Exhibit 10.1
PAYMENT AND THE EXERCISE OF REMEDIES WITH RESPECT TO THIS NOTE, AND ANY LIENS
SECURING THIS NOTE, WILL BE SUBJECT TO THE TERMS AND PROVISIONS SET FORTH IN THE
SUBORDINATION AGREEMENT (AS DEFINED BELOW). THE MAKER OF THIS NOTE WILL FURNISH
A COPY OF THE SUBORDINATION AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE UPON
WRITTEN REQUEST.
THIS NOTE AND ANY SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY COMPARABLE STATE
SECURITIES LAW. EXCEPT AS EXPRESSLY PROVIDED HEREIN, NEITHER THIS NOTE NOR ANY
PORTION HEREOF OR INTEREST HEREIN (INCLUDING SECURITIES ISSUABLE UPON CONVERSION
HEREOF) MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE
SECURITIES LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND
THE MAKER HAS RECEIVED EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE
MAKER.
CONVERTIBLE SENIOR SUBORDINATED SECURED PROMISSORY NOTE

      March 18, 2008   $7,500,000

     FOR VALUE RECEIVED, LOUD Technologies Inc., a Washington corporation (LOUD
Technologies Inc., together with each other Person which is joined as a “Maker”
pursuant to a joinder agreement, individually and collectively, jointly and
severally, the “Maker”) hereby covenants and promises to pay to Sun Mackie, LLC,
a Delaware limited liability company, or its successors and assigns (the
“Payee”) the principal amount of SEVEN MILLION FIVE HUNDRED THOUSAND AND NO/100
DOLLARS ($7,500,000), together with interest thereon calculated from the date
hereof in accordance with the provisions of this Note.
     This Note and the indebtedness evidenced hereby are subordinate in the
manner and to the extent set forth in that certain Intercreditor Agreement,
dated as of the date hereof, among Payee, Ableco Finance LLC, a Delaware limited
liability company (“Ableco”), as collateral agent for the Lenders as defined
therein (in such capacity, together with any successor collateral agent, the
“Collateral Agent”), and GMAC Commercial Finance LLC (“GMAC”), as administrative
agent for the Lenders defined therein (in such capacity, together with any
successor administrative agent, the “Administrative Agent”; and together with
the Collateral Agent, each an “Agent” and collectively, the “Agents”) (as
amended, restated, supplemented, or otherwise modified from time to time, the
“Subordination Agreement”), and each holder of this Note, by its acceptance
hereof, shall be bound by the provisions of the Subordination Agreement.
     1. Interest.
     (a) Interest Accrual. Interest shall accrue on a quarterly basis at a rate
of fifteen and one-quarter percent (15.25%) per annum (calculated on the basis
of a 360-day year comprised of twelve 30-day months) on the unpaid principal
balance of this Note outstanding from time to time, or (if less) at the highest
rate then permitted by applicable law. The Maker shall pay to the

 

--------------------------------------------------------------------------------

 

Payee all accrued and unpaid interest on the Interest Payment Dates, beginning
March 31, 2008, by increasing the principal amount of this Note by the amount of
such accrued and unpaid interest (“PIK Interest”) pursuant to Section 1(b)
below. All accrued interest which for any reason has not theretofore been paid
shall be paid in full on the date on which the final principal payment on this
Note is made. Interest shall accrue on any principal payment due under this Note
and, to the extent permitted by applicable law, on any interest which has not
been paid on the date on which it is due and payable until such time as payment
therefor is actually delivered to the Payee. Upon the conversion of all or part
of the amounts outstanding under this Note into Common Stock pursuant to
Section 8, interest will cease to accrue with respect to any such amounts
converted into Common Stock.
     (b) PIK Interest; Capitalization of Interest. All interest which accrues on
or before any Interest Payment Date (the “Capitalization Date”) shall be deemed
to be paid in kind and added to the principal amount outstanding hereunder, in
each case, as of the Capitalization Date. Except as expressly provided herein,
the term “Note” shall include all PIK Interest deemed to be added to the
principal amount outstanding hereunder pursuant to this Section 1(b).
     2. Principal.
     (a) Maturity Date. On June 29, 2012 (the “Maturity Date”), the Maker shall
pay the entire unpaid principal amount of this Note then outstanding to the
Payee, together with all accrued and unpaid interest thereon.
     (b) Mandatory Prepayment. Subject to the terms of the Subordination
Agreement and the Payee’s right to convert this Note into Common Stock pursuant
to Section 8, upon the occurrence of a Fundamental Change, the Maker shall
redeem this Note in full at a price equal to the unpaid principal amount of the
Note, plus all accrued and unpaid interest. Except as provided in the foregoing
sentence, this Note may not be prepaid by the Maker without the consent of the
Majority Payees.
     (c) Replacement Notes. The Maker or the Payee may, but shall not be
obligated to, request the issuance of replacement notes to evidence any
increases in the principal amount of this Note pursuant to Section 1(b) with
such replacement notes being identical in form and substance in all respects to
this Note. Upon any such request, the Maker shall issue such replacement notes
and the holder(s) of this Note or such replacement notes shall return such notes
to be replaced to the Maker, in each case marked “cancelled”, or deliver to the
Maker a lost note indemnity in form and substance reasonably satisfactory to the
Maker. The replacement and cancellation of notes pursuant to this Section 2(c)
shall in no way be a novation of the indebtedness evidenced by the notes being
replaced and cancelled nor shall the security interests granted pursuant to any
Senior Subordinated Note Document be released, terminated or otherwise impaired
by such replacement and cancellation.
     (d) Application of Principal Payments and Reductions. All payments and
prepayments of principal on this Note and all principal reductions effected in
accordance with the terms of this Note shall be applied first, to the accrued
and unpaid interest due under this Note, and second, to the unpaid principal
balance of this Note then outstanding (including principal attributable to the
capitalization of PIK Interest in accordance with Section 1(b)).

2

--------------------------------------------------------------------------------

 

     3. Guarantee. All obligations of the Maker under this Note and the other
Senior Subordinated Note Documents are hereby guaranteed by Mackie Designs Inc.,
a Washington corporation, SIA Software Company Inc., a New York corporation, and
St. Louis Music, Inc., a Missouri corporation and each other current or future
Domestic Subsidiary of the Maker (collectively, “Guarantors”) pursuant to the
terms set forth on Exhibit A attached hereto and made a part hereof.
     4. Transaction Fee. In consideration of the loan made pursuant to this
Note, and not in limitation of any other fee paid or payable to the Payee under
any of the Senior Subordinated Note Documents at any time, the Maker shall, on
the date hereof, pay to the Payee, or the Payee, at its option, may set off
against the amount loaned to the Maker pursuant to this Note, a fee in the
amount of $150,000, which fee shall be fully earned and payable as of the date
hereof and constitutes part of the Obligations. The Maker agrees that, once
paid, the foregoing fee shall be nonrefundable.
     5. Representations and Warranties. The Maker hereby represents and warrants
to the Payee that each of the representations and warranties set forth in the
First Lien Credit Agreement are true and correct as of the date hereof, and each
such representation and warranty is incorporated mutatis mutandis as if set
forth fully in this Note and as if applicable to the Payee and the Senior
Subordinated Note Documents. The Maker further represents and warrants to the
Payee that (a) the execution, delivery and performance of the Senior
Subordinated Note Documents to which the Maker is a party have been duly
authorized by the Maker, (b) the Senior Subordinated Note Documents constitute a
valid and binding obligation of the Maker, enforceable in accordance with their
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, or other laws affecting creditors’ rights generally
and limitations on the availability of equitable remedies, and (c) the execution
and delivery by the Maker of the Senior Subordinated Not Documents to which the
Maker is a party, and the fulfillment of and compliance with the respective
terms hereof and thereof by the Maker, do not and shall not (i) conflict with or
result in a breach of the terms of the terms, conditions or provisions of,
(ii) constitute a default under, (iii) result in the creation of any lien,
security interest, charge, or encumbrance upon the Maker’s capital stock or
assets pursuant to, (iv) give any third party the right to modify, accelerate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authorization, consent, approval, exemption, or other action by or notice to
any court or administrative or governmental body pursuant to, its articles of
incorporation or bylaws or any material law, statute, rule or regulation,
including the rules of any stock exchange, to which the Maker is subject, or any
material agreement, instrument, order, judgment or decree to which the Maker is
subject, except where any such condition would not have a material adverse
effect on the Maker.
     6. Covenants.
     (a) Maintenance of the Maker’s Business. So long as any amount remains due
and outstanding under this Note, the Maker will, and will cause each of its
Subsidiaries to:
          (i) at all times cause to be done all things necessary to maintain,
preserve and renew its corporate existence (except that a Subsidiary may be
merged or liquidated into the

3

--------------------------------------------------------------------------------

 

Maker or another Subsidiary) and all material licenses, authorizations and
permits necessary to the conduct of its businesses;
          (ii) maintain and keep its properties in good repair, working order
and condition, and from time to time make all necessary or desirable repairs,
renewals and replacements, so that its businesses may be properly and
advantageously conducted in all material respects at all times;
          (iii) pay and discharge when payable all taxes, assessments and
governmental charges imposed upon its properties or upon the income or profits
therefrom (in each case before the same becomes delinquent and before penalties
accrue thereon) and all claims for labor, materials or supplies to the extent to
which the failure to pay or discharge such obligations would reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, assets, operations or business prospects of the Maker and its
Subsidiaries taken as a whole, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with GAAP) have been established on its books and
financial statements with respect thereto;
          (iv) comply with all other obligations which it incurs pursuant to any
contract or agreement, whether oral or written, express or implied, as such
obligations become due to the extent to which the failure to so comply would
reasonably be expected to have a material adverse effect upon the financial
condition, operating results, assets, operations or business prospects of the
Maker and its Subsidiaries taken as a whole, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with GAAP) have been established
on its books and financial statements with respect thereto;
          (v) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected to
have a material adverse effect upon the financial condition, operating results,
assets, operations or business prospects of the Maker and its Subsidiaries taken
as a whole;
          (vi) apply for and continue in force with good and responsible
insurance companies adequate insurance covering risks of such types and in such
amounts as are customary for companies of similar size engaged in similar lines
of business; and
          (vii) maintain proper books of record and account which present fairly
in all material respects its financial condition and results of operations and
make provisions on its financial statements for all such proper reserves as in
each case are required in accordance with GAAP.
     (b) SEC Filings. The Maker will file all reports required to be filed by it
under the Securities Act of 1933, as amended (the “Securities Act”), and the
Securities Exchange Act of 1934, as amended (the “Securities Exchange Act”), and
the rules and regulations adopted by the Securities and Exchange Commission
thereunder in a timely and accurate manner. Upon request, the Maker will deliver
to the Payee a written statement as to whether it has complied with such
requirements. The Maker’s failure to file a report required to be filed under
the

4

--------------------------------------------------------------------------------

 

Securities Act or the Exchange Act, as the case may be, shall not constitute an
Event of Default (as defined in Section 7 below) hereunder if such failure, in
the case of an Exchange Act filing, is excused by the application of Exchange
Act Rule 12b-25.
     (c) Shareholder Approval. The Maker will submit (i) the Senior Subordinated
Note Documents and the transactions contemplated hereby and thereby (including
the issuance of shares to the Payee should the Payee exercise its right to
convert this Note into shares of Common Stock pursuant to Section 8 hereof), and
(ii) an amendment to the articles of incorporation of the Maker increasing the
number of authorized shares to an amount sufficient to permit conversion of this
Note pursuant to Section 8 hereof (including PIK Interest) for approval by its
shareholders at the Maker’s next annual shareholders meeting. The Maker shall
include in the proxy statement for such meeting the recommendation of the
Special Committee of the Board of Directors and the Board of Directors of the
Maker in favor of the approval of the Proposals and such proxy statement shall
provide that the vote of the shares held by the Payee shall be sufficient for
approval of the Proposals (provided the Payee owns at least 66 2/3% of the
outstanding shares of the Maker on the record date for such meeting). The proxy
statement for such annual Meeting shall be filed with the SEC not later than
April 29, 2008 and such meeting held no later than May 31, 2008.
     (d) Audited Financial Statements. The Maker agrees to deliver, or cause to
be delivered, to the Payee the Audited Financial Statements for each Fiscal Year
substantially simultaneously with the delivery thereof to the Administrative
Agent and the Lenders under the First Lien Credit Agreement.
     (e) Notifications of Defaults on First Lien Financing Agreement. As soon as
practicable and in event within two (2) Business Days after giving or receiving
any notice that a default or event of default has occurred under the First Lien
Credit Agreement, the Maker will deliver to the Payee a copy of any such notice.
     (f) Guarantees and Collateral. The Maker will deliver, or cause to
delivered, such guarantees, security agreement, mortgages and other collateral
documents as are necessary to provide the Payee with guarantees by the same
entities and security interests in the same assets as the guarantees and
collateral documents delivered pursuant to the First Lien Credit Agreement,
together with such opinions, title insurance policies, endorsements, financing
statements, control agreements (other than to the extent the Collateral Agent is
the bailee for the Payee in accordance with the Subordination Agreement) and
other agreements, documents and instruments in furtherance of such guarantees
and collateral arrangements as the Payee may from time to time reasonably
request.
     (g) Additional Subsidiary Guarantors. Each Domestic Subsidiary acquired or
created shall as soon as practicable, but in any event within five (5) Business
Days after the time it becomes a guarantor of the obligations under the First
Lien Credit Agreement, execute a guaranty in the form attached hereto as
Exhibit A and reasonably satisfactory in form and substance to the Majority
Payees.

5

--------------------------------------------------------------------------------

 

     7. Events of Default; Remedies.
     (a) Events of Default. The term “Event of Default” as used herein means the
occurrence or happening, at any time and from time to time, any of the
following:
          (i) the failure of the Maker to pay when due and payable (whether at
maturity, upon a Fundamental Change or otherwise) the full amount of interest
then accrued on this Note (including any PIK Interest) and the full amount of
any principal payment on this Note;
          (ii) the occurrence of an Insolvency Event;
          (iii) the failure of the Maker to deliver any shares of Common Stock
required to be delivered by the Maker upon conversion of this Note pursuant to
Section 8, which failure is not remedied within fifteen (15) calendar days of
the Payee’s conversion of this Note;
          (iv) the failure of the Maker or any Guarantor to comply with any
covenant or agreement contained in any of the Senior Subordinated Note
Documents, which non-compliance is not cured within fifteen (15) calendar days
after receipt of written notice from the Payee; provided, however, that the
Maker shall have sixty (60) calendar days after receipt of written notice to
remedy, or receive a waiver for, any failure to comply with Section 6(b) so long
as the Maker is using commercially reasonable efforts to cure such failure as
promptly as reasonably practicable;
          (v) (A) the failure of the Maker or any of its Subsidiaries to pay in
full any principal of or interest or premium on any of its indebtedness
(excluding the obligations hereunder) to the extent that the aggregate principal
amount of all such indebtedness exceeds $1,000,000 when due (whether by
scheduled maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after any applicable grace period, if any, specified
in the agreement or instrument relating to such indebtedness, or (B) any other
default under any agreement or instrument relating to any such indebtedness, or
any other event, shall occur and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of such
other default or event is to accelerate the maturity of such indebtedness;
          (vi) a judgment in excess of $1,000,000 is rendered against the Maker
or any Subsidiary and, within 60 days after entry thereof, such judgment is not
discharged in full or execution thereof stayed pending appeal, or within sixty
(60) days after the expiration of any such stay, such judgment is not discharged
in full;
          (vii) any representation or warranty made or deemed made by or on
behalf of Maker or any Guarantor or by any officer of the foregoing under or in
connection with the Senior Subordinated Note Documents or under or in connection
with any report, certificate, or other document delivered to any Payee shall
have been incorrect in any material respect when made or deemed made;
          (viii) any material provision of this Note, or any other Senior
Subordinated Note Document shall at any time for any reason (other than pursuant
to the express terms thereof) cease to be valid and binding on or enforceable
against the Maker or any Guarantor

6

--------------------------------------------------------------------------------

 

intended to be a party thereto, or the validity or enforceability thereof shall
be contested by any party thereto, or a proceeding shall be commenced by the
Maker or any Guarantor or any governmental authority having jurisdiction over
any of them, seeking to establish the invalidity or unenforceability thereof, or
the Maker or any Guarantor shall deny in writing that it has any liability or
obligation purported to be created under this Note, or any other Senior
Subordinated Note Document; or
          (ix) any security agreement, any mortgage or any other security
document, after delivery thereof pursuant hereto, shall for any reason fail or
cease to create a valid and perfected lien in favor of the Payee on any
Collateral purported to be covered thereby.
     (b) Remedies.
          (i) Subject to the Subordination Agreement, upon the occurrence of an
Event of Default, the Majority Payees may declare all or any portion of the
unpaid Obligations to be immediately due and payable (provided, however, that if
an Event of Default specified in Section 7(a)(ii) occurs, the entire unpaid
Obligations shall forthwith become and be immediately due and payable without
any declaration or other act on the part of the Majority Payees).
          (ii) Subject to the Subordination Agreement, upon the occurrence of
any Event of Default and for so long as any Event of Default is continuing, the
interest rate on this Note shall increase immediately by an increment of two
(2) percentage points to the extent permitted by law. Any increase of the
interest rate resulting from the operation of this Section 7(b)(ii) shall
terminate as of the close of business on the date on which no Events of Default
exist (subject to subsequent increases pursuant to this Section 7(b)(ii)). All
additional interest accrued pursuant to this Section 7(b)(ii) shall be
capitalized on any relevant Capitalization Date in accordance with Section 1(b).
          (iii) Each Payee shall also have any other rights which such Payee may
have been afforded under any contract or agreement at any time and any other
rights which such Payee may have pursuant to applicable law.
     8. Conversion.
     (a) Conversion Procedure.
          (i) At any time and from time to time prior to the payment of this
Note in full, at the Payee’s option, the Payee may convert all or any portion of
the principal amount and accrued and unpaid interest outstanding under this Note
into a number of shares of the Conversion Stock (excluding any fractional share)
determined by dividing the principal amount designated by such Payee to be
converted by the Conversion Price then in effect; provided, that such conversion
may not take place until the Maker’s shareholders (without giving effect to the
conversion contemplated by this Section 8(a)(i)) have approved the issuance of
the Common Stock issuable upon conversion of this Note.
          (ii) Except as otherwise expressly provided herein, each conversion of
this Note shall be deemed to have been effected as of the close of business on
the date on which this Note has been surrendered for conversion at the principal
office of the Maker. At such time as

7

--------------------------------------------------------------------------------

 

such conversion has been effected, the rights of the Payee as the holder of this
Note to the extent of the conversion shall cease, and the Person or Persons in
whose name or names any certificate or certificates for shares of Conversion
Stock are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Conversion Stock represented
thereby.
          (iii) Notwithstanding any other provision hereof, if a conversion of
any portion of this Note is to be made in connection with a sale of the Maker,
the conversion of any portion of this Note may, at the election of the Payee, be
conditioned upon the consummation of the sale of the Maker, in which case such
conversion shall not be deemed to be effective until the consummation of such
transaction.
          (iv) As soon as possible after a conversion has been effected (but in
any event within five (5) Business Days in the case of clause (A) below), the
Maker shall deliver to the converting Payee:
               (A) a certificate or certificates representing the number of
shares of Conversion Stock (excluding any fractional share) issuable by reason
of such conversion in such name or names and such denomination or denominations
as the converting Payee has specified; and
               (B) a new Note representing any portion of the principal amount
or accrued and unpaid interest which was represented by the Note surrendered to
the Maker in connection with such conversion but which was not converted.
          (v) If any fractional share of Conversion Stock would, except for the
provisions hereof, be deliverable upon conversion of this Note, the Maker, in
lieu of delivering such fractional share, shall pay an amount equal to the
Market Price of such fractional share as of the date of such conversion.
          (vi) The issuance of certificates for shares of Conversion Stock upon
conversion of this Note shall be made without charge to the Payee hereof for any
issuance tax in respect thereof or other cost incurred by the Maker in
connection with such conversion and the related issuance of shares of Conversion
Stock. Upon conversion of this Note, the Maker shall take all such actions as
are necessary in order to insure that the Conversion Stock issuable with respect
to such conversion shall be validly issued, fully paid and nonassessable.
          (vii) The Maker shall not close its books against the transfer of
Conversion Stock issued or issuable upon conversion of this Note in any manner
which interferes with the timely conversion of this Note. The Maker shall assist
and cooperate with any Payee required to make any governmental filings or obtain
any governmental approval prior to or in connection with the conversion of this
Note (including, without limitation, making any filings required to be made by
the Maker).
          (viii) The Maker shall at all times reserve and keep available out of
its authorized but unissued shares of Conversion Stock, solely for the purpose
of issuance upon the conversion of the Note, such number of shares of Conversion
Stock issuable upon the conversion of all outstanding Notes. All shares of
Conversion Stock which are so issuable shall, when

8

--------------------------------------------------------------------------------

 

issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. The Maker shall take all such actions as may be
necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Conversion
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Maker upon each such issuance).
     (b) Conversion Price.
          (i) The initial Conversion Price shall be $5.00 per share of Common
Stock. In order to prevent dilution of the conversion rights granted under the
Notes, the Conversion Price shall be subject to adjustment from time to time
pursuant to this Section 8(b).
          (ii) If and whenever the Maker issues or sells, or in accordance with
Section 8(c) is deemed to have issued or sold, any shares of Common Securities
for a consideration per share less than the Conversion Price in effect
immediately prior to such time, then immediately upon such issue or sale the
Conversion Price shall be reduced to the Conversion Price determined by dividing
(A) an amount equal to the sum of (x) the product derived by multiplying the
Conversion Price in effect immediately prior to such issue or sale by the number
of shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale, plus (y) the consideration, if any, received by the Maker upon such issue
on sale, by (B) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
     (c) Effect on Conversion Price of Certain Events. For purposes of
determining the adjusted Conversion Price under Section 8(b), the following
shall be applicable:
          (i) Issuance of Rights or Options. If the Maker in any manner grants
or sells any Options and the price per share for which Common Securities are
issuable upon the exercise of such Options, or upon conversion or exchange of
any Convertible Securities issuable upon exercise of such Options, is less than
the Conversion Price in effect immediately prior to the time of the granting or
sale of such Options, then the total maximum number of shares of Common
Securities issuable upon the exercise of such Options, or upon conversion or
exchange of the total maximum amount of such Convertible Securities issuable
upon the exercise of such Options, shall be deemed to be outstanding and to have
been issued and sold by the Maker at the time of the granting or sale of such
Option for such price per share. For purposes of this Section 8(c)(i), the
“price per share for which Common Securities are issuable upon exercise of such
Options or upon conversion or exchange of such Convertible Securities” is
determined by dividing (A) the total amount, if any, received or receivable by
the Maker as consideration for the granting or sale of such Options, plus the
minimum aggregate amount of additional consideration payable to the Maker upon
the exercise of all such Options, plus in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Maker upon the issuance or sale of such
Convertible Securities and the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Securities issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No adjustment of the Conversion
Price shall be made upon the actual issuance of such Common Securities or of
such Convertible Securities upon the exercise of such Options or upon the actual

9

--------------------------------------------------------------------------------

 

issuance of such Common Securities upon conversion or exchange of such
Convertible Securities.
          (ii) Issuance of Convertible Securities. If the Maker in any manner
issues or sells any Convertible Securities and the price per share for which
Common Securities are issuable upon conversion or exchange thereof is less than
the Conversion Price in effect immediately prior to the time of such issue or
sale, then the maximum number of shares of Common Securities issuable upon
conversion or exchange of all such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Maker at the time of the
issuance or sale of such Convertible Securities for such price per share. For
the purposes of this Section 8(c)(ii), the “price per share for which Common
Securities are issuable upon conversion or exchange thereof” is determined by
dividing (A) the total amount received or receivable by the Maker as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Maker upon the conversion or exchange thereof, by (B) the total maximum number
of shares of Common Securities issuable upon the conversion or exchange of all
such Convertible Securities. No adjustment of the Conversion Price shall be made
upon the actual issue of such Common Securities upon conversion or exchange of
such Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustments of the
Conversion Price had been or are to be made pursuant to other provisions of this
Section 8(c), no further adjustment of the Conversion Price shall be made by
reason of such issue or sale.
          (iii) Change in Option Price or Conversion Rate. If the purchase price
provided for in any Option, the additional consideration (if any) payable upon
the issue, conversion or exchange of any Convertible Security, or the rate at
which any Convertible Security is convertible into or exchangeable for Common
Securities changes at any time, the Conversion Price in effect at the time of
such change shall be adjusted immediately to the Conversion Price which would
have been in effect at such time had such Option or Convertible Security
originally provided for such changed purchase price, additional consideration or
changed conversion rate, as the case may be, at the time initially granted,
issued or sold; provided, that if such adjustment of the Conversion Price would
result in an increase in the Conversion Price then in effect, such adjustment
shall not be effective until thirty (30) calendar days after written notice
thereof has been given to all Payees. For purposes of this Section 8(c), if the
terms of any Option or Convertible Security which was outstanding as of the date
of issuance of this Note are changed in the manner described in the immediately
preceding sentence, then such Option or Convertible Security and the Common
Securities deemed issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change; provided, that no
such change shall at any time cause the Conversion Price hereunder to be
increased.
          (iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities without the exercise of such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Securities, to
the extent outstanding immediately prior to such expiration or termination,
never been issued; provided, that if such expiration or termination would result
in an increase in the Conversion

10

--------------------------------------------------------------------------------

 

Price then in effect, such increase shall not be effective until thirty
(30) calendar days after written notice thereof has been given to all Payees.
For purposes of this Section 8(c), the expiration or termination of any Option
or Convertible Security which was outstanding as of the date of issuance of this
Note shall not cause the Conversion Price hereunder to be adjusted unless, and
only to the extent that, a change in the terms of such Option or Convertible
Security caused it to be deemed to have been issued after the date of issuance
of this Note.
          (v) Calculation of Consideration Received. If any Common Securities,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Maker therefor. In case any Common Securities,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the Maker
shall be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Maker shall be the Market Price thereof as of the date of receipt. In case
any Securities, Options or Convertible Securities are issued to the owners of
the non-surviving entity in connection with any merger in which the Maker is the
surviving entity, the amount of consideration therefor shall be deemed to be the
fair value of the portion of the net assets of the non-surviving entity that is
attributable to such Common Securities, Options or Convertible Securities, as
the case may be. The fair value of any consideration or net assets other than
cash and securities (and, if applicable, the portion thereof attributable to any
such stock or securities) shall be determined jointly by the Maker and the
holders of a majority of the outstanding principal amount of the Notes. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Maker and
the holders of a majority of the outstanding principal amount of the Notes. The
determination of such appraiser shall be final and binding upon the parties, and
the fees and expenses of such appraiser shall be borne by the Maker.
          (vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Maker, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Options shall be deemed to
have been issued without consideration.
          (vii) Treasury Shares. The number of shares of Common Securities
outstanding at any given time does not include shares owned or held by or for
the account of the Maker or any Subsidiary, and the disposition of any shares so
owned or held shall be considered an issue or sale of Common Securities.
          (viii) Record Date. If the Maker takes a record of the holders of
Common Securities for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Securities, Options or in Convertible
Securities or (B) to subscribe for or purchase Common Securities, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Securities deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.

11

--------------------------------------------------------------------------------

 

     (d) Subdivision or Combination of Common Securities. If the Maker at any
time subdivides (by any stock split, stock dividend or otherwise) one or more
classes of its outstanding shares of Common Securities into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and if the Maker at any time combines (by
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Securities into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination shall be proportionately increased.
     (e) Reorganization, Reclassification, Consolidation, Merger or Sale. Any
recapitalization, reorganization, reclassification, consolidation, merger, sale
of all or substantially all of the Maker’s assets or other transaction, which in
each case is effected in such a manner that holders of Common Securities are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Securities is
referred to herein as an “Organic Change.” Prior to the consummation of any
Organic Change, the Maker shall make lawful and adequate provision (in form and
substance satisfactory to the holders of a majority of the principal amount of
the Notes then outstanding) to ensure that each of the Payees shall thereafter
have the right to acquire and receive, in lieu of or addition to (as the case
may be) shares of Conversion Stock immediately theretofore acquirable and
receivable upon the conversion of such holder’s Note, such shares of stock,
securities or assets as would have been issued or payable in such Organic Change
(if the Payee had exercised this Note immediately prior to such Organic Change)
with respect to or in exchange for the number of shares of Conversion Stock
immediately theretofore acquirable and receivable upon conversion of such
Payee’s Note had such Organic Change not taken place. In any such case,
appropriate provision (in form and substance satisfactory to the Majority
Payees) shall be made with respect to such Payee’s rights and interests to
insure that the provisions of this Section 8 and Sections 9 and 10 shall
thereafter be applicable in relation to any shares of stock, securities or
assets thereafter deliverable upon the conversion of the Notes (including, in
the case of any such consolidation, merger or sale in which the successor entity
or purchasing entity is other than the Maker, an immediate adjustment of the
Conversion Price to the value for the Common Securities reflected by the terms
of such consolidation, merger or sale, and a corresponding immediate adjustment
in the number of shares of Conversion Stock acquirable and receivable upon
conversion of the Notes, if the value so reflected is less than the Conversion
Price in effect immediately prior to such consolidation, merger or sale). The
Maker shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Maker)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form reasonably satisfactory to the Majority
Payees), the obligation to deliver to each such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to acquire.
     (f) Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 8 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features), then the Maker’s
board of directors shall make an appropriate adjustment in the Conversion Price
so as to protect the rights of the Payees; provided, that no such adjustment
shall increase the Conversion Price as otherwise determined pursuant to this
Section 8 or decrease the number of shares of Conversion Stock issuable upon
conversion of the Notes then outstanding.

12

--------------------------------------------------------------------------------

 

     (g) Notices.
          (i) Immediately upon any adjustment of the Conversion Price, the Maker
shall send written notice thereof to the Payee, setting forth in reasonable
detail and certifying the calculation of such adjustment.
          (ii) The Maker shall send written notice to the Payee at least twenty
(20) calendar days prior to the date on which the Maker closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Securities, (B) with respect to any pro rata subscription offer to holders of
Common Securities or (C) for determining rights to vote with respect to any
Organic Change, dissolution or liquidation.
          (iii) The Maker shall also give at least twenty (20) calendar days
prior written notice of the date on which any Organic Change, Fundamental
Change, dissolution or liquidation shall take place.
     9. Liquidating Dividends. If the Maker declares a dividend upon the Common
Securities payable otherwise than in cash out of earnings or earned surplus
(determined in accordance with GAAP) except for a stock dividend payable in
shares of Common Securities (a “Liquidating Dividend”), then the Maker shall pay
to the Payee at the time of payment thereof the Liquidating Dividend which would
have been paid to the Payee on the Conversion Stock had this Note been fully
converted immediately prior to the date on which a record is taken for such
Liquidating Dividend, or, if no record is taken, the date as of which the record
holders of Common Securities entitled to such dividends are to be determined.
     10. Purchase Rights. If at any time the Maker grants, issues or sells any
Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Securities (the “Purchase Rights”), then each Payee shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Payee could have acquired if such Payee had held the
number of shares of Conversion Stock acquirable upon conversion of such Payee’s
Note immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Securities are to be determined
for the grant, issue or sale of such Purchase Rights.
     11. Registration Agreement. The Maker and the Payee agree and acknowledge
that the shares issuable by the Maker pursuant to Section 8 of this Note are
“Sun Registrable Securities” pursuant to and as defined in that certain
Registration Agreement dated February 21, 2003 by and among the Maker, the Payee
and the other parties signatory thereto; provided, that if this Note is assigned
pursuant to Section 15 of this Note to any Person other than an affiliate of Sun
Mackie, LLC, such assignee will be deemed a party to such Registration Agreement
and the shares issuable by the Maker pursuant to Section 8 of this Note shall be
“Other Registrable Securities” pursuant to and as defined in such Registration
Agreement.
     12. Amendment or Waiver. Except as otherwise expressly provided herein and
except as otherwise expressly provided in the Subordination Agreement, the
provisions of this Note may be amended or waived and the Maker may take any
action herein prohibited, or omit

13

--------------------------------------------------------------------------------

 

to perform any act herein required to be performed by it, only if the Maker has
obtained the written consent of the Majority Payees; provided, that, except to
the extent specifically provided for herein, no such action shall change (i) the
rate at which or the manner in which interest accrues on this Note or the times
at which such interest becomes payable, (ii) any provision relating to the
scheduled payments or prepayments of principal on this Note, (iii) the
Conversion Price of this Note or the number of shares or the class of stock into
which this Note is convertible or (iv) any provision of this Section 12, without
the written consent of 100% of the Payees.
     13. Definitions. For purposes of this Note, the following capitalized terms
have the following meaning:
     “Ableco” is defined in the second introductory paragraph of this Note.
     “Administrative Agent” is defined in the second introductory paragraph of
this Note.
     “Agent” is defined in the second introductory paragraph of this Note.
     “Audited Financial Statements” means, with respect to any Fiscal Year, the
consolidated balance sheets, statements of operations and retained earnings and
statements of cash flows of the Maker and its Subsidiaries as of the end of such
Fiscal Year, together with the report and opinion of the independent certified
public accountants for such entities, in each case as delivered in accordance
with the First Lien Credit Agreement.
     “Business Day” means each day other than a Saturday, Sunday or legal
holiday in the States of Delaware and Washington.
     “Capitalization Date” is defined in Section 1(b) of this Note.
     “Collateral” means all of the property and assets and all interests therein
and proceeds thereof now owned or hereafter acquired by any Person upon which a
lien or security interest is granted or purported to be granted by such Person
as security for all or any part of the obligations under this Note or the other
Senior Subordinated Note Documents.
     “Collateral Agent” is defined in the second introductory paragraph of this
Note.
     “Common Stock” means the common stock, without par value, of the Maker as
constituted on the date hereof and any stock into which any such common stock is
changed or any stock resulting from any stock split, stock dividend or other
recapitalization or reclassification of any such common stock.
     “Common Securities” means Common Stock, and any capital stock of any class
of the Maker hereafter authorized which is not limited to a fixed sum or
percentage of par or stated value in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the Maker.
     “Common Stock Deemed Outstanding” means, at any given time, the number of
shares of Common Securities actually outstanding at such time, plus the number
of shares of Common Securities deemed to be outstanding pursuant to
Sections 8(c)(i) and 8(c)(ii) hereof, regardless of

14

--------------------------------------------------------------------------------

 

whether or not the Options and Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock issuable upon conversion
of the Notes.
     “Conversion Price” is defined in Section 8(b) of this Note.
     “Conversion Stock” means shares of the Maker’s authorized but unissued
Common Stock; provided, that if there is a change such that the securities
issuable upon conversion of the Notes are issued by an entity other than the
Maker or there is a change in the class of securities so issuable, then the term
“Conversion Stock” shall mean one share of the security issuable upon conversion
of this Note if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
     “Convertible Securities” means any stock or securities (directly or
indirectly) convertible into or exchangeable for Common Securities.
     “Domestic” means, with respect to any entity, an entity incorporated or
otherwise organized or existing under the laws of the United States, any state
thereof or any territory or possession of the United States.
     “Event of Default” is defined in Section 7(a) of this Note.
     “First Lien Credit Agreement” means the Financing Agreement dated as of
March 30, 2007 by and among the Maker, certain Subsidiaries of the Maker, the
lenders from time to time party thereto, Ableco, as Administrative Agent for
such lenders, and GMAC, as Collateral Agent for such lenders, together with all
amendments, restatements, supplements, modifications, renewals, extensions,
refundings, refinancings, deferrals and restructurings thereof.
     “Fiscal Year” means the fiscal year ending on December 31 of each year.
     “Fundamental Change” means the consummation of any transaction or series of
transactions (including any merger, consolidation, recapitalization or
restructuring), the result of which is that (i) Sun Mackie, LLC and its
affiliates cease to own 50% or more of the voting power of the Maker, or in the
case of clause (ii), the entity to which the consolidated assets of the Maker
are transferred, (ii) any person or group of related persons unaffiliated with
Sun Mackie, LLC acquires all or substantially all of the assets of the Maker,
(iii) the Maker is liquidated or dissolved, (iv) during any twelve (12)-month
period, a majority of the board of directors of the Maker ceases to be comprised
of existing board members at the beginning of the period and any new directors
whose election was approved by at least two-thirds of the directors then still
in office, or (v) any “Change of Control” under or as defined in the First Lien
Credit Agreement.
     “GAAP” means U.S. generally accepted accounting principles consistently
applied and as in effect at the relevant time or the relevant period.
     “GMAC” is defined in the second introductory paragraph of this Note.
     “Guarantor” is defined in Section 3 of this Note.

15

--------------------------------------------------------------------------------

 

     “Insolvency Event” means the occurrence of any of the following: (i) the
Maker or any of its Subsidiaries makes a general assignment for the benefit of
creditors; (ii) an order, judgment or decree is entered adjudicating the Maker
or any of its Subsidiaries bankrupt or insolvent; (iii) any order for relief
with respect to the Maker or any of its Subsidiaries is entered under the
Federal Bankruptcy Code; (iv) the Maker or any of its Subsidiaries petitions or
applies to any tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Maker or any of its Subsidiaries or of any substantial part of
the assets of the Maker or any of its Subsidiaries, or commences any proceeding
relating to the Maker or any of its Subsidiaries under any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction; or (v) any such petition or application is
filed, or any such proceeding is commenced, against the Maker or any of its
Subsidiaries and not dismissed or stayed within 60 calendar days after the
commencement thereof.
     “Interest Payment Date” means March 31, June 30, September 30 and
December 31.
     “Legend” is defined in Section 16(d) of this Note.
     “Liquidating Dividend” is defined in Section 9 of this Note.
     “Majority Payees” means the holders of a majority of then outstanding
principal amount of this Note and any additional notes issued in connection with
assignments and transfers permitted by Section 15.
     “Maker” is defined in the first introductory paragraph of this Note.
     “Market Price” of any security means the average of the closing prices of
such security’s sales on all securities exchanges on which such security may at
the time be listed, or, if there has been no sales on any such exchange on any
day, the average of the highest bid and lowest asked prices on all such
exchanges at the end of such day, or, if on any day such security is not so
listed, the average of the representative bid and asked prices quoted in the
NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is
not quoted in the NASDAQ System, the average of the highest bid and lowest asked
prices on such day in the domestic over-the-counter market as reported by the
National Quotation Bureau, Incorporated, or any similar successor organization,
in each such case averaged over a period of twenty-one (21) Business Days
consisting of the day as of which “Market Price” is being determined and the
twenty (20) consecutive Business Days prior to such day. If at any time such
security is not listed on any securities exchange or quoted in the NASDAQ System
or the over-the-counter market, the “Market Price” shall be the fair value
thereof determined jointly by the Maker and the Majority Payees. If such parties
are unable to reach agreement within a reasonable period of time, such fair
value shall be determined by an appraiser jointly selected by the Maker and the
Majority Payees. The determination of such appraiser shall be final and binding
upon the parties, and the fees and expenses of such appraiser shall be borne by
the Maker.
     “Maturity Date” is defined in Section 2(a) of this Note.
     “Obligations” means all obligations, liabilities or sums due or to become
due by the Maker or any Guarantor under this Note or any other Senior
Subordinated Note Document.

16

--------------------------------------------------------------------------------

 

     “Options” means any rights or options to subscribe for or purchase Common
Securities or Convertible Securities.
     “Organic Change” is defined in Section 8(e) of this Note.
     “Payee” is defined in the first introductory paragraph of this Note.
     “Person” means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
     “PIK Interest” is defined in Section 1(a) of this Note.
     “Purchase Rights” is defined in Section 10 of this Note.
     “Restricted Security” means this Note, all Conversion Stock issuable
pursuant to Section 8 of this Note, and any securities issuable by way of a
stock split, stock dividend or other recapitalization with respect to the Common
Stock issuable pursuant to Section 8 of this Note. As to any particular
Restricted Securities, such securities shall cease to be Restricted Securities
when they have (a) been effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering them,
(b) been distributed to the public through a broker, dealer or market maker
pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and, if such Restricted
Securities have been certificated, new certificates for them not bearing the
Securities Act legend set forth in Section 16(d) have been delivered by the
Maker in accordance with Section 16. Whenever any particular securities of the
Maker cease to be Restricted Securities, the holder thereof shall be entitled to
receive from the Maker, without expense, to the extent such Restricted Security
was certificated, new securities of like tenor not bearing a Securities Act
legend of the character set forth in Section 16(d).
     “Securities Act” is defined in Section 6(b) of this Note.
     “Securities Exchange Act” is defined in Section 6(b) of this Note.
     “Senior Subordinated Note Documents” means this Note, the Security
Agreement, the Stock Pledge Agreement, and any other agreement, document or
instrument delivered to or in favor of Payee or any holder in connection with
any of the foregoing (to the extent permitted by the First Lien Credit
Agreement).
     “Subsidiary” of any specified Person means any corporation, partnership,
limited liability company, joint venture, association or other business entity,
whether now existing or hereafter organized or acquired, (i) in the case of a
corporation, of which more than 50% of the total voting power of the capital
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, officers or trustees thereof is held by such
first-named Person or any of its Subsidiaries, or (ii) in the case of a
partnership, limited liability company, joint venture, association or other
business entity, with respect to which such first-named Person or any of its
Subsidiaries has the power to direct or cause the direction of the management
and

17

--------------------------------------------------------------------------------

 

policies of such entity by contract or otherwise or if in accordance with GAAP
such entity is consolidated with the first-named Person for financial statement
purposes.
     “Subordination Agreement” is defined in the second introductory paragraph
of this Note.
     “Transfer” is defined in Section 15 of this Note.
     14. Cancellation. Immediately after all principal and accrued interest at
any time owed on this Note has been paid in full (including by the conversion of
one hundred percent (100%) of the amounts outstanding under this Note into
shares of Common Stock, which shares are validly authorized and issued to the
holder), this Note shall be automatically canceled and the Payee shall
immediately surrender this Note to the Maker for cancellation. After
cancellation of this Note, this Note shall not be reissued.
     15. Assignment. The rights and obligations of the Maker and the Payee may
not be assigned by the Maker without the prior written consent of the Majority
Payees, which consent may be granted or withheld in the Majority Payee’s sole
discretion. The Payee may assign at any time this Note to any of its affiliates,
any financial institutions or any other Person, in which event, the assignee
shall have, to the extent of such assignment, the same rights and benefits as it
would have if it were the Payee, except as otherwise provided by the terms of
such assignment or participation. Upon a valid assignment of a party’s rights
and obligations under this Note, this Note shall inure to the benefit of and be
binding upon the successors and permitted assigns and transferees of the Maker
and the Payee; provided that in no event shall the sale, exchange, assignment,
pledge, hypothecation, transfer or other disposition (each, a “Transfer”) of
this Note relieve the Maker of its obligations hereunder or under any other
Senior Subordinated Note Documents to which it is a party. In the event of any
permitted assignment hereunder, (i) the Maker agrees to pay for all costs
associated with documenting, implementing or otherwise accommodating such
Transfer, (ii) the prospective Payee shall be, and shall provide a
representation that it is, entering into such Transfer for its own account and
not with a view to, or for sale in connection with, any subsequent distribution,
and (iii) the prospective Payee shall become a party to this Note (or any
replacement hereof) and the Subordination Agreement.
     16. Securities Law Restrictions.
     (a) This Note is a Restricted Security transferable only pursuant to
(i) public offerings registered under the Securities Act, (ii) Rule 144 or
Rule 144A of the Securities and Exchange Commission (or any similar rule or
rules then in force) if such rule is available and (iii) subject to the
conditions specified in Section 16(b) below, any other legally available means
of Transfer.
     (b) In connection with the transfer of any Restricted Securities (other
than a Transfer described in clauses (i) or (ii) of Section 16(a) above), the
holder thereof shall deliver written notice to the Maker describing in
reasonable detail the transfer or proposed Transfer, together with an opinion of
counsel knowledgeable in securities law matters to the effect that such transfer
of Restricted Securities may be effected without registration of such Restricted
Securities under the Securities Act. In addition, to the extent the Restricted
Securities were certificated, if the holder of the Restricted Securities
delivers to the Maker an opinion of counsel that such Restricted Securities are
not required to contain the Legend, the Maker shall promptly

18

--------------------------------------------------------------------------------

 

upon such contemplated transfer deliver new certificates for such Restricted
Securities which do not bear the Securities Act legend set forth in
Section 16(d). If the Maker is not required to deliver new certificates without
such legend for such Restricted Securities, the holders shall not transfer the
same until the prospective transferee has confirmed to the Maker in writing his,
her, or its agreement to be bound by the conditions contained in this Section
16(b).
     (c) The Maker shall, upon the request of the holder of such Restricted
Securities, remove the legend set forth in Section 16(d) below from the
certificates for such Restricted Securities provided that such holder has
previously delivered to the Maker an opinion of counsel that such Restricted
Securities no longer require the Legend. Each opinion of counsel delivered to
the Maker under this Section 16 shall be in form and substance reasonably
satisfactory to the Maker.
     (d) Each certificate or instrument representing Restricted Securities, if
any, shall be imprinted with a legend in substantially the following form (the
“Legend”):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY COMPARABLE STATE SECURITIES LAW, AND MAY NOT BE
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF
UNLESS THE SAME IS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES
LAWS OR UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE AND THE MAKER
HAS RECEIVED EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY TO THE MAKER.
     17. Payments; Place of Payment. All payments to be made to the Payee shall
be made in the lawful money of the United States of America in immediately
available funds.
     18. Place of Payments. Payments of principal and interest shall be
delivered as directed by prior written notice by the Payee to the Maker or, if
not specified by such Payee, then to such Payee, at the address of such Payee
set forth on the Maker’s records or at such other address as is specified by
prior written notice by such Payee to the Maker.
     19. Governing Law. All questions concerning the construction, validity and
interpretation of this Note will be governed by and construed in accordance with
the domestic laws of the State of New York, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of New York or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of New York.
     20. Waiver of Presentment, Demand and Dishonor. The Maker hereby waives
presentment for payment, protest, demand, notice of protest, notice of
nonpayment and diligence with respect to this Note, and waives and renounces all
rights to the benefits of any statute of limitations or any moratorium,
appraisement, exemption, or homestead now provided or that hereafter may be
provided by any federal or applicable state statute, including but not limited
to exemptions provided by or allowed under the Federal Bankruptcy Code, both as
to itself and as

19

--------------------------------------------------------------------------------

 

to all of its property, whether real or personal, against the enforcement and
collection of the Obligations and any and all extensions, renewals, and
modifications hereof.
     21. Expenses; Taxes; Attorneys Fees. The Maker will pay on demand, all
costs and expenses incurred by or on behalf of each Payee, including reasonable
fees, costs, client charges and expenses of a single counsel selected by the
Majority Payees for the collective interests of the Payees, accounting, due
diligence, periodic field audits, physical counts, valuations, investigations,
searches and filings, monitoring of assets, appraisals of Collateral, title
searches and reviewing environmental assessments, miscellaneous disbursements,
examination, travel, lodging and meals, arising from or relating to: (a) the
negotiation, preparation, execution, delivery, performance and administration of
this Note and any other Senior Subordinated Note Document, (b) any requested
amendments, waivers or consents to this Note or any other Senior Subordinated
Note Document whether or not such documents become effective or are given,
(c) the preservation and protection of any Payee’s rights under this Note or any
other Senior Subordinated Note Document, (d) the defense of any claim or action
asserted or brought against any Payee by any Person that arises from or relates
to this Note or any other Senior Subordinated Note Document or any Payee’s
claims against the Maker or any Guarantor, or any and all matters in connection
therewith, (e) the commencement or defense of, or intervention in, any court
proceeding arising from or related to this Note or any other Senior Subordinated
Note Document, (f) the filing of any petition, complaint, answer, motion or
other pleading by any Payee, or the taking of any action in respect of the
Collateral or other security, in connection with this Note or any other Senior
Subordinated Note Document, (g) the protection, collection, lease, sale, taking
possession of or liquidation of, any Collateral or other security in connection
with this Note or any other Senior Subordinated Note Document, (h) any attempt
to enforce any lien or security interest in any Collateral or other security in
connection with this Note or any other Senior Subordinated Note Document,
(i) any attempt to collect from the Maker or any Guarantor, (j) all liabilities
and costs arising from or in connection with the past, present or future
operations of the Maker or any Guarantor involving any damage to real or
personal property or natural resources or harm or injury alleged to have
resulted from any release of hazardous materials on, upon or into such property,
or (k) the receipt by any Payee of any advice from professionals with respect to
any of the foregoing. Without limitation of the foregoing or any other provision
of any Senior Subordinated Note Document: (x) the Maker agrees to pay all stamp,
document, transfer, recording or filing taxes or fees and similar impositions
now or hereafter determined by any Payee to be payable in connection with this
Note or any other Senior Subordinated Note Document, and the Maker agrees to
save each Payee harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions, (y) the Maker agrees to pay
all broker fees that may become due in connection with the transactions
contemplated by this Note and the other Senior Subordinated Note Documents, and
(z) if the Maker fails to perform any covenant or agreement contained herein or
in any other Senior Subordinated Note Document, the Payee may itself perform or
cause performance of such covenant or agreement, and the expenses of the Payee
incurred in connection therewith shall be reimbursed on demand by the Maker.
     22. Business Days. If any payment is due, or any time period for giving
notice or taking action expires, on a day which is not a Business Day, the
payment shall be due and payable on, and the time period shall automatically be
extended to, the immediately following

20

--------------------------------------------------------------------------------

 

Business Day, and interest shall continue to accrue at the required rate
hereunder until any such payment is made.
     23. Waiver of Jury Trial. EACH OF THE MAKER AND THE HOLDER OF THIS NOTE, BY
ISSUING OR ACCEPTING THIS NOTE, AS APPLICABLE, AGREES THAT IT HEREBY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO JURY TRIAL OF ANY CLAIM,
DEMAND, ACTION, OR CAUSE OF ACTION (A) ARISING UNDER THIS NOTE OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS IN RESPECT OF THIS NOTE,
IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT,
TORT, EQUITY, OR OTHERWISE. Each of the Maker and the Payee, by accepting this
Note, hereby agrees and consents that any such claim, demand, action, or cause
of action shall be decided by court trial without a jury and that each Payee and
the Maker may file an original counterpart of a copy of this Note with any court
as written evidence of the consent of the Payee or the Maker to the waiver of
the Payee’s right to trial by jury.
     24. No Waiver. The rights and remedies of the Payee expressly set forth in
this Note are cumulative and in addition to, and not exclusive of, all other
rights and remedies available at law, in equity or otherwise. No failure or
delay on the part of the Payee in exercising any right, power or privilege shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or privilege preclude any other or further exercise thereof or
the exercise of any other right, power or privilege or be construed to be a
waiver of any Event of Default. No course of dealing between the Maker and the
Payee or their agents or employees shall be effective to amend, modify or
discharge any provision of this Note or to constitute a waiver of any Event of
Default. No notice to or demand upon Maker in any case shall entitle Maker to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the right of the Payee to exercise any right or remedy or
take any other or further action in any circumstances without notice or demand.
     25. Construction. The definitions of terms herein shall apply equally to
the singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words “include,” “includes” and “including” shall be deemed to
be followed by the phrase “without limitation,” whether or not so expressly
stated in each such instance and the term “or” has, except where otherwise
indicated, the inclusive meaning represented by the phrase “and/or.” The word
“will” shall be construed to have the same meaning and effect as the word
“shall.” Unless the context requires otherwise, (a) any definition of or
reference to any agreement, instrument or other document herein shall be
construed as referring to such agreement, instrument or other document as from
time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth herein),
(b) any reference herein to any Person shall be construed to include such
Person’s successors and assigns, (c) the words “herein,” “hereof” and
“hereunder,” and words of similar import, shall be construed to refer to this
Note in its entirety and not to any particular provision hereof, (d) all
references herein to Sections shall be construed to refer to Sections of this
Note and (e) the words “asset” and “property” shall be construed to have the
same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, securities, accounts and contract

21

--------------------------------------------------------------------------------

 

rights. Unless otherwise expressly provided herein, each accounting term used
herein shall have the meaning given it under GAAP.
     26. Usury Laws. It is the intention of the Maker and each Payee to conform
strictly to all applicable usury laws now or hereafter in force, and any
interest payable under this Note shall be subject to reduction to the amount not
in excess of the maximum legal amount allowed under the applicable usury laws as
now or hereafter construed by the courts having jurisdiction over such matters.
If the maturity of this Note is accelerated by reason of an election by the
Payee resulting from an Event of Default, voluntary prepayment by the Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment, and any interest
in excess of the maximum amount permitted by law shall be canceled automatically
and, if theretofore paid, shall at the option of the Payee either be rebated to
the Maker or credited on the principal amount of this Note, or if this Note has
been paid, then the excess shall be rebated to the Maker. The aggregate of all
interest (whether designated as interest, service charges, points or otherwise)
contracted for, chargeable, or receivable under this Note shall under no
circumstances exceed the maximum legal rate upon the unpaid principal balance of
this Note remaining unpaid from time to time. If such interest does exceed the
maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Maker or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Maker.
* * * * *

22

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the Maker has executed and delivered this Convertible
Senior Subordinated Secured Promissory Note on the date first above written.

                  LOUD TECHNOLOGIES INC., a Washington corporation    
 
           
 
  By:        
 
           
 
  Name:        
 
  Its:  
 
   
 
           

Agreed to and accepted this                      day of                     ,
2008
SUN MACKIE, LLC, a Delaware limited liability company

         
By:
       
 
       
Name:
       
Its:
 
 
   
 
       

Signature Page to Convertible Senior Subordinated Promissory Note

 

--------------------------------------------------------------------------------

 

EXHIBIT A
GUARANTY
     1. Guaranty. Each Guarantor hereby jointly and severally unconditionally
and irrevocably guarantees the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of all obligations of the Maker now or
hereafter existing under any Senior Subordinated Note Document, whether for
principal, interest (including all interest that accrues after the commencement
of any Insolvency Event irrespective of whether a claim therefor is allowed in
such case or proceeding), fees, expenses or otherwise (such obligations, to the
extent not paid by the Maker, being the “Guaranteed Obligations”), and agrees to
pay any and all expenses (including reasonable counsel fees and expenses)
incurred by the holders (or any of them) in enforcing any rights under the
guaranty set forth in this Exhibit. Without limiting the generality of the
foregoing, each Guarantor’s liability shall extend to all amounts that
constitute part of the Guaranteed Obligations and would be owed by the Maker to
the holders under any Senior Subordinated Note Document but for the fact that
they are unenforceable or not allowable due to the existence of a bankruptcy,
reorganization or similar proceeding involving any Maker or Guarantor.
     2. Guaranty Absolute. Each Guarantor jointly and severally guarantees that
the Guaranteed Obligations will be paid strictly in accordance with the terms of
the Senior Subordinated Note Documents, regardless of any law, regulation or
order now or hereafter in effect in any jurisdiction affecting any of such terms
or the rights of the holders with respect thereto. Each Guarantor agrees that
this Exhibit constitutes a guaranty of payment when due and not of collection
and waives any right to require that any resort be made by any holder to any
Collateral. The obligations of each Guarantor under this Exhibit are independent
of the Guaranteed Obligations, and a separate action or actions may be brought
and prosecuted against each Guarantor to enforce such obligations, irrespective
of whether any action is brought against the Maker or any Guarantor or whether
the Maker or any Guarantor is joined in any such action or actions. The
liability of each Guarantor under this Exhibit shall be irrevocable, absolute
and unconditional irrespective of, and each Guarantor hereby irrevocably waives
any defenses it may now or hereafter have in any way relating to, any or all of
the following:
(a) any lack of validity or enforceability of any Senior Subordinated Note
Document or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or in any other term
of, all or any of the Guaranteed Obligations, or any other amendment or waiver
of or any consent to departure from any Senior Subordinated Note Document,
including any increase in the Guaranteed Obligations resulting from the
extension of additional credit to the Maker or any Guarantor or otherwise;
(c) any taking, exchange, release or non-perfection of any Collateral, or any
taking, release or amendment or waiver of or consent to departure from any other
guaranty, for all or any of the Guaranteed Obligations;

 

--------------------------------------------------------------------------------

 

(d) the existence of any claim, set-off, defense or other right that any
Guarantor may have at any time against any Person, including, without
limitation, any holder;
(e) any change, restructuring or termination of the corporate, limited liability
company or partnership structure or existence of the Maker or any Guarantor; or
(f) any other circumstance (including any statute of limitations) or any
existence of or reliance on any representation by any holder that might
otherwise constitute a defense available to, or a discharge of, the Maker, any
Guarantor or any other guarantor or surety.
This Exhibit shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Guaranteed Obligations is rescinded
or must otherwise be returned by the holders or any other Person upon the
insolvency, bankruptcy or reorganization of the Maker or otherwise, all as
though such payment had not been made.
     3. Waiver. Each Guarantor hereby waives (i) promptness and diligence,
(ii) notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Exhibit and any requirement that the holders
exhaust any right or take any action against the Maker or any Guarantor or any
other Person or any Collateral, (iii) any right to compel or direct any holder
to seek payment or recovery of any amounts owed under this Exhibit from any one
particular fund or source or to exhaust any right or take any action against the
Maker or any Guarantor, any other Person or any Collateral, (iv) any requirement
that any holder protect, secure, perfect or insure any security interest or Lien
on any property subject thereto or exhaust any right to take any action against
the Maker or any Guarantor, any other Person or any Collateral, and (v) any
other defense available to any Guarantor. Each Guarantor agrees that the holders
shall have no obligation to marshal any assets in favor of any Guarantor or
against, or in payment of, any or all of the Obligations. Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated herein and that the waiver set forth in this
Section 3 is knowingly made in contemplation of such benefits. Each Guarantor
hereby waives any right to revoke this Exhibit, and acknowledges that this
Exhibit is continuing in nature and applies to all Guaranteed Obligations,
whether existing now or in the future.
     4. Continuing Guaranty; Assignments. This Exhibit is a continuing guaranty
and shall (a) remain in full force and effect until the later of (i) the cash
payment in full of the Guaranteed Obligations (other than indemnification
obligations as to which no claim has been made) and all other amounts payable
under this Exhibit and (ii) the Maturity Date, (b) be binding upon each
Guarantor, its successors and assigns and (c) inure to the benefit of and be
enforceable by the holders and their successors, pledgees, transferees and
assigns.
     5. Subrogation. Each Guarantor will not exercise any rights that it may now
or hereafter acquire against the Maker or any Guarantor or any other guarantor
that arise from the existence, payment, performance or enforcement of the
Guarantor’s obligations under this Exhibit, including any right of subrogation,
reimbursement, exoneration, contribution or indemnification and any right to
participate in any claim or remedy of the holders against the Maker or any

2

--------------------------------------------------------------------------------

 

Guarantor or any other guarantor or any Collateral, whether or not such claim,
remedy or right arises in equity or under contract, statute or common law,
including the right to take or receive from the Maker or any Guarantor or any
other guarantor, directly or indirectly, in cash or other property or by set-off
or in any other manner, payment or security solely on account of such claim,
remedy or right. If any amount shall be paid to any Guarantor in violation of
the immediately preceding sentence, such amount shall be held in trust for the
benefit of the holders shall forthwith be paid to the holders to be credited and
applied to the Guaranteed Obligations and all other amounts payable under this
Exhibit, whether matured or unmatured, in accordance with the terms of this
Note, or to be held as Collateral for any Guaranteed Obligations or other
amounts payable under this Exhibit thereafter arising. If (i) any Guarantor
shall make payment to the holders of all or any part of the Guaranteed
Obligations, (ii) all of the Guaranteed Obligations and all other amounts
payable under this Exhibit shall be paid in full in cash and (iii) all
commitments under the Subordinated Note Documents have been terminated, the
holders will, at any Guarantor’s request and expense, execute and deliver to
such Guarantor appropriate documents, without recourse and without
representation or warranty, necessary to evidence the transfer by subrogation to
such Guarantor of an interest in the Guaranteed Obligations resulting from such
payment by such Guarantor.
     6. Conflict. Anything herein to the contrary notwithstanding, the
obligations evidenced hereby, the exercise of any right or remedy with respect
thereto, and certain of the rights of the holder hereof are subject to the
provisions of the Intercreditor Agreement, dated as of the date hereof, among
Ableco Finance LLC, as Collateral Agent, GMAC Commercial Finance LLC, as
Administrative Agent, and the Payee. In the event of any conflict between the
terms of the Subordination Agreement and this Agreement, the terms of the
Subordination Agreement shall govern and control.
     7. Release of Guarantor. A Guarantor shall be released from all obligations
under its Guaranty if (a) the Guarantor has sold all of its assets or the
Company and its Subsidiaries have sold all the capital stock of the Guarantor
owned by them, or (b) the Guarantor merges with or into or consolidates with or
transfers all or substantially all of its assets to the Maker or another
Guarantor.

3

--------------------------------------------------------------------------------

 

     IN WITNESS WHEREOF, the Guarantors have executed and delivered this
Guaranty on the                                         , 2008.

                  MACKIE DESIGNS INC., a Washington corporation    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Its:        
 
           
 
                SIA SOFTWARE COMPANY INC., a New York corporation    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Its:        
 
           
 
                ST. LOUIS MUSIC, INC., a Missouri corporation    
 
           
 
  By:        
 
           
 
  Name:        
 
           
 
  Its:        
 
           

Signature Page to Guaranty

4