Unassociated Document


    
      EXECUTION
VERSION  

    

    
      	 
      


    

       

    DEBTOR-IN-POSSESSION
REVOLVING CREDIT AGREEMENT

     

    Dated as
of November 29, 2010

     

    among

     

    PALM
HARBOR HOMES, INC.,

    AND

    THE OTHER
DEBTORS NAMED HEREIN,

     

    each as a
Debtor and Debtor-in-Possession

    and,
collectively,

    as the
Borrowers

     

    and

     

    FLEETWOOD
HOMES, INC.

     

    as
Lender


    
      	 
      


    


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    
      TABLE
OF CONTENTS

      


      
        
          
            
              	 
      	 
      	
                      Page

                    
	 
      	 
      	 
      
	
                      ARTICLE
      I        
    DEFINITIONS

                    	
                      2

                    
	 
      	 
      
	
                      Section
      1.01

                    	
                      Definitions

                    	
                      2

                    
	 
      	 
      	 
      
	
                      Section
      1.02

                    	
                      Computation
      of Time Periods

                    	
                      16

                    
	 
      	 
      	 
      
	
                      Section
      1.03

                    	
                      Accounting
      Terms; Certain Calculations

                    	
                      16

                    
	 
      	 
      	 
      
	
                      ARTICLE
      II        THE LOAN

                    	
                      16

                    
	 
      	 
      
	
                      Section
      2.01

                    	
                      Loan;
      Reserves and Releases

                    	
                      16

                    
	 
      	 
      	 
      
	
                      Section
      2.02

                    	
                      Use
      of Proceeds

                    	
                      16

                    
	 
      	 
      	 
      
	
                      Section
      2.03

                    	
                      Borrowing;
      Releases

                    	
                      17

                    
	 
      	 
      	 
      
	
                      Section
      2.04

                    	
                      Funding
      of Borrowings

                    	
                      17

                    
	 
      	 
      	 
      
	
                      Section
      2.05

                    	
                      Repayment

                    	
                      17

                    
	 
      	 
      	 
      
	
                      Section
      2.06

                    	
                      Prepayments

                    	
                      17

                    
	 
      	 
      	 
      
	
                      Section
      2.07

                    	
                      Note

                    	
                      18

                    
	 
      	 
      	 
      
	
                      Section
      2.08

                    	
                      Expiration
      of Commitments

                    	
                      18

                    
	 
      	 
      	 
      
	
                      Section
      2.09

                    	
                      Interest

                    	
                      18

                    
	 
      	 
      	 
      
	
                      Section
      2.10

                    	
                      Increased
      Costs

                    	
                      19

                    
	 
      	 
      	 
      
	
                      Section
      2.11

                    	
                      Payments
      and Computations

                    	
                      19

                    
	 
      	 
      	 
      
	
                      Section
      2.12

                    	
                      Taxes

                    	
                      19

                    
	 
      	 
      	 
      
	
                      Section
      2.13

                    	
                      Super-Priority
      Nature of Obligations and Liens

                    	
                      20

                    
	 
      	 
      	 
      
	
                      Section
      2.14

                    	
                      No
      Discharge; Survival of Claims

                    	
                      21

                    
	 
      	 
      	 
      
	
                      Section
      2.15

                    	
                      Waiver
      of Any Priming and Surcharge Rights

                    	
                      21

                    
	 
      	 
      	 
      
	
                      Section
      2.16

                    	
                      Control
      Account; Sweep of Funds

                    	
                      21

                    
	 
      	 
      	 
      
	
                      ARTICLE
      III      CONDITIONS

                    	
                      21

                    
	 
      	 
      
	
                      Section
      3.01

                    	
                      Conditions
      Precedent to the initial Borrowing of the Loan

                    	
                      21

                    
	 
      	 
      	 
      
	
                      Section
      3.02

                    	
                      Conditions
      Precedent to Each Borrowing

                    	
                      25

                    
	 
      	 
      	 
      
	
                      ARTICLE
      IV      REPRESENTATIONS AND
      WARRANTIES

                    	
                      26

                    
	 
      	 
      
	
                      Section
      4.01

                    	
                      Financial
      Condition

                    	
                      26

                    
	 
      	 
      	 
      
	
                      Section
      4.02

                    	
                      No
      Changes or Restricted Payments

                    	
                      26

                    
	 
      	 
      	 
      
	
                      Section
      4.03

                    	
                      Due
      Incorporation and Authority

                    	
                      26

                    
	 
      	 
      	 
      
	
                      Section
      4.04

                    	
                      No
      Conflicts; Default or Event of Default

                    	
                      27

                    
	 
      	 
      	 
      
	
                      Section
      4.05

                    	
                      Organizational
      Documents; Meeting Minutes

                    	
                      28

                    


            

          

        

      


      
        
           


        

        
          -i-

          
            

          

        

        
           


        

      


      TABLE
OF CONTENTS 


      (continued)

      


      
        
          
            	 
      	 
      	
                    Page

                  
	 
      	 
      	 
      
	
                    Section
      4.06

                  	
                    Litigation

                  	
                    28

                  
	 
      	 
      	 
      
	
                    Section
      4.07

                  	
                    Intellectual
      Property

                  	
                    28

                  
	 
      	 
      	 
      
	
                    Section
      4.08

                  	
                    Taxes

                  	
                    28

                  
	 
      	 
      	 
      
	
                    Section
      4.09

                  	
                    ERISA

                  	
                    28

                  
	 
      	 
      	 
      
	
                    Section
      4.10

                  	
                    Governmental
      Regulations, Etc

                  	
                    30

                  
	 
      	 
      	 
      
	
                    Section
      4.11

                  	
                    No
      Subsidiaries

                  	
                    30

                  
	 
      	 
      	 
      
	
                    Section
      4.12

                  	
                    Use
      of Proceeds

                  	
                    30

                  
	 
      	 
      	 
      
	
                    Section
      4.13

                  	
                    Real
      Property

                  	
                    31

                  
	 
      	 
      	 
      
	
                    Section
      4.14

                  	
                    Environmental
      Matters

                  	
                    32

                  
	 
      	 
      	 
      
	
                    Section
      4.15

                  	
                    Disclosure

                  	
                    33

                  
	 
      	 
      	 
      
	
                    Section
      4.16

                  	
                    Bank
      Accounts

                  	
                    33

                  
	 
      	 
      	 
      
	
                    Section
      4.17

                  	
                    Account
      Debtors

                  	
                    33

                  
	 
      	 
      	 
      
	
                    Section
      4.18

                  	
                    Insurance

                  	
                    33

                  
	 
      	 
      	 
      
	
                    Section
      4.19

                  	
                    Labor
      Matters

                  	
                    34

                  
	 
      	 
      	 
      
	
                    Section
      4.20

                  	
                    Reorganization
      Matters

                  	
                    34

                  
	 
      	 
      	 
      
	
                    Section
      4.21

                  	
                    Investment
      Banking and Finder’s Fees

                  	
                    35

                  
	 
      	 
      	 
      
	
                    ARTICLE
      V        AFFIRMATIVE
      COVENANTS

                  	
                    35

                  
	 
      	 
      
	
                    Section
      5.01

                  	
                    Financial
      Statements

                  	
                    35

                  
	 
      	 
      	 
      
	
                    Section
      5.02

                  	
                    Certificates;
      Other Information

                  	
                    38

                  
	 
      	 
      	 
      
	
                    Section
      5.03

                  	
                    Notices

                  	
                    38

                  
	 
      	 
      	 
      
	
                    Section
      5.04

                  	
                    Payment
      of Obligations

                  	
                    39

                  
	 
      	 
      	 
      
	
                    Section
      5.05

                  	
                    Conduct
      of Business and Maintenance of Existence

                  	
                    39

                  
	 
      	 
      	 
      
	
                    Section
      5.06

                  	
                    Maintenance
      of Property; Insurance

                  	
                    40

                  
	 
      	 
      	 
      
	
                    Section
      5.07

                  	
                    Inspection
      of Property; Books and Records; Discussions

                  	
                    41

                  
	 
      	 
      	 
      
	
                    Section
      5.08

                  	
                    Environmental
      Laws

                  	
                    41

                  
	 
      	 
      	 
      
	
                    Section
      5.09

                  	
                    Application
      of Proceeds

                  	
                    41

                  
	 
      	 
      	 
      
	
                    Section
      5.10

                  	
                    Compliance
      with Budgets

                  	
                    42

                  
	 
      	 
      	 
      
	
                    Section
      5.11

                  	
                    Compliance
      with Laws, Etc

                  	
                    42

                  
	 
      	 
      	 
      
	
                    Section
      5.12

                  	
                    Payment
      of Taxes, Etc

                  	
                    42

                  
	 
      	 
      	 
      
	
                    Section
      5.13

                  	
                    Collateral
      Documents

                  	
                    42

                  


          

        

      


      
        
           


        

        
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      TABLE
OF CONTENTS

      (continued)

      


      
        
          
            	 
      	 
      	
                    Page

                  
	 
      	 
      	 
      
	
                    Section
      5.14

                  	
                    Accounts

                  	
                    42

                  
	 
      	 
      	 
      
	
                    Section
      5.15

                  	
                    Bankruptcy
      Cases

                  	
                    42

                  
	 
      	 
      	 
      
	
                    ARTICLE
      VI       NEGATIVE COVENANTS

                  	
                    43

                  
	 
      	 
      
	
                    Section
      6.01

                  	
                    Indebtedness

                  	
                    43

                  
	 
      	 
      	 
      
	
                    Section
      6.02

                  	
                    Liens

                  	
                    43

                  
	 
      	 
      	 
      
	
                    Section
      6.03

                  	
                    No
      Further Negative Pledges

                  	
                    43

                  
	 
      	 
      	 
      
	
                    Section
      6.04

                  	
                    Consolidation,
      Merger, Asset Sale, etc

                  	
                    43

                  
	 
      	 
      	 
      
	
                    Section
      6.05

                  	
                    Sale
      Leasebacks

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.06

                  	
                    Acquisitions

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.07

                  	
                    Investments

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.08

                  	
                    Restricted
      Payments

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.09

                  	
                    No
      Transfers to Affiliates

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.10

                  	
                    Limitations
      on Transactions with Affiliates

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.11

                  	
                    Payment
      of Other Indebtedness

                  	
                    44

                  
	 
      	 
      	 
      
	
                    Section
      6.12

                  	
                    Modification
      of Contractual Obligations

                  	
                    45

                  
	 
      	 
      	 
      
	
                    Section
      6.13

                  	
                    Bankruptcy
      Matters

                  	
                    45

                  
	 
      	 
      	 
      
	
                    Section
      6.14

                  	
                    No
      Material Pleadings

                  	
                    45

                  
	 
      	 
      	 
      
	
                    Section
      6.15

                  	
                    Fiscal
      Year

                  	
                    45

                  
	 
      	 
      	 
      
	
                    Section
      6.16

                  	
                    Accounting
      Changes

                  	
                    45

                  
	 
      	 
      	 
      
	
                    ARTICLE
      VII     EVENTS OF DEFAULT

                  	
                    45

                  
	 
      	 
      
	
                    Section
      7.01

                  	
                    Events
      of Default

                  	
                    45

                  
	 
      	 
      	 
      
	
                    Section
      7.02

                  	
                    Acceleration;
      Remedies

                  	
                    48

                  
	 
      	 
      	 
      
	
                    ARTICLE
      VIII    ADDITIONAL SECURITY

                  	
                    48

                  
	 
      	 
      
	
                    Section
      8.01

                  	
                    Priority
      and Liens

                  	
                    48

                  
	 
      	 
      	 
      
	
                    ARTICLE
      IX      MISCELLANEOUS

                  	
                    49

                  
	 
      	 
      
	
                    Section
      9.01

                  	
                    Notices

                  	
                    49

                  
	 
      	 
      	 
      
	
                    Section
      9.02

                  	
                    Right
      of Set-Off

                  	
                    50

                  
	 
      	 
      	 
      
	
                    Section
      9.03

                  	
                    Benefit
      of Agreement

                  	
                    50

                  
	 
      	 
      	 
      
	
                    Section
      9.04

                  	
                    No
      Waiver; Remedies Cumulative

                  	
                    51

                  
	 
      	 
      	 
      
	
                    Section
      9.05

                  	
                    Payment
      of Expenses; Indemnification

                  	
                    51

                  


          

        

      


      
        
           


        

        
          -iii-

          
            

          

        

        
           


        

      


      TABLE
OF CONTENTS

      (continued)

      


      
        
          
            	 
      	 
      	
                    Page

                  
	 
      	 
      	 
      
	
                    Section
      9.06

                  	
                    Amendments,
      Waivers and Consents

                  	
                    52

                  
	 
      	 
      	 
      
	
                    Section
      9.07

                  	
                    Survival

                  	
                    52

                  
	 
      	 
      	 
      
	
                    Section
      9.08

                  	
                    Waiver

                  	
                    52

                  
	 
      	 
      	 
      
	
                    Section
      9.09

                  	
                    Governing
      Law

                  	
                    53

                  
	 
      	 
      	 
      
	
                    Section
      9.10

                  	
                    Consent
      to Jurisdiction; Service of Process; Waiver of Jury Trial

                  	
                    53

                  
	 
      	 
      	 
      
	
                    Section
      9.11

                  	
                    Binding
      Effect; Assignment

                  	
                    53

                  
	 
      	 
      	 
      
	
                    Section
      9.12

                  	
                    Interpretation;
      Headings

                  	
                    53

                  
	 
      	 
      	 
      
	
                    Section
      9.13

                  	
                    Severability
      of Provisions

                  	
                    54

                  
	 
      	 
      	 
      
	
                    Section
      9.14

                  	
                    Counterparts

                  	
                    54

                  
	 
      	 
      	 
      
	
                    Section
      9.15

                  	
                    No
      Third Party Beneficiaries

                  	
                    54

                  
	 
      	 
      	 
      
	
                    Section
      9.16

                  	
                    Confidentiality

                  	
                    54

                  
	 
      	 
      	 
      
	
                    Section
      9.17

                  	
                    Conflict

                  	
                    55

                  


          

        

      


      
        
           


        

        
          -iv-

          
            

          

        

        
           


        

      

    

     

    This
DEBTOR-IN-POSSESSION REVOLVING CREDIT AGREEMENT, dated as of November 29, 2010
(this “Agreement”), by and
among PALM HARBOR HOMES, INC., a Florida corporation (“PHH”), and each of
the other direct or indirect Subsidiaries of PHH set forth on Schedule I hereto
each as a debtor and debtor-in-possession under chapter 11 of the Bankruptcy
Code (each, a “Borrower,” and,
collectively, the “Borrowers”) and
FLEETWOOD HOMES, INC., as lender (the “Lender”).

     

    WITNESSETH

     

    WHEREAS,
on November 29, 2010 (the “Petition Date”), each
of the Borrowers filed a voluntary petition for relief under title 11 of chapter
11 of the United States Code, 11 U.S.C. §§ 101 et seq (as amended, the
“Bankruptcy
Code”) with the United States Bankruptcy Court for the District of
Delaware (the “Bankruptcy Court”),
thus commencing the cases that the Borrowers shall seek or have sought to be
jointly administered (collectively, the “Bankruptcy Cases”);
and

     

    WHEREAS,
from and after the Petition Date, the Borrowers continue to operate their
respective businesses as debtors and debtors-in-possession pursuant to sections
1107 and 1108 of the Bankruptcy Code; and

     

    WHEREAS,
each of the Borrowers has an immediate need for funds to continue to operate its
respective businesses and the Borrowers have not been able to obtain sufficient
credit or to incur sufficient debt from any other source sufficient to continue
their business operations; and

     

    WHEREAS,
the Borrowers have requested that the Lender extend credit to them through a
post-petition financing facility in an aggregate principal amount of up to
$50,000,000 (exclusive of interest added to the Loan in accordance with the
terms and conditions set forth herein); and

     

    WHEREAS,
the Borrowers have agreed to secure their obligations hereunder with first
priority Liens on and security interests, subject to specified exceptions, in,
all of their respective real, personal and intangible property, in accordance
with sections 364(c) and 364(d) of the Bankruptcy Code; and

     

    WHEREAS,
pursuant to section 364(c)(1) of the Bankruptcy Code, each Borrower agrees and
acknowledges that its obligations arising hereunder shall constitute allowed
administrative expense claims in the Bankruptcy Cases, having priority over all
administrative expenses of the kind specified in sections 503(b) and 507(b) of
the Bankruptcy Code, except the claims specifically granted priority under the
terms of this Agreement and the interim and final orders relating thereto;
and

     

    WHEREAS,
the Lender has indicated its willingness to agree to make such financing
available to the Borrowers pursuant to sections 364(c)(1), (2) and (3) and
section 364(d)(1) of the Bankruptcy Code on the terms and conditions of this
Agreement; and


    
      
         


      

      
         


        
          

        

      

      
         


      

    

     

    NOW,
THEREFORE, in consideration of the premises and the covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:

     

    ARTICLE
I

     

    DEFINITIONS

     

    Section
1.01     Definitions.

     

    As used
in this Agreement, the following terms shall have the meanings specified below
unless the context otherwise requires:

     

    “Accounts Receivable”
means, with respect to any Person, all trade and other accounts receivable and
other rights to payment from past or present customers and other account debtors
of such Person, and the full benefit of all security for such accounts or rights
to payment, including all trade, vendor and other accounts receivable
representing amounts receivable in respect of goods sold or leased or services
rendered to customers of such Person or in respect of amounts refundable or
otherwise due to such Person from vendors, suppliers or other
Persons.

     

    “Accounts Receivable
Value” means, as of any date of determination, the value of the Accounts
Receivable of Borrowers valued in the following manner:

     

    (a)           100%
of the amount of any Account Receivable shall be counted if, as of such date of
determination, such Account Receivable is aged 90 or less days from the date of
issuance of the statement or invoice therefor; and

     

    (b)           no
value shall be given to any Account Receivable that, as of such date of
determination, is aged more than 90 days from the date of issuance of the
statement or invoice therefor, or any Account Receivable that is owing by an
account debtor that is bankrupt, in receivership or insolvent or has ceased to
conduct business or is disputing such Account Receivable (but only with respect
to the amount disputed).

     

    “Acquisition” means
any transaction in which any Borrower directly or indirectly (a) acquires
any Property with which an ongoing business is conducted or is to be conducted;
(b) acquires all or substantially all of the assets of any Person or
division thereof, whether through a purchase of assets, merger or otherwise, (c)
acquires (in one transaction or as the most recent transaction in a series of
transactions) control of at least a majority of the Equity Interests of a
corporation, or (d) acquires control of more than 50% ownership interest in any
Person.

     

    “Affiliate” means,
with respect to any Person, a stockholder, executive officer, director, manager
or any other Person directly or indirectly controlling, controlled by or under
common control with such Person, where “control” means the possession, directly
or indirectly, of power to direct or cause the direction of the management or
policies of an entity.

     

    “Agreement” means this
Debtor-in-Possession Revolving Credit Agreement, together with all Exhibits and
Schedules hereto, as the same may be amended, supplemented or otherwise modified
from time to time.


    
      
         


      

      
        2

        
          

        

      

      
         


      

    

     

    “Asset Sale” means the
sale, lease, transfer, conveyance or other disposition of any asset (including
by way of a sale and leaseback transaction); provided that,
notwithstanding the foregoing, none of the following shall be deemed to be an
Asset Sale (a) any sale of Inventory in the ordinary course of business
(including the liquidation of Inventory in closed locations), other than sales
at less than factory invoice price or, with respect to REO Property and raw
land, book value, without the prior written consent of Lender, (b) any transfer
of assets to a Borrower, (c) any sale, transfer or other disposition of overdue
and delinquent accounts in the ordinary course of business consistent with past
practice, (d) any disposition of cash or cash equivalents, (e) any surrender or
waiver of contract rights or the settlement, release or surrender of contract
rights or other litigation claims in the ordinary course of business, (f) any
sale, lease, or disposition of tangible personal property that have become worn
out, obsolete or damaged or otherwise unsuitable for use in connection with the
Business of the Borrowers, or (g) sale of the facility located in La Grange,
Georgia at Lots 146 and 175 of the 6th
District of Troup County, Georgia and such assets that have been used at such
facility for the entire three-month period immediately preceding the date
hereof.

     

    “Availability Period”
means the period from the Closing Date to the earlier of (a) the Business Day
immediately preceding the Maturity Date, or (b) the date on which the
Commitments are terminated in accordance with the provisions of this
Agreement.

     

    “Bankruptcy Cases” has
the meaning specified in the recitals hereto.

     

    “Bankruptcy Code” has
the meaning specified in the recitals hereto.

     

    “Bankruptcy Court” has
the meaning specified in the recitals hereto.

     

    “Base Commitment”
subject to the terms and conditions set forth herein, means $50,000,000
(exclusive of interest added to the Loan in accordance with the terms and
conditions set forth herein).

     

    “Bid Procedures Order”
means an order of the Bankruptcy Court, in form and substance reasonably
satisfactory to Lender, approving, among other things, (a) Palm Harbor Homes,
Inc., a Delaware Corporation (“Purchaser”), as the
stalking horse bidder for all or substantially all of the Property of the
Borrowers, (b) notice and service requirements to creditors and parties in
interest with respect to the transactions contemplated in that certain Asset
Purchase Agreement, by and among the Borrowers and Purchaser, (c) the break-up
fee and the expense reimbursement (and deeming the break-up fee an
administrative priority expense entitled to first priority under sections 503(b)
and 507(a)(1) of the Bankruptcy Code and which shall be a super-priority first
priority Lien on the transferred Property of the Borrowers pursuant to section
364 of the Bankruptcy Code), and (d) the bidding procedures relating to the
auction and sale of the transferred Property of the Borrowers, including the
ability of Purchaser, to the extent of its interest as assignee of Lender under
this Agreement, to credit bid all outstanding amounts owing by Borrowers under
the DIP Facility.

     

    “Borrower” has the
meaning specified in the preamble hereto.

     

    “Borrowing” means any
amount funded by Lender and made part of the Loan hereunder.

     

    
      
         


      

      
        3

        
          

        

      

      
         


      

    

     

    “Business” means the
business of the design, production, marketing, sale and servicing of
manufactured and modular homes.

     

     “Business Day” means a
day other than a Saturday, Sunday or other day on which commercial banks in
Phoenix, Arizona are authorized or required by law to close.

     

     “Capital Expenditures”
means, for any period, with respect to the Borrowers, the aggregate of all
expenditures by the Borrowers for the acquisition or leasing (pursuant to a
Capital Lease) of fixed or capital assets or additions to equipment (including
replacements, capitalized repairs and improvements during such period) which are
required to be capitalized in accordance with GAAP on a balance sheet of any of
the Borrowers for any period.

     

    “Capital Lease” means,
as applied to any Borrower, any lease of any Property by such Borrower as lessee
which, in accordance with GAAP in effect as of the date of this Agreement, is or
should be accounted for as a capital lease on the balance sheet of such
Borrower.

     

    “Capital Lease
Obligation” means the capital lease obligations (including the payment of
rent or other amounts) relating to a Capital Lease determined in accordance with
GAAP in effect as of the date of this Agreement.

     

    “Change of Control”
means (a) a sale, lease or other disposition of assets or properties of any
Borrower having a book value of more than 50% of the book value of all the
assets and properties of such Borrower; (b) any transaction in which one or more
Persons shall after the Closing Date directly or indirectly acquire from the
holders thereof, by purchase or in a merger, consolidation or other transfer or
exchange of outstanding capital stock, ownership of or control over capital
stock of any Borrower (or securities exchangeable for or convertible into such
stock or interests) entitled to elect a majority of the Borrower’s board of
directors or representing more than 50% of the number of shares of common stock
of any Borrower outstanding; (c) the adoption of a plan relating to the
liquidation or dissolution of any Borrower; or (d) the designation, without the
prior approval of the Lender of a Chief Executive Officer of PHH other than that
person holding such office as of the Closing Date.

     

    “Closing Date” means
the date on which the conditions specified in Section 3.01 have
been satisfied.

     

    “Collateral” means the
Property subject to the Liens granted to the Lender under this Agreement and the
other Credit Documents.

     

    “Collateral Documents”
means the Security Agreement and any other document or instrument executed and
delivered by a Borrower granting a Lien on any of its Property (including the
Real Properties and Real Property Leases) to secure payment of the
Obligations.

     

    “Collections” means
all funds collected from any source whatsoever including any proceeds of any
Collateral regardless of source or nature and proceeds of the Equity Interests
of a non-Borrower; provided that “Collections”
shall not be deemed to include funds required to be held in escrow pursuant to
applicable Law.

     

    
      
         


      

      
        4

        
          

        

      

      
         


      

    

     

    “Commitments” means,
collectively, the Base Commitment and the Supplemental Commitment.

     

    “Computer Software”
means all computer software (including source code, executable code, data,
databases and documentation) owned by or licensed to any Borrower which is used
in, or necessary for the conduct of, the respective Business of any
Borrower.

    


    “Contractual
Obligation” means, as to any Person, any provision of any security issued
by such Person or of any material agreement, instrument or undertaking to which
such Person is a party or by which it or any of its property is
bound.

    


    “Control Account” means that
certain debtor in possession account number to be established prior to the
Closing Date at Wells Fargo Bank, National Association or such other financial
institution acceptable to the Lender, in the name of PHH, for the purpose of
receiving all Collections in accordance with this Agreement and subject to an
account control agreement, in form and substance satisfactory to the Lender
which provides, among other requirements of the Lender, that all withdrawals
shall be subject to approval of the Lender.

     

    “Copyrights” has the
meaning set forth in the definition of “Intellectual Property”
herein.

     

    “Credit Documents”
means, collectively, this Agreement, the Note, the Collateral Documents and all
other related agreements and documents issued or delivered hereunder or
thereunder or pursuant hereto or thereto.

     

    “Critical Vendor
Motion” means a motion to be filed by the Borrowers with the Bankruptcy
Court seeking approval to pay the prepetition claims of certain of the
Borrowers’ vendors.

     

    “Default” means any
event, act or condition which, with notice or lapse of time, or both, would
constitute an Event of Default.

     

    “DIP Financing Order”
means the Interim DIP Financing Order or the Final DIP Financing Order, as
applicable.

     

    “Dollars” and “$” means dollars in
lawful currency of the United States of America.

     

    “Environmental, Health and
Safety Liabilities” means any and all claims, costs, damages, expenses,
liabilities and/or other responsibility or potential responsibility arising from
or under any Environmental Law or Occupational Safety and Health Law (including
compliance therewith).

     

    
      
         


      

      
        5

        
          

        

      

      
         


      

    

     

    “Environmental Laws”
means all federal, state, local and foreign Laws, all judicial and
administrative orders and determinations, and all common law concerning public
health and safety, worker health and safety, pollution or protection of the
environment, including all those relating to the presence, use, production,
generation, handling, transportation, treatment, storage, disposal,
distribution, labeling, testing, processing, discharge, release, threatened
release, control, exposure to, or cleanup of any hazardous materials,
substances, wastes, chemical substances, mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise, odor, mold, or radiation, including the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended; the Resource Conservation and Recovery Act, 42 U.S.C. §§ 6901 et seq.;
the Hazardous Materials Transportation Act, 49 U.S.C. §§ 5101 et seq.; the Clean
Water Act, 33 U.S.C. §§ 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. §§ 2601 et seq.; the Clean Air Act, 42 U.S.C. §§ 7401 et seq.;
the Safe Drinking Water Act, 42 U.S.C. §§ 300f et seq.; the Atomic Energy Act,
42 U.S.C. §§ 2011 et seq.; the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. §§ 136 et seq.; and the Federal Food, Drug and Cosmetic Act,
21 U.S.C. §§ 301 et seq.

     

    “Equity Interests”
means all shares of capital stock (whether denominated as common stock or
preferred stock), equity interests, beneficial, partnership or membership
interests, joint venture interests, participations or other ownership or profit
interests in or equivalents (regardless of how designated) of or in a Person
(other than an individual), whether voting or non-voting.

     

    “Equivalent Equity
Interests” means all securities convertible into or exchangeable for
Equity Interests or any other Equivalent Equity Interests and all warrants,
options or other rights to purchase, subscribe for or otherwise acquire any
Equity Interests or any other Equivalent Equity, whether or not presently
convertible, exchangeable or exercisable.

     

    “ERISA” means the U.S.
Employee Retirement Income Security Act of 1974, as amended, together with the
rules and regulations promulgated thereunder.

     

    “ERISA Affiliate”
means, with respect to any Person, any trade or business (whether or not
incorporated) (i) under common control within the meaning of section 4001(b)(1)
of ERISA with such Person, or (ii) which together with such Person is treated as
a single employer under sections 414(b), (c), (m), (n) or (o) of the Internal
Revenue Code.

     

    “ERISA Event” means
(a) with respect to any Plan, the occurrence of a Reportable Event or the
substantial cessation of operations (within the meaning of section 4062(e) of
ERISA); (b) the withdrawal by any Borrower or any ERISA Affiliate from a
Multiple Employer Plan during a plan year in which it was a substantial employer
(as such term is defined in section 4001(a)(2) of ERISA), or the termination of
a Multiple Employer Plan; (c) the distribution of a notice of intent to
terminate or the actual termination of a Plan pursuant to section 4041(a)(2) or
4041A of ERISA; (d) the institution of proceedings to terminate or the actual
termination of a Plan by the PBGC under section 4042 of ERISA; (e) any event or
condition which would reasonably be expected to constitute grounds under section
4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan; (f) the complete or partial withdrawal of any Borrower or
any ERISA Affiliate from a Multiemployer Plan; (g) the conditions for imposition
of a Lien under section 302(f) of ERISA exist with respect to any Plan; or (h)
the adoption of an amendment to any Plan requiring the provision of security to
such Plan pursuant to section 307 of ERISA.

     

    “Event of Default” has
the meaning specified in Section
7.01.

     

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

     

    
      
         


      

      
        6

        
          

        

      

      
         


      

    

     

    “Final DIP Financing
Order” means the final order entered by the Bankruptcy Court pursuant to
sections 361, 362, 363 and 364 of the Bankruptcy Code authorizing and approving
the Borrowers’ entry into the Credit Documents and the transactions contemplated
thereby, which order shall include the provisions required to be included in the
Interim DIP Financing Order pursuant to Section 3.01(e),
which shall otherwise be in form and substance satisfactory to the Lender, in
its sole discretion, as to which no stay has been entered and which has not been
reversed, modified, vacated or overturned, and as to which no appeal is pending
and time for appeal has expired.

     

    “Final Order” means an
order entered by the Bankruptcy Court or other court of competent jurisdiction
as to which: (i) no appeal, notice of appeal, motion for reconsideration, motion
to amend or make additional findings of fact, motion to alter or amend judgment,
motion for rehearing or motion for new trial has been timely filed; (ii) the
time for instituting or filing an appeal, motion for rehearing or motion for new
trial shall have expired; and (iii) if an appeal has been timely filed no stay
pending an appeal is in effect and the time for requesting a stay pending appeal
shall have expired; provided, however, that the
filing or pendency of a motion under Rule 9024 of the Federal Rules of
Bankruptcy Procedure shall not cause an order not to be deemed a “Final Order”
unless such motion was filed within ten days of the entry of the order at
issue.

     

    “First Day Orders”
means all orders, reasonably deemed necessary or appropriate by the Lender,
entered by the Bankruptcy Court based on motions filed by the Borrowers on or
before the date which is three Business Days from the Petition
Date.

     

    “GAAP” means
generally-accepted accounting principles within the United States of America,
consistently applied.

     

    “Governmental Body”
means a domestic or foreign national, federal, state, provincial, or local
governmental, regulatory or administrative authority, department, agency,
commission, court, tribunal, arbitral body or self-regulated
entity.

     

    “Hazardous Activity”
means the distribution, generation, handling, importing, management,
manufacturing, processing, production, refinement, release, storage, transfer,
transportation, treatment or use (including any withdrawal or other use of
groundwater) of any Hazardous Material in, on, under, about or from any Owned
Real Property, whether or not in connection with the conduct of the Business,
except to the extent in material compliance with applicable Environmental
Law.

     

    “Hazardous Material”
means any substance, material or waste which is regulated by any Environmental
Law, including any material, substance or waste which is defined as a “hazardous
waste,” “hazardous material,” “hazardous substance,” “extremely hazardous
waste,” “restricted hazardous waste,” “contaminant,” “pollutant,” “toxic waste”
or “toxic substance” under any provision of Environmental Law, and including
petroleum, petroleum product, asbestos, presumed asbestos-containing material or
asbestos-containing material, urea formaldehyde and polychlorinated
biphenyls.

     

    
      
         


      

      
        7

        
          

        

      

      
         


      

    

     

    “Indebtedness” means,
with respect to any Person, (a) all obligations of such Person for borrowed
money; (b) all obligations of such Person evidenced by bonds, debentures, notes
or similar instruments, or upon which interest payments are customarily made;
(c) all obligations of such Person under conditional sale or other title
retention agreements relating to Property purchased by such Person (other than
customary reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business); (d) all obligations of such
Person issued or assumed as the deferred purchase price of Property or services
purchased by such Person (other than trade debt incurred in the ordinary course
of business and due within six months of the incurrence thereof) which would
appear as liabilities on a balance sheet of such Person; (e) all obligations of
such Person under take-or-pay or similar arrangements or under commodities
agreements; (f) all Indebtedness of others secured by (or for which the holder
of such Indebtedness has an existing right, contingent or otherwise, to be
secured by) any Lien on, or payable out of the proceeds of production from,
Property owned or acquired by such Person, whether or not the obligations
secured thereby have been assumed; provided that for purposes
hereof the amount of such Indebtedness shall be limited to the greater of (i)
the amount of such Indebtedness as to which there is recourse to such Person and
(ii) the fair market value of the Property which is subject to the Lien; (g) all
Support Obligations of such Person; (h) the principal portion of all obligations
of such Person under Capital Leases; (i) all obligations of such Person in
respect of interest rate protection agreements, foreign currency exchange
agreements, commodity purchase or option agreements or other interest or
exchange rate or commodity price hedging agreements; (j) the maximum amount of
all standby letters of credit issued or bankers’ acceptances facilities created
for the account of such Person and, without duplication, all drafts drawn
thereunder (to the extent unreimbursed); (k) all preferred stock issued by such
Person and required by the terms thereof to be redeemed, or for which mandatory
sinking fund payments are due, by a fixed date; and (l) the principal balance
outstanding under any synthetic lease, tax retention operating lease,
off-balance sheet loan or similar off-balance sheet financing product to which
such Person is a party, where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease in
accordance with GAAP.  The Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, but only to the extent to which there is
recourse to such Person for payment of such Indebtedness.

     

    “Information” has the
meaning specified in Section
9.16.

     

    “Initial Projected
Budget” has the meaning specified in Section
5.01(d)(i).

     

    “Initially Secured Owned Real
Properties” has the meaning specified in Section
3.01(c)(iii)(B).

     

     “Intellectual
Property” means all of the following in any jurisdiction throughout the
world (a) trade names, trademarks and service marks, service names, brand names,
logos, Internet domain names, trade dress and similar rights, logos, slogans,
and corporate names (and all translations, adaptations, derivations and
combinations of the foregoing), and general intangibles of a like nature,
together with all goodwill associated with each of the foregoing and all
registrations and applications to register any of the foregoing (“Marks”); (b) patents,
patent applications and patent disclosures, together with all reissuances,
divisionals, continuations, continuations-in-part, revisions, reissues,
extensions and reexaminations thereof (“Patents”);
(c) copyrights (whether registered or unregistered) and applications for
registration and copyrightable works (“Copyrights”); (d)
confidential and proprietary information, including trade secrets and know-how
(including ideas, research and development, engineering designs and related
approvals of Governmental Bodies, self-regulatory organizations and trade
associations, inventions, formulas, compositions, manufacturing and production
processes and techniques, designs, drawings and specifications; and (e) all
licenses and sublicenses held by any Borrower as licensee pertaining to
intellectual property of any other Person; and for the avoidance of doubt,
“Intellectual
Property” shall exclude Computer Software.

     

    
      
         


      

      
        8

        
          

        

      

      
         


      

    

     

    “Interest Payment
Date” during the term of this Agreement, means the first Business Day of
each calendar month.

     

    “Interim DIP Financing
Order” means the interim order substantially in the form attached hereto
as Exhibit D,
entered by the Bankruptcy Court under sections 361, 362, 363 and 364 of the
Bankruptcy Code authorizing and approving, subject to the approval of the Final
DIP Financing Order, the Borrowers’ entry into the Credit Documents and the
transactions contemplated hereby, which order shall include the provisions
required to be included therein pursuant to Section 3.01(e),
which shall otherwise be in form and substance satisfactory to the Lender, in
its sole discretion, and which shall not have been reversed, modified, vacated
or overturned.

     

    “Interim Period” the
period commencing on the date of entry of the Interim DIP Financing Order and
ending on the date on which the Final DIP Financing Order becomes a Final
Order.

     

    “Internal Revenue
Code” means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto, as interpreted by the rules and regulations issued
thereunder, in each case as in effect from time to time.  References
to sections of the Internal Revenue Code shall be construed also to refer to any
successor sections.

     

    “Inventory” means, as
of any date of determination, all raw materials, work-in-progress, finished
goods and semi-finished goods, supplies and other inventories, wherever located,
used or produced by any Borrower, including REO Property obtained from HUD or
other parties and held for resale.

     

    “Investment” in any
Person, means any loan or advance to such Person, any purchase or other
acquisition of any Equity Interests, Equivalent Equity Interests or other
securities of, or equity interest in, such Person, any capital contribution to
such Person or any other investment in such Person, including any Support
Obligation incurred for the benefit of such Person.

     

    “Knowledge” means,
when used to qualify any representation, warranty or other statement of the
Borrowers contained herein, the actual current knowledge of any of Larry H.
Keener, Kelly Tacke, Ron Powell (solely as to PHH and Nationwide Homes, Inc.) or
Joe Kesterson (solely as to PHH) after reasonable investigation or inquiry into
the subject matter of the representation, warranty or other statement to which
such term is being applied.

     

    “Law” means any
federal, state, local or foreign statute, law, rule, regulation, order, writ,
ordinance, judgment, governmental directive, injunction, decree or other
requirement of any Governmental Body.

     

    
      
         


      

      
        9

        
          

        

      

      
         


      

    

     

    “Leased Real
Properties” means each parcel of real property leased by any Borrower and
set forth in Schedule
4.13-B hereto.

     

    “Lender” has the
meaning specified in the preamble hereto.

     

    “Lien” means, with
respect to any asset, (a) any mortgage, deed of trust, leasehold deed of trust,
lien, pledge, hypothecation, encumbrance, adverse claim, charge or security
interest in, on or of such asset; (b) the interest of a vendor or a lessor under
any conditional sale agreement, Capital Lease or title retention agreement (or
any financing lease having substantially the same economic effect as any of the
foregoing) relating to such asset; and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to such
securities.

     

    “Loan” has the meaning
specified in Section
2.01(a).

     

    “Marks” has the
meaning set forth in the definition of “Intellectual Property”
herein.

     

    “Material Adverse
Effect” means a material adverse effect on (a) the condition (financial
or otherwise), operations, Business, prospects, assets, Property or liabilities
of the Borrowers taken as a whole; (b) the ability of any Borrower to perform
any obligation under any Credit Document to which it is a party; (c) the
legality, validity or enforceability of any Credit Document; (d) the
perfection or priority of the Liens granted pursuant hereto and the Collateral
Documents; or (e) the rights and remedies of the Lender under the Credit
Documents, the Interim DIP Financing Order or the Final DIP Financing
Order.

     

    “Material Pleading”
means (a) a plan of reorganization; (b) any pleading that would impair, or would
have the effect of impairing, the ability of the Borrowers taken as a whole to
repay their obligations arising hereunder or under the Interim DIP Financing
Order or Final DIP Financing Order; (c) any pleading that would impair, or would
have the effect of impairing, the ability of Lender or its Affiliates from
bidding (including credit bidding) on the Property of the Borrowers pursuant to
section 363 of the Bankruptcy Code or any plan of reorganization; or
(d) any “debtor-in-possession financing” (other than the financing
contemplated by this Agreement) that does not provide for the repayment in full
of the Obligations arising hereunder on the date the first loan is made under
such other financing.

     

    “Maturity Date” means
the earliest to occur of (a) April 15, 2011; (b) the date which is 15 days after
entry of the Sale Order; (c) the date of the closing of the sale of the
Borrowers or the sale of all or substantially all of the Property of the
Borrowers; and (d) the date on which an Event of Default occurs.

     

    “Multiemployer Plan”
means a Plan which is a multiemployer plan as defined in sections 3(37) or
4001(a)(3) of ERISA.

     

    “Multiple Employer
Plan” means a Plan which any Borrower or any ERISA Affiliate and at least
one employer other than a Borrower or any ERISA Affiliate are contributing
sponsors.

     

    
      
         


      

      
        10

        
          

        

      

      
         


      

    

     

    “Net Cash Proceeds”
means the aggregate proceeds paid in cash received by any Borrower in respect of
any Asset Sale, net of (a) direct costs (including legal, accounting, broker and
investment banking fees, and sales commissions) paid or payable as a result
thereof; (b) taxes paid or payable as a result thereof, including a reserve
for the Borrowers' good faith estimate of income and franchise taxes payable in
connection with such sale; (c) repayment of Indebtedness that is required to be
repaid in connection with such Asset Sale; and (d) appropriate amounts to be
provided by the Borrowers as a reserve, in accordance with GAAP, against
liabilities associated with such Asset Sale and retained by any Borrower after
such Asset Sale, including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale; provided that “Net Cash
Proceeds” shall include an amount equal to any reserves previously taken against
liabilities associated with Asset Sales immediately upon those reserves being
determined to be in excess of such liabilities.  “Net Cash Proceeds”
shall also include any cash received upon the sale or other disposition of any
non-cash consideration received by the Borrowers.

     

    “Note” has the meaning
specified in Section
2.07.

     

    “Obligations” means
the Loan, the Note and all other advances, debts, liabilities, obligations,
covenants and duties owing by any Borrower to the Lender, any Affiliate of any
Borrower or any indemnitee, of every type and description, present or future,
whether or not evidenced by any note or other instrument, arising under this
Agreement or under any other Credit Document, whether or not for the payment of
money, loan, guaranty, indemnification or in any other manner, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising and however
acquired.  The term “Obligations” includes all interest, charges,
expenses, fees, reasonable attorneys’ fees and disbursements and any other sum
chargeable to the Borrowers (or any of them) under this Agreement or any other
Credit Document.

     

    “Occupational Safety and
Health Law” means any applicable Law designed to provide safe and
healthful working conditions and to reduce occupational safety and health
hazards, including the Occupational Safety and Health Act, and any program,
whether governmental or private (such as those promulgated or sponsored by
industry associations and insurance companies), designed to provide safe and
healthful working conditions.

     

    “Operating Lease”
means, as applied to any Person, any lease (including leases which may be
terminated by the lessee at any time) of any Property which is not a Capital
Lease other than any such lease in which that Person is the lessor.

     

    “Order for Relief” has
the meaning specified in section 301(b) of the Bankruptcy Code.

     

     “Other Taxes” has the
meaning specified in Section
2.12(b).

     

     “Owned Real
Properties” means each parcel of real property owned by any Borrower and
set forth in Schedule
4.13-A hereto, excluding any Inventory.

     

    “Patents” has the
meaning set forth in the definition of “Intellectual Property”
herein.

     

    “PBGC” means the
Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title
IV of ERISA, or any successor thereof.

     

    
      
         


      

      
        11

        
          

        

      

      
         


      

    

     

    “Performance Trigger
Report” has the meaning specified in Section
5.01(d)(iv).

     

    “Performance Trigger Test
Date” means the last day of Borrowers’ fiscal month and such other dates
as the Lender shall reasonably request.

     

    “Performance Trigger”
shall have occurred if, at any time, the sum of (i) the aggregate value of the
Inventory as of the applicable Performance Trigger Test Date (determined in
accordance with GAAP); and (ii) the aggregate Accounts Receivable Value of the
Borrowers as of the applicable Performance Trigger Test Date is less than 75% of
the sum of the Borrowers’ reported aggregate Inventory value and Accounts
Receivable Value as of October 29, 2010 (which, for added certainty, shall
exclude any Account Receivable of any non-Borrower).

     

    “Permits” means
licenses, franchises, permits, variances, exemptions, orders, approvals and
authorizations of Governmental Bodies, including any applications therefor, that
are used for the conduct of the Business (or any part thereof) as currently
conducted.

     

    “Permitted
Investments” means Investments which are (a) cash and cash equivalents;
(b) Accounts Receivable created, acquired or made in the ordinary course of
business and payable or dischargeable in accordance with customary trade terms;
(c) Investments consisting of stock, obligations, securities or other property
received in settlement of Accounts Receivable (created in the ordinary course of
business) from obligors; (d) advances in the ordinary course of business to
employees, officers and directors to cover travel and entertainment expense and
other ordinary business purposes in the ordinary course of business as presently
conducted; and (e) other Investments in an aggregate amount not to exceed
$10,000.

     

    “Permitted Liens”
means:

     

    (a)           Liens
in favor of (i) the Textron Agent and the Textron Lenders in connection with the
Textron Facility; and (ii) Virgo in connection with the Virgo Credit
Agreement;

     

    (b)           Liens
for taxes, assessments or governmental charges or levies not yet due or Liens
for taxes being contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been established (and
as to which the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);

     

    (c)           Liens
in respect of Property imposed by Law arising in the ordinary course of business
such as materialmen’s, mechanics’, warehousemen’s, carriers’, suppliers’,
landlords’ and other like Liens, provided that (i) for any such Liens arising
before the Petition Date, the enforcement and collection of such Liens is
initially stayed by section 362 of the Bankruptcy Code; and (ii) except as
pertaining to the Textron Facility, for any such Liens arising after the
Petition Date, such Liens secure only amounts not overdue for a period of more
than 30 days or are being contested in good faith by appropriate proceedings for
which adequate reserves determined in accordance with GAAP have been established
(and as to which the Property subject to any such Lien is not yet subject to
foreclosure, sale or loss on account thereof);

     

    
      
         


      

      
        12

        
          

        

      

      
         


      

    

     

    (d)           Liens
(other than Liens created or imposed under ERISA) consisting of deposits made by
a Borrower in the ordinary course of business in connection with, or to secure
payment of, obligations under workers’ compensation, unemployment insurance,
social security and other similar Laws, or to secure the performance of tenders,
statutory obligations, bids, leases, government contracts, trade contracts,
surety, stay, customs and appeals bonds, performance and return-of-money bonds,
or to secure liability to insurance carriers and other similar obligations
(exclusive of obligations for the payment of borrowed money);

     

    (e)           Liens
in connection with attachments or judgments (including judgment or appeal bonds)
provided that the judgments secured shall, within 30 days after the entry
thereof, have been discharged or execution thereof stayed pending appeal, or
shall have been discharged within 30 days after the expiration of any such
stay;

     

    (f)           easements,
rights-of-way, restrictions (including zoning restrictions), minor defects or
irregularities in title and other similar charges or encumbrances not, in any
material respect, impairing the use of the encumbered Property for its intended
purposes;

     

    (g)          any
interest of title of a lessor under, and Liens arising from UCC financing
statements (or equivalent filings, registrations or agreements in foreign
jurisdictions) relating to, the Real Property Leases;

     

    (h)          Liens
in favor of customs and revenue authorities arising as a matter of Law to secure
payment of customs duties in connection with the importation of
goods;

     

    (i)           normal
and customary rights of setoff upon deposits of cash in favor of banks or other
depository institutions; and

     

    (j)           Liens
existing as of the Petition Date; provided that no such Lien
shall at any time be extended to or cover any Property other than the Property
subject thereto on the Closing Date.

     

    “Person” means any
individual, partnership, joint venture, firm, corporation, limited liability
company, association, trust or other enterprise (whether or not incorporated) or
any Governmental Body.

     

    “Petition Date” has
the meaning set forth in the Recitals.

     

    “Plan” means any
employee benefit plan (as defined in section 3(3) of ERISA) which is covered by
ERISA and with respect to which any Borrower or any of its Subsidiaries or any
ERISA Affiliate is (or, if such plan were terminated at such time, would under
section 4069 of ERISA be deemed to be) an “employer” within the meaning of
section 3(5) of ERISA.

     

    “Pledged Certificated Equity
Interests” has the meaning set forth in the Security
Agreement.

     

    “Projected Budget” has
the meaning specified in Section
5.01(d)(i).

     

    “Property” means any
right or interest in or to any kind of property or asset, whether real, personal
or mixed, or tangible or intangible.

     

    “Real Properties” has
the meaning set forth in Section
4.13(b).

     

    
      
         


      

      
        13

        
          

        

      

      
         


      

    

     

    “Real Property Lease”
has the meaning set forth in Section
4.13(b).

     

    “Release” means any
spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting,
escaping, leaching, dumping or disposing into the environment (including the
abandonment or discarding of barrels, containers and other closed receptacles
containing any Hazardous Materials).

     

    “REO Property” means,
for any Person, any real or personal Property acquired by such Person through
appropriate foreclosure and similar proceedings or from any third party that
acquired such Property through appropriate foreclosure and similar
proceedings.

     

    “Reportable Event”
means any of the events set forth in section 4043(c) of ERISA, other than those
events as to which the notice requirement has been waived by
regulation.

     

    “Responsible Officer”
means Larry H. Keener or Kelly Tacke.

     

    “Restricted Payment”
means, as to any Person, (a) any dividend, return of capital, distribution or
other payment or disposition of property for less than fair market value,
whether direct or indirect and whether in cash, securities or other property, on
account of any Equity Interests or Equivalent Equity Interests of any Person or
any of its Subsidiaries, in each case now or hereafter outstanding, including
with respect to a claim for rescission of a disposition of such Equity Interests
or Equivalent Equity Interests; and (b) any redemption, retirement, termination,
defeasance, cancellation, purchase or other acquisition for value, whether
direct or indirect, of any Equity Interests or Equivalent Equity Interests of
any Borrower, now or hereafter outstanding, and any payment or other transfer
setting aside funds for any such redemption, retirement, termination,
cancellation, purchase or other acquisition, whether directly or indirectly and
whether to a sinking fund, a similar fund or otherwise.

     

    “Sale Motion” has the
meaning specified in Section
7.01(i).

     

    “Sale Order” shall
mean the order of the Bankruptcy Court on the Sale Motion approving the sale of
the Property of the Borrowers.

     

    “Security Agreement”
means that certain Security Agreement, executed on the date hereof, by the
Borrowers in favor of the Lender, together with all Exhibits and Schedules
thereto, as such agreement may be amended, supplemented or modified from time to
time.

     

    “Senior Liens” has the
meaning specified in Section
3.01(e)(iii).

     

    “Single Employer Plan”
means any Plan which is covered by Title IV of ERISA, but which is not a
Multiemployer Plan or a Multiple Employer Plan.

     

    “Subsidiary” means, as
to any Person, any corporation, partnership, joint venture, limited liability
company, trust or estate of which (or in which) more than 50% of (a) the issued
and outstanding Equity Interests having ordinary voting power to elect a
majority of the board of directors of such corporation (irrespective of whether
at the time Equity Interests of any other class or classes of such corporation
shall or might have voting power upon the occurrence of any contingency); (b)
the interest in the capital or profits of such partnership, joint venture or
limited liability company; or (c) the beneficial interest in such trust or
estate is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more of
such Person’s other Subsidiaries.

     

    
      
         


      

      
        14

        
          

        

      

      
         


      

    

     

    “Supplemental
Commitment” subject to the terms and conditions set forth herein, means
$5,000,000 (exclusive of interest added to the Loan in accordance with the terms
and conditions set forth herein).

     

    “Support Obligations”
means, as to any Person, without duplication, any obligations of such Person
(other than endorsements in the ordinary course of business of negotiable
instruments for deposit or collection) guaranteeing or intended to guarantee any
Indebtedness of any other Person in any manner, whether direct or indirect, and
including any obligation, whether or not contingent, (a) to purchase any such
Indebtedness or any Property constituting security therefore; (b) to advance or
provide funds or other support for the payment or purchase of any such
Indebtedness or to maintain working capital, solvency or other balance sheet
condition of such other Person (including keep well agreements, maintenance
agreements, comfort letters or similar agreements or arrangements) for the
benefit of any holder of Indebtedness of such other Person; (c) to lease or
purchase Property, securities or services primarily for the purpose of assuring
the holder of such Indebtedness against loss; or (d) to otherwise assure or hold
harmless the holder of such Indebtedness against loss in respect thereof, but
specifically excluding guaranties or other assurances with respect to any
Borrower’s performance obligations under bids or contracts made or entered into
in the ordinary course of business.  The amount of any Support
Obligation hereunder shall (subject to any limitations set forth therein) be
deemed to be an amount equal to the outstanding principal amount (or maximum
principal amount, if larger) of the Indebtedness in respect of which such
Support Obligation is made.

     

    “Taxes” has the
meaning specified in Section
2.12(a).

     

    “Textron Agent” means
the agent under the Textron Facility.

     

    “Textron Facility”
means that certain Amended and Restated Agreement for Wholesale Financing
(Finished Goods – Shared Credit Facility) dated May 25, 2004, as amended, by and
among PHH, Palm Harbor Manufacturing, L.P., Palm Harbor Homes I, L.P., Palm
Harbor Marketing, Inc., Textron Financial Corporation and the other “Lenders”
named therein.

     

     “Textron Lenders”
means those certain lenders under the Textron Facility.

     

    “UCC” means the
Uniform Commercial Code, as in effect in any applicable
jurisdiction.

     

    “Virgo” means Virgo
Service Company, LLC, a Delaware limited liability company.

     

    “Virgo Credit
Agreement” means that certain Credit Agreement, dated as of January 29,
2010, in favor of Virgo and the lenders named therein, CountryPlace Acceptance
Corporation, CountryPlace Mortgage, LTD., CountryPlace Mortgage Holdings, LLC,
each as a borrower, and PHH, CountryPlace Acceptance G.P., LLC, and CountryPlace
Acceptance L.P., LLC, as the guarantors.

     

    
      
         


      

      
        15

        
          

        

      

      
         


      

    

     

    “Weekly Budget” has
the meaning specified in Section
5.01(d)(ii).

     

    Section
1.02      Computation of Time
Periods..  For purposes of computation of periods of time
hereunder, the word “from” means “from and including” and the words “to” and
“until” each mean “to but excluding.”

     

    Section
1.03     Accounting Terms; Certain
Calculations.  Except as otherwise expressly provided herein,
all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Lender hereunder shall be prepared, in accordance with GAAP
applied on a consistent basis.

     

    ARTICLE
II

     

    THE
LOAN

     

    Section
2.01     Loan; Reserves and
Releases.

     

    (a)          Loan.  Subject
to the terms and conditions set forth herein, the Lender agrees to make certain
loans (the “Loan”) to the
Borrowers in accordance with and pursuant to the terms and conditions of this
Agreement in the aggregate amount of the Commitments; provided that any Borrowing
(including any reborrowing, once repaid) of the Supplemental Commitment shall be
subject to approval of the Lender in its sole discretion. The Loan (i) subject
to the limitations set forth in Section 2.01(b),
shall be made on the Closing Date and, subject to the limitations set forth in
Section
2.02(a), shall be made from time to time thereafter if requested by the
Borrowers pursuant to Section 2.03 during
the Availability Period; (ii) may be prepaid in accordance with the provisions
hereof, and once prepaid, may be reborrowed in accordance with the terms hereof;
and (iii) shall not exceed at any time the Commitments of the
Lender.

     

    (b)         Amount of Loan on the
Closing Date.  The Borrowers may borrow an aggregate amount not
to exceed the amount described in Section 2.02(a);
provided that no
Performance Trigger shall be in existence, as evidenced in the applicable
Performance Trigger Report.  In the event a Performance Trigger has
occurred and is continuing, the Lender shall not be obligated to fund any
Borrowings until such time as the Performance Trigger has been
cured.

     

    (c)          Releases.  Releases
of any Collections in the Control Account are subject to approval of the Weekly
Budget pursuant to the budgetary approval process as outlined in Section 5.01(d)(ii)
below.  Upon approval, the Lender shall release the approved
Collections to the Borrowers and, if and to the extent applicable, apply the
amounts set forth in the Weekly Budget to optional prepayments of the Loan, in
each case, on the first Business Day of the following week.

     

    Section
2.02     Use of
Proceeds.

     

    (a)          The
proceeds of the Borrowing funded on the Closing Date shall be used by the
Borrowers to pay (i) in full the Textron Facility on the Closing Date and (ii)
all costs and accrued and unpaid fees and expenses (including reasonable legal
fees and expenses) required to be paid to the Lender on or before the Closing
Date, to the extent then due and payable.

     

    
      
         


      

      
        16

        
          

        

      

      
         


      

    

     

    (b)         Thereafter,
the proceeds of any Borrowing funded pursuant hereto shall be used by the
Borrowers to finance working capital, for Capital Expenditures, and for other
general corporate purposes of the Borrowers at all times in accordance with the
Weekly Budget approved by the Lender pursuant to the budgetary approval process
as outlined in Section
5.01(d)(ii) below; provided that the Lender in
its sole discretion can approve additional releases upon request by the
Borrowers and approval of the use of funds using the budgetary approval process
as outlined in Section
5.01(d)(ii).

     

    Section
2.03     Borrowing;
Releases.  Pursuant to the budgetary approval process as
outlined in Section
5.01(d)(ii) below, and provided that no Performance Trigger has occurred
and is continuing, the Borrowers may borrow the amount set forth in the Weekly
Budget (in excess of released Collections approved by the Lender for the funding
of such Weekly Budget); provided that each Borrowing
shall be in an aggregate amount of not less than $100,000 or an integral
multiple of $100,000 in excess thereof; and provided further that in no event
shall a Borrowing cause the aggregate principal amount of the Loan outstanding
to exceed the Base Commitment without the prior consent of Lender (as evidenced
by its funding of the applicable amount from the Supplemental
Commitment).

     

    Section
2.04     Funding of
Borrowings.  If, for the applicable week, the Weekly Budget is
delivered on the preceding Thursday (or, if such day is not a Business Day, the
immediately preceding Business Day) not later than 11:00 A.M. (Mountain Standard
Time), each Borrowing and release of Collections approved by the Lender shall be
funded on the first Business Day of the following week.  Each Weekly
Budget approved by the Lender shall constitute an irrevocable request by the
Borrowers to borrow the funds set forth therein.  The Lender
shall, on the date of the proposed Borrowing, and upon fulfillment of the
applicable conditions set forth in ARTICLE III, make
available to the Borrowers, at their address referred to in Section 9.01, in
immediately available funds, the proposed Borrowing.

     

    Section
2.05     Repayment.  The
Borrowers shall, jointly and severally, repay the entire unpaid principal amount
of the Loan, together with all interest thereon and all other amounts and
Obligations payable under this Agreement, in full upon the Maturity
Date.

     

    Section
2.06     Prepayments.

     

    (a)          Optional
Prepayments.  The Borrowers may prepay the outstanding
principal amount of the Loan in whole, subject to any applicable prepayment
premium set forth herein, or in part, upon approval of the Weekly Budget
pursuant to the budgetary approval process as outlined in Section 5.01(d)(ii)
below, without penalty, in either case, together with accrued interest to the
date of such prepayment on the principal amount prepaid; provided, however, that each
partial prepayment shall be in an aggregate principal amount not less than
$500,000 or integral multiples of $500,000 in excess thereof (or such lesser
amount as is required to pay the Loan in full).  Upon the giving of
such notice of prepayment, the principal amount of the Loan specified to be
prepaid shall become due and payable on the date specified for such
prepayment.

     

    
      
         


      

      
        17

        
          

        

      

      
         


      

    

     

    (b)         Mandatory
Prepayments.  The Borrowers shall prepay the Loan (i) in an
amount equal to the Net Cash Proceeds of any Asset Sale completed in accordance
with Section
6.04(b), within one Business Day after receipt of such Net Cash Proceeds;
and (ii) from and in the amount of net proceeds (including from applicable
insurance policies) of casualty events and condemnations with respect to any of
their respective Property (the net proceeds shall also be net of a reserve for
the Borrowers’ good faith estimate of income and franchise taxes attributable
thereto), and subsequent permitted Indebtedness.

     

    (c)          Prepayment
Premiums.  Any prepayment in full prior to the Maturity Date
shall be accompanied by a prepayment premium, payable by the Lender in an amount
equal to 3% multiplied by the amount of the Lender’s Commitments; provided, that
for the avoidance of doubt, there shall be no Prepayment Premium payable in
accordance with a sale to the Lender or the highest bidder pursuant to the Sale
Motion.

     

    Section
2.07     Note.  The
obligation of the Borrowers to repay the Loan made by the Lender and to pay
interest thereon at the rates provided herein shall at all times be joint and
several obligations and shall be evidenced by a promissory note, substantially
in the form of Exhibit
A (the “Note”), executed by
all of the Borrowers, payable to the order of the Lender and in the principal
amount of the Lender’s Commitments.  Each Borrower authorizes the
Lender to record on the schedule annexed to the Note, the date and amount of
each Borrowing requested by the Borrowers and made by the Lender, and each
payment or prepayment of principal thereunder and agrees that all such notations
shall constitute prima
facie evidence of the matters noted.  Each Borrower further
authorizes the Lender to attach to and make a part of the Note continuations of
the schedule attached thereto as necessary.  No failure to make any
such notations, nor any errors in making any such notations, shall affect the
validity of the Borrower’s obligations to repay the full unpaid principal amount
of the Loan, together with all interest thereon and all other amounts and
Obligations payable under this Agreement, or the duties of the Borrowers
hereunder or the other Borrowers under the Security Agreement.

     

    Section
2.08     Expiration of
Commitments.  The Commitments shall expire on the last day of
the Availability Period.

     

    Section
2.09     Interest.  Interest
shall accrue on Borrowings under the Base Commitment at the per annum rate of 7%
and on Borrowings under the Supplemental Commitment at the per annum rate of
12%.  All interest on the Loan shall be based on a 365/366-day year
and actual days elapsed; provided, however, at all
times after the occurrence and during the continuance of an Event of Default,
interest on the Loan shall accrue and be payable at a per annum rate of
12%.  All interest on the outstanding principal balance of the Loan
shall be calculated monthly and shall be payable, at the option of the
Borrowers, either (a) in cash, monthly in arrears on each Interest Payment Date;
or (b) by the addition of such amount of interest to the then-outstanding
principal amount of the Loan on such Interest Payment Date; provided that, at
maturity or upon any prepayment of the Loan (whether in whole or in part), all
interest then-outstanding shall be payable prior to giving effect to any payment
of principal.  If, as of any Interest Payment Date, the Borrowers have
not paid the entire amount of interest then due, such failure to pay interest
shall be deemed to be an irrevocable election by the Borrowers to add such
remaining interest to the outstanding principal amount of the Loan on such
Interest Payment Date.  Any interest added to principal pursuant to
the provisions of this Section 2.09 shall,
from and after the Interest Payment Date, accrue interest as if an original part
of the principal amount of the Loan.

     

    
      
         


      

      
        18

        
          

        

      

      
         


      

    

     

    Section
2.10     Increased
Costs.  If, due to either (a) the introduction of or any
change in or in the interpretation of any Law or regulation; or
(b) compliance with any guideline or request from any Governmental Body
(whether or not having the force of Law), there shall be any increase in the
cost to any Lender of agreeing to make or making, funding or maintaining the
Loan, then the Borrowers shall from time to time, upon demand by the Lender, pay
to the Lender additional amounts sufficient to compensate the Lender for such
increased cost.  A certificate as to the amount of such increased
cost, submitted to the Borrowers by the Lender, shall be conclusive and binding
for all purposes, absent manifest error.

     

    Section
2.11     Payments and
Computations.

     

    (a)          The
Borrowers shall make each payment hereunder and under the Note not later than
11:00 A.M. (Mountain Standard Time) on the day when due, in Dollars, to the
Lender at its address referred to in Section 9.01 in
immediately available funds without set-off or counterclaim.

     

    (b)         Whenever
any payment hereunder or under the Note shall be stated to be due on a day other
than a Business Day, such payment shall be made on the next succeeding Business
Day, and such extension of time shall in such case be included in the
computation of payment of interest or fee, as the case may be.

     

    Section
2.12     Taxes.

     

    (a)          Any
and all payments by the Borrowers under each Credit Document shall be made free
and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of the Lender, taxes measured by its net
income and franchise taxes (imposed in lieu of a tax on net income) imposed on
it by each jurisdiction under the Laws of which the Lender is organized or any
political subdivision thereof and taxes measured by the Lender’s net income and
franchise taxes (imposed in lieu of a tax on net income) imposed on it by each
jurisdiction under the Laws of which the Lender is organized or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as “Taxes”).  If
any Borrower shall be required by Law to deduct or withhold any Taxes from or in
respect of any sum payable hereunder to the Lender (i) the sum payable
shall be increased as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings applicable to
additional sums payable under this Section 2.12) the
Lender, as the case may be, receives an amount equal to the sum it would have
received had no such deductions or withholdings been made; (ii) such
Borrower shall make such deductions or withholdings; and (iii) such
Borrower shall pay the full amount deducted or withheld to the relevant taxing
authority or other authority in accordance with applicable Law.

     

    (b)         In
addition, each Borrower agrees to pay any present or future stamp or documentary
taxes or any other excise or property taxes, charges or similar levies of any
applicable Governmental Body which arise from any payment made under any Credit
Document or from the execution, delivery, enforcement or registration of, or
otherwise with respect to, any Credit Document (collectively, “Other
Taxes”).

     

    
      
         


      

      
        19

        
          

        

      

      
         


      

    

     

    (c)         Each
Borrower agrees to indemnify the Lender for the full amount of Taxes or Other
Taxes (including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 2.12) paid by
the Lender and any liability (including for penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted.  This indemnification shall
be made within 30 days from the date the Lender makes written demand
therefor.

     

    (d)         Within
30 days after the date of any payment of Taxes or Other Taxes, the Borrowers
will furnish to the Lender, at its address referred to in Section 9.01, the
original or a certified copy of a receipt evidencing payment
thereof.

     

    (e)         Without
prejudice to the survival of any other agreement of the Borrowers hereunder, the
agreements and obligations of the Borrowers contained in this Section 2.12 shall
survive the payment in full of the Obligations.

     

    Section
2.13     Super-Priority Nature of
Obligations and Liens.  Except as otherwise set forth herein,
the Liens and security interests granted to the Lender on the Collateral and the
priorities accorded to the Obligations shall have the super-priority
administrative expense and senior secured status afforded by sections 364(c) and
364(d) of the Bankruptcy Code to the extent provided and as more fully set forth
and or provided for in the Interim DIP Financing Order and Final DIP Financing
Order, as applicable.  The Lender’s Liens on the Collateral and the
administrative claims under sections 364(c) and 364(d) of the Bankruptcy Code
afforded the Obligations shall also have priority over any claims arising under
section 506(c) of the Bankruptcy Code subject and subordinate only to the extent
provided and as more fully set forth in the Interim DIP Financing Order and/or
the Final DIP Financing Order, subject only to (a) Senior Liens; and (b)
only to the extent there are not sufficient, unencumbered funds in the Debtors’
estates to pay such amounts at the time payment is required to be made, the
Carve-Out (as defined below) in an aggregate amount not to exceed
$500,000.  The Carve-Out may be used only to pay (a) unpaid fees of
the Clerk of the Bankruptcy Court and the U.S. Trustee pursuant to 28 U.S.C. §
1930(a); (b) allowed professional fees and expenses of the Debtors and any
statutory committee appointed by the Bankruptcy Court under section 1102 of the
Bankruptcy Code (“Statutory Committee”)
(collectively, the “Professional Fees”)
incurred to the extent consistent with the Budget, but unpaid, prior to delivery
of a notice of an Event of Default (the “Carve-Out Notice”);
and (c) Professional Fees incurred subsequent to delivery of the Carve-Out
Notice to the extent consistent with the Budget in an amount not to exceed
$500,000 (items (a) through (c), collectively, the “Carve-Out”); provided, however, that the
Carve-Out shall not include, apply to or be available for any fees or expenses
incurred by any party, including the Borrowers or any Statutory Committee, in
connection with the investigation, initiation or prosecution of any claims,
causes of action, adversary proceedings or other litigation against the Lender,
including challenging the amount, validity, priority or enforceability of, or
asserting any defense, claim, counterclaim or offset to, the Obligations or the
Liens of the Lender under this Agreement in respect thereof.  The
Lender agrees that so long as the Maturity Date shall not have occurred or the
Lender has not exercised any remedies as a result of an Event of Default, the
Borrowers shall be permitted to pay compensation and reimbursement of expenses
allowed and payable under sections 330 and 331 of the Bankruptcy Code, as the
same may be due and payable, and the same shall not reduce the amount available
under the Carve-Out.   The foregoing shall not be construed as a
consent to the allowance of any fees and expenses or bonuses referred to above
and shall not affect the right of the Borrowers or the Lender to object to the
allowance and payment of such amounts.  Except as expressly set forth
herein or in the Interim DIP Financing Order and/or the Final DIP Financing
Order, no other claim having a priority superior or pari passu to that granted to
the Lenders by the Interim DIP Financing Order and/or the Final DIP Financing
Order shall be granted or approved while any Obligations under this Agreement
remain outstanding.

     

    
      
         


      

      
        20

        
          

        

      

      
         


      

    

     

    Section
2.14     No Discharge; Survival of
Claims.  Except as otherwise set forth herein, (a) in the
absence of the Maturity Date having occurred, the Obligations shall survive the
entry of an order (i) confirming any chapter 11 plan in the Bankruptcy Cases,
(ii) converting the Bankruptcy Cases to one or more cases under chapter 7 of the
Bankruptcy Code, or (iii) dismissing the Bankruptcy Cases, and (b) the
super-priority administrative claim granted to the Obligations and all Liens
granted to the Lender shall continue in full force and effect and maintain their
priority as set forth in the Interim DIP Financing Order and/or the Final DIP
Financing Order until full payment of the Obligations.

     

    Section
2.15     Waiver of Any Priming and
Surcharge Rights.  The Borrowers hereby irrevocably waive any
right (i) pursuant to sections 364(c) or 364(d) of the Bankruptcy Code or
otherwise, to grant any Lien of equal or greater priority than the Liens
securing the Obligations; (ii) to approve or grant a claim of equal or superior
priority than the Obligations; and (iii) to surcharge the Collateral or the
Lender pursuant to sections 105, 506(c) and 552 of the Bankruptcy
Code.

     

    Section
2.16     Control Account; Sweep of
Funds.  At all times, each Borrower shall cause all Collections
to be deposited, within two Business Days of receipt, in the exact form received
in the Control Account.  Until so deposited, such funds shall be held
by such Borrower in trust for the Lender.  All proceeds being held by
the Lender in the Control Account (or by such Borrower in trust for the Lender)
shall continue to be held as collateral security for the Obligations and shall
not constitute payment of the Obligations. Amounts deposited in the Control
Account shall not be subject to withdrawal by any Borrower, except after payment
in full and discharge of all Obligations.

     

    ARTICLE
III

     

    CONDITIONS

     

    Section
3.01     Conditions Precedent to the
initial Borrowing of the Loan.

     

    The
obligation of the Lender to fund the initial Borrowing under the Loan on the
Closing Date is subject to satisfaction of all of the following conditions
precedent:

     

    (a)          Consent by Borrowers to
Entry of Orders for Relief.  The Borrowers shall have consented
to entry of Orders for Relief in the Bankruptcy Cases by each filing a voluntary
petition for relief under the Bankruptcy Code with the Bankruptcy
Court.

     

    (b)         Joint
Administration.  The Bankruptcy Court shall have entered an
order authorizing the joint administration of all of the Bankruptcy
Cases.

     

    
      
         


      

      
        21

        
          

        

      

      
         


      

    

     

    (c)          Certain
Documents.  The Lender shall have received, on the Closing
Date, the following, each dated the Closing Date unless otherwise indicated, in
form and substance satisfactory to the Lender:

     

    
      	
               
      

            	
              (i)

            	
              From
      each party hereto either (i) a counterpart of this Agreement signed on
      behalf of such party; or (ii) written evidence satisfactory to the Lender
      (which may include telecopy transmission of a signed signature page to
      this Agreement) that such party has signed a counterpart of this
      Agreement;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              The
      original Note payable to the order of the Lender, duly executed by the
      Borrowers;

            


    

     

    
      	
               
      

            	
              (iii)

            	
              The
      Security Agreement, duly executed by the Borrowers, together
      with:

            


    

     

    
      	
               
      

            	
              (A)

            	
              certificates,
      if any, representing the Pledged Certificated Equity
      Interests;

            


    

     

    
      	
               
      

            	
              (B)

            	
              a
      first deed of trust or first mortgage (as applicable based on the
      jurisdiction in question) with respect to the Owned Real Property
      designated on Schedule 4.13-A
      as Initially Secured Owned Real Property (the “Initially Secured
      Owned Real Properties”), in form and substance reasonably
      satisfactory to the Lender and its counsel, duly executed by the
      applicable Borrower and prepared for filing with the applicable recording
      authority;

            


    

     

    
      	
               
      

            	
              (C)

            	
              commitments
      for an American Land Title Association policy or state equivalent policy
      of title insurance, with such endorsements as the Lender may reasonably
      require, issued by an insurer in such amounts as the Lender may reasonably
      require with respect to each of the Initially Secured Owned Real
      Properties and insuring the Lender’s first priority lien on said real
      estate, subject only to such exceptions as the Lender in its discretion
      may approve, together with such evidence relating to the payment of liens
      or potential liens as the Lender may
require;

            


    

     

    
      	
               
      

            	
              (D)

            	
              an
      account control agreement duly executed by the applicable financial
      institution and the applicable Borrowers, or other withdrawal release
      control with respect to the Control Account, in either case in form and
      substance satisfactory to the Lender directing that (i) all withdrawals
      from the Control Account shall be subject to approval of Lender; and (ii)
      after the occurrence and during the continuance of an Event of Default, on
      notice by Lender, all of the accounts set forth on Schedule 4.16 (other
      than the Control Account) shall be in the exclusive control of the Lender;
      and

            


    

     

    
      
         


      

      
        22

        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (E)

            	
              a
      termination and release agreement in form and substance satisfactory to
      the Lender, duly executed by the Textron Lenders (or their applicable
      successors and assigns) providing for the immediate release of all of its
      security interests in the assets of the Borrowers then held as collateral
      securing the Textron Facility, subject only to the condition of
      satisfaction of the obligations
thereunder.

            


    

     

    
      	
               
      

            	
              (iv)

            	
              Copies
      of (A) the audited consolidated balance sheets for the Borrowers as of
      March 27, 2009 and March 26, 2010, and the related audited consolidated
      statements of operations and cash flows for the fiscal year ending as of
      such date; (B) the unaudited consolidated balance sheet of the Borrowers
      as of September 24, 2010, and the related unaudited statements of
      operations and cash flows for the three and six-month periods ending as of
      such date; and (C) the unaudited balance sheets and related statements of
      operations, stockholders’ equity, and cash flow as of and for the month
      ended October 29, 2010, all of which have been made available to
      Lender;

            


    

     

    
      	
               
      

            	
              (v)

            	
              Receipt
      by the Lender of the following (or their equivalent) for each of the
      Borrowers, certified by a Responsible Officer as of the Closing Date to be
      true and correct and in force and effect as of such
  date:

            


    

     

    
      	
               
      

            	
              (A)

            	
              Resolutions.  Copies
      of resolutions of the board of directors approving and adopting the
      respective Credit Documents, the transactions contemplated therein and
      authorizing execution and delivery
thereof;

            


    

     

    
      	
               
      

            	
              (B)

            	
              Good
      Standing.  Copies of certificates of good standing,
      existence or its equivalent certified as of a recent date by the
      appropriate Governmental Bodies of the state of incorporation;
      and

            


    

     

    
      	
               
      

            	
              (C)

            	
              Incumbency
      Certificate.  A certificate of the Secretary or an
      Assistant Secretary of each of the Borrowers certifying the names and true
      signatures of each officer of each Borrower who has been authorized to
      execute and deliver any Credit Document or other document required
      hereunder to be executed and delivered by or on behalf of such Borrower;
      provided that no
      Secretary may certify to his or her own
  signature.

            


    

     

    
      	
               
      

            	
              (vi)

            	
              Officer’s Certificate
      Regarding Conditions Precedent.  A certificate, signed by
      a Responsible Officer of each of the Borrowers, stating that each of the
      conditions specified in Section 3.02(a)
      and Section
      3.02(b) has been satisfied;
and

            


    

     

    
      	
               
      

            	
              (vii)

            	
              Other Documents and
      Information.  Such additional documents, information and
      materials as the Lender may reasonably
request.

            


    

     

    
      
         


      

      
        23

        
          

        

      

      
         


      

    

     

    (d)         Absence of Legal
Proceedings.  There shall be no action, suit, investigation or
proceeding (other than the Bankruptcy Cases) pending in any court or before any
arbitrator or governmental instrumentality which, in the sole discretion of the
Lender (as evidenced by the funding of the initial Borrowing hereunder; provided that the Lender
shall not be deemed to be bound by such determination of materiality for any
other purpose under this Agreement), could be expected to have a Material
Adverse Effect.

     

    (e)          DIP Financing
Orders.  The Lender shall have received evidence satisfactory
to the Lender, in its sole discretion, that the Interim DIP Financing Order has
been entered by the Bankruptcy Court and docketed by the Clerk of the Bankruptcy
Court, and that such order shall be in full force and effect and shall not have
been vacated, reversed, modified, amended, or stayed pending
appeal.  The Interim DIP Financing Order shall be satisfactory in
content to the Lender and shall, among other things:

     

    
      	
               
      

            	
              (i)

            	
              authorize
      the Borrowers to enter into this Agreement and the other Credit Documents,
      grant the Liens provided for herein and therein, execute all of the
      documents required hereby and thereby, repay all Indebtedness incurred by
      the Borrowers pursuant to this Agreement and the other Credit Documents,
      and perform any and all other obligations of the Borrowers under this
      Agreement and the other Credit
Documents;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              provide
      that this Agreement and the other Credit Documents shall be binding upon
      and enforceable against any trustee in the Bankruptcy Cases or any trustee
      in any ensuing chapter 7 bankruptcy case should conversion to one or more
      cases under chapter 7 of the Bankruptcy
Code;

            


    

     

    
      	
               
      

            	
              (iii)

            	
              with
      respect to the Obligations, grant secured status pursuant to sections
      364(c)(2), 364(c)(3) and 364(d) of the Bankruptcy Code with respect to all
      Liens granted to the Lender pursuant to this Agreement and the other
      Credit Documents and provide that such Liens shall be automatically
      perfected and have priority over and be senior to any and all other Liens
      in any of the Collateral subject only to (A) validly existing Liens of the
      Textron Agent and the Textron Lenders under the Textron Facility, (B)
      validly existing Liens of Virgo under the Virgo Credit Agreement and (C)
      Liens existing as of the Petition Date (the items referred to in clauses
      (A), (B) and (C) are, collectively, the “Senior Liens”)
      and the Carve-Out;

            


    

     

    
      	
               
      

            	
              (iv)

            	
              provide
      that the Obligations constitute allowed administrative expense claims
      pursuant to section 364(c)(1) of the Bankruptcy Code having priority over
      all administrative expenses of the kind specified in sections 503(b) and
      507(b) of the Bankruptcy Code (except as otherwise provided in this
      Agreement);

            


    

     

    
      	
               
      

            	
              (v)

            	
              state
      that there shall be no priming of any Lien of the Lender other than
      pursuant to this Agreement;

            


    

     

    
      
         


      

      
        24

        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (vi)

            	
              provide
      that the automatic stay of section 362(a) of the Bankruptcy Code is
      modified to permit the Lender, upon the occurrence and during the
      continuance of a Default or an Event of Default, to (A) terminate the
      Commitments and accelerate all of the Obligations and all other
      obligations under this Agreement and the other Credit Documents without
      notice; and (B) exercise any other rights and remedies under the Credit
      Documents, the DIP Financing Orders or applicable Law after providing five
      Business Days prior written notice to the Borrowers, any Statutory
      Committee appointed in the Bankruptcy Cases and the office of the United
      States Trustee with only one notice required, for any Event of Default, or
      series of Events of Default arising out of the same
      circumstances.

            


    

     

    (f)          Motions,
Etc.  The Lender shall have reviewed and found satisfactory (i)
all motions, orders and other pleadings or related documents to be filed or
submitted to the Bankruptcy Court in connection with this Agreement, including
the Critical Vendor Motion; and (ii) all First Day Orders and related orders to
be filed by the Borrowers with the Bankruptcy Court in the Bankruptcy
Cases;

     

    (g)         Initial Projected
Budget.  The Lender shall have received the Initial Projected
Budget, in form, scope and substance satisfactory to the Lender in its sole
discretion;

     

    (h)         No Performance
Triggers.  No Performance Trigger shall have occurred and be
continuing, and no event, condition or change shall exist or have occurred that,
individually or in the aggregate, could reasonably be expected to cause a
Performance Trigger to occur; and

     

    (i)          No Material Adverse
Change.  Since the Petition Date, there shall have been no
event, condition or change that, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect (other than those
events caused by or arising out of the Bankruptcy Cases, including the loss of
certain employees, officers, and directors by termination, resignation, or
otherwise) in (i) the business, condition, operations, assets, or prospects of
the Borrowers; (ii) the ability of the Borrowers to perform under this
Agreement; or (iii) the ability of the Lender to enforce this Agreement and the
obligations of the Borrowers hereunder.

     

    Section
3.02     Conditions Precedent to Each
Borrowing.  The obligation of the Lender to fund any Borrowing
(including the Borrowing being made by the Lender on the Closing Date) shall be
subject to the further conditions precedent that:

     

    (a)         Accuracy of Certain
Statements.  The following statements shall be true on the date
of such Loan, before and after giving effect thereto, and to the application of
the proceeds therefrom (and the acceptance by the Borrowers of the proceeds of
such Loan shall constitute a representation and warranty by the Borrowers that
on the date of such Loan such statements are true):

     

    
      	
               
      

            	
              (i)

            	
              The
      representations and warranties of the Borrowers contained in
      Article IV of this Agreement and in the other Credit Documents are
      true and correct on and as of such date as though made on and as of such
      date (unless such representations and warranties are made as of another
      date, in which case they shall be true and correct as of such
      date);

            


    

     

    
      
         


      

      
        25

        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (ii)

            	
              No
      Default or Event of Default has occurred and is continuing or will result
      from the Loan being made on such date;
and

            


    

     

    
      	
               
      

            	
              (iii)

            	
              No
      Performance Trigger has occurred and is continuing and no event, condition
      or change that, individually or in the aggregate, could reasonably be
      expected to cause a Performance Trigger to
  occur.

            


    

     

    (b)         No Violation of Law or
Injunction.  The making of the Loan on such date does not
violate any Law and is not enjoined, temporarily, preliminarily or
permanently.

     

    (c)         Final
Order.  With respect to any Loan requested to be funded after
January 13, 2011, the Final DIP Financing Order shall have become a Final
Order.

     

    ARTICLE
IV

     

    REPRESENTATIONS
AND WARRANTIES

     

    To induce
the Lender to enter into this Agreement, the Borrowers, jointly and severally,
hereby represent and warrant to the Lender on the date hereof and on each date
that a Weekly Budget is delivered, that:

     

    Section
4.01     Financial
Condition.  The Borrowers have provided to the Lender the
following consolidated financial statements with respect to the Borrowers: (a)
audited balance sheets and related statements of operations, stockholders’
equity, and cash flows as of and for the fiscal years ended March 27, 2009 and
March 26, 2010; (b) unaudited balance sheets and related statements of
operations, stockholders’ equity, and cash flow as of and for the three- and
six-month periods ended September 24, 2010; and (c) unaudited balance sheets and
related statements of operations, stockholders’ equity, and cash flow as of and
for the month ended October 29, 2010.  All of such financial
statements (including the notes thereto) have been prepared in accordance with
GAAP throughout the periods covered thereby and present fairly, in all material
respects, the respective financial positions of the Borrowers as of such dates
and the respective results of operations of the Borrowers for such periods;
provided, however, that
the financial statements referred to in clauses (b) and (c) above are subject to
normal year-end adjustments and lack footnotes and other presentation items
required by GAAP.

     

    Section
4.02     No Changes or Restricted
Payments.  Since September 24, 2010, except as set forth in
Schedule 4.02
(a) other than the commencement of the Bankruptcy Cases, there has been no
circumstance, development or event relating to or affecting the Borrowers which
has had or would be reasonably expected to have a Material Adverse Effect; and
(b) except as permitted herein, no Restricted Payments have been made or
declared by the Borrowers.


    
      
         


      

      
        26

        
          

        

      

      
         


      

    

     

    Section
4.03     Due Incorporation and
Authority.  Each Borrower is a corporation, limited liability
company or limited partnership duly organized, validly existing and in good
standing under the Laws of the state of its organization and has all necessary
corporate, limited liability company or limited partnership power and authority
to own, lease and operate its assets and to carry on its business as it is now
being conducted, except where such failure would not reasonably be expected to
have a Material Adverse Effect.  Each Borrower has all requisite
corporate, limited liability company or limited partnership power and authority
to enter into this Agreement and all of the other Credit Documents to which it
is a party and carry out its obligations hereunder and consummate the
transactions contemplated hereby and thereby.  The execution and
delivery by such Borrower of this Agreement, the performance by such Borrower of
its respective obligations hereunder and the consummation by such Borrower of
the transactions contemplated hereby have been duly authorized by all requisite
corporate, limited liability company or limited partnership action on the part
of such Borrower.  This Agreement and all of the other Credit
Documents have been duly executed and delivered by each Borrower, and, upon due
authorization, execution and delivery hereof by the Lender, each of the Credit
Documents shall constitute the legal, valid and binding obligation of each
Borrower party thereto, enforceable against each such Borrower in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar Laws affecting creditors
rights generally or by general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at Law).

     

    Section
4.04     No Conflicts; Default or
Event of Default.

     

    (a)         The
execution and delivery by Borrowers of this Agreement, the consummation of the
transactions contemplated hereby, and the performance by the Borrowers of this
Agreement in accordance with its terms shall not:

     

    
      	
               
      

            	
              (i)

            	
              violate
      the certificate of incorporation or by-laws or comparable organizational
      instruments of any Borrower or contravene any resolution adopted by the
      directors, managers, shareholders, members or partners of any Borrower or
      any Borrower;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              violate
      any Law to which any Borrower, the Business, any of the Property, any of
      the Borrowers is bound or subject;

            


    

     

    
      	
               
      

            	
              (iii)

            	
              result
      in the imposition or creation of any Lien (other than a Permitted Lien) on
      any Property of any Borrower; or

            


    

     

    
      	
               
      

            	
              (iv)

            	
              violate,
      result in any breach of, constitute a default (or an event that, with
      notice or lapse of time or both, would become a default) under, or require
      any consent of any Person (including any Governmental Body) pursuant to,
      any Contractual Obligation or Permit to which any Borrower is a party or
      by which it is bound, or any Permit held by a Borrower, except for
      consents, approvals or authorizations of, or declarations or filings with,
      the Bankruptcy Court;

            


    

     

    provided, however, that each of
the cases set forth in clauses (ii), (iii) and (iv) above is subject to
exceptions that (A) would not reasonably be expected, either individually or in
the aggregate, to prevent or materially delay the consummation by the Borrowers
of the transactions contemplated by this Agreement; or (B) arise as a result of
any facts or circumstances relating to the Lender or any of its
Affiliates.


    
      
         


      

      
        27

        
          

        

      

      
         


      

    

    


    (b)         Except
as set forth on Schedule 4.04(b), no
Borrower has defaulted on any payment under or with respect to any Contractual
Obligation owed by it other than those defaults which in the aggregate have no
Material Adverse Effect and no Default or Event of Default hereunder has
occurred and is continuing.

     

    Section
4.05     Organizational Documents;
Meeting Minutes.  The Borrowers have delivered to the Lender
prior to the date hereof true, accurate and complete copies of the certificate
of incorporation and bylaws, or comparable organizational instruments, of the
Borrowers as in effect on the date hereof.

     

    Section
4.06     Litigation.  Except
for the Bankruptcy Cases and other matters on the docket related thereto and
except as otherwise disclosed on Schedule 4.06, (i)
there are no material claims (including with respect to product liability
claims) pending or, to the Knowledge of the Borrowers, threatened against any
Borrower with respect to the Business (or any part thereof), any of the Real
Properties or any of the other Property of the Borrowers; and (ii) there are no
claims pending or, to the Knowledge of the Borrowers, threatened by or against
any Borrower that challenge the validity of this Agreement or any of the
transactions contemplated hereby or that, either individually or in the
aggregate, would reasonably be expected to prevent or materially delay the
consummation by the Borrowers of the transactions contemplated by this
Agreement.

     

    Section
4.07     Intellectual
Property.  Each of the Borrowers owns, or has the legal right
to use, the Intellectual Property necessary for it to conduct its Business as
currently conducted.  No claim has been asserted and is pending by any
Person challenging or questioning the use of any such Intellectual Property or
the validity or effectiveness of any such Intellectual Property, nor does any
Borrower have Knowledge of any such claim, and to the Borrower's Knowledge the
use of such Intellectual Property by each Borrower does not infringe on the
rights of any Person.

     

    Section
4.08     Taxes.  Each
of the Borrowers, as applicable, has filed all federal and other tax returns and
material reports required to be filed, and has paid all federal and other taxes,
assessments, fees and other governmental charges levied or imposed upon it or
its properties, income or assets otherwise due and payable unless such unpaid
taxes and assessments (a) arose prior to the Petition Date and are not the
subject of a pending and unstayed assessment or collection action; or (b) are
(i) not yet past due or (ii) being contested in good faith and by appropriate
proceedings diligently pursued and as to which adequate reserves determined in
accordance with GAAP have been established on such Borrower’s books and records
and no Lien with respect to nonpayment thereof has been asserted.  No
Borrower is aware of any proposed tax assessments against it, with respect to
any prior period, in excess of amounts accrued on its financial statements (as
required to be accrued in accordance with GAAP), nor do the Borrowers anticipate
any further material tax liability with respect to any open taxable years taken
as a whole in excess of accrued amounts.

     

    
      
         


      

      
        28

        
          

        

      

      
         


      

    

     

    Section
4.09     ERISA.

     

    (a) 
        During the five-year period
prior to the date on which this representation is made or deemed made: (i) no
ERISA Event has occurred, and, to the best Knowledge of the Borrowers, no event
or condition has occurred or exists as a result of which any ERISA Event could
reasonably be expected to occur, with respect to any Plan; (ii) no “accumulated
funding deficiency,” as such term is defined in section 302 of ERISA and section
412 of the Internal Revenue Code, whether or not waived, has occurred with
respect to any Plan; (iii) each Plan has been maintained, operated and funded in
compliance with its own terms and in material compliance with the provisions of
ERISA, the Internal Revenue Code and any other applicable federal or state Laws;
and (iv) no Lien in favor of the PBGC or a Plan has arisen or is reasonably
likely to arise on account of any Plan.

     

    (b)  
       The actuarial present value of all
“benefit liabilities” (as defined in section 4001(a)(16) of ERISA), whether or
not vested, under each Single Employer Plan, as of the last annual valuation
date prior to the date on which this representation is made or deemed made
(determined, in each case, in accordance with Financial Accounting Standards
Board Accounting Standards Codification (“FASB ASC”) 960, 962
and 965, utilizing the actuarial assumptions used in such Plan’s most recent
actuarial valuation report), did not exceed as of such valuation date the fair
market value of the assets of such Plan.

     

    (c)    
     Neither the Borrowers nor any ERISA Affiliate has
incurred, or, to the best Knowledge of the Borrowers, could be reasonably
expected to incur, any withdrawal liability under ERISA to any Multiemployer
Plan or Multiple Employer Plan.  Neither the Borrowers nor any ERISA
Affiliate would become subject to any withdrawal liability under ERISA if the
Borrowers or any ERISA Affiliate were to withdraw completely from all
Multiemployer Plans and Multiple Employer Plans as of the valuation date most
closely preceding the date on which this representation is made or deemed
made.  Neither the Borrowers nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization (within the
meaning of section 4241 of ERISA), is insolvent (within the meaning of section
4245 of ERISA), or has been terminated (within the meaning of Title IV of
ERISA), and no Multiemployer Plan is, to the best Knowledge of the Borrowers,
reasonably expected to be in reorganization, insolvent, or
terminated.

     

    (d)     
    No prohibited transaction (within the meaning of section
406 of ERISA or section 4975 of the Internal Revenue Code) or breach of
fiduciary responsibility has occurred with respect to a Plan which has subjected
or may subject the Borrowers or any ERISA Affiliate to any liability under
sections 406, 409, 502(i) or 502(l) of ERISA or section 4975 of the Internal
Revenue Code, or under any agreement or other instrument pursuant to the
Borrowers or any ERISA Affiliate has agreed or is required to indemnify any
person against any such liability.

     

    (e)       
  Neither the Borrowers nor any ERISA Affiliate has any material
liability with respect to “expected post-retirement benefit obligations” within
the meaning of the FASB ASC 715.  Each Plan which is a welfare plan
(as defined in section 3(1) of ERISA) to which sections 601-609 of ERISA and
section 4980B of the Internal Revenue Code apply has been administered in
compliance in all material respects of such sections.

     

    (f)       
   Neither the execution nor delivery of this Agreement nor the
consummation of the financing transactions contemplated thereunder will involve
any transaction which is subject to the prohibitions of sections 404, 406
or 407 of ERISA or in connection with which a tax could be imposed pursuant to
section 4975 of the Internal Revenue Code.


    
      
         


      

      
        29

        
          

        

      

      
         


      

    

     

     Section
4.10     Governmental Regulations,
Etc.

     

    (a)      
   No part of the proceeds of the Loan hereunder will be used,
directly or indirectly, for the purpose of purchasing or carrying any “margin
stock” within the meaning of Regulation U.  If requested by the
Lender, the Borrowers will furnish to the Lender a statement to the foregoing
effect in conformity with the requirements of FR Form U-1 referred to in said
Regulation U.  No Indebtedness being reduced or retired out of the
proceeds of the Loan hereunder was or will be incurred for the purpose of
purchasing or carrying any margin stock within the meaning of Regulation U or
any “margin security” within the meaning of
Regulation T.  “Margin stock” within the meanings of Regulation U
does not constitute more than 25% of the value of the consolidated assets of the
Borrowers and their Subsidiaries.  None of the transactions
contemplated by this Agreement (including the direct or indirect use of the
proceeds of the Loan) will violate or result in a violation of the Securities
Act of 1933, as amended or the Exchange Act, or regulations issued pursuant
thereto, or Regulation T, U or X.

     

    (b)    
     No Borrower intends to, and no Borrower will, use
any proceeds of the Loan for any purpose that is improper under the Bankruptcy
Code.

     

    (c)    
     The Borrowers are not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act or the
Investment Company Act of 1940, each as amended.  In addition, none of
the Borrowers is (i) an “investment company” registered or required to be
registered under the Investment Company Act of 1940, as amended, and is not
controlled by such a company; or (ii) a “holding company”, or a “subsidiary
company” of a “holding company”, or an “affiliate” of a “holding company” or of
a “subsidiary” of a “holding company”, within the meaning of the Public Utility
Holding Company Act of 1935, as amended.

     

    (d)     
    No director, executive officer or principal shareholder
of the Borrowers is a director, executive officer or principal shareholder of
the Lender.  For the purposes hereof the terms “director”, “executive
officer” and “principal shareholder” (when used with reference to any Lender)
have the respective meanings assigned thereto in Regulation O.

     

    Section
4.11     No
Subsidiaries.  Except as set forth on Schedule 4.11, each
of the Borrowers represents that, as of the Closing Date, there are no
Subsidiaries.

     

    Section
4.12     Use of
Proceeds.

     

    (a)       
  The proceeds of the Loan made hereunder shall be used by the
Borrowers solely as set forth in Section 2.02
above:

     

    
      	
               
      

            	
              (i)

            	
              to
      pay in full the Textron Facility;

            


    

     

    
      	
               
      

            	
              (ii)

            	
              to
      make payments under the Critical Vendor Motion and any order of the
      Bankruptcy Court thereon;

            


    

     

    
      	
               
      

            	
              (iii)

            	
              to
      pay the payables owed by the Borrowers that have been approved by the
      Lender pursuant to the budgetary approval process as outlined in Section
      5.01(d)(ii) below; and

            


    

     

    
      
         


      

      
        30

        
          

        

      

      
         


      

    

     

    
      	
               
      

            	
              (iv)

            	
              for
      general working capital purposes (including the contribution to corporate
      overhead expenses and general restructuring costs as provided for
      herein).

            


    

     

    (b)     
    None of the proceeds of the Loan may be used by the
Borrowers to amortize, repay or prepay any Indebtedness of the Borrowers for
borrowed money, except as expressly provided herein with respect to the Textron
Facility and such payments as are expressly consented to in writing by the
Lender after the date hereof.

     

    (c)       
  No proceeds of the Loan or the Collateral will be used by the
Borrowers or any other Person (including any statutory committee appointed in
the Bankruptcy Cases) to (i) object to or contest in any manner, or raise any
defenses to, the validity, extent, perfection, priority or enforceability of the
Obligations, the Liens granted to the Lender under this Agreement and the
Collateral Documents or any other rights or interests of the Lender under this
Agreement and the other Credit Documents; or (ii) assert any claims or causes of
action, including any actions under Chapter 5 of the Bankruptcy Code, against
the Lender.

     

    Section
4.13     Real Property.

     

    (a)        
 Schedule
4.13-A lists the street address of each parcel of Owned Real
Property.  The applicable Borrower has fee simple title to each Owned
Real Property.  Except for the Owned Real Property, no Borrower now
owns any interest in any real property, other than leasehold interests and other
than the REO real property obtained from HUD or other parties and held for
sale.

     

    (b)       
  Schedule
4.13-B lists the street address (where available) of each parcel of
Leased Real Property (the Leased Real Property together with the Owned Real
Property, are collectively referred to herein as the “Real Properties”),
with respect to each lease (each a “Real Property Lease”)
in effect with respect to each Leased Real Property.

     

    (c)       
  The Borrowers have delivered to the Lender complete and accurate
copies of all Real Property Leases, including all addenda, amendments,
extensions and supplements thereto and assignments thereof.  No
Borrower has entered into any contract, arrangement or understanding with any
third party landlord, written or oral, that in any way alters or affects the
express terms and conditions of any Real Property Lease.  Each Real
Property Lease is valid and binding on the applicable Borrower and, to the
Knowledge of the Borrowers, the counterparties thereto, and is in full force and
effect.  No Borrower is in default under any Real Property Lease and,
to the Knowledge of the Borrowers, no other counterparty to any Real Property
Lease is in default thereof which, in either case could reasonably be expected
to have a Material Adverse Effect.  Except as provided in the lease
documents delivered to the Lender, to the Knowledge of Borrowers, no Borrower
has (i) subleased, licensed or otherwise granted any Person the right to use or
occupy any Leased Real Property or any portion thereof, or
(ii) collaterally assigned or granted any other Lien in or over any Real
Property Lease or any interest therein.

     

    (d)       
  The Borrowers’ use of the Real Properties for the various purposes
for which they are presently being used are permitted as of right under all
applicable Laws (including zoning Laws) except where the failure to comply could
not reasonably be expected to have a Material Adverse Effect.


    
      
         


      

      
        31

        
          

        

      

      
         


      

    

     

    (e)   
      To the Knowledge of the Borrowers except
where the failure to comply could not reasonably be expected to have a Material
Adverse Effect, (i) all of the Real Properties, including buildings, fixtures
and other improvements thereon, are in good operating condition and repair,
ordinary wear and tear excepted, and no Owned Real Property is in need of repair
other than as part of routine maintenance in the ordinary course of business;
and (ii) all buildings, structures, improvements and fixtures on each of the
Real Properties are in compliance in all material respects with all applicable
Laws, including Occupational Safety and Health Laws.

     

    (f)      
    To the Knowledge of the Borrowers, except as provided in
the Real Property Leases or recorded in the real property records, and except as
set forth in Schedule
4.13(f), no Borrower has (i) leased, subleased, licensed or otherwise
granted to any Person the current or future right to use or occupy any of the
Real Properties or any portion thereof; or (ii) granted to any Person any
option, right of first refusal, offer, or other contract or right to purchase,
acquire, lease, sublease, assign or dispose of any interest in any of the Real
Properties.

     

    (g)       
  The Real Properties constitute all of the real property currently
used by the Borrowers in the conduct of the Business.

     

    (h)        
 There does not exist any actual or, to the Knowledge of the Borrowers,
overtly threatened or contemplated condemnation or eminent domain proceeding
that affects or could be reasonably expected to affect any Real Property or any
part thereof, and no Borrower has received any written notice of the intention
of any Governmental Body to undertake any such proceeding with respect to any of
the Real Properties, or any part thereof that in either case would reasonably be
expected to have a Material Adverse Effect.

     

    (i)         
 Except as set forth on Schedule 4.13(i), no
Borrower has any ongoing dispute or disagreement with any landlord in respect of
any obligation of such Borrower or such landlord under the terms of any Real
Property Lease or under applicable Law with respect to any Leased Real Property,
other than such disputes arising from and solely related to the Bankruptcy
Cases.

     

     Section
4.14     Environmental
Matters.

     

    (a) 
        Except as set forth in Schedule 4.14, each
Borrower is currently, and since January 1, 2005 has been, in
compliance in all material respects with all applicable Environmental Laws
applicable to its Business, the Property and the Property of its direct and
indirect Subsidiaries.  Except as set forth in Schedule 4.14, there
are no claims pursuant to any Environmental Law pending or, to the Knowledge of
the Borrowers, threatened against any Borrower in connection with the conduct or
operation of the Business or the ownership or use of any of the Real Properties
(or any of them).  Except as set forth in Schedule 4.14, within
the past five years, no Borrower has received any actual or threatened order,
notice or other written communication from any Governmental Body or other Person
of any actual or potential violation or failure of any Borrower to comply with
any Environmental Law or of any actual or threatened obligation on the part of
any Borrower to undertake or bear the cost of any Environmental, Health and
Safety Liabilities with respect to any of the Real Properties or any of its
other Property.


    
      
         


      

      
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    (b)      
   Except as set forth in Schedule 4.14, no
Borrower is currently required to undertake any corrective or remedial
obligation under any Environmental Law with respect to the Business, any of its
Property or any of the Leased Real Properties.

     

    (c)        
 The Borrowers have made available to the Lender all Phase I and Phase II,
if any, environmental reports, other engineering reports and any other material
documents in the Borrowers’ possession relating to any environmental or health
or safety matters, relating to the Real Properties and any of its other
Property.  Except as set forth on Schedule 4.14, or
except to the extent disclosed in such environmental and engineering reports, to
the Knowledge of the Borrowers, there are no Hazardous Materials present on or
in the environment at any of the Real Properties, including any Hazardous
Materials contained in barrels, aboveground or underground storage tanks,
landfills, land deposits, dumps, equipment (whether movable or fixed) or other
containers, either temporary or permanent, and deposited or located in land,
water, sumps, or any other part of any of the Real Properties, or incorporated
into any structure therein or thereon, except in material compliance with all
applicable Environmental Laws.

     

    (d)         
Except as set forth on Schedule 4.14, no
Borrower has conducted or knowingly permitted any Hazardous Activity on or with
respect to any of the Real Properties.

     

     Section
4.15     Disclosure.

     

    (a)
         Neither this Agreement,
any of the financial statements delivered to the Lender, any other document,
certificate or statement furnished to the Lender (with the exception of any
Projected Budget or Weekly Budget) nor any of the information delivered in
writing to the Bankruptcy Court by or on behalf of the Borrowers in connection
with the transactions contemplated hereby contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading.

     

    (b) 
        Each Projected Budget (including
the Initial Projected Budget) and Weekly Budget furnished to the Lender by or on
behalf of any member of the Borrowers in connection with the transactions
contemplated hereby have been prepared in good faith on the basis of reasonable
assumptions.

     

     Section
4.16     Bank
Accounts.  Schedule 4.16
contains a complete and accurate list of all bank accounts maintained by the
Borrowers with any bank or other financial institution.

     

     Section
4.17     Account
Debtors.  Schedule 4.17 lists
the address in the Borrowers’ records of each Person who is obligated to remit
payments of any kind to any Borrower.

     

     Section
4.18     Insurance.  All
policies of insurance of any kind or nature owned by or issued to the Borrowers,
including policies of life, fire, theft, product liability, public liability,
property damage, other casualty, employee fidelity, workers’ compensation and
employee health and welfare insurance, are (a) in full force and effect; (b) to
the Knowledge of the Borrowers, sufficient; and (c) of a nature and provide such
coverage as is customarily carried by companies of the size and character of
such Person.


    
      
         


      

      
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     Section
4.19     Labor
Matters.  Except as set forth on Schedule
4.19,

     

    (a) 
        There are no strikes, work
stoppages, slowdowns or lockouts pending or, to the Knowledge of the Borrowers,
threatened against or involving the Borrowers, other than those which in the
aggregate have no Material Adverse Effect.

     

    (b) 
        There are no arbitrations or
grievances pending against or involving the Borrowers, nor are there any
arbitrations or grievances, to the Knowledge of the Borrowers, threatened
involving the Borrowers, other than those which, in the aggregate, if resolved
adversely to the Borrowers, would have no Material Adverse Effect.

     

    (c)   
      There is no organizing activity involving
the Borrowers pending or, to the Knowledge of the Borrowers, threatened by any
labor union or group of employees, other than those which in the aggregate have
no Material Adverse Effect.  There are no representation proceedings
pending or, to the Knowledge of the Borrowers, threatened with the National
Labor Relations Board, and no labor organization or group of employees of the
Borrowers has made a pending demand for recognition, other than those which in
the aggregate have no Material Adverse Effect.

     

    (d)     
    There are no unfair labor practices charges, grievances
or complaints pending or in process or, to the Knowledge of the Borrowers,
threatened by or on behalf of any employee or group of employees of the
Borrowers, other than those which in the aggregate, if adversely determined,
would have no Material Adverse Effect.

     

    (e)       
  There are no complaints or charges against the Borrowers pending or,
to the Knowledge of the Borrowers, threatened to be filed with any federal,
state, local or foreign court, governmental agency or arbitrator based on,
arising out of, in connection with, or otherwise relating to the employment by
the Borrowers of any individual, other than those which in the aggregate, if
resolved adversely, would have no Material Adverse Effect.

     

    (f)         
 The Borrowers are in compliance with all Laws, and all orders of any
court, Governmental Body or arbitrator, relating to the employment of labor,
including all such Laws relating to wages, hours, collective bargaining,
discrimination, civil rights, and the payment of withholding and/or social
security and similar taxes, except for such non-compliances that in the
aggregate have no Material Adverse Effect.

     

     Section
4.20     Reorganization
Matters.

     

    (a)       
  The Borrowers’ bankruptcy cases jointly administered as the
Bankruptcy Cases were commenced on the Petition Date in accordance with
applicable Law and proper notice thereof and proper notice of the hearings to
consider entry of the Interim DIP Financing Order has been given and proper
notice of the hearing to consider entry of the Final DIP Financing Order will be
given.


    
      
         


      

      
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    (b)    
     After entry of the Interim DIP Financing Order and
Final DIP Financing Order, as applicable, the Obligations will constitute
allowed administrative expense claims in the Bankruptcy Cases having priority
over all administrative expense claims and unsecured claims against the
Borrowers now existing or hereafter existing, of any kind whatsoever, to the
extent provided and as more fully set forth in the Interim DIP Financing Order
and Final DIP Financing Order.

     

    (c)      
   Except as otherwise set forth herein, after the entry of the
Interim DIP Financing Order and Final DIP Financing Order, as applicable, the
Obligations will be secured by valid and perfected Liens on all of the
Collateral and such Liens shall have the priorities set forth in the Interim DIP
Financing Order and Final DIP Financing Order and the other Credit
Documents.

     

    (d)       
  Notwithstanding any failure on the part of the Lender to perfect,
maintain, protect or enforce any Liens and security interests in the Collateral
granted pursuant to this Agreement, the  Interim DIP Financing Order
and Final DIP Financing Order (when entered) shall automatically, and without
further action by any Person, perfect such Liens and security interests against
the Collateral.

     

    (e)      
   The Interim DIP Financing Order and Final DIP Financing Order
(with respect to the period on and after entry of the Final DIP Financing
Order), as the case may be, are in full force and effect and have not been
reversed, stayed, modified, varied or amended without the consent of the
Lender.

     

    (f)        
  After the entry of the Interim DIP Financing Order (with respect to
the period prior to entry of the Final DIP Financing Order) or the Final DIP
Financing Order (with respect to the period on and after entry of the Final DIP
Financing Order), notwithstanding the provisions of section 362 of the
Bankruptcy Code, upon the Maturity Date of any of the Obligations (whether by
acceleration or otherwise), the Lender shall be entitled to immediate payment of
such Obligations and to enforce the remedies provided for hereunder and under
the other Credit Documents, without further application to or order by the
Bankruptcy Court, as more fully set forth in the Interim DIP Financing Order and
Final DIP Financing Order, as applicable.

     

     Section
4.21     Investment Banking and
Finder’s Fees.  Except for the fee paid to Raymond James &
Associates, Inc., no Borrower has paid or agreed to pay, or reimburse any other
party with respect to, any investment banking or similar or related fee,
underwriter’s fee, finder’s fee, or broker’s fee to any Person in connection
with this Agreement.

     

    ARTICLE
V

     

    AFFIRMATIVE
COVENANTS

     

    As long
as any of the Obligations or Commitments remain outstanding, the Borrowers
agrees with the Lender that:

     

     Section
5.01     Financial
Statements.

     

    The
Borrowers shall furnish, or cause to be furnished, to the
Lender:


    
      
         


      

      
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    (a)         Audited Financial
Statements.  As soon as available, but in any event within 75
days after the close of each fiscal year of PHH and its consolidated companies,
audited consolidated balance sheets of PHH and its consolidated companies as of
the close of such fiscal year, and audited consolidated statements of income and
retained earnings and cash flows of PHH and its consolidated companies for such
fiscal year, together with (i) copies of the reports and certificates
relating thereto of independent certified public accountants of recognized
standing selected by PHH and reasonably satisfactory to the Lender; (ii) such
accountants’ letter to management relating to such financial statements; and
(iii) a report of the Chief Executive Officer or Chief Financial Officer of PHH
containing management’s discussion and analysis of PHH and its consolidated
companies’ financial condition, results of operations and affairs for such
year.

     

    (b)         Quarterly Financial
Statements.  As soon as available, but in any event within
forty (40) days after the close of each of the first three fiscal quarters of
PHH and its consolidated companies, unaudited consolidated balance sheets of PHH
and its consolidated companies as of the close of each such fiscal quarter and
unaudited consolidated statements of income, retained earnings and cash flows of
PHH and its consolidated companies for such quarter and, for the second and
third quarter only, for the period from the beginning of the fiscal year to the
end of each such quarter, each such balance sheet and statement of income and
retained earnings and changes in financial position to be certified by the Chief
Executive Officer and Chief Financial Officer of the Borrowers as fairly
presenting in all material respects the financial condition and results of
operation of PHH and its consolidated companies; provided that any such
certificate may state that the accompanying balance sheet and statements are
subject to normal year-end footnote disclosures.

     

    (c)         Borrowers-Prepared Monthly
Financial Statements.  As soon as available but in any event
within ten Business Days after the close of each calendar month of each fiscal
year of the Borrowers, (a) unaudited consolidated balance sheets of the
Borrowers, together with a current report of Inventory (in form and substance
reasonably acceptable to Agent), in each case, as of the last day of such fiscal
month; and (b) unaudited consolidated statements of income of the Borrowers for
such fiscal month and for the period from the beginning of the fiscal year to
the end of such fiscal month, each such balance sheet, report of Inventory and
statement of income and changes in financial position to be certified by the
Chief Executive Officer and Chief Financial Officer of the Borrowers as fairly
presenting in all material respects the financial condition and results of
operation of the Borrowers; provided that any such
certificate may state that the accompanying balance sheet and statements are
subject to normal quarter and year-end adjustments and normal footnote
disclosures.

     

    (d)         Borrowers-Prepared Budgets
and Reconciliations.

     

    
      	
               
      

            	
              (i)

            	
              An
      itemized budget for the Borrowers in form, scope and substance
      satisfactory to, and approved by, the Lender in its sole discretion (the
      “Projected
      Budget”), (A) initially for the 13-week period immediately
      following the Closing Date (the “Initial Projected
      Budget”), to be delivered at least five days prior to the Closing
      Date; and (B) each week thereafter, on each Thursday (or, if such day is
      not a Business Day, the immediately preceding Business Day) not later than
      11:00 A.M. (Mountain Standard Time), a revised Projected Budget for the
      immediately following 13-week period together with a certificate from the
      Chief Financial Officer of the Borrowers explaining any variances from the
      Initial Projected Budget.

            


    


    
      
         


      

      
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              (ii)

            	
              On
      each Thursday (or, if such day is not a Business Day, the immediately
      preceding Business Day) not later than 11:00 A.M. (Mountain Standard Time)
      after the Closing Date, an itemized budget for the Borrowers (which may
      include optional prepayments of the Loan), in the form attached hereto as
      Exhibit
      B, and approved by, the Lender in its sole discretion for the
      immediately following week (the “Weekly
      Budget”), specifying therein (A) the amount of Collections
      requested for release to satisfy the budgeted obligations of the Borrowers
      for such week; (B) the aggregate amount of any proposed Borrowing in
      excess of such requested Collections, required to satisfy the budgeted
      obligations of the Borrowers for such week; and (C) a description in
      reasonable detail of the proposed use of proceeds of such requested
      Collections and, if applicable, Borrowing, together with a certificate
      from the Chief Financial Officer of the Borrowers explaining any variances
      between the actual results from operations from the previous week and the
      amounts set forth in the previously delivered Weekly
    Budget.

            


    

     

    
      	
               
      

            	
              (iii)

            	
              On
      each Thursday (or, if such day is not a Business Day, the immediately
      preceding Business Day) not later than 11:00 A.M. (Mountain Standard Time)
      after the Closing Date, a report, in form and substance satisfactory to
      the Lender in its sole discretion, delivered by the Borrowers specifying
      therein, including reasonable detail, the aggregate Borrowers’ reported
      aggregate new and used home retail Inventory at wholesale invoice plus the
      PHH and Nationwide Homes, Inc. aggregate Accounts Receivable to
      independent retailers, builders and developments, and the Borrowers’
      retail (segment 03) Accounts Receivable as of the end of the prior week,
      together with a certificate from the Chief Financial Officer of the
      Borrowers explaining any relevant changes in the level
      thereof.

            


    

     

    
      	
               
      

            	
              (iv)

            	
              Within
      ten Business Days after each Performance Trigger Test Date, a report, in
      form and substance satisfactory to the Lender in its sole discretion,
      delivered by the Borrowers specifying therein, including reasonable
      detail, the Borrowers’ aggregate Inventory value and aggregate Accounts
      Receivable Value as of such Performance Trigger Test Date (each, a “Performance Trigger
      Report”), together with a certificate from the Chief Financial
      Officer of the Borrowers comparing the above–reported amounts as a
      percentage of the same amounts reported as of October 29, 2010 and
      explaining any relevant changes in the level
  thereof.

            


    

     

    
      
         


      

      
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    All such
financial statements and reports delivered pursuant to this Section 5.01 shall be
complete and correct in all material respects (subject, in the case of interim
statements, to normal year-end audit adjustments) and shall be prepared in
reasonable detail and, in the case of the annual and quarterly financial
statements provided in accordance with subsections (a) and (b) above, in
accordance with GAAP applied consistently throughout the periods reflected
therein and further accompanied by a description of, and an estimation of the
effect on the financial statements on account of, any change in the application
of accounting principles.

     

    Section
5.02     Certificates; Other
Information.

     

    The
Borrowers shall furnish, or cause to be furnished, to the Lender:

     

    (a)         Officer’s Compliance
Certificate.  Concurrently with the delivery of the financial
statements referred to in Section 5.01(a) and
Section 5.01(b)
above, a certificate of a Responsible Officer, substantially in the form of
Exhibit C,
stating that, to the best of such Responsible Officer’s Knowledge and belief,
(i) the financial statements fairly present in all material respects the
financial condition of the parties covered by such financial statements; (ii)
during such period the Borrowers have observed or performed in all material
respects the covenants and other agreements hereunder and under the other Credit
Documents relating to them, and satisfied in all material respects the
conditions contained in this Agreement to be observed, performed or satisfied by
them; and (iii) such Responsible Officer has obtained no Knowledge of any
Default or Event of Default except as specified in such
certificate.

     

    (b)         Accountants’
Reports.  Promptly upon receipt, a copy of any final (as
distinguished from a preliminary or discussion draft) “management letter” or
other similar report submitted by independent accountants or financial
consultants to the Borrowers in connection with any annual, interim or special
audit or which refers in whole or in part to any inadequacy, defect, problem,
qualification or other lack of fully satisfactory accounting controls utilized
by the Borrowers.

     

    (c)         Bankruptcy Court
Matters.  Promptly, copies of all pleadings, motions,
applications and other documents filed by the Borrowers with the Bankruptcy
Court or distributed by the Borrowers to the office of the United States Trustee
or to any Statutory Committee.

     

    (d)         Other
Information.  Promptly, such additional financial and other
information as the Lender may from time to time reasonably request.

     

    Section
5.03     Notices.

     

    The
Borrowers shall give notice to the Lender of:

     

    (a)         Defaults.  Immediately
(and in any event within two days) after any applicable officer has Knowledge of
the occurrence of any Default or Event of Default.

     

    (b)         Contractual
Obligations.  Promptly (and in any event within five days)
after any applicable officer has Knowledge of the occurrence of any default or
event of default under any Contractual Obligation of the Borrowers which would
reasonably be expected to have a Material Adverse Effect.

     

    
      
         


      

      
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    (c)         Legal
Proceedings.  Promptly (and in any event within five days)
after any applicable officer has Knowledge of any litigation, or any
investigation or proceeding (including any environmental proceeding), or any
material development in respect thereof, affecting the Borrowers which, if
adversely determined, could result in liability in excess of
$250,000.

     

    (d)         ERISA.  Promptly
(and in any event within ten days) after any applicable officer has Knowledge or
has reason to know of (i) any event or condition, including, but not limited to,
any Reportable Event, that constitutes, or might reasonably lead to, an ERISA
Event; (ii) with respect to any Multiemployer Plan, the receipt of notice
as prescribed in ERISA or otherwise of any withdrawal liability assessed against
any of their ERISA Affiliates, or of a determination that any Multiemployer Plan
is in reorganization or insolvent (both within the meaning of Title IV of
ERISA); (iii) the failure to make full payment on or before the due date
(including extensions) thereof of all amounts which the Borrowers or any ERISA
Affiliate are required to contribute to each Plan pursuant to its terms and as
required to meet the minimum funding standard set forth in ERISA and the
Internal Revenue Code; or (iv) any change in the funding status of any Plan that
reasonably could be expected to have a Material Adverse Effect; together with a
description of any such event or condition or a copy of any such notice and a
statement by the Chief Financial Officer of the Borrowers briefly setting forth
the details regarding such event, condition, or notice, and the action, if any,
which has been or is being taken or is proposed to be taken by the Borrowers
with respect thereto.  Promptly upon request, the Borrowers shall
furnish the Lender with such additional information concerning any Plan as may
be reasonably requested, including, but not limited to, copies of each annual
report/return (Form 5500 series), as well as all schedules and attachments
thereto required to be filed with the Department of Labor and/or the Internal
Revenue Service pursuant to ERISA and the Internal Revenue Code, respectively,
for each “plan year” (within the meaning of section 3(39) of
ERISA).

     

    (e)         Other.  Promptly
(and in any event within five days), any other development or event of which any
applicable officer has Knowledge and determines could reasonably be expected to
have a Material Adverse Effect.

     

    Each
notice pursuant to this subsection shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrowers propose to take with respect
thereto.

     

    Section
5.04     Payment of
Obligations.  Subject to the DIP Financing Orders and to the
Lender funding the Loan as required under this Agreement, the Borrowers shall
pay, discharge or otherwise satisfy, at or before maturity or before they become
delinquent (subject, where applicable, to specified grace periods), as the case
may be, all postpetition obligations of the Borrowers of whatever nature and any
additional costs that are imposed as a result of any failure to so pay,
discharge or otherwise satisfy such obligations, except when the amount or
validity of such obligations and costs is currently being contested in good
faith by appropriate proceedings and reserves, if applicable, in conformity with
GAAP with respect thereto have been provided on the books of the Borrowers, as
the case may be.


    
      
         


      

      
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    Section
5.05     Conduct of Business and
Maintenance of Existence.  Subject to the DIP Financing Orders,
the Borrowers shall (a) continue to engage, in Business of the same general type
as conducted on the Closing Date by the Borrowers and similar or related
businesses; (b) preserve, renew and keep in full force and effect its corporate
or other legal existence except as otherwise permitted by this Agreement; (c)
take all reasonable action to maintain all rights, privileges, licenses and
franchises necessary or desirable in the normal conduct of their Business except
to the extent that failure to comply therewith would not, in the aggregate, have
a Material Adverse Effect and (d) comply with all post-petition Contractual
Obligations, its certificate of incorporation or by-laws (or other
organizational or governing documents) and all Laws applicable to it except to
the extent that failure to comply therewith would not, in the aggregate, have a
Material Adverse Effect.

     

    Section
5.06      Maintenance of Property;
Insurance.

     

    (a)         The
Borrowers shall keep all of their material Property useful and necessary in
their Business in reasonably good working order and condition (ordinary wear and
tear excepted) except to the extent that failure to comply therewith would not,
in the aggregate, have a Material Adverse Effect.

     

    (b)         The
Borrowers agree to maintain, at the levels and of the types set forth in Schedule 5.06,
insurance policies then in effect or, with respect relevant workers’
compensation laws, at the level required to comply with and maintain coverages
required by relevant workers’ compensation laws, provided, the Borrowers may
continue to self insure or receive insurance through a state fund where they
currently do so or place Excess Employers Indemnity Insurance in the State of
Texas in lieu of a Workers’ Compensation Policy.  The Borrowers shall
assure that the insurance policies required by this Section shall continue to be
carried by insurance companies with a general policyholder service rating of not
less than “B++” as rated in the most recent available Best’s Insurance Report.
In the event that any such insurance company which provides a Borrower an
insurance policy or policies required by this Section is no longer financially
responsible and capable of fulfilling the requirements of such policies in the
reasonable opinion of the Lender, such Borrower shall use commercially
reasonable efforts to replace such insurance company within 30 days of receipt
of a written request of the Lender; provided, however, that the
amount of coverage required pursuant to this Section may be reduced or
eliminated, with the written consent of the Lender, if an insurance consultant
or insurance broker retained by any Borrower provides a written recommendation
that, based upon its evaluation of the such Borrower’s maximum foreseeable loss
in the event of a major conflagration, windstorm, explosion, riot, flood, or
similar event, a specified lesser amount is believed to be reasonable given the
nature of the risks insured.

     

    (c)         With
the exception of the Workers’ Compensation and Texas Excess Employers Indemnity
Insurance policies, all such policies shall name the applicable Borrower and the
Lender as insured parties, beneficiaries or loss payees as their interests may
appear.  Each policy shall be in such form and contain such provisions
as are generally considered standard for the type of insurance involved and
except for any workers’ compensation policy, shall contain a provision to the
effect that the insurer shall not cancel or substantially modify the policy
provisions without first giving thirty day advance written notice thereof to the
applicable Borrower and the Lender (except for non-payment of
premium).

     

    
      
         


      

      
        40

        
          

        

      

      
         


      

    

     

    (d)         The
Borrowers will give prompt written notice to the Lender of any loss or claim in
excess of $20,000 (regardless of whether it is covered by insurance), and the
Lender may make proof of loss if not made promptly by the applicable
Borrower.  Each insurance company is hereby authorized and directed to
make payment for such loss directly to the Lender instead of to the applicable
Borrower or to the applicable Borrower and the Lender
jointly.  Insurance proceeds or any part thereof may be applied by the
Lender, at its option, either to the reduction or payment of the Obligations
(without the premiums set forth in Section 2.06(c)) or
to the repair, rebuilding and restoration of the Property lost, damaged or
destroyed, but the Lender shall not be obligated to ensure the proper
application of any amount paid over to the applicable Borrower.

     

    Section
5.07      Inspection of Property;
Books and Records; Discussions.

     

    (a)         Each
Borrower shall keep proper books of records and account in which full, true and
correct entries in conformity with GAAP and all applicable Laws shall be made of
all dealings and transactions in relation to its businesses and
activities;

     

    (b)         Each
Borrower shall permit, during regular business hours and upon reasonable notice
by the Lender, the Lender, and its representatives, to visit and inspect any of
its properties and examine and make abstracts (including photocopies) from any
of its books and records;

     

    (c)         Each
Borrower shall permit the Lender to discuss the business, operations, properties
and financial and other condition of such Borrower (and, to the extent
applicable, the other Borrowers) with officers and employees of such Borrower
and such Borrower’s independent certified public accountants (which shall be
attended by a Responsible Officer if required by such independent certified
public accountants); and

     

    (d)         Each
Borrower shall permit the Lender and its representatives to conduct audits from
time to time of the Inventory and receivables of such Borrower, subject to Section 9.05(a), at
the expense of such Borrower.

     

    Section
5.08      Environmental
Laws.

     

    (a) Each
Borrower shall comply in all material respects with, and take reasonable actions
to ensure compliance in all material respects by all tenants and subtenants, if
any, with, all applicable Environmental Laws and obtain and comply in all
material respects with and maintain, and take reasonable actions to ensure that
all tenants and subtenants obtain and comply in all material respects with and
maintain, any and all licenses, approvals, notifications, registrations or
Permits required by applicable Environmental Laws; and

     

    (b) Each
Borrower shall conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Bodies regarding Environmental Laws
except to the extent that the same are being contested in good faith by
appropriate proceedings and the failure to do or the pendency of such
proceedings would not reasonably be expected to have a Material Adverse
Effect.

     

    Section
5.09      Application of
Proceeds.  The Borrowers shall use the proceeds of the Loan as
provided in Section
4.12.

     

    
      
         


      

      
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    Section
5.10     Compliance with
Budgets.  As of the end of each week, the aggregate amount of
actual disbursements for operating expenses (specifically excluding
disbursements for bankruptcy costs and adequate protection costs) by the
Borrowers during the applicable week shall not exceed the budgeted amounts for
such week (as set forth in the related Weekly Budget) by more than 10% on a
weekly cumulative measured basis.

     

    Section
5.11    Compliance with Laws,
Etc. Governmental Authorities shall comply, in all material respects with
all Laws, licenses and franchises, including all Permits.

     

    Section
5.12     Payment of Taxes,
Etc.  Each Borrower shall pay and discharge, and provide Lender
with proof of payment thereof, before the same shall become delinquent, all
lawful governmental claims, taxes, assessments, charges and levies, except where
contested in good faith by proper proceedings, if adequate reserves therefor
have been established on the books of the Borrowers in conformity with
GAAP.

     

    Section
5.13     Collateral
Documents.  Each Borrower, at its sole cost and expense, shall
take all actions necessary or reasonably requested by the Lender to maintain
each Collateral Document in full force and effect and enforceable in accordance
with its terms, including (a) making filings and recordations, (b) making
payments of fees and other charges, (c) issuing, and if necessary, filing
or recording supplemental documentation, including continuation statements, (d)
discharging all claims or other Liens (other than Permitted Liens and Senior
Liens) adversely affecting the rights of the Lender in the Collateral, and (e)
publishing or otherwise delivering notice to third parties.

     

    Section
5.14     Accounts.  On
the Closing Date, each Borrower shall provide notice to all applicable parties
(other than taxing authorities) of the revocation of all ACH debit access from
any account of such Borrower; it being understood that remittance of taxes be
allowed from accounts.  From and after the Closing Date, each Borrower
shall cause all Collections to be deposited in the Control Account pursuant to
Section
2.16.  Each Borrower hereby authorizes the Lender to collect
all payments, checks, drafts and other instruments received by any Borrower and
to withdraw and hold in reserve or release to the Borrowers funds from time to
time credited to the Control Account in accordance with Section 2.02 or Section 2.03, as
applicable.  Other than as permitted pursuant to an approved Weekly
Budget, no Borrower shall make any withdrawal from any account set forth on
Schedule 4.16,
or direct any funds to be sent from any account set forth on Schedule 4.16 (other
than the Control Account) to any Person other than the Control
Account.

     

    Section
5.15     Bankruptcy
Cases.  The Borrowers will use their best efforts to obtain the
approval of the Bankruptcy Court of this Agreement and the other Credit
Documents.  The Borrowers shall immediately provide to the Lender
copies of all Material Pleadings, notices, orders, agreements, and all other
documents served, filed or entered, as the case may be, in connection with, or
in relation to, the Bankruptcy Cases, including any documents provided by or to
the U.S. Trustee or any Statutory Committee.

     

    
      
         


      

      
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    ARTICLE
VI

     

    NEGATIVE
COVENANTS

     

    As long
as any of the Obligations or Commitments remain outstanding, each of Borrowers
hereby agrees with the Lender that:

     

    Section
6.01     Indebtedness.  No
Borrower shall contract, create, incur, assume or permit to exist, any
Indebtedness, except (a) Indebtedness arising or existing under this Agreement
and the other Credit Documents, and (b) Indebtedness existing on the Petition
Date and set forth on Schedule
6.01.

     

    Section
6.02     Liens.  No
Borrower shall contract, create, incur, assume or permit to exist, any Lien with
respect to any of its property or assets of any kind (whether real or personal,
tangible or intangible), whether now owned or hereafter acquired, except for
Permitted Liens and Senior Liens.

     

    Section
6.03     No Further Negative
Pledges.  Except with respect to prohibitions against other
encumbrances on specific Property encumbered to secure payment of particular
Indebtedness (which Indebtedness relates solely to such specific Property, and
improvements and accretions thereto, and is otherwise permitted hereby), no
Borrower shall enter into, assume or become subject to any agreement prohibiting
or otherwise restricting the creation or assumption of any Lien upon its
properties or assets, whether now owned or hereafter acquired, or requiring the
grant of any security for such obligation if security is given for some other
obligation.

     

    Section
6.04     Consolidation, Merger, Asset
Sale, etc.  Except as contemplated by the sale of the Borrowers
or substantially all of their Property in a sale pursuant to section 363 of the
Bankruptcy Code:

     

    (a)         No
Borrower shall enter into, or cause or permit any of its direct or indirect
Subsidiaries to enter into, a transaction of merger or consolidation (including
the sale of any Equity Interests or substantially all of the assets of such
Borrower or Subsidiary), liquidation, winding-up or dissolution, whether
voluntarily or involuntarily (or suffer to permit any such liquidation or
dissolution), other than in as permitted under this Agreement; and

     

    (b)         No
Borrower shall, without the prior written consent of the Lender (which shall not
be unreasonably withheld or delayed) consummate any Asset Sale; provided that any Asset Sale
to which the Lender consents shall provide that at least 75% of the
consideration in connection therewith shall be cash (and such payment shall be
contemporaneous with consummation of such Asset Sale).

     

    
      
         


      

      
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    Section
6.05      Sale
Leasebacks.  Except as set forth in Schedule 6.05, no
Borrower shall directly or indirectly, become or remain liable as lessee or as
guarantor or other surety with respect to any lease, whether an Operating Lease
or a Capital Lease, of any Property, whether now owned or hereafter acquired,
(a) which such Person has sold or transferred or is to sell or transfer to any
other Person other than the Borrowers; or (b) which such Person intends to use
for substantially the same purpose as any other Property which has been sold or
is to be sold or transferred by such Person to any other Person in connection
with such lease.

     

    Section
6.06      Acquisitions.  No
Borrower shall make any Acquisition.

     

    Section
6.07      Investments.  No
Borrower shall make any Investment in any Person except for Permitted
Investments.

     

    Section
6.08      Restricted
Payments.  No Borrower shall make nor permit any Restricted
Payments, except for transfers, including capital contributions, from a Borrower
to another Borrower.

     

    Section
6.09      No Transfers to
Affiliates.  Except as set forth in Schedule 6.09, no
assets of any Borrower may be transferred to any Affiliate of the Borrowers
absent the consent of the Lender, except for transfers permitted pursuant Section
6.08.

     

    Section
6.10      Limitations on Transactions
with Affiliates.  No Borrower shall enter into or permit to
exist any transaction or series of transactions with any officer, director or
Affiliate of such Person other than (a) intercompany transactions expressly
permitted by Section
6.08; (b) normal compensation and reimbursement of expenses of officers
and directors (including any retention arrangements approved by the Lender); and
(c) except as otherwise specifically limited in this Agreement, other
transactions which are entered into in the ordinary course of such Person’s
business on terms and conditions substantially as favorable to such Person as
would be obtainable by it in a comparable arm’s length transaction with a Person
other than an officer, director or Affiliate.

     

    Section
6.11      Payment of Other
Indebtedness.

     

    (a)         No
Borrower shall pay any Indebtedness arising prior to the Petition Date except as
permitted by this Agreement and as approved by the Bankruptcy
Court.

     

    (b)         No
Borrower shall voluntarily prepay any Indebtedness other than in the ordinary
course of business and provided that no Event of Default has occurred and is
continuing, except the Obligations in accordance with the terms of this
Agreement.

     

    
      
         


      

      
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    Section
6.12     Modification of Contractual
Obligations.  No Borrower shall alter, amend, modify, rescind,
terminate or waive any of its rights or obligations under, or fail to comply in
all material respects with, any of its material Contractual Obligations; provided, however, that in
the event of any breach or event of default by a Person other than the
Borrowers, the Borrowers shall promptly notify the Lender of any such breach or
event of default and take all such action as may be reasonably necessary in
order to avoid having such breach or event of default have a Material Adverse
Effect.

     

    Section
6.13     Bankruptcy
Matters.  Except as expressly permitted by this Agreement, no
Borrower shall incur, create, assume, suffer or permit to exist, or apply to the
Bankruptcy Court for authority to incur, create, assume, suffer or permit to
exist, any claim or Lien against the Borrowers or the Collateral to be pari passu with or senior to
the claims and Liens of the Lender against the Borrowers and the
Collateral.

     

    Section
6.14     No Material
Pleadings.  No Borrower shall file, nor shall it consent to the
filing by any other Person of, any Material Pleading in the Bankruptcy Cases
without the prior written consent of the Lender.

     

    Section
6.15     Fiscal
Year.  No Borrower shall change its fiscal year from its
current fiscal year end.

     

    Section
6.16     Accounting
Changes.  No Borrower shall make any change in accounting
treatment and reporting practices or tax reporting treatment, except as required
by GAAP or applicable Law and disclosed to the Lender.

     

    ARTICLE
VII

     

    EVENTS OF
DEFAULT

     

    Section
7.01     Events of
Default.

     

    An Event
of Default shall exist upon the occurrence of any of the following specified
events (each an “Event
of Default”):

     

    (a)         Payment.  Any
Borrower shall:

     

    
      	
               
      

            	
              (i)

            	
              default
      in payment when due of any principal or interest of the Loan;
      or

            


    

     

    
      	
               
      

            	
              (ii)

            	
              default,
      and such default shall continue for three or more Business Days, in
      payment when due of any fees or other amounts owing under this Agreement
      or any other Credit Documents or otherwise in connection herewith or
      therewith; or

            


    

     

    (b)         Representations.  Any
representation, warranty or statement made or deemed to be made herein, in any
of the other Credit Documents, or in any statement or certificate delivered or
required to be delivered pursuant hereto or thereto shall prove untrue in any
material respect on the date as of which it was made or deemed to have been made
(other than those which are untrue solely as a result of changes permitted by
this Agreement); or

     

    
      
         


      

      
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    (c)         Covenants.  Any
Borrower shall:

     

    
      	
               
      

            	
              (i)

            	
              Default
      in the due performance or observance of any term, covenant or agreement
      contained in ARTICLE V or ARTICLE VI;
or

            


    

     

    
      	
               
      

            	
              (ii)

            	
              Default
      in the due performance or observance by it of any term, covenant or
      agreement (other than those referred to in subsections (a), (b) or (c)(i)
      of this Section
      7.01) contained in this Agreement and such default shall continue
      unremedied for a period of at least 30 days after the earlier of a
      Responsible Officer becoming aware of such default or notice thereof by
      the Lender; or

            


    

     

    (d)         Other Credit
Documents.  (i) Any Borrower shall default in the due
performance or observance of any material term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) any Credit Document shall fail to be (or any Borrower shall claim
or allege in writing that any Credit Document is not) in full force and effect
or to give the Lender any material part of the Liens, rights, powers and
privileges purported to be created thereby; or

     

    (e)         Defaults under Other
Agreements.  With respect to any Indebtedness arising after the
Petition Date (other than Indebtedness outstanding under this Agreement) of any
Borrower, (i) the occurrence of any default after the Petition Date in any
payment (beyond the applicable grace period with respect thereto, if any) with
respect to any such Indebtedness; (ii) the occurrence after the Petition Date
and continuation of a default in the observance or performance relating to such
Indebtedness or contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event or condition shall occur or condition
exist, the effect of which default or other event or condition is to cause, or
permit, the holder or holders of such Indebtedness (or trustee or agent on
behalf of such holders) to cause (determined without regard to whether any
notice or lapse of time is required), any such Indebtedness to become due prior
to its stated maturity; or (iii) any such Indebtedness shall be declared due and
payable, or required to be prepaid other than by a regularly scheduled required
prepayment, prior to the stated maturity thereof; or

     

    (f)          Judgments.  Any
Borrower shall fail within 30 days of the date due and payable to pay, bond or
otherwise discharge any judgment, settlement or order for the payment of money
relating to claims arising after the Petition Date which judgment, settlement or
order, when aggregated with all other such judgments, settlements or orders due
and unpaid at such time, is not covered by insurance and exceeds $500,000, and
which is not stayed on appeal (or for which no motion for stay is pending) or is
not otherwise being executed; or

     

    
      
         


      

      
        46

        
          

        

      

      
         


      

    

     

    (g)         ERISA.  Any
of the following events or conditions, if such event or condition could
reasonably be expected to have a Material Adverse Effect:  (i) any
“accumulated funding deficiency,” as such term is defined in section 302 of
ERISA and section 412 of the Internal Revenue Code, whether or not waived, shall
exist with respect to any Plan, or any Lien shall arise on the assets of the
Borrowers or any ERISA Affiliate in favor of the PBGC or a Plan; (ii) an ERISA
Event shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Lender, likely to result in the termination of such
Plan for purposes of Title IV of ERISA; (iii) an ERISA Event shall occur with
respect to a Multiemployer Plan or Multiple Employer Plan, which is, in the
reasonable opinion of the Lender, likely to result in (A) the termination of
such Plan for purposes of Title IV of ERISA, or (B) the Borrowers or any ERISA
Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of section 4241 of ERISA), or insolvency
of (within the meaning of section 4245 of ERISA) such Plan; or (iv) any
prohibited transaction (within the meaning of section 406 of ERISA or section
4975 of the Internal Revenue Code) or breach of fiduciary responsibility shall
occur which may subject the Borrowers or any ERISA Affiliate to any liability
under sections 406, 409, 502(i), or 502(l) of ERISA or section 4975 of the
Internal Revenue Code, or under any agreement or other instrument pursuant to
which the Borrowers or any ERISA Affiliate has agreed or is required to
indemnify any Person against any such liability; or

     

    (h)         Ownership.  There
shall occur a Change of Control; or

     

    (i)          Failure to File Sale Motion.
Unless otherwise agreed by Lender, (A) failure by any Borrower to have
filed with the Bankruptcy Court by the date which is three Business Days after
the date of this Agreement a motion for authority to sell substantially all of
the assets of the Borrowers pursuant to section 363 of the Bankruptcy Code (the
“Sale Motion”)
on terms and conditions acceptable to the Lender; (B) the entry of any order of
the Bankruptcy Court approving a Sale Motion on terms which are not acceptable
to the Lender; or (C) failure of the sale pursuant to such Sale Motion to have
been closed on terms acceptable to the Lender by the earlier of the date which
is 60 days after the Bankruptcy Court’s entry of the Bid Procedures Order or 135
days after the Petition Date; or

     

    (j)          Prepayment of Other
Indebtedness.  After the Petition Date, any Borrower shall pay
any Indebtedness arising before the Petition Date other than (i) pursuant to the
Critical Vendor Motion and any order thereon; and (ii) in accordance with the
terms hereof as permitted by orders of the Bankruptcy Court reasonably
satisfactory in form and substance to the Lender; or

     

    (k)         Bankruptcy
Cases.  The Bankruptcy Cases shall be dismissed or converted to
one or more cases under chapter 7 of the Bankruptcy Code; a trustee under
chapter 7 or chapter 11 of the Bankruptcy Code shall be appointed in the
Bankruptcy Cases, unless the appointment of such trustee is sought by the
Lender; or the Borrowers shall file or support any application for the approval
of, or there shall arise, any other claim which is an administrative expense
claim having priority over any or all administrative expenses of the kind
specified in sections 503(b) or 507(b) of the Bankruptcy Code; or

     

    (l)          Relief to Lien
Holders.  The Bankruptcy Court shall enter an order granting
relief from the automatic stay applicable under section 362 of the Bankruptcy
Code permitting foreclosure on any asset of the Borrowers; or

     

    (m)        First Day Orders. The
Borrowers shall fail to obtain all First Day Orders of the Bankruptcy Court
within three Business Days after execution of this Agreement; or

     

    (n)         DIP Financing
Orders.  The Bankruptcy Court shall enter an order amending,
supplementing, staying for a period in excess of five days, vacating or
otherwise modifying the Interim DIP Financing Order or the Final DIP Financing
Order which is not consented to by the Lender; or

     

    
      
         


      

      
        47

        
          

        

      

      
         


      

    

     

    (o)         DIP Financing Final
Order.  The Final DIP Financing Order, in a form satisfactory
to the Lender and containing the provisions outlined in Section 3.01(e) and
the form of order attached as Exhibit E, shall not
have been entered by the Bankruptcy Court on or before the expiration of the
Interim Period.

     

    Section
7.02      Acceleration;
Remedies.  Upon the occurrence and during the continuation of
an Event of Default, without further order of, application to, or action by the
Bankruptcy Court, the Lender (a) may, by written notice to the Borrowers declare
that all or any portion of the Commitments be terminated, whereupon the
obligation of the Lender to fund any future Borrowing shall immediately
terminate; and/or (b) may, by written notice to the Borrowers declare the Loan,
all interest thereon and all other amounts and Obligations payable under this
Agreement to be forthwith due and payable, whereupon the Loan, all such
interest, and all such amounts and Obligations shall become and be forthwith due
and payable, without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers.  In addition, subject
solely to any requirement of the giving of notice by the terms of the Interim
DIP Financing Order or the Final DIP Financing Order, the automatic stay
provided in section 362 of the Bankruptcy Code shall be automatically vacated
without further action or order of the Bankruptcy Court, and the Lender shall be
entitled to exercise all of its rights and remedies under the Credit Documents
and applicable Law, including all rights and remedies with respect to the
Collateral.

     

    ARTICLE
VIII

     

    ADDITIONAL
SECURITY

     

    Section
8.01      Priority and
Liens.

     

    (a)         As
to all Real Properties, the Borrowers hereby assign and convey as security,
grant a security interest in, hypothecate, mortgage, pledge and set over unto
the Lender all of the right, title and interest of the Borrowers in all Owned
Real Property and in all Real Property Leases, together in each case with all of
the right, title and interest of the Borrowers in and to all buildings,
improvements, and fixtures related thereto, any lease or sublease thereof, all
general intangibles relating thereto and all proceeds thereof, such assignment,
conveyance and security interest to have the priorities set forth in Section 2.13 above.
Nothing herein to the contrary shall restrict the Lender, on or after the date
hereof, from filing a first deed of trust, leasehold deed of trust, first
mortgage or comparable security document with respect to any of the Owned Real
Property and Leased Real Property to the extent not included in the Initially
Secured Owned Real Properties.

     

    (b)         The
Borrowers acknowledge that, pursuant to the DIP Financing Orders, the Liens in
favor of the Lender in all of such Owned Real Property and Real Property Leases,
and all of the other Collateral, shall be perfected without the taking of any
further action, including any recordation of any instruments of mortgage or
assignment, or the recording or filing of any financing statements, notices of
Lien or other similar instruments.

     

    
      
         


      

      
        48

        
          

        

      

      
         


      

    


     

    ARTICLE
IX

     

    MISCELLANEOUS

     

    Section
9.01      Notices.

     

    Any
notice or other communication required or permitted hereunder shall be in
writing and shall be deemed to have been duly given (a) on the day of delivery
if delivered in person; (b) on the day of delivery if delivered by
facsimile upon confirmation of receipt (provided that if
delivery is completed after the close of business, then the next Business Day);
(c) on the first Business Day following the date of dispatch if delivered using
a next-day service by a nationally recognized express courier service; or (d) on
the earlier of confirmed receipt or the fifth Business Day following the date of
mailing if delivered by registered or certified mail, return receipt requested,
postage prepaid.  All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated by
notice given in accordance with this Section 9.01 by the
party to receive such notice:

     

    if to the
Borrowers:

     

    c/o Palm
Harbor Homes, Inc.

    15303
Dallas Parkway, Suite 800

    Addison,
Texas  75001-4600

    Attention:  Larry
H. Keener, Chairman, President & CEO

    Facsimile:  (972)
764-9020

     

    with a
copy (which does not constitute notice) to:

    


    Locke
Lord Bissell & Liddell LLP

    2200 Ross
Avenue, Suite 2200

    Dallas,
Texas 75201

    Attention:  Gina
Betts

    Facsimile:  (214)
756-8515

    


    If to the
Lender:

    Fleetwood
Homes, Inc.

    c/o Cavco
Industries, Inc.

    1001
North Central Avenue, Suite 800

    Phoenix,
Arizona  85004-1935

    Attention:  James
P. Glew, General Counsel

    Facsimile:  (602)
256-6189

     

    and:

     

    Robert F.
Jordan

    Third
Avenue Management, LLC

    622 Third
Avenue

    32nd
Floor

    New York,
NY 10017

    Facsimile:  (212)
735-0003


    
      
         


      

      
        49

        
          

        

      

      
         


      

    

     

    with a
copy (which does not constitute notice) to:

     

    Garth D.
Stevens, Esq.

    Snell
& Wilmer L.L.P.

    One
Arizona Center

    400 East
Van Buren

    Phoenix,
Arizona 85018

    Facsimile:  (602)
382-6070

     

    Section
9.02      Right of
Set-Off.  In addition to any rights now or hereafter granted
under applicable Law or otherwise, and not by way of limitation of any such
rights, upon the occurrence of an Event of Default, the Lender is authorized at
any time and from time to time, without presentment, demand, protest or other
notice of any kind (all of which rights being hereby expressly waived), to
set-off and to appropriate and apply any and all deposits (general or special)
and any other indebtedness at any time held or owing by the Lender to or for the
credit or the account of the Borrowers against obligations and liabilities of
such Person to the Lender hereunder, under the Note, the other Credit Documents
or otherwise, irrespective of whether the Lender shall have made any demand
hereunder and although such obligations, liabilities or claims, or any of them,
may be contingent or unmatured, and any such set-off shall be deemed to have
been made immediately upon the occurrence of an Event of Default even though
such charge is made or entered on the books of the Lender subsequent
thereto.  Any Person purchasing a participation in the Loan and
Commitments hereunder pursuant to Section 9.03(c) may
exercise all rights of set-off with respect to its participation interest as
fully as if such Person were the Lender hereunder.

     

    Section
9.03      Benefit of
Agreement.

     

    (a)          Generally.  This
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto; provided that, except as
expressly provided herein, the Borrowers may not assign or transfer any of their
interests without prior written consent of the Lender; provided, further, that the rights of
the Lender to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section 9.03, provided however that
nothing herein shall prevent or prohibit the Lender from (i) pledging its Loan
hereunder to a Federal Reserve Bank in support of borrowings made by the Lender
from such Federal Reserve Bank; or (ii) granting assignments or selling
participations in the Lender’s Loan and/or Commitments hereunder to its parent
company and/or to any Affiliate or Subsidiary of the Lender.

     

    (b)          Assignments.  The
Lender may assign all or a portion of its rights and obligations hereunder
(including its Obligations and Commitments) to any other Person.  The
assigning Lender will give prompt notice to the Borrowers of any such
assignment.  Upon the effectiveness of any such assignment, the
assignee shall become a “Lender” for all purposes of this Agreement and the
other Credit Documents and, to the extent of such assignment, the assigning
Lender shall be relieved of its obligations hereunder to the extent of the Loan
and Commitments components being assigned.  Each of the Borrowers
agrees that upon notice of any such assignment and surrender of the Note, it
will promptly provide to the assigning Lender and to the assignee separate
promissory notes in the amount of their respective interests substantially in
the form of the original Note.


    
      
         


      

      
        50

        
          

        

      

      
         


      

    

     

    (c)           Participations.  The
Lender may sell, transfer, grant or assign participations in all or a portion of
the Lender’s rights, obligations or rights and obligations hereunder (including
all or a portion of its Commitments or its Loan); provided that (i) the Lender
shall remain a “Lender” for all purposes under this Agreement (the Lender’s
obligations under the Credit Documents remaining unchanged) and the participant
shall not constitute a Lender hereunder; (ii) no such participant shall have, or
be granted, rights to approve any amendment or waiver relating to this Agreement
or the other Credit Documents except to the extent any such amendment or waiver
would (A) reduce the principal of or rate of interest on or fees in respect of
the Loan in which the participant is participating or (B) postpone the date
fixed for any payment of principal (including extension of the Maturity Date or
the date of any mandatory prepayment), interest or fees in which the participant
is participating; and (iii) sub-participations by the participant (except to an
affiliate, parent company or affiliate of a parent company of the participant)
shall be prohibited.  In the case of any such participation, the
participant shall not have any rights under this Agreement or the other Credit
Documents (the participant’s rights against the Lender in respect of such
participation to be those set forth in the participation agreement with the
Lender creating such participation) and all amounts payable by the Borrowers
hereunder shall be determined as if the Lender had not sold such
participation.

     

    Section
9.04      No Waiver; Remedies
Cumulative.  No failure or delay on the part of the Lender in
exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Lender and  the
Borrowers shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder.  The rights
and remedies provided herein are cumulative and not exclusive of any rights or
remedies which the Lender would otherwise have.  No notice to or
demand on the Borrowers in any case shall entitle the Borrowers to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Lender to any other or further action in any
circumstances without notice or demand.

     

    Section
9.05      Payment of Expenses;
Indemnification.

     

    (a)          Each
of the Borrowers agrees, jointly and severally, to:  (i) pay all
reasonable out-of-pocket costs and expenses of the Lender in connection with (A)
the conduct of due diligence including the costs of the Lender for obtaining
surveys, environmental assessments and title searches; (B) the negotiation,
preparation, execution and delivery and administration of this Agreement and the
other Credit Documents and the documents and instruments referred to therein
(including the reasonable fees and expenses of counsel of the Lender), up to a
maximum of $350,000 in the aggregate; provided that such limitation
shall not include any amounts paid or payable by Borrowers in respect of
required title insurance policies; (C) any amendment, waiver or consent relating
hereto and thereto including, but not limited to, any such amendments, waivers
or consents resulting from or related to any work-out, renegotiation or
restructure relating to the performance by the Borrowers under this Agreement;
and (D) enforcement of the Credit Documents and the documents and instruments
referred to therein (including in connection with any such enforcement, the
reasonable fees and disbursements of counsel for the Lender); (ii) permit the
Lender to perform monthly Inventory and Accounts Receivable field audits at the
Borrowers’ expense; provided that the Lender
shall not be precluded by application of this clause from conducting additional
audits at its own expense; and (iii) pay and hold the Lender harmless from and
against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save the Lender harmless from and against
any and all liabilities with respect to or resulting from any delay or omission
(other than to the extent attributable to the Lender) to pay such
taxes.


    
      
         


      

      
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    (b)          Each
of the Borrowers, jointly and severally, shall indemnify the Lender and its
officers, directors, employees, representatives and agents from and hold each of
them harmless against any and all losses, liabilities, claims, damages or
expenses incurred by any of them as a result of, or arising out of, or in any
way related to, or by reason of (A) any investigation, litigation or other
proceeding (whether or not the Lender is a party thereto) related to the
entering into and/or performance of any Credit Document, including the
management and application of funds deposited in the Control Account or the use
of proceeds of the Loan or the consummation of any other transactions
contemplated in any Credit Document, including the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding; or (B) the presence or Release of any Hazardous
Materials at, under or from any Property owned, operated or leased by the
Borrowers or any of its Subsidiaries, or the failure by the Borrowers or any of
its Subsidiaries to comply with any Environmental Law (but excluding, in the
case of either of clause (A) or (B) above, any such losses, liabilities, claims,
damages or expenses to the extent incurred by reason of gross negligence or
willful misconduct on the part of the Person to be indemnified).

     

    Section
9.06      Amendments, Waivers and
Consents.  No amendment or waiver of any provision of this
Agreement nor consent to any departure by the Borrowers therefrom shall in any
event be effective unless the same shall be in writing and signed by the Lender,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.

     

    Section
9.07      Survival.  All
indemnities set forth herein shall survive the execution and delivery of this
Agreement, the making of the Loan, the repayment of the Loan and other
obligations under the Credit Documents and the termination of the Commitments
hereunder, and all representations and warranties made by the Borrowers herein
shall survive delivery of the Note and the making of the Loan
hereunder.

     

    Section
9.08      Waiver.  Each
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto; (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto; (c) waive compliance with any of the
agreements of the other party contained herein; or (d) waive satisfaction of any
condition to its obligations hereunder.  Any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by the party
to be bound thereby.  No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege.  All remedies, rights, undertakings, obligations,
and agreements contained herein shall be cumulative and not mutually
exclusive.


    
      
         


      

      
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    Section
9.09      Governing
Law.  This Agreement and all claims with respect thereto shall
be governed by and construed in accordance with the federal bankruptcy law, to
the extent applicable, and, where state law is implicated, the laws of the State
of Delaware without regard to any conflict of laws rules thereof that might
indicate the application of the laws of any other jurisdiction.

     

    Section
9.10      Consent to Jurisdiction;
Service of Process; Waiver of Jury Trial.

     

    (a)          The
parties hereto irrevocably and unconditionally consent to submit to the
jurisdiction of the Bankruptcy Court for any litigation arising out of or
relating to this Agreement and the transactions contemplated hereby (and agree
not to commence any litigation relating hereto except in the Bankruptcy
Court).

     

    (b)          Any
and all service of process and any other notice in any such claim shall be
effective against any party if given personally or by registered or certified
mail, return receipt requested, or by any other means of mail that requires a
signed receipt, postage prepaid, mailed to such party as herein
provided.  Nothing herein contained shall be deemed to affect the
right of any party to serve process in any manner permitted by Law or to
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction.

     

    (c)          If
any claim is brought by any party hereto to enforce its rights or another
party’s obligations under this Agreement or any other agreement, document or
instrument to be delivered by such party on the Closing Date in connection
herewith, the substantially prevailing party in such claim shall be entitled to
recover its reasonable attorneys’ fees and expenses and other costs incurred in
such claim, in addition to any other relief to which it may be
entitled.

     

    (d)          EACH
OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

     

    Section
9.11     Binding Effect;
Assignment.  This Agreement shall be binding upon and inure to
the benefit of the parties and their respective successors and
assigns.  This Agreement is not assignable by any party without the
prior written consent of the other party, except that the Lender may assign this
Agreement, in whole or in part, without the consent of Borrowers to a successor
or successors under a plan or plans of reorganization confirmed by the
Bankruptcy Court.


    
      
         


      

      
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    Section
9.12      Interpretation;
Headings.  All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require.  All terms defined in this Agreement in their singular or
plural forms have correlative meanings when used herein in their plural or
singular forms, respectively.  The term “Lender” includes (i) any of
the Lender’s successor(s); and (ii) any assignee of the Lender who becomes a
party hereto pursuant to Section
9.03.  Unless otherwise expressly provided, the words
“include,” “includes” and “including” do not limit the preceding words or terms
and shall be deemed to be followed by the words “without
limitation.”  All references herein to “Sections” shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.  All references herein to “Schedules” and “Exhibits” shall
mean the Schedules and Exhibits attached to this Agreement and forming a part
hereof.  The words “herein,” “hereof” and “hereunder” and other words
of similar import refer to this Agreement as a whole, and not to any particular
Article, Section, subsection or clause in this Agreement.  The Section
headings in this Agreement are for reference only and shall not affect the
interpretation of this Agreement.  The parties acknowledge and agree
that (a) each party and its counsel reviewed and negotiated the terms and
provisions of this Agreement and have contributed to its revision; (b) the rule
of construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (c) the terms and provisions of this Agreement shall be construed fairly as
to all parties, regardless of which party was generally responsible for the
preparation of this Agreement.  Dates and times set forth in this
Agreement for the performance of the parties’ respective obligations hereunder
or for the exercise of their rights hereunder shall be strictly construed, time
being of the essence of this Agreement.  If the date specified or
computed under this Agreement for the performance, delivery, completion or
observance of a covenant, agreement, obligation or notice by any party, or for
the occurrence of any event provided for herein, is a day other than a Business
Day, then the date for such performance, delivery, completion, observance or
occurrence shall automatically be extended to the next Business Day following
such date.  Any definition of or reference to any agreement,
instrument or other document herein shall be construed as referring to such
agreement, instrument or other document as from time to time amended,
supplemented or otherwise modified.

     

    Section
9.13      Severability of
Provisions.  If any provision or any portion of any provision
of this Agreement shall be held invalid or unenforceable, the remaining portion
of such provision and the remaining provisions of this Agreement shall not be
affected thereby.  If the application of any provision or any portion
of any provision of this Agreement to any Person or circumstance shall be held
invalid or unenforceable, the application of such provision or portion of such
provision to Persons or circumstances other than those as to which it is held
invalid or unenforceable shall not be affected thereby.

     

    Section
9.14     Counterparts.  This
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed and delivered shall be an original, but all such
counterparts together shall constitute one and the same
instrument.  Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all, of the parties
hereto.

     

    Section
9.15      No Third Party
Beneficiaries.  Except as otherwise set forth in this
Agreement, no provision of this Agreement is intended to, or shall, confer any
third party beneficiary or other rights or remedies upon any Person other than
the parties hereto.


    
      
         


      

      
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    Section
9.16     Confidentiality.  Each
of the Borrowers and the Lender agrees to keep confidential (and to cause its
affiliates, officers, directors, employees, agents and representatives to keep
confidential) all written information, materials and documents furnished to the
Lender by or on behalf of the Borrower (whether before or after the Closing
Date) which relates to the Borrower (the “Information”).  Notwithstanding
the foregoing, the parties hereto shall be permitted to disclose Information (a)
to its affiliates, officers, directors, employees, agents and representatives in
connection with its participation in any of the transactions evidenced by this
Agreement or any other Credit Documents or the administration of this Agreement
or any other Credit Documents, subject to the provisions of this Section 9.16; (b) to
the extent required by applicable Laws and regulations or by any subpoena or
similar legal process, or requested by any Governmental Body; (c) to the extent
such Information (i) becomes publicly available other than as a result of a
breach of this Agreement or any agreement entered into pursuant to clause (d)
below, (ii) becomes available to the Lender on a non-confidential basis from a
source other than the Borrower or (iii) was available to the Lender on a
non-confidential basis prior to its disclosure to the Lender by the Borrower;
(d) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant (or prospective assignee or participant)
first specifically agrees in a writing furnished to and for the benefit of the
Borrower to be bound by the terms of this Section 9.16; or (e)
to the extent that the Borrower shall have consented in writing to such
disclosure.  Nothing set forth in this Section 9.16 shall
obligate the Lender to return any materials furnished by the
Borrower.

     

    Section
9.17     Conflict.  To
the extent that there is a conflict or inconsistency between any provision
hereof, on the one hand, and any provision of any Credit Document, on the other
hand, this Agreement shall control.

     

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    IN
WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this
Agreement to be duly executed and delivered as of the date first above
written.

    


    
      
        
          
            
              
                
                  
                    
                      
                        
                          
                            
                              
                                
                                  
                                    
                                      
                                        	 
      	
                                                Palm
      Harbor Homes, Inc., a Florida corporation, as
      a Borrower

                                              
	 
      	 
      	 
      
	 
      	
                                                By:

                                              	/s/
      Larry H. Keener
	 
      	
                                                Name:

                                              	Larry
      H. Keener
	 
      	
                                                Title:

                                              	President
      and Chief Executive Officer
	 
      	 
      	 
      
	 
      	
                                                Palm
      Harbor GenPar, LLC, a Nevada limited liability company, as a
      Borrower

                                              
	 
      	 
      	 
      
	 
      	
                                                By:

                                              	/s/
      Larry H. Keener
	 
      	
                                                Name:

                                              	Larry
      H. Keener
	 
      	
                                                Title:

                                              	President
	 
      	 
      	 
      
	 
      	
                                                Palm
      Harbor Mfg., L.P., a Texas limited partnership, as a
      Borrower

                                              
	 
      	 
      	 
      
	 
      	
                                                By:

                                              	/s/
      Larry H. Keener
	 
      	
                                                Name:

                                              	Larry
      H. Keener
	 
      	
                                                Title:

                                              	President
	 
      	 
      	 
      
	 
      	
                                                Palm
      Harbor Real Estate, LLC, a Texas limited liability company, as a
      Borrower

                                              
	 
      	 
      	 
      
	 
      	
                                                By:

                                              	/s/
      Larry H. Keener
	 
      	
                                                Name:

                                              	Larry
      H. Keener
	 
      	
                                                Title:

                                              	President
      of Sole Member
	 
      	 
      	 
      
	 
      	
                                                Nationwide
      Homes, Inc., a Delaware corporation, as a
      Borrower

                                              
	 
      	 
      	 
      
	 
      	
                                                By:

                                              	/s/
      Larry H. Keener
	 
      	
                                                Name:

                                              	Larry
      H. Keener
	 
      	
                                                Title:

                                              	Chairman


                                      

                                    

                                  

                                

                              

                            

                          

                        

                      

                    

                  

                

              

            

          

        

      

    

    


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                            Palm Harbor Albemarie,
      LLC, a Delaware corporation, as a Borrower

                          
	 
      	 
      	 
      
	 
      	
                            By:

                          	/s/
      Larry H. Keener
	 
      	
                            Name:

                          	Larry
      H. Keener
	 
      	
                            Title:

                          	President
	 
      	 
      	 
      
	 
      	
                            Fleetwood Homes, Inc., a
      Delaware corporation, as Lender

                          
	 
      	 
      	 
      
	 
      	
                            By:

                          	/s/
      Joseph H. Stegmayer
	 
      	
                            Name:

                          	Joseph
      H. Stegmayer
	 
      	
                            Title:

                          	Vice
      President


                  

                

              

            

          

        

      

    

    


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