andunpaid interest on the amount being prepaid, through the date of prepayment. Any amounts prepaidhereunder may not be reborrowed.          3. Lender Fee. Pursuant to the Interim Order, the Debtors shall pay to the Holders afee in cash in the aggregate amount of $40,000, to be allocated to the Holders pro rata based upontheir funding commitment.          4. Use of Proceeds. The proceeds of this Note shall be used by the Debtors to theextent Cash Collateral (as defined in the Interim Order and Final Borrowing Order) is insufficientto fund working capital requirements and general corporate purposes relating to the Debtors’post-petition operations and for other expenditures as authorized in the Interim Order, the FinalBorrowing Order or as otherwise authorized by the Bankruptcy Court; provided that noportion of the proceeds shall be used, directly or indirectly, to (a) finance or make any paymentor prepayment to any Person with respect to a Prepetition Indebtedness unless authorized by anorder of the Bankruptcy Court; or (b) finance in any way any investigation, adversary action, suit,arbitration, proceeding or other litigation of any type against the Holders. The Debtors shall usethe entire amount of the proceeds in accordance with this Section 4; provided,however, that nothing herein shall in any way prejudice the Holders from objecting, for anyreason, to any requests, motions or applications made in the Bankruptcy Court, including anyapplications for interim or final allowances of compensation for services rendered or reimbursementof expenses incurred under Sections 105(a), 330 or 331 of the Bankruptcy Code, by any party ininterest; and provided, further, that Debtor shall not use the proceeds for anypurpose that is prohibited under the Bankruptcy Code. The proceeds of this Note shall be depositedand held in a new bank account at a bank that has been approved by the Office of the United StatesTrustee for the Southern District of New York as an authorized bank depository (the “DIPAccount”) as described in the Interim Order and the Final Borrowing Order and no other funds orcash collateral of the Debtors shall be co-mingled with the proceeds of this Note or deposited inthe DIP Account.          5. Superpriority Nature of Obligations. All obligations of the Debtors under thisNote (including the obligation to pay principal, interest, fees, costs, charges, commissions andexpenses) shall be paid as provided herein when due, without defense, offset, reduction orcounterclaim, and shall constitute allowed claims to the full extent thereof against the Debtorsarising under Section 364(c)(1) of the Bankruptcy Code, and senior to any and all other claims,including, without limitation, all administrative expenses or other claims arising under sections105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b), 726, 1113 or 1114 of the Bankruptcy Code;provided, however, that notwithstanding the foregoing, the DIP Super-Priority Claimshall be junior, subordinate, and subject to the Adequate Protection Claim, the Prepetition SeniorSecured Debt, the Senior Lender Prepetition Liens, the Carve-Out, and the Adequate Protection Lien(all as defined in the Interim Order and the Final Borrowing Order). Subject to the Carve-Out, theAdequate Protection Liens (as defined in the Interim Order and the Final BorrowingOrder), the Prepetition Senior Secured Debt (as defined in the Interim Order and the Final
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Borrowing Order) and the Adequate Protection Claim (as defined in the Interim Order and the FinalBorrowing Order), the DIP Super-Priority Claim will at all times be senior to any unsecured claimsof any creditor or other entity in this and any subsequent case under the Bankruptcy Code. Withthe exception of the Carve-Out, the Adequate Protection Liens, the Prepetition Senior Secured Debt,and the Adequate Protection Claim, no cost or expense of administration or any claims in this case,including those resulting from or incurred after any conversion of this case pursuant to Section1112 of the Bankruptcy Code shall rank prior to, or on parity with, the DIP Super-Priority Claims.          6. Covenants. Each of the Debtors covenant and agree that until this Note is paid infull, neither of the Debtors shall, without the prior written consent of the Required Holders:          (a) Asset Sales. enter into any transaction of merger or consolidation, or liquidate,wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease orsub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or aseries of transactions, all or any part of its business, property or assets, whether now owned orhereafter acquired, other than sales of inventory and equipment in the ordinary course of businessand sales of obsolete equipment or equipment that is no longer required in the business;          (b) Chapter 11 Claims. incur, create, assume, suffer or permit any claim orencumbrance against it or any of its property or assets in any Chapter 11 Case (other than theExisting Secured Claims, the Carve-Out, the Adequate Protection Claim, and the Insurance PremiumFinancing) to be pari passu with or senior to the claims of the Holders against such Debtor inrespect of the obligations hereunder, or apply to the Bankruptcy Court for authority to do so; or          (c) Limitation on Payments Related to Prepetition Obligations. (i) make any paymentor prepayment on or redemption or acquisition for value of any Prepetition Indebtedness or otherpre-Petition Date obligations of such Debtor, (ii) pay any interest on any Prepetition Indebtednessof such Debtor, including, without limitation, by way of depositing with the trustee with respectthereto money or securities before due for the purpose of paying when due (whether in cash, inkind, in securities or otherwise), or (iii) make any payment or create or permit any lien pursuantto Section 361 of the Bankruptcy Code (other than the Adequate Protection Liens (as such term isdefined in the Interim Order and the Final Borrowing Order), or apply to the Bankruptcy Court forthe authority to do any of the foregoing; provided that the Debtors may make payments aspermitted in the Interim Order, the Final Borrowing Order, or as authorized in any other order ofthe Bankruptcy Court, including, for example, making Adequate Protection Payments (as such term isdefined in the Interim Order and the Final Borrowing Order).          7. Events of Default. Notwithstanding the provisions of Section 362 of the BankruptcyCode and without application or motion to, or order from, the
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Bankruptcy Court, if any of thefollowing conditions or events (“Events of Default”) shall occur:          (a) Failure to Make Payments When Due. Failure by the Debtors to pay any installmentof principal on this Note when due or pay any installment of interest within 3 business days ofwhen due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, bymandatory prepayment or otherwise; or failure by the Debtors to pay any fee or any other amount dueunder this Note within three days after the date due;          (b) Chapter 11 Cases. With respect to the Chapter 11 Cases, (i) the entry of an orderauthorizing any Debtor in any of the Chapter 11 Cases to obtain additional financing under Section364(c) or (d) of the Bankruptcy Code (other than Insurance Premium Financing, as defined in theInterim Order and the Final Borrowing Order); (ii) the appointment of an interim or permanenttrustee in any of the Chapter 11 Cases or the appointment of an examiner in any of the Chapter 11Cases with expanded powers to operate or manage the financial affairs, the business, or thereorganization of any Debtor; (iii) the dismissal of any of the Chapter 11 Cases, or the conversionof any of the Chapter 11 Cases to a case under chapter 7 of the Bankruptcy Code; (iv) the entry ofan order granting relief from or modifying the automatic stay of Section 362 of the Bankruptcy Code(a) to allow any creditor to execute upon or enforce a lien on any material portion of the propertyor assets of any Debtor or (b) with respect to any lien of, or the granting of any lien on anyother property or assets of any Debtor to, any state or local environmental or regulatory agency orauthority, but only to the extent that it would have a Material Adverse Effect; (v) exercise ofrights by the Prepetition Senior Lenders (as defined in the Interim Order and the Final BorrowingOrder) pursuant to Paragraph 13 of the Interim Order and the corresponding paragraph of the FinalBorrowing Order against the Senior Lender Prepetition Collateral and/or the other collateral inwhich Adequate Protection Liens were granted to the Prepetition Senior Lenders; (vi) the entry ofan order amending, supplementing, staying, vacating or otherwise modifying any of the InterimOrder, the Final Borrowing Order or this Note or any of the Holders’ rights, benefits, privilegesor remedies under the Interim Order, the Final Borrowing Order or this Note; (vii) the entry of anorder consolidating or combining any Debtor with any other Person (other than another Debtor);(viii) an order shall be entered approving, or the Debtor shall have consented to, any claim oradministrative expense claim (other than the Carve-Out and the Adequate Protection Claim) havingany priority over, or being pari passu to the super-priority administrative expense claim of theobligations under this Note; or (ix) use of the proceeds of this Note for any purpose that isprohibited under Section 6(c) hereof;          (c) The Final Borrowing Order. The Bankruptcy Court shall fail to enter the FinalBorrowing Order on or prior to the date that is 30 days after entry of the Interim Order;
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          (d) Default. Any Debtor shall default in the due performance or observance by it ofany term, covenant or agreement contained in this Note or any term or agreement relating to thisNote that is contained in the Interim Order or the Final Borrowing Order, and such default shallcontinue for a period of 5 days after receipt by the Debtors of notice from the Holders of suchdefault; or          (e) Judgments. (i) Any money judgment, writ or warrant of attachment or similarprocess as to post-Petition Date liability or debt (a) in any individual case an amount in excessof $50,000 or (b) in the aggregate at any time an amount in excess of $250,000 (in either case notadequately covered by insurance as to which a solvent and unaffiliated insurance company hasacknowledged coverage) shall be entered or filed against the Debtors or any of their respectiveassets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days; or(ii) any non-monetary judgment or order with respect to a post-Petition Date event shall berendered against any Debtor that would reasonably be expected to result in a Material AdverseEffect and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days.          (f) Use of Proceeds. Funds or Cash Collateral (as defined in the Interim Order andFinal Borrowing Order) are co-mingled with the proceeds of this Note in the DIP Account or proceedsof this Note are used in a manner prohibited by this Note.Upon the occurrence and during the continuance of any Event of Default, the Holders may(notwithstanding the provisions of Section 362 of the Bankruptcy Code and without application ormotion to, or order from, the Bankruptcy Court) by written notice to the Debtors declare (i) theunpaid principal amount of and accrued interest on the Notes and (ii) all other obligationsimmediately due and payable, without presentment, demand, protest or other requirements of anykind, all of which are hereby expressly waived by the Debtors, and the same shall forthwith become,immediately due and payable.          9. Definitions. The following terms shall have the following meanings in this Note:“Bankruptcy Code” means title 11 of the United States Code entitled “Bankruptcy”, as now andhereafter in effect, or any successor statute.“Bankruptcy Court” means the United States Bankruptcy Court for the Southern District of New York.“Business Day” means each day that is not a Legal Holiday.“Chapter 11 Cases” means those certain proceedings for relief filed by the Debtors under Chapter 11of the Bankruptcy Code and being jointly administered under Case No. 08-11153 in the United StatesBankruptcy Court for the Southern District of New York.
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“Existing Secured Claims” means any secured claims in existence as of the commencement of theChapter 11 Cases.“Final Borrowing Order” means an order substantially in the form of the Interim Order entered bythe Bankruptcy Court in these Chapter 11 cases after a final hearing under Bankruptcy Rule 4001.“Final Order” means an order, judgment or other decree of the Bankruptcy Court or any other courtor judicial body with proper jurisdiction, as the case may be, which is in full force and effectand has not been reversed, stayed, modified or amended and as to which (i) any right to appeal orseek certiorari, review or rehearing has been waived or (ii) the time to appeal or seek certiorari,review or rehearing has expired and as to which no appeal or petition for certiorari, review orrehearing is pending.“Interim Order” means that certain Interim Order Pursuant to Bankruptcy Code Sections 105, 361,362, 363, and 364 (i) Authorizing the Debtors to Use Cash Collateral, (ii) Granting AdequateProtection to Prepetition Secured Lenders, (iii) Authorizing Post-Petition Financing, and (iv)Scheduling a Final Hearing Pursuant to Bankruptcy Rule 4001.“Issue Date” means the issue date of this Note on April 3, 2008.“Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions in the State ofNew York are authorized or required by law to close. If a payment date is a Legal Holiday, paymentshall be made on the next succeeding date that is not a Legal Holiday, and interest shall accruefor the intervening period at the rate set forth in Section 1 hereof. If a regular record date isa Legal Holiday, the record shall not be affected.“LIBOR” means a fluctuating rate of interest determined on a daily basis equal to the one-monthrate of interest appearing on Telerate Page 3750 (or any successor page) as the 30-day Londoninterbank offered rate for deposits in U.S. Dollars at approximately 11:00 a.m. (London Time) onthe second preceding Business Day. If for any reason such rate is not available, “LIBOR” means thefluctuating rate of interest calculated on a daily basis equal to the one-month rate of interestappearing on Reuters Screen LIBO Page as the 30-day London interbank offered rate for deposits inU.S. Dollars at approximately 11:00 a.m. (London time) on the second preceding Business Day;provided, however, if more than one rate is specified on Reuters Screen LIBO Page,the applicable rate shall be the arithmetic mean of all such rates; provided,however, if such rate is not available, “LIBOR” shall mean a fluctuating rate of interestbased upon a comparable rate designated by the Holders as a substitute therefore. “Telerate Page3750” means the British Bankers Association Libor Rates (determined as of 11:00 a.m. London time)that are published by Moneyline Telerate (or any successor thereto). As used in this definition,the term “Business Day” means a day on which commercial banks are open for international business(including dealings in U.S. Dollar deposits in London, England).
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“Material Adverse Effect” means (i) a material adverse effect upon the business, operations,liabilities (whether contractual, environmental or otherwise), properties, assets, condition(financial or otherwise) or prospects of the Debtors taken as a whole or (ii) the materialimpairment of the ability of any Debtor to perform the obligations of the Debtors under the Note.“Motion” means the Debtors’ Motion (A) for Authorization Pursuant to 11 U.S.C. §§ 105, 361, 362,364(c)(1), and 364(e) to (i) Use Cash Collateral, (ii) Grant Adequate Protection to PrepetitionSecured Lenders, and (iii) Obtain Postpetition Financing, and (B) to Schedule a Final HearingPursuant to Bankruptcy Rule 4001.“Note” means this $2,000,000 Super-Priority DIP Note by and between the Debtors and the Holders andissued on April 3, 2008.“Person” an individual, partnership, corporation, limited liability company, business trust, jointstock company, trust, unincorporated association, joint venture, governmental authority or otherentity of whatever nature.“Petition Date” means April 1, 2008, the date on which the Debtors filed their petitions for reliefcommencing these Chapter 11 Cases.“Prepetition Indebtedness” means indebtedness of any Debtor outstanding on the Petition Date,including Indebtedness under the Prepetition Credit Agreements, the Senior Subordinated Notes andthe 13% Junior Subordinated Note (as those terms are defined and/or referenced in the Motion).“Required Holders” means Holders holding more than 50% of the principal amount of the Note.          10. Successors and Assigns. This Note shall inure to the benefit of the Holders andtheir respective successors and assigns and shall bind the Holders, their respective successors andassigns, and any chapter 7 or chapter 11 trustee appointed after the Petition Date or elected forthe estates of the Debtors or an examiner appointed pursuant to section 1104 of the BankruptcyCode.          11. Presentment and Demand. Demand, presentment, protest and notice of nonpayment andprotest are hereby waived by the Debtors.
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          12. Amendment and Non-Waiver.          (a) This Note may not be amended, modified, or waived except by an agreement in writing signedby the Debtors and the Required Holders; provided that consent of all Holders shall berequired to reduce the principal amount, the interest rate, or extend any payment date.          (b) To the extent permitted by law, no failure to exercise and no delay on the part of theHolders in exercising any power or right in connection with this Note or available at law or inequity, shall operate as a waiver thereof, and no single or partial exercise of any such rights orpower, or any abandonment or discontinuance of steps to enforce such a right or power, shallpreclude any other or further exercise thereof or the exercise of any other right or power.          13. Notices. Except as otherwise provided herein, any notice, demand, request,consent, approval, declaration, delivery or other communication hereunder to be made pursuant tothe provisions of this Note shall be sufficiently given or made if in writing and either deliveredin person with receipt acknowledged or three (3) Business Days after being sent by registered orcertified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopyanswerback, addressed as follows: (a) If to the Debtors:Lexington Precision Corporation