent Accounts, credit memos, remittance advices, deposit

slips, shipping and delivery documents in connectionwith the Accounts and, for Inventory and Equipmentacquired by Borrowers, purchase orders and invoices,and

(k) an update to the Borrowers' Distressed EnterpriseValuation delivered prior to closing, conducted atBorrowers' expense by such third party appraisers asare satisfactory to the Agent and the Required TermLoan Lenders, provided that so long as no Event ofDefault shall have occurred and be continuing, suchupdate shall not be requested more frequently thanonce during each 12 month period during which this

</TABLE>

72

74<TABLE><S> <C>

Agreement is in effect, provided that Agent shall notrequest any such update after the Term Loan has beenpaid in full, and

(l) such other reports as to the Collateral, or thefinancial condition of any Borrower or Guarantor asAgent may request.

</TABLE>

In addition, Parent and each Borrower agrees to cooperate fullywith Agent to facilitate and implement a system of electronic collateralreporting in order to provide electronic reporting of each of the items setforth above.

6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Deliver to Agent, withcopies to each Lender:

(a) as soon as available, but in any event within 30days (45 days in the case of a month that is the end of one of the first 3fiscal quarters in a fiscal year) after the end of each month during each ofParent's fiscal years,

(i) a company prepared consolidating andconsolidated balance sheet and income statementcovering operations of Parent and its Subsidiaries



during such period,

(ii) a certificate signed by the chieffinancial officer of Parent to the effect that:

A. the financial statements deliveredhereunder have been prepared in accordance with GAAP(except for the lack of footnotes and being subjectto year-end audit adjustments) and fairly present inall material respects the financial condition ofParent and its Subsidiaries,

B. the representations and warranties ofParent and Borrowers contained in this Agreement andthe other Loan Documents are true and correct in allmaterial respects on and as of the date of suchcertificate, as though made on and as of such date(except to the extent that such representations andwarranties expressly relate solely to an earlierdate), and

C. there does not exist any condition orevent that constitutes a Default or Event of Default(or, to the extent of any non-compliance, describingsuch non-compliance as to which he or she may haveknowledge and what action Parent and Borrowers havetaken, are taking, or propose to take with respectthereto),

(iii) for each month that is the date onwhich a financial covenant in Section 7.20 is to betested, a Compliance Certificate

73

75demonstrating, in reasonable detail, compliance atthe end of such period with the applicable financialcovenants contained in Section 7.20,

(iv) a statement of intercompany balancesbetween Borrowers, on the one hand and each ofParent, Hypercom Asia Group, Hypercom Brazil andGolden Eagle, on the other hand, for such period anda statement of cash outstanding for each such Personas of the end of such period,

(v) a monthly cash forecast for Parent andits Subsidiaries,

(b) as soon as available, but in any event within 45days after the end of each fiscal quarter a company prepared consolidatedstatement of cash flow covering operations of Parent and its Subsidiaries duringsuch period,

(c) as soon as available, but in any event within 90days after the end of each of Parent's fiscal years, financial statements ofParent and its Subsidiaries for each such fiscal year, audited by independentcertified public accountants reasonably acceptable to Agent and certified,without any qualifications (including, without limitation, (i) any "goingconcern" or like qualification or exception, or (ii) any qualification orexception as to the scope of such audit), by such accountants to have beenprepared in accordance with GAAP (such audited financial statements to include abalance sheet, income statement, and statement of cash flow and, if prepared,such accountants' letter to management),

(d) as soon as available, but in any event within 30days prior to the start of each of Parent's fiscal years, copies of Projectionsfor Parent and Borrowers, in form and substance (including as to scope andunderlying assumptions) satisfactory to Agent, in its Permitted Discretion, forthe forthcoming 3 years, year by year, and for the forthcoming fiscal year,quarter by quarter, certified by the chief financial officer of Parent as beingsuch officer's good faith best estimate of the financial performance of Parentand its Subsidiaries during the period covered thereby,



(e) if and when filed by Parent or any Borrower,

(i) 10-Q or 10-QSB quarterly reports, Form10-K or 10-KSB annual reports, and Form 8-K or 8-KSBcurrent reports,

(ii) any other filings made by Parent or anyBorrower with the SEC,

(iii) copies of Parent's or Borrowers'federal income tax returns, and any amendmentsthereto, filed with the Internal Revenue Service, and

74

76(iv) any other information that is provided

by Parent to its shareholders generally,

(f) if and when filed by Parent or any Borrower andas reasonably requested by Agent, satisfactory evidence of payment of applicableexcise taxes in each jurisdictions in which

(i) Parent or any Borrower conducts businessor is required to pay any such excise tax,

(ii) Parent's or any Borrower's failure topay any such applicable excise tax would result in aLien on the properties or assets of Parent or anyBorrower, or

(iii) unless such taxes are the subject of aPermitted Protest,

(g) promptly after the commencement thereof, but inany event within 5 days after the service of process with respect thereto on anyBorrower or any Guarantor, notice of all actions, suits or proceedings broughtby or against any Borrower or any Guarantor before any Governmental Authoritywhich, if determined adversely to such Borrower or Guarantor, could reasonablybe expected to cause a Material Adverse Change,

(h) as soon as Parent or a Borrower has knowledge ofany event or condition that constitutes a Default or an Event of Default, noticethereof and a statement of the curative action that Parent or Borrowers proposeto take with respect thereto, and

(i) upon the request of Agent, any other reportreasonably requested relating to the financial condition of any Borrower or anyGuarantor.

In addition to the financial statements referred to above,Parent and Borrowers agree to deliver financial statements prepared on both aconsolidated and consolidating basis and that no Borrower, or any Subsidiary ofa Borrower, will have a fiscal year different from that of Parent. Borrowersagree that their independent certified public accountants are authorized tocommunicate with Agent and to release to Agent whatever financial informationconcerning Borrowers that Agent reasonably may request.

6.4 GUARANTOR REPORTS. Cause each Guarantor to deliver its annualfinancial statements at the time when Parent provides its audited financialstatements to Agent and copies of all federal income tax returns as soon as thesame are available and in any event no later than 30 days after the same arerequired to be filed by law (taking into account any permitted extensions).

6.5 RETURN. Cause returns and allowances as between Borrowers or theirSubsidiaries and their Account Debtors, to be on the same basis and inaccordance with the usual customary practices of the applicable Borrower orSubsidiary, as they exist at the time of the execution and delivery of thisAgreement. If, at a time when no Event of Default has

75

77occurred and is continuing, any Account Debtor returns any Inventory to any



Borrower or Subsidiary, the applicable Borrower or Subsidiary promptly shalldetermine the reason for such return and, if the applicable Borrower orSubsidiary accepts such return, issue a credit memorandum (with a copy to besent to Agent) in the appropriate amount to such Account Debtor. If, at a timewhen an Event of Default has occurred and is continuing, any Account Debtorreturns any Inventory to any Borrower or Subsidiary, the applicable Borrower orSubsidiary promptly shall determine the reason for such return and, if Agentconsents (which consent shall not be unreasonably withheld), issue a creditmemorandum (with a copy to be sent to Agent) in the appropriate amount to suchAccount Debtor.

6.6 MAINTENANCE OF PROPERTIES. Maintain and preserve all of itsproperties which are necessary in the proper conduct to its business in goodworking order and condition, ordinary wear and tear excepted, and comply at alltimes with the material provisions of all leases to which it is a party aslessee and which are necessary in the proper conduct of the business, so as toprevent any loss or forfeiture thereof or thereunder.

6.7 TAXES. Cause all assessments and taxes, whether real, personal, orotherwise, due or payable by, or imposed, levied, or assessed against it or anyof its assets to be paid in full, before delinquency or before the expiration ofany extension period, except to the extent that the validity of such assessmentor tax shall be the subject of a Permitted Protest. Parent and Parent'sSubsidiaries will make timely payment or deposit of all tax payments andwithholding taxes required of it by applicable laws, including those lawsconcerning F.I.C.A., F.U.T.A., state disability, and local, state, and federalincome taxes, and will, upon request, furnish Agent with proof reasonablysatisfactory to Agent indicating that Parent or the applicable Subsidiary ofParent has made such payments or deposits. Parent or Borrowers shall deliversatisfactory evidence of payment of applicable excise taxes in eachjurisdictions in which Parent or any Subsidiary of Parent is required to pay anysuch excise tax.

6.8 INSURANCE.

(a) At Borrowers' expense, maintain insurancerespecting its property and assets wherever located, covering loss or damage byfire, theft, explosion, and all other hazards and risks as ordinarily areinsured against by other Persons engaged in the same or similar businesses.Parent and Parent's Subsidiaries also shall maintain business interruption,public liability, and product liability insurance, as well as insurance againstlarceny, embezzlement, and criminal misappropriation. All such policies ofinsurance shall be in such amounts and with such insurance companies as arereasonably satisfactory to Agent. Parent or Borrowers shall deliver copies ofall such policies to Agent with a satisfactory lender's loss payable endorsementnaming Agent as sole loss payee or additional insured, as appropriate. Eachpolicy of insurance or endorsement shall contain a clause requiring the insurerto give not less than 30 days prior written notice to Agent in the event ofcancellation of the policy for any reason whatsoever.

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78(b) Administrative Borrower shall give Agent prompt

notice of any loss covered by such insurance. Agent shall have the exclusiveright to adjust any losses payable under any such insurance policies in excessof $50,000, without any liability to Parent or Parent's Subsidiaries whatsoeverin respect of such adjustments. Any monies received as payment for any lossunder any insurance policy mentioned above (other than liability insurancepolicies) or as payment of any award or compensation for condemnation or takingby eminent domain, shall be paid over to Agent to be applied at the option ofthe Required Lenders either to the prepayment of the Obligations or shall bedisbursed to Administrative Borrower under staged payment terms reasonablysatisfactory to the Required Lenders for application to the cost of repairs,replacements, or restorations. Any such repairs, replacements, or restorationsshall be effected with reasonable promptness and shall be of a value at leastequal to the value of the items or property destroyed prior to such damage ordestruction.

(c) Neither Parent nor any of Parent's Subsidiariesshall take out separate insurance concurrent in form or contributing in theevent of loss with that required to be maintained under this Section 6.8, unlessAgent is included thereon as named insured with the loss payable to Agent undera lender's loss payable endorsement or its equivalent. Administrative Borrowerimmediately shall notify Agent whenever such separate insurance is taken out,



specifying the insurer thereunder and full particulars as to the policiesevidencing the same, and copies of such policies promptly shall be provided toAgent.

6.9 LOCATION OF INVENTORY AND EQUIPMENT. Keep the Inventory andEquipment only at the locations identified on Schedule 5.5; provided, however,that Administrative Borrower may amend Schedule 5.5 so long as such amendmentoccurs by written notice to Agent not less than 30 days prior to the date onwhich the Inventory or Equipment is moved to such new location, so long as suchnew location is within the continental United States, and so long as, at thetime of such written notification, the applicable Borrower provides anyfinancing statements or fixture filings necessary to perfect and continueperfected the Agent's Liens on such assets and also provides to Agent aCollateral Access Agreement.

6.10 COMPLIANCE WITH LAWS. Comply with the requirements of allapplicable laws, rules, regulations, and orders of any Governmental Authority,including the Fair Labor Standards Act and the Americans With Disabilities Act,other than laws, rules, regulations, and orders the non-compliance with which,individually or in the aggregate, would not result in and reasonably could notbe expected to result in a Material Adverse Change.

6.11 LEASES. Pay when due all rents and other amounts properly payableunder any leases to which Parent or any Subsidiary of Parent is a party or bywhich Parent or any of Parent's Subsidiaries' properties and assets are bound,unless such payments are the subject of a Permitted Protest.

6.12 BROKERAGE COMMISSIONS. Pay any and all brokerage commission orfinders fees of Roth Capital Partners or of such other party incurred inconnection with or as a result of Borrowers' obtaining financing from the LenderGroup under this Agreement. Parent and

77

79Borrowers agree and acknowledge that payment of all such brokerage commissionsor finders fees shall be the sole responsibility of Parent and Borrowers, andParent and each Borrower agrees to indemnify, defend, and hold Agent and theLender Group harmless from and against any claim of any broker or finder arisingout of Borrowers' obtaining financing from the Lender Group under thisAgreement.

6.13 EXISTENCE. At all times preserve and keep in full force and effectParent's and each of Parent's Subsidiary's valid existence and good standing tothe extent material to the Parent's and each of Parent's Subsidiary's businessand any rights and franchises material to Parent's or such Subsidiary'sbusinesses.

6.14 ENVIRONMENTAL.

(a) Keep any property either owned or operated byParent or its Subsidiaries free of any Environmental Liens or post bonds orother financial assurances sufficient to satisfy the obligations or liabilityevidenced by such Environmental Liens, (b) comply, in all material respects,with Environmental Laws and provide to Agent documentation of such compliancewhich Agent reasonably requests, (c) promptly notify Agent of any release of aHazardous Material of any reportable quantity from or onto property owned oroperated by any Borrower or its Subsidiary and take any Remedial Actionsrequired to abate said release or otherwise to come into compliance withapplicable Environmental Law, and (d) promptly provide Agent with written noticewithin 10 Business Days of the receipt of any of the following: (i) notice thatan Environmental Lien has been filed against any of the real or personalproperty of any Borrower or its Subsidiary, (ii) commencement of anyEnvironmental Action or notice that an Environmental Action will be filedagainst Parent or any Subsidiary of Parent, and (iii) notice of a violation,citation, or other administrative order which reasonably could be expected toresult in a Material Adverse Change.

6.15 ALTERATIONS, MODIFICATIONS AND ADDITIONS. At their sole expense,make such alterations and modifications in and additions to the Equipment as maybe required from time to time by any relevant Governmental Authority or as maybe deemed necessary from time to time by Parent or the Borrowers, whether uponthe recommendation of any manufacturer or otherwise, for the purpose of the safeoperation of the Equipment (any such alteration, modification or addition as maybe so required or so deemed necessary being herein called a "Required



Modification"). In addition, the Borrowers, at their sole expense, may from timeto time make such other alterations and modifications in and additions to theEquipment as Parent or Borrowers may deem desirable in the proper conduct oftheir business (any such alteration, modification or addition as may be sodeemed desirable being herein called an "Optional Modification"); provided,however, that (i) any Required Modification shall be expeditiously completed ina good and workmanlike manner, in compliance with all material legalrequirements applicable thereto, and (ii) no Optional Modification shalldiminish the value or utility of any item of Equipment or impair the operatingcondition thereof below the value, utility and operating condition thereofimmediately prior to such Optional Modification, assuming that such item ofEquipment was then of the value or utility and in

78

80the operating condition required to be maintained by the terms of thisAgreement. All parts incorporated or installed in or attached to any item ofEquipment composing Collateral as a result of any alteration, modification oraddition which are not readily removable without damage to such item ofEquipment shall, without necessity of further act, become part of such item ofEquipment for all purposes hereof and subject to the security interest grantedherein.

6.16 DISCLOSURE UPDATES. Promptly and in no event later than 5 BusinessDays after obtaining knowledge thereof, (a) notify Agent if any writteninformation, exhibit, or report furnished to the Lender Group contained anyuntrue statement of a material fact or omitted to state any material factnecessary to make the statements contained therein not misleading in light ofthe circumstances in which made, and (b) correct any defect or error that may bediscovered therein or in any Loan Document or in the execution, acknowledgement,filing, or recordation thereof.

6.17 COPYRIGHT REGISTRATIONS.

Maintain in accordance with this Section, valid registered, orapplied for, Copyrights with the United States Copyright Office constituting theRequired Library. If less than the Required Library is registered with theUnited States Copyright Office, Parent and Borrowers shall (i) cause additionalCopyrights that are not already the subject of a registration with the UnitedStates Copyright Office (or an application therefor diligently prosecuted) to beregistered with the United States Copyright Office in a manner sufficient toimpart constructive notice of Parent's or a Borrower's ownership thereof, suchthat, after giving effect to the registration with the United Stated CopyrightOffice, valid registered, or applied for, Copyrights constituting the RequiredLibrary have been registered with the United States Copyright Office, and (ii)cause to be prepared, executed, and delivered to Agent, with sufficient time topermit Agent to record no later than the last Business Day within 10 daysfollowing the date that such Copyrights have been registered or an applicationfor registration has been filed, a Copyright Security Agreement or supplementalschedules to the Copyright Security Agreement reflecting the security interestof Lender in such additional Copyrights which supplemental schedules shall be inform and content suitable for registration with the United States CopyrightOffice so as to give constructive notice, when so registered, of the transfer byParent to Agent of a security interest in such. Parent and Borrowers also shallmaintain copies of all source and object code for the Required Library at safeand secure offsite locations reasonably acceptable to Agent and shall, at therequest of Agent, advise the operators of such locations of Agent's securityinterest in such software, shall keep Agent fully informed of each suchlocation, and shall maintain the currency of all such software stored offsite.

7. NEGATIVE COVENANTS.

Parent and each Borrower covenants and agrees that, so long as anycredit hereunder shall be available and until full and final payment of theObligations, Parent and

79

81Borrowers will not and will not permit any of their respective Subsidiaries todo any of the following:

7.1 INDEBTEDNESS. Create, incur, assume, permit, guarantee, or



otherwise become or remain, directly or indirectly, liable with respect to anyIndebtedness, except:

(a) Indebtedness evidenced by this Agreement and theother Loan Documents, together with Indebtedness owed to Underlying Issuers withrespect to Underlying Letters of Credit;

(b) Indebtedness set forth on Schedule 5.20 orexpressly permitted in Section 7.6(a) or (b);

(c) Permitted Purchase Money Indebtedness;

(d) refinancings, renewals, or extensions ofIndebtedness permitted under clauses (b) and (c) of this Section 7.1 (andcontinuance or renewal of any Permitted Liens associated therewith) so long as:(i) the terms and conditions of such refinancings, renewals, or extensions donot, in Agent's reasonable judgment, materially impair the prospects ofrepayment of the Obligations by Borrowers or materially impair Parent's orBorrowers' creditworthiness, (ii) such refinancings, renewals, or extensions donot result in an increase in the principal amount of, or interest rate withrespect to, the Indebtedness so refinanced, renewed, or extended or add Parentor one or more of the Borrowers as liable with respect thereto if Parent or suchadditional Borrowers were not liable with respect to the original Indebtedness,(iii) such refinancings, renewals, or extensions do not result in a shorteningof the average weighted maturity of the Indebtedness so refinanced, renewed, orextended, nor are they on terms or conditions, that, taken as a whole, arematerially more burdensome or restrictive to Parent or the applicable Borrower,and (iv) if the Indebtedness that is refinanced, renewed, or extended wassubordinated in right of payment to the Obligations, then the terms andconditions of the refinancing, renewal, or extension Indebtedness must includesubordination terms and conditions that are at least as favorable to the LenderGroup as those that were applicable to the refinanced, renewed, or extendedIndebtedness;

(e) Indebtedness composing Permitted Investments;

(f) Indebtedness arising as a result of PermittedIntercompany Advances;

(g) Hedging Obligations permitted by this Agreement;

(h) Subordinated Debt; and

(i) Permitted Golden Eagle Indebtedness.

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827.2 LIENS. Create, incur, assume, or permit to exist, directly or

indirectly, any Lien on or with respect to any of its assets, of any kind,whether now owned or hereafter acquired, or any income or profits therefrom,except for Permitted Liens (including Liens that are replacements of PermittedLiens to the extent that the original Indebtedness is refinanced, renewed, orextended under Section 7.1(d) and so long as the replacement Liens only encumberthose assets that secured the refinanced, renewed, or extended Indebtedness).

7.3 RESTRICTIONS ON FUNDAMENTAL CHANGES.

(a) Enter into any merger, consolidation,reorganization, or recapitalization, or reclassify its Stock.

(b) Liquidate, wind up, or dissolve itself (or sufferany liquidation or dissolution).

7.4 DISPOSAL OF ASSETS. Other than Permitted Dispositions, convey,sell, lease, license, assign, transfer, or otherwise dispose of any of theassets of any Borrower.

7.5 CHANGE NAME. Change Parent's or any Borrower's name, FEIN,corporate structure or identity, or add any new fictitious name; provided,however, that Parent or a Borrower may change its name upon at least 30 daysprior written notice by Administrative Borrower to Agent of such change and solong as, at the time of such written notification, Parent or such Borrowerprovides any financing statements or fixture filings necessary to perfect andcontinue perfected Agent's Liens.



7.6 GUARANTEE. Guarantee or otherwise become in any way liable withrespect to the obligations of any third Person except:

(a) endorsements of instruments or items of paymentfor deposit to the account of Borrowers or which are transmitted or turned overto Agent, or

(b) the unsecured guaranty by Parent of PermittedGolden Eagle Indebtedness upon terms and conditions satisfactory to Agent in itsPermitted Discretion.

7.7 NATURE OF BUSINESS. Make any change in the principal nature ofParent's or Borrowers' business.

7.8 PREPAYMENTS AND AMENDMENTS.

(a) Except in connection with a refinancing permittedby Section 7.1(d), prepay, redeem, defease, purchase, or otherwise acquire anyIndebtedness of Parent or any Borrower, other than the Obligations in accordancewith this Agreement, and

(b) Except in connection with a refinancing permittedby Section 7.1(d), directly or indirectly, amend, modify, alter, increase, orchange any of the terms or

81

83conditions of any agreement, instrument, document, indenture, or other writingevidencing or concerning Indebtedness permitted under Sections 7.1(b) or (c).

7.9 CHANGE OF CONTROL. Cause, permit, or suffer, directly orindirectly, any Change of Control.

7.10 CONSIGNMENTS. Consign any Inventory or sell any Inventory on billand hold, sale or return, sale on approval, or other conditional terms of sale.

7.11 DISTRIBUTIONS. Make any distribution or declare or pay anydividends (in cash or other property, other than common stock) on, or purchase,acquire, redeem, or retire any of Parent's or any Borrower's Stock, of anyclass, whether now or hereafter outstanding, except:

(a) distributions or declaration and payment ofdividends by a Borrower to another Borrower, or

(b) Permitted Restricted Payments.

7.12 ACCOUNTING METHODS. Modify or change its method of accounting(other than as may be required to conform to GAAP) or enter into, modify, orterminate any agreement currently existing, or at any time hereafter enteredinto with any third party accounting firm or service bureau for the preparationor storage of Parent's or Borrowers' accounting records without said accountingfirm or service bureau agreeing to provide Agent information regarding theCollateral or Parent's or Borrowers' financial condition.

7.13 INVESTMENTS. Except for Permitted Investments, directly orindirectly, make or acquire any Investment, or incur any liabilities (includingcontingent obligations) for or in connection with any Investment; provided,however, that from and after 30 days after the Closing Date, Parent and eachBorrower shall not have Permitted Investments (other than in the Cash ManagementAccounts) in excess of $50,000 outstanding at any one time unless Parent or theapplicable Borrower and the applicable securities intermediary or bank haveentered into Control Agreements or similar arrangements governing such PermittedInvestments, as Agent shall determine in its Permitted Discretion, to perfect(and further establish) the Agent's Liens in such Permitted Investments.

7.14 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into orpermit to exist any transaction with any Affiliate of Parent or any Borrowerexcept for transactions that are in the ordinary course of Parent's orBorrowers' business, upon fair and reasonable terms, that are fully disclosed toAgent, and that are no less favorable to Parent or Borrowers than would beobtained in an arm's length transaction with a non-Affiliate.

7.15 SUSPENSION. Suspend or go out of a substantial portion of its



business.

7.16 COMPENSATION.

82

84Until the Term Loan shall be paid in full,

(a) increase the annual fee or per-meeting fees paidto the members of its Board of Directors during any year by more than 30% overthe prior year;

(b) pay or accrue total cash compensation, during the2001 calendar year, to its officers and senior management employees in anaggregate amount in excess of 115% of that paid or accrued in the prior year,provided that, for the 2002 calendar year and thereafter, if Borrowers havecomplied with Section 7.20 with respect to the quarters ending September 30,2001 and December 31, 2001, Parent and Borrowers may pay or accrue total cashcompensation, during any calendar year, to its officers and senior managementemployees in an aggregate amount up to 150% of that paid or accrued in the prioryear.

7.17 USE OF PROCEEDS. Use the proceeds of the Advances and the TermLoans for any purpose other than (a) on the Closing Date, (i) to repay in fullthe outstanding principal, accrued interest, and accrued fees and expenses owingto (A) Existing Lenders, (B) Michelle Investments, to the extent suchobligations are not converted to equity of Parent, and (C) Bank One, (ii) tocash collateralize a letter of credit issued by Bank One, and (iii) to paytransactional fees, costs, and expenses incurred in connection with thisAgreement, the other Loan Documents, and the transactions contemplated herebyand thereby, and (b) thereafter, consistent with the terms and conditionshereof, for its lawful and permitted purposes.

7.18 CHANGE IN LOCATION OF CHIEF EXECUTIVE OFFICE; INVENTORY ANDEQUIPMENT WITH BAILEES. Relocate its chief executive office to a new locationwithout Administrative Borrower providing 30 days prior written notificationthereof to Agent and so long as, at the time of such written notification,Parent or the applicable Borrower provides any financing statements or fixturefilings necessary to perfect and continue perfected the Agent's Liens and alsoprovides to Agent a Collateral Access Agreement with respect to such newlocation. The Inventory and Equipment shall not at any time now or hereafter bestored with a bailee, warehouseman, or similar party without Agent's priorwritten consent.

7.19 SECURITIES ACCOUNTS. Establish or maintain any Securities Accountunless Agent shall have received a Control Agreement in respect of suchSecurities Account. Parent and Borrowers agree to not transfer assets out of anySecurities Account; provided, however, that, so long as no Event of Default hasoccurred and is continuing or would result therefrom, Parent and Borrowers mayuse such assets (and the proceeds thereof) to the extent not prohibited by thisAgreement.

7.20 FINANCIAL COVENANTS.

(a) Fail to maintain:

(i) MINIMUM EBITDA. EBITDA of Parent,measured on a fiscal quarter-end basis, of not lessthan the required amount set forth in the followingtable for the applicable period set forth oppositethereto:

83

85<TABLE><CAPTION>

Applicable Amount Applicable Period----------------- -----------------

<S> <C>$1,870,000 For the 3 month period

ending June 30, 2001



$6,885,000 For the 3 month periodending September 30, 2001

$13,940,000 For the 6 month periodending December 31, 2001

$17,765,000 For the 9 month periodending March 31, 2002

$22,610,000 For the 12 month periodending June 30, 2002







</TABLE>

(ii) MINIMUM EBITDA WITHOUT GOLDEN EAGLE.EBITDA of Parent excluding Golden Eagle and anySubsidiaries of Golden Eagle, measured on a fiscalquarter-end basis, of not less than the requiredamount set forth in the following table for theapplicable period set forth opposite thereto:

<TABLE><CAPTION>

Applicable Amount Applicable Period----------------- -----------------

<S> <C>$595,000 For the 3 month period

</TABLE>

84

86<TABLE><S> <C>

ending June 30, 2001

$5,270,000 For the 3 month periodending September 30. 2001












</TABLE>

(iii) TANGIBLE NET WORTH. Tangible Net Worthof at least the required amount set forth in thefollowing table as of the applicable date set forthopposite thereto:

<TABLE><CAPTION>

Applicable Amount Applicable Date----------------- ---------------

<S> <C>$126,905,000 September 30, 2001

$129,455,000 December 31, 2001

$128,605,000 March, 31, 2002

$128,350,000 June 30, 2002</TABLE>

85

87<TABLE><S> <C>

$131,155,000 September 30, 2002

$133,705,000 December 31, 2002

$132,770,000 March, 31, 2002

$133,195,000 June 30, 2002

$136,850,000 September 30, 2002

$141,525,000 December 31, 2002</TABLE>

(iv) RATIO OF SENIOR DEBT TO EBITDA. A Ratioof Senior Debt to EBITDA of 4:1.

(v) RATIO OF TOTAL DEBT TO EBITDA. A Ratioof Total Debt to EBITDA of 4:1.

7.21 GOLDEN EAGLE. Convey, sell, loan, lease, license, assign orotherwise transfer any assets to Golden Eagle except for any PermittedIntercompany Advances or pursuant to the GEL Administrative Services Agreementin accordance with its terms.

7.22 PREFERRED STOCK. Issue or sell any Prohibited Preferred Stock.

7.23 AMENDMENT OF INTERCOMPANY AGREEMENTS. Terminate, amend, modify orwaive any provision of the GEL Administrative Services Agreement or theIntercompany Transfer Agreement.

8. EVENTS OF DEFAULT.

Any one or more of the following events shall constitute an eventof default (each, an "Event of Default") under this Agreement:

8.1 If Borrowers or Guarantors fail to pay when due and payable or whendeclared due and payable, all or any portion of the Obligations (whether ofprincipal, interest (including any interest which, but for the provisions of theBankruptcy Code, would have accrued on such amounts), fees and charges due the



Lender Group, reimbursement of Lender Group Expenses, or other amountsconstituting Obligations);

8.2 If Parent, Borrowers or their Subsidiaries fail to (a) perform,keep, or observe any covenant or other provision contained in Sections 6.2, 6.3,6.4, 6.7, 6.9, 6.10, and 6.11 hereof and such failure or neglect continues for aperiod of 5 days after the date on which such failure or neglect first occurs,or (b) perform, keep, or observe any covenant or other provision contained inany Section of this Agreement (other than a Section that is expressly

86

88dealt with elsewhere in this Section 8) or the other Loan Documents (other thana Section of such other Loan Documents dealt with elsewhere in this Section 8)and such failure or neglect is not cured within 15 days after the date on whichsuch failure or neglect first occurs, (c) perform, keep, or observe any covenantor other provision contained in Section 7.1(f) and such failure or neglectcontinues for a period of 30 days after the date on which such failure orneglect first occurs or (d) perform, keep, or observe any covenant or otherprovision contained in Section 3.2, Section 6 (other than a subsection ofSection 6 that is dealt with elsewhere in this Section 8), or Section 7 (otherthan Section 7.1(f)) of this Agreement or any comparable provision contained inany of the other Loan Documents;

8.3 If any material portion of Parent's or any Borrower's or any of itsSubsidiaries' assets is attached, seized, subjected to a writ or distresswarrant, levied upon, or comes into the possession of any third Person;

8.4 If an Insolvency Proceeding is commenced by Parent, any Borrower orany of its Subsidiaries;

8.5 If an Insolvency Proceeding is commenced against Parent, anyBorrower, or any of its Subsidiaries, and any of the following events occur: (a)the applicable Borrower or the Subsidiary consents to the institution of theInsolvency Proceeding against it, (b) the petition commencing the InsolvencyProceeding is not timely controverted, (c) the petition commencing theInsolvency Proceeding is not dismissed within 45 calendar days of the date ofthe filing thereof; provided, however, that, during the pendency of such period,Agent (including any successor agent) and each other member of the Lender Groupshall be relieved of their obligation to extend credit hereunder, (d) an interimtrustee is appointed to take possession of all or any substantial portion of theproperties or assets of, or to operate all or any substantial portion of thebusiness of, any Borrower or any of its Subsidiaries, or (e) an order for reliefshall have been entered therein;

8.6 If Parent, any Borrower or any of its Subsidiaries is enjoined,restrained, or in any way prevented by court order from continuing to conductall or any material part of its business affairs;

8.7 If a notice of Lien, levy, or assessment is filed of record withrespect to Parent's, any Borrower's or any of its Subsidiaries' assets by theUnited States, or any department, agency, or instrumentality thereof, or by anystate, county, municipal, or governmental agency, or if any taxes or debts owingat any time hereafter to any one or more of such entities becomes a Lien,whether choate or otherwise, upon Parent's any Borrower's or any of itsSubsidiaries' assets and the same is not paid on the payment date thereof;

8.8 If a judgment or other claim becomes a Lien or encumbrance upon anymaterial portion of Parent's any Borrower's or any of its Subsidiaries'properties or assets;

8.9 If there is a default in any material agreement to which Parent,any Borrower or any of its Subsidiaries is a party and such default (a) occursat the final maturity of the obligations thereunder, or (b) results in a rightby the other party thereto, irrespective of

87

89whether exercised, to accelerate the maturity of the applicable Borrower's orits Subsidiaries' obligations thereunder, to terminate such agreement, or torefuse to renew such agreement pursuant to an automatic renewal right therein;



8.10 If Parent, any Borrower or any of its Subsidiaries makes anypayment on account of Indebtedness that has been contractually subordinated inright of payment to the payment of the Obligations, except to the extent suchpayment is permitted by the terms of the subordination provisions applicable tosuch Indebtedness;

8.11 If any material misstatement or material misrepresentation existsnow or hereafter in any warranty, representation, statement, or Record made tothe Lender Group by Parent, any Borrower, its Subsidiaries, or any officer,employee, agent, or director of Parent, any Borrower or any of its Subsidiaries;

8.12 If the obligation of any Guarantor under its Guaranty is limitedor terminated by operation of law or by such Guarantor thereunder;

8.13 If this Agreement or any other Loan Document that purports tocreate a Lien, shall, for any reason, fail or cease to create a valid andperfected and, except to the extent permitted by the terms hereof or thereof,first priority Lien on or security interest in the Collateral covered hereby orthereby; or

8.14 Any provision of any Loan Document shall at any time for anyreason be declared to be null and void, or the validity or enforceabilitythereof shall be contested by Parent, any Borrower or Guarantor, or a proceedingshall be commenced by Parent, any Borrower or any Guarantor, or by anyGovernmental Authority having jurisdiction over Parent, any Borrower or anyGuarantor, seeking to establish the invalidity or unenforceability thereof, orParent, any Borrower or any Guarantor shall deny that Parent, any Borrower orany Guarantor has any liability or obligation purported to be created under anyLoan Document; or

8.15 If prior to the date that the Term Loan is fully paid, eitherGeorge Wallner or Chris Alexander shall cease to be employed in his currentcapacity with Parent or Borrowers and a replacement satisfactory to the Lendersin their Permitted Discretion shall not be hired within 90 days of suchtermination of employment.

9. THE LENDER GROUP'S RIGHTS AND REMEDIES.

9.1 RIGHTS AND REMEDIES. Upon the occurrence, and during thecontinuation, of an Event of Default, the Required Lenders (at their electionbut without notice of their election and without demand) may authorize andinstruct Agent to do any one or more of the following on behalf of the LenderGroup (and Agent, acting upon the instructions of the Required Lenders, shall dothe same on behalf of the Lender Group), all of which are authorized by Parentand Borrowers:

88

90(a) Declare all Obligations, whether evidenced by

this Agreement, by any of the other Loan Documents, or otherwise, immediatelydue and payable;

(b) Cease advancing money or extending credit to orfor the benefit of Borrowers under this Agreement, under any of the LoanDocuments, or under any other agreement between Borrowers and the Lender Group;

(c) Terminate this Agreement and any of the otherLoan Documents as to any future liability or obligation of the Lender Group, butwithout affecting any of the Agent's Liens in the Collateral and withoutaffecting the Obligations;

(d) Settle or adjust disputes and claims directlywith Account Debtors for amounts and upon terms which Agent considers advisable,and in such cases, Agent will credit the Loan Account with only the net amountsreceived by Agent in payment of such disputed Accounts after deducting allLender Group Expenses incurred or expended in connection therewith;

(e) Cause Parent and Borrowers to hold all returnedInventory in trust for the Lender Group, segregate all returned Inventory fromall other assets of Parent or Borrowers or in Borrowers' possession andconspicuously label said returned Inventory as the property of the Lender Group;

(f) Without notice to or demand upon Parent, anyBorrower or any Guarantor, make such payments and do such acts as Agent



considers necessary or reasonable to protect its security interests in theCollateral. Parent and each Borrower agrees to assemble the Personal PropertyCollateral if Agent so requires, and to make the Personal Property Collateralavailable to Agent at a place that Agent may designate which is reasonablyconvenient to both parties. Parent and each Borrower authorizes Agent to enterthe premises where the Personal Property Collateral is located, to take andmaintain possession of the Personal Property Collateral, or any part of it, andto pay, purchase, contest, or compromise any Lien that in Agent's determinationappears to conflict with the Agent's Liens and to pay all expenses incurred inconnection therewith and to charge Borrowers' Loan Account therefor. Withrespect to any of Parent's or Borrowers' owned or leased premises, Parent andeach Borrower hereby grants Agent a license to enter into possession of suchpremises and to occupy the same, without charge, in order to exercise any of theLender Group's rights or remedies provided herein, at law, in equity, orotherwise;

(g) Without notice to Parent or any Borrower (suchnotice being expressly waived), and without constituting a retention of anycollateral in satisfaction of an obligation (within the meaning of the Code),set off and apply to the Obligations any and all (i) balances and deposits ofParent or any Borrower held by the Lender Group (including any amounts receivedin the Cash Management Accounts), or (ii) Indebtedness at any time owing to orfor the credit or the account of Parent or any Borrower held by the LenderGroup;

89

91(h) Hold, as cash collateral, any and all balances

and deposits of Parent or any Borrower held by the Lender Group, and any amountsreceived in the Cash Management Accounts, to secure the full and final repaymentof all of the Obligations;

(i) Ship, reclaim, recover, store, finish, maintain,repair, prepare for sale, advertise for sale, and sell (in the manner providedfor herein) the Personal Property Collateral. Parent and each Borrower herebygrants to Agent a license or other right to use, without charge, such Borrower'slabels, patents, Copyrights, trade secrets, trade names, trademarks, servicemarks, and advertising matter, or any property of a similar nature, as itpertains to the Personal Property Collateral, in completing production of,advertising for sale, and selling any Personal Property Collateral and Parent'sor such Borrower's rights under all licenses and all franchise agreements shallinure to the Lender Group's benefit;

(j) Sell the Personal Property Collateral at either apublic or private sale, or both, by way of one or more contracts ortransactions, for cash or on terms, in such manner and at such places (includingParent's or Borrowers' premises) as Agent determines is commercially reasonable.It is not necessary that the Personal Property Collateral be present at any suchsale;

(k) Agent shall give notice of the disposition of thePersonal Property Collateral as follows:

(i) Agent shall give Administrative Borrower(for the benefit of the applicable Borrower) a noticein writing of the time and place of public sale, or,if the sale is a private sale or some otherdisposition other than a public sale is to be made ofthe Personal Property Collateral, the time on orafter which the private sale or other disposition isto be made; and

(ii) The notice shall be personallydelivered or mailed, postage prepaid, toAdministrative Borrower as provided in Section 12, atleast 10 days before the earliest time of dispositionset forth in the notice; no notice needs to be givenprior to the disposition of any portion of thePersonal Property Collateral that is perishable orthreatens to decline speedily in value or that is ofa type customarily sold on a recognized market;

(l) Agent, on behalf of the Lender Group may creditbid and purchase at any public sale;



(m) Agent may seek the appointment of a receiver orkeeper to take possession of all or any portion of the Collateral or to operatesame and, to the maximum extent permitted by law, may seek the appointment ofsuch a receiver without the requirement of prior notice or a hearing;

90

92(n) The Lender Group shall have all other rights and

remedies available to it at law or in equity pursuant to any other LoanDocuments; and

(o) Any deficiency that exists after disposition ofthe Personal Property Collateral as provided above will be paid immediately byBorrowers. Any excess will be returned, without interest and subject to therights of third Persons, by Agent to Administrative Borrower (for the benefit ofthe applicable Borrower).

9.2 REMEDIES CUMULATIVE. The rights and remedies of the Lender Groupunder this Agreement, the other Loan Documents, and all other agreements shallbe cumulative. The Lender Group shall have all other rights and remedies notinconsistent herewith as provided under the Code, by law, or in equity. Noexercise by the Lender Group of one right or remedy shall be deemed an election,and no waiver by the Lender Group of any Event of Default shall be deemed acontinuing waiver. No delay by the Lender Group shall constitute a waiver,election, or acquiescence by it.

10. TAXES AND EXPENSES.

If Parent or any Borrower fails to pay any monies (whethertaxes, assessments, insurance premiums, or, in the case of leased properties orassets, rents or other amounts payable under such leases) due to third Persons,or fails to make any deposits or furnish any required proof of payment ordeposit, all as required under the terms of this Agreement, then, Agent, in itssole discretion and without prior notice to Parent or any Borrower, may do anyor all of the following: (a) make payment of the same or any part thereof, (b)set up such reserves in Borrowers' Loan Account as Agent deems necessary toprotect the Lender Group from the exposure created by such failure, or (c) inthe case of the failure to comply with Section 6.8 hereof, obtain and maintaininsurance policies of the type described in Section 6.8 and take any action withrespect to such policies as Agent deems reasonable and prudent. Any such amountspaid by Agent shall constitute Lender Group Expenses and any such payments shallnot constitute an agreement by the Lender Group to make similar payments in thefuture or a waiver by the Lender Group of any Event of Default under thisAgreement. Agent need not inquire as to, or contest the validity of, any suchexpense, tax, or Lien and the receipt of the usual official notice for thepayment thereof shall be conclusive evidence that the same was validly due andowing.

11. WAIVERS; INDEMNIFICATION.

11.1 DEMAND; PROTEST; ETC. Parent and each Borrower waives demand,protest, notice of protest, notice of default or dishonor, notice of payment andnonpayment, nonpayment at maturity, release, compromise, settlement, extension,or renewal of documents, instruments, chattel paper, and guarantees at any timeheld by the Lender Group on which Parent or each such Borrower may in any way beliable.

11.2 THE LENDER GROUP'S LIABILITY FOR COLLATERAL. Parent and eachBorrower hereby agrees that: (a) so long as the Lender Group complies with itsobligations, if any,

91

93under the Code, Agent shall not in any way or manner be liable or responsiblefor: (i) the safekeeping of the Collateral, (ii) any loss or damage theretooccurring or arising in any manner or fashion from any cause, (iii) anydiminution in the value thereof, or (iv) any act or default of any carrier,warehouseman, bailee, forwarding agency, or other Person, and (b) all risk ofloss, damage, or destruction of the Collateral shall be borne by Parent andBorrowers.



11.3 INDEMNIFICATION. Parent and each Borrower shall pay, indemnify,defend, and hold the Agent-Related Persons, the Lender-Related Persons withrespect to each Lender, each Participant, and each of their respective officers,directors, employees, agents, and attorneys-in-fact (each, an "IndemnifiedPerson") harmless (to the fullest extent permitted by law) from and against anyand all claims, demands, suits, actions, investigations, proceedings, anddamages, and all reasonable attorneys fees and disbursements and otherreasonable costs and expenses actually incurred in connection therewith (as andwhen they are incurred and irrespective of whether suit is brought), at any timeasserted against, imposed upon, or incurred by any of them (a) in connectionwith or as a result of or related to the execution, delivery, enforcement,performance, or administration of this Agreement, any of the other LoanDocuments, or the transactions contemplated hereby or thereby, and (b) withrespect to any investigation, litigation, or proceeding related to thisAgreement, any other Loan Document, or the use of the proceeds of the creditprovided hereunder (irrespective of whether any Indemnified Person is a partythereto), or any act, omission, event, or circumstance in any manner relatedthereto (all the foregoing, collectively, the "Indemnified Liabilities"). Theforegoing to the contrary notwithstanding, Parent and Borrowers shall have noobligation to any Indemnified Person under this Section 11.3 with respect to anyIndemnified Liability that a court of competent jurisdiction finally determinesto have resulted from the gross negligence or willful misconduct of suchIndemnified Person. This provision shall survive the termination of thisAgreement and the repayment of the Obligations. If any Indemnified Person makesany payment to any other Indemnified Person with respect to an IndemnifiedLiability as to which Borrowers were required to indemnify the IndemnifiedPerson receiving such payment, the Indemnified Person making such payment isentitled to be indemnified and reimbursed by Borrowers with respect thereto.WITHOUT LIMITATION, THE FOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIEDPERSON WITH RESPECT TO INDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART CAUSEDBY OR ARISE OUT OF ANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OROF ANY OTHER PERSON.

12. NOTICES.

Unless otherwise provided in this Agreement, all notices ordemands by Parent, Borrowers or Agent to the other relating to this Agreement orany other Loan Document shall be in writing and (except for financial statementsand other informational documents which may be sent by first-class mail, postageprepaid) shall be personally delivered or sent by registered or certified mail(postage prepaid, return receipt requested), overnight courier, electronic mail(at such email addresses as the Administrative Borrower or Agent, as applicable,may designate to each other in accordance herewith), or telefacsimile to

92

94Borrowers in care of Administrative Borrower or to Agent, as the case may be, atits address set forth below:

If to Administrative

Borrower or Parent: HYPERCOM CORPORATION

2851 West Kathleen RoadPhoenix, Arizona 85053Attn: Mr. Jonathan E. Killmer

E.V.P. & Chief Financial OfficerFax No. (602) 760-0120

with copies to: SNELL & WILMER LLPOne South Church Ave.,Suite 1500Tucson, Arizona 85701Attn: Todd V. Jones, Esq.Fax No. (520) 884-1294

If to Agent: FOOTHILL CAPITAL CORPORATION2450 Colorado AvenueSuite 3000WSanta Monica, California 90404Attn: Business Finance Division ManagerFax No. 310.454.7443



with copies to: BROBECK, PHLEGER & HARRISON LLP550 South Hope StreetLos Angeles, California 90071Attn: John Francis Hilson, Esq.Fax No. 310.745.3345

Agent, Parent and Borrowers may change the address at which theyare to receive notices hereunder, by notice in writing in the foregoing mannergiven to the other party. All notices or demands sent in accordance with thisSection 12, other than notices by Agent in connection with enforcement rightsagainst the Collateral under the provisions of the Code, shall be deemedreceived on the earlier of the date of actual receipt or 3 Business Days afterthe deposit thereof in the mail. Parent and each Borrower acknowledges andagrees that notices sent by the Lender Group in connection with the exercise ofenforcement rights against Collateral under the provisions of the Code shall bedeemed sent when deposited in the mail or personally delivered, or, wherepermitted by law, transmitted by telefacsimile or any other method set forthabove.

93

9513. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.

(a) THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS(UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECTOF SUCH OTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENTHEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITHRESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO ORTHERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITHTHE LAWS OF THE STATE OF CALIFORNIA.

(b) THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING INCONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED ANDLITIGATED ONLY IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OFCALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANYCOLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT'S OPTION, IN THE COURTS OFANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTION OR WHERE SUCHCOLLATERAL OR OTHER PROPERTY MAY BE FOUND. BORROWERS AND THE LENDER GROUP WAIVE,TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERTTHE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANYPROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13(b).

BORROWERS AND THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVERIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUTOF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHERCOMMON LAW OR STATUTORY CLAIMS. BORROWERS AND THE LENDER GROUP REPRESENT THATEACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURYTRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OFLITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO ATRIAL BY THE COURT.

14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.

14.1 ASSIGNMENTS AND PARTICIPATIONS.

94

96(a) Any Lender may, with the written consent of Agent

(provided that no written consent of Agent shall be required in connection withany assignment and delegation by a Lender to an Eligible Transferee), assign anddelegate to one or more assignees (each an "Assignee") all, or any ratable partof all, of the Obligations, the Commitments and the other rights and obligationsof such Lender hereunder and under the other Loan Documents, in a minimum amountof $5,000,000 (provided that such minimum amount shall not apply to anyassignment and delegation by a Lender to an Affiliate (other than individuals)of, or a fund, money market account, investment account or other account managedby a Lender or an Affiliate of a Lender, provided, however, that Borrowers andAgent may continue to deal solely and directly with such Lender in connectionwith the interest so assigned to an Assignee until (i) written notice of suchassignment, together with payment instructions, addresses, and relatedinformation with respect to the Assignee, have been given to Administrative



Borrower and Agent by such Lender and the Assignee, (ii) such Lender and itsAssignee have delivered to Administrative Borrower and Agent an Assignment andAcceptance in form and substance satisfactory to Agent, and (iii) the assignorLender or Assignee has paid to Agent for Agent's separate account a processingfee in the amount of $5,000. Anything contained herein to the contrarynotwithstanding, the consent of Agent shall not be required (and payment of anyfees shall not be required) if such assignment is in connection with any merger,consolidation, sale, transfer, or other disposition of all or any substantialportion of the business or loan portfolio of such Lender or the assignee is anAffiliate (other than individuals) of, or a fund, money market account,investment account or other account managed by a Lender or an Affiliate of aLender.

(b) From and after the date that Agent notifies theassignor Lender (with a copy to Administrative Borrower) that it has received anexecuted Assignment and Acceptance and payment of the above-referencedprocessing fee, (i) the Assignee thereunder shall be a party hereto and, to theextent that rights and obligations hereunder have been assigned to it pursuantto such Assignment and Acceptance, shall have the rights and obligations of aLender under the Loan Documents, and (ii) the assignor Lender shall, to theextent that rights and obligations hereunder and under the other Loan Documentshave been assigned by it pursuant to such Assignment and Acceptance, relinquishits rights (except with respect to Section 11.3 hereof) and be released from itsobligations under this Agreement (and in the case of an Assignment andAcceptance covering all or the remaining portion of an assigning Lender's rightsand obligations under this Agreement and the other Loan Documents, such Lendershall cease to be a party hereto and thereto), and such assignment shall affecta novation between Borrowers and the Assignee.

(c) By executing and delivering an Assignment andAcceptance, the assigning Lender thereunder and the Assignee thereunder confirmto and agree with each other and the other parties hereto as follows: (1) otherthan as provided in such Assignment and Acceptance, such assigning Lender makesno representation or warranty and assumes no responsibility with respect to anystatements, warranties or representations made in or in connection with thisAgreement or the execution, legality, validity, enforceability, genuineness,sufficiency or value of this Agreement or any other Loan Document furnishedpursuant hereto, (2) such assigning Lender makes no representation or warrantyand assumes

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97no responsibility with respect to the financial condition of Borrowers or theperformance or observance by Borrowers of any of their obligations under thisAgreement or any other Loan Document furnished pursuant hereto, (3) suchAssignee confirms that it has received a copy of this Agreement, together withsuch other documents and information as it has deemed appropriate to make itsown credit analysis and decision to enter into such Assignment and Acceptance,(4) such Assignee will, independently and without reliance upon Agent, suchassigning Lender or any other Lender, and based on such documents andinformation as it shall deem appropriate at the time, continue to make its owncredit decisions in taking or not taking action under this Agreement, (5) suchAssignee appoints and authorizes Agent to take such actions and to exercise suchpowers under this Agreement as are delegated to Agent, by the terms hereof,together with such powers as are reasonably incidental thereto, and (6) suchAssignee agrees that it will perform all of the obligations which by the termsof this Agreement are required to be performed by it as a Lender.

(d) Immediately upon each Assignee's making itsprocessing fee payment under the Assignment and Acceptance and receipt andacknowledgment by Agent of such fully executed Assignment and Acceptance, thisAgreement shall be deemed to be amended to the extent, but only to the extent,necessary to reflect the addition of the Assignee and the resulting adjustmentof the Commitments arising therefrom. The Commitment allocated to each Assigneeshall reduce such Commitments of the assigning Lender pro tanto.

(e) Any Lender may at any time, sell to one or morecommercial banks, financial institutions, or other Persons not Affiliates ofsuch Lender (a "Participant") participating interests in its Obligations, theCommitment, and the other rights and interests of that Lender (the "OriginatingLender") hereunder and under the other Loan Documents (provided that no writtenconsent of Agent shall be required in connection with any sale of any suchparticipating interests by a Lender to an Eligible Transferee); provided,however, that (i) the Originating Lender shall remain a "Lender" for all



purposes of this Agreement and the other Loan Documents and the Participantreceiving the participating interest in the Obligations, the Commitments, andthe other rights and interests of the Originating Lender hereunder shall notconstitute a "Lender" hereunder or under the other Loan Documents and theOriginating Lender's obligations under this Agreement shall remain unchanged,(ii) the Originating Lender shall remain solely responsible for the performanceof such obligations, (iii) Borrowers, Agent, and the Lenders shall continue todeal solely and directly with the Originating Lender in connection with theOriginating Lender's rights and obligations under this Agreement and the otherLoan Documents, (iv) no Lender shall transfer or grant any participatinginterest under which the Participant has the right to approve any amendment to,or any consent or waiver with respect to, this Agreement or any other LoanDocument, except to the extent such amendment to, or consent or waiver withrespect to this Agreement or of any other Loan Document would (A) extend thefinal maturity date of the Obligations hereunder in which such Participant isparticipating, (B) reduce the interest rate applicable to the Obligationshereunder in which such Participant is participating, (C) release all or amaterial portion of the Collateral or guaranties (except to the extent expresslyprovided herein or in any of the Loan Documents) supporting the Obligationshereunder in which such

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98Participant is participating, (D) postpone the payment of, or reduce the amountof, the interest or fees payable to such Participant through such Lender, (E)change the amount or due dates of scheduled principal repayments, prepayments orpremiums, or (F) subordinate the Liens of Agent for the benefit of the LenderGroup to the Liens of any other creditor of any Borrower; and (v) all amountspayable by Borrowers hereunder shall be determined as if such Lender had notsold such participation; except that, if amounts outstanding under thisAgreement are due and unpaid, or shall have been declared or shall have becomedue and payable upon the occurrence of an Event of Default, each Participantshall be deemed to have the right of set-off in respect of its participatinginterest in amounts owing under this Agreement to the same extent as if theamount of its participating interest were owing directly to it as a Lender underthis Agreement. The rights of any Participant only shall be derivative throughthe Originating Lender with whom such Participant participates and noParticipant shall have any rights under this Agreement or the other LoanDocuments or any direct rights as to the other Lenders, Agent, Borrowers, theCollections, the Collateral, or otherwise in respect of the Obligations. NoParticipant shall have the right to participate directly in the making ofdecisions by the Lenders among themselves.

(f) In connection with any such assignment orparticipation or proposed assignment or participation, a Lender may disclose alldocuments and information which it now or hereafter may have relating toBorrowers or Borrowers' business.

(g) Any other provision in this Agreementnotwithstanding, any Lender may at any time create a security interest in, orpledge, all or any portion of its rights under and interest in this Agreement infavor of any Federal Reserve Bank in accordance with Regulation A of the FederalReserve Bank or U.S. Treasury Regulation 31 CFR Section 203.14, and such FederalReserve Bank may enforce such pledge or security interest in any mannerpermitted under applicable law.

14.2 SUCCESSORS. This Agreement shall bind and inure to the benefit ofthe respective successors and assigns of each of the parties; provided, however,that Borrowers may not assign this Agreement or any rights or duties hereunderwithout the Lenders' prior written consent and any prohibited assignment shallbe absolutely void ab initio. No consent to assignment by the Lenders shallrelease any Borrower from its Obligations. A Lender may assign this Agreementand the other Loan Documents and its rights and duties hereunder and thereunderpursuant to Section 14.1 hereof and, except as expressly required pursuant toSection 14.1 hereof, no consent or approval by any Borrower is required inconnection with any such assignment.

15. AMENDMENTS; WAIVERS.

15.1 AMENDMENTS AND WAIVERS. No amendment or waiver of any provision ofthis Agreement or any other Loan Document, and no consent with respect to anydeparture by Borrowers therefrom, shall be effective unless the same shall be inwriting and signed by the Required Lenders (or by Agent at the written requestof the Required Lenders) and Administrative Borrower (on behalf of all



Borrowers) and then any such waiver or consent

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99shall be effective only in the specific instance and for the specific purposefor which given; provided, however, that no such waiver, amendment, or consentshall, unless in writing and signed by all of the Lenders affected thereby andAdministrative Borrower (on behalf of all Borrowers) and acknowledged by Agent,do any of the following:

(a) increase or extend any Commitment of any Lender,

(b) postpone or delay any date fixed by thisAgreement or any other Loan Document for any payment of principal, interest,fees, or other amounts due hereunder or under any other Loan Document,

(c) reduce the principal of, or the rate of intereston, any loan or other extension of credit hereunder, or reduce any fees or otheramounts payable hereunder or under any other Loan Document,

(d) change the percentage of the Commitments that isrequired to take any action hereunder,

(e) amend, modify or waive this Section or anyprovision of the Agreement providing for consent or other action by all Lenders,

(f) release Collateral other than as permitted bySection 16.12,

(g) change the definition of "Required Lenders","Required Term Loan Lenders" or "Pro Rata Share,"

(h) contractually subordinate any of the Agent'sLiens,

(i) release any Borrower or any Guarantor from anyobligation for the payment of money,

(j) increase the advance rate with respect toAdvances,

(k) change the definitions (or any definitions usedtherein) of Borrowing Base, Dilution, Dilution Reserve, Eligible Accounts,Eligible Foreign Accounts, Eligible Inventory, Eligible Finished GoodsInventory, Eligible Raw Materials Inventory, Maximum Revolver Amount, NetAuction Sale Value, Term Loan A Amount, Term Loan B Amount or change or modifySection 2.1(a), Section 2.1(b), Section 2.2 or Section 2.4(b); or

(l) amend, modify or waive any of the provisions ofSection 2.3(g) or Section 16, or

(m) change the definition of Eligible Transferee, oramend, modify or waive any of the provisions of Section 14.

and, provided further, however, that no amendment, waiver or consent shall,unless in writing and signed by Agent or Issuing Lender, affect the rights orduties of Agent or Issuing

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100Lender, as applicable, under this Agreement or any other Loan Document. Theforegoing notwithstanding, any amendment, modification, waiver, consent,termination, or release of, or with respect to, any provision of this Agreementor any other Loan Document that relates only to the relationship of the LenderGroup among themselves, and that does not affect the rights or obligations ofBorrowers, shall not require consent by or the agreement of Borrowers.

15.2 REPLACEMENT OF HOLDOUT LENDER. If any action to be taken by theLender Group or Agent hereunder requires the unanimous consent, authorization,or agreement of all Lenders, and a Lender ("Holdout Lender") fails to give itsconsent, authorization, or agreement, then Agent, upon at least 5 Business Daysprior irrevocable notice to the Holdout Lender, may permanently replace theHoldout Lender with one or more substitute Lenders (each, a "Replacement



Lender"), and the Holdout Lender shall have no right to refuse to be replacedhereunder. Such notice to replace the Holdout Lender shall specify an effectivedate for such replacement, which date shall not be later than 15 Business Daysafter the date such notice is given.

Prior to the effective date of such replacement, the HoldoutLender and each Replacement Lender shall execute and deliver an Assignment andAcceptance Agreement, subject only to the Holdout Lender being repaid its shareof the outstanding Obligations (including an assumption of its Pro Rata Share ofthe Risk Participation Liability and the payment of all fees earned by orotherwise due such Holdout Lender as of the date of such replacement) withoutany premium or penalty of any kind whatsoever. If the Holdout Lender shallrefuse or fail to execute and deliver any such Assignment and AcceptanceAgreement prior to the effective date of such replacement, the Holdout Lendershall be deemed to have executed and delivered such Assignment and AcceptanceAgreement. The replacement of any Holdout Lender shall be made in accordancewith the terms of Section 14.1, provided that in no event shall any Lender berequired to become a Replacement Lender. Until such time as the ReplacementLenders shall have acquired all of the Obligations, the Commitments, and theother rights and obligations of the Holdout Lender hereunder and under the otherLoan Documents, the Holdout Lender shall remain obligated to make the HoldoutLender's Pro Rata Share of Advances and to purchase a participation in eachLetter of Credit, in an amount equal to its Pro Rata Share of the RiskParticipation Liability of such Letter of Credit.

15.3 NO WAIVERS; CUMULATIVE REMEDIES. No failure by Agent or any Lenderto exercise any right, remedy, or option under this Agreement or, any other LoanDocument, or delay by Agent or any Lender in exercising the same, will operateas a waiver thereof. No waiver by Agent or any Lender will be effective unlessit is in writing, and then only to the extent specifically stated. No waiver byAgent or any Lender on any occasion shall affect or diminish Agent's and eachLender's rights thereafter to require strict performance by Borrowers of anyprovision of this Agreement. Agent's and each Lender's rights under thisAgreement and the other Loan Documents will be cumulative and not exclusive ofany other right or remedy that Agent or any Lender may have.

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10116. AGENT; THE LENDER GROUP.

16.1 APPOINTMENT AND AUTHORIZATION OF AGENT. Each Lender herebydesignates and appoints Foothill as its representative under this Agreement andthe other Loan Documents and each Lender hereby irrevocably authorizes Agent totake such action on its behalf under the provisions of this Agreement and eachother Loan Document and to exercise such powers and perform such duties as areexpressly delegated to Agent by the terms of this Agreement or any other LoanDocument, together with such powers as are reasonably incidental thereto. Agentagrees to act as such on the express conditions contained in this Section 16.The provisions of this Section 16 are solely for the benefit of Agent, and theLenders, and Borrowers shall have no rights as a third party beneficiary of anyof the provisions contained herein. Any provision to the contrary containedelsewhere in this Agreement or in any other Loan Document notwithstanding, Agentshall not have any duties or responsibilities, except those expressly set forthherein, nor shall Agent have or be deemed to have any fiduciary relationshipwith any Lender, and no implied covenants, functions, responsibilities, duties,obligations or liabilities shall be read into this Agreement or any other LoanDocument or otherwise exist against Agent; it being expressly understood andagreed that the use of the word "Agent" is for convenience only, that Foothillis merely the representative of the Lenders, and only has the contractual dutiesset forth herein. Except as expressly otherwise provided in this Agreement,Agent shall have and may use its sole discretion with respect to exercising orrefraining from exercising any discretionary rights or taking or refraining fromtaking any actions that Agent expressly is entitled to take or assert under orpursuant to this Agreement and the other Loan Documents. Without limiting thegenerality of the foregoing, or of any other provision of the Loan Documentsthat provides rights or powers to Agent, Lenders agree that Agent shall have theright to exercise the following powers as long as this Agreement remains ineffect: (a) maintain, in accordance with its customary business practices,ledgers and records reflecting the status of the Obligations, the Collateral,the Collections, and related matters, (b) execute or file any and all financingor similar statements or notices, amendments, renewals, supplements, documents,instruments, proofs of claim, notices and other written agreements with respectto the Loan Documents, (c) make Advances, for itself or on behalf of Lenders asprovided in the Loan Documents, (d) exclusively receive, apply, and distribute



the Collections as provided in the Loan Documents, (e) open and maintain suchbank accounts and cash management accounts as Agent deems necessary andappropriate in accordance with the Loan Documents for the foregoing purposeswith respect to the Collateral and the Collections, (f) perform, exercise, andenforce any and all other rights and remedies of the Lender Group with respectto Borrowers, the Obligations, the Collateral, the Collections, or otherwiserelated to any of same as provided in the Loan Documents, and (g) incur and paysuch Lender Group Expenses as Agent may deem necessary or appropriate for theperformance and fulfillment of its functions and powers pursuant to the LoanDocuments.

16.2 DELEGATION OF DUTIES. Agent may execute any of its duties underthis Agreement or any other Loan Document by or through agents, employees orattorneys-in-fact and shall be entitled to advice of counsel concerning allmatters pertaining to such duties. Agent shall not be responsible for thenegligence or misconduct of any agent

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102or attorney-in-fact that it selects as long as such selection was made withoutgross negligence or willful misconduct.

16.3 LIABILITY OF AGENT. None of the Agent-Related Persons shall (i) beliable for any action taken or omitted to be taken by any of them under or inconnection with this Agreement or any other Loan Document or the transactionscontemplated hereby (except for its own gross negligence or willful misconduct),or (ii) be responsible in any manner to any of the Lenders for any recital,statement, representation or warranty made by any Borrower or any Subsidiary orAffiliate of any Borrower, or any officer or director thereof, contained in thisAgreement or in any other Loan Document, or in any certificate, report,statement or other document referred to or provided for in, or received by Agentunder or in connection with, this Agreement or any other Loan Document, or thevalidity, effectiveness, genuineness, enforceability or sufficiency of thisAgreement or any other Loan Document, or for any failure of any Borrower or anyother party to any Loan Document to perform its obligations hereunder orthereunder. No Agent-Related Person shall be under any obligation to any Lenderto ascertain or to inquire as to the observance or performance of any of theagreements contained in, or conditions of, this Agreement or any other LoanDocument, or to inspect the Books or properties of Borrowers or the books orrecords or properties of any of Borrowers' Subsidiaries or Affiliates.

16.4 RELIANCE BY AGENT. Agent shall be entitled to rely, and shall befully protected in relying, upon any writing, resolution, notice, consent,certificate, affidavit, letter, telegram, facsimile, telex or telephone message,statement or other document or conversation believed by it to be genuine andcorrect and to have been signed, sent, or made by the proper Person or Persons,and upon advice and statements of legal counsel (including counsel to Borrowersor counsel to any Lender), independent accountants and other experts selected byAgent. Agent shall be fully justified in failing or refusing to take any actionunder this Agreement or any other Loan Document unless Agent shall first receivesuch advice or concurrence of the Lenders as it deems appropriate and until suchinstructions are received, Agent shall act, or refrain from acting, as it deemsadvisable. If Agent so requests, it shall first be indemnified to its reasonablesatisfaction by Lenders against any and all liability and expense that may beincurred by it by reason of taking or continuing to take any such action. Agentshall in all cases be fully protected in acting, or in refraining from acting,under this Agreement or any other Loan Document in accordance with a request orconsent of the Lenders and such request and any action taken or failure to actpursuant thereto shall be binding upon all of the Lenders.

16.5 NOTICE OF DEFAULT OR EVENT OF DEFAULT. Agent shall not be deemedto have knowledge or notice of the occurrence of any Default or Event ofDefault, except with respect to defaults in the payment of principal, interest,fees, and expenses required to be paid to Agent for the account of the Lenders,except with respect to the existence of Overadvances as to which the Agent hasactual knowledge and to Defaults and Events of Default of which Agent has actualknowledge, unless Agent shall have received written notice from a Lender orAdministrative Borrower referring to this Agreement, describing such Default orEvent of Default, and stating that such notice is a "notice of default." Agent

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103promptly will notify the Lenders of its receipt of any such notice or of anyEvent of Default of which Agent has actual knowledge. If any Lender obtainsactual knowledge of any Event of Default, such Lender promptly shall notify theother Lenders and Agent of such Event of Default. Each Lender shall be solelyresponsible for giving any notices to its Participants, if any. Subject toSection 16.4, Agent shall take such action with respect to such Default or Eventof Default as may be requested by the Required Lenders in accordance withSection 9; provided, however, that unless and until Agent has received any suchrequest, Agent may (but shall not be obligated to) take such action, or refrainfrom taking such action, with respect to such Default or Event of Default as itshall deem advisable.

16.6 CREDIT DECISION. Each Lender acknowledges that none of theAgent-Related Persons has made any representation or warranty to it, and that noact by Agent hereinafter taken, including any review of the affairs of Borrowersand their Subsidiaries or Affiliates, shall be deemed to constitute anyrepresentation or warranty by any Agent-Related Person to any Lender. EachLender represents to Agent that it has, independently and without reliance uponany Agent-Related Person and based on such documents and information as it hasdeemed appropriate, made its own appraisal of and investigation into thebusiness, prospects, operations, property, financial and other condition andcreditworthiness of Borrowers and any other Person (other than the Lender Group)party to a Loan Document, and all applicable bank regulatory laws relating tothe transactions contemplated hereby, and made its own decision to enter intothis Agreement and to extend credit to Borrowers. Each Lender also representsthat it will, independently and without reliance upon any Agent-Related Personand based on such documents and information as it shall deem appropriate at thetime, continue to make its own credit analysis, appraisals and decisions intaking or not taking action under this Agreement and the other Loan Documents,and to make such investigations as it deems necessary to inform itself as to thebusiness, prospects, operations, property, financial and other condition andcreditworthiness of Borrowers and any other Person (other than the Lender Group)party to a Loan Document. Except for notices, reports, and other documentsexpressly herein required to be furnished to the Lenders by Agent, Agent shallnot have any duty or responsibility to provide any Lender with any credit orother information concerning the business, prospects, operations, property,financial and other condition or creditworthiness of Borrowers and any otherPerson party to a Loan Document that may come into the possession of any of theAgent-Related Persons.

16.7 COSTS AND EXPENSES; INDEMNIFICATION. Agent may incur and payLender Group Expenses to the extent Agent reasonably deems necessary orappropriate for the performance and fulfillment of its functions, powers, andobligations pursuant to the Loan Documents, including court costs, reasonableattorneys fees and expenses, costs of collection by outside collection agenciesand auctioneer fees and costs of security guards or insurance premiums paid tomaintain the Collateral, whether or not Borrowers are obligated to reimburseAgent or Lenders for such expenses pursuant to the Loan Agreement or otherwise.Agent is authorized and directed to deduct and retain sufficient amounts fromCollections received by Agent to reimburse Agent for such out-of-pocket costsand expenses prior to the distribution of any amounts to Lenders. In the eventAgent is not reimbursed for such costs and expenses from Collections received byAgent, each Lender hereby agrees that it is and

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104shall be obligated to pay to or reimburse Agent for the amount of such Lender'sPro Rata Share thereof. Whether or not the transactions contemplated hereby areconsummated, the Lenders shall indemnify upon demand the Agent-Related Persons(to the extent not reimbursed by or on behalf of Borrowers and without limitingthe obligation of Borrowers to do so), according to their Pro Rata Shares, fromand against any and all Indemnified Liabilities; provided, however, that noLender shall be liable for the payment to any Agent-Related Person of anyportion of such Indemnified Liabilities resulting solely from such Person'sgross negligence or willful misconduct nor shall any Lender be liable for theobligations of any Defaulting Lender in failing to make an Advance or otherextension of credit hereunder. Without limitation of the foregoing, each Lendershall reimburse Agent upon demand for such Lender's ratable share of any costsor out-of-pocket expenses (including attorneys fees and expenses) incurred byAgent in connection with the preparation, execution, delivery, administration,modification, amendment, or enforcement (whether through negotiations, legalproceedings or otherwise) of, or legal advice in respect of rights orresponsibilities under, this Agreement, any other Loan Document, or any document



contemplated by or referred to herein, to the extent that Agent is notreimbursed for such expenses by or on behalf of Borrowers. The undertaking inthis Section shall survive the payment of all Obligations hereunder and theresignation or replacement of Agent.

16.8 AGENT IN INDIVIDUAL CAPACITY. Foothill and its Affiliates may makeloans to, issue letters of credit for the account of, accept deposits from,acquire equity interests in, and generally engage in any kind of banking,lending, trust, financial advisory, underwriting, or other business withBorrowers and their Subsidiaries and Affiliates and any other Person (other thanthe Lender Group) party to any Loan Documents as though Foothill were not Agenthereunder, and, in each case, without notice to or consent of the other membersof the Lender Group. The other members of the Lender Group acknowledge that,pursuant to such activities, Foothill or its Affiliates may receive informationregarding Borrowers or their Affiliates and any other Person (other than theLender Group) party to any Loan Documents that is subject to confidentialityobligations in favor of Borrowers or such other Person and that prohibit thedisclosure of such information to the Lenders, and the Lenders acknowledge that,in such circumstances (and in the absence of a waiver of such confidentialityobligations, which waiver Agent will use its reasonable best efforts to obtain),Agent shall not be under any obligation to provide such information to them. Theterms "Lender" and "Lenders" include Foothill in its individual capacity.

16.9 SUCCESSOR AGENT. Agent may resign as Agent upon 45 days notice tothe Lenders. If Agent resigns under this Agreement, the Required Lenders shallappoint a successor Agent for the Lenders. If no successor Agent is appointedprior to the effective date of the resignation of Agent, Agent may appoint,after consulting with the Lenders, a successor Agent. If Agent has materiallybreached or failed to perform any material provision of this Agreement or ofapplicable law, the Required Lenders may agree in writing to remove and replaceAgent with a successor Agent from among the Lenders. In any such event, upon theacceptance of its appointment as successor Agent hereunder, such successor Agentshall succeed to all the rights, powers, and duties of the retiring Agent andthe term

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105"Agent" shall mean such successor Agent and the retiring Agent's appointment,powers, and duties as Agent shall be terminated. After any retiring Agent'sresignation hereunder as Agent, the provisions of this Section 16 shall inure toits benefit as to any actions taken or omitted to be taken by it while it wasAgent under this Agreement. If no successor Agent has accepted appointment asAgent by the date which is 45 days following a retiring Agent's notice ofresignation, the retiring Agent's resignation shall nevertheless thereuponbecome effective and the Lenders shall perform all of the duties of Agenthereunder until such time, if any, as the Lenders appoint a successor Agent asprovided for above.

16.10 LENDER IN INDIVIDUAL CAPACITY. Any Lender and its respectiveAffiliates may make loans to, issue letters of credit for the account of, acceptdeposits from, acquire equity interests in and generally engage in any kind ofbanking, trust, financial advisory, underwriting or other business withBorrowers and their Subsidiaries and Affiliates and any other Person (other thanthe Lender Group) party to any Loan Documents as though such Lender were not aLender hereunder without notice to or consent of the other members of the LenderGroup. The other members of the Lender Group acknowledge that, pursuant to suchactivities, such Lender and its respective Affiliates may receive informationregarding Borrowers or their Affiliates and any other Person (other than theLender Group) party to any Loan Documents that is subject to confidentialityobligations in favor of Borrowers or such other Person and that prohibit thedisclosure of such information to the Lenders, and the Lenders acknowledge that,in such circumstances (and in the absence of a waiver of such confidentialityobligations, which waiver such Lender will use its reasonable best efforts toobtain), such Lender shall not be under any obligation to provide suchinformation to them.

16.11 WITHHOLDING TAXES.

(a) If any Lender is a "foreign corporation,partnership or trust" within the meaning of the IRC and such Lender claimsexemption from, or a reduction of, U.S. withholding tax under Sections 1441 or1442 of the IRC, such Lender agrees with and in favor of Agent and Borrowers, todeliver to Agent and Administrative Borrower:



(i) if such Lender claims an exemption fromwithholding tax pursuant to its portfolio interestexception, (a) a statement of the Lender, signedunder penalty of perjury, that it is not a (I) a"bank" as described in Section 881(c)(3)(A) of theIRC, (II) a 10% shareholder (within the meaning ofSection 881(c)(3)(B) of the IRC), or (III) acontrolled foreign corporation described in Section881(c)(3)(C) of the IRC, and (b) a properly completedIRS Form W-8BEN, before the first payment of anyinterest under this Agreement and at any other timereasonably requested by Agent or AdministrativeBorrower;

(ii) if such Lender claims an exemptionfrom, or a reduction of, withholding tax under aUnited States tax treaty, properly completed IRS FormW-8BEN before the first payment of any interest underthis

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106Agreement and at any other time reasonably requestedby Agent or Administrative Borrower;

(iii) if such Lender claims that interestpaid under this Agreement is exempt from UnitedStates withholding tax because it is effectivelyconnected with a United States trade or business ofsuch Lender, two properly completed and executedcopies of IRS Form W-8ECI before the first payment ofany interest is due under this Agreement and at anyother time reasonably requested by Agent orAdministrative Borrower;

(iv) such other form or forms as may berequired under the IRC or other laws of the UnitedStates as a condition to exemption from, or reductionof, United States withholding tax.

Such Lender agrees promptly to notify Agent and Administrative Borrower of anychange in circumstances which would modify or render invalid any claimedexemption or reduction.

(b) If any Lender claims exemption from, or reductionof, withholding tax under a United States tax treaty by providing IRS FormW-8BEN and such Lender sells, assigns, grants a participation in, or otherwisetransfers all or part of the Obligations of Borrowers to such Lender, suchLender agrees to notify Agent of the percentage amount in which it is no longerthe beneficial owner of Obligations of Borrowers to such Lender. To the extentof such percentage amount, Agent will treat such Lender's IRS Form W-8BEN as nolonger valid.

(c) If any Lender is entitled to a reduction in theapplicable withholding tax, Agent may withhold from any interest payment to suchLender an amount equivalent to the applicable withholding tax after taking intoaccount such reduction. If the forms or other documentation required bysubsection (a) of this Section are not delivered to Agent, then Agent maywithhold from any interest payment to such Lender not providing such forms orother documentation an amount equivalent to the applicable withholding tax.

(d) If the IRS or any other Governmental Authority ofthe United States or other jurisdiction asserts a claim that Agent did notproperly withhold tax from amounts paid to or for the account of any Lender(because the appropriate form was not delivered, was not properly executed, orbecause such Lender failed to notify Agent of a change in circumstances whichrendered the exemption from, or reduction of, withholding tax ineffective, orfor any other reason) such Lender shall indemnify and hold Agent harmless forall amounts paid, directly or indirectly, by Agent as tax or otherwise,including penalties and interest, and including any taxes imposed by anyjurisdiction on the amounts payable to Agent under this Section, together withall costs and expenses (including attorneys fees and expenses). The obligationof the Lenders under this subsection shall survive the payment of allObligations and the resignation or replacement of Agent.



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107(e) All payments made by Borrowers hereunder or under

any note or other Loan Document will be made without setoff, counterclaim, orother defense, except as required by applicable law other than for Taxes (asdefined below). All such payments will be made free and clear of, and withoutdeduction or withholding for, any present or future taxes, levies, imposts,duties, fees, assessments or other charges of whatever nature now or hereafterimposed by any jurisdiction (other than the United States) or by any politicalsubdivision or taxing authority thereof or therein (other than of the UnitedStates) with respect to such payments (but excluding, any tax imposed by anyjurisdiction or by any political subdivision or taxing authority thereof ortherein (i) measured by or based on the net income or net profits of a Lender,or (ii) to the extent that such tax results from a change in the circumstancesof the Lender, including a change in the residence, place of organization, orprincipal place of business of the Lender, or a change in the branch or lendingoffice of the Lender participating in the transactions set forth herein) and allinterest, penalties or similar liabilities with respect thereto (all suchnon-excluded taxes, levies, imposts, duties, fees, assessments or other chargesbeing referred to collectively as "Taxes"). If any Taxes are so levied orimposed, each Borrower agrees to pay the full amount of such Taxes, and suchadditional amounts as may be necessary so that every payment of all amounts dueunder this Agreement or under any note, including any amount paid pursuant tothis Section 16.11(e) after withholding or deduction for or on account of anyTaxes, will not be less than the amount provided for herein; provided, however,that Borrowers shall not be required to increase any such amounts payable toAgent or any Lender (i) that is not organized under the laws of the UnitedStates, if such Person fails to comply with the other requirements of thisSection 16.11, or (ii) if the increase in such amount payable results fromAgent's or such Lender's own willful misconduct or gross negligence. Borrowerswill furnish to Agent as promptly as possible after the date the payment of anyTaxes is due pursuant to applicable law certified copies of tax receiptsevidencing such payment by Borrowers.

16.12 COLLATERAL MATTERS.

(a) The Lenders hereby irrevocably authorize Agent,at its option and in its sole discretion, to release or subordinate any Lien onany Collateral (i) upon the termination of the Commitments and payment andsatisfaction in full by Borrowers of all Obligations, (ii) constituting propertybeing sold or disposed of if a release is required or desirable in connectiontherewith and if Administrative Borrower certifies to Agent that the sale ordisposition is permitted under Section 7.4 of this Agreement or the other LoanDocuments (and Agent may rely conclusively on any such certificate, withoutfurther inquiry), (iii) constituting property in which no Borrower owned anyinterest at the time the security interest was granted or at any timethereafter, or (iv) constituting property leased to a Borrower under a leasethat has expired or is terminated in a transaction permitted under thisAgreement. Except as provided above, Agent will not execute and deliver arelease of any Lien on any Collateral without the prior written authorization of(y) if the release is of all or a substantial portion of the Collateral, all ofthe Lenders, or (z) otherwise, the Required Lenders. Upon request by Agent orAdministrative Borrower at any time, the Lenders will confirm in writing Agent'sauthority to release any such Liens on particular types or items of Collateralpursuant to this Section 16.12; provided, however, that (1) Agent shall not be

106

108required to execute any document necessary to evidence such release on termsthat, in Agent's opinion, would expose Agent to liability or create anyobligation or entail any consequence other than the release of such Lien withoutrecourse, representation, or warranty, and (2) such release shall not in anymanner discharge, affect, or impair the Obligations or any Liens (other thanthose expressly being released) upon (or obligations of Borrowers in respect of)all interests retained by Borrowers, including, the proceeds of any sale, all ofwhich shall continue to constitute part of the Collateral.

(b) Agent shall have no obligation whatsoever to any of theLenders to assure that the Collateral exists or is owned by Borrowers or iscared for, protected, or insured or has been encumbered, or that the Agent'sLiens have been properly or sufficiently or lawfully created, perfected,



protected, or enforced or are entitled to any particular priority, or toexercise at all or in any particular manner or under any duty of care,disclosure or fidelity, or to continue exercising, any of the rights,authorities and powers granted or available to Agent pursuant to any of the LoanDocuments, it being understood and agreed that in respect of the Collateral, orany act, omission, or event related thereto, subject to the terms and conditionscontained herein, Agent may act in any manner it may deem appropriate, in itssole discretion given Agent's own interest in the Collateral in its capacity asone of the Lenders and that Agent shall have no other duty or liabilitywhatsoever to any Lender as to any of the foregoing, except as otherwiseprovided herein.

16.13 RESTRICTIONS ON ACTIONS BY LENDERS; SHARING OF PAYMENTS.

(a) Each of the Lenders agrees that it shall not, without theexpress consent of Agent, and that it shall, to the extent it is lawfullyentitled to do so, upon the request of Agent, set off against the Obligations,any amounts owing by such Lender to Borrowers or any deposit accounts ofBorrowers now or hereafter maintained with such Lender. Each of the Lendersfurther agrees that it shall not, unless specifically requested to do so byAgent, take or cause to be taken any action, including, the commencement of anylegal or equitable proceedings, to foreclose any Lien on, or otherwise enforceany security interest in, any of the Collateral the purpose of which is, orcould be, to give such Lender any preference or priority against the otherLenders with respect to the Collateral.

(b) If, at any time or times any Lender shall receive (i) bypayment, foreclosure, setoff, or otherwise, any proceeds of Collateral or anypayments with respect to the Obligations arising under, or relating to, thisAgreement or the other Loan Documents, except for any such proceeds or paymentsreceived by such Lender from Agent pursuant to the terms of this Agreement, or(ii) payments from Agent in excess of such Lender's ratable portion of all suchdistributions by Agent, such Lender promptly shall (1) turn the same over toAgent, in kind, and with such endorsements as may be required to negotiate thesame to Agent, or in immediately available funds, as applicable, for the accountof all of the Lenders and for application to the Obligations in accordance withthe applicable provisions of this Agreement, or (2) purchase, without recourseor warranty, an undivided interest and participation in the Obligations owed tothe other Lenders so that such excess payment received shall be applied ratablyas among the Lenders in accordance with their Pro Rata

107

109Shares; provided, however, that if all or part of such excess payment receivedby the purchasing party is thereafter recovered from it, those purchases ofparticipations shall be rescinded in whole or in part, as applicable, and theapplicable portion of the purchase price paid therefor shall be returned to suchpurchasing party, but without interest except to the extent that such purchasingparty is required to pay interest in connection with the recovery of the excesspayment.

16.14 AGENCY FOR PERFECTION. Agent hereby appoints each other Lender asits agent (and each Lender hereby accepts such appointment) for the purpose ofperfecting the Agent's Liens in assets which, in accordance with Article 9 ofthe Code can be perfected only by possession. Should any Lender obtainpossession of any such Collateral, such Lender shall notify Agent thereof, and,promptly upon Agent's request therefor shall deliver such Collateral to Agent orin accordance with Agent's instructions.

16.15 PAYMENTS BY AGENT TO THE LENDERS. All payments to be made byAgent to the Lenders shall be made by bank wire transfer or internal transfer ofimmediately available funds pursuant to such wire transfer instructions as eachparty may designate for itself by written notice to Agent. Concurrently witheach such payment, Agent shall identify whether such payment (or any portionthereof) represents principal, premium, or interest of the Obligations.

16.16 CONCERNING THE COLLATERAL AND RELATED LOAN DOCUMENTS. Each memberof the Lender Group authorizes and directs Agent to enter into this Agreementand the other Loan Documents relating to the Collateral, for the benefit of theLender Group. Each member of the Lender Group agrees that any action taken byAgent in accordance with the terms of this Agreement or the other Loan Documentsrelating to the Collateral and the exercise by Agent of its powers set forththerein or herein, together with such other powers that are reasonablyincidental thereto, shall be binding upon all of the Lenders.



16.17 FIELD AUDITS AND EXAMINATION REPORTS; CONFIDENTIALITY;DISCLAIMERS BY LENDERS; OTHER REPORTS AND INFORMATION. By becoming a party tothis Agreement, each Lender:

(a) is deemed to have requested that Agent furnish such Lender,promptly after it becomes available, a copy of each field audit or examinationreport (each a "Report" and collectively, "Reports") prepared by or at therequest of Agent, and Agent shall so furnish each Lender with such Reports,

(b) expressly agrees and acknowledges that Agent does not (i)make any representation or warranty as to the accuracy of any Report, and (ii)shall not be liable for any information contained in any Report,

(c) expressly agrees and acknowledges that the Reports are notcomprehensive audits or examinations, that Agent or other party performing anyaudit or

108

110examination will inspect only specific information regarding Borrowers and willrely significantly upon the Books, as well as on representations of Borrowers'personnel,

(d) agrees to keep all Reports and other material, non-publicinformation regarding Borrowers and their Subsidiaries and their operations,assets, and existing and contemplated business plans in a confidential manner;it being understood and agreed by Borrowers that in any event such Lender maymake disclosures (a) to counsel for and other advisors, accountants, andauditors to such Lender, (b) reasonably required by any bona fide potential oractual Assignee or Participant in connection with any contemplated or actualassignment or transfer by such Lender of an interest herein or any participationinterest in such Lender's rights hereunder, (c) of information that has becomepublic by disclosures made by Persons other than such Lender, its Affiliates,assignees, transferees, or Participants, or (d) as required or requested by anycourt, governmental or administrative agency, pursuant to any subpoena or otherlegal process, or by any law, statute, regulation, or court order; provided,however, that, unless prohibited by applicable law, statute, regulation, orcourt order, such Lender shall notify Administrative Borrower of any request byany court, governmental or administrative agency, or pursuant to any subpoena orother legal process for disclosure of any such non-public material informationconcurrent with, or where practicable, prior to the disclosure thereof, and

(e) without limiting the generality of any other indemnificationprovision contained in this Agreement, agrees: (i) to hold Agent and any suchother Lender preparing a Report harmless from any action the indemnifying Lendermay take or conclusion the indemnifying Lender may reach or draw from any Reportin connection with any loans or other credit accommodations that theindemnifying Lender has made or may make to Borrowers, or the indemnifyingLender's participation in, or the indemnifying Lender's purchase of, a loan orloans of Borrowers; and (ii) to pay and protect, and indemnify, defend and holdAgent, and any such other Lender preparing a Report harmless from and against,the claims, actions, proceedings, damages, costs, expenses, and other amounts(including, attorneys fees and costs) incurred by Agent and any such otherLender preparing a Report as the direct or indirect result of any third partieswho might obtain all or part of any Report through the indemnifying Lender.

In addition to the foregoing: (x) any Lender may from time to time request ofAgent in writing that Agent provide to such Lender a copy of any report ordocument provided by Borrowers to Agent that has not been contemporaneouslyprovided by Borrowers to such Lender, and, upon receipt of such request, Agentshall provide a copy of same to such Lender, (y) to the extent that Agent isentitled, under any provision of the Loan Documents, to request additionalreports or information from Borrowers, any Lender may, from time to time,reasonably request Agent to exercise such right as specified in such Lender'snotice to Agent, whereupon Agent promptly shall request of AdministrativeBorrower the additional reports or information reasonably specified by suchLender, and, upon receipt thereof from Administrative Borrower, Agent promptlyshall provide a copy of same to such Lender, and (z) any time that Agent rendersto Administrative Borrower a statement regarding the Loan Account, Agent shallsend a copy of such statement to each Lender.

109



11116.18 SEVERAL OBLIGATIONS; NO LIABILITY. Notwithstanding that certain

of the Loan Documents now or hereafter may have been or will be executed only byor in favor of Agent in its capacity as such, and not by or in favor of theLenders, any and all obligations on the part of the Lenders (if any) to make anycredit available hereunder shall constitute the several (and not joint)obligations of the respective Lenders on a ratable basis, according to theirrespective Commitments, to make an amount of such credit not to exceed, inprincipal amount, at any one time outstanding, the amount of their respectiveCommitments. Nothing contained herein shall confer upon any Lender any interestin, or subject any Lender to any liability for, or in respect of, the business,assets, profits, losses, or liabilities of any other Lender. Each Lender shallbe solely responsible for notifying its Participants of any matters relating tothe Loan Documents to the extent any such notice may be required, and no Lendershall have any obligation, duty, or liability to any Participant of any otherLender. Except as provided in Section 16.7, no member of the Lender Group shallhave any liability for the acts of any other member of the Lender Group. NoLender shall be responsible to any Borrower or any other Person for any failureby any other Lender to fulfill its obligations to make credit availablehereunder, nor to advance for it or on its behalf in connection with itsCommitment, nor to take any other action on its behalf hereunder or inconnection with the financing contemplated herein.

16.19 LEGAL REPRESENTATION OF AGENT. In connection with thenegotiation, drafting, and execution of this Agreement and the other LoanDocuments, or in connection with future legal representation relating to loanadministration, amendments, modifications, waivers, or enforcement of remedies,Brobeck, Phleger & Harrison LLP ("Brobeck") only has represented and only shallrepresent Foothill in its capacity as Agent and as a Lender. Each other Lenderhereby acknowledges that Brobeck does not represent it in connection with anysuch matters.

17. GENERAL PROVISIONS.

17.1 EFFECTIVENESS. This Agreement shall be binding and deemedeffective when executed by Borrowers, Agent, and each Lender whose signature isprovided for on the signature pages hereof.

17.2 SECTION HEADINGS. Headings and numbers have been set forth hereinfor convenience only. Unless the contrary is compelled by the context,everything contained in each Section applies equally to this entire Agreement.

17.3 INTERPRETATION. Neither this Agreement nor any uncertainty orambiguity herein shall be construed or resolved against the Lender Group orBorrowers, whether under any rule of construction or otherwise. On the contrary,this Agreement has been reviewed by all parties and shall be construed andinterpreted according to the ordinary meaning of the words used so as toaccomplish fairly the purposes and intentions of all parties hereto.

110

11217.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement shall

be severable from every other provision of this Agreement for the purpose ofdetermining the legal enforceability of any specific provision.

17.5 AMENDMENTS IN WRITING. This Agreement only can be amended by awriting in accordance with Section 15.1.

17.6 COUNTERPARTS; TELEFACSIMILE EXECUTION. This Agreement may beexecuted in any number of counterparts and by different parties on separatecounterparts, each of which, when executed and delivered, shall be deemed to bean original, and all of which, when taken together, shall constitute but one andthe same Agreement. Delivery of an executed counterpart of this Agreement bytelefacsimile shall be equally as effective as delivery of an original executedcounterpart of this Agreement. Any party delivering an executed counterpart ofthis Agreement by telefacsimile also shall deliver an original executedcounterpart of this Agreement but the failure to deliver an original executedcounterpart shall not affect the validity, enforceability, and binding effect ofthis Agreement. The foregoing shall apply to each other Loan Document mutatismutandis.

17.7 REVIVAL AND REINSTATEMENT OF OBLIGATIONS. If the incurrence orpayment of the Obligations by any Borrower or any Guarantor or the transfer tothe Lender Group of any property should for any reason subsequently be declared



to be void or voidable under any state or federal law relating to creditors'rights, including provisions of the Bankruptcy Code relating to fraudulentconveyances, preferences, or other voidable or recoverable payments of money ortransfers of property (collectively, a "Voidable Transfer"), and if the LenderGroup is required to repay or restore, in whole or in part, any such VoidableTransfer, or elects to do so upon the reasonable advice of its counsel, then, asto any such Voidable Transfer, or the amount thereof that the Lender Group isrequired or elects to repay or restore, and as to all reasonable costs,expenses, and attorneys fees of the Lender Group related thereto, the liabilityof Borrowers or any Guarantor automatically shall be revived, reinstated, andrestored and shall exist as though such Voidable Transfer had never been made.

17.8 INTEGRATION. This Agreement, together with the other LoanDocuments, reflects the entire understanding of the parties with respect to thetransactions contemplated hereby and shall not be contradicted or qualified byany other agreement, oral or written, before the date hereof.

17.9 ADMINISTRATIVE BORROWER. Each Borrower hereby irrevocably appointsHypercom U.S.A., Inc. as the borrowing agent and attorney-in-fact for allBorrowers (the "Administrative Borrower") which appointment shall remain in fullforce and effect unless and until Agent shall have received prior written noticesigned by each Borrower that such appointment has been revoked and that anotherBorrower has been appointed Administrative Borrower. Each Borrower herebyirrevocably appoints and authorizes the Administrative Borrower (i) to provideAgent with all notices with respect to Advances and Letters of Credit obtainedfor the benefit of any Borrower and all other notices and instructions underthis Agreement and (ii) to take such action as the Administrative Borrower deemsappropriate on

111

113its behalf to obtain Advances and Letters of Credit and to exercise such otherpowers as are reasonably incidental thereto to carry out the purposes of thisAgreement. It is understood that the handling of the Loan Account and Collateralof Borrowers in a combined fashion, as more fully set forth herein, is donesolely as an accommodation to Borrowers in order to utilize the collectiveborrowing powers of Borrowers in the most efficient and economical manner and attheir request, and that Lender Group shall not incur liability to any Borroweras a result hereof. Each Borrower expects to derive benefit, directly orindirectly, from the handling of the Loan Account and the Collateral in acombined fashion since the successful operation of each Borrower is dependent onthe continued successful performance of the integrated group. To induce theLender Group to do so, and in consideration thereof, each Borrower herebyjointly and severally agrees to indemnify each member of the Lender Group andhold each member of the Lender Group harmless against any and all liability,expense, loss or claim of damage or injury, made against the Lender Group by anyBorrower or by any third party whosoever, arising from or incurred by reason of(a) the handling of the Loan Account and Collateral of Borrowers as hereinprovided, (b) the Lender Group's relying on any instructions of theAdministrative Borrower, or (c) any other action taken by the Lender Grouphereunder or under the other Loan Documents, except that Borrowers will have noliability to the relevant Agent-Related Person or Lender-Related Person underthis Section 17.9 with respect to any liability that has been finally determinedby a court of competent jurisdiction to have resulted solely from the grossnegligence or willful misconduct of such Agent-Related Person or Lender-RelatedPerson, as the case may be.

[Signature page to follow.]

112

114IN WITNESS WHEREOF, the parties hereto have caused this Loan and

Security Agreement to be executed and delivered as of the date first abovewritten.

HYPERCOM CORPORATION, HYPERCOM (ARIZONA), INC.,a Delaware corporation an Arizona corporation

By: /s/ Jonathon E. Killmer By: /s/ Jonathon E. Killmer



------------------------------- ------------------------------Name: Jonathon E. Killmer Name: Jonathon E. Killmer

----------------------------- ----------------------------Title: Executive VP & COO Title: Secretary

---------------------------- ---------------------------

HYPERCOM MANUFACTURINGHYPERCOM U.S.A., INC., RESOURCES, INC.,a Delaware corporation an Arizona corporation

By: /s/ Jonathon E. Killmer By: /s/ Jonathon E. Killmer------------------------------- ------------------------------

Name: Jonathon E. Killmer Name: Jonathon E. Killmer----------------------------- ---------------------------

Title: Executive VP & COO Title: Secretary---------------------------- ---------------------------

HYPERCOM HORIZON, INC., EPICNETZ, INC.,a Missouri corporation a Nevada corporation

By: /s/ Jonathon E. Killmer By: /s/ Jonathon E. Killmer------------------------------- ------------------------------

Name: Jonathon E. Killmer Name: Jonathon E. Killmer----------------------------- ----------------------------

Title: Secretary Title: Secretary---------------------------- ---------------------------

HYPERCOM LATINO AMERICA, INC., HYPERCOM EUROPE LIMITED, INC.,an Arizona corporation an Arizona corporation

By: /s/ Jonathon E. Killmer By: /s/ Jonathon E. Killmer------------------------------ ------------------------------

Name: Jonathon E. Killmer Name: Jonathon E. Killmer---------------------------- ----------------------------

Title: Secretary Title: Secretary--------------------------- ---------------------------

FOOTHILL CAPITAL CORPORATION, ABLECO FINANCE LLC,a California corporation, as Agent a Delaware limited liability company,and as a Lender as a Lender

By: /s/ R. Britton Ferrell By: /s/ Kevin Genda------------------------------ ------------------------------

Name: R. Britton Ferrell Name: Kevin Genda---------------------------- ----------------------------

Title: VP Title: SVP & Chief Credit Officer--------------------------- ---------------------------

115EXHIBITS AND SCHEDULES

<TABLE><S> <C>Exhibit A-1 Form of Assignment and AcceptanceExhibit B-1 Form of Borrowing Base CertificateExhibit C-1 Form of Compliance CertificateExhibit G-1 Form Guarantor Security AgreementExhibit G-2 Form Guaranty

Schedule C-1 CommitmentsSchedule E-1 EBITDA Adjustment ItemsSchedule E-2 Account Debtor Concentration ExceptionsSchedule E-3 Eligible Inventory LocationsSchedule F-1 Foreign Subsidiary GuarantorsSchedule P-1 Permitted LiensSchedule R-1 Real Property CollateralSchedule 2.5(e) Extraordinary CollectionsSchedule 2.7 Cash Management BanksSchedule 5.5 Locations of Inventory and EquipmentSchedule 5.7 Chief Executive Office; FEINSchedule 5.8(b) Capitalization of BorrowersSchedule 5.8(c) Capitalization of Borrowers' Subsidiaries



Schedule 5.10 LitigationSchedule 5.14 Environmental MattersSchedule 5.16 Intellectual PropertySchedule 5.18 Demand Deposit AccountsSchedule 5.20 Permitted Indebtedness</TABLE>

116SCHEDULE C-1

COMMITMENTS

<TABLE><CAPTION>

LENDER REVOLVER COMMITMENT TERM LOAN COMMITMENT TOTAL COMMITMENT---------------------------- ------------------- -------------------- ----------------<S> <C> <C> <C>Foothill Capital Corporation $25,000,000 -- $25,000,000

Ableco Finance LLC -- $20,000,000 $20,000,000

All Lenders $25,000,000 $20,000,000 $45,000,000=========== =========== ===========

</TABLE>

117TABLE OF CONTENTS

<TABLE><S> <C>LOAN AND SECURITY AGREEMENT.................................................................................... 1

1. DEFINITIONS AND CONSTRUCTION.......................................................................... 11.1 Definitions.................................................................................. 11.2 Accounting Terms............................................................................. 321.3 Code......................................................................................... 321.4 Construction................................................................................. 321.5 Schedules and Exhibits....................................................................... 32

2. LOAN AND TERMS OF PAYMENT............................................................................. 322.1 Revolver Advances............................................................................ 322.2 Term Loans................................................................................... 342.3 Borrowing Procedures and Settlements......................................................... 352.4 Payments..................................................................................... 412.5 Overadvances and Prepayments................................................................. 442.6 Interest Rates and Letter of Credit Fee Rates, Payments, and Calculations.................... 462.7 Cash Management.............................................................................. 482.8 Crediting Payments; Float Charge............................................................. 492.9 Designated Account........................................................................... 492.10 Maintenance of Loan Account; Statements of Obligations....................................... 502.11 Fees......................................................................................... 502.12 Letters of Credit............................................................................ 512.13 Capital Requirements......................................................................... 542.14 Joint and Several Liability of Borrowers..................................................... 55

3. CONDITIONS; TERM OF AGREEMENT......................................................................... 573.1 Conditions Precedent to the Initial Extension of Credit...................................... 573.2 Conditions Subsequent to the Initial Extension of Credit..................................... 613.3 Conditions Precedent to all Extensions of Credit............................................. 623.4 Term......................................................................................... 623.5 Effect of Termination........................................................................ 633.6 Early Termination by Borrowers............................................................... 63

4. CREATION OF SECURITY INTEREST......................................................................... 644.1 Grant of Security Interest................................................................... 644.2 Negotiable Collateral........................................................................ 644.3 Collection of Accounts, General Intangibles, and Negotiable Collateral....................... 644.4 Delivery of Additional Documentation Required................................................ 644.5 Power of Attorney............................................................................ 654.6 Right to Inspect............................................................................. 654.7 Control Agreements........................................................................... 65

</TABLE>

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118<TABLE><S> <C>5. REPRESENTATIONS AND WARRANTIES.......................................................................... 66

5.1 No Encumbrances................................................................................ 665.2 Eligible Accounts and Eligible Foreign Accounts................................................ 665.3 Eligible Inventory............................................................................. 665.4 Equipment...................................................................................... 665.5 Location of Inventory and Equipment............................................................ 675.6 Inventory Records.............................................................................. 675.7 Location of Chief Executive Office; FEIN....................................................... 675.8 Due Organization and Qualification; Subsidiaries............................................... 675.9 Due Authorization; No Conflict................................................................. 685.10 Litigation..................................................................................... 695.11 No Material Adverse Change..................................................................... 695.12 Fraudulent Transfer............................................................................ 695.13 Employee Benefits.............................................................................. 705.14 Environmental Condition........................................................................ 705.15 Brokerage Fees................................................................................. 705.16 Intellectual Property.......................................................................... 705.17 Leases......................................................................................... 705.18 DDAs........................................................................................... 715.19 Complete Disclosure............................................................................ 715.20 Indebtedness................................................................................... 715.21 Transfer Pricing Between Affiliates............................................................ 71

6. AFFIRMATIVE COVENANTS................................................................................... 716.1 Accounting System.............................................................................. 716.2 Collateral Reporting........................................................................... 726.3 Financial Statements, Reports, Certificates.................................................... 736.4 Guarantor Reports.............................................................................. 756.5 Return......................................................................................... 756.6 Maintenance of Properties...................................................................... 766.7 Taxes.......................................................................................... 766.8 Insurance...................................................................................... 766.9 Location of Inventory and Equipment............................................................ 776.10 Compliance with Laws........................................................................... 776.11 Leases......................................................................................... 776.12 Brokerage Commissions.......................................................................... 776.13 Existence...................................................................................... 786.14 Environmental.................................................................................. 786.15 Alterations, Modifications and Additions....................................................... 786.16 Disclosure Updates............................................................................. 796.17 Copyright Registrations........................................................................ 79

7. NEGATIVE COVENANTS...................................................................................... 797.1 Indebtedness................................................................................... 807.2 Liens.......................................................................................... 81

</TABLE>

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119<TABLE><S> <C>

7.3 Restrictions on Fundamental Changes............................................................ 817.4 Disposal of Assets............................................................................. 817.5 Change Name.................................................................................... 817.6 Guarantee...................................................................................... 817.7 Nature of Business............................................................................. 817.8 Prepayments and Amendments..................................................................... 817.9 Change of Control.............................................................................. 827.10 Consignments................................................................................... 827.11 Distributions.................................................................................. 827.12 Accounting Methods............................................................................. 827.13 Investments.................................................................................... 827.14 Transactions with Affiliates................................................................... 827.15 Suspension..................................................................................... 827.16 Compensation................................................................................... 827.17 Use of Proceeds................................................................................ 837.18 Change in Location of Chief Executive Office; Inventory and Equipment with Bailees............. 837.19 Securities Accounts............................................................................ 837.20 Financial Covenants............................................................................ 837.21 Golden Eagle. Convey, sell, loan, lease, license, assign or otherwise transfer any assets

to Golden Eagle except for any Permitted Intercompany Advances or pursuant to the GEL



Administrative Services Agreement in accordance with its terms................................. 867.22 Preferred Stock. Issue or sell any Prohibited Preferred Stock................................. 867.23 Amendment of Intercompany Agreements. Terminate, amend, modify or waive any provision of

the GEL Administrative Services Agreement or the Intercompany Transfer Agreement............... 86

8. EVENTS OF DEFAULT....................................................................................... 86

9. THE LENDER GROUP'S RIGHTS AND REMEDIES.................................................................. 889.1 Rights and Remedies............................................................................ 889.2 Remedies Cumulative............................................................................ 91

10. TAXES AND EXPENSES...................................................................................... 91

11. WAIVERS; INDEMNIFICATION................................................................................ 9111.1 Demand; Protest; etc........................................................................... 9111.2 The Lender Group's Liability for Collateral.................................................... 9111.3 Indemnification................................................................................ 92

12. NOTICES.................................................................................................. 92

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.............................................................. 94

14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.............................................................. 94</TABLE>

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120<TABLE><S> <C>

14.1 Assignments and Participations................................................................ 9414.2 Successors.................................................................................... 97

15. AMENDMENTS; WAIVERS.................................................................................... 9715.1 Amendments and Waivers........................................................................ 9715.2 Replacement of Holdout Lender................................................................. 9915.3 No Waivers; Cumulative Remedies............................................................... 99

16. AGENT; THE LENDER GROUP................................................................................ 10016.1 Appointment and Authorization of Agent........................................................ 10016.2 Delegation of Duties.......................................................................... 10016.3 Liability of Agent............................................................................ 10116.4 Reliance by Agent............................................................................. 10116.5 Notice of Default or Event of Default......................................................... 10116.6 Credit Decision............................................................................... 10216.7 Costs and Expenses; Indemnification........................................................... 10216.8 Agent in Individual Capacity.................................................................. 10316.9 Successor Agent............................................................................... 10316.10 Lender in Individual Capacity................................................................. 10416.11 Withholding Taxes............................................................................. 10416.12 Collateral Matters............................................................................ 10616.13 Restrictions on Actions by Lenders; Sharing of Payments....................................... 10716.14 Agency for Perfection......................................................................... 10816.15 Payments by Agent to the Lenders.............................................................. 10816.16 Concerning the Collateral and Related Loan Documents.......................................... 10816.17 Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports

and Information............................................................................... 10816.18 Several Obligations; No Liability............................................................. 11016.19 Legal Representation of Agent................................................................. 110

17. GENERAL PROVISIONS..................................................................................... 11017.1 Effectiveness................................................................................. 11017.2 Section Headings.............................................................................. 11017.3 Interpretation................................................................................ 11017.4 Severability of Provisions.................................................................... 11117.5 Amendments in Writing......................................................................... 11117.6 Counterparts; Telefacsimile Execution......................................................... 11117.7 Revival and Reinstatement of Obligations...................................................... 11117.8 Integration................................................................................... 11117.9 Administrative Borrower....................................................................... 111

</TABLE>

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1EXHIBIT 10.2

THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOTBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIESLAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OFEXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT ANDAPPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THEREGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCHSECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT INCOMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.


COMMON STOCK PURCHASE WARRANT

No. C-1 August 2, 2001

Warrant to Purchase 375,000Shares of Common Stock

Hypercom Corporation, a Delaware corporation (the "Company"), for valuereceived, hereby certifies that ABLECO HOLDING LLC, a Delaware limited liabilitycompany, or its registered assigns (the "Holder"), is entitled to purchase fromthe Company 375,000 duly authorized, validly issued, fully paid andnonassessable shares of Common Stock (the "Initial Warrant Shares"), plus anyAdditional Warrant Shares (as defined herein) (such Additional Warrant Sharesand the Initial Warrant Shares, being referred to herein collectively as the"Warrant Shares"), at a purchase price per share equal to $4.00 (the "PurchasePrice"), at any time or from time to time on or after August 2, 2001, but priorto 5:00 P.M., Central Daylight Time, on August 1, 2006 (the "Expiration Date"),all subject to the terms, conditions and adjustments set forth below in thisWarrant.

This Warrant (the "Warrant") is issued pursuant to the terms of acertain Loan and Security Agreement, dated as of the date hereof, as amended orotherwise modified from time to time, between the Company and certain of itssubsidiaries, and an affiliate of the Holder, as lender (the "Loan and SecurityAgreement"). This Warrant initially evidences the Holder's right to purchase upto 375,000 shares of the Company's Common Stock subject to adjustment asprovided herein. Capitalized terms used herein and not otherwise defined hereinshall have the meanings assigned such terms in the Loan and Security Agreement.

1. DEFINITIONS. As used herein, unless the context otherwise requires,the following terms shall have the meanings indicated:

"Additional Shares of Common Stock" shall mean all shares (includingtreasury shares) of Common Stock issued or sold (or, pursuant to Section 3.3 or



3.4, deemed to be issued) by the Company after the date hereof, whether or notsubsequently reacquired or retired by the Company, other than

2(a) (i) This Warrant and shares issued upon the exercise of

this Warrant and (ii) such number of additional shares as may becomeissuable upon the exercise of this Warrant by reason of adjustmentsrequired pursuant to the anti-dilution provisions applicable to thisWarrant as in effect on the date hereof,

(b) (i) Options and shares issued upon the exercise of Optionsor the conversion of Convertible Securities issued by the Companybefore the date hereof, and (ii) such additional number of shares asmay become issuable by reason of adjustments required pursuant toanti-dilution provisions applicable to such Options or ConvertibleSecurities, as in effect on the date hereof,

(c) (i) Options and shares issued upon the exercise of Optionsgranted by the Company to any of its directors, officers, employees,consultants or agents or their affiliates after the date hereofpursuant to any compensation or benefit plan approved by the Company'sboard of directors or, if not pursuant to any such plan, then pursuantto any other resolution of the board of directors of the Company;provided in each such case that the exercise or purchase price for anysuch share shall not be less than 85% of the fair market value(determined in good faith by the Company's Board of Directors) of theCommon Stock on the date of grant (whether or not the grant isconditioned on other events, such as shareholder approval), and (ii)such additional number of shares as may become issuable upon theexercise of any such Options by reason of adjustments required pursuantto anti-dilution provisions applicable to such Options,

(d) Options or Common Stock issued to third-party strategic orjoint venture partners of, or licensors to, the Company, as approved bythe board of directors of the Company, not to exceed sharesrepresenting in the aggregate 10% of the Company's Common Stock on afully diluted basis,

(e) Options or Common Stock issued to third parties inconnection with the purchase of assets or businesses, whether bymerger, consolidation, purchase of assets or stock or otherwise, asapproved by the board of directors of the Company,

(f) Common Stock issued to Michelle Investments LLC pursuantto that certain Stock Purchase Agreement, dated July 31, 2001, betweenthe Company and Michelle Investments LLC, and

(g) Common Stock issued to Norton Family Living Trust UTD2-4-91, Norton Family Living Trust UTD 2-15-96, Stevenson Family LivingTrust UTD 7/1/97, JR Norton Ventures Limited Partnership, Michael R.Norton, Daniel D. Diethelm and Matthew A. Diethelm pursuant to that



certain Stock Purchase Agreement, dated July 30, 2001, between theCompany and such parties.

"Additional Warrant Shares" shall mean, for every six months thatelapses from and after the date hereof, so long as there are amounts outstandingin respect of the Term Loans, an additional 350,000 shares of the Company'sCommon Stock, but in no event greater than permitted under Section 25.

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3"Business Day" shall mean any day other than a Saturday or a Sunday or

a day on which commercial banking institutions in the New York, New York or inChicago, Illinois are authorized by law to be closed. Any reference to "days"(unless Business Days are specified) shall mean calendar days.

"Commission" shall mean the Securities and Exchange Commission or anysuccessor agency having jurisdiction to enforce the Securities Act.

"Common Stock" shall mean the company's common stock, par value pershare, $0.001, such term to include any stock into which such Common Stock shallhave been changed or any stock resulting from any reclassification of suchCommon Stock, and all other stock of any class or classes (however designated)of the Company the holders of which have the right, without limitation as toamount, either to all or to a share of the balance of current dividends andliquidating dividends after the payment of dividends and distributions on anyshares entitled to preference.

"Company" shall have the meaning assigned to it in the introduction tothis Warrant, such term to include any corporation or other entity which shallsucceed to or assume the obligations of the Company hereunder in compliance withSection 4.

"Company Indemnified Parties" shall have the meaning assigned to it inSection 16.

"Convertible Securities" shall mean any evidences of indebtedness,shares of stock (other than Common Stock) or other securities directly orindirectly convertible into or exchangeable for Additional Shares of CommonStock.

"Current Market Price" shall mean, on any date specified herein, theaverage of the daily Market Price during the 10 consecutive trading days beforesuch date (except with respect to the exercise of any Option granted by theCompany pursuant to any Company Option plan or agreement, in which case "CurrentMarket Price" or any similar term shall be as defined in such plan oragreement), except that, if on any such date the shares of Common Stock are notlisted or admitted for trading on any national securities exchange or quoted inthe over-the-counter market, the Current Market Price shall be the Market Priceon such date.



"Deferral Period" shall have the meaning assigned to it in Section 16.

"Distribution Date" shall have the meaning assigned to it in Section3.10.

"Exchange Act" shall mean the Securities Exchange Act of 1934, asamended from time to time, and the rules and regulations thereunder, or anysuccessor statute.

"Expiration Date" shall have the meaning assigned to it in theintroduction to this Warrant.

"Fair Value" shall mean, on any date specified herein (i) in the caseof cash, the dollar amount thereof, (ii) in the case of a security, the CurrentMarket Price, and (iii) in all other cases, the fair value thereof (as of a datewhich is within 20 days of the date as of which the determination is to be made)determined jointly by the Company and the Holder; provided,

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4however, that if such parties are unable to reach agreement within a reasonableperiod of time, the Fair Value shall be determined in good faith, by anindependent investment banking firm selected jointly by the Company and theHolder or, if that selection cannot be made within ten days, by an independentinvestment banking firm selected by the American Arbitration Association inaccordance with its rules, and provided further, that the Company shall pay allof the fees and expenses of any third parties incurred in connection withdetermining the Fair Value.

"Holder" shall have the meaning assigned to it in the introduction tothis Warrant.

"Holder Indemnified Parties" shall have the meaning assigned to it inSection 16.

"Loan and Security Agreement" shall have the meaning assigned to it inthe introduction to this Warrant.

"Market Price" shall mean, on any date specified herein, the amount pershare of the Common Stock, equal to (i) the last reported sale price of suchCommon Stock, regular way, on such date or, in case no such sale takes place onsuch date, the average of the closing bid and asked prices thereof regular wayon such date, in either case as officially reported on the principal nationalsecurities exchange on which such Common Stock is then listed or admitted fortrading, (ii) if such Common Stock is not then listed or admitted for trading onany national securities exchange but is designated as a national market systemsecurity by the NASD, the last reported trading price of the Common Stock onsuch date, (iii) if there shall have been no trading on such date or if theCommon Stock is not so designated, the average of the closing bid and asked



prices of the Common Stock on such date as shown by the NASD automated quotationsystem, or (iv) if such Common Stock is not then listed or admitted for tradingon any national exchange or quoted in the over-the-counter market, the fairvalue thereof (as of a date which is within 20 days of the date as of which thedetermination is to be made) determined jointly by the Company and the Holder;provided, however, that if such parties are unable to reach agreement within areasonable period of time, the Market Price shall be determined in good faith byan independent investment banking firm selected jointly by the Company and theHolder or, if that selection cannot be made within ten days, by an independentinvestment banking firm selected by the American Arbitration Association inaccordance with its rules, and provided further, that the Company shall pay allof the fees and expenses of any third parties incurred in connection withdetermining the Market Price.

"NASD" shall mean the National Association of Securities Dealers, Inc.

"Option" means any right, warrant or option to subscribe for orpurchase shares of Common Stock or Convertible Securities.

"Other Securities" shall mean any stock (other than Common Stock) andother securities of the Company or any other Person (corporate or otherwise)which the Holder at any time shall be entitled to receive, or shall havereceived, upon the exercise of this Warrant, in lieu of or in addition to CommonStock, or which at any time shall be issuable or shall have been issued inexchange for or in replacement of Common Stock or Other Securities pursuant toSection 4 or otherwise.

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5"Person" shall mean any individual, firm, partnership, corporation,

trust, joint venture, association, joint stock company, limited liabilitycompany, unincorporated organization or any other entity or organization,including a government or agency or political subdivision thereof, and shallinclude any successor (by merger or otherwise) of such entity.

"Purchase Price" shall have the meaning assigned to it in theintroduction of this Warrant, subject to adjustment and readjustment from timeto time as provided in Section 3, and, as so adjusted or readjusted, shallremain in effect until a further adjustment or readjustment thereof is requiredby Section 3.

"Registration Statement" shall have the meaning assigned to it inSection 16.

"Restricted Securities" shall mean (i) this Warrant, (ii) any shares ofCommon Stock (or Other Securities) issued or issuable upon the exercise of thisWarrant which are (or, upon issuance, will be) evidenced by a certificate orcertificates bearing the applicable legend set forth in such Section, and (iii)any shares of Common Stock (or Other Securities) issued subsequent to the fullor any partial exercise of this Warrant as a dividend or other distribution with



respect to, or resulting from a subdivision of the outstanding shares of CommonStock (or other Securities) into a greater number of shares by reclassification,stock splits or otherwise, or in exchange for or in replacement of the CommonStock (or Other Securities) issued upon such exercise, which are evidenced by acertificate or certificates bearing the applicable legend set forth in suchSection.

"Rights" shall have the meaning assigned to it in Section 3.10.

"Securities Act" shall mean the Securities Act of 1933, as amended fromtime to time, and the rules and regulations thereunder, or any successorstatute.

"Term Loan" shall have the meaning assigned to it in the Loan andSecurity Agreement.

"Transfer Agent" shall have the meaning assigned to it in Section 14.

"Violation" shall have the meaning assigned to it in Section 16.

"Warrant" shall have the meaning assigned to it in the introduction tothis Warrant.

"Warrant Register" shall have the meaning assigned to it in Section15.1

"Warrant Shares" shall have the meaning assigned it in the introductionto this Warrant.

2. EXERCISE OF WARRANT.

2.1 Manner of Exercise; Payment of the Purchase Price.

(a) This Warrant may be exercised by the Holder hereof, inwhole or in part, at any time or from time to time on or after August2, 2001, but prior to the Expiration Date, by surrendering to theCompany at its principal office this Warrant, with the form of Electionto Purchase Shares attached hereto as Exhibit A (or a reasonablefacsimile

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6thereof) duly executed by the Holder and accompanied by payment of thePurchase Price for the number of shares of Common Stock specified insuch form. Any exercise by the Holder of this Warrant must be for thepurchase of a minimum of 50,000 Warrant Shares (before giving effect toany share adjustment provided hereunder), except in the event that lessthan 50,000 Warrant Shares are issuable at such time of exercise, inwhich event such exercise must be for the purchase of all of such



Warrant Shares issuable.

(b) Payment of the Purchase Price may be made as follows (orby any combination of the following): (i) in United States currency bycash or delivery of a certified check or bank draft payable to theorder of the Company or by wire transfer to the Company, (ii) bycancellation of all or any part of the unpaid principal amount of thethen outstanding Obligations (as defined in the Loan and SecurityAgreement), (iii) by cancellation of such number of the shares ofCommon Stock otherwise issuable to the Holder upon such exercise asshall be specified in such Election to Purchase Shares, such that theexcess of the aggregate Current Market Price of such specified numberof shares on the date of exercise over the portion of the PurchasePrice attributable to such shares shall equal the Purchase Priceattributable to the shares of Common Stock to be issued upon suchexercise, in which case such amount shall be deemed to have been paidto the Company and the number of shares issuable upon such exerciseshall be reduced by such specified number, or (iv) by surrender to theCompany for cancellation certificates representing shares of CommonStock of the Company owned by the Holder (properly endorsed fortransfer in blank) having a Current Market Price on the date of Warrantexercise equal to the Purchase Price. Notwithstanding the foregoing, solong as a Registration Statement is effective, and such RegistrationStatement is not subject to any Deferral Period, stop order or similarrestriction, Section 2(b)(iii) above shall not apply; provided,however, that nothing herein shall preclude the Holder from effecting acashless exercise (i.e., obtaining a short-term loan) through itsbroker or dealer if such transaction is otherwise in compliance withapplicable securities laws.

2.2 When Exercise Effective. Each exercise of this Warrantshall be deemed to have been effected immediately prior to the close of businesson the Business Day on which this Warrant shall have been surrendered to, andthe Purchase Price shall have been received by, the Company as provided inSection 2.1, and at such time the Person or Persons in whose name or names anycertificate or certificates for shares of Common Stock (or Other Securities)shall be issuable upon such exercise as provided in Section 2.3 shall be deemedto have become the holder or holders of record thereof for all purposes.

2.3 Delivery of Stock Certificates, etc.; Charges, Taxes andExpenses.

(a) As soon as practicable after each exercise of thisWarrant, in whole or in part, and in any event within three BusinessDays thereafter, the Company shall cause to be issued in the name ofand delivered to the Holder hereof or as the Holder may direct,

(i) a certificate or certificates for the number ofshares of Common Stock (or Other Securities) to which theHolder shall be entitled upon such exercise plus, in lieu ofissuance of any fractional share to which the Holder would



otherwise be entitled, if any, a check for the amount of cashequal to the

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7same fraction multiplied by the Exercise Price per share onthe date of Warrant exercise, and

(ii) in case such exercise is for less than all ofthe shares of Common Stock purchasable under this Warrant, anew Warrant or Warrants of like tenor, for the balance of theshares of Common Stock purchasable hereunder.

(b) Issuance of certificates for shares of Common Stock uponthe exercise of this Warrant shall be made without charge to the Holderhereof for any issue or transfer tax or other incidental expense, inrespect of the issuance of such certificates, all of which such taxesand expenses shall be paid by the Company; provided, however, that theCompany shall not be required to pay any tax or taxes which may bepayable in respect of any transfer involved in the issue of anyWarrants or any certificates for shares of Common Stock in a name otherthan that of the Holder, and the Company shall not be required to issueor deliver such Warrant or shares of Common Stock unless or until theperson or persons requesting the issuance thereof shall have paid tothe Company the amount of such tax or shall have established to thesatisfaction of the Company that such tax has been paid.

2.4 Company to Reaffirm Obligations. The Company shall, at thetime of each exercise of this Warrant, upon the request of the Holder hereof,acknowledge in writing its continuing obligation to afford to such Holder allrights to which such Holder shall continue to be entitled after such exercise inaccordance with the terms of this Warrant, provided that if the Holder of thisWarrant shall fail to make any such request, such failure shall not affect thecontinuing obligation of the Company to afford such rights to the Holder.

3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.

3.1 Adjustment of Number of Shares.

Upon each adjustment of the Purchase Price as a result of thecalculations made in this Section 3, this Warrant shall thereafter evidence theright to receive, at the adjusted Purchase Price, that number of shares ofCommon Stock (calculated to the nearest one-hundredth) obtained by dividing (i)the product of the aggregate number of shares covered by this Warrantimmediately prior to such adjustment and the Purchase Price in effectimmediately prior to such adjustment of the Purchase Price by (ii) the PurchasePrice in effect immediately after such adjustment of the Purchase Price. Forpurposes of determining any adjustments pursuant to this Article 3, anyAdditional Warrant Shares that become issuable upon exercise of this Warrantshall be deemed, on a retroactive basis, to have been covered by this Warrant



immediately prior to each adjustment hereunder, and the Purchase Price andnumber of shares covered hereby shall be recalculated accordingly, but withoutduplication of any other adjustments hereunder.

3.2 Adjustment of Purchase Price.

3.2.1 Issuance of Additional Shares of Common Stock.In case the Company at any time or from time to time after the date hereof shallissue or sell Additional Shares of Common Stock (including Additional Shares ofCommon Stock deemed to be issued pursuant to Section 3.3 or 3.4 but excludingAdditional Shares of Common Stock purchasable

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8upon exercise of Rights referred to in Section 3.10) without consideration orfor a consideration per share less than the Current Market Price in effectimmediately prior to such issue or sale, then, and in each such case, subject toSection 3.8, the Purchase Price shall be reduced, concurrently with such issueor sale, to a price (calculated to the nearest .001 of a cent) determined bymultiplying such Purchase Price by a fraction

(a) the numerator of which shall be the sum of (i) the numberof shares of Common Stock outstanding immediately prior to such issueor sale and (ii) the number of shares of Common Stock which theaggregate consideration received by the Company for the total number ofsuch Additional Shares of Common Stock so issued or sold would purchaseat such Current Market Price, and

(b) the denominator of which shall be the number of shares ofCommon Stock outstanding immediately after such issue or sale, providedthat, for the purposes of this Section 3.2.1, (x) immediately after anyAdditional Shares of Common Stock are deemed to have been issuedpursuant to Section 3.3 or 3.4, such Additional Shares shall be deemedto be outstanding, and (y) treasury shares shall not be deemed to beoutstanding.

3.2.2 Extraordinary Dividends and Distributions. Incase the Company at any time or from time to time after the date hereof shalldeclare, order, pay or make a dividend or other distribution (including, withoutlimitation, any distribution of other or additional stock or other securities orproperty or Options by way of dividend or spin-off, reclassification,recapitalization or similar corporate rearrangement) on the Common Stock otherthan (a) a dividend payable in Additional Shares of Common Stock or (b) adividend of Rights referred to in Section 3.10 hereof, then, in each such case,subject to Section 3.8, the Purchase Price in effect immediately prior to theclose of business on the record date fixed for the determination of holders ofany class of securities entitled to receive such dividend or distribution shallbe reduced, effective as of the close of business on such record date, to aprice determined by multiplying such Purchase Price by a fraction



(x) the numerator of which shall be theCurrent Market Price in effect on such record date or, if theCommon Stock trades on an ex-dividend basis, on the date priorto the commencement of ex-dividend trading, less the FairValue of such dividend or distribution applicable to one shareof Common Stock, and

(y) the denominator of which shall be suchCurrent Market Price,

provided that, in the event that the amountof such dividend as so determined is equal to or greater than10% of such Current Market Price or in the event that suchfraction is less than 9/10ths, in lieu of the foregoingadjustment, the Company shall, if reasonably feasible, makeadequate provision so that the Holder shall receive, uponWarrant exercise, a pro rata share of such dividend based uponthe maximum number of shares of Common Stock at the timeissuable to the Holder (determined without regard to whetherthe Warrant is exercisable at such time.)

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93.3 Treatment of Options and Convertible Securities. In case

the Company at any time or from time to time after the date hereof shall issue,sell, grant or assume, or shall fix a record date for the determination ofholders of any class of securities of the Company entitled to receive, anyOptions or Convertible Securities (whether or not the rights thereunder areimmediately exercisable), then, and in each such case, the maximum number ofAdditional Shares of Common Stock (as set forth in the instrument relatingthereto, without regard to any provisions contained therein for a subsequentadjustment of such number) issuable upon the exercise of such Options or, in thecase of Convertible Securities and Options therefor, the conversion or exchangeof such Convertible Securities, shall be deemed to be Additional Shares ofCommon Stock issued as of the time of such issue, sale, grant or assumption or,in case such a record date shall have been fixed, as of the close of business onsuch record date (or, if the Common Stock trades on an ex-dividend basis, on thedate prior to the commencement of ex-dividend trading), provided that suchAdditional Shares of Common Stock shall not be deemed to have been issued unless(i) the consideration per share (determined pursuant to Section 3.5) of suchshares would be less than the Current Market Price in effect on the date of andimmediately prior to such issue, sale, grant or assumption or immediately priorto the close of business on such record date (or, if the Common Stock trades onan ex-dividend basis, on the date prior to the commencement of ex-dividendtrading), as the case may be, and (ii) such Additional Shares of Common Stockare not purchasable pursuant to Rights referred to in Section 3.10, andprovided, further, that in any such case in which Additional Shares of CommonStock are deemed to be issued



(a) whether or not the Additional Shares of Common Stockunderlying such Options or Convertible Securities are deemed to beissued, no further adjustment of the Purchase Price shall be made uponthe subsequent issue or sale of Convertible Securities or shares ofCommon Stock upon the exercise of such Options or the conversion orexchange of such Convertible Securities, except in the case of any suchOptions or Convertible Securities which contain provisions requiring anadjustment, subsequent to the date of the issue or sale thereof, of thenumber of Additional Shares of Common Stock issuable upon the exerciseof such Options or the conversion or exchange of such ConvertibleSecurities by reason of (x) a change of control of the Company, (y) theacquisition by any Person or group of Persons of any specified numberor percentage of the voting securities of the Company or (z) anysimilar event or occurrence, each such case to be deemed hereunder toinvolve a separate issuance of Additional Shares of Common Stock,Options or Convertible Securities, as the case may be;

(b) if such Options or Convertible Securities by their termsprovide, with the passage of time or otherwise, for any increase in theconsideration payable to the Company, or decrease in the number ofAdditional Shares of Common Stock issuable, upon the exercise,conversion or exchange thereof (by change of rate or otherwise), thePurchase Price computed upon the original issue, sale, grant orassumption thereof (or upon the occurrence of the record date, or dateprior to the commencement of ex-dividend trading, as the case may be,with respect thereto), and any subsequent adjustments based thereon,shall, upon any such increase or decrease becoming effective, berecomputed to reflect such increase or decrease insofar as it affectssuch Options, or the rights of conversion or exchange under suchConvertible Securities, which are outstanding at such time;

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10(c) upon the expiration (or purchase by the Company and

cancellation or retirement) of any such Options which shall not havebeen exercised or the expiration of any rights of conversion orexchange under any such Convertible Securities which (or purchase bythe Company and cancellation or retirement of any such ConvertibleSecurities the rights of conversion or exchange under which) shall nothave been exercised, the Purchase Price computed upon the originalissue, sale, grant or assumption thereof (or upon the occurrence of therecord date, or date prior to the commencement of ex-dividend trading,as the case may be, with respect thereto), and any subsequentadjustments based thereon, shall, upon such expiration (or suchcancellation or retirement, as the case may be), be recomputed as if:

(i) in the case of Options for Common Stock orConvertible Securities, the only Additional Shares of Common



Stock issued or sold were the Additional Shares of CommonStock, if any, actually issued or sold upon the exercise ofsuch Options or the conversion or exchange of such ConvertibleSecurities and the consideration received therefor was theconsideration actually received by the Company for the issue,sale, grant or assumption of all such Options, whether or notexercised, plus the consideration actually received by theCompany upon such exercise, or for the issue or sale of allsuch Convertible Securities which were actually converted orexchanged, plus the additional consideration, if any, actuallyreceived by the Company upon such conversion or exchange, and

(ii) in the case of Options for ConvertibleSecurities, only the Convertible Securities, if any, actuallyissued or sold upon the exercise of such Options were issuedat the time of the issue or sale, grant or assumption of suchOptions, and the consideration received by the Company for theAdditional Shares of Common Stock deemed to have then beenissued was the consideration actually received by the Companyfor the issue, sale, grant or assumption of all such Options,whether or not exercised, plus the consideration deemed tohave been received by the Company (pursuant to Section 3.5)upon the issue or sale of such Convertible Securities withrespect to which such Options were actually exercised;

(d) no readjustment pursuant to subdivision (b) or (c) aboveshall have the effect of increasing the Purchase Price by an amount inexcess of the amount of the adjustment thereof originally made inrespect of the issue, sale, grant or assumption of such Options orConvertible Securities; and

(e) in the case of any such Options which expire by theirterms not more than 45 days after the date of issue, sale, grant orassumption thereof, no adjustment of the Purchase Price shall be madeuntil the expiration or exercise of all such Options, whereupon suchadjustment shall be made in the manner provided in subdivision (c)above; and

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11(f) this Section 3.3 shall not apply to the assumption of

Options or Convertible Securities in connection with the acquisition ofa business, whether by merger, consolidation, exchange of stock orotherwise.

3.4 Treatment of Stock Dividends, Stock Splits, etc. In casethe Company at any time or from time to time after the date hereof shall declareor pay any dividend on the Common Stock payable in Common Stock, or shall effecta subdivision of the outstanding shares of Common Stock into a greater number of



shares of Common Stock (by reclassification or otherwise than by payment of adividend in Common Stock), then, and in each such case, Additional Shares ofCommon Stock shall be deemed to have been issued (a) in the case of any suchdividend, immediately after the close of business on the record date for thedetermination of holders of any class of securities entitled to receive suchdividend, or (b) in the case of any such subdivision, at the close of businesson the day immediately prior to the day upon which such corporate action becomeseffective.

3.5 Computation of Consideration. For the purposes of thisSection 3,

(a) the consideration for the issue or sale of any AdditionalShares of Common Stock shall, irrespective of the accounting treatmentof such consideration,

(i) insofar as it consists of cash, be computed atthe amount of cash received by the Company, without deductingany expenses paid or incurred by the Company or anycommissions or compensations paid or concessions or discountsallowed to underwriters, dealers or others performing similarservices in connection with such issue or sale,

(ii) insofar as it consists of property (includingsecurities) other than cash, be computed at the Fair Valuethereof at the time of such issue or sale, and

(iii) in case Additional Shares of Common Stock areissued or sold together with other stock or securities orother assets of the Company for a consideration which coversboth, be the portion of such consideration so received,computed as provided in clauses (i) and (ii) above, allocableto such Additional Shares of Common Stock, such allocation tobe determined in the same manner that the Fair Value ofproperty not consisting of cash or securities is to bedetermined as provided in the definition of 'Fair Value'herein;

(b) Additional Shares of Common Stock deemed to have beenissued pursuant to Section 3.3, relating to Options and ConvertibleSecurities, shall be deemed to have been issued for a consideration pershare determined by dividing

(i) the total amount, if any, received and receivableby the Company as consideration for the issue, sale, grant orassumption of the Options or Convertible Securities inquestion, plus the minimum aggregate amount of additionalconsideration (as set forth in the instruments relatingthereto, without regard to any provision contained therein fora subsequent adjustment of such consideration to protectagainst dilution) payable to the Company upon the exercise in



full of such Options or the conversion or exchange of suchConvertible

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12Securities or, in the case of Options for ConvertibleSecurities, the exercise of such Options for ConvertibleSecurities and the conversion or exchange of such ConvertibleSecurities, in each case computing such consideration asprovided in the foregoing subdivision (a),

by

(ii) the maximum number of shares of Common Stock (asset forth in the instruments relating thereto, without regardto any provision contained therein for a subsequent adjustmentof such number to protect against dilution) issuable upon theexercise of such Options or the conversion or exchange of suchConvertible Securities; and

(c) Additional Shares of Common Stock deemed to have beenissued pursuant to Section 3.4, relating to stock dividends, stocksplits, etc., shall be deemed to have been issued for no consideration.

3.6 Adjustments for Combinations, etc. In case the outstandingshares of Common Stock shall be combined or consolidated, by reclassification orotherwise, into a lesser number of shares of Common Stock, the Purchase Price ineffect immediately prior to such combination or consolidation shall,concurrently with the effectiveness of such combination or consolidation, beproportionately increased.

3.7 Dilution in Case of Other Securities. In case any OtherSecurities shall be issued or sold or shall become subject to issue or sale uponthe conversion or exchange of any stock (or Other Securities) of the Company (orany issuer of Other Securities or any other Person referred to in Section 4) orto subscription, purchase or other acquisition pursuant to any Options issued orgranted by the Company (or any such other issuer or Person) for a considerationsuch as to dilute, on a basis consistent with the standards established in theother provisions of this Section 3, the purchase rights granted by this Warrant,then, and in each such case, the computations, adjustments and readjustmentsprovided for in this Section 3 with respect to the Purchase Price and the numberof shares purchasable upon Warrant exercise shall be made as nearly as possiblein the manner so provided and applied to determine the amount of OtherSecurities from time to time receivable upon the exercise of this Warrant, so asto protect the Holder against the effect of such dilution.

3.8 De Minimis Adjustments. If the amount of any adjustment ofthe Purchase Price per share required pursuant to this Section 3 would be lessthan one tenth (1/10) of one percent (1%) of the Purchase Price, such amount



shall be carried forward and adjustment with respect thereto made at the time ofand together with any subsequent adjustment which, together with such amount andany other amount or amounts so carried forward, shall aggregate a change in thePurchase Price of at least one tenth (1/10) of one percent (1%) of such PurchasePrice. All calculations under this Warrant shall be made to the nearest .001 ofa cent or to the nearest one-hundredth of a share, as the case may be.

3.9 Abandoned Dividend or Distribution. If the Company shalltake a record of the holders of its Common Stock for the purpose of entitlingthem to receive a dividend or

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13other distribution (which results in an adjustment to the Purchase Price underthe terms of this Warrant) and shall, thereafter, and before such dividend ordistribution is paid or delivered to shareholders entitled thereto, legallyabandon its plan to pay or deliver such dividend or distribution, then anyadjustment made to the Purchase Price and number of shares of Common Stockpurchasable upon Warrant exercise by reason of the taking of such record shallbe reversed, and any subsequent adjustments, based thereon, shall be recomputed.

3.10 Shareholder Rights Plan. Notwithstanding the foregoing,in the event that the Company shall distribute "poison pill" rights pursuant toa "poison pill" shareholder rights plan (the "Rights"), the Company shall, inlieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof,make proper provision so that each Holder who exercises a Warrant after therecord date for such distribution and prior to the expiration or redemption ofthe Rights shall be entitled to receive upon such exercise, in addition to theshares of Common Stock issuable upon such exercise, a number of Rights to bedetermined as follows: (i) if such exercise occurs on or prior to the date forthe distribution to the holders of Rights of separate certificates evidencingsuch Rights (the "Distribution Date"), the same number of Rights to which aholder of a number of shares of Common Stock equal to the number of shares ofCommon Stock issuable upon such exercise at the time of such exercise would beentitled in accordance with the terms and provisions of and applicable to theRights; and (ii) if such exercise occurs after the Distribution Date, the samenumber of Rights to which a holder of the number of shares into which theWarrant so exercised was exercisable immediately prior to the Distribution Datewould have been entitled on the Distribution Date (after giving effect to anyadjustments required pursuant to this Section 3) in accordance with the termsand provisions of and applicable to the Rights.

4. CONSOLIDATION, MERGER, ETC.

4.1 Adjustments for Consolidation, Merger, Sale of Assets,Reorganization, etc.

(a) In case the Company after the date hereof (i) shallconsolidate with or merge into any other Person and shall not be the



continuing or surviving corporation of such consolidation or merger, or(ii) shall permit any other Person to consolidate with or merge intothe Company and the Company shall be the continuing or surviving Personbut, in connection with such consolidation or merger, the Common Stockor Other Securities shall be changed into or exchanged for stock orother securities of any other Person or cash or any other property, or(iii) shall transfer all or substantially all of its properties orassets to any other Person, or (iv) shall effect a capitalreorganization or reclassification of the Common Stock or OtherSecurities (other than a capital reorganization or reclassificationresulting in the issue or Additional Shares of Common Stock for whichadjustment in the Purchase Price is provided in Section 3.2.1 or3.2.2), then, and in the case of each such transaction, properprovision shall be made so that, upon the basis and the terms and inthe manner provided in this Warrant, the Holder of this Warrant, uponthe exercise hereof at any time after the consummation of suchtransaction, shall be entitled to receive (at the aggregate PurchasePrice in effect at the time of such consummation for all Common Stockor Other Securities issuable upon such exercise immediately prior tosuch consummation), in lieu of the Common Stock or Other

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14Securities issuable upon such exercise prior to such consummation, thehighest amount of securities, cash or other property to which suchHolder would actually have been entitled as a shareholder upon suchconsummation if such Holder had exercised this Warrant immediatelyprior thereto, subject to adjustments (subsequent to such consummation)as nearly equivalent as possible to the adjustments provided for inSections 3 through 5.

(b) If the Company undertakes a consolidation or merger withor into another corporation, a reverse triangular merger or any othertransaction or series of related transactions pursuant to which allShareholders receive 100% cash consideration for their shares of CommonStock (which transaction may exclude George Wallner or Paul Wallner orany affiliates or associates thereof), then at the Option of the Personacquiring all of such shares of Common Stock, the Holder shall receivein connection with the completion of such transaction(s), withoutexercise and upon surrender of this Warrant, cash in an amount equal to(a) the per share acquisition price payable by the acquiring Person tothe Shareholders for their shares of Common Stock minus the ExercisePrice determined as of the date of completion of such transaction(s),multiplied by (b) the number of Warrant Shares that are eligible forissuance under this Warrant on such date of completion (which, in thecase of a series of related transactions, shall be the date ofcompletion of the final transaction in such series). Upon payment ofsuch amount to the Holder, this Warrant shall automatically expire andthe rights hereunder shall be of no further force or effect.



4.2 Assumption of Obligations. Notwithstanding anythingcontained in this Warrant or in the Loan and Security Agreement to the contrary,the Company shall not effect any of the transactions described in clauses (a)through (d) of Section 4.1 unless, prior to the consummation thereof, eachPerson (other than the Company) which may be required to deliver any stock,securities, cash or property upon the exercise of this Warrant as providedherein shall assume by written instrument (a) the obligations of the Companyunder this Warrant (and if the Company shall survive the consummation of suchtransaction, such assumption shall be in addition to, and shall not release theCompany from, any continuing obligations of the Company under this Warrant), (b)the obligation to deliver to the Holder such shares of stock, securities, cashor property as, in accordance with the foregoing provisions of this Section 3,the Holder may be entitled to receive. Nothing in this Section 4 shall be deemedto authorize the Company to enter into any transaction not otherwise permittedby the Loan and Security Agreement.

5. OTHER DILUTIVE EVENTS. In case any event shall occur as to which theprovisions of Section 3 or Section 4 hereof are not strictly applicable or ifstrictly applicable would not, in the reasonable judgment of the board ofdirectors of the Company, fairly protect the purchase rights represented by thisWarrant in accordance with the essential intent and principles of such Sections,then, in each such case, the board of directors of the Company shall, in goodfaith, make an adjustment in the application of such provisions, in accordancewith the essential intent and principles hereof so as to preserve, withoutdilution, the purchase rights represented by this Warrant.

6. NO DILUTION OR IMPAIRMENT. The Company shall not, by amendment ofits certificate of incorporation or through any consolidation, merger,reorganization, transfer of assets, dissolution, issue or sale of securities orany other voluntary action, avoid or seek to avoid

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15the observance or performance of any of the terms of this Warrant, but will atall times in good faith assist in the carrying out of all such terms and in thetaking of all such action as may be necessary or appropriate in order to protectthe rights of the Holder of this Warrant against dilution or other impairment.Without limiting the generality of the foregoing, the Company (a) shall notpermit the par value of any shares of stock receivable upon the exercise of thisWarrant to exceed the amount payable therefor upon such exercise, (b) shall takeall such action as may be necessary or appropriate in order that the Company mayvalidly and legally issue fully paid and nonassessable shares of stock, freefrom all issuance, stamp or similar taxes, liens, security interests,encumbrances, preemptive rights and charges on the exercise of this Warrant fromtime to time outstanding, and (c) shall not take any action which results in anyadjustment of the Purchase Price if the total number of shares of Common Stock(or Other Securities) issuable after the action upon the exercise of thisWarrant would exceed the total number of shares of Common Stock (or Other



Securities) then authorized by the Company's certificate of incorporation andavailable for the purpose of issue upon such exercise.

7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment orreadjustment in the shares of Common Stock (or Other Securities) issuable uponthe exercise of this Warrant, the Company at its expense shall promptly computesuch adjustment or readjustment in accordance with the terms of this Warrant andprepare a certificate, signed by the Chairman of the Board, President or one ofthe Vice Presidents of the Company, and by the Chief Financial Officer, theTreasurer or one of the Assistant Treasurers of the Company, setting forth suchadjustment or readjustment and showing in reasonable detail the method ofcalculation thereof and the facts upon which such adjustment or readjustment isbased, including a statement of (a) the consideration received or to be receivedby the Company for any Additional Shares of Common Stock issued or sold ordeemed to have been issued, (b) the number of shares of Common Stock outstandingor deemed to be outstanding, and (c) the Purchase Price in effect immediatelyprior to such issue or sale and as adjusted and readjusted (if required bySection 3) on account thereof. The Company shall forthwith mail a copy of suchcertificate to the Holder and shall, upon the written request at any time of theHolder, furnish to the Holder a like certificate. The Company shall also keepcopies of such certificates at its principal office and shall cause the same tobe available for inspection at such office during normal business hours by theHolder or any prospective purchaser of this Warrant designated by the Holder.

8. NOTICES OF CORPORATE ACTION. In the event of:

(a) any taking by the Company of a record of the holders ofany class of securities for the purpose of determining the holdersthereof who are entitled to receive any dividend or other distribution,or any right to subscribe for, purchase or otherwise acquire any sharesof stock of any class or any other securities or property, or toreceive any other right, or

(b) any capital reorganization of the Company, anyreclassification or recapitalization of the capital stock of theCompany, any consolidation or merger involving the Company and anyother Person, any transaction or series of transactions in which morethan 50% of the voting securities of the Company are transferred toanother Person, or any transfer, sale or other disposition of all orsubstantially all the assets of the Company to any other Person, or

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16(c) any voluntary or involuntary dissolution, liquidation or

winding-up of the Company,

the Company shall mail to the Holder a notice specifying (i) the date orexpected date on which any such record is to be taken for the purpose of suchdividend, distribution or right, and the amount and character of such dividend,



distribution or right, and (ii) the date or expected date on which any suchreorganization, reclassification, recapitalization, consolidation, merger,transfer, sale, disposition, dissolution, liquidation or winding-up is to takeplace and the time, if any such time is to be fixed, as of which the holders ofrecord of Common Stock (or Other Securities) shall be entitled to exchange theirshares of Common Stock (or Other Securities) for the securities or otherproperty deliverable upon such reorganization, reclassification,recapitalization, consolidation, merger, transfer, dissolution, liquidation orwinding-up. Such notice shall be mailed at least 30 days prior to the datetherein specified; provided, however, that the failure by the Company to provideany such notice within the time prescribed herein or otherwise in a timelymanner shall have no effect on any of the transactions contemplated herein.

9. REGISTRATION OF COMMON STOCK. If any shares of Common Stock requiredto be reserved for purposes of exercise of this Warrant require registrationwith or approval of any governmental authority under any federal or state law(other than the Securities Act) before such shares may be issued upon exercise,the Company shall, at its expense and as expeditiously as possible, use its bestefforts to cause such shares to be duly registered or approved, as the case maybe. At any such time as Common Stock is listed on any national securitiesexchange, the Company shall, at its expense, obtain promptly and maintain theapproval for listing on each such exchange, upon official notice of issuance,the shares of Common Stock issuable upon exercise of this Warrant and maintainthe listing of such shares after their issuance; and the Company shall also liston such national securities exchange, shall register under the Exchange Act andshall maintain such listing of, any Other Securities that at any time areissuable upon exercise of this Warrant, if and at the time that any securitiesof the same class shall be listed on such national securities exchange by theCompany.

10. RESTRICTIONS ON TRANSFER.

10.1 Restrictive Legends. Except as otherwise permitted bythis Section 10, this Warrant (including any Warrant issued upon the transfer ofthis Warrant or any replacement Warrant issued in connection with the partialexercise of this Warrant or the loss or destruction of this Warrant) shall bestamped or otherwise imprinted with a legend in substantially the followingform:

"THIS WARRANT AND ANY SECURITIES ACQUIREDUPON THE EXERCISE OF THIS WARRANT HAVE NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAYNOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OFEXCEPT PURSUANT TO AN EFFECTIVE REGISTRATIONSTATEMENT UNDER SUCH ACT AND APPLICABLE STATESECURITIES LAWS OR PURSUANT TO AN APPLICABLEEXEMPTION TO THE

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17REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THISWARRANT AND SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OROTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONSSPECIFIED IN THIS WARRANT."

Except as otherwise permitted by this Section 10, each certificate for CommonStock (or Other Securities) issued upon the exercise of this Warrant, and eachcertificate issued upon the transfer of any such Common Stock (or OtherSecurities), shall be stamped or otherwise imprinted with a legend insubstantially the following form:

"THE SECURITIES REPRESENTED BY THISCERTIFICATE HAVE NOT BEEN REGISTERED UNDER THESECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIESLAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OROTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVEREGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLESTATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLEEXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCHACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD,TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT INCOMPLIANCE WITH THE CONDITIONS SPECIFIED IN CERTAINCOMMON STOCK PURCHASE WARRANTS ISSUED BY THE COMPANYPURSUANT TO THE LOAN AND SECURITY AGREEMENT, DATEDAUGUST 2, 2001, BETWEEN THE COMPANY AND CERTAIN OFITS SUBSIDIARIES AS BORROWERS AND AN AFFILIATE OF THEHOLDER. A COMPLETE AND CORRECT COPY OF THE FORM OFSUCH WARRANT IS AVAILABLE FOR INSPECTION AT THEPRINCIPAL OFFICE OF THE COMPANY OR AT THE OFFICE ORAGENCY MAINTAINED BY THE COMPANY AS PROVIDED IN SUCHWARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCHSECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE."

10.2 Transfer to Comply With the Securities Act. RestrictedSecurities may not be sold, assigned, pledged, hypothecated, encumbered or inany manner transferred or disposed of, in whole or in part, except in compliancewith the provisions of the Securities Act and state securities or Blue Sky lawsand the terms and conditions hereof. Any transfer by the Holder of this Warrant(or any part hereof) must be in respect of a minimum of 50,000 Warrant Shares(before giving effect to any share adjustment provided hereunder), except in theevent that less than 50,000 Warrant Shares are issuable at such time oftransfer, in which event such transfer must be in respect of all of such WarrantShares issuable. Prior to effecting any such sale, assignment, pledge,hypothecation, encumbrance, transfer or disposition, the Holder shall inform theCompany and, upon the Company's request, deliver to the Company an opinion ofcounsel,

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18reasonably satisfactory to the Company, to the effect that such transfer doesnot require registration under the Securities Act and is otherwise in compliancewith the Securities Act and any applicable state securities or Blue Sky laws.Notwithstanding the foregoing, the last two sentences of this Section 10.2 shallnot apply in connection with any transfer (without consideration) of thisWarrant to an affiliate of the Holder.

10.3 Termination of Restrictions. The restrictions imposed bythis Section 10 on the transferability of Restricted Securities shall cease andterminate as to any particular Restricted Securities (a) when a registrationstatement with respect to the sale of such securities shall have been declaredeffective under the Securities Act and such securities shall have been disposedof in accordance with such registration statement, (b) when such securities aresold pursuant to Rule 144 (or any similar provision then in force) under theSecurities Act, or (c) when, in the opinion of both counsel for the Holder andcounsel for the Company, such restrictions are no longer required or necessaryin order to protect the Company against a violation of the Securities Act uponany sale or other disposition of such securities without registrationthereunder. Whenever such restrictions shall cease and terminate as to anyRestricted Securities, the Holder shall be entitled to receive from the Company,without expense, new stock certificates of like tenor representing suchRestricted Securities which shall not bear the applicable legends required bySection 10.1.

11. REPRESENTATIONS OF COMPANY.

11.1 Organization and Qualification. The Company is acorporation duly organized and validly existing in good standing under the lawsof the jurisdiction in which it is incorporated, and has the requisite corporatepower to own its properties and to carry on its business as now being conducted.The Company is duly qualified as a foreign corporation to do business and is ingood standing in every jurisdiction in which the nature of the businessconducted by it makes such qualification necessary, except where such failure toqualify or to be in good standing would not have a material adverse effect onthe business or assets of the Company, taken as a whole.

11.2 Authorization; Enforcement; Compliance with OtherInstruments. (a) The Company has the requisite corporate power and authority toenter into and perform its obligations under this Warrant and to issue theWarrant Shares in accordance with this Warrant, (b) the execution and deliveryof this Warrant by the Company and the consummation by it of the transactionscontemplated hereby, including, without limitation, the issuance of this Warrantand the reservation for issuance and the issuance of the Warrant Shares, uponexercise of this Warrant, have been duly authorized by the Company's board ofdirectors and no further consent or authorization is required by the Company,its board of directors or its stockholders, (c) this Warrant has been dulyexecuted and delivered by the Company, and (d) this Warrant constitutes thevalid and binding obligation of the Company enforceable against the Company inaccordance with its terms, except as such enforceability may be limited bygeneral principles of equity or applicable bankruptcy, insolvency,



reorganization, moratorium, liquidation or similar laws relating to, oraffecting generally, the enforcement of creditors' rights and remedies.

11.3 Capitalization and Indebtedness. As of the date hereof,the authorized capital stock of the Company consists of 100,000,000 shares ofCommon Stock, par value $.001

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19per share, of which as of May 9, 2001, 34,388,445 shares are issued andoutstanding. All of the outstanding shares of Common Stock have been validlyissued and are fully paid and nonassessable. No shares of Common Stock aresubject to preemptive rights or any other similar rights or any liens orencumbrances suffered or permitted by the Company. Except as contemplated bythis Warrant or as previously disclosed to the Holder in writing (including inthe Loan and Security Agreement), as of the date hereof, (i) there are nooutstanding Options, warrants, scrip, rights to subscribe to, calls orcommitments of any character whatsoever relating to, or securities or rightsconvertible into, any shares of capital stock of the Company or any of itssubsidiaries, or contracts, commitments, understandings or arrangements by whichthe Company or any of its subsidiaries is or may become bound to issueadditional shares of capital stock of the Company or any of its subsidiaries orOptions, warrants, scrip, rights to subscribe to, calls or commitments of anycharacter whatsoever relating to, or securities or rights convertible into, anyshares of capital stock of the Company or any of its subsidiaries, and (ii)there are no agreements or arrangements under which the Company or any of itssubsidiaries is obligated to register the sale of any of their securities underthe Securities Act. There are no securities or instruments containinganti-dilution or similar provisions that will be triggered by the issuance ofthis Warrant or, upon exercise of this Warrant, the issuance of Warrant Shares,except for anti-dilution provisions which have been validly waived on or priorto the date hereof in respect of the issuance of this Warrant and, upon exerciseof this Warrant, the issuance of Warrant Shares.

11.4 Issuance of Warrants and Warrant Shares. This Warrant isduly authorized and, upon issuance in accordance with the terms hereof, will bevalidly issued, fully paid and nonassessable, free from all issuance, stamp orsimilar taxes, liens and charges with respect to the issue thereof, and shallnot be subject to preemptive rights or other similar rights of stockholders ofthe Company. The Warrant Shares have been duly authorized and reserved forissuance upon exercise of this Warrant, and upon such exercise and full paymenttherefor, will be validly issued, fully paid and nonassessable, free from allissuance, stamp or similar taxes, liens and charges with respect to the issuethereof, and will not be subject to preemptive rights or other similar rights ofstockholders of the Company.

11.5 No Conflicts. The execution, delivery and performance ofthis Warrant by the Company, and the consummation by the Company of thetransactions contemplated hereby (including, without limitation, the issuance of



the Warrant Shares) will not (i) result in a violation of any organizationaldocuments governing the Company or (ii) violate or conflict with, or result in abreach of any provision of, or constitute a default (or an event which withnotice or lapse of time or both would become a default) under, or give to othersany rights of termination, amendment, acceleration or cancellation of, anymaterial agreement, indenture or instrument to which the Company or any of itssubsidiaries is a party, or result in a violation of any law, rule, regulation,order, judgment or decree applicable to the Company or any of its subsidiariesor by which any property or asset of the Company or any of its subsidiaries isbound or affected. Except for filing required pursuant to applicable securitieslaws, the Company is not required to obtain any consent, authorization or orderof, or make any filing or registration with, any court or governmental orregulatory or self-regulatory agency in order for it to execute, deliver orperform any of its obligations under or contemplated by Warrant in accordancewith the terms hereof or thereof. All consents, authorizations, orders, filingsand registrations which the Company is required to obtain pursuant to thepreceding sentence on or prior to the date hereof have been obtained or effectedon or prior to the date hereof.

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2012. Representations Of The Holder.

Upon issuance of this Warrant, the Holder represents and warrants toSections 12.1 through 12.9 below, and upon exercise of this Warrant, the Holderrepresents and warrants to Sections 12.2, 12.3 and 12.4 below.

12.1 Purchase for Own Account. This Warrant is, and theWarrant Shares to be received by the Holder upon exercise hereof will be,acquired for investment for the Holder's own account and not with a view to theresale or distribution of any part thereof, and the Holder has no presentintention of selling, granting any participation in, or otherwise distributingthis Warrant, the Warrant Shares or any part thereof. The Holder does not haveany contract, undertaking, agreement or arrangement with any Person to sell,transfer or grant participation to such Person with respect to this Warrant, theWarrant Shares or any part thereof.

12.2 Disclosure of Information. The Holder is aware of theCompany's business affairs and financial condition, has received and reviewedall information (including all reports, registrations and other documents) filedby the Company with the Commission up to the date hereof) it considers necessaryor appropriate for making an informed and knowledgeable decision as to whetherto acquire this Warrant and further represents that it has had sufficientopportunity to ask questions and receive answers from the Company regarding thenature and affairs of the Company, including its business, properties, prospectsand financial condition.

12.3 Investment Experience. The Holder is an investor insecurities of companies and acknowledges that it is capable of bearing the



economic risk of its investment in this Warrant and the Warrant Shares,including the risk of total loss of any or all of such investments, and has suchknowledge and experience in financial or business matters that is capable ofevaluating the merits and risks of such investments.

12.4 Accredited Investor. The Holder is an "accreditedinvestor" within the meaning of Commission Rule 501 of Regulation D, aspresently in effect.

12.5 Restricted Securities. The Holder understands and herebyacknowledges that (i) the Warrant Shares it may purchase pursuant to theprovisions of this Warrant may not initially be registered under the SecuritiesAct, and in such event will be issued in reliance upon a specific exemption fromthe registration requirements under the Securities Act, which exemption dependsupon, among other things, the bona fide nature of the Holder's investment intentas expressed herein, and (ii) the Warrant Shares must be held indefinitelyunless subsequently registered under the Securities Act or unless an exemptionform registration is otherwise available.

12.6 Rule 144 Restrictions. The Holder is aware of theprovisions of Rule 144, promulgated under the Securities Act, which, insubstance, permit limited public resale of "restricted securities" acquired,directly or indirectly, from the issuer thereof (or from an affiliate of suchissuer), in a non-public offering subject to the satisfaction of certainconditions, if applicable, including, among other things: (i) the availabilityof certain public information about the Company; (ii) the resale occurring notless than one (1) year after the party has purchased and paid for the securitiesto be sold, unless such securities are registered; (iii) the sale being

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21made through a broker in an unsolicited "broker transaction" or in transactionsdirectly with a market maker (as said term is defined under the Exchange Act),(iv) the amount of securities being sold during any three-month period notexceeding the specified limitations stated therein, and (v) the filing of Form144 with the Commission.

12.7 Rule 144 Limitations. The Holder understands andacknowledges that at the time it wishes to sell some or all of the WarrantShares there may not be an active public market upon which to make such a sale.The Holder further understands that if all the requirements of Rule 144 are notsatisfied, registration under the Securities Act, compliance with Regulation Aor Regulation S under the Securities Act or some other registration exemptionwill be required to permit the Holder to sell the Warrant Shares.

12.8 No Related Transactions. The Holder is not in any wayaffiliated with (i) Michelle Investments LLC, (ii) Norton Family Living TrustUTD 2-4-91, (iii) Norton Family Living Trust UTD 2-15-96, (iv) Stevenson FamilyTrust UTD 7-1-97, (v) JR Ventures Limited Partnership, (vi) Daniel D. Diethelm,



or (vii) Michael Norton, and the issuance of this Warrant is not, and anyexercise will not be, related to the above-described parties purchase of sharesof Common Stock, or securities exercisable into, convertible into orexchangeable for such shares.

12.9 Ownership of Company Common Stock. Immediately prior tothe date hereof, the Holder (and its affiliates) own less than 1,600,000 sharesof the Company's Common Stock.

13. AVAILABILITY OF INFORMATION. So long as the Company shall not havefiled a registration statement pursuant to Section 12 of the Exchange Act or aregistration statement pursuant to the requirements of the Securities Act, theCompany shall, at any time and from time to time, upon the request of any holderof Restricted Securities and upon the request of any Person designated by suchholder as a prospective purchaser of any Restricted Securities, furnish inwriting to such holder or such prospective purchaser, as the case may be, astatement as of a date not earlier than 12 months prior to the date of suchrequest of the nature of the business of the Company and the products andservices it offers and copies of the Company's most recent balance sheet andprofit and loss and retained earnings statements, together with similarfinancial statements for such part of the two preceding fiscal years as theCompany shall have been in operation, all such financial statements to beaudited to the extent audited statements are reasonable available, providedthat, in any event the most recent financial statements so furnished shallinclude a balance sheet as of a date less than 16 months prior to the date ofsuch request, statements of profit and loss and retained earnings for the 12months preceding the date of such balance sheet, and, if such balance sheet isnot as of a date less than six months prior to the date of such request,additional statements of profit and loss and retained earnings for the periodfrom the date of such balance sheet to a date less than six months prior to thedate of such request. If the Company shall have filed a registration statementpursuant to the requirements of Section 12 of the Exchange Act or a registrationstatement pursuant to the requirements of the Securities Act, the Company shalluse reasonable best efforts to timely file the reports required to be filed byit under the Securities Act and the Exchange Act (including, but not limited to,the reports under Sections 13 and 15(d) of the Exchange Act referred to insubparagraph (c) of Rule 144 adopted by the Commission under the SecuritiesAct)) and will take such further action as any holder of Restricted Securitiesmay reasonably request, all to the

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22extent required from time to time to enable such holder to sell RestrictedSecurities without registration under the Securities Act within the limitationof the exemptions provided by (a) Rule 144 under the Securities Act, as suchrules may be amended from time to time, or (b) any successor rule or regulationhereafter adopted by the Commission.

14. RESERVATION OF STOCK, ETC. The Company shall at all times reserve



and keep available, solely for issuance and delivery upon exercise of thisWarrant, the number of shares of Common Stock (or Other Securities) from time totime issuable upon exercise of this Warrant at the time outstanding. All sharesof Common Stock (or Other Securities) issuable upon exercise of this Warrantshall be duly authorized and, when issued upon such exercise, shall be validlyissued and, in the case of shares, fully paid and nonassessable with noliability on the part of the holders thereof, and, in the case of allsecurities, shall be free from all issuance, stamp or similar taxes, liens,security interests, encumbrances, preemptive rights and charges. The transferagent for the Common Stock, which may be the Company ("Transfer Agent"), andevery subsequent Transfer Agent for any shares of the Company's capital stockissuable upon the exercise of any of the purchase rights represented by thisWarrant, are hereby irrevocably authorized and directed at all times until theExpiration Date to reserve such number of authorized and unissued shares asshall be requisite for such purpose. The Company shall keep copies of thisWarrant on file with the Transfer Agent for the Common Stock and with everysubsequent Transfer Agent for any shares of the Company's capital stock issuableupon the exercise of the rights of purchase represented by this Warrant. TheCompany shall supply such Transfer Agent with duly executed stock certificatesfor such purpose. All Certificates surrendered upon the exercise of the rightsthereby evidenced shall be canceled, and such canceled Warrants shall constitutesufficient evidence of the number of shares of stock which have been issued uponthe exercise of such Warrants. Subsequent to the Expiration Date, no shares ofstock need be reserved by the Company in respect of this Warrant.

15. REGISTRATION AND TRANSFER OF WARRANTS, ETC.

15.1 Warrant Register; Ownership of Warrants. This Warrantshall be numbered and shall be registered in a warrant register (the "WarrantRegister") as it is issued and transferred, which Warrant Register shall bemaintained by the Company at its principal office or, at the Company's electionand expense, by a warrant agent or the Transfer Agent. The Company shall beentitled to treat the registered Holder of this Warrant on the Warrant Registeras the owner in fact thereof for all purposes and shall not be bound torecognize any equitable or other claim to or interest in this Warrant on thepart of any other Person, and shall not be affected by any notice to thecontrary, except that, if and when this Warrant is properly assigned in blank,the Company may (but shall not be obligated to) treat the bearer thereof as theowner of this Warrant for all purposes. Subject to Section 10, a Warrant, ifproperly assigned, may be exercised by a new holder without a new Warrant firsthaving been issued.

15.2 Transfer of Warrants. Subject to Section 10, this Warrantshall be freely transferable to any affiliate of the Holder. In addition,subject to compliance with Section 10, if applicable, this Warrant and allrights hereunder are transferable in whole or in part, without charge to theHolder hereof, upon surrender of this Warrant with a properly executed Form ofAssignment attached hereto as Exhibit B at the principal office of the Company.Upon any partial transfer, the Company shall at its expense issue and deliver tothe Holder a new Warrant



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23of like tenor, in the name of the Holder, which shall be exercisable for suchnumber of shares of Common Stock with respect to which rights under this Warrantwere not so transferred.

15.3 Replacement of Warrants. On receipt by the Company ofevidence reasonably satisfactory to the Company of the loss, theft, destructionor mutilation of this Warrant and, in the case of any such loss, theft ordestruction of this Warrant, on delivery of an indemnity agreement reasonablysatisfactory in form and amount to the Company or, in the case of any suchmutilation, on surrender of such Warrant to the Company at its principal officeand cancellation thereof, the Company at its expense shall execute and deliver,in lieu thereof, a new Warrant of like tenor.

15.4 Adjustments To Purchase Price and Number of Shares.Notwithstanding any adjustment in the Purchase Price or in the number or kind ofshares of Common Stock purchasable upon exercise of this Warrant, any Warranttheretofore or thereafter issued may continue to express the same number andkind of shares of Common Stock as are stated in this Warrant, as initiallyissued.

15.5 Fractional Shares. Notwithstanding any adjustmentpursuant to Section 3 in the number of shares of Common Stock covered by thisWarrant or any other provision of this Warrant, the Company shall not berequired to issue fractions of shares upon exercise of this Warrant or todistribute certificates which evidence fractional shares. In lieu of fractionalshares, the Company shall make payment to the Holder, at the time of exercise ofthis Warrant as herein provided, in an amount in cash equal to such fractionmultiplied by the Current Market Price of a share of Common Stock.

16. REGISTRATION RIGHTS.

16.1 Registration.

(a) Initial Registration Statement. Within forty five (45)days after the date hereof, the Company shall prepare and file aregistration statement under the Securities Act (a "RegistrationStatement") for the registration of (i) the Initial Warrant Shares,(ii) the Additional Warrant Shares (assuming that the maximum number ofsuch Additional Warrant Shares will be issued to the Holder) and (iii)at the Company's option, shares of Common Stock issued or issuable toother security holders of the Company. The Company shall use bestefforts to cause such Registration Statement to become effective withinninety (90) days after the date hereof.

(b) Piggyback Registration. If at any time during thefive-year period commencing the date hereof, the Company determines toregister for its own account or the account of others under the



Securities Act any of its Common Stock for cash, other than on Form S-4or Form S-8 or their then equivalents, the Company shall send to eachHolder written notice of such determination and, if within ten (10)days after receipt of such notice, such Holder shall so request inwriting, the Company shall include in such Registration Statement allor any part of the Warrant Shares that the Holder requests to beregistered provided that, in the case of shares that have not yet beenissued upon exercise, the Holder includes an irrevocable commitment toexercise the Warrant immediately

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24prior to effectiveness of the Registration Statement. In the event thatthe managing underwriter for an offering advises the Company that theinclusion of such securities in the offering would be detrimental tothe Company's offering, such securities shall be reduced pro rata amongall Persons (including the Company) that are selling securities subjectto such Registration Statement. A Registration Statement under thisSection 16.1(b) shall remain effective for a period of at least 30 daysfrom effectiveness.

(c) Termination. The obligations under this Section 16.1,including the obligations to maintain the effectiveness of aRegistration Statement pursuant to Section 16.1(a) and to grantpiggyback registration rights with respect to other Companyregistrations pursuant to Section 16.1(b), shall terminate upon theearlier of (i) the resale by the Holder of all Warrant Shares, (ii)such time as any Holder may resell all of its Warrant Shares withoutrestriction (including, without limitation, as to volume) withoutregistration under the Securities Act or (iii) seven (7) years from thedate of original issuance of this Warrant.

16.2 Holder Information; Registration Expenses. The Holdershall promptly supply the Company with all such information as the Company mayreasonably request for preparation of a Registration Statement and anyamendments or supplements thereto. All expenses incurred in connection with thepreparation and filing of a Registration Statement, including, withoutlimitation, all federal and "blue sky" registration and qualification fees,printers' and accounting fees, fees and disbursements of counsel for theCompany, listing fees of any securities exchange or automated trading orquotation system on which the Common Stock is listed or traded and the legalfees and related disbursements of Holder's legal counsel, but excluding brokers'discounts and commissions, shall be borne by the Company.

16.3 Registration Related Covenants of Company. In connectionwith the registration obligations of the Company provided in this Section 16,the Company hereby covenants that it shall:

(a) provide to the Holder such number of copies as the Holder



may reasonably request of (i) a Registration Statement, (ii) eachamendment and supplement thereto, and (iii) the prospectus includedtherein, to facilitate the Holder's disposition of the Warrant Sharescontemplated by a Registration Statement;

(b) prepare and file with the Commission any amendment orsupplement to a Registration Statement or the prospectus includedtherein as may be necessary to correct any statement or omission or toupdate any material information therein (with due regard to theCompany's potential need to maintain in confidence undisclosedinformation relating to pending transactions or other corporatematters);

(c) use best efforts, once a Registration Statement isdeclared effective, to keep the Registration Statement effective(subject to subsections 16.1(b) and 16.3(d)) until the earlier of (i)the date on which all of the Warrant Shares have been sold, and (ii)the date on which all of the Warrant Shares may be immediately soldwithout restriction (including, without limitation, as to volume byeach holder thereof) without registration under the Securities Act;provided, however, that in no event shall the Company be

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25required to keep in effect the Registration Statement hereunder beyond(i) with respect to the registration contemplated by Section 16.1(a),the earliest of the dates set forth in Section 16.1(c) and (ii) withrespect to a registration under Section 16.1(b), the thirty (30) dayperiod set forth therein;

(d) promptly notify the Holder of any period (a "DeferralPeriod") during which the Holder must discontinue its use ordissemination of the prospectus included in a Registration Statement(including by reason of the fact that there is a material event ordevelopment involving the Company, that the Company intends to effect aprimary offering of securities, or that the information in theprospectus needs to be amended or supplemented); provided, however,that the Company shall use best efforts to ensure that (i) no DeferralPeriod runs for more than 30 consecutive days, and (ii) the aggregatenumber of days in all Deferral Periods does not exceed 60 days in any12-month period; and

(e) notify the Holder promptly after the Company receivesnotice of the issuance of any stop order by the Commission suspendingthe effectiveness of a Registration Statement, or the threat orinitiation of any proceeding for such purpose, and use commerciallyreasonable efforts to prevent the issuance of any stop order or toobtain its withdrawal if such stop order should be issued.



16.4 Indemnification.

(a) By the Company. With respect to a Registration Statement, to theextent permitted by law, the Company will indemnify and hold harmless theHolder, the legal counsel and accountants for the Holder and each Person, ifany, who controls the Holder within the meaning of the Securities Act or theExchange Act (collectively, the "Holder Indemnified Parties"), against anylosses, claims, damages, or liabilities (joint or several) to which they maybecome subject under the Securities Act, the Exchange Act or other federal orstate law, insofar as such losses, claims, damages, or liabilities (or actionsin respect thereof) arise out of or are based upon any of the followingstatements, omissions or violations (collectively a "Violation"):

(i) any untrue statement or alleged untrue statement of amaterial fact contained in a Registration Statement, including anypreliminary prospectus or final prospectus contained therein or anyamendments or supplements thereto;

(ii) the omission or alleged omission to state therein amaterial fact required to be stated therein, or necessary to make thestatements therein not misleading, or

(iii) any violation or alleged violation by the Company of theSecurities Act, the Exchange Act, any federal or state securities lawor any rule or regulation promulgated under the Securities Act, theExchange Act or any federal or state securities law in connection withthe offering covered by a Registration Statement;

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26and the Company will reimburse such Holder Indemnified Parties for any legal orother expenses reasonably incurred by them, as incurred, in connection withinvestigating or defending any such loss, claim, damage, liability or action;provided however, that the indemnity agreement contained in this subsection 16.4(a) shall not apply to amounts paid in settlement of any such loss, claim,damage, liability or action if such settlement is effected without the consentof the Company (which consent shall not be unreasonably withheld), nor shall theCompany be liable in any such case for any such loss, claim, damage, liabilityor action to the extent that it arises out of or is based upon a Violation which(i) occurs in reliance upon and in conformity with written information furnishedexpressly for use in connection with such registration by any of such HolderIndemnified Parties with respect to the Holder or (ii) arises out of theHolder's failure to satisfy prospectus delivery or other distributionrequirements in connection with such registration.

(b) By the Holder. With respect to a Registration Statement,to the extent permitted by law, the Holder will indemnify and holdharmless the Company, each of its directors, each of its officers whohas signed the Registration Statement, each Person, if any, who



controls the Company within the meaning of the Securities Act, legalcounsel and accountants for the Company and other shareholders of theCompany against any losses, claims, damages or liabilities (joint orseveral) to which the Company or any such director, officer,controlling Person or other shareholder (collectively, the "CompanyIndemnified Parties") may become subject under the Securities Act, theExchange Act or other federal or state law, insofar as such losses,claims, damages or liabilities (or actions in respect thereto) ariseout of or are based upon any Violation, in each case to the extent (andonly to the extent) that such Violation occurs in reliance upon and inconformity with written information furnished by the Holder withrespect to such Holder expressly for use in connection with suchregistration; and the Holder will reimburse any legal or other expensesreasonably incurred by any Company Indemnified Party in connection withinvestigating or defending any such loss, claim, damage, liability oraction; provided, however, that the indemnity agreement contained inthis subsection 16.4(b) shall not apply to amounts paid in settlementof any such loss, claim, damage, liability or action if such settlementis effected without the consent of the Holder (which consent shall notbe unreasonably withheld); and provided further, that in no event shallthe Holder's cumulative, aggregate liability under this subsection16.4(b) or under subsection 16.4(d), or under such subsectionstogether, exceed the net proceeds received by the Holder in theregistered offering out of which such Violation arises.

(c) Notice. Promptly after receipt by an indemnified partyunder this Section 16.4 of notice of the commencement of any action(including any governmental action), such indemnified party will, if aclaim in respect thereof is to be made against any indemnifying partyunder this Section 16.4, deliver to the indemnifying party a writtennotice of the commencement thereof and the indemnifying party shallhave the right to participate in, and, to the extent the indemnifyingparty so desires, jointly with any other indemnifying party similarlynoticed, to assume the defense thereof with counsel mutuallysatisfactory to the parties; provided, however, that an indemnifiedparty (together with all other indemnified parties which may berepresented without conflict by one counsel) shall have the right toretain its own counsel, with the fees and expenses to be paid by theindemnifying party, if representation of such indemnified party by the

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27counsel retained by the indemnifying party would be inappropriate dueto actual or potential conflict of interests between such indemnifiedparty and any other party represented by such counsel in suchproceeding. The failure to deliver written notice to the indemnifyingparty within a reasonable time of the commencement of any such action,shall not relieve such indemnifying party of any liability to theindemnified party under this Section 16.4.



(d) Contribution. If the indemnification provided for in thisSection 16.4 is held by a court of competent jurisdiction to beunavailable to an indemnified party with respect to any loss,liability, claim, damage, or expense referred to therein, then theindemnifying party, in lieu of indemnifying such indemnified partyhereunder, shall contribute to the amount paid or payable by suchindemnified party as a result of such loss, liability, claim, damage,or expense in such proportion as is appropriate to reflect the relativefault of the indemnifying party on the one hand and of the indemnifiedparty on the other in connection with the statements or omissions thatresulted in such loss, liability, claim, damage, or expense as well asany other relevant equitable considerations. The relative fault of theindemnifying party and of the indemnified party shall be determined byreference to, among other things, whether the untrue or alleged untruestatement of a material fact or the omission to state a material factrelates to information supplied by the indemnifying party or by theindemnified party and the parties' relative intent, knowledge, accessto information, and opportunity to correct or prevent such statement oromission; provided, however, that (A) in no event shall the Holder'scumulative, aggregate liability under subsection 16.4(b) or under thissubsection 16.4(d) hereof, or under such subsections together, exceedthe net proceeds from the offering received by such Holder; and (B) noPerson guilty of fraudulent misrepresentation (within the meaning ofSection 11(f) of the Securities Act) will be entitled to contributionfrom any Person who was not guilty of such fraudulentmisrepresentation. Notwithstanding anything to the contrary herein, noparty shall be liable for contribution under this subsection 16.4(d),except to the extent and under the circumstances as such party wouldhave been liable to indemnify under subsection 16.4(a) or subsection16.4(b) hereof, as the case may be, if such indemnification wereenforceable under applicable law.

(e) Survival. The obligations of the Company and the Holderunder this Section 16.4 shall survive the completion of any offering ofWarrant Shares under the Registration Statement or otherwise.

16.5 Rule 144 Reporting. With a view to making available tothe Holder the benefits of certain rules and regulations of the Commission whichmay at any time permit the sale of the Warrant Shares to the public withoutregistration, after such time as a public market exists for the Common Stock andso long as the Holder owns any Warrant Shares, the Company agrees to:

(a) furnish to the Holder forthwith upon request (i) a writtenstatement by the Company (A) as to its compliance with the reportingrequirements of said Rule 144, and of the Securities Act and theExchange Act (for so long as it is subject to the reportingrequirements of the Exchange Act), or (B) that it qualifies as aregistrant whose securities



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28may be resold pursuant to Form S-3 (at any time after it so qualifiesafter the date hereof), (ii) a copy of the most recent annual orquarterly report of the Company, and (iii) such other reports anddocuments of the Company and information as the Holder may reasonablyrequest in availing itself of any rule or regulation of the Commissionallowing the Holder to sell any such securities without registration orpursuant to Form S-3 (for so long as the Company is subject to thereporting requirements of the Exchange Act).

17. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that therewould be no adequate remedy at law to the Holder of this Warrant in the event ofany default or threatened default by the Company in the performance of orcompliance with any of the terms of this Warrant and accordingly, the Companyagrees that, in addition to any other remedy to which the Holder may be entitledat law or in equity, the Holder shall be entitled to seek to compel specificperformance of the obligations of the Company under this Warrant, without theposting of any bond, in accordance with the terms and conditions of this Warrantin any court of the United States or any State thereof having jurisdiction, andif any action should be brought in equity to enforce any of the provisions ofthis Warrant, the Company shall not raise the defense that there is an adequateremedy at law. Except as otherwise provided by law, a delay or omission by theHolder hereto in exercising any right or remedy accruing upon any such breachshall not impair the right or remedy or constitute a waiver of or acquiescencein any such breach. No remedy shall be exclusive of any other remedy. Allavailable remedies shall be cumulative.

18. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in thisWarrant shall be construed as conferring upon the Holder hereof any rights as ashareholder of the Company or as imposing any obligation on the Holder topurchase any securities or as imposing any liabilities on the Holder as ashareholder of the Company, whether such obligation or liabilities are assertedby the Company or by creditors of the Company.

19. NOTICES. All notices and other communications provided for orpermitted hereunder shall be made in made in writing by hand delivery,telecopier, any courier guaranteeing overnight delivery or first classregistered or certified mail, return receipt requested, postage prepaid,addressed to:

If to the Holder:

Ableco Holding LLC450 Park AvenueNew York, New York 10022Attention: Timothy FordingFax: (212) 758-9330



With a copy to:

Schulte Roth & Zabel LLP919 Third AvenueNew York, New York 10022Attention: Robert B. Loper, Esq.Fax: 212-593-5955

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29If to the Company:

Hypercom Corporation2851 West Kathleen RoadPhoenix, Arizona 85053Attention: Chief Financial OfficerFax: 602-504-4582

With a copy to:

Snell & Wilmer L.L.P.One South Church AvenueSuite 1500Tucson, Arizona 85701Attention: Steven D. Pidgeon, Esq.Fax: 602-382-6070

All such notices and communications (and deliveries) shall be deemed tohave been duly given: at the time delivered by hand, if personally delivered;when receipt is acknowledged, if telecopied; on the next Business Day, if timelydelivered to a courier guaranteeing overnight delivery; and five days afterbeing deposited in the mail, if sent first class or certified mail, returnreceipt requested, postage prepaid; provided, that the exercise of this Warrantshall be effective in the manner provided in Section 2.

20. AMENDMENTS. This Warrant and any term hereof may not be amended,modified, supplemented or terminated, and waivers or consents to departures fromthe provisions hereof may not be given, except by written instrument dulyexecuted by the Company and a majority in interest of the Holders of Series CWarrants (including any Warrants issued upon the partial assignment and transferof this Warrant).

21. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are forconvenience of reference only and shall not limit or otherwise affect themeaning of terms contained herein. Unless the context of this Warrant otherwiserequires: (1) words of any gender shall be deemed to include each other gender;(2) words using the singular or plural number shall also include the plural orsingular number, respectively; (3) the words "hereof," "herein," and "hereunder"and words of similar import when used in this Warrant shall refer to this



Warrant as a whole and not to any particular provision of this Warrant, andSection and paragraph references are to the Sections and paragraphs of thisWarrant unless otherwise specified; (4) the word "including" and words ofsimilar import when used in this Warrant shall mean "including, withoutlimitation," unless otherwise specified; (5) "or" is not exclusive; and (6)provisions apply to successive events and transactions.

22. GOVERNING LAW. This Warrant shall be governed by, and construed inaccordance with, the laws of the State of Delaware (without giving effect to theconflict of laws principles thereof).

23. COSTS AND ATTORNEYS' FEES. In the event that any action, suit orother proceeding is instituted concerning or arising out of this Warrant, theCompany shall pay all of

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30the Holder's costs and reasonable attorneys' fees incurred in each and everysuch action, suit or other proceeding, including any and all appeals orpetitions therefrom.

24. JUDICIAL PROCEEDINGS. Any legal action, suit or proceeding broughtagainst the Company or the Holder with respect to this Warrant shall be broughtin any federal or state court in the State of Delaware, and by execution anddelivery of this Warrant, the Company and the Holder hereby irrevocably andunconditionally waive any claim (by way of motion, as a defense or otherwise) ofimproper venue, that it is not subject personally to the jurisdiction of suchcourt, that such courts are an inconvenient forum or that this Warrant or thesubject matter may not be enforced in or by such court. The Company and theHolder hereby irrevocably and unconditionally consent to the service of processof any of the aforementioned courts in any such action, suit or proceeding bythe mailing of copies thereof by registered or certified mail, postage prepaid,at its address set forth or provided for in Section 17, such service to becomeeffective 10 days after such mailing. Nothing herein contained shall be deemedto affect the right of any party to serve process in any manner permitted by lawor commence legal proceedings or otherwise proceed against any other party inany other jurisdiction to enforce judgments obtained in any action, suit orproceeding brought pursuant to this Section.

25. EFFECTIVENESS AND SHAREHOLDER APPROVAL. The Additional WarrantShares shall be deemed to be granted, and may only be exercised by the Holder,upon approval of the shareholders of the Company to the extent required byapplicable law, rule or regulation (including of any exchange upon which theCommon Stock is traded). In the event that it is determined that shareholderapproval is so required, the Company shall promptly take all commerciallyreasonable steps necessary to seek to obtain such approval, including thepreparation, filing and distribution to shareholders of any necessary proxy orconsent solicitation statement.




By: /s/ Jonathon E. Killmer-----------------------------------------

Title: Executive Vice Presidentand Chief Operating Officer

--------------------------------------

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31ELECTION TO PURCHASE SHARES

The undersigned hereby irrevocably elects to exercise the Warrant topurchase ____ shares of Common Stock, par value $.0001 per share ("CommonStock"), of Hypercom Corporation and hereby [makes payment of $________therefor] [or] [makes payment therefor by application pursuant to Section2.1(b)(ii) of the Warrant of $_______ aggregate principal amount of Term Loans(as defined in the Warrant)] [or] [makes payment therefor by reduction pursuantto Section 2.1(b)(iii) of the Warrant of the number of shares of Common Stockotherwise issuable to the Holder upon Warrant exercise by ___ shares] [or][makes payment therefor by delivery of the following Common Stock Certificatesof the Company (properly endorsed for transfer in blank) for cancellation by theCompany pursuant to Section 2.1(b)(iv) of the Warrant, certificates of which areattached hereto for cancellation ___________ [list certificates by number andamount]]. The undersigned hereby requests that certificates for such shares beissued and delivered as follows:

ISSUE TO:-----------------------------------------------------------------------

(NAME)

--------------------------------------------------------------------------------(ADDRESS, INCLUDING ZIP CODE)

--------------------------------------------------------------------------------(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)

DELIVER TO:---------------------------------------------------------------------

(NAME)


If the number of shares of Common Stock purchased (and/or reduced)hereby is less than the number of shares of Common Stock covered by the Warrant,the undersigned requests that a new Warrant representing the number of shares ofCommon Stock not so purchased (or reduced) be issued and delivered as follows:



ISSUE TO:-----------------------------------------------------------------------

(NAME OF HOLDER)


DELIVER TO:---------------------------------------------------------------------

(NAME OF HOLDER)


Dated: , 200 HOLDER------------- -

By:-----------------------------------------

Name:---------------------------------------

Title:--------------------------------------

32ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, andtransfers unto the Assignee named below all of the rights of the undersigned topurchase Common Stock, par value $.0001 per share ("Common Stock") of HYPERCOMCorporation represented by the Warrant, with respect to the number of shares ofCommon Stock set forth below:

<TABLE><CAPTION>

NAME OF ASSIGNEE ADDRESS NUMBER OF SHARES---------------- ------- ----------------

<S> <C> <C>---------------------- ---------------------- -------------------------------

---------------------- ---------------------- -------------------------------

---------------------- ---------------------- -------------------------------

---------------------- ---------------------- -------------------------------

---------------------- ---------------------- -------------------------------</TABLE>

and does hereby irrevocably constitute and appoint Hypercom Corporation to makesuch transfer on its books maintained for that purpose, with full power of



substitution in the premises.

Dated: , 200 ABLECO HOLDING LLC--------------- -

Signature Guaranteed

By:------------------------------- -----------------------------------------

Name:------------------------------- ---------------------------------------

Title:--------------------------------------

NOTICE: The signature to this Assignment must correspond with the name upon theface of the within Warrant in every particular, without alteration orenlargement or any change whatever.



1EXHIBIT 10.3

THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOTBEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIESLAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OFEXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT ANDAPPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THEREGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCHSECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT INCOMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT.


COMMON STOCK PURCHASE WARRANT

No. D-1 July 31, 2001

Warrant to Purchase 312,477Shares of Common Stock

Hypercom Corporation, a Delaware corporation (the "Company"),for value received, hereby certifies that ROTH CAPITAL PARTNERS LLC, or itsregistered assigns (the "Holder"), is entitled to purchase from the Company312,477 duly authorized, validly issued, fully paid and nonassessable shares ofCommon Stock (the "Warrant Shares"), at a purchase price per share equal to$5.33 (the "Purchase Price"), at any time or from time to time on or after July31, 2001 but prior to 5:00 P.M., Central Daylight Time, on July 30, 2006 (the"Expiration Date"), all subject to the terms, conditions and adjustments setforth below in this Warrant.

This Warrant initially evidences the Holder's right topurchase up to 312,477 shares of the Company's Common Stock subject toadjustment as provided herein. Capitalized terms used herein and not otherwisedefined herein shall have the meanings assigned such terms in the Loan andSecurity Agreement.

1. DEFINITIONS. As used herein, unless the contextotherwise requires, the following terms shall have the meanings indicated:

"Additional Shares of Common Stock" shall mean all shares(including treasury shares) of Common Stock issued or sold (or, pursuant toSection 3.3 or 3.4, deemed to be issued) by the Company after the date hereof,whether or not subsequently reacquired or retired by the Company, other than

(a) (i) This Warrant and shares issued upon the exerciseof this Warrant and (ii) such number of additional shares as may become



issuable upon the exercise of this Warrant by reason of adjustmentsrequired pursuant to the anti-dilution provisions applicable to thisWarrant as in effect on the date hereof,

2(b) (i) Options and shares issued upon the exercise of

Options or the conversion of Convertible Securities issued by theCompany pursuant to the Loan and Security Agreement or otherwise beforethe date hereof, and (ii) such additional number of shares as maybecome issuable by reason of adjustments required pursuant toanti-dilution provisions applicable to such Options or ConvertibleSecurities, as in effect on the date hereof,

(c) (i) Options and shares issued upon the exercise ofOptions granted by the Company to any of its directors, officers,employees, consultants or agents or their affiliates after the datehereof pursuant to any compensation or benefit plan approved by theCompany's board of directors or, if not pursuant to any such plan, thenpursuant to any other resolution of the board of directors of theCompany; provided in each such case that the exercise or purchase pricefor any such share shall not be less than 85% of the fair market value(determined in good faith by the Company's Board of Directors) of theCommon Stock on the date of grant (whether or not the grant isconditioned on other events, such as shareholder approval), and (ii)such additional number of shares as may become issuable upon theexercise of any such Options by reason of adjustments required pursuantto anti-dilution provisions applicable to such Options,

(d) Options or Common Stock issued to third-partystrategic or joint venture partners of, or licensors to, the Company,as approved by the board of directors of the Company, not to exceedshares representing in the aggregate 10% of the Company's Common Stockon a fully diluted basis,

(e) Options or Common Stock issued to third parties inconnection with the purchase of assets or businesses, whether bymerger, consolidation, purchase of assets or stock or otherwise, asapproved by the board of directors of the Company,

(f) Common Stock issued to Michelle Investments LLCpursuant to that certain Stock Purchase Agreement, dated July 31, 2001,between the Company and Michelle Investments LLC, and

(g) Common Stock issued to Norton Family Living Trust UTD2-4-91, Norton Family Living Trust UTD 2-15-96, Stevenson Family LivingTrust UTD 7/1/97, JR Norton Ventures Limited Partnership, Michael R.Norton, Daniel D. Diethelm and Matthew A. Diethelm pursuant to thatcertain Stock Purchase Agreement, dated July 30, 2001 between theCompany and such parties.

"Business Day" shall mean any day other than a Saturday or a



Sunday or a day on which commercial banking institutions in the New York, NewYork or in Chicago, Illinois are authorized by law to be closed. Any referenceto "days" (unless Business Days are specified) shall mean calendar days.

"Commission" shall mean the Securities and Exchange Commissionor any successor agency having jurisdiction to enforce the Securities Act.

2

3"Common Stock" shall mean the company's common stock, par

value per share, $0.001, such term to include any stock into which such CommonStock shall have been changed or any stock resulting from any reclassificationof such Common Stock, and all other stock of any class or classes (howeverdesignated) of the Company the holders of which have the right, withoutlimitation as to amount, either to all or to a share of the balance of currentdividends and liquidating dividends after the payment of dividends anddistributions on any shares entitled to preference.

"Company" shall have the meaning assigned to it in theintroduction to this Warrant, such term to include any corporation or otherentity which shall succeed to or assume the obligations of the Company hereunderin compliance with Section 4.

"Company Indemnified Parties" shall have the meaning assignedto it in Section 16.

"Convertible Securities" shall mean any evidences ofindebtedness, shares of stock (other than Common Stock) or other securitiesdirectly or indirectly convertible into or exchangeable for Additional Shares ofCommon Stock.

"Current Market Price" shall mean, on any date specifiedherein, the average of the daily Market Price during the 10 consecutive tradingdays before such date (except with respect to the exercise of any Option grantedby the Company pursuant to any Company Option plan or agreement, in which case"Current Market Price" or any similar term shall be as defined in such plan oragreement), except that, if on any such date the shares of Common Stock are notlisted or admitted for trading on any national securities exchange or quoted inthe over-the-counter market, the Current Market Price shall be the Market Priceon such date.

"Deferral Period" shall have the meaning assigned to it inSection 16.

"Distribution Date" shall have the meaning assigned to it inSection 3.10.

"Exchange Act" shall mean the Securities Exchange Act of 1934,



as amended from time to time, and the rules and regulations thereunder, or anysuccessor statute.

"Expiration Date" shall have the meaning assigned to it in theintroduction to this Warrant.

"Fair Value" shall mean, on any date specified herein (i) inthe case of cash, the dollar amount thereof, (ii) in the case of a security, theCurrent Market Price, and (iii) in all other cases, the fair value thereof (asof a date which is within 20 days of the date as of which the determination isto be made) determined jointly by the Company and the Holder; provided, however,that if such parties are unable to reach agreement within a reasonable period oftime, the Fair Value shall be determined in good faith, by an independentinvestment banking firm selected jointly by the Company and the Holder or, ifthat selection cannot be made within ten days, by an independent investmentbanking firm selected by the American Arbitration Association in accordance withits rules, and provided further, that the Company shall pay all of

3

4the fees and expenses of any third parties incurred in connection withdetermining the Fair Value.

"Holder" shall have the meaning assigned to it in theintroduction to this Warrant.

"Holder Indemnified Parties" shall have the meaning assignedto it in Section 16.

"Loan and Security Agreement" means that certain Loan andSecurity Agreement, dated as of the date hereof, as amended or otherwisemodified from time to time, between the Company and certain of its subsidiaries,and Foothill Capital Corporation, as agent, together with the other lender(s)signatory thereto.

"Market Price" shall mean, on any date specified herein, theamount per share of the Common Stock, equal to (i) the last reported sale priceof such Common Stock, regular way, on such date or, in case no such sale takesplace on such date, the average of the closing bid and asked prices thereofregular way on such date, in either case as officially reported on the principalnational securities exchange on which such Common Stock is then listed oradmitted for trading, (ii) if such Common Stock is not then listed or admittedfor trading on any national securities exchange but is designated as a nationalmarket system security by the NASD, the last reported trading price of theCommon Stock on such date, (iii) if there shall have been no trading on suchdate or if the Common Stock is not so designated, the average of the closing bidand asked prices of the Common Stock on such date as shown by the NASD automatedquotation system, or (iv) if such Common Stock is not then listed or admittedfor trading on any national exchange or quoted in the over-the-counter market,



the fair value thereof (as of a date which is within 20 days of the date as ofwhich the determination is to be made) determined jointly by the Company and theHolder; provided, however, that if such parties are unable to reach agreementwithin a reasonable period of time, the Market Price shall be determined in goodfaith by an independent investment banking firm selected jointly by the Companyand the Holder or, if that selection cannot be made within ten days, by anindependent investment banking firm selected by the American ArbitrationAssociation in accordance with its rules, and provided further, that the Companyshall pay all of the fees and expenses of any third parties incurred inconnection with determining the Market Price.

"NASD" shall mean the National Association of SecuritiesDealers, Inc.

"Option" means any right, warrant or option to subscribe foror purchase shares of Common Stock or Convertible Securities.

"Other Securities" shall mean any stock (other than CommonStock) and other securities of the Company or any other Person (corporate orotherwise) which the Holder at any time shall be entitled to receive, or shallhave received, upon the exercise of this Warrant, in lieu of or in addition toCommon Stock, or which at any time shall be issuable or shall have been issuedin exchange for or in replacement of Common Stock or Other Securities pursuantto Section 4 or otherwise.

"Person" shall mean any individual, firm, partnership,corporation, trust, joint venture, association, joint stock company, limitedliability company, unincorporated organization

4

5or any other entity or organization, including a government or agency orpolitical subdivision thereof, and shall include any successor (by merger orotherwise) of such entity.

"Purchase Price" shall have the meaning assigned to it in theintroduction of this Warrant, subject to adjustment and readjustment from timeto time as provided in Section 3, and, as so adjusted or readjusted, shallremain in effect until a further adjustment or readjustment thereof is requiredby Section 3.

"Registration Statement " shall have the meaning assigned toit in Section 16.

"Restricted Securities" shall mean (i) this Warrant, (ii) anyshares of Common Stock (or Other Securities) issued or issuable upon theexercise of this Warrant which are (or, upon issuance, will be) evidenced by acertificate or certificates bearing the applicable legend set forth in Section10.1, and (iii) any shares of Common Stock (or Other Securities) issued



subsequent to the full or any partial exercise of this Warrant as a dividend orother distribution with respect to, or resulting from a subdivision of theoutstanding shares of Common Stock (or other Securities) into a greater numberof shares by reclassification, stock splits or otherwise, or in exchange for orin replacement of the Common Stock (or Other Securities) issued upon suchexercise, which are evidenced by a certificate or certificates bearing theapplicable legend set forth in such Section.

"Rights" shall have the meaning assigned to it in Section3.10.

"Securities Act" shall mean the Securities Act of 1933, asamended from time to time, and the rules and regulations thereunder, or anysuccessor statute.

"Transfer Agent" shall have the meaning assigned to it inSection 14

"Violation" shall have the meaning assigned to it in Section16.

"Warrant" shall have the meaning assigned to it in theintroduction to this Warrant.

"Warrant Register" shall have the meaning assigned to it inSection 15.1

"Warrant Shares" shall have the meaning assigned it in theintroduction to this Warrant.

2. EXERCISE OF WARRANT.

2.1. Manner of Exercise; Payment of the PurchasePrice. (a) This Warrant may be exercised by the Holder hereof, in whole or inpart, at any time or from time to time on or after July 31, 2001 but prior tothe Expiration Date, by surrendering to the Company at its principal office thisWarrant, with the form of Election to Purchase Shares attached hereto as ExhibitA (or a reasonable facsimile thereof) duly executed by the Holder andaccompanied by payment of the Purchase Price for the number of shares of CommonStock specified in such form. Any exercise by the Holder of this Warrant must befor the purchase of a minimum of 50,000 Warrant Shares (before giving effect toany share adjustment provided hereunder), except

5

6in the event that less than 50,000 Warrant Shares are issuable at such time ofexercise, in which event such exercise must be for the purchase of all of suchWarrant Shares issuable.



(b) Payment of the Purchase Price may be made asfollows (or by any combination of the following): (i) in United States currencyby cash or delivery of a certified check or bank draft payable to the order ofthe Company or by wire transfer to the Company, (ii) by cancellation of suchnumber of the shares of Common Stock otherwise issuable to the Holder upon suchexercise as shall be specified in such Election to Purchase Shares, such thatthe excess of the aggregate Current Market Price of such specified number ofshares on the date of exercise over the portion of the Purchase Priceattributable to such shares shall equal the Purchase Price attributable to theshares of Common Stock to be issued upon such exercise, in which case suchamount shall be deemed to have been paid to the Company and the number of sharesissuable upon such exercise shall be reduced by such specified number, or (iii)by surrender to the Company for cancellation certificates representing shares ofCommon Stock of the Company owned by the Holder (properly endorsed for transferin blank) having a Current Market Price on the date of Warrant exercise equal tothe Purchase Price. Notwithstanding the foregoing, so long as a RegistrationStatement is effective, and such Registration Statement is not subject to anyDeferral Period, stop order or similar restriction, Section 2(b)(ii) above shallnot apply; provided, however, that nothing herein shall preclude the Holder fromeffecting a cashless exercise (i.e., obtaining a short-term loan) through itsbroker or dealer if such transaction is otherwise in compliance with applicablesecurities laws.

2.2. When Exercise Effective. Each exercise ofthis Warrant shall be deemed to have been effected immediately prior to theclose of business on the Business Day on which this Warrant shall have beensurrendered to, and the Purchase Price shall have been received by, the Companyas provided in Section 2.1, and at such time the Person or Persons in whose nameor names any certificate or certificates for shares of Common Stock (or OtherSecurities) shall be issuable upon such exercise as provided in Section 2.3shall be deemed to have become the holder or holders of record thereof for allpurposes.

2.3. Delivery of Stock Certificates, etc.;Charges, Taxes and Expenses. (a) As soon as practicable after each exercise ofthis Warrant, in whole or in part, and in any event within three Business Daysthereafter, the Company shall cause to be issued in the name of and delivered tothe Holder hereof or as the Holder may direct,

(i) a certificate or certificates forthe number of shares of Common Stock (or Other Securities) to which theHolder shall be entitled upon such exercise plus, in lieu of issuanceof any fractional share to which the Holder would otherwise beentitled, if any, a check for the amount of cash equal to the samefraction multiplied by the Purchase Price per share on the date ofWarrant exercise, and

(ii) in case such exercise is for lessthan all of the shares of Common Stock purchasable under this Warrant,a new Warrant or Warrants of like tenor, for the balance of the sharesof Common Stock purchasable hereunder.



(b) Issuance of certificates for shares ofCommon Stock upon the exercise of this Warrant shall be made without charge tothe Holder hereof for any issue or

6

7transfer tax or other incidental expense, in respect of the issuance of suchcertificates, all of which such taxes and expenses shall be paid by the Company;provided, however, that the Company shall not be required to pay any tax ortaxes which may be payable in respect of any transfer involved in the issue ofany Warrants or any certificates for shares of Common Stock in a name other thanthat of the Holder, and the Company shall not be required to issue or deliversuch Warrant or shares of Common Stock unless or until the person or personsrequesting the issuance thereof shall have paid to the Company the amount ofsuch tax or shall have established to the satisfaction of the Company that suchtax has been paid.

2.4. Company to Reaffirm Obligations. The Companyshall, at the time of each exercise of this Warrant, upon the request of theHolder hereof, acknowledge in writing its continuing obligation to afford tosuch Holder all rights to which such Holder shall continue to be entitled aftersuch exercise in accordance with the terms of this Warrant, provided that if theHolder of this Warrant shall fail to make any such request, such failure shallnot affect the continuing obligation of the Company to afford such rights to theHolder.

3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.

3.1. Adjustment of Number of Shares.

Upon each adjustment of the Purchase Price as aresult of the calculations made in this Section 3, this Warrant shall thereafterevidence the right to receive, at the adjusted Purchase Price, that number ofshares of Common Stock (calculated to the nearest one-hundredth) obtained bydividing (i) the product of the aggregate number of shares covered by thisWarrant immediately prior to such adjustment and the Purchase Price in effectimmediately prior to such adjustment of the Purchase Price by (ii) the PurchasePrice in effect immediately after such adjustment of the Purchase Price.

3.2. Adjustment of Purchase Price.

3.2.1. Issuance of Additional Shares of CommonStock. In case the Company at any time or from time to time after the datehereof shall issue or sell Additional Shares of Common Stock (includingAdditional Shares of Common Stock deemed to be issued pursuant to Section 3.3 or3.4 but excluding Additional Shares of Common Stock purchasable upon exercise ofRights referred to in Section 3.10) without consideration or for a considerationper share less than the Current Market Price in effect immediately prior to such



issue or sale, then, and in each such case, subject to Section 3.8, the PurchasePrice shall be reduced, concurrently with such issue or sale, to a price(calculated to the nearest .001 of a cent) determined by multiplying suchPurchase Price by a fraction

(a) the numerator of which shall be the sum of(i) the number of shares of Common Stock outstanding immediately priorto such issue or sale and (ii) the number of shares of Common Stockwhich the aggregate consideration received by the Company for the totalnumber of such Additional Shares of Common Stock so issued or soldwould purchase at such Current Market Price, and

7

8(b) the denominator of which shall be the number

of shares of Common Stock outstanding immediately after such issue orsale, provided that, for the purposes of this Section 3.2.1, (x)immediately after any Additional Shares of Common Stock are deemed tohave been issued pursuant to Section 3.3 or 3.4, such Additional Sharesshall be deemed to be outstanding, and (y) treasury shares shall not bedeemed to be outstanding.

3.2.2. Extraordinary Dividends and Distributions.In case the Company at any time or from time to time after the date hereof shalldeclare, order, pay or make a dividend or other distribution (including, withoutlimitation, any distribution of other or additional stock or other securities orproperty or Options by way of dividend or spin-off, reclassification,recapitalization or similar corporate rearrangement) on the Common Stock otherthan (a) a dividend payable in Additional Shares of Common Stock or (b) adividend of Rights referred to in Section 3.10 hereof, then, in each such case,subject to Section 3.8, the Purchase Price in effect immediately prior to theclose of business on the record date fixed for the determination of holders ofany class of securities entitled to receive such dividend or distribution shallbe reduced, effective as of the close of business on such record date, to aprice determined by multiplying such Purchase Price by a fraction

(x) the numerator of which shall be theCurrent Market Price in effect on such record date or, if theCommon Stock trades on an ex-dividend basis, on the date priorto the commencement of ex-dividend trading, less the FairValue of such dividend or distribution applicable to one shareof Common Stock, and

(y) the denominator of which shall besuch Current Market Price,

provided that, in the event that the amount



of such dividend as so determined is equal to or greater than10% of such Current Market Price or in the event that suchfraction is less than 9/10ths, in lieu of the foregoingadjustment, the Company shall, if reasonably feasible, makeadequate provision so that the Holder shall receive, uponWarrant exercise, a pro rata share of such dividend based uponthe maximum number of shares of Common Stock at the timeissuable to the Holder (determined without regard to whetherthe Warrant is exercisable at such time.)

3.3. Treatment of Options and ConvertibleSecurities. In case the Company at any time or from time to time after the datehereof shall issue, sell, grant or assume, or shall fix a record date for thedetermination of holders of any class of securities of the Company entitled toreceive, any Options or Convertible Securities (whether or not the rightsthereunder are immediately exercisable), then, and in each such case, themaximum number of Additional Shares of Common Stock (as set forth in theinstrument relating thereto, without regard to any provisions contained thereinfor a subsequent adjustment of such number) issuable upon the exercise of suchOptions or, in the case of Convertible Securities and Options therefor, theconversion or exchange of such Convertible Securities, shall be deemed to beAdditional

8

9Shares of Common Stock issued as of the time of such issue, sale, grant orassumption or, in case such a record date shall have been fixed, as of the closeof business on such record date (or, if the Common Stock trades on anex-dividend basis, on the date prior to the commencement of ex-dividendtrading), provided that such Additional Shares of Common Stock shall not bedeemed to have been issued unless (i) the consideration per share (determinedpursuant to Section 3.5) of such shares would be less than the Current MarketPrice in effect on the date of and immediately prior to such issue, sale, grantor assumption or immediately prior to the close of business on such record date(or, if the Common Stock trades on an ex-dividend basis, on the date prior tothe commencement of ex-dividend trading), as the case may be, and (ii) suchAdditional Shares of Common Stock are not purchasable pursuant to Rightsreferred to in Section 3.10, and provided, further, that in any such case inwhich Additional Shares of Common Stock are deemed to be issued

(a) whether or not the Additional Shares ofCommon Stock underlying such Options or Convertible Securities aredeemed to be issued, no further adjustment of the Purchase Price shallbe made upon the subsequent issue or sale of Convertible Securities orshares of Common Stock upon the exercise of such Options or theconversion or exchange of such Convertible Securities, except in thecase of any such Options or Convertible Securities which containprovisions requiring an adjustment, subsequent to the date of the issueor sale thereof, of the number of Additional Shares of Common Stock



issuable upon the exercise of such Options or the conversion orexchange of such Convertible Securities by reason of (x) a change ofcontrol of the Company, (y) the acquisition by any Person or group ofPersons of any specified number or percentage of the voting securitiesof the Company or (z) any similar event or occurrence, each such caseto be deemed hereunder to involve a separate issuance of AdditionalShares of Common Stock, Options or Convertible Securities, as the casemay be;

(b) if such Options or Convertible Securities bytheir terms provide, with the passage of time or otherwise, for anyincrease in the consideration payable to the Company, or decrease inthe number of Additional Shares of Common Stock issuable, upon theexercise, conversion or exchange thereof (by change of rate orotherwise), the Purchase Price computed upon the original issue, sale,grant or assumption thereof (or upon the occurrence of the record date,or date prior to the commencement of ex-dividend trading, as the casemay be, with respect thereto), and any subsequent adjustments basedthereon, shall, upon any such increase or decrease becoming effective,be recomputed to reflect such increase or decrease insofar as itaffects such Options, or the rights of conversion or exchange undersuch Convertible Securities, which are outstanding at such time;

(c) upon the expiration (or purchase by theCompany and cancellation or retirement) of any such Options which shallnot have been exercised or the expiration of any rights of conversionor exchange under any such Convertible Securities which (or purchase bythe Company and cancellation or retirement of any such ConvertibleSecurities the rights of conversion or exchange under which) shall nothave been exercised, the Purchase Price computed upon the originalissue, sale, grant or assumption thereof (or upon the occurrence of therecord date, or date prior to the commencement of

9

10ex-dividend trading, as the case may be, with respect thereto), and anysubsequent adjustments based thereon, shall, upon such expiration (orsuch cancellation or retirement, as the case may be), be recomputed asif:

(i) in the case of Options for CommonStock or Convertible Securities, the only Additional Shares ofCommon Stock issued or sold were the Additional Shares ofCommon Stock, if any, actually issued or sold upon theexercise of such Options or the conversion or exchange of suchConvertible Securities and the consideration received thereforwas the consideration actually received by the Company for theissue, sale, grant or assumption of all such Options, whetheror not exercised, plus the consideration actually received by



the Company upon such exercise, or for the issue or sale ofall such Convertible Securities which were actually convertedor exchanged, plus the additional consideration, if any,actually received by the Company upon such conversion orexchange, and

(ii) in the case of Options forConvertible Securities, only the Convertible Securities, ifany, actually issued or sold upon the exercise of such Optionswere issued at the time of the issue or sale, grant orassumption of such Options, and the consideration received bythe Company for the Additional Shares of Common Stock deemedto have then been issued was the consideration actuallyreceived by the Company for the issue, sale, grant orassumption of all such Options, whether or not exercised, plusthe consideration deemed to have been received by the Company(pursuant to Section 3.5) upon the issue or sale of suchConvertible Securities with respect to which such Options wereactually exercised;

(d) no readjustment pursuant to subdivision (b)or (c) above shall have the effect of increasing the Purchase Price byan amount in excess of the amount of the adjustment thereof originallymade in respect of the issue, sale, grant or assumption of such Optionsor Convertible Securities; and

(e) in the case of any such Options which expireby their terms not more than 45 days after the date of issue, sale,grant or assumption thereof, no adjustment of the Purchase Price shallbe made until the expiration or exercise of all such Options, whereuponsuch adjustment shall be made in the manner provided in subdivision (c)above; and

(f) this Section 3.3 shall not apply to theassumption of Options or Convertible Securities in connection with theacquisition of a business, whether by merger, consolidation, exchangeof stock or otherwise.

3.4. Treatment of Stock Dividends, Stock Splits,etc. In case the Company at any time or from time to time after the date hereofshall declare or pay any dividend on the Common Stock payable in Common Stock,or shall effect a subdivision of the outstanding shares of Common Stock into agreater number of shares of Common Stock (by reclassification or otherwise thanby payment of a dividend in Common Stock), then, and in each such case,

10

11Additional Shares of Common Stock shall be deemed to have been issued (a) in thecase of any such dividend, immediately after the close of business on the record



date for the determination of holders of any class of securities entitled toreceive such dividend, or (b) in the case of any such subdivision, at the closeof business on the day immediately prior to the day upon which such corporateaction becomes effective.

3.5. Computation of Consideration. For thepurposes of this Section 3,

(a) the consideration for the issue or sale ofany Additional Shares of Common Stock shall, irrespective of theaccounting treatment of such consideration,

(i) insofar as it consists of cash, becomputed at the amount of cash received by the Company,without deducting any expenses paid or incurred by the Companyor any commissions or compensations paid or concessions ordiscounts allowed to underwriters, dealers or othersperforming similar services in connection with such issue orsale,

(ii) insofar as it consists of property(including securities) other than cash, be computed at theFair Value thereof at the time of such issue or sale, and

(iii) in case Additional Shares of CommonStock are issued or sold together with other stock orsecurities or other assets of the Company for a considerationwhich covers both, be the portion of such consideration soreceived, computed as provided in clauses (i) and (ii) above,allocable to such Additional Shares of Common Stock, suchallocation to be determined in the same manner that the FairValue of property not consisting of cash or securities is tobe determined as provided in the definition of `Fair Value'herein;

(b) Additional Shares of Common Stock deemed tohave been issued pursuant to Section 3.3, relating to Options andConvertible Securities, shall be deemed to have been issued for aconsideration per share determined by dividing

(i) the total amount, if any, receivedand receivable by the Company as consideration for the issue,sale, grant or assumption of the Options or ConvertibleSecurities in question, plus the minimum aggregate amount ofadditional consideration (as set forth in the instrumentsrelating thereto, without regard to any provision containedtherein for a subsequent adjustment of such consideration toprotect against dilution) payable to the Company upon theexercise in full of such Options or the conversion or exchangeof such Convertible Securities or, in the case of Options forConvertible Securities, the exercise of such Options for



Convertible Securities and the conversion or exchange of suchConvertible Securities, in each case computing suchconsideration as provided in the foregoing subdivision (a),

by

11

12(ii) the maximum number of shares of

Common Stock (as set forth in the instruments relatingthereto, without regard to any provision contained therein fora subsequent adjustment of such number to protect againstdilution) issuable upon the exercise of such Options or theconversion or exchange of such Convertible Securities; and

(c) Additional Shares of Common Stock deemed tohave been issued pursuant to Section 3.4, relating to stock dividends,stock splits, etc., shall be deemed to have been issued for noconsideration.

3.6. Adjustments for Combinations, etc. In casethe outstanding shares of Common Stock shall be combined or consolidated, byreclassification or otherwise, into a lesser number of shares of Common Stock,the Purchase Price in effect immediately prior to such combination orconsolidation shall, concurrently with the effectiveness of such combination orconsolidation, be proportionately increased.

3.7. Dilution in Case of Other Securities. Incase any Other Securities shall be issued or sold or shall become subject toissue or sale upon the conversion or exchange of any stock (or Other Securities)of the Company (or any issuer of Other Securities or any other Person referredto in Section 4) or to subscription, purchase or other acquisition pursuant toany Options issued or granted by the Company (or any such other issuer orPerson) for a consideration such as to dilute, on a basis consistent with thestandards established in the other provisions of this Section 3, the purchaserights granted by this Warrant, then, and in each such case, the computations,adjustments and readjustments provided for in this Section 3 with respect to thePurchase Price and the number of shares purchasable upon Warrant exercise shallbe made as nearly as possible in the manner so provided and applied to determinethe amount of Other Securities from time to time receivable upon the exercise ofthis Warrant, so as to protect the Holder against the effect of such dilution.

3.8. De Minimis Adjustments. If the amount of anyadjustment of the Purchase Price per share required pursuant to this Section 3would be less than one tenth (1/10) of one percent (1%) of the Purchase Price,such amount shall be carried forward and adjustment with respect thereto made atthe time of and together with any subsequent adjustment which, together withsuch amount and any other amount or amounts so carried forward, shall aggregate



a change in the Purchase Price of at least one tenth (1/10) of one percent (1%)of such Purchase Price. All calculations under this Warrant shall be made to thenearest .001 of a cent or to the nearest one-hundredth of a share, as the casemay be.

3.9. Abandoned Dividend or Distribution. If theCompany shall take a record of the holders of its Common Stock for the purposeof entitling them to receive a dividend or other distribution (which results inan adjustment to the Purchase Price under the terms of this Warrant) and shall,thereafter, and before such dividend or distribution is paid or delivered toshareholders entitled thereto, legally abandon its plan to pay or deliver suchdividend or distribution, then any adjustment made to the Purchase Price andnumber of shares of Common Stock purchasable upon Warrant exercise by reason ofthe taking of such record shall be reversed, and any subsequent adjustments,based thereon, shall be recomputed.

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133.10. Shareholder Rights Plan. Notwithstanding the

foregoing, in the event that the Company shall distribute "poison pill" rightspursuant to a "poison pill" shareholder rights plan (the "Rights"), the Companyshall, in lieu of making any adjustment pursuant to Section 3.2.1 or Section3.2.2 hereof, make proper provision so that each Holder who exercises a Warrantafter the record date for such distribution and prior to the expiration orredemption of the Rights shall be entitled to receive upon such exercise, inaddition to the shares of Common Stock issuable upon such exercise, a number ofRights to be determined as follows: (i) if such exercise occurs on or prior tothe date for the distribution to the holders of Rights of separate certificatesevidencing such Rights (the "Distribution Date"), the same number of Rights towhich a holder of a number of shares of Common Stock equal to the number ofshares of Common Stock issuable upon such exercise at the time of such exercisewould be entitled in accordance with the terms and provisions of and applicableto the Rights; and (ii) if such exercise occurs after the Distribution Date, thesame number of Rights to which a holder of the number of shares into which theWarrant so exercised was exercisable immediately prior to the Distribution Datewould have been entitled on the Distribution Date (after giving effect to anyadjustments required pursuant to this Section 3) in accordance with the termsand provisions of and applicable to the Rights.

4. CONSOLIDATION, MERGER, ETC.

4.1. Adjustments for Consolidation, Merger, Saleof Assets, Reorganization, etc. (a) In case the Company after the date hereof(i) shall consolidate with or merge into any other Person and shall not be thecontinuing or surviving corporation of such consolidation or merger, or (ii)shall permit any other Person to consolidate with or merge into the Company andthe Company shall be the continuing or surviving Person but, in connection withsuch consolidation or merger, the Common Stock or Other Securities shall be



changed into or exchanged for stock or other securities of any other Person orcash or any other property, or (iii) shall transfer all or substantially all ofits properties or assets to any other Person, or (iv) shall effect a capitalreorganization or reclassification of the Common Stock or Other Securities(other than a capital reorganization or reclassification resulting in the issueof Additional Shares of Common Stock for which adjustment in the Purchase Priceis provided in Section 3.2.1 or 3.2.2), then, and in the case of each suchtransaction, proper provision shall be made so that, upon the basis and theterms and in the manner provided in this Warrant, the Holder of this Warrant,upon the exercise hereof at any time after the consummation of such transaction,shall be entitled to receive (at the aggregate Purchase Price in effect at thetime of such consummation for all Common Stock or Other Securities issuable uponsuch exercise immediately prior to such consummation), in lieu of the CommonStock or Other Securities issuable upon such exercise prior to suchconsummation, the highest amount of securities, cash or other property to whichsuch Holder would actually have been entitled as a shareholder upon suchconsummation if such Holder had exercised this Warrant immediately priorthereto, subject to adjustments (subsequent to such consummation) as nearlyequivalent as possible to the adjustments provided for in Sections 3 through 5.

(b) If the Company undertakes a consolidation ormerger with or into another corporation, a reverse triangular merger or anyother transaction or series of related

13

14transactions pursuant to which all Shareholders receive 100% cash considerationfor their shares of Common Stock (which transaction may exclude George Wallneror Paul Wallner or any affiliates or associates thereof), then at the Option ofthe Person acquiring all of such shares of Common Stock, the Holder shallreceive in connection with the completion of such transaction(s), withoutexercise and upon surrender of this Warrant, cash in an amount equal to (a) theper share acquisition price payable by the acquiring Person to the Shareholdersfor their shares of Common Stock minus the Purchase Price determined as of thedate of completion of such transaction(s), multiplied by (b) the number ofWarrant Shares that are eligible for issuance under this Warrant on such date ofcompletion (which, in the case of a series of related transactions, shall be thedate of completion of the final transaction in such series). Upon payment ofsuch amount to the Holder, this Warrant shall automatically expire and therights hereunder shall be of no further force or effect.

4.2. Assumption of Obligations. Notwithstandinganything contained in this Warrant to the contrary, the Company shall not effectany of the transactions described in clauses (i) through (iv) of Section 4.1(a)unless, prior to the consummation thereof, each Person (other than the Company)which may be required to deliver any stock, securities, cash or property uponthe exercise of this Warrant as provided herein shall assume by writteninstrument (a) the obligations of the Company under this Warrant (and if theCompany shall survive the consummation of such transaction, such assumption



shall be in addition to, and shall not release the Company from, any continuingobligations of the Company under this Warrant), (b) the obligation to deliver tothe Holder such shares of stock, securities, cash or property as, in accordancewith the foregoing provisions of this Section 4, the Holder may be entitled toreceive.

5. OTHER DILUTIVE EVENTS. In case any event shall occuras to which the provisions of Section 3 or Section 4 hereof are not strictlyapplicable or if strictly applicable would not, in the reasonable judgment ofthe board of directors of the Company, fairly protect the purchase rightsrepresented by this Warrant in accordance with the essential intent andprinciples of such Sections, then, in each such case, the board of directors ofthe Company shall, in good faith, make an adjustment in the application of suchprovisions, in accordance with the essential intent and principles hereof so asto preserve, without dilution, the purchase rights represented by this Warrant.

6. NO DILUTION OR IMPAIRMENT. The Company shall not, byamendment of its certificate of incorporation or through any consolidation,merger, reorganization, transfer of assets, dissolution, issue or sale ofsecurities or any other voluntary action, avoid or seek to avoid the observanceor performance of any of the terms of this Warrant, but will at all times ingood faith assist in the carrying out of all such terms and in the taking of allsuch action as may be necessary or appropriate in order to protect the rights ofthe Holder of this Warrant against dilution or other impairment. Withoutlimiting the generality of the foregoing, the Company (a) shall not permit thepar value of any shares of stock receivable upon the exercise of this Warrant toexceed the amount payable therefor upon such exercise, (b) shall take all suchaction as may be necessary or appropriate in order that the Company may validlyand legally issue fully paid and nonassessable shares of stock, free from allissuance, stamp or similar taxes, liens, security interests, encumbrances,preemptive rights and charges on the exercise of this Warrant from time to timeoutstanding, and (c) shall not take any action which

14

15results in any adjustment of the Purchase Price if the total number of shares ofCommon Stock (or Other Securities) issuable after the action upon the exerciseof this Warrant would exceed the total number of shares of Common Stock (orOther Securities) then authorized by the Company's certificate of incorporationand available for the purpose of issue upon such exercise.

7. CERTIFICATE AS TO ADJUSTMENTS. In each case of anyadjustment or readjustment in the shares of Common Stock (or Other Securities)issuable upon the exercise of this Warrant, the Company at its expense shallpromptly compute such adjustment or readjustment in accordance with the terms ofthis Warrant and prepare a certificate, signed by the Chairman of the Board,President or one of the Vice Presidents of the Company, and by the ChiefFinancial Officer, the Treasurer or one of the Assistant Treasurers of theCompany, setting forth such adjustment or readjustment and showing in reasonable



detail the method of calculation thereof and the facts upon which suchadjustment or readjustment is based, including a statement of (a) theconsideration received or to be received by the Company for any AdditionalShares of Common Stock issued or sold or deemed to have been issued, (b) thenumber of shares of Common Stock outstanding or deemed to be outstanding, and(c) the Purchase Price in effect immediately prior to such issue or sale and asadjusted and readjusted (if required by Section 3) on account thereof. TheCompany shall forthwith mail a copy of such certificate to the Holder and shall,upon the written request at any time of the Holder, furnish to the Holder a likecertificate. The Company shall also keep copies of such certificates at itsprincipal office and shall cause the same to be available for inspection at suchoffice during normal business hours by the Holder or any prospective purchaserof this Warrant designated by the Holder.

8. NOTICES OF CORPORATE ACTION. In the event of:

(a) any taking by the Company of a record of theholders of any class of securities for the purpose of determining theholders thereof who are entitled to receive any dividend or otherdistribution, or any right to subscribe for, purchase or otherwiseacquire any shares of stock of any class or any other securities orproperty, or to receive any other right, or

(b) any capital reorganization of the Company,any reclassification or recapitalization of the capital stock of theCompany, any consolidation or merger involving the Company and anyother Person, any transaction or series of transactions in which morethan 50% of the voting securities of the Company are transferred toanother Person, or any transfer, sale or other disposition of all orsubstantially all the assets of the Company to any other Person, or

(c) any voluntary or involuntary dissolution,liquidation or winding-up of the Company,

the Company shall mail to the Holder a notice specifying (i) the date orexpected date on which any such record is to be taken for the purpose of suchdividend, distribution or right, and the amount and character of such dividend,distribution or right, and (ii) the date or expected date on which any suchreorganization, reclassification, recapitalization, consolidation, merger,transfer, sale, disposition, dissolution, liquidation or winding-up is to takeplace and the time, if any such time is to be fixed, as of which the holders ofrecord of Common Stock (or Other Securities)

15

16shall be entitled to exchange their shares of Common Stock (or Other Securities)for the securities or other property deliverable upon such reorganization,reclassification, recapitalization, consolidation, merger, transfer,dissolution, liquidation or winding-up. Such notice shall be mailed at least 30



days prior to the date therein specified; provided, however, that the failure bythe Company to provide any such notice within the time prescribed herein orotherwise in a timely manner shall have no effect on any of the transactionscontemplated herein.

9. REGISTRATION OF COMMON STOCK. If any shares of CommonStock required to be reserved for purposes of exercise of this Warrant requireregistration with or approval of any governmental authority under any federal orstate law (other than the Securities Act) before such shares may be issued uponexercise, the Company shall, at its expense and as expeditiously as possible,use its best efforts to cause such shares to be duly registered or approved, asthe case may be. At any such time as Common Stock is listed on any nationalsecurities exchange, the Company shall, at its expense, obtain promptly andmaintain the approval for listing on each such exchange, upon official notice ofissuance, the shares of Common Stock issuable upon exercise of this Warrant andmaintain the listing of such shares after their issuance; and the Company shallalso list on such national securities exchange, shall register under theExchange Act and shall maintain such listing of, any Other Securities that atany time are issuable upon exercise of this Warrant, if and at the time that anysecurities of the same class shall be listed on such national securitiesexchange by the Company.

10. RESTRICTIONS ON TRANSFER.

10.1. Restrictive Legends. Except as otherwisepermitted by this Section 10, this Warrant (including any Warrant issued uponthe transfer of this Warrant or any replacement Warrant issued in connectionwith the partial exercise of this Warrant or the loss or destruction of thisWarrant) shall be stamped or otherwise imprinted with a legend in substantiallythe following form:

"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OFTHIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,AS AMENDED, OR THE SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD,TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVEREGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIESLAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATIONREQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCHSECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPTIN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT."

Except as otherwise permitted by this Section 10, each certificate for CommonStock (or Other Securities) issued upon the exercise of this Warrant, and eachcertificate issued upon the transfer of any such Common Stock (or OtherSecurities), shall be stamped or otherwise imprinted with a legend insubstantially the following form:

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17"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN

REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THESECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OROTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATIONSTATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS ORPURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OFSUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OROTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONSSPECIFIED IN CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY THECOMPANY. A COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT ISAVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE COMPANY OR ATTHE OFFICE OR AGENCY MAINTAINED BY THE COMPANY AS PROVIDED IN SUCHWARRANTS AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPONWRITTEN REQUEST AND WITHOUT CHARGE."

10.2. Transfer to Comply With the Securities Act.Restricted Securities may not be sold, assigned, pledged, hypothecated,encumbered or in any manner transferred or disposed of, in whole or in part,except in compliance with the provisions of the Securities Act and statesecurities or Blue Sky laws and the terms and conditions hereof. Any transfer bythe Holder of this Warrant (or any part hereof) must be in respect of a minimumof 50,000 Warrant Shares (before giving effect to any share adjustment providedhereunder), except in the event that less than 50,000 Warrant Shares areissuable at such time of transfer, in which event such transfer must be inrespect of all of such Warrant Shares issuable. Prior to effecting any suchsale, assignment, pledge, hypothecation, encumbrance, transfer or disposition,the Holder shall inform the Company and, upon the Company's request, deliver tothe Company an opinion of counsel, reasonably satisfactory to the Company, tothe effect that such transfer does not require registration under the SecuritiesAct and is otherwise in compliance with the Securities Act and any applicablestate securities or Blue Sky laws. Notwithstanding the foregoing, the last twosentences of this Section 10.2 shall not apply in connection with any transfer(without consideration) of this Warrant to an affiliate of the Holder.

10.3. Termination of Restrictions. Therestrictions imposed by this Section 10 on the transferability of RestrictedSecurities shall cease and terminate as to any particular Restricted Securities(a) when a registration statement with respect to the sale of such securitiesshall have been declared effective under the Securities Act and such securitiesshall have been disposed of in accordance with such registration statement, (b)when such securities are sold pursuant to Rule 144 (or any similar provisionthen in force) under the Securities Act, or (c) when, in the opinion of bothcounsel for the Holder and counsel for the Company, such restrictions are nolonger required or necessary in order to protect the Company against a violationof the Securities Act upon any sale or other disposition of such securitieswithout registration thereunder. Whenever such restrictions shall cease andterminate as to any Restricted Securities, the Holder shall be entitled toreceive from the Company, without expense, new stock certificates of like tenorrepresenting such Restricted Securities which shall not bear the applicablelegends required by Section 10.1.



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1811. REPRESENTATIONS OF COMPANY.

11.1 Organization and Qualification. The Companyis a corporation duly organized and validly existing in good standing under thelaws of the jurisdiction in which it is incorporated, and has the requisitecorporate power to own its properties and to carry on its business as now beingconducted. The Company is duly qualified as a foreign corporation to do businessand is in good standing in every jurisdiction in which the nature of thebusiness conducted by it makes such qualification necessary, except where suchfailure to qualify or to be in good standing would not have a material adverseeffect on the business or assets of the Company, taken as a whole.

11.2 Authorization; Enforcement; Compliance withOther Instruments. (a) The Company has the requisite corporate power andauthority to enter into and perform its obligations under this Warrant and toissue the Warrant Shares in accordance with this Warrant, (b) the execution anddelivery of this Warrant by the Company and the consummation by it of thetransactions contemplated hereby, including, without limitation, the issuance ofthis Warrant and the reservation for issuance and the issuance of the WarrantShares, upon exercise of this Warrant, have been duly authorized by theCompany's board of directors and no further consent or authorization is requiredby the Company, its board of directors or its stockholders, (c) this Warrant hasbeen duly executed and delivered by the Company, and (d) this Warrantconstitutes the valid and binding obligation of the Company enforceable againstthe Company in accordance with its terms, except as such enforceability may belimited by general principles of equity or applicable bankruptcy, insolvency,reorganization, moratorium, liquidation or similar laws relating to, oraffecting generally, the enforcement of creditors' rights and remedies.

11.3 Capitalization and Indebtedness. As of thedate hereof, the authorized capital stock of the Company consists of 100,000,000shares of Common Stock, par value $.001 per share, of which as of May 9, 2001,34,388,445 shares are issued and outstanding. All of the outstanding shares ofCommon Stock have been validly issued and are fully paid and nonassessable. Noshares of Common Stock are subject to preemptive rights or any other similarrights or any liens or encumbrances suffered or permitted by the Company. Exceptas contemplated by this Warrant or as previously disclosed to the Holder inwriting (including in the Loan and Security Agreement, which was reviewed by theHolder), as of the date hereof, (i) there are no outstanding Options, warrants,scrip, rights to subscribe to, calls or commitments of any character whatsoeverrelating to, or securities or rights convertible into, any shares of capitalstock of the Company or any of its subsidiaries, or contracts, commitments,understandings or arrangements by which the Company or any of its subsidiariesis or may become bound to issue additional shares of capital stock of the



Company or any of its subsidiaries or Options, warrants, scrip, rights tosubscribe to, calls or commitments of any character whatsoever relating to, orsecurities or rights convertible into, any shares of capital stock of theCompany or any of its subsidiaries, and (ii) there are no agreements orarrangements under which the Company or any of its subsidiaries is obligated toregister the sale of any of their securities under the Securities Act. There areno securities or instruments containing anti-dilution or similar provisions thatwill be triggered by the issuance of this Warrant or, upon exercise of thisWarrant, the issuance of Warrant Shares, except for anti-dilution provisionswhich have been validly waived on or

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19prior to the date hereof in respect of the issuance of this Warrant and, uponexercise of this Warrant, the issuance of Warrant Shares.

11.4 Issuance of Warrants and Warrant Shares.This Warrant is duly authorized and, upon issuance in accordance with the termshereof, will be validly issued, fully paid and non-assessable, free from allissuance, stamp or similar taxes, liens and charges with respect to the issuethereof, and shall not be subject to preemptive rights or other similar rightsof stockholders of the Company. The Warrant Shares have been duly authorized andreserved for issuance upon exercise of this Warrant, and upon such exercise andfull payment therefor, will be validly issued, fully paid and non-assessable,free from all issuance, stamp or similar taxes, liens and charges with respectto the issue thereof, and will not be subject to preemptive rights or othersimilar rights of stockholders of the Company.

11.5 No Conflicts. The execution, delivery andperformance of this Warrant by the Company, and the consummation by the Companyof the transactions contemplated hereby (including, without limitation, theissuance of the Warrant Shares) will not (i) result in a violation of anyorganizational documents governing the Company or (ii) violate or conflict with,or result in a breach of any provision of, or constitute a default (or an eventwhich with notice or lapse of time or both would become a default) under, orgive to others any rights of termination, amendment, acceleration orcancellation of, any material agreement, indenture or instrument to which theCompany or any of its subsidiaries is a party, or result in a violation of anylaw, rule, regulation, order, judgment or decree applicable to the Company orany of its subsidiaries or by which any property or asset of the Company or anyof its subsidiaries is bound or affected. Except for filing required pursuant toapplicable securities laws, the Company is not required to obtain any consent,authorization or order of, or make any filing or registration with, any court orgovernmental or regulatory or self-regulatory agency in order for it to execute,deliver or perform any of its obligations under or contemplated by Warrant inaccordance with the terms hereof or thereof. All consents, authorizations,orders, filings and registrations which the Company is required to obtainpursuant to the preceding sentence on or prior to the date hereof have beenobtained or effected on or prior to the date hereof.



12. Representations Of The Holder.

Upon issuance of this Warrant, the Holder represents andwarrants to Sections 12.1 through 12.9 below, and upon exercise of this Warrant,the Holder represents and warrants to Sections 12.2, 12.3 and 12.4 below.

12.1 Purchase for Own Account. This Warrant is,and the Warrant Shares to be received by the Holder upon exercise hereof willbe, acquired for investment for the Holder's own account and not with a view tothe resale or distribution of any part thereof, and the Holder has no presentintention of selling, granting any participation in, or otherwise distributingthis Warrant, the Warrant Shares or any part thereof. The Holder does not haveany contract, undertaking, agreement or arrangement with any Person to sell,transfer or grant participation to such Person with respect to this Warrant, theWarrant Shares or any part thereof.

12.2 Disclosure of Information. The Holder isaware of the Company's business affairs and financial condition, has receivedand reviewed all information (including all

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20reports, registrations and other documents) filed by the Company with theCommission up to the date hereof) it considers necessary or appropriate formaking an informed and knowledgeable decision as to whether to acquire thisWarrant and further represents that it has had sufficient opportunity to askquestions and receive answers from the Company regarding the nature and affairsof the Company, including its business, properties, prospects and financialcondition.

12.3 Investment Experience. The Holder is aninvestor in securities of companies and acknowledges that it is capable ofbearing the economic risk of its investment in this Warrant and the WarrantShares, including the risk of total loss of any or all of such investments, andhas such knowledge and experience in financial or business matters that iscapable of evaluating the merits and risks of such investments.

12.4 Accredited Investor. The Holder is an"accredited investor" within the meaning of Commission Rule 501 of Regulation D,as presently in effect.

12.5 Restricted Securities. The Holderunderstands and hereby acknowledges that (i) the Warrant Shares it may purchasepursuant to the provisions of this Warrant may not initially be registered underthe Securities Act, and in such event will be issued in reliance upon a specificexemption from the registration requirements under the Securities Act, whichexemption depends upon, among other things, the bona fide nature of the Holder'sinvestment intent as expressed herein, and (ii) the Warrant Shares must be held



indefinitely unless subsequently registered under the Securities Act or unlessan exemption form registration is otherwise available.

12.6 Rule 144 Restrictions. The Holder is awareof the provisions of Rule 144, promulgated under the Securities Act, which, insubstance, permit limited public resale of "restricted securities" acquired,directly or indirectly, from the issuer thereof (or from an affiliate of suchissuer), in a non-public offering subject to the satisfaction of certainconditions, if applicable, including, among other things: (i) the availabilityof certain public information about the Company; (ii) the resale occurring notless than one (1) year after the party has purchased and paid for the securitiesto be sold, unless such securities are registered; (iii) the sale being madethrough a broker in an unsolicited "broker transaction" or in transactionsdirectly with a market maker (as said term is defined under the Exchange Act),(iv) the amount of securities being sold during any three-month period notexceeding the specified limitations stated therein, and (v) the filing of Form144 with the Commission.

12.7 Rule 144 Limitations. The Holder understandsand acknowledges that at the time it wishes to sell some or all of the WarrantShares there may not be an active public market upon which to make such a sale.The Holder further understands that if all the requirements of Rule 144 are notsatisfied, registration under the Securities Act, compliance with Regulation Aor Regulation S under the Securities Act or some other registration exemptionwill be required to permit the Holder to sell the Warrant Shares.

12.8 No Related Transactions. The Holder is notin any way affiliated with (i) Michelle Investments LLC, (ii) Norton FamilyLiving Trust UTD 2-4-91, (iii) Norton Family Living Trust UTD 2-15-96, (iv)Stevenson Family Trust UTD 7-1-97, (v) JR Ventures Limited Partnership, (vi)Daniel D. Diethelm, or (vii) Michael Norton, and the issuance of this

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21Warrant is not, and any exercise will not be, related to the above-describedparties purchase of shares of Common Stock, or securities exercisable into,convertible into or exchangeable for such shares.

12.9 Ownership of Company Common Stock.Immediately prior to the date hereof, the Holder (and its affiliates) own lessthan 1,600,000 shares of the Company's Common Stock.

13. AVAILABILITY OF INFORMATION. So long as the Companyshall not have filed a registration statement pursuant to Section 12 of theExchange Act or a registration statement pursuant to the requirements of theSecurities Act, the Company shall, at any time and from time to time, upon therequest of any holder of Restricted Securities and upon the request of anyPerson designated by such holder as a prospective purchaser of any RestrictedSecurities, furnish in writing to such holder or such prospective purchaser, as



the case may be, a statement as of a date not earlier than 12 months prior tothe date of such request of the nature of the business of the Company and theproducts and services it offers and copies of the Company's most recent balancesheet and profit and loss and retained earnings statements, together withsimilar financial statements for such part of the two preceding fiscal years asthe Company shall have been in operation, all such financial statements to beaudited to the extent audited statements are reasonable available, providedthat, in any event the most recent financial statements so furnished shallinclude a balance sheet as of a date less than 16 months prior to the date ofsuch request, statements of profit and loss and retained earnings for the 12months preceding the date of such balance sheet, and, if such balance sheet isnot as of a date less than six months prior to the date of such request,additional statements of profit and loss and retained earnings for the periodfrom the date of such balance sheet to a date less than six months prior to thedate of such request. If the Company shall have filed a registration statementpursuant to the requirements of Section 12 of the Exchange Act or a registrationstatement pursuant to the requirements of the Securities Act, the Company shalluse reasonable best efforts to timely file the reports required to be filed byit under the Securities Act and the Exchange Act (including but not limited tothe reports under Sections 13 and 15(d) of the Exchange Act referred to insubparagraph (c) of Rule 144 adopted by the Commission under the SecuritiesAct)) and will take such further action as any holder of Restricted Securitiesmay reasonably request, all to the extent required from time to time to enablesuch holder to sell Restricted Securities without registration under theSecurities Act within the limitation of the exemptions provided by (a) Rule 144under the Securities Act, as such rules may be amended from time to time, or (b)any successor rule or regulation hereafter adopted by the Commission.

14. RESERVATION OF STOCK, ETC. The Company shall at alltimes reserve and keep available, solely for issuance and delivery upon exerciseof this Warrant, the number of shares of Common Stock (or Other Securities) fromtime to time issuable upon exercise of this Warrant at the time outstanding. Allshares of Common Stock (or Other Securities) issuable upon exercise of thisWarrant shall be duly authorized and, when issued upon such exercise, shall bevalidly issued and, in the case of shares, fully paid and nonassessable with noliability on the part of the holders thereof, and, in the case of allsecurities, shall be free from all issuance, stamp or similar taxes, liens,security interests, encumbrances, preemptive rights and charges. The transferagent for the Common Stock, which may be the

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22Company ("Transfer Agent"), and every subsequent Transfer Agent for any sharesof the Company's capital stock issuable upon the exercise of any of the purchaserights represented by this Warrant, are hereby irrevocably authorized anddirected at all times until the Expiration Date to reserve such number ofauthorized and unissued shares as shall be requisite for such purpose. TheCompany shall keep copies of this Warrant on file with the Transfer Agent forthe Common Stock and with every subsequent Transfer Agent for any shares of the



Company's capital stock issuable upon the exercise of the rights of purchaserepresented by this Warrant. The Company shall supply such Transfer Agent withduly executed stock certificates for such purpose. All Certificates surrenderedupon the exercise of the rights thereby evidenced shall be canceled, and suchcanceled Warrants shall constitute sufficient evidence of the number of sharesof stock which have been issued upon the exercise of such Warrants. Subsequentto the Expiration Date, no shares of stock need be reserved by the Company inrespect of this Warrant.

15. REGISTRATION AND TRANSFER OF WARRANTS, ETC.

15.1. Warrant Register; Ownership of Warrants.This Warrant shall be numbered and shall be registered in a warrant register(the "Warrant Register") as it is issued and transferred, which Warrant Registershall be maintained by the Company at its principal office or, at the Company'selection and expense, by a warrant agent or the Transfer Agent. The Companyshall be entitled to treat the registered Holder of this Warrant on the WarrantRegister as the owner in fact thereof for all purposes and shall not be bound torecognize any equitable or other claim to or interest in this Warrant on thepart of any other Person, and shall not be affected by any notice to thecontrary, except that, if and when this Warrant is properly assigned in blank,the Company may (but shall not be obligated to) treat the bearer thereof as theowner of this Warrant for all purposes. Subject to Section 10, a Warrant, ifproperly assigned, may be exercised by a new holder without a new Warrant firsthaving been issued.

15.2. Transfer of Warrants. Subject to Section 10,this Warrant shall be freely transferable to any affiliate of the Holder. Inaddition, subject to compliance with Section 10, if applicable, this Warrant andall rights hereunder are transferable in whole or in part, without charge to theHolder hereof, upon surrender of this Warrant with a properly executed Form ofAssignment attached hereto as Exhibit B at the principal office of the Company.Upon any partial transfer, the Company shall at its expense issue and deliver tothe Holder a new Warrant of like tenor, in the name of the Holder, which shallbe exercisable for such number of shares of Common Stock with respect to whichrights under this Warrant were not so transferred.

15.3. Replacement of Warrants. On receipt by theCompany of evidence reasonably satisfactory to the Company of the loss, theft,destruction or mutilation of this Warrant and, in the case of any such loss,theft or destruction of this Warrant, on delivery of an indemnity agreementreasonably satisfactory in form and amount to the Company or, in the case of anysuch mutilation, on surrender of such Warrant to the Company at its principaloffice and cancellation thereof, the Company at its expense shall execute anddeliver, in lieu thereof, a new Warrant of like tenor.

15.4. Adjustments To Purchase Price and Number ofShares. Notwithstanding any adjustment in the Purchase Price or in the number orkind of shares of Common Stock purchasable upon exercise of this Warrant, anyWarrant theretofore or thereafter



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23issued may continue to express the same number and kind of shares of CommonStock as are stated in this Warrant, as initially issued.

15.5. Fractional Shares. Notwithstanding anyadjustment pursuant to Section 3 in the number of shares of Common Stock coveredby this Warrant or any other provision of this Warrant, the Company shall not berequired to issue fractions of shares upon exercise of this Warrant or todistribute certificates which evidence fractional shares. In lieu of fractionalshares, the Company shall make payment to the Holder, at the time of exercise ofthis Warrant as herein provided, in an amount in cash equal to such fractionmultiplied by the Current Market Price of a share of Common Stock.

16. REGISTRATION RIGHTS.

16.1 Registration.

(a) Initial Registration Statement.Within forty five (45) days after the date hereof, the Company shallprepare and file a registration statement under the Securities Act (a"Registration Statement") for the registration of (i) the WarrantShares and (ii) at the Company's option, shares of Common Stock issuedor issuable to other security holders of the Company. The Company shalluse best efforts to cause such Registration Statement to becomeeffective within ninety (90) days after the date hereof.

(b) Piggyback Registration. If at anytime during the five-year period commencing the date hereof, theCompany determines to register for its own account or the account ofothers under the Securities Act any of its Common Stock for cash, otherthan on Form S-4 or Form S-8 or their then equivalents, the Companyshall send to each Holder written notice of such determination and, ifwithin ten (10) days after receipt of such notice, such Holder shall sorequest in writing, the Company shall include in such RegistrationStatement all or any part of the Warrant Shares that the Holderrequests to be registered provided that, in the case of shares thathave not yet been issued upon exercise, the Holder includes anirrevocable commitment to exercise the Warrant immediately prior toeffectiveness of the Registration Statement. In the event that themanaging underwriter for an offering advises the Company that theinclusion of such securities in the offering would be detrimental tothe Company's offering, such securities shall be reduced pro rata amongall Persons (including the Company) that are selling securities subjectto such Registration Statement. A Registration Statement under thisSection 16.1(b) shall remain effective for a period of at least 30 daysfrom effectiveness.

(c) Termination. The obligations under



this Section 16.1, including the obligations to maintain theeffectiveness of a Registration Statement pursuant to Section 16.1(a)and to grant piggyback registration rights with respect to otherCompany registrations pursuant to Section 16.1(b), shall terminate uponthe earlier of (i) the resale by the Holder of all Warrant Shares, (ii)such time as any Holder may resell all of its Warrant Shares withoutrestriction (including, without limitation, as to volume) withoutregistration under the Securities Act or (iii) seven (7) years from thedate of original issuance of this Warrant.

16.2 Holder Information; Registration Expenses.The Holder shall promptly supply the Company with all such information as theCompany may reasonably request

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24for preparation of a Registration Statement and any amendments or supplementsthereto. All expenses incurred in connection with the preparation and filing ofa Registration Statement, including, without limitation, all federal and "bluesky" registration and qualification fees, printers' and accounting fees, feesand disbursements of counsel for the Company, listing fees of any securitiesexchange or automated trading or quotation system on which the Common Stock islisted or traded and the legal fees and related disbursements of Holder's legalcounsel, but excluding brokers' discounts and commissions, shall be borne by theCompany.

16.3 Registration Related Covenants of Company.In connection with the registration obligations of the Company provided in thisSection 16, the Company hereby covenants that it shall:

(a) provide to the Holder such number of copiesas the Holder may reasonably request of (i) a Registration Statement,(ii) each amendment and supplement thereto, and (iii) the prospectusincluded therein, to facilitate the Holder's disposition of the WarrantShares contemplated by a Registration Statement;

(b) prepare and file with the Commission anyamendment or supplement to a Registration Statement or the prospectusincluded therein as may be necessary to correct any statement oromission or to update any material information therein (with due regardto the Company's potential need to maintain in confidence undisclosedinformation relating to pending transactions or other corporatematters);

(c) use best efforts, once a RegistrationStatement is declared effective, to keep the Registration Statementeffective (subject to subsections 16.1(b) and 16.3(d)) until theearlier of (i) the date on which all of the Warrant Shares have beensold, and (ii) the date on which all of the Warrant Shares may be



immediately sold without restriction (including, without limitation, asto volume by each holder thereof) without registration under theSecurities Act; provided, however, that in no event shall the Companybe required to keep in effect the Registration Statement hereunderbeyond (i) with respect to the registration contemplated by Section16.1(a), the earliest of the dates set forth in Section 16.1(c) and(ii) with respect to a registration under Section 16.1(b), the thirty(30) day period set forth therein;

(d) promptly notify the Holder of any period (a"Deferral Period") during which the Holder must discontinue its use ordissemination of the prospectus included in a Registration Statement(including by reason of the fact that there is a material event ordevelopment involving the Company, that the Company intends to effect aprimary offering of securities, or that the information in theprospectus needs to be amended or supplemented); provided, however,that the Company shall use best efforts to ensure that (i) no DeferralPeriod runs for more than 30 consecutive days, and (ii) the aggregatenumber of days in all Deferral Periods does not exceed 60 days in any12-month period; and

(e) notify the Holder promptly after the Companyreceives notice of the issuance of any stop order by the Commissionsuspending the effectiveness of a Registration Statement, or the threator initiation of any proceeding for such purpose,

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25and use commercially reasonable efforts to prevent the issuance of anystop order or to obtain its withdrawal if such stop order should beissued.

16.4 Indemnification.

(a) By the Company. With respect to aRegistration Statement, to the extent permitted by law, the Company willindemnify and hold harmless the Holder, the legal counsel and accountants forthe Holder and each Person, if any, who controls the Holder within the meaningof the Securities Act or the Exchange Act (collectively, the "Holder IndemnifiedParties"), against any losses, claims, damages, or liabilities (joint orseveral) to which they may become subject under the Securities Act, the ExchangeAct or other federal or state law, insofar as such losses, claims, damages, orliabilities (or actions in respect thereof) arise out of or are based upon anyof the following statements, omissions or violations (collectively a"Violation"):

(i) any untrue statement or allegeduntrue statement of a material fact contained in aRegistration Statement, including any preliminary prospectus



or final prospectus contained therein or any amendments orsupplements thereto;

(ii) the omission or alleged omission tostate therein a material fact required to be stated therein,or necessary to make the statements therein not misleading, or

(iii) any violation or alleged violationby the Company of the Securities Act, the Exchange Act, anyfederal or state securities law or any rule or regulationpromulgated under the Securities Act, the Exchange Act or anyfederal or state securities law in connection with theoffering covered by a Registration Statement;

and the Company will reimburse such Holder Indemnified Parties for any legal orother expenses reasonably incurred by them, as incurred, in connection withinvestigating or defending any such loss, claim, damage, liability or action;provided however, that the indemnity agreement contained in this subsection 16.4(a) shall not apply to amounts paid in settlement of any such loss, claim,damage, liability or action if such settlement is effected without the consentof the Company (which consent shall not be unreasonably withheld), nor shall theCompany be liable in any such case for any such loss, claim, damage, liabilityor action to the extent that it arises out of or is based upon a Violation which(i) occurs in reliance upon and in conformity with written information furnishedexpressly for use in connection with such registration by any of such HolderIndemnified Parties with respect to the Holder or (ii) arises out of theHolder's failure to satisfy prospectus delivery or other distributionrequirements in connection with such registration.

(b) By the Holder. With respect to aRegistration Statement, to the extent permitted by law, the Holder willindemnify and hold harmless the Company, each of its directors, each of itsofficers who has signed the Registration Statement, each Person, if any, whocontrols the Company within the meaning of the Securities Act, legal counsel and

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26accountants for the Company and other shareholders of the Company against anylosses, claims, damages or liabilities (joint or several) to which the Companyor any such director, officer, controlling Person or other shareholder(collectively, the "Company Indemnified Parties") may become subject under theSecurities Act, the Exchange Act or other federal or state law, insofar as suchlosses, claims, damages or liabilities (or actions in respect thereto) arise outof or are based upon any Violation, in each case to the extent (and only to theextent) that such Violation occurs in reliance upon and in conformity withwritten information furnished by the Holder with respect to such Holderexpressly for use in connection with such registration; and the Holder willreimburse any legal or other expenses reasonably incurred by any CompanyIndemnified Party in connection with investigating or defending any such loss,



claim, damage, liability or action; provided, however, that the indemnityagreement contained in this subsection 16.4(b) shall not apply to amounts paidin settlement of any such loss, claim, damage, liability or action if suchsettlement is effected without the consent of the Holder (which consent shallnot be unreasonably withheld); and provided further, that in no event shall theHolder's cumulative, aggregate liability under this subsection 16.4(b) or undersubsection 16.4(d), or under such subsections together, exceed the net proceedsreceived by the Holder in the registered offering out of which such Violationarises.

(c) Notice. Promptly after receipt by anindemnified party under this Section 16.4 of notice of the commencement of anyaction (including any governmental action), such indemnified party will, if aclaim in respect thereof is to be made against any indemnifying party under thisSection 16.4, deliver to the indemnifying party a written notice of thecommencement thereof and the indemnifying party shall have the right toparticipate in, and, to the extent the indemnifying party so desires, jointlywith any other indemnifying party similarly noticed, to assume the defensethereof with counsel mutually satisfactory to the parties; provided, however,that an indemnified party (together with all other indemnified parties which maybe represented without conflict by one counsel) shall have the right to retainits own counsel, with the fees and expenses to be paid by the indemnifyingparty, if representation of such indemnified party by the counsel retained bythe indemnifying party would be inappropriate due to actual or potentialconflict of interests between such indemnified party and any other partyrepresented by such counsel in such proceeding. The failure to deliver writtennotice to the indemnifying party within a reasonable time of the commencement ofany such action, shall not relieve such indemnifying party of any liability tothe indemnified party under this Section 16.4.

(d) Contribution. If the indemnificationprovided for in this Section 16.4 is held by a court of competent jurisdictionto be unavailable to an indemnified party with respect to any loss, liability,claim, damage, or expense referred to therein, then the indemnifying party, inlieu of indemnifying such indemnified party hereunder, shall contribute to theamount paid or payable by such indemnified party as a result of such loss,liability, claim, damage, or expense in such proportion as is appropriate toreflect the relative fault of the indemnifying party on the one hand and of theindemnified party on the other in connection with the statements or omissionsthat resulted in such loss, liability, claim, damage, or expense as well as anyother relevant equitable considerations. The relative fault of the indemnifyingparty and of the indemnified party shall be determined by reference to, amongother things, whether the untrue or alleged untrue statement of a material factor the omission to state a material fact relates to information supplied by theindemnifying party or by the indemnified party and the parties'

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27relative intent, knowledge, access to information, and opportunity to correct or



prevent such statement or omission; provided, however, that (A) in no eventshall the Holder's cumulative, aggregate liability under subsection 16.4(b) orunder this subsection 16.4(d) hereof, or under such subsections together, exceedthe net proceeds from the offering received by such Holder; and (B) no Personguilty of fraudulent misrepresentation (within the meaning of Section 11(f) ofthe Securities Act) will be entitled to contribution from any Person who was notguilty of such fraudulent misrepresentation. Notwithstanding anything to thecontrary herein, no party shall be liable for contribution under this subsection16.4(d), except to the extent and under the circumstances as such party wouldhave been liable to indemnify under subsection 16.4(a) or subsection 16.4(b)hereof, as the case may be, if such indemnification were enforceable underapplicable law.

(e) Survival. The obligations of the Company andthe Holder under this Section 16.4 shall survive the completion of any offeringof Warrant Shares under the Registration Statement or otherwise.

16.5 Rule 144 Reporting. With a view to makingavailable to the Holder the benefits of certain rules and regulations of theCommission which may at any time permit the sale of the Warrant Shares to thepublic without registration, after such time as a public market exists for theCommon Stock and so long as the Holder owns any Warrant Shares, the Companyagrees to:

(a) furnish to the Holder forthwith upon request(i) a written statement by the Company (A) as to its compliance with thereporting requirements of said Rule 144, and of the Securities Act and theExchange Act (for so long as it is subject to the reporting requirements of theExchange Act), or (B) that it qualifies as a registrant whose securities may beresold pursuant to Form S-3 (at any time after it so qualifies after the datehereof), (ii) a copy of the most recent annual or quarterly report of theCompany, and (iii) such other reports and documents of the Company andinformation as the Holder may reasonably request in availing itself of any ruleor regulation of the Commission allowing the Holder to sell any such securitieswithout registration or pursuant to Form S-3 (for so long as the Company issubject to the reporting requirements of the Exchange Act).

17. REMEDIES; SPECIFIC PERFORMANCE. The Companystipulates that there would be no adequate remedy at law to the Holder of thisWarrant in the event of any default or threatened default by the Company in theperformance of or compliance with any of the terms of this Warrant andaccordingly, the Company agrees that, in addition to any other remedy to whichthe Holder may be entitled at law or in equity, the Holder shall be entitled toseek to compel specific performance of the obligations of the Company under thisWarrant, without the posting of any bond, in accordance with the terms andconditions of this Warrant in any court of the United States or any Statethereof having jurisdiction, and if any action should be brought in equity toenforce any of the provisions of this Warrant, the Company shall not raise thedefense that there is an adequate remedy at law. Except as otherwise provided bylaw, a delay or omission by the Holder hereto in exercising any right or remedyaccruing upon any such



27

28breach shall not impair the right or remedy or constitute a waiver of oracquiescence in any such breach. No remedy shall be exclusive of any otherremedy. All available remedies shall be cumulative.

18. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothingcontained in this Warrant shall be construed as conferring upon the Holderhereof any rights as a shareholder of the Company or as imposing any obligationon the Holder to purchase any securities or as imposing any liabilities on theHolder as a shareholder of the Company, whether such obligation or liabilitiesare asserted by the Company or by creditors of the Company.

19. NOTICES. All notices and other communicationsprovided for or permitted hereunder shall be made in made in writing by handdelivery, telecopier, any courier guaranteeing overnight delivery or first classregistered or certified mail, return receipt requested, postage prepaid,addressed to:

If to the Holder:Roth Capital Partners LLC24 Corporate PlazaNewport Beach, California 92660Attention: Eric Rindahl, Managing DirectorFax: (949)720-7223

If to the Company:

Hypercom Corporation2851 West Kathleen RoadPhoenix, Arizona 85053Attention: Chief Financial OfficerFax: (602) 504-4582

With a copy to:

Snell & Wilmer LLPOne South Church AvenueSuite 1500Tucson, Arizona 85701Attention: Steven D. Pidgeon, Esq.Fax: (602) 382-6070

All such notices and communications (and deliveries) shall be deemed tohave been duly given: at the time delivered by hand, if personally delivered;when receipt is acknowledged, if telecopied; on the next Business Day, if timelydelivered to a courier guaranteeing overnight delivery; and five days after



being deposited in the mail, if sent first class or certified mail, returnreceipt requested, postage prepaid; provided, that the exercise of this Warrantshall be effective in the manner provided in Section 2.

28

2920. AMENDMENTS. This Warrant and any term hereof may not

be amended, modified, supplemented or terminated, and waivers or consents todepartures from the provisions hereof may not be given, except by writteninstrument duly executed by the Company and a majority in interest of theHolders of Series D Warrants (including any Warrants issued upon the partialassignment and transfer of this Warrant).

21. DESCRIPTIVE HEADINGS, ETC. The headings in thisWarrant are for convenience of reference only and shall not limit or otherwiseaffect the meaning of terms contained herein. Unless the context of this Warrantotherwise requires: (1) words of any gender shall be deemed to include eachother gender; (2) words using the singular or plural number shall also includethe plural or singular number, respectively; (3) the words "hereof", "herein"and "hereunder" and words of similar import when used in this Warrant shallrefer to this Warrant as a whole and not to any particular provision of thisWarrant, and Section and paragraph references are to the Sections and paragraphsof this Warrant unless otherwise specified; (4) the word "including" and wordsof similar import when used in this Warrant shall mean "including, withoutlimitation," unless otherwise specified; (5) "or" is not exclusive; and (6)provisions apply to successive events and transactions.

22. GOVERNING LAW. This Warrant shall be governed by, andconstrued in accordance with, the laws of the State of Delaware (without givingeffect to the conflict of laws principles thereof).

23. COSTS AND ATTORNEYS' FEES. In the event that anyaction, suit or other proceeding is instituted concerning or arising out of thisWarrant, the Company shall pay all of the Holder's costs and reasonableattorneys' fees incurred in each and every such action, suit or otherproceeding, including any and all appeals or petitions therefrom.

24. JUDICIAL PROCEEDINGS. Any legal action, suit orproceeding brought against the Company or the Holder with respect to thisWarrant shall be brought in any federal or state court in the State of Delaware,and by execution and delivery of this Warrant, the Company and the Holder herebyirrevocably and unconditionally waive any claim (by way of motion, as a defenseor otherwise) of improper venue, that it is not subject personally to thejurisdiction of such court, that such courts are an inconvenient forum or thatthis Warrant or the subject matter may not be enforced in or by such court. TheCompany and the Holder hereby irrevocably and unconditionally consent to theservice of process of any of the aforementioned courts in any such action, suitor proceeding by the mailing of copies thereof by registered or certified mail,



postage prepaid, at its address set forth or provided for in Section 17, suchservice to become effective 10 days after such mailing. Nothing herein containedshall be deemed to affect the right of any party to serve process in any mannerpermitted by law or commence legal proceedings or otherwise proceed against anyother party in any other jurisdiction to enforce judgments obtained in anyaction, suit or proceeding brought pursuant to this Section.

29

30HYPERCOM CORPORATION

By: /s/ Jonathon E. Killmer-----------------------------------

Title: Executive Vice President andChief Operating Officer-------------------------------

30

31EXHIBIT A to

Common Stock Purchase Warrant

ELECTION TO PURCHASE SHARES

The undersigned hereby irrevocably elects to exercise theWarrant to purchase ____ shares of Common Stock, par value $.001 per share("Common Stock"), of Hypercom Corporation and hereby [makes payment of $________therefor] [or] [makes payment therefor by reduction pursuant to Section2.1(b)(ii) of the Warrant of the number of shares of Common Stock otherwiseissuable to the Holder upon Warrant exercise by ___ shares] [or] [makes paymenttherefor by delivery of the following Common Stock Certificates of the Company(properly endorsed for transfer in blank) for cancellation by the Companypursuant to Section 2.1(b)(iii) of the Warrant, certificates of which areattached hereto for cancellation [list certificates by number and amount]]. Theundersigned hereby requests that certificates for such shares be issued anddelivered as follows:ISSUE TO:_______________________________________________________________________

(NAME)



________________________________________________________________________________(ADDRESS, INCLUDING ZIP CODE)

________________________________________________________________________________(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)

DELIVER TO:_____________________________________________________________________(NAME)


If the number of shares of Common Stock purchased (and/orreduced) hereby is less than the number of shares of Common Stock covered by theWarrant, the undersigned requests that a new Warrant representing the number ofshares of Common Stock not so purchased (or reduced) be issued and delivered asfollows:

ISSUE TO:_______________________________________________________________________(NAME OF HOLDER)


DELIVER TO:_____________________________________________________________________(NAME OF HOLDER)


Dated: _____________, 200_ HOLDER

By ____________________________Name:Title:

32EXHIBIT A to

Common Stock Purchase Warrant

ASSIGNMENT

FOR VALUE RECEIVED, the undersigned hereby sells, assigns, andtransfers unto the Assignee named below all of the rights of the undersigned topurchase Common Stock, par value $.001 per share ("Common Stock") of HYPERCOMCorporation represented by the Warrant, with respect to the number of shares ofCommon Stock set forth below:

Name of Assignee Address No. of Shares



and does hereby irrevocably constitute and appoint Hypercom Corporation to makesuch transfer on its books maintained for that purpose, with full power ofsubstitution in the premises.

Dated: _______________, 200_ ROTH CAPITAL PARTNERS LLC

Signature Guaranteed

_____________________________

_____________________________ By _____________________________Name:

Title:

NOTICE: The signature to this Assignment must correspond with the name upon theface of the within Warrant in every particular, without alteration orenlargement or any change whatever.



1

EXHIBIT 10.4

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (the "Agreement") is dated July 31, 2001, and

is between Michelle Investments LLC ("Michelle") and Hypercom Corporation

("Hypercom").

BACKGROUND

A. Michelle recently loaned Hypercom $15 million (the "Loan"). Inconnection with the Loan, Hypercom granted Michelle a Series A Warrant (the"Series A Warrant") to purchase shares of Hypercom's common stock.

B. By this Agreement, Michelle agrees to purchase 2,475,248 shares ofHypercom's common stock, in consideration for the reduction of the principalamount of the Loan by $7,500,001.40. The remainder of the Loan, and all accruedinterest, is being paid off by Hypercom. The Series A Warrant will remainoutstanding and enable Michelle to purchase 1,000,000 shares of common stock ofHypercom, subject to adjustment in accordance with the terms thereof.

NOW, THEREFORE, in consideration of the promises herein, the parties heretoagree as follows:

AGREEMENTS

1. PURCHASE AND SALE OF STOCK. Hypercom hereby issues and sells toMichelle, and Michelle hereby purchases and acquires from Hypercom, 2,475,248shares of Hypercom's common stock (the "Shares") for $3.03 per share. Paymentfor the Shares is made through the reduction of the principal amount of the Loanby $7,500,001.40.

2. REPAYMENT OF LOAN. Concurrently herewith, Hypercom is repaying thebalance of the Loan (after giving effect to the reduction of the Loan by$7,500,001.40 pursuant to Section 1 hereof) together with all accrued interestthereon, which amount the parties hereto agree is $6,336,004.42 as of July 26,2001 plus an additional $2,880.70 for each day thereafter.

3. CONDITIONS; EFFECTIVENESS OF PURCHASE OF SHARES. Closing of theissuance, sale, purchase and acquisition of the Shares is contingent upon thefollowing events occurring on or before August 15, 2001, which events Hypercomagrees to use commercially reasonable efforts to cause to occur:

a. the repayment of the balance of the Loan together with all accrued



and unpaid interest thereon in accordance with Section 2 hereof; and

b. completion of the refinancing of Hypercom's principal creditfacility with Foothill Capital Corporation and Ableco Finance LLC.

2The issuance, sale, purchase and acquisition of the Shares shall be effective asat the first time that these conditions are both satisfied.

4. REGISTRATION OF SHARES. Hypercom agrees that (i) it shall promptly(but in no event later than September 4, 2001) prepare and file a registrationstatement under the Securities Act of 1933, as amended (the "Securities Act")for the registration of the Shares, and shall use commercially reasonableefforts to cause such registration statement to become effective by December 3,2001, (ii) the Shares shall be subject to the registration provisions of Article5 of the Series A Warrant, including, without limitation, the provisionsrelating to Hypercom's payment of expenses related to such registration, and(iii) the Shares shall be "Registrable Securities" as defined in the Series AWarrant.

5. EFFECT ON SERIES A WARRANT; AMENDMENT TO SERIES A WARRANT. The partieshereto acknowledge and agree that (subject to adjustment as provided in Article4 of the Series A Warrant) the maximum number of shares issuable upon exerciseof the Series A Warrant is fixed at 1,000,000 (with the parties furtheracknowledging that the provisions of subsection (ii) under the definition of"Warrant Shares" in the Series A Warrant are not capable of being achieved). Theparties further agree that the Series A Warrant is hereby amended by:

a. deleting the word "and" appearing immediately before the "(iv)" inthe second to last line of the definition of "Additional Stock"; and

b. inserting at the end of such definition, immediately after the word"otherwise", the following words:

", (v) the Common Stock issued to Michelle Investments LLC pursuant tothat certain Stock Purchase Agreement between the Company and MichelleInvestments LLC dated July 31, 2001, (vi) the Common Stock (not toexceed 2,500,000 shares in the aggregate) issued to Norton FamilyLiving Trust UTD 2-4-91, Norton Family Living Trust UTD 2-15-96,Stevenson Family Living Trust UTD 7/1/97, JR Norton Ventures LimitedPartnership, Daniel D. Diethelm, Michael R. Norton and Matthew A.Diethelm, all pursuant to that certain Stock Purchase Agreement amongthe Company and such parties dated July 30, 2001, (vii) the issuanceof up to 1,875,00 shares of Common Stock (subject to adjustment asprovided therein) to Abelco Holding LLC pursuant to a Series C Warrantto be granted to it, on or after the date hereof; (viii) the issuanceof up to 350,000 shares of Common Stock (subject to adjustment asprovided therein) to Roth Capital Corporation pursuant to a Series DWarrant to be granted to it, on or after the date hereof; and (ix) theoptions or warrants to purchase common stock described above."



6. DELIVERIES. The parties hereby deliver (or undertake to deliverpromptly hereafter):

2

3a. As to Hypercom:

(i) Certificate(s) representing the Shares, with each suchcertificate bearing the following legend:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY STATE SECURITIESLAW, AND ACCORDINGLY, MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED ORHYPOTHECATED, DIRECTLY OR INDIRECTLY IN THE ABSENCE OF (i) ANEFFECTIVE REGISTRATION STATEMENT RELATING THERETO, OR (ii) AN OPINIONOF COUNSEL FOR THE REGISTERED HOLDER OF THIS CERTIFICATE, REASONABLYSATISFACTORY TO HYPERCOM CORPORATION, THAT SUCH REGISTRATION IS NOTREQUIRED.

(ii) Payment of the balance of the Loan (including all accruedand unpaid interest thereon) by wire transfer or cashier's check.

b. As to Michelle:

(i) The Promissory Note or Notes representing the Loan, marked"Cancelled and Paid In Full"; and

(ii) Releases of all security interests related to the Loan inform and substance acceptable to Hypercom.

7. REPRESENTATIONS AND WARRANTIES OF HYPERCOM. Hypercom represents andwarrants that:

a. Legal Status: Qualification. Hypercom is a corporation dulyorganized, validly existing and in good standing under the laws of the State ofDelaware and is qualified or licensed to do business in all other countries,states and provinces in which the laws thereof require Hypercom to qualifyand/or be licensed, except where failure to qualify or be licensed would nothave a material adverse effect on the business or assets of Hypercom taken as awhole;

b. Authority. Hypercom has the right and power, and is duly authorizedand empowered, to enter into, execute, deliver and perform this Agreement;

c. Binding Effect. This Agreement has been duly authorized, executedand delivered and constitutes a valid and binding obligation of Hypercomenforceable in accordance with its terms, subject to applicable bankruptcy,insolvency, reorganization, moratorium and similar laws affecting creditors'rights and remedies generally, and subject, as to enforceability, to general



principles of equity, including principles of commercial reasonableness, goodfaith and fair dealing (regardless of whether enforcement is sought in aproceeding at law or in equity);

3

4d. No Conflict. The execution, delivery and/or performance by Hypercom

of this Agreement shall not, by the lapse of time, the giving of notice orotherwise, constitute a violation of any applicable law or a breach of anyprovision contained in Hypercom's Certificate of Incorporation or By-laws orcontained in any agreement, instrument, or document to which Hypercom is a partyor by which it is bound;

e. Consents. Except for filings required pursuant to applicablesecurities laws, no consent, approval, authorization or other order of anycourt, regulatory body, administrative agency or other governmental body isrequired for the execution and delivery by Hypercom of this Agreement or theperformance of any of Hypercom's obligations hereunder;

f. Offering. Neither Hypercom nor any agent acting on its behalf hasor will sell or offer for sale, or dispose of or attempt or offer to dispose of,the Shares or any part thereof to, or solicit any offers to buy any securitiesof like tenor from, or otherwise approach or negotiate in respect thereof, withany person or persons so as thereby to bring the issuance of the Shares withinthe provisions of Section 5 of the Securities Act;

g. Registration. Subject to Hypercom's reliance on the truth andaccuracy of Michelle's representations and warranties in Section 8 hereof, it isnot necessary in connection with the issuance and sale of the Shares to Michelleto register the Shares under the Securities Act; and

h. Fully Paid Shares. Upon payment therefor in accordance with thisAgreement, the Shares will be validly and legally issued, fully paid andnon-assessable.

8. REPRESENTATIONS AND WARRANTIES OF MICHELLE. Michelle represents andwarrants that:

a. Purchase for Own Account. The Shares are being acquired forinvestment for Michelle's own account, and not with a view to the resale ordistribution of any part thereof, and Michelle has no present intention ofselling, granting any participation in, or otherwise distributing the Shares orany part thereof. Michelle does not have any contract, undertaking, agreement orarrangement with any person to sell, transfer or grant participation to suchperson with respect to the Shares or any part thereof.

b. Disclosure of Information. Michelle is aware of Hypercom's businessaffairs, financial condition, and status with its lenders, has received andreviewed all information (including all reports, registrations and other



documents filed by Hypercom with the United States Securities and ExchangeCommission (the "Commission") up to the date hereof) it considers necessary orappropriate for making an informed and knowledgeable decision as to whether toacquire the Shares and further represents that it has had sufficient opportunityto ask questions and receive answers from Hypercom regarding the nature andaffairs of Hypercom, including its business, properties, prospects and financialcondition.

c. Investment Experience. Michelle is an investor in securities ofcompanies and acknowledges that it is capable of bearing the economic risk ofits investment in the Shares, including the risk of total loss of any or all ofsuch investment, and has such knowledge and

4

5experience in financial or business matters that it is capable of evaluating themerits and risks of such investment.

d. Accredited Investor. Michelle is an "accredited investor" withinthe meaning of Commission Rule 501 of Regulation D, as presently in effect.

e. Restricted Securities. Michelle understands and hereby acknowledgesthat (i) the Shares will not initially be registered under the Securities Act,and in such event will be issued in reliance upon a specific exemption from theregistration requirements under the Securities Act, which exemption dependsupon, among other things, the bona fide nature of Michelle's investment intentas expressed herein, and (ii) the Shares must be held indefinitely unlesssubsequently registered under the Securities Act or unless an exemption fromregistration is otherwise available.

f. Rule 144 Restrictions. Michelle is aware of the provisions of Rule144, promulgated under the Securities Act, which, in substance, permit limitedpublic resale of "restricted securities" acquired, directly or indirectly, fromthe issuer thereof (or from an affiliate of such issuer), in a non-publicoffering subject to the satisfaction of certain conditions, if applicable,including among other things: (i) the availability of certain public informationabout Hypercom; (ii) the resale occurring not less than one (1) year after theparty has purchased and paid for the securities to be sold, unless registered;(iii) the sale being made through a broker in an unsolicited "broker'stransaction" or in transactions directly with a market maker (as said term isdefined under the Securities Exchange Act of 1934, as amended), (iv) the amountof securities being sold during any three-month period not exceeding thespecified limitations stated therein, and (v) the filing of Form 144 with theCommission.

g. Rule 144 Limitations. Michelle understands and acknowledges that atthe time it wishes to sell some or all of the Shares, there may not be an activepublic market upon which to make such a sale, and that, even if such an activepublic market upon which to make such a sale then exists, Hypercom may not be



satisfying the current public information requirements of Rule 144. In suchevent, Michelle understands that it may be precluded from selling the Sharesunder Rule 144 even if the one-year minimum holding period has been satisfied orthe Shares registered. Michelle further understands that (i) if all of therequirements of Rule 144 are not satisfied, registration under the SecuritiesAct or some other registration exemption will be required to permit Michelle tosell the Shares, and (ii) notwithstanding the fact that Rule 144 is notexclusive, the staff of the Commission has expressed its opinion that personsproposing to sell private placement securities other than in a registeredoffering and other than pursuant to Rule 144 will have a substantial burden ofproof in establishing that an exemption from registration is available for suchoffers or sales, and that such persons and their respective brokers whoparticipate in such transactions do so at their own risk.

h. No Related Transaction. Michelle is not related in any way to anyof Norton Family Living Trust UTD 2-4-91, Norton Family Living Trust UTD2-15-96, Stevenson Family Living Trust UTD 7/1/97, JR Norton Ventures LimitedPartnership, Daniel D. Diethelm, Michael R. Norton and Matthew A. Diethelm, orto Abelco Holding LLC or Roth Capital Corporation, and Michelle's purchase andacquisition of the Shares as contemplated in this Agreement is not related tothe purchase by any

5

6such parties of any other shares of Hypercom's common stock or other securitiesexchangeable for or convertible into Hypercom's common stock. The transactionsset forth herein were negotiated separately from, and after, the priortransactions between the parties described in the recitals hereto, and are notrelated to such prior transactions. Michelle owned less than 1,600,000 shares ofHypercom's common stock immediately prior to the date hereof.

9. HYPERCOM'S COVENANT. Hypercom covenants that, it shall, at its soleexpense, upon Michelle's written request, use commercially reasonable efforts tocause the Shares to be listed for trading on the New York Stock Exchange, or ifHypercom's common stock ceases to be traded on the New York Stock Exchange, onsuch other national securities exchange, national market system orover-the-counter market on which Hypercom's common stock is listed or quoted fortrading.

10. MISCELLANEOUS.

a. Certain Expenses. Subject to the registration rights provisions ofthe Series A Warrant, Hypercom shall pay all stamp or issuance taxes (other thanstock transfer taxes) that may be imposed in respect of, the issuance, sale anddelivery of the Shares to Michelle.

b. Enforcement Costs. If either party to this Agreement seeks toenforce its rights hereunder by legal proceedings or otherwise, then thenon-prevailing party shall pay all reasonable costs and expenses incurred by the



prevailing party, including without limitation, all reasonable attorneys' fees.The term "prevailing party" shall mean that party whose position issubstantially upheld in a final judgment rendered in such litigation or in afinal arbitration award, or if the final judgment or arbitration award isappealed, that party whose final position is substantially upheld by thedecision of the final appellate body.

c. Nonwaiver; Cumulative Remedies. No course of dealing or any delayor failure to exercise any right hereunder on the part of either party heretoshall operate as a waiver of such right or otherwise prejudice the rights,powers or remedies of such party. No single or partial waiver by a party heretoof any provision of this Agreement or any breach or default hereunder or of anyother provision, breach, default right or remedy or the same provision, breach,default, right or remedy on a future occasion. The rights and remedies providedin this Agreement are cumulative and are in addition to all rights and remedieswhich either party may have in law or in equity or by statute or otherwise.

d. Notices. Any notice, demand or delivery to be made pursuant to thisAgreement shall be deemed delivered and received (i) when personally delivered,(ii) on the third business day following the day when deposited in the U.S.mail, postage prepaid, certified or registered mail, return receipt requested,addressed as set forth below or (iii) on the first business day after proper andtimely deposit for next day delivery, charges prepaid, with a nationallyrecognized delivery service to the location of the recipient, to such party atthe address set forth below. Michelle's address shall be its last known addressappearing on the books of Hypercom maintained for such purpose. Hypercom'saddress shall be its principal executive office. Michelle and Hypercom maydesignate a different address by notice to the other pursuant to this Subsection10d.

6

7e. Successors and Assigns. This Agreement shall be binding upon,

Hypercom and any person succeeding Hypercom, by merger, consolidation oracquisition of all or substantially all of Hypercom's assets, and all of theobligations of Hypercom with respect to the Shares and all of the covenants andagreements of Hypercom shall inure to the benefit of Michelle and its successorsand assigns.

f. Severability.

(i) If, in any action before any court or agency legallyempowered to enforce any term of this Agreement, any term is found to beunenforceable, then such term shall be deemed modified to the extent necessaryto make it enforceable by such court or agency.

(ii) If any term of this Agreement is not curable as set forth insubsection (i) above, the unenforceability of such term shall not effect theother provisions of this Agreement, and this Agreement shall be construed as if



such unenforceable term had never been contained herein.

g. Survival of Representations and Warranties. The representations andwarranties of Hypercom and Michelle in this Agreement shall survive theexecution and delivery of this Agreement and the consummation of thetransactions contemplated hereby, notwithstanding any investigation by Michelleor its agents.

h. Amendment. This Agreement may not be modified or amended except bywritten agreement of Hypercom and Michelle.

i. Headings. The headings of the Sections and Subsections of thisAgreement are for the convenience of reference only and shall not, for anypurpose, be deemed a part of this Agreement.

j. Governing Law. This Agreement shall be governed by, and construedin accordance with the laws of the State of Delaware, without regard to conflictof law principles.

[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

7

8IN WITNESS WHEREOF, the parties have caused this Agreement to be executed

by its duly authorized officer as of July , 2001.


/s/ Jonathon E. Killmer--------------------------------Jonathon E. KillmerExecutive Vice President

MICHELLE INVESTMENTS L.L.C.

By: /s/ Sam Buchbinder------------------------------

Its: Manager-----------------------------

8



1EXHIBIT 10.5

STOCK PURCHASE AGREEMENT

This Stock Purchase Agreement (the "Agreement") is dated July 30, 2001,and is among Hypercom Corporation, a Delaware corporation ("Hypercom"), andNorton Family Living Trust UTD 2-4-91, Norton Family Living Trust UTD 2-15-96,Stevenson Family Living Trust UTD 7/1/97, JR Norton Ventures LimitedPartnership, an Arizona limited partnership, Daniel D. Diethelm, Michael R.Norton and Matthew A. Diethelm (collectively, the "Purchasers").

BACKGROUND

A. Certain of the Purchasers recently loaned Hypercom anaggregate of $2,200,000. In connection with these loans, Hypercom granted tothose Purchasers certain Series B Warrants (the "Series B Warrants") to purchaseshares of Hypercom's common stock.

B. Pursuant to the terms of this Agreement, the Purchasers agreeto purchase an aggregate of 1,745,201 shares of Hypercom's common stock for cashconsideration.

NOW, THEREFORE, in consideration of the promises herein, the partieshereto agree as follows:

AGREEMENTS

1. PURCHASE AND SALE OF STOCK. Hypercom hereby issues and sellsto the Purchasers, and the Purchasers hereby purchase and acquire from Hypercom,1,745,201 shares of Hypercom's common stock (the "Shares") for $4.2975 pershare, such Shares to be issued and sold to, and purchased by, each individualPurchaser in the following amounts:

a. 639,907 of the Shares to Norton Family Living Trust UTD2-4-91;

b. 488,656 of the Shares to Norton Family Living Trust UTD2-15-96;

c. 34,904 of the Shares to Stevenson Family Living Trust UTD7/1/97;

d. 232,693 of the Shares to JR Norton Ventures LimitedPartnership;

e. 209,426 of the Shares to Daniel D. Diethelm;



f. 116,346 of the Shares to Michael R. Norton; and

g. 23,269 of the Shares to Matthew A. Diethelm.

22. REGISTRATION OF SHARES. Hypercom agrees that (i) it shall

promptly (but in no event later than September 4, 2001) prepare and file aregistration statement under the Securities Act of 1933, as amended (the"Securities Act") for the registration of the Shares, and shall use commerciallyreasonable efforts to cause such registration statement to become effective byDecember 3, 2001, (ii) the Shares shall be subject to the registrationprovisions of Article 5 of the Series B Warrants, and any Purchaser who is not aholder of Series B Warrants shall nonetheless be entitled to the benefit ofthose registration provisions, and (iii) the Shares shall be "RegistrableSecurities" as defined in the Series B Warrants.

3. DELIVERIES. The parties hereby deliver (or undertake todeliver promptly hereafter):

a. As to Hypercom, certificates representing the Shares,with each such certificate bearing the following legend:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEENREGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANYSTATE SECURITIES LAW, AND ACCORDINGLY, MAY NOT BE SOLD,OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, DIRECTLY ORINDIRECTLY IN THE ABSENCE OF (i) AN EFFECTIVE REGISTRATIONSTATEMENT RELATING THERETO, OR (ii) AN OPINION OF COUNSEL FORTHE REGISTERED HOLDER OF THIS CERTIFICATE, REASONABLYSATISFACTORY TO HYPERCOM CORPORATION, THAT SUCH REGISTRATIONIS NOT REQUIRED.

b. As to the Purchasers, payment by wire transfer ofimmediately available funds or cashier's check of the aggregate$7,500,001.20 purchase price for the Shares.

4. REPRESENTATIONS AND WARRANTIES OF HYPERCOM. Hypercomrepresents and warrants that:

a. Legal Status: Qualification. Hypercom is acorporation duly organized, validly existing and in good standing underthe laws of the State of Delaware and is qualified or licensed to dobusiness in all other countries, states and provinces in which the lawsthereof require Hypercom to qualify and/or be licensed, except wherefailure to

3qualify or be licensed would not have a material adverse effect on thebusiness or assets of Hypercom taken as a whole;

b. Authority. Hypercom has the right and power, and isduly authorized and empowered, to enter into, execute, deliver and



perform this Agreement;

c. Binding Effect. This Agreement has been dulyauthorized, executed and delivered and constitutes a valid and bindingobligation of Hypercom enforceable in accordance with its terms,subject to applicable bankruptcy, insolvency, reorganization,moratorium and similar laws affecting creditors' rights and remediesgenerally, and subject, as to enforceability, to general principles ofequity, including principles of commercial reasonableness, good faithand fair dealing (regardless of whether enforcement is sought in aproceeding at law or in equity);

d. No Conflict. The execution, delivery and/orperformance by Hypercom of this Agreement shall not, by the lapse oftime, the giving of notice or otherwise, constitute a violation of anyapplicable law or a breach of any provision contained in Hypercom'sCertificate of Incorporation or By-laws or contained in any agreement,instrument, or document to which Hypercom is a party or by which it isbound;

e. Consents. Except for filings required pursuant toapplicable securities laws, no consent, approval, authorization orother order of any court, regulatory body, administrative agency orother governmental body is required for the execution and delivery byHypercom of this Agreement or the performance of any of Hypercom'sobligations hereunder;

f. Offering. Neither Hypercom nor any agent acting onits behalf has or will sell or offer for sale, or dispose of or attemptor offer to dispose of, the Shares or any part thereof to, or solicitany offers to buy any securities of like tenor from, or otherwiseapproach or negotiate in respect thereof, with any person or persons soas thereby to bring the issuance of the Shares within the provisions ofSection 5 of the Securities Act;

g. Registration. Subject to Hypercom's reliance on thetruth and accuracy of the Purchasers' representations and warranties inSection 5 hereof, it is not necessary in

2

4connection with the issuance and sale of the Shares to the Purchasersto register the Shares under the Securities Act; and

h. Fully Paid Shares. Upon payment therefor inaccordance with this Agreement, the Shares will be validly and legallyissued, fully paid and non-assessable.

5. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. The



Purchasers represent and warrant that:

a. Purchase for Own Account. The Shares are beingacquired for investment for each Purchaser's own account, and not witha view to the resale or distribution of any part thereof, and noPurchaser has any present intention of selling, granting anyparticipation in, or otherwise distributing the Shares or any partthereof. No Purchaser has any contract, undertaking, agreement orarrangement with any person to sell, transfer or grant participation tosuch person with respect to the Shares issuable to such Purchaser orany part thereof.

b. Disclosure of Information. Each Purchaser is aware ofHypercom's business affairs, financial condition, and status with itslenders, has received and reviewed all information (including allreports, registrations and other documents filed by Hypercom with theUnited States Securities and Exchange Commission (the "Commission") upto the date hereof) that such Purchaser considers necessary orappropriate for making an informed and knowledgeable decision as towhether to acquire the Shares to be issued to it or him hereunder, andfurther represents that it or he has had sufficient opportunity to askquestions and receive answers from Hypercom regarding the nature andaffairs of Hypercom, including its business, properties, prospects andfinancial condition.

c. Investment Experience. Each Purchaser is an investorin securities of companies and acknowledges that it or he is capable ofbearing the economic risk of its or his investment in the Shares to beissued to it or him hereunder, including the risk of total loss of anyor all of such investment, and has such knowledge and experience infinancial or business matters that it or he is capable of evaluatingthe merits and risks of such investment.

3

5d. Accredited Investor. Each Purchaser is an "accredited

investor" within the meaning of Commission Rule 501 of Regulation D, aspresently in effect.

e. Restricted Securities. The Purchasers understands andhereby acknowledge that (i) the Shares will not initially be registeredunder the Securities Act, and in such event will be issued in relianceupon a specific exemption from the registration requirements under theSecurities Act, which exemption depends upon, among other things, thebona fide nature of the Purchasers' investment intent as expressedherein, and (ii) the Shares must be held indefinitely unlesssubsequently registered under the Securities Act or unless an exemptionfrom registration is otherwise available.



f. Rule 144 Restrictions. The Purchasers are aware ofthe provisions of Rule 144, promulgated under the Securities Act,which, in substance, permit limited public resale of "restrictedsecurities" acquired, directly or indirectly, from the issuer thereof(or from an affiliate of such issuer), in a non-public offering subjectto the satisfaction of certain conditions, if applicable, includingamong other things: (i) the availability of certain public informationabout the issuer; (ii) the resale occurring not less than one (1) yearafter the party has purchased and paid for the securities to be sold,unless registered; (iii) the sale being made through a broker in anunsolicited "broker's transaction" or in transactions directly with amarket maker (as said term is defined under the Securities Exchange Actof 1934, as amended), (iv) the amount of securities being sold duringany three-month period not exceeding the specified limitations statedtherein, and (v) the filing of Form 144 with the Commission.

g. Rule 144 Limitations. Each Purchaser understands andacknowledges that at the time it or he wishes to sell some or all ofits or his Shares, there may not be an active public market upon whichto make such a sale, and that, even if such an active public marketupon which to make such a sale then exists, Hypercom may not besatisfying the current public information requirements of Rule 144. Insuch event, each Purchaser understands that it or he may be precludedfrom selling its or his Shares under Rule 144 even if the one-yearminimum holding period has been satisfied or such Shares registered.Each Purchaser further understands that (i) if all of the requirementsof Rule

4

6144 are not satisfied, registration under the Securities Act or someother registration exemption will be required to permit such Purchaserto sell its or his Shares, and (ii) notwithstanding the fact that Rule144 is not exclusive, the staff of the Commission has expressed itsopinion that persons proposing to sell private placement securitiesother than in a registered offering and other than pursuant to Rule 144will have a substantial burden of proof in establishing that anexemption from registration is available for such offers or sales, andthat such persons and their respective brokers who participate in suchtransactions do so at their own risk.

h. No Related Transaction. No Purchaser is related inany way to Michelle Investments LLC, Abelco Holding LLC or Roth CapitalCorporation, and each Purchaser's purchase and acquisition of his orits Shares as contemplated in this Agreement is not related to thepurchase or acquisition by any such parties of any other shares ofHypercom's common stock or other securities exchangeable for orconvertible into Hypercom's common stock. The transactions set forth



herein were negotiated separately from, and after, the priortransactions between the parties described in the recitals hereto, andare not related to such prior transactions. Each Purchaser owned lessthan 1,600,000 shares of Hypercom's common stock immediately prior tothe date hereof.

6. HYPERCOM'S COVENANT. Hypercom covenants that, it shall, at itssole expense, upon the Purchasers' written request, use commercially reasonableefforts to cause the Shares to be listed for trading on the New York StockExchange, or if Hypercom's common stock ceases to be traded on the New YorkStock Exchange, on such other national securities exchange, national marketsystem or over-the-counter market on which Hypercom's common stock is listed orquoted for trading.

7. MISCELLANEOUS.

a. Certain Expenses. Subject to the registration rightsprovisions of the Series B Warrants, Hypercom shall pay all stamp orissuance taxes (other than stock transfer taxes) that may be imposed inrespect of, the issuance, sale and delivery of the Shares to thePurchasers.

5

7b. Enforcement Costs. If any party to this Agreement

seeks to enforce its rights hereunder by legal proceedings orotherwise, then the non-prevailing party shall pay all reasonable costsand expenses incurred by the prevailing party, including withoutlimitation, all reasonable attorneys' fees. The term "prevailing party"shall mean that party whose position is substantially upheld in a finaljudgment rendered in such litigation or in a final arbitration award,or if the final judgment or arbitration award is appealed, that partywhose final position is substantially upheld by the decision of thefinal appellate body.

c. Nonwaiver; Cumulative Remedies. No course of dealingor any delay or failure to exercise any right hereunder on the part ofany party hereto shall operate as a waiver of such right or otherwiseprejudice the rights, powers or remedies of such party. No single orpartial waiver by a party hereto of any provision of this Agreement orany breach or default hereunder or of any other provision, breach,default right or remedy or the same provision, breach, default, rightor remedy on a future occasion. The rights and remedies provided inthis Agreement are cumulative and are in addition to all rights andremedies which any party may have in law or in equity or by statute orotherwise.

d. Notices. Any notice, demand or delivery to be made



pursuant to this Agreement shall be deemed delivered and received (i)when personally delivered, (ii) on the third business day following theday when deposited in the U.S. mail, postage prepaid, certified orregistered mail, return receipt requested, addressed as set forth belowor (iii) on the first business day after proper and timely deposit fornext day delivery, charges prepaid, with a nationally recognizeddelivery service to the location of the recipient, to such party at theaddress set forth below. Each Purchaser's address shall be its lastknown address appearing on the books of Hypercom maintained for suchpurpose. Hypercom's address shall be its principal executive office.Any Purchaser and Hypercom may designate a different address by noticeto the other pursuant to this Subsection 7d.

e. Successors and Assigns. This Agreement shall bebinding upon, Hypercom and any person succeeding Hypercom, by merger,consolidation or acquisition of all or substantially all of Hypercom'sassets, and all of the obligations of Hypercom

6

8with respect to the Shares and all of the covenants and agreements ofHypercom shall inure to the benefit of the Purchasers and theirrespective successors and assigns.

f. Severability.

(i) If, in any action before any court or agencylegally empowered to enforce any term of this Agreement, anyterm is found to be unenforceable, then such term shall bedeemed modified to the extent necessary to make it enforceableby such court or agency.

(ii) If any term of this Agreement is not curableas set forth in subsection (i) above, the unenforceability ofsuch term shall not effect the other provisions of thisAgreement, and this Agreement shall be construed as if suchunenforceable term had never been contained herein.

g. Survival of Representations and Warranties. Therepresentations and warranties of Hypercom and the Purchasers in thisAgreement shall survive the execution and delivery of this Agreementand the consummation of the transactions contemplated hereby,notwithstanding any investigation by the Purchasers or their agents.

h. Amendment. This Agreement may not be modified oramended except by written agreement of Hypercom and the Purchasers.

i. Headings. The headings of the Sections andSubsections of this Agreement are for the convenience of reference only



and shall not, for any purpose, be deemed a part of this Agreement.

j. Governing Law. This Agreement shall be governed by,and construed in accordance with the laws of the State of Delaware,without regard to conflict of law principles.

[THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

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9IN WITNESS WHEREOF, the parties have caused this Agreement to be

executed by its duly authorized officer as of July , 2001.

HYPERCOM CORPORATION NORTON FAMILY LIVING TRUSTUTD 2-4-91 by its Trustee

/s/ Jonathon E. Killmer------------------------------------Jonathon E. Killmer By: /s/ John P. NortonExecutive Vice President ---------------------------------

Name: John P. Norton-------------------------------

NORTON FAMILY LIVING TRUST JR NORTON VENTURES LIMITED PARTNERSHIPUTD 2-15-96 by its Trustee by its General Partner

By: /s/ John R. Norton III By: /s/ John R. Norton III--------------------------------- ---------------------------------

Name: John R. Norton III Name: John R. Norton III------------------------------- -------------------------------

STEVENSON FAMILY LIVING TRUSTUTD 7/1/97 by its Trustee

By: /s/ Roger L. Stevenson /s/ Michael R. Norton--------------------------------- ------------------------------------

Name: Roger L. Stevenson MICHAEL R. NORTON-------------------------------

/s/ Matthew A. Diethelm /s/ Daniel D. Diethelm



------------------------------------ ------------------------------------MATTHEW A. DIETHELM DANIEL D. DIETHELM



1EXHIBIT 99.1

[HYPERCOM(R) LOGO]

CONTACTS:Jonathon E. Killmer Maureen McGarrigleHypercom Corporation Hypercom Corporation602.504.5000 [email protected] [email protected]

HYPERCOM CORPORATION CLOSES ON AND RECEIVES FUNDING FROMOVER $63 MILLION IN NEW FINANCING

-$45 MILLION OF DEBT AND $18.4 MILLION OF EQUITY PROVIDE RESOURCES TO REFINANCECURRENT DEBT AS WELL AS WORKING CAPITAL TO ACCELERATE EPIC EXPANSION WORLDWIDE

PHOENIX - AUGUST 2, 2001 - Hypercom Corporation (NYSE: HYC) today closed andreceived funding from a $45 million financing package led by Foothill CapitalCorporation, a wholly-owned subsidiary of Wells Fargo & Company (NYSE: WFC).Concurrent with the financing, Hypercom raised $18.4 million in privately placedcommon equity. This debt and equity package entirely replaces the Company'sexisting principal lending facility. It will be used for general corporatepurposes, including the satisfaction of working capital and capital expenditureneeds.

"We are very pleased that we have concluded the new financing processand raised new equity, too," said Christopher S. Alexander, president and chiefexecutive officer, Hypercom Corporation. "We believe these transactions reflectour new lenders' and investors' confidence in our industry and technologyleadership, and their support of our strategic direction. We now have theresources we need to aggressively pursue our business strategy. This milestoneis especially important because of the tremendous acceptance of, and demand for,our new generation EPIC (ePOS-infocommerce(TM)) ICE(TM) (Interactive ConsumerEnvironment) point-of-sale terminals and related EPIC value-added applications.We will now be in a position to fully deliver these to our worldwide customerswithout the funding constraints we have recently experienced," said Alexander.

"An example of the acceptance of our new platform is our recentannouncement that Concord EFS, Inc., a leading electronic payment processor, hasselected Hypercom's high performance ICE 5700 card payment terminal withintegrated motorized check reader as the platform for the new STAR UniversalTerminal(sm). This is a visionary approach by Concord and one that would not bepossible without the technologically advanced products that Hypercom hasdeveloped," said Alexander.



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In connection with closing the Foothill financing, and in a separatearrangement, Michelle Investments LLC, which provided $15 million in interimfinancing with warrants to the Company in June, purchased $7.5 million inHypercom common stock. In addition, several individual investors purchased $7.5million in Hypercom common stock.

In addition, investors who had purchased $3.4 million principal amountof convertible promissory notes in June 2001, converted the notes and purchasedshares of common stock.

ABOUT FOOTHILL CAPITAL CORPORATION

Foothill Capital Corporation is a leading provider of asset-basedfinancing to middle market companies throughout North America. In addition,Foothill Capital has successfully completed financings for many innovative,"non-traditional," secured lending transactions. Foothill Capital is asubsidiary of Wells Fargo & Company, a $280 billion diversified financialservices company providing banking, insurance, investments, mortgage andconsumer finance through more than 5,400 stores, the Internet (wellsfargo.com)and other distribution channels across North America and elsewhereinternationally. For more information, visit Foothill Capital on the Internet atwww.foothillcapital.com.

ABOUT HYPERCOM (www.hypercom.com)

Hypercom Corporation (NYSE: HYC) is the leading global provider ofelectronic payment solutions that add value at the point-of-sale for consumers,merchants and acquirers, and yield increased profitability for its customers.Hypercom's products include secure web-enabled transaction terminals that workseamlessly with its networking equipment and software applications fore-commerce, m-commerce, smart cards and traditional payment applications. Thecompany's widely-accepted ePOS-infocommerce(TM)(epic) framework ofconsumer-activated, EMV-certified, touch-screen ICE (Interactive ConsumerEnvironment) terminals enable acquirers and merchants to decrease costs,increase revenues and improve customer retention.

Headquartered in Phoenix, Arizona, Hypercom is independentlyacknowledged as the leading provider of point-of-sale card payment terminalsworldwide. Demand for Hypercom's terminals surpassed one million units last yearalone. Hypercom today maintains an installed base of more than 4 millionterminals in over 100 countries, which conduct over 10 billion transactionsannually.



Hypercom is a registered trademark of Hypercom Corporation. ePOS-infocommerceand ICE are trademarks of Hypercom Corporation. All other products or servicesmentioned in this document are trademarks, service marks, registered trademarksor registered service marks of their respective owners.

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FORWARD-LOOKING STATEMENTS

This press release includes statements that constitute "forward-lookingstatements" within the meaning of the Private Securities Litigation Reform Actof 1995 (the "Reform Act"). Hypercom Corporation claims the protection of thesafe-harbor for forward-looking statements contained in the Reform Act. Theseforward-looking statements are often characterized by the terms "may,""believes," "projects," "expects," or "anticipates," and do not reflecthistorical facts.

Forward-looking statements involve risks, uncertainties and otherfactors which may cause actual results, performance or achievements of Hypercomto be materially different from those expressed or implied by suchforward-looking statements. Factors that could affect Hypercom's results andcause them to materially differ from those contained in the forward-lookingstatements include uncertainties relating to:

- The company's ability to improve product quality, security andreliability, and manufacturing processes, especially for new productsand product extensions; market acceptance of products and services; itsability to increase gross margins and reduce expenses; increasingcompetition especially relative to market size and growth rates;economic conditions; industry and technological changes; thecomposition, timing and size of orders from major customers; inventoryobsolescence; cannibalization of legacy products by new products; thepossibility of asset write downs or increases in reserves; and risksassociated with international operations, including currencyfluctuations.

- Risk factors and cautionary statements made in Hypercom's Annual Reporton Form 10-K for the period ended December 31, 2000 and QuarterlyReport on Form 10-Q for the period ended March 31, 2001.

- Other factors that Hypercom is currently unable to identify orquantify, but may arise or become known in the future.

In addition, the foregoing factors may affect generally Hypercom'sbusiness, results of operations and financial position.

Forward-looking statements speak only as of the date the statement wasmade. Hypercom does not undertake and specifically disclaims any obligation to



update any forward-looking statements.

Our statement regarding our industry leadership is derived fromindustry surveys of worldwide POS terminal shipments.

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