Exhibit 10.7

 

MASTER PARTICIPATION AGREEMENT

 

This Master Participation Agreement (this “Agreement”) is entered into as of
July 7, 2006, between Ares Capital CP Funding LLC (“Seller”) and Ares Capital
Corporation (“Purchaser”).

 

RECITALS:

 

Whereas, Seller owns interests in (a) the loans and other securities and
investments identified in Exhibit A (each a “Loan” and collectively, the
“Loans”) consisting of loans, advances and notes and interests in, to and under
the related Credit Documents, as hereinafter defined (each a “Loan Interest” and
collectively, the “Loan Interests”), pursuant to various credit agreements,
indentures, note purchase agreements and other similar documents, each between a
borrower (each, a “Borrower” and collectively, the “Borrowers”), an agent for
the relevant lenders or noteholders (if applicable), and one or more financial
institutions acting as lenders or noteholders (such credit agreements, as
amended, supplemented, novated or otherwise modified from time to time, together
with all guarantees, security agreements, mortgages, deeds of trust, letters of
credit, reimbursement agreements, waivers and any other documents executed in
connection therewith, hereinafter are referred to as the “Credit Documents”);
and

 

Whereas, Seller desires to sell and grant to Purchaser, without recourse, a
participation interest in all of Seller’s Loan Interests, and Purchaser desires
to purchase and take from Seller, without recourse, a participation interest in
all of Seller’s Loan Interests.

 

AGREEMENT

 

Now therefore, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Purchaser hereby agree as follows:

 

1.             Participation. Seller hereby sells and grants to Purchaser, and
Purchaser hereby purchases and takes from Seller, as of the Effective Date (as
hereinafter defined), an undivided 100% participation interest in and to (i)
each of the Loan Interests, (ii) all Collections and payments paid in respect
thereof and all monies due, to become due or paid in respect thereof accruing on
and after the Effective Date, (iii) all security interests, liens and collateral
subject thereto from time to time purporting to secure payment by the applicable
Obligor(s), (iv) all guaranties, indemnities and warranties, and other
agreements or arrangements of whatever character from time to time supporting or
securing payment of such Loan Interests, (v) all collections and records with
respect to the foregoing, and (vi) all income, payments, proceeds and other
benefits of any and all of the foregoing, including but not limited to, all
accounts, cash and currency, chattel paper, electronic chattel paper, tangible
chattel paper, copyrights, copyright licenses, equipment, fixtures, general
intangibles, instruments, commercial tort claims, deposit accounts, inventory,
investment property, letter of credit rights, software, supporting obligations,
accessions, and other property consisting of, arising out of, or related to the
foregoing ((i)-(vi) collectively, the “Participated Assets”) (each such
participation interest, a “Participation Interest” and, collectively, the
“Participation Interests”).

 

The term “Obligors” as used herein shall mean, collectively, the Borrowers and
each guarantor, pledgor, subordinator or other person or entity directly or
indirectly obligated in respect of the Loans.

 

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The term “Collections” as used herein shall mean and include all payments or
distributions received by or on behalf of Seller from any Obligor in respect of
the Loan Interests and the proceeds of any collateral applied by Seller to such
Loan Interests. Seller shall promptly remit to Purchaser, as received, all such
Collections without set-off, counterclaim or deduction of any kind within three
business days after receipt thereof from an Obligor or following application of
any collateral therefor, as applicable, to the account specified below
Purchaser’s signature hereto.

 

It is the intention of the parties hereto that each sale of interests in Loans
hereunder shall be absolute and irrevocable and will provide Purchaser with the
full risks and benefits of ownership of such interests so purchased (such that
the Loan Interests would not constitute property of Seller’s estate in the event
of Seller’s bankruptcy) and shall constitute a “sale of accounts,” as such term
is used in Article 9 of the Uniform Commercial Code of the State of New York, to
the extent applicable, and not a loan secured by such Loan Interests. In the
event that, contrary to the mutual intent of Seller and Purchaser, any purchase
of Loan Interests hereunder is not characterized as a sale but rather as a
collateral transfer for security (or the transactions contemplated hereby are
characterized as a financing transaction), it is the intent of the parties
hereto that this Agreement shall constitute a security agreement under
applicable law and that such purchase of the Loan Interests shall be deemed to
be a secured financing, secured by a security interest in all of Seller’s right,
title and interest now or hereafter existing and hereafter arising in, to and
under (i) all Loan Interests, (ii) all Collections and (iii) all proceeds of the
foregoing (collectively, the “Seller Collateral”). In furtherance of the
foregoing, Seller hereby grants to Purchaser a security interest in all of
Seller’s right, title and interest now or hereafter existing in, to and under
the Seller Collateral to secure the repayment of all amounts due and owing by
Seller to Purchaser hereunder with accrued interest thereon, if applicable,
whether now or hereafter existing, due or to become due, direct or indirect, or
absolute or contingent.

 

2.             Effective Date. From and after the date of Seller’s receipt of
the purchase price mutually agreed between Seller and Purchaser (the “Effective
Date”), the Participation Interests purchased hereunder shall be for the account
and risk of Purchaser, without any recourse to Seller, except as expressly
provided herein. The transfer of the Participation Interests shall be deemed
effective as of the Effective Date. The Purchaser hereby assumes full risk and
responsibility with respect to repayment of the Participation Interests without
recourse to Seller and, in the event of any failure by any Borrower to fulfill
any of its obligations under the terms of the related Credit Documents, Seller
shall not be under any liability to Purchaser for payment of principal, interest
or fees other than as provided in Paragraph 3.

 

3.             Sharing of Liabilities and Expenses. Purchaser shall pay to
Seller, from time to time and upon Seller’s demand therefor, an amount equal to
all liabilities, losses, out-of-pocket costs and expenses (including reasonable
attorneys’ fees) (collectively, the “Liabilities”) suffered or incurred by
Seller from and after the Effective Date in administering and collecting on the
Loan Interests or which otherwise arise in connection therewith or in connection
with preserving any collateral security therefor, except for such Liabilities as
may be caused by the negligence or willful misconduct of Seller and except to
the extent that Seller has theretofore been reimbursed for such Liabilities by
or on behalf of any Borrower. Purchaser shall be entitled to any such amounts
recovered by Seller from, or on behalf of, any Borrower after Purchaser has paid
Seller with respect to such Liabilities. Seller shall promptly remit to
Purchaser an amount equal to any payment received by Seller on account of
increased costs, break funding payments or expenses incurred by Purchaser in
connection with the Participation Interest.

 

4.             Information; No Recourse or Warranty; Responsibilities. Seller
holds in its possession for the benefit of itself and Purchaser true and
complete copies of all of the documents in connection with the Loan Interests
which constitute all documents that Purchaser considers necessary in deciding to
enter into this Agreement and participate in the Loan Interests as provided
herein. It is understood and agreed that Seller does not make any express or
implied representations or warranties of any kind or character with

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respect to the genuineness, validity, effectiveness, enforceability, value,
priority, perfection or collectability of the Loan Interests, any collateral
security therefor or the Credit Documents, nor with respect to the solvency,
financial condition or financial statements of any of the Borrowers, and by its
acceptance hereof, Purchaser agrees that Seller shall be free of liability on
account of Purchaser’s Participation Interests described herein with respect to
anything Seller may do or refrain from doing in good faith and in the exercise
of its judgment, provided, however, that Seller agrees to use the same care in
protecting the interests of Purchaser in the Loan Interests as it uses for
similar interests held by it solely for its own account and Seller agrees to
account to Purchaser as herein set forth for the share from time to time
applicable to Purchaser’s Participation Interests hereunder in Collections.
Whenever Seller receives a payment of principal of, or interest, fees and
make-whole amounts, if any, on, the Loan Interests, Seller will accept such
payment for the account and sole benefit of, and as agent for, Purchaser and
promptly pay over to Purchaser the amount so received. In administering the Loan
Interests and the Credit Documents, Seller shall not be bound to ascertain or
inquire as to the performance of any of the terms, provisions or conditions of
any thereof on the part of any Borrower or any other person, shall be entitled
to rely upon any statement or notice, however sent, believed by it to be genuine
and correct and believed by it to be sent by the proper person, may consult with
counsel and shall be fully protected in any action taken or omitted to be taken
by it in accordance with the advice or opinion of such counsel, may employ
agents or attorneys-in-fact and shall not be liable for the default or
misconduct of any such person selected by it with due care, and shall not be
responsible for the performance of the payment or other obligations of the
Borrowers or the value of any collateral securing the same.

 

5.             Borrower Information. Upon the request of Purchaser, Seller shall
provide Purchaser with copies of any information in Seller’s possession which
was received pursuant to the provisions of any Credit Document and, to the
extent not otherwise available to Purchaser, Seller shall use its best efforts
to provide Purchaser, following Purchaser’s written request therefor, such
current factual information that Purchaser specifically requests which is then
in Seller’s possession and relating to the status of the Loan Interests or any
Borrower’s financial condition; provided that Seller shall not be required to
provide Purchaser with any information in violation of any law or any
contractual restriction set forth in the Credit Documents on the disclosure
thereof.

 

6.             Representations and Warranties. (a) Purchaser represents and
warrants to Seller that (i) without characterizing the Loan Interests, the
Participation Interests, or any portion thereof as securities, Purchaser is
purchasing the Participation Interests hereunder for its own account in the
ordinary course of business not with a view to, or in connection, with any
subdivision, resale, or distribution thereof in violation of any applicable
securities laws, (ii) Purchaser is engaged in the business of entering into
transactions of the nature contemplated herein, and (iii) Purchaser has full
power and authority to execute, deliver and perform its obligations under this
Agreement.

 

(b) Seller represents and warrants to Purchaser that, as of the date hereof and
as of the Effective Date, (i) Seller is the sole legal and beneficial owner and
holder of the rights comprising each Loan Interest with good title thereto, free
and clear of all liens, charges, encumbrances or other security interests as of
the date hereof, and is not a party to any agreement (other than this Agreement)
which would result in any lien, charge or other encumbrance, (ii) the aggregate
amounts owed by the respective Borrowers under or in respect of the respective
Loan Interests are not less than the amounts set forth in Exhibit A hereto, and
(iii) Seller has full power and authority to execute, deliver and perform its
obligations under this Agreement.

 

7.             Further Assurances. From and after the date hereof, each of
Purchaser and Seller covenants and agrees to execute and deliver all such
agreements, instruments and documents and to take all such further actions as
the other party hereto may reasonably deem necessary from time to time to carry
out the intent and purposes of this Agreement and to consummate the transactions
contemplated hereby.

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8.             Other Financings. Purchaser shall have no interest, by virtue of
this Agreement and Purchaser’s rights hereunder or otherwise, in any future
extension of credit or financing transactions by Seller to, on behalf of, or
with, any Borrower or any guarantees or collateral therefor, or any property now
or hereafter in the possession or control of Seller which may be or become
security for the obligations of any Borrower arising under any Credit Document
by reason of the general description of indebtedness, secured or otherwise;
provided that, if payments in respect of any guarantees or the proceeds of any
such collateral shall be applied to any of the obligations of any Borrower
described in clauses (a) and (b) of Section 1 hereof, then Purchaser shall be
entitled to share in such application as set forth in Section 1 hereof.

 

9.             Amendments, Waivers, etc. Subject to the terms of the Credit
Documents, Seller may not enter into any amendment or modification of, or waive
compliance with the terms of, any Credit Document without the consent of
Purchaser. If Seller shall at any time request in writing Purchaser’s consent to
any such matter for which Purchaser’s consent is required and shall not receive
a response to such request within five business days after Purchaser has
received such request (or within such earlier period as Seller may notify to
Purchaser in connection with a specific request), Purchaser shall be
conclusively deemed to have refused to give such consent and Seller shall be
entitled to thereafter act on the basis that Purchaser has denied such consent.

 

10.           Savings Clause. Notwithstanding any other provision of this
Agreement, with respect to each Participation Interest: (i) nothing contained
herein shall grant to Purchaser any rights which the relevant Credit Documents
require Seller to retain; (ii) this Agreement shall be deemed to incorporate any
provisions required by any Credit Document to be incorporated in order to
transfer the related Participation Interest hereunder; and (iii) this Agreement
shall be deemed to omit any provision which any Credit Document requires to be
omitted in order to transfer the related Participation Interest hereunder.

 

11.           Further Sale and Assignment. To the extent permitted under the
related Credit Documents, Purchaser shall be entitled to freely pledge, sell,
transfer, or convey (each, a “Transfer”) any Participation Interest hereunder to
any person (a “Transferee”), provided that each of the following conditions are
met: (i) Purchaser shall obtain the prior written consent of Seller to such
Transfer (which consent shall not be unreasonably withheld); and (ii) as a
result of the Transfer, at the discretion of Seller, either (A) Transferee shall
hold a participation directly from Seller governed by such agreements as Seller
and the Transferee shall reasonably agree and not governed by this Agreement, or
(B) the Participation Interest shall be terminated with respect to such interest
and Seller shall assign all of its right, title and interest in and to the
relevant Loan Interest to the Transferee pursuant to such documentation as may
be required by the relevant Credit Documents. Notwithstanding the foregoing,
Purchaser may grant a subparticipation interest in any or all of the
Participation Interests without the consent of, or notice to, Seller, but only
if such subparticipation does not violate any applicable law or regulation or
cause Seller to violate or be in breach of any provision of the Credit
Documents. Purchaser agrees that any sale or disposition of Purchaser’s
Participation Interest will be made in accordance with applicable securities
laws.

 

Seller shall not sell, assign, transfer, mortgage, pledge, grant a lien on or
otherwise deal with or encumber any of its rights or obligations in or to the
Loan Interests to the extent such interests relate to the Participation
Interests or any other distributions or payments with respect thereto or any of
its rights or obligations under this Agreement without the prior written consent
of Purchaser.

 

12.           Waivers. No delay or omission by any party to exercise any right
under this Agreement shall impair any such right, nor shall it be construed to
be a waiver thereof. No waiver of any single breach or default under this
Agreement shall be deemed a waiver of any other breach or default.

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13.           Withholding Tax. Purchaser represents and warrants that payments
to it under this Agreement are not subject to U.S. withholding tax. Upon request
from time to time, Purchaser shall promptly provide to Seller an appropriately
executed Internal Revenue Service form or such other evidence as shall be
necessary to establish that payments made to Purchaser hereunder are exempt from
U.S. withholding tax.

 

14.           Notices. Whenever this Agreement requires or permits any consent,
approval, notice, request, or demand from one party to another, the consent,
approval, notice, request, or demand must be in writing and shall be deemed
effective when delivered, if sent by courier or by registered or certified mail,
or when receipt is confirmed, if sent by telecopy, each case at the address or
telecopy number set forth below the relevant party’s signature hereto or at such
other address or telecopy number as may be provided by either party to the other
party.

 

15.           Illegality. Construction; Governing Law. The illegality or
unenforceability of any provision of this Agreement shall not in any way affect
or impair the legality or enforceability of the remaining provisions of this
Agreement. Paragraph headings used in this Agreement are for convenience of
reference only and shall not affect the construction of this Agreement. The laws
of the State of New York shall govern the rights and duties of the parties
hereto and the interpretation hereof (without regard to any conflicts of law
provision that would require the application of the law of any other
jurisdiction).

 

16.           Termination. From and after the date hereof, Seller and Purchaser
agree to use diligent efforts to promptly effect an outright assignment to
Purchaser or Purchaser’s designee of each Loan relating to each Participation
Interest. With respect to each Participation Interest, effective upon (i)
obtaining such consents, acknowledgements and authorizations as may be required
under the relevant Credit Documents to effect each such assignment, (ii)
execution and delivery of such assignment agreements as are required under the
terms of the relevant Credit Documents to effect such assignment, and (iii) the
satisfaction of all other conditions to the effectiveness of such assignment
under the terms of the relevant Credit Documents, such Participation Interest
shall automatically convert to and become, and Seller hereby grants and conveys,
an outright assignment of the relevant Participated Assets to Purchaser and
Purchaser hereby assumes all of the obligations of Seller arising under and
relating to such Participated Assets and this Agreement shall be deemed to be an
agreement for the outright assignment of such Participated Assets upon the
effective date of the relevant assignment agreement (each such date, an
“Elevation Date”), and the terms hereof shall be construed accordingly, mutatis
mutandis.

 

17.           Survival of Representations and Warranties. All representations
and warranties made herein by the parties hereto shall survive the execution,
delivery and performance of this Agreement.

 

18.           Relationship Between Seller and Purchaser. The relationship
between Seller and Purchaser shall be that of seller and buyer and not that of
debtor and creditor. Nothing contained in this Agreement shall establish any
fiduciary, partnership, joint venture or similar relationship between or among
the parties hereto. This Agreement is intended to, and upon execution hereof and
satisfaction or waiver of the conditions precedent set forth herein shall,
effect a true sale of the Participation Interests.

 

19.           Entire Agreement. This Agreement (a) embodies the entire Agreement
between the parities, supersedes all prior agreements and understandings between
the parties, if any, relating to the subject matter hereof, and may be amended,
and any provision hereof may be waived, only by an instrument in writing
executed by each party hereto, and (b) may be executed in any number of
identical counterparts, each of which shall be deemed an original for all
purposes and all of which shall constitute, collectively, one Agreement.
Transmission by telecopier of an executed counterpart of this Agreement shall be
deemed to constitute due and sufficient delivery of such counterpart.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first above written by their respective duly authorized officers.

 

 

SELLER:

 

 

 

ARES CAPITAL CP FUNDING LLC

 

 

 

 

 

By:

  /s/ Daniel F. Nguyen

 

 

 

Name: Daniel F. Nguyen

 

 

Title:   Chief Financial Officer

 

 

 

 

 

PURCHASER:

 

 

 

ARES CAPITAL CORPORATION

 

 

 

By:

  /s/ Merritt S. Hooper

 

 

 

Name: Merritt S. Hooper

 

 

Title:   Vice President

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EXHIBIT A

 

Loans

 

Borrower

 

Credit Agreement

 

Tranche

 

Aggregate
Amount

Qualitor Acquisition Corp. (First Lien)

 

Credit Agreement dated as of December 21, 2004 (as amended, amended and
restated, supplemented or otherwise modified from time to time), among
Transportation Aftermarket Enterpriser Inc., Qualitor Acquisition Corp., BLD
Products, Ltd., Hebco Products, Inc., International Brake Industries, Inc.,
Longman Enterprises, Inc., McGuane Industries, Inc., Novo Products Inc., Pylon
Manufacturing Corp., Anstro Manufacturing, Inc., Antares Capital Corporation, as
agent for the benefit of all lenders, and the lenders who are parties thereto

 

Term Loan B

 

$1,975,000.00

Qualitor Acquisition Corp. (Second Lien)

 

Second Lien Credit Agreement dated as of December 21, 2004 (as amended, amended
and restated, supplemented or otherwise modified from time to time), among
Transportation Aftermarket Enterpriser Inc., Qualitor Acquisition Corp., BLD
Products, Ltd., Hebco Products, Inc., International Brake Industries, Inc.,
Longman Enterprises, Inc., McGuane Industries, Inc., Novo Products Inc., Pylon
Manufacturing Corp., Anstro Manufacturing, Inc., Antares Capital Corporation, as
agent for the benefit of all lenders, and the lenders who are parties thereto

 

Term Loan

 

$5,000,000.00

SMS Holdings, LLC

 

Credit Agreement dated as of July 2, 2004 (as amended, amended and restated,
supplemented or otherwise modified from time to time), among Shoes For Crews,
LLC, Mighty Mat, LLC, SMS Holdings, LLC, the various financial institutions and
other persons from time to time party thereto, Royal Bank of Canada, as
administrative agent, The Bank Of New York, as syndication agent, Antares
Capital Corporation, as documentation agent, and RBC Capital Partners, as
arranger

 

Term Loans

 

$1,478,167.43

Miller Heiman Acquisition Corp.

 

Second Amended and Restated Credit Agreement dated as of June 1, 2005 (as
amended, amended and restated, supplemented or otherwise modified from time to
time), among Miller Heiman Inc., Miller Heiman Acquisition Corp., the lenders
party thereto, and CIT Lending Services Corporation, as administrative agent and
collateral agent, CIT Capital Securities LLC, as arranger, and any documentation
agent designated in accordance with the terms thereof

 

Term Loan A

Term Loan B

 

$3,900,285.34

$4,048,182.20

Canon Communications Merger Sub
LLC

 

Second Lien Credit Agreement dated as of May 31, 2005 (as amended, amended and
restated, supplemented or otherwise modified from time to time), among Canon
Communications Merger Sub LLC, Canon Communications Holdings, LLC, the
Subsidiary Guarantors (as defined therein), the Lenders (as defined therein),
and Credit Suisse, Cayman Islands Branch, as collateral agent for the Secured
Parties (as defined therein) and as administrative agent for the Lenders (as
defined therein)

 

Term Loans

 

$12,000,000.00

 

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Borrower

 

Credit Agreement

 

Tranche

 

Aggregate
Amount

DCS Business Services, Inc.

 

Amended and Restated Credit Agreement dated as of February 4, 2005 (as amended,
amended and restated, supplemented or otherwise modified from time to time),
among DCS Business Services, Inc., the financial institutions party thereto from
time to time, Madison Capital Funding LLC, as agent and lead arranger, Key Bank
National Association, as syndication agent and arranger, and Bank of America,
N.A., as documentation agent

 

Term A Loan

Term B Loan

 

$5,242,026.40

$6,757,973.60

Thermal Solutions LLC

 

Amended and Restated Credit Agreement dated as of March 21, 2006 (as amended,
amended and restated, supplemented or otherwise modified from time to time),
among Thermal Solutions LLC, the financial institutions party thereto from time
to time, Newstar Financial, Inc., as syndication agent, and Madison Capital
Funding LLC, as agent

 

Term A Loan

Term B Loan

 

$1,750,000.00

$3,250,000.00

Making Memories Wholesale, Inc.

 

Credit Agreement dated as of May 6, 2005 (as amended, amended and restated,
supplemented or otherwise modified from time to time), among Making Memories
Wholesale, Inc., MMW Holdings Corp., the various financial institutions and
other persons from time to time party thereto, The Royal Bank Scotland plc, as
administrative agent, Ares Capital Corporation and The Royal Bank of Scotland
plc, as joint lead arrangers, and Ares Capital Corporation, as documentation
agent

 

Term Loans

 

$8,075,000.00

Tiger III, Inc.

 

Agreement dated October 4, 2004 (as amended, amended and restated, supplemented
or otherwise modified from time to time), among Tiger III, Inc., the financial
institutions listed therein as lenders, The Royal Bank of Scotland plc, as
mandated lead arranger, agent, and security trustee

 

Facility
B

Facility
C

 

$2,500,000.00

$5,000,000.00

Varel International Acquisition, L.P.

 

Credit and Guaranty Agreement dated as of June 1, 2005 (as amended, amended and
restated, supplemented or otherwise modified from time to time), among Varel
International Acquisition, L.P., Varel GP Newco, LLC, Varel Holding, Inc., the
lenders party thereto from time to time, The Royal Bank of Scotland plc, as sole
lead arranger, administrative agent, and collateral agent, Freeport Loan Fund,
LLC, as syndication agent, and Ares Capital Corporation, as documentations agent

 

Tranche B Term Loans
 
Tranche C Term Loans

 

$8,600,422.93

$3,333,333.33

 

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