Document:

EXHIBIT
10.1

 

CREDIT
AGREEMENT

 

THIS AGREEMENT
is entered into as of February 20, 2004 by and between SUMMA INDUSTRIES, a
Delaware corporation (“Summa”), KVP FALCON PLASTIC BELTING, INC., a California corporation, PLASTRON
INDUSTRIES, INC., a Delaware corporation, LEXALITE INTERNATIONAL CORPORATION, a
Delaware corporation, CALNETICS CORPORATION, a California corporation, KVP
HOLDINGS, INC., a Delaware corporation, PLASTIC SPECIALTIES, INC., a
Mississippi corporation, FULLERTON HOLDINGS, INC., a California corporation,
AQUARIUS BRANDS, INC., a California corporation, NY-GLASS PLASTICS, INC., a
California corporation, and CENTRAL VALLEY MANUFACTURING, INC., a California
corporation (Summa and the foregoing companies may be referred to
collectively as “Borrowers” and individually as a “Borrower”), and WELLS FARGO
BANK, NATIONAL ASSOCIATION (“Bank”).

 

RECITALS

 

Borrowers have
requested that Bank extend or continue credit to Borrowers as described below,
and Bank has agreed to provide such credit to Borrowers on the terms and
conditions contained herein.

 

NOW,
THEREFORE, for valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Bank and Borrowers hereby agree as follows:

 

ARTICLE I

CREDIT TERMS

 

SECTION 1.1.                               LINE
OF CREDIT.

 

(a)              Line of Credit.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrowers from time to time
up to and including February 1, 2007, not to exceed at any time the aggregate
principal amount of Twenty-five Million Dollars ($25,000,000.00) or such
limitation as may be imposed by the Borrowing Base set forth below (“Line of
Credit”).  The proceeds of the Line of
Credit shall be used to refinance Borrowers’ debt with Comerica Bank and
thereafter for Borrowers’ working capital and general corporate needs.
Borrowers’ obligation to repay advances under the Line of Credit shall be
evidenced by a promissory note executed by Borrowers, dated as of February 20,
2004 (“Line of Credit Note”), all terms of which are incorporated herein by
this reference.

 

(b)             Limitation on
Borrowings. If the average daily principal balance of the Line of Credit,
including without limitation outstanding advances and outstanding Letters of
Credit (as defined below) for any month hereafter, commencing with the month
ending February 29, 2004, exceeds Fifteen Million Dollars ($15,000,000.00),
then (1) not later than twenty (20) days after and as of the end of such month
Borrowers shall provide Bank with the certifications, agings and collateral
reports set forth in Section 4.3(e) below, and (2) thereafter outstanding
borrowings under the Line of Credit, including without limitation outstanding
advances and outstanding Letters of Credit, to a maximum of the principal
amount set forth above, shall not at any time exceed the Borrowing Base (as
defined below); provided, however, that if the Borrowing Base is
established in accordance with the foregoing and at a subsequent month-end

 

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the average daily balance of
the Line of Credit, including without limitation outstanding advances and
outstanding Letters of Credit for any month thereafter, is less than or equal
to Fifteen Million Dollars ($15,000,000.00), then such Borrowing Base
requirement shall be canceled, subject to its reinstatement in accordance with
the foregoing if the average daily balance of the Line of Credit for any  month subsequently exceeds Fifteen Million
Dollars ($15,000,000.00) .

 

As used
herein, “Borrowing Base” means an aggregate of eighty percent (80%) of
Borrowers’ eligible accounts receivable, plus fifty-five percent (55%) of the
value of Borrowers’ eligible inventory (exclusive of work in process, inventory
which is obsolete, unsaleable or damaged, any inventory located outside of the United
States, or any inventory in which Bank does not have a perfected security
interest of first priority), with value defined as the lower of cost or
market.  The Borrowing Base, when
required in accordance with the foregoing, shall be determined by Bank upon
receipt and review of all collateral reports required hereunder and such other
documents and collateral information as Bank may from time to time require.

 

Borrowers
acknowledge that the foregoing advance rates used in the Borrowing Base were
established by Bank with the understanding that, among other items, the
aggregate of all returns, rebates, discounts, credits and allowances for the
three (3) months preceding any such Borrowing Base determination shall be less
than five percent (5%) of Borrowers’ gross sales for said period.  If such dilution of Borrowers’ accounts for
the three (3) months preceding any such Borrowing Base determination exceeds
five percent (5%) of Borrowers’ gross sales for said period, or if there at any
time exists any other matters, events, conditions or contingencies which Bank
reasonably believes may affect payment of any portion of Borrowers’ accounts,
Bank, in its sole discretion, may reduce the foregoing advance rate against
eligible accounts receivable to a percentage appropriate to reflect such
additional dilution and/or establish additional reserves against Borrowers’
eligible accounts receivable.

 

As used
herein, “eligible accounts receivable” shall consist solely of trade accounts
created in the ordinary course of a Borrower’s business, upon which such
Borrower’s right to receive payment is absolute and not contingent upon the
fulfillment of any condition whatsoever, and in which Bank has a perfected
security interest of first priority, and shall not include:

 

(i)                                 any account which is
more than ninety (90) days past due;

 

(ii)                              that portion of any
account for which there exists any right of setoff, defense or discount (except
regular discounts allowed in the ordinary course of business to promote prompt
payment) or for which any defense or counterclaim has been asserted;

 

(iii)                           any account which represents
an obligation of any state or municipal government or of the United States
government or any political subdivision thereof (except accounts which
represent obligations of the United States government and for which the
assignment provisions of the Federal Assignment of Claims Act, as amended or
recodified from time to time, have been complied with to Bank’s satisfaction);

 

(iv)                          any account which represents
an obligation of an account debtor located in a foreign country, except for (1)
an account from an account debtor located in a Canadian province or territory,
so long as, in Bank’s determination, such Canadian jurisdiction recognizes
Bank’s first priority security interest in and right to collect such account as
a consequence of any security agreements and UCC filings in favor of Bank, and
(2) other foreign accounts owing from account debtors listed on Schedule
1.1(b)

 

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attached hereto, so long as (I) the amount owing from any one such
listed account debtor does not exceed five percent (5%) of the total accounts
receivable of Borrowers, and (II) the amount owing from all of the listed
account debtors does not exceed the lesser of $2,000,000.00 or ten percent
(10%) of the total accounts receivable of Borrowers;

 

(v)                             any account which arises
from the sale or lease to or performance of services for, or represents an
obligation of, an employee, affiliate, partner, member, parent or subsidiary of
any Borrower;

 

(vi)                          that portion of any account,
which represents interim or progress billings or retention rights on the part
of the account debtor;

 

(vii)                       any account which represents an
obligation of any account debtor when twenty percent (20%) or more of
Borrowers’ accounts from such account debtor are not eligible pursuant to (i)
above;

 

(viii)                    that portion of any account from an
account debtor which represents the amount by which Borrowers’ total accounts
from said account debtor exceeds twenty-five percent (25%) of Companies’ total
accounts;

 

(ix)                            any account deemed
ineligible by Bank when Bank, in its sole discretion, deems the
creditworthiness or financial condition of the account debtor, or the industry
in which the account debtor is engaged, to be unsatisfactory.

 

(c)              Letter of Credit
Subfeature. As a subfeature under the Line of Credit, Bank agrees from time
to time during the term thereof to issue or cause an affiliate to issue  sight commercial and standby letters of
credit for the account of Borrowers to finance Borrowers’ and Subsidiaries’
general corporate needs (each, a “Letter of Credit” and collectively, “Letters
of Credit”); provided however, that the aggregate undrawn amount of all
outstanding Letters of Credit shall not at any time exceed Ten Million Dollars
($10,000,000.00).  The form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
sole discretion.  Each commercial Letter
of Credit shall be issued for a term not to exceed one hundred fifty (150)
days, as designated by Borrowers, and each standby Letter of Credit shall be
issued for a term not to exceed three hundred sixty-five (365) days, as
designated by Borrowers; provided however, that no Letter of Credit shall have
an expiration date beyond the maturity date of the Line of Credit.  The undrawn amount of all Letters of Credit
shall be reserved under the Line of Credit and shall not be available for
borrowings thereunder.  Each Letter of
Credit shall be subject to the additional terms and conditions of the Letter of
Credit agreements, applications and any related documents required by Bank in
connection with the issuance thereof. 
Each drawing paid under a Letter of Credit shall be deemed an advance
under the Line of Credit and shall be repaid by Borrowers in accordance with
the terms and conditions of this Agreement applicable to such advances;
provided however, that if advances under the Line of Credit are not available,
for any reason, at the time any drawing is paid, then Borrowers shall
immediately pay to Bank the full amount drawn, together with interest thereon
from the date such drawing is paid to the date such amount is fully repaid by
Borrowers, at the rate of interest applicable to advances under the Line of
Credit.

 

(d)             Borrowing and
Repayment.  Borrowers may from time
to time during the term of the Line of Credit borrow, partially or wholly repay
their outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Line of Credit

 

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Note; provided however, that
the total outstanding borrowings under the Line of Credit shall not at any time
exceed the maximum principal amount of the Line of Credit or such other
limitation as may be set forth above.

 

SECTION 1.2.                               TERM
LOAN.

 

(a)              Term Loan.  Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make a loan to Borrowers in the principal
amount of Five Million Dollars ($5,000,000.00) or such lesser amount as may be
required to comply with the limitation set forth below (“Term Loan”).  The proceeds of the Term Loan shall be used
to refinance Borrowers’ existing non-real estate term debt with Comerica Bank.  Borrowers’ obligation to repay the Term Loan
shall be evidenced by a promissory note executed by Borrowers, dated as of
February 20, 2004 (“Term Note”), all terms of which are incorporated herein by
this reference.  The Term Loan shall be
funded concurrently with the initial advance under the Line of Credit.

 

(b)             Repayment.  Principal and interest on the Term Loan
shall be repaid in accordance with the provisions of the Term Note.

 

(c)              Prepayment.  Borrowers may prepay principal on the Term
Loan solely in accordance with the provisions of the Term Note.

 

(d)             Limitation on
Borrowing.  The principal amount of
the Term Loan shall not exceed eighty percent (80%) of the orderly liquidation
value of the equipment of Borrowers in existence as of the date of this
Agreement, as determined by Bank on the basis of such appraisal as Bank may
require.

 

SECTION 1.3.                               INTEREST/FEES.

 

(a)              Interest.                                The
outstanding principal balances of the Line of Credit and the Term Loan shall
bear interest at the rate of interest set forth in each promissory note or
other instrument or document executed in connection therewith. The amount of
each drawing paid under any Letter of Credit shall bear interest from the date
such drawing is paid to the date such amount is fully repaid by Borrowers in
accordance with Section1.1(c) above.

 

(b)             Computation and
Payment.  Interest shall be computed
on the basis of a 360-day year, actual days elapsed.  Interest shall be payable at the times and place set forth in
each promissory note or other instrument or document required hereby.

 

(c)              Unused Commitment
Fee.  Borrowers shall pay to Bank a
fee equal to one quarter percent (0.25%) per annum (computed on the basis of a
360-day year, actual days elapsed) on the average daily unused amount of the
Line of Credit, which fee shall be calculated on a quarterly basis by Bank and
shall be due and payable by Borrower in arrears on the last day of each
quarter.

 

(d)             Commercial Letter
of Credit Fees.  Borrowers shall pay
to Bank fees upon the issuance of each commercial Letter of Credit, upon the
payment or negotiation of each drawing under any commercial Letter of Credit
and upon the occurrence of any other activity with respect to any commercial
Letter of Credit (including without limitation, the transfer, amendment or
cancellation of any commercial Letter of Credit) determined in accordance with
Bank’s standard fees and charges then in effect for such activity.

 

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(e)              Standby Letter of
Credit Fees. Borrowers shall pay to Bank the following fees (i) fees
for the issuance of each Standby Letter of Credit equal to a percentage per
annum (computed on the basis of a 360-day year, actual days elapsed) of the
face amount thereof, which issuance fees shall be payable in arrears on a
quarterly basis on the last day of each quarter, and (ii) fees upon the
payment or negotiation of each draft under any Standby Letter of Credit and
fees upon the occurrence of any other activity with respect to any Standby
Letter of Credit (including without limitation, the transfer, amendment or cancellation
of any Standby Letter of Credit) determined in accordance with Bank’s standard
fees and charges then in effect for such activity.  The aforesaid percentage for calculating the issuance fee for a
standby Letter of Credit shall be equal to the LIBOR margin applicable to
advances under the Line of Credit at the time such Standby Letter of Credit is
issued.

 

SECTION 1.4.                               COLLECTION
OF PAYMENTS.  Borrowers authorize Bank
to collect all principal, interest and fees due under each credit subject
hereto by charging the deposit account number 4100059377 maintained by Summa
with Bank, or any other deposit account maintained by Summa or any other
Borrower with Bank, for the full amount thereof.  Should there be insufficient funds in any such deposit account that
is so debited by Bank to pay all such sums when due, the full amount of such
deficiency shall be immediately due and payable by Borrowers.

 

SECTION 1.5.                               COLLATERAL.

 

As security
for all indebtedness of Borrowers to Bank, each Borrower shall grant to Bank
security interests in its personal property, now owned or hereafter acquired,
including without limitation each Borrower’s accounts receivable, rights to
payment, general intangibles, deposit accounts, documents, instruments, chattel
paper, inventory and equipment; provided, however, that such collateral shall
not include the Preferred Stock Sinking Fund Account (as defined below).

 

The foregoing
security interests shall be of first priority, subject to such purchase money
security interests in favor of other creditors in specific items of equipment
(i) as may be in existence as of the date of this Agreement and disclosed by
Borrowers to Bank in writing prior to the date hereof, or (ii) as may arise
hereafter and be permitted under Section 5.7 below.

 

As used
herein, “Preferred Stock Sinking Fund Account” means that certain investment
account to be opened by Summa, which will be funded by not more than
$7,868,000.00, to be used by Summa for the redemption of its preferred stock.

 

All of the
foregoing security interests shall be evidenced by and subject to the terms of
such security agreements, financing statements and other documents as Bank
shall reasonably require, all in form and substance satisfactory to Bank.  Borrowers shall reimburse Bank immediately
upon demand for all costs and expenses incurred by Bank in connection with any
of the foregoing security, including without limitation, filing and recording
fees and costs of appraisals and audits.

 

ARTICLE II

REPRESENTATIONS AND WARRANTIES

 

Each Borrower
makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement
and shall continue

 

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in full force and effect until
the full and final payment, and satisfaction and discharge, of all obligations
of Borrowers to Bank subject to this Agreement.

 

SECTION 2.1.                               LEGAL
STATUS.  Each Borrower is a corporation,
duly organized and existing and in good standing under the laws of the State of
its incorporation, and is qualified or licensed to do business (and is in good
standing as a foreign corporation, if applicable) in all jurisdictions in which
such qualification or licensing is required or in which the failure to so
qualify or to be so licensed could have a material adverse effect on it.

 

As used herein, “Subsidiary”
shall mean any corporation or other entity of which at least a majority of the
securities or other ownership interests having ordinary voting power for the
election of directors or other persons performing similar functions are owned
directly or indirectly by any Borrower and/or by one or more of any Borrower’s
Subsidiaries.  As used herein,
“Subsidiaries” shall mean each Subsidiary.

 

As used
herein, “Foreign Subsidiary” shall mean any Subsidiary which is organized under
the laws of a jurisdiction outside of the United States of America.

 

Attached
hereto as Schedule 2.1 is a complete and accurate list of all Subsidiaries as
of the date of this Agreement, showing each Subsidiary’s name, nature, status
(active or inactive), jurisdiction of incorporation and ownership.  As set forth therein, as of the date of this
Agreement, Summa owns one hundred percent (100%) of the stock of each other Borrower
and each Subsidiary other than Plastron Industries, Inc., which is ninety
percent (90%) owned by Summa.

 

Each Subsidiary is a
corporation, duly organized and existing and in good standing under the laws of
the jurisdiction of its incorporation or formation, as the case may be, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so
licensed could have a material adverse effect on it.

 

SECTION 2.2.                               AUTHORIZATION
AND VALIDITY.  This Agreement and each
promissory note, contract, instrument and other document required hereby or at
any time hereafter delivered to Bank in connection herewith (collectively, the
“Loan Documents”) have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrowers and Subsidiaries or the
party which executes the same, enforceable in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors’ rights
generally and or by equitable principles relating to enforceability.

 

SECTION 2.3.                               NO
VIOLATION.  The execution, delivery and
performance by each Borrower and each Subsidiary of each of the Loan Documents
to which any of them is a party do not violate any provision of any law or
regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of any Borrower or any Subsidiary, or result in any breach of or
default under any contract, obligation, indenture or other instrument to which
any Borrower or any Subsidiary is a party or by which any Borrower or any
Subsidiary may be bound.

 

SECTION 2.4.                               LITIGATION.  There are no pending, or to the best of
Borrowers’ knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which are reasonably likely to

 

6

 

have a material adverse effect
on the financial condition or operation of any Borrower or any Subsidiary other
than those disclosed by Borrowers to Bank in writing prior to the date hereof.

 

SECTION 2.5.                               CORRECTNESS
OF FINANCIAL STATEMENT.  The financial
statement of Borrowers and Subsidiaries dated November 30, 2003, a true copy of
which has been delivered by Borrowers to Bank prior to the date hereof,
(a) is complete and correct and presents fairly the financial condition of
Borrowers and Subsidiaries as of said date, (b) discloses all liabilities
of Borrowers and Subsidiaries as of said date that are required to be reflected
or reserved against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared
in accordance with generally accepted accounting principles consistently
applied, except as noted therein.  Since
the date of such financial statement there has been no material adverse change
in the financial condition of any Borrower or any Subsidiary, nor has any
Borrower or any Subsidiary mortgaged, pledged, granted a security interest in
or otherwise encumbered any of its assets or properties except in favor of Bank
or as otherwise permitted by Bank under this Agreement or in another writing.

 

SECTION 2.6.                               INCOME
TAX RETURNS.  Borrowers have no
knowledge of any pending assessments or adjustments of any Borrower’s or any
Subsidiary’s income tax payable with respect to any year, except as heretofore
disclosed by Borrower to Bank in writing.

 

SECTION 2.7.                               NO
SUBORDINATION.  There is no agreement,
indenture, contract or instrument to which any Borrower or any Subsidiary is a
party or by which any Borrower or Subsidiary may be bound that requires any of
their indebtedness to Bank in connection with this Agreement or any of the
other Loan Documents to be subordinated in right to payment to any indebtedness
of any Borrower or any Subsidiary to any other person or entity.

 

SECTION 2.8.                               PERMITS,
FRANCHISES.  Each Borrower and each
Subsidiary possess, and will hereafter possess, all permits, consents,
approvals, franchises and licenses required and rights to all trademarks, trade
names, patents, and fictitious names, if any, necessary to enable each of them
to conduct the business in which it is now engaged in compliance with
applicable law.

 

SECTION 2.9.                               ERISA.  Each Borrower and each Subsidiary are in
compliance in all material respects with all applicable provisions of the
Employee Retirement Income Security Act of 1974, as amended or recodified from
time to time (“ERISA”); no Borrower or Subsidiary has violated any provision of
any defined employee pension benefit plan (as defined in ERISA) maintained or
contributed to by any Borrower or any Subsidiary (each, a “Plan”); no
Reportable Event as defined in ERISA has occurred and is continuing with
respect to any Plan initiated by any Borrower or any Subsidiary; each Borrower
and each Subsidiary have met their minimum funding requirements under ERISA
with respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.

 

SECTION 2.10.                         OTHER
OBLIGATIONS.  No Borrower or Subsidiary
is in default on any obligation for borrowed money, any purchase money
obligation or any other material lease, commitment, contract, instrument or
obligation.

 

SECTION 2.11.                         ENVIRONMENTAL
MATTERS.  Except as disclosed by
Borrowers to Bank in writing prior to the date hereof, Borrowers and
Subsidiaries are in compliance in all material respects with all applicable
federal or state environmental, hazardous waste, health and safety statutes,
and any rules or regulations adopted pursuant thereto, which govern or

 

7

 

affect any of their operations
and/or properties, including without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Resource Conservation
and Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any
of the same may be amended, modified or supplemented from time to time.  None of the operations of any Borrower or
any Subsidiary is the subject of any federal or state investigation evaluating
whether any remedial action involving a material expenditure is needed to
respond to a release of any toxic or hazardous waste or substance into the
environment.  To the best of each
Borrower’s knowledge, no Borrower or Subsidiary has any material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.

 

ARTICLE III

CONDITIONS

 

SECTION 3.1.                               CONDITIONS
OF INITIAL EXTENSION OF CREDIT.  The
obligation of Bank to extend any credit contemplated by this Agreement is
subject to the fulfillment to Bank’s satisfaction of all of the following
conditions:

 

(a)              Approval of Bank
Counsel.  All legal matters
incidental to the extension of credit by Bank shall be satisfactory to Bank’s
counsel.

 

(b)             Documentation.  Bank shall have received, in form and
substance satisfactory to Bank, each of the following, duly executed:

 

(i)                              This
Agreement and each promissory note or other instrument or document required
hereby.

(ii)                           Corporate
borrowing resolution and third party collateral resolution for each Borrower.

(iii)                        Security
agreement from each Borrower.

(iv)                       Letter of
Credit Agreements as required hereunder.

(v)                          Copies
of the formation documents of each Borrower and Subsidiary, as Bank may
require.

(vi)                       Such other
documents as Bank may require under any other Section of this Agreement,
including without limitation such documents as Bank may require to perfect its
security interests in accordance with this Agreement.

 

(c)              Financial
Condition.  There shall have been no
material adverse change, as determined by Bank, in the financial condition or
business of any Borrower or any Subsidiary, nor any material decline, as
determined by Bank, in the market value of any collateral required hereunder or
a substantial or material portion of the assets of any Borrower or any
Subsidiary.

 

(d)             Insurance.  Borrowers shall have delivered to Bank
evidence of insurance coverage on all property of each Borrower and each
Subsidiary, in form, substance, amounts, covering risks and issued by companies
satisfactory to Bank, and where required by Bank, with loss payable
endorsements in favor of Bank.

 

(e)              Appraisals.  Bank shall have obtained, at Borrowers’
cost, an appraisal of the equipment supporting the Term Loan, issued by an
appraiser acceptable to Bank and in form, substance and reflecting values
satisfactory to Bank.

 

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(f)                Projections.  Borrowers shall have delivered to Bank their
consolidated projections (for Borrowers and any Subsidiary) for the next fiscal
year.

 

SECTION 3.2.                               CONDITIONS
OF EACH EXTENSION OF CREDIT.  The
obligation of Bank to make each extension of credit requested by Borrowers
hereunder shall be subject to the fulfillment to Bank’s satisfaction of each of
the following conditions:

 

(a)              Compliance.  The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and
on each such date, no Event of Default as defined herein, and no condition,
event or act which with the giving of notice or the passage of time or both
would constitute such an Event of Default, shall have occurred and be
continuing or shall exist.

 

(b)             Documentation.  Bank shall have received all additional
documents which may reasonably be required in connection with such extension of
credit.

 

ARTICLE IV

AFFIRMATIVE COVENANTS

 

Each Borrower
covenants that so long as Bank remains committed to extend credit to Borrowers
pursuant hereto, or any liabilities (whether direct or contingent, liquidated
or unliquidated) of Borrowers to Bank under any of the Loan Documents remain
outstanding, and until payment in full of all obligations of Borrowers subject
hereto, unless Bank otherwise consents in writing:

 

SECTION 4.1.                               PUNCTUAL
PAYMENTS.  Each Borrower shall
punctually pay all principal, interest, fees or other liabilities due under any
of the Loan Documents at the times and place and in the manner specified
therein, and immediately upon demand by Bank, the amount by which the
outstanding principal balance of any credit subject hereto at any time exceeds
any limitation on borrowings applicable thereto.

 

SECTION 4.2.                               ACCOUNTING
RECORDS.  Each Borrower shall, and shall
cause each Subsidiary to, maintain adequate books and records in accordance
with generally accepted accounting principles consistently applied, and permit
any representative of Bank, at any reasonable time, to inspect, audit and
examine such books and records, to make copies of the same, and to inspect the
properties of each Borrower and each Subsidiary.

 

SECTION 4.3.                               FINANCIAL
STATEMENTS.  Each Borrower shall provide
to Bank all of the following, in form and detail satisfactory to Bank:

 

(a)              not later than 90
days after and as of the end of each fiscal year, an audited consolidated
financial statement of Summa (and the other Borrowers and each Subsidiary),
prepared by a certified public accountant reasonably acceptable to Bank, to
include balance sheet, income statement and statement of cash flows, together
with its 10-K report;

 

(b)             not later than 45
days after and as of the end of each first, second and third fiscal quarter,
and not later than 60 days after and as of the end of each fourth fiscal
quarter, a consolidated financial statement of Summa (and the other Borrowers
and each Subsidiary),

 

9

 

prepared by Borrowers, to
include balance sheet, income statement, statement of cash flows and if
applicable, its 10-Q report;

 

(c)              not later than
August 31 of each year, consolidated projections of Summa (and the other
Borrowers and each Subsidiary) for the following fiscal year, to include
projected balance sheet and income statement;

 

(d)             not later than 45
days after and as of the end of each first, second and third fiscal quarter,
and not later than 60 days after and as of the end of each fourth fiscal
quarter, an inventory collateral report, an aged listing of accounts receivable
and accounts payable, and a reconciliation of accounts, with the foregoing
prepared on a consolidated basis for Borrowers;

 

(e)              not later than 20
days after and as of the end of each month when Borrowers are required to
maintain the Borrowing Base, a borrowing base certificate, an inventory
collateral report, an aged listing of accounts receivable and accounts payable,
and a reconciliation of accounts, with the foregoing prepared on a consolidated
basis for Borrowers;

 

(f)                from time to time
such other information as Bank may reasonably request, including without
limitation a list of the names and addresses of all account debtors of each
Borrower.

 

SECTION 4.4.                               COMPLIANCE.  Each Borrower shall, and shall cause each
Subsidiary to, preserve and maintain all licenses, permits, governmental
approvals, rights, privileges and franchises necessary for the conduct of each
of their businesses; and comply with the provisions of all documents pursuant
to which each of them  is organized
and/or which govern the continued existence of each of them and with the
requirements of all laws, rules, regulations and orders of any governmental
authority applicable to any of them and/or any of their businesses.

 

SECTION 4.5.                               INSURANCE.  Each Borrower shall, and shall cause each
Subsidiary to, maintain and keep in force insurance of the types and in amounts
customarily carried in similar lines of business, including but not limited to
fire, extended coverage, public liability, flood, property damage and workers’
compensation, with all such insurance carried with companies and in amounts satisfactory
to Bank, and deliver to Bank from time to time at Bank’s request schedules
setting forth all insurance then in effect.

 

SECTION 4.6.                               FACILITIES.  Each Borrower shall, and shall cause each
Subsidiary to, keep all properties useful or necessary to each of their
businesses in good repair and condition, and from time to time make necessary
repairs, renewals and replacements thereto so that such properties shall be
reasonably preserved and maintained.

 

SECTION 4.7.                               TAXES
AND OTHER LIABILITIES.  Each Borrower
shall, and shall cause each Subsidiary to, pay and discharge when due any and
all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as any of them may in good
faith contest or as to which a bona fide dispute may arise, and (b) for which
they have made provision, to Bank’s reasonable satisfaction, for eventual
payment thereof in the event any Borrower or any Subsidiary is obligated to
make such payment.

 

SECTION 4.8.                               LITIGATION.  Each Borrower shall, and shall cause each
Subsidiary to, promptly give notice in writing to Bank of any litigation
pending or threatened against any Borrower or any Subsidiary with a specified
claim in excess of $500,000.00.

 

10

 

SECTION 4.9.                               FINANCIAL
CONDITION.  Each Borrower shall maintain
its financial condition on a consolidated basis with the other Borrowers and
each Subsidiary as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein):

 

(a)              Adjusted Current
Ratio not less than 0.90 to 1.0 at any time from and including February 29,
2004 up to but not including August 31, 2007, and not less than 1.00 to 1.0 at
any time on or after August 31, 2007, with “Adjusted Current Ratio” defined as
total current assets minus cash and marketable securities deposited in the
Preferred Stock Sinking Fund (as defined in Section 1.5 above) divided by total
current liabilities.  For the purpose of
the foregoing, outstanding advances under the Line of Credit (but not the
undrawn amount of outstanding Letters of Credit) shall be included as current
liabilities (whether or not such advances would be classified as a current
liability per GAAP).

 

(b)             Tangible Net Worth
not less than the Minimum Amount at any time on or after February 29, 2004,
with “Tangible Net Worth” defined as the aggregate of total stockholders’
equity (plus Preferred Stock of Summa if it is not included in calculating such
equity under GAAP) plus subordinated debt less any intangible assets, and with
the “Minimum Amount” defined as follows: 
from and including February 29, 2004, up to but not including the August
31, fiscal year end, the Minimum Amount is $23,500,000.00.  Commencing with the August 31, 2004 fiscal
year end, the Minimum amount shall be adjusted upward on a cumulative basis as
follows:  commencing as of the August
31, 2004 fiscal year end and continuing on each fiscal year end thereafter, the
Minimum Amount shall be increased by fifty percent (50%) of Borrowers’ and
Subsidiaries’ consolidated net profit after taxes for the fiscal year ending on
such date (with no reduction in the event of a loss for any such fiscal year),
minus the amount of Preferred Stock redemptions during such fiscal year (with
no reduction if the amount of such Preferred Stock redemptions for such fiscal
year exceeds fifty percent (50%) of Borrower’s and Subsidiaries consolidated
net profit after taxes for such fiscal year).

 

(c)              Total Liabilities
divided by Adjusted Tangible Net Worth not greater than 2.00 to 1.0 at any time
from and including February 29, 2004, up to and including August 30, 2004, not
greater than 2.25 to 1.0 at any time from and including August 31, 2004 up to
and including August 30, 2006, not greater than 2.50 to 1.00 at any time from
and including August 31, 2006 up to and including August 30, 2007, not greater
than 2.25 to 1.0 at any time from and including August 31, 2007 up to and
including August 30, 2008, and not greater than 2.00 to 1.0 at any time on or
after August 31, 2008, with “Total Liabilities” defined as the aggregate of
current liabilities and non-current liabilities less subordinated debt, and
with “Adjusted Tangible Net Worth” defined as the aggregate of total
stockholders’ equity (plus Preferred Stock of Summa if it is not included in
calculating such equity under GAAP) plus subordinated debt, less any intangible
assets.

 

(d)             Net income after
taxes not less than $1.00 on a quarterly basis as of each fiscal quarter end,
commencing with the February 29, 2004 fiscal quarter end.

 

(e)              EBITDA Coverage
Ratio determined on a rolling four fiscal quarter basis as of the each fiscal
quarter end, not less than 1.50 to 1.00 from and including the four fiscal
quarter period ending February 29, 2004 up to but not including the four fiscal
quarter period ending August 31, 2005, and not less than 2.00 to 1.00 at any
fiscal quarter end on or after August 31, 2005, with “EBITDA” defined as net
profit before tax plus interest expense (net of capitalized interest expense),
depreciation expense and amortization expense, and with “EBITDA

 

11

 

Coverage Ratio” defined as
EBITDA divided by the aggregate of total interest expense plus the current
maturity of long-term debt for such four fiscal quarter period.

 

SECTION 4.10.                         NOTICE TO
BANK. Each Borrower shall promptly (but in no event more than five (5) days
after the occurrence of each such event or matter) give written notice to Bank
in reasonable detail of:  (a) the
occurrence of any Event of Default, or any condition, event or act which with
the giving of notice or the passage of time or both would constitute an Event
of Default; (b) any change in the name or the organizational structure of
any Borrower or any Subsidiary; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; (d) any termination or
cancellation of any insurance policy which any Borrower or any Subsidiary is
required to maintain, or any uninsured or partially uninsured loss through
liability or property damage, or through fire, theft or any other cause
affecting any Borrower’s or any Subsidiary’s property in excess of an aggregate
of $500,000.00; or (e) the commencement of a borrowing relationship between a
Foreign Subsidiary and a lender (other than Bank) which is permitted under
Section 5.2(e) below.

 

 

ARTICLE V

NEGATIVE COVENANTS

 

Each Borrower
further covenants that so long as Bank remains committed to extend credit to
Borrowers pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrowers to Bank under any of the Loan
Documents remain outstanding, and until payment in full of all obligations of
Borrowers subject hereto, without Bank’s prior written consent:

 

SECTION 5.1.                               USE
OF FUNDS.  Each Borrower will not use
any of the proceeds of any credit extended hereunder except for the purposes
stated in Article I hereof.

 

SECTION 5.2.                               OTHER
INDEBTEDNESS.  Each Borrower will not,
and will not permit any Subsidiary to, create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrowers and Subsidiaries to
Bank, (b) any other liabilities of Borrowers and Subsidiaries existing as
of, and disclosed to Bank in writing prior to, the date hereof, (c) purchase money indebtedness incurred
hereafter by a Borrower or a Subsidiary in connection with the acquisition by
such company in the ordinary course of business of equipment and real property,
(d) borrowings hereafter by a Borrower or a Subsidiary from another Borrower or
Subsidiary in the ordinary course of business, and (e) borrowings hereafter by
a Foreign Subsidiary in the ordinary course of business from a lender (other
than Bank) in the jurisdiction where such Foreign Subsidiary is organized.   The parties acknowledge that this Section
5.2(c) does not apply to trade debt and accounts payable incurred in the
ordinary course of business.  Notwithstanding
anything to the contrary in this Section 5.2, all obligations of
Borrowers and Subsidiaries to Comerica Bank shall be repaid in full and
terminated concurrently with the initial extension of credit hereunder, except
for such existing real-estate secured term loans from Comerica Bank as are
heretofore approved by Bank.

 

SECTION 5.3.                               MERGER,
CONSOLIDATION, TRANSFER OF ASSETS.  Each
Borrower will not, and will not permit any Subsidiary to, merge into or
consolidate with any other entity, except for (a) the merger of any Borrower
into Summa (with Summa as the survivor), (b)

 

12

 

the merger of any Borrower
other than Summa into any other Borrower which is a wholly-owned Subsidiary of
Summa (with such other Borrower as the survivor), (c) the merger of any
Subsidiary of any Borrower into such Borrower (with such Borrower as the
survivor), and (d) the merger of any corporation into any Borrower or any
wholly-owned Subsidiary of any Borrower (with such Borrower or wholly-owned
Subsidiary as the survivor) as part of a Permitted Acquisition (as defined
below); make any substantial change in the nature of any Borrower’s or any
Subsidiary’s business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity, except for mergers which
are permitted hereunder and Permitted Acquisitions; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of any
Borrower’s or any Subsidiary’s assets except in the ordinary course of
business.

 

As used
herein, “Permitted Acquisitions” means any acquisition by any Borrower or any
wholly-owned Subsidiary of any Borrower of (a) all or substantially all of the
operating assets of any person or entity, or (b) all or substantially all of
the stock of any corporation (so that such corporation becomes a wholly-owned
Subsidiary); provided, however, that all of the following conditions are
satisfied:

 

(i)                 The assets,
entity or line of business which is acquired is in a substantially similar line
of business as that of Borrowers and Subsidiaries as their businesses are
conducted on the date of this Agreement.

 

(ii)              The acquisition is
consummated in compliance with applicable law.

 

(iii)           There is no Event of
Default, nor any act, condition or event which with the giving of notice or the
passage of time or both would constitute an Event of Default, and no such Event
of Default or potential Event of Default would result after giving effect to
the acquisition.

 

(iv)          Borrowers give Bank at
least thirty (30) days prior notice of the acquisition;

 

(v)             Borrowers furnish
Bank with copies of such documents and with such information pertaining to the
acquisition as Bank may require, including without limitation copies of any acquisition
agreement and formation documents of any acquired company.

 

(vi)          The aggregate
consideration (valuing any non-cash consideration at its fair market value, and
including without limitation the amount of all liabilities assumed or acquired)
does not exceed Ten Million Dollars ($10,000,000.00) for all such acquisitions
in the aggregate during any fiscal year.

 

(vii)       In the case of the
acquisition of a U.S. corporation, such corporation shall become one of the
Borrowers under this Agreement and such corporation and the other Borrowers
shall execute and/or deliver to Bank such documents as Bank may reasonably
require to evidence such relationship. 
In connection therewith, such corporation shall grant Bank a security
interest in its personal property assets on the same terms as specified herein
for Borrowers.

 

SECTION 5.4.                               GUARANTIES.  Each Borrower will not, and will not permit
any Subsidiary to, guarantee or become liable in any way as surety, endorser
(other than as endorser of negotiable instruments for deposit or collection in
the ordinary course of business), accommodation endorser or otherwise for, nor
pledge or hypothecate any assets as security for, any liabilities or
obligations of any other person or entity, except (a) any of the foregoing in favor
of Bank, and (b) any of the foregoing existing as of, and disclosed by
Borrowers to Bank in writing, prior to the date hereof.  Notwithstanding anything to the contrary in this Section 5.4,

 

13

 

any of the foregoing
guaranties, third party pledges and third party security interests in favor of
Comerica Bank shall be terminated concurrently with the initial extension of
credit hereunder.

 

SECTION 5.5.                               LOANS,
ADVANCES, INVESTMENTS.  Each Borrower
will not, and will not permit any Subsidiary to, make any loans or advances to
or investments in any person or entity, except (a) any of the foregoing
existing as of, and disclosed to Bank in writing prior to, the date hereof,
(b)  loans made hereafter by a Borrower or a Subsidiary to another Borrower or Subsidiary
in the ordinary course of business, and (c) Permitted Acquisitions.

 

SECTION 5.6.                               DIVIDENDS,
DISTRIBUTIONS.  Each Borrower will not,
and will not permit any Subsidiary to, declare or pay any dividend or distribution
either in cash, stock or any other property on any Borrower’s or any
Subsidiary’s stock now or hereafter outstanding, nor redeem, retire, repurchase
or otherwise acquire any shares of any class of any Borrower’s or any
Subsidiary’s stock now or hereafter outstanding; provided however,
that (1) any Subsidiary of Summa may pay cash dividends to Summa, (2) Summa may
pay lawful cash dividends to its shareholders on its common stock and make
lawful repurchases its common stock so long as all such payments and
repurchases during any fiscal year to not exceed, in the aggregate, the lesser
of Two Million Dollars ($2,000,000.00) or the consolidated net profit after
taxes of Summa for such fiscal year (determined in accordance with GAAP), and
(3) Summa may make lawful redemptions of its preferred stock; provided,
however, that no payment or redemption under the preceding subdivisions (2)
or (3) of this paragraph shall be made if there exists any Event of Default, or
any act, condition or event which with the giving of notice or the passage of
time or both would constitute such an Event of Default, or if any such Event of
Default would result after giving effect to such transaction

 

SECTION 5.7.                               PLEDGE
OF ASSETS.  Each Borrower will not, and
will not permit any Subsidiary to, mortgage, pledge, grant or permit to exist a
security interest in, or lien upon, all or any portion of any Borrower’s or any
Subsidiary’s assets now owned or hereafter acquired, except (a) any of the
foregoing in favor of Bank, (b) any of the foregoing which is existing as of,
and disclosed to Bank in writing prior to, the date hereof, (c) purchase money
security interests hereafter granted by a Borrower or a Subsidiary to a
creditor to secure purchase money indebtedness permitted under Section 5.2(c)
above, and (d) security interests hereafter granted by a Foreign Subsidiary in
its assets to a lender (other than Bank) to secure borrowings by such Foreign
Subsidiary from such lender which are permitted under Section 5.2(e) above.

 

ARTICLE VI

EVENTS OF DEFAULT

 

SECTION 6.1.                               The
occurrence of any of the following shall constitute an “Event of Default” under
this Agreement:

 

(a)              Any Borrower shall
fail to pay within five (5) days of the date when due any principal, interest,
fees or other amounts payable under any of the Loan Documents.

 

(b)             Any financial
statement or certificate furnished to Bank in connection with, or any
representation or warranty made by any Borrower or any other party under this
Agreement or any other Loan Document shall prove to be incorrect, false or
misleading in any material respect when furnished or made.

 

14

 

(c)              Any default in the
performance of or compliance with any obligation, agreement or other provision
contained herein or in any other Loan Document (other than those referred to in
subsections (a) and (b) above), and with respect to any such default which by
its nature can be cured, such default shall continue for a period of twenty
(20) days from its occurrence; provided, however, that in the case of a
default which by its nature can be cured under the following covenants of this
Agreement, such default shall continue for a period of twenty (20) days from
Borrowers receipt of written notice thereof from Bank:  Section 4.2 as it relates to the maintenance
of adequate books and records in accordance with GAAP; Section 4.3 as it
relates to Bank’s satisfaction with the form and detail of the reporting
thereunder; section 4.4; Section 4.5; Section 4.6; and Section 4.7 as it
relates to making provision to Bank’s reasonable satisfaction for payment of
the amount referenced therein.

 

(d)             Any default in the
payment or performance of any obligation, or any defined event of default,
under the terms of any contract or instrument (other than any of the Loan
Documents) pursuant to which any Borrower or any Subsidiary has incurred any
debt or other liability to any person or entity, including Bank; provided,
however, that any cure period applicable thereto has expired and in the
case of a default or defined event of default under the terms of indebtedness
to a person or entity other than Bank such indebtedness is in excess of
$500,000.00, individually or in the aggregate for all such defaults by all of
such companies combined.

 

(e)              The filing of a
notice of judgment lien against any Borrower or any Subsidiary; or the
recording of any abstract of judgment against any Borrower or any Subsidiary in
any county in which such Borrower or such Subsidiary has an interest in real
property; or the service of a notice of levy and/or of a writ of attachment or
execution, or other like process, against the assets of any Borrower or any
Subsidiary; or the entry of a judgment against any Borrower or any Subsidiary
provided, however, that such judgments, liens, levies, writs, executions
and other process involve debts of or claims against any or all of such
companies in excess of $500,000.00, individually or in the aggregate for all
such items against all of said companies combined,  and within thirty (30) days after the creation thereof, or at
least five (5) days prior to the date on which any assets could be lawfully
sold in satisfaction thereof, such debt or claim is not satisfied or stayed
pending appeal and insured against in a manner satisfactory to Bank.

 

(f)                Any Borrower or
any Subsidiary shall become insolvent, or shall suffer or consent to or apply
for the appointment of a receiver, trustee, custodian or liquidator of itself
or any of its property, or shall generally fail to pay its debts as they become
due, or shall make a general assignment for the benefit of creditors; any
Borrower or any Subsidiary shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time (“Bankruptcy
Code”), or under any state or federal law granting relief to debtors, whether
now or hereafter in effect; or any involuntary petition or proceeding pursuant
to the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against any Borrower or any Subsidiary and such involuntary petition or
proceeding is unopposed by such Borrower or Subsidiary or is not dismissed
within sixty (60) days of its commencement, or any Borrower or any Subsidiary
shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or any Borrower or any Subsidiary
shall be adjudicated a bankrupt, or an order for relief shall be entered
against any Borrower or any Subsidiary by any court of competent jurisdiction
under the Bankruptcy Code or any other applicable state or federal law relating
to bankruptcy, reorganization or other relief for debtors.

 

15

 

(g)             There shall exist or
occur any event or condition which Bank in good faith believes impairs the
prospect of payment or performance by any Borrower or any Subsidiary of its
obligations under any of the Loan Documents.

 

(h)             The dissolution or
liquidation of any Borrower or any Subsidiary; or any Borrower or any
Subsidiary, or any of their directors, stockholders or members, shall take
action seeking to effect the dissolution or liquidation of any such Borrower or
Subsidiary.

 

(i)                 Summa at any time
ceases to own one hundred percent (100%) of each Subsidiary other than Plastron
Industries, Inc.; or Summa at any time ceases to own at least ninety percent
(90%) of Plastron Industries, Inc.

 

SECTION 6.2.                               REMEDIES.  Upon the occurrence of any Event of
Default:  (a) all indebtedness of
Borrowers under each of the Loan Documents, any term thereof to the contrary
notwithstanding, shall at Bank’s option and without notice become immediately
due and payable without presentment, demand, protest or notice of dishonor, all
of which are hereby expressly waived by each Borrower; (b) the obligation,
if any, of Bank to extend any further credit under any of the Loan Documents
shall immediately cease and terminate; and (c) Bank shall have all rights,
powers and remedies available under each of the Loan Documents, or accorded by
law, including without limitation the right to resort to any or all security
for any credit subject hereto and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law.  All rights, powers and remedies of Bank may
be exercised at any time by Bank and from time to time after the occurrence of
an Event of Default, are cumulative and not exclusive, and shall be in addition
to any other rights, powers or remedies provided by law or equity.

 

ARTICLE VII

MISCELLANEOUS

 

SECTION 7.1.                             NO
WAIVER.  No delay, failure or
discontinuance of Bank in exercising any right, power or remedy under any of
the Loan Documents shall affect or operate as a waiver of such right, power or
remedy; nor shall any single or partial exercise of any such right, power or
remedy preclude, waive or otherwise affect any other or further exercise
thereof or the exercise of any other right, power or remedy.  Any waiver, permit, consent or approval of
any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in such
writing.

 

SECTION 7.2.                               NOTICES.  All notices, requests and demands which any
party is required or may desire to give to any other party under any provision
of this Agreement must be in writing delivered to each party at the following
address:

 

	
  BORROWERS:

  	
   

  	
  Summa Industries

  
	
   

  	
   

  	
  21250 Hawthorne Blvd., Suite 500

  
	
   

  	
   

  	
  Torrance, California 90503

  
	
   

  	
   

  	
   

  
	
  BANK:

  	
   

  	
  WELLS FARGO BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  	
  South Bay Regional Commercial Banking Office

  
	
   

  	
   

  	
  111 West Ocean Blvd.

  
	
   

  	
   

  	
  3rd Floor

  
	
   

  	
   

  	
  Long Beach, California 90802

  

 

16

 

or to such other address as any party may designate by written notice
to all other parties.  Each such notice,
request and demand shall be deemed given or made as follows:  (a) if sent by hand delivery, upon
delivery; (b) if sent by mail, upon the earlier of the date of receipt or
three (3) days after deposit in the U.S. mail, first class and postage prepaid;
and (c) if sent by telecopy, upon receipt.

 

SECTION 7.3.                               COSTS,
EXPENSES AND ATTORNEYS’ FEES.  Subject
to the last sentence regarding the right of the prevailing party in an action
hereunder to recover its fees and costs from the non-prevailing party,
Borrowers shall pay to Bank immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable
attorneys’ fees (to include outside counsel fees and all allocated costs of
Bank’s in-house counsel), expended or incurred by Bank in connection with
(a) the negotiation and preparation of this Agreement and the other Loan
Documents, Bank’s continued administration hereof and thereof, and the
preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank’s rights and/or the collection of any amounts which become
due to Bank under any of the Loan Documents, and (c) the prosecution or
defense of any action in any way related to any of the Loan Documents,
including without limitation, any action for declaratory relief, whether
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity. 
Notwithstanding the foregoing or any similar provision in any other Loan
Document, the prevailing party in any action to enforce this Agreement or any
of the other Loan Documents shall be entitled to recover its reasonable
attorneys’ fees and costs incurred in connection with such action from the
non-prevailing party.

 

SECTION 7.4.                               SUCCESSORS,
ASSIGNMENT.  This Agreement shall be
binding upon and inure to the benefit of the heirs, executors, administrators,
legal representatives, successors and assigns of the parties; provided however,
that Borrowers may not assign or transfer any interest hereunder without Bank’s
prior written consent.  Bank reserves
the right to sell, assign, transfer, negotiate or grant participations in all
or any part of, or any interest in, Bank’s rights and benefits under each of
the Loan Documents.  In connection
therewith, Bank may disclose all documents and information which Bank now has
or may hereafter acquire relating to any credit subject hereto, any Borrower or
its business, any Subsidiary or the business of such Subsidiary, or any
collateral required hereunder.

 

SECTION 7.5.                               ENTIRE
AGREEMENT; AMENDMENT.  This Agreement
and the other Loan Documents constitute the entire agreement between Borrowers
and Bank with respect to each credit subject hereto and supersede all prior
negotiations, communications, discussions and correspondence concerning the
subject matter hereof.  This Agreement
may be amended or modified only in writing signed by each party hereto.

 

SECTION 7.6.                               NO
THIRD PARTY BENEFICIARIES.  This
Agreement is made and entered into for the sole protection and benefit of the
parties hereto and their respective permitted successors and assigns, and no
other person or entity shall be a third party beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this Agreement
or any other of the Loan Documents to which it is not a party.

 

SECTION 7.7.                               TIME.  Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.

 

17

 

SECTION 7.8.                               SEVERABILITY
OF PROVISIONS.  If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.

 

SECTION 7.9.                               COUNTERPARTS.  This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to
be an original, and all of which when taken together shall constitute one and
the same Agreement.

 

SECTION 7.10.                         GOVERNING
LAW.  This Agreement shall be governed
by and construed in accordance with the laws of the State of California.

 

SECTION
7.11.  JOINT AND SEVERAL LIABILITY.

 

(a)              Borrowers have
determined and represent to Bank that it is in the best interests of Borrowers
and Subsidiaries and in pursuance of their legitimate business purposes to
induce Bank to extend credit pursuant to this Agreement.  Borrowers acknowledge and represent that the
businesses conducted by each Borrower and each Subsidiary are related, the
availability of the commitments provided for herein benefits Borrowers and
Subsidiaries, and advances and other credit extensions made hereunder will
inure to the benefit of Borrowers and Subsidiaries, individually and as a
group.

 

(b)             Borrowers have
determined and represent to Bank that each of Borrowers and of Subsidiaries
has, and after giving effect to the transactions contemplated by this Agreement
will have, assets having a fair saleable value in excess of its debts, after
giving effect to any rights of contribution or subrogation which may be
available to each such company, and each of Borrowers and of Subsidiaries has,
and will have, access to adequate capital for the conduct of its business and
the ability to pay its debts as such debts mature.

 

(c)              Each Borrower agrees
that it is jointly and severally liable to Bank for, and each Borrower agrees
to pay to Bank when due the full amount of, all indebtedness now existing or
hereafter arising to Bank under or in connection with the Line of Credit and
all modifications, extensions and renewals thereof, including without
limitation all advances requested by or disbursed to any Borrower under the
Line of Credit, all interest which accrues thereon, all payments due to Bank in
connection with any Letter of Credit issued by Bank or any affiliate of Bank at
the request of or for the account of any Borrower under the Line of Credit,
including but not limited to the obligation of any Borrower to reimburse Bank
for the amount of any draft paid under any such Letter of Credit and all
interest which accrues thereon, and all fees, costs and expenses chargeable to
Borrowers or any of them in connection with the Line of Credit.

 

(d)             The liability of each
Borrower for the Line of Credit shall be reinstated and revived and the rights
of Bank shall continue if and to the extent that for any reason any amount at
any time paid on account of the Line of Credit is rescinded or must otherwise
be restored by Bank, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, all as though such amount had not been paid.

 

(e)              Each Borrower
authorizes Bank, without notice to or demand on such Borrower, and without
affecting such Borrower’s liability for the Line of Credit, from time to time
to:  (i) alter, compromise, extend,
accelerate or otherwise change the time for payment of, or otherwise change the
terms of, the liabilities and obligations of any other Borrower or any other
person or entity to Bank on account of the Line of Credit; (ii) take and
hold security from any other Borrower or any other person or entity for the
payment of the Line of Credit, and exchange,

 

18

 

enforce, waive, subordinate or
release any such security; (iii) apply such security and direct the order
or manner of sale thereof, including without limitation, a non-judicial sale
permitted by the terms of the controlling security agreement or deed of trust,
as Bank in its discretion may determine; (iv) release or substitute any
one or more of the endorsers or any guarantors of the Line of Credit, or any
other party obligated thereon; and (v) apply payments received by Bank
from any other Borrower to indebtedness of such other Borrower to Bank other
than the Line of Credit.

 

(f)                Each Borrower
represents and warrants to Bank that it has established adequate means of
obtaining from each other Borrower and Subsidiaries on a continuing basis
financial and other information pertaining to each such company’s financial
condition, and each Borrower agrees to keep adequately informed from such means
of any facts, events or circumstances which might in any way affect its risks
hereunder.  Each Borrower further agrees
that Bank shall have no obligation to disclose to it any information or
material about any other Borrower or any Subsidiary which is acquired by Bank
in any manner.

 

(g)             Each Borrower waives
any right to require Bank to: (i) proceed against any other Borrower or
any other person or entity; (ii) marshal assets or proceed against or exhaust
any security held from any other Borrower or any other person or entity;
(iii) pursue any other remedy in Bank’s power; (iv) apply payments
received by Bank from any other Borrower to the Line of Credit; or
(v) make any presentments or demands for performance, or give any notices
of nonperformance, protests, notices of protest or notices of dishonor in
connection with the Line of Credit.

 

(h)             Each Borrower waives
any defense to its liability for the Line of Credit based upon or arising by
reason of: (i) any disability or other defense of any other Borrower or
any other person or entity ; (ii) the cessation or limitation from any
cause whatsoever, other than payment in full, of the liability of any other
Borrower or any other person or entity for the Line of Credit; (iii) any
lack of authority of any officer, director, partner, agent or other person
acting or purporting to act on behalf of any other Borrower or any other party
or any defect in the formation of any other Borrower or any other party;
(iv) the application by any other Borrower of the proceeds of the Line of
Credit for purposes other than the purposes intended or understood by Bank or
any Borrower; (v) any act or omission by Bank which directly or indirectly
results in or aids the discharge of any other Borrower or any other party by
operation of law or otherwise, or which in any way impairs or suspends any
rights or remedies of Bank against any other Borrower or any other party; (vi)
any impairment of the value of any interest in any security for the Line of
Credit, including without limitation, the failure to obtain or maintain
perfection or recordation of any interest in any such security, the release of
any such security without substitution, and/or the failure to preserve the
value of, or to comply with applicable law in disposing of, any such security;
or (vii) any modification of the obligations or liabilities of any other
Borrower or any other party for the Line of Credit, including without
limitation the renewal, extension, acceleration or other change in time for
payment of, or other change in the terms of, the indebtedness of any other
Borrower for the Line of Credit, including increase or decrease of the rate of
interest thereon.  Until the Line of
Credit and all indebtedness of each Borrower to Bank arising under or in
connection with this Agreement shall have been paid in full, no Borrower shall
have any right of subrogation.  Each
Borrower waives all rights and defenses it may have arising out of (A) any
election of remedies by Bank, even though that election of remedies, such as a
non-judicial foreclosure with respect to any security for the Line Credit,
destroys its rights of subrogation or its rights to proceed against any other
Borrower or any other person or entity for reimbursement, or (B) any loss
of rights it may suffer by reason of any rights, powers or remedies of any
other Borrower in connection with any anti-deficiency laws or any other laws
limiting, qualifying or discharging any Borrower’s indebtedness for the Line of
Credit, whether by operation of law or otherwise.  Until the Line of Credit and all indebtedness of each

 

19

 

Borrower to Bank arising under
or in connection with this Agreement shall have been paid in full, each
Borrower waives any right to enforce any remedy which Bank now has or may
hereafter have against any other Borrower or any other person or entity, and
waives any benefit of, or any right to participate in, any security now or
hereafter held by Bank.

 

(i)                 If any of the
waivers herein is determined to be contrary to any applicable law or public
policy, such waiver shall be effective only to the extent permitted by law.

 

(j)                 It is the
position of the Borrowers that each Borrower and each Subsidiary benefit from
the Line of Credit that has been made available by Bank under this Agreement
and from each extension of credit thereunder, regardless of whether such credit
is disbursed to a joint account of Borrowers or to or for the account of any
Borrower.

 

SECTION 7.12.                         ARBITRATION.

 

(a)              Arbitration.  The parties hereto agree, upon demand by any
party, to submit to binding arbitration all claims, disputes and controversies
between or among them (and their respective employees, officers, directors,
attorneys, and other agents), whether in tort, contract or otherwise arising
out of or relating to in any way (i) the credit facilities and related Loan
Documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, enforcement, default or
termination; or (ii) requests for additional credit.

 

(b)             Governing Rules.  Any arbitration proceeding will (i) proceed
in a location in California selected by the American Arbitration Association
(“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the documents between the parties; and (iii) be conducted by the AAA, or such
other administrator as the parties shall mutually agree upon, in accordance
with the AAA’s commercial dispute resolution procedures, unless the claim or
counterclaim is at least $1,000,000.00 exclusive of claimed interest,
arbitration fees and costs in which case the arbitration shall be conducted in
accordance with the AAA’s optional procedures for large, complex commercial
disputes (the commercial dispute resolution procedures or the optional
procedures for large, complex commercial disputes to be referred to, as
applicable, as the “Rules”).  If there
is any inconsistency between the terms hereof and the Rules, the terms and
procedures set forth herein shall control. 
Any party who fails or refuses to submit to arbitration following a
demand by any other party shall bear all costs and expenses incurred by such
other party in compelling arbitration of any dispute.  Nothing contained herein shall be deemed to be a waiver by any
party that is a bank of the protections afforded to it under 12 U.S.C. §91 or
any similar applicable state law.

 

(c)              No Waiver of
Provisional Remedies, Self-Help and Foreclosure.  The arbitration requirement does not limit the right of any party
to (i) foreclose against real or personal property collateral; (ii) exercise
self-help remedies relating to collateral or proceeds of collateral such as
setoff or repossession; or (iii) obtain provisional or ancillary remedies such
as replevin, injunctive relief, attachment or the appointment of a receiver,
before during or after the pendency of any arbitration proceeding.  This exclusion does not constitute a waiver
of the right or obligation of any party to submit any dispute to arbitration or
reference hereunder, including those arising from the exercise of the actions
detailed in sections (i), (ii) and (iii) of this paragraph.

 

20

 

(d)             Arbitrator
Qualifications and Powers.  Any
arbitration proceeding in which the amount in controversy is $5,000,000.00 or
less will be decided by a single arbitrator selected according to the Rules,
and who shall not render an award of greater than $5,000,000.00.  Any dispute in which the amount in
controversy exceeds $5,000,000.00 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.  The arbitrator will be a neutral attorney
licensed in the State of California or a neutral retired judge of the state or
federal judiciary of California, in either case with a minimum of ten years experience
in the substantive law applicable to the subject matter of the dispute to be
arbitrated.  The arbitrator will
determine whether or not an issue is arbitratable and will give effect to the
statutes of limitation in determining any claim.  In any arbitration proceeding the arbitrator will decide (by
documents only or with a hearing at the arbitrator’s discretion) any
pre-hearing motions which are similar to motions to dismiss for failure to
state a claim or motions for summary adjudication.  The arbitrator shall resolve all disputes in accordance with the
substantive law of California and may grant any remedy or relief that a court
of such state could order or grant within the scope hereof and such ancillary
relief as is necessary to make effective any award.  The arbitrator shall also have the power to award recovery of all
costs and fees, to impose sanctions and to take such other action as the
arbitrator deems necessary to the same extent a judge could pursuant to the
Federal Rules of Civil Procedure, the California Rules of Civil Procedure or
other applicable law.  Judgment upon the
award rendered by the arbitrator may be entered in any court having
jurisdiction.  The institution and
maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.

 

(e)              Discovery.  In any arbitration proceeding discovery will
be permitted in accordance with the Rules. 
All discovery shall be expressly limited to matters directly relevant to
the dispute being arbitrated and must be completed no later than 20 days before
the hearing date and within 180 days of the filing of the dispute with the
AAA.  Any requests for an extension of
the discovery periods, or any discovery disputes, will be subject to final
determination by the arbitrator upon a showing that the request for discovery
is essential for the party’s presentation and that no alternative means for
obtaining information is available.

 

(f)                Class
Proceedings and Consolidations.  The
resolution of any dispute arising pursuant to the terms of this Agreement shall
be determined by a separate arbitration proceeding and such dispute shall not
be consolidated with other disputes or included in any class proceeding.

 

(g)             Payment Of
Arbitration Costs And Fees. 
The arbitrator shall award all costs and expenses of the arbitration
proceeding.

 

(h)             Real Property
Collateral; Judicial Reference. 
Notwithstanding anything herein to the contrary, no dispute shall be
submitted to arbitration if the dispute concerns indebtedness secured directly
or indirectly, in whole or in part, by any real property unless (i) the holder
of the mortgage, lien or security interest specifically elects in writing to
proceed with the arbitration, or (ii) all parties to the arbitration waive any
rights or benefits that might accrue to them by virtue of the single action
rule statute of California, thereby agreeing that all indebtedness and
obligations of the parties, and all mortgages, liens and security interests
securing such indebtedness and obligations, shall remain fully valid and
enforceable.  If any such dispute is not
submitted to arbitration, the dispute shall be referred to a referee in
accordance with California Code of Civil Procedure Section 638 et seq., and
this general reference agreement is intended to be specifically enforceable in
accordance with said Section 638.  A referee
with the

 

21

 

qualifications required herein
for arbitrators shall be selected pursuant to the AAA’s selection
procedures.  Judgment upon the decision
rendered by a referee shall be entered in the court in which such proceeding
was commenced in accordance with California Code of Civil Procedure Sections
644 and 645.

 

(i)                 Miscellaneous.  To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA.  No arbitrator or other party to an
arbitration proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the ordinary
course of its business or by applicable law or regulation.  If more than one agreement for arbitration
by or between the parties potentially applies to a dispute, the arbitration
provision most directly related to the Loan Documents or the subject matter of
the dispute shall control.  This
arbitration provision shall survive termination, amendment or expiration of any
of the Loan Documents or any relationship between the parties.

 

SECTION 7.13.                         CONFLICTING
PROVISIONS.  In the event of an express
conflict between any provision of this Agreement and any provision in another
Loan Document, the provision in this Agreement shall prevail.  In this regard, the broader or more
inclusive  description of collateral in
any security agreement that is part of the Loan Documents shall not be
considered in conflict with the narrower or less inclusive description of
collateral in this Agreement.

 

IN WITNESS
WHEREOF, the parties hereto have caused this Agreement to be executed as of the
day and year first written above.

 

	
  WELLS FARGO BANK, NATIONAL ASSOCIATION

  
	
   

  
	
  By:

  	
   

  	
  /s/ Tom Sigurdson

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  SUMMA INDUSTRIES

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title: 

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  KVP FALCON PLASTIC BELTING,
  INC.

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
										

 

22

 

	
  PLASTRON INDUSTRIES, INC.

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  LEXALITE INTERNATIONAL
  CORPORATION

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CALNETICS CORPORATION

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  KVP HOLDINGS, INC.

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  
	
   

  
	
  PLASTIC SPECIALTIES, INC.

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title: 

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  FULLERTON HOLDINGS, INC.

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  AQUARIUS BRANDS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title: 

  	
   

  	
  Vice President

  	
   

  
																						

 

23

 

	
  NY-GLASS PLASTICS, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CENTRAL VALLEY MANUFACTURING,
  INC.

  	
   

  
	
   

  	
   

  
	
  By: 

  	
   

  	
  /s/ Trygve M. Thoresen

  	
   

  
	
   

  
	
  Title:

  	
   

  	
  Vice President

  	
   

  
											

 

 

Certain Schedules and
Exhibits to this Agreement have been omitted from this filing, and the issuer
agrees to furnish supplementally a copy of any omitted schedule or exhibit to
the Securities and Exchange Commission upon request.

 

24Exhibit 4.1

 

CONFORMED COPY

 

FIRST DEED OF AMENDMENT
TO THE INTERCOMPANY

LOAN TERMS AND
CONDITIONS

 

 

DATED 25th November, 2003

 

 

PERMANENT FUNDING (NO. 1) LIMITED

 

and

 

PERMANENT FINANCING (NO. 1) PLC

 

and

 

PERMANENT FINANCING (NO. 2) PLC

 

and

 

THE BANK OF NEW YORK

 

and

 

CITIBANK, N.A.

 

 

	
  

  
	
   

  
	
  London

  
	
  ICM:7338503

  

 

 

CONTENTS

 

	
  Clause

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Interpretation

  	
   

  
	
  2.

  	
  Amendments
  To The Original Intercompany Loan Terms and Conditions

  	
   

  
	
  3.

  	
  Amendments

  	
   

  
	
  4.

  	
  Exclusion of Third
  Party Rights

  	
   

  
	
  5.

  	
  Counterparts and
  Severability

  	
   

  
	
  6.

  	
  Governing Law and
  Jurisdiction

  	
   

  
	
   

  	
   

  
	
  Signatories

  	
   

  

 

Appendix

 

 

THIS FIRST DEED OF AMENDMENT TO THE INTERCOMPANY LOAN TERMS
AND CONDITIONS is made on 25th November, 2003

 

BETWEEN:

 

(1)                                  PERMANENT FUNDING (NO. 1) LIMITED (registered number 4267660),
a private limited company incorporated under the laws of England and Wales,
whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE
(Funding
1);

 

(2)                                  PERMANENT FINANCING (NO. 1) PLC (registered number 4416192),
a public limited company incorporated under the laws of England and Wales,
whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE
(the First
Issuer);

 

(3)                                  PERMANENT FINANCING (NO. 2) PLC (registered number 4623188),
a public limited company incorporated under the laws of England and Wales,
whose registered office is at Blackwell House, Guildhall Yard, London EC2V 5AE
(the Second
Issuer);

 

(4)                                  THE BANK OF NEW YORK, whose principal office is at
One Canada Square, London E14 5AL  in its capacity as Security Trustee; and

 

(5)                                  CITIBANK, N.A., acting through its office is
at 5 Carmelite Street, London EC4Y 0PA and acting in its capacity as the Agent
Bank.

 

WHEREAS:

 

(A)                              On 14th June, 2002 the First
Issuer made a loan to Funding 1 on the terms set out in the terms and
conditions signed for the purposes of identification by Funding 1, the Agent
Bank and the Security Trustee on 14th June, 2002 (the Original  Intercompany Loan Terms and Conditions)
and a separate intercompany loan confirmation dated 14th June, 2002 (the First Issuer
Intercompany Loan Confirmation (together the First Issuer Intercompany Loan Agreement).

 

(B)                                On 6th March, 2003 the Second
Issuer made a loan to Funding 1 on the terms set out in the Original Intercompany
Loan Terms and Conditions and a separate intercompany loan confirmation dated
6th March, 2003 (the Second Issuer Intercompany Loan Confirmation
(together the Second Issuer Intercompany Loan Agreement).

 

(C)                                From time to time Funding 1
may enter into new intercompany loan agreements with New Issuers on the terms
set out in the Intercompany Loan Terms and Conditions (as amended and restated
in the manner set out in this Deed and from time to time) and the relevant new
intercompany loan confirmation (each a New Intercompany Loan Confirmation and
together with the Intercompany Loan Terms and Conditions a New Intercompany Loan Agreement).

 

(D)                               The parties to the First
Intercompany Loan Agreement and the Second Intercompany Loan Agreement have
agreed to amend and restate the Original Intercompany Loan Terms and Conditions
as set out herein.

 

 

NOW THIS DEED WITNESSES as follows:

 

1.                                      INTERPRETATION

 

1.1                                 The amended and restated master definitions
and construction schedule signed by, amongst others, the parties to this Deed
and dated 25th November, 2003 (as the same may be amended, varied or
supplemented from time to time with the consent of the parties to this Deed)
(the Master
Definitions and Construction Schedule) are expressly and
specifically incorporated into this Deed and, accordingly, the expressions
defined in the Master Definitions and Construction Schedule (as so amended,
varied or supplemented from time to time) shall, except where the context
otherwise requires and save where otherwise defined herein, have the same
meanings in this Deed, including the Recitals hereto and this Deed shall be
construed in accordance with the interpretation provisions set out in Clause 2
of the Master Definitions and Construction Schedule.

 

1.2                                 The Intercompany Loan Terms and Conditions
as amended and restated pursuant to this Deed will be referred to as the First
Amended and Restated Intercompany Loan Terms and Conditions and/or the
Intercompany Loan Terms and Conditions, as the context so requires.

 

2.                                      AMENDMENTS TO THE ORIGINAL
INTERCOMPANY LOAN TERMS AND CONDITIONS

 

2.1                                 Upon execution of this Deed by the parties
hereto, the Original Intercompany Loan Terms and Conditions shall be and hereby
are amended and restated in the form set out in the form of Appendix 1 hereto
and the First Issuer Intercompany Loan Agreement and the Second Intercompany
Loan Agreement will be deemed to be amended so that references to the
Intercompany Loan Terms and Conditions signed by Funding 1, the Security
Trustee and the Agent Bank for the purposes of identification on 14th June,
2002, shall be construed as the Intercompany Terms and Conditions as amended
and restated by this Deed.

 

3.                                      AMENDMENTS

 

Subject to Clause 25.8 of the Funding 1
Deed of Charge (Supplemental Provisions Regarding the Security Trustee), any
amendments to this Deed will be made only with the prior written consent of
each party to this Deed.

 

4.                                      EXCLUSION OF THIRD PARTY RIGHTS

 

The parties to this Deed do not intend that
any term of this Deed should be enforced, by virtue of the Contracts (Rights of
Third Parties) Act 1999, by any person who is not a party to this Deed.

 

5.                                      COUNTERPARTS AND SEVERABILITY

 

5.1                                 This Deed may be executed in any number of
counterparts (manually or by facsimile) and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
instrument.

 

5.2                                 Where any provision in or obligation under
this Deed shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations under this Deed, or of such provision or obligation in any other
jurisdiction, shall not be affected or impaired thereby.

 

 

6.                                      GOVERNING LAW AND JURISDICTION

 

6.1                                 This Deed is governed by the laws of
England.

 

6.2                                 Each party to this Deed hereby irrevocably
submits to the non-exclusive jurisdiction of the English courts in any action
or proceeding arising out of or relating to this Deed, and hereby irrevocably
agrees that all claims in respect of such action or proceeding may be heard and
determined by such courts.  Each party
to this Deed hereby irrevocably waives, to the fullest extent it may possibly
do so, any defence or claim that the English courts are an inconvenient forum
for the maintenance or hearing of such action or proceeding.

 

DULY EXECUTED AND DELIVERED AS A DEED by each of the parties hereto
or on its behalf on the date appearing on page 1.

 

 

 

SIGNATORIES

 

Funding 1

 

	
  EXECUTED as a DEED by

  	
  )

  
	
  PERMANENT FUNDING (NO.
  1)

  	
  )

  
	
  LIMITED acting by two

  	
  )

  
	
  directors/a
  director and the secretary

  	
  )

  

 

Director: DAVID BALAI

 

Director: JAMES GARNER SMITH MACDONALD

 

 

First Issuer

 

	
  EXECUTED as a DEED by

  	
  )

  
	
  PERMANENT FINANCING (NO.
  1)

  	
  )

  
	
  PLC acting by two

  	
  )

  
	
  directors/a
  director and the secretary

  	
  )

  

 

Director: DAVID BALAI

 

Director: JAMES GARNER SMITH MACDONALD

 

 

Second Issuer

 

	
  EXECUTED as a DEED by

  	
  )

  
	
  PERMANENT FINANCING (NO.
  2)

  	
  )

  
	
  PLC acting by two

  	
  )

  
	
  directors/a
  director and the secretary

  	
  )

  

 

Director: DAVID BALAI

 

Director: JAMES GARNER SMITH MACDONALD

 

 

Agent Bank

 

	
  EXECUTED as a DEED on behalf of

  	
   

  
	
  CITIBANK, N.A., a company incorporated in

  	
  )

  
	
  the
  United States of America,

  	
  )

  
	
  in
  its capacity as Agent Bank

  	
  )

  
	
  by

  	
  )GEORGIA
  MITCHELL

  

 

being a person who, in accordance with the
laws

of that
territory, is acting under the authority

of the company

 

 

Security
Trustee

 

	
  EXECUTED as a DEED by

  	
  )KATE RUSSELL

  
	
  THE BANK OF NEW YORK

  	
  )

  
	
  acting
  by its attorney in the presence of

  	
  )

  

 

Witness: M. AFSHAR

 

Name: M. AFSHAR

 

Address: ALLEN & OVERY, LONDON

 

 

APPENDIX 1

 

AMENDED AND RESTATED INTERCOMPANY LOAN TERMS AND
CONDITIONS

 

 

INTERCOMPANY LOAN TERMS
AND CONDITIONS

 

 

PERMANENT FUNDING (NO. 1) LIMITED

 

 

CONTENTS

 

	
  Clause

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Interpretation

  	
   

  
	
  2.

  	
  The Term
  Advances

  	
   

  
	
  3.

  	
  Purpose

  	
   

  
	
  4.

  	
  Limited
  Recourse

  	
   

  
	
  5.

  	
  Utilisation of the
  Term Advances

  	
   

  
	
  6.

  	
  Interest

  	
   

  
	
  7.

  	
  Repayment

  	
   

  
	
  8.

  	
  Prepayment

  	
   

  
	
  9.

  	
  Taxes

  	
   

  
	
  10.

  	
  Illegality

  	
   

  
	
  11.

  	
  Mitigation

  	
   

  
	
  12.

  	
  Representations
  and Warranties of Funding 1

  	
   

  
	
  13.

  	
  Covenants

  	
   

  
	
  14.

  	
  Default

  	
   

  
	
  15.

  	
  Default Interest and
  Indemnity

  	
   

  
	
  16.

  	
  Payments

  	
   

  
	
  17.

  	
  Entrenched
  Provisions

  	
   

  
	
  18.

  	
  Further
  Provisions

  	
   

  
	
  19.

  	
  Redenomination

  	
   

  
	
  20.

  	
  Governing Law

  	
   

  
	
   

  	
   

  	
   

  
	
  Schedule

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  1.

  	
  Amended and
  Restated Intercompany Loan Terms And Conditions

  	
   

  
	
  2.

  	
  Notice of Drawdown
  of a Term Advance

  	
   

  
	
  3.

  	
  Solvency
  Certificate

  	
   

  
	
  4.

  	
  Form of
  Relevant Intercompany Loan Confirmation

  	
   

  
	
   

  	
   

  	
   

  
	
  Signatories

  

 

 

TERMS AND CONDITIONS MADE ON 14th June, 2002 and signed on the front page
hereof for the purposes of identification by Permanent Funding (No. 1) Limited,
Citibank, N.A., London Branch (in its capacity as Agent Bank) and State Street
Bank and Trust Company (in its capacity as Security Trustee).

 

WHEREAS:

 

(A)                              On 14th June, 2002 Permanent
Financing (No. 1) PLC (the First Issuer) shall make a loan to
Permanent Funding (No. 1) Limited (Funding 1) on the terms set out in these
terms and conditions (the Intercompany Loan Terms and Conditions) and
the separate intercompany loan confirmation dated 14th June, 2002 (the First Issuer
Intercompany Loan Confirmation (together the First Issuer Intercompany Loan Agreement).

 

(B)                                From time to time Funding 1
may enter into new intercompany loan agreements with New Issuers which shall be
made on the terms set out in these Intercompany Loan Terms and Conditions (as
the same may be amended from time to time in the manner set out herein) and the
relevant new intercompany loan confirmation (each a New Intercompany Loan Confirmation
and together with the Intercompany Loan Terms and Conditions a New
Intercompany Loan Agreement).

 

1.                                      INTERPRETATION

 

1.1                                 Terms used but not otherwise defined in
these Intercompany Loan Terms and Conditions shall, except where the context
otherwise requires and save where otherwise defined in these Intercompany Loan
Terms and Conditions or the relevant Intercompany Loan Agreement, have the
meanings given to them in the master definitions and construction schedule
dated 25th November, 2003 and signed by the parties to the Transaction
Documents (as the same may be amended, varied or supplemented from time to time
with the consent of the parties to the Transaction Documents) (the Master
Definitions and Construction Schedule) and these Intercompany Loan
Terms and Conditions shall be construed accordingly.  References in these Intercompany Loan Terms and Conditions to the
Intercompany Loan Agreement shall include references to these Intercompany Loan
Terms and Conditions as incorporated into the Intercompany Loan Agreement by
way of reference and shall be construed accordingly.

 

2.                                      THE TERM ADVANCES

 

2.1                               Conditions precedent

 

Save as the Issuer and the Security Trustee
may otherwise agree, the Term Advances will not be available for utilisation
unless:

 

(a)                                  Funding 1 and the Issuer have
signed an Intercompany Loan Confirmation (substantially in the form set out in
Schedule 3 to these Intercompany Loan Terms and Conditions);

 

(b)                                 the Security Trustee has
confirmed to Funding 1 that it or its advisers have received all of the
information and documents listed in Schedule 1 to the Intercompany Loan
Confirmation in form and substance satisfactory to the Security Trustee; and

 

(c)                                  the conditions set out in
Clause 5.1 (Drawdown conditions relating to the Term Advances) have been
satisfied.

 

1

 

2.2                               New Intercompany Loan
Agreements

 

Funding 1 may at any time, by written notice
to the Security Trustee and the Rating Agencies, enter into a New Intercompany
Loan Agreement with a New Issuer and draw additional term advances thereunder
(each a New
Term Advance). Each New Term Advance will be financed by the issue
of New Notes by the New Issuer, and will only be permitted if the following
conditions precedent are satisfied on the relevant Drawdown Date:

 

(a)                                  the proceeds of the New
Intercompany Loan are used by Funding 1 in accordance with Clause 3.1 (Purpose
and application of the Term Advances) hereof;

 

(b)                                 each of the Rating Agencies
confirms in writing to the Security Trustee that there will not, as a result of
the New Issuer issuing any New Notes or Funding 1 entering into any additional
agreements as a result of entering into the New Intercompany Loan, be any
adverse effect on the then current ratings by the Rating Agencies of the
existing Notes of any Issuer, the proceeds of which have been advanced to
Funding 1 pursuant to, inter alia, these Intercompany Loan Terms
and Conditions;

 

(c)                                  no Intercompany Loan Event of
Default under any Intercompany Loan Agreement is continuing or unwaived at the
relevant Drawdown Date;

 

(d)                                 the Principal Deficiency
Ledger does not have a debit balance as at the relevant Drawdown Date; and

 

(e)                                  any other relevant conditions
precedent specified in the Intercompany Loan Confirmation.

 

3.                                      PURPOSE

 

3.1                               Purpose and application of the
Term Advances

 

The Term Advances shall be used by Funding
1 either:

 

(a)                                  to pay the Seller (in whole or
in part) for New Loans to be assigned to the Mortgages Trustee pursuant to the
terms of the Mortgage Sale Agreement (which shall increase the Funding 1 Share
of the Trust Property); and/or

 

(b)                                 to acquire a portion of the
Current Seller Share of the Trust Property from the Seller pursuant to the
terms of the Mortgages Trust Deed; and/or

 

(c)                                  to refinance the existing debt
of Funding 1, including any existing Intercompany Loan.

 

3.2                               Application of amounts

 

Without prejudice to the obligations of
Funding 1 under this Clause 3, neither the Security Trustee nor any of the
Funding 1 Secured Creditors shall be obliged to concern themselves as to the
application of amounts drawn by Funding 1 under the Intercompany Loan
Agreement.

 

2

 

4.                                      LIMITED RECOURSE

 

4.1                               Recourse limited to available
funds

 

Each of the Issuer and the Security Trustee
agree that the liability of Funding 1 in respect of its obligations to repay
principal and pay interest or any other amounts due under the Intercompany Loan
Agreement or for any breach of any other representation, warranty, covenant or
undertaking of Funding 1 under the Intercompany Loan Agreement, shall be
limited to amounts standing to the credit of the Funding 1 Transaction Account
and the Funding 1 GIC Account from time to time (including, for the avoidance
of doubt, amounts received by Funding 1 in respect of the Funding 1 Share of
the Trust Property and from the Funding 1 Swap Provider); provided that the
application of such amounts to the discharge of Funding 1’s obligations under
an Intercompany Loan Agreement shall be subject to the terms of the Funding 1
Deed of Charge and the relevant Funding 1 Priority of Payments in all cases.

 

4.2                               Shortfall on Final Repayment
Date in respect of certain Term Advances

 

(a)                                  Clause 4.2(b) will only apply to those Term
Advances specified in the Intercompany Loan Confirmation.

 

(b)                                 On the Final Repayment Date of an
Intercompany Loan, the amount of interest and principal due and payable on the
Term AA Advances or Term BBB Advances of that Intercompany Loan shall be an
amount equal to the sum available to pay all outstanding interest and/or
principal amounts due (including interest and principal amounts deferred and
unpaid) on such Term Advance after paying amounts of a higher order of priority
in accordance with the relevant Funding 1 Priority of Payments.  To the extent that on the Final Repayment
Date of an Intercompany Loan there is a shortfall between the amount available
to pay such interest and principal on the Term AA Advances or Term BBB Advances
of that Intercompany Loan and the amount required to pay such interest and
principal on such Term Advance, then shall shortfall shall be extinguished on
the Final Repayment Date of such Term Advance and Funding 1 shall have no
further liability therefor.

 

5.                                      UTILISATION OF THE TERM ADVANCES

 

5.1                               Drawdown conditions relating
to the Term Advances

 

Save as otherwise provided in the
Intercompany Loan Agreement, the Term Advances will be made available by the
Issuer to Funding 1 on the Closing Date if:

 

(a)                                  the Notes have been issued by
the Issuer and the subscription proceeds have been received by or on behalf of
the Issuer;

 

(b)                                 not later than 2.00 p.m.
(London time) on the Closing Date (or such later time as may be agreed in
writing by Funding 1, the Issuer and the Security Trustee), the Issuer and the
Security Trustee have received from Funding 1 a Drawdown Notice requesting a
drawing under the Intercompany Loan Agreement, receipt of which shall (subject
to the terms of the Intercompany Loan Agreement and to the issue of the Notes
by the Issuer) oblige Funding 1 to borrow the whole of the amount requested in
the Drawdown Notice on the date stated in the Drawdown Notice (which shall be
the Closing Date) upon the terms and subject to the conditions contained in the
Intercompany Loan Agreement;

 

(c)                                  Funding 1 has confirmed in the
relevant Drawdown Notice that:

 

3

 

(i)                                     no Intercompany Loan Event of
Default has occurred and is continuing unremedied (if capable of remedy) or
unwaived or would result from the making of the Term Advances;

 

(ii)                                  the representations set out in
Clause 12 (Representations and Warranties of Funding 1) are true on and as of
the Closing Date by reference to the facts and circumstances then existing;

 

(d)                                 the aggregate principal amount
of the Term Advances to be drawn on the Drawdown Date would not exceed the
amount available for drawing under the Intercompany Loan Agreement as at the
relevant Drawdown Date; and

 

(e)                                  Funding 1 has delivered a
solvency certificate substantially in the form set out in Schedule 2 to these
Intercompany Loan Terms and Conditions.

 

5.2                               Single drawing of the Term
Advances

 

Each of the Term Advances will only be
available for drawing in one amount by Funding 1 on the Drawdown Date subject
to satisfaction of the matters specified in Clause 2.1 (Conditions precedent)
and Clause 5.1 (Drawdown conditions relating to the Term Advances).

 

6.                                      INTEREST

 

6.1                               Interest Periods

 

(a)                                  The first Interest Period will commence on
(and include) the Drawdown Date of the Term Advances and end on (but exclude)
the first Funding 1 Interest Payment Date falling thereafter.  Each subsequent Interest Period shall
commence on (and include) a Funding 1 Interest Payment Date and end on (but
exclude) the next following Funding 1 Interest Payment Date.

 

(b)                                 Whenever it is necessary to compute an
amount of interest in respect of the Term Advances for any period (including
any Interest Period), such interest shall be calculated on the basis of actual
days elapsed in a 365 day year.

 

6.2                               Determination of Term Advance
Rates of Interest

 

(a)                                  The rate of interest payable in respect of
each Term Advance (each a Term Advance Rate of Interest and together
the Term
Advance Rates of Interest) shall be determined on the basis of the
provisions set out below:

 

(i)                                     On the first Term Advance Interest Determination Date
(being the first day of the Interest Period for which the rate will apply) of
the Term Advances, the Agent Bank will determine the Term Advance Rates of
Interest in accordance with the provisions of the Intercompany Loan
Confirmation;

 

(ii)                                  on each subsequent Term Advance Interest
Determination Date, the Agent Bank will determine the Relevant Screen Rate  in respect of each Term Advance as at or
about 11.00 a.m. (London time) on the Term Advance Interest Determination Date
in question.  If the Relevant Screen
Rate is unavailable, the Agent Bank will request the principal London office of
each of the Reference Banks to provide the Agent Bank with its offered
quotation to leading banks for three-month Sterling deposits of £10,000,000 in
the London inter-bank market as at or about 11.00 a.m. (London time)

 

4

 

on the
Term Advance Interest Determination Date and the Term Advance Rates of Interest
for the relevant Interest Period shall be the aggregate of (A) the Relevant
Margin (as defined in the relevant Intercompany Loan Confirmation) for the Term
Advances and (B) the Relevant Screen Rate for the Term Advances or, if the
Relevant Screen Rate is unavailable, the linear interpolation of the arithmetic
mean of such offered quotations for three-month Sterling deposits (rounded
upwards, if necessary, to five decimal places); and

 

(iii)                               if on any Term Advance Interest
Determination Date, the Relevant Screen Rate is unavailable and only two or
three of the Reference Banks provide offered quotations, the Term Advance Rates
of Interest for the relevant Interest Period shall be determined in accordance
with the provisions of sub-paragraph (i) or, as the case may be, (ii) above on
the basis of the offered quotations of those Reference Banks providing such
quotations.  If, on any such Term
Advance Interest Determination Date, only one or none of the Reference Banks
provide the Agent Bank with such an offered quotation, the Agent Bank shall
forthwith consult with the Security Trustee and the Issuer for the purposes of
agreeing two banks (or, where one only of the Reference Banks provided such a quotation,
one additional bank) to provide such a quotation or quotations to the Agent
Bank (which bank or banks are in the opinion of the Security Trustee suitable
for such purpose) and the Term Advance Rates of Interest for the Interest
Period in question shall be determined, as aforesaid, on the basis of the
offered quotations of such banks as so agreed (or, as the case may be, the
offered quotations of such bank as so agreed and the relevant Reference
Bank).  If no such bank or banks is or
are so agreed or such bank or banks as so agreed does or do not provide such a
quotation or quotations, then the Term Advance Rates of Interest for the
relevant Interest Period shall be the Term Advance Rates of Interest in effect
for the last preceding Interest Period to which sub-paragraph (i) or
sub-paragraph (ii), as the case may be, shall have applied but taking account
of any change in the Relevant Margin.

 

There will be no maximum or minimum Term
Advance Rate of Interest.

 

(b)                                 The Agent Bank shall, as soon as practicable
after 11.00 a.m. (London time) on each Term Advance Interest Determination
Date, determine and notify the Issuer, Funding 1, the Cash Manager and the
Security Trustee of (i) the Term Advance Rates of Interest applicable to the
relevant Interest Period and (ii) the sterling amount (the Interest Amount) payable in
respect of such Interest Period in respect of the Outstanding Principal Balance
of each Term Advance.  The Interest
Amount in respect of each Term Advance shall be determined by applying the relevant
Term Advance Rate of Interest to the Outstanding Principal Balance of the
relevant Term Advance, multiplying the sum by 365 days and rounding the
resultant figure to the nearest pence (half a pence being rounded upwards).

 

(c)                                  If the Agent Bank does not at any time for
any reason determine the Term Advance Rate of Interest and/or calculate the
Interest Amount for any of the Term Advances in accordance with the foregoing
paragraphs, the Security Trustee shall (i) determine the Term Advance Rate of Interest
at such rate as (having such regard as it shall think fit to the procedure
described above) it shall deem fair and reasonable in all the circumstances
and/or (as the case may be) (ii) calculate the Interest Amount for each Term
Advance in the manner specified in Clause 6.2(a) and any such determination
and/or calculation shall be deemed to have been made by the Agent Bank.

 

(d)                                 All notifications, opinions,
determinations, certificates, calculations, quotations and decisions given,
expressed, made or obtained for the purposes of this Clause 6, whether by the

 

5

 

Reference
Banks (or any of them) or any other bank or the Agent Bank or the Security
Trustee shall (in the absence of wilful default, bad faith or manifest error)
be binding on Funding 1, the Issuer, the Cash Manager, the Reference Banks,
such bank, the Agent Bank, the Security Trustee and (in such absence as
aforesaid) no liability to Funding 1 shall attach to the Issuer, the Reference
Banks, such bank, the Agent Bank, the Security Trustee or the Cash Manager in
connection with the exercise or non-exercise by them or any of them of their
powers, duties and discretions hereunder.

 

7.                                      REPAYMENT

 

7.1                               Repayment on Funding 1
Interest Payment Dates

 

Each Term Advance shall be repaid in
instalments on the Funding 1 Interest Payment Dates and in the amounts
specified in the Intercompany Loan Confirmation.

 

7.2                               Term Advance Ratings determine
order of repayment

 

(a)                                  Unless otherwise specified in the Intercompany
Loan Confirmation, each Term Advance shall be repaid (as to both interest and
principal) in accordance with the Term Advance Rating of that Term Advance,
such that, to the extent that amounts are due and payable on more than one Term
Advance on any Funding 1 Interest Payment Date, the Term Advance with the
highest Term Advance Rating shall be repaid (as to both interest and principal)
ahead of the Term Advances with the next highest Term Advance Rating, down to
the Term Advances with the lowest Term Advance Rating being repaid (as to both
interest and principal) only after all of the Term Advances with higher Term
Advance Ratings have been repaid.

 

(b)                                 The Term Advances shall be funded by the
issue of a class or classes of Notes to be issued by the Issuer.  The Term Advance Ratings shall be determined
by the rating assigned by the Rating Agencies to the relevant class of Notes on
the Closing Date.  If the ratings
assigned to a class of Notes by any Rating Agency changes after the Closing
Date, then that shall not affect the designated Term Advance Ratings. If the
ratings assigned to two or more Term Advances (including any New Term Advances)
are the same, then those Term Advances and New Term Advances will be repaid (as
to both interest and principal) pro rata and pari passu (but subject to
the relevant Schedule Repayment Dates and permitted repayment dates
thereof).  If the ratings assigned to a
class of Notes by the Rating Agencies are not consistent, then the affected
Term Advance will reflect all the ratings assigned to it and Funding 1 will
make payments on such Term Advance after making payments on Term Advances with
a Term Advance Rating equivalent to or higher than the highest of the ratings
assigned to the affected Term Advance and before Term Advances with a Term
Advance Rating equivalent to or lower than the lowest of the ratings assigned
to the affected Term Advance (unless otherwise agreed with the Security Trustee
and the Rating Agencies).

 

(c)                                  The Term Advance Ratings for each Term
Advance are specified in the Intercompany Loan Confirmation.

 

8.                                      PREPAYMENT

 

8.1                               Prepayment for taxation or
other reasons

 

If:

 

(a)                                  the total Interest Amount in
relation to the Intercompany Loan for any Interest Period ceases to be
receivable (on account of any present or future Taxes, duties, assessments or
governmental charges of whatever nature); or

 

6

 

(b)                                 a Term Advance becomes illegal
as described in Clause 10 (Illegality); or

 

(c)                                  the Issuer is required to
deduct or withhold from any payment of principal, interest or premium in
respect of its Notes any amount for or on account of Tax,

 

then, without prejudice to the obligations
of Funding 1 under Clause 10 (Illegality) and subject to Clause 11
(Mitigation), Funding 1 may, on any Funding 1 Interest Payment Date having
given not more than 60 days and not less than 30 days’ (or such shorter period
as may be required by any relevant law in the case of any Term Advance which
becomes illegal pursuant to Clause 10 (Illegality)) prior written notice to the
Issuer and the Security Trustee (or on or before the latest date permitted by
the relevant law in the case of Clause 10 (Illegality)) and while the relevant
circumstances continue, prepay all but not some only of all of the Term
Advances without penalty or premium but subject to Clause 15 (Default Interest
and Indemnity).

 

8.2                               Application of monies

 

The Issuer hereby agrees to apply any
amounts received by way of prepayment pursuant to Clauses 7.1 (Repayment on
Funding 1 Interest Payment Dates) and 8.1 (Prepayment for taxation or other
reasons) in making prepayments under the Notes.

 

8.3                               Funding 1 Ledgers

 

Funding 1 shall maintain, or cause to be
maintained, the Funding 1 Ledgers in accordance with the Cash Management Agreement.

 

9.                                      TAXES

 

9.1                               No gross up

 

All payments by Funding 1 under the
Intercompany Loan Agreement shall be made without any deduction or withholding
for or on account of and free and clear of, any Taxes, except to the extent
that Funding 1 is required by law to make payment subject to any Taxes.

 

9.2                               Tax receipts

 

All Taxes required by law to be deducted or
withheld by Funding 1 from any amounts paid or payable under the Intercompany
Loan Agreement shall be paid by Funding 1 when due and Funding 1 shall, within
30 days of the payment being made, deliver to the Issuer evidence satisfactory
to that Issuer (including all relevant Tax receipts) that the payment has been
duly remitted to the appropriate authority.

 

10.                               ILLEGALITY

 

If, at any time, it is unlawful for the
Issuer to make, fund or allow to remain outstanding a Term Advance made or to
be made by it under the Intercompany Loan Agreement, then the Issuer shall,
promptly after becoming aware of the same, deliver to Funding 1, the Security
Trustee and the Rating Agencies a legal opinion to that effect from reputable
counsel and if the Issuer so requires, Funding 1 shall promptly to the extent
necessary to cure such illegality prepay all the Term Advances subject to and
in accordance with the provisions of Clause 8.1 (Prepayment for taxation or
other reasons).

 

7

 

11.                               MITIGATION

 

If circumstances arise in respect of the
Issuer which would, or would upon the giving of notice, result in:

 

(a)                                  the prepayment of the Term
Advances pursuant to Clause 10 (Illegality);

 

(b)                                 a withholding or deduction
from the amount to be paid by Funding 1 on account of Taxes, pursuant to Clause
9 (Taxes),

 

then, without in any way limiting, reducing
or otherwise qualifying the obligations of Funding 1 under this Agreement, the
Issuer shall:

 

(i)                                     promptly upon becoming aware
of the circumstances, notify the Security Trustee,  Funding 1 and the Rating Agencies; and

 

(ii)                                  upon written request from
Funding 1, take such steps as may be practical to mitigate the effects of those
circumstances including (without limitation) the assignment of all its rights
under the Intercompany Loan Agreement to, and assumption of all its obligations
under that Intercompany Loan Agreement by, another company satisfactory to the
Security Trustee, which is willing to participate in the relevant Term Advances
in its place and which is not subject to (a) and/or (b) above,

 

provided that no such transfer or
assignment and transfer may be permitted unless the Rating Agencies confirm in
writing to the Issuer and the Security Trustee that there will be no
downgrading of the then current rating of the Notes of any Issuer as a result
and Funding 1 indemnifies the Issuer and the Security Trustee for any
reasonable costs and expenses properly incurred as a result of such transfer or
assignment.

 

12.                               REPRESENTATIONS AND WARRANTIES OF
FUNDING 1

 

12.1                        Representations and warranties

 

Funding 1 makes the representations and
warranties set out in this Clause 12 to the Issuer and the Security Trustee (as
trustee for each of the Funding 1 Secured Creditors).

 

12.2                        Status

 

(a)                                  It is a limited liability company duly
incorporated, validly existing and registered under the laws of the
jurisdiction in which it is incorporated, capable of being sued in its own
right and not subject to any immunity from any proceedings.

 

(b)                                 It has the power to own its property and
assets and to carry on its business as it is being conducted.

 

12.3                        Powers and authority

 

It has the power to enter into, perform and
deliver, and has taken all necessary corporate and other action to authorise
the execution, delivery and performance by it of each of the Transaction
Documents to which it is a party.

 

8

 

12.4                        Legal validity

 

Each Transaction Document to which it is or
will be a party constitutes or when executed in accordance with its terms will
constitute, a legal, valid and binding obligation enforceable in accordance
with its terms, subject to general equitable principles, insolvency,
liquidation and other laws affecting creditors rights generally.

 

12.5                        Non-conflict

 

The execution by it of each of the
Transaction Documents to which it is a party and the exercise by it of its
rights and the performance of its obligations under such Transaction Documents
including, without limitation, borrowing pursuant to the terms of the
Intercompany Loan Agreement or granting any security contemplated by the
Transaction Documents will not:

 

(a)                                  result in the existence or
imposition of nor oblige it to create any Security Interest in favour of any
person (other than the Funding 1 Secured Creditors) over all or any of its
present or future revenues or assets;

 

(b)                                 conflict with any document
which is binding upon it or any of its assets;

 

(c)                                  conflict with its
constitutional documents; or

 

(d)                                 conflict with any law,
regulation or official or judicial order of any government, governmental body
or court, domestic or foreign, having jurisdiction over it.

 

12.6                        No litigation

 

No litigation, arbitration or
administrative proceedings are current or, to its knowledge, pending or
threatened.

 

12.7                        No default

 

No Intercompany Loan Event of Default is
continuing unremedied (if capable of remedy) or unwaived or would result from
the making of any Term Advance.

 

12.8                        Authorisations

 

All governmental consents, licences and
other approvals and authorisations required or desirable in connection with the
entry into, performance, validity and enforceability of, and the transactions
contemplated by, the Transaction Documents have been obtained or effected (as
appropriate) and are in full force and effect.

 

12.9                        Registration requirements

 

Except for due registration of the Funding
1 Deed of Charge under Section 395 of the Companies Act 1985, it is not necessary
that the Funding 1 Deed of Charge or the Intercompany Loan Agreement be filed,
recorded or enrolled with any authority or that, except for registration fees
payable to the Registrar of Companies in respect of the Security Documents, any
stamp, registration or similar tax be paid on or in respect thereof.

 

9

 

12.10                 Ranking of security

 

The security conferred by the Funding 1
Deed of Charge constitutes a first priority security interest of the type
described in the Funding 1 Deed of Charge, over the security assets referred
to, in the Funding 1 Deed of Charge and the security assets are not subject to
any prior or pari passu Security Interests.

 

12.11                 No other business

 

(a)                                  It has not traded or carried on any
business since its date of incorporation or engaged in any activity whatsoever
that is not incidental to or necessary in connection with any of the activities
in which the Transaction Documents provide or envisage that it will engage.

 

(b)                                 It is not party to any material agreements
other than the Transaction Documents.

 

12.12                 Ownership

 

(a)                                  Its entire issued share capital is legally
and beneficially owned and controlled by Holdings.

 

(b)                                 Its shares are fully paid.

 

12.13                 Good title as to assets

 

Funding 1 is and will remain the absolute
beneficial owner of the Funding 1 Share and absolute legal and beneficial owner
of all other assets charged or assigned by the Funding 1 Deed of Charge to
which it is a party.

 

12.14                 Tax

 

(a)                                  It is tax resident and legally domiciled in
its jurisdiction of incorporation.

 

(b)                                 It has no branch, business establishment or
other fixed establishment outside the United Kingdom.

 

12.15                 Repetition

 

The representations in this Clause 12 shall
survive the execution of the Intercompany Loan Agreement and the making of each
Term Advance under the Intercompany Loan Agreement, and shall be repeated by
Funding 1 on each Funding 1 Interest Payment Date after the date of the
Intercompany Loan Agreement by reference to the facts and circumstances then
subsisting.

 

13.                               COVENANTS

 

13.1                        Duration

 

The undertakings in this Clause 13 remain
in force from the date of the Intercompany Loan Agreement for so long as any
amount is or may be outstanding under the Intercompany Loan Agreement.

 

13.2                        Information

 

Funding 1 shall supply to the Security
Trustee and the Rating Agencies:

 

(a)                                  as soon as the same are
available its audited accounts for that Financial Year; and

 

10

 

(b)                                 promptly, such other
information in connection with the matters contemplated by the Transaction
Documents as the Security Trustee or the Rating Agencies may reasonably
request.

 

13.3                        Notification of Default

 

Funding 1 shall notify the Issuer and the
Security Trustee of any Intercompany Loan Event of Default (and the steps, if
any, being taken to remedy it) promptly upon its occurrence.

 

13.4                        Authorisations

 

Funding 1 shall promptly:

 

(a)                                  obtain, maintain and comply
with the terms of; and

 

(b)                                 upon request, supply certified
copies to the Issuer and the Security Trustee of,

 

any authorisation required under any law or
regulation to enable it to perform its obligations under, or for the validity
or enforceability of, any Transaction Document to which it is a party.

 

13.5                        Pari passu ranking

 

Funding 1 shall procure that its
obligations under the Transaction Documents do and will rank at least pari passu
with all its other present and future unsecured obligations, except for
obligations mandatorily preferred by law applying to companies generally.

 

13.6                        Negative pledge

 

Funding 1 shall not create or permit to
subsist any security interest (including but not limited to any mortgage,
standard security, charge (whether legal or equitable), assignment by way of
security, pledge, lien, hypothecation or other security interest securing any
obligation of any person (including, without limitation, any trust or
arrangement having the effect of providing security)) over or in respect of any
of its assets (unless arising by operation of law) other than as provided
pursuant to the Transaction Documents.

 

13.7                        Disposals

 

Funding 1 shall not either in a single
transaction or in a series of transactions, whether related or not and whether
voluntarily or involuntarily, sell, transfer, lease or otherwise dispose of all
or any part of its assets, properties or undertakings or any interest, estate,
rights, title or benefits therein, other than as provided for pursuant to the
Transaction Documents.

 

13.8                        Mergers and acquisitions

 

(a)                                  Funding 1 shall not, without the consent of
the Issuer and the Security Trustee, enter into any amalgamation, demerger,
merger or reconstruction.

 

(b)                                 Funding 1 shall not acquire any assets or
business or make any investments other than as contemplated in the Transaction
Documents.

 

11

 

13.9                        Lending and borrowing

 

(a)                                  Save as contemplated by the Transaction
Documents, Funding 1 shall not make any loans or provide any other form of
credit to any person.

 

(b)                                 Funding 1 shall not give any guarantee or
indemnity to or for the benefit of any person in respect of any obligation of
any other person or enter into any document under which Funding 1 assumes any
liability of any other person.

 

(c)                                  Funding 1 shall not incur any indebtedness
in respect of any borrowed money other than under the Transaction Documents.

 

13.10                 Shares and dividends

 

Funding 1 shall not:

 

(a)                                  declare or pay any dividend or
make any other distribution in respect of any of its shares other than in
accordance with the Funding 1 Deed of Charge;

 

(b)                                 issue any further shares or
alter any rights attaching to its issued shares as at the date hereof; or

 

(c)                                  repay or redeem any of its
share capital.

 

13.11                 Change of business

 

(a)                                  Funding 1 shall not carry on any business
or engage in any activity other than as contemplated by the Transaction
Documents.

 

(b)                                 Funding 1 shall not have any subsidiaries
or subsidiary undertakings as defined in the Companies Act 1985.

 

(c)                                  Funding 1 shall not have any employees or
own any premises.

 

13.12                 Tax

 

(a)                                  Funding 1 shall join with the Issuer in
making a group income election under section 247 of the Income and Corporation
Taxes Act 1988 in relation to any such payments as are referred to in section
247(4) of that Act and which are made under the Intercompany Loan Agreement by
Funding 1 to the Issuer and Funding 1 will ensure that no steps will be taken
(whether by act, omission or otherwise) by it which would reasonably be
expected to lead to the revocation or invalidation of the aforementioned
election.  Funding 1 shall immediately
notify the Issuer and the Security Trustee if it becomes aware that the
aforementioned election has ceased to be in full force and effect or if
circumstances arise, of which it is aware, which would be reasonably likely to
result in that election ceasing to be in full force and effect.

 

(b)                                 Funding 1 shall not apply to become part of
any group for the purposes of section 43 of the Value Added Tax Act 1994 with
the Issuer unless required to do so by law.

 

13.13                 United States Activities

 

Funding 1 will not engage in any activities
in the United States (directly or through agents), will not derive any income
from United States sources as determined under United States income tax
principles and will not hold any property if doing so would cause it to be
engaged

 

12

 

or deemed to be engaged in a trade or
business within the United States as determined under United States tax
principles.

 

14.                               DEFAULT

 

14.1                        Intercompany Loan Events of
Default

 

Each of the events set out in Clauses 14.2
to 14.9 (inclusive) is an Intercompany Loan Event of Default (whether or not
caused by any reason whatsoever outside the control of Funding 1 or any other
person).

 

14.2                        Non-payment

 

Subject to Clause 4.1 (Recourse limited to
available funds), Funding 1 does not pay on the due date or for a period of
three London Business Days after such due date any amount payable by it under
any Intercompany Loan Agreement at the place at and in the currency in which it
is expressed to be payable.

 

14.3                        Breach of other obligations

 

Funding 1 does not comply in any material
respect with any of its obligations under the Transaction Documents (other than
those referred to in Clause 14.2 (Non-payment)) and such non-compliance, if capable
of remedy, is not remedied promptly and in any event within twenty London
Business Days of Funding 1 becoming aware of the non-compliance or receipt of a
notice from the Security Trustee requiring Funding 1’s non-compliance to be
remedied.

 

14.4                        Misrepresentation

 

A representation, warranty or statement
made or repeated in or in connection with any Transaction Document or in any
document delivered by or on behalf of Funding 1 under or in connection with any
Transaction Document is incorrect in any material respect when made or deemed
to be made or repeated.

 

14.5                        Insolvency

 

Any corporate action is taken by Funding 1,
or any legal proceedings are started, for the winding-up, dissolution,
administration or appointment of a liquidator, receiver, administrator,
administrative receiver, trustee or similar officer of Funding 1 or of any or
all of Funding 1’s revenues and assets or any documents are filed with the
court for the appointment of an administrator of Funding 1 or any formal notice
of intention to appoint an administrator of Funding 1 is served or any
application is made or petition is lodged for the making of an administration
order in relation to Funding 1 .

 

14.6                        Creditors’ process

 

Any attachment, sequestration, distress or
execution affects any asset of Funding 1 and is not discharged within twenty
London Business Days.

 

14.7                        Unlawfulness

 

It is or becomes unlawful for Funding 1 to
perform any of its obligations under any Transaction Document.

 

13

 

14.8                        The Funding 1 Deed of Charge

 

The Funding 1 Deed of Charge is not, or is
alleged by Funding 1 not to be, binding on or enforceable against Funding 1 or
effective to create the security intended to be created by it.

 

14.9                        Ownership

 

The entire issued share capital of Funding
1 ceases to be legally and beneficially owned and controlled by Holdings.

 

14.10                 Acceleration

 

Upon the occurrence of an Intercompany Loan
Event of Default which is continuing unremedied and/or has not been waived, the
Security Trustee may by written notice to Funding 1 (the Intercompany Loan Acceleration Notice)
which is copied to each of the Funding 1 Secured Creditors and the Mortgages
Trustee:

 

(a)                                  declare the Term Advances
under each or any Intercompany Loan Agreement to be immediately due and payable
(whereupon the same shall, subject to Clause 14.11 (Repayment of Term Loan on
acceleration)), become so payable together with accrued interest thereon and
any other sums then owed by Funding 1 under the relevant Intercompany Loan
Agreement or Agreements; and/or

 

(b)                                 declare the Term Advances
under each or any Intercompany Loan Agreement to be due and payable on demand
of the Security Trustee.

 

14.11                 Repayment of Term Loan on acceleration

 

Upon the Security Trustee declaring the Term
Advances to be immediately due and payable pursuant to Clause 14.10(a)
(Acceleration), the amount due and payable in respect of the Term Advances
shall be calculated on the basis described in Clause 8.1 (Prepayment for
taxation or other reasons).

 

15.                               DEFAULT INTEREST AND INDEMNITY

 

15.1                        Default Loan Interest Periods

 

If any sum due and payable by Funding 1
under the Intercompany Loan Agreement is not paid on the due date for payment
in accordance with the relevant provision of the Intercompany Loan Agreement or
if any sum due and payable by Funding 1 under any judgment or decree of any
court in connection with the Intercompany Loan Agreement is not paid on the
date of such judgment or decree, the period beginning on such due date or, as
the case may be, the date of such judgment or decree and ending on the date
upon which the obligation of Funding 1 to pay such sum (the balance thereof for
the time being unpaid being herein referred to as an unpaid sum) is discharged
shall be divided into successive periods, each of which (other than the first)
shall start on the last day of the preceding such period and the duration of
each of which shall (except as otherwise provided in this Clause 15) be
selected by the Security Trustee having regard to when such unpaid sum is
likely to be paid.

 

15.2                        Default interest

 

During each such period relating to an
unpaid sum as is mentioned in this Clause 15 an unpaid sum shall bear interest
at the rate per annum which the Issuer, acting reasonably, determines and
certifies to Funding 1 and the Security Trustee, will be sufficient to enable
it

 

14

 

to pay interest and other costs and
indemnities on or in respect of any amount which the Issuer does not pay as a
result of a non-payment under the Intercompany Loan Agreement, and/or any
drawing made by it under the Liquidity Facility Agreement, as a result of such
unpaid sum not being paid to it.

 

15.3                        Payment of default interest

 

Any interest which shall have accrued under
Clause 15.2 (Default interest) in respect of an unpaid sum shall be due and
payable and shall be paid by Funding 1 at the end of the period by reference to
which it is calculated or on such other date or dates as the Security Trustee
may specify by written notice to Funding 1.

 

15.4                        Broken periods

 

Funding 1 shall forthwith on demand
indemnify the Issuer against any loss or liability that the Issuer incurs as a
consequence of any payment of principal being received from any source
otherwise than on a Funding 1 Interest Payment Date or an overdue amount being
received otherwise than on its due date.

 

15.5                        Funding 1’s payment indemnity

 

Funding 1 undertakes to indemnify the
Issuer:

 

(a)                                  against any cost, claim, loss,
expense (including legal fees) or liability together with any amount in respect
of Irrecoverable VAT thereon (other than by reason of the negligence or wilful
default by the Issuer), which it may sustain or incur as a consequence of the
occurrence of any Intercompany Loan Event of Default or any default by Funding
1 in the performance of any of the obligations expressed to be assumed by it in
any of the Transaction Documents (other than by reason of negligence or wilful
default on the part of the Issuer or prior breach by the Issuer of the terms of
any of the Transaction Documents to which it is a party);

 

(b)                                 against any loss it may suffer
as a result of its funding a Term Advance requested by Funding 1 under the
Intercompany Loan Agreement (which shall include the amounts referred to in
clause 6 of the Intercompany Loan Confirmation) but not made; and

 

(c)                                  against any other loss or
liability (other than by reason of the negligence or default of the Issuer or
breach by the Issuer of the terms of any of the Transaction Documents to which
it is a party (except where such breach is caused by the prior breach of
Funding 1) or loss of profit) it may suffer by reason of having made the
Term Advances available or entering into the Intercompany Loan Agreement or
enforcing any security granted pursuant to the Funding 1 Deed of Charge.

 

16.                               PAYMENTS

 

16.1                        Payment

 

(a)                                  Subject to Clause 4 (Limited Recourse),
interest and principal shall be paid on the Term Advances for value by Funding
1 to the Issuer Transaction Account specified by the Issuer in the Intercompany
Loan Confirmation on each Funding 1 Interest Payment Date and the relevant
irrevocable payment instruction for such payment shall be given by Funding 1 by
no later than noon to the Cash Manager under the Cash Management Agreement
(with a copy to the Issuer and the Security Trustee) on the Intercompany Loan
Determination Date immediately before the relevant Funding 1 Interest Payment
Date.

 

15

 

(b)                                 On each date on which the Intercompany Loan
Agreement requires an amount to be paid by Funding 1 under that Intercompany
Loan Agreement, Funding 1 shall, unless the Intercompany Loan Agreement
specifies otherwise, make the same available to the Issuer in accordance with
the terms of the Intercompany Loan Agreement and by payment in Sterling in
immediately available, freely transferable, cleared funds to the Issuer
Transaction Account specified in the Intercompany Company Loan Confirmation or,
if the Intercompany Loan Agreement specifies otherwise, to the relevant account
or to such other account as the Issuer (with the consent of the Security
Trustee) may notify to Funding 1 for this purpose.

 

16.2                        Alternative payment
arrangements

 

If, at any time, it shall become
impracticable (by reason of any action of any governmental authority or any
change in law, exchange control regulations or any similar event) for Funding 1
to make any payments under the Intercompany Loan Agreement in the manner
specified in Clause 16.1 (Payment), then Funding 1 shall make such alternative
arrangements for the payment direct to the Issuer of amounts due under the
Intercompany Loan Agreement as are acceptable to the Security Trustee (acting
reasonably).

 

16.3                        No set-off

 

Subject to the terms of the Intercompany
Loan Confirmation, all payments required to be made by Funding 1 under the
Intercompany Loan Agreement shall be calculated without reference to any
set-off or counterclaim and shall be made free and clear of and without any
deduction for or on account of any set-off or counterclaim.

 

17.                               ENTRENCHED PROVISIONS

 

Each of Funding 1, the Issuer and the
Security Trustee acknowledge and agree that Funding 1 may from time to time
enter into New Intercompany Loan Agreements subject to the provisions of Clause
2 (The Term Advances) of this Agreement. 
If Funding 1 intends to enter into a New Intercompany Loan Agreement
then the provisions of this Agreement may be varied (with the consent of the
parties to this Agreement) in the Intercompany Loan Confirmation to the extent
necessary to reflect the terms of that New Intercompany Loan PROVIDED THAT no
variation shall be made to any of the following terms without the prior written
consent of the Funding 1 Secured Creditors and the Rating Agencies:

 

(a)                                  the Funding 1 Interest Payment
Dates;

 

(b)                                 the determination of the Term
Advance Rates of Interest (other than the Relevant Margin);

 

(c)                                  Clause 4 (Limited Recourse);

 

(d)                                 Clause 7 (Repayment); and

 

(e)                                  Clause 9 (Taxes).

 

18.                               FURTHER PROVISIONS

 

18.1                        Evidence of indebtedness

 

In any proceeding, action or claim relating
to the Intercompany Loan Agreement a statement as to any amount due to the
Issuer under the Intercompany Loan Agreement which is certified as being
correct by an officer of the Security Trustee shall, unless otherwise provided
in the

 

16

 

Intercompany Loan Agreement, be prima facie
evidence that such amount is in fact due and payable.

 

18.2                        Rights cumulative, waivers

 

The respective rights of the Issuer and the
Security Trustee under the Intercompany Loan Agreement:

 

(a)                                  may be exercised as often as
necessary;

 

(b)                                 are cumulative and not
exclusive of its rights under the general law; and

 

(c)                                  may be waived only in writing
and specifically.

 

Delay in exercising or non-exercise of any
such right is not a waiver of that right.

 

18.3                        Severability

 

If a provision of the Intercompany Loan
Agreement is or becomes illegal, invalid or unenforceable in any jurisdiction,
that shall not affect:

 

(a)                                  the validity or enforceability
in that jurisdiction of any other provision of the Intercompany Loan Agreement;
or

 

(b)                                 the validity or enforceability
in other jurisdictions of that or any other provision of the Intercompany Loan
Agreement.

 

18.4                        Notices

 

Any notices to be given pursuant to the
Intercompany Loan Agreement to any of the parties thereto shall be in writing
and shall be sufficiently served if sent by prepaid first class post, by hand
or facsimile transmission and shall be deemed to be given (in the case of
facsimile transmission) when despatched, (where delivered by hand) on the day
of delivery if delivered before 5.00 p.m. (London time) on a London Business
Day or on the next London Business Day if delivered thereafter or on a day
which is not a London Business Day or (in the case of first class post) when it
would be received in the ordinary course of post and shall be sent to such
addresses as are set out in the Intercompany Loan Confirmation or to such other
address or facsimile number or for the attention of such other person or entity
as may from time to time be notified by any party to the others by written
notice in accordance with the provisions of this Clause 18.4.

 

18.5                        Variation

 

Subject to Clause 17 (Entrenched
Provisions), no variation of any provision(s) of the Intercompany Loan
Agreement shall be effective unless it is in writing and signed by (or by a
person duly authorised by) each of the parties to the Intercompany Loan
Agreement.

 

18.6                        Security Trustee

 

The Security Trustee shall have no
responsibility for any of the obligations of the Issuer or any other party to
the Intercompany Loan Agreements (other than itself).  For the avoidance of doubt, the parties to the Intercompany Loan
Agreement acknowledge that the rights and obligations of the Security Trustee under
the Intercompany Loan Agreements are governed by the Funding 1 Deed of Charge.

 

17

 

18.7                        Counterparts

 

The Intercompany Loan Agreement may be
signed (manually or by facsimile) and delivered in more than one counterpart
all of which, taken together, shall constitute one and the same Agreement.

 

18.8                        Third Party Rights

 

The Intercompany Loan Agreement does not
create any right under the Contracts (Rights of Third Parties) Act 1999 which
is enforceable by any person who is not a party to the Intercompany Loan
Agreement.

 

19.                               REDENOMINATION

 

Each obligation under this Agreement which
has been denominated in sterling shall be redenominated in Euro in accordance
with EMU legislation upon such redenomination of the Notes.

 

20.                               GOVERNING LAW

 

The Intercompany Loan Agreement is governed
by English law.

 

21.                               SUBMISSION
TO JURISDICTION

 

Each party to the Intercompany Loan
Agreement hereby irrevocably submits to the non-exclusive jurisdiction of the
English courts in any action or proceeding arising out of or relating to the
Intercompany Loan Agreement, and hereby irrevocably agrees that all claims in
respect of such action or proceeding may be heard and determined by such
courts.  Each party to the Intercompany
Loan Agreement hereby irrevocably waives, to the fullest extent it may possibly
do so, any defence or claim that the English courts are an inconvenient forum
for the maintenance or hearing of such action or proceeding.

 

18

 

SCHEDULE 1

 

NOTICE OF DRAWDOWN OF A
TERM ADVANCE

 

From:      Permanent
Funding (No. 1) Limited (Funding 1)

 

To:          [     ]
(the Issuer)

 

Copy:     The
Bank of New York (the Security Trustee)

 

Dear Sirs,

 

1.                                       We refer to the agreement
between, inter
alios, ourselves, the Issuer and the Security Trustee (as from time
to time amended, varied, novated or supplemented (the Intercompany Loan Agreement))
dated [          ] whereby an
Intercompany Loan was made available to Funding 1.  Terms defined in the Intercompany Loan Agreement shall have the
same meaning in this notice.

 

2.                                       We hereby give you notice
that, pursuant to the Intercompany Loan Agreement and upon the terms and
subject to the conditions contained therein, we wish a [describe Term Advance] to be
made to us as follows:

 

(a)                                  Amount:
£[     ] of which £[     ] is
to be retained by you by way of set off against our obligation to reimburse
such amount to you on the Closing Date under [clause 6.1] (Fee for provision of
Term Advance) of the Intercompany Loan Confirmation.

 

(b)                                 Drawdown Date:
[          ]

 

3.                                       We confirm that no
Intercompany Loan Event of Default has occurred and is continuing which has not
been waived, or would result from the making of such Term Advance.

 

4.                                       We confirm that the principal
amount of the Term Advance requested does not exceed the amount available under
the Intercompany Loan Agreement as at [relevant Drawdown Date].

 

5.                                       The net proceeds of this
drawdown should be credited to our account numbered
[          ] with
[          ].

 

Yours faithfully,

 

 

for and on behalf of

Permanent
Funding (No. 1) Limited

 

19

 

SCHEDULE 2

 

SOLVENCY CERTIFICATE

 

Permanent Funding (No. 1) Limited (the Company)

 

To:          [•]

 

 

(the Issuer)

 

The Bank of New York (the Security
Trustee)

 

We the undersigned HEREBY CERTIFY, that (i)
having made all appropriate searches and investigations of the Company’s books
and records and the Company’s accounts (both management and those required by
law); and (ii) the officers of the Company having duly considered the provisions
of the insolvency laws of the United Kingdom (including, without limitation,
the provisions of sections 123 and 238 to 241 and 423 of the Insolvency Act
1986 (the Act)):

 

(a)                                  the Company is not unable to pay its debts
within the meaning of section 123 of the Act and would not become unable to do
so in consequence of entering into the Transaction Documents to which it is a
party or making any drawing or granting any security under the Transaction
Documents to which it is a party, and the Company’s assets currently exceed its
liabilities (taking into account its actual, contingent and prospective
liabilities) and will continue to do so notwithstanding the entry into by it of
the Transaction Documents and the making of any drawing or the granting of any security
under the Transaction Documents to which it is a party;

 

(b)                                 no execution or other process issued on a
judgment, decree or order of any court in favour of a creditor of the Company
remains unsatisfied in whole or in part;

 

(c)                                  to the best of our knowledge and belief no
corporate action has been taken or is pending, no other steps have been taken
and no legal proceedings have been commenced or are threatened or are pending
for (i) the winding-up, liquidation, dissolution, administration or reorganisation
of the Company and no documents have been filed with the court for the
appointment of an administrator and no notice of intention to appoint an
administrator has been served; or (ii) the Company to enter into any
composition or arrangement with its creditors generally; or (iii) the
appointment of a receiver, administrative receiver, trustee or similar officer
in respect of the Company or any of its property, undertaking or assets.  No event equivalent to any of the foregoing
has occurred in or under the laws of any relevant jurisdiction;

 

(d)                                 no steps have been
taken by the Company with a view to obtaining a moratorium in respect of any
indebtedness of the Company or for the purpose of proposing a company voluntary
arrangement.  No event equivalent to any of the foregoing
has occurred in or under the laws of any relevant jurisdiction;

 

(e)                                  neither the entry into of the Transaction
Documents to which it is a party nor the making of any drawing nor granting of
security under the Transaction Documents to which it is a party would be a
transaction at an undervalue within the meaning of section 238 of the Act,
since the value of any consideration received by the Company as a result of
such drawing and/or 

 

20

 

grant
of security would not be significantly less than the value of any consideration
provided by the Company under the Transaction Documents to which it is a party;

 

(f)                                    the entry into of the Transaction Documents
to which it is a party, any drawing made by the Company under or pursuant to
the Transaction Documents to which it is a party, and any security granted by
the Company under or pursuant to the Transaction Documents to which it is a
party will be entered into or made, as the case may be, by the Company, in good
faith and for the purpose of carrying on its business, and there are reasonable
grounds for believing that such entry into of such Transaction Documents, such
drawings and grants of security would benefit the Company; and

 

(g)                                 in entering into the Transaction Documents
to which it is a party, making a drawing under or pursuant to the Transaction
Documents to which it is a party and/or granting security under or pursuant to
the Transaction Documents to which it is a party the Company has no desire to
give a preference to any person as contemplated by section 239 of the Act nor
is it the purpose of the Company to put assets beyond the reach of a person who
is making, or may at some time make, a claim against the Company or of
otherwise prejudicing the interests of such a person in relation to the claim
which he is making or may make.

 

Terms defined in the Master Definitions and
Construction Schedule signed by the parties to the Transaction Documents  and dated 25th November, 2003 shall have the
same respective meanings when used in this Certificate.

 

DATED •

 

Signed for and on behalf of Permanent
Funding (No. 1) Limited

 

 

	
   

  	
   

  
	
  Director

  
	
   

  
	
   

  	
   

  
	
  Director/Secretary

  

 

21

 

SCHEDULE 3

 

FORM OF RELEVANT INTERCOMPANY LOAN CONFIRMATION

 

 

LOAN CONFIRMATION

 

INTERCOMPANY LOAN AGREEMENT

 

 

DATED •

 

 

PERMANENT FUNDING (NO.
1) LIMITED

as Funding 1

 

 

•

as Relevant Issuer

 

 

STATE STREET BANK AND
TRUST COMPANY

as Security Trustee

 

 

CITIBANK, N.A., LONDON
BRANCH

as Agent Bank

 

 

	
  

  
	
   

  
	
  London

  

 

22

 

THIS AGREEMENT is dated •

 

BETWEEN:

 

(6)                                  PERMANENT FUNDING (NO. 1) LIMITED (registered in England and
Wales No. 4267660) whose registered office is at Blackwell House, Guildhall
Yard, London EC2V 5AE (Funding 1);

 

(7)                                  [Relevant Issuer] (registered in England and
Wales No. •) whose registered office is at Blackwell House,
Guildhall Yard, London EC2V 5AE (the [Relevant 
Issuer]);

 

(8)                                  STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust
company organised under the laws of the Commonwealth of Massachusetts of the
United States of America with a branch office at 1 Canada Square, Canary Wharf,
London  E14 5AF, acting in its capacity
as Security Trustee; and

 

(9)                                  CITIBANK N.A., LONDON BRANCH, whose offices are at 5
Carmelite Street, London EC4Y 0PA, acting in its capacity as Agent Bank.

 

IT IS AGREED as follows:

 

1.                                      INTERPRETATION

 

1.1                                 The Master Definitions and
Construction Schedule signed for the purposes of identification by Allen &
Overy and Sidley Austin Brown & Wood on 13th June, 2002 (as the same may be
amended, varied or supplemented from time to time with the consent of the
parties hereto) and the [Relevant Issuer] Master Definitions and Construction
Schedule signed for the purposes of identification by Allen & Overy and
Sidley Austin Brown & Wood on 13th June, 2002 (as the same may be amended,
varied or supplemented from time to time with the consent of the parties
hereto) are expressly and specifically incorporated into this Agreement and,
accordingly, the expressions defined in the Master Definitions and Construction
Schedule and/or the [Relevant Issuer] Master Definitions and Construction
Schedule (as so amended, varied or supplemented) shall, except where the
context otherwise requires and save where otherwise defined herein, have the
same meanings in this Agreement, including the Recitals hereto and this
Agreement shall be construed in accordance with the interpretation provisions
set out in clause 2 of the Master Definitions and Construction Schedule and the
[Relevant Issuer] Master Definitions and Construction Schedule.  In the event of a conflict between the
Master Definitions and Construction Schedule and the [Relevant Issuer] Master Definitions
and Construction Schedule, the [Relevant Issuer] Master Definitions and
Construction Schedule shall prevail.

 

1.2                                 Unless the context otherwise
requires, references in the Intercompany Loan Term and Conditions to:

 

[complete as appropriate]

 

2.                                      INTERCOMPANY LOAN TERMS AND
CONDITIONS

 

Each of the parties to this Agreement agree
that the Intercompany Loan Terms and Conditions signed by Funding 1 and the
Security Trustee for the purposes of identification on 14th June, 2002 and the
provisions set out therein shall form part of this Agreement and shall be
binding on the parties to this Agreement as if they had expressly been set out
herein.  References in this Agreement to
this
Agreement shall be construed accordingly.

 

23

 

3.                                      THE TERM ADVANCES

 

3.1                               Term Advances

 

[describe the term advances]

 

3.2                               [Term Advance Rating]

 

The Term Advance Rating in respect of the
[Term AAA Advances] shall be •, in respect of the [Term AA Advances]
shall be • and the Term Advance Rating in respect of the [Term
BBB Advances] shall be •.

 

3.3                               [Conditions  Precedent]

 

Save as the [Relevant Issuer] and the
Security Trustee may otherwise agree, the Term Advances will not be available
for utilisation unless the Security Trustee has confirmed to Funding 1 that it
or its advisers have received all the information and documents listed in 0 in
form and substance satisfactory to the Security Trustee.

 

4.                                      INTEREST

 

[Set out interest rate, interest periods and payment
dates]

 

5.                                      REPAYMENT

 

5.1                                 [Describe, inter alios:

 

Repayment subject to terms of the Funding 1 Deed of Charge;

 

Repayment of relevant Term Advances prior to the occurrence
of a Trigger Event and prior to the service on Funding 1 of an Intercompany
Loan Acceleration Notice or the service on each Issuer of a Note Acceleration
Notice;

 

Repayment of relevant Term Advances following the occurrence
of a Non-Asset Trigger Event but prior to 
the service on Funding 1 of an Intercompany Loan Acceleration Notice or
the service on each Issuer of a Note Acceleration Notice;

 

Repayment of the relevant Terms Advances following the
occurrence of an Asset Trigger Event but prior to  the service on Funding 1 of an Intercompany Loan Acceleration
Notice or the service on each Issuer of a Note Acceleration Notice;

 

Repayment following of relevant Term Advances following the
service on each Issuer of a Note Acceleration Notice bur prior to the service
on Funding 1 of an Intercompany Loan Acceleration Notice;

 

Repayment following the service on Funding 1 of an
Intercompany Loan Acceleration Notice].

 

5.2                               [Acknowledgement of New Intercompany
Loans

 

The [Relevant Issuer] hereby acknowledges
and agrees that from time to time Funding 1 may enter into New Intercompany
Loans with New Issuers and that the obligation of Funding 1 to repay this
Intercompany Loan and any New Intercompany Loan will depend on the Term Advance
Rating of the individual Term Advances made to Funding 1 under the respective

 

24

 

Intercompany Loans.  Subject to clause 25 of the Funding 1 Deed
of Charge (Supplemental Provisions Regarding the Security Trustee), any
amendments to this Agreement will be made only with the prior written consent
of each party to this Agreement.]

 

6.                                      CERTAIN FEES, ETC.

 

[describe payment and provision, including
set-off,  for fees and indemnities]

 

7.                                      APPLICATION OF CERTAIN
PROVISIONS

 

The provisions set out in Clause 4.2
(Shortfall on Final Repayment Date in respect of certain Term Advances) of the
Intercompany Loan Terms and Conditions shall apply to:  [describe Term Advances]

 

8.                                      ADDRESSES

 

The addresses referred to in [Clause 15.4]
of the Intercompany Loan Terms and Conditions are as follows:

 

The Security Trustee:

 

	
  For the attention of:

  	
   

  	
  Corporate Trust

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  State Street Bank and Trust Company,

  
	
   

  	
   

  	
  1
  Canada Square, Canary Wharf, London E14 5AF

  
	
   

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
  +44 (0) 20 7416 2548

  

 

 

 

The [Relevant Issuer]:

 

	
  For the attention of:

  	
   

  	
  [The Secretary]

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  [Relevant Issuer]

  
	
   

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
  [+44 (0) 20 7556 0975]

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  HBOS Treasury Services plc

  
	
   

  	
   

  	
  33
  Old Broad Street

  
	
   

  	
   

  	
  London
  EC2N 1HZ

  
	
   

  	
   

  	
  Facsimile
  number +44 (0) 20 7574 8784

  
	
   

  	
   

  	
  For
  the attention of Head of Capital Markets and Securitisations

  

 

25

 

Funding 1:

 

	
  For the attention of:

  	
   

  	
  The Secretary

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Permanent Funding (No. 1) Limited

  
	
   

  	
   

  	
   

  
	
  Facsimile:

  	
   

  	
  +44 (0) 20 7556 0975

  
	
  Copy
  to:

  	
   

  	
  HBOS
  Treasury Services plc

  
	
   

  	
   

  	
  33
  Old Broad Street

  
	
   

  	
   

  	
  London
  EC2N 1HZ

  
	
   

  	
   

  	
  Facsimile
  number +44 (0) 20 7574 8784

  
	
   

  	
   

  	
  For
  the attention of Head of Capital Markets and Securitisations

  
	
   

  	
   

  	
   

  
	
  Rating Agencies:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Moody’s:

  	
   

  	
  2 Minster Court, Mincing Lane, London
  EC3R 7XB

  
	
  For
  the attention of:

  	
   

  	
  Nicholas
  Lindstrom

  
	
  Telephone:

  	
   

  	
  +44
  (0) 20 7772 5332

  
	
  Fax:

  	
   

  	
  +44
  (0) 20 7772 5400

  
	
   

  	
   

  	
   

  
	
  S&P:

  	
   

  	
  Garden House, 18 Finsbury Circus, London
  EC2M 7BP

  
	
  For
  the attention of:

  	
   

  	
  Andre
  Vollman

  
	
  Telephone:

  	
   

  	
  +44
  (0) 20 7826 3855

  
	
  Fax:

  	
   

  	
  +44
  (0) 20 7826 3598

  
	
   

  	
   

  	
   

  
	
  Fitch:

  	
   

  	
  Eldon House, 2 Eldon Street, London EC2M
  7UA

  
	
  For
  the attention of:

  	
   

  	
  European
  Structured Finance

  
	
  Telephone:

  	
   

  	
  +44
  (0) 20 7417 4355

  
	
  Fax:

  	
   

  	
  +44
  (0) 20 7417 6262

  

 

26

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00064-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00064-of-00352.parquet"}]]