Exhibit 10.12

 

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AMERICAN CAPITAL STRATEGIES, LTD.

 

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$82,000,000 5.92% Senior Notes, Series A, due September 1, 2009

 

$85,000,000 6.46% Senior Notes, Series B, due September 1, 2011

 

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NOTE PURCHASE AGREEMENT

 

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Dated as of September 1, 2004

 

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TABLE OF CONTENTS

 

(Not a part of the Agreement)

 

SECTION

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HEADING

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   PAGE

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SECTION 1.

 

AUTHORIZATION OF NOTES

   1

SECTION 2.

 

SALE AND PURCHASE OF NOTES

   1

SECTION 3.

 

CLOSING

   1

SECTION 4.

 

CONDITIONS TO CLOSING

   2

Section 4.1

 

Representations and Warranties

   2

Section 4.2

 

Performance; No Default

   2

Section 4.3

 

Compliance Certificates

   2

Section 4.4

 

Opinions of Counsel

   2

Section 4.5

 

Purchase Permitted by Applicable Law, Etc.

   3

Section 4.6

 

Related Transactions

   3

Section 4.7

 

Payment of Special Counsel Fees

   3

Section 4.8

 

Private Placement Number

   3

Section 4.9

 

Changes in Corporate Structure

   3

Section 4.10

 

Funding Instructions

   3

Section 4.11

 

Proceedings and Documents

   4

SECTION 5.

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

   4

Section 5.1

 

Organization; Power and Authority

   4

Section 5.2

 

Authorization, Etc.

   4

Section 5.3

 

Disclosure

   4

Section 5.4

 

Organization and Ownership of Shares of Subsidiaries; Affiliates

   5

Section 5.5

 

Financial Statements

   5

Section 5.6

 

Compliance with Laws, Other Instruments, Etc.

   6

Section 5.7

 

Governmental Authorizations, Etc.

   6

Section 5.8

 

Litigation; Observance of Agreements, Statutes and Orders

   6

Section 5.9

 

Taxes

   6

Section 5.10

 

Title to Property; Leases

   7

Section 5.11

 

Licenses, Permits, Etc.

   7

Section 5.12

 

Compliance with ERISA

   7

 

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Section 5.13

 

Private Offering by the Company

   8

Section 5.14

 

Use of Proceeds; Margin Regulations

   9

Section 5.15

 

Existing Debt; Future Liens

   9

Section 5.16

 

Foreign Assets Control Regulations, Etc.

   9

Section 5.17

 

Status under Certain Statutes

   10

Section 5.18

 

Investment Company Act

   10

Section 5.19

 

Environmental Matters

   10

Section 5.20

 

Notes Rank Pari Passu

   11

Section 5.21

 

Credit and Collection Policy

   11

SECTION 6.

 

REPRESENTATIONS OF THE PURCHASERS

   11

Section 6.1

 

Purchase for Investment

   11

Section 6.2

 

Source of Funds

   11

Section 6.3

 

Accredited Investor

   12

SECTION 7.

 

INFORMATION AS TO COMPANY

   12

Section 7.1

 

Financial and Business Information

   12

Section 7.2

 

Officer’s Certificate

   15

Section 7.3

 

Inspection

   15

SECTION 8.

 

PREPAYMENT OF THE NOTES

   16

Section 8.1

 

Required Prepayments

   16

Section 8.2

 

Optional Prepayments with Make-Whole Amount

   16

Section 8.3

 

Allocation of Partial Prepayments

   16

Section 8.4

 

Maturity; Surrender, Etc.

   16

Section 8.5

 

Purchase of Notes

   16

Section 8.6

 

Make-Whole Amount

   17

SECTION 9.

 

AFFIRMATIVE COVENANTS

   18

Section 9.1

 

Compliance with Law

   18

Section 9.2

 

Insurance

   18

Section 9.3

 

Maintenance of Properties

   19

Section 9.4

 

Payment of Taxes and Claims

   19

Section 9.5

 

Corporate Existence, Etc.

   19

Section 9.6

 

Credit and Collection Policy

   19

SECTION 10.

 

NEGATIVE COVENANTS

   19

Section 10.1

 

Minimum Consolidated Tangible Net Worth

   19

 

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Section 10.2

 

Interest Charges Coverage Ratio

   20

Section 10.3

 

Limitation on Debt

   20

Section 10.4

 

Available Asset Coverage

   20

Section 10.5

 

Merger, Consolidation and Sale of Assets, Etc.

   20

Section 10.6

 

Nature of Business

   22

Section 10.7

 

Transactions with Affiliates

   22

SECTION 11.

 

EVENTS OF DEFAULT

   23

SECTION 12.

 

REMEDIES ON DEFAULT, ETC.

   25

Section 12.1

 

Acceleration

   25

Section 12.2

 

Other Remedies

   25

Section 12.3

 

Rescission

   25

Section 12.4

 

No Waivers or Election of Remedies, Expenses, Etc.

   26

SECTION 13.

 

REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES

   26

Section 13.1

 

Registration of Notes

   26

Section 13.2

 

Transfer and Exchange of Notes

   26

Section 13.3

 

Replacement of Notes

   27

SECTION 14.

 

PAYMENTS ON NOTES

   27

Section 14.1

 

Place of Payment

   27

Section 14.2

 

Home Office Payment

   27

SECTION 15.

 

EXPENSES, ETC.

   28

Section 15.1

 

Transaction Expenses

   28

Section 15.2

 

Survival

   28

SECTION 16.

 

SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT

   28

SECTION 17.

 

AMENDMENT AND WAIVER

   28

Section 17.1

 

Requirements

   28

Section 17.2

 

Solicitation of Holders of Notes

   29

Section 17.3

 

Binding Effect, Etc.

   29

Section 17.4

 

Notes Held by Company, Etc.

   29

SECTION 18.

 

NOTICES

   30

SECTION 19.

 

REPRODUCTION OF DOCUMENTS

   30

SECTION 20.

 

CONFIDENTIAL INFORMATION

   31

SECTION 21.

 

SUBSTITUTION OF PURCHASER

   32

 

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SECTION 22.

 

MISCELLANEOUS

   32

Section 22.1

 

Successors and Assigns

   32

Section 22.2

 

Payments Due on Non-Business Days

   32

Section 22.3

 

Severability

   32

Section 22.4

 

Construction

   32

Section 22.5

 

Counterparts

   33

Section 22.6

 

Governing Law

   33

 

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ATTACHMENTS TO NOTE PURCHASE AGREEMENT:

 

SCHEDULE A

   —   

Information Relating to Purchasers

SCHEDULE B

   —   

Defined Terms

SCHEDULE 4.9

   —   

Changes in Corporate Structure

SCHEDULE 5.3

   —   

Disclosure Materials

SCHEDULE 5.4

   —   

Subsidiaries of the Company and Ownership of Subsidiary Stock

SCHEDULE 5.5

   —   

Financial Statements

SCHEDULE 5.11

   —   

Patents, Etc.

SCHEDULE 5.14

   —   

Use of Proceeds

SCHEDULE 5.15

   —   

Existing Debt; Future Liens

EXHIBIT 1(a)

   —   

Form of 5.92% Senior Note, Series A, due September 1, 2009

EXHIBIT 1(b)

   —   

Form of 6.46% Senior Note, Series B, due September 1, 2011

EXHIBIT 4.4(a)

   —   

Form of Opinion of Special Counsel for the Company

EXHIBIT 4.4(b)

   —   

Form of Opinion of Special Counsel for the Purchasers

EXHIBIT 5.21

   —   

Credit and Collection Policy

 

v

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AMERICAN CAPITAL STRATEGIES, LTD.

2 Bethesda Metro Center, 14th Floor

Bethesda, Maryland 20814

 

5.92% Senior Notes, Series A, due September 1, 2009

 

6.46% Senior Notes, Series B, due September 1, 2011

 

Dated as of September 1, 2004

 

TO THE PURCHASERS LISTED IN

THE ATTACHED SCHEDULE A:

 

Ladies and Gentlemen:

 

AMERICAN CAPITAL STRATEGIES, LTD., a Delaware corporation (the “Company”),
agrees with the purchasers listed in the attached Schedule A (the “Purchasers”)
as follows:

 

SECTION 1. AUTHORIZATION OF NOTES.

 

The Company will authorize the issue and sale of $167,000,000 aggregate
principal amount of its Senior Notes consisting of (a) $82,000,000 aggregate
principal amount of its 5.92% Senior Notes, Series A, due September 1, 2009 (the
“Series A Notes”), and (b) $85,000,000 aggregate principal amount of its 6.46%
Senior Notes, Series B, due September 1, 2011 (the “Series B Notes”). The Series
A Notes and the Series B Notes are collectively referred to as the “Notes.” As
used herein, the term “Notes” shall mean all notes (irrespective of series
unless otherwise specified) originally delivered pursuant to this Agreement and
any such notes issued in substitution therefor pursuant to Section 13 of this
Agreement. The Series A Notes and the Series B Notes shall be substantially in
the forms set out in Exhibit 1(a) and Exhibit 1(b), respectively, with such
changes therefrom, if any, as may be approved by the Purchasers and the Company.
Certain capitalized terms used in this Agreement are defined in Schedule B;
references to a “Schedule” or an “Exhibit” are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement.

 

SECTION 2. SALE AND PURCHASE OF NOTES.

 

Subject to the terms and conditions of this Agreement, the Company will issue
and sell to each Purchaser and each Purchaser will purchase from the Company, at
the Closing provided for in Section 3, Notes of the series and in the principal
amount specified opposite such Purchaser’s name in Schedule A at the purchase
price of 100% of the principal amount thereof. Each Purchaser’s obligations
hereunder are several and not joint and no Purchaser shall have any obligation
or liability to any Person for the performance or nonperformance by any other
Purchaser hereunder.

 

SECTION 3. CLOSING.

 

The sale and purchase of the Notes to be purchased by the Purchasers shall occur
at the offices of Schiff Hardin LLP, 623 Fifth Avenue, 28th Floor, New York, New
York 10022, at

 

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11:00 a.m., New York, New York time, at a closing (the “Closing”) on September
8, 2004 or on such other Business Day thereafter on or prior to September 15,
2004 as may be agreed upon by the Company and the Purchasers. At the Closing,
the Company will deliver to each Purchaser the Notes of each series to be
purchased by such Purchaser in the form of a single Note of such series (or such
greater number of Notes of such series in denominations of at least $100,000 as
such Purchaser may request) dated the date of the Closing and registered in such
Purchaser’s name (or in the name of its nominee), against delivery by such
Purchaser to the Company or its order of immediately available funds in the
amount of the purchase price therefor by wire transfer of immediately available
funds for the account of the Company. If at the Closing the Company shall fail
to tender such Notes to any Purchaser as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have been fulfilled to
any Purchaser’s satisfaction, such Purchaser shall, at its election, be relieved
of all further obligations under this Agreement, without thereby waiving any
rights such Purchaser may have by reason of such failure or such nonfulfillment.

 

SECTION 4. CONDITIONS TO CLOSING.

 

Each Purchaser’s obligation to purchase and pay for the Notes to be sold to such
Purchaser at the Closing is subject to the fulfillment to such Purchaser’s
satisfaction, prior to or at the Closing, of the following conditions:

 

Section 4.1 Representations and Warranties. The representations and warranties
of the Company in this Agreement shall be correct when made and at the time of
the Closing.

 

Section 4.2 Performance; No Default. The Company shall have performed and
complied with all agreements and conditions contained in this Agreement required
to be performed or complied with by it prior to or at the Closing, and after
giving effect to the issue and sale of the Notes (and the application of the
proceeds thereof as contemplated by Schedule 5.14), no Default or Event of
Default shall have occurred and be continuing. Neither the Company nor any
Consolidated Subsidiary shall have entered into any transaction since the date
of the Memorandum that would have been prohibited by Section 10 had such Section
applied since such date.

 

Section 4.3 Compliance Certificates.

 

(a) Officer’s Certificate. The Company shall have delivered to such Purchaser an
Officer’s Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.

 

(b) Secretary’s Certificate. The Company shall have delivered to such Purchaser
a certificate certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Notes and this Agreement.

 

Section 4.4 Opinions of Counsel. Such Purchaser shall have received opinions in
form and substance satisfactory to such Purchaser, dated the date of the Closing
(a) from Arnold & Porter LLP, counsel for the Company, covering the matters set
forth in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as such Purchaser

 

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or special counsel to the Purchasers may reasonably request (and the Company
hereby instructs its counsel to deliver such opinion to such Purchaser) and (b)
from Schiff Hardin LLP, special counsel to the Purchasers in connection with
such transactions, substantially in the form set forth in Exhibit 4.4(b) and
covering such other matters incident to such transactions as such Purchaser may
reasonably request.

 

Section 4.5 Purchase Permitted by Applicable Law, Etc. On the date of the
Closing, such Purchaser’s purchase of Notes shall (a) be permitted by the laws
and regulations of each jurisdiction to which such Purchaser is subject, without
recourse to provisions (such as Section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation T, U or X of the
Board of Governors of the Federal Reserve System) and (c) not subject such
Purchaser to any tax, penalty or liability under or pursuant to any applicable
law or regulation. If requested by any Purchaser, such Purchaser shall have
received an Officer’s Certificate certifying as to such matters of fact as such
Purchaser may reasonably specify to enable it to determine whether such purchase
is so permitted.

 

Section 4.6 Related Transactions. The Company shall have consummated the sale of
the entire principal amount of the Notes scheduled to be sold on the date of the
Closing pursuant to this Agreement.

 

Section 4.7 Payment of Special Counsel Fees. Without limiting the provisions of
Section 15.1, the Company shall have paid on or before the Closing the
reasonable fees, charges and disbursements of special counsel to the Purchasers
referred to in Section 4.4(b) to the extent reflected in a statement of such
counsel rendered to the Company at least one Business Day prior to the Closing.

 

Section 4.8 Private Placement Number. A private placement number issued by
Standard & Poor’s CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for each series of the Notes.

 

Section 4.9 Changes in Corporate Structure. Except as specified in Schedule 4.9,
the Company shall not have changed its jurisdiction of incorporation or been a
party to any merger or consolidation and shall not have succeeded to all or any
substantial part of the liabilities of any other entity, at any time following
the date of the most recent financial statements referred to in Schedule 5.5.

 

Section 4.10 Funding Instructions. At least three Business Days prior to the
date of the Closing, such Purchaser shall have received written instructions
executed by an authorized financial or accounting officer of the Company
directing the manner of the payment of funds and setting forth (a) the name of
the transferee bank, (b) such transferee bank’s ABA number, (c) the account name
and number into which the purchase price for the Notes is to be deposited and
(d) the name and telephone number of the account representative responsible for
verifying receipt of such funds.

 

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Section 4.11 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be satisfactory to
such Purchaser and special counsel to the Purchasers, and such Purchaser and
special counsel to the Purchasers shall have received all such counterpart
originals or certified or other copies of such documents as such Purchaser or
special counsel to the Purchasers may reasonably request.

 

SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.

 

The Company represents and warrants to each Purchaser that:

 

Section 5.1 Organization; Power and Authority. The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, and is duly qualified as a foreign corporation
and is in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the failure to be so
qualified or in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect. The Company has the
corporate power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement and the Notes and to
perform the provisions hereof and thereof.

 

Section 5.2 Authorization, Etc. This Agreement and the Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors’ rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).

 

Section 5.3 Disclosure. The Company, through its agent, J.P. Morgan Securities,
Inc., has delivered to each Purchaser a copy of a Private Placement Memorandum,
dated July 2004 (the “Memorandum”), relating to the transactions contemplated
hereby. The Memorandum fairly describes, in all material respects, the general
nature of the business and principal properties of the Company and its
Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum, the documents, certificates or other writings delivered to the
Purchasers by or on behalf of the Company in connection with the transactions
contemplated hereby and the financial statements listed in Schedule 5.5, taken
as a whole, do not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading
in light of the circumstances under which they were made. Except as disclosed in
the Memorandum or as expressly described in Schedule 5.3, or in one of the
documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31, 2003, there has
been no change in the financial condition, operations, business, properties or
prospects of the Company or any Subsidiary except changes that, individually or
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the

 

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Memorandum or in the other documents, certificates and other writings delivered
to the Purchasers by or on behalf of the Company specifically for use in
connection with the transactions contemplated hereby.

 

Section 5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates.

 

(a) Schedule 5.4 contains (except as noted therein) complete and correct lists
(1) of the Company’s Consolidated Subsidiaries, showing, as to each Consolidated
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its capital stock or similar equity
interests outstanding owned by the Company and each other Consolidated
Subsidiary, (2) of the Company’s Affiliates, other than Consolidated
Subsidiaries, and (3) of the Company’s directors and senior officers.

 

(b) All of the outstanding shares of capital stock or similar equity interests
of each Consolidated Subsidiary shown in Schedule 5.4 as being owned by the
Company and its Consolidated Subsidiaries have been validly issued, are fully
paid and nonassessable and are owned by the Company or another Consolidated
Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule
5.4).

 

(c) Each Consolidated Subsidiary identified in Schedule 5.4 is a corporation or
other legal entity duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Consolidated Subsidiary has the corporate or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and proposes to
transact.

 

(d) No Consolidated Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the agreements listed
on Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Consolidated Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or any
of its Consolidated Subsidiaries that owns outstanding shares of capital stock
or similar equity interests of such Consolidated Subsidiary.

 

Section 5.5 Financial Statements. The Company has delivered to each Purchaser
copies of the financial statements of the Company and its Consolidated
Subsidiaries listed on Schedule 5.5. All of said financial statements (including
in each case the related schedules and notes) fairly present in all material
respects the consolidated financial position of the Company and its Consolidated
Subsidiaries as of the respective dates specified in such Schedule and the
consolidated results of their operations and cash flows for the respective
periods so specified and have been prepared in accordance with GAAP consistently
applied throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).

 

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Section 5.6 Compliance with Laws, Other Instruments, Etc. The execution,
delivery and performance by the Company of this Agreement and the Notes will not
(a) contravene, result in any breach of, or constitute a default under, or
result in the creation of any Lien in respect of any property of the Company or
any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or
credit agreement, lease, corporate charter or by-laws, or any other agreement or
instrument to which the Company or any Subsidiary is bound or by which the
Company or any Subsidiary or any of their respective properties may be bound or
affected, (b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any Subsidiary
or (c) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.

 

Section 5.7 Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Agreement or the Notes.

 

Section 5.8 Litigation; Observance of Agreements, Statutes and Orders.

 

(a) There are no actions, suits or proceedings pending or, to the knowledge of
the Company, threatened against or affecting the Company or any Consolidated
Subsidiary or any property of the Company or any Consolidated Subsidiary in any
court or before any arbitrator of any kind or before or by any Governmental
Authority that, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect. In the opinion of senior management of the
Company, the ultimate resolution of the Securities and Exchange Commission
inquiry described in Part II, Item 1 of the Form 10-Q of the Company for the
quarter ended June 30, 2004, would not reasonably be expected to have a Material
Adverse Effect.

 

(b) Neither the Company nor any Consolidated Subsidiary is in default under any
term of any agreement or instrument to which it is a party or by which it is
bound, or any order, judgment, decree or ruling of any court, arbitrator or
Governmental Authority or is in violation of any applicable law, ordinance, rule
or regulation (including, without limitation, Environmental Laws) of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

 

Section 5.9 Taxes. The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the amount
of which is not, individually or in the aggregate, Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges,

 

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accruals and reserves on the books of the Company and its Subsidiaries in
respect of Federal, state or other taxes for all fiscal periods are adequate.
The Federal income tax liabilities of the Company and its Subsidiaries have been
determined by the Internal Revenue Service and paid for all fiscal years up to
and including the fiscal year ended December 31, 2003.

 

Section 5.10 Title to Property; Leases. The Company and its Consolidated
Subsidiaries have good and sufficient title to their respective properties that,
individually or in the aggregate, are Material, including all such properties
reflected in the most recent audited balance sheet referred to in Section 5.5 or
purported to have been acquired by the Company or any Consolidated Subsidiary
after said date (except as sold or otherwise disposed of in the ordinary course
of business), in each case free and clear of Liens prohibited by this Agreement.
All leases that, individually or in the aggregate, are Material are valid and
subsisting and are in full force and effect in all material respects.

 

Section 5.11 Licenses, Permits, Etc. Except as disclosed in Schedule 5.11,

 

(a) the Company and its Consolidated Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service marks,
trademarks, trade names and domain names or rights thereto, that, individually
or in the aggregate, are Material, without known conflict with the rights of
others;

 

(b) to the best knowledge of the Company, no product of the Company or any of
its Consolidated Subsidiaries infringes in any material respect any license,
permit, franchise, authorization, patent, copyright, service mark, trademark,
trade name, domain name or other right owned by any other Person; and

 

(c) to the best knowledge of the Company, there is no Material violation by any
Person of any right of the Company or any of its Consolidated Subsidiaries with
respect to any patent, copyright, service mark, trademark, trade name, domain
name or other right owned or used by the Company or any of its Consolidated
Subsidiaries.

 

Section 5.12 Compliance with ERISA.

 

(a) The Company and each ERISA Affiliate have operated and administered each
Plan (other than Multiemployer Plans) in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to Title I
or IV of ERISA or the penalty or excise tax provisions of the Code relating to
employee benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be, individually or in the aggregate, Material.

 

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(b) (1) The present value of the aggregate benefit liabilities under each of the
Plans (other than Multiemployer Plans) established or maintained by the Company
or any Consolidated Subsidiary, determined as of the end of such Plan’s most
recently ended plan year on the basis of the actuarial assumptions specified for
funding purposes in such Plan’s most recent actuarial valuation report, did not
exceed the aggregate current value of the assets of such Plan allocable to such
benefit liabilities.

 

(2) The present value of the aggregate benefit liabilities under each of the
Plans (other than Multiemployer Plans) established or maintained by ERISA
Affiliates of the Company (other than Consolidated Subsidiaries), determined as
of the end of such Plan’s most recently ended plan year on the basis of the
actuarial assumptions specified for funding purposes in such Plan’s most recent
actuarial valuation report, did not, to the best knowledge of the Company,
exceed the aggregate current value of the assets of such Plan allocable to such
benefit liabilities by an amount that is, individually or in the aggregate,
Material.

 

(3) The term “benefit liabilities” has the meaning specified in Section 4001 of
ERISA and the terms “current value” and “present value” have the meanings
specified in Section 3 of ERISA.

 

(c) The Company and its ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
Section 4201 or 4204 of ERISA in respect of Multiemployer Plans that,
individually or in the aggregate, are Material.

 

(d) The expected post-retirement benefit obligation (determined as of the last
day of the Company’s most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by Section 4980B of
the Code) of the Company and its Consolidated Subsidiaries is not Material.

 

(e) The execution and delivery of this Agreement and the issuance and sale of
the Notes hereunder will not involve any transaction that is subject to the
prohibitions of Section 406 of ERISA or in connection with which a tax could be
imposed pursuant to Section 4975(c)(1)(A)-(D) of the Code. The representation by
the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to the accuracy of each Purchaser’s representation in Section
6.2 as to the sources of the funds used to pay the purchase price of the Notes
to be purchased by such Purchaser.

 

Section 5.13 Private Offering by the Company. Neither the Company nor anyone
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any Person other than not more than 30
Institutional Investors of the type described in clause (c) of the definition
thereof (including the Purchasers), each of which has been offered the Notes at
a private sale for investment. Neither the Company nor anyone acting on its
behalf has taken, or will take, any action that would subject the issuance or
sale of the Notes to the registration requirements of Section 5 of the
Securities Act.

 

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Section 5.14 Use of Proceeds; Margin Regulations. The Company will apply the
proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the
proceeds from the sale of the Notes hereunder will be used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
(12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 5% of the value of the consolidated assets of the Company
and its Consolidated Subsidiaries and the Company does not have any present
intention that margin stock will constitute more than 25% of the value of such
assets. As used in this Section, the terms “margin stock” and “purpose of buying
or carrying” shall have the meanings assigned to them in said Regulation U.

 

Section 5.15 Existing Debt; Future Liens.

 

(a) Except as described therein, Schedule 5.15 sets forth a complete and correct
list of all outstanding Debt of the Company and its Consolidated Subsidiaries as
of September 2, 2004, since which date there has been no Material change in the
amounts, interest rates, sinking funds, installment payments or maturities of
the Debt of the Company or its Consolidated Subsidiaries. Neither the Company
nor any Consolidated Subsidiary is in default and no waiver of default is
currently in effect, in the payment of any principal or interest on any Debt of
the Company or such Consolidated Subsidiary and no event or condition exists
with respect to any Debt of the Company or any Consolidated Subsidiary that
would permit (or that with notice or the lapse of time, or both, would permit)
one or more Persons to cause such Debt to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.

 

(b) Except as disclosed in Schedule 5.15, neither the Company nor any
Consolidated Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien not permitted by
Section 10.4.

 

Section 5.16 Foreign Assets Control Regulations, Etc.

 

(a) Neither the sale of the Notes by the Company hereunder nor its use of the
proceeds thereof will violate the Trading with the Enemy Act, as amended, or any
of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.

 

(b) Neither the Company nor any Subsidiary (1) is a Person described or
designated in the Specially Designated Nationals and Blocked Persons List of the
Office of Foreign Assets Control or Section 1 of the Anti-Terrorism Order or (2)
engages in any dealings or transactions, or is otherwise associated, with any
such Person. The Company and its Subsidiaries are in compliance, in all material
respects, with the USA Patriot Act.

 

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(c) No part of the proceeds from the sale of the Notes hereunder will be used,
directly or indirectly, for any payments to any government official or employee,
political party, official of a political party, candidate for political office
or anyone else acting in an official capacity, in order to obtain, retain or
direct business or obtain any improper advantage, in violation of the United
States Foreign Corrupt Practices Act of 1977, as amended, assuming in all cases
that such Act applies to the Company.

 

Section 5.17 Status under Certain Statutes. Neither the Company nor any
Subsidiary is subject to regulation under the Public Utility Holding Company Act
of 1935, as amended, the ICC Termination Act of 1995, as amended, or the Federal
Power Act, as amended.

 

Section 5.18 Investment Company Act.

 

(a) The Company is an “investment company” that has elected to be regulated as a
“business development company” within the meaning of the Investment Company Act
and qualifies as a RIC.

 

(b) The Company conducts its business and other activities in compliance with
the applicable provisions of the Investment Company Act and any applicable
rules, regulations or orders issued by the Securities and Exchange Commission
thereunder.

 

(c) The business and other activities of the Company, including, but not limited
to, the issuance and sale of the Notes hereunder, the application of the
proceeds and the repayment thereof by the Company and the consummation of the
transactions contemplated by this Agreement and the Notes do not now and will
not at any time result in any violations, with respect to the Company, of the
provisions of the Investment Company Act or any rules, regulations or orders
issued by the Securities and Exchange Commission thereunder.

 

(d) Immediately after giving effect to the issuance and sale of the Notes
hereunder, the ratio of Total Available Assets to Unsecured Debt shall not be
less than 2.0 to 1.0.

 

Section 5.19 Environmental Matters. Neither the Company nor any Consolidated
Subsidiary has knowledge of any claim or has received any notice of any claim,
and no proceeding has been instituted raising any claim against the Company or
any of its Consolidated Subsidiaries or any of their respective real properties
now or formerly owned, leased or operated by any of them or other assets,
alleging any damage to the environment or violation of any Environmental Laws,
except, in each case, such as could not reasonably be expected to result in a
Material Adverse Effect. Except as otherwise disclosed to the Purchasers in
writing:

 

(a) neither the Company nor any Consolidated Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of violation of
Environmental Laws or damage to the environment emanating from, occurring on or
in any way related to real properties now or formerly owned, leased or operated
by any of them or to other assets or their use, except, in each case, such as
could not reasonably be expected to result in a Material Adverse Effect;

 

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(b) neither the Company nor any of its Consolidated Subsidiaries has stored any
Hazardous Materials on real properties now or formerly owned, leased or operated
by any of them or has disposed of any Hazardous Materials in a manner contrary
to any Environmental Laws in each case in any manner that could reasonably be
expected to result in a Material Adverse Effect; and

 

(c) to the knowledge of the Company and its Consolidated Subsidiaries, all
buildings on all real properties now owned, leased or operated by the Company or
any of its Consolidated Subsidiaries are in compliance with applicable
Environmental Laws, except where failure to comply could not reasonably be
expected to result in a Material Adverse Effect.

 

Section 5.20 Notes Rank Pari Passu. The obligations of the Company under this
Agreement and the Notes rank at least pari passu in right of payment with all
other unsecured Senior Debt (actual or contingent) of the Company, including,
without limitation, all unsecured Senior Debt of the Company described in
Schedule 5.15.

 

Section 5.21 Credit and Collection Policy. Attached hereto as Exhibit 5.21 is a
complete and correct copy of the Credit and Collection Policy as of the date of
the Closing.

 

SECTION 6. REPRESENTATIONS OF THE PURCHASERS.

 

Section 6.1 Purchase for Investment. Each Purchaser represents that it is
purchasing the Notes for its own account or for one or more separate accounts
maintained by such Purchaser or for the account of one or more pension or trust
funds and not with a view to the distribution thereof, provided that the
disposition of such Purchaser’s or such pension or trust fund’s property shall
at all times be within such Purchaser’s or such pension or trust fund’s control.
Each Purchaser understands that the Notes have not been registered under the
Securities Act and may be resold only if registered pursuant to the provisions
of the Securities Act or if an exemption from registration is available, except
under circumstances where neither such registration nor such an exemption is
required by law, and that the Company is not required to register the Notes.

 

Section 6.2 Source of Funds. Each Purchaser represents that at least one of the
following statements is an accurate representation as to each source of funds (a
“Source”) to be used by such Purchaser to pay the purchase price of the Notes to
be purchased by such Purchaser hereunder:

 

(a) the Source is an “insurance company general account” within the meaning of
Department of Labor Prohibited Transaction Exemption (“PTE”) 95-60 (issued July
12, 1995) and there is no employee benefit plan, treating as a single plan, all
plans maintained by the same employer and its affiliates or employee
organization, with respect to which the amount of the general account reserves
and liabilities for all contracts held by or on behalf of such plan, exceeds 10%
of the total reserves and liabilities of such general account (exclusive of
separate account liabilities) plus surplus, as set forth in the National
Association of Insurance Commissioners Annual Statement filed with such
Purchaser’s state of domicile; or

 

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(b) the Source is either (1) an insurance company pooled separate account,
within the meaning of PTE 90-1 (issued January 29, 1990) or (2) a bank
collective investment fund, within the meaning of the PTE 91-38 (issued July 12,
1991) and, except as such Purchaser has disclosed to the Company in writing
pursuant to this paragraph (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or collective
investment fund; or

 

(c) the Source constitutes assets of an “investment fund” (within the meaning of
Part V of the QPAM Exemption) managed by a “qualified professional asset
manager” or “QPAM” (within the meaning of Part V of the QPAM Exemption), no
employee benefit plan’s assets that are included in such investment fund, when
combined with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning of
Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client assets
managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a Person controlling or controlled by the
QPAM (applying the definition of “control” in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (1) the identity of
such QPAM and (2) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or

 

(d) the Source is a governmental plan; or

 

(e) the Source is one or more employee benefit plans, or a separate account or
trust fund comprised of one or more employee benefit plans, each of which has
been identified to the Company in writing pursuant to this paragraph (e); or

 

(f) the Source does not include assets of any employee benefit plan, other than
a plan exempt from the coverage of ERISA.

 

As used in this Section 6.2, the terms “employee benefit plan,” “governmental
plan,” “party in interest” and “separate account” shall have the respective
meanings assigned to such terms in Section 3 of ERISA.

 

Section 6.3 Accredited Investor. Each Purchaser represents that it is an
“accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act).

 

SECTION 7. INFORMATION AS TO COMPANY.

 

Section 7.1 Financial and Business Information. The Company shall deliver to
each holder of Notes that is an Institutional Investor:

 

(a) Quarterly Statements — within 45 days after the end of each quarterly fiscal
period in each fiscal year of the Company (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of:

 

(1) a consolidated balance sheet of the Company and its Consolidated
Subsidiaries as at the end of such quarter, and

 

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(2) consolidated statements of income, changes in shareholders’ equity and cash
flows of the Company and its Consolidated Subsidiaries for such quarter and (in
the case of the second and third quarters) for the portion of the fiscal year
ending with such quarter,

 

setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
copies of the Company’s Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section 7.1(a);

 

(b) Annual Statements — within 90 days after the end of each fiscal year of the
Company, duplicate copies of,

 

(1) a consolidated balance sheet of the Company and its Consolidated
Subsidiaries, as at the end of such year, and

 

(2) consolidated statements of income, changes in shareholders’ equity and cash
flows of the Company and its Consolidated Subsidiaries, for such year,

 

setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances, provided that
the delivery within the time period specified above of the Company’s Annual
Report on Form 10-K for such fiscal year (together with the Company’s annual
report to shareholders, if any, prepared pursuant to Rule 14a-3 under the
Exchange Act) prepared in accordance with the requirements therefor and filed
with the Securities and Exchange Commission shall be deemed to satisfy the
requirements of this Section 7.1(b);

 

(c) SEC and Other Reports — promptly upon their becoming available, one copy of
(1) each financial statement, report, notice or proxy statement sent by the
Company or any Consolidated Subsidiary to public securities holders generally
and (2) each regular or periodic report, each registration statement (without
exhibits except as expressly requested by such holder), and each prospectus and
all amendments thereto

 

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filed by the Company or any Consolidated Subsidiary with the Securities and
Exchange Commission and of all press releases and other statements made
available generally by the Company or any Consolidated Subsidiary to the public
concerning developments that are Material;

 

(d) Notice of Default or Event of Default — promptly, and in any event within
five days after a Responsible Officer becoming aware of the existence of any
Default or Event of Default or that any Person has given any notice or taken any
action with respect to a claimed default hereunder or that any Person has given
any notice or taken any action with respect to a claimed default of the type
referred to in Section 11(f), a written notice specifying the nature and period
of existence thereof and what action the Company is taking or proposes to take
with respect thereto;

 

(e) ERISA Matters — promptly, and in any event within five days after a
Responsible Officer becoming aware of any of the following, a written notice
setting forth the nature thereof and the action, if any, that the Company or an
ERISA Affiliate proposes to take with respect thereto:

 

(1) with respect to any Plan, any reportable event, as defined in Section
4043(b) of ERISA and the regulations thereunder, for which notice thereof has
not been waived pursuant to such regulations as in effect on the date hereof; or

 

(2) the taking by the PBGC of steps to institute, or the threatening by the PBGC
of the institution of, proceedings under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to such
Multiemployer Plan; or

 

(3) any event, transaction or condition that could result in the incurrence of
any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans, or in the imposition of any Lien on any of the rights, properties
or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or such penalty or excise tax provisions, if such liability or Lien, taken
together with any other such liabilities or Liens then existing, could
reasonably be expected to have a Material Adverse Effect;

 

(f) Notices from Governmental Authority — promptly, and in any event within 30
days of receipt thereof, copies of any notice to the Company or any Consolidated
Subsidiary from any Federal or state Governmental Authority relating to any
order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect; and

 

(g) Requested Information — with reasonable promptness, such other data and
information relating to the business, operations, affairs, financial condition,
assets or

 

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properties of the Company or any of its Consolidated Subsidiaries or relating to
the ability of the Company to perform its obligations hereunder and under the
Notes as from time to time may be reasonably requested by any such holder of
Notes.

 

Section 7.2 Officer’s Certificate. Each set of financial statements delivered to
a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be
accompanied by a certificate of a Senior Financial Officer setting forth:

 

(a) Covenant Compliance — the information (including detailed calculations)
required in order to establish whether the Company was in compliance with the
requirements of Section 10.1 through Section 10.5 hereof, inclusive, during the
quarterly or annual period covered by the statements then being furnished
(including with respect to each such Section, where applicable, the calculations
of the maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of the amount,
ratio or percentage then in existence); and

 

(b) Event of Default — a statement that such officer has reviewed the relevant
terms hereof and has made, or caused to be made, under his or her supervision, a
review of the transactions and conditions of the Company and its Consolidated
Subsidiaries from the beginning of the quarterly or annual period covered by the
statements then being furnished to the date of the certificate and that such
review shall not have disclosed the existence during such period of any
condition or event that constitutes a Default or an Event of Default or, if any
such condition or event existed or exists (including, without limitation, any
such event or condition resulting from the failure of the Company or any
Consolidated Subsidiary to comply with any Environmental Law), specifying the
nature and period of existence thereof and what action the Company shall have
taken or proposes to take with respect thereto.

 

Section 7.3 Inspection. The Company shall permit the representatives of each
holder of Notes that is an Institutional Investor:

 

(a) No Default — if no Default or Event of Default then exists, at the expense
of such holder and upon reasonable prior notice to the Company, but no more than
one time in any fiscal quarter, to visit the principal executive office of the
Company, to discuss the affairs, finances and accounts of the Company and its
Consolidated Subsidiaries with the Company’s officers, and (with the consent of
the Company, which consent will not be unreasonably withheld) its independent
public accountants, and (with the consent of the Company, which consent will not
be unreasonably withheld) to visit the other offices and properties of the
Company and each Consolidated Subsidiary, all at such reasonable times and as
requested in writing; and

 

(b) Default — if a Default or Event of Default then exists, at the expense of
the Company to visit and inspect any of the offices or properties of the Company
or any Consolidated Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to

 

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discuss the affairs, finances and accounts of the Company and its Consolidated
Subsidiaries), all at such times and as often as may be requested.

 

SECTION 8. PREPAYMENT OF THE NOTES.

 

Section 8.1 Required Prepayments. The Notes shall not be subject to any required
prepayment and the entire unpaid principal amount of the Notes shall be due and
payable on the stated maturity thereof.

 

Section 8.2 Optional Prepayments with Make-Whole Amount. The Company may, at its
option, upon notice as provided below, prepay at any time all, or from time to
time any part of, the Notes, in an amount not less than $5,000,000 in aggregate
principal amount of the Notes then outstanding in the case of a partial
prepayment, at 100% of the principal amount so prepaid, plus the Make-Whole
Amount, if any, determined for the prepayment date with respect to such
principal amount. The Company will give each holder of Notes written notice of
each optional prepayment under this Section 8.2 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes to be
prepaid on such date, the principal amount of each Note held by such holder to
be prepaid (determined in accordance with Section 8.3), and the interest to be
paid on the prepayment date with respect to such principal amount being prepaid,
and shall be accompanied by a certificate of a Senior Financial Officer as to
the estimated Make-Whole Amount due in connection with such prepayment
(calculated as if the date of such notice were the date of the prepayment),
setting forth the details of such computation. Two Business Days prior to such
prepayment, the Company shall deliver to each holder of Notes a certificate of a
Senior Financial Officer specifying the calculation of such Make-Whole Amount as
of the specified prepayment date.

 

Section 8.3 Allocation of Partial Prepayments. In the case of each partial
prepayment of the Notes, the principal amount of the Notes to be prepaid shall
be allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.

 

Section 8.4 Maturity; Surrender, Etc. In the case of each prepayment of Notes
pursuant to this Section 8, the principal amount of each Note to be prepaid
shall mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and the
applicable Make-Whole Amount, if any. From and after such date, unless the
Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Company and cancelled and shall not be reissued, and
no Note shall be issued in lieu of any prepaid principal amount of any Note.

 

Section 8.5 Purchase of Notes. The Company will not, and will not permit any
Affiliate to, purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or prepayment
of the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any

 

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provision of this Agreement and no Notes may be issued in substitution or
exchange for any such Notes.

 

Section 8.6 Make-Whole Amount. The term “Make-Whole Amount” shall mean, with
respect to any Note, an amount equal to the excess, if any, of the Discounted
Value of the Remaining Scheduled Payments with respect to the Called Principal
of such Note over the amount of such Called Principal, provided that the
Make-Whole Amount may in no event be less than zero. For the purposes of
determining the Make-Whole Amount, the following terms have the following
meanings:

 

“Called Principal” shall mean, with respect to any Note, the principal of such
Note that is to be prepaid pursuant to Section 8.2 or has become or is declared
to be immediately due and payable pursuant to Section 12.1, as the context
requires.

 

“Discounted Value” shall mean, with respect to the Called Principal of any Note,
the amount obtained by discounting all Remaining Scheduled Payments with respect
to such Called Principal from their respective scheduled due dates to the
Settlement Date with respect to such Called Principal, in accordance with
accepted financial practice and at a discount factor (applied on the same
periodic basis as that on which interest on the Notes is payable) equal to the
Reinvestment Yield with respect to such Called Principal.

 

“Reinvestment Yield” shall mean, with respect to the Called Principal of any
Note, 0.50% over the yield to maturity implied by (a) the yields reported, as of
10:00 a.m. (New York, New York time) on the second Business Day preceding the
Settlement Date with respect to such Called Principal, on the display designated
as “Page PX1” on the Bloomberg Financial Services Screen (or such other display
as may replace Page PX1 on the Bloomberg Financial Services Screen) for actively
traded U.S. Treasury securities having a maturity equal to the Remaining Average
Life of such Called Principal as of such Settlement Date, or (b) if such yields
are not reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for the
latest day for which such yields have been so reported as of the second Business
Day preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a constant
maturity equal to the Remaining Average Life of such Called Principal as of such
Settlement Date. Such implied yield will be determined, if necessary, by (1)
converting U.S. Treasury bill quotations to bond-equivalent yields in accordance
with accepted financial practice and (2) interpolating linearly between (i) the
actively traded U.S. Treasury security with the maturity closest to and greater
than the Remaining Average Life and (ii) the actively traded U.S. Treasury
security with the maturity closest to and less than the Remaining Average Life.

 

“Remaining Average Life” shall mean, with respect to any Called Principal, the
number of years (calculated to the nearest one-twelfth year) obtained by
dividing (a) such Called Principal into (b) the sum of the products obtained by
multiplying (1) the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (2) the number of years (calculated to the
nearest one-twelfth year) that will elapse

 

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between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.

 

“Remaining Scheduled Payments” shall mean, with respect to the Called Principal
of any Note, all payments of such Called Principal and interest thereon that
would be due after the Settlement Date with respect to such Called Principal if
no payment of such Called Principal were made prior to its scheduled due date,
provided that if such Settlement Date is not a date on which interest payments
are due to be made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such Settlement Date
pursuant to Section 8.2 or 12.1.

 

“Settlement Date” shall mean, with respect to the Called Principal of any Note,
the date on which such Called Principal is to be prepaid pursuant to Section 8.2
or has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.

 

SECTION 9. AFFIRMATIVE COVENANTS.

 

The Company covenants that so long as any of the Notes are outstanding:

 

Section 9.1 Compliance with Law.

 

(a) The Company will, and will cause each of its Consolidated Subsidiaries to,
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

(b) The Company will at all times maintain its stature as a RIC and as a
“business development company” under the Investment Company Act and will conduct
its business and other activities in compliance with the applicable provisions
of the Investment Company Act and any applicable rules, regulations or orders
issued by the Securities and Exchange Commission thereunder.

 

Section 9.2 Insurance. The Company will, and will cause each of its Consolidated
Subsidiaries to, maintain, with financially sound and reputable insurers,
insurance with respect to their respective properties and businesses against
such casualties and contingencies, of such types, on such terms and in such
amounts (including deductibles, co-insurance and self-insurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.

 

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Section 9.3 Maintenance of Properties. The Company will, and will cause each of
its Consolidated Subsidiaries to, maintain and keep, or cause to be maintained
and kept, their respective properties in good repair, working order and
condition (other than ordinary wear and tear), so that the business carried on
in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Consolidated Subsidiary from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

Section 9.4 Payment of Taxes and Claims. The Company will, and will cause each
of its Consolidated Subsidiaries to, file all tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes and assessments have become due and payable
and before they have become delinquent and all claims for which sums have become
due and payable that have or might become a Lien on properties or assets of the
Company or any Consolidated Subsidiary, provided that neither the Company nor
any Consolidated Subsidiary need pay any such tax or assessment or claims if (1)
the amount, applicability or validity thereof is contested by the Company or
such Consolidated Subsidiary on a timely basis in good faith and in appropriate
proceedings, and the Company or a Consolidated Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Consolidated Subsidiary or (2) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to have a Material
Adverse Effect.

 

Section 9.5 Corporate Existence, Etc. The Company will at all times preserve and
keep in full force and effect its corporate existence. Subject to Section 10.5,
the Company will at all times preserve and keep in full force and effect the
corporate existence of each of its Consolidated Subsidiaries (unless merged into
the Company or a Wholly-Owned Consolidated Subsidiary) and all rights and
franchises of the Company and its Consolidated Subsidiaries unless, in the good
faith judgment of the Company, the termination of or failure to preserve and
keep in full force and effect such corporate existence, right or franchise could
not, individually or in the aggregate, have a Material Adverse Effect.

 

Section 9.6 Credit and Collection Policy. The Company will (a) comply in all
material respects with the Credit and Collection Policy and (b) furnish to each
holder of a Note, prior to its effective date, prompt notice of any changes in
the Credit and Collection Policy; provided that the Company will not modify the
Credit and Collection Policy in any manner that would have a material adverse
effect on the holders of the Notes or their investment therein, without the
prior written consent of the Required Holders (in their sole discretion).

 

SECTION 10. NEGATIVE COVENANTS.

 

The Company covenants that so long as any of the Notes are outstanding:

 

Section 10.1 Minimum Consolidated Tangible Net Worth. The Company will not, at
any time, permit Consolidated Tangible Net Worth to be less than (a)
$930,000,000 plus (b) 75% of the

 

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cumulative Net Proceeds of Capital Stock/Conversion of Debt received at any time
after the date of the Closing (excluding the Net Proceeds of Capital
Stock/Conversion of Debt by a Consolidated Subsidiary to another Consolidated
Subsidiary or to the Company).

 

Section 10.2 Interest Charges Coverage Ratio. The Company will not, at any time,
permit the ratio of EBIT to Interest Expense of the Company and its Consolidated
Subsidiaries, determined on a consolidated basis as of the last day of each
fiscal quarter for the period of four consecutive fiscal quarters ended on such
day, to be less than 2.0 to 1.0.

 

Section 10.3 Limitation on Debt.

 

(a) The Company shall not, on the last day of any fiscal quarter, permit the
ratio of Consolidated Debt to Consolidated Shareholder’s Equity to exceed 1.5 to
1.0.

 

(b) The Company shall not, at any time, permit the Asset Coverage Ratio to be
less than 2.0 to 1.0.

 

Section 10.4 Available Asset Coverage.

 

(a) The Company shall not, on the last day of any fiscal quarter, permit the
ratio of Total Available Assets to Unsecured Debt to be less than 2.0 to 1.0.

 

(b) The Company shall not, on the last day of any fiscal quarter, permit the
ratio of (1) the sum of Cash and Available Non-Pledged Debt Assets to (2)
Unsecured Debt to be less than 1.0 to 1.0.

 

Section 10.5 Merger, Consolidation and Sale of Assets, Etc.

 

(a) The Company will not, and will not permit any of its Consolidated
Subsidiaries to, consolidate with or merge with any other corporation or convey,
transfer or lease all or substantially all of its assets in a single transaction
or series of transactions to any Person; provided that

 

(1) any Consolidated Subsidiary of the Company may (x) consolidate with or merge
with, or convey, transfer or lease all or substantially all of its assets in a
single transaction or series of transactions to, the Company or a Wholly-Owned
Consolidated Subsidiary of the Company so long as (i)(A) in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing entity and (B) in any merger or consolidation involving a
Wholly-Owned Consolidated Subsidiary (and not the Company), a Wholly-Owned
Consolidated Subsidiary shall be the surviving or continuing entity and (ii) at
the time of such consolidation or merger and immediately after giving effect to
such transaction, no Default or Event of Default would exist;

 

(2) the Company may consolidate or merge with or into, or convey, transfer or
lease all or substantially all of the assets of the Company in a single
transaction or series of transactions to, any Person so long as: (i) if the
successor formed by such consolidation or the survivor of such merger or the
Person that

 

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acquires by conveyance, transfer or lease all or substantially all of the assets
of the Company as an entirety, as the case may be (the “Successor Corporation”),
shall be a solvent corporation organized and existing under the laws of the
United States or any State thereof (including the District of Columbia), (ii) if
the Company is not the Successor Corporation, (A) the Successor Corporation
shall have executed and delivered to each holder of the Notes its assumption of
the due and punctual performance and observance of each covenant and condition
of this Agreement and the Notes (pursuant to such agreements and instruments as
shall be reasonably satisfactory to the Required Holders) and (B) the Successor
Corporation shall have caused to be delivered to each holder of any Notes an
opinion of nationally recognized independent counsel, or other independent
counsel reasonably satisfactory to the Required Holders, to the effect that all
agreements or instruments effecting such assumption are enforceable in
accordance with their terms and comply with the terms hereof; (iii) at the time
of such consolidation or merger and immediately after giving effect thereto and
to the incurrence of any Debt assumed or incurred in connection therewith (A)
the aggregate amount of outstanding Consolidated Debt of the surviving entity
would be permitted by the terms of Sections 10.3 and 10.4 as of the last day of
the fiscal quarter immediately preceding the date of such consolidation or
merger; and (iv) immediately after giving effect to such transaction, no Default
or Event of Default would exist; and

 

(3) the Company and any Consolidated Subsidiary may sell, transfer, pledge or
otherwise dispose of all or any part of its Investments in the ordinary course
of business including, without limitation, in securitization transactions.

 

(b) The Company will not permit any Consolidated Subsidiary to issue any voting
stock of such Consolidated Subsidiary except to satisfy the rights of minority
shareholders to receive issuances of stock that are non-dilutive to the Company
and/or any Consolidated Subsidiary; provided that the foregoing restrictions do
not apply to issuances to the Company or any Wholly-Owned Consolidated
Subsidiary or the issuance of directors’ or similar qualifying shares.

 

(c) The Company will not sell, transfer or otherwise dispose of stock or Debt of
any Consolidated Subsidiary (except the issuance of directors’ or similar
qualifying shares and sales, transfers and dispositions of all of the stock of a
special purpose Consolidated Subsidiary for consideration if (x) substantially
all the assets of such Consolidated Subsidiary constitute Investments and (y)
such sale, transfer or other disposition of all of such Investments for
substantially the same consideration would be permitted by paragraph (a)(3)
above) and shall not permit any Consolidated Subsidiary to sell, transfer or
otherwise dispose of stock (otherwise than by purchase or redemption of
preferred stock) of a Consolidated Subsidiary or Debt of any other Consolidated
Subsidiary (except issuances to the Company or to a Wholly-Owned Consolidated
Subsidiary or issuance of directors’ or similar qualifying shares); provided
that the foregoing restrictions do not apply (I) subject to Section 10.4, to a
pledge of stock or Debt of a Consolidated Subsidiary or (II) if the foregoing
conditions are met:

 

(1) all shares of stock and all Debt of such Consolidated Subsidiary held by the
Company and its Subsidiaries shall be sold simultaneously;

 

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(2) in the opinion of the Company’s Board of Directors (i) such sale or stock or
Debt is in the best interest of the Company and (ii) the consideration paid for
such stock or Debt is deemed adequate and satisfactory;

 

(3) the Consolidated Subsidiary being disposed of shall not have any continuing
Investment in the Company or any Consolidated Subsidiary that is not being
disposed of simultaneously; and

 

(4) such sale or other disposition does not involve a substantial part of the
assets of the Company and its Consolidated Subsidiaries.

 

As used herein, a sale of assets will be deemed a “substantial part” of the
assets of the Company and its Consolidated Subsidiaries if (A) the book value of
such assets sold in a given fiscal year (except those sold in the ordinary
course of business) exceeds 15% of Consolidated Total Assets determined at the
close of the immediately preceding fiscal year, or (B) the operations of such
assets sold (except those sold in the ordinary course of business) generated 15%
or more of the consolidated operating profits of the Company and its
Consolidated Subsidiaries during the immediately preceding fiscal year;
provided, however, that for purposes of the foregoing calculation, there shall
not be included any assets if a portion of the proceeds of such asset sale equal
to the aggregate book value thereof immediately prior to such sale was or is
applied within 365 days of the date of such sale of such assets to either (1)
the acquisition of assets useful and intended to be used in the operation of the
business of the Company and its Consolidated Subsidiaries and having a fair
market value (as determined in good faith by the Board of Directors of the
Company) at least equal to the book value of the assets so disposed of or (2)
the prepayment at any applicable prepayment premium, on a pro rata basis, of
Senior Debt of the Company. Any prepayment of the Notes pursuant to this Section
10.5(c) shall be in accordance with Section 8.2, but without regard to the
minimum prepayment requirements of Section 8.2 if the allocable amount to be
prepaid on the Notes is less than such minimum.

 

Section 10.6 Nature of Business. The Company will not, and will not permit any
Consolidated Subsidiary to, engage in any business, if as a result, the general
nature of the business engaged in by the Company and its Consolidated
Subsidiaries, taken as a whole, would be substantially changed from the general
nature of the business the Company and its Consolidated Subsidiaries are engaged
in on the date of the Closing.

 

Section 10.7 Transactions with Affiliates. The Company will not, and will not
permit any Consolidated Subsidiary to, enter into or be a party to any
transaction or arrangement with any Affiliate (other than the Company or a
Consolidated Subsidiary) (including, without limitation, the purchase from, sale
to or exchange of property with, or the rendering of any service by or for, any
Affiliate), except transactions in the ordinary course of and pursuant to the
reasonable requirements of the Company’s or such Consolidated Subsidiary’s
business and upon fair and reasonable terms no less favorable to the Company or
such Consolidated Subsidiary than would be obtained in a comparable arms-length
transaction with a Person other than an Affiliate.

 

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SECTION 11. EVENTS OF DEFAULT.

 

An “Event of Default” shall exist if any of the following conditions or events
shall occur and be continuing:

 

(a) the Company defaults in the payment of any principal or Make-Whole Amount on
any Note when the same becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration or otherwise; or

 

(b) the Company defaults in the payment of any interest on any Note for more
than five Business Days after the same becomes due and payable; or

 

(c) the Company defaults in the performance of or compliance with any term
contained in Sections 10.1 through 10.5, inclusive; or

 

(d) the Company defaults in the performance of or compliance with any term
contained herein (other than those referred to in paragraphs (a), (b) and (c) of
this Section 11) and such default is not remedied within 30 days after the
earlier of (1) a Responsible Officer obtaining actual knowledge of such default
and (2) the Company receiving written notice of such default from any holder of
a Note (any such written notice to be identified as a “notice of default” and to
refer specifically to this paragraph (d) of Section 11); or

 

(e) any representation or warranty made in writing by or on behalf of the
Company or by any officer of the Company in this Agreement or in any writing
furnished in connection with the transactions contemplated hereby proves to have
been false or incorrect in any material respect on the date as of which made; or

 

(f) (1) the Company or any Consolidated Subsidiary is in default (as principal
or as guarantor or other surety) in the payment of any principal of or premium
or make-whole amount or interest on any Debt that is outstanding in an aggregate
principal amount of at least $15,000,000 beyond any period of grace provided
with respect thereto, or (2) the Company or any Consolidated Subsidiary is in
default in the performance of or compliance with any term of any evidence of any
Debt in an aggregate outstanding principal amount of at least $15,000,000 or of
any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such Debt
has become, or has been declared (or one or more Persons are entitled to declare
such Debt to be), due and payable before its stated maturity or before its
regularly scheduled dates of payment or (3) as a consequence of the occurrence
or continuation of any event or condition (other than the passage of time or the
right of the holder of Debt to convert such Debt into equity interests or as a
result of an Accelerated Amortization Event or an Additional Principal Amount),
(i) the Company or any Consolidated Subsidiary has become obligated to purchase
or repay Debt before its regular maturity or before its regularly scheduled
dates of payment in an aggregate outstanding principal amount of at least
$15,000,000, or (ii) one or more Persons have the right to require the Company
or any Consolidated Subsidiary so to purchase or repay such Debt; or

 

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(g) the Company or any Consolidated Subsidiary (1) is generally not paying, or
admits in writing its inability to pay, its debts as they become due, (2) files,
or consents by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy, insolvency, reorganization,
moratorium or other similar law of any jurisdiction, (3) makes an assignment for
the benefit of its creditors, (4) consents to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (5) is adjudicated as
insolvent or to be liquidated or (6) takes corporate action for the purpose of
any of the foregoing; or

 

(h) a court or governmental authority of competent jurisdiction enters an order
appointing, without consent by the Company or any of its Consolidated
Subsidiaries, a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Consolidated Subsidiaries, or any such petition shall be filed against the
Company or any of its Consolidated Subsidiaries and such petition shall not be
dismissed within 60 days; or

 

(i) a final judgment or judgments for the payment of money aggregating in excess
of $15,000,000 are rendered against one or more of the Company and its
Consolidated Subsidiaries and which judgments are not, within 30 days after
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 30 days after the expiration of such stay; or

 

(j) if (1) any Plan shall fail to satisfy the minimum funding standards of ERISA
or the Code for any plan year or part thereof or a waiver of such standards or
extension of any amortization period is sought or granted under Section 412 of
the Code, (2) a notice of intent to terminate any Plan shall have been or is
reasonably expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA Section 4042 to terminate or appoint a trustee to
administer any Plan or the PBGC shall have notified the Company or any ERISA
Affiliate that a Plan may become a subject of any such proceedings, (3) the
aggregate “amount of unfunded benefit liabilities” (within the meaning of
Section 4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed $15,000,000, (4) the Company or any ERISA
Affiliate shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans, (5) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan or (6) the Company or any ERISA
Affiliate establishes or amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would increase the liability
of the Company or any ERISA Affiliate thereunder; and any such event or events
described in clauses (1) through (6) above, either individually or together with
any other such event or events, could reasonably be expected to have a Material
Adverse Effect.

 

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As used in Section 11(j), the terms “employee benefit plan” and “employee
welfare benefit plan” shall have the respective meanings assigned to such terms
in Section 3 of ERISA.

 

SECTION 12. REMEDIES ON DEFAULT, ETC.

 

Section 12.1 Acceleration.

 

(a) If an Event of Default with respect to the Company described in paragraph
(g) or (h) of Section 11 (other than an Event of Default described in clause (1)
of paragraph (g) or described in clause (6) of paragraph (g) by virtue of the
fact that such clause encompasses clause (1) of paragraph (g)) has occurred, all
the Notes then outstanding shall automatically become immediately due and
payable.

 

(b) If any other Event of Default has occurred and is continuing, the Required
Holders may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.

 

(c) If any Event of Default described in paragraph (a) or (b) of Section 11 has
occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may at any time, at its or their
option, by notice or notices to the Company, declare all the Notes held by it or
them to be immediately due and payable.

 

Upon any Note’s becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Note will forthwith mature and the entire
unpaid principal amount of such Note, plus (1) all accrued and unpaid interest
thereon and (2) the Make-Whole Amount, if any, determined in respect of such
principal amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for), and that the provision for payment
of the Make-Whole Amount, if any, by the Company in the event that the Notes are
prepaid or are accelerated as a result of an Event of Default, is intended to
provide compensation for the deprivation of such right under such circumstances.

 

Section 12.2 Other Remedies. If any Default or Event of Default has occurred and
is continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.

 

Section 12.3 Rescission. At any time after any Notes have been declared due and
payable pursuant to clause (b) or (c) of Section 12.1, the Required Holders, by
written notice to the Company, may rescind and annul any such declaration and
its consequences if (a) the Company has paid all overdue interest on the Notes,
all principal of and Make-Whole Amount, if

 

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any, on any Notes that are due and payable and are unpaid other than by reason
of such declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17 and (c) no judgment or decree has been entered for the payment of any
monies due pursuant hereto or to the Notes. No rescission and annulment under
this Section 12.3 will extend to or affect any subsequent Event of Default or
Default or impair any right consequent thereon.

 

Section 12.4 No Waivers or Election of Remedies, Expenses, Etc. No course of
dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder’s rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 15, the Company will pay to the holder
of each Note on demand such further amount as shall be sufficient to cover all
costs and expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys’
fees, expenses and disbursements.

 

SECTION 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.

 

Section 13.1 Registration of Notes. The Company shall keep at its principal
executive office a register for the registration and registration of transfers
of Notes. The name and address of each holder of one or more Notes, each
transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.

 

Section 13.2 Transfer and Exchange of Notes. Upon surrender of any Note at the
principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company’s expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) of the same series in exchange therefor, in an aggregate principal
amount equal to the unpaid principal amount of the surrendered Note. Each such
new Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1(a) or Exhibit 1(b), as applicable. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be

 

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transferred in denominations of less than $100,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes of a series, one Note of such series may be in a denomination of less than
$100,000. Any transferee, by its acceptance of a Note registered in its name (or
the name of its nominee), shall be deemed to have made the representation set
forth in Section 6.2.

 

Section 13.3 Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and

 

(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a nominee
for, an original Purchaser or another holder of a Note with a minimum net worth
of at least $50,000,000, such Person’s own unsecured agreement of indemnity
shall be deemed to be satisfactory), or

 

(b) in the case of mutilation, upon surrender and cancellation thereof,

 

the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.

 

SECTION 14. PAYMENTS ON NOTES.

 

Section 14.1 Place of Payment. Subject to Section 14.2, payments of principal,
Make-Whole Amount, if any, and interest becoming due and payable on the Notes
shall be made in New York, New York at the principal office of JPMorgan Chase
Bank in such jurisdiction. The Company may at any time, by notice to each holder
of a Note, change the place of payment of the Notes so long as such place of
payment shall be either the principal office of the Company in such jurisdiction
or the principal office of a bank or trust company in such jurisdiction.

 

Section 14.2 Home Office Payment. So long as any Purchaser or its nominee shall
be the holder of any Note, and notwithstanding anything contained in Section
14.1 or in such Note to the contrary, the Company will pay all sums becoming due
on such Note for principal, Make-Whole Amount, if any, and interest by the
method and at the address specified for such purpose below such Purchaser’s name
in Schedule A, or by such other method or at such other address as such
Purchaser shall have from time to time specified to the Company in writing for
such purpose, without the presentation or surrender of such Note or the making
of any notation thereon, except that upon written request of the Company made
concurrently with or reasonably promptly after payment or prepayment in full of
any Note, such Purchaser shall surrender such Note for cancellation, reasonably
promptly after any such request, to the Company at its principal executive
office or at the place of payment most recently designated by the Company
pursuant to Section 14.1. Prior to any sale or other disposition of any Note
held by any Purchaser or its nominee such Purchaser will, at its election,
either endorse thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon or surrender

 

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such Note to the Company in exchange for a new Note or Notes pursuant to Section
13.2. The Company will afford the benefits of this Section 14.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by any Purchaser under this Agreement and that has made the same
agreement relating to such Note as such Purchaser has made in this Section 14.2.

 

SECTION 15. EXPENSES, ETC.

 

Section 15.1 Transaction Expenses. Whether or not the transactions contemplated
hereby are consummated, the Company will pay all costs and expenses (including
reasonable attorneys’ fees of a special counsel and, if reasonably required,
local or other counsel) incurred by the Purchasers or any other holder of a Note
in connection with such transactions, in connection with any amendments, waivers
or consents under or in respect of this Agreement or the Notes (whether or not
such amendment, waiver or consent becomes effective) and in connection with the
receipt and review of any agreements, instruments and opinions contemplated by
Section 10.5(a)(2), including, without limitation: (a) the costs and expenses
incurred in enforcing or defending (or determining whether or how to enforce or
defend) any rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the Notes, or by reason of being a holder of
any Note, and (b) the costs and expenses, including financial advisors’ fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save the Purchasers and each other holder of a Note harmless from, all
claims in respect of any fees, costs or expenses, if any, of brokers and finders
(other than those retained by such Person).

 

Section 15.2 Survival. The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement or the Notes, and the termination of
this Agreement.

 

SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.

 

All representations and warranties contained herein shall survive the execution
and delivery of this Agreement and the Notes, the purchase or transfer by any
Purchaser of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any subsequent holder of a Note, regardless
of any investigation made at any time by or on behalf of any Purchaser or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company pursuant to this Agreement
shall be deemed representations and warranties of the Company under this
Agreement. Subject to the preceding sentence, this Agreement and the Notes
embody the entire agreement and understanding between the Purchasers and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.

 

SECTION 17. AMENDMENT AND WAIVER.

 

Section 17.1 Requirements. This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or

 

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prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined term (as it
is used therein), will be effective as to any holder of a Note unless consented
to by such holder in writing and (b) no such amendment or waiver may, without
the written consent of the holder of each Note at the time outstanding affected
thereby, (1) subject to the provisions of Section 12 relating to acceleration or
rescission, change the amount or time of any prepayment or payment of principal
of, or reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (2) change the percentage of
the principal amount of the Notes the holders of which are required to consent
to any such amendment or waiver or (3) amend any of Sections 8, 11(a), 11(b),
12, 17 or 20.

 

Section 17.2 Solicitation of Holders of Notes.

 

(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 17 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.

 

(b) Payment. The Company will not, directly or indirectly, pay or cause to be
paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of Notes as consideration
for or as an inducement to the entering into by any holder of Notes or any
waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted, on the
same terms, ratably to each holder of Notes then outstanding even if such holder
did not consent to such waiver or amendment.

 

Section 17.3 Binding Effect, Etc. Any amendment or waiver consented to as
provided in this Section 17 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term “this Agreement” and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.

 

Section 17.4 Notes Held by Company, Etc. Solely for the purpose of determining
whether the holders of the requisite percentage of the aggregate principal
amount of Notes then outstanding approved or consented to any amendment, waiver
or consent to be given under this Agreement or the Notes, or have directed the
taking of any action provided herein or in the Notes

 

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to be taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not to
be outstanding.

 

SECTION 18. NOTICES.

 

All notices and communications provided for hereunder shall be in writing and
sent (a) by facsimile if the sender on the same day sends a confirming copy of
such notice by a recognized overnight delivery service (charges prepaid), (b) by
registered or certified mail with return receipt requested (postage prepaid) or
(c) by a courier or recognized overnight delivery service (charges prepaid). Any
such notice must be sent:

 

(1) if to any Purchaser or its nominee, to such Purchaser or its nominee at the
address specified for such communications in Schedule A, or at such other
address as such Purchaser or its nominee shall have specified to the Company in
writing,

 

(2) if to any other holder of any Note, to such holder at such address as such
other holder shall have specified to the Company in writing, or

 

(3) if to the Company, to the Company at its address set forth at the beginning
hereof to the attention of the Compliance Officer, or at such other address as
the Company shall have specified to the holder of each Note in writing.

 

All such notices and other communications shall, except as otherwise expressly
herein provided, be effective: (i) upon delivery if delivered by courier or a
recognized overnight delivery service; (ii) in the case of registered or
certified mail, three Business Days after the date sent; or (iii) in the case of
facsimile, when such facsimile is transmitted to the facsimile number specified
in accordance with this Agreement, the facsimile machine used by the sender
provides a written confirmation that such facsimile has been so transmitted or
receipt of such facsimile transmission is otherwise confirmed and the sender on
the same day sends a confirming copy of such notice by a recognized overnight
delivery service.

 

SECTION 19. REPRODUCTION OF DOCUMENTS.

 

This Agreement and all documents relating hereto, including, without limitation,
(a) consents, waivers and modifications that may hereafter be executed, (b)
documents received by the Purchasers at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to any holder of the Notes, may be reproduced
by such holder by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and such holder may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by any holder of the Notes in the regular course of
business) and any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence. This Section 19 shall not
prohibit the Company or any other holder of

 

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Notes from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.

 

SECTION 20. CONFIDENTIAL INFORMATION.

 

For the purposes of this Section 20, “Confidential Information” shall mean
information delivered to any Purchaser by or on behalf of the Company or any
Consolidated Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
such Purchaser as being confidential information of the Company or such
Consolidated Subsidiary, provided that such term does not include information
that (a) was publicly known or otherwise known to such Purchaser prior to the
time of such disclosure, (b) subsequently becomes publicly known through no act
or omission by such Purchaser or any Person acting on such Purchaser’s behalf,
(c) otherwise becomes known to such Purchaser other than through disclosure by
the Company or any Consolidated Subsidiary or (d) constitutes financial
statements delivered to such Purchaser under Section 7.1 that are otherwise
publicly available. Each Purchaser will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by such Purchaser
in good faith to protect confidential information of third parties delivered to
such Purchaser, provided that such Purchaser may deliver or disclose
Confidential Information to (1) its directors, officers, trustees, employees,
agents, attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by its Notes), (2)
its financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (3) any other holder of any Note, (4) any
Institutional Investor to which such Purchaser sells or offers to sell such Note
or any part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (5) any Person from which such Purchaser offers
to purchase any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Section 20), (6) any Federal or state regulatory authority
having jurisdiction over such Purchaser, (7) the National Association of
Insurance Commissioners or any similar organization, or any nationally
recognized rating agency that requires access to information about such
Purchaser’s investment portfolio or (8) any other Person to which such delivery
or disclosure may be necessary or appropriate (i) to effect compliance with any
law, rule, regulation or order applicable to such Purchaser, (ii) in response to
any subpoena or other legal process, (iii) in connection with any litigation to
which such Purchaser is a party or (iv) if an Event of Default has occurred and
is continuing, to the extent such Purchaser may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement or for
the protection of the rights and remedies under such Purchaser’s Notes and this
Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to
have agreed to be bound by and to be entitled to the benefits of this Section 20
as though it were a party to this Agreement. On reasonable request by the
Company in connection with the delivery to any holder of a Note of information
required to be delivered to such holder under this Agreement or requested by
such holder (other than a holder that is a party to this Agreement or its
nominee), such holder will enter into an agreement with the Company embodying
the provisions of this Section 20.

 

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SECTION 21. SUBSTITUTION OF PURCHASER.

 

Each Purchaser shall have the right to substitute any one of its Affiliates as
the purchaser of the Notes that such Purchaser has agreed to purchase hereunder,
by written notice to the Company, which notice shall be signed by both such
Purchaser and such Affiliate, shall contain such Affiliate’s agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word “Purchaser” is used in this
Agreement (other than in this Section 21), such word shall be deemed to refer to
such Affiliate in lieu of such Purchaser. In the event that such Affiliate is so
substituted as a purchaser hereunder and such Affiliate thereafter transfers to
such Purchaser all of the Notes then held by such Affiliate, upon receipt by the
Company of notice of such transfer, wherever the word “Purchaser” is used in
this Agreement (other than in this Section 21), such word shall no longer be
deemed to refer to such Affiliate, but shall refer to such Purchaser, and such
Purchaser shall have all the rights of an original holder of the Notes under
this Agreement.

 

SECTION 22. MISCELLANEOUS.

 

Section 22.1 Successors and Assigns. All covenants and other agreements
contained in this Agreement by or on behalf of any of the parties hereto bind
and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent holder of a Note) whether so expressed or
not.

 

Section 22.2 Payments Due on Non-Business Days. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
Make-Whole Amount, if any, or interest on any Note that is due on a date other
than a Business Day shall be made on the next succeeding Business Day without
including the additional days elapsed in the computation of the interest payable
on such next succeeding Business Day.

 

Section 22.3 Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.

 

Section 22.4 Construction.

 

(a) Each covenant contained herein shall be construed (absent express provision
to the contrary) as being independent of each other covenant contained herein,
so that compliance with any one covenant shall not (absent such an express
contrary provision) be deemed to excuse compliance with any other covenant.
Where any provision herein refers to action to be taken by any Person, or which
such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person.

 

(b) Where the character or amount of any asset or liability or item of income or
expense is required to be determined or any consolidation or other accounting
computation is required to be made by the Company for the purposes of this
Agreement,

 

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the same shall be done by the Company in accordance with GAAP, to the extent
applicable, except where such principles are inconsistent with the requirements
of this Agreement.

 

Section 22.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.

 

Section 22.6 Governing Law. This Agreement shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York excluding choice-of-law principles of the law of such
State that would require the application of the laws of a jurisdiction other
than such State.

 

*    *    *    *    *

 

-33-

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The execution hereof by the Purchasers shall constitute a contract among the
Company and the Purchasers for the uses and purposes hereinabove set forth.

 

Very truly yours,

AMERICAN CAPITAL STRATEGIES, LTD.

By

 

/s/ Malon Wilkus

Name:

 

Malon Wilkus

Title:

 

Chairman, President and CEO

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

THE TRAVELERS INSURANCE COMPANY

By:

 

/s/ John Petchler

    Name:

 

John Petchler

    Title:

 

Vice President

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

THE TRAVELERS LIFE AND ANNUITY COMPANY

By:

 

/s/ John Petchler

    Name:

 

John Petchler

    Title:

 

Vice President

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

NATIONAL BENEFIT LIFE INSURANCE COMPANY

By:

 

/s/ John Petchler

    Name:

 

John Petchler

    Title:

 

Vice President

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

PRIMERICA LIFE INSURANCE COMPANY

By:

 

/s/ John Petchler

    Name:

 

John Petchler

    Title:

 

Vice President

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

CITICORP INSURANCE AND INVESTMENT TRUST

By:

  Travelers Asset Management International Company LLC

By:

 

/s/ John Petchler

    Name:

 

John Petchler

    Title:

 

Vice President

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

PRINCIPAL LIFE INSURANCE COMPANY By:  

Principal Global Investors, LLC

a Delaware limited liability company,

its authorized signatory

   

By:

 

/s/ Jon C. Heiny

   

Its:

 

Jon C. Heiny, Counsel

   

By:

 

/s/ Elizabeth D. Swanson

   

Its:

 

Elizabeth D. Swanson, Counsel

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

MIDLAND NATIONAL LIFE INSURANCE COMPANY

By:

 

/s/ Adrian Duffy

    Name:

 

Adrian Duffy

    Title:

 

Managing Director

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE OF NEW YORK

By:

 

/s/ Adrian Duffy

    Name:

 

Adrian Duffy

    Title:

 

Managing Director

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

NORTH AMERICAN COMPANY FOR LIFE AND HEALTH INSURANCE

By:

 

/s/ Adrian Duffy

    Name:

 

Adrian Duffy

    Title:

 

Managing Director

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA

By:

 

/s/ Adrian Duffy

    Name:

 

Adrian Duffy

    Title:

 

Managing Director

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

THE GUARDIAN INSURANCE & ANNUITY COMPANY OF AMERICA

By:

 

/s/ Brian Keating

    Name:

 

Brian Keating

    Title:

 

Director, Fixed Income

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

THE GUARDIAN INSURANCE & ANNUITY COMPANY , INC.

 

By:

 

/s/ Brian Keating

    Name:

 

Brian Keating

    Title:

 

Director, Fixed Income

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

FORT DEARBORN LIFE INSURANCE COMPANY

By:

 

Guardian Investor Services LLC

By:

 

/s/ Brian Keating

   

Name: Brian Keating

   

Title: Director, Fixed Income

 

Signature page to Note Purchase Agreement

 

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

The foregoing is hereby agreed

to as of the date thereof.

 

NATIONWIDE LIFE INSURANCE COMPANY

NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY

NATIONWIDE MUTUAL INSURANCE COMPANY

NATIONWIDE LIFE INSURANCE COMPANY OF AMERICA

NATIONWIDE MUTUAL FIRE INSURANCE COMPANY

By:

 

/s/ Joseph P. Young

  Name:

 

Joseph P. Young

  Title:

 

Authorized Signatory

 

Signature page to Note Purchase Agreement

 

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

SCHEDULE A

 

INFORMATION RELATING TO PURCHASERS

 

[intentionally omitted]

 

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

DEFINED TERMS

 

As used herein, the following terms have the respective meanings set forth below
or set forth in the Section hereof following such term:

 

“Accelerated Amortization Event” shall have the meaning set forth in the BBT
Credit Agreement as in effect on the date of Closing.

 

“Additional Principal Amount” shall have the meaning set forth in the BBT Credit
Agreement as in effect on the date of Closing.

 

“Affiliate” shall mean, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of such
first Person or any Person of which such first Person and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 10% or more
of any class of voting or equity interests; provided that in the case of the
Company or any Subsidiary, “Affiliate” shall not include any Person that is a
Portfolio Investment. As used in this definition, “Control” means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an “Affiliate” is a reference to an
Affiliate of the Company.

 

“Anti-Terrorism Order” shall mean Executive Order No. 13,224 66 Fed Reg. 49,079
(2001) issued by the President of the United States of America (Executive Order
Blocking Property and Prohibiting Transactions with Persons Who Commit, Threaten
to Commit, or Support Terrorism).

 

“Asset Coverage Ratio” shall mean, on a consolidated basis for the Company and
its Consolidated Subsidiaries, the ratio which the value of total assets, less
all liabilities and indebtedness not represented by senior securities (all as
determined by the Investment Company Act and any orders of the United States
Securities and Exchange Commission issued to the Company thereunder), bears to
the aggregate amount of senior securities representing indebtedness of the
Company and its Consolidated Subsidiaries.

 

“Available Non-Pledged Assets” shall mean, as of any date of determination
thereof, an amount equal to the sum of (a) 50% of each Eligible Investment
issued by a Grade 2 Obligor and (b) 100% of each Eligible Investment issued by a
Grade 3 Obligor or a Grade 4 Obligor. For purposes of determining “Available
Non-Pledged Assets,” Investments shall be valued at their Fair Market Value as
of any date of determination.

 

“Available Non-Pledged Debt Assets” shall mean, as of any date of determination
thereof, an amount equal to the value of Available Non-Pledged Assets that are
Eligible Debt Investments.

 

SCHEDULE B

(to Note Purchase Agreement)

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

“Available Pledged Assets” shall mean, as of any date of determination, 50% of
the aggregate amount of Eligible Pledged Assets in respect of all Secured Debt
Obligations in existence as of such date.

 

“BBT Credit Agreement” is defined in the definition of “Secured Debt
Obligations.”

 

“Business Day” shall mean (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York,
New York are required or authorized to be closed, and (b) for the purposes of
any other provision of this Agreement, any day other than a Saturday, a Sunday
or a day on which commercial banks in Bethesda, Maryland or New York, New York
are required or authorized to be closed.

 

“Capital Lease” shall mean, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.

 

“Cash” shall mean, at any time, the total amount of “cash and cash equivalents”
of the Company and its Consolidated Subsidiaries as set forth in or reflected on
the most recent consolidated balance sheet of the Company and its Consolidated
Subsidiaries prepared in accordance with GAAP.

 

“Closing” is defined in Section 3.

 

“Code” shall mean the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.

 

“Company” shall mean American Capital Strategies, Ltd., a Delaware corporation,
or any Successor Corporation.

 

“Confidential Information” is defined in Section 20.

 

“Consolidated Debt” shall mean, as of any date of determination thereof, the
aggregate unpaid amount of all Debt of the Company and its Consolidated
Subsidiaries determined on a consolidated basis in accordance with GAAP.

 

“Consolidated Shareholders’ Equity” shall mean, at any time, the shareholders’
equity of the Company and its Consolidated Subsidiaries, as set forth in or
reflected on the most recent consolidated balance sheet of the Company and its
Consolidated Subsidiaries prepared in accordance with GAAP, but excluding any
redeemable preferred stock of the Company or any of its Consolidated
Subsidiaries. Consolidated Shareholders’ Equity would generally include, but not
be limited to, (a) the par or stated value of all outstanding capital stock, (b)
capital surplus, (c) retained earnings and (d) various deductions such as (1)
purchases of treasury stock, (2) valuation allowances, (3) receivables due from
an employee stock ownership plan, (4) employee stock ownership plan debt
guarantees and (5) translation adjustments for foreign currency translations.

 

B-2

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

“Consolidated Subsidiary” shall mean any Subsidiary or other entity the accounts
of which, in accordance with GAAP, would be consolidated with those of the
Company in its consolidated and consolidating financial statements as of such
date.

 

“Consolidated Tangible Net Worth” shall mean, at any time, the Consolidated
Shareholders’ Equity, less the sum of the value, as set forth or reflected on
the most recent consolidated balance sheet of the Company and its Consolidated
Subsidiaries, prepared in accordance with GAAP or the Investment Company Act, of
(a) any surplus resulting from any write-up of any assets subsequent to December
31, 2002, provided that Consolidated Tangible Net Worth shall include any
write-ups of Portfolio Investments subsequent to December 31, 2002 to the extent
such write-ups are required under GAAP, (b) all assets that would be treated as
“intangible assets” for balance sheet presentation purposes under GAAP
including, without limitation, goodwill (whether representing the excess of cost
over book value of assets acquired, or otherwise), trademarks, tradenames,
copyrights, patents and technologies and unamortized debt discount and expense,
(c) to the extent not included in clause (b) above, any amount at which shares
of capital stock of the Company appear as an asset on the balance sheet of the
Company and its Consolidated Subsidiaries, (d) loans or advances to
stockholders, directors, officers or employees and (e) to the extent not
included in clause (b) above, deferred expenses.

 

“Consolidated Total Assets” shall mean, at any time, the total assets of the
Company and its Consolidated Subsidiaries determined on a consolidated basis in
accordance with GAAP.

 

“Credit and Collection Policy” shall mean those credit, collection, customer
relation and service policies set forth as Exhibit 5.21 hereto, as the same may
be modified by the Company from time to time in accordance with the terms
hererof.

 

“Debt” of any Person shall mean at any date, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments; (c)
all obligations of such Person to pay the deferred purchase price of property or
services, except trade accounts payable arising in the ordinary course of
business; (d) all obligations of such Person as lessee under Capital Leases; (e)
all obligations of such Person to reimburse any bank or other Person in respect
of amounts payable under a banker’s acceptance; (f) all redeemable preferred
stock of such Person (in the event such Person is a corporation); (g) all
obligations (absolute or contingent) of such Person to reimburse any bank or
other Person in respect of amounts which are available to be drawn or have been
drawn under a letter of credit or similar instrument; (h) all Debt of others
secured by a Lien on any asset of such Person, whether or not such Debt is
assumed by such Person; (i) all Debt of others Guaranteed by such Person; (j)
all principal amounts outstanding and owed to Persons other than such first
Person or its Subsidiaries in respect of notes, trust certificates, undivided
interests partnership interests or other interests representing the right to be
paid a specified principal amount from assets transferred by such first Person
or its Subsidiaries in connection with securitization transactions; (k) all
obligations, direct or indirect (absolute or contingent) of such Person to
repurchase property or assets sold or otherwise transferred by such Persons and
(l) the principal portion of all obligations of such Person under any synthetic
lease, tax retention operating lease, off balance sheet loan or similar off
balance sheet financing product where such transaction is considered borrowed
money indebtedness for tax purposes but is classified as an operating lease
under GAAP.

 

B-3

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

“Default” shall mean an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.

 

“Default Rate” shall mean, with respect to the Notes of a series, that rate of
interest that is the greater of (a) 2.00% per annum above the rate of interest
stated in clause (a) of the first paragraph of the Notes of such series or (b)
2.00% over the rate of interest publicly announced by JPMorgan Chase Bank in New
York, New York as its “base” or “prime” rate.

 

“Defaulted Investment” shall mean any Investment (a) that is 60 days (or such
shorter number of days as may be applied for determining when an Investment is
to be considered as a defaulted Investment under any Secured Debt Obligation) or
more past due with respect to any interest or principal payments or (b) that is
or otherwise should be considered a defaulted loan by the Company in connection
with its Credit and Collection Policy.

 

“EBIT” shall mean, for any period and with respect to the Company and its
Consolidated Subsidiaries, on a consolidated basis, operating income after
deduction of all operating expenses and other proper charges other than taxes
and Interest Expense, all as determined in accordance with GAAP.

 

“Eligible Debt Investments” shall mean Investments in Senior Debt, Investments
in Subordinated Debt and Investments in Junior Subordinated Debt that have been
purchased or otherwise acquired by the Company or a Consolidated Subsidiary in
the ordinary course of business; provided that no such Investment shall be an
Eligible Investment unless (a) such Investment is evidenced by an instrument or
agreement that has been duly authorized, executed and delivered and is
enforceable against the obligor thereof, (b) such Investment, if applicable, is
denominated and payable either in (1) United States dollars or (2) the currency
of a jurisdiction other than the United States of America, provided that the
aggregate amount of Investments permitted under this subclause (2) and clause
(b)(2) of the definition of Eligible Equity Investments shall not exceed
$100,000,000 at any one time, (c) such Investment is not subject to any Lien
and, if such Investment is owned by a Consolidated Subsidiary, the Company shall
not have pledged or otherwise encumbered the stock of such Consolidated
Subsidiary or any direct or indirect parent thereof, (d) no right of rescission,
set-off, counterclaim, defense or other material dispute has been asserted with
respect to such Investment and (e) the obligor in respect of such Investment is
not (1) an individual, (2) organized or incorporated under the laws of a
jurisdiction other than a Permitted Country, (3) the subject of an Insolvency
Event or (4) a party to a Defaulted Investment.

 

“Eligible Equity Investments” shall mean Investments in Common Stock,
Investments in Preferred Stock, Investments in Redeemable Preferred Stock, and
Investments in Warrants that have been purchased or otherwise acquired by the
Company or a Consolidated Subsidiary in the ordinary course of business;
provided that no such Investment shall be an Eligible Investment unless (a) such
Investment is evidenced by an instrument or agreement that has been duly
authorized, executed and delivered and is enforceable against the issuer
thereof, (b) such Investment, if applicable, is denominated and payable either
in (1) United States dollars or (2) the currency of a jurisdiction other than
the United States of America, provided that the aggregate amount of Investments
permitted under this subclause (2) and clause (b)(2) of the definition of
Eligible Debt Investments shall not exceed $100,000,000 at any one time, (c)
such

 

B-4

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Investment is not subject to any Lien and, if such Investment is owned by a
Consolidated Subsidiary, the Company shall not have pledged or otherwise
encumbered the stock of such Consolidated Subsidiary or any direct or indirect
parent thereof, (d) no right of rescission, set-off, counterclaim, defense or
other material dispute has been asserted with respect to such Investment and (e)
the issuer in respect of such Investment is not (1) an individual, (2) organized
or incorporated under the laws of a jurisdiction other than a Permitted Country,
(3) the subject of an Insolvency Event or (4) in default beyond any period of
grace with respect to such Investment or any term of any agreement or instrument
evidencing such Investment.

 

“Eligible Investments” shall mean Eligible Debt Investments and Eligible Equity
Investments.

 

“Eligible Pledged Assets” in respect of each Senior Debt Obligation, shall mean,
as of any date of determination, an amount equal to the difference between (a)
the value of all Pledged Investments in respect of such Senior Debt Obligation
and (b) the principal amount of such Senior Debt Obligation. For purposes of
determining “Eligible Pledged Assets,” Pledged Investments shall be valued at
their Fair Market Value as of any date of determination.

 

“Environmental Laws” shall mean any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.

 

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.

 

“ERISA Affiliate” shall mean any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under Section 414
of the Code.

 

“Event of Default” is defined in Section 11.

 

“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

“Fair Market Value” shall mean with respect to any Investment, including without
limitation, Pledged Investments, the fair market value of such Investment as
required by, and in accordance with, the Investment Company Act and any orders
of the Securities and Exchange Commission issued to the Company, all as
determined by the board of directors of the Company and its independent
auditors.

 

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

 

“Governmental Authority” shall mean

 

(a) the government of

 

B-5

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

(1) the United States of America or any State or other political subdivision
thereof, or

 

(2) any jurisdiction in which the Company or any Subsidiary conducts all or any
part of its business, or which asserts jurisdiction over any properties of the
Company or any Subsidiary, or

 

(b) any entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.

 

“Grade 2 Obligor” shall mean, as of any date, any issuer or obligor in respect
of Eligible Investments that are classified, in accordance with the Credit and
Collection Policy, as “Grade 2” on such date.

 

“Grade 3 Obligor” shall mean, as of any date, any issuer or obligor in respect
of Eligible Investments that are classified, in accordance with the Credit and
Collection Policy, as “Grade 3” on such date.

 

“Grade 4 Obligor” shall mean, as of any date, any issuer or obligor in respect
of Eligible Investments that are classified, in accordance with the Credit and
Collection Policy, as “Grade 4” on such date.

 

“Guaranty” shall mean, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Debt, dividend or other obligation of any other Person in any manner, whether
directly or indirectly, including, without limitation, obligations incurred
through an agreement, contingent or otherwise, by such Person:

 

(a) to purchase such Debt or obligation or any property constituting security
therefor;

 

(b) to advance or supply funds (1) for the purchase or payment of such Debt or
obligation or (2) to maintain any working capital or other balance sheet
condition or any income statement condition of any other Person or otherwise to
advance or make available funds for the purchase or payment of such Debt or
obligation;

 

(c) to lease properties or to purchase properties or services primarily for the
purpose of assuring the owner of such Debt or obligation of the ability of any
other Person to make payment of the Debt or obligation; or

 

(d) otherwise to assure the owner of such Debt or obligation against loss in
respect thereof.

 

In any computation of the Debt or other liabilities of the obligor under any
Guaranty, the Debt or other obligations that are the subject of such Guaranty
shall be assumed to be direct obligations of such obligor.

 

B-6

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“Hazardous Material” shall mean any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).

 

“holder” shall mean, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1.

 

“Insolvency Event” shall mean with respect to any Person, (a) the filing of a
decree or order for relief by a court having jurisdiction in the premises in
respect of such Person or any substantial part of its property in an involuntary
case under applicable Insolvency Law now or hereafter in effect, or appointing a
receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property, or
ordering the winding-up or liquidation of such Person’s affairs, and such decree
or order shall remain unstayed and in effect for a period of 60 consecutive
days; or (b) the commencement by such Person of a voluntary case under any
applicable Insolvency Law now or hereinafter in effect, or the consent by such
Person to the entry of an order for relief in an involuntary case under any such
law, or the consent by such Person to the appointment of or taking possession by
a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar
official for such Person or for any substantial part of its property or the
making by such Person of any general assignment for the benefit of creditors, or
the failure by such Person generally to pay its debts as such debts become due,
or the taking of action by such Person in further of the foregoing.

 

“Insolvency Laws” shall mean the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief laws from time to time in effect after the rights of creditors
generally.

 

“Institutional Investor” shall mean (a) any original purchaser of a Note, (b)
any holder of a Note holding more than $2,000,000 of the aggregate principal
amount of the Notes then outstanding or (c) any bank, trust company, savings and
loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.

 

“Interest Expense” shall mean, with respect to a Person and for any period, the
total consolidated interest expense (including, without limitation, capitalized
interest expense and interest expense attributable to obligations in respect of
Capital Leases, interest rate protection agreements and other hedging
agreements) of such Person and in any event shall include all interest expense
with respect to any Debt in respect of which such Person is wholly or partially
liable.

 

“Investment” shall mean any investment in any Person, whether by means of
purchase or acquisition of obligations or securities of such Person, capital
contributions to such Person, loan or advance to such Person, making of a time
deposit with such Person, Guaranty or assumption of any obligation of such
Person or otherwise.

 

B-7

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“Investment Company Act” shall mean the Investment Company Act of 1940, as
amended, and all rules and regulations promulgated thereunder.

 

“Investments in Common Stock” shall mean each Investment owned by the Company or
any Consolidated Subsidiary in common stock, partnership interests or membership
interests of any Person and that is classified as “Common Stock,” “Partnership
Units” or “Membership Units” on the consolidated schedule of investments of the
Company for the then most recently ended fiscal quarter.

 

“Investments in Junior Subordinated Debt” shall mean each Investment owned by
the Company or any Consolidated Subsidiary in debt of any Person that is
subordinated in any manner to other subordinated debt of such Person and that is
classified as “Junior Subordinated Debt” on the consolidated schedule of
investments of the Company for the then most recently ended fiscal quarter.

 

“Investments in Preferred Stock” shall mean each Investment owned by the Company
or any Consolidated Subsidiary in preferred stock (other than redeemable
preferred stock) of any Person and that is classified as “Preferred Stock” on
the consolidated schedule of investments of the Company for the then most
recently ended fiscal quarter.

 

“Investments in Redeemable Preferred Stock” shall mean each Investment owned by
the Company or any Consolidated Subsidiary in redeemable preferred stock of any
Person and that is classified as “Redeemable Preferred Stock” on the
consolidated schedule of investments of the Company for the then most recently
ended fiscal quarter.

 

“Investments in Senior Debt” shall mean each Investment by the Company or any
Consolidated Subsidiary in debt of any Person that is not subordinated in any
manner to any other debt of such Person and that is classified as “Senior Debt”
on the consolidated schedule of investments of the Company for the then most
recently ended fiscal quarter.

 

“Investments in Subordinated Debt” shall mean each Investment owned by the
Company or any Consolidated Subsidiary in debt of any Person that is
subordinated in any manner to other debt of such Person and that is classified
as “Subordinated Debt” on the consolidated schedule of investments of the
Company for the then most recently ended fiscal quarter; provided that
“Investments in Subordinated Debt” shall not include Investments in Junior
Subordinated Debt.

 

“Investments in Warrants” shall mean each Investment owned by the Company or any
Consolidated Subsidiary in warrants to purchase common stock, partnership
interests or membership interests of any Person and that is classified as
“Common Stock Warrants,” “Partnership Unit Warrants” or “Membership Unit
Warrants” on the consolidated schedule of investments of the Company for the
then most recently ended fiscal quarter.

 

“Lien” shall mean, with respect to any asset, any mortgage, deed to secure debt,
deed of trust, lien, pledge, charge, security interest, security title,
preferential arrangement which has the practical effect of constituting a
security interest or encumbrance, servitude or encumbrance or any kind in
respect of such asset to secure or assure payment of a Debt or a Guaranty,
whether by consensual agreement or by operation of statute or other law, or by
any agreement, contingent or otherwise, to provide any of the foregoing. For the
purposes of this Agreement, a Person shall be

 

B-8

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

deemed to own subject to a Lien any asset which it has acquired or holds subject
to the interest of a vendor or lessor under any conditional sale agreement,
Capital Lease or other title retention agreement relating to such asset.

 

“Make-Whole Amount” is defined in Section 8.6.

 

“Material” shall mean material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Consolidated Subsidiaries, taken as a whole.

 

“Material Adverse Effect” shall mean a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Consolidated Subsidiaries, taken as a whole, (b) the ability of
the Company to perform its obligations under this Agreement and the Notes or (c)
the validity or enforceability of this Agreement or the Notes.

 

“Memorandum” is defined in Section 5.3.

 

“Multiemployer Plan” shall mean any Plan that is a “multiemployer plan” (as such
term is defined in Section 4001(a)(3) of ERISA).

 

“Net Proceeds of Capital Stock/Conversion of Debt” shall mean any and all
proceeds (whether cash or non-cash) or other consideration received by the
Company or a Consolidated Subsidiary in respect of the issuance of capital stock
(including, without limitation, the aggregate amount of all Debt converted into
capital stock), after deducting therefrom all reasonable and customary costs and
expenses incurred by the Company or such Consolidated Subsidiary directly in
connection with the issuance of such capital stock.

 

“Notes” is defined in Section 1.

 

“Officer’s Certificate” shall mean a certificate of a Senior Financial Officer
or of any other officer of the Company whose responsibilities extend to the
subject matter of such certificate.

 

“PBGC” shall mean the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

 

“Permitted Country” shall mean each of Australia, Austria, Belgium, Canada,
China, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Japan,
Luxembourg, Portugal, Spain, Sweden, The Netherlands, The United Kingdom or the
United States of America.

 

“Person” shall mean an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.

 

“Plan” shall mean an “employee benefit plan” (as defined in Section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by

 

B-9

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

the Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate may have any liability.

 

“Pledged Investments” shall mean all Investments owned by the Company or any
Consolidated Subsidiary pledged or otherwise encumbered by the Company or such
Consolidated Subsidiary as security for a Senior Debt Obligation; provided that
if such Senior Debt Obligation shall contain any conditions precedent to such
Investments being included in any borrowing base calculation for such Senior
Debt Obligation, such Investments shall satisfy such conditions.

 

“Portfolio Investments” shall mean Investments made by the Company in the
ordinary course of business and consistent with practices existing on December
31, 2003 in a Person that is accounted for under GAAP as a portfolio investment
of the Company.

 

“property” or “properties” shall mean, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate.

 

“PTE” is defined in Section 6.2(a).

 

“QPAM Exemption” shall mean Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.

 

“Required Holders” shall mean, at any time, the holders of more than 50% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any of its Affiliates).

 

“Responsible Officer” shall mean any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.

 

“RIC” shall mean a Person qualifying as a regulated investment company under the
Code.

 

“Secured Debt Obligations” shall mean that certain (a) Credit Agreement dated as
of March 25, 2004 among the Company, as borrower and servicer, the banks listed
therein, Wells Fargo Bank, National Association, as back-up servicer and as the
collateral custodian, and Branch Banking and Trust Company, as administrative
agent, (the “BBT Credit Agreement”), (b) Second Amended and Restated Loan
Funding and Servicing Agreement dated as of August 10, 2004 among ACS Funding
Trust I, as borrower, the Company, as servicer, the Lenders and Lender Agents
(as defined therein), Wachovia Capital Markets, LLC, as deal agent, JPMorgan
Chase Bank, as the swing line lender, Wells Fargo Bank, National Association (as
successor by merger to Wells Fargo Bank, Minnesota, National Association), as
the back-up servicer and as the collateral custodian, (c) asset securitization
evidenced by the 2000-1 Transaction Documents, (d) asset securitization
evidenced by the 2002-1 Transaction Documents, (e) asset securitization
evidenced by the 2002-2 Transaction Documents, (f) asset securitization
evidenced by the 2003-1 Transaction Documents, (g) asset securitization
evidenced by the 2003-2 Transaction Documents, (h) Loan Funding and Servicing
Agreement dated as of June 30, 2004 among ACS Funding Trust II, as the borrower,
the Company, as the servicer, Fairway Finance Company, LLC, as the conduit
lender, Harris Nesbitt Corp., as the

 

B-10

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agent, and Wells Fargo Bank, National Association, as the back-up servicer and
as the collateral custodian, and (i) any other financing transaction undertaken
by the Company or an Affiliate that is secured, directly or indirectly, by
assets of the Company or an Affiliate, including any lease, asset
securitization, repurchase transaction, secured loan or other transfer, in each
case, as the same may be amended, supplemented, restated, increased, refinanced,
replaced or otherwise modified from time to time or any successor thereto.

 

“Securities Act” shall mean the Securities Act of 1933, as amended from time to
time.

 

“Senior Debt” shall mean any Debt that is not in any manner subordinated in
right of payment or security in any respect to the Debt evidenced by the Notes.

 

“Senior Financial Officer” shall mean the chief financial officer, principal
accounting officer, treasurer, comptroller, Vice President, Accounting and
Financial Reporting or Vice President, Finance of the Company.

 

“Series A Notes” is defined in Section 1.

 

“Series B Notes” is defined in Section 1.

 

“Source” is defined in Section 6.2.

 

“Subsidiary” shall mean, as to any Person, any corporation, association, or
other business entity in which at least a majority of the outstanding voting
securities shall be beneficially owned, directly or indirectly, by such Person;
provided that, in the case of the Company or any Subsidiary, “Subsidiary” shall
not include any Person that is a Portfolio Investment. Unless the context
otherwise clearly requires, any reference to a “Subsidiary” is a reference to a
Subsidiary of the Company.

 

“Successor Corporation” is defined in Section 10.5(a)(ii).

 

“Total Available Assets” shall mean, as of any date of determination, the sum of
(a) Cash, (b) Available Non-Pledged Assets and (c) Available Pledged Assets.

 

“2000-1 Transaction Documents” shall mean the “Transaction Documents” as defined
in the Transfer and Servicing Agreement dated as of December 20, 2000, among
ACAS Business Loan Trust 2000-1, ACAS Business Loan LLC, 2000-1, Wells Fargo
Bank, National Association and the Company.

 

“2002-1 Transaction Documents” shall mean the “Transaction Documents” as defined
in the Transfer and Servicing Agreement dated as of March 15, 2002, among ACAS
Business Loan Trust 2002-1, ACAS Business Loan LLC, 2002-1, Wells Fargo Bank,
National Association and the Company.

 

“2002-2 Transaction Documents” shall mean the “Transaction Documents” as defined
in the Transfer and Servicing Agreement dated as of August 8, 2002, among ACAS
Business Loan Trust 2002-2, ACAS Business Loan LLC, 2002-2, Wells Fargo Bank,
National Association and the Company.

 

B-11

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“2003-1 Transaction Documents” shall mean the “Transaction Documents” as defined
in the Transfer and Servicing Agreement dated as of May 21, 2003, among ACAS
Business Loan Trust 2003-1, ACAS Business Loan LLC, 2003-1, Wells Fargo Bank,
National Association and the Company.

 

“2003-2 Transaction Documents” shall mean the “Transaction Documents” as defined
in the Transfer and Servicing Agreement dated as of December 19, 2003, among
ACAS Business Loan Trust 2003-2, ACAS Business Loan LLC, 2003-2, Wells Fargo
Bank, National Association and the Company.

 

“Unsecured Debt” shall mean, at any time, the aggregate unpaid principal amount
of all Debt of the Company and its Consolidated Subsidiaries other than Debt of
the Company or a Consolidated Subsidiary secured by any Lien.

 

“Wholly-Owned Consolidated Subsidiary” shall mean, at any time, any Consolidated
Subsidiary 100% of all of the equity interests (except directors’ or similar
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company’s other Wholly-Owned Consolidated Subsidiaries at
such time.

 

B-12

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FORM OF SERIES A NOTE

 

AMERICAN CAPITAL STRATEGIES, LTD.

 

5.92% Senior Note, Series A, due September 1, 2009

 

No. RA-            

                       , 20    

$                    

   PPN 024937 A* 5

 

FOR VALUE RECEIVED, the undersigned, AMERICAN CAPITAL STRATEGIES, LTD. (herein
called the “Company”), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to                     , or
registered assigns, the principal sum of                      DOLLARS on
September 1, 2009, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of 5.92% per
annum from the date hereof, payable semiannually in arrears, on the first day of
March and September in each year, commencing with the March or September next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (1) 7.92% or (2) 2.00% over the rate of
interest publicly announced JPMorgan Chase Bank in New York, New York as its
“base” or “prime” rate.

 

Payments of principal of, interest on and any Make-Whole Amount with respect to
this Note are to be made in lawful money of the United States of America at the
principal offices of JPMorgan Chase Bank in New York, New York or at such other
place as the Company shall have designated by written notice to the holder of
this Note as provided in the Note Purchase Agreement referred to below.

 

This Note is one of a series of Senior Notes (herein called the “Notes”) issued
pursuant to that certain Note Purchase Agreement dated as of September 1, 2004
(as from time to time amended, the “Note Purchase Agreement”), between the
Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.

 

This Note is a registered Note and, as provided in the Note Purchase Agreement,
upon surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder’s attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.

 

EXHIBIT 1(a)

(to Note Purchase Agreement)

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

This Note is subject to prepayment, in whole or from time to time in part, at
the times and on the terms specified in the Note Purchase Agreement, but not
otherwise.

 

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price (including any applicable Make-Whole
Amount) and with the effect provided in the Note Purchase Agreement.

 

This Note shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of New York excluding
the choice of law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.

 

AMERICAN CAPITAL STRATEGIES, LTD.

By

       

Its

   

 

E-1(a)-2

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FORM OF SERIES B NOTE

 

AMERICAN CAPITAL STRATEGIES, LTD.

 

6.46% Senior Note, Series B, due September 1, 2011

 

No. RB-            

                       , 20    

$                    

   PPN 024937 A@ 3

 

FOR VALUE RECEIVED, the undersigned, AMERICAN CAPITAL STRATEGIES, LTD. (herein
called the “Company”), a corporation organized and existing under the laws of
the State of Delaware, hereby promises to pay to                     , or
registered assigns, the principal sum of                      DOLLARS on
September 1, 2011, with interest (computed on the basis of a 360-day year of
twelve 30-day months) (a) on the unpaid balance thereof at the rate of 6.46% per
annum from the date hereof, payable semiannually in arrears, on the first day of
March and September in each year, commencing with the March or September next
succeeding the date hereof, until the principal hereof shall have become due and
payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal, any overdue payment of interest
and any overdue payment of any Make-Whole Amount (as defined in the Note
Purchase Agreement referred to below), payable semiannually as aforesaid (or, at
the option of the registered holder hereof, on demand), at a rate per annum from
time to time equal to the greater of (1) 8.46% or (2) 2.00% over the rate of
interest publicly announced JPMorgan Chase Bank in New York, New York as its
“base” or “prime” rate.

 

Payments of principal of, interest on and any Make-Whole Amount with respect to
this Note are to be made in lawful money of the United States of America at the
principal offices of JPMorgan Chase Bank in New York, New York or at such other
place as the Company shall have designated by written notice to the holder of
this Note as provided in the Note Purchase Agreement referred to below.

 

This Note is one of a series of Senior Notes (herein called the “Notes”) issued
pursuant to that certain Note Purchase Agreement dated as of September 1, 2004
(as from time to time amended, the “Note Purchase Agreement”), between the
Company and the respective Purchasers named therein and is entitled to the
benefits thereof. Each holder of this Note will be deemed, by its acceptance
hereof, (i) to have agreed to the confidentiality provisions set forth in
Section 20 of the Note Purchase Agreement and (ii) to have made the
representation set forth in Section 6.2 of the Note Purchase Agreement.

 

This Note is a registered Note and, as provided in the Note Purchase Agreement,
upon surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the registered
holder hereof or such holder’s attorney duly authorized in writing, a new Note
for a like principal amount will be issued to, and registered in the name of,
the transferee. Prior to due presentment for registration of transfer, the
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.

 

EXHIBIT 1(b)

(to Note Purchase Agreement)

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

This Note is subject to prepayment, in whole or from time to time in part, at
the times and on the terms specified in the Note Purchase Agreement, but not
otherwise.

 

If an Event of Default, as defined in the Note Purchase Agreement, occurs and is
continuing, the principal of this Note may be declared or otherwise become due
and payable in the manner, at the price (including any applicable Make-Whole
Amount) and with the effect provided in the Note Purchase Agreement.

 

This Note shall be construed and enforced in accordance with, and the rights of
the parties shall be governed by, the laws of the State of New York excluding
the choice of law principles of the law of such State that would require the
application of the laws of a jurisdiction other than such State.

 

AMERICAN CAPITAL STRATEGIES, LTD.

By

       

Its

   

 

E-1(b)-2

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FORM OF OPINION OF SPECIAL COUNSEL

TO THE COMPANY

 

The closing opinion of Arnold & Porter LLP, special counsel for the Company,
which is called for by Section 4.4(a) of the Agreement, shall be dated the date
of the Closing and addressed to each Purchaser, shall be satisfactory in scope
and form to each Purchaser, shall be subject to customary exceptions and
qualifications and shall be to the effect that:

 

1. The Company is a corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, has the corporate power and
the corporate authority to execute and perform the Agreement and to issue the
Notes and has the full corporate power and the corporate authority to conduct
the activities in which it is now engaged and is duly licensed or qualified and
is in good standing as a foreign corporation in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
transacted by it makes such licensing or qualification necessary, other than
those jurisdictions as to which the failure to be so licensed, qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.

 

2. Each Consolidated Subsidiary is a corporation or other business entity duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and is duly licensed or qualified and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or the nature of the business transacted by it makes such licensing
or qualification necessary, other than those jurisdictions as to which the
failure to be so licensed, qualified or in good standing could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect,
and all of the issued and outstanding shares of capital stock or other equity
interests of each such Subsidiary have been duly issued, are fully paid and
non-assessable, other than as shown on Schedule 5.4, and are owned by the
Company, by one or more Subsidiaries, or by the Company and one or more
Subsidiaries.

 

3. The Agreement has been duly authorized by all necessary corporate action on
the part of the Company, has been duly executed and delivered by the Company and
constitutes the legal, valid and binding contract of the Company enforceable in
accordance with its terms.

 

4. The Notes have been duly authorized by all necessary corporate action on the
part of the Company, have been duly executed and delivered by the Company and
constitute the legal, valid and binding obligations of the Company enforceable
in accordance with their terms.

 

5. No approval, consent or withholding of objection on the part of, or filing,
registration or qualification with, any Governmental Authority, Federal or
state, is necessary in connection with the execution and delivery by the Company
of the Agreement or the Notes.

 

EXHIBIT 4.4(a)

(to Note Purchase Agreement)

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

6. The issuance and sale of the Notes and the execution, delivery and
performance by the Company of the Agreement do not conflict with any law, rule
or regulation or conflict with or result in any breach of any of the provisions
of or constitute a default under or result in the creation or imposition of any
Lien upon any of the property of the Company pursuant to the provisions of the
Certificate of Incorporation or By-laws of the Company or any agreement or other
instrument known to such counsel to which the Company is a party or by which the
Company may be bound.

 

7. The Company is an “investment company” that has elected to be regulated as a
“business development company” within the meaning of the Investment Company Act
and qualifies as a RIC.

 

8. The issuance, sale and delivery of the Notes under the circumstances
contemplated by the Agreement do not, under existing law, require the
registration of the Notes under the Securities Act or the qualification of an
indenture under the Trust Indenture Act of 1939, as amended.

 

The opinion of Arnold & Porter LLP shall cover such other matters relating to
the sale of the Notes as any Purchaser may reasonably request. With respect to
matters of fact on which such opinion is based, such counsel shall be entitled
to rely on appropriate certificates of public officials and officers of the
Company and shall provide that (i) subsequent holders of the Notes may rely upon
such opinion and (ii) such opinion may be provided to Governmental Authorities,
including, without limitation, the National Association of Insurance
Commissioners.

 

E-4.4(a)-2

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

FORM OF OPINION OF SPECIAL COUNSEL

TO THE PURCHASERS

 

The closing opinion of Schiff Hardin LLP, special counsel to the Purchasers,
called for by Section 4.4(b) of the Agreement, shall be dated the date of the
Closing and addressed to the Purchasers, shall be satisfactory in form and
substance to the Purchasers and shall be to the effect that:

 

1. The Company is a corporation validly existing and in good standing under the
laws of the State of Delaware.

 

2. The Company has the corporate power and authority to execute and deliver the
Agreement and the Notes being delivered on the date hereof, and the execution
and delivery hereof and thereof by the Company have been duly authorized by all
necessary corporate action on the part of the Company.

 

3. The Agreement and the Notes being delivered on the date hereof have been duly
executed and delivered by the Company and constitute the legal, valid and
binding contracts of the Company, enforceable against the Company in accordance
with its terms.

 

4. The issuance, sale and delivery of the Notes being delivered on the date
hereof under the circumstances contemplated by this Agreement do not, under
existing law, require the registration of such Notes under the Securities Act or
the qualification of an indenture under the Trust Indenture Act of 1939, as
amended.

 

The opinion of Schiff Hardin LLP shall also state that the opinion of Arnold &
Porter LLP is satisfactory in scope and form to Schiff Hardin LLP and that, in
their opinion, the Purchasers are justified in relying thereon.

 

In rendering the opinion set forth in paragraph 1 above, Schiff Hardin LLP may
rely, as to matters referred to in paragraph 1, solely upon an examination of
the Certificate of Incorporation certified by, and a certificate of good
standing of the Company from, the Secretary of State of the State of Delaware,
the By-laws of the Company and the general business corporation law of the State
of Delaware. The opinion of Schiff Hardin LLP is limited to the laws of the
State of New York, the general business corporation law of the State of Delaware
and the Federal laws of the United States.

 

With respect to matters of fact upon which such opinion is based, Schiff Hardin
LLP may rely on appropriate certificates of public officials and officers of the
Company and upon representations of the Company and the Purchasers delivered in
connection with the issuance and sale of the Notes.

 

EXHIBIT 4.4(b)

(to Note Purchase Agreement)