Document:

EX-10.2

Exhibit 10.2

SECOND AMENDED AND RESTATED POST-PETITION CREDIT AGREEMENT

Dated as of September 3, 2008

by and among

PORTOLA PACKAGING, INC.,

as debtor and debtor-in-possession,

as Borrower,

WAYZATA INVESTMENT PARTNERS LLC,

as Administrative Agent and Collateral Agent,

and

THE LENDERS from time to time party hereto,

as Lenders

 

 

TABLE OF CONTENTS

  

	 
	 	 	Page	 
	SECTION 1. AMOUNTS AND TERMS OF TERM LOANS
	 	 	1	 
	 	 	 	 	 
	1.1 Term Loans
	 	 	1	 
	1.2 Interest and Related Fees
	 	 	3	 
	1.3 Other Fees and Expenses
	 	 	4	 
	1.4 Payments
	 	 	5	 
	1.5 Prepayments
	 	 	5	 
	1.6 Maturity
	 	 	6	 
	1.7 Loan Accounts
	 	 	6	 
	1.8 Taxes
	 	 	7	 
	1.9 Intentionally Omitted
	 	 	8	 
	1.10 Liability Unconditional
	 	 	8	 
	 
	 	 	 	 
	SECTION 2. AFFIRMATIVE COVENANTS
	 	 	9	 
	2.1 Compliance With Laws and Contractual Obligations
	 	 	9	 
	2.2 Maintenance of Properties; Insurance
	 	 	10	 
	2.3 Inspection
	 	 	11	 
	2.4 Organizational Existence
	 	 	11	 
	2.5 Further Assurances
	 	 	11	 
	2.6 Holding Company
	 	 	12	 
	2.7 Environmental Matters
	 	 	12	 
	2.8 Compliance with Restructuring Support Agreement
	 	 	13	 
	2.9 New Subsidiaries
	 	 	13	 
	2.10 Post-Closing Obligations
	 	 	13	 
	 
	 	 	 	 
	SECTION 3. NEGATIVE COVENANTS
	 	 	14	 
	3.1 Indebtedness
	 	 	14	 
	3.2 Liens and Related Matters
	 	 	15	 
	3.3 Investments
	 	 	18	 
	3.4 Contingent Obligations
	 	 	20	 
	3.5 Restricted Junior Payments
	 	 	22	 
	3.6 Restriction on Fundamental Changes
	 	 	22	 
	3.7 Disposal of Assets or Subsidiary Stock
	 	 	22	 
	3.8 Transactions with Affiliates
	 	 	23	 
	3.9 Conduct of Business
	 	 	24	 
	3.10 Changes Relating to Indebtedness
	 	 	24	 
	3.11 Fiscal Year
	 	 	24	 
	3.12 Intentionally Omitted
	 	 	24	 
	3.13 Subsidiaries
	 	 	24	 
	3.14 Bank Accounts
	 	 	25	 
	3.15 Applications under CCAA
	 	 	25	 
	3.16 Inactive Subsidiaries
	 	 	25	 
	3.17 Press Release; Public Offering Materials
	 	 	25	 
	3.18 Hazardous Materials
	 	 	26	 

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	 	 	Page	 
	3.19 Bankruptcy Court Orders; Administrative Priority; Lien Priority;
Payment of Claims
	 	 	26	 
	3.20 Payments
	 	 	26	 
	3.21 Certain Agreements
	 	 	27	 
	3.22 Reclamation and Section 503(b)(9) Claims
	 	 	27	 
	 
	 	 	 	 
	SECTION 4. FINANCIAL COVENANTS/REPORTING
	 	 	27	 
	4.1 Lease Limits
	 	 	27	 
	4.2 Financial Statements and Other Reports
	 	 	27	 
	4.3 Accounting Terms; Utilization of GAAP for Purposes of Calculations
Under Agreement
	 	 	32	 
	 
	 	 	 	 
	SECTION 5. REPRESENTATIONS AND WARRANTIES
	 	 	32	 
	5.1 Disclosure
	 	 	32	 
	5.2 No Material Adverse Effect
	 	 	32	 
	5.3 No Conflict
	 	 	33	 
	5.4 Organization, Powers, Capitalization and Good Standing
	 	 	33	 
	5.5 Financial Statements
	 	 	34	 
	5.6 Title to
Properties, Etc.
	 	 	34	 
	5.7 Intellectual Property
	 	 	34	 
	5.8
Investigations, Audits, Etc.
	 	 	34	 
	5.9 Employee Matters
	 	 	34	 
	5.10 Intentionally Omitted
	 	 	35	 
	5.11 Environmental Matters
	 	 	35	 
	5.12 Use of Proceeds; Margin Regulations
	 	 	35	 
	5.13 Approved Budget
	 	 	36	 
	5.14 Administrative Priority; Lien Priority
	 	 	36	 
	 
	 	 	 	 
	SECTION 6. DEFAULT, RIGHTS AND REMEDIES
	 	 	37	 
	6.1 Event of Default
	 	 	37	 
	6.2 Intentionally Omitted
	 	 	43	 
	6.3 Acceleration and other Remedies
	 	 	43	 
	6.4 Performance by Agent
	 	 	43	 
	 
	 	 	 	 
	SECTION 7. CONDITIONS TO TERM LOANS AND AMENDMENT AND RESTATEMENT
	 	 	44	 
	7.1 Conditions to Term Loans and Amendment and Restatement
	 	 	44	 
	 
	 	 	 	 
	SECTION 8. ASSIGNMENT; PARTICIPATION; AGENTS; ETC
	 	 	48	 
	8.1 Assignments and Participations
	 	 	48	 
	8.2 Administrative Agent
	 	 	50	 
	8.3 Amendments, Consents and Waivers
	 	 	54	 
	8.4 Set Off and Sharing of Payments
	 	 	54	 
	8.5 Payment of Interest to Lenders; Return of Payments
	 	 	55	 
	 
	 	 	 	 
	SECTION 9. MISCELLANEOUS
	 	 	56	 
	9.1 Indemnities
	 	 	56	 
	9.2 Amendments and Waivers
	 	 	57	 
	9.3 Notices
	 	 	57	 
	9.4 Failure or Indulgence Not Waiver; Remedies Cumulative
	 	 	58	 

ii

 

	 	 	 	 	 
	 
	 	 	Page	 
	9.5 Marshalling; Payments Set Aside
	 	 	58	 
	9.6 Severability
	 	 	59	 
	9.7 Lenders’ Obligations Several; Independent Nature of Lenders’ Rights
	 	 	59	 
	9.8 Headings
	 	 	59	 
	9.9 Applicable Law
	 	 	59	 
	9.10 Successors and Assigns
	 	 	59	 
	9.11 No Fiduciary Relationship; Limited Liability
	 	 	59	 
	9.12 Construction
	 	 	59	 
	9.13 Confidentiality
	 	 	60	 
	9.14 CONSENT TO JURISDICTION
	 	 	60	 
	9.15 WAIVER OF JURY TRIAL
	 	 	61	 
	9.16 Survival of Warranties and Certain Agreements
	 	 	61	 
	9.17 Entire Agreement
	 	 	61	 
	9.18 Counterparts; Effectiveness
	 	 	61	 
	9.19 Judgment Currency
	 	 	61	 
	9.20 Collateral Agent and Administrative Agent as Party-in-Interest
	 	 	62	 
	9.21 Releases and Validation of Pre-Petition Indebtedness and Liens
	 	 	62	 
	9.22 Intercreditor Agreement
	 	 	63	 
	9.23 Amendment and Restatement
	 	 	63	 
	 
	 	 	 	 
	SECTION 10. SECURITY AND ADMINISTRATIVE PRIORITY
	 	 	64	 
	10.1 Collateral
	 	 	64	 
	10.2 Administrative Priority
	 	 	64	 
	10.3 Grants, Rights and Remedies
	 	 	64	 
	10.4 No Filings Required
	 	 	64	 
	10.5 Survival
	 	 	65	 
	 
	 	 	 	 
	SECTION 11. DEFINITIONS
	 	 	65	 
	11.1 Certain Defined Terms
	 	 	65	 
	11.2 Other Definitional Provisions
	 	 	83	 

iii

 

SECOND AMENDED AND RESTATED POST-PETITION CREDIT AGREEMENT

     This SECOND AMENDED AND RESTATED POST-PETITION CREDIT AGREEMENT (this “Agreement”) is
dated as of September 3, 2008, and entered into by and among Portola Packaging, Inc., as a debtor and
debtor-in-possession, a Delaware corporation (“Borrower”), the lenders that are or
hereafter become parties to this Agreement as “Lenders” (as such term is defined in subsection 11.1
hereof), and WAYZATA INVESTMENT PARTNERS LLC, a Delaware limited liability company (in its
individual capacity, “Wayzata”), as collateral agent for the Lenders (in such capacity, the
“Collateral Agent”) and as administrative agent for the Lenders (in such capacity, the
“Administrative Agent” and, together with the Collateral Agent, each an “Agent”,
and, collectively, the “Agents”) and amends and restates that certain Amended and Restated
Credit Agreement, dated as of July 24, 2008 (the “Pre-Petition Loan Agreement”), by and
among the Borrower, the financial institutions from time to time parties thereto, as lenders, and
Wayzata, as agent thereunder (in such capacity, the “Pre-Petition Agent”).

R E C I T A L S:

     WHEREAS, on August 27, 2008, the Borrower and certain of the Guarantors (as hereinafter
defined) commenced cases (each, a “Chapter 11 Case”, and, collectively, the “Chapter 11
Cases”) under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”)
in the United States Bankruptcy Court in the District of Delaware (the “Bankruptcy Court”),
and the Borrower and such Guarantors (collectively, the “Debtor Loan Parties”) have each
retained possession of its assets and is each authorized under the Bankruptcy Code to continue the
operation of its business as debtor-in-possession;

     WHEREAS, the Borrower and the Lenders are parties to the Pre-Petition Loan Agreement and the
Borrower has requested that the Lenders amend and restate the terms of the Pre-Petition Loan
Agreement in the manner and on the terms hereinafter set forth; and

     WHEREAS, in connection with the amendment and restatement of the Pre-Petition Loan Agreement,
the Borrower has requested the Lenders to make post-petition loans and advances to the Borrower
consisting of a debtor-in-possession credit facility in an aggregate principal amount not to exceed
the Commitment Amount, and subject to the terms and conditions set forth herein, the Lenders are
severally, and not jointly, willing to extend such credit to the Borrower under this Agreement.

     NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants
herein contained, Borrower, Lenders and Agents agree that, subject to the terms and conditions
hereof (including, without limitation, subsection 7.1), the Pre-Petition Loan Agreement shall be
amended and restated to read in its entirety as follows:

SECTION 1.

AMOUNTS AND TERMS OF TERM LOANS

     1.1 Term Loans
        . Subject to the terms and conditions of this Agreement and in reliance upon the representations
and warranties of Borrower contained herein:

 

 

          (A) Term Loans. Subject to the terms and conditions of this Agreement and subject to
the Bankruptcy Court Orders, from time to time on or after the Effective Date and during the
Availability Period, each Lender agrees to make its Pro Rata Share of term loans hereunder (such
term loans made on or after the Effective Date, the “Term Loans”) by advancing to Borrower
the percentage set forth opposite the name of each Lender on Schedule 1.1(A) of the Term Loans
requested by the Borrower, up to an aggregate maximum principal amount for all Lenders in respect
of all Term Loans hereunder not to exceed the Commitment Amount (the “Term Loan
Commitment”) (prior to giving effect to any applicable original issue discount). The Term
Loans (other than any Term Loans the proceeds of which are designated for or otherwise applied to
the repayment of the Pre-Petition Facility) will be advanced with an original issue discount of 2%.
The aggregate principal balance of the Term Loans shall be repaid in full on the Final Maturity
Date. Term Loans borrowed and prepaid or repaid may not be reborrowed. Notwithstanding the
foregoing, (i) prior to the Final Financing Order Entry Date, the Lenders shall not be obligated to
make any Term Loans to the Borrower in excess of the sum of (A) $2,500,000, or such lesser amount
as the Bankruptcy Court may approve as set forth in the Interim Financing Order, and (B) to the
extent authorized by the Interim Financing Order, the amount necessary to repay in full the Second
Lien Obligations (as defined in the Plan of Reorganization) other than the Excluded Portion and
(ii) borrowings of Term Loans hereunder (other than any borrowing designated for or otherwise
applied to the repayment of the Pre-Petition Facility) in any weekly period covered by the Approved
Budget shall not exceed $2,500,000 in aggregate principal amount. The proceeds of any Term Loan
hereunder may be used only for the purposes set forth in subsection 5.12.

          (B) Notes. Upon request of Administrative Agent, Borrower shall execute and deliver
to each Lender a Note to evidence the Term Loans, such Note to be in the principal amount of such
Lender’s Pro Rata Share of the Term Loans. Whether or not any Note is issued, this Agreement is
evidence of Borrower’s Obligations with respect to the Term Loans. In the event of an assignment
under subsection 8.1, Borrower shall, upon surrender of the assigning Lender’s Notes, issue new
Notes to reflect the interests of the assigning Lender and the Person to which interests are to be
assigned. Each Note (other than any Note evidencing a Term Loan the proceeds of which are
designated for or otherwise applied to the repayment of the Pre-Petition Facility) shall bear a
legend in substantially the following form:

“THIS NOTE BEARS ORIGINAL ISSUE DISCOUNT. UPON WRITTEN REQUEST TO THE CHIEF FINANCIAL OFFICER,
PORTOLA PACKAGING, INC., 951 DOUGLAS AVENUE, BATAVIA, ILLINOIS 60510, INFORMATION REGARDING THE
AMOUNT OF ORIGINAL DISCOUNT, ISSUE DATE AND YIELD TO MATURITY WILL BE MADE AVAILABLE.”

          (C) Funding Authorization. The proceeds of the Term Loans made pursuant to this
Agreement are to be funded by Administrative Agent by wire transfer to the account designated by
Borrower below:

	 	 	 
	Bank:
	 	Union Bank of California.
	ABA No.:
	 	122 000 496
	Bank Address:
	 	99 Almaden Blvd., Suite 200
	 
	 	San Jose, California 95113
	Account No.:
	 	6450-1-54944

2

 

	 	 	 
	          Reference:
	 	Portola Packaging, Inc.

Borrower shall provide Administrative Agent with written notice of any change in the foregoing
instructions at least three (3) Business Days before the desired effective date of such change.

          (D) Requests for Term Loans. The Borrower shall make written requests for Term Loans
at least two (2) Business Days prior to the proposed borrowing date (or such shorter period as the
Administrative Agent , in its sole discretion, deems acceptable), which date shall be a Business
Day, in the form attached hereto as Exhibit 1.1(D) (a “Borrowing Notice”). Each Term Loan
requested by Borrower in any Borrowing Notice shall be no less than One Million Dollars
($1,000,000), will be in integral multiples of One Hundred Thousand Dollars ($100,000) and no more
than Two Million Five Hundred Thousand Dollars ($2,500,000). In no event will Lenders be required
to make more than one advance of Term Loans in each Calendar Week.

     1.2 Interest and Related Fees.

          (A) Interest. From the Effective Date and the date the other Obligations become due,
the Term Loans and the other Obligations shall bear interest at the fixed per annum rate of twelve
percent (12.0%).

          (B) Computation of Interest and Related Fees. Interest on the Term Loans and other
Obligations shall be calculated daily on the basis of a three hundred sixty (360) day year for the
actual number of days elapsed in the period during which it accrues. Interest on the Term Loans is
payable in arrears on the first day of each calendar quarter (January 1, April 1, July 1 and
October 1) beginning with the calendar quarter ending October 1, 2008, and on the maturity of the
Term Loans, whether by acceleration or otherwise.

          (C) Default Rate of Interest. At the election of Administrative Agent or Requisite
Lenders, after the occurrence of an Event of Default and for so long as it continues, to the extent
permitted by applicable law, the Term Loans and other Obligations shall bear interest at a rate
that is two percent (2.0%) in excess of the rates otherwise payable under this Agreement.

          (D) Excess Interest. (a) Notwithstanding any provision to the contrary contained in
this Agreement or the other Loan Documents, Borrower shall not be required to pay, and neither
Administrative Agent nor any Lender shall be permitted to collect, any amount of interest in excess
of the maximum amount of interest permitted by law (“Excess Interest”). If any Excess
Interest is provided for or determined by a court of competent jurisdiction to have been provided
for in this Agreement or in any of the other Loan Documents, then in such event: (1) the provisions
of this subsection 1.2(D) shall govern and control; (2) Borrower shall not be obligated to pay any
Excess Interest; (3) any Excess Interest that Administrative Agent or any Lender may have received
hereunder shall be, at Administrative Agent’s option, (a) applied as a credit against the
outstanding principal balance of the Obligations or accrued and unpaid interest (not to exceed the
maximum amount permitted by law), (b) refunded to the payor thereof, or (c) any combination of the
foregoing; (4) the interest rate(s) provided for herein shall be automatically reduced to the
maximum lawful rate allowed from time to time under applicable law (the “Maximum Rate”),
and this Agreement and the other Loan Documents shall be deemed to have been and shall be, reformed
and modified to reflect such reduction; and (5) Borrower

3

 

shall not have any action against Administrative Agent or any Lender for any damages arising
out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any
period of time interest on any Obligation is calculated at the Maximum Rate rather than the
applicable rate under this Agreement, and thereafter such applicable rate becomes less than the
Maximum Rate, the rate of interest payable on such Obligation shall remain at the Maximum Rate
until each Lender shall have received the amount of interest that such Lender would have received
during such period on such Obligation had the rate of interest not been limited to the Maximum Rate
during such period.

     1.3 Other Fees and Expenses.

          (A) Audit Fees. Borrower shall pay to Administrative Agent an audit fee equal to $750
per in-house auditor per day or any portion thereof, together with out-of-pocket expenses, or
out-of-pocket costs (including fees and expenses) paid to third party auditors. Following the
Effective Date and prior to a Default or an Event of Default, however, Administrative Agent shall
be limited to one (1) such audit per country per fiscal year at Borrower’s expense.

          (B) Expenses, Legal and Attorneys Fees. Borrower agrees to promptly, and in any event
within ten (10) days following demand therefor, pay all (i) fees, costs and expenses (including
reasonable legal and attorneys’ fees and expenses and appraisal fees and expenses (the
“Professional Fees”) incurred by the Agents and the Lenders in connection with any matters
contemplated by or arising out of the Loan Documents, in connection with the examination, review,
due diligence investigation, documentation, negotiation, closing and syndication of the
transactions contemplated herein and in connection with the continued administration of the Loan
Documents (including, without limitation, participation in the Chapter 11 Cases) including any
amendments, modifications, consents and waivers; (ii) out of pocket costs and expenses of the
Agents and the Lenders acting in any capacity (including, without limitation, Professional Fees) in
connection with the preservation, enforcement or protection of any of their rights and remedies
under the Loan Documents or otherwise; and (iii) out of pocket costs and expenses of the Informal
Noteholder Committee (including, without limitation, the reasonable fees and expenses of its legal
and financial advisors) in accordance with the Restructuring Support Agreement in connection with
the Chapter 11 Cases, the negotiations with respect to the restructuring of the Borrower and the
Guarantors and the negotiation, preparation, execution and delivery of the documentation relating
thereto. Without limitation of the foregoing or any other provision of any Loan Document: (x) the
Borrower agrees to pay all stamp, document, transfer, recording or filing taxes or fees and similar
impositions now or hereafter determined by any Agent or any Lender to be payable in connection with
this Agreement or any other Loan Document, and the Borrower agrees to indemnify, hold harmless and
defend each Agent and each Lender from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or delay in paying any
such taxes, fees or impositions and (y) if the Borrower fails to perform any covenant or agreement
contained herein or in any other Loan Document, any Agent may itself perform or cause performance
of such covenant or agreement, and the expenses of such Agent incurred in connection therewith
shall be reimbursed promptly upon demand by the Borrower. All fees, costs and expenses for which
Borrower is responsible under this subsection 1.3(B) shall be deemed part of the Obligations

4

 

when incurred, payable in accordance with the final two sentences of subsection 1.4 and
secured by the Collateral.

     1.4 Payments. All payments by Borrower of the Obligations shall be made in US Dollars, in
same day funds and delivered to Lenders, as applicable, and in amounts equal to their respective
Pro Rata Shares, by wire transfer to the following accounts or such other place within the United
States as Administrative Agent may from time to time designate in writing:

For Wayzata Recovery Fund, LLC:

JPMorgan Chase Bank

New York, NY

ABA #021000021

Account Name: Wayzata Recovery Fund, LLC

Account Number: 304-264970

Reference: Portola Packaging, Inc.

For Wayzata Opportunity Fund II, LP:

JPMorgan Chase Bank

New York, NY

ABA #021000021

Account Name: Wayzata Opportunity Fund II, L.P.

Account Number: 304-990833

Reference: Portola Packaging, Inc.

Borrower shall receive credit on the day of receipt for funds received by a Lender or
Administrative Agent, as applicable, by 1:00 p.m. (Wayzata, Minnesota time). In the absence of
timely receipt, such funds shall be deemed to have been paid on the next Business Day. Whenever any
payment to be made hereunder shall be stated to be due on a day that is not a Business Day, the
payment may be made on the next succeeding Business Day and such extension of time shall be
included in the computation of the amount of interest and fees due hereunder.

     1.5 Prepayments.

          (A) Voluntary Prepayments of Term Loans.

               (1) Borrower may only prepay the Term Loans, in whole or in part, by paying a prepayment
premium equal to (a) 2% of the amount prepaid if such prepayment occurs on or before the first
anniversary of the Effective Date, (b) 1% of the amount prepaid if such prepayment occurs after the
first anniversary of the Effective Date but on or before the second anniversary of the Effective
Date, and (c) 0% of the amount prepaid if such prepayment occurs after the second anniversary of
the Effective Date. Any such prepayment shall be accompanied by all accrued and unpaid interest on
the amount prepaid.

               (2) Notwithstanding the foregoing, no prepayment premium shall be payable by Borrower pursuant
to subsection 1.5(A)(1) above in connection with the prepayment of the Term Loans in full with the
proceeds of loans made to Borrower by the Lenders under a loan facility entered into on or
following the effective date of the Plan of Reorganization,

5

 

provided that such loan facility shall provide that prepayment of any loans made under such
loan facility shall be subject to the payment of a prepayment premium in amounts and on terms and
conditions equivalent to those set forth in this subsection 1.5.

          (B) Prepayments from Asset Disposition. Immediately upon receipt of any Net Proceeds
in excess of $250,000 for any single transaction or series of related transactions, Borrower shall
repay the Term Loans by an amount equal to the amount of such Net Proceeds, provided that the
Senior DIP Debt has been Paid in Full, and provided further that each such prepayment shall be
accompanied by a prepayment premium equal to (a) 2% of the amount prepaid if such prepayment occurs
on or before the first anniversary of the Effective Date, (b) 1% of the amount prepaid if such
prepayment occurs after the first anniversary of the Effective Date but on or before the second
anniversary of the Effective Date, and (c) 0% of the amount prepaid if such prepayment occurs after
the second anniversary of the Effective Date. Any such prepayment shall be accompanied by all
accrued and unpaid interest on the amount prepaid.

          (C) Prepayments from Issuance of Securities. Immediately upon the receipt by Borrower
or any of its Restricted Subsidiaries of the proceeds of the issuance of capital stock or other
equity securities (other than (1) proceeds of the issuance of capital stock or other equity
securities by Borrower received on or before the Effective Date, (2) proceeds from the issuance of
capital stock or other equity securities by Borrower to employees and directors of Borrower and (3)
proceeds of the issuance of capital stock or other equity securities of Borrower which are
contemporaneously applied to repurchase capital stock or other equity securities of Borrower from
existing holder(s) thereof or which are held by Borrower in accordance with subsection 3.3(I) for
the purpose of making Investments permitted under subsection 3.3(I)), Borrower shall repay the Term
Loan in an amount equal to such proceeds, net of underwriting discounts and commissions and other
reasonable costs associated therewith, provided that the Senior DIP Debt has been Paid in Full, and
provided further that each such prepayment shall be accompanied by a prepayment premium equal to
(a) 2% of the amount prepaid if such prepayment occurs on or before the first anniversary of the
Effective Date, (b) 1% of the amount prepaid if such prepayment occurs after the first anniversary
of the Effective Date but on or before the second anniversary of the Effective Date, and (c) 0% of
the amount prepaid if such prepayment occurs after the second anniversary of the Effective Date.
Any such prepayment shall be accompanied by all accrued and unpaid interest on the amount prepaid.

          (D) Amounts Prepaid May Not Be Reborrowed. Any amount prepaid pursuant to this
subsection 1.5 may not be reborrowed.

     1.6 Maturity. All of the Obligations shall become due and payable as otherwise set forth
herein, but in any event all of the remaining Obligations shall become due and payable upon
termination of this Agreement. Until all Obligations have been fully paid and satisfied, Collateral
Agent shall be entitled to retain the Liens in the Collateral granted under the Security Documents
and the ability to exercise all rights and remedies available to Agents and Lenders under the Loan
Documents and applicable laws.

     1.7 Loan Accounts. Administrative Agent will maintain separate loan account records for
the Term Loans and all interest charges and payments thereof, (b) the charging and payment of all
fees, costs and expenses relating to the Term Loans, and (c) all other debits and credits

6

 

pursuant to this Agreement. The balance in the loan accounts shall be presumptive evidence of the
amounts due and owing to Lenders, provided that any failure by Administrative Agent to so record
shall not limit or affect Borrower’s obligation to pay. During the continuance of an Event of
Default, Borrower irrevocably waives the right to direct the application of any and all payments
and Borrower hereby irrevocably agrees that Administrative Agent and each Lender shall have the
continuing exclusive right to thereafter apply payments in any manner it deems appropriate.

     1.8 Taxes.

          (A) No Deductions. Any and all payments or reimbursements made hereunder or under the
Notes shall be made free and clear of and without deduction for any and all taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto of any nature
whatsoever imposed by any taxing authority, excluding such taxes to the extent imposed on any Agent
‘s or a Lender’s net income by the jurisdiction in which such Agent or such Lender is organized,
resident or carrying on business. If Borrower shall be required by law to deduct any such amounts
from or in respect of any sum payable hereunder or under any Loan Document to any Lender or Agent ,
then (i) the sum payable hereunder or under any Loan Document shall be increased as may be
necessary so that, after making all required withholdings and deductions (including withholdings
and deductions applicable to additional sums payable under this subsection 1.8), such Agent or
Lender receives an amount equal to the sum it would have received had no such withholdings or
deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the
full amount deducted to the relevant taxing or other authority in accordance with applicable law.

          (B) Changes in Tax Laws. In the event that, subsequent to the Effective Date, (1) any
changes in any existing law, regulation, treaty or directive or in the interpretation or
application thereof, (2) any new law, regulation, treaty or directive enacted or any interpretation
or application thereof, or (3) compliance by any Agent or any Lender with any request or directive
(whether or not having the force of law) from any governmental authority, agency or
instrumentality:

               (a) does or shall subject any Agent or any Lender to any tax of any kind whatsoever or causes
the withdrawal or termination of a previously granted tax exemption with respect to this Agreement,
the other Loan Documents or the Term Loans made hereunder, or change the basis of taxation of
payments to such Agent or such Lender of principal, fees, interest or any other amount payable
hereunder (except for net income taxes or capital taxes, or franchise taxes imposed in lieu of net
income taxes, imposed generally by federal, state, provincial or local taxing authorities with
respect to interest or other fees payable hereunder or changes in the rate of tax on the overall
net income of any such Agent or Lender); or

               (b) does or shall impose on any Agent or any Lender any other condition or increased cost in
connection with the transactions contemplated hereby or participations herein;

and the result of any of the foregoing is to increase the cost to any Agent or Lender of continuing
the Term Loans hereunder, or to reduce any amount receivable hereunder, then, in any such case,

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Borrower shall promptly pay to such Agent or Lender, upon its demand, any additional amounts
necessary to compensate such Agent or Lender, on an after-tax basis, for such additional cost or
reduced amount receivable, as determined by such Agent or Lender with respect to this Agreement or
the other Loan Documents. If any Agent or Lender becomes entitled to claim any additional amounts
pursuant to this subsection 1.8(B), it shall promptly notify Borrower of the event by reason of
which such Agent or Lender has become so entitled. A certificate as to any additional amounts
payable pursuant to the foregoing sentence submitted by any Agent or Lender to Borrower shall,
absent manifest error, be final, conclusive and binding for all purposes.

          (C) Withholding. Each Lender organized under the laws of a jurisdiction outside the
United States (a “Foreign Lender”) as to which payments to be made in US Dollars under this
Agreement or under the Notes are exempt from United States withholding tax or are subject to United
States withholding tax at a reduced rate under an applicable statute or tax treaty shall provide to
Borrower and each Agent (1) a properly completed and executed Internal Revenue Service Form W-8BEN
or Form W-8ECI or other applicable form, certificate or document prescribed by the Internal Revenue
Service of the United States certifying as to such Foreign Lender’s entitlement to such exemption
or reduced rate of withholding with respect to payments to be made to such Foreign Lender under
this Agreement and under the Notes (a “Certificate of Exemption”) or (2) a letter from any
such Foreign Lender stating that it is not entitled to any such exemption or reduced rate of
withholding (a “Letter of Non-Exemption”). Prior to becoming a Lender under this Agreement
and within fifteen (15) days after a reasonable written request of Borrower or any Agent from time
to time thereafter, each Foreign Lender that becomes a Lender under this Agreement shall provide a
Certificate of Exemption or a Letter of Non-Exemption to Borrower and Administrative Agent. If a
Foreign Lender is entitled to an exemption with respect to US Dollar payments to be made to such
Foreign Lender under this Agreement (or to a reduced rate of withholding) and does not provide a
Certificate of Exemption to Borrower and Administrative Agent within the time periods set forth in
the preceding paragraph, Borrower shall withhold taxes from payments to such Foreign Lender at the
applicable statutory rates and Borrower shall not be required to pay any additional amounts as a
result of such withholding, provided that all such withholding shall cease upon delivery by such
Foreign Lender of a Certificate of Exemption to Borrower and Administrative Agent.

     1.9 Intentionally Omitted.

     1.10 Liability Unconditional.

     Borrower hereby agrees that it is jointly and severally liable for the full and prompt payment
(whether at stated maturity, by acceleration or otherwise) and performance of, all Obligations owed
or hereafter owing to the Agents and the Lenders by Borrower. Borrower agrees that its liability
shall be absolute and unconditional, irrespective of, and unaffected by,

          (A) the genuineness, validity, regularity, enforceability or any future amendment of, or
change in, this Agreement, any other Loan Document or any other agreement, document or instrument
to which Borrower is or may become a party;

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          (B) the absence of any action to enforce this Agreement or any other Loan Document or the
waiver or consent by any Agent or the Lenders with respect to any of the provisions thereof;

          (C) the existence, value or condition of, or failure to perfect its Lien against, any security
for the Obligations or any action, or the absence of any action, by any Agent or any Lender in
respect thereof (including the release of any such security);

          (D) the insolvency of Borrower; or

          (E) any other action or circumstances which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor,

it being agreed by Borrower that its obligations as confirmed under this subsection 1.10 shall not
be discharged until the payment and performance, in full, of the Obligations has occurred. Borrower
expressly waives all rights it may have now or in the future under any statute, or at common law,
or at law or in equity, or otherwise, to compel any Agent or any Lender to marshal assets or to
proceed in respect of the Obligations guaranteed hereunder against any other party or against any
security for the payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, Borrower. It is agreed among Borrower, Agents and the Lenders that
the foregoing waivers are of the essence of the transaction contemplated by this Agreement and the
other Loan Documents and that, but for the provisions of this subsection 1.10 and such waivers,
each Lender would decline to enter into this Agreement.

SECTION 2.

AFFIRMATIVE COVENANTS

     Borrower covenants and agrees that until payment in full of all Obligations, Borrower shall
perform and comply with, and shall cause each of the other Loan Parties to perform and comply with,
all covenants in this Section 2 applicable to such Person.

     2.1 Compliance With Laws and Contractual Obligations. Borrower will (a) comply with and
will cause each of its Restricted Subsidiaries to comply with (i) the requirements of all
applicable laws, rules, regulations and orders of any governmental authority (including, without
limitation, laws, rules, regulations and orders relating to taxes, employer and employee
contributions, securities, employee retirement and welfare benefits, environmental protection
matters and employee health and safety) as now in effect and which may be imposed in the future in
all jurisdictions in which Borrower or its Restricted Subsidiaries are now doing business or may
hereafter be doing business and (ii) the obligations, covenants and conditions contained in all
Contractual Obligations of Borrower or such Restricted Subsidiary, as applicable, other than those
laws, rules, regulations and orders and provisions of such Contractual Obligations the
noncompliance with which could not be reasonably expected to have, either individually or in the
aggregate, a Material Adverse Effect, and (b) maintain or obtain and will cause each of its
Subsidiaries to maintain or obtain, all licenses, qualifications and permits now held or hereafter
required to be held by Borrower and its Subsidiaries, for which the loss, suspension, revocation or
failure to obtain or renew, could reasonably be expected to have, either individually or in the

9

 

aggregate, a Material Adverse Effect. This subsection 2.1 shall not preclude Borrower or any
Restricted Subsidiary from contesting any taxes or other payments, if they are being diligently
contested in good faith in a manner which stays enforcement thereof and if appropriate expense
provisions have been recorded in conformity with GAAP or to the extent that such compliance or
payment or any enforcement action is stayed as a result of the Chapter 11 Cases. Borrower
represents and warrants that it (i) is in compliance and each of its Restricted Subsidiaries is in
compliance with the requirements of all applicable laws, rules, regulations and orders of any
governmental authority as now in effect other than those laws, rules, regulations, orders and
provisions of such Contractual Obligations the noncompliance with which could not be reasonably
expected to have, either individually or in the aggregate, a Material Adverse Effect and (ii)
maintains and each of its Subsidiaries maintains all licenses, qualifications and permits referred
to above.

     “Contractual Obligations,” as applied to any Person, means any indenture, mortgage,
deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party
or by which it or any of its properties is bound or to which it or any of its properties is
subject.

     2.2 Maintenance of Properties; Insurance. Borrower will maintain or cause to be maintained
in good repair, working order and condition all material properties used in the business of
Borrower and its Restricted Subsidiaries and will make or cause to be made all appropriate repairs,
renewals and replacements thereof. Borrower will maintain or cause to be maintained, with
financially sound and reputable insurers, (a) public liability and property damage insurance with
respect to its business and properties and the business and properties of its Restricted
Subsidiaries against loss or damage of the kinds customarily carried or maintained by corporations
of established reputation engaged in similar businesses and (b) flood hazard insurance on each
Mortgaged Property that is located in a “special flood hazard area” (as defined in 12 CFR
§22.2(k)), in each case in amounts acceptable to Administrative Agent and will deliver evidence
thereof to Administrative Agent. Borrower will maintain business interruption insurance providing
coverage for a period of at least six months and in an amount not less than $30,000,000. Borrower
shall cause Administrative Agent, pursuant to endorsements and/or assignments in form and substance
reasonably satisfactory to Administrative Agent, to be named as lender’s loss payee in the case of
casualty insurance, additional insured in the case of all liability insurance and assignee in the
case of all business interruption insurance, in each case for the benefit of Agents and Lenders,
but without liability for any premiums, provided that Administrative Agent’s interest in all such
insurance shall be subordinate to the interest therein of the Senior DIP Lenders’ Administrative
Agent as provided in the Intercreditor Agreement. All insurance policies shall provide for at least
thirty (30) days’ prior written notice to Administrative Agent of any cancellations or reduction of
coverage and that Administrative Agent may act as attorney for Borrower and Borrower’s Restricted
Subsidiaries in obtaining, and at any time an Event of Default has occurred and is continuing,
adjusting, settling, amending and canceling such insurance. Borrower represents and warrants that
it and each of its Restricted Subsidiaries currently maintains all material properties as set forth
above and maintains all insurance described above. In the event Borrower fails to provide
Administrative Agent with evidence of the insurance coverage required by this Agreement,
Administrative Agent may purchase insurance at Borrower’s expense to protect Administrative Agent’s
interests in the Collateral. This insurance may, but need not, protect Borrower’s and its
Restricted Subsidiaries’ interests. The coverage purchased by Administrative Agent may not pay any
claim made by Borrower or

10

 

its Restricted Subsidiaries or any claim that is made against Borrower or its Restricted
Subsidiaries in connection with the Collateral. Borrower may later cancel any insurance purchased
by Administrative Agent, but only after providing Administrative Agent with evidence that Borrower
has obtained insurance as required by this Agreement. If Administrative Agent purchases insurance
for the Collateral, Borrower will be responsible for the costs of that insurance, including
interest and other charges imposed by Administrative Agent in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the insurance. The cost of
the insurance may be added to the Obligations. The costs of the insurance may be more than the cost
of insurance Borrower is able to obtain on its own.

     2.3 Inspection. Borrower shall permit any authorized representatives of Administrative
Agent to visit and inspect any of the properties of Borrower or any of its Restricted Subsidiaries,
including its and their financial and accounting records, and to make copies and take extracts
therefrom, and to discuss its and their affairs, finances and business with its and their officers
and certified public or chartered accountants, as applicable, at such reasonable times during
normal business hours and as often as may be reasonably requested. Representatives of each Lender
will be permitted to accompany representatives of Administrative Agent during each visit,
inspection and discussion referred to in the immediately preceding sentence.

     2.4 Organizational Existence. Except as otherwise permitted by subsection 3.6, Borrower
will, and will cause each of its Restricted Subsidiaries to, at all times preserve and keep in full
force and effect its organizational existence and all rights and franchises material to its
business.

     2.5 Further Assurances.

          (A) Subject to the terms of the Bankruptcy Court Orders (with respect to the Debtor Loan
Parties), Borrower shall and shall cause each Loan Party to, from time to time, execute such
guaranties, financing statements, documents, security agreements and reports as Agents or Requisite
Lenders at any time may reasonably request to evidence, perfect or otherwise implement the
guaranties and security for repayment of the Obligations contemplated by the Loan Documents.

          (B) In the event any Loan Party acquires an interest in real property after the Effective
Date, Borrower shall and shall cause each Loan Party to deliver to Collateral Agent a fully
executed mortgage, deed of trust or hypothec, as applicable, over such real property in form and
substance satisfactory to Collateral Agent and which guaranty and Lien shall be subordinate to the
interest therein of the Senior DIP Lenders’ Agent and the Senior DIP Lenders as provided in the
Intercreditor Agreement, together with such title insurance policies, surveys, appraisals, evidence
of insurance, legal opinions, environmental assessments and other documents and certificates as
shall be required by Collateral Agent and are consistent with requirements imposed with respect to
real property interests of such Loan Parties at the Effective Date.

          (C) Borrower shall cause each Person, upon its becoming a Restricted Subsidiary of Borrower,
promptly to guaranty the Obligations and to grant to Collateral Agent, for the benefit of Agents
and Lenders, a Lien in the real, personal and mixed property of such

11

 

Person to secure the Obligations, which guaranty and Lien shall be subordinate to the interest
therein of the Senior DIP Lenders’ Agent and the Senior DIP Lenders as provided in the
Intercreditor Agreement. In addition, all of the capital stock of such Restricted Subsidiary shall
be pledged to Collateral Agent, for the benefit of Agents and Lenders, which guaranty and pledge
shall be subordinate to the interest therein of the Senior DIP Lenders’ Agent and the Senior DIP
Lenders. The documentation for such guaranty and security shall be substantially similar to the
Loan Documents executed concurrently herewith with such modifications as are reasonably requested
by Collateral Agent.

          (D) The assurances contemplated by this Section 2.5 shall be given under applicable
non-bankruptcy law (to the extent not inconsistent with the Bankruptcy Code and the Bankruptcy
Court Orders) as well as the Bankruptcy Code, it being the intention of the parties that the
Collateral Agent may request assurances under applicable non-bankruptcy law, and such request shall
be complied with (if otherwise made in good faith by the Collateral Agent and to the extent not
inconsistent with the Bankruptcy Code and the Bankruptcy Court Orders) whether or not the
Bankruptcy Court Orders are in force and whether or not dismissal of any of the Chapter 11 Cases or
any other action by the Bankruptcy Court is imminent, likely or threatened.

     2.6 Holding Company. In the event that a majority of Borrower’s outstanding capital stock
shall at any time be owned by a corporation or other entity (other than an individual) (a
“Holding Company”), Borrower shall cause such Holding Company to guaranty the Obligations,
to pledge to the Collateral Agent, for the benefit of Agents and the Lenders, all of the capital
stock of Borrower owned by such Holding Company, and to grant to Collateral Agent, for the benefit
of Agents and the Lenders, a Lien in all of such Holding Company’s assets, which guaranty and Lien
shall be subordinate to the interest therein of the Senior DIP Lenders’ Agent and the Senior DIP
Lenders. In addition, if any holding company is formed or acquired for the purpose of owning the
stock of Borrower’s Restricted Subsidiaries, Borrower shall cause such holding company to guaranty
the Obligations and to pledge to the Collateral Agent, for the benefit of Agents and the Lenders,
all of the capital stock of such Restricted Subsidiaries, which guaranty and pledge shall be
subordinate to the interest therein of the Senior DIP Lenders’ Agent and the Senior DIP Lenders as
provided in the Intercreditor Agreement.

     2.7 Environmental Matters. Borrower shall and shall cause each of its Subsidiaries to: (a)
conduct its operations and keep and maintain its Real Estate in compliance with all Environmental
Laws and Environmental Permits other than noncompliance that could not reasonably be expected to
have a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and
response actions that are appropriate or necessary to maintain the value and marketability of the
Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to
the presence, generation, treatment, storage, use, disposal, transportation or Release of any
Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate; (c) notify
Administrative Agent promptly after Borrower, any of its Subsidiaries or any other Person within
its control becomes aware of any violation of Environmental Laws or Environmental Permits or any
Release on, at, in, under, above, to, from or about any Real Estate that is reasonably likely to
result in Environmental Liabilities to Borrower or its Subsidiaries in excess of $50,000; and (d)
promptly forward to Administrative Agent a copy of any order, notice, request for information or
any communication or report received by Borrower, any of its Subsidiaries or any Person within its
control in

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connection with any such violation or Release or any other matter relating to any Environmental
Laws or Environmental Permits that could reasonably be expected to result in Environmental
Liabilities in excess of $50,000, in each case whether or not the Environmental Protection Agency
or any governmental authority has taken or threatened any action in connection with any such
violation, Release or other matter. If Administrative Agent at any time has a reasonable basis to
believe that there may be a violation of any Environmental Laws or Environmental Permits by
Borrower or any of its Subsidiaries or any other Person under the control of Borrower or any of its
Subsidiaries or any Environmental Liability arising thereunder, or a Release of Hazardous Materials
on, at, in, under, above, to, from or about any of its Real Estate, that, in each case, could
reasonably be expected to have a Material Adverse Effect, then Borrower and its Subsidiaries shall,
upon Administrative Agent’s written request (i) cause the performance of such environmental audits
including subsurface sampling of soil and groundwater, and preparation of such environmental
reports, at Borrower’s expense, as Administrative Agent may from time to time reasonably request,
which shall be conducted by reputable environmental consulting firms reasonably acceptable to
Administrative Agent and shall be in form and substance reasonably acceptable to Administrative
Agent, and (ii) permit Administrative Agent or its representatives to have access to all Real
Estate for the purpose of conducting such environmental audits and testing as Administrative Agent
deems appropriate, including subsurface sampling of soil and groundwater. Borrower shall reimburse
Administrative Agent for the costs of such audits and tests and the same will constitute a part of
the Obligations secured hereunder. Without limiting the generality of the foregoing, Borrower will
cause Tech Industries to report, to the extent required by and in accordance with the requirements
of the Rhode Island Department of Environmental Management, elevated arsenic and TPH in ground
water at Tech Industries’ facilities in Woonsocket, Rhode Island.

     2.8 Compliance with Restructuring Support Agreement. The Borrower shall comply at all
times with the provisions of the Restructuring Support Agreement.

     2.9 New Subsidiaries. From and after the Effective Date, in connection with the
acquisition of the Capital Stock of a Person that becomes a Subsidiary of the Borrower or the
formation of a new Subsidiary of the Borrower, the Borrower shall cause such Person to guaranty the
payment and performance of the Obligations when due and to grant to the Collateral Agent for the
benefit of Agents and the Lenders as security therefor a security interest in and to and Lien on
all of the property, assets or interests in property or assets of such Person and, in furtherance
thereof, shall cause such Person to enter into a security agreement substantially similar to the
Security Agreements, a guaranty substantially similar to the Guaranties and such additional
security documents or instruments, together with such certificates, resolutions, opinions and the
like, as may be requested by the Agents in their reasonable discretion.

     2.10 Post-Closing Obligations. The Borrower shall deliver to the Administrative Agent each
of the agreements, certificates, instruments, approvals and other documents set forth on Schedule
2.10 on or before the respective dates specified on such Schedule 2.10 in respect thereof.

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SECTION 3.

NEGATIVE COVENANTS

     Borrower covenants and agrees that until payment in full of all Obligations, Borrower shall
perform and comply with, and shall cause each of the other Loan Parties to perform and comply with,
all covenants in this Section 3 applicable to such Person.

     3.1 Indebtedness. Borrower will not and will not permit any of its Restricted Subsidiaries
directly or indirectly to create, incur, assume, or otherwise become or remain directly or
indirectly liable with respect to any Indebtedness (other than pursuant to a Contingent Obligation)
except:

          (A) the Obligations;

          (B) intercompany Indebtedness arising from loans made by Borrower to its Restricted
Subsidiaries that are Loan Parties in the ordinary course of business; provided, however, that upon
the request of Administrative Agent at any time, such Indebtedness owing by any Restricted
Subsidiary that is a Loan Party shall be evidenced by promissory notes having terms reasonably
satisfactory to Administrative Agent, the sole originally executed counterparts of which shall be
pledged and delivered to Collateral Agent, for the benefit of Agents and Lenders, as security for
the Obligations;

          (C) Indebtedness evidenced by (i) the Senior Notes and any guaranties thereof in an aggregate
outstanding principal amount not to exceed $180,000,000, together with interest accrued thereon,
(ii) the Senior Secured Debt, if any, and the Senior DIP Debt, in each case in an aggregate
outstanding principal amount not to exceed the amount permitted under the Intercreditor Agreement;

          (D) Indebtedness incurred after January 16, 2004, not to exceed $8,000,000 (or the equivalent
thereof in another currency) in the aggregate for Borrower and its Restricted Subsidiaries on a
Consolidated basis at any time outstanding secured by purchase money Liens that are Permitted
Encumbrances or incurred with respect to capital leases;

          (E) unsecured Indebtedness incurred after January 16, 2004, not to exceed $1,500,000 (or the
equivalent thereof in another currency) in the aggregate at any time outstanding which is
subordinated to the Obligations in a manner satisfactory to Administrative Agent and Requisite
Lenders;

          (F) Indebtedness outstanding at the Effective Date and shown on Schedule 3.1;

          (G) Intentionally Omitted;

          (H) intercompany Indebtedness arising from loans made by Subsidiaries to Borrower and its
Restricted Subsidiaries; provided, however, that such Indebtedness shall be evidenced by
promissory notes having terms reasonably satisfactory to Administrative Agent and

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all such Indebtedness shall be subordinated to the Obligations in a manner satisfactory to
Administrative Agent; and

          (I) Indebtedness of Borrower or any of its Restricted Subsidiaries under any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement entered into in the
ordinary course of business and designed to alter the risks arising from fluctuations in currency
values not to exceed $15,000,000 in the aggregate at any time outstanding, in each case whether
contingent or matured, so long as such agreement is not speculative and has been approved by
Administrative Agent (such approval not to be unreasonably withheld).

     Each of the classifications of Indebtedness permitted to be incurred pursuant to subparts (A)
through (I) hereof shall be deemed to be separate and independent of the other classifications and,
in the event any such Indebtedness meets the criteria of more than one of the classifications of
Indebtedness described in subparts (A) through (I) permitted to be incurred thereunder, Borrower
will only be required to include the amount and type of such Indebtedness in one of such
classifications.

     3.2 Liens and Related Matters.

          (A) No Liens. Borrower will not and will not permit any of its Restricted
Subsidiaries directly or indirectly to (i) create, incur, assume or permit to exist any Lien on or
with respect to any property or asset of Borrower or any of its Restricted Subsidiaries, whether
now owned or hereafter acquired, or any income or profits therefrom, except Permitted Encumbrances
or (ii) create, incur, assume or permit to exist any Lien on Collateral having a priority superior
to, or pari passu with, the Lien in favor of the Collateral Agent, for the benefit of the Agents
and the Lenders, in respect of the Collateral, except for Permitted Priority Liens.

     “Permitted Encumbrances” means the following:

               (1) Liens (other than any Lien relating to Environmental Claims or imposed by ERISA or any
rule or regulation promulgated thereunder) for taxes, assessments or other governmental charges not
yet due and payable;

               (2) statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen and other
similar liens imposed by law, which are incurred in the ordinary course of business for sums not
more than thirty (30) days delinquent or which are being diligently contested in good faith in a
manner which stays enforcement of such Liens, provided that appropriate provisions shall have been
established therefor in accordance with GAAP or as to which payment and enforcement is stayed under
the Bankruptcy Code or pursuant to orders of the Bankruptcy Court;

               (3) Liens (other than any Lien relating to Environmental Claims or imposed by ERISA or any
rule or regulation promulgated thereunder) incurred or deposits made in the ordinary course of
business in connection with workers’ compensation, unemployment insurance and other types of social
security, or to secure the performance of tenders, statutory obligations, surety, stay, customs and
appeal bonds, bids, government contracts, trade contracts,

15

 

performance and return of money bonds and other similar obligations (exclusive of obligations
for the payment of borrowed money);

               (4) deposits, in an aggregate amount for Borrower and its Restricted Subsidiaries on a
Consolidated basis at any time not to exceed $750,000 (or the equivalent thereof in another
currency), made in the ordinary course of business to secure liability to insurance carriers and
utility service carriers;

               (5) Liens for purchase money obligations; provided that: (a) the Indebtedness secured by any
such Lien is permitted under subsection 3.1; (b) any such Lien encumbers only the asset so
purchased; and (c) the Indebtedness secured by such Lien is incurred within ninety (90) days after
the purchase of such asset;

               (6) any attachment or judgment Lien not constituting an Event of Default under subsection
6.1(J);

               (7) easements, rights of way, zoning restrictions, licenses and other similar charges or
encumbrances affecting the use of real property and not interfering in any material respect with
the ordinary conduct of the business of Borrower or any of its Restricted Subsidiaries;

               (8) any interest or title of a lessor or sublessor under any lease permitted by subsection
4.1;

               (9) Liens in favor of Collateral Agent, for the benefit of Agents and Lenders;

               (10) Liens existing on the date hereof and renewals and extensions thereof, which Liens are
set forth on Schedule 3.2(A)(10) hereto;

               (11) to the extent permitted pursuant to orders entered by the Bankruptcy Court, Liens arising
from filing UCC or PPSA financing statements regarding leases permitted by this Agreement;

               (12) Liens on Equity Interests of Unrestricted Subsidiaries securing Indebtedness of
Unrestricted Subsidiaries that is permitted hereunder;

               (13) Liens on assets of Unrestricted Subsidiaries securing Indebtedness of Unrestricted
Subsidiaries that is permitted hereunder;

               (14) customary non-assignment provisions in leases entered into in the ordinary course of
business and consistent with past practices;

               (15) Liens securing the Senior Secured Debt, if any;

               (16) Liens securing the Senior DIP Debt; and

16

 

               (17) any other Lien not expressly permitted by clauses (1) through (16) above, so long as such
other Liens do not secure claims exceeding $2,000,000 in the aggregate at any time outstanding.

     Each of the classifications of Permitted Encumbrances permitted to be incurred pursuant to
subparts (1) through (16) hereof shall be deemed to be separate and independent of the other
classifications and, in the event any such Permitted Encumbrance meets the criteria of more than
one of the classifications of Permitted Encumbrances described in subparts (1) through (16)
permitted to be incurred hereunder, Borrower will only be required to include the amount and type
of such Permitted Encumbrance in one of such classifications; provided that notwithstanding
anything to the contrary contained in this Agreement or any other Loan Document (including any
provision for, reference to, or acknowledgement of, any Lien or Permitted Encumbrance), nothing
herein and no approval by the Lenders of any Lien or Permitted Encumbrance (whether such approval
is oral or in writing) shall be construed as or deemed to constitute a subordination by any Agent
or any Lender of any security interest or other right, interest or Lien in or to the Collateral or
any part thereof in favor of any Lien or Permitted Encumbrance or any holder of any Lien or
Permitted Encumbrance.

     “Permitted Priority Liens” means (i) the valid, enforceable, properly perfected and
non-avoidable Liens in existence immediately prior to the Filing Date (other than any Liens
securing the Pre-Petition Facility but including statutory liens that are not avoidable under
Section 545 of the Bankruptcy Code) as are reasonably acceptable to the Lenders, including without
limitation the Liens set forth on Annex II hereto and (ii) GECC Post-Petition Liens and
GECC Adequate Protection Liens (each as defined in the Interim Financing Order).

          (B) No Prior Liabilities or Obligations. Borrower will not and will not permit any
Restricted Subsidiary which is a debtor in the Chapter 11 Cases directly or indirectly to create,
incur, assume or permit to exist any liability or obligation superior to, or pari passu with, the
priority of the administrative claims of the Agents and the Lenders in respect of the Obligations
except as otherwise provided in the Interim Financing Order or subsection 10.2 of this Agreement.

          (C) No Negative Pledges. Borrower will not and will not permit any of its Restricted
Subsidiaries directly or indirectly to enter into or assume any agreement (other than the Loan
Documents and other than as provided in the Senior Note Documents as in effect on the Effective
Date, the Senior Secured Debt, if any, and the Senior DIP Debt Loan Documents) prohibiting the
creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter
acquired.

          (D) No Restrictions on Restricted Subsidiary Distributions to the Borrower. Except as
provided herein or under the Senior Note Indenture or Senior DIP Credit Agreement, Borrower will
not and will not permit any of its Restricted Subsidiaries directly or indirectly to create or
otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of any such Restricted Subsidiary to: (1) pay dividends or make any other
distribution on any of such Restricted Subsidiary’s capital stock owned by Borrower or any other
Restricted Subsidiary; (2) pay any Indebtedness owed to Borrower or any other Restricted
Subsidiary; (3) make loans or advances to Borrower or any other Restricted

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Subsidiary; or (4) transfer any of its property or assets to Borrower or any other Restricted
Subsidiary.

     3.3 Investments. Borrower will not and will not permit any of its Restricted Subsidiaries
directly or indirectly to make or own any Investment, except:

          (A) Borrower and its Restricted Subsidiaries may make and own Investments in Cash Equivalents;
provided that such Cash Equivalents are not subject to setoff rights;

          (B) Borrower may make intercompany loans to its Restricted Subsidiaries that are Loan Parties
to the extent permitted under subsection 3.1(B), and Borrower’s Restricted Subsidiaries may make
intercompany loans to Borrower and its Restricted Subsidiaries that are Loan Parties to the extent
permitted under subsection 3.1(H);

          (C) Loans and advances to employees for moving, entertainment, travel and other similar
expenses in the ordinary course of business not to exceed $500,000 to any individual employee and,
when aggregated with the outstanding principal amount of the loan to Jack L. Watts described on
Subschedule 7.4, $2,000,000 in the aggregate for Borrower and all of its Restricted Subsidiaries at
any time outstanding;

          (D) Investments existing on the Effective Date and set forth in Subschedule 7.4 and extensions
and renewals thereof, including promotional loans of equipment to customers pursuant to the terms
of subsection 3.7(c);

          (E) Investments received in exchange for settlement of claims with Account debtors;

          (F) Investments received in exchange for any other permitted Investment in conjunction with or
as a result of any bankruptcy or insolvency proceeding, reorganization or recapitalization of the
issuer of such other Investment or as a result of a foreclosure with respect to any secured
permitted Investment or other transfer of title with respect to any secured permitted Investment in
default;

          (G) to the extent permitted by the Senior DIP Credit Agreement, Investments (including
intercompany loans) made after January 16, 2004, in Unrestricted Subsidiaries and Restricted
Subsidiaries which are not Loan Parties; provided, however, that no single
Investment (or series of related Investments) made in any such Subsidiary shall exceed $5,000,000
and the aggregate amount of all such Investments shall not exceed $10,000,000 outstanding at any
time (measured by the fair market value of such Investment as of the date made); provided
further, that the aggregate amount of all such Investments in each of Asesoria Maxima, S.A.
de C.V. or Tech Industries U.K. Ltd. shall not exceed $25,000 outstanding at any time;

          (H) to the extent permitted by the Senior DIP Credit Agreement, Investments made after January
16, 2004, in any of the Mexican Restricted Subsidiary, Portola GmbH, or Portola s.r.o., or in joint
ventures with Greiner AG or its affiliates, not to exceed $11,000,000 in the aggregate amount at
any one time outstanding (measured by the fair market value of such Investment as of the date
made);

18

 

          (I) Investments made after January 16, 2004, in Persons, including Subsidiaries, principally
engaged in similar lines of business to that of Borrower or Borrower’s existing Restricted
Subsidiaries that are Loan Parties as of the Effective Date (including the packaging or product
integrity business) not to exceed the sum of (1) $10,000,000 plus (2) the aggregate net cash
proceeds from the issuance of capital stock or other equity securities of Borrower after January
16, 2004, which are contributed as additional paid-in capital to Borrower and are at all times
prior to the making of any such Investment held by Borrower in a segregated account and not
co-mingled with any other funds of Borrower or its Subsidiaries (less all of such net cash proceeds
used or otherwise segregated to repurchase Senior Notes or capital stock or other equity securities
of Borrower or applied for other purposes) in aggregate amount at any one time outstanding
(measured by the fair market value of such Investment as of the date made); provided, that no such
Investment shall be made following November 24, 2004 unless Fixed Charge Coverage exceeds 1.20 to
1.00 as of the most recently ended fiscal quarter for which information is then available; and

          (J) currency hedging agreements entered into in compliance with subsection 3.1(I).

     Each of the classifications of Investments permitted to be made pursuant to subparts (A)
through (J) hereof shall be deemed to be separate and independent of the other classifications and,
in the event any such Investment meets the criteria of more than one of the classifications of
Investments described in subparts (A) through (J) permitted to be made thereunder, Borrower will
only be required to include the amount and type of such Investment in one of such classifications.

     For purposes of calculating the aggregate amount of Investments permitted to be outstanding at
any one time pursuant to clauses (G), (H) and (I), (i) to the extent the consideration for any such
Investment consists of Equity Interests (other than Disqualified Stock) of Borrower, the value of
the Equity Interests so issued will be ignored in determining the amount of such Investment, (ii)
the aggregate amount of such Investments made by Borrower and its Restricted Subsidiaries will be
decreased (but not below zero) by an amount equal to the cash return of capital to Borrower or a
Restricted Subsidiary with respect to such an Investment that is sold for cash or otherwise
liquidated or repaid for cash (less, in each case, the cost of disposition, including applicable
taxes, if any), provided, however, that in no event shall the aggregate amount of such Investments
so permitted be increased above the amounts specified in such clauses (G), (H) and (I), and (iii)
in the case of an Investment made by issuing letters of credit (or reimbursement agreements in
respect thereof), the aggregate amount of such Investments will be decreased by the amount
remaining unpaid thereunder upon termination of Borrower’s obligations thereunder.

     “Investment” means (i) any direct or indirect purchase or other acquisition by
Borrower or any of its Restricted Subsidiaries of any beneficial interest in, including stock,
partnership interest or other equity securities of, or ownership interest in, any other Person; and
(ii) any direct or indirect loan, advance or capital contribution by Borrower or any of its
Restricted Subsidiaries to any other Person, including all indebtedness and accounts receivable
from that other Person that are not current assets or did not arise from sales to that other Person
in the ordinary course of business. The amount of any Investment shall be the original cost of such

19

 

Investment plus the cost of all additions thereto, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. The
term “Investment” shall not include any guaranty of the Senior Notes or the Senior DIP Debt by any
of Borrower’s Subsidiaries.

     “Cash Equivalents” means, in each case with respect to the Debtor Loan Parties, as
permitted by Section 345 of the Bankruptcy Code or pursuant to orders entered by the Bankruptcy
Court: (i) marketable direct obligations issued or unconditionally guarantied by the United States,
the United Kingdom or Canadian Government or issued by any agency thereof and backed by the full
faith and credit of the United States, the United Kingdom, Canada, the European Central Bank or any
National Central Bank of an EU member state, in each case maturing within one (1) year from the
date of acquisition thereof; (ii) commercial paper maturing no more than one (1) year from the date
issued and, at the time of acquisition, having a rating of at least A-1 from Standard & Poor’s
Ratings Group or at least P-1 from Moody’s Investors Service, Inc.; (iii) (a) certificates of
deposit or bankers’ acceptances maturing within one (1) year from the date of issuance thereof
issued by, or overnight reverse repurchase agreements from, any commercial bank organized under the
laws of the United States of America or any state thereof or the District of Columbia or any
Schedule I Bank organized under the laws of Canada having combined capital and surplus of not less
than $500,000,000 or (b) certificates of deposit issued in London, England, and maturing within one
(1) year from the date of issuance thereof issued by an authorized institution under the Banking
Act 1987 with ratings of at least A-1 from Standard & Poor’s Ratings Group or at least P-1 from
Moody’s Investors Service, Inc. or at least A-1 from Fitch IBCA, Inc.; (iv) time deposits maturing
no more than thirty (30) days from the date of creation thereof with commercial banks having
membership in the Federal Deposit Insurance Corporation or the Canadian Deposit Insurance
Corporation in amounts not exceeding the lesser of $100,000 or the maximum amount of insurance
applicable to the aggregate amount of Borrower’s deposits at such institution; and (v) deposits or
investments in mutual or similar funds offered or sponsored by brokerage or other companies having
membership in the Securities Investor Protection Corporation which invest substantially all of such
funds’ assets in investments satisfying the requirements of clauses (i) through (iv) above.

     3.4 Contingent Obligations. Borrower will not and will not permit any of its Restricted
Subsidiaries directly or indirectly to create or become or be liable with respect to any Contingent
Obligation except:

          (A) [intentionally omitted];

          (B) guaranties of the Obligations and of the Senior Notes and the Senior DIP Debt and the
Senior Secured Debt, if any;

          (C) Contingent Obligations of Borrower and the Restricted Subsidiaries under the Loan
Documents;

          (D) those resulting from endorsement of negotiable instruments for collection in the ordinary
course of business;

20

 

          (E) those existing on the Effective Date and described in Schedule 3.4 annexed hereto;

          (F) those arising under indemnity agreements to title insurers to cause such title insurers to
issue to Administrative Agent mortgagee title insurance policies;

          (G) those arising with respect to customary indemnification obligations incurred in connection
with Asset Dispositions;

          (H) those incurred in the ordinary course of business with respect to surety and appeal bonds,
performance and return-of-money bonds and other similar obligations not exceeding at any time
outstanding $500,000 (or the equivalent thereof in another currency) in aggregate liability;

          (I) those incurred after January 16, 2004, with respect to Indebtedness permitted by
subsection 3.1 so long as such Contingent Obligations incurred after January 16, 2004, in the
aggregate at any time outstanding, do not exceed $2,500,000 (or the equivalent thereof in another
currency);

          (J) Contingent Obligations under Interest Rate Agreements secured under the Senior DIP Debt
Loan Documents and the Senior Secured Debt, if any;

          (K) Contingent Obligations consisting of customary indemnification obligations in favor of
officers and directors of Borrower and its Restricted Subsidiaries in connection with the
performance of their duties for Borrower and its Restricted Subsidiaries to the extent permitted
under applicable corporate law;

          (L) Contingent Obligations consisting of Investments permitted pursuant to subsection 3.3; and

          (M) any other Contingent Obligation not expressly permitted by clauses (A) through (L) above
and incurred after January 16, 2004, so long as any such other Contingent Obligations, in the
aggregate at any time outstanding, do not exceed $10,000,000 (or the equivalent thereof in another
currency).

     Each of the classifications of Contingent Obligations permitted to be incurred pursuant to
subparts (A) through (M) hereof shall be deemed to be separate and independent of the other
classifications and, in the event of any such Contingent Obligation meets the criteria of more than
one of the classifications of Contingent Obligations described in subparts (A) through (M)
permitted to be incurred hereunder, Borrower will only be required to include the amount and type
of such Contingent Obligations in one of such classifications.

     “Contingent Obligation”, as applied to any Person, means any direct or indirect
liability of that Person: (i) with respect to any indebtedness, lease, dividend or other obligation
of another Person if the purpose or intent of the Person incurring such liability, or the effect
thereof, is to provide assurance to the obligee of such liability that such liability will be paid
or discharged, or that any agreements relating thereto will be complied with, or that the holders
of such liability will be protected (in whole or in part) against loss with respect thereto; (ii)
with respect to any

21

 

letter of credit issued for the account of that Person or as to which that Person is otherwise
liable for reimbursement of drawings; (iii) under any foreign exchange contract, currency swap
agreement, interest rate swap agreement or other similar agreement or arrangement designed to alter
the risks of that Person arising from fluctuations in currency values or interest rates; (iv) to
make take-or-pay or similar payments if required regardless of nonperformance by any other party or
parties to an agreement, or (v) pursuant to any agreement to purchase, repurchase or otherwise
acquire any obligation or any property constituting security therefor, to provide funds for the
payment or discharge of such obligation or to maintain the solvency, financial condition or any
balance sheet item or level of income of another. The amount of any Contingent Obligation shall be
equal to the amount of the obligation so guaranteed or otherwise supported or, if not a fixed and
determined amount, the maximum amount so guaranteed.

     3.5 Restricted Junior Payments. Borrower will not and will not permit any of its
Restricted Subsidiaries directly or indirectly to declare, order, pay, make or set apart any sum
for any Restricted Junior Payment, except that Restricted Subsidiaries of Borrower may make
Restricted Junior Payments to Borrower.

     “Restricted Junior Payment” means: (i) any dividend or other distribution, direct or
indirect, on account of any shares of any class of stock or other equity security of, or ownership
interest in, Borrower or any of its Restricted Subsidiaries now or hereafter outstanding, except a
dividend payable solely in shares of that class of stock to the holders of that class; (ii) any
redemption, conversion, exchange, retirement, sinking fund or similar payment, purchase or other
acquisition for value, direct or indirect, of any shares of any class of stock or other equity
security of, or ownership interest in, Borrower or any of its Restricted Subsidiaries now or
hereafter outstanding; (iii) any payment or prepayment of interest on, principal of, premium, if
any, redemption, conversion, exchange, purchase, retirement, defeasance, sinking fund or similar
payment with respect to, any Indebtedness subordinated to the Obligations; and (iv) any payment
made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to
acquire shares of any class of stock or other equity security of, or ownership interest in,
Borrower or any of its Restricted Subsidiaries now or hereafter outstanding.

     3.6 Restriction on Fundamental Changes. Borrower will not and will not permit any of its
Restricted Subsidiaries directly or indirectly to: (a) amend, modify or waive any term or provision
of its organizational documents, including, without limitation, its articles of incorporation,
certificates of designations pertaining to preferred stock, by-laws, partnership agreement or
operating agreement unless required by law; (b) enter into any transaction of merger, amalgamation
or consolidation except, upon not less than five (5) Business Days’ prior written notice to
Administrative Agent, any wholly-owned Restricted Subsidiary of Borrower may be merged or
amalgamated with or into Borrower (provided that Borrower is the surviving entity) or any other
wholly-owned Restricted Subsidiary of Borrower that is a Loan Party; (c) liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution); or (d) acquire by purchase or otherwise
all or any substantial part of the business or assets of any other Person, except in connection
with an Investment under subsection 3.3(I).

     3.7 Disposal of Assets or Subsidiary Stock. Borrower will not and will not permit any of
its Restricted Subsidiaries directly or indirectly to convey, sell, lease, sublease, transfer or
otherwise dispose of, or grant any Person an option to acquire, in one transaction or a series of

22

 

related transactions, any of its property, business or assets, or the capital stock of or other
equity interests in any of its Restricted Subsidiaries, whether now owned or hereafter acquired,
except for (a) bona fide sales of inventory to customers for fair value in the ordinary course of
business and dispositions of obsolete equipment not used or useful in the business; (b) Asset
Dispositions if all of the following conditions are met: (i) (A) in the case of Asset Dispositions
involving assets deemed by Borrower to be no longer useful in the business, the market value of
such assets sold or otherwise disposed of in any single transaction or series of related
transactions does not exceed $500,000 (or the equivalent thereof in another currency) and the
aggregate market value of such assets sold or otherwise disposed of by Borrower and its Restricted
Subsidiaries in any fiscal year of Borrower does not exceed $2,500,000 (or the equivalent thereof
in another currency) and (B) in the case of Asset Dispositions involving other assets, the market
value of such assets sold or otherwise disposed of in any single transaction or series of related
transactions does not exceed $1,000,000 (or the equivalent thereof in another currency) and the
aggregate market value of such assets sold or otherwise disposed of by Borrower and its Restricted
Subsidiaries in any fiscal year of Borrower does not exceed $5,000,000 (or the equivalent thereof
in another currency); (ii) the consideration received is at least equal to the fair market value of
such assets; (iii) at least eighty percent (80%) of the consideration received is cash (exclusive
of non-cash consideration received in the form of promissory notes in an aggregate amount not in
excess of $3,000,000 during the term of this Agreement); (iv) after giving effect to the Asset
Disposition and the repayment of Indebtedness with the proceeds thereof, Borrower is in compliance
on a pro forma basis with the covenants set forth in Section 4 recomputed for the most recently
ended quarter for which information is available and is in compliance with all other terms and
conditions of this Agreement; and (v) no Default or Event of Default then exists or would result
from such Asset Disposition; (c) loans and leases of equipment in the ordinary course of business
of Borrower, provided that the aggregate value of all such equipment that is loaned during
any fiscal year of Borrower shall not exceed one and one-fifth percent (1.2%) of Borrower’s total
annual sales revenues for the immediately preceding fiscal year; and (d) any Restricted Subsidiary
may convey all or any portion of its property and assets to Borrower or to any Restricted
Subsidiary that is a Loan Party. Following Payment in Full of the Senior DIP Debt, in the event
that Borrower or any Restricted Subsidiary makes an Asset Disposition that, but for the operation
of this sentence, would result in Borrower’s being obligated to make an Asset Sale Offer (as
defined in the Senior Note Indenture), then immediately following such Asset Disposition, the Net
Proceeds of such Asset Disposition shall be applied in prepayment of the Term Loans.

     3.8 Transactions with Affiliates. Borrower will not and will not permit any of its
Restricted Subsidiaries directly or indirectly to enter into or permit to exist any transaction
(including the purchase, sale, lease or exchange of any property or the rendering of any
management, consulting, investment banking, advisory or other similar services) with any Affiliate
or with any director, officer or employee of any Loan Party, except (a) as set forth on Schedule
3.8, (b) transactions in the ordinary course of and pursuant to the reasonable requirements of the
business of Borrower or any of its Restricted Subsidiaries and upon fair and reasonable terms which
are fully disclosed to Administrative Agent and are no less favorable to Borrower or such
Restricted Subsidiary than would be obtained in a comparable arm’s length transaction with a Person
that is not an Affiliate, (c) intercompany Indebtedness permitted pursuant to subsection 3.1, (d)
Investments permitted pursuant to subsection 3.3, (e) Restricted Junior Payments permitted pursuant
to subsection 3.5, (f) payment of reasonable compensation

23

 

to officers and employees for services actually rendered to Borrower or such Restricted Subsidiary
and (g) payment of director’s fees for board and committee service not to exceed $500,000 (or the
equivalent thereof in another currency) in the aggregate for any fiscal year of Borrower; provided,
however, that any employment, stock option, stock purchase or stock grant agreement entered into by
Borrower or any of its Restricted Subsidiaries with directors, officers and employees in the
ordinary course of business and consistent with the past practice of Borrower or such Restricted
Subsidiaries shall not be deemed a transaction with an Affiliate. Notwithstanding the foregoing,
unless otherwise approved by Requisite Lenders, no payments may be made with respect to any items
set forth as subparts 4, 5, 7 and 11 under the heading “Portola Packaging, Inc.” on Schedule 3.8
after the occurrence and during the continuation of a Default or Event of Default or if a Default
or Event of Default would result therefrom.

     3.9 Conduct of Business. Borrower will not and will not permit any of its Restricted
Subsidiaries directly or indirectly to engage in any business other than businesses of the type
described on Schedule 3.9.

     3.10 Changes Relating to Indebtedness. Borrower will not and will not permit any of its
Restricted Subsidiaries directly or indirectly to change or amend the terms of any of (1) its
Indebtedness permitted by subsections 3.1 (C) (excluding the Senior DIP Debt) or (F) if the effect
of such amendment is to: (a) increase the interest rate on such Indebtedness; (b) change the dates
upon which payments of principal or interest are due on or principal amount of such Indebtedness
(excluding intercompany Indebtedness which is shown on Schedule 3.1 and otherwise permitted under
subsection 3.1(B)); (c) change any event of default or add or make more restrictive any covenant
with respect to such Indebtedness; (d) change the prepayment provisions of such Indebtedness; (e)
change the subordination provisions thereof, if any (or the subordination terms of any guaranty
thereof, if any); or (f) change or amend any other term if such change or amendment would
materially increase the obligations of the obligor or confer additional material rights on the
holder of such Indebtedness in a manner adverse to Borrower, any of its Restricted Subsidiaries or
Lenders, or (2) the Senior DIP Debt, except as permitted under the Intercreditor Agreement.
Borrower will not and will not permit any of its Restricted Subsidiaries to voluntarily prepay any
Senior Notes. Borrower will not designate any debt facility as a “Credit Facility” under the
Senior Notes Indenture other than this Agreement, the Senior DIP Credit Agreement and the
“Prepetition First Lien Loan Agreement” (as defined in the Intercreditor Agreement).

     3.11 Fiscal Year. Borrower will not and will not permit any of its Restricted Subsidiaries
to change their fiscal year.

     3.12 Intentionally Omitted. 

     3.13 Subsidiaries. Borrower will not and will not permit any of its Subsidiaries directly
or indirectly to establish, create or acquire any new Subsidiary not listed on Subschedule 7.7
except in connection with an Investment permitted under subsection 3.3, and provided that upon
Collateral Agent’s request, Borrower shall pledge to Collateral Agent, for the benefit of Agents
and Lenders, all of Borrower’s right, title and interest in and to the capital stock of each such
Subsidiary that is a Restricted Subsidiary and shall cause each such Subsidiary that is a
Restricted Subsidiary to guaranty the Obligations and to grant to Collateral Agent, for the benefit

24

 

of Agents and Lenders, a Lien in all of its assets which guaranty and Lien shall be subordinate to
the interest therein of the Senior DIP Lenders’ Agent and the Senior DIP Lenders as provided in the
Intercreditor Agreement.

     3.14 Bank Accounts. Borrower will not and will not permit any of its Restricted
Subsidiaries that are Loan Parties to establish any new bank accounts without prior written notice
to Administrative Agent and unless Administrative Agent, Borrower or such Restricted Subsidiary and
the bank at which the account is to be opened enter into a tri-party agreement regarding such bank
account pursuant to which such bank acknowledges the security interest of Collateral Agent in such
bank account and agrees to limit its set-off rights on terms satisfactory to Collateral Agent which
security interest shall be subordinate to the interest therein of the Senior DIP Lenders’ Agent and
the Senior DIP Lenders as provided in the Intercreditor Agreement.

     3.15 Applications under CCAA. Borrower acknowledges that its business and financial
relationships with Agents and Lenders are unique from its relationship with any other of its
creditors. Borrower agrees that it shall not and shall not permit any of its Restricted
Subsidiaries to file any plan of arrangement under the CCAA (“CCAA Plan”) which provides
for, or would permit directly or indirectly, any Agent or any Lender to be classified with any
other creditor of such Borrower for purposes of such CCAA Plan or otherwise.

     “CCAA” means the Companies’ Creditors Arrangement Act (Canada), as the same now exists
or may from time to time hereafter be amended, modified or supplemented, together with all official
rules, regulations and interpretations thereunder or related thereto.

     3.16 Inactive Subsidiaries. Borrower will not and will not permit any of its Restricted
Subsidiaries to make any Investment in or transfer any properties to any of the Inactive
Subsidiaries (except for Investments in Tech Industries U.K. Ltd. permitted in subsection 3.3(G)).
Borrower shall not permit any of the Inactive Subsidiaries to have any assets or liabilities.

     3.17 Press Release; Public Offering Materials. The Borrower agrees that neither it nor its
Affiliates will make any public filing, announcement or other disclosure of the Facility or this
Agreement or the other Loan Documents without giving the Lenders at least two (2) Business Days’
prior notice thereof, which notice shall include a copy of the proposed filing, announcement or
other disclosure; provided, however, that the Borrower shall not be obligated to
provide such prior notice of any such disclosure contained in court filings made by the Borrower so
long as the Borrower shall have given such notice to the Lenders as soon as practicable before or,
if prior notice is impracticable, after such filing. In addition, the Borrower will not name or
otherwise disclose the identity of any Lender or any Affiliate of any Lender in any such filing,
announcement or disclosure, unless contained in a court filing made by the Borrower in the Chapter
11 Cases or otherwise required under applicable law or rules promulgated by the Securities and
Exchange Commission and then, in any event, such Loan Party or Affiliate will consult with
Administrative Agent before issuing such press release or other public disclosure, without the
prior written consent of such Lender, which consent is in the sole discretion of such Lender.

25

 

     3.18 Hazardous Materials. Borrower shall not and shall not cause or permit its
Subsidiaries to cause or permit a Release of any Hazardous Material on, at, in, under, above, to,
from or about any of the Real Estate where such Release would (a) violate in any respect, or form
the basis for any Environmental Liabilities by Borrower or any of its Subsidiaries under, any
Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or
marketability of any of the Real Estate or any of the Collateral, other than such violations or
Environmental Liabilities that could not reasonably be expected to have a Material Adverse Effect.

     3.19 Bankruptcy Court Orders; Administrative Priority; Lien Priority; Payment of
Claims. Borrower shall not and shall not cause or permit its
Subsidiaries to: (A) at any time,
file (or, if filed by a Person other than the Borrower, fail to contest in good faith) any
pleading, motion, application or any other papers and documents in any of the Chapter 11 Cases
seeking or consenting to any reversal, modification, amendment, stay or vacation of any of the
Bankruptcy Court Orders, except for modifications and amendments consented to by the Requisite
Lenders in writing, which consent may be withheld in the Requisite Lenders’ sole discretion;

          (B) at any time, file (or, if filed by a Person other than the Borrower, fail to contest in
good faith) any pleading, motion, application or any other papers and documents in any of the
Chapter 11 Cases seeking or consenting to create, incur, assume or permit to exist any liability or
obligation superior to, or pari passu with, the priority of the administrative claims of the Agents
and the Lenders in respect of the Obligations, except as otherwise provided in the Interim
Financing Order or subsection 10.2 of this Agreement; and

          (C) pay any administrative expense claims except (i) GECC Superpriority Claim and GECC
Adequate Protection Priority Claims, (ii) only upon the occurrence and continuance of an Event of
Default, payments pursuant to clause “first” of the definition of the term “Agreed Administrative
Expense Priorities”, (iii) Obligations due and payable hereunder, and (iv) other allowed
administrative expense claims arising in the ordinary course of business of the Borrower or the
Chapter 11 Cases, in each case to the extent and having the order of priority set forth in the
Agreed Administrative Expense Priorities.

     3.20 Payments. Borrower shall not and shall not cause or permit its Subsidiaries to make
any payment of principal or interest or otherwise on account of any trade payable or other
indebtedness or liability incurred prior to the Effective Date other than in accordance with the
Approved Budget (with respect to the Borrower and its Subsidiaries) and the Bankruptcy Court Orders
(with respect to the Debtor Loan Parties), provided that such payments may be made: (i) to the
holders of, or in respect of, wage, salary, commission, employee benefit and other employee
compensation obligations (including expense reimbursements) which arose prior to the Effective
Date; (ii) to landlords in connection with the assumption of unexpired leases under Section 365 of
the Bankruptcy Code; (iii) to lessors and non-debtor parties to executory contracts in connection
with the assumption of such leases and contracts under Section 365 of the Bankruptcy Code; (iv) in
respect of workers’ compensation benefits and liability and property insurance policies of the
Borrower; (v) in respect of payroll taxes, sales and use taxes, garnishment payments or other trust
fund disbursements in accordance with past practice of the Borrower; and (vi) to the holders of
Permitted Priority Liens, the proceeds of the assets subject to such Permitted Priority Liens in
connection with the sale of such assets, in each case, after prior

26

 

written notice of such payment has been given by the Borrower to the Agents and Lenders and
subject to approval of the Bankruptcy Court

     3.21 Certain Agreements. Except to the extent otherwise permitted by the Intercreditor
Agreement, agree to any amendment or other change to or waiver of any of its rights under any
material Contractual Obligations of the Borrower that could reasonably be expected to result in a
Material Adverse Effect.

     3.22 Reclamation and Section 503(b)(9) Claims. Borrower will not and will not permit any
of its Restricted Subsidiaries (x) to enter into any agreement to return any inventory to any
creditor for application against any pre-Filing Date indebtedness, pre-Filing Date trade payables
or other pre-Filing Date claims under Section 546(h) of the Bankruptcy Code or otherwise, or allow
any creditor to take any setoff or recoupment against any of Borrower’s or any other Restricted
Subsidiary’s pre-Filing Date indebtedness, pre-Filing Date trade payables or other pre-Filing Date
claims based upon any such return pursuant to Section 553(b)(1) of the Bankruptcy Code or
otherwise, except in amounts and on other terms and conditions that (i) are approved by order of
the Bankruptcy Court, or (ii) are consented to in writing by the Administrative Agent acting at the
direction of the Requisite Lenders or (y) pay any claims under Section 503(b)(9) of the Bankruptcy
Code prior to the confirmation of a plan of reorganization unless consented to in writing by the
Administrative Agent acting at the direction of the Requisite Lenders or authorized pursuant to a
“first day order” acceptable to the Administrative Agent.

SECTION 4.

FINANCIAL COVENANTS/REPORTING

     Borrower covenants and agrees that until payment in full of all Obligations, Borrower shall
perform and comply with, and shall cause each of the other Loan Parties to perform and comply with,
all covenants in this Section 4 applicable to such Person.

     4.1 Lease Limits. Borrower will not and will not permit any of its Restricted Subsidiaries
directly or indirectly to become or remain liable in any way, whether directly or by assignment or
as a guarantor or other surety, for the obligations of the lessee under any operating lease,
synthetic lease or similar off-balance sheet financing, if the aggregate amount of all rents (or
substantially equivalent payments) paid by Borrower and its Restricted Subsidiaries under all such
leases would exceed $8,000,000 (or the equivalent thereof in another currency) in any fiscal year
of Borrower.

     4.2 Financial Statements and Other Reports. Borrower will maintain, and cause each of its
Restricted Subsidiaries to maintain, a system of accounting established and administered in
accordance with sound business practices to permit preparation of financial statements in
conformity with GAAP (it being understood that monthly financial statements are not required to
have footnote disclosures). Borrower will deliver each of the financial statements and other
reports described below to Administrative Agent (and each Lender in the case of the financial
statements and other reports described in subsections (A) through (I), (K), (L) and (M)).

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          (A) Variance Reports, Filings in the Chapter 11 Cases and Other Reports, Etc. Borrower
will furnish to each of the Lenders and the Administrative Agent:

               (1) within three (3) Business Days after the end of each Calendar Week commencing with the
Calendar Week ending on August 29, 2008, a variance report, in form acceptable to the Requisite
Lenders in their sole discretion, setting forth the actual cash receipts and disbursements and net
cash flow for (a) such immediately preceding Calendar Week and (b) the period from the beginning of
the Calendar Week ending on August 29, 2008 to and including the most recent full Calendar Week,
and showing the variance in dollar amounts, on a line-item by line-item basis, of actual receipts
and disbursements and net cash flow from those reflected for each line item for the applicable
periods in the Approved Budget;

               (2) within two (2) Business Days after the filing thereof, copies of all pleadings, motions,
applications, financial information and other papers and documents filed by or on behalf of the
Borrower or any Guarantor in the Chapter 11 Cases, which papers and documents shall also be given
or served on the Lenders’ counsel and the Administrative Agent’s counsel; and

               (3) within two (2) Business Days after the sending thereof, copies of all written reports
given by the Borrower or any Guarantor to any official or unofficial creditors’ committee in the
Chapter 11 Cases, which written reports shall also be given or served on the Lenders’ counsel.

          (B) Monthly Financials. As soon as available and in any event within thirty (30) days
after the end of each month (including the last month of the Borrower’s fiscal year), the Borrower
will deliver (1) consolidating balance sheets and statements of income of the Borrower and its
Subsidiaries, (2) the Consolidated balance sheet of the Borrower and its Consolidated Subsidiaries,
as at the end of such month, and the related Consolidated statements of income, stockholders’
equity and cash flow for such month and for the period from the beginning of the then current
fiscal year of the Borrower to the end of such month and (3) a schedule of the outstanding
Indebtedness for borrowed money of the Borrower and its Restricted Subsidiaries describing in
reasonable detail each such debt issue or loan outstanding and the principal amount and amount of
accrued and unpaid interest with respect to each such debt issue or loan.

          (C) Year-End Financials. Promptly after Borrower has filed its annual financial
statements in connection with Form 10K with the Securities and Exchange Commission and in any event
within one hundred five (105) days after the end of each fiscal year of Borrower (and on or before
the Effective Date in the case of Borrower’s 2007 fiscal year), Borrower will deliver (1) the
Consolidated balance sheets of Borrower and its Consolidated Subsidiaries, as at the end of such
year, and the related Consolidated statements of income, stockholders’ equity and cash flow for
such fiscal year, (2) a schedule of the outstanding Indebtedness for borrowed money of Borrower and
its Restricted Subsidiaries describing in reasonable detail each such debt issue or loan
outstanding and the principal amount and amount of accrued and unpaid interest with respect to each
such debt issue or loan and (3) a report with respect to the consolidated financial statements from
a firm of Certified Public Accountants selected by Borrower and reasonably acceptable to
Administrative Agent, which report shall be prepared in accordance

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with Statement of Auditing Standards No. 58 (the “Statement”) entitled “Reports on
Audited Financial Statements” and such report shall be “Unqualified” (as such term is defined in
such Statement). Borrower shall deliver a copy of each audited or reviewed financial statements of
the UK Restricted Subsidiary or either Canadian Restricted Subsidiary that are required to be
prepared under applicable law promptly following the preparation of such financial statements, but
in no event shall such delivery occur prior to the date Borrower delivers its annual financial
statements described above.

          (D) Compliance Certificate. Together with each delivery of financial statements of
Borrower and its Consolidated Subsidiaries pursuant to subsection 4.2(C) and 4.2(C) above, Borrower
will deliver a fully and properly completed Compliance Certificate (in substantially the same form
as Exhibit 4.2(D) and attaching thereto a calculation, in form and substance reasonably acceptable
to Administrative Agent, of the financial ratios set forth on Annex III hereto and
Borrower’s compliance with the covenant set forth in subsection 4.1) signed by Borrower’s
president, chief executive officer, chief operating officer or chief financial officer.

          (E) Intercompany Indebtedness Report. As soon as available and in any event within
thirty (30) days after the end of each month (including the last month of Borrower’s fiscal year),
Borrower will deliver a schedule of the outstanding intercompany Indebtedness and Investments of
Borrower and its Subsidiaries describing in reasonable detail each such loan outstanding and the
principal amount and amount of accrued and unpaid interest with respect to each such loan.

          (F) Accountants’ Reports. Promptly upon receipt thereof, Borrower will deliver copies
of all significant reports submitted by Borrower’s firm of certified public accountants in
connection with each annual, interim or special audit or review of any type of the financial
statements or related internal control systems of Borrower or its Restricted Subsidiaries made by
such accountants, including any comment letter submitted by such accountants to management in
connection with their services.

          (G) Intentionally Omitted.

          (H) Management Report. Together with each delivery of financial statements of
Borrower pursuant to subsection 4.2(B) and 4.2(C), Borrower will deliver a management report (1)
describing the operations and financial condition of Borrower and its Consolidated Subsidiaries for
the month then ended and the portion of the current fiscal year then elapsed (or for the fiscal
year then ended in the case of year-end financials), (2) setting forth in comparative form the
corresponding figures for the corresponding periods of the previous fiscal year, and (3) discussing
the reasons for any significant variations. The information above shall be presented in reasonable
detail and shall be certified by the chief financial officer of Borrower to the effect that such
information fairly presents the results of operations and financial condition of Borrower and its
Consolidated Subsidiaries as at the dates and for the periods indicated.

          (I) Collateral Value Report. The Borrower shall deliver to the Administrative Agent
the information required to be delivered pursuant to Section 4.2(I) of the Senior DIP

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Credit Agreement, as in effect on the date hereof, within the time periods required pursuant
to Section 4.2(I) of the Senior DIP Credit Agreement.

          (J) Appraisals. From time to time, prior to Payment in Full of the Senior DIP Debt,
if the Senior DIP Lenders’ Agent obtains appraisals of the real estate owned by Borrower or any of
its Restricted Subsidiaries, and if copies thereof are delivered to Borrower, Borrower shall
deliver such copies to Administrative Agent. From time to time, after Payment in Full of the Senior
DIP Debt, if Administrative Agent or any Lender determines that obtaining appraisals is necessary
in order for Administrative Agent or such Lender to comply with applicable laws or regulations,
Administrative Agent will, at Borrower’s expense, obtain appraisal reports in form and substance
and from appraisers satisfactory to Administrative Agent stating the then current fair market
values of all or any portion of the real estate owned by Borrower or any of its Restricted
Subsidiaries. In addition to the foregoing, (i) promptly following the Effective Date, upon
Administrative Agent’s request, Borrower shall obtain and deliver to Administrative Agent appraisal
reports in form and substance and from appraisers satisfactory to Administrative Agent stating the
then current market values and/or orderly liquidation values of all of the Real Estate and personal
property owned by Borrower and its Restricted Subsidiaries and (ii) thereafter from time to time,
but in the absence of a Default or Event of Default not more than once during each calendar year,
Administrative Agent may require Borrower to obtain and deliver to Administrative Agent appraisal
reports in form and substance and from appraisers satisfactory to Administrative Agent stating the
then current market values and/or orderly liquidation values of all or any portion of the Real
Estate and personal property owned by Borrower or any of its Restricted Subsidiaries.

          (K) Amendments to Senior DIP Debt Loan Documents. Promptly upon their becoming
available, Borrower will deliver executed copies of all amendments, modifications, consents,
waivers and other documents and instruments entered into by Borrower or any of its Subsidiaries
with respect to the Senior DIP Debt Loan Documents.

          (L) Securities Filings and Press Releases. Promptly upon their becoming available,
Borrower will deliver copies of (1) all financial statements, reports, notices and proxy statements
sent or made available by Borrower or any of its Restricted Subsidiaries to their security holders,
(2) all regular and periodic reports and all registration statements and prospectuses, if any,
filed by Borrower or any of its Subsidiaries with any securities exchange or with the Securities
and Exchange Commission or any governmental or private regulatory authority, and (3) all press
releases and other statements made available by Borrower or any of its Restricted Subsidiaries to
the public concerning developments in the business of any such Person.

          (M) Events of Default, Etc. Promptly upon any executive officer of Borrower obtaining
knowledge of any of the following events, conditions or deviations, Borrower shall deliver copies
of all notices given or received by Borrower or any of its Restricted Subsidiaries with respect to
any such event, condition or deviation and a certificate of Borrower’s chief executive officer,
president or chief operating officer specifying the nature and period of existence of such event,
condition or deviation and what action Borrower or any of its Restricted Subsidiaries has taken, is
taking and proposes to take with respect thereto: (1) any condition or event that constitutes an
Event of Default or Default; (2) any notice that any Person has given to

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Borrower or any of its Restricted Subsidiaries or any other action taken with respect to a
claimed default or event or condition of the type referred to in subsection 6.1(B); (3) any event
or condition that could reasonably be expected to result in any Material Adverse Effect or any
material deviation from the Approved Budget; (4) any Default or Event of Default under the Senior
Note Indenture or the Senior DIP Credit Agreement, Borrower’s making of any Change of Control Offer
or Asset Sale Offer (each as defined in the Senior Note Indenture) or Borrower’s receipt of notice
of acceleration of the Senior Notes, Senior Secured Debt or Senior DIP Debt; or (5) any default or
event of default with respect to any other Indebtedness of Borrower or any of its Restricted
Subsidiaries that could reasonably be expected to result in a Material Adverse Effect.

          (N) Litigation. Except in respect of any pre-petition litigation that is stayed by 11
U.S.C. § 362, promptly upon any executive officer of Borrower obtaining knowledge of (1) the
institution of any action, suit, proceeding, governmental investigation or arbitration against or
affecting any Loan Party or any property of any Loan Party not previously disclosed by Borrower to
Administrative Agent or (2) any material development in any action, suit, proceeding, governmental
investigation or arbitration at any time pending against or affecting any Loan Party or any
property of any Loan Party which, in each case, could reasonably be expected to have a Material
Adverse Effect, Borrower will promptly give notice thereof to Administrative Agent and provide such
other information as may be reasonably available to them to enable Administrative Agent and its
counsel to evaluate such matter.

          (O) Notice of Corporate and other Changes. Borrower shall provide prompt written
notice of (1) all jurisdictions in which a Loan Party becomes qualified after the Effective Date to
transact business, (2) any change after the Effective Date in the authorized and issued equity
securities of any Loan Party or any amendment to their articles or certificate of incorporation,
by-laws, partnership agreement or other organizational documents, (3) any Subsidiary created or
acquired by any Loan Party after the Effective Date, such notice, in each case, to identify the
applicable jurisdictions, capital structures or Subsidiaries, as applicable, and (4) any other
event that occurs after the Effective Date which would cause any of the representations and
warranties in Section 5 of this Agreement or in any other Loan Document to be untrue or misleading
in any material respect. The foregoing notice requirement shall not be construed to constitute
Requisite Lenders’ consent to any transaction referred to above which is not expressly permitted by
the terms of this Agreement.

          (P) Customer Concentration. The Borrower shall provide prompt written notice to the
Administrative Agent if the Accounts of any customer exceed in the aggregate an amount equal to
twenty percent (20%) of the aggregate of all Accounts of the Borrower and its Consolidated
Subsidiaries at any time.

          (Q) Other Information. With reasonable promptness, Borrower will deliver such other
information and data with respect to any Loan Party or any Restricted Subsidiary of any Loan Party
as from time to time may be reasonably requested by Administrative Agent.

          (R) Projections. The Borrower shall deliver to the Administrative Agent as soon as
available and in any event no later than the last day of each of the Borrower’s fiscal years,
Projections of the Borrower and its Subsidiaries on a Consolidated basis for the

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forthcoming three fiscal years, year by year, and for the forthcoming fiscal year, quarter by
quarter. Notwithstanding the immediately preceding sentence, for each forthcoming fiscal year,
income statement projections will be prepared on a consolidated and a Subsidiary by Subsidiary
basis.

     4.3 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.
For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the
meanings assigned to such terms in conformity with GAAP. Financial statements and other information
furnished to Administrative Agent pursuant to subsection 4.2 shall be prepared in accordance with
GAAP as in effect at the time of such preparation. No “Accounting Changes” (as defined below) shall
affect financial covenants, standards or terms in this Agreement; provided that Borrower shall
prepare footnotes to each Compliance Certificate and the financial statements required to be
delivered hereunder that show the differences between the financial statements delivered (which
reflect such Accounting Changes) and the basis for calculating financial covenant compliance
(without reflecting such Accounting Changes). “Accounting Changes” means: (a) changes in accounting
principles required by GAAP and implemented by Borrower and (b) changes in accounting principles
recommended by a Borrower’s certified public accountants and implemented by Borrower.

SECTION 5.

REPRESENTATIONS AND WARRANTIES

     To induce Agents and Lenders to enter into the Loan Documents and to make the Term Loans,
Borrower represents, warrants and covenants to Agents and each Lender that the following statements
are and, after giving effect to the Term Loans, will remain true, correct and complete until
payment in full of all Obligations (it being understood that such statements shall survive the
execution and delivery of this Agreement and shall not be reasserted as of any other date unless so
provided in writing by Borrower):

     5.1 Disclosure. No representation or warranty of any Loan Party contained in this
Agreement, the financial statements referred to in subsection 5.5 or any other document,
certificate or written statement furnished to Administrative Agent or any Lender by or on behalf of
any such Person for use in connection with the Pre-Petition Facility or the Loan Documents contains
any untrue statement of a material fact or omitted, omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein not misleading in light of
the circumstances in which the same were made. There is no contingent liability known to any Loan
Party that could reasonably be expected to have a Material Adverse Effect which has not been set
forth in a footnote included in the financial statements referred to in subsection 5.5 or a
Schedule hereto.

     5.2 No Material Adverse Effect. Since July 31, 2008, there have been no events or changes
in facts or circumstances affecting any Loan Party which individually or in the aggregate have had
or could reasonably be expected to have a Material Adverse Effect and that have not been disclosed
herein or in the attached Schedules.

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     5.3 No Conflict. The incurrence of the Indebtedness evidenced by the Term Loans does not
and will not violate or conflict with any laws, rules, regulations or orders of any governmental
authority (including, without limitation, any order entered in any of the Chapter 11 Cases) or
violate, conflict with, result in a breach of, or constitute a default (with due notice or lapse of
time or both) under any Contractual Obligation of any Loan Party (other than conflicts, breaches
and defaults the enforcement of which will be stayed by virtue of the filing of the Chapter 11
Cases) except if such violations, conflicts, breaches or defaults have either been waived on or
before the Effective Date or could not reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.

     5.4 Organization, Powers, Capitalization and Good Standing. 

          (A) Organization and Powers. Each of the Loan Parties is duly organized,
incorporated, amalgamated or continued, validly existing and in good standing under the laws of its
jurisdiction of organization, incorporation, amalgamation or continuance and qualified to do
business in all jurisdictions where such qualification is required except where failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect. The jurisdiction of
organization, incorporation or amalgamation and all jurisdictions in which each Loan Party is
qualified to do business are set forth on Schedule 5.4(A). Subject to the entry and the terms of
the Bankruptcy Court Orders (with respect to the Debtor Loan Parties), each of the Loan Parties has
all requisite power and authority to own and operate its properties, to carry on its business as
now conducted and proposed to be conducted, to enter into each Loan Document to which it is a party
and to incur the Obligations, grant Liens and security interests in the Collateral and incur the
Indebtedness evidenced by the Term Loans.

          (B) Capitalization. The authorized equity securities of each of the Loan Parties is
as set forth on Schedule 5.4(B). All issued and outstanding equity securities of each of the Loan
Parties are duly authorized and validly issued, fully paid, nonassessable, free and clear of all
Liens other than transfer restrictions under federal and state securities laws, those in favor of
Agents for the benefit of Agents and Lenders, those in favor of the Senior DIP Lenders’ Agent and
the Senior DIP Lenders and those set forth on Schedule 5.4(B), and such equity securities were
issued in compliance with all applicable state, provincial, federal and foreign laws concerning the
issuance of securities. The identity of the holders of the equity securities of each of the Loan
Parties and for the ten largest shareholders of each Loan Party, the percentage of their
fully-diluted ownership of the equity securities of each of the Loan Parties is set forth on
Schedule 5.4(B). No shares of the capital stock or other equity securities of any Party, other than
those described above, are issued and outstanding. Except as provided in Schedule 5.4(B), there are
no preemptive or other outstanding rights, options, warrants, conversion rights or similar
agreements or understandings for the purchase or acquisition from any Loan Party of any equity
securities of any such entity.

          (C) Binding Obligation. Subject to the entry of, and the terms of the Bankruptcy Court
Orders (with respect to the Debtor Loan Parties), this Agreement is, and the other Loan Documents
when executed and delivered will be, the legally valid and binding obligations of the applicable
parties thereto, each enforceable against each of such parties, as applicable, in accordance with
their respective terms.

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     5.5 Financial Statements. All financial statements concerning Borrower and its
Subsidiaries which have been or will hereafter be furnished to Administrative Agent pursuant to
this Agreement, including those listed below, have been or will be prepared in accordance with GAAP
consistently applied and do or will present fairly the financial condition of the entities covered
thereby as at the dates thereof and the results of their operations for the periods then ended,
except to the extent as has been disclosed by the Borrower pursuant to its Form 8-K filing made on
June 27, 2008 with respect to its China Restricted Subsidiaries.

          (A) The Consolidated balance sheets at August 31, 2007 and the related statement of income of
Borrower and its Consolidated Subsidiaries, for the fiscal year then ended, audited by BDO Seidman
LLP.

          (B) The unaudited Consolidated balance sheet at February 29, 2008, and the related statement
of income of Borrower and its Consolidated Subsidiaries for the period then ended.

     5.6 Title to Properties, Etc. Borrower and its Restricted Subsidiaries have good,
marketable and legal title, subject to Permitted Encumbrances, to all their respective material
properties and assets. Except for Permitted Encumbrances, all such properties and assets are free
and clear of Liens. No effective financing statement or other form of Lien notice covering all or
any part of any properties or assets of Borrower or its Restricted Subsidiaries is on file in any
recording office, except for those in favor of Collateral Agent, for the benefit of Agents and
Lenders, and those relating to Permitted Encumbrances. Schedule 5.6 sets forth (i) the chief
executive office and the office where Borrower and its Restricted Subsidiaries keep their books and
records, (ii) any trade name or fictitious business name that Borrower has used or done business
under during the past five years, (iii) the location of all Equipment and Inventory of Borrower and
its Restricted Subsidiaries, and (iv) a complete and accurate list of all real property owned or
leased by Borrower and its Restricted Subsidiaries covered or to be covered by a Mortgage (the
“Mortgaged Property”).

     5.7 Intellectual Property. Borrower and each of its Restricted Subsidiaries owns, is
licensed to use or otherwise has the right to use, all patents, trademarks, trade names,
copyrights, technology, know-how and processes used in or necessary for the conduct of its business
as currently conducted that are material to the condition (financial or otherwise), business or
operations of Borrower or its Restricted Subsidiaries (collectively called “Intellectual
Property”) and all such Intellectual Property is identified on Schedule 5.7 and fully protected
and/or duly and properly registered, filed or issued in the appropriate office and jurisdictions
for such registrations, filings or issuances. Except as disclosed in Schedule 5.7, the use of such
Intellectual Property by Borrower and its Restricted Subsidiaries, does not and has not been
alleged by any Person to infringe on the rights of any Person.

     5.8 Investigations, Audits, Etc. Except as set forth on Schedule 5.8, none of Borrower or
any of its Subsidiaries, is the subject of any review or audit by the Internal Revenue Service or
any governmental investigation concerning the violation or possible violation of any law.

     5.9 Employee Matters. Except as set forth on Schedule 5.9, (a) no Loan Party nor any of
their respective employees is subject to any collective bargaining agreement, (b) no petition

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for certification or union election is pending with respect to the employees of any Loan Party and
no union or collective bargaining unit has sought such certification or recognition with respect to
the employees of any Loan Party and (c) there are no strikes, slowdowns, work stoppages or
controversies pending or, to the best knowledge of Borrower after due inquiry, threatened between
any Loan Party and its respective employees, other than employee grievances arising in the ordinary
course of business which could not reasonably be expected to have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth on Schedule 5.9, neither Borrower nor
any of its Restricted Subsidiaries is party to an employment contract.

     5.10 Intentionally Omitted.

     5.11 Environmental Matters. Except as set forth on Schedule 5.11, to Borrower’s knowledge,
there does not exist any violation by Borrower of any Environmental Law which has, will or
threatens to impose a material liability on Borrower or which has required or would require a
material expenditure by any Borrower to cure. Except as set forth on Schedule 5.11, no Borrower has
received any notice to the effect that any part of its operations, properties or the Real Estate is
not in compliance with any Environmental Law or notice that it, its property or the Real Estate is
the subject of any Environmental Claim or any other claim which could reasonably be expected to
become an Environmental Liability. Except as set forth on Schedule 5.11, no Borrower has knowledge
that it, its property or the Real Property will become subject to Environmental Laws during the
term of this Agreement.

     5.12 Use of Proceeds; Margin Regulations. No part of the proceeds of any Term Loan will be
used for “buying” or “carrying” “margin stock” within the respective meanings of such terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect or for any other purpose that violates the provisions of the regulations of the
Board of Governors of the Federal Reserve System. If requested by Administrative Agent, Borrower
will furnish to Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form G-3 or FR Form 0-1, as applicable, referred to in
Regulation U. The proceeds of each Term Loan shall be used consistent with the Approved Budget
(with such variances in the amounts of the projected disbursements set forth in the Approved Budget
as would not constitute an Event of Default under subsection 6.1) (i) to repay in full in cash the
Second Lien Obligations (as defined in the Plan of Reorganization) other than the Excluded Portion
and (ii) up to the Commitment Amount, less the amounts used to repay in full the Second Lien
Obligations (as defined in the Plan of Reorganization) other than the Excluded Portion to (A) pay
fees and expenses in connection with the transactions contemplated hereby, including, without
limitation, the fees and expenses payable by Borrower under subsection 1.3(B), (B) fund working
capital of the Borrower, including Carve-Out Expenses; provided, however, no proceeds from the Term
Loans, Collateral or proceeds thereof, or any portion of the Carve-Out in excess of $1,250,000 may
be used for payment pursuant to sections 327, 328, 330, 331, 503 or 1103 of the Bankruptcy Code of
allowed fees and expenses of attorneys, financial advisors, accountants and other professionals
retained by any creditors’ committee appointed pursuant to section 1102 of the Bankruptcy Code, (C)
pay fees and expenses as required under the Restructuring Support Agreement, and (D) pay amounts
otherwise approved by orders of the Bankruptcy Court to the extent such amounts are consistent with
the Approved Budget and are otherwise reasonably acceptable to the Lenders. Except to the extent
otherwise provided in the Bankruptcy Court Orders, the Liens, security

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interests and administrative expense claims of the Agents and the Lenders shall be senior to, and
no proceeds of the Term Loans nor any Collateral (nor proceeds in respect thereof) may be used to
pay, any claims for services rendered by any of the professionals retained by the Borrower, any
official committee in the Chapter 11 Cases or any other party in connection with the investigation
of, prosecution of, assertion of or joinder in any claim, counterclaim, action, proceeding,
application, motion, objection, defense or other contested matter against the Administrative Agent
or the Lenders or the holders of indebtedness under the Pre-Petition Facility in connection with
the challenge of any claims or liens arising under or with respect to the Facility or the
Pre-Petition Facility.

     5.13 Approved Budget. The Approved Budget has been prepared in good faith by the Borrower,
and is based on assumptions believed by the Borrower to be reasonable at the time made.

     5.14 Administrative Priority; Lien Priority.

          (A) The Obligations of the Borrower will, at all times after the Effective Date, constitute
allowed administrative expenses in the Chapter 11 Cases, having priority in payment over all other
administrative expenses and unsecured claims against the Borrower now existing or hereafter
arising, of any kind or nature whatsoever, including without limitation all administrative expenses
of the kind specified in, or arising or ordered under, Sections 105, 326, 328, 503(b), 506(c)
(subject to entry of the Final Financing Order), 507(a), 507(b), 546(c) (subject to entry of the
Final Financing Order), 726 and 1114 of the Bankruptcy Code, subject, as to priority, only to (i)
GECC Superpriority Claim and GECC Adequate Protection Priority Claims and (ii) only upon the
occurrence and continuance of an Event of Default, the payment of the Carve-Out Expenses having
priority of payment over the Obligations to the extent set forth in the Agreed Administrative
Expense Priorities.

          (B) At any time after entry of the Interim Financing Order, the Lien and security interest of
the Collateral Agent on the Collateral shall be a valid and perfected second priority Lien, subject
only to the prior payment of the Carve-Out Expenses having priority of payment over the Obligations
to the extent set forth in the Agreed Administrative Expense Priorities and to the Permitted
Priority Liens.

          (C) No order has been entered or is pending in any of the Chapter 11 Cases (i) for the
appointment of a Chapter 11 trustee, (ii) for the appointment of an examiner under Sections 1104(d)
and 1106(b) of the Bankruptcy Code or (iii) to convert any of the Chapter 11 Cases to a Chapter 7
case or Chapter 7 cases or to dismiss any of the Chapter 11 Cases.

          (D) All representations and warranties set forth in this Agreement and the other Loan
Documents are true and correct in all respects at the time as of which such representations were
made and on the Effective Date (except to the extent that any such representation or warranty
expressly relates only to an earlier date, which shall be true and correct as of such earlier
date).

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SECTION 6.

DEFAULT, RIGHTS AND REMEDIES

     6.1 Event of Default. “Event of Default” shall mean the occurrence or existence of any one
or more of the following:

          (A) Payment. (1) Failure to pay any installment or other payment of principal of the
Term Loans when due or (2) failure to pay, within five (5) days after the due date, any interest on
the Term Loans or any other amount due under this Agreement or any of the other Loan Documents; or

          (B) Default in Other Agreements. (1) The failure of Borrower or any of its Restricted
Subsidiaries to pay when due or within any applicable grace period any principal or interest on
Indebtedness (other than the Term Loans, the Senior DIP Debt or the Senior Notes), any Contingent
Obligations (other than Contingent Obligations with respect to the Term Loans, the Senior DIP Debt
or the Senior Notes) or other liability incurred after the Effective Date or (2) breach or default
of Borrower or any of its Restricted Subsidiaries, or the occurrence of any condition or event,
with respect to any Indebtedness (other than the Term Loans, the Senior DIP Debt or the Senior
Notes), any Contingent Obligations (other than Contingent Obligations with respect to the Term
Loans, the Senior DIP Debt or the Senior Notes) or other liability incurred after the Effective
Date, if the effect of such failure to pay, breach, default or occurrence is to cause or to permit
the holder or holders then to cause, such Indebtedness, Contingent Obligations and/or liability
having an individual principal amount in excess of $1,000,000 (or the equivalent thereof in another
currency) or having an aggregate principal amount in excess of $2,000,000 (or the equivalent
thereof in another currency) to become or be declared due prior to their stated maturity or (3) the
occurrence and continuance thereof of a Senior DIP Event of Default or (4) the occurrence and
continuance thereof of any of the events specified in Section 8.01 (other than events specified in
Section 8.01(h)) of the Restructuring Support Agreement or a “Company Termination Event” (as
defined in the Restructuring Support Agreement) or (5) the termination of the Restructuring Support
Agreement; or

          (C) Breach of Certain Provisions. (1) Failure of Borrower to perform or comply with
any term or condition contained in that portion of subsection 2.2 relating to Borrower’s obligation
to maintain insurance, subsections 2.3, 2.8, 2.9 or 2.10, Section 3 or Section 4 or (2) failure of
Borrower or any Guarantor to perform or comply with any term or condition contained in Sections
6.16, 7 and 9 of the Security Agreement to which it is a party or (3) failure of either Canadian
Restricted Subsidiary to perform or comply with any term or condition contained in Sections 6.16, 7
and 9 of the Security Agreement to which it is a party or (4) failure of the UK Restricted
Subsidiary to perform or comply with any term or condition contained in clause 5.1(b) of the
debenture forming part of the UK Security Documents; or

          (D) Breach of Warranty. Any representation, warranty, certification or other
statement made by any Loan Party in any Loan Document or in any statement or certificate at any
time given by such Person in writing pursuant or in connection with any Loan Document is false in
any material respect on the date made; or

37

 

          (E) Other Defaults Under Loan Documents. Borrower or any other Loan Party defaults in
the performance of or compliance with any term contained in this Agreement or the other Loan
Documents (other than occurrences described in other provisions of this subsection 6.1 for which a
different grace or cure period is specified or which constitute immediate Events of Default) and
such default is not remedied or waived within thirty (30) days after the earlier of (1) receipt by
Borrower of notice from Administrative Agent or Requisite Lenders of such default or (2) actual
knowledge of Borrower or any other Loan Party of such default; or

          (F) Intentionally Omitted; or

          (G) Variance Reports. Any variance report furnished by the Borrower pursuant to
subsection 4.2(A)(1)(b) shows either (i) a negative variance of cumulative actual aggregate
disbursements from the Projected Aggregate Disbursements set forth in the Approved Budget since the
beginning of the first projected Calendar Week ending August 29, 2008 of greater than $2,500,000 in
the aggregate, or (ii) a negative variance of cumulative actual aggregate collections from the
Projected Aggregate Collections set forth in the Approved Budget since the beginning of the first
projected Calendar Week ending August 29, 2008 of greater than $2,500,000 in the aggregate,
unless, with respect to clauses (i) and (ii) above, a negative variance of cumulative
actual net cash flow before borrowings from the Projected Net Cash Flow Before Borrowings set forth
in the Approved Budget since the beginning of the first projected Calendar Week ending August 29,
2008, 2008 is less than $2,500,000; or

          (H) Involuntary Bankruptcy; Appointment of Receiver, Etc. (1) A court enters a decree
or order for relief with respect to any of the Non-Debtor Loan Parties in an involuntary case under
any Bankruptcy Law, which decree or order is not stayed or other similar relief is not granted
under any applicable federal, provincial, state or foreign law; or (2) the continuance of any of
the following events for thirty (30) days unless dismissed, bonded or discharged: (a) an
involuntary petition, proceeding or case is commenced against any of the Non-Debtor Loan Parties
under any applicable bankruptcy, insolvency, reorganization or other similar law of any
jurisdiction now or hereafter in effect or under any insolvency, arrangement, reorganization,
moratorium, receivership, readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or equity); or (b) a decree or order of a
court for the appointment of a receiver, receiver-manager, administrator, manager, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over any of the Non-Debtor
Loan Parties, or over all or a substantial part of its property, is entered; or (c) an interim
receiver, receiver-manager, administrator, manager, trustee or other custodian is appointed without
the consent of any of the Non-Debtor Loan Parties, for all or a substantial part of the property
of, such Non-Debtor Loan Party; except, in each case, as could reasonably be expected not to have a
Non-Debtor Loan Party Material Adverse Effect; or

          (I) Voluntary Bankruptcy; Appointment of Receiver, Etc. (1) Any Non-Debtor Loan Party
commences a voluntary petition, proceeding or case under any Bankruptcy Law or under any
insolvency, arrangement, reorganization, moratorium, receivership, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction now or hereafter in effect (whether
at law or equity), or consents to the entry of an order for relief in an involuntary case or to the
conversion of an involuntary case to a voluntary case under any such

38

 

law or consents to the appointment of or taking possession by a receiver, receiver-manager,
trustee or other custodian for all or a substantial part of its property; or (2) any Non-Debtor
Loan Party makes any assignment for the benefit of creditors; or (3) any Non-Debtor Loan Party is
unable, or admits in writing its inability, to pay its debts as they mature, or commits any other
act of bankruptcy; or (4) the Board of Directors of any Non-Debtor Loan Party adopts any resolution
or otherwise authorizes action to approve any of the actions referred to in this subsection 6.1(I);
except, in each case, as could reasonably be expected not to have a Non-Debtor Loan Party Material
Adverse Effect; or

          (J) Judgment and Attachments. Any money judgment, writ or warrant of attachment, or
similar process (other than those described elsewhere in this subsection 6.1) involving (1) an
amount in any individual case in excess of $1,000,000 (or the equivalent thereof in another
currency) or (2) an amount in the aggregate at any time in excess of $2,000,000 (or the equivalent
thereof in another currency) (in either case to the extent not adequately covered by insurance as
to which the insurance company has acknowledged coverage) is entered or filed against Borrower or
any of its Restricted Subsidiaries or any of their respective assets and remains undischarged,
unvacated, unbonded or unstayed for a period of thirty (30) days or in any event later than five
(5) Business Days prior to the date of any proposed sale thereunder; or

          (K) Dissolution. Any order, judgment or decree is entered against Borrower or any of
its Restricted Subsidiaries decreeing the dissolution, winding-up or split up of Borrower or any of
its Restricted Subsidiaries and such order remains undischarged or unstayed for a period in excess
of fifteen (15) days; or

          (L) Intentionally Omitted.

          (M) Injunction. Borrower or any of its Restricted Subsidiaries is enjoined,
restrained or in any way prevented by the order of any court or any administrative or regulatory
agency from conducting all or any material part of its business for more than fifteen (15) days; or

          (N) ERISA; Pension Plans. (1) Borrower or any of its Affiliates fails to make full
payment when due of all amounts which, under the provisions of any employee benefit plans or any
applicable provisions of the IRC, any such Person is required to pay as contributions thereto and
such failure results in or is likely to result in a Material Adverse Effect; or (2) an accumulated
funding deficiency in excess of $500,000 occurs or exists, whether or not waived, with respect to
any such employee benefit plans; or (3) any employee benefit plan loses its status as a qualified
plan under the IRC which results in or could reasonably be expected to result in a Material Adverse
Effect; or (4) as to any Canadian Pension Plan of Borrower or the other Loan Parties, (i) such
Canadian Pension Plan fails to be duly registered under all applicable provincial pension benefits
legislation; (ii) Borrower or any other Loan Party fails to perform any material obligation
(including fiduciary, funds, investment and administration obligations) required to be performed in
connection with such Canadian Pension Plans or fails to perform the funding agreements therefor in
a timely fashion or an outstanding material dispute arises concerning the assets held pursuant to
any such funding agreement; (iii) Borrower or other Loan Party fails to make in a timely fashion
any contributions or premium payment required to be made to such Canadian Pension Plan in
accordance with the terms of the Canadian Pension Plans and applicable laws and regulations; (iv)
Borrower or other Loan Party fails to withhold any material

39

 

employee contributions to such Canadian Pension Plan required to be made by way of authorized
payroll deduction or to pay such contributions into such Canadian Pension Plan in a timely fashion;
(v) Borrower or other Loan Party fails to file or distribute in a timely fashion any material
report or disclosure relating to such Canadian Pension Plans required by any applicable laws or
regulations; (vi) there shall occur a material improper withdrawal, or application of, the assets
of any such Canadian Pension Plan; (vii) a material amount becomes owning by any such Canadian
Pension Plans under the Income Tax Act (Canada) or any provincial taxation statute; (viii) any such
Canadian Pension Plan fails to be fully funded either on an ongoing basis or on a solvency basis
(using actuarial assumptions and methods which are consistent with the valuations last filed with
the applicable governmental authorities and which are consistent with generally accepted actuarial
principles); or (ix) any such Canadian Pension Plan becomes the subject of any material
investigation, proceeding, action or claim; or

          (O) Environmental Matters. Borrower or any of its Subsidiaries fails to: (1) obtain
or maintain any operating licenses or permits required by environmental authorities; (2) begin,
continue or complete any remediation activities as required by any environmental authorities; (3)
store or dispose of any hazardous materials in accordance with applicable environmental laws and
regulations; or (4) comply with any environmental laws; if any such failure, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect; or

          (P) Invalidity of Loan Documents. Any of the Loan Documents for any reason, other
than a partial or full release in accordance with the terms thereof, ceases to be in full force and
effect or is declared to be null and void, or any Loan Party denies that it has any further
liability under any Loan Documents to which it is party, or gives notice to such effect; or

          (Q) Damage; Strike; Casualty. Any material damage to, or loss, theft or destruction
of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo,
condemnation, act of God or public enemy, or other casualty which causes, for more than thirty (30)
consecutive days, the cessation or substantial curtailment of revenue producing activities at any
facility of Borrower or any of its Subsidiaries, if any such event or circumstance could reasonably
be expected to have a Material Adverse Effect; or

          (R) Licenses and Permits. The loss, suspension or revocation of, or failure to renew,
any license or permit now held or hereafter acquired by Borrower or any of its Subsidiaries, if
such loss, suspension, revocation or failure to renew could reasonably be expected to have a
Material Adverse Effect; or

          (S) Failure of Security. The Collateral Agent, for the benefit of Agents and Lenders,
does not have or ceases to have a valid and perfected second priority Lien in the Collateral
(subject only to the first priority lien of Senior DIP Lenders’ Agent and Senior DIP Lenders and
Permitted Encumbrances) or any substantial portion thereof, in each case, for any reason; or

          (T) Change in Control. A Change of Control shall occur; or

          (U) Intentionally Omitted.

40

 

          (V) Subordinated Indebtedness. The failure of Borrower or any other creditor of
Borrower to comply with the terms of any subordination or intercreditor agreement or any
subordination provisions of any note or other document running to the benefit of Agents or Lenders;
or

          (W) Income Tax Act. A requirement from the Minister of National Revenue for payment
pursuant to Section 224 or any successor section of the Income Tax Act (Canada) or Section 317, or
any successor section of the Excise Tax Act (Canada) or any comparable provision of similar
legislation shall have been received by Administrative Agent or any Lender or any other Person in
respect of Borrower or any of its Subsidiaries or otherwise issued in respect of Borrower or any of
its Subsidiaries; or

          (X) Certain Other Events of Default.

               (1) An order with respect to any of the Chapter 11 Cases shall be entered by the Bankruptcy
Court appointing, or the Borrower shall file an application for an order with respect to any of the
Chapter 11 Cases seeking the appointment of, in either case without consent of the Requisite
Lenders (i) a trustee under Section 1104 of the Bankruptcy Code, or (ii) an examiner with expanded
powers (beyond those set forth in Bankruptcy Code sections 1106(a)(3) and (4)) relating to the
operation of the business or any other Person under Section 1106(b) of the Bankruptcy Code; or

               (2) An order with respect to any of the Chapter 11 Cases shall be entered by the Bankruptcy
Court converting any of the Chapter 11 Cases to a Chapter 7 case or Chapter 7 cases; or

               (3) The Bankruptcy Court shall have failed to enter the Final Financing Order with respect to
any of the Chapter 11 Cases within thirty-five (35) days after the Filing Date; or

               (4) An order shall be entered by the Bankruptcy Court confirming a plan of reorganization in
any of the Chapter 11 Cases which does not (i) contain a provision for payment in full in cash of
all noncontingent monetary Obligations as of and no later than the effective date of such plan upon
entry thereof and (ii) provide for the continuation of the Liens and security interests granted to
the Collateral Agent for the benefit of Agents and the Lenders and priorities until the Obligations
have been paid in full; provided that any contingent Obligations as of such date shall be
unsecured; or

               (5) An order shall be entered by the Bankruptcy Court dismissing any of the Chapter 11 Cases
or any material portion thereof which does not contain a provision for payment in full in cash of
all noncontingent monetary Obligations of the Borrower hereunder and under the other Loan Documents
upon entry thereof; or

               (6) An order with respect to any of the Chapter 11 Cases shall be entered by the Bankruptcy
Court without the express prior written consent of the Lenders, (i) to permit any administrative
expense or any claim (now existing or hereafter arising, of any kind or nature whatsoever) to have
administrative priority as to the Borrower equal or superior to the priority of the Agents and the
Lenders in respect of the Obligations, except for the Carve-Out

41

 

Expenses having priority over the Obligations to the extent set forth in the Agreed
Administrative Expense Priorities, or (ii) to grant or permit the grant of a Lien on the Collateral
other than a Permitted Priority Lien, the GECC Post-Petition Liens or GECC Adequate Protection
Liens (each as defined in the Interim Financing Order); or

               (7) An application for any of the orders described in clauses (1), (2), (4), (5) or (6) above
or (8) or (11) below shall be made by a Person other than the Agents or the Requisite Lenders and
such application is not contested by the Borrower in good faith and the relief requested is granted
in an order that is not stayed pending appeal or is not otherwise resolved to the satisfaction of
the Requisite Lenders within ten (10) days of such application; or

               (8) An order shall be entered by the Bankruptcy Court (other than any Financing Order)
granting relief from the automatic stay to any creditor of the Borrower or permitting foreclosure
on any material asset of the Borrower; or

               (9) (i) The Borrower shall file a motion with the Bankruptcy Court proposing a plan of
reorganization that has not been approved in writing by the Requisite Lenders or if such plan is
materially altered or modified without the prior written consent of the Requisite Lenders unless,
in each case, such plan as so proposed, altered or modified provides for payment in full in cash of
all noncontingent monetary Obligations or (ii) the Plan of Reorganization or the Disclosure
Statement shall be withdrawn, revoked, modified or amended without the prior written consent of the
Collateral Agent; or

               (10) (i) The Borrower shall attempt to invalidate, reduce or otherwise impair the Liens or
security interests of the Collateral Agent and the Lenders, claims or rights against such Person or
to subject any Collateral to assessment or surcharge pursuant to Section 506(c) of the Bankruptcy
Code, (ii) any Lien or security interest created by this Agreement or the Bankruptcy Court Orders
or the super-priority claims granted with respect to the Facility shall, for any reason, cease to
be valid, perfected and enforceable in any respect or (iii) any action is commenced by the Borrower
which contests the validity, perfection or enforceability of any of the Liens and security
interests of the Collateral Agent and the Lenders created by this Agreement or the Bankruptcy Court
Orders; or

               (11) There shall have occurred a reversal, modification, amendment, vacation or stay of the
effectiveness of any of the Bankruptcy Court Orders; or

               (12) The Borrower shall apply to the Bankruptcy Court for authority to amend, supplement,
stay, vacate or otherwise modify any of the Financing Orders without the consent of the Requisite
Lenders; or

               (13) Any Financing Order shall be revoked, remanded, vacated, reversed, stayed, rescinded or
shall cease to be in full force and effect, in each case without the consent of the Requisite
Lenders, modified or amended on appeal by any bankruptcy court judge or district court judge; or

               (14) An order shall be entered by the Bankruptcy Court either (i) invalidating, disallowing or
limiting in any respect, as applicable, the enforceability, priority, or validity of the liens
securing the obligations owed under the Pre-Petition Loan Agreement, (ii)

42

 

invalidating, disallowing or limiting in any respect, as applicable, any of the Pre-Petition
Loan Agreement Claims, or (iii) avoiding or requiring disgorgement of any portion of any payment
made on account of the Obligations owing under this Agreement or any of the other Loan Documents,
whether such payment was made prior to, on or after the Filing Date; or

               (15) The determination of the Borrower, whether by vote of the Borrower’s Board of Directors
or otherwise, to suspend the operation of the Borrower’s business in the ordinary course, liquidate
all or substantially all of the Borrower’s assets, or the filing of a motion or other application
in any Chapter 11 Cases, seeking authority to do either of the foregoing.

     For the avoidance of doubt, none of the “Specified Events of Default” set forth in Schedule I
to the Restructuring Support Agreement shall give rise to an “Event of Default” under any
subsection of Section 6.1 of this Agreement.

     6.2 Intentionally Omitted.

     6.3 Acceleration and other Remedies. Upon the occurrence and during the continuance of any
Event of Default, but subject to the Intercreditor Agreement, Administrative Agent or Collateral
Agent, as applicable, may, and at the request of the Requisite Lenders, such Agent shall, take the
following actions:

          (A) By written notice to the Borrower, declare all or any portion of the Term Loans then
outstanding to be due and payable, whereupon all or such portion of the aggregate principal of all
Term Loans, all accrued and unpaid interest thereon, all fees and all other amounts payable under
this Agreement and the other Loan Documents shall become due and payable immediately, without
further order of, or application to, the Bankruptcy Court, presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;

          (B) Exercise any and all of its other rights and remedies under applicable law (including, but
not limited to, the Bankruptcy Code, the Uniform Commercial Code, the PPSA and any other Bankruptcy
Laws), hereunder and under the other Loan Documents.

     6.4 Performance by Agent. If Borrower or any Loan Party shall fail to perform any
covenant, duty or agreement contained in any of the Loan Documents, Administrative Agent or
Collateral Agent, as applicable, may perform or attempt to perform such covenant, duty or agreement
on behalf of Borrower or such Loan Party after the expiration of any cure or grace periods set
forth herein. In such event, Borrower shall, at the request of any Agent, promptly pay any amount
reasonably expended by such Agent in such performance or attempted performance to such Agent,
together with interest thereon at the highest rate of interest in effect upon the occurrence of an
Event of Default as specified in subsection 1.2(C) from the date of such expenditure until paid.
Notwithstanding the foregoing, it is expressly agreed that Agents shall not have any liability or
responsibility for the performance of any obligation of Borrower under this Agreement or any other
Loan Document.

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SECTION 7.

CONDITIONS TO TERM LOANS AND AMENDMENT AND RESTATEMENT

     The obligations of Lenders to make the Term Loans and the effectiveness of the amendment and
restatement of the Pre-Petition Loan Agreement are subject to satisfaction of all of the applicable
conditions set forth below.

     7.1 Conditions to Term Loans and Amendment and Restatement. The obligations of Lenders to
make the Term Loans and the effectiveness of the amendment and restatement of the Pre-Petition Loan
Agreement are subject to the delivery of all documents listed on, the taking of all actions set
forth on and the satisfaction of all other conditions precedent listed on Schedule 7.1, all in form
and substance, or in a manner, satisfactory to Administrative Agent and Lenders, on or prior to the
dates set forth in Schedule 7.1, and the following conditions:

          (A) The representations and warranties contained in Section 5 of this Agreement and elsewhere
herein and in the Loan Documents shall be true, correct and complete on and as of the Effective
Date and each borrowing date;

          (B) No event shall have occurred and be continuing or would result from the funding of the
Term Loans that would constitute an Event of Default or a Default on and as of the Effective Date
and each borrowing date.

          (C) No order, judgment or decree of any court, arbitrator or governmental authority shall
purport to enjoin or restrain any Lender from making the Term Loans on and as of the Effective Date
and each borrowing date.

          (D) Interim Financing Order. The Lenders shall have received satisfactory evidence of
the entry of the Interim Financing Order which Interim Financing Order (i) shall have been entered
by the Bankruptcy Court not later than three (3) Business Days following the Filing Date, (ii)
shall be in full force and effect and shall not have been vacated, stayed, reversed, modified or
amended in any respect without the express written consent of the Requisite Lenders; and, if the
Interim Financing Order is the subject of a pending appeal in any respect, neither the making of
the Term Loans, nor the performance by the Borrower or any Guarantor of any of their respective
obligations hereunder, the other Loan Documents or under any other instrument or agreement referred
to herein shall be the subject of a presently effective stay pending appeal and (iii) except as
otherwise consented to by the Requisite Lenders, no application or motion shall have been made to
the Bankruptcy Court for any stay, modification, or amendment to the Interim Financing Order and no
stay or motion for stay with respect to the Interim Financing Order shall have been entered or
made.

          (E) First Day Orders. All of the “first day orders” entered by the Bankruptcy Court
at the time of the commencement of the Chapter 11 Cases shall be satisfactory in form and substance
to the Administrative Agent and the Lenders.

          (F) Payment of Fees, Etc. The Borrower shall have paid all fees, costs, expenses and
taxes payable pursuant to subsection 1.3 (including, without limitation,

44

 

Professional Fees) required to be paid to any Agent and the Lenders on or before the Effective
Date.

          (G) Delivery of Documents. The Administrative Agent shall have received on or before
the Effective Date (subject to the provisions of Section 2.10) the following, each in form and
substance satisfactory to the Lenders and their respective counsel, and, unless indicated
otherwise, dated the Effective Date:

               (1) this Agreement, duly executed by the Borrower;

               (2) the Security Agreement, duly executed by the Borrower and each Guarantor, the Guaranties
and the other Security Documents, duly executed by the Borrower and each Guarantor, as applicable,
and, if requested by the Collateral Agent, the Mortgages, duly executed by the Borrower or each
applicable Guarantor, if any, together with such policies of title insurance, surveys and other
instruments as the Lenders shall reasonably request;

               (3) if requested by Agents, certified copies of request for copies of information on Form
UCC-11, or other applicable personal property legislation, listing all effective financing
statements that name the Borrower or any Guarantor as debtor and that are filed in the respective
jurisdictions in which the Borrower or any Guarantor is organized or has assets, together with
copies of such financing statements, none of which, except as permitted herein or otherwise agreed
in writing by the Requisite Lenders, shall cover any of the Collateral;

               (4) a copy of the resolutions of the Board of Directors of the Borrower, certified as of the
Effective Date by an Authorized Officer thereof, authorizing (A) the borrowings hereunder and the
transactions contemplated by the Loan Documents to which the Borrower is a party and (B) the
execution, delivery and performance by the Borrower of each Loan Document to which the Borrower is
a party and the execution and delivery of the other documents to be delivered by the Borrower in
connection herewith and therewith;

               (5) a copy of the resolutions of the Board of Directors of each Debtor Loan Party (other than
the Borrower) and each Non-Debtor Loan Party, certified as of the Effective Date by an Authorized
Officer thereof, authorizing (A) the transactions contemplated by the Loan Documents to which such
Guarantor is a party and (B) the execution, delivery and performance by such Guarantor of each Loan
Document to which such Guarantor is a party and the execution and delivery of the other documents
to be delivered by such Guarantor in connection herewith and therewith;

               (6) a certificate of an Authorized Officer of each Debtor Loan Party and each Non-Debtor Loan
Party, certifying (x) the names and true signatures of the representatives of the Borrower and each
Debtor Loan Party and each Non-Debtor Loan Party authorized to sign each Loan Document to which
such Debtor Loan Party or Non-Debtor Loan Party is a party, as applicable, and the other documents
to be executed and delivered by such Debtor Loan Party or Non-Debtor Loan Party in connection
herewith and therewith, together with evidence of the incumbency of such Authorized Officers and
(y) copies of its charter or organizational documents and by-laws with all amendments thereto,
certified as of the Effective

45

 

Date by an Authorized Officer of such Debtor Loan Party or Non-Debtor Loan Party,
respectively;

               (7) a certificate of the appropriate official(s) of the State or other legal jurisdiction of
incorporation or organization certifying as to the subsistence in good standing of each Debtor Loan
Party and each Non-Debtor Loan Party in such State or other jurisdiction, dated as of a date within
ten (10) days of the Effective Date;

               (8) a certificate of an Authorized Officer of the Borrower, certifying as of the Effective
Date as to the matters set forth in subsections (A) and (B) of subsection 7.1;

               (9) a copy of the Approved Budget, together with a certificate of an Authorized Officer of the
Borrower stating that the Approved Budget has been prepared in good faith by the Borrower, and is
based on assumptions believed by the Borrower to be reasonable at the time made;

               (10) the Reaffirmation and Forbearance Agreement, duly executed by each of the Non-Debtor Loan
Parties, the Borrower, Portola Allied Tool and Tech Industries, and the items described in Section
5(b) thereof;

               (11) the agreements, certificates, instruments, approvals and other documents set forth on
Schedule 7.1(G); and

               (12) such other agreements, certificates, instruments, approvals and other documents, each in
form and substance satisfactory to the Agents and the Requisite Lenders, as the Agents or the
Requisite Lenders may reasonably request.

          (H) Consents, Approvals, Etc. The Borrower shall have obtained all consents and
approvals of any Governmental Authority or other Person as may be necessary to allow the Borrower
(A) to execute, deliver and perform its obligations hereunder, (B) to execute, deliver and perform
their respective obligations under the other Loan Documents to which any of them is or shall be a
party and each other agreement or instrument to be executed and delivered by the Borrower or any
Guarantor pursuant thereto or in connection therewith, and (C) to commence the Chapter 11 Cases,
all such consents and approvals to be in full force and effect on the Effective Date.

          (I) Litigation. Except as set forth in Schedule 7.1(I), and excluding any
pre-petition litigation that is stayed by 11 U.S.C. § 362, (i) there shall be no pending or, to the
knowledge of the Borrower or any Guarantor, after due inquiry, threatened action, suit or
proceeding affecting the Borrower or any Guarantor before any court or other Governmental Authority
or any arbitrator that (A) could reasonably be expected to have a Material Adverse Effect or (B)
purports to enjoin, prohibit, restrain, or otherwise affect this Agreement or any other Loan
Document or any transaction contemplated hereby or thereby.

          (J) Appointment of Trustee or Examiner; Liquidation. No order shall have been entered
or shall be pending in any of the Chapter 11 Cases (i) for the appointment of a Chapter 11 trustee,
(ii) for the appointment of an examiner under Sections 1104(d) and 1106(b)

46

 

of the Bankruptcy Code or (iii) to convert the Chapter 11 Cases to a Chapter 7 case or Chapter
7 cases or to dismiss any of the Chapter 11 Cases.

          (K) Effective Date. The Effective Date shall have occurred on or before the fifth
(5th) Business Day following the Filing Date.

          (L) Perfection and Priority of Liens. The Lenders shall be satisfied that the
Collateral Agent has been granted, and holds, for the benefit of the Agents and the Lenders, a
perfected, second priority Lien on, and security interest in, all of the Collateral, subject only
to Permitted Priority Liens.

          (M) Legality. The making of such Term Loans shall not contravene any law, rule or
regulation applicable to any Agent or any Lender. No law, regulation, order, judgment or decree of
any Governmental Authority shall exist, and the Administrative Agent shall not have received any
notice that any action, suit, investigation, litigation or proceeding is pending or threatened in
any court or before any arbitrator or Governmental Authority, that (i) purports to enjoin,
prohibit, restrain or otherwise affect (A) the ability of the Borrower or any Guarantor to perform
their respective obligations hereunder and under each Loan Document, (B) the making of such Term
Loans or (C) the consummation of the transactions contemplated hereby or contemplated under the
other Loan Documents or (ii) would reasonably be expected to result in a Material Adverse Effect.

          (N) Financing Orders. The Financing Orders shall be in full force and effect and
shall not have been stayed, reversed, modified or amended in any respect without the prior written
consent of the Requisite Lenders, provided, that at the time of the making of any Term
Loans, the aggregate amount of which, when added to the aggregate principal amount of all Term
Loans then outstanding would exceed the amount authorized by the Interim Financing Order
(collectively, the “Additional Credit”), the Requisite Lenders shall have received
satisfactory evidence of the entry of the Final Financing Order, which, in any event, shall have
been entered by the Bankruptcy Court no later than thirty-five (35) days after the Filing Date and
must become a Final Order by the forty-sixth (46th) day after the Filing Date, and at
the time of the extension of any Additional Credit the Final Financing Order shall be in full force
and effect; and if either the Interim Financing Order or the Final Financing Order is the subject
of a pending appeal in any respect, neither the making of the Term Loans nor the performance by the
Borrower of any of its obligations under this Agreement or any of the Loan Documents shall be the
subject of a then effective stay pending appeal. Without limiting the foregoing, such Final
Financing Order shall (i) authorize such Additional Credit, (ii) authorize and approve the Facility
and the transactions contemplated thereby, including, without limitation, the granting of the
super-priority status, security interests and liens, and the payment of all fees referred to
herein, (iii) lift the automatic stay to permit the Borrower and the Guarantors that are debtors
under the Facility to perform their respective obligations under the Loan Documents and the Agents
to exercise their rights and remedies with respect to the Facility and the Loans, provided
that such Final Financing Order shall provide that the Administrative Agent shall first provide the
Borrower and Guarantors with three (3) Business Days’ prior written notice before exercising such
rights and remedies, and (iv) authorize payment in full of the remaining outstanding amount of the
Second Lien Obligations (as defined in the Plan of Reorganization) other than the Excluded Portion.

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The acceptance of any proceeds of Term Loans shall be deemed to be a representation and warranty by
the Borrower as to compliance with this Section 7.1 on the Effective Date and on the date such Term
Loan is made.

SECTION 8.

ASSIGNMENT; PARTICIPATION; AGENTS; ETC.

     8.1 Assignments and Participations. 

          (A) Assignments. Each Lender may from time to time assign, subject to the terms of an
Assignment and Acceptance Agreement, its rights and delegate its obligations under this Agreement
to another Person, provided that (i) other than any assignment to by a Lender to an Affiliate of
such Lender or a Related Fund in accordance with subsection 8.1(E) or to one or more other Lenders,
such Lender shall first obtain the written consent of Administrative Agent, which consent shall not
be unreasonably withheld; (ii) the Pro Rata Share of the Term Loans being assigned shall in no
event be less than the lesser of (a) $1,000,000 and (b) the entire amount of the Pro Rata Share of
the Term Loans of the assigning Lender; and (iii) upon the consummation of each such assignment
(other than any assignment to by a Lender to an Affiliate of such Lender or a Related Fund in
accordance with subsection 8.1(E) or to one or more other Lenders), the assigning Lender shall pay
Administrative Agent an administrative fee of $3,500. The administrative fee referred to in clause
(iii) of the preceding sentence shall not apply to an assignment described in paragraph (E) below.
In the case of an assignment authorized under this subsection 8.1, the assignee shall have, to the
extent of such assignment, the same rights, benefits and obligations as it would if it were an
initial Lender hereunder. The assigning Lender shall be relieved of its obligations hereunder with
respect to its Pro Rata Share of the Term Loans or assigned portion thereof. Borrower hereby
acknowledges and agrees that any assignment will give rise to a direct obligation of Borrower to
the assignee and that the assignee shall be considered to be a Lender hereunder.

          (B) Recording of Assignments. Administrative Agent shall maintain at its office in
Wayzata, Minnesota a copy of each Assignment and Acceptance Agreement delivered to it and a
register for the recordation of the names and addresses of Lenders, and principal amount of the
Term Loans owing to each Lender pursuant to the terms hereof from time to time (the
“Register”). The entries in the Register shall be presumptive evidence of the amounts due
and owing to Lender in the absence of manifest error. Borrower, Administrative Agent and each
Lender may treat each Person whose name is recorded in the Register pursuant to the terms hereof as
a Lender hereunder for all purposes of this Agreement.

          (C) Acceptance of Assignment by Administrative Agent. Upon its receipt of a duly
completed Assignment and Acceptance Agreement executed by an assigning Lender and its assignee
(together with the Notes subject to such assignment) and the administrative fee referred to above,
Administrative Agent shall (subject to the consent of Administrative Agent to such assignment, if
required) (1) accept such Assignment and Acceptance Agreement, (2) record the information contained
therein in the Register and replace Schedule 1.1(A) to reflect such Assignment and Acceptance
Agreement and (3) give prompt notice thereof to Borrower and Lenders. Upon request by
Administrative Agent, Borrower shall promptly execute and deliver to

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Administrative Agent Notes evidencing the Obligations owed by Borrower to the assignee and, if
applicable, the assigning Lender, after giving effect to the assignment. Administrative Agent shall
cancel the Notes delivered to it by the assigning Lender and deliver the new Notes to the assignee
and, unless the assigning Lender has assigned all of its interests under this Agreement, the
assigning Lender.

          (D) Participations. Any Lender may sell participations in all or any part of its Pro
Rata Share of the Term Loans to another Person, provided that such Lender (excluding Wayzata) shall
first obtain the prior written consent of Administrative Agent, which consent shall not be
unreasonably withheld, and any such participation shall be in a minimum amount of $1,000,000. All
amounts payable by Borrower hereunder shall be determined as if that Lender had not sold such
participation and the holder of any such participation shall not be entitled to require such Lender
to take or omit to take any action hereunder except action directly effecting (i) any reduction in
the principal amount or interest rate payable with respect to the portion of the Term Loans in
which such holder participates; (ii) any extension of the Final Maturity Date or the date fixed for
any payment of interest payable with respect to the portion of the Term Loans in which such holder
participates; or (iii) any release of all or substantially all of the Collateral (except if the
sale, disposition or release of such Collateral is permitted under subsection 3.7 or 8.2 or any
other Loan Document). Borrower hereby acknowledges and agrees that any participation will give rise
to a direct obligation of Borrower to the participant, and the participant shall for purposes of
subsections 1.8, 8.4 and 9.1 be considered to be a Lender hereunder.

          (E) Assignments to Affiliates. Notwithstanding any other provision of this Agreement,
any Lender may at any time, following written notice to Administrative Agent, assign all or any
portion of its Pro Rata Share of the Term Loans to an Affiliate of such Lender which is at least
fifty percent (50%) owned by such Lender or its parent company, to one or more other Lenders or to
a Related Fund. For purposes of this paragraph, a “Related Fund” shall mean, with respect
to any Lender, a fund or other investment vehicle that invests in commercial loans and is managed
by the same investment advisor as such Lender or by an Affiliate of such investment advisor.

          (F) Other Matters. Except as otherwise provided in this subsection 8.1, no Lender
shall, as between Borrower and that Lender, be relieved of any of its obligations hereunder as a
result of any sale, assignment, transfer or negotiation of, or granting of a participation in, all
or any part of the Term Loans, the Notes or other Obligations owed to such Lender. Each Lender may
furnish any information concerning Borrower and its Subsidiaries in the possession of that Lender
from time to time to assignees and participants (including prospective assignees and participants),
subject to the provisions of subsection 9.13. Borrower agrees that it will use its best efforts to
assist and cooperate with Administrative Agent and any Lender in any manner reasonably requested by
Administrative Agent or such Lender to effect the sale of a participation or an assignment
described above, including, without limitation, assistance in the preparation of appropriate
disclosure documents or placement memoranda.

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     8.2 Administrative Agent

          (A) Appointment. Each Lender hereby designates and appoints Wayzata as its agent
under this Agreement and the other Loan Documents, and Lender hereby irrevocably authorizes Wayzata
to execute and deliver the Security Documents and the Intercreditor Agreement and to take such
action or to refrain from taking such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers as are set forth herein or therein,
together with such other powers as are reasonably incidental thereto. Administrative Agent is
authorized and empowered to amend, modify, or waive any provisions of this Agreement or the other
Loan Documents on behalf of Lenders subject to the requirement that certain of Lenders’ consent be
obtained in certain instances as provided in this subsection 8.2 and subsections 8.3 and 9.2. The
provisions of this subsection 8.2 are solely for the benefit of Administrative Agent and Lenders
and neither Borrower nor any other Loan Party shall have any rights as a third party beneficiary of
any of the provisions hereof. In performing its functions and duties under this Agreement,
Administrative Agent shall act solely as agent of Lenders and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust with or for
Borrower or any other Loan Party. Administrative Agent may perform any of its duties hereunder, or
under the Loan Documents, by or through its agents or employees.

          (B) Nature of Duties. The duties of Administrative Agent shall be mechanical and
administrative in nature. Administrative Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Nothing in this Agreement or any of the Loan
Documents, express or implied, is intended to or shall be construed to impose upon Administrative
Agent any obligations in respect of this Agreement or any of the Loan Documents except as expressly
set forth herein or therein. Each Lender shall make its own independent investigation of the
financial condition and affairs of Borrower in connection with the extension of credit hereunder
and shall make its own appraisal of the creditworthiness of Borrower, and Administrative Agent
shall have no duty or responsibility, either initially or on a continuing basis, to provide any
Lender with any credit or other information with respect thereto (other than as expressly required
herein). If Administrative Agent seeks the consent or approval of any Lenders to the taking or
refraining from taking any action hereunder, then Administrative Agent shall send notice thereof to
each Lender. Administrative Agent shall promptly notify each Lender any time that the Requisite
Lenders have instructed Administrative Agent to act or refrain from acting pursuant hereto.

          (C) Rights, Exculpation, Etc. Neither Administrative Agent nor any of its officers,
directors, employees or agents shall be liable to any Lender for any action taken or omitted by
them hereunder or under any of the Loan Documents, or in connection herewith or therewith, except
that Administrative Agent shall be liable to the extent of their own gross negligence or willful
misconduct as determined by a court of competent jurisdiction. Administrative Agent shall not be
liable for any apportionment or distribution of payments made by it in good faith, and if any such
apportionment or distribution is subsequently determined to have been made in error, the sole
recourse of any Lender to whom payment was due but not made shall be to recover from other Lenders
any payment in excess of the amount to which they are determined to be entitled (and such other
Lenders hereby agree to return to such Lender any such erroneous payments received by them). In
performing its functions and duties hereunder, Administrative Agent shall exercise the same care
which it would in dealing with loans for its

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own account, but neither Administrative Agent nor any of its agents or representatives shall
be responsible to any Lender for any recitals, statements, representations or warranties herein or
for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or
sufficiency of this Agreement or any of the Loan Documents or the transactions contemplated
thereby, or for the financial condition of any Loan Party. Administrative Agent shall not be
required to make any inquiry concerning either the performance or observance of any of the terms,
provisions or conditions of this Agreement or any of the Loan Documents or the financial condition
of any Loan Party, or the existence or possible existence of any Default or Event of Default.
Administrative Agent may at any time request instructions from Lenders with respect to any actions
or approvals which by the terms of this Agreement or of any of the Loan Documents Administrative
Agent is permitted or required to take or to grant, and if such instructions are promptly
requested, Administrative Agent shall be absolutely entitled to refrain from taking any action or
to withhold any approval and shall not be under any liability whatsoever to any Person for
refraining from any action or withholding any approval under any of the Loan Documents until it
shall have received such instructions from Requisite Lenders or all or such other portion of the
Lenders as shall be prescribed by this Agreement. Without limiting the foregoing, no Lender shall
have any right of action whatsoever against Administrative Agent as a result of Administrative
Agent acting or refraining from acting under this Agreement or any of the other Loan Documents in
accordance with the instructions of Requisite Lenders and, notwithstanding the instructions of
Requisite Lenders, Administrative Agent shall not have any obligation to take any action if it
believes, in good faith, that such action exposes Administrative Agent to any liability for which
it has not received satisfactory indemnification in accordance with subsection 8.2(E).

          (D) Reliance. Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any written or oral notices, statements, certificates, orders or other
documents or any telephone message or other communication (including any writing, telex, telecopy
or telegram) believed by it in good faith to be genuine and correct and to have been signed, sent
or made by the proper Person, and with respect to all matters pertaining to this Agreement or any
of the Loan Documents and their duties hereunder or thereunder. Administrative Agent shall be
entitled to rely upon the advice of legal counsel, independent accountants, and other experts
selected by Administrative Agent in its sole discretion.

          (E) Indemnification. Lenders will reimburse and indemnify Administrative Agent for
and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including, without limitation, attorneys’ fees and expenses), advances or
disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Administrative Agent in any way relating to or arising out of this Agreement or any of the
Loan Documents or any action taken or omitted by Administrative Agent under this Agreement or any
of the Loan Documents, in proportion to each Lender’s Pro Rata Share, but only to the extent that
any of the foregoing is not reimbursed by Borrower; provided, however, that no Lender shall be
liable for any portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses, advances or disbursements to the extent resulting from
Administrative Agent’s gross negligence or willful misconduct as determined by a court of competent
jurisdiction. If any indemnity furnished to Administrative Agent for any purpose shall, in the
opinion of Administrative Agent, be insufficient or become impaired, Administrative Agent may call
for additional indemnity and cease, or not commence,

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to do the acts indemnified against even if so directed by Requisite Lenders until such
additional indemnity is furnished. The obligations of Lenders under this subsection 8.2(E) shall
survive the payment in full of the Obligations and the termination of this Agreement.

          (F) Administrative Agent Individually. With respect to its Pro Rata Share of the Term
Loans made by it, Wayzata shall have and may exercise the same rights and powers hereunder and is
subject to the same obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms “Lenders” or “Requisite Lenders” or any similar terms shall, unless the context
clearly otherwise indicates, include Wayzata in its individual capacity as a Lender or one of the
Requisite Lenders. Wayzata may lend money to, acquire equity or other ownership interests in, and
generally engage in any kind of banking, trust or other business with any Loan Party as if it were
not acting as Administrative Agent pursuant hereto.

          (G) Successor Agent.

               (1) Resignation. Administrative Agent may resign from the performance of all its
agency functions and duties hereunder at any time by giving at least thirty (30) Business Days’
prior written notice to Borrower and the Lenders. Such resignation shall take effect upon the
acceptance by a successor Administrative Agent of appointment pursuant to clause (2) below or as
otherwise provided below.

               (2) Appointment of Successor. Upon any such notice of resignation pursuant to clause
(1) above, Requisite Lenders shall appoint a successor Administrative Agent which, unless an Event
of Default has occurred and is continuing, shall be reasonably acceptable to Borrower. If a
successor Administrative Agent shall not have been so appointed within the thirty (30) Business Day
period referred to in clause (1) above, the retiring Administrative Agent, upon notice to Borrower,
shall then appoint a successor Administrative Agent who shall serve as Administrative Agent until
such time, if any, as Requisite Lenders appoint a successor Administrative Agent as provided above.

               (3) Successor Administrative Agent. Upon the acceptance of any appointment as
Administrative Agent under the Loan Documents by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent
shall be discharged from its duties and obligations under the Loan Documents. After any retiring
Administrative Agent’s resignation as Administrative Agent, the provisions of this subsection 8.2
shall inure to its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent.

          (H) Collateral Matters.

               (1) Release of Collateral. Lenders hereby irrevocably authorize Collateral Agent, at
its option and in its discretion, to release any Lien granted to or held by Collateral Agent upon
any Collateral (i) upon payment and satisfaction of all Obligations (other than contingent
indemnification obligations to the extent no claims giving rise thereto have been asserted); (ii)
constituting property being sold or disposed of if Borrower certifies to Collateral Agent that the
sale or disposition is made in compliance with the provisions of this Agreement

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(and Collateral Agent may rely in good faith conclusively on any such certificate, without
further inquiry); (iii) constituting property being sold or disposed of in accordance with the
Intercreditor Agreement, or (iv) in accordance with the provisions of the next sentence. In
addition, with the consent of Requisite Lenders, Collateral Agent may release any Lien granted to
or held by Collateral Agent upon any Collateral having a book value not greater than ten percent
(10%) of the total book value of all Collateral, either in a single transaction or in a series of
related transactions; provided, however, that in no event will Collateral Agent, acting under the
authority granted to it pursuant to this sentence, release Collateral having a total book value in
excess of twenty percent (20%) of the book value of all Collateral, as determined by Collateral
Agent, during any calendar year.

               (2) Confirmation of Authority; Execution of Releases. Without in any manner limiting
Collateral Agent’s authority to act without any specific or further authorization or consent by
Lenders (as set forth in subsection 8.2(H)(1)), each Lender agrees to confirm in writing, upon
request by Collateral Agent or Borrower, the authority to release any Collateral conferred upon
Collateral Agent under clauses (i), (ii) and (iii) of subsection 8.2(H)(1). Upon receipt by
Collateral Agent of any required confirmation from the Requisite Lenders of its authority to
release any particular item or types of Collateral, and upon at least ten (10) Business Days’ prior
written request by Borrower, Collateral Agent shall (and is hereby irrevocably authorized by
Lenders to) execute such documents as may be necessary to evidence the release of the Liens granted
to Collateral Agent upon such Collateral; provided, however, that (i) Collateral Agent shall not be
required to execute any such document on terms which, in Collateral Agent’s opinion, would expose
Collateral Agent to liability or create any obligation or entail any consequence other than the
release of such Liens without recourse or warranty, and (ii) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of any Loan Party, in
respect of), all interests retained by any Loan Party, including (without limitation) the proceeds
of any sale, all of which shall continue to constitute part of the Collateral.

               (3) Absence of Duty. Agents shall have no obligation whatsoever to any Lender or any
other Person to assure that the property covered by the Security Documents exists or is owned by
Borrower or any Loan Party or is cared for, protected or insured or has been encumbered or that the
Liens granted to Collateral Agent have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any particular priority, or to exercise at all
or in any particular manner or under any duty of care, disclosure or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to Agents in this
subsection 8.2(H) or in any of the Loan Documents, it being understood and agreed that in respect
of the property covered by the Security Documents or any act, omission or event related thereto,
each Agent may act in any manner it may deem appropriate, in its discretion, given such Agent’s own
interest in property covered by the Security Documents as one of the Lenders and that Agents shall
have no duty or liability whatsoever to any of the other Lenders, provided that each Agent shall
exercise the same care which it would in dealing with loans for its own account.

               (4) Power of Attorney for Quebec Property. For the purpose of holding any security
granted by any of the Loan Parties pursuant to the laws of the Province of Quebec, Collateral Agent
shall be the holder of an irrevocable power of attorney for all present and future Lenders. By
executing an Assignment and Acceptance, any future Lender shall be

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deemed to ratify the power of attorney granted to Collateral Agent hereunder. Lenders and Loan
Parties agree that notwithstanding Section 32 of the Act respecting the Special Powers of Legal
Persons (Quebec), Collateral Agent may, as the person holding the power of attorney of Lenders,
acquire any debenture or other title of indebtedness secured by any hypothec granted by any Loan
Party to Collateral Agent pursuant to the laws of the Province of Quebec.

          (I) Agency for Perfection. Agents and each Lender hereby appoint each other Lender as
agent for the purpose of perfecting Collateral Agent’s Lien in assets which, in accordance with the
Uniform Commercial Code in any applicable jurisdiction or any applicable Personal Property
Legislation, can be perfected only by possession. Should any Lender (other than Collateral Agent)
obtain possession of any such assets, such Lender shall notify Collateral Agent thereof, and,
promptly upon Collateral Agent’s request therefor, shall deliver such assets to Collateral Agent or
in accordance with Collateral Agent’s instructions. Each Lender agrees that it will not have any
right individually to enforce or seek to enforce any Security Document or the Intercreditor
Agreement or to realize upon any collateral security for the Term Loan unless instructed to do so
by Collateral Agent, it being understood and agreed that such rights and remedies may be exercised
only by Administrative Agent or Collateral Agent, as applicable.

          (J) Notice of Default. Agents shall not be deemed to have knowledge or notice of the
occurrence of any Default or Event of Default except with respect to defaults in the payment of
principal, interest and fees required to be paid to Agents for the account of Lenders, unless any
such Agent shall have received written notice from a Lender or Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such notice is a “notice of
default”. The applicable Agent will notify each Lender of its receipt of any such notice. The
applicable Agent shall take such action with respect to such Default or Event of Default as may be
requested by Requisite Lenders in accordance with Section 6. Unless and until such Agent has
received any such request, such Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of Default as it shall deem
advisable or in the best interests of Lenders.

     8.3 Amendments, Consents and Waivers. 

          (A) Except as otherwise provided in subsection 8.2, this subsection 8.3 or in subsection 9.2
and except as to matters set forth in other subsections hereof or in any other Loan Document as
requiring only Administrative Agent’s consent, the consent of Requisite Lenders and Borrower will
be required to amend, modify, terminate, or waive any provision of this Agreement or any of the
other Loan Documents. The consent of Borrower shall constitute consent of all of its Subsidiaries.

          (B) In the event Administrative Agent requests the consent of a Lender and does not receive a
written consent or denial thereof within ten (10) Business Days after such Lender’s receipt of such
request, then such Lender will be deemed to have denied the giving of such consent.

     8.4 Set Off and Sharing of Payments. In addition to any rights now or hereafter granted
under applicable law and not by way of limitation of any such rights, and subject to the
Interecreditor Agreement and the requirements of the Interim Financing Order, during the

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continuance of any Event of Default, each Lender is hereby authorized by Borrower at any time or
from time to time, with reasonably prompt subsequent notice to Borrower (any prior or
contemporaneous notice being hereby expressly waived) to set off and to appropriate and to apply
any and all (A) balances held by such Lender at any of its offices for the account of Borrower or
any of its Subsidiaries (regardless of whether such balances are then due to Borrower or its
Subsidiaries), and (B) other property at any time held or owing by such Lender to or for the credit
or for the account of Borrower or any of its Subsidiaries, against and on account of any of the
Obligations; except that no Lender shall exercise any such right without the prior written consent
of Administrative Agent. Any Lender exercising a right to set off shall purchase for cash (and the
other Lenders shall sell) interests in each of such other Lender’s Pro Rata Share of the
Obligations as would be necessary to cause all Lenders to share the amount so set off with each
other Lender in accordance with their respective Pro Rata Shares. Borrower agrees, to the fullest
extent permitted by law, that any Lender may exercise its right to set off with respect to amounts
in excess of its Pro Rata Share of the Obligations and upon doing so shall deliver such amount so
set off to the Agents for the benefit of all Lenders in accordance with their Pro Rata Shares.

     8.5 Payment of Interest to Lenders; Return of Payments. 

          (A) Calculation of Payment of Interest. For purposes of this subsection 8.5(A), the
following terms and conditions will have the meanings indicated:

               (a) “Daily Loan Balance” means an amount calculated as of the end of each calendar day
by subtracting (i) the cumulative principal amount paid by Administrative Agent to a Lender on the
Term Loans from the Effective Date through and including such calendar day, from (ii) the
cumulative principal amount on the Term Loans advanced by such Lender to Administrative Agent
through and including such calendar day.

               (b) “Daily Interest Rate” means an amount calculated by dividing the interest rate
payable to a Lender as of each calendar day by three hundred sixty (360).

               (c) “Daily Interest Amount” means an amount calculated by multiplying the Daily Loan
Balance of the Term Loans by the associated Daily Interest Rate on the Term Loans.

               (d) “Interest Ratio” means a number calculated by dividing the total amount of the
interest on the Term Loans received by Administrative Agent with respect to the immediately
preceding calendar quarter by the total amount of interest on the Term Loans due from Borrower
during the immediately preceding calendar quarter.

On the first (1st) Business Day of each calendar quarter (“Interest Settlement Date”),
Administrative Agent will advise each applicable Lender by telephone or telecopy of the amount of
such Lender’s share of interest on the Term Loans as of the end of the last day of the immediately
preceding calendar quarter. Provided that such Lender has made all payments required to be made by
it under this Agreement, Administrative Agent will pay to such Lender, by wire transfer to such
Lender’s account (as specified by such Lender on the signature page of this Agreement or the
applicable Assignment and Acceptance Agreement, as amended by such

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Lender from time to time after the date hereof pursuant to the notice provisions contained herein
or in the applicable Assignment and Acceptance Agreement) not later than 3:00 p.m. (Wayzata,
Minnesota time) on the next Business Day following the Interest Settlement Date, such Lender’s
share of interest on the Term Loans. Such Lender’s share of interest on the Term Loans will be
calculated by adding together the Daily Interest Amounts for each calendar day of the prior
calendar quarter for the Term Loans and multiplying the total thereof by the Interest Ratio for the
Term Loans.

          (B) Return of Payments.

               (1) If Administrative Agent pays an amount to a Lender under this Agreement in the belief or
expectation that a related payment has been or will be received by Administrative Agent from
Borrower and such related payment is not received by Administrative Agent, then Administrative
Agent will be entitled to recover such amount from such Lender without set-off, counterclaim or
deduction of any kind together with interest thereon, for each day from and including the date such
amount is made available by Administrative Agent to such Lender to but excluding the date of
repayment to Administrative Agent, at the greater of the Federal Funds Effective Rate and a rate
determined by Administrative Agent in accordance with banking industry rules on interbank
compensation.

               (2) If Administrative Agent determines at any time that any amount received by Administrative
Agent under this Agreement must be returned to Borrower or paid to any other Person pursuant to any
requirement of law, court order or otherwise, then, notwithstanding any other term or condition of
this Agreement, Administrative Agent will not be required to distribute any portion thereof to any
Lender. In addition, each Lender will repay to Administrative Agent on demand any portion of such
amount that Administrative Agent has distributed to such Lender, together with interest at such
rate, if any, as Administrative Agent is required to pay to Borrower or such other Person, without
set-off, counterclaim or deduction of any kind.

SECTION 9.

MISCELLANEOUS

     9.1 Indemnities. Borrower agrees to indemnify, pay, and hold each Agent, each Lender and
their respective officers, directors, employees, agents, and attorneys (the “Indemnitees”)
harmless from and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs and expenses (including all reasonable fees and expenses
of counsel to such Indemnitees) of any kind or nature whatsoever that may be imposed on, incurred
by, or asserted against the Indemnitee as a result of such Indemnitees being a party to this
Agreement or the transactions consummated pursuant to this Agreement; provided that Borrower shall
have no obligation to an Indemnitee hereunder with respect to liabilities to the extent resulting
from the gross negligence or willful misconduct of that Indemnitee as determined by a court of
competent jurisdiction. If and to the extent that the foregoing undertaking may be unenforceable
for any reason, Borrower agrees to make the maximum contribution to the payment and satisfaction
thereof which is permissible under applicable law.

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This subsection 9.1 and other indemnification provisions contained within the Loan Documents shall
survive the termination of this Agreement.

     9.2 Amendments and Waivers. Except as otherwise provided herein, no amendment,
modification, termination or waiver of any provision of this Agreement, the Notes or any of the
other Loan Documents, or consent to any departure by any Loan Party therefrom, shall in any event
be effective unless the same shall be in writing and signed by Requisite Lenders (or Administrative
Agent, if expressly set forth herein, in any Note or in any other Loan Document) and the applicable
Loan Party; provided, that except to the extent permitted by the applicable Assignment and
Acceptance Agreement, no amendment, modification, termination or waiver shall, unless in writing
and signed by all Lenders, do any of the following: (a) reduce the principal of or the rate of
interest on the Term Loan or other amounts payable with respect to the Term Loan; (b) extend the
Final Maturity Date or any date fixed for any payment of principal, interest or fees; (c) change
the definition of the terms “Requisite Lenders”, “Pro Rata Share”, “Permitted Priority Liens” or
the percentage of Lenders which shall be required for Lenders to take any action hereunder; (d)
release Collateral (except if the sale, disposition or release of such Collateral is permitted
under subsection 3.7 or 8.2 or any other Loan Document); (e) amend or waive this subsection 9.2 or
the definitions of the terms used in this subsection 9.2 insofar as the definitions affect the
substance of this subsection 9.2; (f) increase the amount shown in the Approved Budget as the total
projected aggregate borrowings hereunder; (g) modify, waive, release or subordinate the
superpriority claim status of the Obligations (except as permitted in this Agreement and the Loan
Documents or pursuant to the Bankruptcy Court Orders); or (h) consent to the assignment, delegation
or other transfer by any Loan Party of any of its rights and obligations under any Loan Document;
and provided, further, that no amendment, modification, termination or waiver affecting the rights
or duties of Agents under any Loan Document shall in any event be effective, unless in writing and
signed by Administrative Agent, in addition to each of the Lenders required to take such action.
Notwithstanding anything to the contrary in this subsection 9.2, Administrative Agent and Borrower
may execute amendments to this Agreement and the other Loan Documents for the purpose of correcting
typographical errors without the consent of Lenders. Each amendment, modification, termination or
waiver shall be effective only in the specific instance and for the specific purpose for which it
was given. No amendment, modification, termination or waiver shall be required for Collateral Agent
to take additional Collateral pursuant to any Loan Document. No notice to or demand on Borrower or
any other Loan Party in any case shall entitle Borrower or any other Loan Party to any other or
further notice or demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this subsection 9.2 shall be binding
upon each holder of the Notes at the time outstanding, each future holder of the Notes and, if
signed by a Loan Party, on such Loan Party.

     9.3 Notices. Any notice or other communication required shall be in writing addressed to
the respective party as set forth below and may be personally served, telecopied, sent by overnight
courier service or U.S. mail and shall be deemed to have been given: (a) if delivered in person,
when delivered; (b) if delivered by telecopy, on the date of transmission if transmitted on a
Business Day before 4:00 p.m. (Wayzata, Minnesota time); (c) if delivered by overnight courier, one
(1) Business Day after delivery to the courier properly addressed; or (d) if delivered by U.S.
mail, four (4) Business Days after deposit with postage prepaid and properly addressed.

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Notices shall be addressed as follows:

	 	 	 
	If to Borrower:

	 	PORTOLA PACKAGING, INC.
	 

	 	951 Douglas Road
	 

	 	Batavia, Illinois 60510
	 

	 	ATTN: President
	 

	 	Telecopy: (630) 406-8442
	 
	 	 
	With copies to:

	 	Kim Wehrenberg, Esq.
	 

	 	PORTOLA PACKAGING, INC.
	 

	 	951 Douglas Road
	 

	 	Batavia, Illinois 60510
	 

	 	Telecopy: (630) 406-8442
	 
	 	 
	If to Administrative Agent or Wayzata:     WAYZATA INVESTMENT PARTNERS LLC
	 

	 	701 East Lake Street, Suite 300
	 

	 	Wayzata, Minnesota 55391
	 

	 	ATTN: James Beltz, Ray Wallander and Susan Peterson
	 

	 	Telecopy: (952) 345-8901
	 
	 	 
	If to a Lender:

	 	To the address set forth on the signature page hereto or in the applicable Assignment and
Acceptance Agreement

Nothing in this Agreement or in any other Loan Document shall be construed to limit or affect the
obligation of the Borrower or any other Person to serve upon the Agents and the Lenders in the
manner prescribed by the Bankruptcy Code any pleading or notice required to be given to the Agents
and the Lenders pursuant to the Bankruptcy Code.

     9.4 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part
of Agents or any Lender to exercise, nor any partial exercise of, any power, right or privilege
hereunder or under any other Loan Documents shall impair such power, right, or privilege or be
construed to be a waiver of any Default or Event of Default. All rights and remedies existing
hereunder or under any other Loan Document are cumulative to and not exclusive of any rights or
remedies otherwise available.

     9.5 Marshalling; Payments Set Aside. Neither Agent nor any Lender shall be under any
obligation to marshal any assets in payment of any or all of the Obligations. To the extent that
Borrower makes payment(s) or any Agent enforces its Liens or any Agent or any Lender exercises its
right of set-off, and such payment(s) or the proceeds of such enforcement or set-off is
subsequently invalidated, declared to be fraudulent or preferential, set aside, or required to be
repaid by anyone, then to the extent of such recovery, the Obligations or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor, shall be revived and
continued in full force and effect as if such payment had not been made or such enforcement or
set-off had not occurred.

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     9.6 Severability. The invalidity, illegality, or unenforceability in any jurisdiction of
any provision under the Loan Documents shall not affect or impair the remaining provisions in the
Loan Documents.

     9.7 Lenders’ Obligations Several; Independent Nature of Lenders’ Rights. The obligation of
each Lender hereunder is several and not joint and no Lender shall be responsible for any
obligation of any other Lender hereunder. Nothing contained in any Loan Document and no action
taken by any Agent or any Lender pursuant hereto or thereto shall be deemed to constitute Lenders
to be a partnership, an association, a joint venture or any other kind of entity. The amounts
payable at any time hereunder to each Lender shall be a separate and independent debt.

     9.8 Headings. Section and subsection headings are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other purposes or be given
substantive effect.

     9.9 Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS
OF LAW PRINCIPLES, EXCEPT AS GOVERNED BY THE BANKRUPTCY CODE.

     9.10 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns (including, except for the right
to request Term Loans, any trustee succeeding to the rights of the Borrower or any Guarantor
pursuant to Chapter 11 of the Bankruptcy Code or pursuant to any conversion to a case under Chapter
7 of the Bankruptcy Code) except that Borrower may not assign its rights or obligations hereunder
without the written consent of all Lenders.

     9.11 No Fiduciary Relationship; Limited Liability. No provision in the Loan Documents and
no course of dealing between the parties shall be deemed to create any fiduciary duty owing to
Borrower by any Agent or any Lender. Borrower agrees that neither Agent nor any Lender shall have
liability to Borrower or any other Person (whether sounding in tort, contract or otherwise) for
losses suffered by Borrower or any other Person in connection with, arising out of, or in any way
related to the transactions contemplated and the relationship established by the Loan Documents, or
any act, omission or event occurring in connection therewith, unless and to the extent that it is
determined that such losses resulted from the gross negligence or willful misconduct of the party
from which recovery is sought as determined by a court of competent jurisdiction. Neither Agent nor
any Lender shall have any liability with respect to, and Borrower hereby waives, releases and
agrees not to sue for, any special, indirect or consequential damages suffered by Borrower in
connection with, arising out of, or in any way related to the Loan Documents or the transactions
contemplated thereby.

     9.12 Construction. Agents, each Lender and Borrower acknowledge that each of them has had
the benefit of legal counsel of its own choice and has been afforded an opportunity to review the
Loan Documents with its legal counsel and that the Loan Documents shall be construed as if jointly
drafted by Agents, each Lender and Borrower.

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     9.13 Confidentiality. Agents and each Lender agree to exercise their reasonable best
efforts to keep confidential any non-public information delivered pursuant to the Loan Documents
and identified as such by Borrower and not to disclose such information to Persons other than to
potential assignees or participants or to Persons employed by or engaged by Agents, a Lender or a
Lender’s assignees or participants including attorneys, auditors, professional consultants, rating
agencies, insurance industry associations and portfolio management services. The confidentiality
provisions contained in this subsection 9.13 shall not apply to disclosures (i) required to be made
by any Agent or any Lender to any regulatory or governmental agency or pursuant to legal process,
including disclosures made in legal proceedings brought by any Agent, Lenders or Borrower, (ii)
consisting of general portfolio information that does not identify Borrower, or (iii) consisting of
disclosures generally disclosed to the public or to trade and other creditors. The obligations of
Agents and Lenders under this subsection 9.13 shall supersede and replace the obligations of Agents
and Lenders under any confidentiality agreement in respect of this financing executed and delivered
by Agents or any Lender prior to the date hereof.

     9.14 CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE NON-EXCLUSIVE JURISDICTION
OF THE BANKRUPTCY COURT (AS DEFINED HEREIN) AND IRREVOCABLY AGREES THAT, SUBJECT TO ADMINISTRATIVE
AGENT’S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS SHALL BE LITIGATED IN SUCH COURT. BORROWER EXPRESSLY SUBMITS AND CONSENTS TO
THE JURISDICTION OF THE AFORESAID COURT AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. TO THE
EXTENT PERMITTED BY LAW, BORROWER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES
THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE UPON BORROWER BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO BORROWER, AT THE ADDRESS SET FORTH IN THIS AGREEMENT AND SERVICE SO
MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS BEEN POSTED. IN ANY LITIGATION, TRIAL,
ARBITRATION OR OTHER DISPUTE RESOLUTION PROCEEDING RELATING TO THIS AGREEMENT OR ANY OF THE OTHER
LOAN DOCUMENTS, ALL DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS OF BORROWER OR OF ITS AFFILIATES
SHALL BE DEEMED TO BE EMPLOYEES OR MANAGING AGENTS OF BORROWER FOR PURPOSES OF ALL APPLICABLE LAW
OR COURT RULES REGARDING THE PRODUCTION OF WITNESSES BY NOTICE FOR TESTIMONY (WHETHER IN A
DEPOSITION, AT TRIAL OR OTHERWISE). BORROWER AGREES THAT AGENT’S OR ANY LENDER’S COUNSEL IN ANY
SUCH DISPUTE RESOLUTION PROCEEDING MAY EXAMINE ANY OF THESE INDIVIDUALS AS IF UNDER
CROSS-EXAMINATION AND THAT ANY DISCOVERY DEPOSITION OF ANY OF THEM MAY BE USED IN THAT PROCEEDING
AS IF IT WERE AN EVIDENCE DEPOSITION. BORROWER IN ANY EVENT WILL USE ALL COMMERCIALLY REASONABLE
EFFORTS TO PRODUCE IN ANY SUCH DISPUTE RESOLUTION PROCEEDING, AT THE TIME AND IN THE MANNER
REQUESTED BY ANY AGENT OR ANY LENDER, ALL PERSONS, DOCUMENTS (WHETHER IN TANGIBLE, ELECTRONIC OR
OTHER FORM) OR OTHER THINGS UNDER ITS CONTROL AND RELATING TO THE DISPUTE OTHER THAN THOSE WHICH
ARE PROTECTED BY ATTORNEY-CLIENT PRIVILEGE OR WHICH CONSTITUTE ATTORNEY WORK PRODUCT.

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     9.15 WAIVER OF JURY TRIAL. BORROWER, AGENTS AND EACH LENDER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS. BORROWER, AGENTS AND EACH LENDER ACKNOWLEDGE THAT THIS WAIVER IS A
MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE WAIVER IN
ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. BORROWER, AGENTS AND EACH LENDER WARRANT AND REPRESENT
THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH LEGAL COUNSEL, AND THAT EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS.

     9.16 Survival of Warranties and Certain Agreements. All agreements, representations and
warranties made herein shall survive the execution and delivery of this Agreement, the making of
the Term Loans and the execution and delivery of the Notes until Payment in Full of the
Obligations. Notwithstanding anything in this Agreement or implied by law to the contrary, the
agreements of Borrower set forth in subsections 1.3(B), 1.8 and 9.1 shall survive the repayment of
the Obligations and the termination of this Agreement.

     9.17 Entire Agreement. This Agreement, the Notes and the other Loan Documents embody the
entire agreement among the parties hereto and supersede all prior agreements, representations, and
understandings, whether oral or written, relating to the subject matter hereof, and may not be
contradicted or varied by evidence of prior, contemporaneous, or subsequent oral agreements or
discussions of the parties hereto.

     9.18 Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents or
supplements may be executed in any number of counterparts and by facsimile transmission and by
different parties hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all of which counterparts together shall constitute but one and
the same instrument. This Agreement shall become effective upon the execution of a counterpart
hereof by each of the parties hereto.

     9.19 Judgment Currency. To the extent permitted by applicable law, the obligations of
Borrower and any Loan Party in respect to any amount due under this Agreement or any other Loan
Document shall, notwithstanding any payment in any other currency (the “Other Currency”)
(whether pursuant to a judgment or otherwise), be discharged only to the extent of the amount in
the currency in which it is due (the “Agreed Currency”) that Administrative Agent or any
Lender may, in accordance with normal banking procedures, purchase with the sum paid in the Other
Currency (after any premium and costs of exchange) on the Business Day immediately after the day on
which Administrative Agent or such Lender receives the payment. If the amount in the Agreed
Currency that may be so purchased for any reason falls short of the amount originally due, Borrower
or such Loan Party shall pay additional amounts, in the Agreed Currency, as may be necessary to
compensate for the shortfall. Any obligation of Borrower or any Loan Party not discharged by that
payment shall, to the extent permitted by applicable law, be due as a separate and independent
obligation and, until discharged, continue in full force and effect.

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     9.20 Collateral Agent and Administrative Agent as Party-in-Interest. The Borrower hereby
stipulates and agrees that each of the Collateral Agent and Administrative Agent is and shall
remain a party in interest in the Chapter 11 Cases and shall have the right to participate, object
and be heard in any motion or proceeding in connection therewith. Nothing in this Agreement or any
other Loan Document shall be deemed to be a waiver of any of the Collateral Agent’s or the
Administrative Agent’s rights or remedies under applicable law or documentation. Without
limitation of the foregoing, the Collateral Agent or the Administrative Agent shall have the right
to make any motion or raise any objection it deems to be in its interest (specifically including
but not limited to objections to use of proceeds of the Term Loans, to payment of professional fees
and expenses or the amount thereof, to sales or other transactions outside the ordinary course of
business or to assumption or rejection of any executory contract or lease), provided that the
Collateral Agent and the Administrative Agent will not exercise such right if the action or
inaction by the Borrower which is the subject of such motion or objection is expressly permitted by
any covenant or provision of this Agreement or the Restructuring Support Agreement.

     9.21 Releases and Validation of Pre-Petition Indebtedness and Liens.

          (A) Subject to the provisions of the Interim Financing Order and, if applicable, the Final
Financing Order, the Borrower, on behalf of itself and the other Debtor Loan Parties, hereby (i)
releases and discharges each Lender-Related Person and Agent-Related Persons from any and all
claims and causes of action arising under any of the Pre-Prepetition Facility, any aspect of the
pre-petition relationship between the Lenders, the Agents and the Borrower or any Guarantor
(including, without limitation, any Debtor Loan Parties) or any other acts or omissions of the
Lenders or the Agents arising from or under the Pre-Petition Facility or their pre-petition
relationship with the Borrower or any Guarantor (including, without limitation, any Debtor Loan
Parties); (ii) waives any and all defenses (including, without limitation, offsets and
counterclaims of any nature or kind) as to the amount, validity, perfection, priority,
enforceability and nonavoidability (under the Bankruptcy Code or otherwise) of the Indebtedness and
other obligations and liabilities under the Pre-Petition Facility and the security interests in and
liens on the collateral securing such Indebtedness; and (iii) agrees, without further Bankruptcy
Court order and without the need for filing of any proof of claim, to the allowance of the
pre-petition claims of the Agents and the Lenders pursuant to sections 502 and 506 of the
Bankruptcy Code on account of such Indebtedness as fully secured claims for principal, plus accrued
pre-petition and post-petition interest, fees, prepayment premiums, expenses and other amounts, to
the extent payable, under the Pre-Petition Facility.

          (B) Borrower understands, acknowledges and agrees, on its own behalf and on behalf of the
other Debtor Loan Parties, that the release set forth above may be pleaded as a full and complete
defense and may be used as a basis for an injunction against any action, suit or other proceeding
which may be instituted, prosecuted or attempted in breach of the provisions of such release.

          (C) Borrower agrees, on its own behalf and on behalf of the other Debtor Loan Parties, that no
fact, event, circumstance, evidence or transaction which could now be asserted or which may
hereafter be discovered shall affect in any manner the final, absolute and unconditional nature of
the release set forth above.

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          (D) Borrower, on behalf of itself, the other Debtor Loan Parties, and their respective
successors, assigns, and other legal representatives, hereby absolutely, unconditionally and
irrevocably, covenants and agrees with and in favor of each Lender-Related Person and Agent-Related
Person that it and each such Person will not sue (at law, in equity, in any regulatory proceeding
or otherwise) any Lender-Related Person and Agent-Related Person on the basis of any claim or cause
of action released, remised and discharged by Borrower on its own behalf and on behalf of the other
Debtor Loan Parties pursuant to this Section 9.21. If Borrower, the other Debtor Loan Parties or
any of their respective successors, assigns or other legal representatives violate the foregoing
covenant, Borrower, for itself, the other Debtor Loan Parties and their respective successors,
assigns and legal representatives, agrees to pay, in addition to such other damages as any
Lender-Related Person or Agent-Related Person may sustain as a result of such violation, all
attorneys’ fees and costs incurred by any Lender-Related Person or Agent-Related Person as a result
of such violation.

     9.22 Intercreditor Agreement 

     Notwithstanding anything to the contrary contained herein, each Lender acknowledges that the
Liens securing the Obligations are subject to the provisions of the Intercreditor Agreement. Each
Lender hereby authorizes and directs Collateral Agent to enter into the Intercreditor Agreement on
behalf of such Lender and agrees that Collateral Agent, in its various capacities thereunder, may
take such actions on its behalf as is contemplated by the terms of the Intercreditor Agreement.

     9.23 Amendment and Restatement. The parties hereto agree that, on the Effective Date, the
following transactions shall be deemed to occur automatically, without further action by any party
hereto:

          (A) the Pre-Petition Loan Agreement shall be deemed to be amended and restated in its entirety
in the form of this Agreement;

          (B) the Junior Secured Debt outstanding on the Effective Date shall be deemed to be
Obligations outstanding hereunder;

          (C) the Security Documents, including the Liens created thereunder in favor of any Agent for
the benefit of Agents and Lenders or in favor of Agents and Lenders, as applicable, and securing
payment of the Junior Secured Debt, as the same may be amended and/or restated on the Effective
Date, shall remain in full force and effect with respect to the Obligations and are hereby
reaffirmed; and

          (D) all references in the other Loan Documents to the Pre-Petition Loan Agreement shall be
deemed to refer without further amendments to this Agreement.

     The parties acknowledge and agree that this Agreement and the other Loan Documents do not
constitute a novation, payment and reborrowing or termination of the Junior Secured Debt and that,
as of the Effective Date, all such Junior Secured Debt will in all respects be continued and
outstanding as Obligations under this Agreement with only the terms being modified from and after
the Effective Date as provided in this Agreement, the Notes, if any, and the other Loan Documents.

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SECTION 10.

SECURITY AND ADMINISTRATIVE PRIORITY

     10.1 Collateral.

          (A) Intentionally Omitted.

          (B) Upon entry of the Interim Financing Order, the Liens and security interests in the
Collateral in favor of the Collateral Agent shall be valid and perfected Liens and security
interests in the Collateral, prior to all other Liens and security interests in the Collateral,
other than the Permitted Priority Liens. Such Liens and security interests and their priority
shall remain in effect until Payment in Full of the Obligations.

          (C) Notwithstanding anything herein to the contrary, (i) all proceeds received by the Agents
and the Lenders from the Collateral subject to the Liens granted in the Loan Documents and by the
Bankruptcy Court Orders shall be subject to the prior payment of the Carve-Out Expenses, and (ii)
no Person entitled to Carve-Out Expenses shall be entitled to sell or otherwise dispose, or seek to
sell or otherwise dispose, of any Collateral.

     10.2 Administrative Priority. Obligations of the Borrower will, at all times after the
Effective Date, constitute allowed administrative expenses in the Chapter 11 Cases, having priority
in payment over all other administrative expenses and unsecured claims against the Borrower now
existing or hereafter arising, of any kind or nature whatsoever, including, without limitation, all
administrative expenses of the kind specified in, or arising or ordered under, Sections 105, 326,
328, 503(b), 506(c) (subject to entry of the Final Financing Order), 507(a), 507(b), 546(c)
(subject to entry of the Final Financing Order), 726 and 1114 of the Bankruptcy Code, subject, as
to priority, only to (i) GECC Superpriority Claim and GECC Adequate Protection Priority Claims and
(ii) only upon the occurrence and continuance of an Event of Default, the payment of Carve-Out
Expenses having priority of payment over the Obligations to the extent set forth in the Agreed
Administrative Expense Priorities.

     10.3 Grants, Rights and Remedies. The Liens and security interests granted pursuant to
Section 10.1(a) hereof and the administrative priority granted pursuant to Section 10.2 hereof may
(but need not) be independently granted by the Loan Documents and by other Loan Documents hereafter
entered into. This Agreement, the Financing Order and such other Loan Documents supplement each
other, and the grants, priorities, rights and remedies of the Agents and the Lenders hereunder and
thereunder are cumulative.

     10.4 No Filings Required. The Liens and security interests in the Collateral shall be
deemed valid and perfected by entry of the Interim Financing Order, and entry of the Interim
Financing Order shall have occurred on or before the date that any Loan is made. The Collateral
Agent shall not be required to file or record any financing statements, mortgages, notices of Lien
or similar instruments in any jurisdiction or filing office or to take any other action in order to
validate or perfect the Liens and security interest granted by or pursuant to this Agreement, the
Final Financing Order or any other Loan Document.

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     10.5 Survival. The Liens, lien priority, administrative priorities and other rights and
remedies granted to the Agents and the Lenders pursuant to this Agreement, the Bankruptcy Court
Orders and the other Loan Documents (specifically including, but not limited to, the existence,
perfection and priority of the Liens and security interests provided herein and therein, and the
administrative priority provided herein and therein) shall not be modified, altered or impaired in
any manner by any other financing or extension of credit or incurrence of indebtedness by the
Borrower or any Guarantor (pursuant to Section 364 of the Bankruptcy Code or otherwise), or by
substantive consolidation or any dismissal or conversion of any of the Chapter 11 Cases, or by any
other act or omission whatsoever. Without limitation, notwithstanding any such order, financing,
extension, incurrence, dismissal, conversion, act or omission:

          (A) except for the Carve-Out Expenses (during the occurrence and continuance of an Event of
Default), GECC Superpriority Claim and GECC Adequate Protection Priority Claims, no costs or
expenses of administration which have been or may be incurred in the Chapter 11 Cases or any
conversion of the same or in any other proceedings related thereto, and no priority claims, are or
will be prior to or on a parity with any claim of the Agents and the Lenders against the Borrower
or any Guarantor in respect of any Obligation;

          (B) the Liens in the Collateral in favor of the Agents and the Lenders shall constitute valid
and perfected second priority Liens and security interests, subject only to Permitted Priority
Liens; and

          (C) the Liens in favor of the Agents and the Lenders set forth herein and in the other Loan
Documents shall continue to be valid and perfected without the necessity that the Collateral Agent
file or record financing statements, mortgages or otherwise perfect its Lien under applicable
non-bankruptcy law.

SECTION 11.

DEFINITIONS

     11.1 Certain Defined Terms. The terms defined below are used in this Agreement as so
defined. Terms defined in the preamble and recitals to this Agreement are used in this Agreement as
so defined.

     “Accounts” means all of the following: (a) accounts receivable, contract rights, book
debts, notes, drafts and other obligations and indebtedness arising from the sale, lease or
exchange of goods or other property and/or the performance of services; (b) rights in, to and under
all purchase orders for goods, services or other property; (c) rights to any goods, services or
other property represented by any of the foregoing (including returned or repossessed goods and
unpaid sellers’ rights of rescission, replevin, reclamation and rights to stoppage in transit); (d)
monies due to or to become due under all contracts for the sale, lease or exchange of goods or
other property and/or the performance of services (whether or not yet earned by performance);

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and (e) Proceeds of any of the foregoing and all collateral security and guaranties of any
kind given by any Person with respect to any of the foregoing.

     “Additional Credit” shall have the meaning set forth in subsection 7.1(N).

     “Administrative Agent” shall have the meaning set forth in the preamble hereto.

     “Affiliate” means any Person (a) directly or indirectly controlling, controlled by, or
under common control with, Borrower; (b) directly or indirectly owning or holding five percent (5%)
or more of any equity interest in Borrower; or (c) five percent (5%) or more of whose voting stock
or other equity interest is directly or indirectly owned or held by Borrower. For purposes of this
definition, “control” (including with correlative meanings, the terms “controlling”, “controlled
by” and “under common control with”) means the possession directly or indirectly of the power to
direct or cause the direction of the management and policies of a Person, whether through the
ownership of voting securities or by contract or otherwise. Notwithstanding the foregoing, none of
Agents, any Lender nor any of their respective Affiliates shall be considered an Affiliate of
Borrower or any of its Subsidiaries.

     “Agent” and “Agents” shall have the meanings set forth in the preamble hereto.

     “Agent-Related Persons” means the Administrative Agent, any sub-agent and any
successor agents thereto (in accordance with the terms of this Agreement), and the Collateral Agent
and any successor agents thereto (in accordance with the terms of this Agreement), together with
their respective Affiliates, and the officers, directors, employees, counsel, agents, and
attorneys-in-fact of such Persons and their Affiliates.

     “Agreed Administrative Expense Priorities” means that administrative expenses with
respect to the Borrower and the Guarantors, which shall have the following order of priority:

               first, (i) amounts payable pursuant to 28 U.S.C. § 1930(a)(6) and all fees required to
be paid to the Clerk of the Bankruptcy Court and (ii) only upon the occurrence and continuance of
an Event of Default, allowed fees, expenses and costs of attorneys, accountants and other
professionals retained in the Chapter 11 Cases by the Debtors or any official committee of
unsecured creditors pursuant to Bankruptcy Code sections 327, 328, 330, 331, 503 or 1103 and owed
pursuant to the terms of such profesionals’ respective engagement letters (other than any success
fee, transaction fee, or other similar fee set forth in such professionals’ respective engagement
letters), provided that the amount entitled to priority under this sub-clause (ii)
(“Priority Professional Expenses”) shall not exceed $1,250,000 minus any retainers held by
the professionals at the time of the occurrence of an Event of Default outstanding in the aggregate
at any time (such Priority Professional Expenses to be inclusive of any holdbacks required by the
Bankruptcy Court) (the “Professional Expense Cap”);

               second, GECC Superpriority Claim and GECC Adequate Protection Priority Claims;

               third, all Obligations in accordance with subsection 10.2; and

               fourth, all other allowed administrative expenses.

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     “Agreement” shall have the meaning set forth in the introductory paragraph hereto.

     “Approved Budget” means the budget of the Borrower, a copy of which is attached as
Annex I hereto, projecting the weekly receipts and disbursements of cash for the Borrower
for a period consisting of thirteen (13) consecutive weeks.

     “Asset Disposition” means the disposition whether by sale, lease, transfer, exchange,
loss, damage, destruction, casualty, condemnation or otherwise of any of the following: (a) any of
the capital stock or other equity or ownership interest of any of Borrower’s Subsidiaries or (b)
any or all of the assets of Borrower or any of its Subsidiaries other than sales of inventory in
the ordinary course of business.

     “Assignment and Acceptance Agreement” means an agreement among Administrative Agent, a
Lender and such Lender’s assignee or transferee regarding their respective rights and obligations
with respect to assignments of the Term Loans, and other interests under this Agreement and the
other Loan Documents, substantially in the form of Exhibit 11.1(A) and with such amendments as the
laws of any relevant jurisdiction may require.

     “Authorized Officer” means, with respect to any Person, the chief executive officer,
chief financial officer or president of such Person.

     “Availability Period” means the period beginning on the Effective Date through the
Final Maturity Date.

     “Avoidance Actions” means all causes of action arising under Sections 542, 544, 545,
547, 548, 549, 550, 551, 553(b) or 724(e) of the Bankruptcy Code and any proceeds therefrom.

     “Bankruptcy Code” shall have the meaning set forth in the recitals hereto.

     “Bankruptcy Court” shall have the meaning set forth in the recitals hereto.

     “Bankruptcy Court Orders” means the Interim Financing Order, the Final Financing Order
and the Cash Management Order.

     “Bankruptcy Law” means the Bankruptcy Code, the Bankruptcy and Insolvency Act
(Canada), the Companies’ Creditors Arrangement Act (Canada), the Winding-Up and Restructuring Act
(Canada) and The Insolvency Act 1986 (United Kingdom), each as amended from time to time or any
applicable bankruptcy, insolvency or other similar law now or hereafter in effect in any
jurisdiction and all rules and regulations promulgated thereunder.

     “Board of Directors” means, with respect to any Person, the board of directors (or
comparable managers) of such Person or any committee thereof duly authorized to act on behalf of
the board.

     “Borrower” shall have the meaning set forth in the preamble hereto.

     “Borrowing Notice” shall have the meaning set forth in subsection 1.1(D).

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     “Business Day” means for all purposes, any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of Minnesota, the State of California or the
Commonwealth of Pennsylvania, or is a day on which banking institutions located in any such states
are closed.

     “Calendar Week” shall mean a period of seven days commencing on and including a
Saturday through and including the following Friday.

     “Canadian Pension Plan” means any plan, program or arrangement that is a pension plan
for the purposes of any applicable pension benefits legislation or any tax laws of Canada or a
Province thereof, whether or not registered under any such laws, which is sponsored, maintained or
contributed to by, or to which there is or may be an obligation to contribute by, Borrower or any
other Loan Party in respect of any Person’s employment in Canada with Borrower or such Loan Party.

     “Canadian Restricted Subsidiary” means Portola Packaging Canada Ltd., a corporation
continued under the laws of British Columbia.

     “Canadian Security Documents” means all instruments, documents and agreements executed
by or on behalf of Canadian Restricted Subsidiary or any other Person to guaranty or provide
collateral security with respect to the Obligations of Borrower including, without limitation, the
Security Agreement, any other security agreement or pledge agreement, any guaranty of the
Obligations (including, without limitation, the Guaranties), any mortgage or deed of trust, any
hypothec and all instruments, documents and agreements executed pursuant to the terms of the
foregoing.

     “Capital Expenditures” means, for any period, the sum (without duplication) of the
following for Borrower and its Consolidated Subsidiaries on a Consolidated basis: (a) the amount
capitalized as capital expenditures for the period, under GAAP, as property, plant, and equipment
or similar fixed asset accounts and (b) deposits made in the period in connection with property,
plant, and equipment, less deposits of a prior period included above.

     “Capital Stock” means any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, including, without limitation, with respect to
partnerships, partnership interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, such partnership.

     “Carve-Out Expenses” means those amounts, fees, expenses and claims set forth in
clause “first” of the definition of the term “Agreed Administrative Expense Priorities”
having priority ahead of the super-priority administrative expense claims and liens securing the
Facility to the extent set forth therein.

     “Cash Management Order” means an order of the Bankruptcy Court with respect to the
cash management systems of the Borrower, which order shall be in form and substance satisfactory to
the Requisite Lenders.

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     “Change of Control” means (a) any sale, lease, exchange or transfer (in one
transaction or in a series of related transactions) of all or substantially all the assets of
Borrower to any Person or group of related Persons (other than Permitted Investors), (b) the merger
or consolidation of Borrower with or into another corporation or the merger or consolidation of
another corporation into Borrower with the effect that immediately after such transaction the
stockholders of Borrower immediately prior to such transaction hold less than fifty percent (50%)
of the total voting power of all securities generally entitled to vote in the election of
directors, managers or trustees of the Person surviving such merger or consolidation, (c) (i) prior
to Borrower’s first Public Equity Offering, the acquisition by any “person” or “group” (as those
terms are used in Sections 13(d) and 14(d) of the Exchange Act) (other than the Permitted
Investors) of the ultimate “beneficial ownership” (as defined in Rules 13d-3 and 13d-5 under the
Exchange Act) of more than fifty percent (50%) of the voting power of all securities of Borrower
generally entitled to vote in the election of directors of Borrower and (ii) after Borrower’s first
Public Equity Offering, the acquisition by any person or group (defined as set forth in clause (i)
above) (other than the Permitted Investors) of more than the greater of (A) forty percent (40%) of
the voting power of all securities of Borrower generally entitled to vote in the election of
directors of Borrower or (B) the total percentage of the voting power of all securities of Borrower
generally entitled to vote in the election of directors of Borrower held by the Permitted Investors
in the aggregate at the time of determination, (d) individuals who as of the Filing Date were
serving on the Board of Directors of the Borrower cease for any reason to constitute a majority of
the members of the Board of Directors of Borrower without the prior written consent of the Agents,
(e) the Borrower shall approve any plan for the liquidation or dissolution of Borrower, (f)
Borrower shall at any time fail to own, beneficially and of record, all of the outstanding stock of
Canadian Restricted Subsidiary, UK Restricted Subsidiary and Tech Industries or (g) the occurrence
of a “Change of Control” (as such term is defined in the Senior Note Indenture (other than clauses
(4) or (5) in the definition thereof)).

     As used in this definition:

     (x) “Permitted Investors” means Jack L. Watts, JP Morgan Partners (Bank SBIC Manager),
Inc. and Related Parties of any of the foregoing; and

     (y) “Related Party” with respect to any Permitted Investor means (A)(1) any
controlling stockholder, eighty percent (80%) (or more) owned Subsidiary, or spouse or immediate
family member (in the case of an individual) of such Permitted Investor or (2) a trust,
corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or
Persons beneficially holding an eighty percent (80%) or more controlling interest of which consist
of such Permitted Investor and/or such other persons referred to in the immediately preceding
clause (1) or (B) with respect to JP Morgan Partners (Bank SBIC Manager), Inc., any Person
controlled by JP Morgan Partners LLC.

     “Chapter 11 Case” and “Chapter 11 Cases” shall have the meanings specified
therefor in the recitals hereto.

     “China Restricted Subsidiary” means Shanghai Portola Packaging Company Limited, a
corporation organized under the laws of the People’s Republic of China.

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     “Collateral” means, collectively, the “Collateral” (as defined in the Financing Order)
and all collateral granted by the Borrower, Guarantors and Non-Debtor Loan Parties pursuant to the
Security Agreements, Mortgages, other Loan Documents and the Financing Order.

     “Collateral Agent” shall have the meaning set forth in the preamble hereto.

     “Commitment Amount” means $79,000,000, minus the GECC Pay-Off Amount.

     “Consolidated” means, with respect to Borrower, the consolidation in accordance with
GAAP (except to the extent that the exclusion of the accounts of Unrestricted Subsidiaries in any
such consolidation would not be in accordance with GAAP) of the financial statements, assets,
liabilities, stockholders equity, income or expense, as applicable, of Borrower and its
Consolidated Subsidiaries or Consolidated Restricted Subsidiaries, as applicable.

     “Consolidated Restricted Subsidiary” means, with respect to any Person, each
Restricted Subsidiary of such Person whose financial statements are consolidated with the financial
statements of such Person in accordance with GAAP.

     “Consolidated Subsidiary” means, with respect to any Person, each Subsidiary of such
Person whose financial statements are consolidated with the financial statements of such Person in
accordance with GAAP.

     “Czech Restricted Subsidiary” means Portola (S.R.O.), a corporation organized under
the laws of the Czech Republic.

     “Debtor Loan Parties” shall have the meaning set forth in the preamble hereto.

     “Default” means a condition or event that, after notice or lapse of time or both,
would constitute an Event of Default if that condition or event were not cured or removed within
any applicable grace or cure period.

     “Disclosure Statement” means the Disclosure Statement for the Debtors’ Pre-Packaged
Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code dated
August 4, 2008.

     “Disqualified Stock” means any Capital Stock which, by its terms (or by the terms of
any security into which it is convertible or for which it is exchangeable), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or redeemable at the option of the holder thereof, in whole or in part on or prior to a
date that is one year after the Final Maturity Date.

     “Dollar,” “Dollars” and the symbol “$” each means lawful money of the
United States of America.

     “EBITDA” means, for any period, the sum (without duplication) of the following for
Borrower and its Restricted Subsidiaries on a Consolidated basis: (a) Net Income for the period,
(b) any provision for (or less any benefit from) income and franchise taxes included in the
determination of Net Income, (c) interest expense deducted in the determination of Net Income,

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(d) amortization and depreciation deducted in determining Net Income, (e) losses (or less
gains) from Asset Dispositions or other non-cash items included in the determination of Net Income
(excluding sales, expenses or losses related to current assets), (f) extraordinary losses (or less
gains), as defined under GAAP, net of related tax effects, included in the determination of Net
Income, (g) non-recurring charges incurred in connection with the reorganization proceedings, (h)
amounts not exceeding $7,000,000 in the aggregate paid by Borrower to Blackhawk Molding, Inc.
(“Blackhawk”) pursuant to that settlement agreement dated May 31, 2006 between Borrower and
Blackhawk to the extent such amounts are deducted in determining Net Income, and (i) those items
specifically listed on Schedule I to the Tenth Amendment, dated
as of April 14, 2008, to the
“Prepetition First Lien Loan Agreement” (as defined in the Intercreditor Agreement).

     “Effective Date” means the first date practicable following the entry of the Interim
Financing Order, on which all of the conditions precedent set forth in subsection 7.1 have been
satisfied (or waived by the Requisite Lenders in their sole discretion).

     “Environmental Claims” means claims, liabilities, investigations, administrative
proceedings, whether pending or, to the best of the Borrower’s knowledge, threatened, or judgments
or orders relating to any Hazardous Materials.

     “Environmental Laws” means all applicable federal, state, provincial, local and
foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in
effect, and any applicable judicial or administrative interpretation thereof, including any
applicable judicial or administrative order, consent decree, order or judgment, imposing liability
or standards of conduct for or relating to the regulation and protection of human health, safety,
the environment and natural resources (including ambient air, surface water, groundwater, wetlands,
land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include CERCLA; the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. §§ 5101
et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. §§ 136 et seq.); the
Solid Waste Disposal Act (42 U.S.C. §§ 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. §§
2601 et seq.); the Clean Air Act (42 U.S.C. §§ 7401 et seq.); the Federal Water Pollution Control
Act (33 U.S.C. §§ 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. §§ 651 et seq.);
and the Safe Drinking Water Act (42 U.S.C. §§ 300(f) et seq.), and any and all regulations
promulgated thereunder, and all analogous state, provincial, local and foreign counterparts or
equivalents and any transfer of ownership notification or approval statutes related in any manner
to environmental, natural resource or human health and safety matters.

     “Environmental Liability” means, with respect to any Person, all liabilities,
obligations, responsibilities, response, remedial and removal costs, investigation and feasibility
study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages,
property damages, natural resource damages, consequential damages, treble damages, costs and
expenses (including all reasonable fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of or related to any
claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute or common law,
arising under or related to any Environmental Laws, Environmental Permits, or in connection with
any Release or

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threatened Release or presence of a Hazardous Material whether on, at, in, under, from or
about or in the vicinity of any real or personal property.

     “Environmental Permits” means all permits, licenses, authorizations, certificates,
approvals or registrations required by any governmental authority under any Environmental Laws.

     “Equipment” means all “equipment” (as defined in the UCC), including, without
limitation, all machinery, motor vehicles, trucks, trailers, vessels, aircraft and rolling stock
and all parts thereof and all additions and accessions thereto and replacements therefor.

     “Equity Interests” means Capital Stock and all warrants, options or other rights to
acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable
for, Capital Stock).

     “ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

     “Excluded Portion” means, collectively, any accrued and unpaid default interest as of
the Filing Date provided for under subsection 1.2(C) of the Pre-Petition Loan Agreement or
prepayment premiums as provided for under subsection 1.5(A) of the Pre-Petition Loan Agreement.

     “Facility” means the post-petition credit facility provided under this Agreement.

     “Filing Date” means August 27, 2008, the date on which the Borrower and the Guarantors
commenced the Chapter 11 Cases.

     “Final Financing Order” means a Financing Order that is a Final Order entered in the
Chapter 11 Cases after notice and final hearing pursuant to Rule 4001(e) of the Federal Rules of
Bankruptcy Procedure and applicable local rules.

     “Final Financing Order Entry Date” means the date on which the Final Financing Order
shall have been entered by the Bankruptcy Court.

     “Final Maturity Date” means the date that is the earliest to occur of (i) the Outside
Date, (ii) the effective date of the plan of reorganization in respect of the Borrower and the
Guarantors in the Chapter 11 Cases, and (iii) the date the Term Loan Commitment is terminated,
whether at stated maturity, upon an Event of Default or otherwise.

     “Final Order” means an order or judgment of the Bankruptcy Court duly entered on the
docket of the Bankruptcy Court that (a) has not been modified or amended without the consent of the
Requisite Lenders, or vacated, reversed, revoked, rescinded, stayed or appealed from, except as the
Requisite Lenders may otherwise specifically agree, (b) with respect to which the time to appeal,
petition for certiorari, application or motion for reversal, rehearing, reargument, stay, or
modification has expired, (c) with respect to which no petition, application or motion for
reversal, rehearing, reargument, stay or modification thereof or for a writ of certiorari with
respect thereto has been filed or granted or the order or judgment of the Bankruptcy Court has been
affirmed by the highest court to which the order or judgment was appealed and (d) is no

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longer subject to any or further appeal or petition, application or motion for reversal, rehearing,
reargument, stay or modification thereof or for any writ of certiorari with respect thereto or
further judicial review in any form.

     “Financing Order” means, as of any date of determination, the Interim Financing Order
and such other interim, final, permanent and/or supplemental orders satisfactory in form and
substance to the Requisite Lenders which shall have been entered by the Bankruptcy Court after
notice pursuant to Section 364 of the Bankruptcy Code relating thereto or authorizing the granting
of credit by the Lenders to the Borrower, including the Final Financing Order.

     “Fixed Charge Coverage” means, for any twelve-month period, Operating Cash Flow for
such period divided by Fixed Charges for such period.

     “Fixed Charges” means, for any period, the sum of the following for Borrower and its
Restricted Subsidiaries on a Consolidated basis: (a) interest expense, net of interest income,
included in the determination of Net Income, less (i) amortization of capitalized fees and expenses
included in interest expense and incurred with respect to the transactions entered into in 2004 by
Borrower with respect to the Senior Note Indenture and the Senior DIP Credit Agreement, (ii)
amortization of any original issue discount attributable to any warrants included in interest
expense and (iii) interest paid in kind and included in interest expense, (b) any provision for
(benefit from (but only to the extent received in cash)) income or franchise taxes included in the
determination of net income, (c) increases (decreases) in short-term and long-term deferred tax
assets, (d) decreases (increases) in short-term and long-term deferred tax liabilities, (e)
scheduled payments of principal with respect to all Indebtedness (including the principal portion
of scheduled payments of capital lease obligations) and (f) Restricted Junior Payments made in
cash.

     “Funds Effective Rate” means, for any day, the weighted average (rounded upwards, if
necessary, to the next 1/100th of 1%) of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so
published for any day that is a Business Day, the average (rounded upwards, if necessary, to the
next 1/100th of 1%) of the quotations for such day for such transactions received by Administrative
Agent from three Federal funds brokers of recognized standing selected by it.

     “GAAP” means, (a) with respect to Borrower and the Restricted Subsidiaries other than
the Canadian Restricted Subsidiary, the UK Restricted Subsidiary and any other Foreign Restricted
Subsidiary, generally accepted accounting principles as set forth in statements from Auditing
Standards No. 69 entitled “The Meaning of ‘Present Fairly in Conformance with Generally Accepted
Accounting Principles in the Independent Auditors Reports’“ issued by the Auditing Standards Board
of the American Institute of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board that are applicable to the circumstances as of the date of
determination, (b) with respect to the Canadian Restricted Subsidiary, generally accepted
accounting principles in Canada as in effect from time to time as set forth in the opinions and
pronouncements of the relevant Canadian public and private accounting boards and institutes which
are applicable to the circumstances as of the date of determination consistently applied, (c) with
respect to the UK Restricted Subsidiary, accounting

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principles and practices which are from time to time generally acceptable in the United
Kingdom and (d) with respect to any other foreign Restricted Subsidiary accounting principles and
practices which are from time to time considered generally acceptable or generally accepted
accounting principles in such foreign country in accordance with any public or private accounting
boards or institutes located in such country.

     “GECC Adequate Protection Priority Claims” shall have the meaning set forth in the
Interim Financing Order.

     “GECC Pay-Off Amount” means an amount equal to the amount of Senior Secured Debt as of
the Filing Date, which amount shall in no event exceed $50,000,000, plus the GECC Per Diem
Amount.

     “GECC Per Diem Amount” means “Per Diem Amount,” as such term is defined in the Senior
DIP Credit Agreement.

     “GECC Superpriority Claim” shall have the meaning set forth in the Interim Financing
Order.

     “Governmental Authority” means any nation or government, any Federal, state, city,
town, municipality, county, local or other political subdivision thereof or thereto and any
department, commission, board, bureau, instrumentality, agency or other entity exercising
executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or
pertaining to government.

     “Guarantor” means each of Great Lakes Sales Associates, LLC, a Delaware limited
liability company, Northern Engineering and Plastics Corporation, a Delaware corporation, Northern
Engineering and Plastics Corporation, a Puerto Rico corporation, Northern Plastics Corporation –
Puerto Rico, a Pennsylvania corporation, Portola Allied Tool and Tech Industries, each of the
Restricted Subsidiaries of the Borrower and each of the Subsidiaries of the Borrower, if any, that
shall become a Guarantor as provided in subsection 2.9.

     “Guaranties” means, collectively, the Guaranties made by each Guarantor in favor of
the Collateral Agent for the benefit of the Agents and the Lenders guaranteeing the Obligations, in
form and substance satisfactory to the Requisite Lenders.

     “Hazardous Material” means all or any of the following: (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable laws or regulations as
“hazardous substances”, “hazardous materials”, “hazardous wastes”, “toxic substances” or any other
formulation intended to define, list or classify substances by reason of deleterious properties
such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity or “EP
toxicity”; (b) oil, petroleum or petroleum derived substances, natural gas, natural gas liquids or
synthetic gas and drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or geothermal resources; (c) any
flammable substances or explosives or any radioactive materials; and (d) asbestos in any form or
electrical equipment which contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of fifty parts per million.

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     “Hong Kong Restricted Subsidiary” means Portola (Asia Pacific) Holding Limited, a
corporation organized under the laws of Hong Kong.

     “Inactive Subsidiaries” means, collectively, Northern Engineering and Plastics
Corporation, a Puerto Rico corporation, Atlantic Packaging Sales, LLC, a Delaware limited liability
company and Tech Industries U.K. Ltd., a corporation organized under the laws of Rhode Island.

     “Indebtedness” as applied to any Person, means: (a) all indebtedness for borrowed
money; (b) that portion of obligations with respect to capital leases that is properly classified
as a liability on a balance sheet in conformity with GAAP; (c) any obligation under any lease (a
“synthetic lease”) treated as an operating lease under GAAP and as a loan or financing for United
States income tax purposes; (d) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money; (e) any obligation owed for all or any
part of the deferred purchase price of property or services if the purchase price is due more than
one (1) year from the date the obligation is incurred or is evidenced by a note or similar written
instrument; (f) “earnouts” and similar payment obligations; (g) obligations under forward
contracts, future contracts, swaps, options or other financing agreements or arrangements the value
of which is dependent upon interest rates, currency exchange rates, commodities or other indices;
and (h) all indebtedness secured by any Lien on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is
nonrecourse to the credit of that Person.

     “Indemnitees” shall have the meaning set forth in subsection 9.1.

     “Informal Noteholder Committee” means the informal committee of noteholders of the
Senior Notes.

     “Intercreditor Agreement” means that certain Amended and Restated Intercreditor
Agreement dated as of August 27, 2008 between the Collateral Agent and the Senior DIP Lenders’
Agent, acknowledged and agreed to by the Borrower and certain other Loan Parties, as the same may
be amended, restated or otherwise modified in accordance with the terms thereof.

     “Interest Rate Agreement” means any interest rate swap agreement, interest rate cap
agreement, interest rate collar agreement or other similar agreement or arrangement designed to
protect any Person against fluctuations in interest rates.

     “Interim Financing Order” means the order entered by the Bankruptcy Court not later
than three (3) days following the Filing Date in the form of Annex IV hereto, with such
changes thereto as may be approved by the Requisite Lenders.

     “Interim Financing Order Entry Date” means the date on which the Interim Financing
Order shall have been entered by the Bankruptcy Court.

     “IRC” means the Internal Revenue Code of 1986, as amended from time to time and all
rules and regulations promulgated thereunder.

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     “Inventory” means all inventory (including all “inventory,” as defined in the UCC or
as defined in any other Personal Property Security Legislation), including, without limitation,
finished goods, raw materials, work in process and other materials and supplies (including
packaging and shipping materials) used or consumed in the manufacture or production thereof and
returned and repossessed goods.

     “Junior Secured Debt” means “Second Lien Obligations,” as such term is defined in the
Intercreditor Agreement, in respect of the “Initial Second Lien Loan Agreement,” as such term is
defined in the Intercreditor Agreement.

     “Lender” means, collectively, each Person executing this Agreement as a Lender set
forth on the signature pages hereto, and each Person that hereafter becomes a party to this
Agreement as a Lender pursuant to subsection 8.1.

     “Lender-Related Persons” means, with respect to any Lender, such Lender, together with
such Lender’s Affiliates, and the officers, directors, employees, counsel, agents, and
attorneys-in-fact of such Lender and such Lender’s Affiliates.

     “Lien” means any lien, hypothec, mortgage, pledge, security interest, charge,
encumbrance or governmental levy or assessment of any kind, whether voluntary or involuntary
(including any conditional sale or other title retention agreement and any lease in the nature
thereof), and any agreement to give any lien, hypothec, mortgage, pledge, security interest, charge
or encumbrance.

     “Loan Documents” means this Agreement, the Notes, the Security Documents, the
Intercreditor Agreement, and all other instruments, documents and agreements executed by or on
behalf of any Loan Party and delivered concurrently herewith or at any time hereafter to or for the
benefit of Agents or any Lender in connection with the Term Loans and other transactions
contemplated by this Agreement, all as amended, supplemented or modified from time to time.

     “Loan Party” means, collectively, Borrower, each Guarantor and each Subsidiary thereof
which is or becomes a party to any Loan Document. As of the Effective Date, the Loan Parties are
Borrower, each Guarantor and Canadian Restricted Subsidiary, Mexican Restricted Subsidiary, UK
Restricted Subsidiary, Tech Industries and Portola Allied Tool.

     “Material Adverse Effect” means (a) a material adverse effect upon the business,
operations, properties, assets or condition (financial or otherwise) of Borrower and its Restricted
Subsidiaries taken as a whole, except for the commencement of the Chapter 11 Cases and events that
would typically result, or have resulted, from the commencement of the Chapter 11 Cases or (b) the
impairment of the ability of any Loan Party to perform its obligations under any Loan Document to
which it is a party or of any Agent or any Lender to enforce any Loan Document or collect any of
the Obligations. In determining whether any individual event would result in a Material Adverse
Effect, notwithstanding that such event does not of itself have such effect, a Material Adverse
Effect shall be deemed to have occurred if the cumulative effect of such event and all other then
existing events would result in a Material Adverse Effect.

     “Maximum Rate” shall have the meaning set forth in subsection 1.2(D).

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     “Mexican Restricted Subsidiary” means Portola Packaging Inc. Mexico, S.A. de C.V., a
corporation organized under the laws of Mexico.

     “Mexican Security Documents” means all instruments, documents and agreements executed
by or on behalf of Mexican Restricted Subsidiary or any other Person to guaranty or provide
collateral security with respect to the Obligations of Borrower including, without limitation, the
Security Agreement, any other security agreement or pledge agreement, any guaranty of the
Obligations (including, without limitation, the Guaranties), any mortgage or deed of trust, and all
instruments, documents and agreements executed pursuant to the terms of the foregoing.

     “Mortgage” means each of the mortgages, deeds of trust, leasehold mortgages, leasehold
deeds of trust, collateral assignments of leases or other real estate security documents delivered
by any Loan Party to Collateral Agent, with respect to Mortgaged Property, all in form and
substance satisfactory to Collateral Agent.

     “Net Income” means, for any period, the net income (or loss) for the period of
Borrower and its Restricted Subsidiaries on a Consolidated basis determined in accordance with
GAAP, but excluding: (a) the income (or loss) of any Person (other than Restricted Subsidiaries of
Borrower) in which Borrower or any of its Restricted Subsidiaries has an ownership interest unless
received by Borrower or its Restricted Subsidiaries in a cash distribution; and (b) the income (or
loss) of any Person accrued prior to the date it became a Restricted Subsidiary of Borrower or is
merged into or consolidated with Borrower.

     “Net Proceeds” means cash proceeds received by Borrower or any of its Subsidiaries
from any Asset Disposition (including insurance proceeds, awards of condemnation, and payments
under notes or other debt securities received in connection with any Asset Disposition), net of (a)
the costs of such sale, lease, transfer or other disposition (including taxes attributable to such
sale, lease or transfer) and (b) amounts applied to repayment of Indebtedness (other than the
Obligations) secured by a Lien on the asset or property disposed.

     “New Zealand Restricted Subsidiary” means Portola (ANZ) Limited, a corporation
organized under the laws of New Zealand.

     “Non-Debtor Loan Parties” means, collectively, Canadian Restricted Subsidiary, UK
Restricted Subsidiary, and Mexican Restricted Subsidiary.

     “Non-Debtor Loan Party Material Adverse Effect” means a material adverse effect upon
any of (a) the business, operations, properties, assets or condition (financial or otherwise) of
Borrower and its Restricted Subsidiaries taken as a whole, (b) the ability of the Loan Parties to
repay in full in cash the Loans and other Obligations in accordance with this Agreement, the other
Loan Documents and the Restructuring Support Agreement, (c) the validity, enforceability,
perfection or priority of any lien granted to Collateral Agent or Pre-Petition Agent with respect
to the Collateral taken as a whole or the priority of such Liens on the Collateral taken as a
whole, or (d) Agent’s or any Lender’s rights and remedies under this Agreement and the other Loan
Documents taken as a whole. In determining whether any individual event would result in a
Non-Debtor Loan Party Material Adverse Effect, notwithstanding that such event does not of

77

 

itself have such effect, a Non-Debtor Loan Party Material Adverse Effect shall be deemed to
have occurred if the cumulative effect of such event and all other then existing events would
result in a Non-Debtor Loan Party Material Adverse Effect.

     “Note” or “Notes” means one or more of the promissory notes of Borrower
substantially in the form of Exhibit 11.1(B), or any combination thereof.

     “Obligations” means all obligations, liabilities and indebtedness of every nature of
each Loan Party from time to time owed to Agents or any Lender under the Loan Documents including,
without limitation, the principal amount of all debts, claims and indebtedness, accrued and unpaid
interest, all reimbursement obligations in respect of any Interest Rate Agreements, and all fees,
costs and expenses, whether primary, secondary, direct, contingent, fixed or otherwise, heretofore,
now and/or from time to time hereafter owing, due or payable whether before or after the filing of
a proceeding under any Bankruptcy Law by or against Borrower, any of its Subsidiaries or any other
Loan Party.

     “Operating Cash Flow” means, for any period (a) EBITDA for such period, less (b)
Unfinanced Capital Expenditures for such period, less (c) all Investments made in cash by Borrower
or any of its Restricted Subsidiaries during such period (other than Investments made in Borrower
by a Restricted Subsidiary of Borrower), less (d) Other Capitalized Costs.

     “Other Capitalized Costs” means the gross amount capitalized, for such period, as long
term assets (net of cash received in respect of long term assets), other than Capital Expenditures.

     “Outside Date” mean the seventieth (70th) day following the Filing Date.

     “Paid in Full” and “Payment in Full” shall have the meanings set forth in the
Intercreditor Agreement.

     “Permitted Priority Liens” shall have the meaning set forth in subsection 3.2(A).

     “Person” means and includes natural persons, corporations, limited liability
companies, limited partnerships, limited liability partnerships, general partnerships, joint stock
companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and governments and agencies
and political subdivisions thereof and their respective permitted successors and assigns (or in the
case of a governmental person, the successor functional equivalent of such Person).

     “Personal Property Security Legislation” means any applicable personal property
security legislation as all such legislation now exists or may from time to time hereafter be
amended, modified, recodified, supplemented or replaced, together with all rules, regulations
thereunder or related thereto.

     “Plan of Reorganization” means the Debtors’ Pre-Packaged Joint Plan of Reorganization
Pursuant to Chapter 11 of the United States Bankruptcy Code dated August 4, 2008.

     “Portola Allied Tool” means Portola Allied Tool, Inc., a Delaware corporation.

78

 

     “PPSA” means the Personal Property Security Act (Ontario) as such legislation now
exists or may from time to time hereafter be amended, modified, recodified, supplemented or
replaced, together with all rules, regulations thereunder or related thereto. Reference to sections
of the PPSA shall be construed to also refer to any successor sections.

     “Pre-Petition Facility” means the credit facility provided pursuant to the
Pre-Petition Loan Agreement.

     “Pre-Petition Loan Agreement” shall have the meaning set forth in the preamble hereto.

     “Pre-Petition Loan Agreement Claims” means all claims arising under or pursuant to the
Pre-Petition Loan Agreement, the Pre-Petition Security Agreement and the Intercreditor Agreement
that remain unpaid and outstanding as of the Effective Date.

     “Pre-Petition Security Agreement” means those separate security agreements, hypothecs
and debentures executed by Borrower and its Restricted Subsidiaries in favor of Wayzata in
connection with the Pre-Petition Facility.

     “Priority Professional Expenses” means those expenses entitled to a priority as set
forth in the definition of the term “Professional Fee Carve-Out” in sub-clause (iii) of clause
“first” of the definition of the term “Agreed Administrative Expense Priorities”.

     “Pro Rata Share” means a Lender’s right to receive payments of interest and principal
with respect to the Term Loans, except as otherwise provided in subsection 8.5(A), the percentage
obtained by dividing (i) the outstanding amount of the Term Loans made by or assigned to such
Lender by (ii) the outstanding amount of the Term Loans, in each case as the applicable percentages
may be adjusted by assignments permitted pursuant to subsection 8.1. The Pro Rata Shares of each
Lender as of the Effective Date are set forth on Schedule 1.1(A) hereto.

     “Proceeds” means all proceeds of, and all other profits, rentals or receipts, in
whatever form, arising from the collection, sale, lease, exchange, assignment, licensing or other
disposition of, or realization upon, any Collateral including, without limitation, all claims
against third parties for loss of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance with respect to any Collateral, and any
condemnation or requisition payments with respect to any Collateral, in each case whether now
existing or hereafter arising.

     “Professional Fees” shall have the meaning set forth in subsection 1.3(B).

     “Projected Aggregate Collections” means, as of any day or with respect to any period,
the sum total of line items designated in the “Receipts” section of the Approved Budget as of such
date or for such period.

     “Projected Aggregate Disbursements” means, as of any day or with respect to any
period, the line item designated as “Total Disbursements” in the Approved Budget as of such date or
for such period.

79

 

     “Projected Net Cash Flow Before Borrowings” means, as of any day or with respect to
any period, the sum of the line items designated as “Net Cash Flow Before Borrowings” in the
Approved Budget as of such date or for such period.

     “Projections” means the Borrower’s forecasted: (a) Consolidated balance sheets; (b)
Consolidated and consolidating profit and loss statements; (c) Consolidated cash flow statements;
and (d) Consolidated capitalization statements, all prepared on a consistent basis with the
Borrower’s historical financial statements, together with appropriate supporting details and a
statement of underlying assumptions.

     “Public Equity Offering” means a bona fide underwritten sale of common stock of
Borrower pursuant to a registration statement (other than on Form S-8 or any other form relating to
securities issuable under any benefit plan of Borrower or its Subsidiaries) that is declared
effective by the Securities and Exchange Commission.

     “Reaffirmation and Forbearance Agreement” means that certain Reaffirmation of Existing
Credit Support Documents and Forbearance Agreement, dated as of August ___, 2008, among the
Non-Debtor Loan Parties, the Borrower, Portola Allied Tool, Tech Industries and the Administrative
Agent.

     “Real Estate” means all now or hereafter owned or leased estates in real property,
including, without limitation, all fees, leaseholds and future interests, together with all now or
hereafter owned or leased interests in the improvements and emblements thereon, the fixtures
attached thereto and the easements appurtenant thereto.

     “Register” shall have the meaning set forth in subsection 8.1(B).

     “Regulation U” means Regulation U of the Board of Governors of the Federal Reserve
System of the United States or any successor regulation, as the same may be amended or supplemented
from time to time.

     “Related Fund” shall have the meaning set forth in subsection 8.1(G).

     “Release” means any release, known threatened release, spill, emission, leaking,
pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal,
dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment,
including the movement of Hazardous Material through or in the air, soil, surface water, ground
water or property.

     “Requisite Lenders” means Lenders having sixty-six and two-thirds percent (66-2/3%) or
more of the aggregate outstanding principal balance of the Term Loans.

     “Restricted Subsidiary” means any Subsidiary of Borrower, whether existing on or after
the date hereof, unless such Subsidiary is an Unrestricted Subsidiary or is designated an
Unrestricted Subsidiary prior to the date it becomes a Subsidiary. As of the Effective Date, each
of Canadian Restricted Subsidiary, China Restricted Subsidiary, Czech Restricted Subsidiary, Hong
Kong Restricted Subsidiary, U.K. Restricted Subsidiary, Mexican Restricted Subsidiary,

80

 

New Zealand Restricted Subsidiary, Portola Allied Tool and Tech Industries are deemed a
Restricted Subsidiary.

     “Restructuring Support Agreement” means the Restructuring Support Agreement dated as
of July 24, 2008 among the Borrower, General Electric Capital Corporation, the Administrative
Agent, the Lenders, TCW Shared Opportunity Fund IV, LP, TCW Shared Opportunity Fund IVB, LP and TCW
Shared Opportunity Fund V, LP, as amended, supplemented or restated from time to time.

     “Security Agreement” means those separate security agreements, hypothecs and
debentures executed by Borrower, the Guarantors and its Restricted Subsidiaries in favor of
Collateral Agent, and securing Borrower’s, the Guarantors’ and its Restricted Subsidiaries’
Obligations hereunder and under the Loan Documents.

     “Security Documents” means, collectively, the US Security Documents, the UK Security
Documents, the Canadian Security Documents and the Mexican Security Documents.

     “Senior DIP Credit Agreement” means that certain Fifth Amended and Restated Senior
Post-Petition Credit Agreement, dated as of August 27, 2008, by and among the Borrower, the lenders
party thereto and the Senior DIP Lenders’ Agent.

     “Senior DIP Debt Loan Documents” means the “First Lien Documents,” as defined in the
Intercreditor Agreement, as amended from time to time as permitted under the Intercreditor
Agreement.

     “Senior DIP Debt” means the “First Lien Obligations,” as such term is defined in the
Intercreditor Agreement, in respect of the Senior DIP Credit Agreement.

     “Senior DIP Event of Default” means an “Event of Default” under and as defined in the
Senior DIP Credit Agreement.

     “Senior DIP Lenders’ Agent” means the “First Lien Agent,” as such term is defined in
the Intercreditor Agreement.

     “Senior DIP Lenders” means the “First Lien Creditors,” as such term is defined in the
Intercreditor Agreement.

     “Senior Note Documents” means the Senior Note Indenture and the other documents,
instruments and agreements executed or delivered in connection with the issuance of the Senior
Notes.

     “Senior Note Indenture” means that certain Indenture dated as of January 23, 2004,
between Borrower and the Senior Note Trustee, as amended, supplemented or restated from time to
time.

     “Senior Note Trustee” means, US Bank National Association, as trustee for the holders
of the Senior Notes.

81

 

     “Senior Notes” means Borrower’s Senior Notes issued under the Senior Note Indenture in
an aggregate principal amount of $180,000,000.

     “Senior Secured Debt” means “First Lien Obligations,” as such term is defined in the
Intercreditor Agreement, in respect of the “Prepetition First Lien Loan Agreement,” as such term is
defined in the Intercreditor Agreement.

     “Subordinated Indebtedness” means Indebtedness of Borrower or any of its Restricted
Subsidiaries that is subordinated in right of payment to the Obligations on terms reasonably
satisfactory to Administrative Agent.

     “Subsidiary” means, with respect to any Person, any corporation, partnership, limited
liability company, association or other business entity of which more than fifty percent (50%) of
the total voting power of shares of stock (or equivalent ownership or controlling interest)
entitled (without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person or a combination thereof.

     “Tech Industries” means Portola Tech International, Inc., a Rhode Island corporation.

     “Term Loan Commitment” shall have the meaning set forth in subsection 1.1(A).

     “Term Loans” shall have the meaning set forth in subsection 1.1(A).

     “UK Restricted Subsidiary” means, collectively, Portola Packaging Limited, a
corporation organized under the laws of England and Wales, and Portola Limited, a corporation
organized under the laws of England and Wales.

     “UK Security Documents” means all instruments, documents and agreements executed by or
on behalf of UK Restricted Subsidiary or any other Person to guaranty or provide collateral
security with respect to the Obligations of Borrower including, without limitation, the Security
Agreement, any other security agreement or pledge agreement, any guaranty of the Obligations
(including, without limitation, the Guaranties), any mortgage or deed of trust, and all
instruments, documents and agreements executed pursuant to the terms of the foregoing.

     “Unfinanced Capital Expenditures” means, for any period (a) Capital Expenditures for
such period, less (b) the portion of such Capital Expenditures financed under capital leases or
other Indebtedness.

     “Uniform Commercial Code” has the meaning specified therefor in subsection 11.2.

     “Unrestricted Subsidiary” means (a) those Subsidiaries designated as Unrestricted
Subsidiaries on Subschedule 7.7, (b) any Subsidiary of Borrower which at the time of determination
is designated an Unrestricted Subsidiary (as designated by the Board of Directors of Borrower as
provided below) and (c) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors of
Borrower may designate any Subsidiary (other than Canadian Restricted Subsidiary, China Restricted
Subsidiary, Czech Restricted Subsidiary, Hong Kong Restricted Subsidiary, U.K. Restricted
Subsidiary, Mexican Restricted Subsidiary, New Zealand Restricted

82

 

Subsidiary, Portola Allied Tool or Tech Industries) as an Unrestricted Subsidiary so long as
(x) neither Borrower nor any Restricted Subsidiary is directly or indirectly liable for any
Indebtedness or any other obligation or liability of such Subsidiary, (y) no default with respect
to any Indebtedness or any other obligation or liability of such Subsidiary would permit (upon
notice, lapse of time or otherwise) any holder of any other Indebtedness or any other obligation or
liability of Borrower or any Restricted Subsidiary to declare a default on such other Indebtedness,
obligation or liability of Borrower or a Restricted Subsidiary or cause the payment thereof to be
accelerated or payable prior to its stated maturity; and (z) neither Borrower nor any Restricted
Subsidiary shall have made any Investment in such Subsidiary unless such Investment is permitted
under subsection 3.3. Any such designation by the Board of Directors shall be evidenced by a
resolution of the Board of Directors delivered to Administrative Agent. The Board of Directors of
Borrower may designate any Unrestricted Subsidiary as a Restricted Subsidiary at any time in the
same manner as it would designate a Subsidiary as an Unrestricted Subsidiary, so long as
immediately after such designation as a Restricted Subsidiary, there would be no Default or Event
of Default hereunder.

     “US Dollar”, “Dollar” or “$” means, unless otherwise qualified,
dollars in lawful currency of the United States of America.

     “US Security Documents” means all instruments, documents and agreements executed by or
on behalf of Borrower or any other Person to guaranty or provide collateral security with respect
to the Obligations of Borrower including, without limitation, the Security Agreement, any other
security agreement or pledge agreement, any guaranty of the Obligations (including, without
limitation, the Guaranties), any mortgage or deed of trust, and all instruments, documents and
agreements executed pursuant to the terms of the foregoing.

     11.2 Other Definitional Provisions. References to “Sections”, “subsections”, “Exhibits,”
“Schedules” and “subschedules” shall be to Sections, subsections, Exhibits, Schedules and
subschedules, respectively, of this Agreement unless otherwise specifically provided. Any of the
terms defined in subsection 11.1 may, unless the context otherwise requires, be used in the
singular or the plural depending on the reference. References to an agreement shall include all
amendments, restatements, modifications and supplements to such agreement, subject to such consents
or approvals of applicable Agent or any Lenders as may be required by the terms of this Agreement.
In this Agreement, “hereof,” “herein,” “hereto,” “hereunder” and the like mean and refer to this
Agreement as a whole and not merely to the specific section, paragraph or clause in which the
respective word appears; words importing any gender include the other gender; references to
“writing” include printing, typing, lithography and other means of reproducing words in a tangible
visible form; the words “including,” “includes” and “include” shall be deemed to be followed by the
words “without limitation”; references to agreements and other contractual instruments shall be
deemed to include subsequent amendments, assignments, and other modifications thereto, but only to
the extent such amendments, assignments and other modifications are not prohibited by the terms of
this Agreement or any other Loan Document; references to Persons include their respective permitted
successors and assigns or, in the case of governmental Persons, Persons succeeding to the relevant
functions of such Persons; and all references to statutes and related regulations shall include any
amendments of same and any successor statutes and regulations. Unless otherwise expressly provided
herein, each accounting term used herein shall have the meaning given it under GAAP applied on a
basis consistent with

83

 

those used in preparing the financial statements of the Borrower and its Subsidiaries. All terms
used in this Agreement which are defined in Article 8 or Article 9 of the Uniform Commercial Code
as in effect in the State of New York (the “Uniform Commercial Code”) and which are not
otherwise defined herein shall have the same meanings herein as set forth therein.

[Signature pages follow.]

84

 

     Witness the due execution hereof by the respective duly authorized officers of the undersigned
as of the date first written above.

	 	 	 	 	 	 	 
	 	 	PORTOLA PACKAGING, INC., as Borrower	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 

	 	 
	 

	 	Title:	 	 	 	 

Signature Page to Amended and Restated Credit Agreement

85

 

	 	 	 	 	 	 	 
	 	 	WAYZATA INVESTMENT PARTNERS LLC, as Administrative Agent
and Collateral Agent	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	WAYZATA RECOVERY FUND LLC, as Lender	 	 
	 
	 	 	 	 	 	 
	 	 	By: Wayzata Investment Partners LLC, its manager	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	WAYZATA OPPORTUNITIES FUND II, L.P., as Lender	 	 
	 
	 	 	 	 	 	 
	 	 	By: WOF II GP, L.P., its General Partner	 	 
	 
	 	 	 	 	 	 
	 	 	By: WOF II GP, LLC, its General Partner	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:	 	 	 	 

86

 

LIST OF EXHIBITS AND SCHEDULES

Exhibits

	 	 	 	 	 
	Exhibit 1.1(D)

	 	-
	 	Form of Borrowing Notice
	 	 	 	 	 
	Exhibit 4.2 (D)

	 	-
	 	Compliance Certificate
	 	 	 	 	 
	Exhibit 11.1(A)

	 	-
	 	Assignment and Acceptance Agreement
	 	 	 	 	 
	Exhibit 11.1(B)

	 	-
	 	Form of Term Note
	 
	 	 	 	 
	Annexes
	 	 	 	 
	 
	 	 	 	 
	Annex I

	 	-
	 	Approved Budget
	 	 	 	 	 
	Annex II

	 	-
	 	Permitted Priority Liens
	 	 	 	 	 
	Annex III

	 	-
	 	Financial Ratios
	 	 	 	 	 
	Annex IV

	 	-
	 	Form of Interim Financing Order
	 
	 	 	 	 
	Schedules
	 	 	 	 
	 
	 	 	 	 
	Schedule 1.1(A)

	 	-
	 	Lenders and Pro Rata Shares of Term Loans
	 	 	 	 	 
	Schedule 2.10

	 	-
	 	Post-Closing Obligations
	 	 	 	 	 
	Schedule 3.1

	 	-
	 	Existing Indebtedness
	 	 	 	 	 
	Schedule 3.2(A)(10)

	 	-
	 	Liens
	 	 	 	 	 
	Schedule 3.4

	 	-
	 	Contingent Obligations
	 	 	 	 	 
	Schedule 3.8

	 	-
	 	Affiliate Transactions
	 	 	 	 	 
	Schedule 3.9

	 	-
	 	Business Description
	 	 	 	 	 
	Schedule 5.4(A)

	 	-
	 	Jurisdictions of Organization and Qualifications
	 	 	 	 	 
	Schedule 5.4(B)

	 	-
	 	Capitalization
	 	 	 	 	 
	Schedule 5.6

	 	-
	 	Title to Properties, Etc.
	 	 	 	 	 
	Schedule 5.7

	 	-
	 	Intellectual Property

1

 

	 	 	 	 	 
	Schedule 5.8

	 	-
	 	Investigations and Audits
	 	 	 	 	 
	Schedule 5.9

	 	-
	 	Employee Matters
	 	 	 	 	 
	Schedule 5.11

	 	-
	 	Environmental Matters
	 	 	 	 	 
	Schedule 7.1

	 	-
	 	Conditions Precedent
	 	 	 	 	 
	Schedule 7.1(G)

	 	-
	 	Deliverables
	 	 	 	 	 
	Schedule 7.1(I)

	 	-
	 	Litigation
	 	 	 	 	 
	Subschedule 7.4

	 	-
	 	Investments
	 	 	 	 	 
	Subschedule 7.7

	 	-
	 	Subsidiaries

2ex10_1.htm

    Exhibit
10.1

    
 

    Execution
Version

    Lexmark
International, Inc.

    One
Lexmark Centre Drive

    740 West
New Circle Road

    Lexington,
KY  40550

                                                  August 28, 2008

    

    Re: Accelerated Share
Repurchase

     

    Ladies
and Gentlemen:

    

    This letter (the “Letter Agreement”)
sets forth the agreement we have reached with respect to a transaction between
Citibank, N.A. (“Citibank”), and Lexmark International,
Inc (the “Company”) in relation
to shares of the Company’s common stock, par value USD 0.01 (the “Common
Stock”).

    

    I.  Definitions

    

    As used
in this Letter Agreement, the following terms shall have the following
meanings:
 

    “Bankruptcy Code” has
the meaning specified in Section XV.

    

    “Cash Tender
Termination” has the meaning specified in Section VIII(a).

    

    “Corporate Event
Termination” has the meaning specified in Section VIII(b).

    

    “Defaulting Party” has
the meaning specified in Section IX.

    

    “Delisting
Termination” has the meaning specified in Section VIII(c).

    

    “Discount Per Share”
means an amount in U.S. dollars specified in Schedule I.

    

    “Disrupted Day” means
a Trading Day on which a Market Disruption Event occurs.

    

    “Dividend Event
Termination” has the meaning specified in Section VII(b).

    

    “Exchange” means New
York Stock Exchange or any successor exchange.

    

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

    

    “Expected Dividend
Amount” has the meaning specified in Section VII(a).

    

    “Indemnified Party”
has the meaning specified in Section XIV.

    

    “Initial Pricing Period
Termination Date” means the date specified in Schedule I.

    

    “Initial Settlement
Date” has the meaning specified in Section II(b).

    

    “Initial Share Price”
has the meaning specified in Section II(a).

    

    “Loss” has the meaning
specified in Section X(a).

    
      
      

      
        

      

    

    
      

    

     

    “Loss Notice” has the
meaning specified in Section X(a).

    

    “Loss of Borrow
Termination” has the meaning specified in Section VI(b).

    

    “Market Disruption
Event” means any (i) suspension of or limitation imposed on trading by
any exchange or market on which the Common Stock is listed for trading, (ii)
event that disrupts or impairs (in the reasonable business judgment of Citibank)
the ability of market participants in general to effect transaction in, or
obtain market values for, the shares of Common Stock or futures or options
contracts relating to the Common Stock or (iii) material decrease, on any
Trading Day, in the trading volume for the Common Stock such that in the
reasonable business judgment of Citibank it cannot purchase the contemplated
number of shares for such Trading Day.

    

    “Maximum Borrow Cost”
means 50 basis points per annum based on the closing price per share of Common
Stock on the Trading Day immediately preceding the relevant day.

    

    “Non-Defaulting Party”
has the meaning specified in Section IX.

    

    “Number of Initial
Shares” has the meaning specified in Section II(b).

    

    “Number of Shares” has
the meaning specified in Section II(a).

    

    “Payment Amount” has
the meaning specified in Section III(b).

    

    “Pricing Period” means
the period of consecutive Trading Days commencing on the Pricing Period
Commencement Date and ending on the Pricing Period Termination Date; provided that the
Pricing Period may be extended by Citibank upon the occurrence of a Market
Disruption Event.

    

    “Pricing Period Commencement
Date” means August 29, 2008.

    

    “Pricing Period Termination
Date” means the earlier of (a) the Scheduled Pricing Period Termination
Date, or (b) any Trading Day occurring on or following the Initial Pricing
Period Termination Date and immediately preceding any Trading Day, on which
Citibank shall notify the Company, prior to the close of regular trading on the
Exchange on such Trading Day, of its intention to terminate the Pricing Period;
provided that,
for the avoidance of doubt, any date relating to the termination of the
Transaction and designated as such pursuant to Section X of this Letter
Agreement shall not be deemed the Pricing Period Termination Date and
accordingly the settlement of the Transaction shall be governed by such Section
X and not by provisions of Section III of this Letter Agreement.

    

    “Private Placement
Agreement” has the meaning set forth in Annex B hereto.

     

    “Private Placement
Price” has the meaning set forth in Annex B hereto.

     

    “Private Placement
Settlement” has the meaning set forth in
Section  III(b).

     

    “Private Securities”
has the meaning set forth in Annex B hereto.

     

    “Prospectus” has the
meaning specified in Annex A hereto.

    

    “Purchase Date” has
the meaning specified in Section II(a).

    

    “Purchase Price” has
the meaning specified in Section II(a).

    

    “Registered
Settlement” has the meaning set forth in
Section  III(b).

    

    “Registration
Statement” has the meaning specified in Annex A hereto.

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    “Regulation M” means
Regulation M under the Exchange Act.

    

    “Remaining Share
Amount” for any Trading Day equals (i) the Number of Initial Shares,
minus (ii) the
cumulative number of shares of Common Stock that Citibank has repurchased to
cover its short position in respect of this Transaction.  For the
avoidance of doubt, such shares shall be considered repurchased by Citibank as
of the Trading Day on which such transactions settle.

    

    “Rule 10b-18” means
Rule 10b-18 under the Exchange Act.

    

    “Rule 10b-18 VWAP”
means, for any Trading Day, the volume-weighted average price at which the
Common Stock trades as reported in the composite transactions for the principal
U.S. securities exchange on which such Common Stock is then listed on such
Trading Day, excluding (i) trades that do not settle regular way, (ii) opening
(regular way) reported trades in the consolidated system on such Trading Day,
(iii) trades that occur in the last ten minutes before the scheduled close of
trading on the Exchange on such Trading Day and ten minutes before the scheduled
close of the primary trading in the market where the trade is effected, and (iv)
trades on such Trading Day that do not satisfy the requirements of Rule
10b-18(b)(3) of the Exchange Act, as determined in good faith by
Citibank.  The Company acknowledges that Citibank may refer to the
Bloomberg Page “LXK.N <Equity> AQR SEC” (or any successor thereto), in its
judgment, for such Trading Day to determine the Rule 10b-18 VWAP.

    

    “SEC” has the meaning
specified in Annex A hereto.

    

    “Scheduled Pricing Period
Termination Date” means the date specified in Schedule I; provided that, the
Scheduled Pricing Period Termination Date may be postponed by Citibank upon the
occurrence of a Market Disruption Event on any scheduled Trading Day during the
Pricing Period.

    

    “Securities Act” means
the Securities Act of 1933, as amended.

    

    “Settlement Date”
means the fourth Trading Day immediately following the last day of the Pricing
Period.

    

    “Settlement Number”
means (a) the Purchase Price divided by the
Settlement Price, minus (b) the Number
of Initial Shares.

    

    “Settlement Price”
means (i) the average of the Rule 10b-18 VWAP prices for all Trading Days during
the Pricing Period minus (ii) the
Discount Per Share.

    

    “Share Cap” means, as
of any date of determination, ten (10) times the Number of Initial Shares minus
the number of shares of Common Stock delivered by the Company to Citibank on or
prior to such date hereunder (in each case subject to adjustment pursuant to
Section VI(b) and VIII).

    

    “Trading Day” means
any day (i) other than a Saturday, a Sunday or a Disrupted Day, and (ii) on
which the Exchange is open for trading during its regular trading session,
notwithstanding the Exchange closing prior to its scheduled closing
time.

    

    “Transaction” means
the transaction contemplated by this Letter Agreement.

    

    “Transfer Agreement”
has the meaning specified in Annex A hereto.

    

    “Valuation Period”
means a period commencing on the first Trading Day immediately following the
last Trading Day of the Pricing Period and ending on the Trading Day on which
Citibank completes its purchase of a number of shares of Common Stock equal to
the Settlement Number, pursuant to Section III(b), and as determined in good
faith by Citibank in consultation with the Company.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

    

    

    II.  Initial
Shares

    

    (a)           Purchase.  Subject
to the terms and conditions of this Letter Agreement, the Company agrees to
purchase from Citibank, and Citibank will sell to the Company, on the date
hereof or on such other Trading Day as the Company and Citibank shall otherwise
agree (the “Purchase
Date”), for a single aggregate price of $150,000,000 (the “Purchase Price”),
4,065,041 shares of Common Stock (“Number of Shares”)
and, if the Settlement Number is greater than zero, additional number of shares
of Common Stock equal to such Settlement Number.  Citibank will hedge
this Transaction by entering into a short sale with respect to the Number of
Initial Shares effected at the closing price per share of Common Stock on the
Purchase Date (the “Initial Share
Price”).  Such purchase, sale and hedge shall be effected in
accordance with Citibank’s customary procedures.

    

    (b)           Initial
Settlement.  On the third Trading Day immediately following the
Purchase Date (the “Initial Settlement
Date”), Citibank shall deliver to the Company, a number of Shares equal
to the product of (i) 85% and (ii) the Number of Shares (the “Number of Initial
Shares”), upon payment by the Company of the Purchase Price in U.S.
dollars.

    

    III.  Settlement

    

    (a)           Citibank Settlement
Obligation.  If, following the expiration of the Pricing
Period, the Settlement Number is greater than zero, on the Settlement Date,
Citibank shall transfer to the Company through its agent, for no additional
consideration, a number of shares of Common Stock equal to the Settlement
Number.

    

    (b)           Company Settlement
Obligation.  If, following the expiration of the Pricing
Period, the Settlement Number is less than zero, on the Settlement Date, (i) the
Company shall, in accordance with the provisions of this paragraph (b), transfer
to Citibank through its agent, for no additional consideration, a number of
shares of Common Stock equal to the absolute value of the Settlement Number or,
(ii) if the Company so elects pursuant to this paragraph, in lieu of such share
delivery, the Company shall make a cash payment to Citibank in an amount equal
to the absolute value of the Settlement Number multiplied by the
weighted average purchase price at which Citibank purchases shares of Common
Stock equal to the Settlement Number during the Valuation Period (the “Payment Amount”), to
be paid on the Trading Day immediately following the last day of the Valuation
Period; provided that, for
the avoidance of doubt, in accordance with the calculation of the Settlement
Number, in calculating any corresponding settlement obligations of the parties,
Citibank shall take into consideration the actual payments and deliveries made
by the parties on the Initial Settlement Date for the
Transaction.  The Company shall notify Citibank in writing of its
election (i) to pay the absolute value of the Settlement Number in cash or,
(ii) to effect the delivery of the Settlement Number of shares in accordance
with Annex A (“Registered
Settlement”) or Annex B (“Private Placement
Settlement”) to this Letter Agreement; provided that (A) the
failure to make an election and notify Citibank in accordance with the preceding
sentence with respect to matters described in clause (i), shall constitute an
irrevocable election by the Company to deliver shares, and, (B) the failure to
make an election and notify Citibank with respect to matters described in clause
(ii), shall constitute an election of “Private Placement
Settlement”.

    

    (c)   Delivery
Limitation.  Notwithstanding anything to the contrary in this
Letter Agreement, the Company acknowledges and agrees that, on any day, Citibank
(or its agent or affiliate) shall not be obligated to deliver or receive any
shares of Common Stock to or from the Company and the Company shall not be
entitled to receive any shares of Common Stock if such receipt or delivery would
result in Citibank directly or indirectly beneficially owning (as such term is
defined for purposes of Section 13(d) of the Exchange Act) at any time in excess
of 4.9% of the outstanding shares of Common Stock.  Any purported
receipt or delivery of shares of Common Stock shall be void and have no effect
to the extent (but only to the extent) that any receipt or delivery of such
shares of Common Stock would result in Citibank directly or indirectly so
beneficially owning in excess of 4.9% of the outstanding shares of Common
Stock.  If, on any day, any delivery or receipt of shares of Common
Stock by Citibank (or its agent or affiliate) is not effected, in whole or in
part, as a result of this provision, Citibank’s and the Company’s respective
obligations to make or accept such receipt or delivery shall not be extinguished
and such receipt or delivery 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

       

       

      shall be
effected over time as promptly as Citibank reasonably determines that such
receipt or delivery would not result in Citibank directly or indirectly
beneficially owning in excess of 4.9% of the outstanding shares of Common
Stock.

    

    

    (d)   Company Settlement
Representations.  The Company represents and warrants, as of
the Pricing Period Termination Date, that each of its filings under the
Securities Act, the Exchange Act or other applicable securities laws that are
required to be filed have been filed and that, as of the date of this
representation, there is no misstatement of material fact contained therein or
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading in the circumstances under which they were
made.

    

    IV.  Citibank
Purchases

    

    (a)   Manner of
Purchases.  During the Pricing Period or, if applicable, the
Valuation Period, Citibank (or its agent or affiliate) may purchase shares of
Common Stock in connection with this Transaction.  The timing of such
purchases by Citibank, the price paid per share of Common Stock pursuant to such
purchases and the manner in which such purchases are made, including without
limitation whether such purchases are made on any securities exchange or
privately, shall be within the sole judgment of Citibank; provided that, during
the Valuation Period, Citibank will use good faith efforts to make all purchases
of Common Stock in connection with this Transaction in a manner that would
comply with the limitations set forth in clauses (b)(2), (b)(3), (b)(4) and (c)
of Rule 10b-18 as if such rule were applicable to such purchases. 

    

    (b)   10b5-1
Plan.  The Company acknowledges and agrees that (i) all
purchases pursuant to this Section IV hereunder shall be made in Citibank’s sole
discretion and for Citibank’s own account and (ii) the Company does not have,
and shall not attempt to exercise, any influence over how, when or whether to
make such purchases, including, without limitation, the price paid per share of
Common Stock pursuant to such purchases whether such purchases are made on any
securities exchange or privately.  It is the intent of the Company and
Citibank that this Transaction comply with the requirements of Rule 10b5-1(c) of
the Exchange Act and that this Letter Agreement shall be interpreted to comply
with the requirements of Rule 10b5-1(c)(1)(i)(B) and Citibank shall take no
action that results in the transaction not so complying with such
requirements.

    

    (c)   Regulatory
Suspension.  In the event that Citibank reasonably concludes in
good faith, that it is appropriate with respect to any legal, regulatory or
self-regulatory requirements or related policies and procedures (whether or not
such requirements, policies or procedures are imposed by law or have been
voluntarily adopted by Citibank), or due to any Market Disruption Event, for it
to refrain from purchasing Common Stock on any Trading Day during the Pricing Period, the Pricing Period shall be suspended
for such day.  Citibank shall promptly notify the Company upon
exercising its rights pursuant to this Section IV(c) and shall subsequently
notify the Company in writing on the day Citibank believes that it may resume
purchasing Common Stock.  Citibank shall not be required to
communicate to the Company the reason for Citibank’s exercise of its rights
pursuant to this Section IV(c) if Citibank reasonably determines in good faith
that disclosing such reason may result in a violation of any legal, regulatory,
or self-regulatory requirements or related policies and procedures.

    

    V.  Company
Purchases

    

    The Company (including its “affiliated purchasers”, as defined in
Rule 10b-18) shall not, without a prior written consent of Citibank,
purchase any shares of Common Stock (or an
equivalent interest, or any security convertible into or exchangeable for such
shares) on
the open market, or enter into any accelerated share repurchase program, or any
derivative share repurchase transaction, or other similar transaction, during
the Pricing Period and thereafter until all payments or deliveries of shares
pursuant to Section III have been made.  During such time, any
purchases of Common Stock by the Company shall be made through Citibank or its
affiliates, subject to such reasonable conditions as Citibank or such affiliate
shall impose, and in compliance with Rule 10b-18 or otherwise in a manner that
the Company and Citibank believe is in compliance with applicable
requirements.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

    VI.  Borrow
Events

     

    (a)           Borrow Cost
Increase.  If at any time during this Transaction, Citibank
does not, after using commercially reasonable efforts, successfully borrow
Common Stock (up to a number equal to the Remaining Share Amount) on terms that
require Citibank to pay or bear costs in connection with such borrow in an
amount less than or equal to the Maximum Borrow Cost, then Citibank will act in
good faith and in a commercially reasonable manner to (a) make the corresponding
adjustment(s), if any, as Citibank determines appropriate (and in consultation
with the Company) to account for any excess borrowing costs and (b) determine
the effective date(s) of the adjustment(s).

     

    (b)           Loss of Borrow
Termination.  On any Trading Day, Citibank may elect to
terminate (“Loss of
Borrow Termination”) this Transaction, in whole or in part, as the case
may be, in the event and pro rata to the extent it is no longer able, after
commercially reasonable efforts, to borrow (or maintain a borrowing of),
including at a cost that may exceed the Maximum Borrow Cost, shares of Common
Stock in an amount equal to the Remaining Share Amount.  Upon the
occurrence of a Loss of Borrow Termination, an Event of Default shall be deemed
to have occurred with the Company deemed the Defaulting Party and Citibank, the
Non-Defaulting Party.

    

    VII.  Dividend
Event

    

    (a)           Dividend Amount. If
100% of the aggregate gross cash dividends per share of Common Stock (including
any cash extraordinary dividends) declared by the Company and for which the
ex-date occurs at any time during the Pricing Period exceeds $0.00 per share of
Common Stock (subject to adjustment in accordance with Section VIII) (the “Expected Dividend
Amount”) per calendar quarter, a Dividend Event shall be deemed to have
occurred.

    

    (b)           Dividend Event
Termination.  Upon the occurrence of a Dividend Event, on any
Trading Day on or after the occurrence of such Dividend Event, Citibank may
terminate this Transaction (a “Dividend Event
Termination”).  Upon the occurrence of a Dividend Event
Termination, an Event of Default shall be deemed to have occurred with the
Company deemed the Defaulting Party and Citibank, the Non-Defaulting
Party.

    

    VIII.  Extraordinary
Events

    

    (a)           
Tender
Offers.  In the event an offer is made to the holders of Common
Stock to tender in excess of 15% of the outstanding shares of Common Stock for
cash, Citibank may, in its reasonable discretion, (i) adjust the terms of this
Transaction, so that (x) the final day of the Pricing Period shall be the
earlier of the scheduled final Trading Day of the Pricing Period and the date
the tender offer is consummated and (y) for each of the Trading Days in the
Pricing Period following the date on which the offer is made, the price used in
computing the Settlement Price shall equal the price per share of Common Stock
at which the tender offer is to be consummated, where Citibank shall notify the
Company in writing as to the terms of any adjustment made pursuant to this
Section VIII(a) no later than 5 days after the tender offer is made or (ii)
elect to terminate this Transaction (a “Cash Tender
Termination”).  Upon the occurrence of a Cash Tender
Termination, an Event of Default shall be deemed to have occurred with the
Company deemed the Defaulting Party and Citibank, the Non-Defaulting
Party.

    

    (b)           
Corporate
Events.  In the event of any corporate event involving the
Company or the Common Stock not specifically addressed in subsection (a) of this
Section VIII (including, without limitation, the announcement of a non-cash
dividend, stock split, reorganization, merger, offer to tender Common Stock for
consideration other than cash, rights offering, recapitalization or spin-off) or
in the event that Citibank, in its reasonable good faith judgment, determines
that the adjustments described in subsection (a) of this Section VIII will not
result in an equitable adjustment of the terms of this Transaction, Citibank may
(i) adjust the terms of this Transaction (including, without limitation, with
respect to the Expected Dividend Amount and the number of Trading Days in the
Pricing Period) as in the exercise of its good faith judgment it deems
appropriate under the circumstances or (ii) elect to terminate this Transaction

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

       

      (a “Corporate Event
Termination”).  Upon the occurrence of a Corporate Event
Termination, an Event of Default shall be deemed to have occurred with the
Company deemed the Defaulting Party and Citibank, the Non-Defaulting
Party.

    

    

    (c)           Delisting.  In
the event that the Exchange announces that pursuant to the rules of such
Exchange, the Common Stock ceases (or will cease) to be listed, traded or
publicly quoted on the Exchange for any reason (other than the occurrence of an
event addressed in subsections (a) or (b) of this Section VIII) and are not
immediately re-listed, re-traded or re-quoted on an exchange or quotation system
located in the same country as the Exchange (or, where the Exchange is within
the European Union, in any member state of the European Union), Citibank may (i)
adjust the terms of this Transaction or (ii) elect to terminate this Transaction
(a “Delisting
Termination”).  Upon the occurrence of a Delisting Termination,
an Event of Default shall be deemed to have occurred with the Company deemed the
Defaulting Party and Citibank, the Non-Defaulting Party.

    

    IX.  Events of
Default

    

    In
addition to events contemplated by Sections VI(b), VII(b) and VIII, the
occurrence of any of the following events with respect to a party (such party,
the “Defaulting
Party” with respect to such event, and the other party, the “Non-Defaulting
Party”) shall be an Event of Default:

    

    (a)           Payment.  The
failure to make any payment or any delivery of shares pursuant to the terms of
the Letter Agreement.

    

    (b)           Breach.  Any
representation or warranty made in this Letter Agreement shall prove to have
been false in any material respect at the time it was made, given or
reaffirmed.

    

    (c)           Performance.  The
failure to perform or comply in any material respect with any other obligation
in this Letter Agreement which failure shall continue for 5 business days after
written notice of such failure has been sent to the Defaulting
Party.

    

    (d)           Insolvency.  (A)
The initiation of any case, proceeding or other action (1) under any existing or
future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or other relief of debtors, seeking to have an order
for relief entered with respect to it, or seeking to have itself adjudicated as
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution or composition or other relief under
bankruptcy or insolvency law with respect to it or its debts or (2) which seeks
appointment of a receiver, trustee, custodian, conservator or other similar
official for it or for all or any substantial part of its assets; (B) a general
assignment for the benefit of its creditors; (C) the initiation of any case,
proceeding or other action of a nature referred to in clause (A) hereof which
(1) results in the entry of an order for relief or any such adjudication or
appointment with respect to the party or any of its assets or (2) is not
dismissed, stayed, discharged or bonded for a period of 5 days; (D) the
initiation of any case, proceeding or other action seeking issuance of a warrant
of attachment, execution, or similar process against all or any substantial part
of its assets, which case, proceeding or other action results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 30 days from the entry thereof; (E) a
party shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clauses (A) - (D)
hereof; or (F) either party shall generally not, or shall admit in writing its
inability to, pay its debts as they become due.

    

    (e)           Cross-Default.  Any
loan or other obligation in respect of borrowed money (whether present or
future, contingent or otherwise, as principal or surety or otherwise) of a party
in an amount, in excess of $100,000,000 shall have become payable before the due
date thereof as a result of acceleration of maturity caused by the occurrence of
any event of default thereunder or if any other such loan or obligation shall
not be repaid when due, as extended by any applicable grace period specified in
the contracts or agreements constituting such loan or obligation.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    (f)           Merger,
Consolidation.  Any consolidation or amalgamation or merger
with or into, or any transfer of all or substantially all its assets (i) to
another entity by a party, resulting in the creditworthiness of the surviving or
transferee entity being materially weaker than that of the party immediately
prior to such action, or (ii) into any person unless the surviving person is the
Company or another person formed under the laws of a State of the United States
of America and such entity assumes or is responsible, by operation of law, for
all obligations of the Company hereunder.

    

    X.  Remedies

    

    (a)           Settlement Loss
Determination.  Upon the occurrence and the continuance of an
Event of Default, notwithstanding any other provision to the contrary in this
Letter Agreement, the Non-Defaulting Party, upon notice to the Defaulting Party,
may, in its sole discretion, immediately terminate this Transaction and, if
applicable, purchasing the number of Shares equal to the Remaining Share Amount
to cover its short position or adjusting any other term hereof, and may sell,
liquidate, offset or take any other action with respect to any short position
established or maintained by it in connection with this
Transaction.  The Non-Defaulting Party shall act in good faith and in
a commercially reasonable manner to determine the amount that such party
reasonably in good faith believes to be its total unreimbursed net losses and
costs (which may be positive or negative) incurred in connection with the
termination of this Letter Agreement (the “Loss”) and upon
completion of such determination shall deliver to the Defaulting Party a written
notice indicating the amount of such Loss (a “Loss
Notice”).  Such computation shall include any out-of-pocket
losses (which may include but not be limited to the difference between the
Initial Share Price and the average price at which the shares are purchased
during the term of this Transaction (as this Transaction may be terminated early
as a result of the operation of this Section X(a)) and any actual or anticipated loss or cost incurred as
a result of its terminating, liquidating, obtaining or reestablishing any hedge
or related trading position.  In addition to the foregoing, the
Non-Defaulting Party may include in its determination of its Loss hereunder such
losses and costs (or gains) in respect of any payment or delivery required to
have been made on or before the relevant termination date.  In
determining Loss, the Non-Defaulting Party may consider any relevant
information, including, without limitation, one or more of the following types
of information: (i) quotations (either firm or indicative) for replacement
transactions supplied by one or more third parties that may take into account
the creditworthiness of the Non-Defaulting Party at the time the quotation is
provided and the terms of any relevant documentation, including credit support
documentation, between the Non-Defaulting Party and the third party providing
the quotation; (ii) information consisting of relevant market data in the
relevant market supplied by one or more third parties including, without
limitation, relevant rates, prices, yields, yield curves, volatilities, spreads,
correlations or other relevant market data in the relevant market; or (iii)
information of the types described in clause (i) or (ii) above from internal
sources (including any of the Non-Defaulting Party’s affiliates) if that
information is of the same type used by the Non-Defaulting Party in the regular
course of its business for the valuation of similar transactions.  The
Non-Defaulting Party will consider, taking into account the standards and
procedures described in this paragraph, quotations pursuant to clause (i) above
or relevant market data pursuant to clause (ii) above unless the Non-Defaulting
Party reasonably believes in good faith that such quotations or relevant market
data are not readily available or would produce a result that would not satisfy
those standards.  When considering information described in clause
(i), (ii) or (iii) above, the Non-Defaulting Party may include costs of funding,
to the extent costs of funding are not and would not be a component of the other
information being utilized.  Third parties supplying quotations
pursuant to clause (i) above or market data pursuant to clause (ii) above may
include, without limitation, dealers in the relevant markets, end-users of the
relevant product, information vendors, brokers and other sources of market
information.  Notwithstanding the foregoing, and without affecting the
respective parties’ obligations to make payments in accordance with Section
X(b), upon reasonable written request by the Defaulting Party, the
Non-Defaulting Party shall provide a written explanation of any calculation or
adjustment made by it in connection with calculation of the Loss, including,
where applicable, a reasonable description of the methodology and the basis for
such calculation or adjustment in reasonable detail and shall consult with the
Defaulting Party with respect to the amount of such Loss, it being understood
that the Non-Defaulting Party shall not be obligated to disclose any proprietary
models used by it for such calculation.

    

    (b)           Payments.  Upon
receipt of a Loss Notice from the Non-Defaulting Party, (i) if the amount
determined in accordance with paragraph (a) above is a positive number, then the
Defaulting Party 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    shall
promptly pay to the Non-Defaulting Party, the amount of such Loss in cash or
(ii) if the amount determined in accordance with paragraph (a) above is a
negative number, then the Non-Defaulting Party shall promptly pay to the
Defaulting Party, the absolute value of the amount of such Loss in cash; provided that, in the
event the Company is the party owing the Loss amount, then this paragraph (b)
shall be subject to the terms of paragraphs (c) and (d) below.

    

    (c)   Loss Settlement
Election.  If the Company is the owing party in accordance with
paragraph (b) above, upon receipt of a Loss Notice from Citibank as the
Non-Defaulting Party, the Company may, in addition to its option to promptly pay
to Citibank the amount of such Loss in cash, elect to deliver to Citibank within
two Trading Days a number of shares of Common Stock equal to (i) the amount of
such Loss divided
by (ii) the closing price of the Common Stock on the Exchange for the day
upon which the Company receives such Loss Notice, rounded up to the nearest
whole share.  Such share delivery is subject to the provisions of the
last sentence of Section III(b); provided that, for
the avoidance of doubt, in calculating any settlement obligations of the parties
in accordance with this Section X, Citibank shall take into consideration the
actual payments and deliveries made by the parties on the Initial Settlement
Date for the Transaction; provided, further that in no
event shall the Company be required to deliver a number of shares of Common
Stock that exceeds the then applicable Share Cap.

    

    (d)   Costs and
Expenses.  In addition to the payments set forth in subsections
(b) and (c) above, the Defaulting Party agrees to indemnify the Non-Defaulting
Party from and against any reasonable expenses (including reasonable external
counsel fees and other expenses of collection) it may incur as a result of any
default by such party.

    

    XI.  Representations of the
Parties

    

    Each
party represents to the other party that:

     

    (a)           Status.  It
is duly organized and validly existing under the laws of the jurisdiction of its
organization or incorporation and, if relevant under such laws, in good
standing;

     

    (b)           Powers.  It
has the corporate or other organizational power to execute and deliver this
Letter Agreement and to perform its obligations under this Letter Agreement and
has taken all necessary action to authorize such execution, delivery and
performance;

     

    (c)           No Violation or
Conflict.  Such execution, delivery and performance do not
violate or conflict with any law applicable to it, any provision of its
constitutional documents, any order or judgment of any court or other agency of
government applicable to it or any of its assets or any contractual restriction
binding on or affecting it or any of its assets;

     

    (d)           Consents.  All
governmental and other consents that are required to have been obtained by it
with respect to this Letter Agreement have been obtained and are in full force
and effect and all conditions of any such consents have been complied
with;

     

    (e)           Obligations
Binding.  Its obligations under this Letter Agreement
constitute its legal, valid and binding obligations, enforceable in accordance
with its respective terms (subject to applicable bankruptcy, reorganization,
insolvency, moratorium or similar laws affecting creditors’ rights generally and
subject, as to enforceability, to equitable principles of general application
(regardless of whether enforcement is sought in a proceeding in equity or at
law)); and

     

    (f)           Absence of Certain
Events.  No Event of Default (as defined in the Agreement) or
event that, with the giving of notice or the passage of time or both, would
constitute an Event of Default has occurred and is continuing and no such event
or circumstance would occur as a result of its entering into or performing its
obligations under this Letter Agreement.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    XII.  Representations of the
Company

     

    The
Company additionally hereby represents on the Purchase Date to Citibank
that:

     

    (a)   Liquidity.  Its
financial condition is such that it has no need for liquidity with respect to
its investment in the transactions contemplated by this Letter Agreement and no
need to dispose of any portion thereof to satisfy any existing or contemplated
undertaking or indebtedness.  Its investments in and liabilities in
respect of such transactions, which it understands are not readily marketable,
is not disproportionate to its net worth;

    

    (b)   Private
Placement.  It acknowledges that
the offer and sale of this Transaction to
it is intended to be exempt from registration under the Securities Act, by
virtue of Section 4(2) thereof.  Accordingly, the Company represents
and warrants to Citibank that (i) it is an “accredited investor” as that term is
defined in Regulation D as promulgated under the Securities Act, (ii) it is
entering into this Transaction for its own
account and without a view to the distribution or resale thereof,
and it
understands that Citibank has no obligation or intention to register the
transactions contemplated by this Letter Agreement under the Securities Act or
any state securities law or other applicable federal securities
law;

    

    (c)   No Deposit
Insurance.  It understands
that no obligations of Citibank to it hereunder will be entitled to the benefit
of deposit insurance and that such obligations will not be guaranteed by any
affiliate of Citibank or any governmental agency;

    

    (d)   Assumption of
Risk.  IT UNDERSTANDS THAT THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT ARE SUBJECT TO COMPLEX RISKS THAT MAY ARISE WITHOUT WARNING AND
MAY AT TIMES BE VOLATILE AND THAT LOSSES MAY OCCUR QUICKLY AND IN UNANTICIPATED
MAGNITUDE AND IS WILLING TO ACCEPT SUCH TERMS AND CONDITIONS AND ASSUME
(FINANCIALLY AND OTHERWISE) SUCH RISKS;

    

    (e)   Compliance with Filing
Requirements.  Each of its filings under the Securities Act,
the Exchange Act, or other applicable securities laws that are required to be
filed have been filed and that, as of the respective dates thereof, there is no
misstatement of material fact contained therein or omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading

    

    (f)   Material Non-Public
Information.  It is not
entering into this Letter Agreement on the basis of, and is not aware of, any
material non-public information with respect to the Common Stock or in
anticipation of, in connection with, or to facilitate, a distribution of its
securities, a self tender offer or a third-party tender offer;

    

    (g)   No Manipulation.  It is not entering into any
transaction to create, and will not engage in any other securities or
derivatives transactions to create, actual or apparent trading activity in the
Common Stock (or any security convertible into or exchangeable for Common Stock)
or to raise or depress or to manipulate the price of the Common Stock (or any
security convertible into or exchangeable for Common Stock);

    

    (h)   Compliance with Securities
Laws.  It has not and will
not directly or indirectly violate any applicable law, rule or regulation
(including, without limitation, the Securities Act and the Exchange Act) in
connection with the transactions contemplated by this Letter
Agreement;

    

    (i)   Required Company
Approvals.  The transactions contemplated by this Letter
Agreement and any repurchase of Common Stock by the Company in connection with
such transactions are pursuant to a publicly announced share repurchase program
that has been approved by its Board of Directors and any such repurchase has
been or will when so required be publicly disclosed in its periodic filings
under the Exchange Act and its financial statements and notes thereto and, at
the time of making this representation, such transactions are not subject to any
internal policy or procedure of the Company which would prohibit the Company
from effecting any transactions in the shares of Common Stock at such
time;

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    (j)   Regulation
M.  The Company is not on the date hereof, and will not be
during the term of the transactions contemplated by this Letter Agreement,
engaged in a distribution, as such term is used in Regulation M under the
Exchange Act, that would preclude purchases by the Company of the Common Stock
or cause the Company to violate any law, rule or regulation with respect to such
purchases;

    

    (k)   Non-Reliance.  It
is not relying, and has not relied upon, Citibank or any of its affiliates with respect to the
legal, accounting, tax or other implications of this Letter Agreement and that
it has conducted its own analyses of the legal, accounting, tax and other
implications of this Letter Agreement.  Further, it acknowledges and agrees that neither Citibank nor any
affiliate of Citibank has acted as its advisor in any capacity in connection
with this Letter Agreement or the transactions contemplated
hereby.  The Company is entering into this Letter Agreement with a
full understanding of all of the terms and risks hereof (economic and
otherwise), has adequate expertise in financial matters to evaluate those terms
and risks and is capable of assuming (financially and otherwise) those
risks; and

    

    (l)   Acknowledgement of Citibank
Activity.  It understands and acknowledges that Citibank and
its affiliates may from time to time effect transactions for their own account
or the account of customers and hold positions in securities or options on
securities of the Company and that Citibank and its affiliates may continue to
conduct such transactions during the Pricing Period and the Valuation
Period.

    

    XIII.  Agreements of the
Company

    

    (a)   Authorized
Shares.  The Company agrees that while this Letter Agreement is
in effect, it shall cause (i) the number of authorized shares of Common
Stock minus
(ii) the number of outstanding shares of Common Stock minus (iii) the
number of shares of Common Stock reserved for other purposes minus
(iv) without duplication of clause (iii), the aggregate maximum number of
shares of Common Stock deliverable under warrants, options, swaps, forwards,
convertible or exchangeable securities or other similar transactions, agreements
or instruments issued by the Company or to which the Company is a party that
provide for physical or net share settlement or otherwise may require the
issuance of shares of Common Stock by the Company, to exceed the then applicable
Share Cap.  At the conclusion of the Pricing Period, the Company will
have a sufficient number of treasury shares or duly authorized but unissued
shares of Common Stock available to satisfy its obligations with respect to this
Transaction, such shares of Common Stock to be fully paid and nonassessable and
free of preemptive and other rights.  The Company agrees that a
failure by the Company to comply with the preceding sentence shall be an Event
of Default hereunder with respect to the Company without regard to any grace
period that would otherwise be applicable.

    

    (b)   Nature of
Rights.  The Company acknowledges and agrees that this Letter
Agreement is not intended to convey to Citibank rights against the Company
hereunder that are senior to the claims of common stockholders in any U.S.
bankruptcy proceedings of the Company; provided, however, that nothing herein
shall limit or shall be deemed to limit Citibank’s right to pursue remedies in
the event of a breach by the Company of its obligations and agreements with
respect to this Letter Agreement; and provided further that in pursuing a claim
against the Company in the event of a bankruptcy, insolvency or dissolution with
respect to Company, Citibank’s rights hereunder shall rank on a parity with the
rights of a holder of shares of Common Stock enforcing similar rights under a
contract involving shares of Common Stock.

    

    (c)   Disclosure.  The
Company agrees that the material terms of this Transaction (and any other
similar transactions), and the consequences of such transactions on the
financial condition and results of operations of the Company, will be disclosed
by the Company in accordance with all rules, regulations, accounting principles
(including EITF Issue No. 00-19) and laws applicable to the Company in its
periodic filings under the Exchange Act and its financial statements and notes
thereto.

    

    (d)           Corporate Event
Notification.  During the Pricing
Period, the Company shall (i) notify Citibank prior to the opening of trading in
the Common Stock on any day on which the Company makes, or expects to be made,
any public announcement (as defined in Rule 165(f) under the Securities Act) of
any merger, acquisition, or similar transaction involving a recapitalization
relating to the Company (other than 

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

       

      any such transaction in which the consideration consists
solely of cash and there is no valuation period), (ii) promptly notify Citibank
following any such announcement that such announcement has been made, and (iii)
promptly deliver to Citibank following the making of any such announcement a
certificate indicating (A) the Company’s average daily Rule 10b-18 purchases (as
defined in Rule 10b-18) during the three full calendar months preceding the date
of the announcement of such transaction and (B) the Company’s block purchases
(as defined in Rule 10b-18) effected pursuant to paragraph (b)(4) of Rule 10b-18
during the three full calendar months preceding the date of the announcement of
such transaction.  In addition, the Company shall promptly notify
Citibank of the earlier to occur of the completion of such transaction and the
completion of the vote by target shareholders.  The Company
acknowledges that any such public announcement may cause the Pricing Period to
be suspended pursuant to Section IV(c).  Accordingly, the Company
acknowledges that its actions in relation to any such announcement or
transaction must comply with the standards set forth in Section
IV(a).

    

    

    XIV.  Indemnification

    

    The
Company agrees to indemnify and hold harmless Citibank, its affiliates and its
assignees and their respective directors, officers, employees, agents and
controlling persons (Citibank and each such person being an “Indemnified Party”)
from and against any and all losses, claims, damages and liabilities, joint or
several, to which such Indemnified Party may become subject, and relating to or
arising out of the transactions contemplated by this Letter Agreement, and will
reimburse any Indemnified Party for all expenses (including reasonable counsel
fees and expenses) as they are incurred in connection with the investigation of,
preparation for or defense or settlement of any pending or threatened claim or
any action, suit or proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto and whether or not such claim, action, suit
or proceeding is initiated or brought by or on behalf of the
Company.  The Company will not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or expense is found in a nonappealable judgment by a court of competent
jurisdiction to have resulted from Citibank’s breach of a material term of this
Letter Agreement, willful misconduct or negligence.  If for any reason
the foregoing indemnification is unavailable to any Indemnified Party or
insufficient to hold harmless any Indemnified Party, then the Company shall
contribute, to the maximum extent permitted by law (but only to the extent that
such harm was not caused by Citibank’s breach of a material term of this Letter
Agreement, willful misconduct or negligence), to the amount paid or payable by
the Indemnified Party as a result of such loss, claim, damage or
liability.  The Company also agrees that no Indemnified Party shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of any matter referred
to in this Letter Agreement except to the extent that any losses, claims,
damages, liabilities or expenses incurred by the Company result from the breach
of a material term of this Letter Agreement, or the Indemnified Party’s
negligence or willful misconduct.  The provisions of this Section XIV
shall survive completion of the transactions contemplated by this Letter
Agreement and shall inure to the benefit of any permitted assignee of
Citibank.

    

    XV.  Miscellaneous

    

    (a)           No
Collateral.  Notwithstanding any provision of this Letter
Agreement, or any other agreement between the parties, to the contrary, the
obligations of the Company under this Letter Agreement are not secured by any
collateral.

    

    (b)           Waiver of Trial by
Jury.  EACH OF THE COMPANY AND CITIBANK HEREBY IRREVOCABLY
WAIVES (ON ITS OWN BEHALF AND, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ON
BEHALF OF ITS STOCKHOLDERS) ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS LETTER AGREEMENT OR THE ACTIONS OF CITIBANK OR ITS AFFILIATES
IN THE NEGOTIATION, PERFORMANCE OR ENFORCEMENT HEREOF.

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        
           

          

           

        

      

    

    (c)           Governing
Law.  THIS LETTER AGREEMENT SHALL BE GOVERNED BY THE LAW OF THE
STATE OF NEW YORK WITHOUT REFERENCE TO THE CHOICE OF LAW RULES
THEREOF.

    

    (d)           Submission to
Jurisdiction.  THE PARTIES HERETO IRREVOCABLY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK IN CONNECTION WITH
ALL MATTERS RELATING HERETO AND WAIVE ANY OBJECTION TO THE LAYING OF VENUE IN,
AND ANY CLAIM OF INCONVENIENT FORUM WITH RESPECT TO, THESE COURTS.

    

    (e)           Non-Confidentiality.  Notwithstanding
anything to the contrary herein, (i) Citibank acknowledges that this Letter
Agreement may be intended to produce U.S. federal income tax benefits for the
Company and (ii) the Company and Citibank hereby agree that (A) the Company
is not obligated to Citibank to keep confidential from any and all persons or
otherwise limit the use of any aspect of this Letter Agreement relating to the
structure or tax aspects thereof, and (B) Citibank does not assert any claim of
proprietary ownership in respect of any such aspect of this Letter
Agreement.

    

    (f)           Bankruptcy
Code.  The parties hereto intend for (i) the Transaction
hereunder to be a “securities contract” and a “swap agreement” as defined in the
Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy Code”),
and the parties hereto are entitled to the protections afforded by, among other
Sections, Sections 362(b)(6), 362(b)(17), 362(o), 546, 555, 560 and 561 of the
Bankruptcy Code; (ii) a party’s right to liquidate, terminate or accelerate the
Transaction and to exercise any other remedies upon the occurrence of any Event
of Default, a Loss of Borrow Termination, a Dividend Event Termination, a Cash
Tender Termination, a Corporate Event Termination or a Delisting Termination
under this Letter Agreement with respect to the other party to constitute a
“contractual right” within the meaning of the Bankruptcy Code; (iii) all
transfers of cash, securities or other property under or in connection with the
Transaction are “transfers” made “by or to (or for the benefit of)” a “master
netting agreement participant”, a “financial institution”, a “financial
participant”, a “forward contract merchant” or a “swap participant”, (each as
defined in the Bankruptcy Code) within the meaning of Sections 546(e), 546(f),
546(g) and 546(j) of the Bankruptcy Code; (iv) all obligations under or in
connection with the Transaction represent obligations in respect of “termination
values”, “payment amounts” or “other transfer obligations” within the meaning of
Section 362, 560 and 561 of the Bankruptcy Code; and (v) each of the parties
hereto to be a “swap participant” and “financial participant” within the meaning
of Sections 101(53C) and 101(22A) of the Bankruptcy Code.

    

    (g)           Assignment and
Transfer.  The rights and duties under this Letter Agreement
may not be assigned or transferred by either party hereto without the prior
written consent of the other party hereto; provided, however, that
Citibank may assign its obligation to deliver or receive delivery of Common
Stock hereunder to any of its affiliates without the prior written consent of
the Company.  Upon any such assignment Citibank shall indemnify the
Company from and against any loss, cost or expense relating to the failure of
such affiliate to perform its delivery obligation.

    

    (h)           Calculations.  To
the extent any calculation, adjustment or determination is required to be made
by Citibank hereunder, Citibank shall make any such calculation, adjustment, or
determination in good faith.

    

    (i)           Notices.  Unless
otherwise specified, notices under this Letter Agreement may be made by
telephone, to be confirmed in writing to the address below.  Changes
to the Notices must be made in writing.

    

    (i)           If
to the Company:

    Lexmark
International, Inc.

    One
Lexmark Centre Drive

    740 West
New Circle Road

    Lexington,
KY  40550

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    Attn:  Richard
Pelini

    Telephone:  (859)
232-5108

    Facsimile:  (859)
232-5137

    

    (ii)           If
to Citibank:

    Citibank,
N.A.

    390 Greenwich Street, 5th
Floor

    New York, NY 10013

    Attn:  Equity
Derivatives

    Telephone: (212) 723-7362

    Facsimile: (212) 723-8328

    

    
      
        
        

      

      
        
        

        
          

        

      

      
        

      

    

     

    Please
confirm your agreement to the foregoing by signing and returning to us the
enclosed duplicate of this Letter Agreement.

    

    Very truly yours,

    

    CITIBANK,
N.A.

    

    By:    /s/Jason Shrednick    

    Name: Jason Shrednick

    Authorized Representative

    

    

        Acknowledged
and agreed to as of

        the date
first above written,

    

        LEXMARK
INTERNATIONAL, INC.

     

     

    
      
        	 	 By:	/s/Bruce
      J. Frost    	 
	 	 Name:	 Bruce J.
      Frost	 
	 	 Title:	 Assistant
      Treasurer

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