**Exhibit 10.1**

 

 

EXECUTION COPY

 

**CREDIT AGREEMENT**

 

 

**by andamong**

 

 

**MAGNETEK,INC.**

 

 

**and**

 

 

**EACH OFITS SUBSIDIARIES THAT ARE SIGNATORIES HERETOas Borrowers,**

 

 

**THELENDERS THAT ARE SIGNATORIES HERETOas the Lenders,**

 

 

**and**

 

 

**WELLSFARGO FOOTHILL, INC.as the Arranger and Administrative Agent**

 

 

**Dated asof September 30, 2005**

 

 

----

 

**TABLE OF CONTENTS**

 
| 1.     | DEFINITIONS  AND CONSTRUCTION   |                                                                        |
|--------|---------------------------------|-----------------------------------------------------------------------------|
|   |                            |                                                                        |   |
|   | 1.1                             | Definitions                                                                 |   |
|   |                            |                                                                        |   |
|   | 1.2                             | Accounting Terms                                                            |   |
|   |                            |                                                                        |   |
|   | 1.3                             | Code                                                                        |   |
|   |                            |                                                                        |   |
|   | 1.4                             | Construction                                                                |   |
|   |                            |                                                                        |   |
|   | 1.5                             | Schedules and Exhibits                                                      |   |
|   |                            |                                                                        |   |
| 2.     | LOAN AND  TERMS OF PAYMENT      |                                                                        |
|   |                            |                                                                        |   |
|   | 2.1                             | Revolver Advances                                                           |   |
|   |                            |                                                                        |   |
|   | 2.2                             | [Reserved]                                                                  |   |
|   |                            |                                                                        |   |
|   | 2.3                             | Borrowing Procedures and  Settlements                                       |   |
|   |                            |                                                                        |   |
|   | 2.4                             | Payments                                                                    |   |
|   |                            |                                                                        |   |
|   | 2.5                             | Overadvances                                                                |   |
|   |                            |                                                                        |   |
|   | 2.6                             | Interest Rates and Letter of  Credit Fee: Rates, Payments, and Calculations |   |
|   |                            |                                                                        |   |
|   | 2.7                             | Cash Management                                                             |   |
|   |                            |                                                                        |   |
|   | 2.8                             | Crediting Payments                                                          |   |
|   |                            |                                                                        |   |
|   | 2.9                             | Designated Account                                                          |   |
|   |                            |                                                                        |   |
|   | 2.10                            | Maintenance of Loan Account;  Statements of Obligations                     |   |
|   |                            |                                                                        |   |
|   | 2.11                            | Fees                                                                        |   |
|   |                            |                                                                        |   |
|   | 2.12                            | Letters of Credit                                                           |   |
|   |                            |                                                                        |   |
|   | 2.13                            | LIBOR Option                                                                |   |
|   |                            |                                                                        |   |
|   | 2.14                            | Capital Requirements                                                        |   |
|   |                            |                                                                        |   |
|   | 2.15                            | Joint and Several Liability  of Borrowers                                   |   |
|   |                            |                                                                        |   |
| 3.     | CONDITIONS;  TERM OF AGREEMENT  |                                                                        |
|   |                            |                                                                        |   |
|   | 3.1                             | Conditions Precedent to the  Initial Extension of Credit                    |   |
|   |                            |                                                                        |   |
|   | 3.2                             | Conditions Precedent to all  Extensions of Credit                           |   |
|   |                            |                                                                        |   |
|   | 3.3                             | Term                                                                        |   |
|   |                            |                                                                        |   |
|   | 3.4                             | Effect of Termination                                                       |   |
|   |                            |                                                                        |   |
|   | 3.5                             | Early Termination by Borrowers                                              |   |
|   |                            |                                                                        |   |
| 4.     | REPRESENTATIONS  AND WARRANTIES |                                                                        |
|   |                            |                                                                        |   |
|   | 4.1                             | No Encumbrances; Properties                                                 |   |
|   |                            |                                                                        |   |
|   | 4.2                             | Eligible Accounts                                                           |   |
|   |                            |                                                                        |   |
|   | 4.3                             | Eligible Inventory                                                          |   |

 

i

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|   | 4.4    | Equipment                                                                                                                                                                     |   |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|   |   |                                                                                                                                                                          |   |
|   | 4.5    | Location of Inventory and  Equipment                                                                                                                                          |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.6    | Inventory Records                                                                                                                                                             |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.7    | State of Incorporation;  Location of Chief Executive Office; Organizational Identification Number and  FEIN; Commercial Tort Claims; Legal and Trade Name; Places of Business |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.8    | Due Organization and  Qualification; Subsidiaries                                                                                                                             |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.9    | Due Authorization; No  Conflict; Governmental Approvals; Enforceability                                                                                                       |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.10   | Litigation                                                                                                                                                                    |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.11   | No Material Adverse Change;  Financial Condition                                                                                                                              |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.12   | Solvency; Fraudulent Transfer                                                                                                                                                 |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.13   | Employee Benefits                                                                                                                                                             |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.14   | Environmental Condition                                                                                                                                                       |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.15   | Intellectual Property                                                                                                                                                         |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.16   | Leases                                                                                                                                                                        |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.17   | Deposit Accounts and  Securities Accounts                                                                                                                                     |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.18   | Complete Disclosure                                                                                                                                                           |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.19   | Indebtedness                                                                                                                                                                  |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.20   | Material  Contracts                                                                                                                                                           |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.21   | Second Lien  Loan Documents                                                                                                                                                   |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.22   | Compliance  with Law, Etc                                                                                                                                                     |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.23   | Taxes, Etc                                                                                                                                                                    |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.24   | Regulations  T, U and X                                                                                                                                                       |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.25   | Nature of  Business                                                                                                                                                           |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.26   | Adverse  Agreements, Etc                                                                                                                                                      |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.27   | Permits,  Etc                                                                                                                                                                 |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.28   | Operating  Lease Obligations                                                                                                                                                  |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.29   | Insurance                                                                                                                                                                     |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.30   | Holding  Company and Investment Company Acts                                                                                                                                  |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.31   | Employee  and Labor Matters                                                                                                                                                   |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.32   | Customers  and Suppliers                                                                                                                                                      |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.33   | No  Bankruptcy Filing                                                                                                                                                         |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.34   | Separate Existence                                                                                                                                                            |   |
|   |   |                                                                                                                                                                          |   |
|   | 4.35   | Excluded  Foreign Subsidiaries                                                                                                                                                |   |

 

ii

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|   | 4.36                   | Representations  and Warranties in Documents; No Default |   |
|--------|------------------------|----------------------------------------------------------|--------|
|   |                   |                                                     |   |
| 5.     | AFFIRMATIVE  COVENANTS |                                                     |
|   |                   |                                                     |   |
|   | 5.1                    | Accounting  System                                       |   |
|   |                   |                                                     |   |
|   | 5.2                    | Collateral  Reporting                                    |   |
|   |                   |                                                     |   |
|   | 5.3                    | Financial  Statements, Reports, Certificates             |   |
|   |                   |                                                     |   |
|   | 5.4                    | Guarantor  Reports                                       |   |
|   |                   |                                                     |   |
|   | 5.5                    | Inspection                                               |   |
|   |                   |                                                     |   |
|   | 5.6                    | Maintenance  of Properties                               |   |
|   |                   |                                                     |   |
|   | 5.7                    | [Reserved]                                               |   |
|   |                   |                                                     |   |
|   | 5.8                    | Insurance                                                |   |
|   |                   |                                                     |   |
|   | 5.9                    | Location of  Inventory and Equipment                     |   |
|   |                   |                                                     |   |
|   | 5.10                   | Compliance  with Laws, Etc                               |   |
|   |                   |                                                     |   |
|   | 5.11                   | Leases                                                   |   |
|   |                   |                                                     |   |
|   | 5.12                   | Existence                                                |   |
|   |                   |                                                     |   |
|   | 5.13                   | Environmental                                            |   |
|   |                   |                                                     |   |
|   | 5.14                   | Disclosure  Updates                                      |   |
|   |                   |                                                     |   |
|   | 5.15                   | Control  Agreements                                      |   |
|   |                   |                                                     |   |
|   | 5.16                   | Formation  of Subsidiaries                               |   |
|   |                   |                                                     |   |
|   | 5.17                   | ERISA Compliance                                         |   |
|   |                   |                                                     |   |
|   | 5.18                   | Second Lien  Loan Documents                              |   |
|   |                   |                                                     |   |
|   | 5.19                   | Completion  of Magnetek ADS Sale                         |   |
|   |                   |                                                     |   |
|   | 5.20                   | Obtaining  of Permits, Etc                               |   |
|   |                   |                                                     |   |
|   | 5.21                   | Subordination                                            |   |
|   |                   |                                                     |   |
|   | 5.22                   | After  Acquired Property                                 |   |
|   |                   |                                                     |   |
|   | 5.23                   | Further  Assurances                                      |   |
|   |                   |                                                     |   |
|   | 5.24                   | Post-Closing  Requirements                               |   |
|   |                   |                                                     |   |
| 6.     | NEGATIVE  COVENANTS    |                                                     |
|   |                   |                                                     |   |
|   | 6.1                    | Indebtedness                                             |   |
|   |                   |                                                     |   |
|   | 6.2                    | Liens                                                    |   |
|   |                   |                                                     |   |
|   | 6.3                    | Restrictions  on Fundamental Changes                     |   |
|   |                   |                                                     |   |
|   | 6.4                    | Disposal of  Assets                                      |   |
|   |                   |                                                     |   |
|   | 6.5                    | [Reserved.]                                              |   |
|   |                   |                                                     |   |
|   | 6.6                    | Nature of  Business                                      |   |

 

iii

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|   | 6.7                                          | Payments and  Amendments, etc                                                   |   |
|--------|----------------------------------------------|---------------------------------------------------------------------------------|--------|
|   |                                         |                                                                            |   |
|   | 6.8                                          | Change of  Control                                                              |   |
|   |                                         |                                                                            |   |
|   | 6.9                                          | Consignments                                                                    |   |
|   |                                         |                                                                            |   |
|   | 6.10                                         | Distributions;  Restricted Payments                                             |   |
|   |                                         |                                                                            |   |
|   | 6.11                                         | Accounting  Methods                                                             |   |
|   |                                         |                                                                            |   |
|   | 6.12                                         | Investments                                                                     |   |
|   |                                         |                                                                            |   |
|   | 6.13                                         | Transactions  with Affiliates                                                   |   |
|   |                                         |                                                                            |   |
|   | 6.14                                         | Use of  Proceeds                                                                |   |
|   |                                         |                                                                            |   |
|   | 6.15                                         | Inventory  and Equipment with Bailees                                           |   |
|   |                                         |                                                                            |   |
|   | 6.16                                         | Financial Covenants                                                             |   |
|   |                                         |                                                                            |   |
|   | 6.17                                         | ERISA                                                                           |   |
|   |                                         |                                                                            |   |
|   | 6.18                                         | Lease  Obligations                                                              |   |
|   |                                         |                                                                            |   |
|   | 6.19                                         | Federal  Reserve Regulations                                                    |   |
|   |                                         |                                                                            |   |
|   | 6.20                                         | Limitations  on Dividends and Other Payment Restrictions Affecting Subsidiaries |   |
|   |                                         |                                                                            |   |
|   | 6.21                                         | Limitation  on Issuance of Capital Stock                                        |   |
|   |                                         |                                                                            |   |
|   | 6.22                                         | Investment  Company Act of 1940                                                 |   |
|   |                                         |                                                                            |   |
|   | 6.23                                         | Environmental                                                                   |   |
|   |                                         |                                                                            |   |
|   | 6.24                                         | Excluded  Foreign Subsidiaries                                                  |   |
|   |                                         |                                                                            |   |
| 7.     | EVENTS  OF DEFAULT                           |                                                                            |
|   |                                         |                                                                            |   |
| 8.     | THE LENDER  GROUP’S RIGHTS AND REMEDIES |                                                                            |
|   |                                         |                                                                            |   |
|   | 8.1                                          | Rights and  Remedies                                                            |   |
|   |                                         |                                                                            |   |
|   | 8.2                                          | Remedies  Cumulative                                                            |   |
|   |                                         |                                                                            |   |
| 9.     | TAXES  AND EXPENSES                          |                                                                            |
|   |                                         |                                                                            |   |
| 10.    | WAIVERS;  INDEMNIFICATION                    |                                                                            |
|   |                                         |                                                                            |   |
|   | 10.1                                         | Demand;  Protest; etc                                                           |   |
|   |                                         |                                                                            |   |
|   | 10.2                                         | The Lender  Group’s Liability for Collateral                               |   |
|   |                                         |                                                                            |   |
|   | 10.3                                         | Indemnification                                                                 |   |
|   |                                         |                                                                            |   |
|   | 10.4                                         | Waiver of  Consequential Damages, Etc                                           |   |
|   |                                         |                                                                            |   |
| 11.    | NOTICES                                      |                                                                            |
|   |                                         |                                                                            |   |
| 12.    | CHOICE OF  LAW AND VENUE; JURY TRIAL WAIVER  |                                                                            |
|   |                                         |                                                                            |   |
| 13.    | ASSIGNMENTS  AND PARTICIPATIONS; SUCCESSORS  |                                                                            |

 

iv

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|   | 13.1                     | Assignments  and Participations                                                                                |   |
|--------|--------------------------|----------------------------------------------------------------------------------------------------------------|--------|
|   |                     |                                                                                                           |   |
|   | 13.2                     | Successors                                                                                                     |   |
|   |                     |                                                                                                           |   |
| 14.    | AMENDMENTS;  WAIVERS     |                                                                                                           |
|   |                     |                                                                                                           |   |
|   | 14.1                     | Amendments  and Waivers                                                                                        |   |
|   |                     |                                                                                                           |   |
|   | 14.2                     | Replacement  of Holdout Lender                                                                                 |   |
|   |                     |                                                                                                           |   |
|   | 14.3                     | No Waivers;  Cumulative Remedies                                                                               |   |
|   |                     |                                                                                                           |   |
| 15.    | AGENT; THE LENDER  GROUP |                                                                                                           |
|   |                     |                                                                                                           |   |
|   | 15.1                     | Appointment  and Authorization of Agent                                                                        |   |
|   |                     |                                                                                                           |   |
|   | 15.2                     | Delegation  of Duties                                                                                          |   |
|   |                     |                                                                                                           |   |
|   | 15.3                     | Liability  of Agent                                                                                            |   |
|   |                     |                                                                                                           |   |
|   | 15.4                     | Reliance by  Agent                                                                                             |   |
|   |                     |                                                                                                           |   |
|   | 15.5                     | Notice of  Default or Event of Default                                                                         |   |
|   |                     |                                                                                                           |   |
|   | 15.6                     | Credit  Decision                                                                                               |   |
|   |                     |                                                                                                           |   |
|   | 15.7                     | Costs and  Expenses; Indemnification                                                                           |   |
|   |                     |                                                                                                           |   |
|   | 15.8                     | Agent in  Individual Capacity                                                                                  |   |
|   |                     |                                                                                                           |   |
|   | 15.9                     | Successor  Agent                                                                                               |   |
|   |                     |                                                                                                           |   |
|   | 15.10                    | Lender in  Individual Capacity                                                                                 |   |
|   |                     |                                                                                                           |   |
|   | 15.11                    | Withholding Taxes                                                                                              |   |
|   |                     |                                                                                                           |   |
|   | 15.12                    | Collateral Matters                                                                                             |   |
|   |                     |                                                                                                           |   |
|   | 15.13                    | Restrictions  on Actions by Lenders; Sharing of Payments                                                       |   |
|   |                     |                                                                                                           |   |
|   | 15.14                    | Agency for  Perfection                                                                                         |   |
|   |                     |                                                                                                           |   |
|   | 15.15                    | Payments by  Agent to the Lenders                                                                              |   |
|   |                     |                                                                                                           |   |
|   | 15.16                    | Concerning  the Collateral and Related Loan Documents                                                          |   |
|   |                     |                                                                                                           |   |
|   | 15.17                    | Field  Audits and Examination Reports; Confidentiality; Disclaimers by Lenders;  Other Reports and Information |   |
|   |                     |                                                                                                           |   |
|   | 15.18                    | Several  Obligations; No Liability                                                                             |   |
|   |                     |                                                                                                           |   |
|   | 15.19                    | Bank  Product Providers                                                                                        |   |
|   |                     |                                                                                                           |   |
| 16.    | GENERAL  PROVISIONS      |                                                                                                           |
|   |                     |                                                                                                           |   |
|   | 16.1                     | Effectiveness                                                                                                  |   |
|   |                     |                                                                                                           |   |
|   | 16.2                     | Section  Headings                                                                                              |   |
|   |                     |                                                                                                           |   |
|   | 16.3                     | Interpretation                                                                                                 |   |
|   |                     |                                                                                                           |   |
|   | 16.4                     | Severability  of Provisions                                                                                    |   |
|   |                     |                                                                                                           |   |
|   | 16.5                     | Counterparts;  Electronic Execution                                                                            |   |

 

v

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|   | 16.6   | Revival and  Reinstatement of Obligations              |   |
|--------|--------|--------------------------------------------------------|--------|
|   |   |                                                   |   |
|   | 16.7   | Confidentiality                                        |   |
|   |   |                                                   |   |
|   | 16.8   | Integration                                            |   |
|   |   |                                                   |   |
|   | 16.9   | Parent as  Agent for Borrowers                         |   |
|   |   |                                                   |   |
|   | 16.10  | Public  Disclosure                                     |   |
|   |   |                                                   |   |
|   | 16.11  | Borrowings  Upon Partial Release of Availability Block |   |

 

vi

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**CREDIT AGREEMENT**

 

**THIS CREDIT AGREEMENT**(this “Agreement”),is entered into as of September 30, 2005, by and among the lenders identifiedon the signature pages hereof (such lenders, together with their respectivesuccessors and permitted assigns, are referred to hereinafter each individuallyas a “Lender” and collectively as the “Lenders”), and **WELLS FARGO FOOTHILL, INC.**, a California corporation, as thearranger and administrative agent for the Lenders (in such capacity, togetherwith its successors and assigns in such capacity, “Agent”), and **MAGNETEK, INC.**, a Delaware corporation (“Parent”),and each of Parent’s Subsidiaries identified on the signature pages hereof(such Subsidiaries, together with Parent, are referred to hereinafter eachindividually as a “Borrower,” and individually and collectively, jointlyand severally, as the “Borrowers”).

 

The parties agree as follows:

 

**1.****                                     ****DEFINITIONS AND CONSTRUCTION.**

 

1.1                                 **Definitions**. Capitalized terms used in this Agreement shall have the meaningsspecified therefor on Schedule 1.1.

 

1.2                                 **Accounting Terms**.  Allaccounting terms not specifically defined herein shall be construed inaccordance with GAAP.  When used herein,the term “financial statements” shall include the notes and schedules thereto,if any.  Whenever the term “Borrowers” orthe term “Parent” is used in respect of a financial covenant or a relateddefinition, it shall be understood to mean Parent and its Subsidiaries on aconsolidated basis unless the context clearly requires otherwise.

 

1.3                                 **Code**.  Anyterms used in this Agreement that are defined in the Code shall be construedand defined as set forth in the Code unless otherwise defined herein, provided,however, that to the extent that the Code is used to define any term herein andsuch term is defined differently in different Articles of the Code, thedefinition of such term contained in Article 9 shall govern; andwhen used to define a category or categories of collateral owned or hereafteracquired by any Borrower or Guarantor which may be subject to the provisions ofthe PPSA, then such term shall include the equivalent category or categories ofcollateral under the PPSA.

 

1.4                                 **Construction**.  Unless the context of this Agreement or anyother Loan Document clearly requires otherwise, references to the pluralinclude the singular, references to the singular include the plural, the terms “includes”and “including” are not limiting, and the term “or” has, except where otherwiseindicated, the inclusive meaning represented by the phrase “and/or.”  The words “hereof,” “herein,” “hereby,” “hereunder,”and similar terms in this Agreement or any other Loan Document refer to thisAgreement or such other Loan Document, as the case may be, as a whole and notto any particular provision of this Agreement or such other Loan Document, asthe case may be.  Section, subsection,clause, schedule, and exhibit references herein are to this Agreement unlessotherwise specified.  Any reference inthis Agreement or in the other Loan Documents to any agreement, instrument, ordocument shall include all alterations, amendments, changes, extensions,modifications, renewals, replacements, substitutions, joinders, andsupplements, thereto and thereof, as applicable (subject to any restrictions onsuch alterations, amendments, changes, extensions, modifications, renewals, replacements,substitutions, joinders, and supplements set forth herein).  Any reference herein to the satisfaction orrepayment in full of the Obligations shall mean the repayment in full in cash(or cash collateralization in accordance with the terms hereof) of allObligations other than contingent indemnification Obligations and other thanany Bank Product Obligations that, at such time, are allowed by the applicableBank Product Provider to remain outstanding and are not required to be repaidor cash collateralized pursuant to the provisions of this Agreement.  Any reference herein to any Person shall beconstrued to include such Person’s successors and assigns.  Any requirement of a writing contained hereinor in the other Loan Documents shall be satisfied by the transmission of aRecord and any Record transmitted shall constitute a representation and warranty as to the accuracy and completeness of theinformation contained therein. References to statutes or regulations are to be construed as includingall statutory and regulatory provisions consolidating, amending, supplementing,interpreting, or replacing the statute or regulation referred to.

 

1

----

 

1.5                                 **Schedules and Exhibits**.  Allof the schedules and exhibits attached to this Agreement shall be deemedincorporated herein by reference.

 

**2.****                                     ****LOAN AND TERMS OF PAYMENT.**

 

2.1                                 **Revolver Advances**.

 

(a)                                  Subject to the terms and conditions of thisAgreement, and during the term of this Agreement, each Lender with a Commitmentagrees (severally, not jointly or jointly and severally) to make advances (“Advances”)to Borrowers in an amount at any one time outstanding not to exceed such Lender’sPro Rata Share of an amount equal to the least of: (i) the MaximumRevolver Amount *less* the sum of (A) the Letter ofCredit Usage plus (B) the Availability Block, (ii) the Borrowing Base *less* the sum of (A) the Letter of Credit Usage plus (B) theAvailability Block, or (iii) the Total Debt Limiter *less*the sum of (A) the Letter of Credit Usage, plus (B) the Availability Block plus(C) the outstanding principal balance of the Second Lien Indebtedness.

 

(b)                                 Anything to the contrary in this Section 2.1notwithstanding, Agent shall have the right to establish reserves in suchamounts, and with respect to such matters, as Agent in its Permitted Discretionshall deem necessary or appropriate, against the Borrowing Base, includingreserves (i) with respect to (A) sums that Borrowers are required topay by any Section of this Agreement or any other Loan Document (such as taxes,assessments, insurance premiums, or, in the case of leased assets, rents orother amounts payable under such leases) and has failed to pay, and(B) amounts owing by Borrowers or their respective Subsidiaries to any Personto the extent secured by a Lien on, or trust over, any of the Collateral (otherthan a Permitted Lien), which Lien or trust, in the Permitted Discretion ofAgent likely would have a priority superior to the Agent’s Liens (such as Liensor trusts in favor of landlords, warehousemen, carriers, mechanics,materialmen, laborers, or suppliers, or Liens or trusts for ad valorem, excise,sales, or other taxes where given priority under Applicable Law) in and to suchitem of the Collateral, and (ii) after the occurrence and during thecontinuance of an Event of Default, with respect to such other matters as Agentin its Permitted Discretion shall deem necessary or appropriate.

 

(c)                                  Amounts borrowed pursuant to this Section 2.1may be repaid and, subject to the terms and conditions of this Agreement,reborrowed at any time during the term of this Agreement.

 

2.2                                 **[Reserved]**.

 

2.3                                 **Borrowing Procedures andSettlements**.

 

(a)                                  **Procedure for Borrowing.**  Each Borrowing shall be made byan irrevocable written request by an Authorized Person delivered to Agent.  If Swing Lender is obligated to make a SwingLoan pursuant to Section 2.3(b) below, such notice must be receivedby Agent no later than 10:00 a.m. (California time) on the Business Daythat is the requested Funding Date specifying (i) the amount of suchBorrowing, and (ii) the requested Funding Date, which shall be a BusinessDay; provided, however, that if Swing Lender is not obligated to make a SwingLoan as to a requested Borrowing, such notice must be received by Agent nolater than 10:00 a.m. (California time) on the Business Day prior to thedate that is the requested Funding Date. At Agent’s election, in lieu of delivering the above-described writtenrequest, any Authorized Person may give Agent telephonic notice of such requestby the required time.  In suchcircumstances, Borrowers agree that any such telephonic notice will beconfirmed in writing within 24 hours of the giving of such telephonic notice,but the failure to provide such written confirmation shall not affect thevalidity of the request.

 

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(b)                                 **Making of Swing Loans****.**  In the case of a request for an Advance andso long as either (i) the aggregate amount of Swing Loans made since thelast Settlement Date *plus* the amountof the requested Advance does not exceed $2,000,000, or (ii) Swing Lender,in its sole discretion, shall agree to make a Swing Loan notwithstanding theforegoing limitation, Swing Lender, as a Lender, shall make an Advance in theamount of such Borrowing (any such Advance made solely by Swing Lender as aLender pursuant to this Section 2.3(b) being referred to as a “SwingLoan” and such Advances being referred to collectively as “Swing Loans”)available to Administrative Borrower on the Funding Date applicable thereto bytransferring immediately available funds to Administrative Borrower’sDesignated Account.  Each Swing Loanshall be deemed to be an Advance hereunder and shall be subject to all theterms and conditions applicable to other Advances, except that all payments onany Swing Loan shall be payable to Swing Lender as a Lender solely for its ownaccount.  Subject to the provisions of Section 2.3(d)(ii),Swing Lender as a Lender shall not make and shall not be obligated to make anySwing Loan if Swing Lender has actual knowledge that (i) one or more ofthe applicable conditions precedent set forth in Section 3 will notbe satisfied on the requested Funding Date for the applicable Borrowing, or(ii) the requested Borrowing would exceed the Availability on such FundingDate.  Swing Lender as a Lender shall nototherwise be required to determine whether the applicable conditions precedentset forth in Section 3 have been satisfied on the Funding Dateapplicable thereto prior to making any Swing Loan.  The Swing Loans shall be secured by the Agent’sLiens, constitute Obligations hereunder, and bear interest at the rateapplicable from time to time to Advances that are Base Rate Loans.

 

(c)                                  **Making of Loans.**

 

(i)                                     In theevent that Swing Lender is not obligated to make a Swing Loan, then promptlyafter receipt of a request for a Borrowing pursuant to Section 2.3(a),Agent shall notify the Lenders, not later than 1:00 p.m. (California time)on the Business Day immediately preceding the Funding Date applicable thereto,by telecopy, telephone, or other similar form of transmission, of the requestedBorrowing.  Each Lender shall make theamount of such Lender’s Pro Rata Share of the requested Borrowing available toAgent in immediately available funds, to Agent’s Account, not later than10:00 a.m. (California time) on the Funding Date applicable thereto.  After Agent’s receipt of the proceeds of suchAdvances, Agent shall make the proceeds thereof available to AdministrativeBorrower on the applicable Funding Date by transferring immediately availablefunds equal to such proceeds received by Agent to Administrative Borrower’sDesignated Account; provided, however, that, subject to the provisions of Section 2.3(d)(ii),Agent shall not request any Lender to make, and no Lender shall have theobligation to make, any Advance if Agent shall have actual knowledge that(1) one or more of the applicable conditions precedent set forth in Section 3 will not be satisfied on the requestedFunding Date for the applicable Borrowing unless such condition has beenwaived, or (2) the requested Borrowing would exceed the Availability onsuch Funding Date.

 

(ii)                                  Unless Agent receives notice from aLender prior to 9:00 a.m. (California time) on the date of a Borrowing, thatsuch Lender will not make available as and when required hereunder to Agent forthe account of Borrowers the amount of that Lender’s Pro Rata Share of theBorrowing, Agent may assume that each Lender has made or will make such amountavailable to Agent in immediately available funds on the Funding Date and Agentmay (but shall not be so required), in reliance upon such assumption, makeavailable to Borrowers on such date a corresponding amount.  If and to the extent any Lender shall nothave made its full amount available to Agent in immediately available funds andAgent in such circumstances has made available to Borrowers such amount, thatLender shall on the Business Day following such Funding Date make such amountavailable to Agent, together with interest at the Defaulting Lender Rate foreach day during such period.  A noticesubmitted by Agent to any Lender with respect to amounts owing under thissubsection shall be conclusive, absent manifest error.  If such amount is so made available, suchpayment to Agent shall constitute such Lender’s Advance on the date ofBorrowing for all purposes of this Agreement. If

 

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such amount is not made available to Agent on theBusiness Day following the Funding Date, Agent will notify AdministrativeBorrower of such failure to fund and, upon demand by Agent, Borrowers shall paysuch amount to Agent for Agent’s account, together with interest thereon foreach day elapsed since the date of such Borrowing, at a rate per annum equal tothe interest rate applicable at the time to the Advances composing suchBorrowing.  The failure of any Lender tomake any Advance on any Funding Date shall not relieve any other Lender of anyobligation hereunder to make an Advance on such Funding Date, but no Lendershall be responsible for the failure of any other Lender to make the Advance tobe made by such other Lender on any Funding Date.

 

(iii)                               Agent shall not be obligated to transfer to aDefaulting Lender any payments made by Borrowers to Agent for the DefaultingLender’s benefit, and, in the absence of such transfer to the DefaultingLender, Agent shall transfer any such payments to each other non-DefaultingLender member of the Lender Group ratably in accordance with their Commitments(but only to the extent that such Defaulting Lender’s Advance was funded by theother members of the Lender Group) or, if so directed by AdministrativeBorrower and if no Default or Event of Default had occurred and is continuing(and to the extent such Defaulting Lender’s Advance was not funded by theLender Group), retain same to be re-advanced to Borrowers as if such DefaultingLender had made Advances to Borrowers. Subject to the foregoing, Agent may hold and, in its PermittedDiscretion, re-lend to Borrowers for the account of such Defaulting Lender theamount of all such payments received and retained by Agent for the account ofsuch Defaulting Lender.  Solely for thepurposes of voting or consenting to matters with respect to the Loan Documents,such Defaulting Lender shall be deemed not to be a “Lender” and such Lender’sCommitment shall be deemed to be zero. This Section shall remain effective with respect to such Lender until(x) the Obligations under this Agreement shall have been declared or shallhave become immediately due and payable, (y) the non-Defaulting Lenders,Agent, and Administrative Borrower shall have waived such Defaulting Lender’sdefault in writing, or (z) the Defaulting Lender makes its Pro Rata Shareof the applicable Advance and pays to Agent all amounts owing by DefaultingLender in respect thereof.  The operationof this Section shall not be construed to increase or otherwise affect theCommitment of any Lender, to relieve or excuse the performance by suchDefaulting Lender or any other Lender of its duties and obligations hereunder,or to relieve or excuse the performance by Borrowers of their duties andobligations hereunder to Agent or to the Lenders other than such DefaultingLender.  Any such failure to fund by anyDefaulting Lender shall constitute a material breach by such Defaulting Lenderof this Agreement and shall entitle Administrative Borrower at its option, uponwritten notice to Agent, to arrange for a substitute Lender to assume theCommitment of such Defaulting Lender, such substitute Lender to be acceptableto Agent.  In connection with thearrangement of such a substitute Lender, the Defaulting Lender shall have noright to refuse to be replaced hereunder, and agrees to execute and deliver acompleted form of Assignment and Acceptance in favor of the substitute Lender(and agrees that it shall be deemed to have executed and delivered suchdocument if it fails to do so) subject only to being repaid its share of theoutstanding Obligations (other than Bank Product Obligations, but including anassumption of its Pro Rata Share of the Risk Participation Liability) withoutany premium or penalty of any kind whatsoever; provided however, that any suchassumption of the Commitment of such Defaulting Lender shall not be deemed toconstitute a waiver of any of the Lender Groups’ or Borrowers’ rights orremedies against any such Defaulting Lender arising out of or in relation tosuch failure to fund.

 

(d)                                 **Protective Advances and Optional Overadvances.**

 

(i)                                     Agenthereby is authorized by Borrowers and the Lenders, from time to time in Agent’ssole discretion, (A) after the occurrence and during the continuance of aDefault or an Event of Default, or (B) at any time that any of the otherapplicable conditions precedent set forth in Section 3 arenot satisfied, to make Advances to Borrowers on behalf of the Lenders thatAgent, in its Permitted Discretion as it deems necessary or desirable(1) to preserve or protect the Collateral, or any portion thereof,(2) to enhance the likelihood of repayment of the Obligations (other thanthe Bank Product Obligations), or (3) to pay any other amount chargeableto Borrowers pursuant to the terms of this Agreement, including Lender GroupExpenses and the costs, fees, and expenses described in Section 9 (anyof the Advances described in this Section 2.3(d)(i) shallbe referred to as “Protective Advances”).

 

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(ii)                                  Any contrary provision of this Agreementnotwithstanding, the Lenders hereby authorize Agent or Swing Lender, asapplicable, and either Agent or Swing Lender, as applicable, may, but is notobligated to, knowingly and intentionally, continue to make Advances (includingSwing Loans) to Borrowers notwithstanding that an Overadvance exists or therebywould be created, so long as (A) after giving effect to such Advances, theoutstanding Revolver Usage does not exceed the Borrowing Base by more than$2,000,000, and (B) after giving effect to such Advances, the outstandingRevolver Usage (except for and excluding amounts charged to the Loan Accountfor interest, fees, or Lender Group Expenses) does not exceed the MaximumRevolver Amount.  In the event Agentobtains actual knowledge that the Revolver Usage exceeds the amounts permittedby the immediately foregoing provisions, regardless of the amount of, or reasonfor, such excess, Agent shall notify the Lenders as soon as practicable (andprior to making any (or any additional) intentional Overadvances (except forand excluding amounts charged to the Loan Account for interest, fees, or LenderGroup Expenses) unless Agent determines that prior notice would result inimminent harm to the Collateral or its value), and the Lenders with Commitmentsthereupon shall, together with Agent, jointly determine the terms ofarrangements that shall be implemented with Borrowers intended to reduce,within a reasonable time, the outstanding principal amount of the Advances toBorrowers to an amount permitted by the preceding paragraph.  In such circumstances, if any Lender with aCommitment disagrees over the proposed terms of reduction or repayment of anyOveradvance, the terms of reduction or repayment thereof shall be implementedaccording to the determination of the Required Lenders.  Each Lender with a Commitment shall beobligated to settle with Agent as provided in Section 2.3(e) forthe amount of such Lender’s Pro Rata Share of any unintentional Overadvances byAgent reported to such Lender, any intentional Overadvances made as permittedunder this Section 2.3(d)(ii), and any Overadvances resulting fromthe charging to the Loan Account of interest, fees, or Lender Group Expenses.

 

(iii)                               Each Protective Advance andeach Overadvance shall be deemed to be an Advance hereunder, except that noProtective Advance or Overadvance shall be eligible to be a LIBOR Rate Loan andall payments on the Protective Advances shall be payable to Agent solely forits own account.  The Protective Advancesand Overadvances shall be repayable on demand, secured by the Agent’s Liens,constitute Obligations hereunder, and bear interest at the rate applicable fromtime to time to Advances that are Base Rate Loans.  The provisions of this Section 2.3(d) are for the exclusive benefit of Agent,Swing Lender, and the Lenders and are not intended to benefit any Borrower inany way.

 

(e)                                  **Settlement****.**  It isagreed that each Lender’s funded portion of the Advances is intended by theLenders to equal, at all times, such Lender’s Pro Rata Share of the outstandingAdvances.  Such agreement notwithstanding,Agent, Swing Lender, and the other Lenders agree (which agreement shall not befor the benefit of any Borrower) that in order to facilitate the administrationof this Agreement and the other Loan Documents, settlement among the Lenders asto the Advances, the Swing Loans, and the Protective Advances shall take placeon a periodic basis in accordance with the following provisions:

 

(i)                                     Agentshall request settlement (“Settlement”)with the Lenders on a weekly basis, or on a more frequent basis if sodetermined by Agent, (1) on behalf of Swing Lender, with respect to eachoutstanding Swing Loan, (2) for itself, with respect to the outstandingProtective Advances, and (3) with respect to Borrowers’ or theirrespective Subsidiaries’ Collections received, as to each by notifying theLenders by telecopy, telephone, or other similar form of transmission, of suchrequested Settlement, no later than 2:00 p.m. (California time) on theBusiness Day immediately prior to the date of such requested Settlement (thedate of such requested Settlement being the “Settlement Date”).  Such notice of a Settlement Date shallinclude a summary statement of the amount of outstanding Advances, Swing Loans,and Protective Advances for the period since the prior Settlement Date.  Subject to the terms and conditions containedherein (including Section 2.3(c)(iii)):  (y) if a Lender’s balance of theAdvances (including Swing Loans and

 

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ProtectiveAdvances) exceeds such Lender’s Pro Rata Share of the Advances (including SwingLoans and Protective Advances) as of a Settlement Date, then Agent shall, by nolater than 12:00 p.m. (California time) on the Settlement Date, transferin immediately available funds to a Deposit Account of such Lender (as suchLender may designate), an amount such that each such Lender shall, upon receiptof such amount, have as of the Settlement Date, its Pro Rata Share of theAdvances (including Swing Loans and Protective Advances), and (z) if a Lender’sbalance of the Advances (including Swing Loans and Protective Advances) is *less* than such Lender’s Pro Rata Share of theAdvances (including Swing Loans and Protective Advances) as of a SettlementDate, such Lender shall no later than 12:00 p.m. (California time) on theSettlement Date transfer in immediately available funds to the Agent’s Account,an amount such that each such Lender shall, upon transfer of such amount, haveas of the Settlement Date, its Pro Rata Share of the Advances (including SwingLoans and Protective Advances).  Suchamounts made available to Agent under clause (z) of the immediatelypreceding sentence shall be applied against the amounts of the applicable SwingLoans or Protective Advances and, together with the portion of such Swing Loansor Protective Advances representing Swing Lender’s Pro Rata Share thereof,shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on theSettlement Date applicable thereto to the extent required by the terms hereof,Agent shall be entitled to recover for its account such amount on demand fromsuch Lender together with interest thereon at the Defaulting Lender Rate.

 

(ii)                                  In determining whether a Lender’s balanceof the Advances, Swing Loans, and Protective Advances is *less*than, equal to, or greater than such Lender’s Pro Rata Share of the Advances,Swing Loans, and Protective Advances as of a Settlement Date, Agent shall, aspart of the relevant Settlement, apply to such balance the portion of paymentsactually received in good funds by Agent with respect to principal, interest,fees payable by Borrowers and allocable to the Lenders hereunder, and proceedsof Collateral.  To the extent that a netamount is owed to any such Lender after such application, such net amount shallbe distributed by Agent to that Lender as part of such next Settlement.

 

(iii)                               BetweenSettlement Dates, Agent, to the extent no Protective Advances or Swing Loansare outstanding, may pay over to Swing Lender any payments received by Agent,that in accordance with the terms of this Agreement would be applied to thereduction of the Advances, for application to Swing Lender’s Pro Rata Share ofthe Advances.  If, as of any SettlementDate, Collections of Borrowers or their respective Subsidiaries received sincethe then immediately preceding Settlement Date have been applied to SwingLender’s Pro Rata Share of the Advances other than to Swing Loans, as providedfor in the previous sentence, Swing Lender shall pay to Agent for the accountsof the Lenders, and Agent shall pay to the Lenders, to be applied to theoutstanding Advances of such Lenders, an amount such that each Lender shall,upon receipt of such amount, have, as of such Settlement Date, its Pro RataShare of the Advances.  During the periodbetween Settlement Dates, Swing Lender with respect to Swing Loans, Agent withrespect to Protective Advances, and each Lender (subject to the effect ofagreements between Agent and individual Lenders) with respect to the Advancesother than Swing Loans and Protective Advances, shall be entitled to interestat the applicable rate or rates payable under this Agreement on the dailyamount of funds employed by Swing Lender, Agent, or the Lenders, as applicable.

 

(f)                                    **Notation****.**  Agentshall record on its books the principal amount of the Advances owing to eachLender, including the Swing Loans owing to Swing Lender, and ProtectiveAdvances owing to Agent, and the interests therein of each Lender, from time totime and such records shall, absent manifest error, conclusively be presumed tobe correct and accurate.

 

(g)                                 **Lenders’ Failure to Perform****.**  All Advances (other than Swing Loans andProtective Advances) shall be made by the Lenders contemporaneously and inaccordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for anyfailure by any other Lender to perform its obligation to make any Advance (orother extension of credit) hereunder, nor shall any Commitment of any Lender beincreased or decreased as a result of any failure by any other Lender toperform its obligations hereunder, and (ii) no failure by any Lender toperform its obligations hereunder shall excuse any other Lender from itsobligations hereunder.

 

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2.4                                 **Payments**.

 

(a)                                  **Payments by Borrowers.**

 

(i)                                     Except as otherwise expressly providedherein, all payments by Borrowers shall be made to Agent’s Account for theaccount of the Lender Group and shall be made in immediately available funds,no later than 11:00 a.m. (California time) on the date specifiedherein.  Any payment received by Agentlater than 11:00 a.m. (California time), shall be deemed to have beenreceived on the following Business Day and any applicable interest or fee shallcontinue to accrue until such following Business Day.

 

(ii)                                  Unless Agent receives notice fromAdministrative Borrower prior to the date on which any payment is due to theLenders that Borrowers will not make such payment in full as and when required,Agent may assume that Borrowers have made (or will make) such payment in fullto Agent on such date in immediately available funds and Agent may (but shallnot be so required), in reliance upon such assumption, distribute to eachLender on such due date an amount equal to the amount then due suchLender.  If and to the extent Borrowersdo not make such payment in full to Agent on the date when due, each Lenderseverally shall repay to Agent on demand such amount distributed to such Lender,together with interest thereon at the Defaulting Lender Rate for each day fromthe date such amount is distributed to such Lender until the date repaid.

 

(b)                                 **Apportionment and Application.**

 

(i)                                     Except as otherwise provided with respectto Defaulting Lenders and except as otherwise provided in the Loan Documents(including agreements between Agent and individual Lenders), aggregateprincipal and interest payments shall be apportioned ratably among the Lenders(according to the unpaid principal balance of the Obligations to which suchpayments relate held by each Lender) and payments of fees and expenses (otherthan fees or expenses that are for Agent’s separate account, after givingeffect to any agreements between Agent and individual Lenders) shall beapportioned ratably among the Lenders having a Pro Rata Share of the type ofCommitment or Obligation to which a particular fee relates.  All payments shall be remitted to Agent andall such payments, and all proceeds of Collateral received by Agent, shall beapplied as follows:

 

(1)                                  first, ratably to pay any Lender Group Expenses then due to Agent or any ofthe Lenders under the Loan Documents, until paid in full,

 

(2)                                  second, ratably to pay any fees or premiums then due to Agent (for itsseparate account, after giving effect to any agreements between Agent andindividual Lenders) or any of the Lenders under the Loan Documents until paidin full,

 

(3)                                  third, to pay interest due in respect of all Protective Advances until paidin full,

 

(4)                                  fourth, to pay the principal of all Protective Advances until paid in full,

 

(5)                                  fifth, ratably to pay interest due in respect of the Advances (other thanProtective Advances) and the Swing Loans until paid in full,

 

(6)                                  sixth, to pay the principal of all Swing Loans until paid in full,

 

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(7)                                  seventh, so long as no Event of Default has occurred and is continuing, and atAgent’s election (which election Agent agrees will not be made if anOveradvance would be created thereby), to pay any Bank Product Obligations thendue and owing, until paid in full,

 

(8)                                  eighth, so long as no Event of Default has occurred and is continuing, to paythe principal of all Advances until paid in full,

 

(9)                                  ninth, if an Event of Default has occurred and is continuing, ratably(i) to pay the principal of all Advances until paid in full, (ii) toAgent, to be held by Agent, for the ratable benefit of Issuing Lender and thoseLenders having a Commitment, as cash collateral in an amount up to 105% of theLetter of Credit Usage until paid in full, and (iii) to Agent, to be heldby Agent, for the benefit of the Bank Product Providers, as cash collateral inan amount up to the amount of the Bank Product Reserve established prior to theoccurrence of, and not in contemplation of, the subject Event of Default untilthe Bank Product Obligations have been paid in full or the cash collateralamount therefor has been exhausted,

 

(10)                            tenth, if an Eventof Default has occurred and is continuing, to pay any other Obligations(including the provision of amounts to Agent, to be held by Agent, for thebenefit of the Bank Product Providers, as cash collateral in an amount up tothe amount determined by Agent in its Permitted Discretion as the amountnecessary to secure the Bank Product Obligations), and

 

(11)                            eleventh, toBorrowers (to be wired to the Designated Account) or such other Person entitledthereto under Applicable Law.

 

(ii)                                  Agentpromptly shall distribute to each Lender, pursuant to the applicable wireinstructions received from each Lender in writing, such funds as it may beentitled to receive, subject to a Settlement delay as provided in Section 2.3(e).

 

(iii)                               Except with respect to proceeds of the Magnetek ADSSale or any Disposition described in Section 2.4(c), in each instance,so long as no Event of Default has occurred and is continuing, this Section 2.4(b)shall not apply to any payment made by Borrowers to Agent and specified byBorrowers to be for the payment of specific Obligations then due and payable(or prepayable) under any provision of this Agreement.

 

(iv)                              For purposes ofthe foregoing, “paid in full” means payment of all amounts owing under the LoanDocuments according to the terms thereof, including loan fees, service fees,professional fees, interest (and specifically including interest accrued afterthe commencement of any Insolvency Proceeding), default interest, interest oninterest, and expense reimbursements, whether or not any of the foregoing wouldbe or is allowed or disallowed in whole or in part in any Insolvency Proceeding.

 

(v)                                 In the event of a direct conflict betweenthe priority provisions of this Section 2.4 and other provisionscontained in any other Loan Document, it is the intention of the parties heretothat such priority provisions in such documents shall be read together andconstrued, to the fullest extent possible, to be in concert with eachother.  In the event of any actual,irreconcilable conflict that cannot be resolved as aforesaid, the terms andprovisions of this Section 2.4 shall control and govern.

 

(vi)                              In the event, pursuant to the provisionsof Section 6.7(g), Borrowers repay the Obligations as set forth in this Section 2.4(b)after the incurrence and during the continuance of an Event of Default (A)instead of making a scheduled principal payment with respect to the Second LienIndebtedness or (B) out of proceeds of a Second Lien Prepayment Event, then theMaximum Revolver Amount, the aggregate Commitments and the Total Debt Limitershall be permanently reduced and a permanent reserve against the Borrowing Baseshall be established and maintained by Agent, in each case in an amount equalto the amount of such repayment of the Obligations.

 

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(c)                                  **Mandatory Prepayments.**

 

(i)                                     Upon aDisposition by any Borrower or Mondel of any Accounts or Inventory (but not allor substantially all of the assets (x) of such Person or (y) that are used withrespect to one or more business lines maintained by any Borrower or Mondel) notmade in the ordinary course of such Borrower’s or Mondel’s business, Borrowersshall prepay the Senior Debt (in accordance with the application procedures setforth in Section2.4(c)(vi)) in an amount equal to (A) in the case of aDisposition solely of Accounts or Inventory, 100% of the Net Cash Proceedsreceived by such Person in connection therewith, or (B) in the case of aDisposition of assets including Accounts or Inventory as well as other assets,100% of the net book value of such Accounts or Inventory that are the subjectof such Disposition.  The provisions ofthis Section2.4(c)(i) shallnot be deemed to be implied consent to any Disposition otherwise prohibited bythe terms and conditions of this Agreement.

 

(ii)                                  Upon a Disposition by any Borrower, anyGuarantor or any of their respective Subsidiaries of (x) all or substantiallyall of the Stock in Mondel or any Borrower that owns Accounts or Inventory, or(y) all or substantially all of the assets of Mondel or any Borrower that ownsAccounts or Inventory (or one or more business lines maintained by any Borroweror Mondel that includes Accounts or Inventory), Borrowers shall prepay theSenior Debt (in accordance with the application procedures set forth in Section2.4(c)(vi)) in an amount equal to 100% of the net book value of such Accountsor Inventory that are the subject of such Disposition.  The provisions of this Section 2.4(c)(i)shall not be deemed to be implied consent to any Disposition otherwiseprohibited by the terms and conditions of this Agreement.

 

(iii)                               Upon the receipt by any Borrower, any Guarantor or anyof their respective Subsidiaries of any Extraordinary Receipts, Borrowers shallprepay the Senior Debt (in accordance with the application procedures set forthin Section 2.4(c)(vi)) in an amount equal to 100% of the Net CashProceeds arising from such Extraordinary Receipts.

 

(iv)                              If, for any reason, the aggregateoutstanding principal balance of the Advances, Letter of Credit Usage andSecond Lien Indebtedness, when measured as of the end of any month, exceeds theTotal Debt Limiter, Borrowers shall immediately prepay the Senior Debt (inaccordance with the application procedures set forth in Section 2.4(c)(vi))by remitting to Agent, in cash, the amount of such excess.

 

(v)                                 The foregoing to the contrarynotwithstanding, Borrowers shall not be required to make a prepayment otherwiserequired pursuant to Sections 2.4(c)(i) or (iii) withReinvestment Eligible Funds so long as: (A) no Default or Event of Default hasoccurred and is continuing on the date such Person receives such ReinvestmentEligible Funds and on the date such amounts are to be released to a Borrowerpursuant to this Section 2.4(c)(v), (B) the Administrative Borrowerdelivers a notice (a “Reinvestment Notice”) on or prior to the date thatthe applicable Borrower receives the monies constituting such ReinvestmentEligible Funds notifying the Agent of the intent of the applicable Person touse such Reinvestment Eligible Funds (1) to repair, restore, or replace theassets that were the subject of the Disposition, casualty or condemnationgiving rise to such amounts with assets of equal or greater fair market valuewhich will be useful in the conduct of their business in accordance with pastpractice, (2) within the period specified in such notice, which period shallnot to exceed the earlier of (x) 180 days after the receipt of suchReinvestment Eligible Funds by the applicable Borrower and (y) the MaturityDate, and (C) pending the reinvestment described in clause (B)(1) above, suchReinvestment Eligible Amounts are deposited in a cash

 

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collateral account over which is subject to a ControlAgreement.  If all or any portion of suchReinvestment Eligible Funds are not used in accordance with the precedingsentence within the period specified in the Reinvestment Notice, the remainingportion shall be applied to the Obligations in accordance with Section 2.4(c)(vi)on the last day of such specified period, to the extent that such ReinvestmentEligible Funds were otherwise required to be used to prepay the Obligationspursuant to this Section 2.4(c).

 

(vi)                              Any prepayments required to be madepursuant to this Section 2.4(c) shall be (A) accompanied by all accruedinterest on the principal amount being prepaid to the date of prepayment and(B) be applied to the Obligations then outstanding (other than Bank ProductObligations in excess of the Bank Product Reserve) as set forth in Section 2.4(b)until paid in full and thereafter be used to prepay the Second Lien Indebtednesssubject to the terms of the Second Lien Intercreditor Agreement and theprovisions of this Agreement.

 

2.5                                 **Overadvances**. Except as permitted by Section 2.3(d) with respect to optionalOveradvances, if, at any time or for any reason, the amount of Obligations owedby Borrowers to the Lender Group pursuant to Section 2.1 or Section 2.12is greater than any of the limitations set forth in Section 2.1 or Section 2.12,as applicable (an “Overadvance”), Borrowers immediately shall pay toAgent, in cash, the amount of such excess, which amount shall be used by Agentto reduce the Obligations in accordance with the priorities set forth in Section 2.4(b).  In addition, Borrowers hereby promise to paythe Obligations (including principal, interest, fees, costs, and expenses) inDollars in full as and when due and payable under the terms of this Agreementand the other Loan Documents.

 

2.6                                 **Interest Rates and Letter ofCredit Fee:  Rates, Payments, andCalculations**.

 

(a)                                  **Interest Rates.**  Except as provided in Section 2.6(c)below, all Obligations (except for undrawn Letters of Credit and except forBank Product Obligations) that have been charged to the Loan Account pursuantto the terms hereof shall bear interest on the Daily Balance thereof as follows(i) if the relevant Obligation is an Advance that is a LIBOR Rate Loan, ata per annum rate equal to the LIBOR Rate *plus* the LIBORRate Margin and (ii) otherwise, at a per annum rate equal to the Base Rate*plus* the Base Rate Margin.

 

(b)                                 **Letter of Credit Fee.**  Borrowers shall pay Agent (for the ratablebenefit of the Lenders with a Commitment, subject to any agreements betweenAgent and individual Lenders), a Letter of Credit fee (in addition to thecharges, commissions, fees, and costs set forth in Section 2.12(e))which shall accrue at a rate equal to 4.00% per annum times the Daily Balanceof the undrawn amount of all outstanding Letters of Credit.

 

(c)                                  **Default Rate.**  Upon the occurrence and during thecontinuation of an Event of Default (and at the election of Agent or theRequired Lenders),

 

(i)                                     all Obligations (except for undrawnLetters of Credit and except for Bank Product Obligations) that have beencharged to the Loan Account pursuant to the terms hereof shall bear interest onthe Daily Balance thereof at a per annum rate equal to 4 percentage pointsabove the per annum rate otherwise applicable hereunder, and

 

(ii)                                  the Letter of Credit fee provided forabove shall be increased to 4 percentage points above the per annum rateotherwise applicable hereunder.

 

(d)                                 **Payment.**  Except as provided to the contrary in Section 2.11or Section 2.13(a), interest, Letter of Credit fees, and all otherfees payable hereunder shall be due and payable, in arrears, on the first dayof each month at any time that Obligations or Commitments are outstanding.  Borrowers hereby

 

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authorize Agent, from time to time, without prior notice to Borrowers,to charge all interest and fees (when due and payable), all Lender GroupExpenses (as and when incurred), all charges, commissions, fees, and costsprovided for in Section 2.12(e) (as and when accrued or incurred),all fees and costs provided for in Section 2.11 (as and whenaccrued or incurred), and all other payments as and when due and payable underany Loan Document (including any amounts due and payable to the Bank ProductProviders in respect of Bank Products up to the amount of the Bank ProductReserve) to Borrowers’ Loan Account, which amounts thereafter shall constituteAdvances hereunder and shall accrue interest at the rate then applicable toAdvances hereunder.  Any interest notpaid when due shall be compounded by being charged to Borrowers’ Loan Accountand shall thereafter constitute Advances hereunder and shall accrue interest atthe rate then applicable to Advances that are Base Rate Loans hereunder.

 

(e)                                  **Computation.**  All interest and fees chargeable under theLoan Documents shall be computed on the basis of a 360 day year for the actualnumber of days elapsed.  In the event theBase Rate is changed from time to time hereafter, the rates of interesthereunder based upon the Base Rate automatically and immediately shall beincreased or decreased by an amount equal to such change in the Base Rate.

 

(f)                                    **Intent to Limit Charges to MaximumLawful Rate.**  In no event shall the interest rate or ratespayable under this Agreement, *plus* any otheramounts paid in connection herewith, exceed the highest rate permissible underany law that a court of competent jurisdiction shall, in a final determination,deem applicable.  Borrowers and theLender Group, in executing and delivering this Agreement, intend legally toagree upon the rate or rates of interest and manner of payment stated withinit; provided, however, that, anything contained herein to the contrarynotwithstanding, if said rate or rates of interest or manner of payment exceedsthe maximum allowable under Applicable Law, then, ipso facto, as of the date ofthis Agreement, Borrowers are and shall be liable only for the payment of such maximumas allowed by law, and payment received from Borrowers in excess of such legalmaximum, whenever received, shall be applied to reduce the principal balance ofthe Obligations to the extent of such excess.

 

2.7                                 **Cash Management**.

 

(a)                                  Borrowers shall and shall cause each of theirrespective Domestic Subsidiaries to (i) establish and maintain cashmanagement services of a type and on terms satisfactory to Agent at one or moreof the banks set forth on Schedule 2.7(a) (each a “CashManagement Bank”), and shall request in writing and otherwise take suchreasonable steps to ensure that all of their and their respective DomesticSubsidiaries’ Account Debtors forward payment of the amounts owed by themdirectly to such Cash Management Bank, and (ii) deposit or cause to bedeposited promptly, and in any event no later than the first Business Day afterthe date of receipt thereof, all of their Collections (including those sentdirectly by their Account Debtors to Borrowers or their respective DomesticSubsidiaries) into a bank account in Agent’s name (a “Cash ManagementAccount”) at one of the Cash Management Banks.

 

(b)                                 Each Cash Management Bank shall establish andmaintain Cash Management Agreements with Agent and Borrowers, in form andsubstance acceptable to Agent.  Each suchCash Management Agreement shall provide, among other things, that (i) theCash Management Bank will comply with any instructions originated by Agent (or,after the date when the “Discharge of Priority First Lien Indebtedness” (assuch term is defined in the Intercreditor Agreement) has occurred, Second LienLoan Agent) directing the disposition of the funds in such Cash ManagementAccount without further consent by Borrowers or their respective DomesticSubsidiaries, as applicable, (ii) the Cash Management Bank has no rightsof setoff or recoupment or any other claim against the applicable CashManagement Account, other than for payment of its service fees and othercharges directly related to the administration of such Cash Management Accountand for returned checks or other items of payment, and (iii) it willforward by daily sweep all amounts in the applicable Cash Management Account tothe Agent’s Account.

 

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(c)                                  So long as no Default or Event of Default hasoccurred and is continuing, Administrative Borrower may amend Schedule 2.7(a)to add or replace a Cash Management Bank or Cash Management Account; provided,however, that (i) such prospective Cash Management Bank shall besatisfactory to Agent, and (ii) prior to the time of the opening of suchCash Management Account, a Borrower or its Domestic Subsidiary, as applicable,and such prospective Cash Management Bank shall have executed and delivered toAgent a Cash Management Agreement.  Borrowers(or their respective Domestic Subsidiaries, as applicable) shall close any oftheir Cash Management Accounts (and establish replacement cash managementaccounts in accordance with the foregoing sentence) promptly and in any eventwithin 30 days of notice from Agent that the creditworthiness of any CashManagement Bank is no longer acceptable in Agent’s reasonable judgment, or aspromptly as practicable and in any event within 60 days of notice from Agentthat the operating performance, funds transfer, or availability procedures orperformance of the Cash Management Bank with respect to Cash ManagementAccounts or Agent’s liability under any Cash Management Agreement with suchCash Management Bank is no longer acceptable in Agent’s reasonable judgment.

 

(d)                                 The Cash Management Accounts shall be cashcollateral accounts subject to Control Agreements.

 

2.8                                 **Crediting Payments**.  Thereceipt of any payment item by Agent (whether from transfers to Agent by theCash Management Banks pursuant to the Cash Management Agreements or otherwise)shall not be considered a payment on account unless such payment item is a wiretransfer of immediately available federal funds made to the Agent’s Account orunless and until such payment item is honored when presented for payment.  Should any payment item not be honored whenpresented for payment, then Borrowers shall be deemed not to have made suchpayment and interest shall be calculated accordingly.  Anything to the contrary contained hereinnotwithstanding, any payment item shall be deemed received by Agent only if itis received into the Agent’s Account on a Business Day on or before11:00 a.m. (California time).  Ifany payment item is received into the Agent’s Account on a non-Business Day orafter 11:00 a.m. (California time) on a Business Day, it shall be deemedto have been received by Agent as of the opening of business on the immediatelyfollowing Business Day.

 

2.9                                 **Designated Account**. Agent is authorized to make the Advances, and Issuing Lender isauthorized to issue the Letters of Credit, under this Agreement based upontelephonic or other instructions received from anyone purporting to be anAuthorized Person or, without instructions, if pursuant to Section 2.6(d).  Administrative Borrower agrees to establishand maintain the Designated Account with the Designated Account Bank for thepurpose of receiving the proceeds of the Advances requested by Borrowers andmade by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Administrative Borrower, anyAdvance, Protective Advance, or Swing Loan requested by Borrowers and made byAgent or the Lenders hereunder shall be made to the Designated Account.

 

2.10                           **Maintenance of Loan Account;Statements of Obligations**.  Agent shall maintain an account on its booksin the name of Borrowers (the “Loan Account”) on which Borrowers will becharged with all Advances (including Protective Advances and Swing Loans) madeby Agent, Swing Lender, or the Lenders to Borrowers or for Borrowers’ account,the Letters of Credit issued by Issuing Lender for Borrowers’ account, and withall other payment Obligations hereunder or under the other Loan Documents(except for Bank Product Obligations), including, accrued interest, fees andexpenses, and Lender Group Expenses.  Inaccordance with Section 2.8, the Loan Account will be credited withall payments received by Agent from Borrowers or for Borrowers’ account,including all amounts received in the Agent’s Account from any Cash ManagementBank.  Agent shall render statementsregarding the Loan Account to Administrative Borrower, including principal,interest, fees, and including an itemization of all charges and expensesconstituting Lender Group Expenses owing, and such statements, absent manifesterror, shall be conclusively presumed to be correct and accurate and constitutean account stated between Borrowers and the Lender Group unless, within 30 daysafter receipt thereof by Administrative Borrower, Administrative Borrower shalldeliver to Agent written objection thereto describing the error or errorscontained in any such statements.

 

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2.11                           **Fees**. Borrowers shall pay to Agent, as and when due and payable under theterms of the Fee Letter, the fees set forth in the Fee Letter.

 

2.12                           **Letters of Credit**.

 

(a)                                  Subject to the terms and conditions of thisAgreement, the Issuing Lender agrees to issue letters of credit for the accountof Borrowers (each, an “L/C”) or to purchase participations or executeindemnities or reimbursement obligations (each such undertaking, an “L/CUndertaking”) with respect to letters of credit issued by an UnderlyingIssuer (as of the Closing Date, the prospective Underlying Issuer is to beWells Fargo) for the account of Borrowers. Each request for the issuance of a Letter of Credit or the amendment,renewal, or extension of any outstanding Letter of Credit shall be made inwriting by an Authorized Person and delivered to the Issuing Lender and Agentvia hand delivery, telefacsimile, or other electronic method of transmissionreasonably in advance of the requested date of issuance, amendment, renewal, orextension.  Each such request shall be inform and substance satisfactory to the Issuing Lender in its Permitted Discretionand shall specify (i) the amount of such Letter of Credit, (ii) thedate of issuance, amendment, renewal, or extension of such Letter of Credit,(iii) the expiration date of such Letter of Credit, (iv) the name andaddress of the beneficiary thereof (or the beneficiary of the Underlying Letterof Credit, as applicable), and (v) such other information (including, inthe case of an amendment, renewal, or extension, identification of theoutstanding Letter of Credit to be so amended, renewed, or extended) as shallbe necessary to prepare, amend, renew, or extend such Letter of Credit.  If requested by the Issuing Lender, Borrowersalso shall be an applicant under the application with respect to any UnderlyingLetter of Credit that is to be the subject of an L/C Undertaking.  The Issuing Lender shall have no obligationto issue a Letter of Credit if any of the following would result after givingeffect to the issuance of such requested Letter of Credit:

 

(i)                                     theLetter of Credit Usage would exceed the Borrowing Base *less* the sum of (A) the outstanding amount ofAdvances plus (B) the Availability Block,

 

(ii)                                  the Letter of Credit Usage would exceed$4,000,000,

 

(iii)                               the Letter of Credit Usage would exceed the MaximumRevolver Amount *less* the sum of (A) theoutstanding amount of Advances plus (B) the Availability Block, or

 

(iv)                              the Letter ofCredit Usage would exceed the Total Debt Limiter *less* the sum of (A) the outstanding amount ofAdvances plus (B) the Availability Block plus (C) the outstanding principalbalance of the Second Lien Indebtedness.

 

Borrowers and the Lender Group acknowledgeand agree that certain Underlying Letters of Credit may be issued to supportletters of credit that already are outstanding as of the Closing Date.  Each Letter of Credit (and correspondingUnderlying Letter of Credit) shall be in form and substance acceptable to theIssuing Lender (in the exercise of its Permitted Discretion), including therequirement that the amounts payable thereunder must be payable inDollars.  If Issuing Lender is obligatedto advance funds under a Letter of Credit, Borrowers immediately shallreimburse such L/C Disbursement to Issuing Lender by paying to Agent an amountequal to such L/C Disbursement not later than 11:00 a.m., California time,on the date that such L/C Disbursement is made, if Administrative Borrowershall have received written or telephonic notice of such L/C Disbursement priorto 10:00 a.m., California time, on such date, or, if such notice has notbeen received by Administrative Borrower prior to such time on such date, thennot later than 11:00 a.m., California time, on the Business Day thatAdministrative Borrower receives such notice, if such notice is received priorto 10:00 a.m., California time, on the date of receipt, and, in theabsence of such reimbursement, the L/C Disbursement

 

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immediately and automatically shall be deemedto be an Advance hereunder and, thereafter, shall bear interest at the ratethen applicable to Advances that are Base Rate Loans under Section 2.6.  To the extent an L/C Disbursement is deemedto be an Advance hereunder, Borrowers’ obligation to reimburse such L/CDisbursement shall be discharged and replaced by the resulting Advance.  Promptly following receipt by Agent of anypayment from Borrowers pursuant to this paragraph, Agent shall distribute suchpayment to the Issuing Lender or, to the extent that Lenders have made paymentspursuant to Section 2.12(c) to reimburse the Issuing Lender, thento such Lenders and the Issuing Lender as their interests may appear.

 

(b)                                 Promptly following receipt of a notice of L/CDisbursement pursuant to Section 2.12(a), each Lender with aCommitment agrees to fund its Pro Rata Share of any Advance deemed madepursuant to the foregoing subsection on the same terms and conditions as ifBorrowers had requested such Advance and Agent shall promptly pay to IssuingLender the amounts so received by it from the Lenders.  By the issuance of a Letter of Credit (or anamendment to a Letter of Credit increasing the amount thereof) and without anyfurther action on the part of the Issuing Lender or the Lenders withCommitments, the Issuing Lender shall be deemed to have granted to each Lenderwith a Commitment, and each Lender with a Commitment shall be deemed to havepurchased, a participation in each Letter of Credit, in an amount equal to itsPro Rata Share of the Risk Participation Liability of such Letter of Credit,and each such Lender agrees to pay to Agent, for the account of the IssuingLender, such Lender’s Pro Rata Share of any payments made by the Issuing Lenderunder such Letter of Credit.  Inconsideration and in furtherance of the foregoing, each Lender with aCommitment hereby absolutely and unconditionally agrees to pay to Agent, forthe account of the Issuing Lender, such Lender’s Pro Rata Share of each L/CDisbursement made by the Issuing Lender and not reimbursed by Borrowers on thedate due as provided in clause (a) of this Section, or of any reimbursementpayment required to be refunded to Borrowers for any reason.  Each Lender with a Commitment acknowledgesand agrees that its obligation to deliver to Agent, for the account of theIssuing Lender, an amount equal to its respective Pro Rata Share of each L/CDisbursement made by the Issuing Lender pursuant to this Section 2.12(b)shall be absolute and unconditional and such remittance shall be madenotwithstanding the occurrence or continuation of an Event of Default orDefault or the failure to satisfy any condition set forth in Section 3hereof.  If any such Lender fails to makeavailable to Agent the amount of such Lender’s Pro Rata Share of each L/CDisbursement made by the Issuing Lender in respect of such Letter of Credit asprovided in this Section, such Lender shall be deemed to be a Defaulting Lenderand Agent (for the account of the Issuing Lender) shall be entitled to recoversuch amount on demand from such Lender together with interest thereon at theDefaulting Lender Rate until paid in full.

 

(c)                                  Each Borrower hereby agrees to indemnify, save,defend, and hold the Lender Group harmless from any loss, cost, expense, orliability, and reasonable attorneys fees incurred by the Lender Group arisingout of or in connection with any Letter of Credit; provided, however, that noBorrower shall be obligated hereunder to indemnify for any loss, cost, expense,or liability to the extent that it is caused by the gross negligence or willfulmisconduct of the Issuing Lender or any other member of the Lender Group.  Each Borrower agrees to be bound by the UnderlyingIssuer’s regulations and interpretations of any Underlying Letter of Credit orby Issuing Lender’s interpretations of any L/C issued by Issuing Lender to orfor such Borrower’s account, even though this interpretation may be differentfrom such Borrower’s own, and each Borrower understands and agrees that theLender Group shall not be liable for any error, negligence, or mistake, whetherof omission or commission, in following Borrowers’ instructions or thosecontained in the Letter of Credit or any modifications, amendments, orsupplements thereto.  Each Borrowerunderstands that the L/C Undertakings may require Issuing Lender to indemnifythe Underlying Issuer for certain costs or liabilities arising out of claims byBorrowers against such Underlying Issuer. Each Borrower hereby agrees to indemnify, save, defend, and hold theLender Group harmless with respect to any loss, cost, expense (includingreasonable attorneys fees), or liability incurred by the Lender Group under anyL/C Undertaking as a result of the Lender Group’s indemnification of anyUnderlying Issuer; provided, however, that no Borrower shall be obligatedhereunder to indemnify for any loss, cost, expense, or liability to the extentthat it is caused by the gross negligence or willful misconduct of the IssuingLender or any other member of the Lender Group. Each Borrower hereby acknowledges and agrees that neither the LenderGroup nor the Issuing Lender shall be responsible for delays, errors, oromissions resulting from the malfunction of equipment in connection with anyLetter of Credit.

 

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(d)                                 Each Borrower hereby authorizes and directsany Underlying Issuer to deliver to the Issuing Lender all instruments,documents, and other writings and property received by such Underlying Issuerpursuant to such Underlying Letter of Credit and to accept and rely upon theIssuing Lender’s instructions with respect to all matters arising in connectionwith such Underlying Letter of Credit and the related application.

 

(e)                                  Any and all issuance charges, commissions,fees, and costs incurred by the Issuing Lender relating to Underlying Lettersof Credit shall be Lender Group Expenses for purposes of this Agreement andimmediately shall be reimbursable by Borrowers to Agent for the account of theIssuing Lender; it being acknowledged and agreed by each Borrower that, as ofthe Closing Date, the issuance charge imposed by the prospective UnderlyingIssuer is .825% per annum times the face amount of each Underlying Letter ofCredit, that such issuance charge may be changed from time to time, and thatthe Underlying Issuer also imposes a schedule of charges for amendments,extensions, drawings, and renewals.

 

(f)                                    If by reason of (i) any change after theClosing Date in any Applicable Law, treaty, rule, or regulation or any changein the interpretation or application thereof by any Governmental Authority, or(ii) compliance by the Underlying Issuer or the Lender Group with anydirection, request, or requirement (irrespective of whether having the force oflaw) of any Governmental Authority or monetary authority including, RegulationD of the Federal Reserve Board as from time to time in effect (and anysuccessor thereto):

 

(i)                                     any reserve, deposit, or similar requirementis or shall be imposed or modified in respect of any Letter of Credit issuedhereunder, or

 

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

 

andthe result of the foregoing is to increase, directly or indirectly, the cost tothe Lender Group of issuing, making, guaranteeing, or maintaining any Letter ofCredit or to reduce the amount receivable in respect thereof by the LenderGroup, then, and in any such case, Agent may, at any time within a reasonableperiod after the additional cost is incurred or the amount received is reduced,notify Administrative Borrower, and Borrowers shall pay on demand such amountsas Agent may specify to be necessary to compensate the Lender Group for suchadditional cost or reduced receipt, together with interest on such amount fromthe date of such demand until payment in full thereof at the rate thenapplicable to Base Rate Loans hereunder. The determination by Agent of any amount due pursuant to this Section,as set forth in a certificate setting forth the calculation thereof inreasonable detail, shall, in the absence of manifest or demonstrable error, befinal and conclusive and binding on all of the parties hereto.

 

2.13                           **LIBOR Option**.

 

(a)                                  **Interest and Interest Payment Dates.**  In lieu of having interestcharged at the rate based upon the Base Rate, Borrowers shall have the option(the “LIBOR Option”) to have interest on all or a portion of theAdvances be charged at a rate of interest based upon the LIBOR Rate.  Interest on LIBOR Rate Loans shall be payableon the earliest of (i) the last day of the Interest Period applicablethereto, (ii) the occurrence of an Event of Default in consequence ofwhich the Required Lenders or Agent on behalf thereof have elected toaccelerate the maturity of all or any portion of the Obligations, or(iii) termination of this Agreement pursuant to the terms hereof.  On the last day of each applicable InterestPeriod, unless Administrative Borrower properly has exercised the LIBOR Optionwith respect thereto, the interest rate

 

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applicable to such LIBOR Rate Loan automatically shall convert to therate of interest then applicable to Base Rate Loans of the same typehereunder.  At any time that an Event ofDefault has occurred and is continuing, Borrowers no longer shall have theoption to request that Advances bear interest at a rate based upon the LIBOR Rateand Agent shall have the right to convert the interest rate on all outstandingLIBOR Rate Loans to the rate then applicable to Base Rate Loans hereunder.

 

(b)                                 **LIBOR Election.**

 

(i)                                     AdministrativeBorrower may, at any time and from time to time, so long as no Event of Defaulthas occurred and is continuing, elect to exercise the LIBOR Option by notifyingAgent prior to 11:00 a.m. (California time) at least 3 Business Days priorto the commencement of the proposed Interest Period (the “LIBOR Deadline”). Notice of Administrative Borrower’s election of the LIBOR Option for apermitted portion of the Advances and an Interest Period pursuant to thisSection shall be made by delivery to Agent of a LIBOR Notice received by Agentbefore the LIBOR Deadline, or by telephonic notice received by Agent before theLIBOR Deadline (to be confirmed by delivery to Agent of a LIBOR Notice receivedby Agent prior to 5:00 p.m. (California time) on the same day).  Promptly upon its receipt of each such LIBORNotice, Agent shall provide a copy thereof to each of the Lenders having aCommitment.

 

(ii)                                  Each LIBOR Notice shall be irrevocableand binding on Borrowers.  In connectionwith each LIBOR Rate Loan, each Borrower shall indemnify, defend, and holdAgent and the Lenders harmless against any loss, cost, or expense incurred byAgent or any Lender as a result of (A) the payment of any principal of anyLIBOR Rate Loan other than on the last day of an Interest Period applicablethereto (including as a result of an Event of Default), (B) the conversionof any LIBOR Rate Loan other than on the last day of the Interest Periodapplicable thereto, or (C) the failure to borrow, convert, continue orprepay any LIBOR Rate Loan on the date specified in any LIBOR Notice deliveredpursuant hereto (such losses, costs, and expenses, collectively, “FundingLosses”).  Funding Losses shall, withrespect to Agent or any Lender, be deemed to equal the amount determined byAgent or such Lender to be the excess, if any, of (x) the amount ofinterest that would have accrued on the principal amount of such LIBOR RateLoan had such event not occurred, at the LIBOR Rate that would have beenapplicable thereto, for the period from the date of such event to the last dayof the then current Interest Period therefor (or, in the case of a failure toborrow, convert or continue, for the period that would have been the InterestPeriod therefor), *minus* (y) the amount ofinterest that would accrue on such principal amount for such period at theinterest rate which Agent or such Lender would be offered were it to beoffered, at the commencement of such period, Dollar deposits of a comparableamount and period in the London interbank market.  A certificate of Agent or a Lender deliveredto Administrative Borrower setting forth any amount or amounts that Agent orsuch Lender is entitled to receive pursuant to this Section 2.13shall be conclusive absent manifest error.

 

(iii)                               Borrowers shallhave not more than 5 LIBOR Rate Loans in effect at any given time.  Borrowers only may exercise the LIBOR Optionfor LIBOR Rate Loans of at least $1,000,000 and integral multiples of $500,000in excess thereof.

 

(c)                                  **Prepayments.**  Borrowers may prepay LIBOR Rate Loans at anytime; provided, however, that in the event that LIBOR Rate Loans are prepaid onany date that is not the last day of the Interest Period applicable thereto,including as a result of any automatic prepayment through the requiredapplication by Agent of proceeds of Borrowers’ and their respectiveSubsidiaries’ Collections in accordance with Section 2.4(b) or forany other reason, including early termination of the term of this Agreement oracceleration of all or any portion of the Obligations pursuant to the termshereof, each Borrower shall indemnify, defend, and hold Agent and the Lendersand their Participants harmless against any and all Funding Losses inaccordance with clause (b)(ii) above.

 

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(d)                                 **Special Provisions Applicable to LIBOR Rate.**

 

(i)                                     The LIBOR Rate may be adjusted by Agentwith respect to any Lender on a prospective basis to take into account anyadditional or increased costs to such Lender of maintaining or obtaining anyEurodollar deposits or increased costs, in each case, due to changes inApplicable Law occurring subsequent to the commencement of the then applicableInterest Period, including changes in tax laws (except changes of generalapplicability in corporate income tax laws) and changes in the reserverequirements imposed by the Board of Governors of the Federal Reserve System(or any successor), excluding the Reserve Percentage, which additional orincreased costs would increase the cost of funding loans bearing interest atthe LIBOR Rate.  In any such event, theaffected Lender shall give Administrative Borrower and Agent notice of such adetermination and adjustment and Agent promptly shall transmit the notice toeach other Lender and, upon its receipt of the notice from the affected Lender,Administrative Borrower may, by notice to such affected Lender (y) requiresuch Lender to furnish to Administrative Borrower a statement setting forth thebasis for adjusting such LIBOR Rate and the method for determining the amountof such adjustment, or (z) repay the LIBOR Rate Loans with respect towhich such adjustment is made (together with any amounts due under clause(b)(ii) above).

 

(ii)                                  In the event that any change in marketconditions or any law, regulation, treaty, or directive, or any change thereinor in the interpretation of application thereof, shall at any time after thedate hereof, in the reasonable opinion of any Lender, make it unlawful orimpractical for such Lender to fund or maintain LIBOR Rate Loans or to continuesuch funding or maintaining, or to determine or charge interest rates at theLIBOR Rate, such Lender shall give notice of such changed circumstances toAgent and Administrative Borrower and Agent promptly shall transmit the noticeto each other Lender and (y) in the case of any LIBOR Rate Loans of suchLender that are outstanding, the date specified in such Lender’s notice shallbe deemed to be the last day of the Interest Period of such LIBOR Rate Loans,and interest upon the LIBOR Rate Loans of such Lender thereafter shall accrueinterest at the rate then applicable to Base Rate Loans, and (z) Borrowersshall not be entitled to elect the LIBOR Option until such Lender determinesthat it would no longer be unlawful or impractical to do so.

 

(e)                                  **No Requirement of Matched Funding.**  Anything to the contrarycontained herein notwithstanding, neither Agent, nor any Lender, nor any oftheir Participants, is required actually to acquire Eurodollar deposits to fundor otherwise match fund any Obligation as to which interest accrues at theLIBOR Rate.  The provisions of thisSection shall apply as if each Lender or its Participants had match funded anyObligation as to which interest is accruing at the LIBOR Rate by acquiringEurodollar deposits for each Interest Period in the amount of the LIBOR RateLoans.

 

2.14                           **Capital Requirements**.  If,after the date hereof, any Lender determines that (i) the adoption of orchange in any law, rule, regulation or guideline regarding capital requirementsfor banks or bank holding companies, or any change in the interpretation orapplication thereof by any Governmental Authority charged with theadministration thereof, or (ii) compliance by such Lender or its parentbank holding company with any guideline, request or directive of any suchentity regarding capital adequacy (whether or not having the force of law), hasthe effect of reducing the return on such Lender’s or such holding company’scapital as a consequence of such Lender’s Commitments hereunder to a levelbelow that which such Lender or such holding company could have achieved butfor such adoption, change, or compliance (taking into consideration such Lender’sor such holding company’s then existing policies with respect to capitaladequacy and assuming the full utilization of such entity’s capital) by anyamount deemed by such Lender to be material, then such Lender may notifyAdministrative Borrower and Agent thereof. Following receipt of such notice, Borrowers agree to pay such Lender ondemand the amount of such reduction of return of capital as and when suchreduction is determined, payable within 90 days after presentation by suchLender of a statement in the amount and setting forth in reasonable detail suchLender’s calculation thereof and the assumptions upon which such calculationwas based (which statement shall be deemed true and correct absent manifesterror).  In determining such amount, suchLender may use any reasonable averaging and attribution methods.

 

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2.15                           **Joint and Several Liability ofBorrowers**.

 

(a)                                  Each Borrower is accepting joint and severalliability hereunder and under the other Loan Documents in consideration of thefinancial accommodations to be provided by the Lender Group under thisAgreement, for the mutual benefit, directly and indirectly, of each Borrowerand in consideration of the undertakings of the other Borrowers to accept jointand several liability for the Obligations.

 

(b)                                 Each Borrower, jointly and severally, herebyirrevocably and unconditionally accepts, not merely as a surety but also as aco-debtor, joint and several liability with the other Borrowers, with respectto the payment and performance of all of the Obligations (including, withoutlimitation, any Obligations arising under this Section 2.15), itbeing the intention of the parties hereto that all the Obligations shall be thejoint and several obligations of each Borrower without preferences ordistinction among them.

 

(c)                                  If and to the extent that any Borrower shallfail to make any payment with respect to any of the Obligations as and when dueor to perform any of the Obligations in accordance with the terms thereof, thenin each such event the other Borrowers will make such payment with respect to,or perform, such Obligation.

 

(d)                                 The Obligations of each Borrower under theprovisions of this Section 2.15 constitute the absolute andunconditional, full recourse Obligations of each Borrower enforceable againsteach Borrower to the full extent of its properties and assets, irrespective ofthe validity, regularity or enforceability of this Agreement or any othercircumstances whatsoever.

 

(e)                                  Except as otherwise expressly provided inthis Agreement, each Borrower hereby waives notice of acceptance of its jointand several liability, notice of any Advances or Letters of Credit issued underor pursuant to this Agreement, notice of the occurrence of any Default, Eventof Default, or of any demand for any payment under this Agreement, notice ofany action at any time taken or omitted by Agent or Lenders under or in respectof any of the Obligations, any requirement of diligence or to mitigate damagesand, generally, to the extent permitted by Applicable Law, all demands, noticesand other formalities of every kind in connection with this Agreement (exceptas otherwise provided in this Agreement). Each Borrower hereby assents to, and waives notice of, any extension orpostponement of the time for the payment of any of the Obligations, theacceptance of any payment of any of the Obligations, the acceptance of anypartial payment thereon, any waiver, consent or other action or acquiescence byAgent or Lenders at any time or times in respect of any default by any Borrowerin the performance or satisfaction of any term, covenant, condition orprovision of this Agreement, any and all other indulgences whatsoever by Agentor Lenders in respect of any of the Obligations, and the taking, addition,substitution or release, in whole or in part, at any time or times, of anysecurity for any of the Obligations or the addition, substitution or release,in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Borrower assentsto any other action or delay in acting or failure to act on the part of anyAgent or Lender with respect to the failure by any Borrower to comply with anyof its respective Obligations, including, without limitation, any failurestrictly or diligently to assert any right or to pursue any remedy or to complyfully with Applicable Laws or regulations thereunder, which might, but for theprovisions of this Section 2.15 afford grounds for terminating,discharging or relieving any Borrower, in whole or in part, from any of itsObligations under this Section 2.15, it being the intention of eachBorrower that, so long as any of the Obligations hereunder remain unsatisfied,the Obligations of each Borrower under this Section 2.15 shall notbe discharged except by performance and then only to the extent of suchperformance.  The Obligations of eachBorrower under this Section 2.15 shall not be diminished orrendered unenforceable by any winding up, reorganization, arrangement,liquidation, reconstruction or similar proceeding with respect to any Borroweror any Agent or Lender.

 

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(f)                                    Each Borrower represents and warrants to Agentand Lenders that such Borrower is currently informed of the financial conditionof Borrowers and of all other circumstances which a diligent inquiry wouldreveal and which bear upon the risk of nonpayment of the Obligations.  Each Borrower further represents and warrantsto Agent and Lenders that such Borrower has read and understands the terms andconditions of the Loan Documents.  EachBorrower hereby covenants that such Borrower will continue to keep informed of Borrowers’financial condition, the financial condition of other guarantors, if any, andof all other circumstances which bear upon the risk of nonpayment ornonperformance of the Obligations.

 

(g)                                 In the event the Obligations or any Guarantyis at any time secured by any Real Property, each Borrower waives all rightsand defenses arising out of an election of remedies by Agent or any Lender,even though that election of remedies, such as a nonjudicial foreclosure withrespect to security for a guaranteed obligation, has destroyed Agent’s or suchLender’s rights of subrogation and reimbursement against such Borrower by theoperation of Section 580(d) of the California Code of Civil Procedure, anycomparable statute, or otherwise.

 

(h)                                 In the event the Obligations or any Guarantyis at any time secured by any Real Property, each Borrower waives all rightsand defenses that such Borrower may have because the Obligations or suchGuaranty is secured by Real Property. This means, among other things:

 

(i)                                     Agent and Lenders may collect from suchBorrower without first foreclosing on any Real or Personal Property Collateralpledged by Borrowers.

 

(ii)                                  If Agent or any Lender forecloses on anyReal Property Collateral pledged by Borrowers:

 

(1)                                  The amount of the Obligations may be reducedonly by the price for which that collateral is sold at the foreclosure sale,even if the collateral is worth more than the sale price.

 

(2)                                  Agent and Lenders may collect from suchBorrower even if Agent or Lenders, by foreclosing on the Real PropertyCollateral, has or have destroyed any right such Borrower may have to collectfrom the other Borrowers.

 

This is an unconditional and irrevocablewaiver of any rights and defenses such Borrower may have because theObligations are secured by Real Property. These rights and defenses include, but are not limited to, any rights ordefenses based upon Section 580a, 580b, 580d or 726 of the California Codeof Civil Procedure or any comparable statutes. As provided in Section 12(a), this Agreement shall be governedby, and construed in accordance with, the laws of the State of New York.  The foregoing provisions are included solelyout of an abundance of caution and shall not be construed to mean that any ofthe above referenced provisions of California law are in any way applicable tothis Agreement or the Obligations.

 

(i)                                     The provisions of this Section 2.15are made for the benefit of Agent, Lenders and their respective successors andassigns, and may be enforced by it or them from time to time against any or allBorrowers as often as occasion therefor may arise and without requirement onthe part of any such Agent, Lender, successor or assign first to marshal any ofits or their claims or to exercise any of its or their rights against anyBorrower or to exhaust any remedies available to it or them against anyBorrower or to resort to any other source or means of obtaining payment of anyof the Obligations hereunder or to elect any other remedy.  The provisions of this Section 2.15shall remain in effect until all of the Obligations shall have been paid infull or otherwise fully satisfied.  If atany time, any payment, or any part thereof, made in respect of any of theObligations, is rescinded or must otherwise be restored or returned by any Agentor Lender upon the insolvency, bankruptcy or reorganization of any Borrower, orotherwise, the provisions of this Section 2.15 will forthwith bereinstated in effect, as though such payment had not been made.

 

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(j)                                     Each Borrower hereby agrees that it will notenforce any of its rights of contribution or subrogation against any otherBorrower with respect to any liability incurred by it hereunder or under any ofthe other Loan Documents, any payments made by it to Agent or Lenders withrespect to any of the Obligations or any collateral security therefor untilsuch time as all of the Obligations have been paid in full in cash.  Any claim which any Borrower may have againstany other Borrower with respect to any payments to any Agent or Lender hereunderor under any other Loan Documents are hereby expressly made subordinate andjunior in right of payment, without limitation as to any increases in theObligations arising hereunder or thereunder, to the prior payment in full incash of the Obligations and, in the event of any insolvency, bankruptcy,receivership, liquidation, reorganization or other similar proceeding under thelaws of any jurisdiction relating to any Borrower, its debts or its assets,whether voluntary or involuntary, all such Obligations shall be paid in full incash before any payment or distribution of any character, whether in cash,securities or other property, shall be made to any other Borrower therefor.

 

(k)                                  Each Borrower hereby agrees that, after theoccurrence and during the continuance of any Default or Event of Default, thepayment of any amounts due with respect to the indebtedness owing by anyBorrower to any other Borrower is hereby subordinated to the prior payment infull in cash of the Obligations.  EachBorrower hereby agrees that after the occurrence and during the continuance ofany Default or Event of Default, such Borrower will not demand, sue for orotherwise attempt to collect any indebtedness of any other Borrower owing tosuch Borrower until the Obligations shall have been paid in full in cash.  If, notwithstanding the foregoing sentence,such Borrower shall collect, enforce or receive any amounts in respect of suchindebtedness, such amounts shall be collected, enforced and received by suchBorrower as trustee for Agent, and such Borrower shall deliver any such amountsto Agent for application to the Obligations in accordance with Section 2.4(b).

 

**3.****                                     ****CONDITIONS; TERM OF AGREEMENT.**

 

3.1                                 **Conditions Precedent to theInitial Extension of Credit**.  The obligation of each Lender to make itsinitial extension of credit provided for hereunder, is subject to thefulfillment, to the satisfaction of Agent and each Lender of each of theconditions precedent set forth on Schedule 3.1 (the making of suchinitial extension of credit by a Lender being conclusively deemed to be itssatisfaction or waiver of the conditions precedent).

 

3.2                                 **Conditions Precedent to allExtensions of Credit**.  The obligation of the Lender Group (or anymember thereof) to make any Advances hereunder at any time (or to extend anyother credit hereunder) shall be subject to the following conditions precedent:

 

(a)                                  the representations and warranties containedin this Agreement or in the other Loan Documents shall be true and correct inall material respects (except that such materiality qualifier shall not beapplicable to any representations and warranties that already are qualified ormodified by a materiality concept in the text thereof) on and as of the date ofsuch extension of credit, as though made on and as of such date (except to theextent that such representations and warranties relate solely to an earlierdate);

 

(b)                                 no Default or Event of Default shall haveoccurred and be continuing on the date of such extension of credit, nor shalleither result from the making thereof;

 

(c)                                  no injunction, writ, restraining order, orother order of any nature restricting or prohibiting, directly or indirectly,the extending of such credit shall have been issued and remain in force by anyGovernmental Authority against any Borrower, Agent, any Lender, or any of theirAffiliates; and

 

(d)                                 no Material Adverse Change shall haveoccurred.

 

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3.3                                 **Term**.  ThisAgreement shall continue in full force and effect for a term ending on theearlier to occur of (a) December 31, 2007 or (b) the “Final Maturity Date,” asdefined in the Second Lien Loan Agreement (the “Maturity Date”).  The foregoing notwithstanding, the LenderGroup, upon the election of the Required Lenders, shall have the right toterminate its obligations under this Agreement immediately and without noticeupon the occurrence and during the continuation of an Event of Default.

 

3.4                                 **Effect of Termination**.  Onthe date of termination of this Agreement, all Obligations (includingcontingent reimbursement obligations of Borrowers with respect to outstandingLetters of Credit and including all Bank Product Obligations) immediately shallbecome due and payable without notice or demand (including (a) either (i) providingcash collateral to be held by Agent for the benefit of those Lenders with aCommitment in an amount equal to 105% of the Letter of Credit Usage, or(ii) causing the original Letters of Credit to be returned to the IssuingLender, and (b) providing cash collateral (in an amount determined byAgent as sufficient to satisfy the reasonably estimated credit exposure) to beheld by Agent for the benefit of the Bank Product Providers with respect to theBank Product Obligations).  Notermination of this Agreement, however, shall relieve or discharge Borrowers ortheir respective Subsidiaries of their duties, Obligations, or covenantshereunder or under any other Loan Document and the Agent’s Liens in theCollateral shall remain in effect until all Obligations have been paid in fulland the Lender Group’s obligations to provide additional credit hereunder havebeen terminated.  When this Agreement hasbeen terminated and all of the Obligations have been paid in full and theLender Group’s obligations to provide additional credit under the LoanDocuments have been terminated irrevocably, Agent will, at Borrowers’ soleexpense, execute and deliver any termination statements, lien releases,mortgage releases, re-assignments of trademarks, discharges of securityinterests, and other similar discharge or release documents (and, ifapplicable, in recordable form) as are reasonably necessary to release, as ofrecord, the Agent’s Liens and all notices of security interests and lienspreviously filed by Agent with respect to the Obligations.

 

3.5                                 **Early Termination by Borrowers**. Borrowers have the option, at any time upon 90 days prior written noticeby Administrative Borrower to Agent, to terminate this Agreement by paying toAgent, in cash, the Obligations (including (a) either (i) providingcash collateral to be held by Agent for the benefit of those Lenders with aCommitment in an amount equal to 105% of the Letter of Credit Usage, or(ii) causing the original Letters of Credit to be returned to the IssuingLender, and (b) providing cash collateral (in an amount determined byAgent as sufficient to satisfy the reasonably estimated credit exposure) to beheld by Agent for the benefit of the Bank Product Providers with respect to theBank Product Obligations), in full.  IfAdministrative Borrower has sent a notice of termination pursuant to theprovisions of this Section, then the Commitments shall terminate and Borrowersshall be obligated to repay the Obligations (including (a) either(i) providing cash collateral to be held by Agent for the benefit of thoseLenders with a Commitment in an amount equal to 105% of the Letter of CreditUsage, or (ii) causing the original Letters of Credit to be returned tothe Issuing Lender, and (b) providing cash collateral (in an amount determinedby Agent as sufficient to satisfy the reasonably estimated credit exposure) tobe held by Agent for the benefit of the Bank Product Providers with respect tothe Bank Product Obligations), in full, on the date set forth as the date oftermination of this Agreement in such notice.

 

**4.****                                     ****REPRESENTATIONS AND WARRANTIES.**

 

In order to induce the Lender Group to enter into this Agreement, eachBorrower makes the following representations and warranties to the Lender Groupwhich shall be true, correct, and complete, in all material respects, as of thedate hereof, and shall be true, correct, and complete, in all materialrespects, as of the Closing Date, and at and as of the date of the making ofeach Advance (or other extension of credit) made thereafter, as though made onand as of the date of such Advance (or other extension of credit) (except tothe extent that such representations and warranties relate solely to an earlierdate) and such representations and warranties shall survive the execution anddelivery of this Agreement:

 

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4.1                                 **No Encumbrances; Properties**.

 

(a)                                  Each Borrower, each Guarantor and each oftheir respective Subsidiaries has good and marketable title to, valid leaseholdinterests in, or valid licenses to use, all property and assets material to itsbusiness, free and clear of all Liens, except Permitted Liens.  All such properties and assets are in goodworking order and condition, ordinary wear and tear excepted.

 

(b)                                 Schedule 4.1 sets forth a complete and accurate list ofthe location, by state or province and street address, of all Real Property.

 

4.2                                 **Eligible Accounts**.  Asto each Account that is identified as an Eligible Account in a borrowing basereport submitted to Agent, such Account is (a) a bona fide existingpayment obligation of the applicable Account Debtors created by the sale anddelivery of Inventory or the rendition of services to such Account Debtors inthe ordinary course of the applicable Borrower’s or Mondel’s business,(b) owed to the applicable Borrower or Mondel without any known defenses,disputes, offsets, counterclaims, or rights of return or cancellation, and(c) not excluded as ineligible by virtue of one or more of the excludingcriteria set forth in the definition of Eligible Accounts.

 

4.3                                 **Eligible Inventory**.  Asto each item of Inventory that is identified as Eligible Inventory in aborrowing base report submitted to Agent, such Inventory is (a) of goodand merchantable quality, free from known defects, and (b) not excluded asineligible by virtue of one or more of the excluding criteria set forth in thedefinition of Eligible Inventory.

 

4.4                                 **Equipment**.  Eachmaterial item of Equipment of Borrowers and their respective Subsidiaries isused or held for use in their business and is in good working order, ordinarywear and tear and damage by casualty excepted.

 

4.5                                 **Location of Inventory andEquipment**.  Other than as set forth on Schedule 4.5(as such Schedule may be updated pursuant to Section 5.9), theInventory and Equipment (other than vehicles or Equipment out for repair) ofBorrowers and their respective Subsidiaries are not stored with a bailee,warehouseman, or similar party and are located only at, or in-transit between,the locations identified thereon. Without limiting the foregoing, in the event any goods of any Borroweror its Subsidiaries are stored at any warehouse or are otherwise in thepossession of a bailee, none of the receipts received by such Borrower orSubsidiary states that the goods covered thereby are to be delivered to beareror to the order of a named Person or to a named Person and such named Person’sassigns.

 

4.6                                 **Inventory Records**.  EachBorrower keeps correct and accurate records itemizing and describing the type,quality, and quantity of its and its Subsidiaries’ Inventory and the book valuethereof.

 

4.7                                 **State of Incorporation; Locationof Chief Executive Office; Organizational Identification Number and FEIN;Commercial Tort Claims; Legal and Trade Name; Places of Business**.

 

(a)                                  The jurisdiction of organization of eachBorrower and each of its Subsidiaries is set forth on Schedule 4.7(a).

 

(b)                                 The chief executive office of each Borrowerand each Guarantor is located at the address indicated on Schedule 4.7(b)(as such Schedule may be updated pursuant to Section 5.9).

 

(c)                                  Each Borrower’s and each Guarantor’sorganizational identification number and federal employer identification number(or in the case of Mondel, the business number assigned by the Canadian RevenueAgency), if any, are identified on Schedule 4.7(c).

 

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(d)                                 As of the Closing Date, none of the Borrowersor Guarantors holds any commercial tort claims in respect of which a claim hasbeen filed in a court of law or a written notice by an attorney has been givento a potential defendant, except as set forth on Schedule 4.7(d).

 

(e)                                  The exact legal name of, and all tradenamesused by, each Borrower and each Guarantor and the exact legal name of eachSubsidiary of any Borrower or Guarantor is as set forth on Schedule 4.7(e).

 

(f)                                    Each place of business of each Borrower andeach of its Subsidiaries is set forth on Schedule 4.7(f).

 

4.8                                 **Due Organization andQualification; Subsidiaries**.

 

(a)                                  Each Borrower and its Subsidiaries other thanExcluded Foreign Subsidiaries (i) is a corporation, limited liability companyor limited partnership duly organized and existing and in good standing underthe laws of the jurisdiction of its organization, (ii) is qualified to dobusiness in any state, province or other jurisdiction in which the character ofthe properties owned or leased by it or in which the transaction of itsbusiness makes such qualification necessary and (iii) has all requisite powerand authority to conduct its business as now conducted and as currentlycontemplated and, in the case of the Borrowers, to make the borrowingshereunder, and to execute and deliver each Loan Document to which it is aparty, and to consummate the transactions contemplated thereby.

 

(b)                                 Set forth on Schedule 4.8(b), isa complete and accurate description of the authorized capital Stock of eachBorrower and each Guarantor, by class, and, as of the Closing Date, adescription of the number of shares of each such class that are issued andoutstanding.  Other than as described on Schedule 4.8(b),there are no subscriptions, options, warrants, or calls relating to any sharesof each Borrower’s or any Borrower’s Subsidiary’s capital Stock, including anyright of conversion or exchange under any outstanding security or otherinstrument.  No Borrower nor any of itsSubsidiaries is subject to any obligation (contingent or otherwise) torepurchase or otherwise acquire or retire any shares of its capital Stock orany security convertible into or exchangeable for any of its capital Stock.

 

(c)                                  Set forth on Schedule 4.8(c), isa complete and accurate list of each Borrower’s direct and indirectSubsidiaries (other than Excluded Foreign Subsidiaries), showing:  (i) the legal name of each such Subsidiary,(ii) the jurisdiction of their organization, (iii) the number ofshares of each class of common and preferred Stock authorized for each of suchSubsidiaries, and (iv) the number and the percentage of the outstandingshares of each such class owned directly or indirectly by the applicableBorrower.  All of the issued andoutstanding capital Stock of each such Subsidiary has been validly issued andis fully paid and non-assessable, and the holders thereof are not entitled toany preemptive, first refusal or other similar rights.  Except as indicated on Schedule 4.8(c),all such capital Stock is owned by a Borrower or one or more of itswholly-owned Subsidiaries, free and clear of all Liens.  There are no outstanding debt or equitysecurities of any Borrower or any of its Subsidiaries and no outstandingobligations of any Borrower or any of its Subsidiaries convertible into orexchangeable for, or warrants, options or other rights for the purchase oracquisition from such Borrower or any of its Subsidiaries, or other obligationsof any Borrower or any of its Subsidiaries to issue, directly or indirectly,any shares of capital Stock of any Borrower or Subsidiary of any Borrower.

 

(d)                                 Except as set forth on Schedule 4.8(c),there are no subscriptions, options, warrants, or calls relating to any sharesof any Borrower’s Subsidiaries’ capital Stock, including any right ofconversion or exchange under any outstanding security or other instrument.  No Borrower or any of its Subsidiaries issubject to any obligation (contingent or otherwise) to repurchase or otherwiseacquire or retire any shares of any Borrower’s Subsidiaries’ capital Stock orany security convertible into or exchangeable for any such capital Stock.

 

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4.9                                 **Due Authorization; No Conflict;Governmental Approvals; Enforceability**.

 

(a)                                  The execution, delivery and performance byeach Borrower and each Guarantor of each Loan Document to which it is or willbe a party, (i) have been duly authorized and approved by all necessary action(whether of the interestholders of any such Borrower or such Guarantor, anyPerson under any material contractual obligation of any such Borrower or suchGuarantor, or otherwise), (ii) do not and will not contravene its charter orby-laws, its limited liability company or operating agreement or itscertificate of partnership or partnership agreement, as applicable, or anyapplicable provision of United States or foreign federal, state, provincial orlocal law or regulation, any order, judgment or decree of any court or otherGovernmental Authority binding on any such Borrower or such Guarantor, or anycontractual restriction binding on or otherwise affecting it or any of itsproperties, (iii) do not and will not result in or require the creation of anyLien (other than pursuant to any Loan Document) upon or with respect to any ofits properties, and (iv) do not and will not result in any default,noncompliance, suspension, revocation, impairment, forfeiture or nonrenewal ofany permit, license, authorization or approval applicable to its operations orany of its properties.

 

(b)                                 As to each Borrower and each Guarantor, theexecution, delivery, and performance by such Borrower of this Agreement and theother Loan Documents to which it is or will be a party do not and will not(i) violate any provision of United States or foreign federal, state,provincial, or local law or regulation applicable to any Borrower or anyGuarantor, the Governing Documents of any Borrower or any Guarantor, or anyorder, judgment, or decree of any court or other Governmental Authority bindingon any Borrower or any Guarantor, (ii) conflict with, result in a breachof, or constitute (with due notice or lapse of time or both) a default underany material contractual obligation of any Borrower or any Guarantor,(iii) result in or require the creation or imposition of any Lien of anynature whatsoever upon any properties or assets of any Borrower or anyGuarantor, other than Permitted Liens, or (iv) require any approval of anyBorrower’s or any Guarantor’s interestholders or any approval or consent of anyPerson under any material contractual obligation of any Borrower or anyGuarantor, other than consents or approvals that have been obtained and thatare still in force and effect.

 

(c)                                  Other than the filing of financingstatements, and the recordation of the Mortgages, no authorization or approvalor other action by, and no notice to or filing with, any Governmental Authorityis required in connection with the due execution, delivery and performance byany Borrower or Guarantor of any Loan Document to which it is or will be aparty.

 

(d)                                 This Agreement is, and each other LoanDocument to which any Borrower or Guarantor is or will be a party, whendelivered hereunder, will be, a legal, valid and binding obligation of suchPerson, enforceable against such Person in accordance with its terms, except asmay be limited by applicable bankruptcy, insolvency, reorganization, moratoriumor other similar laws.

 

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

 

4.10                           **Litigation**. Other than those matters disclosed on Schedule 4.10,(a) there is no pending or, to the knowledge of any Borrower, anyGuarantor or their respective Subsidiaries, threatened action, suit orproceeding affecting any Borrower, any Guarantor or their respectiveSubsidiaries before any court or other Governmental Authority or any arbitratorthat (i) if adversely determined, could reasonably be expected to resultin a Material Adverse Change or (ii) relates to this Agreement or anyother Loan Document or any transaction contemplated hereby or thereby.

 

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4.11                           **No Material Adverse Change;Financial Condition**.

 

(a)                                  The Financial Statements, copies of whichhave been delivered to each Agent and each Lender, fairly present, in allmaterial respects, the consolidated financial condition of the Parent and itsSubsidiaries as at the respective dates thereof and the consolidated results ofoperations of the Parent and its Subsidiaries for the fiscal periods ended onsuch respective dates, all in accordance with GAAP, and since June 30, 2005 noevent or development has occurred that has had or could reasonably be expectedto result in a Material Adverse Change.

 

(b)                                 The Parent has heretofore furnished to eachAgent and each Lender (i) Projections for the Parent’s fiscal years endingin June 30, 2006 through June 30, 2008, which projected financial statementsshall be updated from time to time pursuant to Section 5.3.  Such Projections, as so updated, are believedby the Parent at the time furnished to be reasonable, have been prepared on areasonable basis and in good faith by the Parent, and have been based onassumptions believed by the Parent to be reasonable at the time made and uponthe best information then reasonably available to the Parent, and the Parent isnot aware of any facts or information that would lead it to believe that suchprojections, as so updated, are incorrect or misleading in any materialrespect.

 

4.12                           **Solvency; Fraudulent Transfer**.

 

(a)                                  After giving effect to the transactionscontemplated by this Agreement and the Second Lien Loan Documents and beforeand after giving effect to each Advance, Parent is and the Borrowers,Guarantors and their respective Subsidiaries, on a consolidated basis, areSolvent.

 

(b)                                 No transfer of property is being made by anyBorrower, any Guarantor or any Subsidiary of a Borrower or Guarantor and noobligation is being incurred by any Borrower or any Subsidiary of a Borrower inconnection with the transactions contemplated by this Agreement or the otherLoan Documents with the intent to hinder, delay, or defraud either present orfuture creditors of Borrowers or their respective Subsidiaries.

 

4.13                           **Employee Benefits**.

 

(a)                                  Set forth on Schedule 4.13(a) is acomplete and accurate list of all Plans that meet the definition of an “employeepension benefit plan” under Section 3(2) of ERISA and that are currentlymaintained or contributed to by any Borrower, any of their respectiveSubsidiaries or any of their respective ERISA Affiliates as of the ClosingDate.

 

(b)                                 Each Borrower, its Subsidiaries (other thanMondel), and their respective ERISA Affiliates are in compliance in allmaterial respects with all applicable provisions and requirements of ERISA, theIRC and the regulations and published interpretations thereunder with respectto each Plan, and have performed all their obligations in all material respectsunder each Plan.

 

(c)                                  No ERISA Event has occurred or couldreasonably be expected to occur.

 

(d)                                 Except to the extent required under Section4980B of the IRC, or as described on Schedule 4.13(d) hereto, no Planprovides welfare benefits (through the purchase of insurance or otherwise) forany retired or former employee of any Borrower, any of their respectiveSubsidiaries or any of their respective ERISA Affiliates.

 

(e)                                  As of the most recent valuation date for anyPension Plan, the amount of unfunded benefit liabilities (as defined in Section4001(a)(18) of ERISA), individually or in the aggregate for all Pension Plans(excluding for purposes of such computation any Pension Plans with respect towhich assets exceed benefit liabilities), does not exceed $70,600,000.

 

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(f)                                    Provided that the assets of the Lenders usedto fund Advances do not and will not constitute “plan assets” within themeaning of United States Department of Labor Regulations set forth in 29 C.F.R.§2510.3-101, the execution and delivery of this Agreement and the consummationof the transactions contemplated hereunder will not involve any transactionthat is subject to the prohibitions of Section 406 of ERISA or in connectionwith which taxes could be imposed pursuant to Section 4975(c)(1)(A)-(D) of theIRC.

 

(g)                                 All liabilities under each Plan are (i)funded to at least the minimum level required by law or, if higher, to thelevel required by the terms governing the Plans, (ii) insured with a reputableinsurance company, (iii) provided for or recognized in the financial statementsmost recently delivered to Agent pursuant to Section 5.3 hereof to theextent required by GAAP or (iv) estimated in the formal notes to the financialstatements most recently delivered to Agent pursuant to Section 5.3hereof to the extent required by GAAP.

 

(h)                                 To the best knowledge of each Borrower, thereare no circumstances which may give rise to a material liability in relation toany Plan which is not funded, insured, provided for, recognized or estimated inthe manner described in subsection (g) above.

 

(i)                                     Borrowers and their respective Subsidiariesare not and will not be a “plan” within the meaning of Section 4975(e) of theIRC; (ii) the assets of Borrowers and their respective Subsidiaries do not andwill not constitute “plan assets” within the meaning of the United StatesDepartment of Labor Regulations set forth in 29 C.F.R. §2510.3-101; (iii)Borrowers and their respective Subsidiaries are not and will not be a “governmentalplan” within the meaning of Section 3(32) of ERISA; and (iv) provided that theassets of the Lenders used to fund Advances do not and will not constituteassets of a governmental plan, transactions by or with Borrowers and theirrespective Subsidiaries are not and will not be subject to state statutesapplicable to Borrowers and their respective Subsidiaries regulatinginvestments of fiduciaries with respect to governmental plans.

 

(j)                                     Except as set forth in Schedule 4.13(j),Mondel, has no, and is not subject to, any present or future obligation orliability under, any pension plan, deferred compensation plan, retirementincome plan, stock option or stock purchase plan, profit sharing plan, bonusplan or policy, employee group insurance plan, program policy or practice,formal or informal, with respect to its employees.

 

(k)                                  Schedule 4.13(j)****lists all the employee benefit, health,welfare, supplemental unemployment benefit, bonus, pension, profit sharing,deferred compensation, stock compensation, stock purchase, retirement, hospitalizationinsurance, medical, dental, legal, disability and similar plans or arrangementsor practices relating to the employees or former employees of Mondel which arecurrently maintained or were maintained at any time in the last five calendaryears (the “Canadian Employee Plans”).

 

(l)                                     All of the Canadian Employee Plans are andhave been established, registered, qualified, invested and administered in allrespects in accordance with all Laws applicable to the Canadian EmployeePlans.  No fact or circumstance existsthat could adversely affect the tax-exempt status of a Canadian Employee Plan.

 

(m)                               All obligations regarding the Canadian Employee Plans have beensatisfied, there are no outstanding defaults or violations by any part to anyCanadian Employee Plan and no taxes, penalties or fees are owing or eligibleunder any of the Canadian Employee Plans.

 

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(n)                                 No amendments have been made to any CanadianEmployee Plan and no improvements to any Canadian Employee Plan have beenpromised and no amendments or improvements to a Canadian Employee Plan will bemade or promised by Mondel before the Closing Date.

 

(o)                                 Mondel has furnished to Agent true, correctand complete copies of all the Canadian Employee Plans as amended as of thedate hereof together with all related documentation including fundingagreements, actuarial reports, funding and financial information returns andstatements, all professional opinions (whether or not internally prepared) withrespect to each Canadian Employee Plan, all material internal memorandaconcerning the Canadian Employee Plans, copies of material correspondence withall regulatory authorities with respect to each Canadian Employee Plan and plansummaries, booklets and personnel manuals. No material changes have occurred to the Canadian Employee Plans or areexpected to occur which would affect the actuarial reports or financialstatements required to be provided to Lenders pursuant to this Section 4.13.

 

(p)                                 Each Canadian Employee Plan is fully fundedor fully insured on both an ongoing and solvency basis pursuant to theactuarial assumptions and methodology set out in Schedule 4.13(j).

 

(q)                                 Except as disclosed in Schedule 4.13(j),none of the Canadian Employee Plans provides benefits to retired employees orto the beneficiaries or dependents of retired employees.

 

4.14                           **Environmental Condition**. Except as set forth on Schedule 4.14, (a) the operations ofeach Borrower and each of their respective Subsidiaries are in compliance withall Environmental Laws; (b) there has been no Release at any of the propertiesowned or operated by any Borrower or any of their respective Subsidiaries orany predecessor in interest, or at any disposal or treatment facility whichreceived Hazardous Materials generated by any Borrower or any of theirrespective Subsidiaries or any predecessor in interest which could reasonablybe expected to result in a Material Adverse Change; (c) no Environmental Actionhas been asserted against any Borrower or any of their respective Subsidiariesor any predecessor in interest nor does any Borrower have knowledge or noticeof any threatened or pending Environmental Action against any Borrower or anyof their respective Subsidiaries or any predecessor in interest which couldreasonably be expected to result in a Material Adverse Change; (d) noEnvironmental Actions have been asserted against any facilities that may havereceived Hazardous Materials generated by any Borrower or any of theirrespective Subsidiaries or any predecessor in interest which could reasonablybe expected to result in a Material Adverse Change; (e) no property now orformerly owned or occupied by any Borrower or any of their respectiveSubsidiaries has been used as a treatment or disposal site for any HazardousMaterial; (f) neither any Borrower nor any of their respective Subsidiaries hasfailed to report to the proper Governmental Authority the occurrence of anyRelease which is required to be so reported by any Environmental Laws whichcould reasonably be expected to result in a Material Adverse Change; (g) eachBorrower and each of their respective Subsidiaries holds all licenses, permitsand approvals required under any Environmental Laws in connection with theoperation of the business carried on by it, except for such licenses, permitsand approvals as to which any Borrower’s or any their respective Subsidiaries’failure to maintain or comply with could not reasonably be expected to resultin a Material Adverse Change; (h) no Borrower or any of its Subsidiaries hasreceived any notification pursuant to any Environmental Laws that (i) any work,repairs, construction or Capital Expenditures are required to be made inrespect as a condition of continued compliance with any Environmental Laws, orany license, permit or approval issued pursuant thereto or (ii) any license,permit or approval referred to above is about to be reviewed, made subject tolimitations or conditions, revoked, withdrawn or terminated, in each case,except as could not reasonably be expected to result in a Material AdverseChange; and (i) neither any Borrower nor any of their respective Subsidiarieshas received notice that a Lien arising under any Environmental Law hasattached to any revenues or to any Real Property owned or operated by anyBorrower or any of their respective Subsidiaries.

 

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4.15                           **Intellectual Property**. Except as set forth on Schedule 4.15, each Borrower, eachGuarantor and each of their respective Subsidiaries owns or licenses orotherwise has the right to use all licenses, permits, patents, patentapplications, trademarks, trademark applications, service marks, tradenames,copyrights, copyright applications, franchises, authorizations,non-governmental licenses and permits and other intellectual property rightsthat are necessary for the operation of its business, without infringement uponor conflict with the rights of any other Person with respect thereto, exceptfor such infringements and conflicts which, individually or in the aggregate,could not reasonably be expected to result in a Material Adverse Change.  Set forth on Schedule 4.15 is acomplete and accurate list as of the Closing Date of all such materiallicenses, permits, patents, patent applications, trademarks, trademarkapplications, service marks, tradenames, copyrights, copyright applications,franchises, authorizations, non-governmental licenses and permits and otherintellectual property rights of each Borrower, each Guarantor and each of theirrespective Subsidiaries.  No slogan orother advertising device, product, process, method, substance, part or othermaterial now employed, or now contemplated to be employed, by any Borrower, anyGuarantor or any of their respective Subsidiaries infringes upon or conflictswith any rights owned by any other Person, and no claim or litigation regardingany of the foregoing is pending or threatened, except for such infringementsand conflicts which could not reasonably be expected to result in, individuallyor in the aggregate, a Material Adverse Change. To the knowledge of each Borrower, each Guarantor and each of theirrespective Subsidiaries, no patent, invention, device, application, principleor any statute, law, rule, regulation, standard or code is pending or proposed,which, individually or in the aggregate, could reasonably be expected to resultin a Material Adverse Change.

 

4.16                           **Leases**.  EachBorrower, each Guarantor and each of their respective Subsidiaries has validleasehold interests in the Leases described on Schedule 4.1 towhich it is a party.  Schedule 4.1sets forth with respect to each such Lease, the commencement date, terminationdate, renewal options (if any) and annual base rents.  Each such Lease is valid and enforceable inaccordance with its terms in all material respects and is in full force andeffect.  No consent or approval of anylandlord or other third party in connection with any such Lease is necessaryfor any Borrower, any Guarantor or their respective Subsidiaries to enter intoand execute the Loan Documents to which it is a party, except as set forth on Schedule 4.1.  To the knowledge of any Borrower, anyGuarantor or their respective Subsidiaries, no other party to any such Lease isin default of its obligations thereunder, and no Borrower, Guarantor or theirrespective Subsidiaries (or any other party to any such Lease) has at any timedelivered or received any notice of default which remains uncured under anysuch Lease and no event has occurred which, with the giving of notice or thepassage of time or both, would constitute a default under any such Lease.

 

4.17                           **Deposit Accounts and SecuritiesAccounts**.  Set forth on Schedule 4.17 is alisting of all of each Borrower’s, each Guarantor’s and their respectiveSubsidiaries’ Deposit Accounts and Securities Accounts, including, with respectto each bank or securities intermediary (a) the name and address of suchPerson, (b) the account numbers of the Deposit Accounts or SecuritiesAccounts maintained with such Person, and (c) a description of the purpose ofsuch Deposit Account or Securities Account.

 

4.18                           **Complete Disclosure**.  EachBorrower, Guarantor and each of their respective Subsidiaries has disclosed tothe Agent all agreements, instruments and corporate or other restrictions towhich it is subject, and all other matters known to it, that, individually orin the aggregate, could reasonably be expected to result in a Material AdverseChange.  All factual information (asmodified or supplemented by other information so furnished) furnished by or onbehalf of Borrowers, the Guarantors or their respective Subsidiaries in writingto Agent or any Lender (including all information contained in the Scheduleshereto or in the other Loan Documents) for purposes of or in connection withthis Agreement, the other Loan Documents, the Second Lien Loan Documents, orany transaction contemplated herein or therein is, and all other such factualinformation (as modified or supplemented by other information so furnished)hereafter furnished by or on behalf of Borrowers or their respectiveSubsidiaries in writing to Agent or any Lender will be, true and accurate inall material respects on the date as of which such information is dated orcertified and not incomplete by omitting to state any fact necessary to makesuch information (as modified or supplemented by other information so 

 

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furnished) not misleading atsuch time in light of the circumstances under which such information wasprovided.  There is no contingentliability or fact that could reasonably be expected to result in a MaterialAdverse Change which has not been set forth in a footnote included in theFinancial Statements or a Schedule hereto. All of the information which is required to be scheduled to thisAgreement is set forth on the Schedules attached hereto, is correct and accuratein all material respects and does not omit to state any information materialthereto.

 

4.19                           **Indebtedness**.  Setforth on Schedule 4.19 is a true and complete list of allIndebtedness of each Borrower, each Guarantor and each of their respectiveSubsidiaries outstanding immediately prior to the Closing Date that is toremain outstanding after the Closing Date and such Schedule accurately reflectsthe holder of, aggregate outstanding principal amount of, interest rateapplicable to and maturity date of such Indebtedness, describes any guarantiesof and/or collateral securing such Indebtedness and indicates the date, titleand parties to the document or agreement governing or giving rise to suchIndebtedness, if any.

 

4.20                           **Material Contracts**.  Setforth on Schedule 4.20 (which Borrowers may amend from time to timepursuant to Section 5.2) is a complete and accurate list of all MaterialContracts, showing the parties and subject matter thereof and amendments andmodifications thereto.  Each MaterialContract (a) is in full force and effect and is binding upon and enforceableagainst each Borrower party thereto, and to such Borrowers’ best knowledge,each other Person that is a party thereto in accordance with its terms, (b) hasnot been otherwise amended or modified (other than amendments or modificationsthat are not otherwise prohibited by the terms of this Agreement or any otherLoan Document), and (c) is not in default due to the action of any Borrower,any Guarantor, their respective Subsidiaries or, to the knowledge of anyBorrower, any other party thereto.

 

4.21                           **Second Lien Loan Documents****.**  TheBorrowers have delivered to Agent true and correct copies of the Second LienLoan Documents.  The transactionscontemplated by the Second Lien Loan Documents will be consummated (a)contemporaneously with the making of the initial Advances hereunder and (b) inaccordance with their respective terms. All of the representations and warranties of the Borrowers and theGuarantors contained in the Second Lien Loan Documents are true and correct inall material respects (except where any such representation or warranty isalready subject to a materiality standard, in which case such representation orwarranty is true and correction all respects) as of the Closing Date or, to theextent that any such representation or warranty relates solely to an earlierdate, as of such earlier date.

 

4.22                           **Compliance with Law, Etc.**  NoBorrower, Guarantor or Subsidiary of any Borrower or Guarantor is in violationof its organizational documents, any law, rule, regulation, judgment or orderof any Governmental Authority applicable to it or any of its property orassets, or any material term of any agreement or instrument (including anyMaterial Contract) binding on or otherwise affecting it or any of itsproperties.

 

4.23                           **Taxes, Etc.**  AllU.S. and foreign federal, state, provincial and local tax returns and otherreports required by Applicable Law to be filed by any Borrower, any Guarantoror any of their respective Subsidiaries have been filed, or extensions havebeen obtained, and all taxes, assessments and other governmental chargesimposed upon any Borrower, any Guarantor or any of their respectiveSubsidiaries or any property of any Borrower, any Guarantor or any of theirrespective Subsidiaries and which have become due and payable have been paid,except to the extent subject to a Permitted Protest.  Without limiting the generality of theforegoing, Mondel has withheld from each payment made to any of its present orformer employees, officers and directors, and to all Persons who arenon-residents of Canada for the purposes of the Canadian Income Tax Act allamounts required by law to be withheld, including without limitation, allpayroll deductions required to be withheld, and furthermore, has remitted suchwithheld amounts within the prescribed periods to the appropriate GovernmentalAuthority.  Mondel has remitted allmunicipal real estate taxes, Canadian Pension Plan contributions, provincialpension plan contributions, employment insurance premiums, workers compensationassessments, employer health taxes and other taxes and obligations payableunder Applicable Law (“Statutory Lien Payments”) by it and has remittedsuch amounts to the proper Governmental Authority within the time requiredunder Applicable Law.

 

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4.24                           **Regulations T, U and X**.  NoBorrower, Guarantor or any of their respective Subsidiaries is or will beengaged in the business of extending credit for the purpose of purchasing orcarrying margin stock (within the meaning of Regulation T, U or X), and noproceeds of any Advance will be used to purchase or carry any margin stock orto extend credit to others for the purpose of purchasing or carrying any marginstock.

 

4.25                           **Nature of Business****.**  NoBorrower, Guarantor or any of their respective Subsidiaries is engaged in anybusiness other than the manufacturing and distribution of electronicinstruments, controls, components and systems.

 

4.26                           **Adverse Agreements, Etc.** Except as set forth on Schedule 4.26, no Borrower, Guarantor orany of their respective Subsidiaries is a party to any agreement or instrument,or subject to any charter, limited liability company agreement, partnershipagreement or other corporate, partnership or limited liability companyrestriction or any judgment, order, regulation, ruling or other requirement ofa court or other Governmental Authority, which has, or could reasonably beexpected to result in, a Material Adverse Change.

 

4.27                           **Permits, Etc.**  EachBorrower, each Guarantor and each of their respective Subsidiaries, other thanExcluded Foreign Subsidiaries, has, and is in compliance with, all permits,licenses, authorizations, approvals, entitlements and accreditations requiredfor such Person lawfully to own, lease, manage or operate, or to acquire, eachbusiness currently owned, leased, managed or operated, or to be acquired, bysuch Person.  No condition exists orevent has occurred which, in itself or with the giving of notice or lapse oftime or both, would result in the suspension, revocation, impairment,forfeiture or non-renewal of any such permit, license, authorization, approval,entitlement or accreditation, and there is no claim that any thereof is not infull force and effect.

 

4.28                           **Operating Lease Obligations**.  NoBorrower, Guarantor or any of their respective Subsidiaries has any OperatingLease Obligations other than the Operating Lease Obligations set forth on Schedule 4.28.

 

4.29                           **Insurance****.**  EachBorrower, each Guarantor and each of their respective Subsidiaries, other thanExcluded Foreign Subsidiaries, keeps its property adequately insured andmaintains (a) insurance to such extent and against such risks, includingfire, as is customary with companies in the same or similar businesses, (b)worker’s compensation insurance in the amount required by Applicable Law, (c)public liability insurance, which shall include product liability insurance, inthe amount customary with companies in the same or similar business againstclaims for personal injury or death on properties owned, occupied or controlledby it, and (d) such other insurance as may be required by law or as may bereasonably required by the Agent (including against larceny, embezzlement orother criminal misappropriation).  Schedule4.29 sets forth a list of all insurance maintained by each Borrower, eachGuarantor and each of their respective Subsidiaries on the Closing Date.

 

4.30                           **Holding Company and InvestmentCompany Acts**.  No Borrower, Guarantor or Subsidiary of anyBorrower or Guarantor is (i) a “holding company” or a “subsidiary company”of a “holding company” or an “affiliate” of a “holding company”, as such termsare defined in the Public Utility Holding Company Act of 1935, or (ii) an “investmentcompany” or an “affiliated person” or “promoter” of, or “principal underwriter”of or for, an “investment company”, as such terms are defined in the InvestmentCompany Act of 1940.

 

4.31                           **Employee and Labor Matters****.**  Thereis (a) no unfair labor practice complaint pending or, to the knowledge of anyBorrower, any Guarantor or any of their respective Subsidiaries, threatenedagainst any Borrower, any Guarantor or any of their respective Subsidiariesbefore any Governmental Authority and no

 

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grievance or arbitrationproceeding pending or threatened against any Borrower, any Guarantor or any oftheir respective Subsidiaries which arises out of or under any collectivebargaining agreement, (b) no strike, labor dispute, slowdown, stoppage orsimilar action or grievance pending or threatened against any Borrower, anyGuarantor or any of their respective Subsidiaries or (c) to the knowledge ofany Borrower, any Guarantor or any of their respective Subsidiaries, no unionrepresentation question existing with respect to the employees of any Borrower,any Guarantor or any of their respective Subsidiaries and no union organizingactivity taking place with respect to any of the employees of any Borrower, anyGuarantor or any of their respective Subsidiaries.  No Borrower, Guarantor, any of theirrespective Subsidiaries or any of their respective ERISA Affiliates hasincurred any liability or obligation under the Worker Adjustment and RetrainingNotification Act (“WARN”) or similar state law, which remains unpaid orunsatisfied.  The hours worked andpayments made to employees of any Borrower, any Guarantor or any of theirrespective Subsidiaries have not been in violation of the Fair Labor StandardsAct or any other applicable legal requirements, except to the extent suchviolations could not, individually or in the aggregate, reasonably be expectedto result in a Material Adverse Change. All material payments due from any Borrower, any Guarantor or any oftheir respective Subsidiaries on account of wages and employee health andwelfare insurance and other benefits have been paid or accrued as a liabilityon the books of such Person, except where the failure to do so could not,individually or in the aggregate, reasonably be expected to result in aMaterial Adverse Change.

 

4.32                           **Customers and Suppliers****.**  Thereexists no actual or threatened termination, cancellation or limitation of, ormodification to or change in, the business relationship between (a) anyBorrower, any Guarantor or any of their respective Subsidiaries, on the onehand, and any customer or any group thereof, on the other hand, whoseagreements with any Borrower, any Guarantor or any of their respectiveSubsidiaries are individually or in the aggregate material to the business oroperations of such Person, or (b) any Borrower, any Guarantor or any oftheir respective Subsidiaries, on the one hand, and any material supplierthereof, on the other hand.

 

4.33                           **No Bankruptcy Filing**.  NoBorrower, Guarantor or any of their respective Subsidiaries is contemplatingeither the filing of a petition by it under any U.S. state, federal or foreignbankruptcy or insolvency laws or the liquidation of all or a major portion ofits assets or property, and no Borrower, Guarantor or any of their respectiveSubsidiaries has any knowledge of any Person contemplating the filing of anysuch petition against it.

 

4.34                           **Separate Existence****.**

 

(a)                                  All customary formalities regarding theseparate existence of each Borrower, each Guarantor and their respectiveSubsidiaries have been at all times since its formation observed.

 

(b)                                 Each Borrower, each Guarantor and theirrespective Subsidiaries has at all times since its formation accuratelymaintained its financial statements, accounting records and otherorganizational documents separate from those of any Affiliate of such Borrower,Guarantor or Subsidiary and any other Person. No Borrower, Guarantor or any of their respective Subsidiaries has atany time since its formation commingled its assets with those of any of itsAffiliates or any other Person.  EachBorrower, each Guarantor and their respective Subsidiaries has at all timessince its formation accurately maintained its own bank accounts and separatebooks of account.

 

(c)                                  Each Borrower, each Guarantor and theirrespective Subsidiaries has at all times since its formation paid its ownliabilities from its own separate assets.

 

(d)                                 Each Borrower, each Guarantor and theirrespective Subsidiaries has at all times since its formation identified itselfin all dealings with the public, under its own name and as a separate anddistinct Person.  No Borrower, Guarantoror any of their respective Subsidiaries has at any time since its formationidentified itself as being a division or a part of any other Person.

 

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4.35                           **Excluded Foreign Subsidiaries**.  Noneof the Excluded Foreign Subsidiaries (a) have any assets, (ii) have anyliabilities that are recourse to any Borrower or Guarantor, or (c) engage inany activity or business of any kind.

 

4.36                           **Representations and Warranties inDocuments; No Default****.**  Allrepresentations and warranties set forth in this Agreement and the other LoanDocuments are true and correct in all material respects (except where any suchrepresentation or warranty is already subject to a materiality standard, inwhich case such representation or warranty is true and correction all respects)on the Closing Date and at the time as of which such representations are deemedmade.  No Event of Default has occurredand is continuing and no condition exists which constitutes a Default or anEvent of Default.

 

**5.****                                     ****AFFIRMATIVE COVENANTS.**

 

Each Borrower covenants and agrees that, until termination of all ofthe Commitments and payment in full of the Obligations, Borrowers shall andshall cause each Guarantor and each of their respective Subsidiaries to do allof the following:

 

5.1                                 **Accounting System**. Maintain a system of accounting that enables Borrowers, Guarantors andtheir respective Domestic Subsidiaries to produce financial statements inaccordance with GAAP and maintain records pertaining to the Collateral thatcontain information as from time to time reasonably may be requested byAgent.  Borrowers, Guarantors and theirrespective Subsidiaries also shall keep a reporting system that shows alladditions, sales, claims, returns, and allowances with respect to their andtheir respective Subsidiaries’ sales.

 

5.2                                 **Collateral Reporting**. Provide Agent (and if so requested by Agent, with copies for eachLender) with each of the reports set forth on Schedule 5.2 at thetimes specified therein.  In addition,each Borrower agrees to cooperate fully with Agent to facilitate and implementa system of electronic collateral reporting in order to provide electronicreporting of each of the items set forth above.

 

5.3                                 **Financial Statements, Reports,Certificates**.  Deliver to Agent, with copies to each Lender,each of the financial statements, reports, or other items set forth on Schedule 5.3at the time specified herein.  Inaddition, Parent agrees that none of its Subsidiaries (other than MagnetekElectronics) will have a fiscal year different from that of Parent and thatParent shall not have a fiscal year ending on a date other than June 30 unlessAgent consents to such change in such fiscal year (and appropriate relatedchanges to this Agreement).

 

5.4                                 **Guarantor Reports****.**  Causeeach Guarantor to deliver its annual financial statements at the time whenParent provides its audited financial statements to Agent, but only to theextent such Guarantor’s financial statements are not consolidated with Parent’sfinancial statements.

 

5.5                                 **Inspection**. Permit Agent, each Lender, and each of their duly authorizedrepresentatives or agents to visit any of its properties and inspect any of itsassets or books and records, to examine and make copies of its books andrecords, and to discuss its affairs, finances, and accounts with, and to beadvised as to the same by, its officers and employees at such reasonable timesand intervals as Agent or any such Lender may designate and, so long as noDefault or Event of Default exists, with reasonable prior notice toAdministrative Borrower.

 

5.6                                 **Maintenance of Properties**. Maintain and preserve all of its properties which are necessary oruseful in the proper conduct of its business in good working order andcondition, ordinary wear and tear excepted, and comply, and cause each of itsSubsidiaries to comply, at all times with the provisions of all leases to whichit is a party as lessee or under which it occupies property, so as to prevent anyloss or forfeiture thereof or thereunder.

 

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5.7                                 **[Reserved]**.

 

5.8                                 **Insurance**.

 

(a)                                  At Borrowers’ expense, maintain insurancerespecting their and their respective Subsidiaries’ (other than ExcludedForeign Subsidiaries’) assets wherever located, covering loss or damage byfire, theft, explosion, and all other hazards and risks as ordinarily areinsured against by other Persons engaged in the same or similarbusinesses.  Borrowers also shallmaintain business interruption, public liability, and product liabilityinsurance, as well as insurance against larceny, embezzlement, and criminalmisappropriation.  All such policies ofinsurance shall be in such amounts and with such insurance companies as arereasonably satisfactory to Agent.  Exceptas otherwise required pursuant to Schedule 3.1, within 30 days after theClosing Date, Borrowers shall deliver certified copies of all such policies toAgent with an endorsement naming Agent as a loss payee (under a satisfactorylender’s loss payable endorsement) or additional insured, as appropriate.  Each policy of insurance or endorsement shallcontain a clause requiring the insurer to give not *less*than 30 days prior written notice to Agent in the event of cancellation of thepolicy for any reason whatsoever.

 

(b)                                 Administrative Borrower shall give Agentprompt notice of any loss exceeding $250,000 covered by such insurance.  So long as no Event of Default has occurredand is continuing, the applicable Borrower shall have the exclusive right toadjust any losses payable under any such insurance policies which are *less* than $250,000. Following the occurrence and during the continuation of an Event ofDefault, or in the case of any losses payable under such insurance exceeding$250,000, Agent shall have the exclusive right (subject to the rights of theSecond Lien Agent pursuant to the Second Lien Intercreditor Agreement) toadjust any losses payable under any such insurance policies, without anyliability to any Borrower whatsoever in respect of such adjustments.

 

5.9                                 **Location of Inventory andEquipment**.  Keep Borrowers’, Guarantors’ and theirrespective Subsidiaries’ Inventory and Equipment (other than vehicles andEquipment out for repair) only at the locations identified on Schedule 4.5and their chief executive offices only at the locations identified on Schedule 4.7(b);provided, however, that Administrative Borrower may amend Schedule 4.5or Schedule 4.7 so long as such amendment occurs by written noticeto Agent not *less* than 30 days prior to thedate on which such Inventory or Equipment is moved to such new location or suchchief executive office is relocated, so long as such new location is within thecontinental United States, or in the case of Mondel, within Canada, and so longas, at the time of such written notification, the applicable Borrower or Mondelprovides Agent a Collateral Access Agreement with respect thereto.

 

5.10                           **Compliance with Laws, Etc.** Comply in all material respects with all Applicable Laws, rules,regulations and orders (including all Environmental Laws), such compliance toinclude, without limitation, (i) paying before the same become delinquent alltaxes, assessments and governmental charges or levies imposed upon it or uponits income or profits or upon any of its properties, and (ii) paying allother lawful claims, including the Statutory Lien Payments, which if unpaidmight become a Lien or charge upon any of its properties, except, in each case,to the extent contested in good faith by proper proceedings which stay theimposition of any penalty, fine or Lien resulting from the non-payment thereofand with respect to which adequate reserves have been set aside for the paymentthereof in accordance with GAAP.

 

5.11                           **Leases**.  Paywhen due all rents and other amounts payable under any material Leases to whichany Borrower, any Guarantor or any of their respective Subsidiaries is a partyor by which any Borrower’s, any Guarantor’s or any of their respectiveSubsidiaries’ properties and assets are bound, unless such payments are thesubject of a Permitted Protest.

 

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5.12                           **Existence**. Maintain and preserve its existence, rights, franchises and privileges,and become or remain, and cause each of its Subsidiaries to become or remain,duly qualified and in good standing in each jurisdiction in which the characterof the properties owned or leased by it or in which the transaction of itsbusiness makes such qualification necessary.

 

5.13                           **Environmental**.

 

(a)                                  Keep any property either owned or operated byany Borrower, any Guarantor or any of their respective Subsidiaries free of anyEnvironmental Liens or post bonds or other financial assurances sufficient tosatisfy the obligations or liability evidenced by such Environmental Liens,(b) comply, in all material respects, with Environmental Laws and provideto Agent documentation of such compliance which Agent reasonably requests,(c) promptly notify Agent of any release of a Hazardous Material in anyreportable quantity from or onto property owned or operated by any Borrower,any Guarantor or any of their respective Subsidiaries and take any RemedialActions required to abate said release or otherwise to come into compliancewith applicable Environmental Law, (d) promptly, but in any event within 5days of its receipt thereof, provide Agent with written notice of any of thefollowing:  (i) notice that anEnvironmental Lien has been filed against any of the real or personal propertyof any Borrower, any Guarantor or any of their respective Subsidiaries,(ii) commencement of any Environmental Action or notice that anEnvironmental Action will be filed against any Borrower, any Guarantor or anyof their respective Subsidiaries, and (iii) notice of a violation, citation,or other administrative order which reasonably could be expected to result in aMaterial Adverse Change and (e) defend, indemnify and hold harmless the Agent,the Lender Group, their respective transferees, and their respective employees,agents, officers and directors, from and against any claims, demands,penalties, fines, liabilities, settlements, damages, costs or expenses(including attorney and consultant fees, investigation and laboratory fees,court costs and litigation expenses) arising out of (i) the presence, disposal,release or threatened release of any Hazardous Materials on any property at anytime owned or occupied by any Borrower, any Guarantor or any of theirrespective Subsidiaries (or their respective predecessors in interest or title),(ii) any personal injury (including wrongful death) or property damage (real orpersonal) arising out of or related to such Hazardous Materials, (iii) anyinvestigation, lawsuit brought or threatened, settlement reached or governmentorder relating to such Hazardous Materials, (iv) any violation of anyEnvironmental Law or (v) any Environmental Action filed against Agent or anymember of the Lender Group.

 

5.14                           **Disclosure Updates**. Promptly and in no event later than 5 Business Days after obtainingknowledge thereof, notify Agent if any written information, exhibit, or reportfurnished to the Lender Group contained, at the time it was furnished, anyuntrue statement of a material fact or omitted to state any material factnecessary to make the statements contained therein not misleading in light ofthe circumstances in which made.  Theforegoing to the contrary notwithstanding, any notification pursuant to theforegoing provision will not cure or remedy the effect of the prior untruestatement of a material fact or omission of any material fact nor shall anysuch notification have the effect of amending or modifying this Agreement orany of the Schedules hereto.

 

5.15                           **Control Agreements**.  Takeall reasonable steps in order for Agent to obtain control in accordance withSections 8-106, 9-104, 9-105, 9-106, and 9-107 of the Code with respect to(subject to the proviso contained in Section 6.12) all of itsSecurities Accounts, Deposit Accounts, electronic chattel paper, investmentproperty, and letter of credit rights.

 

5.16                           **Formation of Subsidiaries**.  Atthe time that any Borrower or any Guarantor forms any direct or indirectSubsidiary or acquires any direct or indirect Subsidiary after the ClosingDate, such Borrower

 

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or such Guarantor shall, asAgent may request, promptly, but in any event within 3 Business Days after theformation or acquisition of such Subsidiary: (a) cause such new Subsidiaryto provide to Agent a joinder to the Guaranty, the applicable SecurityDocuments (including Mortgages with respect to any Real Property of such newSubsidiary) and such of the other Loan Documents as Agent may request, togetherwith such other security documents as Agent may request, as well as appropriatefinancing statements (and with respect to all property subject to a Mortgage,fixture filings), all in form and substance satisfactory to Agent (includingbeing sufficient to grant Agent a first priority Lien (subject to PermittedLiens) in and to the assets of such newly formed or acquired Subsidiary),(b) provide to Agent a pledge agreement and appropriate certificates andpowers and/or financing statements, hypothecating all of the direct orbeneficial ownership interest in such new Subsidiary, in form and substancesatisfactory to Agent, and (c) provide to Agent all other documentation,including one or more opinions of counsel satisfactory to Agent, which in itsopinion is appropriate with respect to the execution and delivery of theapplicable documentation referred to above (including Mortgage Policies,surveys, appraisals, phase I environmental site assessments and otherdocumentation with respect to all property subject to a Mortgage), in each casein form and substance satisfactory to Agent. Any document, agreement, or instrument executed or issued pursuant tothis Section 5.16 shall be a Loan Document.  Notwithstanding the foregoing, if aSubsidiary that is so formed or acquired is a Controlled Foreign Corporationand if Borrowers can reasonably demonstrate to Agent that the granting of aLien in the assets of such Subsidiary would result in an increase in taxliability of Parent and its Subsidiaries (based on the amount of retainedearnings at the time of such formation or acquisition) in excess of $50,000 perfiscal year, then clause (a) of the immediately preceding sentence shall not beapplicable and, with respect to clause (b) of the immediately precedingsentence, such pledge shall be limited to 66% of the voting power of allclasses of capital Stock of such Subsidiary entitled to vote; provided,that immediately upon any amendment of the IRC that would allow the pledge of agreater percentage of the voting power of capital Stock in such Subsidiarywithout adverse tax consequences, such pledge shall include such greaterpercentage of capital Stock of such Subsidiary from that time forward.

 

5.17                           **ERISA Compliance****.**

 

(a)                                  Each Borrower shall do, and shall cause eachof their respective Subsidiaries (other than Mondel) and ERISA Affiliates todo, each of the following:  (i) maintaineach Plan in compliance in all material respects with the applicable provisionsof ERISA, the IRC and each other applicable federal or state law; (ii) causeeach Qualified Plan to maintain its qualified status under Section 401(a) of theIRC; (iii) make all required contributions to each Plan; (iv) not become aparty to any Multiemployer Plan; (v) ensure that all liabilities under eachPlan are (A) funded to at least the minimum level required by law or, ifhigher, to the level required by the terms governing such Plan; (B) insuredwith a reputable insurance company with respect to fiduciary liability; and (C)provided for or recognized in the financial statements most recently deliveredto Agent under Section 5.3 (to the extent required by GAAP); and (vi) ensurethat the contributions or premium payments to or in respect of each Plan areand continue to be promptly paid at no less than the rates required under therules of such Plan and in accordance with the most recent actuarial advicereceived in relation to such Plan and Applicable Law.

 

(b)                                 Deliver to Agent such certifications or otherevidence of compliance with the provisions of Section 4.13 as Agent mayfrom time to time reasonably request.

 

(c)                                  Promptly notify Agent of each of thefollowing ERISA events affecting any Borrower, any of their respectiveSubsidiaries or any ERISA Affiliates (but in no event more than ten (10) daysafter such event), together with a copy of each notice with respect to suchevent that may be required to be filed with a Governmental Authority and eachnotice delivered by a Governmental Authority to any Borrower, any of theirrespective Subsidiaries or any ERISA Affiliates with respect to such event:

 

(i)                                     an ERISA Event;

 

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(ii)                                  the adoption of any new Pension Plan byany Borrower, any of their respective Subsidiaries or any ERISA Affiliates;

 

(iii)                               the adoption of any amendment to a Pension Plan, ifsuch amendment will result in a material increase in benefits or unfundedbenefit liabilities (as defined in Section 4001(a)(18) of ERISA); or

 

(iv)                              the commencement of contributions by anyBorrower, any of their respective Subsidiaries or any ERISA Affiliate to anyPlan that is subject to Title IV of ERISA or section 412 of the IRC other thanas set forth on Schedule 5.17;

 

(d)                                 Promptly deliver to Agent copies of (i) eachSchedule B (Actuarial Information) to the annual report (Form 5500 Series)filed by any Borrower, any of their respective Subsidiaries or any ERISAAffiliates with the Internal Revenue Service with respect to each Pension Plan;(ii) all notices received by any Borrower, any of their respective Subsidiariesor any of their respective ERISA Affiliates from a Multiemployer Plan sponsorconcerning an ERISA Event; and (iii) such other documents or governmentalreports or filings relating to any Plan as Agent shall reasonably request.

 

5.18                           **Second Lien Loan Documents****.**

 

(a)                            Contemporaneously with the initial extensions of credit hereunder: (i)cause all transactions contemplated by the Second Lien Loan Documents to beconsummated; and (ii) furnish to Agent evidence thereof in form and contentsatisfactory to Agent, as well as certified (as of the Closing Date) true andcomplete copies of the Second Lien Loan Documents which shall be in compliancewith all Applicable Laws and all necessary approvals shall have been obtainedin connection therewith.

 

(b)                           Promptly provide Agent with true and complete copies of any and allmaterial documents delivered to any Person pursuant to, or in connection withthe Second Lien Loan Documents.

 

5.19                           **Completion of Magnetek ADS Sale****.**  On orbefore December 31, 2005, Borrowers shall have consummated the Magnetek ADSSale, provided satisfactory evidence thereof to Agent and remitted all Net CashProceeds thereof to Agent for application to the Senior Debt in accordance withSection 2.4(c).

 

5.20                           **Obtaining of Permits, Etc****.** Obtain, maintain and preserve and take all necessary action to timelyrenew, all permits, licenses, authorizations, approvals, entitlements andaccreditations which are necessary or useful in the proper conduct of itsbusiness.

 

5.21                           **Subordination**. Cause all Indebtedness and other obligations now or hereafter owed by itto any of its Affiliates which is permitted to exist or be incurred under theterms of Section 6.1, to be subordinated in right of payment andsecurity to the Obligations in accordance with the Intercompany SubordinationAgreement or another Subordination Agreement in form and substance satisfactoryto the Agent.

 

5.22                           **After Acquired Property**.  Uponthe acquisition of any After Acquired Property, immediately so notify theAgent, setting forth with specificity a description of the interest acquired,the location of such Real Property, any structures or improvements thereon andeither an appraisal or such acquiring Person’s good-faith estimate of thecurrent value of such Real Property.  TheAgent shall notify such acquiring Person whether it intends to require aMortgage and the other documents referred to below or in the case of leasehold,a Collateral Access Agreement with respect thereto; provided, however,Agent shall not require a Mortgage upon the acquisition of any After AcquiredProperty by a Subsidiary that is a Controlled Foreign Corporation and is not aBorrower or a Guarantor.  Upon receipt ofsuch notice requesting a Mortgage,

 

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the Person which hasacquired such After Acquired Property shall immediately furnish to the Agentthe following, each in form and substance satisfactory to the Agent:  (a) a Mortgage with respect to suchAfter Acquired Property, each duly executed by such Person and in recordableform; (b) evidence of the recording of the Mortgage referred to in clause(a) above in such office or offices as may be necessary or, in the opinion ofthe Agent, desirable to create and perfect a valid and enforceable firstpriority lien on the property purported to be covered thereby or to otherwiseprotect the rights of the Agent, the Lenders and the Bank Product Providersthereunder, (c) a Mortgage Policy, (d) a survey of such RealProperty, certified to the Agent and to the issuer of the Mortgage Policy by alicensed professional surveyor reasonably satisfactory to the Agent,(e) phase I environmental site assessments with respect to such RealProperty, certified to the Agent by a company reasonably satisfactory to theAgent, and (f) such other documents or instruments (including guarantiesand opinions of counsel) as the Agent may reasonably require.  The Borrowers shall pay all fees andexpenses, including reasonable attorneys’ fees and expenses, and all titleinsurance charges and premiums, in connection with Person’s obligations underthis Section 5.22.

 

5.23                           **Further Assurances****.**  Takesuch action and execute, acknowledge and deliver, at its sole cost and expense,such agreements, instruments or other documents as are necessary, or as Agentmay reasonably request, from time to time in order (a) to carry out moreeffectively the purposes of this Agreement and the other Loan Documents,(b) to subject to valid and perfected first priority Liens (subject onlyto Permitted Liens) any of the Collateral or any other property of any Borrowerand its Subsidiaries, (c) to establish and maintain the validity andeffectiveness of any of the Loan Documents and the validity, perfection andpriority of the Liens intended to be created thereby, and (d) to betterassure, convey, grant, assign, transfer and confirm unto Agent and each Lenderthe rights now or hereafter intended to be granted to it under this Agreementor any other Loan Document.  Infurtherance of the foregoing, to the maximum extent permitted by ApplicableLaw, each Borrower and each Guarantor (x) authorizes Agent to execute anysuch agreements, instruments or other documents in the applicable Borrower’s orGuarantor’s name and to file such agreements, instruments or other documents inany appropriate filing office, (y) authorizes Agent to file any financingstatement required hereunder or under any other Loan Document, and anycontinuation statement or amendment with respect thereto, in any appropriatefiling office without the signature of any Borrower or any Guarantor, and(z) ratifies the filing of any financing statement, and any continuationstatement or amendment with respect thereto, filed without the signature ofsuch Borrower or Guarantor prior to the date hereof.

 

5.24                           **Post-Closing Requirements****.**

 

(a)                                  Within 10 days after the Closing Date,deliver to Agent all original certificates representing the shares of Stockpledged under the Security Agreement along with Stock powers with respectthereto endorsed in blank.

 

(b)                                 Within 20 days after the Closing Date,deliver to Agent Collateral Access Agreements with respect to the following locationsand Persons, each in form and substance satisfactory to Agent: (i) 8966 MasonAvenue, Chatsworth, CA; (ii) N49 W13650 Campbell Drive, Menomonee Falls, WI;(iii) N50 W13605 Overview Drive, Menomonee Falls, WI; (iv) W136 N4863 CampbellDrive, Menomonee Falls, WI; and (v) MTI Electronics, Inc.

 

(c)                                  Within 20 days after the Closing Date,deliver to Agent the Joinder to Intercompany Subordination Agreement, dulyexecuted by each Subsidiary of a Borrower described therein.

 

(d)                                 Within 20 days after the Closing Date,deliver to Agent, in each case in form and substance satisfactory to Agent: (i)the Foreign Stock Pledge, duly executed by all parties thereto, together withall original certificates representing the shares of Stock pledged thereunderalong with Stock powers with respect thereto endorsed in blank, and otherdocuments or instruments contemplated thereby and (ii) an opinion of Italiancounsel to Borrowers as to such Foreign Stock Pledge and such other matters asAgent may reasonably request.

 

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(e)                                  Within 30 days after the Closing Date,deliver to Agent consolidated and consolidating financial statements of Parentand its Subsidiaries for their fiscal year ended June 30, 2005, audited byindependent certified public accountants reasonably acceptable to Agent andcertified, without any qualifications (including any (i) ”going concern”or like qualification or exception, (ii) qualification or exception as tothe scope of such audit, or (iii) qualification which relates to thetreatment or classification of any item and which, as a condition to theremoval of such qualification, would require an adjustment to such item) bysuch accountants to have been prepared in accordance with GAAP (such audited financialstatements to include a balance sheet, income statement, and statement of cashflow and, if prepared, such accountants’ letter to management), with suchfinancial statements being materially consistent, as determined by Agent, withthe preliminary set of such financial statements previously provided by Parentto Agent.

 

(f)                                    On or before November 30, 2005, deliver toAgent either (i) a Collateral Access Agreement, in form and substancesatisfactory to Agent, with respect to Borrowers’ facility located at 10900Wilshire Boulevard, Suite 850, Los Angeles, California (the “WilshireFacility”) or (ii) evidence, in form and substance satisfactory to Agent,of the closure of the Wilshire Facility and the Borrowers’ and Guarantors’having vacated such premises.

 

**6.****                                     ****NEGATIVE COVENANTS.**

 

Each Borrower covenants and agrees that, until termination of all ofthe Commitments and payment in full of the Obligations, Borrowers will not andwill not permit any Guarantor or any of their respective Subsidiaries to do anyof the following:

 

6.1                                 **Indebtedness**. Create, incur, assume, suffer to exist, guarantee, or otherwise becomeor remain, directly or indirectly, liable with respect to any Indebtedness,except Permitted Indebtedness.

 

6.2                                 **Liens**. Create, incur, assume or suffer to exist any Lien upon or with respectto any of its properties, whether now owned or hereafter acquired; file orsuffer to exist under the Code, the PPSA or any similar law or statute of anyjurisdiction, a financing statement (or the equivalent thereof) that names itor any of its Subsidiaries as debtor; sign or suffer to exist any securityagreement authorizing any secured party thereunder to file such financingstatement (or the equivalent thereof); sell any of its property or assetssubject to an understanding or agreement, contingent or otherwise, torepurchase such property or assets (including sales of accounts receivable)with recourse to it or any of its Subsidiaries or assign or otherwise transfer,or permit any of its Subsidiaries to assign or otherwise transfer, any accountor other right to receive income; other than, as to all of the above, PermittedLiens; provided, that, no Liens shall be permitted on any assetsincluded in the Borrowing Base other than Agent’s Liens and Permitted Liens securingthe Second Lien Indebtedness.

 

6.3                                 **Restrictions on FundamentalChanges**.

 

(a)                                  Merge, consolidate or amalgamate with anyPerson, enter into any reorganization or reclassify its Stock, (or agree to doany of the foregoing),

 

(b)                                 Liquidate, wind up, or dissolve itself, orsuffer any liquidation or dissolution, (or agree to do any of the foregoing),

 

(c)                                  Suspend or go out of a substantial portion ofits or their business, (or agree to do any of the foregoing), or

 

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(d)                                 Purchase or otherwise acquire, whether in onetransaction or a series of related transactions, all or substantially all ofthe assets of any Person (or any division thereof) (or agree to do any of theforegoing).

 

6.4                                 **Disposal of Assets**.  Otherthan Permitted Dispositions, convey, sell, lease, sublease, license, assign,transfer, or otherwise dispose of, in one transaction or a series oftransactions, all or any part of its business, property or assets, whether nowor hereafter acquired (or agree to do any of the foregoing).

 

6.5                                 **[Reserved.]**

 

6.6                                 **Nature of Business**.  Makeany change in the nature of its business as described in Section 4.25.

 

6.7                                 **Payments and Amendments, etc**.

 

(a)                                  Amend, modify or otherwise change (or permitthe amendment, modification or other change in any manner of) any of theprovisions of:

 

(i)                                     any of its or its Subsidiaries’Indebtedness (other than any Subordinated Indebtedness or the Second LienIndebtedness) or of any instrument or agreement (including any purchase agreement,indenture, loan agreement or security agreement) relating to any suchIndebtedness if such amendment, modification or change would shorten the finalmaturity or average life to maturity of, or require any payment to be madeearlier than the date originally scheduled on, such Indebtedness, wouldincrease the interest rate applicable to such Indebtedness, would change thesubordination provisions, if any, of such Indebtedness, or would otherwise beadverse to the Lenders or the issuer of such Indebtedness in any respect;

 

(ii)                                  any Subordinated Indebtedness unlessexpressly permitted under the terms of the applicable Subordination Agreementwhich is an agreement to which Agent is a party; or

 

(iii)                               any Second Lien Loan Documents to the extent such amendment,modification or waiver is prohibited pursuant to the terms of the Second LienIntercreditor Agreement.

 

(b)                                 With respect to Indebtedness other thanSubordinated Indebtedness, the Second Lien Indebtedness and the Obligations,make any voluntary or optional payment, prepayment, redemption, defeasance,sinking fund payment or other acquisition for value of any of such Indebtednessor such of its Subsidiaries’ Indebtedness (including by way of depositing moneyor securities with the trustee therefor before the date required for thepurpose of paying any portion of such Indebtedness when due), or refund,refinance, replace or exchange any other Indebtedness for any such Indebtedness(except to the extent such refinanced Indebtedness is otherwise expresslypermitted by the definition of Permitted Indebtedness), or make any payment,prepayment, redemption, defeasance, sinking fund payment or repurchase of anyoutstanding Indebtedness as a result of any asset sale, change of control,issuance and sale of debt or equity securities or similar event, or give anynotice with respect to any of the foregoing.

 

(c)                                  Except as expressly permitted pursuant to theterms of the applicable Subordination Agreement, make any payments, of any kindor nature, with respect to such Subordinated Indebtedness.

 

(d)                                 Amend, modify or otherwise change its name,jurisdiction of organization, organizational identification number, federalemployer identification number or, in the case of Mondel, its business numberassigned by the Canadian Revenue Agency.

 

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(e)                                  Amend, modify or otherwise change itscertificate of incorporation or bylaws (or other similar organizationaldocuments), including by the filing or modification of any certificate ofdesignation, or any agreement or arrangement entered into by it, with respectto any of its capital Stock (including any shareholders’ agreement), or enterinto any new agreement with respect to any of its capital Stock, except anysuch amendments, modifications or changes or any such new agreements orarrangements pursuant to this subsection (e) that either individually or in theaggregate, could not reasonably be expected to result in a Material AdverseChange.

 

(f)                                    Except as permitted by Section 6.7(a),agree to any material amendment or other material change to or material waiverof its rights under any Material Contract.

 

(g)                                 Make any principal payments (whethervoluntary, mandatory or otherwise), with respect to the Second LienIndebtedness other than (i) as set forth in Section 2.4(c)(vi), (ii)regularly scheduled quarterly principal payments of no more than $1,000,000commencing October 1, 2006 so long as, both before and after giving effect toany such payment, no Event of Default exists or would otherwise result frommaking any such principal payment, (iii) in connection with Second LienPrepayment Events so long as, both before and after giving effect to any suchpayment, no Event of Default exists or would otherwise result from making anysuch principal payment and (iv) voluntary prepayments so long as, both beforeand after giving effect to any such payment no Event of Default exists or wouldotherwise result from making any such principal payment; provided, however,that in the event any principal payment with respect to the Second LienIndebtedness is not permitted to be made as a result of the existence of anEvent of Default, then Borrowers may make such principal payment to the extentAgent has notified Borrowers that the Obligations (up to the Maximum First LienLoan Amount (as such term is defined in the Second Lien IntercreditorAgreement)) have first been satisfied and paid in full in accordance with theterms of Section 2.4(b), it being understood that the operation of theforegoing provision shall not be construed to or result in a waiver or cure ofany payment default which would arise under the Second Lien Loan Documents.

 

6.8                                 **Change of Control**. Cause, permit, or suffer, directly or indirectly, any Change of Control.

 

6.9                                 **Consignments**. Consign any of their Inventory or sell any of their Inventory on billand hold, sale or return, sale on approval, or other conditional terms of saleunless Agent has received a Collateral Access Agreement executed by theapplicable consignee or other such Person; provided, however,that no such Collateral Access Agreement shall be required to the extent thebook value of all Inventory held by such consignee or other such Person doesnot exceed $100,000 in any one instance or $300,000 in the aggregate (inclusiveof all Inventory and Equipment stored with any bailee, warehouseman or similarparty).

 

6.10                           **Distributions; RestrictedPayments**.  (a) Declare or pay any dividend or otherdistribution, direct or indirect, on account of any of its or its Subsidiaries’capital Stock now or hereafter outstanding, (b) make any repurchase,redemption, retirement, defeasance, sinking fund or similar payment, purchaseor other acquisition for value, direct or indirect, of any of its or its director indirect parent’s capital Stock now or hereafter outstanding, (c) make anypayment to retire, or to obtain the surrender of, any outstanding warrants,options or other rights for the purchase or acquisition of shares of any classof its capital Stock now or hereafter outstanding, or (d) pay any managementfees or any other fees or expenses (including the reimbursement thereof by anyBorrower, any Guarantor or any of their respective Subsidiaries) pursuant toany management, consulting or other services agreement to any of the shareholdersor other equity holders of any Borrower, any Guarantor or any of theirrespective Subsidiaries or other Affiliates, or to any other Subsidiaries orAffiliates of any Borrower or any Guarantor; provided, however,that so long as no Default or Event of Default has occurred and is continuingor would result therefrom (i) any Subsidiary of any Borrower may paydividends to such Borrower, and (ii) the Parent may pay dividends in theform of common capital Stock.

 

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6.11                           **Accounting Methods**. Modify or change their fiscal year or their method of accounting (otherthan as may be required to conform to GAAP) or enter into, modify, or terminateany agreement currently existing, or at any time hereafter entered into withany third party accounting firm or service bureau for the preparation orstorage of Borrowers’ or their respective Subsidiaries’ accounting recordswithout said accounting firm or service bureau agreeing to provide Agentinformation regarding Borrowers’ and their respective Subsidiaries’ financialcondition.

 

6.12                           **Investments**.  Makeor commit or agree to make any Investment or other loan, advance guarantee ofobligations, other extension of credit or capital contributions to, or hold orinvest in or commit or agree to hold or invest in, or purchase or otherwiseacquire or commit or agree to purchase or otherwise acquire any shares of thecapital Stock, bonds, notes, debentures or other securities of, or make orcommit or agree to make any other investment in, any other Person, or purchaseor own any futures contract or otherwise become liable for the purchase or saleof currency or other commodities at a future date in the nature of a futurescontract, or incur any liabilities (including contingent obligations) for or inconnection with any Investment, or permit any of its Subsidiaries to do any ofthe foregoing, except for: (a) Investments existing on the date hereof, as set forth on Schedule 6.12hereto, but not any increase in the amount thereof as set forth in suchSchedule or any other modification of the terms thereof, (b) temporaryloans and advances by a Borrower to a Borrower or a Guarantor that is anoperating Subsidiary of a Borrower and by such other Borrower or Guarantor to aBorrower, made in the ordinary course of business and not exceeding in theaggregate at any one time outstanding $100,000, and (c) PermittedInvestments.  Without limiting theforegoing: (x) Administrative Borrower, Guarantors and their respectiveSubsidiaries shall not have cash, Cash Equivalents and other PermittedInvestments (other than in the Cash Management Accounts) in Deposit Accounts orSecurities Accounts (i) located in the United States or Canada in an amount inexcess of $10,000 at any one time with respect to any one such account unlessAdministrative Borrower, such Guarantor or such Subsidiary, as applicable, andthe applicable securities intermediary or bank have entered into a ControlAgreement governing such cash, Cash Equivalents and other Permitted Investmentsin order to perfect (and further establish) the Agent’s Liens therein or (ii)located outside the United States or Canada in an amount in excess of$5,000,000 in the aggregate at any one time unless Administrative Borrower,such Guarantor or such Subsidiary, as applicable, and the applicable securitiesintermediary or bank have entered into a Control Agreement governing such cash,Cash Equivalents and other Permitted Investments in order to perfect (andfurther establish) the Agent’s Liens therein; and (y) subject to the foregoingclause (x), Borrowers and Guarantors shall not and shall not permit theirrespective Subsidiaries to establish or maintain any Deposit Account orSecurities Account unless Agent shall have received a Control Agreement inrespect of such Deposit Account or Securities Account.

 

6.13                           **Transactions with Affiliates**. Enter into, renew, extend or be a party to, any transaction or series ofrelated transactions (including the purchase, sale, lease, transfer or exchangeof property or assets of any kind or the rendering of services of any kind)with any Affiliate, except (a) in the ordinary course of business in amanner and to an extent consistent with past practice and necessary ordesirable for the prudent operation of its business, for fair consideration andon terms no less favorable to it or its Subsidiaries than would be obtainablein a comparable arm’s length transaction with a Person that is not an Affiliatethereof, (ii) if such transactions involve one or more payments by anyBorrower or any of its Subsidiaries in excess of $100,000, are fully disclosedto Agent, and (iii) transactions permitted by Section 6.10 or Section6.12.

 

6.14                           **Use of Proceeds**.  Usethe proceeds of (1) the Advances for any purpose other than (a) on theClosing Date, (i) to repay in full the outstanding principal, accruedinterest, and accrued fees and expenses owing to Existing Lender, (ii) to fundno more than $4,600,000 of the Nilssen Award or any full and final settlementin respect thereof, and (iii) to pay transactional fees, costs, andexpenses incurred in connection with this Agreement, the other Loan Documents,and the transactions contemplated hereby and thereby, and (b) thereafter,consistent with the terms and conditions hereof, for its lawful and permittedpurposes and (2) the Second Lien Indebtedness other than to (i) pay the NilssenAward or any full and final settlement in respect

 

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thereof; provided, that,if the Nilssen Award is vacated pursuant to a final non-appealable court orderby a court of competent jurisdiction or if the amount to be paid in connectionwith the Nilssen Award or any full and final settlement in respect thereof isless than $18,000,000, such proceeds or excess proceeds, as the case may be,shall be used consistent with the terms and conditions hereof, for theBorrowers’ lawful and permitted purposes, and (ii) to pay transactionalfees, costs, and expenses incurred in connection with the Second Lien LoanDocuments and the transactions contemplated thereby.

 

6.15                           **Inventory and Equipment withBailees**.  Store the Inventory or Equipment ofBorrowers, Guarantors or their respective Subsidiaries at any time now orhereafter with a bailee, warehouseman, or similar party other than as set forthon Schedule 4.5 and only to the extent a Collateral Access Agreement hasbeen delivered to Agent with respect to such bailee, warehouseman or similarparty; provided, that, to the extent any Inventory and Equipmentstored with such bailee, warehouseman or similar party has a book value of lessthan $100,000 for any one location and $300,000 in the aggregate for all suchlocations (inclusive of any Inventory or Equipment on consignment with anyPerson), no such Collateral Access Agreement shall be required.

 

6.16                           **Financial Covenants**.

 

(a)                                  Fail to maintain or achieve:

 

(i)             **Minimum TTM EBITDA.**  TTM EBITDA, measured as of the end of eachfiscal quarter specified in the following table of no less than the applicableamount set forth opposite thereto:

 
| **Applicable Amount** | ** ** | **Fiscal Quarter Ending** |
|-----------------------|------------|---------------------------|
| $                     | 13,000,000 |                      | September 30, 2005 |
|                  |       |                      |   |
| $                     | 12,400,000 |                      | December 31, 2005 |
|                  |       |                      |   |
| $                     | 14,700,000 |                      | March 31, 2006 |
|                  |       |                      |   |
| $                     | 17,000,000 |                      | June 30, 2006 and  the last day of each  fiscal quarter thereafter |

 

(ii)          **Minimum TTM Power Systems EBITDA.**  TTM Power Systems EBITDA, measured as of theend of each fiscal quarter specified in the following table of no less than theapplicable amount set forth opposite thereto:

 
| **Applicable Amount** | ** ** | **Fiscal Quarter Ending** |
|-----------------------|------------|---------------------------|
| $                     | 8,500,000  |                      | September 30, 2005 |
|                  |       |                      |   |
| $                     | 8,500,000  |                      | December 31, 2005 |
|                  |       |                      |   |
| $                     | 8,500,000  |                      | March 31, 2006 |
|                  |       |                      |   |
| $                     | 8,500,000  |                      | June 30, 2006 and  the last day of each  fiscal quarter thereafter |

 

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(iii)       **Fixed Charge Coverage Ratio.**  A Fixed Charge Coverage Ratio, measured forthe period specified in the following table of not less than the applicableratio set forth opposite thereto:

 
| **Applicable Ratio** | ** ** | **Measurement Period**                                                                                       |
|----------------------|------------|--------------------------------------------------------------------------------------------------------------|
| 2.00:1.00            |       | 3 months ending  September 30, 2005                                                                          |
|                 |       |                                                                                                         |
| 2.00:1.00            |       | 6 months ending  December 31, 2005                                                                           |
|                 |       |                                                                                                         |
| 1.75:1.00            |       | 9 months ending March  31, 2006                                                                              |
|                 |       |                                                                                                         |
| 1.75:1.00            |       | 12 months ending June  30, 2006 and  the 12 months ending on the last day of each  fiscal quarter thereafter |

 

(iv)      **Leverage Ratio.**  ALeverage Ratio, measured as of the end of each fiscal quarter specified in thefollowing table of not more than the applicable ratio set forth oppositethereto:

 
| **Applicable Ratio** | ** ** | **Fiscal Quarter Ending**                                          |
|----------------------|------------|--------------------------------------------------------------------|
| 4.10:1.00            |       | September 30, 2005                                                 |
|                 |       |                                                               |
| 4.40:1.00            |       | December 31, 2005                                                  |
|                 |       |                                                               |
| 3.75:1.00            |       | March 31, 2006                                                     |
|                 |       |                                                               |
| 3.25:1.00            |       | June 30, 2006 and  the last day of each  fiscal quarter thereafter |

 

(b)                                 Make:

 

(i)             **Capital Expenditures**.  Capital Expenditures in any fiscal year inexcess of the amount set forth in the following table for the applicableperiod:

 
| **Fiscal Year 2006** | ** ** | **Fiscal Year 2007** | ** ** | **6 Months Ended  December 31, 2007** | ** ** |
|----------------------|------------|----------------------|------------|---------------------------------------|------------|
| $                    | 7,500,000  |                 | $          | 9,600,000                             |       | $ | 5,200,000 |   |
|                      |            |                      |            |                                       |            |  |  |  |

 

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Notwithstandingthe foregoing, Capital Expenditures for any fiscal year of Parent and itsSubsidiaries after 2007 shall be permitted only to the extent (A) not in excessof the amount set forth above and (B) supported by updated Projections providedto Agent in accordance with the terms of this Agreement for such fiscal years.

 

6.17                           **ERISA****. **(a) Terminate orpermit any of their ERISA Affiliates to, terminate any Pension Plan so as toresult in any material liability to Parent, its Subsidiaries or any ERISAAffiliate, (b) permit to exist any ERISA Event, or any other event or condition,which presents the risk of a material liability to any ERISA Affiliate, (c)make a complete or partial withdrawal (within the meaning of ERISA Section4201) from any Multiemployer Plan so as to result in any material liability toParent, its Subsidiaries or any ERISA Affiliate, (d) enter into any new Plan ormodify any existing Plan so as to increase its obligations thereunder whichcould result in any material liability to any ERISA Affiliate, (e) permit thepresent value of all nonforfeitable accrued benefits under any Plan (using theactuarial assumptions utilized by the PBGC upon termination of a Plan)materially to exceed the fair market value of Plan assets allocable to suchbenefits, all determined as of the most recent valuation date for each suchPlan, or (f) engage in any transaction which would cause any obligation, oraction taken or to be taken, hereunder (or the exercise by Agent or any Lenderof any of their rights under this Agreement or the other Loan Documents) to bea non-exempt (under a statutory or administrative class exemption) prohibitedtransaction under ERISA or Section 4975 of the IRC.

 

6.18                           **Lease Obligations**. Create, incur or suffer to exist any obligations as lessee (a) forthe payment of rent for any real or personal property in connection with anysale and leaseback transaction, or (b) for the payment of rent for anyreal or personal property under leases or agreements to lease other than(i) Capitalized Lease Obligations which would not cause the aggregateamount of all obligations under Capitalized Leases entered into after theClosing Date owing by all Borrowers, Guarantors and their respectiveSubsidiaries in any of fiscal year of to exceed the amounts set forth in Section6.16(b)(i)), and (ii) Operating Lease Obligations which would notcause the aggregate amount of all Operating Lease Obligations owing by allBorrowers, Guarantors and their Subsidiaries in any fiscal year to exceed$5,000,000.

 

6.19                           **Federal Reserve Regulations**. Permit any Advance or the proceeds of any Advance under this Agreementto be used for any purpose that would cause such Advance to be a margin loanunder the provisions of Regulation T, U or X of the Board.

 

6.20                           **Limitations on Dividends andOther Payment Restrictions Affecting Subsidiaries**. Create or otherwise cause, incur, assume, suffer or permit to exist orbecome effective any consensual encumbrance or restriction of any kind on theability of any Subsidiary of any Borrower or Guarantor (i) to paydividends or to make any other distribution on any shares of capital Stock ofsuch Subsidiary owned by such Borrower or such Guarantor or any of itsSubsidiaries, (ii) to pay or prepay or to subordinate any Indebtednessowed to any Borrower, any Guarantor or any of their respective Subsidiaries,(iii) to make loans or advances to any Borrower, any Guarantor or any oftheir respective Subsidiaries or (iv) to transfer any of its property orassets to any Borrower, any Guarantor or any of their respective Subsidiaries,or permit any of its Subsidiaries to do any of the foregoing; provided,**however,**that nothingin any of clauses (i) through (iv) of this Section 6.20 shallprohibit or restrict compliance with:

 

(a)                                  this Agreement and the other Loan Documents;

 

(b)                                 any agreements in effect on the date of thisAgreement and described on Schedule 6.20;

 

(c)                                  any Applicable Law, rule or regulation(including applicable currency control laws and applicable state corporatestatutes restricting the payment of dividends in certain circumstances);

 

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(d)                                 in the case of clause (iv), any agreementsetting forth customary restrictions on the subletting, assignment or transferof any property or asset that is leased or licensed; or

 

(e)                                  in the case of clause (iv), any agreement,instrument or other document evidencing a Permitted Lien that restricts, oncustomary terms, the transfer of any property or assets subject thereto.

 

6.21                           **Limitation on Issuance of CapitalStock****.** Except for the issuance or sale of common stock or Permitted PreferredStock by the Parent, issue or sell or enter into any agreement or arrangementfor the issuance and sale of, or permit any of its Subsidiaries to issue orsell or enter into any agreement or arrangement for the issuance and sale of,any shares of its capital Stock, any securities convertible into orexchangeable for its capital Stock or any warrants.

 

6.22                           **Investment Company Act of 1940**. Engage in any business, enter into any transaction, use any securitiesor take any other action that would cause it or any of its Subsidiaries tobecome subject to the registration requirements of the Investment Company Actof 1940, as amended, by virtue of being an “investment company” or a company “controlled”by an “investment company” not entitled to an exemption within the meaning ofsuch Act.

 

6.23                           **Environmental**. Permit the use, handling, generation, storage, treatment, release ordisposal of Hazardous Materials at any property owned or leased by it or any ofits Subsidiaries, except in compliance with Environmental Laws and so long assuch use, handling, generation, storage, treatment, release or disposal ofHazardous Materials does not result in a Material Adverse Change.

 

6.24                           **Excluded Foreign Subsidiaries**. Permit any Excluded Foreign Subsidiary to (a) have or acquire anyassets, (b) incur any liabilities with recourse to any Borrower or Guarantor,or (c) engage in any other activity or business of any kind other than thedissolution thereof.

 

**7.****                                     ****EVENTS OF DEFAULT.**

 

Any one or more of the following events shall constitute an event ofdefault (each, an “Event of Default”) under this Agreement:

 

7.1                                 If any Borrower fails to pay when due andpayable, or when declared due and payable (whether by scheduled maturity,required prepayment, acceleration, demand or otherwise) all or any portion ofthe Obligations (including any portion thereof that accrues after thecommencement of an Insolvency Proceeding, regardless of whether allowed orallowable in whole or in part as a claim in any such Insolvency Proceeding).

 

7.2                                 If any Borrower, any Guarantor or any oftheir respective Subsidiaries fails to perform or comply with any covenant oragreement contained in (a) Section 5 or Section 6, or anyBorrower, any Guarantor or any of their respective Subsidiaries fails toperform or comply with any covenant or agreement contained in any SecurityDocument to which it is a party or (b) any Loan Document to be performed orobserved by it and, except as set forth in Section 7.1 or clause (a) ofthis Section 7.2, such failure, if capable of being remedied, shallremain unremedied for 15 days after the earlier of the date a senior officer ofany Borrower or Guarantor becomes aware of such failure and the date writtennotice of such default shall have been given by any Agent to such Borrower orGuarantor.

 

7.3                                 If any material portion of any Borrower’s orany of its Subsidiaries’ assets is attached, seized, subjected to a writ ordistress warrant, or is levied upon, or comes into the possession of any thirdPerson and the same is not discharged before the earlier of 30 days after thedate it first arises or 5 days prior to the date on which such property orasset is subject to forfeiture by such Borrower or the applicable Subsidiary.

 

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7.4                                 If (a) an Insolvency Proceeding is commencedby any Borrower or any Subsidiary of a Borrower, (b) any Borrower or anySubsidiary of any Borrower shall be generally not paying its debts as suchdebts become due or shall admit in writing its inability to pay its debtsgenerally, (c) any Borrower or any Subsidiary of any Borrower shall make ageneral assignment for the benefit of creditors, or (d) any Borrower or anySubsidiary of any Borrower shall take any action to authorize or effect any ofthe actions set forth above in this Section 7.4.

 

7.5                                 If an Insolvency Proceeding is commencedagainst any Borrower or any Subsidiary of a Borrower, and any of the followingevents occur:  (a) the applicableBorrower or Subsidiary consents to the institution of such InsolvencyProceeding against it, (b) the petition commencing the InsolvencyProceeding is not timely controverted, (c) the petition commencing theInsolvency Proceeding is not dismissed within 30 calendar days of the date ofthe filing thereof; (d) an interim trustee is appointed to take possessionof all or any substantial portion of the properties or assets of, or to operateall or any substantial portion of the business of, any Borrower or anySubsidiary of a Borrower, or (e) an order for relief shall have beenissued or entered therein.

 

7.6                                 If any Borrower or any Subsidiary of aBorrower is enjoined, restrained, or in any way prevented by court order or anyGovernmental Authority from continuing to conduct all or any material part ofits business.

 

7.7                                 If Borrower or any of its Subsidiaries shallfail to pay any principal of or interest on any of its Indebtedness (excludingthe Obligations) in excess of $100,000, or any premium thereon, when due(whether by scheduled maturity, required prepayment, acceleration, demand orotherwise) and such failure shall continue after the applicable grace period,if any, specified in the agreement or instrument relating to such Indebtedness,or any other default under any agreement or instrument relating to any suchIndebtedness, or any other event, shall occur and shall continue after theapplicable grace period, if any, specified in such agreement or instrument, ifthe effect of such default or event is to accelerate, or to permit theacceleration of, the maturity of such Indebtedness; or any such Indebtednessshall be declared to be due and payable, or required to be prepaid (other thanby a regularly scheduled required prepayment), redeemed, purchased or defeasedor an offer to prepay, redeem, purchase or defease such Indebtedness shall berequired to be made, in each case, prior to the stated maturity thereof.

 

7.8                                 If one or more judgments or orders for thepayment of money exceeding $100,000 in the aggregate shall be rendered againstParent or any of its Subsidiaries and remain unsatisfied, or the Parent or anyof its Subsidiaries shall agree to the settlement of any one or more pending orthreatened actions, suits or proceedings affecting any Borrower or Guarantorbefore any court or other Governmental Authority or any arbitrator or mediator,providing for the payment of money exceeding $100,000 in the aggregate, and inthe case of any such judgment or order either (a) enforcement proceedings shallhave been commenced by any creditor upon any such judgment or order, or (b)there shall be a period of 10 consecutive days after entry thereof during whicha stay of enforcement of any such judgment or order, by reason of a pendingappeal or otherwise, shall not be in effect; provided, however,that any such judgment, order or settlement shall not give rise to an Event ofDefault under this Section 7.7 if and for so long as (i) the amount ofsuch judgment, order, or settlement is covered by a valid and binding policy ofinsurance between the defendant and the insurer covering full payment thereof(subject to customary deductibles) and (ii) such insurer has been notified, andhas not disputed the claim made for payment, of the amount of such judgment,order or settlement; provided, further, that the Nilssen Awardshall not give rise to an Event of Default under this Section 7.7 solong as the Nilssen Award is paid or vacated pursuant to a final non-appealablecourt order by a court of competent jurisdiction.

 

7.9                                 If any warranty, representation, statement,or Record made or deemed made herein or in any other Loan Document or deliveredto Agent or any Lender in connection with this Agreement or any other LoanDocument proves to be untrue in any material respect (except where any suchrepresentation or warranty is already subject to a materiality standard, inwhich case such representation or warranty proves to be untrue in any respect)as of the date of making or deemed making thereof.

 

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7.10                           If the obligation of any Guarantor under the Guaranty is limited orterminated by operation of law or by such Guarantor or any such Guarantorbecomes the subject of an Insolvency Proceeding or if any event described inany other subsection of this Section 7 occurs with respect to a Guarantor.

 

7.11                           If any Security Document shall, for any reason, fail or cease to createa valid and perfected and, except to the extent permitted by the terms hereofor thereof, first priority Lien on or security interest in the Collateralcovered hereby or thereby, except as a result of a disposition of theapplicable Collateral in a transaction permitted under this Agreement.

 

7.12                           Any provision of any Loan Document shall at any time for any reasoncease to be valid and binding on any Borrower or Subsidiary of a Borrowerpurported to be bound thereby, or be declared to be null and void, or thevalidity or enforceability thereof shall be contested by any Borrower or anySubsidiary of a Borrower or any such Person shall deny in writing that it hasany liability or obligation purported to be created by any Loan Document, or aproceeding shall be commenced by any Borrower or any Subsidiary of a Borrower,or by any Governmental Authority having jurisdiction over any Borrower or anySubsidiary of a Borrower, seeking to establish the invalidity orunenforceability thereof, or any Borrower or any Subsidiary of a Borrower shalldeny that it has any liability or obligation purported to be created under anyLoan Document.

 

7.13                           If there occurs one or more ERISA Events which individually or in theaggregate results in or otherwise is associated with liability of any Borrower,any of its Subsidiaries, or any of their respective ERISA Affiliates in excessof $100,000 during the term of this Agreement; or there exists, an amount ofunfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),individually or in the aggregate for all Pension Plans maintained, sponsored orobligated to be contributed by any Borrower, any of its Subsidiaries or any oftheir ERISA Affiliates (excluding for purposes of such computation any PensionPlans with respect to which assets exceed benefit liabilities) which exceeds$70,600,000.

 

7.14                           If (a) any default or event of default occurs under or with respect toany Material Contract (other than any Second Lien Loan Document) which is notcured or waived upon such occurrence, (b) any Event of Default (as defined inany Second Lien Loan Document) occurs under any Second Lien Loan Document, or(c) any Material Contract is terminated and such termination could reasonablybe expected to result in a Material Adverse Change.

 

7.15                           [Reserved.]

 

7.16                           If (a) there shall occur and be continuing any “Event of Default”(or any comparable term) by any Borrower, any Guarantor or their respectiveSubsidiaries under, and as defined in or any document evidencing or governingany Subordinated Indebtedness, (b) any of the Obligations for any reason shallcease to be “First Lien Obligations,” “Permitted Indebtedness,” “Senior Debt”, “SeniorIndebtedness” or “Designated Senior Indebtedness” (or any comparable terms)under, and as defined in any Second Lien Loan Document or document evidencingor governing any Subordinated Indebtedness, (c) Agent’s Liens securing theObligations for any reason shall cease to be “Permitted Liens” (or anycomparable term) under, and as defined in any Second Lien Loan Document ordocument evidencing or governing any Subordinated Indebtedness, (d) anyIndebtedness other than the Obligations and the Second Lien Indebtedness shallconstitute “Senior Indebtedness”, “Senior Debt” or “Designated SeniorIndebtedness” (or any comparable term) under, and as defined in, any documentevidencing or governing any Subordinated Indebtedness, (e) any SubordinationAgreement shall, in whole or in part, terminate, cease to be effective or ceaseto be legally valid, binding and enforceable against any holder of theIndebtedness related thereto, or (f) the Second Lien Intercreditor Agreementshall, in whole or in part, terminate, cease to be effective or cease to belegally valid, binding and enforceable against any the Second Lien Agent, anySecond Lien Lender or any other holder of Second Lien Indebtedness.

 

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7.17                           If any material damage to, or loss, theft or destruction of, anyCollateral, whether or not insured, or any strike, lockout, labor dispute,embargo, condemnation, act of God or public enemy, or other casualty whichcauses, for more than 15 days, the cessation or substantial curtailment ofrevenue producing activities at any facility of any Borrower or any of itsSubsidiaries, if any such event or circumstance could reasonably be expected toresult in a Material Adverse Change.

 

7.18                           If any cessation of a substantial part of the business of any Borroweror any of its Subsidiaries occurs for a period which materially and adverselyaffects the ability of any Borrower or any of its Subsidiaries to continue itsbusiness on a profitable basis.

 

7.19                           If there occurs the loss, suspension or revocation of, or failure torenew, any license or permit now held or hereafter acquired by the Parent orany of its Subsidiaries, if such loss, suspension, revocation or failure torenew could reasonably be expected to result in a Material Adverse Change.

 

7.20                           If there occurs the indictment, or the threatened indictment of theParent or any of its Subsidiaries under any criminal statute, or commencementor threatened commencement of criminal or civil proceedings against Parent orany of its Subsidiaries pursuant to which statute or proceedings the penaltiesor remedies sought or available include forfeiture to any GovernmentalAuthority of any material portion of the property of such Person.

 

7.21                           If the Parent or any of its Subsidiaries shall be liable for anyEnvironmental Liabilities the payment of which could reasonably be expected toresult in a Material Adverse Change.

 

7.22                           If an event or development occurs which could reasonably be expected toresult in a Material Adverse Change.

 

7.23                           If a Triggering Event has occurred and is continuing.

 

7.24                           If the Borrowers have not received, and remitted to the HoldingAccount, cash proceeds of the Second Lien Indebtedness in an aggregate amountof not less than $18,000,000 on or before November 30, 2005.

 

**8.****                                     ****THE LENDER GROUP’S RIGHTS ANDREMEDIES.**

 

8.1                                 **Rights and Remedies**.  Uponthe occurrence, and during the continuation, of an Event of Default, theRequired Lenders (at their election but without notice of their election andwithout demand) may authorize and instruct Agent to do any one or more of thefollowing on behalf of the Lender Group (and Agent, acting upon theinstructions of the Required Lenders, shall do the same on behalf of the LenderGroup), all of which are authorized by Borrowers:

 

(a)                                  Declare all or any portion of theObligations, whether evidenced by this Agreement, by any of the other LoanDocuments, or otherwise, immediately due and payable;

 

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

 

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(c)                                  Terminate this Agreement and any of the otherLoan Documents as to any future liability or obligation of the Lender Group,but without affecting any of the Agent’s Liens in the Collateral and withoutaffecting the Obligations; and

 

(d)                                 The Lender Group shall have all other rightsand remedies available at law or in equity or pursuant to any other LoanDocument.

 

The foregoing to the contrary notwithstanding, upon the occurrence ofany Event of Default described in Section 7.4 or Section 7.5,in addition to the remedies set forth above, without any notice to Borrowers orany other Person or any act by the Lender Group, the Commitments shallautomatically terminate and the Obligations then outstanding, together with allaccrued and unpaid interest thereon and all fees and all other amounts dueunder this Agreement and the other Loan Documents, shall automatically and immediatelybecome due and payable, without presentment, demand, protest, or notice of anykind, all of which are expressly waived by Borrowers.

 

8.2                                 **Remedies Cumulative**.  Therights and remedies of the Lender Group under this Agreement, the other LoanDocuments, and all other agreements shall be cumulative.  The Lender Group shall have all other rightsand remedies not inconsistent herewith as provided under the Code, by law, orin equity.  No exercise by the LenderGroup of one right or remedy shall be deemed an election, and no waiver by theLender Group of any Event of Default shall be deemed a continuing waiver.  No delay by the Lender Group shall constitutea waiver, election, or acquiescence by it.

 

**9.****                                     ****TAXES AND EXPENSES.**

 

If any Borrower or its Subsidiaries fails to pay any monies (whethertaxes, assessments, insurance premiums, or, in the case of leased properties orassets, rents or other amounts payable under such leases) due to third Persons,or fails to make any deposits or furnish any required proof of payment ordeposit, all as required under the terms of this Agreement, then, Agent, in itssole discretion and without prior notice to any Borrower or any other Person,may do any or all of the following:  (a) makepayment of the same or any part thereof, (b) set up such reserves againstthe Borrowing Base or the Maximum Revolver Amount as Agent deems necessary toprotect the Lender Group from the exposure created by such failure, or(c) in the case of the failure to comply with Section 5.8hereof, obtain and maintain insurance policies of the type described in Section 5.8and take any action with respect to such policies as Agent deems prudent.  Any such amounts paid by Agent shallconstitute Lender Group Expenses and any such payments shall not constitute anagreement by the Lender Group to make similar payments in the future or awaiver by the Lender Group of any Event of Default under this Agreement.  Agent need not inquire as to, or contest thevalidity of, any such expense, tax, or Lien and the receipt of the usualofficial notice for the payment thereof shall be conclusive evidence that thesame was validly due and owing.

 

**10.****                              ****WAIVERS; INDEMNIFICATION.**

 

10.1                           **Demand; Protest; etc**.  EachBorrower waives demand, protest, notice of protest, notice of default ordishonor, notice of payment and nonpayment, nonpayment at maturity, release,compromise, settlement, extension, or renewal of documents, instruments,chattel paper, and guaranties at any time held by the Lender Group on which anysuch Borrower may in any way be liable.

 

10.2                           **The Lender Group’s Liability forCollateral**.  Each Borrower hereby agrees that:  (a) so long as Agent complies with itsobligations, if any, under the Code or other Applicable Law, the Lender Groupshall not in any way or manner be liable or responsible for:  (i) the safekeeping of the Collateral,(ii) any loss or damage thereto occurring or arising in any manner orfashion from any cause, (iii) any diminution in the value thereof, or(iv) any act or default of any carrier, warehouseman, bailee, forwardingagency, or other Person, and (b) all risk of loss, damage, or destructionof the Collateral shall be borne by Borrowers.

 

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10.3                           **Indemnification**.  EachBorrower shall jointly and severally pay, indemnify, defend, and hold the Agent-RelatedPersons, the Lender-Related Persons, and each Participant (each, an “IndemnifiedPerson”) harmless (to the fullest extent permitted by law) from and againstany and all claims, demands, suits, actions, investigations, proceedings, anddamages, and all reasonable attorneys fees and disbursements and other costsand expenses actually incurred in connection therewith or in connection withthe enforcement of this indemnification (as and when they are incurred andirrespective of whether suit is brought), at any time asserted against, imposedupon, or incurred by any of them (a) in connection with or as a result ofor related to the execution, delivery, enforcement, performance, oradministration (including any restructuring or workout with respect hereto) ofthis Agreement, any of the other Loan Documents, or the transactionscontemplated hereby or thereby or the monitoring of Borrowers’ and theirrespective Subsidiaries’ compliance with the terms of the Loan Documents,(b) with respect to any investigation, litigation, or proceeding relatedto this Agreement, any other Loan Document, or the use of the proceeds of thecredit provided hereunder (irrespective of whether any Indemnified Person is aparty thereto), or any act, omission, event, or circumstance in any mannerrelated thereto and (c) in connection with or arising out of any presence orrelease of Hazardous Materials at, on, under, to or from any assets orproperties owned, leased or operated by any Borrower or any of its Subsidiariesor any Environmental Actions, Environmental Liabilities and Costs or RemedialActions related in any way to any such assets or properties of any Borrower orany of its Subsidiaries (all the foregoing, collectively, the “IndemnifiedLiabilities”).  The foregoing to thecontrary notwithstanding, Borrowers shall have no obligation to any IndemnifiedPerson under this Section 10.3 with respect to any IndemnifiedLiability that a court of competent jurisdiction finally determines to haveresulted from the gross negligence or willful misconduct of such IndemnifiedPerson.  This provision shall survive thetermination of this Agreement and the repayment of the Obligations.  If any Indemnified Person makes any paymentto any other Indemnified Person with respect to an Indemnified Liability as towhich Borrowers were required to indemnify the Indemnified Person receivingsuch payment, the Indemnified Person making such payment is entitled to beindemnified and reimbursed by Borrowers with respect thereto.  **WITHOUT LIMITATION, THEFOREGOING INDEMNITY SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TOINDEMNIFIED LIABILITIES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OFANY NEGLIGENT ACT OR OMISSION OF SUCH INDEMNIFIED PERSON OR OF ANY OTHERPERSON.**

 

10.4                           **Waiver of Consequential Damages,Etc**.  To the fullest extent permitted by ApplicableLaw, no Borrower shall assert, and each Borrower hereby waives, any claimagainst any Indemnified Person, on any theory of liability, for special,indirect, consequential or punitive damages (as opposed to direct or actualdamages) arising out of, in connection with, or as a result of, this Agreement,any other Loan Document or any agreement or instrument contemplated hereby, thetransactions contemplated hereby or thereby, any Advance or Letter of Credit orthe use of the proceeds thereof.  NoIndemnified Person shall be liable for any damages arising from the use byunintended recipients of any information or other materials distributed by itthrough telecommunications, electronic or other information transmissionsystems in connection with this Agreement or the other Loan Documents or thetransactions contemplated hereby or thereby.

 

**11.****                              ****NOTICES.**

 

Unless otherwise provided in this Agreement, all notices or demands byBorrowers or Agent to the other relating to this Agreement or any other LoanDocument shall be in writing and (except for financial statements and otherinformational documents which may be sent by first-class mail, postage prepaid)shall be personally delivered or sent by registered or certified mail (postageprepaid, return receipt requested), overnight courier, electronic mail (at suchemail addresses as Administrative Borrower or Agent, as 

 

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applicable, may designate to each other in accordance herewith), ortelefacsimile to Borrowers in care of Administrative Borrower or to Agent, asthe case may be, at its address set forth below:

 
| If  to Borrowers, in care of | **MAGNETEK, INC.**                       |
|------------------------------|------------------------------------------|
| Administrative  Borrower at: | 8966  Mason Avenue                       |
|                         | Chatsworth,  CA 91311                    |
|                         | Attn:  Tina McKnight                     |
|                         | Fax  No.: 818.727.2219                   |
|                         |                                     |
| with  copies to:             | **GIBSON, DUNN & CRUTCHER LLP**      |
|                         | 333  South Grand Avenue                  |
|                         | Los Angeles, CA 90071                    |
|                         | Attn: Jennifer Bellah Maguire, Esq.      |
|                         | Fax  No.: 213.229.7520                   |
|                         |                                     |
| If  to Agent:                | **WELLS FARGO FOOTHILL, INC.**           |
|                         | 2450  Colorado Avenue, Suite 3000 West   |
|                         | Santa  Monica, CA 90404                  |
|                         | Attn:  Business Finance Division Manager |
|                         | Fax  No.: 310.453.7413                   |
|                         |                                     |
| with  copies to:             | **MORRISON & FOERSTER LLP**          |
|                         | 555  West Fifth Street                   |
|                         | Los Angeles, CA 90013                    |
|                         | Attn: Sandra L. Montgomery, Esq.         |
|                         | Fax  No.: 213.892.5454                   |

 

Agent and Borrowers may change the address atwhich they are to receive notices hereunder, by notice in writing in theforegoing manner given to the other parties. All notices or demands sent in accordance with this Section 11,other than notices by Agent in connection with enforcement rights against theCollateral under the provisions of the Code or PPSA, shall be deemed receivedon the earlier of the date of actual receipt or 3 Business Days after thedeposit thereof in the mail.  EachBorrower acknowledges and agrees that notices sent by the Lender Group inconnection with the exercise of enforcement rights against Collateral under theprovisions of the Code or PPSA shall be deemed sent when deposited in the mailor personally delivered, or, where permitted by law, transmitted bytelefacsimile or any other method set forth above.

 

**12.****                              ****CHOICE OF LAW AND VENUE; JURYTRIAL WAIVER.**

 

(a)                                  **THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESSEXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCHOTHER LOAN DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOFAND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TOALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR THERETO SHALLBE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OFTHE STATE OF NEW YORK.**

 

(b)                                 **THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTIONWITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATEDONLY IN THE STATE AND TO THE EXTENT PERMITTED**

 

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**BY APPLICABLE LAW, FEDERAL COURTS LOCATED IN THE BOROUGH OF MANHATTAN,COUNTY OF NEW YORK, STATE OF NEW YORK, PROVIDED, HOWEVER, THAT ANY SUIT SEEKINGENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’SOPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT ELECTS TO BRING SUCH ACTIONOR WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH BORROWER AND EACH MEMBER OF THE LENDERGROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAYHAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TOTHE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 12(b).**

 

(c)                                  **EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIRRESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON ORARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONSCONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTYCLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.  EACH BORROWER AND EACH MEMBER OF THE LENDERGROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY ANDVOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGALCOUNSEL.  IN THE EVENT OF LITIGATION, ACOPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THECOURT.**

 

**13.****                              ****ASSIGNMENTS AND PARTICIPATIONS;SUCCESSORS.**

 

13.1                           **Assignments and Participations**.

 

(a)                                  Any Lender may assign and delegate to one ormore assignees (each an “Assignee”) that are Eligible Transferees all,or any ratable part of all, of the Obligations, the Commitments and the otherrights and obligations of such Lender hereunder and under the other LoanDocuments, in a minimum amount of $5,000,000; provided, however, that Borrowersand Agent may continue to deal solely and directly with such Lender inconnection with the interest so assigned to an Assignee until (i) writtennotice of such assignment, together with payment instructions, addresses, andrelated information with respect to the Assignee, have been given toAdministrative Borrower and Agent by such Lender and the Assignee,(ii) such Lender and its Assignee have delivered to AdministrativeBorrower and Agent an Assignment and Acceptance, and (iii) the assigningLender or Assignee has paid to Agent for Agent’s separate account a processingfee in the amount of $3,500.  Anythingcontained herein to the contrary notwithstanding, the payment of any fees shallnot be required and the Assignee need not be an Eligible Transferee if suchassignment is in connection with any merger, consolidation, sale, transfer, orother disposition of all or any substantial portion of the business or loanportfolio of the assigning Lender.

 

(b)                                 From and after the date that Agent notifiesthe assigning Lender (with a copy to Administrative Borrower) that it hasreceived an executed Assignment and Acceptance and payment of the above-referencedprocessing fee, (i) the Assignee thereunder shall be a party hereto and,to the extent that rights and obligations hereunder have been assigned to itpursuant to such Assignment and Acceptance, shall have the rights andobligations of a Lender under the Loan Documents, and (ii) the assigningLender shall, to the extent that rights and obligations hereunder and under theother Loan Documents have been assigned by it pursuant to such Assignment and Acceptance,relinquish its rights (except with respect to Section 10.3 hereof)and be released from any future obligations under this Agreement (and in thecase of an Assignment and Acceptance covering all or the remaining portion ofan assigning Lender’s rights and obligations under this Agreement and the otherLoan Documents, such Lender shall cease to be a party hereto and thereto), andsuch assignment shall effect a novation between Borrowers and the Assignee;provided, however, that nothing contained herein shall release any assigningLender from obligations that survive the termination of this Agreement,including such assigning Lender’s obligations under Article 16 and Section 16.7of this Agreement.

 

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(c)                                  By executing and delivering an Assignment andAcceptance, the assigning Lender thereunder and the Assignee thereunder confirmto and agree with each other and the other parties hereto as follows:  (1) other than as provided in suchAssignment and Acceptance, such assigning Lender makes no representation orwarranty and assumes no responsibility with respect to any statements,warranties or representations made in or in connection with this Agreement orthe execution, legality, validity, enforceability, genuineness, sufficiency orvalue of this Agreement or any other Loan Document furnished pursuant hereto,(2) such assigning Lender makes no representation or warranty and assumesno responsibility with respect to the financial condition of any Borrower, anySubsidiary of any Borrower or the performance or observance by any Borrower orits of any of their respective obligations under this Agreement or any otherLoan Document furnished pursuant hereto, (3) such Assignee confirms thatit has received a copy of this Agreement and the Second Lien IntercreditorAgreement, together with such other documents and information as it has deemedappropriate to make its own credit analysis and decision to enter into suchAssignment and Acceptance, (4) such Assignee will, independently andwithout reliance upon Agent, such assigning Lender or any other Lender, andbased on such documents and information as it shall deem appropriate at thetime, continue to make its own credit decisions in taking or not taking actionunder this Agreement, (5) such Assignee appoints and authorizes Agent totake such actions and to exercise such powers under this Agreement as aredelegated to Agent, by the terms hereof, together with such powers as arereasonably incidental thereto, (6) such Assignee agrees that it willperform all of the obligations which by the terms of this Agreement arerequired to be performed by it as a Lender and (7) such Assignee expresslyassumes all rights and obligations of such assigning Lender under the SecondLien Intercreditor Agreement and agrees to be bound by the terms thereof.

 

(d)                                 Immediately upon Agent’s receipt of therequired processing fee payment and the fully executed Assignment andAcceptance, this Agreement shall be deemed to be amended to the extent, but onlyto the extent, necessary to reflect the addition of the Assignee and theresulting adjustment of the Commitments arising therefrom.  The Commitment allocated to each Assigneeshall reduce such Commitments of the assigning Lender pro tanto.

 

(e)                                  Any Lender may at any time sell to one ormore commercial banks, financial institutions, or other Persons (a “Participant”)participating interests in its Obligations, the Commitment, and the otherrights and interests of that Lender (the “Originating Lender”) hereunderand under the other Loan Documents; provided, however, that (i) theOriginating Lender shall remain a “Lender” for all purposes of this Agreementand the other Loan Documents and the Participant receiving the participatinginterest in the Obligations, the Commitments, and the other rights andinterests of the Originating Lender hereunder shall not constitute a “Lender”hereunder or under the other Loan Documents and the Originating Lender’sobligations under this Agreement shall remain unchanged, (ii) theOriginating Lender shall remain solely responsible for the performance of suchobligations, (iii) Borrowers, Agent, and the Lenders shall continue todeal solely and directly with the Originating Lender in connection with theOriginating Lender’s rights and obligations under this Agreement and the otherLoan Documents, (iv) no Lender shall transfer or grant any participatinginterest under which the Participant has the right to approve any amendment to,or any consent or waiver with respect to, this Agreement or any other LoanDocument, except to the extent such amendment to, or consent or waiver withrespect to this Agreement or of any other Loan Document would (A) extendthe final maturity date of the Obligations hereunder in which such Participant isparticipating, (B) reduce the interest rate applicable to the Obligationshereunder in which such Participant is participating, (C) release all orsubstantially all of the Collateral or guaranties (except to the extentexpressly provided herein or in any of the Loan Documents) supporting theObligations hereunder in which such Participant is participating,(D) postpone the payment of, or reduce the amount of, the interest or feespayable to such Participant through such Lender, or (E) change the amountor due dates of scheduled principal repayments or prepayments or premiums, and(v) all amounts

 

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payable by Borrowers hereunder shall be determined as if such Lenderhad not sold such participation, except that, if amounts outstanding under thisAgreement are due and unpaid, or shall have been declared or shall have becomedue and payable upon the occurrence of an Event of Default, each Participantshall be deemed to have the right of set off in respect of its participatinginterest in amounts owing under this Agreement to the same extent as if theamount of its participating interest were owing directly to it as a Lenderunder this Agreement.  The rights of anyParticipant only shall be derivative through the Originating Lender with whomsuch Participant participates and no Participant shall have any rights underthis Agreement or the other Loan Documents or any direct rights as to the otherLenders, Agent, Borrowers, the Collections of Borrowers or their respectiveSubsidiaries, the Collateral, or otherwise in respect of the Obligations.  No Participant shall have the right toparticipate directly in the making of decisions by the Lenders amongthemselves.

 

(f)                                    In connection with any such assignment orparticipation or proposed assignment or participation, a Lender may, subject tothe provisions of Section 16.7, disclose all documents andinformation which it now or hereafter may have relating to Borrowers and theirrespective Subsidiaries and their respective businesses.

 

(g)                                 Any other provision in this Agreementnotwithstanding, any Lender may at any time create a security interest in, orpledge, all or any portion of its rights under and interest in this Agreementin favor of any Federal Reserve Bank in accordance with Regulation A of theFederal Reserve Bank or U.S. Treasury Regulation 31 CFR § 203.24, and suchFederal Reserve Bank may enforce such pledge or security interest in any mannerpermitted under Applicable Law.

 

13.2                           **Successors**.  ThisAgreement shall bind and inure to the benefit of the respective successors andassigns of each of the parties; provided, however, that noBorrower may assign this Agreement or any of its rights or duties hereunderwithout the Lenders’ prior written consent and any prohibited assignment shallbe absolutely void ab initio.  No consentto assignment by the Lenders shall release any Borrower from its obligationshereunder or under any other Loan Document. A Lender may assign this Agreement and the other Loan Documents and itsrights and duties hereunder and thereunder pursuant to Section 13.1hereof and, except as expressly required pursuant to Section 13.1hereof, no consent or approval by any Borrower is required in connection withany such assignment.

 

**14.****                              ****AMENDMENTS; WAIVERS.**

 

14.1                           **Amendments and Waivers****.**  Noamendment or waiver of any provision of this Agreement or any other LoanDocument (other than Bank Product Agreements), and no consent with respect toany departure by any Borrower, any Guarantor or any of their respectiveSubsidiaries therefrom, shall be effective unless the same shall be in writingand signed by the Required Lenders (or by Agent at the written request of theRequired Lenders) and then any such waiver or consent shall be effective, butonly in the specific instance and for the specific purpose for which given; provided,however, that no such waiver, amendment, or consent shall, unless inwriting and signed by all of the Lenders affected thereby, do any of thefollowing:

 

(a)                                  increase or extend any Commitment of anyLender,

 

(b)                                 postpone or delay any date fixed by thisAgreement or any other Loan Document for any payment of principal, interest,fees, or other amounts due hereunder or under any other Loan Document,

 

(c)                                  reduce the principal of, or the rate ofinterest on, any loan or other extension of credit hereunder, or reduce anyfees or other amounts payable hereunder or under any other Loan Document,

 

(d)                                 change the Pro Rata Share that is required totake any action hereunder,

 

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(e)                                  amend or modify this Section or any provisionof this Agreement providing for consent or other action by all Lenders,

 

(f)                                    other than as permitted by Section 15.12,release Agent’s Lien in and to any of the Collateral,

 

(g)                                 change the definition of Required Lenders orPro Rata Share,

 

(h)                                 contractually subordinate any of the Agent’sLiens,

 

(i)                                     release any Borrower or any Guarantor fromany obligation for the payment of money other than pursuant to the terms of theLoan Documents or in connection with the Disposition by Parent of the capitalStock of a Borrower or a Guarantor which has been consented to by the RequiredLenders,

 

(j)                                     change the definitions of Borrowing Base,Eligible Accounts, Eligible Inventory, Maximum Revolver Amount or Total DebtLimiter, or change Section 2.1(b), or

 

(k)                                  amend any of the provisions of Section 15;

 

provided further, however, that no amendment, waiver or consent shall, unless inwriting and signed by Agent, Issuing Lender, or Swing Lender, as applicable,affect the rights or duties of Agent, Issuing Lender, or Swing Lender, asapplicable, under this Agreement or any other Loan Document; and provided further, however, any amendment or modification that directly affects oralters the express rights or obligations of any Borrower shall also require theconsent or agreement of such Borrower (which, in the case of any Borrower, maybe given by the Administrative Borrower). The foregoing notwithstanding, any amendment, modification, waiver, consent,termination, or release of, or with respect to, any provision of this Agreementor any other Loan Document that relates only to the relationship of the LenderGroup among themselves, and that does not affect the rights or obligations ofany Borrower, shall not require consent by or the agreement of any Borrower.

 

14.2                           **Replacement of Holdout Lender**.

 

(a)                                  If any action to be taken by the Lender Groupor Agent hereunder requires the unanimous consent, authorization, or agreementof all Lenders, and a Lender (“Holdout Lender”) fails to give itsconsent, authorization, or agreement, then Agent, upon at least 5 Business Daysprior irrevocable notice to the Holdout Lender, may permanently replace theHoldout Lender with one or more substitute Lenders (each, a “ReplacementLender”), and the Holdout Lender shall have no right to refuse to bereplaced hereunder.  Such notice toreplace the Holdout Lender shall specify an effective date for suchreplacement, which date shall not be later than 15 Business Days after the datesuch notice is given.

 

(b)                                 Prior to the effective date of suchreplacement, the Holdout Lender and each Replacement Lender shall execute anddeliver an Assignment and Acceptance, subject only to the Holdout Lender beingrepaid its share of the outstanding Obligations (including an assumption of itsPro Rata Share of the Risk Participation Liability) without any premium orpenalty of any kind whatsoever.  If theHoldout Lender shall refuse or fail to execute and deliver any such Assignmentand Acceptance prior to the effective date of such replacement, the HoldoutLender shall be deemed to have executed and delivered such Assignment andAcceptance.  The replacement of anyHoldout Lender shall be made in accordance with the terms of Section 13.1.  Until such time as the Replacement Lendersshall have acquired all of the Obligations, the Commitments, and the otherrights and obligations of the Holdout Lender hereunder and under the other LoanDocuments, the Holdout Lender shall remain obligated to make the Holdout Lender’sPro Rata Share of Advances and to purchase a participation in each Letter ofCredit, in an amount equal to its Pro Rata Share of the Risk ParticipationLiability of such Letter of Credit.

 

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14.3                           **No Waivers; Cumulative Remedies**.  Nofailure by Agent or any Lender to exercise any right, remedy, or option underthis Agreement or any other Loan Document, or delay by Agent or any Lender inexercising the same, will operate as a waiver thereof.  No waiver by Agent or any Lender will beeffective unless it is in writing, and then only to the extent specificallystated.  No waiver by Agent or any Lenderon any occasion shall affect or diminish Agent’s and each Lender’s rightsthereafter to require strict performance by Borrowers of any provision of thisAgreement.  Agent’s and each Lender’srights under this Agreement and the other Loan Documents will be cumulative andnot exclusive of any other right or remedy that Agent or any Lender may have.

 

**15.****                              ****AGENT; THE LENDER GROUP.**

 

15.1                           **Appointment and Authorization ofAgent**.  Each Lender hereby designates and appointsWFF as its representative under this Agreement and the other Loan Documents andeach Lender hereby irrevocably authorizes Agent to execute and deliver each ofthe other Loan Documents on its behalf and to take such other action on itsbehalf under the provisions of this Agreement and each other Loan Document andto exercise such powers and perform such duties as are expressly delegated toAgent by the terms of this Agreement or any other Loan Document, together withsuch powers as are reasonably incidental thereto.  Agent agrees to act as such on the expressconditions contained in this Section 15.  The provisions of this Section 15(other than the proviso to Section 15.11(a)) are solely for thebenefit of Agent, and the Lenders, and Borrowers, Guarantors and theirrespective Subsidiaries shall have no rights as a third party beneficiary ofany of the provisions contained herein. Any provision to the contrary contained elsewhere in this Agreement orin any other Loan Document notwithstanding, Agent shall not have any duties orresponsibilities, except those expressly set forth herein, nor shall Agent haveor be deemed to have any fiduciary relationship with any Lender, and no impliedcovenants, functions, responsibilities, duties, obligations or liabilitiesshall be read into this Agreement or any other Loan Document or otherwise existagainst Agent; it being expressly understood and agreed that the use of theword “Agent” is for convenience only, that WFF is merely the representative ofthe Lenders, and only has the contractual duties set forth herein.  Except as expressly otherwise provided inthis Agreement, Agent shall have and may use its sole discretion with respectto exercising or refraining from exercising any discretionary rights or takingor refraining from taking any actions that Agent expressly is entitled to takeor assert under or pursuant to this Agreement and the other Loan Documents.  Without limiting the generality of theforegoing, or of any other provision of the Loan Documents that provides rightsor powers to Agent, Lenders agree that Agent shall have the right to exercisethe following powers as long as this Agreement remains in effect:  (a) maintain, in accordance with itscustomary business practices, ledgers and records reflecting the status of theObligations, the Collateral, the Collections of Borrowers, Guarantors and theirrespective Subsidiaries, and related matters, (b) execute or file any andall financing or similar statements or notices, amendments, renewals,supplements, documents, instruments, proofs of claim, notices and other writtenagreements with respect to the Loan Documents, (c) make Advances, for itselfor on behalf of Lenders as provided in the Loan Documents, (d) exclusivelyreceive, apply, and distribute the Collections of Borrowers, Guarantors andtheir respective Subsidiaries as provided in the Loan Documents, (e) openand maintain such bank accounts and cash management arrangements as Agent deemsnecessary and appropriate in accordance with the Loan Documents for theforegoing purposes with respect to the Collateral and the Collections ofBorrowers, Guarantors and their respective Subsidiaries, (f) perform,exercise, and enforce any and all other rights and remedies of the Lender Groupwith respect to Borrowers, Guarantors, the Obligations, the Collateral, theCollections of Borrowers, Guarantors and their respective Subsidiaries, orotherwise related to any of same as provided in the Loan Documents, and(g) incur and pay such Lender Group Expenses as Agent may deem necessaryor appropriate for the performance and fulfillment of its functions and powerspursuant to the Loan Documents.

 

15.2                           **Delegation of Duties**. Agent may execute any of its duties under this Agreement or any otherLoan Document by or through agents, employees or attorneys in fact and shall beentitled to advice of counsel concerning all matters pertaining to suchduties.  Agent shall not be responsiblefor the negligence or misconduct of any agent or attorney in fact that itselects as long as such selection was made without gross negligence or willfulmisconduct.

 

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15.3                           **Liability of Agent**.  Noneof the Agent Related Persons shall (a) be liable for any action taken oromitted to be taken by any of them under or in connection with this Agreementor any other Loan Document or the transactions contemplated hereby (except forits own gross negligence or willful misconduct), or (b) be responsible inany manner to any of the Lenders for any recital, statement, representation orwarranty made by any Borrower, any Guarantor or any of their respectiveSubsidiaries or Affiliates, or any officer or director thereof, contained inthis Agreement or in any other Loan Document, or in any certificate, report,statement or other document referred to or provided for in, or received byAgent under or in connection with, this Agreement or any other Loan Document,or the validity, effectiveness, genuineness, enforceability or sufficiency ofthis Agreement or any other Loan Document, or for any failure of any Borrower,any Guarantor or any other party to any Loan Document to perform itsobligations hereunder or thereunder.  NoAgent Related Person shall be under any obligation to any Lender to ascertainor to inquire as to the observance or performance of any of the agreementscontained in, or conditions of, this Agreement or any other Loan Document, orto inspect the books and records or properties of Borrowers or Guarantors orthe books or records or properties of any Borrower’s or any Guarantor’sSubsidiaries or Affiliates.

 

15.4                           **Reliance by Agent**. Agent shall be entitled to rely, and shall be fully protected inrelying, upon any writing, resolution, notice, consent, certificate, affidavit,letter, telegram, telefacsimile or other electronic method of transmission,telex or telephone message, statement or other document or conversationbelieved by it to be genuine and correct and to have been signed, sent, or madeby the proper Person or Persons, and upon advice and statements of legalcounsel (including counsel to Borrowers or counsel to any Lender), independentaccountants and other experts selected by Agent.  Agent shall be fully justified in failing orrefusing to take any action under this Agreement or any other Loan Documentunless Agent shall first receive such advice or concurrence of the Lenders asit deems appropriate and until such instructions are received, Agent shall act,or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonablesatisfaction by the Lenders against any and all liability and expense that maybe incurred by it by reason of taking or continuing to take any suchaction.  Agent shall in all cases befully protected in acting, or in refraining from acting, under this Agreementor any other Loan Document in accordance with a request or consent of therequisite Lenders and such request and any action taken or failure to actpursuant thereto shall be binding upon all of the Lenders.

 

15.5                           **Notice of Default or Event ofDefault**.  Agent shall not be deemed to have knowledgeor notice of the occurrence of any Default or Event of Default, except withrespect to defaults in the payment of principal, interest, fees, and expensesrequired to be paid to Agent for the account of the Lenders and, except withrespect to Events of Default of which Agent has actual knowledge, unless Agentshall have received written notice from a Lender or Administrative Borrowerreferring to this Agreement, describing such Default or Event of Default, andstating that such notice is a “notice of default.”  Agent promptly will notify the Lenders of itsreceipt of any such notice or of any Event of Default of which Agent has actualknowledge.  If any Lender obtains actualknowledge of any Event of Default, such Lender promptly shall notify the otherLenders and Agent of such Event of Default. Each Lender shall be solely responsible for giving any notices to itsParticipants, if any.  Subject to Section 15.4,Agent shall take such action with respect to such Default or Event of Defaultas may be requested by the Required Lenders in accordance with Section 8;provided, however, that unless and until Agent has received any such request,Agent may (but shall not be obligated to) take such action, or refrain fromtaking such action, with respect to such Default or Event of Default as itshall deem advisable.

 

15.6                           **Credit Decision**.  EachLender acknowledges that none of the Agent Related Persons has made anyrepresentation or warranty to it, and that no act by Agent hereinafter taken,including any review of the affairs of Borrowers, Guarantors and theirrespective Subsidiaries or Affiliates, shall be deemed to

 

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constitute anyrepresentation or warranty by any Agent-Related Person to any Lender.  Each Lender represents to Agent that it has,independently and without reliance upon any Agent-Related Person and based onsuch documents and information as it has deemed appropriate, made its ownappraisal of and investigation into the business, prospects, operations,property, financial and other condition and creditworthiness of Borrowers,Guarantors and any other Person party to a Loan Document, and all applicablebank regulatory laws relating to the transactions contemplated hereby, and madeits own decision to enter into this Agreement and to extend credit toBorrowers.  Each Lender also representsthat it will, independently and without reliance upon any Agent-Related Personand based on such documents and information as it shall deem appropriate at thetime, continue to make its own credit analysis, appraisals and decisions in takingor not taking action under this Agreement and the other Loan Documents, and tomake such investigations as it deems necessary to inform itself as to thebusiness, prospects, operations, property, financial and other condition andcreditworthiness of Borrowers, Guarantors and any other Person party to a LoanDocument.  Except for notices, reports,and other documents expressly herein required to be furnished to the Lenders byAgent, Agent shall not have any duty or responsibility to provide any Lender withany credit or other information concerning the business, prospects, operations,property, financial and other condition or creditworthiness of Borrowers,Guarantors and any other Person party to a Loan Document that may come into thepossession of any of the Agent Related Persons.

 

15.7                           **Costs and Expenses;Indemnification**.  Agent may incur and pay Lender Group Expensesto the extent Agent reasonably deems necessary or appropriate for theperformance and fulfillment of its functions, powers, and obligations pursuantto the Loan Documents, including court costs, attorneys fees and expenses, feesand expenses of financial accountants, advisors, consultants, and appraisers,costs of collection by outside collection agencies, auctioneer fees andexpenses, and costs of security guards or insurance premiums paid to maintainthe Collateral, whether or not Borrowers are obligated to reimburse Agent orLenders for such expenses pursuant to this Agreement or otherwise.  Agent is authorized and directed to deduct andretain sufficient amounts from the Collections of Borrowers, Guarantors andtheir respective Subsidiaries received by Agent to reimburse Agent for such out-of-pocketcosts and expenses prior to the distribution of any amounts to Lenders.  In the event Agent is not reimbursed for suchcosts and expenses from the Collections of Borrowers, Guarantors and theirrespective Subsidiaries received by Agent, each Lender hereby agrees that it isand shall be obligated to pay to or reimburse Agent for the amount of suchLender’s Pro Rata Share thereof.  Whetheror not the transactions contemplated hereby are consummated, the Lenders shallindemnify upon demand the Agent Related Persons (to the extent not reimbursedby or on behalf of Borrowers and without limiting the obligation of Borrowersto do so), according to their Pro Rata Shares, from and against any and allIndemnified Liabilities; provided, however, that no Lender shall be liable forthe payment to any Agent Related Person of any portion of such Indemnified Liabilitiesresulting solely from such Person’s gross negligence or willful misconduct norshall any Lender be liable for the obligations of any Defaulting Lender infailing to make an Advance or other extension of credit hereunder.  Without limitation of the foregoing, eachLender shall reimburse Agent upon demand for such Lender’s Pro Rata Share ofany costs or out of pocket expenses (including attorneys, accountants,advisors, and consultants fees and expenses) incurred by Agent in connectionwith the preparation, execution, delivery, administration, modification,amendment, or enforcement (whether through negotiations, legal proceedings orotherwise) of, or legal advice in respect of rights or responsibilities under,this Agreement, any other Loan Document, or any document contemplated by orreferred to herein, to the extent that Agent is not reimbursed for suchexpenses by or on behalf of Borrowers. The undertaking in this Section shall survive the payment of all Obligationshereunder and the resignation or replacement of Agent.

 

15.8                           **Agent in Individual Capacity**.  WFFand its Affiliates may make loans to, issue letters of credit for the accountof, accept deposits from, acquire equity interests in, and generally engage inany kind of banking, trust, financial advisory, underwriting, or other businesswith Borrowers, Guarantors and their respective Subsidiaries and Affiliates andany other Person party to any Loan Documents as though WFF were not Agenthereunder, and, in each case, without notice to or consent of the other membersof the Lender Group.  The other membersof the Lender Group acknowledge that, pursuant to such activities, WFF or its

 

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Affiliates may receiveinformation regarding Borrowers, Guarantors or their Affiliates and any otherPerson party to any Loan Documents that is subject to confidentialityobligations in favor of Borrowers or such other Person and that prohibit thedisclosure of such information to the Lenders, and the Lenders acknowledgethat, in such circumstances (and in the absence of a waiver of suchconfidentiality obligations, which waiver Agent will use its reasonable bestefforts to obtain), Agent shall not be under any obligation to provide suchinformation to them.  The terms “Lender”and “Lenders” include WFF in its individual capacity.

 

15.9                           **Successor Agent**. Agent may resign as Agent upon 45 days notice to the Lenders.  If Agent resigns under this Agreement, theRequired Lenders shall appoint a successor Agent for the Lenders.  If no successor Agent is appointed prior tothe effective date of the resignation of Agent, Agent may appoint, afterconsulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any materialprovision of this Agreement or of Applicable Law, the Required Lenders mayagree in writing to remove and replace Agent with a successor Agent from amongthe Lenders.  In any such event, upon theacceptance of its appointment as successor Agent hereunder, such successorAgent shall succeed to all the rights, powers, and duties of the retiring Agentand the term “Agent” shall mean such successor Agent and the retiring Agent’sappointment, powers, and duties as Agent shall be terminated.  After any retiring Agent’s resignationhereunder as Agent, the provisions of this Section 15 shall inureto its benefit as to any actions taken or omitted to be taken by it while itwas Agent under this Agreement.  If nosuccessor Agent has accepted appointment as Agent by the date which is 45 daysfollowing a retiring Agent’s notice of resignation, the retiring Agent’sresignation shall nevertheless thereupon become effective and the Lenders shallperform all of the duties of Agent hereunder until such time, if any, as theLenders appoint a successor Agent as provided for above.

 

15.10                     **Lender in Individual Capacity**.  AnyLender and its respective Affiliates may make loans to, issue letters of creditfor the account of, accept deposits from, acquire equity interests in andgenerally engage in any kind of banking, trust, financial advisory,underwriting or other business with Borrowers and their respective Subsidiariesand Affiliates and any other Person party to any Loan Documents as though suchLender were not a Lender hereunder without notice to or consent of the othermembers of the Lender Group.  The othermembers of the Lender Group acknowledge that, pursuant to such activities, suchLender and its respective Affiliates may receive information regardingBorrowers or their Affiliates and any other Person party to any Loan Documentsthat is subject to confidentiality obligations in favor of Borrowers or suchother Person and that prohibit the disclosure of such information to theLenders, and the Lenders acknowledge that, in such circumstances (and in theabsence of a waiver of such confidentiality obligations, which waiver suchLender will use its reasonable best efforts to obtain), such Lender shall notbe under any obligation to provide such information to them.  With respect to the Swing Loans andProtective Advances, Swing Lender shall have the same rights and powers underthis Agreement as any other Lender and may exercise the same as though it werenot the sub-agent of Agent.

 

15.11                     **Withholding Taxes**.

 

(a)                                  All payments made by any Borrower hereunderor under any note or other Loan Document will be made without setoff,counterclaim, or other defense.  Inaddition, all such payments will be made free and clear of, and withoutdeduction or withholding for, any present or future Taxes, and in the event anydeduction or withholding of Taxes is required, each Borrower shall comply withthe penultimate sentence of this Section 15.11(a).  “Taxes” shall mean, any taxes, levies,imposts, duties, fees, assessments or other charges of whatever nature now orhereafter imposed by any jurisdiction or by any political subdivision or taxingauthority thereof or therein with respect to such payments (but excluding anytax imposed by any jurisdiction or by any political subdivision or taxingauthority thereof or therein measured by or based on the net income or netprofits of Lender) and all interest, penalties or similar liabilities withrespect thereto, together with any and all Canadian federal, provincial andother taxes, levies, imposts, duties, fees, charges, claims and assessmentswhich are or may become due in respect of any Borrower or any Guarantor.  If any Taxes are so

 

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levied or imposed, each Borrower agrees to pay the full amount of suchTaxes and such additional amounts as may be necessary so that every payment ofall amounts due under this Agreement, any note, or Loan Document, including anyamount paid pursuant to this Section 15.11(a) after withholding ordeduction for or on account of any Taxes, will not be less than the amountprovided for herein; provided, however, that Borrowers shall not be required toincrease any such amounts if the increase in such amount payable results fromAgent’s or such Lender’s own willful misconduct or gross negligence (as finallydetermined by a court of competent jurisdiction).  Each Borrower will furnish to Lender aspromptly as possible after the date the payment of any Tax is due pursuant toApplicable Law certified copies of tax receipts evidencing such payment by anyBorrower.

 

(b)                                 If a Lender claims an exemption from UnitedStates withholding tax, such Lender agrees with and in favor of Agent and anyBorrower, to deliver to Agent:

 

(i)                                     if such Lender claims an exemption fromUnited States withholding tax pursuant to its portfolio interest exception,(A) a statement of the Lender, signed under penalty of perjury, that it isnot a (I) a “bank” as described in Section 881(c)(3)(A) of the IRC,(II) a 10% shareholder of any Borrower (within the meaning of Section 871(h)(3)(B)of the IRC), or (III) a controlled foreign corporation related to anyBorrower within the meaning of Section 864(d)(4) of the IRC, and(B) a properly completed and executed IRS Form W-8BEN, before receivingits first payment under this Agreement and at any other time reasonablyrequested by Agent or any Borrower;

 

(ii)                                  if such Lender claims an exemption from,or a reduction of, withholding tax under a United States tax treaty, properlycompleted and executed IRS Form W-8BEN before receiving its first payment underthis Agreement and at any other time reasonably requested by Agent or anyBorrower;

 

(iii)                               if such Lender claims that interest paid under thisAgreement is exempt from United States withholding tax because it iseffectively connected with a United States trade or business of such Lender,two properly completed and executed copies of IRS Form W-8ECI before receivingits first payment under this Agreement and at any other time reasonablyrequested by Agent or any Borrower; or

 

(iv)                              such other form or forms, including IRSForm W-9, as may be required under the IRC or other laws of the United Statesas a condition to exemption from, or reduction of, United States withholding orbackup withholding tax before receiving its first payment under this Agreementand at any other time reasonably requested by Agent or any Borrower.  Each Lender agrees promptly to notify Agentand Administrative Borrower of any change in circumstances which would modifyor render invalid any claimed exemption or reduction.

 

(c)                                  If a Lender claims an exemption fromwithholding tax in a jurisdiction other than the United States, Lender agreeswith and in favor of Agent and Borrowers, to deliver to Agent any such form orforms, as may be required under the laws of such jurisdiction as a condition toexemption from, or reduction of, foreign withholding or backup withholding taxbefore receiving its first payment under this Agreement and at any other timereasonably requested by Agent or Administrative Borrower.  Each Lender agrees promptly to notify Agentand Administrative Borrower of any change in circumstances which would modifyor render invalid any claimed exemption or reduction.

 

(d)                                 If any Lender claims exemption from, orreduction of, withholding tax and such Lender sells, assigns, grants aparticipation in, or otherwise transfers all or part of the Obligations ofBorrowers to such Lender, such Lender agrees to notify Agent and AdministrativeBorrower of  the percentage amount inwhich it is no longer the beneficial owner of Obligations of Borrowers to suchLender.  To the extent of such percentageamount, Agent and Borrowers will treat such Lender’s documentation providedpursuant to Sections 15.11(b) or 15.11(c) as no longervalid.  With respect to such percentage amount,such Lender may provide new documentation, pursuant to Sections 15.11(b)or 15.11(c), if applicable.

 

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(e)                                  If any Lender is entitled to a reduction inthe applicable withholding tax, Agent may withhold from any interest payment tosuch Lender an amount equivalent to the applicable withholding tax after takinginto account such reduction.  If theforms or other documentation required by subsection (b) or (c)of this Section 15.11 are not delivered to Agent, then Agent maywithhold from any interest payment to such Lender not providing such forms orother documentation an amount equivalent to the applicable withholding tax.

 

(f)                                    If the IRS or any other GovernmentalAuthority of the United States or other jurisdiction asserts a claim that Agentdid not properly withhold tax from amounts paid to or for the account of anyLender due to a failure on the part of the Lender (because the appropriate formwas not delivered, was not properly executed, or because such Lender failed tonotify Agent of a change in circumstances which rendered the exemption from, orreduction of, withholding tax ineffective, or for any other reason) such Lendershall indemnify and hold Agent harmless for all amounts paid, directly or indirectly,by Agent, as tax or otherwise, including penalties and interest, and includingany taxes imposed by any jurisdiction on the amounts payable to Agent underthis Section 15.11, together with all costs and expenses (includingattorneys fees and expenses).  Theobligation of the Lenders under this subsection shall survive the payment ofall Obligations and the resignation or replacement of Agent.

 

15.12                     **Collateral Matters**.

 

(a)                                  The Lenders hereby irrevocably authorizeAgent, at its option and in its sole discretion, to release any Lien on anyCollateral (i) upon the termination of the Commitments and payment andsatisfaction in full by Borrowers of all Obligations, (ii) constitutingproperty being sold or disposed of if a release is required or desirable inconnection therewith and if Administrative Borrower certifies to Agent that thesale or disposition is permitted under Section 6.4 of thisAgreement or the other Loan Documents (and Agent may rely conclusively on anysuch certificate, without further inquiry), (iii) constituting property inwhich no Borrower, no Guarantor and none of their respective Subsidiaries ownedany interest at the time the Agent’s Lien was granted nor at any timethereafter, or (iv) constituting property leased to a Borrower, aGuarantor or one of their respective Subsidiaries under a lease that hasexpired or is terminated in a transaction permitted under this Agreement.  Except as provided above, Agent will notexecute and deliver a release of any Lien on any Collateral without the priorwritten authorization of (y) if the release is of all or substantially allof the Collateral, all of the Lenders, or (z) otherwise, the RequiredLenders.  Upon request by Agent orAdministrative Borrower at any time, the Lenders will confirm in writing Agent’sauthority to release any such Liens on particular types or items of Collateralpursuant to this Section 15.12; provided, however, that(1) Agent shall not be required to execute any document necessary toevidence such release on terms that, in Agent’s opinion, would expose Agent toliability or create any obligation or entail any consequence other than therelease of such Lien without recourse, representation, or warranty, and(2) such release shall not in any manner discharge, affect, or impair theObligations or any Liens (other than those expressly being released) upon (orobligations of any Borrower or any Guarantor in respect of) all interestsretained by the applicable Borrower or Guarantor, including, the proceeds ofany sale, all of which shall continue to constitute part of the Collateral.

 

(b)                                 Agent shall have no obligation whatsoever toany of the Lenders to assure that the Collateral exists or is owned by anyBorrower, any Guarantor or any of their respective Subsidiaries or is caredfor, protected, or insured or has been encumbered, or that the Agent’s Lienshave been properly or sufficiently or lawfully created, perfected, protected,or enforced or are entitled to any particular priority, or to exercise at allor in any particular manner or under any duty of care, disclosure or fidelity,or to continue exercising, any of the rights, authorities and powers granted oravailable to Agent pursuant to any of the Loan Documents, it 

 

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being understood and agreed that in respect of the Collateral, or anyact, omission, or event related thereto, subject to the terms and conditionscontained herein, Agent may act in any manner it may deem appropriate, in itssole discretion given Agent’s own interest in the Collateral in its capacity asone of the Lenders and that Agent shall have no other duty or liabilitywhatsoever to any Lender as to any of the foregoing, except as otherwiseprovided herein.

 

15.13                     **Restrictions on Actions byLenders; Sharing of Payments**.

 

(a)                                  Each of the Lenders agrees that it shall not,without the express written consent of Agent, and that it shall, to the extentit is lawfully entitled to do so, upon the written request of Agent, set offagainst the Obligations, any amounts owing by such Lender to any Borrower orGuarantor or any deposit accounts of any Borrower or Guarantor now or hereaftermaintained with such Lender.  Each of theLenders further agrees that it shall not, unless specifically requested to doso in writing by Agent, take or cause to be taken any action, including, thecommencement of any legal or equitable proceedings, to foreclose any Lien on,or otherwise enforce any security interest in, any of the Collateral.

 

(b)                                 If, at any time or times any Lender shallreceive (i) by payment, foreclosure, setoff, or otherwise, any proceeds ofCollateral or any payments with respect to the Obligations, except for any suchproceeds or payments received by such Lender from Agent pursuant to the termsof this Agreement, or (ii) payments from Agent in excess of such Lender’sratable portion of all such distributions by Agent, such Lender promptly shall(1) turn the same over to Agent, in kind, and with such endorsements asmay be required to negotiate the same to Agent, or in immediately availablefunds, as applicable, for the account of all of the Lenders and for applicationto the Obligations in accordance with the applicable provisions of thisAgreement, or (2) purchase, without recourse or warranty, an undivided interestand participation in the Obligations owed to the other Lenders so that suchexcess payment received shall be applied ratably as among the Lenders inaccordance with their Pro Rata Shares; provided, however, that to the extentthat such excess payment received by the purchasing party is thereafterrecovered from it, those purchases of participations shall be rescinded inwhole or in part, as applicable, and the applicable portion of the purchaseprice paid herefore shall be returned to such purchasing party, but withoutinterest except to the extent that such purchasing party is required to payinterest in connection with the recovery of the excess payment.

 

15.14                     **Agency for Perfection**. Agent hereby appoints each other Lender as its agent (and each Lenderhereby accepts such appointment) for the purpose of perfecting the Agent’sLiens in assets which, in accordance with Article 8 or Article 9,as applicable, of the Code (or under the equivalent section of the PPSA) can beperfected only by possession or control or which may be accorded higherpriority in terms of perfection.  Shouldany Lender obtain possession or control of any such Collateral, such Lendershall notify Agent thereof, and, promptly upon Agent’s request therefor shalldeliver possession or control of such Collateral to Agent or in accordance withAgent’s instructions.

 

15.15                     **Payments by Agent to the Lenders**.  Allpayments to be made by Agent to the Lenders shall be made by bank wire transferof immediately available funds pursuant to such wire transfer instructions aseach party may designate for itself by written notice to Agent.  Concurrently with each such payment, Agentshall identify whether such payment (or any portion thereof) represents principal,premium, fees, or interest of the Obligations.

 

15.16                     **Concerning the Collateral andRelated Loan Documents**.  Each member of the Lender Group authorizesand directs Agent to enter into this Agreement, the Second Lien IntercreditorAgreement and the other Loan Documents. Each member of the Lender Group agrees that any action taken by Agent inaccordance with the terms of this Agreement, the Second Lien IntercreditorAgreement and the other Loan Documents relating to the Collateral and theexercise by Agent of its powers set forth therein or herein, together with suchother powers that are reasonably incidental thereto, shall be binding upon allof the Lenders.

 

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15.17                     **Field Audits and ExaminationReports; Confidentiality; Disclaimers by Lenders; Other Reports and Information**.  Bybecoming a party to this Agreement, each Lender:

 

(a)                                  is deemed to have requested that Agentfurnish such Lender, promptly after it becomes available, a copy of each fieldaudit or examination report (each a “Report” and collectively, “Reports”)prepared by or at the request of Agent, and Agent shall so furnish each Lenderwith such Reports,

 

(b)                                 expressly agrees and acknowledges that Agentdoes not (i) make any representation or warranty as to the accuracy of anyReport, and (ii) shall not be liable for any information contained in anyReport,

 

(c)                                  expressly agrees and acknowledges that theReports are not comprehensive audits or examinations, that Agent or other partyperforming any audit or examination will inspect only specific informationregarding Borrowers and will rely significantly upon the books and records ofBorrowers and their respective Subsidiaries, as well as on representations ofBorrowers’ personnel,

 

(d)                                 agrees to keep all Reports and othermaterial, non-public information regarding Borrowers and their respectiveSubsidiaries and their operations, assets, and existing and contemplatedbusiness plans in a confidential manner in accordance with Section 16.7,and

 

(e)                                  without limiting the generality of any otherindemnification provision contained in this Agreement, agrees:  (i) to hold Agent and any such otherLender preparing a Report harmless from any action the indemnifying Lender maytake or fail to take or any conclusion the indemnifying Lender may reach ordraw from any Report in connection with any loans or other creditaccommodations that the indemnifying Lender has made or may make to Borrowers,or the indemnifying Lender’s participation in, or the indemnifying Lender’spurchase of, a loan or loans of Borrowers; and (ii) to pay and protect,and indemnify, defend and hold Agent, and any such other Lender preparing aReport harmless from and against, the claims, actions, proceedings, damages,costs, expenses, and other amounts (including, attorneys fees and costs)incurred by Agent and any such other Lender preparing a Report as the direct orindirect result of any third parties who might obtain all or part of any Reportthrough the indemnifying Lender.

 

In addition to the foregoing:  (x) any Lender may from time to timerequest of Agent in writing that Agent provide to such Lender a copy of anyreport or document provided by Borrowers to Agent that has not beencontemporaneously provided by Borrowers to such Lender, and, upon receipt ofsuch request, Agent promptly shall provide a copy of same to such Lender,(y) to the extent that Agent is entitled, under any provision of the LoanDocuments, to request additional reports or information from Borrowers, anyLender may, from time to time, reasonably request Agent to exercise such rightas specified in such Lender’s notice to Agent, whereupon Agent promptly shallrequest of Administrative Borrower the additional reports or informationreasonably specified by such Lender, and, upon receipt thereof from AdministrativeBorrower, Agent promptly shall provide a copy of same to such Lender, and(z) any time that Agent renders to Administrative Borrower a statementregarding the Loan Account, Agent shall send a copy of such statement to eachLender.

 

15.18                     **Several Obligations; No Liability**. Notwithstanding that certain of the Loan Documents now or hereafter mayhave been or will be executed only by or in favor of Agent in its capacity assuch, and not by or in favor of the Lenders, any and all obligations on the partof Agent (if any) to make any credit available hereunder shall constitute theseveral (and not joint) obligations of the respective Lenders on a ratablebasis, according to their respective Commitments, to make an amount of suchcredit not to exceed, in principal amount, at any one time outstanding, theamount of their respective Commitments. Nothing contained herein shall confer upon any Lender any interest in,or subject any Lender to any liability for, or in respect of, the business,assets, profits, losses, or liabilities of any other Lender.  Each Lender shall be solely responsible fornotifying its Participants of any matters relating to the Loan Documents to theextent any such

 

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notice may be required, andno Lender shall have any obligation, duty, or liability to any Participant ofany other Lender.  Except as provided in Section 15.7,no member of the Lender Group shall have any liability for the acts of anyother member of the Lender Group.  NoLender shall be responsible to any Borrower or any other Person for any failureby any other Lender to fulfill its obligations to make credit availablehereunder, nor to advance for it or on its behalf in connection with itsCommitment, nor to take any other action on its behalf hereunder or inconnection with the financing contemplated herein.

 

15.19                     **Bank Product Providers**.  EachBank Product Provider shall be deemed a party hereto for purposes of anyreference in a Loan Document to the parties for whom Agent is acting; it beingunderstood and agreed that the rights and benefits of such Bank ProductProvider under the Loan Documents consist exclusively of such Bank ProductProvider’s right to share in payments and collections out of the Collateral asmore fully set forth herein.  Inconnection with any such distribution of payments and collections, Agent shallbe entitled to assume no amounts are due to any Bank Product Provider unlesssuch Bank Product Provider has notified Agent in writing of the amount of anysuch liability owed to it prior to such distribution.

 

**16.****                              ****GENERAL PROVISIONS.**

 

16.1                           **Effectiveness**.  ThisAgreement shall be binding and deemed effective when executed by Borrowers,Agent, and each Lender whose signature is provided for on the signature pageshereof.

 

16.2                           **Section Headings**. Headings and numbers have been set forth herein for convenienceonly.  Unless the contrary is compelledby the context, everything contained in each Section applies equally to thisentire Agreement.

 

16.3                           **Interpretation**. Neither this Agreement nor any uncertainty or ambiguity herein shall beconstrued against the Lender Group or Borrowers, whether under any rule ofconstruction or otherwise.  On thecontrary, this Agreement has been reviewed by all parties and shall beconstrued and interpreted according to the ordinary meaning of the words usedso as to accomplish fairly the purposes and intentions of all parties hereto.

 

16.4                           **Severability of Provisions**.  Eachprovision of this Agreement shall be severable from every other provision ofthis Agreement for the purpose of determining the legal enforceability of anyspecific provision.

 

16.5                           **Counterparts; ElectronicExecution**.  This Agreement may be executed in any numberof counterparts and by different parties on separate counterparts, each ofwhich, when executed and delivered, shall be deemed to be an original, and allof which, when taken together, shall constitute but one and the sameAgreement.  Delivery of an executed counterpartof this Agreement by telefacsimile or other electronic method of transmissionshall be equally as effective as delivery of an original executed counterpartof this Agreement.  Any party deliveringan executed counterpart of this Agreement by telefacsimile or other electronicmethod of transmission also shall deliver an original executed counterpart ofthis Agreement but the failure to deliver an original executed counterpartshall not affect the validity, enforceability, and binding effect of thisAgreement.  The foregoing shall apply toeach other Loan Document mutatis mutandis.

 

16.6                           **Revival and Reinstatement ofObligations**.  If the incurrence or payment of theObligations by any Borrower or Guarantor or the transfer to the Lender Group ofany property should for any reason subsequently be declared to be void orvoidable under any state or federal law relating to creditors’ rights,including provisions of the Bankruptcy Code relating to fraudulent conveyances,preferences, or other voidable or recoverable payments of money or transfers ofproperty (collectively, a “Voidable Transfer”), and if the Lender Groupis required to repay or restore, in whole or in part, any such VoidableTransfer, or elects to do so upon the reasonable advice of its counsel, then,as to any such Voidable Transfer, or the amount thereof that the Lender Groupis required or elects to repay or restore, and as to all reasonable costs,expenses, and attorneys fees of the Lender Group related thereto, the liabilityof Borrowers or Guarantors automatically shall be revived, reinstated, andrestored and shall exist as though such Voidable Transfer had never been made.

 

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16.7                           **Confidentiality**. Agent and Lenders each individually (and not jointly or jointly andseverally) agree that material, non-public information regarding Borrowers andtheir respective Subsidiaries, their operations, assets, and existing andcontemplated business plans shall be treated by Agent and the Lenders in aconfidential manner, and shall not be disclosed by Agent and the Lenders toPersons who are not parties to this Agreement, except:  (a) to attorneys for and other advisors,accountants, auditors, and consultants to any member of the Lender Group, (b) toSubsidiaries and Affiliates of any member of the Lender Group (including theBank Product Providers), provided that any such Subsidiary or Affiliate shallhave agreed to receive such information hereunder subject to the terms of this Section 16.7,(c) as may be required by statute, decision, or judicial or administrativeorder, rule, or regulation, (d) as may be agreed to in advance byAdministrative Borrower or its Subsidiaries or as requested or required by anyGovernmental Authority pursuant to any subpoena or other legal process, (e) asto any such information that is or becomes generally available to the public(other than as a result of prohibited disclosure by Agent or the Lenders),(f) in connection with any assignment, prospective assignment, sale,prospective sale, participation or prospective participations, or pledge orprospective pledge of any Lender’s interest under this Agreement, provided thatany such assignee, prospective assignee, purchaser, prospective purchaser,participant, prospective participant, pledgee, or prospective pledgee shallhave agreed in writing to receive such information hereunder subject to theterms of this Section, and (g) in connection with any litigation or otheradversary proceeding involving parties hereto which such litigation oradversary proceeding involves claims related to the rights or duties of suchparties under this Agreement or the other Loan Documents.  The provisions of this Section 16.7shall survive for 2 years after the payment in full of the Obligations.

 

16.8                           **Integration**.  ThisAgreement, together with the other Loan Documents, reflects the entireunderstanding of the parties with respect to the transactions contemplatedhereby and shall not be contradicted or qualified by any other agreement, oralor written, before the date hereof.

 

16.9                           **Parent as Agent for Borrowers**.  EachBorrower hereby irrevocably appoints Parent as the borrowing agent and attorney-in-factfor all Borrowers (the “Administrative Borrower”) which appointmentshall remain in full force and effect unless and until Agent shall havereceived prior written notice signed by each Borrower that such appointment hasbeen revoked and that another Borrower has been appointed AdministrativeBorrower.  Each Borrower herebyirrevocably appoints and authorizes the Administrative Borrower (i) toprovide Agent with all notices with respect to Advances and Letters of Creditobtained for the benefit of any Borrower and all other notices and instructionsunder this Agreement and (ii) to take such action as the AdministrativeBorrower deems appropriate on its behalf to obtain Advances and Letters ofCredit and to exercise such other powers as are reasonably incidental theretoto carry out the purposes of this Agreement. It is understood that the handling of the Loan Account and Collateral ofBorrowers and Mondel in a combined fashion, as more fully set forth herein, isdone solely as an accommodation to Borrowers and Mondel in order to utilize thecollective borrowing powers of Borrowers and Mondel in the most efficient andeconomical manner and at their request, and that Lender Group shall not incurliability to any Borrower, Mondel or any other Person as a result hereof.  Each Borrower and Mondel expects to derivebenefit, directly or indirectly, from the handling of the Loan Account and theCollateral in a combined fashion since the successful operation of eachBorrower and Mondel is dependent on the continued successful performance of theintegrated group.  To induce the LenderGroup to do so, and in consideration thereof, each Borrower hereby jointly andseverally agrees to indemnify each member of the Lender Group and hold eachmember of the Lender Group harmless against any and all liability, expense,loss or claim of damage or injury, made against the Lender Group by anyBorrower, by Mondel or by any third party whosoever, arising from or incurredby reason of (a) the handling of the Loan Account and Collateral ofBorrowers and Mondel as herein provided, (b) the Lender Group’s relying onany instructions of the Administrative Borrower, or (c) any other actiontaken by the Lender Group

 

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hereunder or under the otherLoan Documents, except that Borrowers will have no liability to the relevantAgent-Related Person or Lender-Related Person under this Section 16.9with respect to any liability that has been finally determined by a court ofcompetent jurisdiction to have resulted solely from the gross negligence orwillful misconduct of such Agent-Related Person or Lender-Related Person, asthe case may be.

 

16.10                     **Public Disclosure****.** Parent, Borrower and each of their respective Subsidiaries agrees thatneither they nor any of their respective Affiliates will issue any pressrelease or other public disclosure using the name of Agent, any Lender or any oftheir respective Affiliates or referring to this Agreement or any other LoanDocument without the prior written consent of Agent and such Lender, except tothe extent that such Person is required to do so under Applicable Law (in whichevent, such Person will consult with Agent and such Lender before issuing suchpress release or other public disclosure). Parent, Borrower and each of their respective Subsidiaries herebyauthorize Agent and each Lender, after consultation with AdministrativeBorrower, to advertise the closing of the transactions contemplated by thisAgreement, and to make appropriate announcements of the financial arrangementsentered into among the parties hereto, as Agent and the Lenders shall deemappropriate, including announcements commonly known as tombstones, in suchtrade publications, business journals, newspapers of general circulation and tosuch selected parties as Agent or such Lender shall deem appropriate.

 

16.11                     **Borrowings Upon Partial Releaseof Availability Block**.  Upon Borrowers’ receipt of cash proceeds ofthe Second Lien Indebtedness in an aggregate amount of not less than$18,000,000, that portion of the Availability Block in the amount of $4,600,000shall be released and Borrowers shall automatically be deemed to have requestedan Advance in the amount of $4,600,000, the proceeds of which shall be fundedto the Holding Account.  Funds creditedto the Holding Account shall not be released without the prior written consentof Agent and Second Lien Agent, such consent not to be unreasonably withheld inconnection with a request to release such funds to make any paymentcontemplated by Section 6.14(1)(a)(ii).

 

[Signature pages follow.]

 

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**IN WITNESS WHEREOF**, the parties hereto havecaused this Agreement to be executed and delivered as of the date first abovewritten.

 
| ** ** | **MAGNETEK,  INC.,**                |
|------------|-------------------------------------|
|       | a Delaware corporation              |
|       |                                |   |
|       |                                |   |
|       | By:                                 | /s/ David P. Reiland |   |
|       |                                |   |
|       | Its:                                | Executive VP and Chief Financial Officer |   |
|       |                                |   |
| ** ** | **MAGNETEK  ADS POWER, INC.,**      |
|       | a Delaware corporation              |
|       |                                |   |
|       |                                |   |
|       | By:                                 | /s/ David P. Reiland |   |
|       |                                |   |
|       | Its:                                | President |   |
|       |                                |   |
|       |                                |   |
| ** ** | **MAGNETEK  MONDEL HOLDING, INC.,** |
|       | a Delaware corporation              |
|       |                                |
|       |                                |   |
|       | By:                                 | /s/ David P. Reiland |   |
|       |                                |   |
|       | Its:                                | President |   |
|       |                                |   |
|       |                                |   |
| ** ** | **WELLS  FARGO FOOTHILL, INC.,**    |
|       | a California corporation,           |
|       | as Agent and as a Lender            |
|       |                                |   |
|       |                                |   |
|       | By:                                 | /s/ Thomas Lane |   |
|       |                                |   |
|       | Its:                                | Senior Vice President |   |
|            |                                     |  |  |  |  |  |  |  |

 

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**EXHIBITSAND SCHEDULES**

 

 
| Exhibit A-1        | Form of Assignment and  Acceptance                       |
|--------------------|----------------------------------------------------------|
| Exhibit B-1        | Form of Borrowing Base  Certificate                      |
| Exhibit C-1        | Form of Compliance  Certificate                          |
| Exhibit J-1        | Form of Joinder to  Intercompany Subordination Agreement |
| Exhibit L-1        | Form of LIBOR Notice                                     |
| Exhibit T-1        | Form of Total Debt Limiter  Certificate                  |
|               |                                                     |
| Schedule A-1       | Agent’s Account                                     |
| Schedule C-1       | Commitments                                              |
| Schedule D-1       | Designated Account                                       |
| Schedule E-1       | Eligible Inventory  Locations                            |
| Schedule H-1       | Holding Account                                          |
| Schedule P-1       | Permitted Liens                                          |
| Schedule T-1       | Applicable EBITDA Amounts                                |
| Schedule 1.1       | Definitions                                              |
| Schedule 2.7(a)    | Cash Management Banks                                    |
| Schedule 3.1       | Conditions Precedent                                     |
| Schedule 4.1       | Real Property Locations                                  |
| Schedule 4.5       | Locations of Inventory and  Equipment                    |
| Schedule 4.7(a)    | States of Organization                                   |
| Schedule 4.7(b)    | Chief Executive Offices                                  |
| Schedule 4.7(c)    | Organizational Identification  Numbers                   |
| Schedule 4.7(d)    | Commercial Tort Claims                                   |
| Schedule 4.8(b)    | Capitalization of  Borrowers                             |
| Schedule 4.8(c)    | Capitalization of  Borrowers’ Subsidiaries          |
| Schedule 4.10      | Litigation                                               |
| Schedule 4.13(a)   | Certain Employee Pension  Benefit Plans                  |
| Schedule 4.13(d)   | Certain Employee Health  Benefit Plans                   |
| Schedule 4.13(j)   | Canadian Employee Plan  Disclosures                      |
| Schedule 4.14      | Environmental Matters                                    |
| Schedule 4.15      | Intellectual Property                                    |
| Schedule 4.17      | Deposit Accounts and  Securities Accounts                |
| Schedule 4.19      | Permitted Indebtedness                                   |
| Schedule 4.20      | Material Contracts                                       |
| Schedule 4.28 | Operating Lease  Obligations                             |
| Schedule 4.26      | Adverse Agreements                                       |
| Schedule 4.29      | Insurance                                                |
| Schedule 5.2       | Collateral Reporting                                     |
| Schedule 5.3       | Financial Statements,  Reports, Certificates             |
| Schedule 5.17      | Scheduled Contribution  Payments                         |
| Schedule 6.12      | Existing Investments                                     |
| Schedule 6.20      | Agreements Affecting  Subsidiaries                       |

 

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