**EXHIBIT10.1**

 

**POST-PETITIONFINANCING AGREEMENT**

 

 

**The CIT Group/Business Credit, Inc.**

 

**(as Lender)**

 

**And**

 

**Crown Pacific Limited Partnership,**

**a Debtor and a Debtor-in-Possession**

 

**(as Borrower)**

 

**Dated:  June 29, 2003**

 

 

 

----

 
| **SECTION 1. Definitions, Construction**                  |
|-----------------------------------------------------------|
|                                                      |
| **SECTION 2. Conditions**                                 |
|                                                      |
| **SECTION 3. Revolving Loans**                            |
|                                                      |
| **SECTION 4. Intentionally  Omitted**                     |
|                                                      |
| **SECTION 5. Letters of Credit**                          |
|                                                      |
| **SECTION 6. Collateral**                                 |
|                                                      |
| **SECTION 7.  Representations, Warranties and Covenants** |
|                                                      |
| **SECTION 8. Interest, Fees  and Expenses**               |
|                                                      |
| **SECTION 9.  Powers**                                    |
|                                                      |
| **SECTION 10. Events of  Default and Remedies**           |
|                                                      |
| **SECTION 11. Term and  Termination**                     |
|                                                      |
| **SECTION 12. Miscellaneous**                             |
|                                                      |
| **SCHEDULES**                                             |
|                                                      |
| Schedule 1 – Loan Documents                          |
|                                                      |
| Schedule 2 - Collateral  Information                      |

 

i

----

 

**THE CIT GROUP/BUSINESS CREDIT, INC.**,a New York corporation, with offices located at 300 South Grand Avenue, ThirdFloor, Los Angeles, California 90071 (hereinafter “CIT”), is pleased to confirmthe terms and conditions under which CIT shall make post-petition revolvingloans and other financial accommodations to **CROWN PACIFIC LIMITED PARTNERSHIP,**aDelaware limited partnership and a debtor and debtor-in-possession in theBankruptcy Case (as identified herein), with a principal place of business at805 S.W. Broadway, Suite 1500, Portland Oregon 97205 (herein the“Company”).

 

**RECITALS**

 

A.                                   OnJune 29, 2003, the Company filed a voluntary petition for relief underChapter 11 of the Bankruptcy Code with the Bankruptcy Court.

 

B.                                     TheCompany is continuing to operate its business and manage its properties as adebtor-in-possession under Sections 1107 and 1108 of the Bankruptcy Code.

 

C.                                     Animmediate and on-going need exists for the Company to obtain additional fundsin order to continue the operation of its business as a debtor-in-possessionunder Chapter 11 of the Bankruptcy Code, and accordingly, the Company hasrequested that CIT provide post-petition revolving loan and letter of creditfinancing to the Company.

 

D.                                    Tosecure such post-petition financing, the Company has agreed to grant to CIT, ona post-petition basis, a first-priority security interest in, and lien on, theCollateral.

 

E.                                      CITis willing to provide such post-petition secured financing to the Company onthe terms and subject to the conditions set forth in this Agreement.

 

F.                                      TheInterim Financing Order approves, and the Final Financing Order, when enteredby the Bankruptcy Court, will approve, this Agreement; and the InterimFinancing Order authorizes, and the Final Financing Order, when entered by theBankruptcy Court, will authorize, the Company to incur secured andsuperpriority Indebtedness, obligations and other liabilities under the termsand subject to the conditions of this Agreement pursuant to Sections 363 and364 of the Bankruptcy Code.

 

G.                                     Inaccordance with the Interim Financing Order, the Final Financing Order (whenentered by the Bankruptcy Court) and this Agreement, CIT will providepost-petition revolving loan and letter of credit financing to the Company.

 

NOW,THEREFORE, in consideration of the mutual agreements, provisions and covenantscontained herein, the parties hereby agree as follows:

 

1

----

 

**SECTION 1.****                            Definitions,Construction**

 

**1.1****                               Definitions**.

 

When used herein, thefollowing terms shall have the respective meanings assigned to each below:

 

**Accounts**shall mean:  **(a) **accounts (as definedin the UCC), and any and all other receivables (whether or not specificallylisted on schedules furnished to CIT), including, without limitation, allaccounts created by, or arising from, all sales, leases, rentals of goods orrendition of services to customers, including but not limited to, thoseaccounts arising under any trade names or styles, or through any divisions; **(b) **instruments,documents and chattel paper (including electronic chattel paper) (all asdefined in the UCC); **(c) **unpaid seller’s or lessor’s rights(including rescission, replevin, reclamation, repossession and stoppage intransit) relating to the foregoing or arising therefrom; **(d) **rightsto any goods represented by any of the foregoing, including rights to returned,reclaimed or repossessed goods; **(e) **reserves and credit balancesarising in connection with or pursuant hereto; **(f) **guarantees,supporting obligations, payment intangibles and letter of credit rights (all asdefined in the UCC) relating to any of the foregoing; **(g) **insurance policiesor rights thereunder relating to any of the foregoing; **(h) **general intangiblespertaining to any and all of the foregoing (including all rights to payment,including those arising in connection with bank and non-bank credit cards),including books and records and any electronic media and software pertainingthereto; **(i) **notes,deposits or property of account debtors to the Company securing the obligationsof any such account debtors to the Company to the extent the Company is notprohibited from assigning the same as contemplated hereby; and **(j) **cashand non-cash proceeds (as defined in the UCC) of any and all of theforegoing.

** **

**AdministrativeManagement Fee** shall mean, as applicable, $25,000,$50,000 or $75,000, which shall be earned by, and paid to, CIT as described inParagraph 8.8 hereof to offset the expenses and costs (excludingOut-of-Pocket Expenses and auditor fees) of CIT in connection withadministration, record keeping, analyzing and evaluating the Collateral.

** **

**Affiliate**shall mean, as to any Person, any other Person directly or indirectlycontrolling, controlled by, or under direct or indirect common control with,such Person.  A Person shall be deemedto be “controlled by” any other Person if such other Person possesses, directlyor indirectly, power to direct or cause the direction of the management andpolicies of such Person whether by contract, ownership of voting securities orotherwise.

** **

**Agreement**shall mean this Post-Petition Financing Agreement, as amended, supplemented ormodified from time to time.

** **

**AllianceSale** shall mean the sale by the Company pursuant toSection 363 of the Bankruptcy Code of all or substantially all of theproperty and assets of the Company’s Alliance segment (including, withoutlimitation, General Intangibles).

** **

**AllowedClaim**shall mean a Claim that is allowed as to bothamount and priority by a final unappealable order of a court of competentjurisdiction.

 

2

----

 

**Audit**shall have the meaning set forth in Paragraph 8.9.

 

**AuditFees and Expenses** shall have the meaning set forth inParagraph 8.9.

** **

**AuthorizingEntity** shall have the meaning set forth in clause(c) of Paragraph 2.1 of this Agreement.

** **

**Availability**shall mean, at any time of determination, the amount by which: (a) theBorrowing Base exceeds (b) the outstanding aggregate amount of allObligations, including without limitation, all Obligations with respect toRevolving Loans, but excluding the Letters of Credit, the Letter of CreditGuaranties and all other contingent Obligations.

** **

**AvailabilityReserve** shall mean the sum of: (a) (i) three(3) months rental payments or similar charges for any of the Company’sleased premises or other Collateral locations for which the Company has notdelivered to CIT a landlord’s waiver in form and substance satisfactory to CITin its commercially reasonable credit judgment within fifteen (15) daysafter the Closing Date, plus (ii) three (3) months estimated paymentsplus any other fees or charges owing by the Company to any applicablewarehousemen or third party processor (as determined by CIT in its reasonable businessjudgment) with respect to each warehouse or processing facility at whichCollateral is located and for which CIT has not received a satisfactorywarehouse or processor bailment agreement, as applicable, within fifteen(15) days after the Closing Date, provided that any of theforegoing amounts shall be adjusted from time to time hereafter upon(x) delivery to CIT of any such acceptable landlord waiver or warehouse orprocessor bailment agreement; (y) the opening or closing of a Collaterallocation; and/or (z) any change in the amount of rental, storage orprocessor payments or similar charges; (b) any reserve which CIT mayrequire in its commercially reasonable credit judgment from time to timepursuant to this Agreement, including without limitation, for Letters of Creditpursuant to Paragraph 5.1 hereof; and (c) such other reserves as CITdeems necessary or appropriate in the exercise of its commercially reasonablecredit judgment and which are customary either in the commercial financeindustry or in the lending practices of CIT, which result from(i) negative forecasts and/or trends in the Company’s business, industry,prospects, profits, operations or financial condition, (ii) returns,discounts, claims, credits and allowances, damages or other matters for which creditmemoranda are issued in the ordinary course of the Company’s business; or(iii) special order goods, discontinued, slow-moving and obsoleteInventory, market value declines, shrinkage, spoilage and any applicablecustoms, freight, duties and taxes, loggers liens and other statutory liensaffecting the Company’s business or the Collateral.

** **

**AvoidanceAction** shall mean any cause of action arising underSections 506, 510, 542-551 (both inclusive) or 553 of the Bankruptcy Code.

** **

**BankruptcyCase** shall mean the case commenced under Chapter 11of the Bankruptcy Code as a result of the Petition.

** **

**BankruptcyCode** shall mean the Bankruptcy Reform Act of 1978, asamended, or any successor statute.

 

3

----

 

**BankruptcyCourt** shall mean (i) the United States BankruptcyCourt for the District of Arizona, and (ii) any other court havingcompetent jurisdiction over the Bankruptcy Case.

** **

**BorrowingBase** shall mean, at any time of determination, the sum of(a) eighty-five percent (85%) of the Company’s aggregate outstandingEligible Accounts Receivable, provided that if the then applicableDilution Percentage is greater than five percent (5%), the advance rate forEligible Accounts Receivable shall be reduced by the amount of such excessDilution Percentage over five percent (5%), *plus* (b) the lesser of(i) twenty-five percent (25%) of the Company’s aggregate outstandingEligible Stumpage Receivables or (ii) $5,000,000, *plus* (c) the lesser of(i) sixty percent (60%) of the aggregate value of the Company’sEligible Inventory, valued at the lower of average cost or market, providedthat at no time shall the aggregate outstanding principal amount of RevolvingLoans made on the basis of Eligible Inventory consisting of logs exceed $4,000,000,or (ii) the then applicable Inventory Loan Cap, *less* (d) any applicableAvailability Reserves.

** **

**BusinessDay** shall mean any day on which CIT and JPMorgan ChaseBank are open for business.

** **

**CapitalExpenditures** shall mean, for any period, the aggregateexpenditures of the Company during such period on account of, property, plant,equipment or similar fixed assets that in conformity with GAAP, are required tobe reflected in the balance sheet of the Company as fixed assets.

** **

**CapitalImprovements** shall mean Equipment acquired or installedfor use in the Company’s business operations.

** **

**CapitalLease** shall mean any lease of property (whether real,personal or mixed) which, in conformity with GAAP, is accounted for as acapital lease or a Capital Expenditure in the balance sheet of the Company.

** **

**CashBudget Projections** shall mean, collectively, the initialthirteen-week cash budget projection required by clause (h) ofParagraph 2.1 and each subsequent thirteen-week cash budget projectionrequired by clause (g) of Paragraph 7.2.

** **

**Changeof Law** shall have the meaning set forth in Paragraph8.11.

** **

**ChaseBank Rate** shall mean the rate of interest per annumannounced by JPMorgan Chase Bank from time to time as its prime rate in effectat its principal office in New York City. (The prime rate is not intended to be the lowest rate of interestcharged by JPMorgan Chase Bank to its borrowers).

** **

**ChaseBank Rate Loans** shall mean any loans or advances pursuantto this Agreement made or maintained at a rate of interest based upon the ChaseBank Rate.

** **

**Claim**shall have the meaning set forth in Section 101(5) of theBankruptcy Code.

 

4

----

 

**ClosingDate** shall mean the date on which all of the conditionsspecified in Paragraph 2.1 have been satisfied or waived by CIT.

** **

**Collateral**shall have the meaning set forth in Paragraph 6.1.

** **

**CollateralReports** shall have the meaning set forth in Paragraph3.2.

** **

**CollectionDays** shall mean one (1) Business Day to providefor the deposit, clearance and collection of checks or other instrumentsrepresenting the proceeds of Collateral, the amount of which has been creditedto the Company’s Revolving Loan Account, and for which interest may be chargedon the aggregate amount of such deposits, at the rate provided for inParagraph 8.1 of Section 8 of this Agreement.

** **

**ConsolidatedFinancial Statements**shall mean a consolidated orcompiled, as applicable, balance sheet, income statement and cash flowstatement for the Parent and its consolidated Subsidiaries, including theCompany, eliminating all inter-company transactions and prepared in accordancewith GAAP.

** **

**ConsolidatingFinancial Statements**shall mean consolidating financialstatements for the Parent and its consolidated Subsidiaries, including the Company,including individual balance sheets, income statements and cash flow statementsfor each, showing all eliminations of inter-company transactions, all preparedin accordance with GAAP.

** **

**ContraAccounts** shall mean Trade Accounts Receivable owed to theCompany by account debtors to which the Company owes offsetting accountspayable obligations.

** **

**Copyrights**shall mean all copyrights, copyright registrations, recordings, applications,designs, styles, licenses, marks, prints and labels bearing any of theforegoing, goodwill, any and all general intangibles, intellectual property andrights pertaining thereto, and all cash and non-cash proceeds thereof.

** **

**Debtors**shall mean the Company and Crown Pacific Partners, L.P., a Delaware limitedpartnership; CP Air, Inc., an Oregon corporation; CP Acquisition Co., an Oregoncorporation; CP Acquisition II Co., an Oregon corporation; and CP AcquisitionIII Co., an Oregon corporation.

** **

**Default**shall mean any event specified in Paragraph 10.1 hereof, whether or notany requirement for the giving of notice, the lapse of time, or both, or anyother condition, event or act, has been satisfied.

** **

**DefaultRate of Interest**shall mean a rate of interest perannum equal to the sum of:  (a) twopercent (2%) *plus* (b) the applicable increment over the Chase BankRate (as set forth in Paragraph 8.1 hereof) *plus* the Chase Bank Rate, orthe applicable increment over the LIBOR Rate (as set forth inParagraph 8.14) *plus* the LIBOR Rate.

** **

**DepositoryAccounts** shall mean the collection accounts, which aresubject to CIT’s instructions, as specified in Paragraph 3.4 of thisAgreement.

 

5

----

 

**DilutionPercentage**shall mean, as of any time of determination,the sum of the Company’s credits, claims, allowances, discounts, write-offs,contras, off-sets and deductions at such time divided by the total sales atsuch time, all calculated on a rolling ninety (90) day average, asdetermined and calculated by CIT from time to time, or at such other time asthe Company and CIT may agree.

** **

**Disposition**shall have the meaning set forth in clause (h) of Paragraph 7.2.

** **

**Documentsof Title** shall mean documents (as defined in the  UCC), and any and all warehouse receipts,bills of lading, shipping documents, chattel paper, instruments and similardocuments, all whether negotiable or not and all goods and Inventory relatingthereto and all cash and non-cash proceeds of the foregoing.

** **

**EBITDDA**shall mean, in any period, all earnings of the Company before all (i) interest expenseand tax expense or provision, (ii) depreciation, (iii) depletion and (iv)amortization for said period, all determined in accordance with GAAP on aconsistent basis with the latest audited financial statements of the Company,but excluding the effects of any extraordinary, non-recurring and/or non-cashgains or losses for such  period.

** **

**EligibleAccounts Receivable** shall mean the gross amount of theCompany’s Trade Accounts Receivable that are subject to a valid perfected firstpriority security interest in favor of CIT, which conform to the warrantiesapplicable to Trade Accounts Receivable and set forth in Paragraph 3.3 hereofand which do not arise from or are subject to or include, as applicable:(i) sales to the United States of America, any state or other governmentalentity or to any agency, department or division thereof, except for any suchsales as to which the Company has complied with the Assignment of Claims Act of1940 or any other applicable statute, rules or regulation, to CIT’s satisfactionin the exercise of its commercially reasonable credit judgment;(ii) foreign sales, other than sales which otherwise comply with all ofthe other criteria for eligibility hereunder and are (x) secured byletters of credit (in form and substance satisfactory to CIT in the exercise ofits commercially reasonable credit judgment) issued or confirmed by, andpayable at, banks having a place of business in the United States of America,or (y) to customers residing or having a place of business in Canada providedsuch Accounts do not exceed $1,000,000 in the aggregate at any one time;(iii) Accounts owed by sawmills that remain unpaid for more than thirty(30) days from invoice date, and any other Account that remains unpaidmore than ninety (90) days from invoice date or sixty (60) days fromdue date; (iv) Contra Accounts; (v) sales to the Parent or to anySubsidiary or Affiliate of the Parent or the Company; (vi) bill and hold(deferred shipment) or consignment sales; (vii) sales to any customerwhich is: (A) insolvent, (B) the debtor in any bankruptcy,insolvency, arrangement, reorganization, receivership or similar proceedingsunder any federal or state law, (C) negotiating, or has called a meetingof its creditors for purposes of negotiating, a compromise of all orsubstantially all its debts, or (D) financially unacceptable to CIT or hasa credit rating unacceptable to CIT, in either case, as determined by CIT inits commercially reasonable credit judgment, consistent with its normalpractices; (viii) all sales to any customer if fifty percent (50%) ormore of****theaggregate dollar amount of all outstanding invoices to such customer are unpaidmore than ninety (90) days from invoice date or sixty (60) days fromdue date; (ix) pre-billed receivables and receivables arising fromprogress billing; (x) sales not payable in United States currency; and(xi) in the case of an

 

6

----

 

account debtor whose total Trade Accounts Receivableowing to the Company exceed fifteen percent (15%) of the Company’s total TradeAccounts Receivable, that portion of such account debtor’s Trade AccountsReceivable which exceeds fifteen percent (15%) of the Company’s total TradeAccounts Receivable.

** **

**EligibleInventory**shall mean the gross amount of the Company’sInventory that is subject to a valid, perfected, first priority securityinterest in favor of CIT and which conforms to the representations andwarranties applicable to Inventory set forth in Paragraph 3.3 hereof and whichare not (a) supplies (other than raw materials), (b) Inventory notpresent in the United States of America, (c) Inventory returned orrejected by the Company’s customers (other than goods that are undamagedand  resaleable in the normal course ofbusiness) and goods to be returned to the Company’s suppliers, and(d) Inventory in transit or Inventory in the possession of a warehouseman,bailee, third party processor, or other third party, unless such warehouseman,bailee or third party has executed a notice of security interest agreement (inform and substance satisfactory to CIT in the exercise of its commerciallyreasonable credit judgment) and CIT shall have a first priority perfectedsecurity interest in such Inventory.

** **

**EligibleStumpage Receivables** shall mean the gross amount of theCompany’s Accounts arising from the sale of logging rights or land and trees,which satisfy all of the requirements for being Eligible Accounts Receivablesset forth in the definition thereof other than being Trade Accounts Receivable.

** **

**Equipment**shall mean all equipment (as defined in the UCC) including, withoutlimitation, all machinery, equipment, furnishings and fixtures, and alladditions, substitutions and replacements thereof, wherever located, togetherwith all attachments, components, parts, equipment and accessories installedthereon or affixed thereto and all proceeds thereof of whatever sort.

** **

**ERISA**shall mean the Employee Retirement Income Security Act or 1974, as amended fromtime to time and the rules and regulations promulgated thereunder from time totime.

** **

**EurocurrencyReserve Requirements** shall mean for any day, as appliedto a LIBOR Loan, the aggregate (without duplication) of the maximum ratesof reserve requirements (expressed as a decimal fraction) in effect with respectto CIT or any present or future lender or participant pursuant hereto(including, without limitation, basic, supplemental, marginal and emergencyreserves under Regulation D or any other applicable regulations of theBoard of Governors of the Federal Reserve System or other governmentalauthority having jurisdiction with respect thereto, as now and from time totime in effect, dealing with reserve requirements prescribed for Eurocurrencyfunding (currently referred to as “Eurocurrency Liabilities” inRegulation D of such Board) maintained by CIT and/or any such lendersor participants (such rate to be adjusted to the nearest one sixteenth of onepercent (1/16 of 1%) or, if there is not a nearest one sixteenth of onepercent (1/16 of 1%), to the next higher one sixteenth of one percent (1/16 of1%)).

** **

**Event ofDefault** shall mean any event specified in Paragraph 10.1hereof.

** **

**FinalFinancing Order** shall mean an order entered by theBankruptcy Court as to which no stay has been entered, that has not beenvacated, modified or overturned, that is entitled to the

 

7

----

 

protections of Section 364(e) of theBankruptcy Code, that is free from objections by the Revolving Lenders and theTerm Lenders, and that is in form and substance acceptable to CIT in its solediscretion, authorizing the incurrence by the Company of permanentpost-petition, first-priority secured and superpriority Indebtedness inaccordance with this Agreement and the other Loan Documents.

** **

**FiscalQuarter** shall mean, with respect to the Company, eachthree (3) month period ending on March 31, June 30, September 30 andDecember 31 of each Fiscal Year.

** **

**FiscalYear** shall mean each twelve (12) month periodcommencing on January 1 of each year and ending on the following December 31.

** **

**FreeCash Flow**  shallmean, for the relevant period, EBITDDA minus the sum of the following:(a) all interest expenses paid or due on all Indebtedness; (b) the amount ofprincipal repaid or scheduled to be repaid on all Indebtedness (includingadequate protection payments, if any, to any holder of a deed of trust ormortgage on any timber of the Company); (c) non-financed Capital Expendituresactually incurred; (d) dividends paid; and (e) all federal, state and localincome tax expenses due and payable.

** **

**GAAP**shall mean generally accepted accounting principles as in effect from time totime and for the period as to which such accounting principles are to apply inthe United States of America, provided that in the event the Company modifiesits accounting principles and procedures as in effect as of the Closing Date,the Company shall provide such statements of reconciliation as shall be in formand substance acceptable to CIT in its commercially reasonable credit judgment.

** **

**GeneralIntangibles** shall mean all general intangibles (asdefined in the UCC), and shall include, without limitation, all present andfuture right, title and interest in and to: (a) all Patents, together withany improvements on said Patents, utility models, industrial models, anddesigns, (b) Copyrights, (c) trade secrets, (d) licenses,permits and franchises, (e) all applications with respect to theforegoing, (f) all right, title and interest in and to any and allextensions and renewals of any of the foregoing, (g) goodwill with respectto any of the foregoing, (h) all distribution agreements, supplyagreements, blueprints, indemnification rights and tax refunds, together withall monies and claims for monies now or hereafter due and payable in connectionwith any of the foregoing or otherwise, and all cash and non-cash proceedsthereof, including, without limitation, the proceeds or royalties of anylicensing agreements between the Company and any licensee of any of theforegoing, but shall specifically exclude all Trademarks and all customerlists.

** **

**Indebtedness**shall mean, without duplication, all liabilities, contingent or otherwise,which are any of the following: (a) obligations in respect of borrowedmoney or for the deferred purchase price of (i) property, (ii) services or(iii) assets, other than Inventory, or (b) lease obligations which, inaccordance with GAAP, have been, or which should be capitalized.

** **

**InsuranceProceeds** shall mean proceeds or payments from aninsurance carrier with respect to any loss, casualty or damage to Collateral.

** **

**InterestPeriod** shall mean:

 

8

----

 

(a)                                  withrespect to any initial request by the Company for a LIBOR Loan, a one month,two month or three month period commencing on the borrowing or conversion datewith respect to a LIBOR Loan and ending one, two or three months thereafter, asapplicable; and

 

(b)                                 thereafterwith respect to any continuation of, or conversion to, a LIBOR Loan, at theoption of the Company, any one month, two month or three month periodcommencing on the last day of the immediately preceding Interest Periodapplicable to such LIBOR Loan and ending one, two or three months thereafter,as applicable;

 

providedthat, the foregoingprovisions relating to Interest Periods are subject to the following:

 

(i)  ifany Interest Period would otherwise end on a day which is not a Working Day,that Interest Period shall be extended to the next succeeding Working Day,unless the result of such extension would extend such payment into anothercalendar month in which event such Interest Period shall end on the immediatelypreceding Working Day;

 

(ii)  anyInterest Period that begins on the last Working Day of a calendar month (or ona day for which there is no numerically corresponding day in the calendarmonth, at the end of such Interest Period) shall end on the lastWorking  Day of a calendar month; and

 

(iii)  forpurposes of determining the availability of Interest Periods, such InterestPeriods shall be deemed available if (x) Chase Manhattan Bank quotes anapplicable rate or CIT determines LIBOR, as provided in the definition ofLIBOR, (y) the LIBOR determined by Chase Manhattan Bank or CIT willadequately and fairly reflect the cost of maintaining or funding its RevolvingLoans bearing interest at LIBOR, for such Interest Period as determined in thecommercially reasonable credit judgment of CIT in accordance with its normalbusiness practices, and (z) such Interest Period will end on or before thelast day of the term of this Agreement. If a requested Interest Period shall be unavailable in accordance withthe foregoing sentence, the Company shall continue to pay interest on theObligations outstanding under the Revolving Loan Account at the applicable perannum rate based upon the Chase Bank Rate.

** **

**InterimFinancing Order** shall mean an order, in form andsubstance satisfactory to CIT in its sole discretion, entered by the BankruptcyCourt pursuant to Sections 364(c) and (d) of the Bankruptcy Codeand Bankruptcy Rule 4001(c), that is entitled to the protection ofSection 364(e) of the Bankruptcy Code, that is free from objectionsby the Revolving Lenders and the Term Lenders, and that authorizes the Companyto incur post-petition, first-priority secured and superpriority Indebtedness,obligations and other liabilities in accordance with this Agreement and theother Loan Documents on an interim basis.

** **

**Inventory**shall mean inventory (as defined in the UCC) and including, withoutlimitation, all merchandise, inventory and goods (including logs and other rawmaterials, work in process and

 

9

----

 

finished goods), and all additions, substitutions andreplacements thereof, wherever located, together with all goods and materials usedor usable in manufacturing, processing, packaging or shipping same in allstages of production from raw materials through work-in-process to finishedgoods, and all proceeds thereof of whatever sort.

** **

**InventoryLoan Cap**shall mean the amount of (i) $25,000,000prior to the Alliance Sale or (ii) $15,000,000 following the AllianceSale, as applicable.

** **

**InvestmentProperty** shall mean investment property (as defined inthe UCC) and all proceeds thereof.

** **

**IssuingBank** shall mean the bank issuing Letters of Credit.

** **

**Lettersof Credit** shall mean all letters of credit issued by theIssuing Bank for or on behalf of the Company with a Letter of Credit Guaranty.

** **

**Letterof Credit Guaranty** shall mean, in respect of a Letter ofCredit, (i) CIT’s joinder in the application of a Letter of Credit such thatCIT, together with the Company, is jointly and severally liable thereon and(ii) a guaranty delivered by CIT to the Issuing Bank of the Company’sreimbursement obligations under the Issuing Bank’s reimbursement agreement,application for Letter of Credit or other like document.

** **

**Letterof Credit Guaranty Fee** shall mean the fee CIT may chargethe Company under Paragraph  8.3 of this Agreement for issuing a Letter ofCredit Guaranty.

** **

**Letterof Credit Sub-Line** shall mean the commitment of CIT toassist the Company in obtaining Letters of Credit, pursuant to Section 5hereof, in an aggregate amount of $10,000,000 at any one time outstanding.

** **

**LIBOR**shall mean, at any time of determination, and subject to availability, for eachapplicable Interest Period, a variable rate of interest equal to:  (a) at CIT’s election (i) the rateset forth in the New York edition of The Wall Street Journal under the “MoneyRates” Section for “London Interbank Offered Rates”, (ii) theapplicable LIBOR quoted to CIT by JP Morgan Chase Bank (or any successorthereof), or (iii) the rate of interest determined by CIT at whichdeposits in U.S. dollars are offered for the relevant Interest Period based oninformation presented on Telerate Systems at Page 3750 (or any successorthereof) as of 11:00 A.M. (London time) on the day which is two(2) Business Days prior to the first day of such Interest Period, providedthat, if at least two such offered rates appear on the Telerate Page3750 (or any successor thereof) in respect of such Interest Period, thearithmetic mean of all such rates (as determined by CIT) will be the rateused; *dividedby* (b) a number of equal to 1.0 minus the aggregate (butwithout duplication) of the rates (expressed as a decimal fraction) ofEurocurrency Reserve Requirements in effect on the day which is two(2) Business Days prior to the beginning of such Interest Period.

** **

**LIBORLending Office** shall mean, with respect to CIT, theoffice of JPMorgan Chase Bank, or any successor thereof,  maintained at 270 Park Avenue, NewYork, NY  10017.

 

10

----

 

**LIBORLoan** shall mean any Revolving Loans which are made ormaintained at a rate of interest based upon LIBOR.

** **

**LoanDocuments** shall mean this Agreement and the other closingdocuments identified in Schedule 1 to this Agreement to be executed bythe Company and the other Debtors, and any other ancillary loan and securityagreements, if any, executed by the Company or any of the other Debtors from timeto time after the Closing Date in connection with this Agreement, all as may berenewed, amended, extended, increased or supplemented from time to time.

** **

**LoanFacility Fee** shall mean the fee payable to CIT inaccordance with, and pursuant to, the provisions of Paragraph 8.7 of thisAgreement.

** **

**MaterialAdverse Effect** shall mean any set of circumstances or events which (a) has had, orwould in CIT’s commercially reasonable credit judgment be expected to have, amaterial adverse effect upon the validity or enforceability of any LoanDocuments, (b) has been, or would in CIT’s commercially reasonable creditjudgment be expected to be, material and adverse to the business or condition(financial or otherwise) of the Parent and its Subsidiaries, taken as a wholeor (c) has materially impaired, or would in CIT’s commercially reasonablecredit judgment reasonably be expected to materially impair, the ability of theCompany to repay the Obligations when due.

** **

**Obligations**shall mean all loans, advances and extensions of credit made by CIT to theCompany or, at the Company’s request, to others for the Company’s account(including, without limitation, all Revolving Loans and Letter of CreditGuaranties) incurred by the Company under this Agreement, from time to timeduring the term hereof; and whether principal, interest, fees, costs, expensesor otherwise.  Obligations shall alsoinclude indebtedness owing to CIT by the Company under any other Loan Documentor under any other agreement or arrangement now or hereafter entered intobetween the Company and CIT; indebtedness or obligations incurred by, orimposed on, CIT as a result of environmental claims arising out of theCompany’s operations, premises or waste disposal practices or sites inaccordance with Paragraph 7.7 hereof; the Company’s liability to CIT asendorser of any promissory note or other instrument for the payment of moneyfrom an account debtor with respect to an Eligible Account; the Company’sliability to CIT under any instrument of guaranty or indemnity, or arisingunder any guaranty, endorsement or undertaking which CIT may make or issue toothers for the Company’s account, including any accommodation extended by CITwith respect to applications for Letters of Credit, CIT’s acceptance of draftsor CIT’s endorsement of notes or other instruments for the Company’s accountand benefit; and any and all indebtedness, liabilities or obligations of everykind, nature and description owing by the Company to any affiliate of CIT; provided,however, that in no event shall Obligations include any Claim, whethernow or hereafter existing, against the Company of which CIT is an assignee ortransferee.

** **

**OperatingLeases** shall mean all leases of property (whether real,personal or mixed) other than Capital Leases.

** **

**OtherCollateral** shall mean lockbox, blocked account and anyother deposit accounts maintained with any bank or financial institutions intowhich the proceeds of Collateral are or

 

11

----

 

may be deposited; all other deposit accounts and allInvestment Property; all cash and other monies and property in the possessionor control of CIT; all books, records, ledger cards, disks and related dataprocessing software at any time evidencing or containing information relatingto any of the Collateral described herein or otherwise necessary or helpful inthe collection thereof or realization thereon; and all cash and non-cashproceeds of the foregoing.

** **

**Out-of-PocketExpenses** shall mean all reasonable and necessary expensesincurred by CIT (including reasonable and necessary expenses incurred by CIT ifit elects to employ the services of third parties) and pertaining to thisAgreement or any other Loan Document, whether now or hereafter incurred, whichexpenses shall include, without being limited to: the cost of record searches,all costs and expenses incurred by CIT in opening bank accounts, depositingchecks, receiving and transferring funds, and wire transfer charges, anycharges imposed on CIT due to returned items and “insufficient funds” ofdeposited checks and CIT’s standard fees relating thereto, any amounts paid by,incurred by or charged to, CIT by the Issuing Bank under a Letter of CreditGuaranty or the Company’s reimbursement agreement, application for Letters ofCredit or other like document which pertain to such Letters of Credit, andCIT’s standard fees relating to the Letters of Credit and any draftsthereunder, travel, lodging and similar out-of-pocket expenses of CIT’spersonnel or of third parties engaged by CIT in connection with inspecting andmonitoring the Collateral from time to time hereunder, any applicable counselfees and disbursements, fees and taxes relative to the filing of financingstatements, and all expenses, costs and fees set forth in Paragraph 10.3of this Agreement.

** **

**Overadvances**shall mean the amount by which (a) the sum of all outstanding RevolvingLoans, Letters of Credit and advances made hereunder exceed (b) theBorrowing Base.

** **

**Parent**shall mean Crown Pacific Partners, L.P., a Delaware limited partnership.

** **

**Patents**shall mean patents, patent applications, registrations, any reissues orrenewals thereof, licenses, any inventions and improvements claimed thereunder,and all general intangible, intellectual property and patent rights withrespect thereto of the Company, and all income, royalties, cash and non-cashproceeds thereof.

** **

**PermittedEncumbrances** shall mean (a) liens existing on thedate hereof on specific items of Equipment and other liens expressly permitted,or consented to in writing by CIT; (b) Purchase Money Liens;(c) liens of local or state authorities for franchise or other like Taxes,provided that the aggregate amounts of such liens shall not exceed $250,000.00in the aggregate at any one time outstanding; (d) statutory liens oflandlords and liens of carriers, warehousemen, bailees, mechanics, materialmenand other like liens imposed by law, created in the ordinary course of businessand for amounts not yet due (or which are being contested in good faith, byappropriate proceedings or other appropriate actions which are sufficient toprevent imminent foreclosure of such liens) and with respect to whichadequate reserves or other appropriate provisions are being maintained by theCompany in accordance with GAAP; (e) deposits made (and the liensthereon) in the ordinary course of business of the Company (including,without limitation, security deposits for leases, indemnity bonds, surety bondsand appeal bonds) in connection with workers’ compensation, unemploymentinsurance and other types of social security benefits or to secure theperformance of tenders, bids, contracts (other than for the repayment orguarantee of 

 

12

----

 

borrowed money or purchase money obligations), statutoryobligations and other similar obligations arising as a result of progresspayments under government contracts; (f) liens granted to or for thebenefit of CIT by the Company; (g) liens of judgment creditors provided suchliens do not exceed, in the aggregate, at any time, $50,000.00 (other thanliens bonded or insured to the reasonable satisfaction of CIT); (h) Taxliens securing amounts which are not yet due and payable or which are beingdiligently contested in good faith by the Company by appropriate proceedings,and which liens are not (x) the subject of imminent foreclosure,(y) senior to the liens of CIT or (z) for Taxes due the United Statesof America or any state thereof having similar priority statutes, as furtherset forth in Paragraph 7.6 hereof; and (i) liens on any assets of theCompany approved by the Bankruptcy Court and granted to secured creditors ofthe Company as adequate protection, provided that such liens are junior andsubordinate to the security interests and liens on any assets of the Companyapproved by the Bankruptcy Court and granted to CIT as security for theObligations.

** **

**PermittedExpenses and Indebtedness** shall mean, with respect to theCompany and the other Debtors: (i) fees required to be paid to the Officeof the United States Trustee pursuant to 28 U.S.C. Section 1930(a);(ii) fees payable to the clerk of the Bankruptcy Court; (iii) subjectto the limits set forth in the Interim Order and the Final Order, compensationfor services rendered or reimbursement of expenses incurred that are permittedby the Bankruptcy Court to be paid under Sections 330 or 331 of theBankruptcy Code to professionals retained pursuant to an order of theBankruptcy Court, so long as such fees and expenses are included within theCash Budget Projections; (iv) so long as no Event of Default has occurredand is continuing, expenses set forth in the Cash Budget Projections;(v) current Indebtedness maturing in less than one year and incurred inthe ordinary course of business for raw materials, supplies, equipment,services, Taxes or labor; (vi) Indebtedness maturing in more than one year forthe deferred purchase price of services; (vii) Indebtedness secured byPurchase Money Liens;****(viii) Subordinated Debt;(ix) Indebtedness arising under Letters of Credit and this Agreement;(x) deferred Taxes; and (xi) other Indebtedness and accounts payableexisting on the date of execution of this Agreement and listed in the mostrecent financial statement delivered to CIT or otherwise disclosed to CIT inwriting prior to the Closing Date.

** **

**Person**shall mean any individual, trustee, corporation, general partnership, limitedpartnership, limited liability company, joint stock company, trust,unincorporated organization, bank, business, association, firm, joint ventureor governmental authority.

** **

**Petition**shall mean the voluntary petition filed by the Company for relief underChapter 11 of the Bankruptcy Code with the Bankruptcy Court on thePetition Date.

** **

**PetitionDate** shall mean June 29, 2003.

** **

**Post-PetitionCharges** shall mean all federal, state, county, city,municipal, local, foreign or other taxes payable to any governmental authority,levies, assessments, charges, liens, claims or encumbrances levied or arisingafter the Petition Date upon or relating to (i) the Obligations,(ii) the employees, payroll, income or gross receipts of the Company,(iii) the Company’s ownership or use of any properties or other assets, or(iv) any other aspect of the Company’s business.

 

13

----

 

**PurchaseMoney Liens** shall mean liens on any item of Equipmentacquired (or leased pursuant to a financing lease) after the date of thisAgreement provided that **(a) **each such lien shall attach onlyto the property to be acquired (or leased pursuant to a financing lease), **(b) **adescription of the Equipment so acquired or so leased is furnished to CIT, and**(c) **thedebt incurred in connection with such acquisitions shall not exceed, in theaggregate, $3,000,000 outstanding at any time.

** **

**RevolvingLenders** shall mean the lenders party to the Amended andRestated Facility B Credit Agreement, dated as of December 1, 1999, as amended,among the Company, such lenders and Bank of America, N.A., as agent.  (The Revolving Lenders are commonly referredto as the “Facility B Lenders”.)

** **

**RevolvingLine of Credit** shall mean the aggregate commitment of CITto make Revolving Loans to the Company pursuant to Section 3 of thisAgreement and issue Letter of Credit Guaranties pursuant to Section 5hereof, in the aggregate amount equal to the sum of (i) $40,000,000,following the entry of the Final Financing Order but prior to the AllianceSale, or (ii) $20,000,000, following the Alliance Sale, as applicable.

** **

**RevolvingLine of Credit Fee** shall mean the fee due CIT at the endof each fiscal quarter for the Revolving Line of Credit, 

determined by multiplying the difference between(i) the then applicable Revolving Line of Credit and (ii) the sum,for said fiscal quarter, of (x) the average daily balance of RevolvingLoans plus the average daily balance of Letters of Credit outstanding inrespect of which CIT has issued a Letter of Credit Guaranty for said quarter,by three-eighths percent (0.375%) per annum for the number of days in saidfiscal quarter.

** **

**RevolvingLoan Account** shall mean the account maintained in theCompany’s name on CIT’s books and which reflects Obligations which have becomedue and owing by the Company and amounts paid by the Company, including fromthe proceeds of Collateral or otherwise credited thereon.

** **

**RevolvingLoans** shall mean the loans and advances made, from timeto time, to or for the account of the Company by CIT pursuant to Section 3of this Agreement.

** **

**SubordinatedDebt** shall mean debt due a Subordinating Creditor (andthe note(s) evidencing the same) which has been subordinated, by aSubordination Agreement, to the prior payment and satisfaction of theObligations of the Company to CIT.

** **

**SubordinatingCreditor** shall mean any party that executes aSubordination Agreement.

** **

**SubordinationAgreement** shall mean an agreement (in form and substancesatisfactory to CIT) among the Company (and/or other relevant Debtor), aSubordinating Creditor and CIT, pursuant to which Subordinated Debt issubordinated to the prior payment and satisfaction of the Company’s Obligationsto CIT and/or the security interest of a Subordinating Creditor is subordinatedto CIT’s security interest in the Collateral.

** **

**Subsidiary**shall mean, as to any Person, a corporation, partnership, joint venture,limited liability company or other business entity of which a majority of theshares of securities or other

 

14

----

 

interest having ordinary voting power for the electionof directors or other governing body (other than securities or interest havingsuch power only by reason of the happening of a contingency) are at the timebeneficially owned, or the management of which is otherwise controlled, by suchPerson.

** **

**Taxes**shall mean all federal, state, municipal and other governmental taxes, levies,charges, claims and assessments which are or may be due by the Company withrespect to its business, operations, Collateral or otherwise.

** **

**TermLenders** shall mean the lenders party to the Amended andRestated Credit Agreement, dated as of December 1, 1999, as amended, among theCompany, such lenders, and Bank of America, N.A., as agent for suchlenders.  (The Term Lenders are commonlyreferred to as the “Facility A Lenders.”)

** **

**TradeAccounts Receivable** shall mean that portion of theCompany’s Accounts which arises from the sale of Inventory or the rendition ofservices in the ordinary course of the Company’s business.

** **

**Trademarks**shall mean trademarks, trademark registrations, recordings, applications,tradenames, trade styles, service marks, prints and labels (on which any of theforegoing may appear), licenses, reissues, renewals, and any other intellectualproperty and trademark rights pertaining to any of the foregoing, together withthe goodwill associated therewith, and all cash and non-cash proceeds thereof.

** **

**UCC**shall mean the Uniform Commercial Code as the same may be amended and in effectfrom time to time in the state of California.

** **

**UnrestrictedCash** shall mean, at any time of determination, the sum of(i) the total amount of the Company’s cash on hand *plus* (ii) the total of theCompany’s cash in banks *less* the amount of outstanding checks atsuch time of determination.

** **

**Work Fee**shall mean the amount of $150,000.00 paid by the Company to CIT pursuant to theCommitment Letter dated May 16, 2003 agreed to by the Company and CIT.

** **

**WorkingDay** shall mean any Business Day on which dealings inforeign currencies and exchanges between banks may be transacted.

** **

**1.2****                               Construction**.

 

Withreference to this Agreement and any other Loan Document, unless otherwisespecified herein or therein;

** **

**(a)****                                 **Themeanings of defined terms are equally applicable to the singular and pluralforms of the defined terms.

** **

**(b)****                                 **Article,Section, Exhibit and Schedule references are to this Agreement or the LoanDocument in which such reference appears.

 

15

----

 

**(c)****                                 **Allcomputations pursuant to this Agreement or any other Loan Document, for exampleof the Borrowing Base, the Obligations and the Revolving Loan Account, shall bedetermined without duplication of any kind.

** **

**SECTION 2****.****                            Conditions**

** **

**2.1****                               Conditionsto Initial Extension of Credit**.

 

Theobligation of CIT to make the initial Revolving Loans or issue the initialLetter of Credit Guaranties hereunder is subject to the satisfaction of,extension of or waiver (in writing) of the following conditions precedent;provided, however, that the condition set forth in clause (a) below shallnot be applicable in the case of any Revolving Loan made or Letter of CreditGuaranty issued pursuant to the authorization of the Interim Financing Order:

** **

**(a)****                                  LienSearches** - CIT shall have received tax, judgment and Uniform CommercialCode searches satisfactory to CIT for the following filing offices:  (i) the Delaware Secretary of State; (ii)the Washington Department of Licensing; and (iii) the Oregon Secretary ofState.

** **

**(b)****                                  CasualtyInsurance** - The Company shall have delivered to CIT evidencesatisfactory to CIT that casualty insurance policies covering the Collateraland listing CIT as additional insured or loss payee, as the case may be, andwhich otherwise meet the requirements of Paragraph 7(d)(i) and are in fullforce and effect.

** **

**(c)****                                  AuthorizingResolution** - CIT shall have received a copy of appropriate resolutionsauthorizing the Company’s execution, delivery and performance of (i) thisAgreement and (ii) any related agreements, in each case certified by theSecretary or Assistant Secretary of the applicable partner of the Company (the“Authorizing Entity”) which has adopted such resolutions as of the datehereof, together with a certificate of the Secretary or Assistant Secretary ofthe Authorizing Entity as to the incumbency and signature of the officers ofthe Authorizing Entity executing such Loan Documents and any certificate orother documents to be delivered by them pursuant hereto, together with evidenceof the incumbency of such Secretary or Assistant Secretary.

** **

**(d)****                                  PartnershipOrganization** - CIT shall have received (i) a copy of theCertificate of Limited Partnership of the Company, certified by the DelawareSecretary of State, (ii) a copy of the limited partnership agreement ofthe Company certified by the Secretary or Assistant Secretary of theAuthorizing Entity, and (iii) a copy of the charter and organizationaldocuments of each of the managing general partner of the Company and theAuthorizing Entity, all as amended through the date hereof.

** **

**(e)****                                  Officer’sCertificate** - CIT shall have received an executed Officer’s Certificateof the Authorizing Entity, reasonably satisfactory in form and substance toCIT, certifying that (i) the representations and warranties containedherein are true and correct in all material respects on and as of the ClosingDate; and (ii) no Default or Event of Default exists on the Closing Date.

 

16

----

 

**(f)****                                    Absenceof Default** - No Default or Event of Default shall have occurred and becontinuing on the Closing Date and no Material Adverse Effect shall haveoccurred since May 31, 2003.

** **

**(g)****                                 LegalRestraints/Litigation** - As of the Closing Date, there shall be no:(x) litigation, investigation or proceeding (judicial oradministrative) pending or threatened against the Company or its assets,by any agency, division or department of any county, city, state or federalgovernment arising out of this Agreement; (y) injunction, writ orrestraining order restraining or prohibiting the financing arrangementscontemplated under this Agreement, other than the Bankruptcy Case; or(z) suit, action, investigation or proceeding (judicial oradministrative) pending against the Company or its assets, which, in thereasonable judgment of CIT, if adversely determined, would reasonably beexpected to have a Material Adverse Effect.

** **

**(h)****                                 CashBudget Projections** - CIT shall have received, reviewed and beensatisfied with the initial thirteen-week cash budget projection prepared by theCompany.

** **

**(i)****                                    AdditionalDocuments** - The Company and the other Debtors shall have executed anddelivered to CIT all of the Loan Documents identified in Schedule 1 tothis Agreement.

** **

**(j)****                                    DisbursementAuthorization** - The Company shall have delivered to CIT all informationnecessary for CIT to issue wire transfer instructions on behalf of the Companyfor the initial and subsequent Revolving Loans including, but not limited to,disbursement authorizations in form acceptable to CIT.

** **

**(k)****                                UpdatedExamination & Verification** – CIT shall have completed, to itssatisfaction, an update to its May 16, 2003 examination and verification of theAccounts, Inventory, financial statements and books and records of the Company,which updated examination shall indicate that, after giving effect to allRevolving Loans to be made, and Letters of Credit to be issued, on the ClosingDate, the sum of (i) the Company’s opening remaining Availability, asevidenced by a Borrowing Base certificate delivered by the Company to CIT as ofthe Closing Date, *plus* (ii) Unrestricted Cash shall equal at least$10,000,000; provided, however, if such sum is less than$19,750,000, CIT and the Company shall have amended this Agreement to increasethe applicable covenant levels for the minimum Free Cash Flow covenant setforth in Paragraph 7.2(i) dollar for dollar by the amount of such deficiency,with such deficiency allocated among the various covenant compliance periods asCIT and the Company shall have mutually agreed, acting reasonably and in goodfaith; provided, however, that if such sum is $15,000,000 ormore, such deficiency shall be allocated to those covenant compliance periodson and after October 31, 2003.  It isunderstood that such requirement contemplates that all debts and obligations(other than payables) are current, and that all payables are being handled inthe normal course of the Company’s business and consistent with its pastpractice.

** **

**(l)****                                    InterimFinancing Order**. - The Bankruptcy Court shall have entered the InterimFinancing Order.

 

17

----

 

Upon the execution of this Agreement and the initialdisbursement of Revolving Loans or the initial issuance of a Letter of CreditGuaranty, all of the above conditions precedent shall have been deemedsatisfied except as otherwise set forth hereinabove and as the Company and CITshall otherwise agree in writing**.**

** **

**2.2****                               Conditionsto Each Extension of Credit**.

 

Exceptto the extent expressly set forth in this Agreement, the agreement of CIT tomake any Revolving Loan or issue any Letter of Credit Guaranty requested to bemade by it to or for the account of the Company on any date (including withoutlimitation, the initial Revolving Loan or Letter of Credit Guaranty) issubject to the satisfaction of the following conditions precedent:

** **

**(a)****                                  Representations,Warranties and Covenants** - Each of the representations and warrantiesmade by the Company in or pursuant to this Agreement shall be true and correctin all material respects on and as of such date as if made on and as of suchdate, and the Company shall be in compliance in all material respects with allof its covenants under this Agreement on and as of such date.

** **

**(b)****                                  NoDefault** - No Default or Event of Default shall have occurred and becontinuing on such date or after giving effect to the Revolving Loan orissuance of Letter of Credit Guaranty requested to be made on such date, and noMaterial Adverse Effect shall have occurred since the date on which the lastRevolving Loan was made or Letter of Credit Guaranty was issued, as applicable.

** **

**(c)****                                  BorrowingBase** - Except as may be otherwise agreed to from time to time by CITand the Company in writing, after giving effect to the Revolving Loan orissuance of Letter of Credit Guaranty requested by the Company to be made onsuch date, the aggregate outstanding balance of the Revolving Loans andoutstanding Letters of Credit owing by the Company will not exceed the lesserof (i) the Revolving Line of Credit or (ii) the Borrowing Base.

** **

**(d)****                                  FinancingOrder** - The Interim Financing Order or the Final Financing Order shallbe in full force and effect.

 

Each borrowing by the Company hereunder shallconstitute a representation and warranty by the Company as of the date of suchRevolving Loan that each of the representations and warranties contained inthis Agreement are true and correct in all material respects and that each ofthe covenants contained in this Agreement have been satisfied in all materialrespects, except as the Company and CIT shall otherwise agree herein or in aseparate writing.

** **

**SECTION 3****.****                            RevolvingLoans**

** **

**3.1****                              **CITagrees, subject to the terms and conditions of (i) this Agreement and(ii) the Interim Financing Order and the Final Financing Order, one ofwhich shall be in effect at all times during the term of this Agreement, fromtime to time (but subject to CIT’s right to make “Overadvances”), to make loansto the Company on a revolving basis (i.e., subject to the limitations set forthherein, the Company may borrow, repay and re-borrow such loans).

 

18

----

 

Requests for such loans shall be in amounts not toexceed the lesser of (a) the Availability or (b) the then applicableRevolving Line of Credit.  All requestsfor such loans must be received by an officer of CIT no later than(i) 2:00 p.m., New York time, on the Business Day on which any such ChaseBank Rate Loans are required or (ii) three Business Days prior to anyrequested LIBOR Loan.  Should CIT forany reason honor requests for Overadvances, any such Overadvances shall be madein CIT’s sole discretion and subject to any additional terms CIT deemsnecessary.

** **

**3.2****                              **Infurtherance of the continuing assignment and security interest in the Company’sAccounts and Inventory, the Company will execute and deliver to CIT in suchform and manner as CIT may require in writing in the exercise of itscommercially reasonable credit judgment, solely for CIT’s convenience in maintainingrecords of Collateral, such confirmatory schedules of Accounts and Inventory asCIT may request in the exercise of its commercially reasonable credit judgment,including, without limitation, schedules of Accounts and Inventory, all in formand substance satisfactory to CIT in the exercise of its commerciallyreasonable credit judgment, and such other appropriate reports designating,identifying and describing the Accounts and Inventory as CIT may request inwriting in the exercise of its commercially reasonable credit judgment(collectively, “Collateral Reports”). So long as Availability plus Unrestricted Cash is $10,000,000.00 orgreater, the Company shall deliver Collateral Reports to CIT monthly.  If at any time Availability plusUnrestricted Cash is less than $10,000,000.00, the Company shall deliverCollateral Reports to CIT weekly, and if at any time Availability plusUnrestricted Cash is less than $5,000,000.00, the Company shall deliverCollateral Reports to CIT daily.  Inaddition, upon CIT’s written request, the Company shall provide CIT with copiesof agreements with, or purchase orders from, the Company’s customers, andcopies of invoices to customers, proof of shipment or delivery, access to itscomputers, electronic media and software programs associated therewith(including any electronic records, contracts and signatures) and suchother documentation and information relating to Accounts and other Collateralas CIT may require in the exercise of its commercially reasonable credit judgment.  Failure to provide CIT with any of theforegoing shall in no way affect, diminish, modify or otherwise limit thesecurity interests granted herein.  TheCompany hereby authorizes CIT to regard the Company’s printed name or rubberstamp signature on assignment schedules or invoices as the equivalent of amanual signature by one of the Company’s authorized officers or agents.

** **

**3.3****                              **TheCompany hereby represents and warrants that: each Trade Account Receivable isbased on an actual and bona fide sale and delivery of Inventory or rendition ofservices to customers, made by the Company in the ordinary course of itsbusiness; each Eligible Stumpage Receivable is based on an actual and bona fidesale and delivery of logging rights or land and trees; the Inventory beingsold, and the Trade Accounts Receivable and Eligible Stumpage Receivablescreated, are the exclusive property of the Company and are not and shall not besubject to any lien, consignment arrangement, encumbrance, security interest orfinancing statement whatsoever, other than the Permitted Encumbrances; theinvoices evidencing such Trade Accounts Receivable and Eligible StumpageReceivables are in the name of the Company; and, to the best knowledge of theCompany, the customers of the Company have accepted the Inventory, services orlogging rights, land and trees, owe and are obligated to pay the full amountsstated in the invoices according to their terms, without dispute, offset,defense, or counterclaim, except for disputes and other matters arising in theordinary course of business

 

19

----

 

with respect to which the Company has complied withthe notification requirements of Paragraph 3.5.  The Company confirms to CIT that any and all Taxes or fees relatingto its business, its sales, the Accounts or Inventory relating thereto, are itssole responsibility and that same will be paid by the Company when due, subjectto Paragraph 7.2(e).  The Companyhereby further represents and warrants that it shall not acquire any Inventoryon a consignment basis, nor co-mingle its Inventory with any of its customersor any other person, including pursuant to any bill and hold sale or otherwise,and to the best of its knowledge that its Inventory is marketable to its customersin the ordinary course of business of the Company, except as it may otherwisereport in writing to CIT pursuant to Paragraph 3.5 hereof from time totime.

** **

**3.4****                              **TheCompany also warrants and represents that it is a duly and validly existinglimited partnership and is qualified in all states where the failure to soqualify would have an adverse effect on the business of the Company or theability of the Company to enforce collection of Accounts due from customersresiding in that state.  The Company agreesto maintain such books and records regarding Accounts and Inventory as CIT mayrequire in the exercise of its commercially reasonable business judgment andagrees that the books and records of the Company will reflect CIT’s interest inthe Accounts and Inventory.

** **

**3.5****                              **(a) TheCompany, at its expense, shall implement a lockbox arrangement as required byCIT with respect to collections and proceeds of Collateral, all as furtherdescribed in Paragraph 7.2(t).  Anychecks, cash, credit card sales and receipts, notes or other instruments orproperty received by the Company with respect to any Collateral, includingAccounts, outside of the lockbox arrangement shall be held by the Company intrust for CIT, separate from the Company’s own property and funds, and promptlyturned over to CIT with proper assignments or endorsements by deposit to thelockbox Depository Accounts.  Infurtherance of the foregoing, the Company shall: (i) except in the case ofsales generated by the Company’s Alliance segment, indicate on all of itsinvoices that funds should be delivered to and deposited in a DepositoryAccount; (ii) direct all of its account debtors, except for accountdebtors of the Company’s Alliance segment, to deposit any and all proceeds ofCollateral into the Depository Accounts; (iii) irrevocably authorize anddirect any banks which maintain the Company’s initial receipt of cash, checksand other items to promptly wire transfer all available funds to a DepositoryAccount; and (iv) advise all such banks of CIT’s security interest in suchfunds.  The Company shall provide CITwith prior written notice of any and all deposit accounts opened or to beopened subsequent to the Closing Date. Subject to Collection Days, all amounts received by CIT in payment ofAccounts will be credited to the Revolving Loan Account when CIT is advised byits bank of its receipt of “collected funds” at CIT’s lockbox in New York, NewYork on the Business Day of such advice if advised no later than 1:00 p.m.****PSTor on the next succeeding Business Day if so advised after 1:00 p.m. PST.  No checks, drafts or other instrumentreceived by CIT shall constitute final payment to CIT unless and until suchinstruments have actually been collected.

** **

**3.6****                              **TheCompany agrees to notify CIT: (a) of any matters affecting, in anymaterial respect, the value, enforceability or collectibility of any Accountand of all material customer disputes, offsets, defenses, counterclaims,returns, rejections and all reclaimed or repossessed merchandise or goods, andof any adverse effect in the value of its Inventory, in its weekly or monthly****CollateralReports (as applicable) provided to CIT under Paragraph 3.2, in suchdetail

 

20

----

 

and format as CIT may require in the exercise of itscommercially reasonable credit judgment from time to time; and(b) promptly of any such matters which are material, as a whole, to theAccounts and/or the Inventory.  TheCompany agrees to issue credit memoranda promptly (with duplicates to CIT uponrequest after the occurrence of an Event of Default) upon acceptingreturns or granting allowances.  Uponthe occurrence of an Event of Default (which is not waived in writing byCIT) and on notice from CIT, the Company agrees that all returned, reclaimedor repossessed merchandise or goods shall be set aside by the Company, markedwith CIT’s name (as secured party) and held by the Company for CIT’saccount.

** **

**3.7****                              **CITshall maintain a Revolving Loan Account on its books in which the Company willbe charged with all Revolving Loans made by CIT to it or for its account, andwith any other Obligations when due and payable, including any and allreasonable and necessary costs and expenses, including reasonable attorney’sfees which CIT incurs in connection with the exercise by or for CIT of any ofthe rights or powers herein conferred upon CIT, or in the prosecution ordefense of any action or proceeding to enforce or protect any rights of CIT inconnection with this Agreement, the other Loan Documents or the Collateralassigned hereunder, or any Obligations owing by the Company.  The Company will be credited with allamounts received by CIT from the Company or from others for the Company’saccount, including, as above set forth, all amounts received by CIT in paymentof Accounts, and such amounts will be applied to payment of the Obligationsoutstanding under the Revolving Loan Account as set forth herein.  In no event shall prior recourse to anyAccounts or other security granted to or by the Company be a prerequisite toCIT’s right to demand payment of any Obligation outstanding under the RevolvingLoan Account.  Further, it is understoodthat CIT shall have no obligation whatsoever to perform in any respect any of theCompany’s contracts or obligations relating to the Accounts.

** **

**3.8****                              **Afterthe end of each month, CIT shall promptly send the Company a statement showingthe accounting for the charges, Revolving Loans, Letter of Credit Guarantiesand other transactions occurring between CIT and the Company during thatmonth.  Absent manifest error, themonthly statements shall be deemed correct and binding upon the Company andshall constitute an account stated between the Company and CIT unless CITreceives a written statement of the exceptions within thirty (30) daysafter the date of the monthly statement. Notwithstanding any manifest error, the monthly statements in any eventshall be deemed correct and binding upon the Company and shall constitute anaccount stated between the Company and CIT unless CIT receives a writtenstatement of the exceptions within one hundred twenty (120) days after the dateof the monthly statement.

** **

**3.9****                              **Priorto the occurrence and continuance of an Event of Default, CIT shall apply allcash proceeds of the Collateral and other payments to the Obligationsoutstanding under the Revolving Loan Account in the following order: first,to any outstanding costs and expenses of CIT that are reimbursable by theCompany pursuant to Paragraph 3.7; second, only if interest is due andpayable on the date CIT receives such proceeds or other payment, to accrued andunpaid interest; and third, to outstanding principal.  Following the occurrence and during thecontinuance of an Event of Default, CIT may apply cash proceeds of theCollateral and other payments to the Obligations outstanding under theRevolving Loan Account in such order as CIT may elect in the exercise of itscommercially reasonable credit judgment.

 

21

----

 

**3.10****                       **In theevent that any requested Revolving Loan exceeds Availability or that(a) the sum of (i) the outstanding balance of Revolving Loans and(ii) outstanding balance of Letters of Credit exceeds (b)(x) theBorrowing Base or (y) the Revolving Line of Credit, any such nonconsensualOveradvance shall be due and payable to CIT immediately upon CIT’s demandtherefor.

** **

**SECTION 4****.****                            IntentionallyOmitted**

** **

**SECTION 5****.****                            Lettersof Credit**

 

Inorder to assist the Company in establishing or opening****Letters of Credit with anIssuing Bank, the Company has requested CIT to join in the applications forsuch Letters of Credit thereby being jointly and severally liable thereon orguarantee payment or performance of such Letters of Credit and any drafts oracceptances thereunder through the issuance of Letter of Credit Guaranties,thereby lending CIT’s credit to the Company and CIT has agreed to do so.  These arrangements shall be handled by CITsubject to the terms and conditions set forth below.

** **

**5.1****                              **Withinthe Revolving Line of Credit and Availability, CIT shall assist the Company inobtaining Letter(s) of Credit in an amount not to exceed the outstandingamount of the Letter of Credit Sub-Line. CIT’s assistance for amounts in excess of the limitation set forthherein shall at all times and in all respects be in CIT’s sole discretion.  It is understood that the term, form andpurpose of each Letter of Credit and all documentation in connection therewith,and any amendments, modifications or extensions thereof, must be mutuallyacceptable to CIT, the Issuing Bank and the Company, provided that Letters ofCredit shall not be used for the purchase of domestic Inventory or to securepresent or future debt owing to domestic Inventory suppliers. Any and alloutstanding Letters of Credit shall be reserved dollar for dollar fromAvailability as an Availability Reserve.

** **

**5.2****                              **CITshall have the right, without notice to the Company, to charge the Company’sRevolving Loan Account with the amount of any and all indebtedness, liabilityor obligation of any kind incurred by CIT under any Letter of Credit Guarantyat the earlier of (a) payment by CIT under such Letter of Credit Guaranty;or (b) the occurrence of an Event of Default.  Any amount charged to Company’s Revolving Loan Account shall bedeemed a Revolving Loan hereunder and shall incur interest at the rate providedin Paragraph 8.1 of this Agreement.

** **

**5.3****                              **TheCompany unconditionally indemnifies CIT and holds CIT harmless from any and allloss, claim or liability incurred by CIT arising from any transactions oroccurrences relating to Letters of Credit established or opened for theCompany’s account, the collateral relating thereto and any drafts oracceptances thereunder, and all Obligations thereunder, including any such lossor claim due to any errors, omissions, negligence, misconduct or action takenby any Issuing Bank, other than for any such loss, claim or liability arisingout of the gross negligence or willful misconduct by CIT.  This indemnity shall survive termination ofthis Agreement.  The Company agrees thatany charges made by the Issuing Bank and incurred by CIT for the Company’saccount shall be conclusive on CIT and may be charged to the Company’sRevolving Loan Account.

 

22

----

 

**5.4****                              **CITshall not be responsible for: (a) the existence, character, quality,quantity, condition, packing, value or delivery of the goods purporting to berepresented by any documents; (b) any difference or variation in thecharacter, quality, quantity, condition, packing, value or delivery of thegoods from that expressed in the documents; (c) the validity, sufficiencyor genuineness of any documents or of any endorsements thereon, even if suchdocuments should in fact prove to be in any or all respects invalid,insufficient, fraudulent or forged; (d) the time, place, manner or orderin which shipment is made; (e) partial or incomplete shipment, or failureor omission to ship any or all of the goods referred to in the Letters ofCredit or documents; (f) any deviation from instructions; (g) delay,default, or fraud by the shipper and/or anyone else in connection with thegoods or the shipping thereof; or (h) any breach of contract between theshipper or vendors and the Company.

** **

**5.5****                              **TheCompany agrees that any action taken by CIT, if taken in good faith and so longas the same does not constitute gross negligence or willful misconduct, underor in connection with the Letters of Credit, the Letter of Credit Guarantees,the drafts or acceptances, or the Collateral, shall be binding on the Companyand shall not result in any liability whatsoever of CIT to the Company.  In furtherance thereof, but subject to CIT’sacting in good faith and so long as CIT’s actions (or failure to act) do notconstitute gross negligence or willful misconduct, CIT shall have the fullright and authority to: (a) clear and resolve any questions ofnon-compliance of documents; (b) give any instructions as to acceptance orrejection of any documents or goods; (c) execute any and all steamship orairways guaranties (and applications therefor), indemnities or delivery orders;(d) grant any extensions of the maturity of, time of payment for, or timeof presentation of, any drafts, acceptances, or documents; and (e) agreeto any amendments, renewals, extensions, modifications, changes orcancellations of any of the terms or conditions of any of the applications,Letters of Credit, drafts or acceptances; all in CIT’s sole name.  The Issuing Bank shall be entitled to complywith and honor any and all such documents or instruments executed by orreceived solely from CIT, all without any notice to or any consent from theCompany.  Notwithstanding any priorcourse of conduct or dealing with respect to the foregoing, includingamendments and non-compliance with documents and/or the Company’s instructionswith respect thereto, CIT may exercise its rights hereunder in its sole andcommercially reasonable business judgment. In addition, without CIT’s express consent and endorsement in writing, theCompany agrees: (a) not to execute any and all applications for steamshipor airway guaranties, indemnities or delivery orders; to grant any extensionsof the maturity of, time of payment for, or time of presentation of, anydrafts, acceptances or documents; or to agree to any amendments, renewals,extensions, modifications, changes or cancellations of any of the terms orconditions of any of the applications, Letters of Credit, drafts oracceptances; and (b) after the occurrence of an Event of Default which isnot cured within any applicable grace period, if any, or waived by CIT, not to(i) clear and resolve any questions of non-compliance of documents, or(ii) give any instructions as to acceptances or rejection of any documentsor goods.

** **

**5.6****                              **TheCompany agrees that: (a) any necessary import, export or other licenses orcertificates for the import or handling of the Collateral will have beenpromptly procured; (b) all foreign and domestic governmental laws andregulations in regard to the shipment and importation of the Collateral, or thefinancing thereof will have been promptly and fully complied with; and(c) any certificates in that regard that CIT may at any time request willbe

 

23

----

 

promptly furnished. In connection herewith, the Company warrants and represents that allshipments made under any such Letters of Credit are in accordance with the lawsand regulations of the countries in which the shipments originate andterminate, and are not prohibited by any such laws and regulations.  The Company assumes all risk, liability andresponsibility for, and agrees to pay and discharge, all present and futurelocal, state, federal or foreign Taxes, duties, or levies.  Any embargo, restriction, laws, customs orregulations of any country, state, city, or other political subdivision, wherethe Collateral is or may be located, or wherein payments are to be made, orwherein drafts may be drawn, negotiated, accepted, or paid, shall be solely theCompany’s risk, liability and responsibility.

** **

**5.7****                              **Uponany payments made to the Issuing Bank under the Letter of Credit Guaranty, CITshall acquire by subrogation, any rights, remedies, duties or obligationsgranted or undertaken by the Company to the Issuing Bank in any application forLetters of Credit, any standing agreement relating to Letters of Credit orotherwise, all of which shall be deemed to have been granted to CIT and applyin all respects to CIT and shall be in addition to any rights, remedies, dutiesor obligations contained herein.

** **

**SECTION 6****.****                            Collateral**

** **

**6.1****                              **Assecurity for the prompt payment in full of all Obligations, the Company herebypledges and grants to CIT a continuing general lien upon, and security interestin, all of the following personal property of the Company, whether now existingor hereafter acquired or arising (collectively, the “Collateral”), to theextent that such personal property (i) arises or is acquired by theCompany on or after the Petition Date, (ii) arose or was acquired by theCompany prior to the Petition Date but was subject to a security interest infavor of the agent for the Revolving Lenders, or (iii) was not subject toany security interest or lien in favor of any third party as of the PetitionDate:

** **

**(a)****                                 **Accounts;

** **

**(b)****                                 **Inventory;

** **

**(c)****                                 **GeneralIntangibles;

** **

**(d)****                                 **Documentsof Title;

** **

**(e)****                                 **OtherCollateral; and

** **

**(f)****                                   **Equipment;

 

provided, however, that in no event shall Collateralinclude any of the Company’s right, title or interest in or to any AvoidanceActions.  The Obligations also shall besecured by all personal property of the other Debtors that is unencumbered asof the Petition Date pursuant to the terms of the security documents betweenCIT and the other Debtors identified on Schedule 1.

** **

**6.2****                              **Thesecurity interests granted hereunder shall extend and attach to:

 

24

----

 

**(a)****                                 **AllCollateral which is owned by the Company or in which the Company has anyinterest, whether held by the Company or others for its account, and, in thecase of Collateral consisting of Equipment, whether the Company’s interest insuch Equipment is as owner, finance lessee or conditional vendee;

** **

**(b)****                                 **AllCollateral consisting of Equipment, irrespective of whether the sameconstitutes a trade fixture, including, but without limiting the generality ofthe foregoing, all dies, jigs, tools, benches, molds, tables, accretions,component parts thereof and additions thereto, as well as all accessories,motors, engines and auxiliary parts used in connection with, or attached to,the Equipment; and

** **

**(c)****                                 **AllInventory and any portion thereof which may be returned, rejected, reclaimed orrepossessed by either CIT or the Company from the Company’s customers, as wellas to all supplies, goods, incidentals, packaging materials, labels and anyother items which contribute to the finished goods or products manufactured orprocessed by the Company, or to the sale, promotion or shipment thereof.

** **

**6.3****                              **TheCompany agrees to safeguard, protect and hold all Inventory for CIT’s accountand make no disposition thereof except in the ordinary course of business ofthe Company, as herein provided.  TheCompany represents and warrants that Inventory will be sold and shipped by theCompany to its customers only in the ordinary course of the Company’s business,and then only on open account and on terms currently being extended by theCompany to its customers, provided that, absent the prior written consent ofCIT, the Company shall not sell Inventory on a consignment basis nor retain anylien or security interest in any sold Inventory. Upon the sale, exchange, orother disposition of Inventory, as herein provided, the security interest inthe Inventory provided for herein shall, without break in continuity andwithout further formality or act, continue in, and attach to, all proceeds,including any instruments for the payment of money, Trade Accounts Receivable,Eligible Stumpage Receivables, documents of title, shipping documents, chattelpaper and all other cash and non-cash proceeds of such sale, exchange ordisposition.  As to any such sale,exchange or other disposition, CIT shall have all of the rights of an unpaidseller, including stoppage in transit, replevin, rescission andreclamation.  The Company hereby agreesto immediately forward any and all cash proceeds of Collateral to theDepository Account, and to hold any other proceeds (including any notes andinstruments), in trust for CIT pending delivery to CIT.  Irrespective of whether CIT holds aperfected security interest in any particular item of intellectual property ofthe Company, the Company hereby irrevocably grants CIT a royalty free licenseto use any and all Patents, Trademarks, Copyrights, customer lists or licenseswith respect to any of the foregoing, or other General Intangibles of theCompany to sell, or otherwise dispose of or transfer, in accordance withParagraph 10.3 of this Agreement, and the applicable terms hereof, any ofthe Inventory upon the occurrence and continuance of an Event of Default.

** **

**6.4****                              **TheCompany agrees at its own cost and expense to keep the Equipment in as good andsubstantial repair and condition as the same is now or is in at the time thelien and security interest granted herein shall attach thereto, reasonable wearand tear excepted, making any and all repairs and replacements when and wherenecessary.  The Company also agrees tosafeguard, protect and hold all Equipment in accordance with the terms hereofand subject to

 

25

----

 

CIT’s security interest.  Absent CIT’s prior written consent, any sale, exchange or otherdisposition of any Equipment shall be made by the Company in the ordinarycourse of business and as set forth hereinbelow in this Paragraph 6.4.  The Company may, in the ordinary course ofbusiness, sell, exchange or otherwise dispose of obsolete or surplus Equipment;provided, however, that the proceeds of any such sales ordispositions shall be held in trust by the Company for CIT and shall beimmediately delivered to CIT by deposit to the Depository Account, except thatthe Company may retain and use such proceeds to purchase forthwith replacementEquipment which the Company determines in its reasonable judgment to have afair market value at least equal to the value of the Equipment so disposed ofor sold; provided, further, however, that the aforesaidright to purchase replacement equipment shall automatically cease upon theoccurrence and during the continuance of an Event of Default.  Upon the sale, exchange, or otherdisposition of the Equipment, as herein provided, the security interestprovided for herein shall, without break in continuity and without furtherformality or act, continue in, and attach to, all proceeds, including anyinstruments for the payment of money, Accounts, documents of title, shippingdocuments, chattel paper and all other cash and non-cash proceeds of suchsales, exchange or disposition.

** **

**6.5****                              **Therights and security interests granted to CIT hereunder are to continue in fullforce and effect in accordance with Section 11 hereof, notwithstanding that theRevolving Loan Account may from time to time be temporarily in a creditposition; provided, however, that in the event the credit amount in theRevolving Loan Account shall at any time exceed $100,000, CIT shall promptlyreturn such excess to the Company.

** **

**6.6****                              **NotwithstandingCIT’s security interest in the Collateral and to the extent that theObligations are now or hereafter secured by any assets or property other thanthe Collateral or by the guarantee, endorsement, assets or property of anyother person, CIT shall have the right in its sole discretion to determinewhich rights, liens, security interests or remedies CIT shall at any timepursue, foreclose upon, relinquish, subordinate, modify or take any otheraction with respect to, without in any way modifying or affecting any of them,or any of CIT’s rights hereunder.

** **

**6.7****                              **Anybalances to the credit of the Company and any other property or assets of theCompany in the possession or control of CIT may be held by CIT as security forany Obligations and applied in whole or partial satisfaction of suchObligations charged to the Revolving Loan Account when due.  The liens and security interests grantedherein, and any other lien or security interest CIT may have in any otherassets of the Company, shall secure payment and performance of all now existingand future Obligations.  CIT may in itsdiscretion charge any or all of the Obligations when due to the Revolving LoanAccount.

** **

**6.8****                              **TheCompany possesses all General Intangibles and rights thereto necessary toconduct its business as conducted as of the Closing Date and the Company shallmaintain its rights in, and the value of, the foregoing in the ordinary courseof its business, including, without limitation, by making timely payment withrespect to any applicable licensed rights. The Company shall deliver to CIT, and/or shall cause the appropriateparty to deliver to CIT, from time to time such pledge or security agreementswith respect to General Intangibles (now or hereafter acquired) of theCompany as CIT shall require to obtain valid first liens thereon.  In furtherance of the foregoing, the Companyshall provide timely notice to CIT of any additional

 

26

----

 

Patents and Copyrights acquired or applied forsubsequent to the Closing Date and the Company shall execute such documentationas CIT may reasonably require to obtain and perfect its lien thereon.

 

**6.9****                              **Promptlyfollowing the closing of the Alliance Sale or any other sale of assets of theCompany not in the ordinary course of business of the Company the net proceedsof which is in excess of $100,000.00, the Company shall remit to CIT forapplication to the Obligations outstanding under the Revolving Loan Account anamount equal to the lesser of (i) the aggregate amount of the Obligationsoutstanding under the Revolving Loan Account and (ii) the net book valueof that portion of such sold assets as constitute part of the Collateral.

 

**SECTION 7.****                            Representations,Warranties and Covenants**

 

**7.1****                               Representationsand Warranties. **The Companywarrants and represents that: (i) it has disclosed to CIT (A) thelocation of the Company's chief executive office, (B) the Company'sCollateral locations, and (C) the Company's tradenames; (ii) exceptfor the Permitted Encumbrances, after filing of financing statements in allfiling offices required under the UCC and upon the entry of the InterimFinancing Order by the Bankruptcy Court, this Agreement creates a valid,perfected and first priority security interest in the Collateral and thesecurity interests granted herein constitute and shall at all times constitutethe first and only liens on the Collateral; (iii) except for the PermittedEncumbrances, the Company is, or will be, at the time additional Collateral isacquired by it, the absolute owner of the Collateral with full right to pledge,sell, consign, transfer and create a security interest therein, free and clearof any and all claims or liens in favor of others; (iv) the Company will,at its expense, forever warrant and, at CIT’s request, defend the same from anyand all claims and demands of any other person other than a holder of aPermitted Encumbrance; (v) the Company will not grant, create or permit toexist, any lien upon, or security interest in, the Collateral, or any proceedsthereof, in favor of any other person other than the holders of the PermittedEncumbrances; and that the Equipment does not comprise a part of the Inventoryof the Company; and (vi) the Equipment is and will only be used by the Companyin its operations and will not be held for sale or lease, or removed from itspremises, or otherwise disposed of by the Company except as otherwise permittedin this Agreement.

** **

**7.2****                               Covenants.**

** **

**(a)****                                 **TheCompany agrees to maintain books and records pertaining to the Collateral inaccordance with GAAP and in such additional detail, form and scope as CIT shallrequire in the exercise of its commercially reasonable credit judgment.  The Company agrees that, prior to the occurrenceand continuance of an Event of Default, CIT or its agents may enter upon theCompany’s premises upon three (3) Business Days prior written notice at anytime during normal business hours, and following the occurrence and during thecontinuance of an Event of Default, CIT or its agents may enter upon theCompany’s premises at any time and from time to time in its reasonable businessjudgment during normal business hours, for the purpose of inspecting such booksand records as well as the Collateral and any and all other records pertaining thereto.  The Company agrees to afford CIT thirty(30) days prior written notice of any change in the location of anyCollateral, other than to locations, that as of the Closing Date, are known toCIT 

 

27

----

 

and at which CIT has filed financing statements andotherwise fully perfected its liens thereon. The Company shall also advise CITpromptly, in sufficient detail, of any material adverse change relating to thetype, quantity or quality of the Collateral or the security interests grantedto CIT therein.

 

**(b)****                                 **TheCompany agrees to execute and deliver to CIT, from time to time, solely forCIT’s convenience in maintaining a record of the Collateral, such writtenstatements and schedules as CIT may require in the exercise of its commerciallyreasonable credit judgment, designating, identifying or describing theCollateral. The Company’s failure, however, to promptly give CIT suchstatements or schedules shall not affect, diminish, modify or otherwise limit CIT’ssecurity interests in the Collateral.

 

**(c)****                                 **TheCompany agrees to comply with the requirements of all state and federal laws inorder to grant to CIT valid and perfected first-priority security interests inthe Collateral, subject only to the Permitted Encumbrances.  CIT is hereby authorized by the Company tofile (including pursuant to the applicable terms of the UCC) from time totime any financing statements, continuations or amendments covering the Collateral.  The Company hereby consents to and ratifiesthe filing of financing statements by CIT at any time after the ClosingDate.  The Company agrees to do whateverCIT may request in writing in the exercise of its commercially reasonablecredit judgment, from time to time after the Closing Date, by way of:  (a) filing notices of liens, financingstatements, amendments, renewals and continuations thereof;(b) cooperating with CIT’s agents and employees; (c) keepingCollateral records; (d) transferring proceeds of Collateral to CIT’spossession; and (e) performing such further acts as CIT may require in theexercise of its commercially reasonable credit judgment in order to effect thepurposes of this Agreement, including but not limited to obtaining controlagreements with respect to deposit accounts and/or Investment Property.

 

**(d)****                                 **(i)                                     TheCompany agrees to maintain insurance on the Equipment and Inventory under suchpolicies of insurance, with such insurance companies, in such reasonableamounts and covering such insurable risks as are at all times reasonablysatisfactory to CIT.  All policiescovering the Equipment and Inventory are, subject to the rights of any holdersof Permitted Encumbrances holding claims senior to CIT, to be made payable toCIT, in case of loss, under a standard non-contributory “lender” or “securedparty” clause and are to contain such other provisions as CIT may require tofully protect CIT’s interest in the Inventory and Equipment and in any paymentsto be made under such policies.  All originalpolicies or true copies thereof are to be delivered to CIT, premium prepaid,with the loss payable endorsement in CIT’s favor, and shall provide for notless than thirty (30) days prior written notice to CIT of the exercise ofany right of cancellation.  At theCompany’s request, or if the Company fails to maintain such insurance, CIT mayarrange for such insurance, but at the Company’s expense and without anyresponsibility on CIT’s part for: (A) obtaining the insurance; (B) the solvency of the insurancecompanies; (C) the adequacy of the coverage; or (D) the collection ofclaims. Upon the occurrence of an Event of Default which is not waived inwriting by CIT, CIT shall, subject to the rights of any holders of PermittedEncumbrances holding claims senior to CIT, have the sole right, in the name ofCIT or the Company, to file claims under any insurance policies, to receive,receipt and give acquittance for any payments that may be payable thereunder,and to execute any and all endorsements, receipts, releases, assignments,reassignments or other documents that 

 

28

----

 

may be necessary toeffect the collection, compromise or settlement of any claims under any suchinsurance policies.

 

(ii)                                  (A)**                             **Inthe event of any loss or damage by fire or other casualty, insurance proceedsrelating to Inventory shall be applied first to reduce the Company’s RevolvingLoans and shall then be applied to any other Obligations, all in accordancewith Paragraph 3.9. Upon the occurrence and during the continuance of an Eventof Default, such Insurance Proceeds may be applied to reduce the Company’soutstanding balance in the Revolving Loan Account in such order as CIT mayelect in the exercise of its commercially reasonable credit judgment;

 

(B)                                Inthe event any part of the Collateral consisting of Equipment is damaged by fireor other casualty and the Insurance Proceeds for such damage or other casualtyis less than or equal to $100,000.00, CIT shall promptly apply such Proceeds toreduce the Company’s outstanding balance in the Revolving Loan Account. Uponthe occurrence of an Event of Default, such Insurance Proceeds may be appliedto reduce the Company’s outstanding balance in the Revolving Loan Account insuch order as CIT may elect;

 

(C)                                Absentthe occurrence and continuance of an Event of Default, and provided that (x)the Company has sufficient business interruption insurance to replace the lostprofits of any of the Company’s facilities which suffers the relevant damagesor other casualty, and (y) the insurance Proceeds are in excess of $100,000.00,the Company may elect (by delivering written notice to CIT) to replace, repairor restore such Collateral consisting of Equipment to substantially theequivalent condition prior to such fire or other casualty as set forth herein;

 

(D)                               Ifthe Company does not elect to use the Insurance Proceeds as set forth above,CIT may, subject to the rights of any holders of Permitted Encumbrances holdingclaims senior to CIT, apply the Insurance Proceeds to reduce the Company’soutstanding balance in the Revolving Loan Account in accordance with Paragraph3.9; and

 

(E)                                 Ifthe Company so elects to use the Insurance Proceeds for the repair, replacementor restoration of any Collateral consisting of Equipment in accordance with theforegoing clause (C), (x) such Insurance Proceeds will be promptly paid over tothe Company.  In connection with theforegoing, CIT shall have the right to set up an Availability Reserve in theamount of said Insurance Proceeds paid over to the Company, which AvailabilityReserve shall be reduced dollar-for-dollar upon receipt by CIT of executedpurchase orders, delivery receipts or contracts for the replacement, repair orrestoration of such Equipment.

 

(iii)                               Inthe event the Company fails to provide CIT with timely evidence, acceptable toCIT, of its maintenance of insurance coverage required pursuant toParagraph 7.2(d)(i), CIT may purchase, at the Company’s expense, insuranceto protect CIT’s interest in the Collateral. The insurance acquired by CIT may, but need not, protect the Company’sinterest in the Collateral, and therefore such insurance may not pay claimswhich the Company may have with respect to the Collateral or pay any claimwhich may be made against the Company in connection with the Collateral.  In the event CIT purchases, obtains oracquires 

 

29

----

 

insurance covering all orany portion of the Collateral, the Company shall be responsible for all of theapplicable costs of such insurance, including premiums, interest (at theapplicable Chase Bank Rate for Revolving Loans set forth in Paragraph 8.1hereof), fees and any other charges with respect thereto, until the effectivedate of the cancellation or the expiration of such insurance.  CIT may charge all of such premiums, fees,costs, interest and other charges to the Company’s Revolving Loan Account.  The Company hereby acknowledges that thecosts of the premiums of any insurance acquired by CIT may exceed the costs ofinsurance which the Company may be able to purchase on its own.  In the event that CIT purchases suchinsurance, CIT will notify the Company of said purchase within thirty(30) days of the date of such purchase. If, within thirty (30) days of the date of such notice, the Companyprovides CIT with proof that the Company had the insurance coverage requiredpursuant to Paragraph 7.2(d)(i) (in form and substance reasonablysatisfactory to CIT) as of the date on which CIT purchased insurance andthe Company continued at all times to have such insurance, then CIT agrees tocancel the insurance purchased by CIT and credit the Company’s Revolving LoanAccount with the amount of all costs, interest and other charges associatedwith any insurance purchased by CIT, including with any amounts previouslycharges to the Revolving Loan Account.

 

**(e)****                                 **TheCompany agrees to pay, when due, all Taxes, including sales taxes, assessments,claims and other charges lawfully levied or assessed upon the Company or theCollateral unless such Taxes are being diligently contested in good faith bythe Company by appropriate proceedings and adequate reserves are established inaccordance with GAAP.  Notwithstandingthe foregoing, if any lien shall be filed or claimed thereunder (i) forTaxes due the United States of America, or (ii) which in CIT’s opinionmight create a valid obligation having priority over the rights granted to CITherein, such lien shall not be deemed to be a Permitted Encumbrance hereunderand the Company shall immediately pay such tax and remove the lien ofrecord.  If the Company fails to do sopromptly, then at CIT’s election, CIT may (A) create an AvailabilityReserve in such amount as it may deem appropriate in its commerciallyreasonable credit judgment, or (B) upon the occurrence of an Event of Default,imminent risk of seizure, filing of any priority lien, forfeiture, or sale ofthe Collateral, pay Taxes on the Company’s behalf, and the amount thereof shallbe an Obligation secured hereby and due on demand.

 

**(f)****                                   **TheCompany:  (i) agrees to comply withall acts, rules, regulations and orders of any legislative, administrative orjudicial body or official, the failure to comply with which would have amaterial and adverse impact on the Collateral, or any material part thereof, oron the business or operations of the Company, provided that the Company maycontest any acts, rules, regulations, orders and directions of such bodies orofficials in any reasonable manner which will not, in CIT’s commerciallyreasonable credit judgment, materially and adversely affect CIT’s rights orpriority in the Collateral; (ii) agrees to comply with all environmentalstatutes, acts, rules, regulations or orders as presently existing or asadopted or amended in the future, applicable to the Collateral, the ownershipand/or use of its real property and operation of its business, the failure tocomply with which would have a material and adverse impact on the Collateral,or any material part thereof, or on the operation of the business of theCompany; and (iii) shall not be deemed to have breached any provision ofthis Paragraph 7.2(f) if (A) the failure to comply with therequirements of this Paragraph 7.2(f) resulted from good faith erroror innocent omission, (B) the Company promptly commences and diligentlypursues a cure of such 

 

30

----

 

breach, and (C) suchfailure is cured within (30) days following the Company’s receipt ofnotice of such failure, or if such cannot in good faith be cured within thirty(30) days, then such breach is cured within a reasonable time frame basedupon the extent and nature of the breach and the necessary remediation, and inconformity with any applicable consent order, consensual agreement andapplicable law.

 

**(g)****                                **Untiltermination of this Agreement and payment and satisfaction of all Obligationsdue hereunder or provision thereof in accordance with Section 11 hereof, theCompany agrees that, unless CIT shall have otherwise consented in writing, theCompany will furnish to CIT: (i) within ninety (90) days after theend of each Fiscal Year of the Company, audited Consolidated FinancialStatements, with Consolidating Financial Statements attached thereto, as at theclose of such year, audited by Pricewaterhouse Coopers LLP or such other independentpublic accountants selected by the Company and satisfactory to CIT in theexercise of its commercially reasonable credit judgment; (ii) withinthirty (30) days after the end of each month Consolidated FinancialStatements, with Consolidating Financial Statements attached thereto, as at theend of such period, (iii) at least one week prior to the end of thethirteen-week period covered by the most recent Cash Budget Projectionsdelivered by the Company to CIT, a Cash Budget Projection for the next thirteen-weekperiod; and (iv) from time to time, such further information regarding thebusiness affairs and financial condition of the Parent, the Company and anySubsidiaries thereof as CIT may request in writing in the exercise of itscommercially reasonable credit judgment, including, without limitation(A) the annual audit management letter issued by the Company’s independentpublic accountants and (B) annual cash flow projections in formsatisfactory to CIT.  Each financialstatement which the Company is required to submit hereunder must be accompaniedby an officer’s certificate, signed by the Chief Financial Officer of theCompany, pursuant to which such officer must certify that: (x) thefinancial statement(s) fairly and accurately represent(s) theCompany’s financial condition at the end of the particular accounting period,as well as the Company’s operating results during such accounting period,subject to year-end audit adjustments; and (y) during the particularaccounting period: (A) there has been no Default or Event of Default underthis Agreement, provided, however, that if such officer has knowledge that anysuch Default or Event of Default has occurred during such period, the existenceof and a description in reasonable detail of same shall be set forth in suchofficer’s certificate; (B) the Company has not received any notice ofcancellation with respect to its property insurance policies; (C) theCompany has not received any notice that could result in a material adverseaffect on the value of the Collateral taken as a whole; and (D) theexhibits attached to such financial statement(s) constitute calculationsin reasonable detail showing compliance with all financial covenants containedin this Agreement.

 

**(h)****                                **Untiltermination of the Agreement and payment and satisfaction of all Obligationshereunder or provision therefor in accordance with Section 11 hereof, theCompany agrees that, without the prior written consent of CIT, except asotherwise herein provided, the Company will not:

 

(i)                                     Mortgage,assign, pledge, transfer or otherwise permit any lien, charge, securityinterest, encumbrance or judgment (whether as a result of a purchase money ortitle retention transaction, or other security interest, or otherwise) toexist on any of  the Company’s 

 

31

----

 

Collateral or any otherassets, whether now owned or hereafter acquired, except for the PermittedEncumbrances;

 

(ii)                                  Incuror create any Indebtedness other than the Permitted Expenses and Indebtedness;

 

(iii)                               Sell,lease, assign, transfer or otherwise dispose (any or all of the foregoing, a“Disposition”) of (i) Collateral, except for the Alliance Sale, which theCompany shall have the right to complete subject to the principal prepaymentrequirement set forth in Paragraph 6.9 and with the resulting reductions in theInventory Loan Cap and the Revolving Line of Credit and except as otherwisespecifically permitted by this Agreement, or (ii) except with the approvalof the Bankruptcy Court, all or substantially all of the Company’s assets thatdo not constitute Collateral;

 

(iv)                              Merge,consolidate or otherwise alter or modify its corporate name, principal place ofbusiness, structure, or existence, re-incorporate or re-organize, or enter intoor engage in any operation or activity materially different from that presentlybeing conducted by the Company, except that the Company may change itscorporate name or address; provided that: (A) the Company shallgive CIT thirty (30) days prior written notice thereof, and (B) theCompany shall execute and deliver, prior to or simultaneously with any suchaction, any and all documents and agreements requested by CIT to confirm thecontinuation and preservation of all security interests and liens granted toCIT hereunder;

 

(v)                                 Assume,guarantee, endorse, or otherwise become liable upon the obligations of anyperson, firm, entity or corporation, except by the endorsement of negotiableinstruments for deposit or collection or similar transactions in the ordinarycourse of business;

 

(vi)                              Declareor pay any dividend or distributions of any kind on, or purchase, acquire,redeem or retire, any of the capital stock or equity interest, of any classwhatsoever, whether now or hereafter outstanding;

 

(vii)                           Makeany advance or loan to, or any investment in, any firm, entity, person orcorporation, or purchase or acquire all or substantially all of the stock orassets of any entity, person or corporation; or

 

(viii)                        Pay anymanagement, consulting or other similar fees to any Affiliate other than asprovided for in the Cash Budget Projections.

 

Inconnection with any Disposition of the Collateral or any part thereof permittedby or in accordance with the foregoing clause (h)(iii) of this Paragraph 7.2,including, without limitation, the Alliance Sale, CIT agrees that it shallrelease its liens and security interests thereon.

 

**(i)****                                   **Untiltermination of this Agreement and payment and satisfaction in full of allObligations hereunder or provision thereof in accordance with Section 11,subject to the terms of the following sentence, the Company shall achieve FreeCash Flow, determined as of the last day 

 

32

----

 

of each month on acumulative basis from the Closing Date, of not less than the correlativeamounts indicated below for the specified months:

 
| **Month Ending**    |   | **Minimum  Free Cash Flow** |        |
|---------------------|--------|-----------------------------|-------------|
|                |   |                        |        |
| July  31, 2003      |   | $                           | (3,000,000  | ) |
|                |   |                        |        |
| August  31, 2003    |   | $                           | (4,500,000  | ) |
|                |   |                        |        |
| September  30, 2003 |   | $                           | (6,000,000  | ) |
|                |   |                        |        |
| October  31, 2003   |   | $                           | (7,500,000  | ) |
|                |   |                        |        |
| November  30, 2003  |   | $                           | (8,500,000  | ) |
|                |   |                        |        |
| December  31, 2003  |   | $                           | (9,500,000  | ) |
|                |   |                        |        |
| January  31, 2004   |   | $                           | (10,500,000 | ) |
|                |   |                        |        |
| February  28, 2004  |   | $                           | (11,250,000 | ) |
|                |   |                        |        |
| March  31, 2004     |   | $                           | (11,750,000 | ) |
|                |   |                        |        |
| April  30, 2004     |   | $                           | (12,250,000 | ) |
|                |   |                        |        |
| May  31, 2004       |   | $                           | (12,750,000 | ) |
|                |   |                        |        |
| June  30, 2004      |   | $                           | (13,250,000 | ) |
|                |   |                        |        |
| July  31, 2004      |   | $                           | (13,500,000 | ) |
|                |   |                        |        |
| August  31, 2004    |   | $                           | (13,750,000 | ) |
|                |   |                        |        |
| September  30, 2004 |   | $                           | (14,000,000 | ) |
|                |   |                        |        |
| October  31, 2004   |   | $                           | (14,250,000 | ) |
|                |   |                        |        |
| November  30, 2004  |   | $                           | (14,500,000 | ) |
|                |   |                        |        |
| December  31, 2004  |   | $                           | (14,750,000 | ) |

 

The Company shall be required to comply with theforegoing minimum Free Cash Flow covenant only if (i) the Company’s averagedaily Availability plus Unrestricted Cash for any month is less than$10,000,000.00 and (ii) if the Company’s average daily borrowings forsuch month is greater than Zero Dollars ($0). If compliance with the foregoing covenant is required in accordance withthe preceding sentence, such covenant shall apply and be tested as of the lastday of the month most recently ended and shall remain applicable monthlythereafter until the Company maintains for any month either (x) averagedaily Availability plus Unrestricted Cash of 

 

33

----

 

at least $10,000,000.00 or (y) average dailyborrowings under the Revolving Line of Credit of Zero Dollars ($0).

 

**(j)****                                   **TheCompany agrees to advise CIT in writing of: (i) all expenditures (actual or anticipated) in excess of$150,000.00 from the budgeted amount therefor in any Fiscal Year for(A) environmental clean-up, (B) environmental compliance or(C) environmental testing and the impact of said expenses on the Company’sworking capital; and (ii) any notices the Company receives from any local,state or federal authority advising the Company of any environmental liability(real or potential) stemming from the Company’s operations, its premises,its waste disposal practices, or waste disposal sites used by the Company andto provide CIT with copies of all such notices if so required.

 

**(k)****                               **TheCompany hereby agrees to indemnify and hold harmless CIT and its officers,directors, employees, attorneys and agents (each an “IndemnifiedParty”) from, and holds each of them harmless against, any and all losses,liabilities, obligations, claims, actions, damages, costs and expenses(including attorney’s fees) and any payments made by CIT pursuant to anyindemnity provided by CIT with respect to or to which any Indemnified Partycould be subject insofar as such losses, liabilities, obligations, claims,actions, damages, costs, fees or expenses with respect to the Loan Documents,including without limitation those which may arise from or relate to:(i) the Depository Account, the Blocked Accounts, the lockbox and/or anyother depository account and/or the agreements executed in connectiontherewith; and (ii) any and all claims or expenses asserted against CIT asa result of any environmental pollution, hazardous material or environmentalclean-up relating to any real estate of the Company; or any claim or expensewhich results from the Company’s operations (including, but not limited to, theCompany’s off-site disposal practices) and use of such real estate, whichCIT may sustain or incur (other than solely as a result of the physical actionsof CIT on the Company’s premises which are determined to constitute grossnegligence or willful misconduct by a court of competent jurisdiction), allwhether through the alleged or actual negligence of such person or otherwise,except and to the extent that the same results solely and directly from thegross negligence or willful misconduct of such Indemnified Party as finallydetermined by a court of competent jurisdiction. The Company hereby agrees thatthis indemnity shall survive termination of this Agreement, as well as paymentsof Obligations which may be due hereunder. CIT may, in its commerciallyreasonable credit judgement, establish such Availability Reserves with respectthereto as it may deem advisable under the circumstances and, upon anytermination hereof, hold such reserves as cash reserves for any such contingentliabilities.

 

**(l)****                                   **Withoutthe prior written consent of CIT, the Company agrees that it will not enterinto any transaction, including, without limitation, any purchase, sale, lease,loan or exchange of property with the Parent or any subsidiary or affiliate ofeither the Company or Parent, provided that, except as otherwise setforth in this Agreement, the Company may enter into sale and servicetransactions in the ordinary course of its business and pursuant to thereasonable requirements of the Company, and upon standard terms and conditionsand fair and reasonable terms, no less favorable to the Company than theCompany could obtain in a comparable arms length transaction with an unrelatedthird party.

 

34

----

 

**(m)****                             **Unlessotherwise permitted or prohibited by the Bankruptcy Code, the Company will payand discharge, as the same shall become due and payable, (i) all itsobligations, liabilities, including all claims or demands of materialmen,mechanics, carriers, warehousemen, landlords and other like persons which, inany such case, if unpaid, might by law give rise to a lien upon any of itsproperties or assets and (ii) all lawful taxes, assessments and charges orlevies made upon the Company, upon its income or profits or upon its propertiesor assets by any governmental authority, except where any of the items inclause (i) or (ii) above may be diligently contested in goodfaith by appropriate proceedings and where the Company shall have set aside onits books, if required under GAAP, appropriate reserves for the accrual of anysuch items.

 

**(n)****                                **Exceptto the extent the payment or discharge thereof otherwise is prohibited under,of if nonpayment is otherwise permitted by, the Bankruptcy Code, the Companyshall pay and discharge or cause to be paid and discharged promptly allPost-Petition Charges payable by it, including (i) Post-Petition Chargesimposed upon it, its income and profits or any of its other assets and allPost-Petition Charges with respect to tax, social security and unemploymentwithholding with respect to its employees, and (ii) lawful claims incurredafter the Petition Date for labor, materials, supplies and services orotherwise, before any thereof shall become past due.  The Company may in good faith contest the validity or amount ofany such Post-Petition Charges or claims, provided that (A) at the time ofcommencement of any such contest, no Event of Default shall have occurred andbe continuing, (B) adequate reserves with respect to such contest shall bemaintained on the books of the Company in accordance with GAAP; (C) suchcontest is maintained and prosecuted continuously and with diligence and operatesto suspend collection or enforcement of such Post-Petition Charges or claims orany lien in respect thereof; (D) no lien shall be imposed to securepayment of such Post-Petition Charges or claims, other than PermittedEncumbrances; (E) the Company shall promptly pay or discharge suchcontested Post-Petition Charges or claims and all additional charges, interest,penalties and expenses, if any, and shall deliver to CIT evidence satisfactoryto CIT of such compliance, payment or discharge, if such contest is terminatedor discontinued adversely to the Company or the conditions set forth herein areno longer satisfied; and (F) CIT shall not have advised the Company inwriting that CIT, in the exercise of its commercially reasonable creditjudgment, believes that nonpayment or non-discharge thereof could reasonably beexpected to have or result in a material adverse effect on the Collateral orthe financial condition of the Company.

 

**(o)****                                 **TheCompany shall not apply to the Bankruptcy Court for authority to (i) takeany action that is prohibited by the terms of this Agreement or any other LoanDocument or that has not been approved by CIT, (ii) refrain from takingany action that is required to be taken by the terms of this Agreement or anyother Loan Document or (iii) permit any Indebtedness or Claim to be paripassu with or senior to any of the Obligations.

 

**(p)****                                 **TheCompany shall not consent to any amendment, supplement, extension or othermodification of any of the terms or provisions contained in, or applicable to,the Interim Financing Order, any other order entered by the Bankruptcy Court onor about the Petition Date, or the Final Financing Order, respectively, withoutCIT’s prior written consent.

 

35

----

 

**(q)****                                 **Withoutobtaining the prior written consent of CIT, which consent shall not beunreasonably withheld or delayed, (i) the Company shall not reject anymaterial unexpired lease or executory contract, and (ii) the Company shallnot apply to the Bankruptcy Court to assume any material executory contract orunexpired lease, unless, in the case of any unexpired lease, the order (whichshall be in a form acceptable to CIT in its sole discretion) authorizingsuch assumption specifically provides that, notwithstanding such assumption,the Company may later assign the relevant lease under Bankruptcy CodeSection 365(f) without, among other things, obtaining the consent ofthe relevant lessor (but after complying with the other requirements ofBankruptcy Code Section 365).

 

**(r)****                                 **TheCompany shall furnish to CIT concurrently (i) with the filing thereof,copies of all pleadings, motions, applications, financial information and otherpapers and documents of any kind filed by or on behalf of the Company in theBankruptcy Case; (ii) with the furnishing thereof, copies of all writtenstatements, reports, information and other papers and documents of any kindfurnished by or on behalf of the Company to any official or unofficialcommittee in the Bankruptcy Case, and (iii) with the furnishing thereof,copies of all written statements, reports, information and other papers anddocuments of any kind furnished to any other creditor of the Company pursuantto the terms of any indenture, loan or credit or similar agreement.

 

**(s)****                                 **TheCompany shall use the proceeds of the Revolving Loans solely: (i) to makeany payments required under this Agreement or any of the other Loan Documents,whether for principal, interest, fees or expenses; or (ii): to pay expenses inthe respective amounts set forth in the Cash Budget Projections, including,without limitation, Permitted Expenses and Indebtedness of the Company and theother Debtors to the extent included therein and including the Company’sworking capital requirements and other general corporate purposes; provided,however, that the Company shall have the right to exceed the amounts setforth in the Cash Budget Projections by the variances permitted by the InterimFinancing Order and the Final Financing Order and to carry over and spendunspent amounts previously authorized as permitted by the Interim FinancingOrder and the Final Financing Order; and providedfurther, thatno amounts shall be paid or used for, and Permitted Expenses and Indebtednessshall not mean or include, fees and disbursements incurred by professionals,including, without limitation, any professional retained by the Company, to theextent incurred to contest in any proceeding or any other action (i) thevalidity, binding effect or enforceability of this Agreement or the amount ofthe Revolving Loans or other Obligations of the Company hereunder, or(ii) any other rights or interests of CIT under the Loan Documents.  Nothing herein shall in any way prejudice orprevent CIT from objecting, for any reason, to any requests or applications madeby the Company for compensation or reimbursement of expenses pursuant toSection 330 or 331 of the Bankruptcy Code for which the Company may seekto use proceeds of the Revolving Loans as a Permitted Expense and Indebtedness.

 

**(t)****                                   **Withinfifteen (15) days after the Closing Date, the Company shall establish asystem of lockbox and bank accounts with respect to the collection of Accountsand the deposit of proceeds of Collateral as shall be acceptable to CIT in allrespects.  Such accounts shall besubject to tri-party agreements (between the Company, CIT and the depositorybank), which shall be in form and substance satisfactory to CIT in itscommercially reasonable business judgment.

 

36

----

 

**(u)****                                **Withinthirty (30) days after the Closing Date, the Company shall cause thelessor of each leased facility occupied by the Company, the operator of eachwarehouse at which any Inventory is stored, and each processor in possession ofany Inventory to execute a satisfactory landlord waiver, or warehouse orprocessor bailment agreement, as applicable, in favor of CIT.  Notwithstanding anything contained herein orelsewhere to the contrary, the Company’s failure to comply with this Paragraph shallnot constitute an Event of Default but shall entitle CIT to establish thereserves described above in the definition of “Availability Reserve”.

 

**(v)****                                  **Withinthirty (30) days after the Closing Date, the Company shall cause the depositorybank at which the Company maintains its primary operating deposit account toenter into a satisfactory deposit account control agreement with CIT.

 

**SECTION 8****.****                            Interest,Fees and Expenses**

 

**8.1****                               (a)****                                 **Interestshall be payable monthly as of the end of each month.  Chase Bank Rate Loans shall bear interest at a rate per annumequal to the Chase Bank Rate plus one-half percent (0.50%) per annum onthe average of the net balances owing by the Company to CIT in the RevolvingLoan Account at the close of each day during such month.  In the event of any change in the Chase BankRate, the rate hereunder for Chase Bank Rate Loans shall change, as of the dateof such change, so as to remain one-half percent (0.50%) above the ChaseBank Rate.  The rate hereunder for ChaseBank Rate Loans shall be calculated based on a 360-day year.  CIT shall be entitled to charge all accruedinterest (calculated at the rate provided for herein) when due to the RevolvingLoan Account.

 

**(b)****                                 **IntentionallyOmitted.

 

**(c)****                                 **Uponand after the occurrence of an Event of Default and the giving of any requirednotice by CIT in accordance with the provisions of Section 10,Paragraph 10.2 hereof, all Obligations charged to the Revolving LoanAccount shall bear interest at the Default Rate of Interest.

 

**8.2****                              **IntentionallyOmitted.

 

**8.3****                              **Inconsideration of the Letter of Credit Guaranty of CIT, the Company shall payCIT the Letter of Credit Guaranty Fee which shall be an amount equal to threepercent (3.0%) per annum, payable monthly, on the face amount of eachstandby Letter of Credit less the amount of any and all amounts previouslydrawn under such standby Letter of Credit.

 

**8.4****                              **Anyand all charges, fees, commissions, costs and expenses charged to CIT for theCompany’s account by any Issuing Bank in connection with, or arising out of,Letters of Credit or out of transactions relating thereto will be charged tothe Revolving Loan Account in full when charged to, or paid by CIT, or as maybe due upon any termination of this Agreement hereof, and when made by any suchIssuing Bank shall be conclusive on CIT.

 

**8.5****                              **TheCompany shall reimburse or pay CIT, as the case may be, for all Out-of-PocketExpenses.

 

37

----

 

**8.6****                              **Uponthe last Business Day of each fiscal quarter, commencing on****June 30, 2003, the Companyshall pay to CIT the Revolving Line of Credit Fee, and upon the last BusinessDay of each month, commencing on June 30, 2003, the Company shall pay to CITinterest on the Collection Days. Interest on the Collection Days will be computed at the rate, and in themanner, set forth in Paragraph 8.1 of this Agreement.

 

**8.7****                              **Toinduce CIT to enter into this Agreement and to extend to the Company theRevolving Loan and Letters of Credit Guaranties, the Company shall pay to CIT aone-time Loan Facility Fee in the amount of $400,000.00. Such Loan Facility Feeshall be payable in one or more installments on or before the Closing Date, andthe Company shall be entitled to a credit against the balance of the LoanFacility Fee an amount equal to the unused portion of the Work Fee.  In connection with the foregoing, CIT herebyexpressly agrees and acknowledges that as of the date hereof, the Company hasalready paid to CIT, and CIT has received, a portion of the Loan Facility Feeequal to $200,000.00.

 

**8.8****                              **TheCompany shall pay to CIT an Administrative Management Fee which shall be earnedby CIT, and due and payable by the Company if, as and when earned by CIT, asfollows:

 

**(a)****                                 **$25,000shall be earned by CIT on the Closing Date, and such $25,000 shall be due andpayable by the Company on the Closing Date;

 

**(b)****                                 **anadditional $25,000 shall be earned by CIT on that date which is six monthsafter the Closing Date (if this Agreement shall not have then terminated, orbeen terminated), and such $25,000 if so earned by CIT shall be due and payableon such date; provided, however, that such additional $25,000 shall not beearned by CIT, or be due and payable by the Company, if on or prior to suchdate which is six months after the Closing Date, Company shall have forwardedto CIT a notice of termination of this Agreement as contemplated by Section 11;and

 

**(c)****                                 **$25,000shall be earned by CIT on that date which is the first anniversary of theClosing Date (if this Agreement shall not have then terminated or beenterminated), and such $25,000 if so earned by CIT shall be due and payable bythe Company on such first anniversary of the Closing Date; provided, however,that such additional $25,000 shall not be earned by CIT, or be due and payableby the Company, if on or prior to such first anniversary date, the Companyshall have forwarded to CIT a notice of termination of this Agreement ascontemplated by Section 11.

 

**8.9****                              **Subjectto the second and third sentences of this Paragraph 8.9, the Company shall payCIT’s standard charges and fees for CIT’s personnel used by CIT, and theactual, out-of-pocket costs and expenses incurred by CIT if it elects to employthe services of third parties, for reviewing the books and records of theCompany and for verifying, appraising, testing, protecting, safeguarding,preserving or disposing (any or all of the foregoing, an “Audit”) of all or anypart of the Collateral (collectively, the “Audit Fees and Expenses”) (whichfees shall be in addition to the Administrative Management Fee and anyOut-of-Pocket Expenses).  Except duringthe occurrence and continuance of an Event of Default, (i) the Audit Fees andExpenses incurred during any calendar quarter which the Company shall beobligated to pay or reimburse 

 

38

----

 

CIT shall not exceed $10,000 and (ii) the Companyshall not be obligated to pay or reimburse CIT for Audit Fees and Expenses morethan once each calendar quarter.  CITfurther agrees that so long as no Event of Default shall have then occurred andbe continuing, it shall not conduct any Audits at any time after the Companyshall have forwarded to CIT a notice of termination of this Agreement ascontemplated by Section 11.

 

**8.10****                       **TheCompany hereby authorizes CIT to charge the Revolving Loan Account with theamount of all payments due hereunder as such payments become due.  The Company confirms that any charges whichCIT may so make to the Revolving Loan Account as herein provided will be madeas an accommodation to the Company and solely at CIT’s discretion.

 

**8.11****                       **In theevent that CIT or any participant hereunder (or any financial institution whichmay from time to time become a participant or lender hereunder) shall havedetermined in the exercise of its commercially reasonable credit judgment that,subsequent to the Closing Date, any change in applicable law, rule, regulationor guideline regarding capital adequacy, or any change in the interpretation oradministration thereof, or compliance by CIT or such participant with any newrequest or directive regarding capital adequacy (whether or not having theforce of law) of any such authority, central bank or comparable agency(any of the foregoing, a “Change in Law”), has or would have the effect ofreducing the rate of return on CIT’s or such participant’s capital as aconsequence of its obligations hereunder to a level below that which CIT orsuch participant could have achieved but for such adoption, change orcompliance (taking into consideration CIT or such participant’s policies withrespect to capital adequacy) by an amount reasonably deemed by CIT or suchparticipant to be material, then, from time to time, the Company shall pay nolater than ten (10) days following written demand to CIT or suchparticipant such additional amount or amounts as will compensate CIT’s or suchparticipant’s for such reduction.  Indetermining such amount or amounts, CIT or such participant may use anyreasonable averaging or attribution methods. A certificate of CIT or such participant setting forth such amount oramounts as shall be necessary to compensate CIT or such participant withrespect to this Section 8 and the calculation thereof (which shall be inreasonable detail) when delivered to the Company shall be conclusive on theCompany absent manifest error. Notwithstanding anything in this Paragraph to the contrary, in theevent CIT or such participant (a) requests compensation under thisParagraph 8.11, it shall make such request within thirty (30) days after thedate of such Change of Law and (b) has exercised its rights pursuant to thisparagraph, and subsequent thereto determines that the additional amounts paidby the Company in whole or in part exceed the amount which CIT or suchparticipant actually required to be made whole, the excess, if any, shall bereturned to the Company by CIT or such participant.

 

**8.12****                       **In theevent that subsequent to the Closing Date, any Change of Law shall:

 

**(a)****                                 **subjectCIT or such participant to any tax of any kind whatsoever with respect to thisAgreement or change the basis of taxation of payments to CIT or suchparticipant of principal, fees, interest or any other amount payable hereunderor under any other documents (except for changes in the rate of tax on theoverall net income of CIT or such participant by the federal government or the jurisdictionin which it maintains its principal office);

 

39

----

 

**(b)****                                 **impose,modify or hold applicable any reserve, special deposit, assessment or similarrequirement against assets held by, or deposits in or for the account of,Revolving Loans, or other credit extended by CIT or such participant by reasonof or in respect to this Agreement and the Loan Documents, including (withoutlimitation) pursuant to Regulation D of the Board of Governors of the FederalReserve System; or

 

**(c)****                                 **imposeon CIT or such participant any other condition with respect to this Agreementor any other document, and the result of any of the foregoing is to increasethe cost to CIT or such participant of making, renewing or maintaining itsRevolving Loans hereunder by an amount that CIT or such participant deems to bematerial in the exercise of its reasonable business judgement or to reduce theamount of any payment (whether of principal, interest or otherwise) inrespect of any of the Revolving Loans by an amount that CIT or such participantdeems to be material in the exercise of its reasonable business judgement,then, in any case the Company shall pay CIT or such participant, within ten(10) days following its written demand, such additional cost or suchreduction, as the case may be.  CIT orsuch participant shall certify the amount of such additional cost or reducedamount to the Company and the calculation thereof (which shall be in reasonabledetail) and such certification shall be conclusive upon the Company absentmanifest error.  Notwithstandinganything in this Paragraph to the contrary, in the event CIT or suchparticipant (a) requests compensation under this Paragraph 8.12, it shall makesuch request within thirty (30) days after the date of such Change of Law and(b) has exercised its rights pursuant to this paragraph, and subsequent theretodetermine that the additional amounts paid by the Company in whole or in partexceed the amount which CIT or such participant actually required pursuanthereto, the excess, if any, shall be returned to the Company by CIT or suchparticipant.

 

**8.13****                       **TheCompany may request LIBOR Loans on the following terms and conditions:

 

**(a)****                                 **TheCompany may elect, subsequent to the Closing Date and from time to timethereafter  (i) to request anyRevolving Loan to be a LIBOR Loan as of the date of such Revolving Loan or(ii) to convert Chase Bank Rate Loans to LIBOR Loans, and may elect fromtime to time to convert LIBOR Loans to Chase Bank Rate Loans by giving CIT atleast three (3) Business Days’ prior irrevocable notice of such election,provided that any such conversion of LIBOR Loans to Chase Bank Rate Loans shallonly be made, subject to the second following sentence, on the last day of anInterest Period with respect thereto. Should the Company elect to convert Chase Bank Rate Loans to LIBORLoans, it shall give CIT at least four Business Days’ prior irrevocable noticeof such election.  If the last day of anInterest Period with respect to a Revolving Loan that is to be converted is nota Business Day or Working Day, then such conversion shall be made on the nextsucceeding Business Day or Working Day, as the case may be, and during theperiod from such last day of an Interest Period to such succeeding BusinessDay, as the case may be, such Revolving Loan shall bear interest as if it werean Chase Bank Rate Loan.  All or anypart of outstanding Chase Bank Rate Loans then outstanding may be converted toLIBOR Loans as provided herein, provided that partial conversions shall be inmultiples in an aggregate principal amount of $500,000 or more.

 

**(b)****                                 **AnyLIBOR Loans may be continued as such upon the expiration of an Interest Period,provided the Company so notifies  CIT,at least three (3) Business Days’ prior to the 

 

40

----

 

expiration of said Interest Period, and providedfurther that no LIBOR Loan may be continued as such upon the occurrence of anyDefault or Event of Default under this Agreement, but shall be automaticallyconverted to a Chase Bank Rate Loan on the last day of the Interest Periodduring which occurred such Default or Event of Default.  Absent such notification, LIBOR Rate Loansshall convert to Chase Bank Rate Loans on the last day of the applicableInterest Period.  Each notice ofelection, conversion or continuation furnished by the Company pursuant heretoshall specify whether such election, conversion or continuation is for a one,two, or three month period. Notwithstanding anything to the contrary contained herein, CIT (or anyparticipant, if applicable) shall not be required to purchase UnitedStates Dollar deposits in the London interbank market or from any otherapplicable LIBOR Rate market or source or otherwise “match fund” to fund LIBORRate Loans, but any and all provisions hereof relating to LIBOR Rate Loansshall be deemed to apply as if CIT (and any participant, ifapplicable) had purchased such deposits to fund any LIBOR Rate Loans.

 

**(c)****                                 **TheCompany may request a LIBOR Loan, convert any Chase Bank Rate Loan or continueany LIBOR Loan provided there is then no Default or Event of Default in effect.

 

**8.14****                        (a)**                                  TheLIBOR Loans shall bear interest for each Interest Period with respect theretoon the unpaid principal amount thereof at a rate per annum equal to the LIBORdetermined for each Interest Period in accordance with the terms hereof plusthree percent (3%):

 

**(b)**                                  If all or a portionof the outstanding principal amount of the Obligations charged to the RevolvingLoan Account shall not be paid when due (whether at the stated maturity, byacceleration or otherwise), such outstanding amount, to the extent it is aLIBOR Loan, shall be converted to a Chase Bank Rate Loan at the end of the lastInterest Period therefor.

 

**(c)**                                  The Company may nothave more than four (4) LIBOR Loans outstanding at any given time.

 

**8.15****                       **(a) Interest in respect of the LIBOR Loans shall be calculated on the basis of a360 day year and shall be payable as of the end of each month.

 

(b)                                 CITshall, at the request of the Company, deliver to the Company a statementshowing the quotations given by JPMorgan Chase Bank and the computations usedin determining any interest rate pursuant to Paragraph 8.14 ofSection 8 hereof.

 

**8.16****                       **Asfurther set forth in Paragraph 8.12 above, in the event that CIT (or anyfinancial institution which may become a participant hereunder) shall havedetermined in the exercise of its reasonable business judgment (whichdetermination shall be conclusive and binding upon the Company) that by reasonof circumstances affecting the interbank LIBOR market, adequate and reasonablemeans do not exist for ascertaining LIBOR applicable for any Interest Periodwith respect to; (a) a proposed loan that the Company has requested bemade as a LIBOR Loan; (b) a LIBOR Loan that will result from the requestedconversion of a Chase Bank Rate Loan into a LIBOR Loan; or (c) thecontinuation of LIBOR Loans beyond the expiration of the then current InterestPeriod with respect thereto, CIT shall forthwith give written notice of suchdetermination to the Company at least one Business Day prior to, as the casemay be, the 

 

41

----

 

requested borrowing date for such LIBOR Loan, theconversion date of such Chase Bank Rate Loan or the last day of such InterestPeriod.  If such notice is given(i) any requested LIBOR Loan shall be made as a Chase Bank Rate Loan,(ii) any Chase Bank Rate Loan that was to have been converted to a LIBORLoan shall be continued as a Chase Bank Rate Loan, and (iii) anyoutstanding LIBOR Loan shall be converted, on the last day of then currentInterest Period with respect thereto, to a Chase Bank Rate Loan.  Until such notice has been withdrawn by CIT,no further LIBOR Loan shall be made nor shall the Company have the right toconvert a Chase Bank Rate Loan to a LIBOR Loan.

 

**8.17****                       **If anypayment on a LIBOR Loan becomes due and payable on a day other than a BusinessDay or Working Day, the maturity thereof shall be extended to the nextsucceeding Business Day or Working Day unless the result of such extensionwould be to extend such payment into another calendar month in which event suchpayment shall be made on the immediately preceding Business Day or Working Day.

 

**8.18****                       **Notwithstandingany other provisions herein, if any law, regulation, treaty or directive or anychange therein or in the interpretation or application thereof, shall make itunlawful for CIT to make or maintain LIBOR Loans as contemplated herein, thethen outstanding LIBOR Loans, if any, shall be converted automatically to ChaseBank Rate Loans as of the end of such month, or within such earlier period asrequired by law.  The Company herebyagrees promptly to pay CIT, upon demand, any additional amounts necessary tocompensate CIT for any actual costs incurred by CIT in making any conversion inaccordance with this Section 8 including, but not limited to, any interestor fees payable by CIT to lenders of funds obtained by CIT in order to make ormaintain LIBOR Loans hereunder.

 

**8.19****                       **TheCompany agrees to indemnify and to hold CIT (including anyparticipant) harmless from any loss or expense which  CIT or such participant may sustain or incuras a consequence of:  (a) Defaultby the Company in payment of the principal amount of or interest on any LIBORLoans, as and when the same shall be due and payable in accordance with theterms of this Agreement, including, but not limited to, any such loss orexpense arising from interest or fees payable by  CIT or such participant to lenders of funds obtained by either ofthem in order to maintain the LIBOR Loans hereunder; (b) default by theCompany in making a borrowing or conversion after the Company has given anotice in accordance with Paragraph 8.13 hereof; (c) any prepaymentof LIBOR Loans on a day which is not the last day of the Interest Periodapplicable thereto, including, without limitation, prepayments arising as aresult of the application of the proceeds of Collateral to the Revolving Loans;and (d) default by the Company in making any prepayment after the Companyhad given notice to CIT thereof.  Thedetermination by CIT of the amount of any such loss or expense, when set forthin a written notice to the Company, containing CIT’s calculations thereof inreasonable detail, shall be conclusive on the Company in the absence ofmanifest error.  Calculation of allamounts payable under this Paragraph with regard to LIBOR Loans shall bemade as though CIT had actually funded the LIBOR Loans through the purchase ofdeposits in the relevant market and currency, as the case may be, bearinginterest at the rate applicable to such LIBOR Loans in an amount equal to theamount of the LIBOR Loans and having a maturity comparable to the relevantinterest period; provided, however, that CIT may fund each of the LIBOR Loansin any manner CIT sees fit and the foregoing assumption shall be used only forcalculation of amounts payable

 

42

----

 

under this paragraph. In addition, notwithstanding anything to the contrary contained herein,CIT shall apply all proceeds of Collateral and all other amounts received by itfrom or on behalf of the Company (i) initially to the Chase Bank RateLoans and (ii) subsequently to LIBOR Loans; provided, however,(x) upon the occurrence of an Event of Default or (y) in the eventthe aggregate amount of outstanding LIBOR Rate Loans exceeds Availability orthe applicable maximum levels set forth therefor, CIT may apply all suchamounts received by it to the payment of Obligations under the Revolving LoanAccount in such manner and in such order as CIT may elect in its reasonablebusiness judgment.  In the event thatany such amounts are applied to Revolving Loans which are LIBOR Loans, suchapplication shall be treated as a prepayment of such Revolving Loans and CITshall be entitled to indemnification hereunder.  This covenant shall survive termination of this Agreement andpayment of the outstanding Obligations.

 

**8.20****                       **Notwithstandinganything to the contrary in this Agreement, in the event that, by reason of anyRegulatory Change (for purposes hereof “Regulatory Change” shall mean, withrespect to CIT, any change after the date of this Agreement in United Statesfederal, state or foreign law or regulations (including, without limitation, RegulationD) or the adoption or making after such date of any interpretation,directive or request applying to a class of banks including CIT of or under anyUnited States federal, state or foreign law or regulations (whether or nothaving the force of law and whether or not failure to comply therewith would beunlawful), CIT either (a) incurs any material additional costs based on ormeasured by the excess above a specified level of the amount of a category ofdeposits or other liabilities of such bank which includes deposits by referenceto which the interest rate on LIBOR Loans is determined as provided in thisAgreement or a category of extensions of credit or other assets of CIT whichincludes LIBOR Loans, or (b) becomes subject to any material restrictionson the amount of such a category of liabilities or assets which it may hold,then, if CIT so elects by notice to the Company the obligation of CIT to makeor continue, or to convert Chase Bank Rate Loans into LIBOR Loans hereundershall be suspended until such Regulatory Change ceases to be in effect.

 

**8.21****                       **Forthe purposes of this Agreement and Section 8 thereof, any reference to CITshall include any financial institution which may become a participant orco-lender subsequent to the Closing Date.

 

**8.22****                       **CITshall endeavor to provide reasonable notice to the Company of any and allchanges in the Chase Bank Rate, provided that any failure by CIT so to provideany such notice to the Company shall not affect CIT’s right to implement achange in the Chase Bank Rate in accordance with the terms of this Agreement.

 

**8.23****                       **Forthe avoidance of doubt, the Company shall have the right at any time and fromtime to time to prepay the principal amount of the Revolving Loans withoutpremium or penalty of any kind except for the payment of LIBOR breakage costs.

 

**SECTION 9.****                            Powers**

 

TheCompany hereby constitutes CIT, or any person or agent CIT may designate, asits attorney-in-fact, at the Company’s cost and expense, to exercise all of thefollowing powers, 

 

43

----

 

which being coupled with an interest, shall beirrevocable until all Obligations to CIT have been paid in full or provided forin accordance with Section 11:

 

**(a)****                                 **Toreceive, take, endorse, sign, assign and deliver, all in the name of CIT or theCompany, any and all checks, notes, drafts, and other documents or instrumentsrelating to the Collateral;

 

**(b)****                                 **Toreceive, open and dispose of all mail addressed to the Company and to notifypostal authorities to change the address for delivery thereof to such addressas CIT may designate;

 

**(c)****                                 **Torequest from customers indebted on Accounts at any time, in the name of CITinformation concerning the amounts owing on the Accounts;

 

**(d)****                                 **Torequest from customers indebted on Accounts at any time, in the name of theCompany, in the name of certified public accountant designated by CIT or in thename of CIT’s designee, information concerning the amounts owing on theAccounts;

 

**(e)****                                 **Totransmit to customers indebted on Accounts notice of CIT’s interest therein andto notify customers indebted on Accounts to make payment directly to CIT forthe Company’s account; and

 

**(f)****                                   **Totake or bring, in the name of CIT or the Company, all steps, actions, suits orproceedings deemed by CIT necessary or desirable to enforce or effectcollection of the Accounts, and for such purpose, the Company hereby grants toCIT a royalty-free license to use its customer list.

 

Notwithstandinganything hereinabove contained to the contrary, the powers set forth in (b),(c), (e) and (f) above may be exercised only after the occurrence andduring the continuance of an Event of Default.

 

**SECTION 10****.****                     Eventsof Default and Remedies**

 

**10.1****                       **Theoccurrence of any of the following events shall constitute Events of Defaulthereunder:

 

**(a)****                                 **breachby the Company in any material respect of the provisions of either the InterimFinancing Order or the Final Financing Order, which breach continues for aperiod of ten (10) days after the Company’s receipt of notice thereof from CIT;

 

**(b)****                                 **cessationof the operations of the Company;

 

**(c)****                                 **breachby the Company in any material respect of any warranty, representation orcovenant contained herein (other than those referred to insub-Paragraph (d) below) or in any other written agreementbetween the Company or CIT, which continues for a period of ten (10) days afterthe Company’s receipt of notice thereof from CIT;

 

44

----

 

**(d)****                                 **breachby the Company in any material respect of any warranty, representation orcovenant of Paragraphs 3.3 and 3.5 hereof; Paragraphs 6.3 and 6.4 (other thanthe first sentence of Paragraph 6.4) hereof; and Paragraphs 7.2(d),7.2(e), 7.2(f) and 7.2(h) through (t) and 7.2 (v) hereof;

 

**(e)****                                 **failureof the Company to pay any of the Obligations outstanding under the RevolvingLoan Account within five (5) Business Days after the due date thereof;

 

**(f)****                                   **theCompany shall (i) engage in any “prohibited transaction” as defined inERISA, (ii) have any “accumulated funding deficiency” as defined in ERISA,(iii) have any “reportable event” as defined in ERISA, (iv) terminateany “plan”, as defined in ERISA or (v) be engaged in any proceeding inwhich the Pension Benefit Guaranty Corporation shall seek appointment, or isappointed, as trustee or administrator of any “plan”, as defined in ERISA, andwith respect to this sub-Paragraph (h) such event or condition(x) remains uncured for a period of thirty (30) days from date ofoccurrence and (y) would reasonably be expected, in the commercially reasonablecredit judgment of CIT, subject the Company to any material tax, penalty orother liability material to the business, operations or financial condition ofthe Company;

 

**(g)****                                **theoccurrence of any default or event of default (after giving effect to anyapplicable grace or cure periods) under any instrument or agreementevidencing  any Indebtedness of theCompany entered into subsequent to the Petition Date and having a principalamount in excess of $250,000;

 

**(h)****                                **anyjudgment or judgments aggregating in excess of $250,000 or any injunction orattachment is obtained or enforced against the Company and which remainsunstayed for more than ten (10) Business Days, unless such judgment isstayed pursuant to Section 362 of the Bankruptcy Code; or

 

**(i)****                                   **(A) theBankruptcy Court shall enter an order appointing a trustee underSection 1104(a) of the Bankruptcy Code in the Bankruptcy Case; or(B) the Interim Financing Order shall cease to be in full force and effectand the Final Financing Order shall not have been entered prior to suchcessation; or (C) the Final Financing Order shall not have been entered bythe Bankruptcy Court within sixty (60) days after the commencement of theBankruptcy Case; or (D) at any time after the date of entry thereof, theFinal Financing Order shall cease to be in full force and effect; or(E) the Interim Financing Order or the Final Financing Order, as the casemay be, shall be amended, supplemented, stayed, reversed, vacated or otherwisemodified (or the Company shall apply for authority to do so) without CIT’sprior written consent, which consent CIT agrees not to unreasonably withhold ordelay; or (F) the Bankruptcy Court shall enter an order appointing aresponsible officer or an examiner with powers beyond those set forth in Section 1106(a)(3) and(4) of the Bankruptcy Code or under Section 1106(b) of theBankruptcy Code, in the Bankruptcy Case; or (G) there shall arise anyAllowed Claim having priority senior to or that is pari passu with the Claimsof CIT under the Loan Documents or any other Claim having priority over any andall administrative expenses of the kind specified inSection 503(b) or 507(b) of the Bankruptcy Code (other thanPermitted Expenses and Indebtedness), or there shall arise any lien on any assetof the Company, in each case except as 

 

45

----

 

expressly permitted under the terms of the LoanDocuments; (H) an order of a court of competent jurisdiction shall beentered reversing, staying, vacating or rescinded the Interim Financing Orderor Final Financing Order, as the case may be; or (I) the Bankruptcy Courtshall enter an order converting the Bankruptcy Case to a case underChapter 7 of the Bankruptcy Code or dismissing the Bankruptcy Case; or (J) theentry of an order granting relief from the automatic stay to allow any thirdparty to proceed against assets of the Company that are necessary for thecontinued operation of the Company; or (K) the failure of the Company tocomply with the Cash Budget Projections, subject to (i) the variances and (ii)authority to carry over and spend unspent amounts previously authorized aspermitted by the Interim Financing Order and the Final Financing Order; or(L) the filing of any plan or reorganization by the Company that does notprovide for the payment or provision in full of the Obligations;

 

**10.2****                       **Uponthe occurrence of a Default and/or an Event of Default, at the option of CIT,the obligation of CIT to make Revolving Loans and provide Letter of CreditGuaranties shall cease unless such Default is cured or waived in writing byCIT, and at the option of CIT upon the occurrence of an Event of Default: **(a) **allObligations outstanding under the Revolving Loan Account shall becomeimmediately due and payable; **(b) **CIT may charge the Company theDefault Rate of Interest on all Obligations then outstanding under theRevolving Loan Account in lieu of the interest provided for in Section 8of this Agreement, and **(c) **CIT may immediately terminate thisAgreement upon notice to the Company.  The exercise of any option is not exclusive of any other option,which may be exercised at any time by CIT.

 

**10.3****                       **Inaddition to the rights and remedies described in Paragraph 10.2, upon theoccurrence of any Event of Default, CIT shall be entitled to file, and theCompany hereby agrees not to oppose, CIT’s motion for an expedited hearing tomodify the automatic stay provided by Section 362 of the Bankruptcy Codefor the purpose of authorizing CIT to pursue any and all of its rights andremedies against the Company and the Collateral, and to seek payment in respectof all Obligations outstanding under the Revolving Loan Account, and theCompany hereby acknowledges that CIT may request that such hearing be conductedno less than five (5) Business Days after CIT files such motion.  CIT’s rights and remedies against theCompany and the Collateral referred to in the preceding sentence shall includethe following:

 

**(a)****                                 **theright to remove from any premises where same may be located any and all booksand records, computers, electronic media and software programs associated withany Collateral (including any electronic records, contracts and signaturespertaining thereto), documents, instruments, files and records, and anyreceptacles or cabinets containing same, relating to the Accounts, or CIT mayuse, at the Company’s expense, such of the Company’s personnel, supplies orspace at the Company’s places of business or otherwise, as may be necessary toproperly administer and control the Accounts or the handling of collections andrealizations thereon;

 

**(b)****                                 **theright to bring suit, in the name of the Company or CIT, and generally shallhave all other rights respecting said Accounts, including without limitationthe right to:  accelerate or extend thetime of payment, settle, compromise, release in whole or in part any amountsowing on any Accounts and issue credits in the name of the Company or CIT;

 

46

----

 

**(c)****                                 **theright to sell, assign and deliver the Collateral and any returned, reclaimed orrepossessed Inventory, with or without advertisement, at public or privatesale, for cash, on credit or otherwise, at CIT’s sole option and discretion,and CIT may bid or become a purchaser at any such sale, free from any right ofredemption, which right is hereby expressly waived by the Company;

 

**(d)****                                 **theright to foreclose the security interests in the Collateral created herein orby the Loan Documents by any available judicial procedure, or to takepossession of any or all of the Collateral, including any Inventory, Equipmentand/or Other Collateral without judicial process, and to enter any premiseswhere any Inventory and Equipment and/or Other Collateral may be located forthe purpose of taking possession of or removing the same; and

 

**(e)****                                 **theright to exercise any other rights and remedies provided in law, in equity, bycontract or otherwise;

 

**(f)****                                   **theright, without notice or advertisement except as required by the UCC or otherapplicable law, to sell, lease, or otherwise dispose of all or any part of theCollateral, whether in its then condition or after further preparation orprocessing, in the name of the Company or CIT, or in the name of such otherparty as CIT may designate, either at public or private sale or at any broker’sboard, in lots or in bulk, for cash or for credit, with or without warrantiesor representations (including but not limited to warranties of title,possession, quiet enjoyment and the like), and upon such other terms andconditions as CIT in its sole discretion may deem advisable, and CIT shall havethe right to purchase at any such sale;

 

**(g)****                                **ifany Inventory and Equipment shall require rebuilding, repairing, maintenance orpreparation, the right, at CIT’s option, to do such of the aforesaid as isnecessary, for the purpose of putting the Inventory and Equipment in suchsaleable form as CIT shall deem appropriate and the reasonable costs thereofshall be deemed an Obligation hereunder.

 

Notwithstanding anything contained to the contraryherein or elsewhere, it is not the Company’s intention to waive, and theCompany does not waive, any requirement that any sale, lease or otherdisposition of the Collateral or any part thereof be commercially reasonable.

 

The Company agrees, at the request of CIT, to assemblethe Inventory and Equipment and to make it available to CIT at premises of theCompany or elsewhere and to make available to CIT the premises and facilitiesof the Company for the purpose of CIT’s taking possession of, removing orputting the Inventory and Equipment in saleable form.  If notice of intended disposition of any Collateral is requiredby law, it is agreed that ten (10) days notice shall constitute reasonablenotification and full compliance with the law. The net cash proceeds resultingfrom CIT’s exercise of any of the foregoing rights, (after deducting allcharges, costs and expenses, including reasonable attorneys’ fees) shallbe applied by CIT to the payment of the Obligations then due under the Revolving Loan Account in such order asCIT may elect, and the Company shall remain liable to CIT for any deficiencies,and CIT in turn agrees to remit to the Company or its successors or assigns,any surplus resulting therefrom.  Theenumeration of the foregoing rights is not intended to be exhaustive and theexercise of any right shall not preclude the exercise of any other rights, allof which shall be cumulative.  TheCompany hereby 

 

47

----

 

indemnifies CIT and holds CIT harmless from any andall reasonable costs and expenses, claims, liabilities, Out-of-Pocket Expensesor otherwise, incurred or imposed on CIT by reason of the proper exercise ofany of its rights, remedies and interests hereunder, including, withoutlimitation, from any sale or transfer of Collateral, preserving, maintaining orsecuring the Collateral, defending its interests in Collateral (includingpursuant to any claims brought by the Company, the Company asdebtor-in-possession, any secured or unsecured creditors of the Company, any trusteeor receiver in bankruptcy, or otherwise), and the Company hereby agrees to soindemnify and hold CIT harmless, absent CIT’s gross negligence or willfulmisconduct as finally determined by a court of competent jurisdiction. Theforegoing indemnification shall survive termination of this Agreement untilsuch time as all Obligations (including the foregoing) have been finallyand indefeasibly paid in full or provided for in accordance with Section 11hereof.

 

**10.4****                       **Uponthe occurrence of an Event of Default, CIT may direct the Company how and whento exercise all rights of the Company under Bankruptcy Code Section 365 inconnection with an election by CIT to exercise its remedies underParagraph 10.3.  Notwithstandinganything to the contrary contained herein, if the Company does not fully honorand take and all actions requested in any such direction within three(3) Business Days of the delivery of such direction, CIT may move theBankruptcy Court on behalf of the Company for the relief specified in the direction.  The Company agrees that it will not contesta request by CIT for expedited consideration of any such motion to take placeon at least five (5) Business Days’ prior written notice to the Company, anycreditors committee and any landlord or other counter-party to the relevantlease or contract.

 

**10.5****                       **Uponthe occurrence of an Event of Default, CIT may exercise all other rights andremedies provided to CIT in the Interim Financing Order and the Final FinancingOrder, respectively.

 

**SECTION 11.****                     Term andTermination**

 

ThisAgreement shall have a term ending on the earliest to occur of:(i) eighteen (18) months after the effective date of this Agreement;(ii) sixty (60) days after the commencement of the Bankruptcy Case ifthe Final Financing Order has not been entered on or before such date; or(iii) the effective date of the Company’s plan of reorganization or theearlier date on which the substantial consummation (as defined in theBankruptcy Code) of such plan of reorganization has occurred.  CIT may terminate this Agreement immediatelyupon the occurrence of an Event of Default. The Company may terminate this Agreement at any time upon thirty(30) days’ prior written notice to CIT, and, provided the Company has noObligations outstanding under its Revolving Loan Account at all times duringsuch thirty-day period, the Company shall have no obligation to pay theRevolving Line of Credit Fee in respect of such thirty-day period.  All non-contingent Obligations shall becomedue and payable as of any termination hereunder or under Section 10 hereofand, pending a final accounting, CIT may withhold any balances in the Company’saccount (unless supplied with an indemnity satisfactory to CIT) to coverall of the Obligations, whether absolute or contingent, including, but notlimited to, cash reserves for any contingent Obligations, including an amountof 110% of the face amount of any outstanding Letters of Credit with an expirydate on, or within thirty (30) days of the effective date of 

 

48

----

 

termination of this Agreement. All of CIT’s rights,liens and security interests shall continue after any termination until theearlier to occur of (i) all Obligations have been paid and satisfied in full or(ii) provision shall have been made therefor in accordance with the immediatelyforegoing sentence.

 

**SECTION 12****.****                     Miscellaneous**

 

**12.1****                       **TheCompany hereby waives diligence, notice of intent to accelerate, notice ofacceleration, demand, presentment and protest and any notices thereof as wellas notice of nonpayment.  No delay oromission of CIT or the Company to exercise any right or remedy hereunder,whether before or after the happening of any Event of Default, shall impair anysuch right or shall operate as a waiver thereof or as a waiver of any suchEvent of Default.  No single or partialexercise by CIT of any right or remedy precludes any other or further exercisethereof, or precludes any other right or remedy.

 

**12.2****                       **ThisAgreement and the Loan Documents executed and delivered in connection therewithconstitute the entire agreement between the Company and CIT;  supersede any prior agreements; can bechanged only by a writing signed by both the Company and CIT; and shall bindand benefit the Company and CIT and their respective successors and assigns.

 

**12.3****                       **In noevent shall the Company, upon demand by CIT for payment of any Indebtednessrelating hereto, by acceleration of the maturity thereof, or otherwise, beobligated to pay interest and fees in excess of the amount permitted bylaw.  Regardless of any provision hereinor in any agreement made in connection herewith, CIT shall never be entitled tocharge interest on any contingent Obligations, nor to receive, charge or apply,as interest on any indebtedness relating hereto, any amount in excess of themaximum amount of interest permissible under applicable law.  If CIT ever receives, collects or appliesany such excess, it shall be deemed a partial repayment of principal and treatedas such; and if principal is paid in full, any remaining excess shall berefunded to the Company.  ThisParagraph shall control every other provision hereof, the Loan Documentsand of any other agreement made in connection herewith.

 

**12.4****                       **If anyprovision hereof or of any other agreement made in connection herewith is heldto be illegal or unenforceable, such provision shall be fully severable, andthe remaining provisions of the applicable agreement shall remain in full forceand effect and shall not be affected by such provision’s severance.  Furthermore, in lieu of any such provision,there shall be added automatically as a part of the applicable agreement alegal and enforceable provision as similar in terms to the severed provision asmay be possible.

 

**12.5****                        THECOMPANY AND CIT EACH HEREBY WAIVE ANY RIGHT TO A  TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING OUT OF THE LOANDOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREUNDER.  THE COMPANY HEREBY IRREVOCABLY WAIVESPERSONAL SERVICE OF PROCESS AND CONSENTS TO SERVICE OF PROCESS BY CERTIFIED OR REGISTERED MAIL, RETURN  RECEIPT REQUESTED.  IN NO EVENT WILL CIT BE LIABLE FOR LOST PROFITS OR OTHER SPECIALOR CONSEQUENTIAL DAMAGES.**

 

49

----

 

**12.6****                       **Exceptas otherwise herein provided, any notice or other communication requiredhereunder shall be in writing (provided that, any electronic communicationsfrom the Company with respect to any request, transmission, document,electronic signature, electronic mail or facsimile transmission shall be deemedbinding on the Company for purposes of this Agreement, provided further thatany such transmission shall not relieve the Company from any other obligationhereunder to communicate further in writing), and shall be deemed to have beenvalidly served, given or delivered when hand delivered or sent by facsimile, orthree days after deposit in the United State mails, with proper first classpostage prepaid and addressed to the party to be notified or to such otheraddress as any party hereto may designate for itself by like notice, asfollows:

 

(A)                              ifto CIT, at:

 

TheCIT Group/Business Credit, Inc.

300South Grand Avenue

ThirdFloor

LosAngeles, California 90071

Attn:  Portfolio Manager

FaxNo.:  (213) 346-2501

 

With a courtesy copy of any material notice to CIT’scounsel.

 

Sheppard,Mullin, Richter & Hampton LLP

333South Hope Street, 48th Floor

LosAngeles, California 90071

Attn:  Prentice L. O’Leary

FaxNo. (213) 620-1398

 

(B)                                ifto the Company at

 

CrownPacific Limited Partnership

805S.W. Broadway, Suite 1500

Portland,Oregon  97205

Attn:  Steven Dietrich

FaxNo.:  (503) 294-1247

 

50

----

 

With a courtesy copy ofany material notice to the Company’s counsel.

 

Andrews& Kurth, L.L.P.

4200JP Morgan Chase Tower

600Travis

Houston,Texas 77002

Attn:  John Sparacino

FaxNo.:  (713) 220-4285

 

provided, however, that the failure of either party toprovide the other party’s counsel with a copy of such notice shall notinvalidate any notice given to such other party and shall not give such otherParty any rights, claims or defenses due to the failure of such party toprovide such additional notice.

 

**12.7****                       **Notwithstandinganything contained herein or elsewhere to the contrary, in the event of aconflict between the terms and provisions hereof or of any Loan Document andthe terms and provisions of the Interim Financing Order or the Final FinancingOrder, as the case may be, the terms and provisions of the Interim FinancingOrder or the Final Financing Order, as the case may be, shall govern andcontrol over the provisions of this agreement or any other Loan Document, asthe case may be.

 

**12.8****                        THEVALIDITY, INTERPRETATION AND ENFORCEMENT OF THIS  FINANCING AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BEGOVERNED BY THE LAWS OF THE  STATE OFCALIFORNIA, EXCEPT TO THE EXTENT THAT ANY OTHER LOAN DOCUMENT INCLUDES ANEXPRESS ELECTION TO BE GOVERNED BY THE LAWS OF ANOTHER JURISDICTION.**

 

51

----

 

**Schedule 1****- Loan Documents**

 
| **1.**  |   | **Financing  Agreement**                                                                                  |   |
|---------|--------|-----------------------------------------------------------------------------------------------------------|--------|
|    |   |                                                                                                      |   |
| **2.**  |   | **Interim  Order**                                                                                        |   |
|    |   |                                                                                                      |   |
| **3.**  |   | **Delaware  UCC-1 Financing Statement**                                                                   |   |
|    |   |                                                                                                      |   |
| **4.**  |   | **Secretary’s  (Assistant Secretary’s) Certificate Pursuant to Paragraph 2.1(d)**     |   |
|    |   |                                                                                                      |   |
| **5.**  |   | **Officer’s  Certificate Pursuant to Paragraph 2.1(e)**                                         |   |
|    |   |                                                                                                      |   |
| **6.**  |   | **Security  Agreement between the Debtors (other than the Company) and CIT**                              |   |
|    |   |                                                                                                      |   |
| **7.**  |   | **UCC-1  Financing Statement(s) with respect to the Debtors (other than the Company)**                    |   |
|    |   |                                                                                                      |   |
| **8.**  |   | **Secretary’s  Certificate regarding resolutions for each of the Debtors (other than the  Company)** |   |
|    |   |                                                                                                      |   |
| **9.**  |   | **Disbursement  Instructions Pursuant to Paragraph 2.1(j)**                                          |   |
|    |   |                                                                                                      |   |
| **10.** |   | **Lockbox  Agreements**                                                                                   |   |

 

----