Document:

Exhibit 10.1

 

EXCHANGE
AGREEMENT

 

This Exchange Agreement (this “Agreement”) is dated as of April 16,
2003, and is by and among (1) Elgar Holdings, Inc., a Delaware corporation
(“EHI”),
(2) J.F. Lehman Equity
Investors I, L.P. (“JFL”),
(3) each of the parties listed on Exhibit A hereto under the
heading “Consenting Shareholders” (each, a “Consenting Shareholder”) which
beneficially own in the aggregate (a) 10,000 shares (subject to increase
as a result of the issuance of additional shares in payment of dividends) of
EHI’s Series A 10% Cumulative
Redeemable Preferred Stock (the “Series A Preferred Stock”), (b) 679
shares of EHI’s Series B 6%
Cumulative Convertible Preferred Stock (“Series B Preferred Stock”) and
(c) 543 shares of EHI’s Series C
6% Cumulative Convertible Preferred Stock (“Series C Preferred Stock”),
and (4) OCM Principal Opportunities Fund II, L.P. (“POF”) and OCM/GFI
Power Opportunities Fund, L.P. (“Power”, and together with POF, the “Consenting Noteholders”),
which together beneficially own $66,050,000 in aggregate principal amount of
EHI’s 9-7/8% Senior Notes due 2008 (the “Existing Notes”) issued under that certain
indenture dated as of February 3, 1998 (as amended or supplemented, the “Indenture”), between
JFL-EEC Merger Sub Co., a Delaware corporation and predecessor to EHI, and The
Bank of New York (as successor trustee to United States Trust Company of New
York), as trustee (the “Trustee”),
as modified and amended by that certain First Supplemental Indenture dated as
of February 3, 1998, by and among EHI, subsidiaries of EHI listed on the
signature pages thereto and the Trustee and that certain Second Supplemental
Indenture dated as of May 29, 1998, by and among EHI, subsidiaries of EHI
listed on the signature pages thereto and the Trustee.  For purposes hereof, the Consenting
Shareholders and the Consenting Noteholders shall collectively be referred to
as the “Consenting
Holders” and each individually shall be referred to as a “Consenting Holder”.

 

RECITALS

 

A.                                   EHI, JFL and the Consenting Holders have
engaged in good faith negotiations with the objective of reaching an agreement
with regard to a financial restructuring of EHI involving the Existing Notes
and its outstanding equity securities.

 

B.                                     EHI, JFL and the Consenting Holders now desire
to implement a financial restructuring (the “Financial Restructuring”) of EHI on
substantially the terms set forth herein and in the term sheet (the “Term Sheet”) attached
hereto as Exhibit B.  Unless
this Agreement otherwise requires, the term “Financial Restructuring” shall not
include the transactions described in paragraph C below.

 

C.                                     In connection with the Financial
Restructuring, POF, Power, EHI and JFL desire that certain bridge financing be
provided to Elgar Electronics Corporation, a wholly owned subsidiary of EHI (“Elgar”), through:

 

(1)                                  the extension by POF and Power of bridge
loans in an aggregate amount of $25,000,000 to Elgar evidenced by bridge notes
(the “Bridge Notes”)
issued pursuant to a loan agreement, the form of which loan agreement is
attached as Exhibit C hereto, and the application of the proceeds
from the Bridge Notes for (i) the repayment in full of outstanding revolver and term loan borrowings
under Elgar’s senior secured credit facility with Ableco Finance, LLC (the “Cerberus Credit Facility”),
(ii) the payment of $250,000 in renewal and other
fees under the Cerberus Credit Facility, (iii) the payment of funding fees to POF and Power on account of the Bridge
Notes, (iv) the payment or
reimbursement of certain reasonable and documented third party legal and
accounting

 

 

expenses of POF, Power, JFL and EHI on
account of work up to and including the date of the Bridge Notes and (v) the remaining balance to be applied to
Elgar’s cash reserves and working capital, in each case, as described herein
and in the Term Sheet (the “Bridge Loans”); and

 

(2)                                  in connection with and as an inducement to
the issuance of the Bridge Notes (i) the deposit by JFL or its affiliate of up
to $6,000,000 in cash or such other amount as described in Section 8(c) below
(the “Collateral”)
in an account for the benefit of the holders of the Bridge Notes in support of
a guaranty of the Bridge Notes, and (ii) to the extent that the fees paid or
payable under the Cerberus Credit Facility as described in clause (1)(ii) of this Recital C exceed $250,000 (the “Excess Cerberus Liabilities”),
and to the extent that the amount of the Collateral is less than $5,700,000 as
of the business day immediately prior to the date of commencement of the
Exchange Offer, as more fully described in Section 8(c) below (the “Collateral Shortfall”
and, together with the Excess Cerberus Liabilities, the “JFL Obligation”), JFL
shall, or shall cause its affiliate to, purchase additional New Notes, Series D
Preferred Stock and New Common Stock (each as defined below) in the same
proportions as, and as part of, the New JFL Investment (as defined below) for
cash in an aggregate amount equal to the sum of the Excess Cerberus Liabilities
and the Collateral Shortfall, in each case, as described herein and in the Term
Sheet.

 

D.                                    EHI, JFL and the Consenting Holders desire
to consummate the Financial Restructuring through:

 

(1)                                  an exchange offer as described herein and in
the Term Sheet by EHI for all $90,000,000 of the Existing Notes in exchange for
(i) $60,000,000 of EHI’s 9% Senior Notes due February 1, 2008 (the “New Notes”), with the
principal terms as described in Exhibit D hereto, (ii) $30,000,000 in
stated liquidation value of EHI’s Series D 10.5% Senior Cumulative
Redeemable Preferred Stock, due February 1, 2008 (the “Series D Preferred Stock”) and
(iii) 750,000 shares of new Class A Common Stock of the Company, par value
$0.01 per share (the “New
Common Stock”), representing 75% of the New Common Stock to be outstanding upon
consummation of the Financial Restructuring but without giving effect to the
New JFL Investment and assuming no Existing Notes are purchased pursuant to the
Cash Alternative (as defined below) (the “Exchange
Offer”); provided that the Exchange Offer may offer
holders of Existing Notes the option to exchange their Existing Notes for cash
in amounts as may be determined by the Consenting Noteholders (the “Cash Alternative”); provided
further that holders of Existing Notes who participate in the Exchange
Offer shall not be entitled to receive interest accrued on the Existing Notes
from February 1, 2003, and no
value shall be paid in respect of such accrued interest with respect to holders
who elect to accept the Cash Alternative;

 

(2)                                  the restatement and amendment of EHI’s certificate
of incorporation, the form of which is attached as Exhibit E
hereto, to reclassify EHI’s outstanding
common stock, par value $0.01 per share (the “Old Common Stock”), Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock (collectively,
the “Old Equity
Securities”) into an aggregate of (i) $3,500,000 in stated liquidation value of
Series D Preferred Stock and (ii) 250,000 shares of New Common Stock,
representing 25% of the New Common Stock to be outstanding upon consummation of
the Financial Restructuring but without giving effect to the New JFL Investment
and assuming no Existing Notes are purchased pursuant to the Cash Alternative,
with the holders of

 

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Series A Preferred Stock to be allocated, pro rata, $3,500,000 in stated liquidation
value of the Series D Preferred Stock and 125,000 shares of New Common Stock, and the holders of the Old Common Stock,
Series B Preferred Stock and Series C Preferred Stock to be allocated pro rata, on a fully diluted, as-converted
basis, 125,000 shares of New Common
Stock (the “Charter
Amendment”);

 

(3)                                  the cancellation of all outstanding warrants
(the “Warrants”)
held by the Consenting Shareholders to purchase an aggregate of 707,488 shares
of Old Common Stock;

 

(4)                                  consent solicitations pursuant to which EHI
will seek to obtain consents to (i) certain modifications to the Indenture, the form of which is attached as
Exhibit F hereto (the “Indenture Amendment”) and (ii) a prepackaged bankruptcy of EHI in the event
that the Exchange Offer is not consummated which prepackaged bankruptcy shall
seek to replicate the successful completion of the Financial Restructuring as
contemplated herein and in the Term Sheet (other than the Cash Alternative)
subject to such changes as may be required under applicable Bankruptcy Laws (as
defined below) in order to make the plan of reorganization thereunder
confirmable (the “Contingency
Plan”); provided, that such changes shall be approved by
POF and Power in their sole discretion;

 

(5)                                  the amendment or refinancing of the Bridge
Loans, as described herein and in the Term Sheet (the “Credit Facility Amendment”);

 

(6)                                  implementation of a new management incentive
plan as described in the Term Sheet (the “Management Incentive Plan”); and

 

(7)                                  the transfer of the Collateral to EHI by POF
and Power on JFL’s behalf in exchange for the issuance by EHI to JFL or its
affiliate of up to (i) $8,000,000 of New
Notes, (ii) $4,000,000 in
stated liquidation value of Series D Preferred Stock and (iii) 100,000 shares of New Common Stock as
described herein and in the Term Sheet (the “New JFL Investment”); provided
that to the extent that less than $6,000,000 in cash is deposited as the
Collateral on or prior to the business day immediately prior to the date of
commencement of the Exchange Offer (as described in Section 8(c) below),
the amount of New Notes, Series D Preferred Stock and shares of New Common
Stock to be issued by EHI to JFL or its affiliate as the New JFL Investment shall
be proportionately reduced; and provided  further that the amount
of New Notes, Series D Preferred Stock and shares of New Common Stock to be
issued by EHI to JFL or its affiliate as the New JFL Investment shall be
proportionately increased to the extent that JFL or its affiliate is required
to purchase for cash such New Notes, Series D Preferred Stock and shares of New
Common Stock in an amount equal to the sum of the Excess Cerberus Liabilities
and the Collateral Shortfall as described herein and in the Term Sheet.

 

E.                                      To expedite and ensure the implementation of
the Financial Restructuring, each of POF and Power is prepared to commit, on
the terms and subject to the conditions of this Agreement, to extend the Bridge
Loans and to perform its other obligations hereunder with respect thereto.

 

F.                                      To expedite and ensure the implementation of
the Financial Restructuring, JFL is prepared to commit, on the terms and
subject to the conditions of this Agreement, to deposit the

 

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Collateral,
to make or cause its affiliate to make the New JFL Investment, to vote or cause
its affiliates to vote in favor of the transactions contemplated hereby and to
perform its other obligations hereunder with respect thereto.

 

G.                                     To expedite and ensure the implementation of
the Financial Restructuring, each of the Consenting Noteholders is prepared to
commit, on the terms and subject to the conditions of this Agreement, (i) to deliver, or cause its affiliates to
deliver, a consent with respect to the modifications to the terms of the
Existing Notes pursuant to the Indenture Amendment, (ii) to tender, or cause its affiliates to
tender, for exchange in the Exchange Offer its Existing Notes pursuant to the
terms of the Exchange Offer and (iii) to perform its other obligations hereunder with respect thereto.

 

H.                                    To expedite and ensure the implementation of
the Financial Restructuring, each of the Consenting Shareholders is prepared to
commit, on the terms and subject to the conditions of this Agreement,
(i) to vote in favor of the Charter Amendment, (ii) to become a party
to the new Stockholders Agreement to be entered into upon consummation of the
Financial Restructuring, the form of which is attached as Exhibit G
hereto (the “New Stockholders
Agreement”), (iii) to consent to the termination of the
current Shareholders Agreement (the “Old Shareholders Agreement”), (iv) to
consent to the termination of the Warrants and the related Warrantholder
Registration Rights Agreement and (v) to perform its other obligations
hereunder with respect thereto.

 

I.                                         To expedite and
implement the Financial Restructuring, EHI is prepared to commit to commencing
(i) the Exchange
Offer, (ii) the consent solicitation with respect to the Indenture Amendment, the Charter
Amendment and the Contingency Plan and (iii) the other transactions contemplated hereby
as expeditiously as possible.

 

J.                                        EHI, JFL and the
Consenting Holders are prepared to vote for (or cause their respective
affiliates to vote for) and to implement the Contingency Plan if the Exchange
Offer as contemplated herein is not consummated.

 

TERMS

 

NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
EHI, JFL and each Consenting Holder hereby agree as follows:

 

1.                                       Means For Effectuating the Bridge Financing
and the Financial Restructuring.  EHI, JFL, Power and POF intend
that the bridge financing for Elgar shall be accomplished by the extension of
the Bridge Loans, the deposit of the Collateral and the agreement of JFL to
purchase or cause its affiliate to purchase additional New Notes, Series D
Preferred Stock and New Common Stock as part of the New JFL Investment for cash
in an aggregate amount equal to the Excess Cerberus Liabilities, if any, on the
terms described herein and in the Term Sheet. 
EHI, JFL and the Consenting Holders intend that the Financial
Restructuring shall be accomplished by (1) the Exchange Offer,
(2) the Charter Amendment, (3) the cancellation of the Warrants,
(4) the Indenture Amendment, (5) the Credit Facility Amendment,
(6) entering into the New Stockholders Agreement, (7) the implementation
of the Management Incentive Plan and (8) the New JFL Investment (including
the Collateral Shortfall, if any, but excluding the Excess Cerberus
Liabilities, if any), all to occur, if at all, substantially contemporaneously,
on the terms described herein and in the Term Sheet.  EHI, JFL and the Consenting Holders further intend

 

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that,
in the event that the Exchange Offer is not consummated, the Financial
Restructuring shall be effected through the Contingency Plan.

 

2.                                       Lockup Period.  For
a period commencing with the date hereof until the earlier to occur of
(i) termination of the applicable Consenting Holder’s obligations under
this Agreement pursuant to Section 9 hereof and (ii) consummation of the
Exchange Offer (such period, the “Lockup Period”), each of the Consenting
Holders hereby agrees not to sell, assign, transfer, hypothecate or otherwise
dispose of, directly or indirectly any Existing Notes, Warrants or Old Equity
Securities beneficially owned by it (including Existing Notes (“Future Notes”) or Old
Equity Securities (“Future
Shares”) acquired by it beneficially after the date hereof,
except as required pursuant to the Financial Restructuring), unless the
transferee thereof agrees in writing for the benefit of the other parties hereto
to be bound by all of the terms of this Agreement and executes a counterpart
signature page of this Agreement and the transferor provides EHI with a copy
thereof.  This Agreement shall in no way
be construed to preclude the Consenting Holders from acquiring additional
Existing Notes and/or Old Equity Securities; provided that any
additional Existing Notes and/or Old Equity Securities so acquired shall
automatically be deemed to be subject to all of the terms and conditions of
this Agreement for so long as this Agreement remains in effect.

 

3.                                       Ownership and Authority; Voting and
Tendering; Confidentiality.

 

a.               Each of the Consenting Holders represents
(as to itself only) that, as of the date hereof, it is the beneficial owner of
the Existing Notes, Old Equity Securities or Warrants, as the case may be, set
forth opposite its name on Exhibit A hereto, and further represents
that such Consenting Holder does not beneficially own any other shares of
capital stock or indebtedness of EHI or its subsidiaries (except, in the case
of POF and Power, the Bridge Notes), and in the case of any Future Notes and/or
Future Shares acquired by it or any of its affiliates, on the date such
Consenting Holder or affiliate acquires such Future Notes and/or Future Shares,
such Consenting Holder will be the beneficial owner of such Future Notes and/or
Future Shares (as the case may be).  The
Existing Notes beneficially owned and any Future Notes beneficially owned by
any particular Consenting Holder are hereinafter sometimes referred to as its “Relevant Notes”;
the Old Equity Securities and any Future Shares beneficially owned by any
particular Consenting Holder are hereinafter sometimes referred to as its “Relevant Shares”;
and the Relevant Notes and the Relevant Shares beneficially owned by any
particular Consenting Holder are hereinafter sometimes referred to as its “Relevant Securities”.

 

b.              Each Consenting Noteholder agrees (as to
itself only), subject to Section 9(b) and to the conditions that
(i) the material terms of the applicable agreements implementing the
Financial Restructuring are the terms set forth herein, (ii) all
conditions precedent to the Financial Restructuring shall have been satisfied
or waived, (iii) other than with respect to the Restructuring Documents
(as defined below) the forms of which are attached as Exhibits hereto (provided
that the terms of the New Notes and the Indenture Amendment attached as
Exhibits D and F, respectively, hereto shall be subject to such changes as may
be reasonably requested by the relevant trustee), the final documents applicable to such Consenting Noteholder and
required to be executed in connection with the Exchange Offer are in a form
reasonably satisfactory to

 

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such Consenting Noteholder and all agreements
required to be executed upon consummation of the Exchange Offer have been
entered into by all applicable parties and have become effective (provided
that this condition shall be deemed satisfied if the only condition to the effectiveness
of any such agreement is the execution and delivery of such agreement by such
Consenting Noteholder) and (iv) this Agreement shall not have been
terminated pursuant to Section 9 hereof, that such Consenting Noteholder
(1) shall deliver a consent with respect to its Relevant Notes to modify
the terms of the Indenture pursuant to the applicable Indenture Amendment,
(2) shall become a party to the New Stockholders Agreement upon
consummation of the Financial Restructuring, (3) shall tender all, and shall not withdraw
any, of its Relevant Notes in the Exchange Offer pursuant to the terms of the
Restructuring Documents in exchange for New Notes, Series D Preferred Stock and
New Common Stock and shall not elect the Cash Alternative and (4) shall deliver a consent with respect to its
Relevant Notes to vote in favor of and to implement the prepackaged bankruptcy
of EHI pursuant to the Contingency Plan in the event that the Exchange Offer is
not consummated.

 

c.               Each Consenting Shareholder agrees (as to itself
only), subject to Section 9(b) and to the conditions that (i) the
material terms of the applicable agreements implementing the Financial
Restructuring are the terms set forth herein, (ii) other than with respect
to the Restructuring Documents the forms of which are attached as Exhibits
hereto (provided that the terms of the New Notes and the Indenture
Amendment attached as Exhibits D and F, respectively, hereto shall be subject
to such
changes as may be reasonably requested by the relevant trustee), the final documents applicable to such
Consenting Shareholder and required to be executed in connection with the
Exchange Offer are in a form reasonably satisfactory to such Consenting
Shareholder and all agreements required to be executed upon consummation of the
Exchange Offer have been entered into by all applicable parties and have become
effective (provided that this condition shall be deemed satisfied if the
only condition to the effectiveness of any such agreement is the execution and
delivery of such agreement by such Consenting Shareholder) and (iii) this
Agreement shall not have been terminated pursuant to Section 9 hereof,
that such Consenting Shareholder (1) shall vote its Relevant Shares to
approve the Charter Amendment, (2) shall become a party to the New
Stockholders Agreement upon consummation of the Financial Restructuring,
(3) shall consent to the termination of the Old Shareholders Agreement,
(4) shall consent to the termination of the Warrants and the related
Warrantholder Registration Rights Agreement and (5) shall deliver a consent with respect to its
Relevant Shares to vote in favor of and to implement the prepackaged bankruptcy
of EHI pursuant to the Contingency Plan in the event that the Exchange Offer is
not consummated.

 

d.              Each Consenting Shareholder agrees to the
terms and conditions of that certain letter agreement, dated January 14,
2003, among JFL and the Consenting Noteholders (the “Confidentiality Agreement”)
attached hereto as Exhibit H and pursuant to which each Consenting
Shareholder agrees, among other things, to keep Confidential Information (as
defined therein) confidential in accordance with the Confidentiality Agreement.

 

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4.                                       Preparation of Documents. 
Promptly upon execution of this Agreement, and to effect the Financial
Restructuring, except as noted below, counsel for EHI and JFL shall prepare
(and counsel for EHI and JFL and counsel for the Consenting Holders shall
negotiate) all of the documentation necessary in the reasonable judgment of
counsel for EHI and JFL and counsel for the Consenting Holders to implement the
Financial Restructuring, including but not limited to the following (in
addition to those the forms of which are attached as Exhibits hereto):

 

a.               the exchange offer and consent solicitation
statement (including the consent and letter of transmittal), providing for the
Exchange Offer and the Indenture Amendment and the Contingency Plan;

 

b.              a plan of reorganization for the Contingency
Plan;

 

c.               an indenture with respect to the New Notes
to be issued to Consenting Noteholders and other holders of Existing Notes who
tender their respective Relevant Notes (or other Existing Notes) in the
Exchange Offer;

 

d.              an agreement with The Bank of New York, or
such other trustee as may be agreed by EHI, JFL and the Consenting Noteholders,
to act as exchange agent for the Exchange Offer;

 

e.               the Management Incentive Plan;

 

f.                 the Credit Facility Amendment; provided
that counsel for POF and Power shall prepare such documents with respect to any
amendment to the Bridge Loans or refinancing thereof by POF, Power or any of
their affiliates;

 

g.              a subscription agreement relating to the New
JFL Investment; and

 

h.              the consent solicitation statement to be
mailed to the holders of Old Equity Securities seeking, among other things,
their approval of the Charter Amendment and the Contingency Plan.

 

The Charter Amendment, the New Stockholders
Agreement, the Indenture Amendment, the Bridge Notes, the documents relating to
the deposit of the Collateral and the New JFL Investment and the other
documents referred to in (a) through (h) above are referred to herein as the “Restructuring Documents”.

 

5.                                       Other Undertakings. 
EHI hereby agrees to use its reasonable best efforts to obtain approval
of the Charter Amendment by its shareholders entitled to vote thereon and to
comply with its obligations hereunder. 
JFL agrees to (a) use its reasonable best efforts to cause EHI to
comply with its obligations hereunder and (b) vote, or cause its affiliates
who own or possess the power to direct the vote of voting shares of stock of
EHI to vote, in favor of the Charter Amendment, to deliver a consent to vote in
favor of and to implement the prepackaged bankruptcy of EHI pursuant to the
Contingency Plan in the event that the Exchange Offer is not consummated and to
provide any other consents, or execute any other documents, certificates or
instruments, or take any other action necessary or appropriate to effectuate
the Financial Restructuring.  EHI shall
keep the Consenting Holders apprised of the status of matters relating to
completion of the Financial Restructuring and the other transactions
contemplated thereby, including promptly furnishing the Consenting Holders with
copies of (i) any amendments or supplements to any of the Restructuring
Documents in advance of any mailing to the applicable

 

7

 

security
holders and (ii) any notice or other material communications received by
EHI from any federal, state or other government, governmental or regulatory
agency or body, court of self-regulatory organization, domestic or foreign,
with respect to the Financial Restructuring and the other transactions
contemplated thereby.

 

6.                                       Timetable.  The parties shall use their
reasonable best efforts so that (i) the Exchange Offer is commenced on or
prior to May 15, 2003 and all Restructuring Documents related to the
Exchange Offer are completed by May 12, 2003 and (ii) the Financial
Restructuring is completed by July 30, 2003 (provided, that
confirmation of the Contingency Plan by the bankruptcy court may occur after
such date so long as the related proceedings with respect thereto shall have
been commenced prior to such time).

 

7.                                       Support of the Financial Restructuring.  EHI,
JFL and each Consenting Holder will use its reasonable best efforts to promptly
consummate the Financial Restructuring on the terms and subject to the
conditions set forth herein.   None of
EHI, JFL or the Consenting Holders shall object to the consummation of the
Financial Restructuring or otherwise commence any proceeding to oppose,
materially delay or alter the Financial Restructuring or any Restructuring
Documents so long as this Agreement is in effect and the Restructuring
Documents contain terms and conditions no less favorable to the Consenting
Holders in any material respect to those contained herein, subject, in the
event of the Contingency Plan, to such changes as may be required under
applicable Bankruptcy Laws to make the plan of reorganization thereunder
confirmable as the same shall be approved by POF and Power in their sole
discretion.

 

8.                                       Bridge Loans; Collateral; New JFL Investment.

 

a.               Each of EHI, JFL, POF and Power will use its
reasonable best efforts to promptly complete and negotiate all Restructuring
Documents required to effectuate the Bridge Loans on the terms and subject to
the conditions set forth herein and in the Term Sheet.

 

b.              Upon satisfactory completion of such
Restructuring Documents required to effectuate the Bridge Loans and the
satisfaction or waiver of any conditions thereunder to the funding of the
Bridge Loans, (i) POF and Power shall extend the Bridge Loans to Elgar, and EHI
shall cause Elgar to issue the Bridge Notes and to apply the proceeds from the
Bridge Notes in accordance with the terms set forth herein and in the Term
Sheet; provided that as a condition to the making of the Bridge Loans:
(1) EHI shall have received a draft audit report for the fiscal year ended
December 28, 2002 from EHI’s current auditor (a copy of which shall be
delivered to POF and Power) on or before the issuance of the Bridge Notes which
draft shall be satisfactory in all respects to POF and Power, and POF and Power
shall
have had, and be satisfied in all respects with, discussions with EHI’s current
auditor regarding the content and delivery thereof; provided, that as
soon as available, but not later than three business days after the issuance of
the Bridge Notes, a copy of the signed audit report relating to the financial
statements for the fiscal year ending December 28, 2002, substantially in the
form of the draft previously submitted, shall be delivered to POF and Power and (2) POF and Power shall have received a
certificate of the Chief Executive Officer and Chief Financial Officer of EHI
with respect to the receipt of commitments to deliver the requisite consents
from the holders of Old Equity Securities to

 

8

 

effectuate the Charter Amendment and (ii) JFL
shall, or shall cause its affiliate to, deposit the Collateral to be held in
accordance with the terms set forth herein and in the Term Sheet, including the
transfer of the Collateral to EHI upon consummation of the Exchange Offer to
effectuate the New JFL Investment, and POF and Power shall have received a
certificate of a managing member of the sole general partner of JFL setting
forth the amount of the Collateral and the method of determination thereof.

 

(c)          Notwithstanding anything herein to the contrary, to the extent that JFL
is unable to obtain consents from its limited partners in order provide the
full $6,000,000 in cash of Collateral (which shall be evidenced in the
certificate referenced in clause (b)(ii) above), the obligation of JFL to
deposit the Collateral shall be deemed to be satisfied if JFL or its affiliate
provides not less than $4,800,000 in cash of Collateral (in which event the New
JFL Investment (other than pursuant to the JFL Obligation) shall be reduced to
an amount equal to the Collateral so provided and the New Notes, Series D
Preferred Stock and New Common Stock to be issued by EHI in connection with the
New JFL Investment (other than pursuant to the JFL Obligation) shall be
proportionately reduced). 
Notwithstanding the foregoing, JFL or its affiliate shall be entitled
to, but shall not be obligated to, increase the amount of Collateral on or
prior to the business day immediately prior to the date of commencement of the
Exchange Offer up to the full $6,000,000, in which case the New JFL Investment
(other than pursuant to the JFL Obligation) and the New Notes, Series D
Preferred Stock and New Common Stock issuable in connection therewith shall be
proportionately increased; provided, however, that if the total
amount of Collateral on the business day immediately prior to the date of
commencement of the Exchange Offer is less than $5,700,000, such Collateral
Shortfall shall be added to the Excess Cerberus Liabilities and, upon the
issuance of the Bridge Notes, by execution of this Agreement, JFL shall be
deemed to have committed to purchase, or to cause its affiliate to purchase,
additional New Notes, Series D Preferred Stock and New Common Stock in the same
proportions as, and as part of, the New JFL Investment for cash in an aggregate
amount equal to the sum of the Excess Cerberus Liabilities and the Collateral
Shortfall, if any, provided that such subsequent purchase of New Notes,
Series D Preferred Stock and New Common Stock may be deferred by JFL or its
affiliate until cash interest (if any) in excess of (a) $324,000 in the twelve
months following the closing of the Exchange Offer; (b) $340,000 in the twelve
months commencing on the one-year anniversary of the closing of the Exchange
Offer; (c) $356,000 in the twelve months commencing on the two-year anniversary
of the closing of the Exchange Offer; (d) $376,000 in the twelve months
commencing on the three-year anniversary of the closing of the Exchange Offer;
and (d) $400,000 in the twelve months commencing on the four-year anniversary
of the closing of the Exchange Offer (such amounts the “Tax Thresholds”), has
been actually paid to JFL or its affiliate on account of the New Notes
initially acquired by such parties as part of the New JFL Investment, in which
cases, only the amount of such cash interest actually paid to JFL or its
affiliate in excess of the applicable Tax Thresholds shall be applied during
the applicable period for such subsequent purchases.

 

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9.                                       Conditions; Termination.

 

a.               The obligations of JFL or EHI, as
applicable, to consummate the Financial Restructuring are subject to
satisfaction (or waiver by JFL in its discretion) of the following
conditions:  (i) the Consenting
Holders shall have performed in all material respects their respective
obligations hereunder, (ii) there shall not have occurred and be continuing any
order, decree or ruling by any court or governmental body having jurisdiction
which restrains or enjoins the consummation of or renders illegal the
transactions contemplated hereby or any action, proceeding, claim or
counterclaim by any governmental body or before any court, authority, agency or
tribunal (other than any action, proceeding, claim or counterclaim by the party
seeking to terminate its obligations hereunder) that challenges any transaction
contemplated by the Financial Restructuring which would reasonably be expected
to prohibit, prevent or materially restrict, limit or delay the consummation of
such transaction or any other transaction contemplated by the Financial Restructuring
(an “Adverse
Governmental Ruling”) and (iii) no other person
shall have filed a petition or commenced a proceeding against EHI or any of its
subsidiaries under any provision of any applicable bankruptcy or insolvency
laws, whether state, federal or foreign (collectively, “Bankruptcy Laws”).  In
the event of failure of one or more of the foregoing conditions, JFL may, by
written notice to the Consenting Holders, terminate this Agreement; provided,
that such right to terminate shall not be available to JFL if the Contingency
Plan would be required to be implemented pursuant to this Agreement and the
Term Sheet or if JFL or EHI has breached in any material respect its
obligations under this Agreement, which breach shall have proximately
contributed to the occurrence of the failure of the Financial Restructuring to
be consummated.

 

b.              The obligations of each Consenting Holder to
consummate the Financial Restructuring are subject to satisfaction (or waiver
by such Consenting Holder in its discretion) of the following conditions:
(i) there shall not have occurred since December 28, 2002 and prior to
closing of the Financial Restructuring any material adverse change in the
business, financial condition, properties, assets or prospects of EHI and its
subsidiaries taken as a whole, (ii) EHI, JFL and each other Consenting
Holder shall have performed in all material respects their respective
obligations hereunder, including entering into the New Stockholders Agreement,
the making of the New JFL Investment and terminating all outstanding Warrants,
as applicable, (iii) the Financial Restructuring shall have received the
requisite corporate approvals by the shareholders of EHI to the Charter
Amendment, (iv)  the Credit Facility Amendment shall have become effective,
(v) 100% of the Existing Notes shall be validly tendered and not withdrawn
in the Exchange Offer and consents to the Indenture Amendment shall be
delivered with respect to all such Existing Notes, (vi) the Charter
Amendment shall have become effective, (vii) there shall be no material
adverse effect on EHI for tax purposes related to the Exchange Offer (it being
understood that a reduction in net operating losses and tax basis in assets is
acceptable but that a material cash tax liability related to the transaction
would not be acceptable), (viii) no Adverse Governmental Ruling shall have
occurred and be continuing, (ix) neither EHI nor any of its subsidiaries shall have
filed a petition or

 

10

 

commenced a proceeding under any provision of any
applicable Bankruptcy Laws, and no other person shall have filed a petition or
commenced a proceeding against EHI or any of its subsidiaries under any
provision of any applicable Bankruptcy Law, (x) the Restructuring Documents shall be
reasonably satisfactory to the Consenting Holders and shall not provide for or
be modified in a manner that is materially adverse to the Consenting Holders or
materially inconsistent with any of the material terms or conditions of this
Agreement or the Term Sheet, (xi) EHI shall not have withdrawn or revoked
the Exchange Offer or have announced publicly its intention not to pursue the
Exchange Offer, (xii) the Management Incentive Plan shall have been
approved and implemented, (xiii) the Financial Restructuring shall have
received any other material necessary consents from third parties,
(xiv) EHI shall have received an opinion with respect to its solvency from
a nationally recognized investment banking or accounting firm or such other firm
acceptable to POF and Power and (xv) EHI and its subsidiaries shall have
operated their businesses in the ordinary course since December 28, 2002,
except as contemplated hereby, consistent with past practices, through and
including the closing of the Exchange Offer. 
In the event of failure of one or more of such conditions applicable to
a Consenting Holder, such Consenting Holder may, by written notice to JFL,
terminate this Agreement; provided, that such right to terminate shall
not be available to a Consenting Holder if the Contingency Plan would be
required to be implemented pursuant to this Agreement and the Term Sheet or if
such Consenting Holder has breached in any material respect its obligations
under this Agreement, which breach shall have proximately contributed to the
occurrence of the failure of the Financial Restructuring to be consummated.

 

c.               Any party hereto may terminate its
obligations hereunder if the Financial Restructuring is not completed on or
before July 30, 2003; provided, that confirmation of the
Contingency Plan by the bankruptcy court may occur after such date so long as
the related proceedings with respect thereto shall have been commenced prior to
such time.

 

d.              In the event of termination of this
Agreement by EHI or JFL pursuant to this Section 9, the Financial Restructuring
shall also be terminated. In the event of the termination of this Agreement by
a Consenting Holder pursuant to this Section 9, the Financial
Restructuring shall also be terminated unless the remaining parties hereto
reasonably determine in good faith that the requisite consents are nonetheless
reasonably obtainable in order to effect the Financial Restructuring on the
terms and conditions described herein, in which case this Agreement shall not
terminate as to the non-terminating parties. 
Subject to the preceding sentence, upon the termination of this
Agreement, the obligations of JFL, EHI and each Consenting Holder shall cease
and no nonbreaching party will have any liability to any other party hereunder;
provided, however, that no such termination shall relieve any
party from liability for any willful breach of this Agreement prior to the
effectiveness of such termination.  Upon
the termination of this Agreement by a party hereto after which, upon agreement
of the remaining parties, this Agreement nonetheless continues in effect, the
obligations of the terminating party and the other parties in respect of the
terminating party shall cease and the terminating party will not have any
liability to any other party hereunder

 

11

 

and the other nonbreaching parties shall not
have any liabilities to the terminating party; provided, however,
that no such termination shall relieve the terminating party from liability for
any willful breach of this Agreement prior to the effectiveness of such
termination.

 

10.                                 Representations and Warranties; Covenants. 
Each of EHI, JFL and each Consenting Holder represents and warrants to
each other that the following statements are true, correct and complete, as to
itself, as of the date hereof:

 

a.               Power and Authority.  It
has all requisite power and authority to enter into this Agreement and to carry
out the transactions contemplated by, and perform its respective obligations
under, this Agreement.

 

b.              Authorization. 
The execution and delivery of this Agreement and the performance of its
obligations hereunder have been duly authorized by all necessary action on its
part.

 

c.               Consents.  The execution, delivery and
performance by it of this Agreement do not and shall not require any
registration or filing with, consent or approval of, or notice to, or other
action to, with or by, any national, federal, state or other governmental
authority or regulatory body, except, in the case of effecting the Contingency
Plan, such filings as may be required by applicable Bankruptcy Laws.  EHI represents and warrants to JFL and each
Consenting Holder that (i) the consents of the Consenting Shareholders and JFL
and its affiliates constitute all the consents necessary to effectuate the
Charter Amendment, and (ii) it has no outstanding securities other than the Old
Equity Securities, the Warrants and the Existing Notes.

 

d.              Binding Obligation. 
This Agreement is the legally valid and binding obligation of it, enforceable
against it in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or limiting creditors’ rights generally or by equitable principles
relating to enforceability.

 

e.               Representation by Counsel. 
Each party hereby acknowledges that it has been represented by counsel
in connection with this Agreement and the transactions contemplated by this
Agreement.

 

f.                 Investment Intent and Status.  Such Consenting Holder
is acquiring the securities it receives in the Financial Restructuring (the “Applicable Securities”)
for its own account for investment only and not with a view to, or for resale
in connection with, any public sale or distribution thereof in violation of
applicable securities laws.  Such
Consenting Holder is (A) a “qualified institutional buyer” as defined in Rule
144A under the Securities Act of 1933, as amended (the “Securities Act”), or
(B) an institutional “accredited investor” as defined in subparagraph (1),
(2), (3) or (7) of Rule 501(a) under the Securities Act.

 

g.              Adequate Information. 
Such Consenting Holder has adequate information concerning the business,
finances and operations, condition (financial and otherwise), results of
operations, properties, plans and prospects of EHI to

 

12

 

make an informed decision regarding the
making of the Bridge Loans, the sale of the Existing Notes, or the
reclassification of Old Equity Securities, as the case may be, in exchange for
the Applicable Securities, and has independently and without reliance upon EHI
made its own analysis and decision with respect thereto.  Such Consenting Holder and its advisors have
such knowledge and experience in financial and business matters that they are
capable of evaluating the merits and risks of an investment in the Applicable
Securities, have all information deemed by them to be necessary or appropriate
to evaluate the risks and merits of an investment in the Applicable Securities,
and have received all information requested by them from EHI.  Such Consenting Holder has been afforded the
opportunity to ask questions of EHI and has received satisfactory answers to
any such inquiries.  Such Consenting
Holder understands that its investment in the Applicable Securities involves a
high degree of risk.

 

h.              No General Solicitation.  No
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) will be used by such party or any of its
representatives in connection with the Financial Restructuring, including, but
not limited to, articles, notices or other communications published in any
newspaper, magazine or similar medium or broadcast over television or radio, or
any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.

 

i.                  No Litigation. 
There is no action, claim, suit, demand, hearing, notice of violation or
deficiency, or proceeding, domestic or foreign, pending, or, to the knowledge
of such party threatened, against or that affects such party that would
reasonably be expected to prevent the consummation of or materially impair or
materially delay any of the transactions contemplated by the Financial
Restructuring.

 

j.                  No Registration. 
Assuming the accuracy of the representations in Sections 10(f) and 10(h) above, EHI represents and
warrants that it is not, and will not be, necessary in connection with the
offer, sale and delivery of the securities by EHI in any of the transactions
contemplated by the Financial Restructuring to register any such securities
under the Securities Act.

 

k.               Disclosure.  Each of EHI and JFL represents
and warrants that to their actual knowledge, there is no fact or condition that
materially adversely affects or threatens the assets, business, prospects,
financial condition, or results of operations of EHI and its subsidiaries (on a
consolidated basis), or the consummation of the transactions contemplated by
this Agreement, that has not been disclosed in writing to the Consenting
Noteholders.  In addition, each of EHI
and JFL covenants to and agrees with each Consenting Noteholder that no
Restructuring Document (including any document incorporated by reference therein)
provided to any holder of EHI’s securities in connection with the offering of
any securities or the solicitation of any consents will contain any untrue
statement of a material fact or will omit to state a material fact necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading.

 

13

 

l.                  Restricted Securities.  Such Consenting
Holder acknowledges that the Applicable Securities will not be registered under
the Securities Act by reason of their issuance in a transaction exempt from the
registration requirements of the Securities Act and that they must be held
indefinitely unless a subsequent disposition thereof is registered under the
Securities Act or is exempt from registration.

 

11.                                 Effectiveness. 
This Agreement shall not become effective and binding on the parties
hereto unless and until counterpart signature pages hereto shall have been
executed and delivered by the parties hereto.

 

12.                                 Amendments.  This Agreement may not be
modified or amended except in writing signed by EHI, JFL and each Consenting
Holder.

 

13.                                 Governing Law; Jurisdiction. 
This Agreement shall be construed in accordance with, and this Agreement
and all disputes hereunder shall be governed by, the laws of the State of New
York, including
without limitation, Sections 5-1401 and 5-1402 of the New York General
Obligations Laws and Rule 327(b) of the New York Civil Practice Laws and Rules.  By
its execution and delivery of this Agreement, each party hereto hereby irrevocably
and unconditionally agrees for itself that any legal action, suit or proceeding
against it with respect to any matter under or arising out of or in connection
with this Agreement or for recognition or enforcement of any judgment in any
such action, suit or proceeding, shall be brought in any federal or state court
of competent jurisdiction in the Borough of Manhattan of the City of New York.

 

14.                                 Specific Performance.  It
is understood and agreed by each of the parties hereto that money damages would
not be a sufficient remedy for any breach of this Agreement by any party and
each non-breaching party shall be entitled to specific performance and
injunctive or other equitable relief as a remedy of any such breach.

 

15.                                 Survival.  Upon the closing of the
Financial Restructuring or the termination of this Agreement in accordance with
Section 9 hereof, the respective representations, warranties, covenants
and agreements of the parties hereto shall terminate and shall not survive the
termination of this Agreement.

 

16.                                 Headings.  The headings of the Sections,
paragraphs and subsections of this Agreement are inserted for convenience only
and shall not affect the interpretation hereof.

 

17.                                 Limitation on Assignment; Successors and
Permitted Assigns; Several Obligations.  None of the parties hereto may
assign any of their respective rights or obligations under this Agreement.  This Agreement is intended to bind and inure
to the benefit of the parties and their respective successors, permitted
assigns, heirs, executors, administrators and representatives.  The agreements, representations and
obligations of each of EHI, JFL and each of the Consenting Holders under this
Agreement are, in all respects, several and not joint.

 

18.                                 Notice.  Notices given under this agreement
shall be to:

 

If to JFL or EHI:

 

c/o J.F. Lehman & Company, Inc.

450 Park Avenue

 

14

 

New York, NY 
10022

Attn:  Stephen L. Brooks

Fax:  212-634-1155

 

with a copy to:

 

Gibson Dunn & Crutcher LLP

200 Park Avenue, 47th Floor

New York, NY  10166

Attn:  Conor D. Reilly

Fax:  212-351-4035

 

If to the Consenting Noteholders:

 

Oaktree Capital Management, LLC

333 South Grand Avenue

Los Angeles, CA  90071

Attn:  Jordan Kruse

Fax:  (213) 830-6394

 

with copies to:

 

Oaktree Capital Management, LLC

1301 Avenue of the Americas, 34th Floor

New York, NY  10019

Attn:  Vincent Cebula

Fax:  (212) 284-1949

 

GFI Energy Ventures, LLC

11611 San Vincente Boulevard, # 710

Los Angeles, CA  90049

Attention:  Mr. Ian A. Schapiro

Fax:  (310) 442-0540

 

and

 

Skadden, Arps, Slate, Meagher & Flom LLP 

300 South Grand Avenue

Los Angeles, CA  90071

Attn:  Jeffrey H. Cohen

Fax:  (213) 687-5600

 

If to the Consenting Shareholders:

 

PPM America, Inc.

225 West Wacker Drive, Suite 1200

Chicago, IL  60606

Attn:  Joseph Dimberio

Fax:  (312) 634-0044

 

15

 

and

 

Indosuez Capital

666 Third Avenue, 9th Floor

New York, NY  10017

Attn:  Curt Lueker

Fax:  (646) 658-2203

 

with copies to:

 

Schwartz, Cooper, Greenberger & Krauss

180 North LaSalle Street, Suite 2700

Chicago, IL  60601

Attn:  James Greenberger

Fax:  (312) 782-8416

 

19.                                 Prior Negotiations; Exhibits. 
This Agreement, together with all Exhibits hereto, supersede all prior
negotiations and written and oral understandings and agreements with respect to
the subject matter hereof and is intended as the final and complete expression
of the parties’ agreement.  If there are
any inconsistencies between the terms contained in this Agreement and in the
Term Sheet, this Agreement shall control. 
In the event of any inconsistency between the terms set forth in this
Agreement or in the Term Sheet, on the one hand, and in any other Exhibit
attached hereto, on the other hand, such Exhibit shall control.

 

20.                                 Counterparts. 
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original and all of which shall constitute one and the
same Agreement.  Faxed signatures shall
be valid and binding for all purposes.

 

21.                                 No Third Party Beneficiaries. 
Unless expressly stated herein, this Agreement shall be solely for the
benefit of the parties hereto and no other person or entity.

 

22.                                 Fees.  Other than fees and expenses
relating to the Bridge Notes, the Credit 
Facility Amendment, the Exchange Offer and for legal, tax and accounting
work, no fees will be paid by EHI to JFL, POF or Power.  Accrued fee balances owing to JFL by EHI
shall be cancelled for no consideration. 
All of JFL, POF and Power shall be entitled to reimbursement for reasonable
and customary out of pocket expenses (including fees and expenses of
counsel).  Other than as specifically
set forth in this Section 22, each party shall pay its own fees and expenses,
including those of its counsel, incurred in the negotiation, preparation and
consummation of this Agreement and the transactions contemplated hereby.

 

[the remainder of this page is intentionally
left blank]

 

16

 

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

 

	
   

  	
  ELGAR
  HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ John P. Mei

  	
   

  
	
   

  	
   

  	
  Name:  John P. Mei

  
	
   

  	
   

  	
  Title:

  	
  Vice President, Finance, and
  Chief

  Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  J.F. LEHMAN
  EQUITY INVESTORS I, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  J.F.L. Investors, L.L.C., its
  general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Donald Glickman

  	
   

  
	
   

  	
   

  	
  Name:  Donald Glickman

  
	
   

  	
   

  	
  Title:  Managing Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Consenting Shareholders:

  
	
   

  	
   

  	
   

  
	
   

  	
  JACKSON NATIONAL LIFE INSURANCE COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  PPM America, Inc., its Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph E. Dimberio

  	
   

  
	
   

  	
   

  	
  Name:  Joseph E. Dimberio

  
	
   

  	
   

  	
  Title:  Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OLD HICKORY
  FUND I, L.L.C.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:  PPM America, Inc., as Manager

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph E. Dimberio

  	
   

  
	
   

  	
   

  	
  Name:  Joseph E. Dimberio

  
	
   

  	
   

  	
  Title:  Partner

  
					

 

17

 

	
   

  	
  INDOSUEZ
  ELECTRONICS PARTNERS

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Indosuez
  CM  II, Inc., its Managing

  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thierry de Vergnes

  	
   

  
	
   

  	
   

  	
  Name:  Thierry de Vergnes

  
	
   

  	
   

  	
  Title:  Vice President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Malcolmson

  	
   

  
	
   

  	
   

  	
  Name:  Michael Malcolmson

  
	
   

  	
   

  	
  Title:  Vice President and Treasurer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Consenting Noteholders:

  
	
   

  	
   

  	
   

  
	
   

  	
  OCM PRINCIPAL
  OPPORTUNITIES FUND II, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Oaktree
  Capital Management, LLC,

  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen A. Kaplan

  	
   

  
	
   

  	
   

  	
  Name:  Stephen A. Kaplan

  
	
   

  	
   

  	
  Title:  Principal

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Vincent J. Cebula

  	
   

  
	
   

  	
   

  	
  Name:  Vincent J. Cebula

  
	
   

  	
   

  	
  Title:  Managing Director

  
	
   

  	
   

  	
   

  
	
   

  	
  OCM/GFI POWER
  OPPORTUNITIES FUND, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  GFI
  Energy Ventures LLC,

  its General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ian Schapiro

  	
   

  
	
   

  	
   

  	
  Name:  Ian Schapiro

  
	
   

  	
   

  	
  Title:  Chief Financial Officer

  

 

18

 

Exhibit A

 

Consenting
Shareholders

 

	
   

  	
   

  	
  Number of Shares of Stock Beneficially
  Owned

  as of the Date Hereof

  (Excluding Accrued Dividends on Series A)

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Series A

  	
   

  	
  Series B

  	
   

  	
  Series C

  	
   

  	
  No. of Warrants

  	
   

  
	
  Jackson
  National Life Insurance Company

  	
   

  	
  7,880

  	
   

  	
  525

  	
   

  	
  420

  	
   

  	
  557,500

  	
   

  
	
  Old
  Hickory Fund I, L.L.C.

  	
   

  	
  120

  	
   

  	
  8

  	
   

  	
  6

  	
   

  	
  8,490

  	
   

  
	
  Indosuez
  Electronics Partners

  	
   

  	
  2,000

  	
   

  	
  146

  	
   

  	
  117

  	
   

  	
  141,498

  	
   

  

 

Consenting
Bondholders

 

	
  Beneficial
  Owner

  	
   

  	
  Principal Amount of
  Existing Notes

  Beneficially Owned as of the Date Hereof

  	
   

  
	
  OCM
  Principal Opportunities Fund II, L.P.

  	
   

  	
  $

  	
  16,950,000

  	
   

  
	
  OCM/GFI
  Power Opportunities Fund, L.P.

  	
   

  	
  $

  	
  49,100,000

  	
   

  

 

19Exhibit
10.2

 

 

LOAN
AGREEMENT

 

dated as of

 

April 16, 2003

 

among

 

ELGAR
ELECTRONICS CORPORATION,

as Borrower

 

ELGAR
HOLDINGS, INC.

 

and

 

CERTAIN
SUBSIDIARIES OF ELGAR HOLDINGS, INC.

FROM
TIME TO TIME PARTY HERETO,

as Guarantors,

 

THE
LENDERS PARTY HERETO

 

and

 

U.S.
BANK NATIONAL ASSOCIATION,

as Collateral
Agent

 

 

 

	
  SECTION
  1.        DEFINITIONS

  
	
  1.1

  	
  Certain
  Defined Terms.

  
	
  1.2

  	
  Accounting Terms.

  
	
  1.3

  	
  Other Definitional
  Provisions.

  
	
  SECTION
  2.        AMOUNT
  AND TERMS OF COMMITMENT AND LOANS; NOTES

  
	
  2.1

  	
  Loans and Notes.

  
	
  2.2

  	
  Interest
  on the Loans.

  
	
  2.3

  	
  Fees.

  
	
  2.4

  	
  Prepayments
  and Reductions in the Commitment.

  
	
  2.5

  	
  Use of Proceeds.

  
	
  SECTION 3.        CONDITIONS

  
	
  3.1

  	
  Conditions
  to Loans.

  
	
  SECTION 4.        REPRESENTATIONS
  AND WARRANTIES

  
	
  4.1

  	
  Organization and Good
  Standing.

  
	
  4.2

  	
  Authorization
  and Power.

  
	
  4.3

  	
  No
  Conflicts or Consents.

  
	
  4.4

  	
  Enforceable
  Obligations.

  
	
  4.5

  	
  Properties; Liens.

  
	
  4.6

  	
  Financial
  Condition.

  
	
  4.7

  	
  Full Disclosure.

  
	
  4.8

  	
  No Default.

  
	
  4.9

  	
  Compliance with
  Contracts, Etc.

  
	
  4.10

  	
  No Litigation.

  
	
  4.11

  	
  Use of Proceeds;
  Margin Stock, Etc.

  
	
  4.12

  	
  Taxes.

  
	
  4.13

  	
  ERISA.

  
	
  4.14

  	
  Government
  Regulation.

  
	
  4.15

  	
  Capital Structure
  and Subsidiaries.

  
	
  4.16

  	
  Environmental
  Matters.

  
	
  4.17

  	
  Insurance.

  
	
  4.18

  	
  Labor Matters.

  
	
  4.19

  	
  Broker’s
  or Finder’s Fees.

  
	
  4.20

  	
  Operation
  of Business.

  
	
  4.21

  	
  Existing Credit
  Facilities Matters.

  
	
  4.22

  	
  Outstanding
  Payables.

  
	
  SECTION 5.        AFFIRMATIVE
  COVENANTS

  
	
  5.1

  	
  Financial
  Statements and Other Reports.

  
	
  5.2

  	
  Corporate
  Existence, Etc.

  
	
  5.3

  	
  Payment
  of Taxes and Claims; Tax Consolidation.

  
	
  5.4

  	
  Maintenance of
  Properties; Insurance.

  
	
  5.5

  	
  Inspection.

  
	
  5.6

  	
  Equal Security for
  Loans and Notes.

  
	
  5.7

  	
  Compliance
  with Laws, Etc.

  
	
  5.8

  	
  Maintenance of
  Accurate Records, Etc.

  
	
  5.9

  	
  Permits.

  
	
  5.10

  	
  Take-Out Facility.

  
	
  5.11

  	
  ERISA Compliance.

  
	
  5.12

  	
  Additional
  Subsidiaries.

  
	
  5.13

  	
  Controlling
  Group.

  

 

i

 

	
  SECTION 6.        NEGATIVE
  COVENANTS

  
	
  6.1

  	
  Indebtedness.

  
	
  6.2

  	
  Liens.

  
	
  6.3

  	
  Restricted
  Payments.

  
	
  6.4

  	
  Restriction on
  Fundamental Changes.

  
	
  6.5

  	
  Limitation
  on Dividend and Other Payment Restrictions Affecting Subsidiaries.

  
	
  6.6

  	
  Transactions
  with Shareholders and Affiliates; Payments.

  
	
  6.7

  	
  Business
  Activities.

  
	
  6.8

  	
  Amendments to Charter
  Documents.

  
	
  6.9

  	
  Asset Sales.

  
	
  6.10

  	
  Maximum Capital Expenditures.

  
	
  6.11

  	
  Lease
  Obligations.

  
	
  6.12

  	
  Amendments to Indebtedness.

  
	
  SECTION 7.        EVENTS
  OF DEFAULT

  
	
  7.1

  	
  Failure To Make
  Payments When Due.

  
	
  7.2

  	
  Default in Other
  Agreements.

  
	
  7.3

  	
  Breach of Certain
  Covenants.

  
	
  7.4

  	
  Breach of
  Warranty.

  
	
  7.5

  	
  Other
  Defaults Under This Agreement or Any Other Loan Document.

  
	
  7.6

  	
  Involuntary
  Bankruptcy; Appointment of Custodian, Etc.

  
	
  7.7

  	
  Voluntary
  Bankruptcy; Appointment of Custodian, Etc.

  
	
  7.8

  	
  Judgments and Attachments.

  
	
  7.9

  	
  Dissolution.

  
	
  7.10

  	
  Guarantee.

  
	
  7.11

  	
  Material
  Contracts.

  
	
  7.12

  	
  Liens.

  
	
  7.13

  	
  ERISA Event.

  
	
  7.14

  	
  Change of Control.

  
	
  SECTION 8.        THE
  COLLATERAL AGENT

  
	
  8.1

  	
  Appointment.

  
	
  8.2

  	
  Delegation
  of Duties.

  
	
  8.3

  	
  Exculpatory
  Provisions.

  
	
  8.4

  	
  Reliance by the
  Collateral Agent.

  
	
  8.5

  	
  Notice of Default.

  
	
  8.6

  	
  Non-Reliance
  on the Collateral Agent and Other Lenders.

  
	
  8.7

  	
  Indemnification.

  
	
  8.8

  	
  Collateral
  Agent in Its Individual Capacity.

  
	
  SECTION
  9.        GUARANTEE

  
	
  9.1

  	
  Unconditional
  Guarantee.

  
	
  9.2

  	
  Severability.

  
	
  9.3

  	
  Release
  of a Guarantor.

  
	
  9.4

  	
  Limitation of
  Guarantor’s Liability.

  
	
  9.5

  	
  Contribution.

  
	
  9.6

  	
  Waiver
  of Subrogation.

  
	
  9.7

  	
  Waiver
  of Stay, Extension, Usury and Other Laws.

  
	
  SECTION 10.        MISCELLANEOUS

  
	
  10.1

  	
  [Intentionally
  Omitted]

  
	
  10.2

  	
  Participations
  in and Assignments of Loans and Notes.

  
	
  10.3

  	
  Expenses.

  
	
  10.4

  	
  Indemnity.

  

 

ii

 

	
  10.5

  	
  Setoff.

  
	
  10.6

  	
  Amendments
  and Waivers.

  
	
  10.7

  	
  Independence of Covenants.

  
	
  10.8

  	
  Entirety.

  
	
  10.9

  	
  Notices.

  
	
  10.10

  	
  Survival
  of Warranties and Certain Agreements.

  
	
  10.11

  	
  Failure
  or Indulgence Not Waiver; Remedies Cumulative.

  
	
  10.12

  	
  Severability.

  
	
  10.13

  	
  Headings.

  
	
  10.14

  	
  Applicable
  Law.

  
	
  10.15

  	
  Successors
  and Assigns; Subsequent Holders of Notes.

  
	
  10.16

  	
  Counterparts;
  Effectiveness.

  
	
  10.17

  	
  Consent
  to Jurisdiction; Venue; Waiver of Jury Trial.

  
	
  10.18

  	
  Payments
  Pro Rata.

  
	
  10.19

  	
  Taxes.

  
	
  10.20

  	
  Waiver of
  Stay, Extension or Usury Laws.

  
	
  10.21

  	
  Requirements of Law.

  
	
  10.22

  	
  Confidentiality.

  

 

iii

 

THIS
LOAN AGREEMENT (this “Agreement”) is dated as of April
16, 2003, and entered into by and among ELGAR
ELECTRONICS CORPORATION, a California corporation (the “Borrower”),
ELGAR HOLDINGS, INC., a Delaware
corporation (“Holdings”), and CERTAIN
SUBSIDIARIES OF HOLDINGS FROM TIME TO TIME PARTY HERETO in
accordance with Section 5.12, as Guarantors, the Lenders named on the
signature pages hereto and any Persons that become Lenders in accordance with Section
10.2(a) (the “Lenders”), and U.S.
BANK NATIONAL ASSOCIATION, as collateral agent for the Lenders
(together with its successors in such capacity, the “Collateral Agent”).

 

RECITALS

 

WHEREAS,
capitalized terms used in these Recitals shall have the respective meanings set
forth for such terms in Section 1.1 hereof;

 

WHEREAS,
the Borrower desires that the Lenders extend a senior secured credit facility
to the Borrower on the terms and conditions contained herein;

 

WHEREAS,
the Guarantors have agreed to guarantee the obligations of the Borrower
hereunder;

 

NOW,
THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereby agree
as follows:

 

SECTION
1.                            DEFINITIONS

 

1.1           Certain
Defined Terms.

 

The following terms used in this Agreement shall have
the following meanings:

 

“Adjusted Net Assets” has the meaning provided in Section
9.5.

 

“Affiliate” means, with respect to any Person, any
other Person that, directly or indirectly, controls, is controlled by or is
under common control with, such Person. 
For purposes of this definition, “control” means the possession, directly
or indirectly, of the power (i) to vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or (ii) to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms “controlling” and “controlled” have correlative meanings.

 

“Agreement” means this Loan Agreement dated as of
April 16, 2003, as it may be amended, supplemented, restated or otherwise modified
from time to time in accordance with the terms hereof.

 

“Amount of Unfunded Benefit Liabilities” means, with
respect to any Pension Plan, (a) if set forth on the most recent actuarial
valuation report with respect to such Pension Plan, the amount of unfunded
benefit liabilities (as defined in Section 4001(a)(18) of ERISA) and,
otherwise, (b) the excess of (i) the greater of the current liability (as
defined in Section 412(l)(7) of the Internal Revenue Code) or the actuarial
present value of the accrued benefits with respect to such Pension Plan over
(ii) the market value of the assets of such Pension Plan.

 

1

 

“Asset Sale” means any direct or indirect sale,
issuance, conveyance, transfer, lease (other than operating leases entered into
in the ordinary course of business), assignment or other transfer for value by
Holdings or any of its Subsidiaries (including any Sale and Leaseback
Transaction and any merger or consolidation) to any Person other than Holdings
or a Wholly Owned Subsidiary of (a) any Capital Stock of any Subsidiary or (b)
any other property or assets of Holdings or any Subsidiary other than in the
ordinary course of business; provided, however, that Asset Sales shall
not include (i) dispositions of used, surplus or worn out equipment in the
ordinary course of business or (ii) a disposition consisting of a Restricted
Payment or Permitted Investment permitted under Section 6.3 hereof.

 

“Assignment” has the meaning ascribed to such term Section
10.2(a).

 

“Auditors” means a recognized firm of independent
public accountants selected by Holdings and satisfactory to the Lenders.

 

“Authorized Officer” means, as applied to any Person,
any individual holding the position of chairman of the board (if an officer),
chief executive officer, president or vice president, and such Person’s chief
financial officer or treasurer.

 

“Bankruptcy Law” means Title 11 of the United States
Code entitled “Bankruptcy”, as now and hereafter in effect, or any successor
statute or any other United States federal, state or local law or the Law of
any other jurisdiction relating to bankruptcy, insolvency, winding up,
liquidation, reorganization  or relief
of debtors, whether in effect on the date hereof or hereafter.

 

“Bankruptcy Order” means any court order made in a
proceeding pursuant to or within the meaning of any Bankruptcy Law, containing
an adjudication of bankruptcy or insolvency, or providing for liquidation,
winding up, dissolution or reorganization, or appointing a custodian of a
debtor or of all or any substantial part of a debtor’s property, or providing
for the staying, arrangement, adjustment or composition of indebtedness or
other relief of a debtor.

 

“Board” means the Board of Governors of the Federal
Reserve System of the United States of America.

 

“Board of Directors” means, as to any Person, the
board of directors of such Person or any duly authorized committee of that
Board.

 

“Board Resolution” means, with respect to any Person,
a copy of a resolution certified by the Secretary or an Assistant Secretary of
such Person to have been duly adopted by the Board of Directors of such Person
and to be in full force and effect on the date of such certification, and
delivered to the Lenders.

 

“Borrower” has the meaning ascribed to such term in
the preamble to this Agreement.

 

“Borrower Affiliated Group”
has the meaning ascribed to such term in Section 6.3(b).

 

“Business Day” means any day excluding Saturday,
Sunday and any day which is a legal holiday under the laws of New York or
California or is a day on which banking institutions therein located are
authorized or required by law or other governmental action to close.

 

“Capital Expenditures” means, for any period, the
aggregate of all expenditures of Holdings and its Subsidiaries during such
period determined on a consolidated basis that, in accordance 

 

2

 

with GAAP, are or should be included in “purchase of property and
equipment” or similar items reflected in the consolidated statement of cash
flows of Holdings and its Subsidiaries.

 

“Capital Stock” means (i) with respect to any Person
that is a corporation, any and all shares, interests, participations or other
equivalents (however designated and whether or not voting) of corporate stock,
including each class of Common Stock and Preferred Stock of such Person and
including any warrants, options or rights to acquire any of the foregoing and
instruments convertible into any of the foregoing, and (ii) with respect to any
Person that is not a corporation, any and all partnership, limited liability
company or other equity interests of such Person.

 

“Capitalized Lease Obligation” means, as to any
Person, the obligations of such Person under a lease that are required to be
classified and accounted for as capital lease obligations under GAAP and, for
purposes of this definition, the amount of such obligations at any date shall
be the capitalized amount of such obligations at such date, determined in
accordance with GAAP.

 

“Cash Equivalents” means (i) marketable direct
obligations issued by, or unconditionally guaranteed by, the United States
Government or any agency thereof and backed by the full faith and credit of the
United States of America, in each case maturing within one year from the date
of acquisition thereof; (ii) marketable direct obligations issued by any state
of the United States of America or any political subdivision of any such state
or any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor’s Ratings Services
(“S&P”) or Moody’s Investor Service, Inc. (“Moody’s”); (iii)
commercial paper maturing no more than 180 days from the date of creation
thereof and, at the time of acquisition, having a rating of at least A-1 from
S&P or at least P-1 from Moody’s; (iv) demand deposits, certificates of
deposit or bankers’ acceptances maturing within 180 days from the date of acquisition
thereof issued by any bank organized under the laws of the United States of
America or any state thereof or the District of Columbia or any foreign bank
having at the date of acquisition thereof combined capital and surplus of not
less than $500,000,000; (v) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i) through
(v) above.

 

“CERCLA” means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, and any successor
acts thereto.

 

“Change of Control” means the occurrence of one or
more of the following events:  (i) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Borrower
to any Person or group of related Persons for purposes of Section 13(d) of the
Exchange Act (a “Group”) or to any Affiliates thereof (whether or not
otherwise in compliance with the provisions of this Agreement); (ii) the
approval by the holders of Capital Stock of Holdings of any plan or proposal
for the liquidation or dissolution of Holdings (whether or not otherwise in
compliance with the provisions of this Agreement); (iii) any Person or Group
(other than the Permitted Holder(s)) shall become the beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act), directly or indirectly, of
Capital Stock representing more than 10% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of Holdings; (iv) the
replacement of a majority of the directors on the Board of Directors of
Holdings over a two-year period from the directors who constituted the Board of
Directors of Holdings at the beginning of such period, and such replacement
shall not have been approved by a vote of at least a majority of the Board of
Directors of Holdings then still in office who either were members of such
Board of Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved; (v) Holdings
shall 

 

3

 

cease to own 100% of the Capital Stock of the Borrower; (vi) the
Permitted Holders shall cease to beneficially own at least 100% of the
outstanding Capital Stock having ordinary voting power in the election of
directors of Holdings beneficially owned by the Permitted Holders on the
Closing Date; or (vii) at any time a change of control occurs under and as
defined in any documentation relating to any material Indebtedness of Holdings
or any of its Subsidiaries; provided that, in the event that the
Exchange Offer is successfully consummated and this Agreement is not
simultaneously terminated, any Change of Control resulting from the Exchange
Offer consummated in accordance with the Exchange Agreement shall not be deemed
a Change of Control hereunder.

 

“Closing Date” means the date on or before April 17,
2003 on which the Loans are made and the conditions set forth in Section 3.1
are satisfied or waived in accordance with Section 10.6.

 

“Collateral” means, collectively, all of the real,
personal and mixed property in which Liens are purported to be granted pursuant
to the Loan Documents as security for the Obligations.

 

“Collateral Agent” has the meaning ascribed to such
term in the preamble to this Agreement.

 

“Collateral Questionnaire” means a UCC diligence
certificate in form satisfactory to the Collateral Agent that provides
information with respect to the personal, real or mixed property of each Loan
Party.

 

“Commission” means the Securities and Exchange
Commission or any successor thereof.

 

“Commitment” means the commitment of the Lenders to
make the Loans as set forth in Section 2.1(a).

 

“Common Stock” of any Person means any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or non-voting) of, such Person’s common stock, whether
outstanding on the Closing Date or issued after the Closing Date, and includes,
without limitation, all series and classes of such common stock.

 

“Compliance Certificate” means a certificate
substantially in the form of Exhibit III annexed hereto delivered to the
Lenders by the Borrower and Holdings pursuant to Section 5.1.

 

“Contested Claim” means any Tax, Indebtedness or other
claim or liability (i) the validity or amount of which is being contested in
good faith by appropriate proceedings, timely instituted and diligently
pursued, (ii) for which adequate reserves, or other appropriate provisions, if
any, as required in conformity with GAAP shall have been made, and (iii) with
respect to which (x) no Lien has been imposed by any Tax authority and (y) any
right to execute upon or sell any assets of Holdings or of any of its
Subsidiaries has not matured or has been and continues to be effectively
enjoined, superseded or stayed.

 

“Contingent Obligation” means, as to any Person, any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations (“primary obligations”) of
any other Person (the “primary obligor”) in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii)
to purchase property, securities or services primarily for the purpose of 

 

4

 

assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation or (iv) otherwise to
assure or hold harmless the holder of such primary obligation against loss in
respect thereof; provided, however, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. 
The amount of any Contingent Obligation shall be deemed to be an amount
equal to the stated or determinable amount of the primary obligation in respect
of which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by such Person in good
faith.

 

“Contractual Obligation” as applied to any Person,
means any provision of any Security issued by that Person or of 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.

 

“Control” means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ability to exercise voting power, by
contract or otherwise.  “Controlling”
and “Controlled” have meanings correlative thereto.

 

“Controlled Group” means (i) a controlled group of
corporations as defined in Section 1563(a) of the Internal Revenue Code or (ii)
a group of trades or businesses under common control, as defined in Section 414(c)
of the Internal Revenue Code, of which Holdings or any of its Subsidiaries is a
part or becomes a part.

 

“Controlling Group” has the meaning provided in Section
5.13.

 

“Currency Agreement” means any foreign exchange
contract, currency swap agreement or other similar agreement or arrangement
designed to protect Holdings or any of its Subsidiaries against fluctuations in
currency values.

 

“Custodian” means any receiver, interim receiver,
receiver and manager, trustee, assignee, liquidator, sequestrator or similar
official charged with maintaining possession or control over property for one
or more creditors, whether under any Bankruptcy Law or otherwise.

 

“Default” means an event or condition the occurrence
of which is, or with the lapse of time or the giving of notice or both would
be, an Event of Default.

 

“Disqualified Capital Stock” means that portion of 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 is redeemable at the sole option of the holder
thereof prior to the Maturity Date.

 

“Dollars” or the sign “$” means the lawful money of
the United States of America.

 

“Eligible Assignee” means (a) any entity which is an
“accredited investor” (as defined in Regulation D under the Securities Act of
1933) which extends credit or buys loans as one of its businesses; and (b) any
Lender and any Affiliate of any Lender.

 

“Employee Benefit Plan” means any “employee benefit
plan” as defined in Section 3(3) of ERISA (i) which is, or, at any time within
the five calendar years immediately preceding the date hereof, was at any time,
maintained or contributed to by any of Holdings or its Subsidiaries or any of
their respective ERISA Affiliates or (ii) with respect to which Holdings or any
of its Subsidiaries retains any 

 

5

 

liability, including any potential joint and several liability as a
result of an affiliation with an ERISA Affiliate or a party that would be an
ERISA Affiliate except for the fact the affiliation ceased more than five
calendar years prior to the date hereof.

 

“Environmental Claim” means any notice, claim, demand,
order, direction (conditional or otherwise) or other communication by any
governmental authority or any Person alleging liability for any response or
corrective action, any damage, including, without limitation, personal injury
(including sickness, disease or death), tangible or intangible property damage,
contribution, indemnity, indirect or consequential damages, damage to the
environment, nuisance, pollution, contamination or other adverse effects on the
environment, or for fines or penalties, in each case arising under any
Environmental Law, including without limitation, relating to, resulting from or
in connection with Hazardous Materials and relating to Holdings, any of its
Subsidiaries or any of their respective properties or predecessors in interest,
or Facilities.

 

“Environmental Laws” means federal, state, local and
foreign laws, ordinances, orders, rules, regulations, judgments, writs, decrees
or injunctions relating to pollution or protection of human health, safety or
the environment including, without limitation, ambient air, indoor air, soil,
surface water, groundwater, wetlands and other natural resources, land or
subsurface strata, including, without limitation, those relating to the Release
or threatened Release of Hazardous Materials or otherwise relating to the
generation, manufacture, use, storage, transport, treatment, distribution, or
disposal of Hazardous Materials, including, without limitation, CERCLA, the
Hazardous Materials Transportation Act (49 U.S.C. § 1801 et  seq.),
the Resource Conservation and Recovery Act (42 U.S.C. § 6901 et  seq.),
the Federal Water Pollution Control Act (33 U.S.C. § 1251 et  seq.),
the Clean Air Act (42 U.S.C. § 7401 et  seq.), the Toxic
Substances Control Act (15 U.S.C. § 2601 et  seq.), the Federal
Insecticide, Fungicide and Rodenticide Act (7 U.S.C. § 136 et  seq.),
the Occupational Safety and Health Act (29 U.S.C. § 651 et  seq.)
and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. § 11001 et
seq.), each as amended or supplemented and each as in effect as of the
date of determination.

 

“ERISA” means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and any successor statute.

 

“ERISA Affiliate”, as applied to any Person, means (i)
any corporation which is, or was at any time within the five calendar years
immediately preceding the date hereof, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at any time within the five calendar years
immediately preceding the date hereof, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time within the five
calendar years immediately preceding the date hereof, a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of  the Internal Revenue Code of which
that Person is, or was at any time within the five calendar years immediately
preceding the date hereof, a member; and (iii) any member of an affiliated
service group within the meaning of Section 414(m) or (o) of the Internal
Revenue Code of which that Person, any corporation described in clause (i)
above or any trade or business described in clause (ii) above is, or was at any
time within the five calendar years immediately preceding the date hereof, a
member.

 

“ERISA Event” means (i) a “reportable event” within
the meaning of Section 4043 of ERISA and the regulations issued thereunder with
respect to any Pension Plan (excluding those for which the provision for 30-day
notice to the PBGC has been waived by regulation); (ii) the failure to meet the
minimum funding standard of Section 412 of the Internal Revenue Code with
respect to any Pension Plan (whether or not waived in accordance with Section
412(d) of the Internal Revenue Code) or the failure to make by its due date a
required installment under Section 412(m) of the Internal Revenue Code with
respect to any Pension Plan or the failure to make any required contribution to
a Multiemployer Plan; (iii) 

 

6

 

the provision by the administrator of any Pension Plan pursuant to
Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a
distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal
by any of Holdings or its Subsidiaries or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to
Sections 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings
to terminate any Pension Plan, or the occurrence of any event or condition
which might reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension
Plan; (vi) the imposition of liability on any of Holdings or its Subsidiaries
or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069
of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the
withdrawal by any of Holdings or its Subsidiaries or any of their respective
ERISA Affiliates in a complete or partial withdrawal (within the meaning of
Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any
potential liability therefor, or the receipt by any of Holdings or its
Subsidiaries or any of their respective ERISA Affiliates of notice from any
Multiemployer Plan that it is in reorganization or insolvency pursuant to
Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an
act or omission which could reasonably be expected to give rise to the
imposition on any of Holdings or its Subsidiaries or any of their respective
ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43
of the Internal Revenue Code or under Section 409 or 502(c), (i) or (l) or 4071
of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material
claim (other than routine claims for benefits) against any Employee Benefit
Plan other than a Multiemployer Plan or the assets thereof, or against any of
Holdings or its Subsidiaries or any of their respective ERISA Affiliates in
connection with any such Employee Benefit Plan; (x) receipt from the Internal
Revenue Service of notice of the failure of any Pension Plan (or any other
Employee Benefit Plan intended to be qualified under Section 401(a) of the
Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue
Code, or the failure of any trust forming part of any Pension Plan to qualify
for exemption from taxation under Section 501(a) of the Internal Revenue Code;
or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of
the Internal Revenue Code or pursuant to ERISA with respect to any Pension
Plan.

 

“Event of Default” has the meaning ascribed to such
term in Section 7.

 

“Exchange Act” means the Securities Exchange Act of
1934, as amended, and any successor statute or statutes thereto.

 

“Exchange Agreement” means that certain Exchange Agreement, dated as of
the Closing Date, by and among Holdings, JFL, the consenting shareholders and
the consenting noteholders party thereto, including all exhibits thereto, all
in form and substance satisfactory in all respects to the Lenders.

 

“Exchange Offer” means an exchange offer by Holdings for all
$90,000,000 of its 97/8% Senior Notes due 2008 in exchange for
(i) $60,000,000 of 9% Senior Notes due February 1, 2008, (ii) $30,000,000
in stated liquidation value of Holdings’s Series D 10.5% Senior Cumulative
Redeemable Preferred Stock due February 1, 2008 and (iii) 750,000 shares
of new Class A Common Stock of Holdings, par value $0.01 per share, and
including a cash option described in the Exchange Agreement.

 

“Existing Credit Facilities” means the credit
facilities under the Existing Financing Agreement.

 

“Existing Financing Agreement” means that certain
Financing Agreement, dated as of June 26, 2002, by and among Holdings, the
Borrower, the lenders party thereto and Ableco Finance LLC, as administrative
agent and collateral agent, as amended, supplemented or modified from time to
time through the Closing Date.

 

7

 

“Facilities” means any and all real property
(including, without limitation, all buildings, fixtures or other improvements
located thereon) now, hereafter or heretofore owned, leased, operated or used
by Holdings, its Subsidiaries or any of their respective predecessors in
interest.

 

“fair market value” means, with respect to any asset
or property, the price which could be negotiated in an arm’s-length, free
market transaction, for cash, between a willing seller and a willing and able
buyer, neither of whom is under undue pressure or compulsion to complete the
transaction.  Fair market value shall be
determined by the Board of Directors of Holdings acting reasonably and in good
faith and shall be evidenced by a Board Resolution of the Board of Directors of
Holdings delivered to the Lenders.

 

“Financial Statements” means the consolidated and
consolidating balance sheets, statements of operations, statements of cash
flows and statements of changes in shareholder’s equity of Holdings and its
Subsidiaries for the period specified, prepared in accordance with GAAP and
consistent with prior periods (unless otherwise required by GAAP).

 

“Fiscal Year” means the fiscal year of Holdings for
accounting and tax purposes, which for all years after the Closing Date shall
end on the Saturday closest to December 31.

 

“Funding Guarantor” has the meaning provided in Section
9.5.

 

“GAAP” means generally accepted accounting principles
as in effect from time to time in the United States of America.

 

“Guarantees” means, collectively, the guarantees in
favor of the Lenders and the Collateral Agent by the Guarantors set forth in Section
9.

 

“Guarantor” means each of (i) Holdings and (ii) each
of Holdings’s Subsidiaries that in the future executes a Joinder to Guarantee
in the form of Exhibit VI to this Agreement in which such Subsidiary
agrees to be bound by Section 9 and the other terms of the Loan
Documents as a Guarantor; provided that any Person constituting a
Guarantor as described above shall cease to constitute a Guarantor when its
respective Guarantee is released in accordance with the terms of the Loan
Documents.

 

“Hazardous Materials” means any pollutant,
contaminant, toxic, hazardous or extremely hazardous substance, constituent or
waste, or any other constituent, waste, material, compound, chemical or
substance including, without limitation, petroleum (including crude oil or any
fraction thereof) or any petroleum product, subject to regulation under any
Environmental Law.

 

“Holdings” has the meaning ascribed to such term in
the preamble to this Agreement.

 

“Incur” means, with respect to any Indebtedness or
other obligation of any Person, to create, issue, incur (by conversion,
exchange or otherwise), assume, guarantee or otherwise become liable in respect
of such Indebtedness or other obligation or the recording, as required pursuant
to GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and “Incurrence,” “Incurred,” “Incurrable”
and “Incurring” shall have meanings correlative to the foregoing); provided,
however, that any amendment, modification or waiver of any document
pursuant to which Indebtedness was previously Incurred shall only be deemed to
be an Incurrence of Indebtedness if and to the extent such amendment,
modification or waiver (i) increases the principal thereof or interest rate or
premium payable thereon or (ii) changes to an earlier date the stated maturity
thereof or the date of any scheduled or required principal payment thereon or
the time or circumstances under which such Indebtedness is required to be
redeemed; provided, further, that any Indebtedness of a Person
existing at 

 

8

 

the time such Person becomes (after the Closing Date) a Subsidiary of
Holdings (whether by merger, consolidation, acquisition or otherwise) shall be
deemed to be Incurred by such Subsidiary at the time it becomes a Subsidiary of
Holdings.

 

“Indebtedness” means with respect to any Person,
without duplication, (i) all indebtedness, obligations and liabilities of such
Person for borrowed money, (ii) all indebtedness, obligations and liabilities
of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
obligations and liabilities of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
indebtedness, obligations and liabilities under any title retention agreement
(but excluding trade accounts payable and other accrued liabilities arising in
the ordinary course of business that are not overdue by 90 days or more or are
being contested in good faith by appropriate proceedings promptly instituted
and diligently conducted), (v) all indebtedness, obligations and liabilities
for the reimbursement of any obligor on any letter of credit, banker’s
acceptance or similar credit transaction, (vi) all Contingent Obligations of
such Person, (vii) all indebtedness, obligations and liabilities under Currency
Agreements and Interest Swap Obligations of such Person, (viii) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price, but excluding accrued dividends, if any, and (ix) all
indebtedness, obligations and liabilities of any other Person of the type
referred to in clauses (i) through (viii) which are secured by any Lien on any
property or asset of such Person, the amount of such Indebtedness being deemed
to be the lesser of the fair market value of such property or asset or the
amount of the Indebtedness so secured.

 

“indemnified liabilities” has the meaning ascribed to
such term in Section 10.4.

 

“Indemnitees” has the meaning ascribed to such term in
Section 10.4.

 

“Interest Swap Obligations” means the obligations of
any Person pursuant to any arrangement with any other Person, whereby, directly
or indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest
on a stated notional amount in exchange for periodic payments made by such
other Person calculated by applying a fixed or a floating rate of interest on
the same notional amount and shall include, without limitation, interest rate
swaps, caps, floors, collars and similar agreements.

 

“Internal Revenue Code” means the Internal Revenue
Code of 1986, as amended from time to time, and any successor code or statute.

 

“Investment” means, with respect to any Person, any
direct or indirect loan or other extension of credit (including, without
limitation, a guarantee) or capital contribution to (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others), or any purchase or acquisition by such Person of
any Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person. 
For the purposes of Section 6.3 hereof, the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by Holdings or any of its Subsidiaries, without any
adjustments for increases or decreases in value, or write-ups, write-downs or
write-offs with respect to such Investment, reduced by the payment of
dividends, distributions, interest payments or repayments of loans or advances
in connection with such Investment or any other amounts received in respect of
such Investment.  If Holdings or any
Subsidiary sells or otherwise disposes of any Common Stock of any direct or
indirect Subsidiary such that, after giving effect to any such sale or
disposition, it ceases to be a Subsidiary of Holdings, Holdings shall be deemed
to have made an Investment on the date of any such sale or 

 

9

 

disposition equal to the fair market value of the Common Stock of such
Subsidiary not sold or disposed of.

 

“JFL” means J.F. Lehman Equity Investors I, L.P.

 

“JFL Cash Collateral Agreement” means that certain
Cash Collateral Agreement among JFL, U.S. Bank National Association, as Account
Custodian, and the Collateral Agent, in form and substance satisfactory to the
Lenders.

 

“JFL Documents” means the JFL Cash Collateral
Agreement and the JFL Guaranty.

 

 “JFL Guaranty”
means that certain Guaranty made by JFL, in form and substance satisfactory to
the Lenders.

 

“Laws” means all applicable statutes, laws,
ordinances, regulations, rules, orders, judgments, writs, injunctions or
decrees of any state, commonwealth, nation, territory, possession, province,
county, parish, town, township, village, municipality or Tribunal, and “Law”
means each of the foregoing.

 

“Lenders” has the meaning ascribed to that term in the
preamble to this Agreement and shall include any assignee of any Loan, Note or
Commitment to the extent of such assignment.

 

“Lien” means any lien, mortgage, deed of trust,
pledge, security interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).

 

“Litigation” means any action, suit, proceeding,
claim, lawsuit, arbitration and/or investigation conducted or threatened by or
before any Tribunal.

 

“Loan Documents” means this Agreement, the Notes, the
Guarantees, the JFL Documents and the Pledge and Security Agreement and all
other documents, instruments or agreements executed and delivered by the
Borrower, JFL or any Guarantor for the benefit of the Collateral Agent or any
Lender in connection herewith.

 

“Loan Party” means the Borrower and each Guarantor.

 

“Loans” has the meaning ascribed to such term in Section
2.1(a).

 

“Margin Stock” has the meaning assigned to that term
in Regulation U of the Board, as in effect from time to time.

 

“Material Adverse Effect” means (i) a material adverse
effect upon the business, operations, properties, assets, liabilities,
condition (financial or otherwise) or prospects of Holdings and its
Subsidiaries, taken as a whole, (ii) a material adverse effect on the ability
of any of Holdings or its Subsidiaries to execute, deliver and perform its
obligations under the Loan Documents, on the ability of JFL to execute, deliver
and perform its obligations under the JFL Documents or the other Loan Documents
to which it is a party or on the legality, validity or enforceability of this
Agreement or any other Loan Document or any Lien created thereunder, (iii) the
impairment of the ability of Holdings and its Subsidiaries to perform, or the
impairment of the ability of the Collateral Agent or the Lenders to enforce,
the Obligations, or (iv) a material adverse effect on the issuance of debt or
equity securities by Holdings or the Borrower.

 

10

 

“Material Contract” means any Contractual Obligation
to which the Borrower or any Guarantor is a party (other than the Loan
Documents) for which breach, nonperformance, cancellation or failure to renew
could reasonably be expected to have a Material Adverse Effect.

 

“Maturity Date” means the earliest of (i) the
consummation of the exchange contemplated by the Exchange Offer, (ii) August 1,
2003 and (iii) the date that all Loans shall become due and payable in full
hereunder, whether by acceleration or otherwise.

 

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

 

“Net Cash Proceeds” means, (a) with respect to any
Asset Sale, the proceeds in the form of cash or Cash Equivalents (including
payments in respect of deferred payment obligations when received in the form
of cash or Cash Equivalents other than the portion of any such deferred payment
constituting interest) received by Holdings or any of its Subsidiaries from
such Asset Sale net of (i) reasonable out-of-pocket expenses and fees relating
to such Asset Sale, (ii) the amount of Indebtedness secured by a Lien on any
asset (other than Indebtedness assumed by the purchaser of such asset) which is
required to be and which is repaid in connection with such Asset Sale (other
than Indebtedness arising under this Agreement) and (iii) net income taxes paid
in connection with such Asset Sale, and, (b) with respect to any sale, issuance
or transfer of Capital Stock (to the extent not constituting an Asset Sale) or
the receipt by Holdings of a capital contribution, the proceeds in the form of
cash or Cash Equivalents including payments in respect of deferred payment
obligations when received in the form of cash or Cash Equivalents received by
Holdings or any of its Subsidiaries from such sale, issuance or transfer or
such capital contribution, net of (i) reasonable out-of-pocket expenses and
fees relating to such sale, issuance or transfer or such capital contribution,
(ii) transfer taxes paid or payable by Holdings or any of its Subsidiaries in
connection therewith and (iii) net income taxes to be paid in connection
therewith (after taking into account any tax credits or deductions and any tax
sharing arrangements); provided that amounts due under clause (a) or (b)
shall further be net of any Termination Fee paid in connection with the related
prepayment of Loans.

 

“Notes” has the meaning ascribed to such term in Section
2.1(d).

 

“Notice of Borrowing” means a notice substantially in
the form of Exhibit IV annexed hereto with respect to a proposed
borrowing.

 

“Obligations” means all obligations of every nature of
the Borrower and each Guarantor from time to time owed to the Lenders and the
Collateral Agent under the Loan Documents, whether for principal,
reimbursements, interest (including interest which, but for the filing of a
petition in bankruptcy with respect to such Loan Party, would have accrued on
any Obligation, whether or not a claim is allowed against such Loan Party for
such interest in the related bankruptcy proceeding), fees, expenses,
indemnities or otherwise, and whether primary, secondary, direct, indirect,
contingent, fixed or otherwise (including obligations of performance).

 

“Officer” means, with respect to any Person, the
Chairman of the Board, the Chief Executive Officer, the President, any Vice
President, the Chief Financial Officer, the Controller, the Treasurer, the
Secretary or any Assistant Secretary of such Person.

 

“Officers’ Certificate” means, as applied to any
corporation, a certificate executed on behalf of such corporation by two
Officers; provided, however, that the Officers’ Certificate with
respect to the compliance with the conditions precedent to the making of the
Loans hereunder shall include (i) a statement that the officer or officers
making or giving such Officers’ Certificate have read such conditions 

 

11

 

and any definitions or other provisions contained in this Agreement
relating thereto, (ii) a statement that, in the opinion of the signers, they
have made or have caused to be made such examination or investigation as is
necessary to enable the corporation to express an informed opinion as to
whether or not such conditions have been complied with, and (iii) a statement
as to whether, in the opinion of the signers, such conditions have been
complied with.

 

“Operating Lease Obligations” means all obligations
for the payment of rent for any real or personal property under leases or
agreements to lease, other than Capitalized Lease Obligations.

 

“Other Taxes” has the meaning ascribed to such term in
Section 10.19.

 

“PBGC” means the Pension Benefit Guaranty Corporation,
and any successor to all or any of the Pension Benefit Guaranty Corporation’s
functions under ERISA.

 

“Pension Plan” means an employee pension benefit plan
as defined in Section 3(2) of ERISA which is subject to the provisions of Title
IV of ERISA and which is maintained for employees of Holdings, any Subsidiary or
any member of the Controlled Group.

 

“Permitted Holders” means J.F. Lehman Equity Investors
I L.P., the other members of JFL-EEC LLC, a Delaware limited liability company,
and each of their Affiliates.

 

“Permitted Indebtedness” has the meaning ascribed to
such term in Section 6.1.

 

“Permitted Investments” means:

 

(i)            Investments
by Holdings or its Subsidiaries on the Closing Date described on Schedule E
but not any increase in the amount thereof as set forth in such Schedule or any
other modification of the terms thereof unless such increase or modification
can be independently justified under Section 6.3;

 

(ii)           Investments
in cash and Cash Equivalents;

 

(iii)          (A)
loans and advances, and commitments to make such loans and advances, to
employees and officers of Holdings’ Subsidiaries in the ordinary course of
business for bona fide business purposes described in Schedule E
attached hereto, (B) loans and advances to employees and officers of Holdings’
Subsidiaries in the ordinary course of business for bona fide business purposes
not in excess of $20,000 at any one time outstanding and (C) advances to
employees and officers of Holdings’ Subsidiaries for moving, relocation and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business not in excess of $20,000 at any one time outstanding;

 

(iv)          Currency
Agreements entered into in the ordinary course of Holdings’s or its
Subsidiaries’ businesses and otherwise in compliance with this Agreement;

 

(v)           Investments,
including without limitation debt obligations, in securities of trade creditors
or customers received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers and in good faith settlement of delinquent obligations of, and other
disputes with, customers and suppliers arising in the ordinary course of
business;

 

(vi)          intercompany
loans to the extent permitted under Section 6.1(e); and

 

12

 

(vii)         accounts
receivable owing to any of Holdings or its Subsidiaries, if created or acquired
in the ordinary course of business and payable or dischargeable in accordance
with customary trade terms of Holdings or any of its Subsidiaries, as the case
may be.

 

“Permitted Liens” has the meaning ascribed to such
term in Section 6.2.

 

“Person” means an individual, partnership,
corporation, limited liability company, unincorporated organization, trust or
joint venture, or a governmental agency or political subdivision thereof.

 

“Pledge and Security Agreement” means that certain
Pledge and Security Agreement among the Loan Parties and the Collateral Agent,
in form and substance satisfactory to the Lenders and substantially in the form
of Exhibit II annexed hereto.

 

“Preferred Stock” of any Person means any Capital
Stock of such Person that has preferential rights to any other Capital Stock of
such Person with respect to dividends or redemptions or upon liquidation.

 

“Qualified Capital Stock” means any Capital Stock that
is not Disqualified Capital Stock or that is not Indebtedness that is
convertible or exchangeable into Capital Stock.

 

“Release” means any spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
emitting, leaching or migration of Hazardous Materials into the indoor or
outdoor environment (including, without limitation, the abandonment or disposal
of any barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including without limitation the
movement of any Hazardous Material through the air, soil, surface water,
groundwater or property.

 

“Reportable Event” has the meaning set forth in
Section 4043 of ERISA, but excluding any event for which the 30-day notice
requirement has been waived by applicable regulations of the PBGC.

 

“Required
Forms” has the meaning ascribed to such term in Section 10.19(f).

 

“Required Lenders” means Lenders holding in the
aggregate more than (i) after the Loans are advanced, 80% of the outstanding
principal amount of Loans, and (ii) prior to the Loans being advanced, 80% of
the Commitments.

 

“Restricted Payment” has the meaning ascribed to such
term in Section 6.3(a).

 

“Sale and Leaseback Transaction” means any direct or
indirect arrangement with any Person or to which any such Person is a party,
providing for the leasing to Holdings or a Subsidiary of any property, whether
owned by Holdings or any Subsidiary at the Closing Date or later acquired,
which has been or is to be sold or transferred by Holdings or such Subsidiary
to any Person.

 

“Securities” means any stock, shares, partnership
interests, voting trust certificates, certificates of interest or participation
in any profit sharing agreement or arrangement, bonds, debentures, options,
warrants, notes, or other evidences of indebtedness, secured or unsecured,
convertible, subordinated or otherwise, or in general any instruments commonly
known as “securities” or any certificates of interest, shares or participations
in temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.

 

13

 

“Securities Act” means the Securities Act of 1933, as
amended, and any successor statute or statutes thereto.

 

“Solvency Certificate”  means a Solvency Certificate of the chief financial officer
of the Borrower, substantially in the form of Exhibit VII.

 

“Solvent” means, with respect to the Borrower, that as
of the date of determination both (i) (a) the sum of the Borrower’s debt
(including contingent liabilities) does not exceed the present fair saleable
value of the Borrower’s present assets; (b) the Borrower’s capital is not
unreasonably small in relation to its business as contemplated on the Closing
Date or with respect to any transaction contemplated or undertaken after the
Closing Date; and (c) the Borrower has not incurred and does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due (whether at maturity or
otherwise); and (ii) the Borrower is “solvent” within the meaning given that
term and similar terms under applicable laws relating to fraudulent transfers
and conveyances.  For purposes of this
definition, the amount of any contingent liability at any time shall be
computed as the amount that, in light of all of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability (irrespective of whether such contingent
liabilities meet the criteria for accrual under Statement of Financial
Accounting Standards No. 5).

 

“Subordinated Indebtedness” means Indebtedness of the
Borrower or any Guarantor which is expressly subordinated in right of payment
to the Loans or the Guarantee of such Guarantor, as the case may be.

 

“Subsidiary,” means, with respect to any Person, (i)
any corporation of which the outstanding Capital Stock having at least a
majority of the votes entitled to be cast in the election of directors under
ordinary circumstances shall at the time be owned, directly or indirectly, by
such Person, (ii) any other Person of which at least a majority of the voting
interest under ordinary circumstances is at the time, directly or indirectly,
owned by such Person, and (iii) any other Person of which a majority in equity
interests (in terms of economic ownership) are owned, directly or indirectly,
by such Person.  Unless otherwise
specified, all references to a “Subsidiary” shall mean a Subsidiary of
Holdings.

 

“Take-Out Facility” means a debt facility entered into
by the Borrower and/or Holdings on terms satisfactory in all respects to the
Lenders in their sole and absolute discretion, the proceeds of which shall be
used to repay the Loans.

 

“Tax Payments” has
the meaning ascribed to such term in Section 6.3(b).

 

“Taxes” means all taxes, assessments, fees, levies,
imposts, duties, penalties, deductions, liabilities, withholdings or other charges
of any nature whatsoever, including interest, penalties and additions to tax.

 

“Termination Fee” has the meaning ascribed to such
term in Section 2.3(b).

 

“Tribunal” means any government, any arbitration
panel, any court or any governmental department, commission, board, bureau,
agency, authority or instrumentality of the United States or any state,
province, commonwealth, nation, territory, possession, county, parish, town,
township, village or municipality, whether now or hereafter constituted and/or
existing.

 

“UCC” means the Uniform Commercial Code (or any
similar or equivalent legislation) as in effect in any applicable jurisdiction.

 

14

 

“U.S. Legal Tender” means such coin or currency of the
United States of America as at the time of payment shall be legal tender for
the payment of public and private debts.

 

“Wholly Owned Subsidiary” of any Person means any
Subsidiary of such Person of which all the outstanding Capital Stock is owned
by such Person or any Wholly Owned Subsidiary of such Person.  Unless otherwise specified, all references
to a “Wholly Owned Subsidiary” shall mean a Wholly Owned Subsidiary of
Holdings.

 

1.2           Accounting
Terms.     For the purposes of this Agreement,
all accounting terms not otherwise defined herein shall have the meanings
assigned to them in conformity with GAAP.

 

1.3           Other
Definitional Provisions.     Any of the terms
defined in Section 1.1 may, unless the context otherwise requires, be
used in the singular or the plural depending on the reference.  Except as otherwise provided herein, where
any provision in this Agreement refers to a specific agreement, contract or
document, such provision shall be construed to refer to such agreement,
contract or document as it may be amended, restated, supplemented or otherwise
modified from time to time.  The use in
any of the Loan Documents of the word “include” or “including”, when following
any general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as “without limitation” or “but not limited to” or
words of similar import) is used with reference thereto, but rather shall be
deemed to refer to all other items or matters that fall within the broadest
possible scope of such general statements, term or matter.  Except as otherwise specified, all
references herein to Sections, Exhibits and Schedules shall refer to Sections,
Exhibits and Schedules of this Agreement.

 

SECTION
2.                            AMOUNT
AND TERMS OF COMMITMENT AND LOANS; NOTES

 

2.1           Loans and Notes.

 

(a)           Commitment.  Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of the Loan
Parties set forth herein, the Lenders hereby agree to lend to the Borrower on
the Closing Date an aggregate amount of up to $25,000,000 (the “Loans”),
each such Lender committing to lend the amount set forth next to such Lender’s
name on the signature pages hereto; provided that the Closing Date must
occur no later than April 17, 2003, and the Loans shall be in an aggregate
amount of not greater than the lesser of (i) $25,000,000 and (ii) the amount of
available Commitments (as defined below) on the Closing Date.  The Lenders’ commitments to make the Loans
to the Borrower pursuant to this Section 2.1(a) are herein called,
individually, the “Commitment” and collectively, the “Commitments.”

 

(b)           Notice
of Borrowing.  When the Borrower
desires to borrow under this Section 2.1, it shall deliver to the
Lenders a Notice of Borrowing no later than 11:00 a.m. (New York time), at
least two (2) Business Days in advance of the date of the proposed Closing Date
or such other date as shall be agreed to by the Lenders.  The Notice of Borrowing shall specify the
proposed Closing Date (which shall be a Business Day).  Each Lender’s share of the Loan shall be
determined by reference to the quotient of such Lender’s unfunded Commitment,
divided by the aggregate amount of all unfunded Commitments.  All Loans shall be funded on a pro rata basis by the Lenders as
aforesaid.

 

(c)           Disbursement
of Funds.  On the Closing Date, each
Lender will make available its pro rata share
of the Loan requested to be made on such date in U.S. dollars, by wire
transfer, to the account designated by the Borrower.

 

15

 

(d)           Notes.  The Borrower shall execute and deliver to
each Lender on the Closing Date a Note, dated the Closing Date and having a
principal amount equal to the Loans advanced by such Lender, substantially in
the form of Exhibit I annexed hereto (the “Notes”).

 

(e)           Scheduled
Payment of the Loans.  The Borrower
shall pay in full the outstanding amount of the Loans and all other Obligations
owing hereunder, including, without limitation, the Termination Fee, no later
than the Maturity Date; provided that if the Loans have not been
previously repaid in full on or prior to the consummation of the exchange
contemplated by the Exchange Offer, the Loans held by each Lender shall be
exchanged on the date of the consummation of such exchange for Exchange Loans
having the terms set forth in the summary of principal terms attached hereto as
Exhibit VIII.

 

(f)            Termination
of Commitment.  The Commitments
hereunder shall terminate on April 17, 2003, if the Loans are not made on or
before such date.  All Commitments not
utilized on the Closing Date shall immediately terminate.

 

(g)           Pro
Rata Borrowings.  The Loans made
under this Agreement shall be made by the Lenders pro rata on the basis of their respective Commitments.

 

2.2           Interest on the Loans.

 

(a)           Rate
of Interest; Interest Payments.  The
Loans shall bear interest on the unpaid principal amount thereof from the date
made through maturity (whether by prepayment, acceleration or otherwise) at a
rate of ten percent (10.00%) per  annum.  Interest shall be payable in arrears on the last day of each
month and upon any prepayment of the Loans (to the extent accrued on the amount
being prepaid) and at maturity of the Loans; provided that if any month
would end on a day other than a Business Day, interest shall be payable on the
on the immediately preceding Business Day.

 

(b)           Default
Rate.  At any time that an Event of
Default has occurred and is continuing, all Loans and other Obligations shall
bear interest payable upon demand at a rate of 13.00% per  annum.

 

(c)           Computation
of Interest.  Interest on the Loans
shall be computed on the basis of a 360-day year and the actual number of days
elapsed in the period during which it accrues. 
In computing interest on the Loans, the date of the making of the Loans
shall be included, and the date of payment shall be excluded.

 

2.3           Fees.

 

(a)           Funding
Fee.  On the Closing Date, the
Borrower agrees to pay to the Lenders (on a pro
rata basis, according to each Lender’s Commitment) a non-refundable
funding fee in an aggregate amount equal to $500,000.

 

(b)           Termination
Fee.  On the date of any repayment
or prepayment of the Loans (whether by acceleration or otherwise), the Borrower
agrees to pay to the Lenders (on a pro rata
basis, according to the outstanding principal amount of the Loans of such
Lender) a non-refundable termination fee in an aggregate amount equal to 2.00%
of the outstanding principal amount repaid or prepaid, as applicable (the “Termination
Fee”); provided that, for the avoidance of doubt, on the Maturity Date the Termination
Fee payable shall equal 2.00% of the principal amount of the Loans then
outstanding (immediately prior to any payment on such date).

 

16

 

2.4           Prepayments and Reductions in the
Commitment.

 

(a)           Voluntary
Prepayments.  The Borrower at its
option may, upon at least one (1) day’s written notice to the Lenders, prepay all
or any part of the principal amount of outstanding Loans at a redemption price
equal to 100% of the principal amount of the Loans so prepaid plus the
applicable Termination Fee, together with accrued interest through the date of
prepayment. Loans so prepaid may not be reborrowed.

 

(b)           Mandatory
Prepayments.

 

(i)            Prepayments
from Asset Sales.  The Borrower
shall prepay Loans with the Net Cash Proceeds of any Asset Sale occurring after
the Closing Date on a date not later than the third (3rd) Business
Day next succeeding the date of consummation of such Asset Sale or, in the case
of that portion of the purchase price which is deferred, the date of receipt of
such Net Cash Proceeds, whichever is later. 
The amount of Loans so prepaid shall equal the amount of such Net Cash
Proceeds.  Concurrently with the
consummation of an Asset Sale, the Borrower shall deliver to the Lenders an
Officers’ Certificate demonstrating the derivation of Net Cash Proceeds from
the gross sales price of such Asset Sale.

 

(ii)           Prepayments
from Incurrence of Indebtedness. 
Concurrently with the Incurrence by Holdings or any of its Subsidiaries
of any Indebtedness not permitted under Section 6.1, the Borrower shall
prepay the Loans in a principal amount equal to the principal amount of such
Indebtedness so Incurred (net of the Termination Fee paid in connection
therewith and any reasonable out-of-pocket fees and expenses paid by Holdings
and its Subsidiaries in connection with such Incurrence).

 

(iii)          Notice.  The Borrower shall notify the Lenders of any
prepayment to be made pursuant to this Section 2.4(b) at least two
Business Days prior to such prepayment date (unless shorter notice is
satisfactory to the Required Lenders).

 

(c)           Borrower’s
Mandatory Prepayment Obligation; Application of Prepayments.  All prepayments shall include: (i) payment
of accrued interest on the principal amount so prepaid (which shall be applied
to payment of interest before application to principal) and (ii) the applicable
Termination Fee.  Loans so prepaid may
not be reborrowed.

 

(d)           Manner
and Time of Payment.  All payments
of principal, interest and other Obligations hereunder and under the other Loan
Documents shall be made without defense, set-off or counterclaim and in
immediately available funds and delivered to each applicable Lender, unless
otherwise specified, not later than 12:00 Noon (New York time) on the date due
to such account as the applicable Lender shall have notified the Borrower;
funds received by any Lender after that time shall be deemed to have been paid
by the Borrower on the next succeeding Business Day.  All payments of any Obligations to be made hereunder or under any
other Loan Document by the Borrower or any other obligor with respect thereto
shall be made solely in U.S. Legal Tender.

 

(e)           Payments
on Non-Business Days.  Whenever any
payment to be made hereunder or under the Notes shall be stated to be due on a
day which is not a Business Day, the payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or under the Notes or of the
commitment and other fees hereunder, as the case may be.

 

(f)            Notation
of Payment.  Each Lender agrees that
before disposing of any Note held by it, or any part thereof (other than by
granting participations therein), such Lender will make a notation 

 

17

 

thereon of all principal payments previously made thereon and of the
date to which interest thereon has been paid and will notify the Borrower of
the name and address of the transferee of that Note; provided, however,
that the failure to make (or any error in the making of) such a notation or to
notify the Borrower of the name and address of such transferee shall not limit
or otherwise affect the obligation of the Borrower hereunder or under such
Notes with respect to the Loans and payments of principal or interest on any
such Note.

 

2.5           Use of Proceeds.

 

(a)           Loans.  The proceeds of the Loans shall be used by the
Borrower: (i) to repay existing indebtedness in respect of the Existing Credit
Facilities (which amounts shall not exceed $15,000,000 in the case of the term
loan facility thereunder or $6,000,000 million in the case of the revolving
credit facility thereunder, plus (in each case) accrued and unpaid
interest thereon), (ii) to pay an anniversary fee in an amount not to exceed
$250,000 under the Existing Credit Facilities in satisfaction in full of all
prepayment obligations or other penalties owing to the lenders under the
Existing Credit Facilities, (iii) to pay the fees due on the Closing Date to
the Lenders, (iv) to pay reasonable and documented fees and expenses in
connection with the foregoing and the negotiation and execution of the Loan
Documents and the Exchange Agreement and transactions relating thereto up to
and including the Closing Date, in an aggregate amount not to exceed $590,000,
and (v) for general corporate purposes.

 

(b)           Margin
Regulations.  No portion of the
proceeds of any borrowing under this Agreement shall be used by the Borrower in
any manner which might cause the borrowing or the application of such proceeds
to violate the applicable requirements of Regulation T, Regulation U or
Regulation X of the Board or any other regulation of the Board or to violate
the Exchange Act, in each case as in effect on the date or dates of such
borrowing and such use of proceeds.

 

SECTION
3.                            CONDITIONS

 

3.1           Conditions
to Loans.  The obligation of the
Lenders to make the Loans is subject to the prior or concurrent satisfaction of
each of the following conditions:

 

(a)           On
or before the Closing Date, all corporate and other proceedings taken or to be
taken in connection with the transactions contemplated hereby shall be
reasonably satisfactory in form and substance to the Lenders, and the Lenders
or their counsel shall have received on behalf of the Lenders the following
items, each of which shall be in form and substance satisfactory to the Lenders
and, unless otherwise noted, dated the Closing Date:

 

(i)            a
certified copy of the each Loan Party’s charter, together with a certificate of
status, compliance, good standing or like certificate with respect to each Loan
Party issued by the appropriate government officials of the jurisdiction of its
incorporation and of each jurisdiction in which it owns any material assets or
carries on any material business, each to be dated a recent date prior to the
Closing Date;

 

(ii)           a
copy of each Loan Party’s by-laws, certified as of the Closing Date by its
Secretary or one of its Assistant Secretaries;

 

(iii)          resolutions
of each Loan Party’s Board of Directors approving and authorizing the
execution, delivery and performance of each of this Agreement, each of the
other Loan Documents to which it is a party and any other documents,
instruments and certificates required to be executed by such Loan Party in
connection herewith and therewith and (in the case of the Borrower) 

 

18

 

approving and authorizing the execution, delivery and payment of the
Notes, each certified as of the Closing Date by one of its Officers as being in
full force and effect without modification or amendment;

 

(iv)          signature
and incumbency certificates of each Loan Party’s officers executing the Loan
Documents to which it is a party;

 

(v)           executed
copies of this Agreement and the Notes substantially in the form of Exhibit
I annexed hereto executed in accordance with Section 2.1(d) drawn to
the order of the Lenders and with appropriate insertions;

 

(vi)          an
originally executed Notice of Borrowing substantially in the form of Exhibit
IV annexed hereto, signed by the President or a Vice President of the
Borrower on behalf of the Borrower and delivered to the Lenders;

 

(vii)         originally
executed copies of one or more favorable written opinions of (A) Gibson, Dunn
& Crutcher LLP, counsel for the Loan Parties and JFL, substantially in the
form of Exhibit V annexed hereto (or otherwise in form and substance
satisfactory to the Lenders) and addressed to the Lenders and the Collateral
Agent, and (B) such other opinions of counsel and such certificates or opinions
of accountants, appraisers or other professionals as the Lenders shall have
requested;

 

(viii)        a
Solvency Certificate executed by the chief financial officer of the Borrower;

 

(ix)           originally
executed copies of the Pledge and Security Agreement, executed and delivered by
each Loan Party, dated as of the Closing Date, substantially in the form of Exhibit
II annexed hereto;

 

(x)            certificates
representing the Capital Stock of each entity pledged pursuant to the Pledge
and Security Agreement (which certificates shall be accompanied by irrevocable,
undated stock powers, duly endorsed in blank and otherwise satisfactory in all
respects to the Lenders);

 

(xi)           a
completed Collateral Questionnaire dated the Closing Date and executed by an
Officer of each Loan Party;

 

(xii)          (A)
the results of a recent search, by a Person satisfactory to the Collateral
Agent, of all effective UCC financing statements (or equivalent filings) made
with respect to any personal or mixed property of any each Loan Party in the
jurisdictions specified by the Collateral Agent, together with copies of all
such filings disclosed by such search, (B) an executed “pay-off” letter with
respect to the debt under the Existing Credit Facilities satisfactory in all
respects to the Lenders and (C) UCC termination statements (or similar
documents) for filing in all applicable jurisdictions as may be necessary to
terminate any effective UCC financing statements (or equivalent filings)
disclosed in such search (other than any such financing statements in respect
of Permitted Liens);

 

(xiii)         evidence
that each Loan Party and JFL shall have taken or caused to be taken any other
action, executed and delivered or caused to be executed and delivered any other
agreement, document and instrument and made or caused to be made any other
filing and recording (other than as set forth herein) reasonably required by
the Lenders;

 

(xiv)        a
certificate from the Borrower’s insurance broker or other evidence satisfactory
to it that all insurance required to be maintained pursuant to Section 5.4
is in full force and 

 

19

 

effect and that the Collateral Agent has been named as additional insured
and loss payee thereunder to the extent required under Section 5.4; and

 

(xv)         resolutions
of the Board of Directors or similar governing body of JFL and its General
Partner, in each case approving and authorizing the execution, delivery and
performance of each of the Loan Documents to which JFL is a party and any other
documents, instruments and certificates required to be executed by JFL in
connection therewith, each certified as of the Closing Date by one of its
Officers as being in full force and effect without modification or amendment;

 

(xvi)        signature
and incumbency certificates of JFL’s officers executing the Loan Documents to
which it is a party;

 

(xvii)       originally
executed copies of the JFL Guaranty and the JFL Cash Collateral Agreement,
executed and delivered by JFL, dated as of the Closing Date; and

 

(xviii)      all
such counterpart originals or certified copies of such other documents,
instruments, certificates and opinions as the Lenders may reasonably request.

 

(b)           The
Lenders shall be satisfied that neither Holdings nor any of its Subsidiaries
has paid any amendment, waiver, consent or other fee or any administrative
changes or increased interest payments to the lenders or agents for any purpose
under the Existing Credit Facilities since December 31, 2002 except, in each
case, as acceptable to the Lenders and disclosed to the Lenders in writing
prior to the Closing Date.

 

(c)           The
Lenders shall have received and be satisfied in all respects with a fully
executed copy of the Exchange Agreement and all opinions, documents and
certificates delivered in connection therewith.

 

(d)           The
Lenders shall have completed, and be satisfied with the results of, due
diligence investigations of Holdings and its Subsidiaries relating to
incurrence of the Loans under the Loan Documents.

 

(e)           The
corporate, tax, capital and ownership structure (including articles of
incorporation and by-laws), shareholders agreements and management of Holdings
and its Subsidiaries shall be satisfactory to the Lenders in all respects.

 

(f)            The
Collateral Agent, for the benefit of the Lenders, shall have been granted first
priority perfected liens to the extent required and described in the Loan
Documents and shall have received such other reports, documents and agreements
as are customarily delivered in connection with similar secured transactions or
as the Lenders shall have deemed appropriate.

 

(g)           Each
Loan Party and JFL shall have received all governmental, shareholder and third
party consents and approvals necessary or desirable in connection with the
financings and other transactions contemplated hereby and expiration of all
applicable waiting periods without any action being taken by any competent
authority that could restrain, prevent or impose any materially adverse
conditions on the financings and other transactions contemplated hereby, and no
such Law or regulation shall be applicable which in the reasonable judgment of
any Lender could have any such effect.

 

(h)           The
Lenders shall have received (i) consolidated and consolidating pro forma balance sheet of Holdings and
its Subsidiaries as of March 31, 2003, (ii) consolidated and consolidating
income statements of Holdings and its Subsidiaries as of March 31, 2003, and
(iii) projected financial 

 

20

 

statements (including balance sheets and statements of operations,
stockholders’ equity and cash flows of Holdings and its Subsidiaries) for the
fiscal quarters ending June 30, 2003, September 30, 2003 and December 27, 2003,
and such balance sheets, income statements and projections shall be
satisfactory in all respects to the Lenders.

 

(i)            The
Lenders shall have received consolidated financial statements of Holdings,
including balance sheets and income and cash flow statements as of the end of
and for the fiscal years ending December 29, 2001 and December 28, 2002,
audited by the Auditors and prepared in conformity with GAAP, together with the
Auditor’s report thereon satisfactory in all respects to the Lenders, and all
such financial statements shall be satisfactory in all respects to the Lenders
(or, in the case of the Auditor’s report relating to the financial statements
for the fiscal year ending December 28, 2002, a draft of such Auditor’s report
thereon satisfactory in all respects to the Lenders, and the Lenders shall have
had, and be satisfied in all respects with, discussions with the Auditor
regarding the content and delivery thereof).

 

(j)            No
event or occurrence shall have occurred which has resulted or could reasonably
be expected to result in a Material Adverse Effect since December 28, 2002 or
in the facts and information as represented to date (other than failure by
Holdings to deliver the report due under Sections 7.01(a)(ii) and 7.01(a)(xiv)
of the Existing Financing Agreement and the failure by Holdings to deliver the
notices of default relating to the foregoing under Section 7.01(a)(ix) of the
Existing Financing Agreement, all of which has been disclosed to the Lenders).

 

(k)           There
shall be no action, suit, investigation, claim, litigation or proceeding
pending or threatened in any court or before any arbitrator or governmental
instrumentality that (x) purports to affect the Loans or the Notes or the other
Loan Documents or (y) that has had or could reasonably be expected to have or
result in a Material Adverse Effect.

 

(l)            As
of the Closing Date, Holdings and its Subsidiaries shall have no outstanding
Indebtedness (except for Indebtedness described on Schedule B annexed
hereto) and shall have terminated any commitments to lend or make other
extensions of credit under the Existing Credit Facilities.  Any and all security interests in the assets
of Holdings and its Subsidiaries granted in favor of holders of Indebtedness
(other than Permitted Liens) shall have been terminated.

 

(m)          On
or before the Closing Date, the Borrower shall have paid to the Lenders and the
Collateral Agent (i) all fees payable under Section 2.3(a) and (ii) the
fees and expenses incurred by the Lenders and the Collateral Agent in
connection with the negotiation, preparation, execution and delivery of the
Loan Documents and the transactions related thereto (including the reasonable
legal fees and out-of-pocket expenses of counsel to the Lenders and the
Collateral Agent).

 

(n)           On
or before the Closing Date, each Loan Party shall have performed all agreements
which this Agreement provides shall be performed on or before the Closing Date.

 

(o)           On
or before the Closing Date, the Borrower shall have delivered to the Lenders an
Officers’ Certificate from the Borrower in form and substance satisfactory to
the Lenders, certifying as to the matters specified in Sections 3.1(n), 3.1(p)
and 3.1(q) and that the other conditions set forth in this Section
3.1 are satisfied on and as of the Closing Date.

 

(p)           The
representations and warranties in Section 4 are true, correct and
complete in all respects (with respect to representations and warranties
qualified by materiality or Material Adverse Effect) and in all material
respects (with respect to all other representations and warranties) on and as
of the Closing Date to the same extent as though made on and as of that date.

 

21

 

(q)           No
event shall have occurred and be continuing or would result from the
consummation of the borrowing contemplated by the Notice of Borrowing which
would constitute a Default or Event of Default.

 

(r)            The
making of the Loans in the manner contemplated in this Agreement shall not
violate the applicable provisions of Regulation T, U or X of the Board or any
other regulation of the Board.

 

(s)           U.S.
Bank National Association, in its capacity as the account custodian on behalf
of the Collateral Agent under the JFL Cash Collateral Agreement, shall have
received from JFL an amount equal to at least $4,800,000 in immediately
available funds in the Account (as defined in, and in accordance with the terms
of, the JFL Cash Collateral Agreement).

 

SECTION
4.                            REPRESENTATIONS
AND WARRANTIES

 

In order to induce the Lenders to enter into this
Agreement and to make the Loans, each Loan Party represents and warrants to the
Lenders that, at the time of execution hereof and on the Closing Date, the
following statements are true, correct and complete:

 

4.1           Organization
and Good Standing.  Each of
Holdings and its Subsidiaries is duly organized and existing and in good
standing under the Laws of its jurisdiction of organization.  Each of Holdings and its Subsidiaries has
the requisite power and authority to own and operate its properties and to
carry on its business as now conducted and as proposed to be conducted and is
duly qualified as a foreign organization and in good standing in all
jurisdictions in which it is doing business, except where failure to be so
qualified or in good standing, singly or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect.

 

4.2           Authorization
and Power.  Each of Holdings and
its Subsidiaries, to the extent a party thereto, has the requisite power and
authority, and has taken all action necessary, to execute, deliver and perform
its obligations under the Loan Documents and, in the case of the Borrower, to
issue the Notes.

 

4.3           No Conflicts or Consents.

 

(a)           The
execution and delivery of the Loan Documents, the consummation of each of the
transactions here contemplated hereby or thereby, the compliance with each of
the terms and provisions hereof or thereof, and the issuance, delivery and
performance of the Notes, do not and will not (i) violate any provision of any
Law or any governmental rule or regulation applicable to any of Holdings and
its Subsidiaries, the Certificate or Articles of Incorporation or By-laws or
other organizational documents of any of them or any order, judgment or decree
of any court or other agency of government binding on any of them, (ii) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any Contractual Obligation of any of Holdings or its
Subsidiaries, except for those conflicts, breaches or defaults which would not
result in a Material Adverse Effect, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of any of Holdings
or its Subsidiaries except for Liens created pursuant to the Loan Documents,
(iv) require any approval of stockholders or any approval or consent of any
Person under any Contractual Obligation of any of Holdings or its Subsidiaries
except for such approvals or consents which will be obtained on or before the
Closing Date and disclosed in writing to Lenders.

 

(b)           No
consent, approval, authorization or order of any Tribunal or other Person is
required in connection with the execution and delivery by Holdings or any of
its Subsidiaries, to the 

 

22

 

extent a party thereto, of any of the Loan Documents or the
consummation of the transactions contemplated hereby or thereby, other than any
such consent, approval, authorization or order which has been obtained and
remains in full force and effect.

 

4.4           Enforceable
Obligations.    Each of the Loan
Documents and each other document or instrument to be delivered in connection
therewith has been duly authorized; each of the Loan Documents and each other
document or instrument to be delivered in connection therewith to be executed
and delivered on or prior to the Closing Date has been duly executed and
delivered by Holdings and each of its Subsidiaries that are a party thereto;
and each of the Loan Documents and each other document or instrument to be
delivered in connection therewith to be executed and delivered on or prior to
the Closing Date is, and each of the Loan Documents to be executed and
delivered after the Closing Date will be, upon such execution and delivery, the
legal, valid and binding obligations of Holdings and each such Subsidiary (to
the extent a party thereto), enforceable in accordance with their respective
terms, except to the extent that the enforceability thereof may be limited by
applicable bankruptcy, insolvency, reorganization or similar Laws affecting the
enforcement of creditors’ rights generally or by general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).

 

4.5           Properties;
Liens.  Each of Holdings and its
Subsidiaries has good, sufficient and legal title to all their respective
properties and assets, and all properties held under lease by any of them are
held under valid, subsisting and enforceable leases, and none of Holdings or
its Subsidiaries is in default under any lease, except in each case for such
defects or defaults that, singly or in the aggregate, would not have a Material
Adverse Effect.  Except for Permitted
Liens, all such properties and assets owned or leased are so owned or leased
free and clear of Liens.

 

4.6           Financial Condition.

 

(a)           The
Financial Statements of Holdings and its Subsidiaries for the three-year period
ended December 28, 2002, copies of which have been delivered to the Lenders,
have been prepared from, and are consistent with, the books and records of
Holdings and its Subsidiaries and fairly present the consolidated financial
position of Holdings and its Subsidiaries as at the respective dates thereof
and the consolidated results of operations and cash flows of Holdings and its
Subsidiaries for the periods then ended. 
Except as disclosed on Schedule F, neither Holdings nor any of
its Subsidiaries had at December 28, 2002, any material contingent liabilities,
liabilities for Taxes or long-term leases, unusual forward or long-term
commitments or unrealized or unanticipated losses from any unfavorable
commitments which are not reflected or reserved against in the foregoing
Financial Statements or in the notes thereto. 
No events or developments which have had or could reasonably be expected
to have a Material Adverse Effect have occurred since December 28, 2002 (other
than failure by Holdings to deliver the report due under Sections 7.01(a)(ii)
and 7.01(a)(xiv) of the Existing Financing Agreement and the failure by
Holdings to deliver the notices of default relating to the foregoing under
Section 7.01(a)(ix) of the Existing Financing Agreement, all of which has been
disclosed to the Lenders).

 

(b)           The
pro forma balance sheet of
Holdings and its Subsidiaries as of March 31, 2003, a copy of which has
heretofore been furnished to the Lenders, fairly presents the estimated
consolidated opening balance sheet of Holdings and its Subsidiaries assuming
the Loans had been made as of March 31, 2003, and the financial condition of
Holdings on the Closing Date does not differ in any material respect from the
information therein set forth.

 

(c)           Upon
giving effect to the Loans and the restructuring contemplated by the Exchange
Agreement, the Borrower will be Solvent.

 

23

 

4.7           Full
Disclosure.    The financial
projections (including, without limitation, the pro forma financial statements included therewith)
heretofore furnished to the Lenders by Holdings were prepared by or under the
direction of an officer of Holdings and were prepared in good faith on the
basis of information and assumptions that Holdings believed to be fair,
adequate and reasonable as of the date of such information, and which
assumptions are believed to be fair and reasonable as of the date hereof (it
being understood that projections by their nature involve approximations and
uncertainties and that actual future results may differ materially from those
projected).  All other factual
information heretofore or contemporaneously furnished in writing by or on
behalf of Holdings or any of its Subsidiaries to the Collateral Agent or the
Lenders for purposes of or in connection with this Agreement, when taken
together with Holdings’ filings with the Securities and Exchange Commission,
does not contain any untrue statement of a material fact or omit to state any
material fact necessary to keep the statements contained herein or therein, in
light of circumstances under which they were made, from being misleading.  No fact is known, no condition exists nor
has any event occurred which has not been disclosed herein or in any other
document, certificate or statement furnished to the Collateral Agent or the
Lenders for use in the transactions contemplated hereby (including Holdings’
filings with the Securities and Exchange Commission) which, singly or in the
aggregate, has had or could reasonably be expected to have a Material Adverse
Effect.

 

4.8           No Default.    No event has occurred and is continuing
which constitutes a Default or an Event of Default.

 

4.9           Compliance
with Contracts, Etc.    None of
Holdings or any of its Subsidiaries is in violation of (i) its certificate of
incorporation, by-laws or other organizational documents, (ii) any material
provision of any applicable Law, ordinance, administrative or governmental rule
or regulation, or (iii) any order, decree or judgment of any Tribunal having
jurisdiction over any of them; no event of default or event that but for the
giving of notice or the lapse of time, or both, would constitute an event of
default exists under any material Contractual Obligation of Holdings or any of
its Subsidiaries.

 

4.10         No
Litigation.  There is no
Litigation pending or, to the best knowledge of Holdings, threatened, by,
against, or which may (a) affect any benefit plan of Holdings or any of its
Subsidiaries or any fiduciary or administrator thereof, (b) relate to or affect
Holdings or any of its Subsidiaries which, singly or in the aggregate, would
reasonably be expected to have a Material Adverse Effect or (c) relate to or
affect this Agreement or any of the other Loan Documents or the transactions
contemplated hereby or thereby.  There
are no outstanding injunctions or restraining orders prohibiting consummation
of any of the transactions contemplated by the Loan Documents.  There are no unsatisfied judgments against
Holdings or any of its Subsidiaries or any of their respective businesses or
activities in excess of $20,000.

 

4.11         Use
of Proceeds; Margin Stock, Etc.  
The proceeds of the Loans will be used solely for the purposes specified
herein.  None of such proceeds will be
used for the purpose of purchasing or carrying any Margin Stock within the
meaning of the applicable provisions of Regulation T, U or X of the Board, or
for the purpose of reducing or retiring any Indebtedness which was originally incurred
to purchase or carry Margin Stock or for any other purpose which might cause
this transaction to constitute a “purpose credit” within the meaning of the
applicable provisions of Regulation T, U or X of the Board.  Neither Holdings nor any of its Subsidiaries
has taken or will take any action which might cause any of the Loan Documents
to violate the applicable provisions of Regulation T, U or X, or any other
regulation of the Board.

 

4.12         Taxes.  All Tax returns required to be filed by
Holdings and each of its Subsidiaries have been filed and all such returns are
true, complete, and correct in all material respects.  All Taxes that are due or claimed to be due from Holdings and
each of its Subsidiaries have been paid 

 

24

 

other than those (i) currently payable without penalty
or interest or (ii) being contested in good faith and by appropriate
proceedings and for which, in the case of both clauses (i) and (ii), adequate
reserves have been established on the books and records of Holdings and its
Subsidiaries in accordance with GAAP. 
There are no proposed Tax assessments against Holdings or any of its
Subsidiaries.  To the best knowledge and
belief of Holdings, the accruals and reserves on the books and records of
Holdings and its Subsidiaries in respect of any Tax liability for any Taxable
period not finally determined are adequate to meet any assessments of Tax for
any such period.

 

4.13         ERISA.

 

(a)           Holdings,
each Subsidiary and each of their respective ERISA Affiliates are in compliance
in all material respects with all applicable provisions and requirements of the
Internal Revenue Code and ERISA and the regulations and published
interpretations thereunder with respect to each Employee Benefit Plan, and have
performed all their obligations under each Employee Benefit Plan.

 

(b)           No
ERISA Events have occurred or are reasonably expected to occur which
individually or in the aggregate resulted in or might reasonably be expected to
result in a liability of Holdings or any Subsidiary or any of their respective
ERISA Affiliates in excess of $20,000 during the term of this Agreement.

 

(c)           Except
to the extent required under Section 4980B of the Internal Revenue Code, no
Employee Benefit Plan provides health or welfare benefits (through the purchase
of insurance or otherwise) for any retired or former employees of Holdings or
any Subsidiary or any of their respective ERISA Affiliates.

 

(d)           In
accordance with the most recent actuarial valuations, the Amount of Unfunded
Benefit Liabilities individually or in the aggregate for all Pension Plans
(excluding for purposes of such computation any Pension Plans which have a
negative Amount of Unfunded Benefit Liabilities), does not exceed $20,000.

 

4.14         Government
Regulation.  Neither Holdings
nor any of its Subsidiaries is subject to regulation under the Public Utility
Holding Company Act of 1935, the Federal Power Act, the Investment Company Act
of 1940, the Interstate Commerce Act (as any of the preceding acts have been
amended) or other Law which regulates the Incurrence by Holdings or any of its
Subsidiaries of Indebtedness, including, but not limited to, Laws relating to
common carriers or the sale of electricity, gas, steam, water or other public
utility services.

 

4.15         Capital Structure and Subsidiaries.  Neither Holdings nor any of its Subsidiaries
has any interest in any Person other than the Subsidiaries set forth on Schedule
A and other Investments as set forth on Schedule E attached hereto,
and Holdings and its Subsidiaries will own, free and clear of all Liens, claims
or restrictions on voting or transfer (other than Permitted Liens, interests
described on Schedule D attached hereto or as otherwise permitted by
this Agreement), 100% of all classes of outstanding Capital Stock of each of
the entities set forth on such Schedule A, except as specified on Schedule
A.  All of the issued and
outstanding shares of Capital Stock of Holdings and of each of its Subsidiaries
are duly authorized, validly issued, fully paid and nonassessable and none of
such Capital Stock constitutes Margin Stock. 
Except as set forth on Schedule A, neither Holdings nor any of
its Subsidiaries has granted or issued, or has agreed to grant or issue, any
puts, calls or other similar rights to any Person obligating Holdings or any of
its Subsidiaries to purchase or redeem any Capital Stock or any options,
warrants or similar rights to any Person to acquire any shares of, or other
Securities convertible into, Holdings’s or any of its Subsidiaries’ Capital
Stock other than stock options or phantom equity rights granted to directors,
officers and employees in the ordinary course of business.

 

25

 

4.16         Environmental Matters.   Except as set forth in Schedule C
annexed hereto:

 

(a)           the
operations of each of Holdings and its Subsidiaries (including, without
limitation, all operations and conditions at or in the Facilities) comply with
all Environmental Laws except for any such noncompliance which would not reasonably
be expected to have a Material Adverse Effect;

 

(b)           to
Holdings’s knowledge, there are no Environmental Laws, including such Laws
which have been formally proposed for public comment, which would reasonably be
expected to result in material expenditures by Holdings or any of its
Subsidiaries, and no such Environmental Laws would reasonably be expected to
interfere in any way with current or projected operations of Holdings or any of
its Subsidiaries, in each case except for such of the foregoing which would not
reasonably be expected to have a Material Adverse Effect;

 

(c)           each
of Holdings and its Subsidiaries has obtained all permits under Environmental
Laws necessary to their respective operations, and all such permits are in full
force and effect, and each of Holdings and its Subsidiaries is in compliance
with the terms and conditions of such permits except for any such failure to
obtain, maintain or comply which would not reasonably be expected to have a
Material Adverse Effect;

 

(d)           none
of Holdings or its Subsidiaries has received (a) a written Environmental Claim
except for an Environmental Claim which would not reasonably be expected to
have a Material Adverse Effect or (b) any request for information under Section
104 of CERCLA or comparable foreign or state laws regarding any matter which
could reasonably be expected to result in a Material Adverse Effect;

 

(e)           none
of Holdings or its Subsidiaries is involved in any investigation, response or
corrective action relating to or in connection with any Hazardous Materials at
any Facility or at any other location except for such of the foregoing which
would not reasonably be expected to have a Material Adverse Effect;

 

(f)            none
of Holdings or its Subsidiaries or any Facilities are subject to any judicial
or administrative proceeding alleging the violation of or liability under any
Environmental Laws which if adversely determined could reasonably be expected
to have a Material Adverse Effect;

 

(g)           none
of Holdings or its Subsidiaries or any of their respective operations or any
Facilities are subject to any outstanding written order, decree or agreement
with any governmental authority or private party relating to (i) any actual or
potential violation of or liability under Environmental Laws or (ii) any Environmental
Claims except for such of the foregoing which would not reasonably be expected
to have a Material Adverse Effect;

 

(h)           none
of Holdings or its Subsidiaries has assumed by contract, law or otherwise any
obligation or liability under any Environmental Law except for such of the
foregoing which would not reasonably be expected to have a Material Adverse
Effect;

 

(i)            none
of Holdings or its Subsidiaries or, to the best of Holdings’s knowledge, any
predecessor of any of Holdings or its Subsidiaries has filed any notice under
any Environmental Law indicating past or present treatment, storage or disposal
of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state
equivalent except for such notices which would not reasonably be expected to
have a Material Adverse Effect;

 

26

 

(j)            no
Facilities are listed or proposed for listing on the National Priorities List
under CERCLA or listed on the Comprehensive Environmental Response,
Compensation and Liability Information System List promulgated pursuant to
CERCLA, or included on any similar list maintained by any governmental
authority except in each case for such of the foregoing which would not
reasonably be expected to have a Material Adverse Effect;

 

(k)           no
Hazardous Materials exist on, under or about any Facility in a manner that
would reasonably be expected to give rise to an Environmental Claim having a
Material Adverse Effect, and none of Holdings or its Subsidiaries has filed any
notice or report of a Release of any Hazardous Materials that would reasonably
be expected to give rise to an Environmental Claim having a Material Adverse
Effect;

 

(l)            none
of Holdings or its Subsidiaries or, to the best of Holdings’s knowledge, any of
their respective predecessors has disposed of, or arranged for the disposal or
treatment of, any Hazardous Materials in a manner or at any Facility or other
location that would reasonably be expected to give rise to an Environmental
Claim having a Material Adverse Effect;

 

(m)          no
underground storage tanks, landfills or surface impoundments are on, at or
under any Facility except in each case for such of the foregoing which would
not reasonably be expected to have a Material Adverse Effect; and

 

(n)           no
Lien in favor of any Person relating to or in connection with any Environmental
Claim has been filed or has been attached to any Facility or other assets of
Holdings or any of its Subsidiaries except for any such Lien which would not
reasonably be expected to have a Material Adverse Effect.

 

Notwithstanding anything in this Section 4.16
to the contrary, there are no past or present events, conditions, circumstances
or activities, including, without limitation, any matter disclosed on Schedule
C annexed hereto, which may interfere with compliance by Holdings or its
Subsidiaries with any Environmental Law, or which may give rise to any
liability under any Environmental Law which, individually or in the aggregate,
has had or would reasonably be expected to have a Material Adverse Effect.

 

4.17         Insurance.  Holdings and its Subsidiaries carry or are
entitled to the benefits of insurance (including self-insurance) in such
amounts and covering such risks as is generally maintained by companies of
established repute engaged in the same or similar businesses, and all such
insurance is (and will be immediately after the Loans) in full force and
effect.

 

4.18         Labor
Matters.  No labor disturbance
by the employees of Holdings or any of its Subsidiaries exists or, to the best
knowledge of Holdings, is threatened, and Holdings is not aware of any existing
or imminent labor disturbance by the employees of Holdings’s or its
Subsidiaries’ principal suppliers, manufacturers or customers that could,
singly or in the aggregate, have a Material Adverse Effect.

 

4.19         Broker’s
or Finder’s Fees.  No broker’s
or finder’s fees or commissions will be payable by Holdings or any of its
Subsidiaries with respect to any transaction contemplated hereby and no similar
fees or commissions will be payable by Holdings or any of its Subsidiaries for
any other services rendered to Holdings or any of its Subsidiaries in
connection with the transactions contemplated hereby and thereby.  Holdings represents, warrants, covenants and
agrees that the Borrower will indemnify the Lenders against, and hold each of
them completely harmless from and against, any and all claims, 

 

27

 

demands or liabilities for broker’s or finder’s fees
or similar fees or commissions asserted to have been incurred in connection
with any of the transactions contemplated hereby.

 

4.20         Operation
of Business.  From December 28,
2002, each of Holdings and its Subsidiaries shall have operated its business in
the ordinary course.

 

4.21         Existing Credit Facilities Matters.  Neither Holdings nor any of its Subsidiaries
has paid any amendment, waiver, consent or other fee or any administrative
changes or increased interest payments to the lenders or agents for any purpose
under the Existing Credit Facilities since December 31, 2002 except, in each
case, as acceptable to the Lenders and disclosed to the Lenders in writing
prior to the Closing Date.

 

4.22         Outstanding
Payables.  After giving effect
to payments to be made on the Closing Date as permitted hereunder, no amounts
remain outstanding and payable by Holdings or the Borrower to any outside
counsel, Joseph Stroud
or other professional advisors (other than accountants).

 

SECTION
4A.                   REPRESENTATIONS
AND WARRANTIES OF THE LENDERS

 

Each of the Lenders represents and warrants to the
Borrower that, on the Closing Date, the following statements are true, correct
and complete:

 

4A.1  Accredited
Investor. Such Lender is an institutional “accredited investor” within
the meaning of Regulation D of the Securities Act and the Notes to be acquired
by it pursuant to this Agreement are being acquired for its own account and
without a view to, or for resale in connection with, any distribution thereof
or any interest therein; provided
that the provisions of this Section shall not prejudice such Lender’s right at
all times to sell or otherwise dispose of all or any part of the Notes so
acquired pursuant to the terms of this Agreement, a registration under the
Securities Act or an exemption from such registration available under the
Securities Act.

 

4A.2  Knowledge
and Experience.  Such
Lender has such knowledge and experience in financial and business matters so
as to be capable of evaluating the merits and risks of its investment in the
Notes, such Lender is capable of bearing the economic risks of such investment
and such Lender has had the opportunity to conduct its own due diligence
investigation in relation to its making of the Loans and the acquisition of the
Notes hereunder.

 

4A.3  Source of Funds.  No part of the funds used by such Lender to
make the Loans hereunder constitutes assets of any “plan” (as defined in Section
4975 of the Internal Revenue Code).

 

SECTION
5.                            AFFIRMATIVE
COVENANTS

 

Each Loan Party covenants and agrees that, until the
Loans and the Notes and all other amounts due under this Agreement have been
indefeasibly paid in full in cash and all Commitments have terminated, it shall
fully and timely perform all covenants in this Section 5 required to be
performed by it.

 

5.1           Financial Statements and Other
Reports.  Holdings will
maintain, and cause each of its Subsidiaries to maintain, a system of
accounting established and administered in accordance with sound business
practices to permit preparation of consolidated financial statements in
conformity with GAAP.  Holdings
shall timely deliver to the Lenders the information listed below in paragraphs
(a) through (d) and shall timely give the Lenders the notices listed below in
paragraphs (e) through (i):

 

28

 

(a)           Annual
Financial Statements.  As soon as
available, but not later than 90 days after each Fiscal Year end (other than
the Fiscal Year ended December 28, 2002): 
(i) the annual audited Financial Statements of Holdings and its
Subsidiaries; (ii) a comparison in reasonable detail to the prior year audited
Financial Statements; (iii) the Auditors’ unqualified opinion in all respects
(including as to going concern and scope of audit) and “Management Letter”
subject to customary restrictions; (iv) a narrative discussion of the
consolidated financial condition and results of operations and the consolidated
liquidity and capital resources of Holdings and its Subsidiaries for such
Fiscal Year, prepared by the chief financial officer of Holdings; and (v) a
Compliance Certificate signed by the chief financial officer and another
Officer of Holdings and the Borrower. 
All such Financial Statements shall be prepared from and on a basis
consistent with the books and records of Holdings and its Subsidiaries.  All such Financial Statements shall fairly
represent the consolidated position of Holdings and its Subsidiaries as at the
respective dates thereof and the consolidated results of operations and cash
flows of Holdings and its Subsidiaries for the periods then ended.  In the event that only a draft of the
Auditor’s report relating to the financial statements for the fiscal year
ending December 28, 2002 was delivered on or prior to the Closing Date, as soon
as available, but not later than three (3) days after the Closing Date, the
signed Auditor’s report relating to the financial statements for the fiscal
year ending December 28, 2002, satisfactory in all respects to the Lenders (it
being agreed that an Auditor’s report delivered in the same (but signed) form
as the draft thereof approved by the Lenders on or prior to the Closing Date
shall be deemed satisfactory to the Lenders).

 

(b)           Quarterly
Financial Statements.  As soon as
available, but not later than 45 days after the end of each of the first three
fiscal quarters:  (i) Financial
Statements of Holdings and its Subsidiaries as of the fiscal quarter then
ended, and for the Fiscal Year to date; (ii) a comparison in reasonable detail
to the Financial Statements for the corresponding periods of the prior Fiscal
Year; (iii) the certification of the chief executive officer or chief financial
officer of Holdings and the Borrower that such Financial Statements have been
prepared in accordance with GAAP (subject to year-end audit adjustments and the
absence of footnotes); (iv) a narrative discussion of the consolidated
financial condition and results of operations and the consolidated liquidity
and capital resources of Holdings and its Subsidiaries for such fiscal quarter
and Fiscal Year to date, prepared by the chief financial officer of Holdings
and the Borrower; and (v) a Compliance Certificate signed by the chief
financial officer and another Officer of Holdings and the Borrower.  All such Financial Statements shall fairly
represent the consolidated position of Holdings and its Subsidiaries as at the
respective dates thereof and the consolidated results of operations and cash
flows of Holdings and its Subsidiaries for the periods then ended (subject to
year-end adjustments and the absence of footnotes).

 

(c)           Monthly
Financial Statements.  As soon as
available, but not later than 30 days after the end of each month:  (i) a consolidated and consolidating balance
sheet for Holdings and its Subsidiaries as at the end of such month and for the
Fiscal Year to date and consolidated and consolidating statements of operations
and cash flows for such month and for the Fiscal Year to date; (ii) a
comparison to the balance sheet, statement of operations and statement of cash
flows for the same year to date period in the prior year; and (iii) a certification
by the chief financial officer of Holdings and the Borrower that such balance
sheet, statement of operations and statement of cash flows fairly represent the
consolidated position of Holdings and its Subsidiaries as at the respective
dates thereof and the consolidated results of operations and cash flows of
Holdings and its Subsidiaries for the periods then ended (subject to year-end
adjustments).

 

(d)           Further
Assurances.  When reasonably
requested by any Lender, any further information regarding the business affairs
and financial condition of Holdings or any of its Subsidiaries.

 

(e)           Notice
of Defaults.  Promptly, and in any
event within three (3) Business Days after an Authorized Officer of Holdings or
any of its Subsidiaries becoming aware of the occurrence of a 

 

29

 

Default or Event of Default, a certificate of the chief executive
officer or chief financial officer of the Borrower specifying the nature
thereof and the Borrower’s proposed response thereto, each in reasonable
detail.

 

(f)            Proceedings
or Adverse Changes.  Promptly, and
in any event within five (5) Business Days after an Authorized Officer of
Holdings or the Borrower becomes aware of (i) any proceeding being instituted
by or against Holdings or any Subsidiary in any federal, state, local or
foreign court or before any commission or other regulatory body (federal,
state, local or foreign) seeking an injunction or any such proceeding being
instituted or threatened which, if adversely determined, could have a Material
Adverse Effect, (ii) any order, judgment or decree in excess of $50,000 being
entered against Holdings or any Subsidiary or any of their respective
properties or assets or (iii) any actual or prospective change, development or
event (other than a change in general economic conditions) which has had or
could reasonably be expected to have a Material Adverse Effect, a written
statement describing such proceeding, order, judgment, decree, change,
development or event and any action being taken with respect thereto by
Holdings or any Subsidiary.

 

(g)           ERISA
Notices.  (i) Promptly, and in any
event within five (5) Business Days after an Authorized Officer of Holdings,
any of its Subsidiaries or any ERISA Affiliate knows that an ERISA Event has
occurred, a written statement of the chief financial officer of Holdings
describing such ERISA Event and any action that is being taken with respect
thereto by Holdings, any such Subsidiary or ERISA Affiliate, and any action
taken or threatened by the Internal Revenue Service, Department of Labor or the
PBGC.  Holdings, such Subsidiary and the
ERISA Affiliate shall be deemed to know all facts known by the administrator of
any Employee Benefit Plan of which it is the plan sponsor; (ii) promptly, and
in any event within three (3) Business Days after the filing thereof with the
Internal Revenue Service, a copy of each funding waiver request filed with
respect to any Employee Benefit Plan and all communications received by
Holdings, any of its Subsidiaries or any ERISA Affiliate with respect to such
request; and (iii) promptly, and in any event within three (3) Business Days
after receipt by Holdings, any of its Subsidiaries or any ERISA Affiliate, of
the PBGC’s intention to terminate an Employee Benefit Plan or to have a trustee
appointed to administer an Employee Benefit Plan, copies of each such notice.

 

(h)           Environmental
and Health and Safety Notices. 
Promptly, and in any event within five (5) Business Days after receipt
by Holdings or any Subsidiary of any notice, complaint or order alleging actual
or prospective violation in any material respect of any Environmental Law or
health or safety Law or alleging responsibility for costs of a cleanup, which,
in any such case, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect, together with a copy of such
notice, complaint, or order and a written statement describing any action being
taken with respect thereto by Holdings or any Subsidiary.

 

(i)            Material
Contracts.  Promptly, and in any
event within five (5) Business Days after any Material Contract is terminated
or amended or any new Material Contract is entered into or issued by or to
Holdings or any of its Subsidiaries or any notice is received by Holdings or
any of its Subsidiaries relating to any Material Contract, a written statement
describing such event, with copies of amendments, notices or new contracts, and
an explanation of any actions being taken with respect thereto.

 

(j)            Accrued
Billings and Expenses.  Promptly,
and in any event within ten (10) Business Days after the end of each month, a
schedule of estimated accrued billings and expenses of outside counsel and
accountants to Holdings and the Borrower as of the last day of such month,
certified by the chief financial officer of the Borrower.

 

30

 

(k)           Payments
to Outside Counsel and JFL Relating to the Exchange Offer.  Promptly, and in any event no later than
three (3) Business Days prior to any such payment, written notice of any
payment to outside counsel to Holdings and the Borrower or to JFL for services
rendered in connection with the transactions contemplated by the Exchange Agreement, together
with reasonably detailed back-up documentation with respect thereto.

 

5.2           Corporate
Existence, Etc.  Holdings will
at all times preserve and keep in full force and effect and cause each of its
Subsidiaries to preserve and keep in full force and effect its corporate (or
other) existence and rights and franchises to its business, except where the
failure to so preserve or keep such rights and franchises will not, singly or
in the aggregate, have a Material Adverse Effect.

 

5.3           Payment of Taxes and Claims; Tax
Consolidation.

 

(a)           Subject
to and consistent with Section 6.3(b), Holdings will, and will cause
each of its Subsidiaries to, pay all Taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or in respect of any
of its franchises, business, income or property before any penalty accrues
thereon, and pay all claims (including, without limitation, claims for labor,
services, materials and supplies) for sums which have become due and payable
and which by Law have or may become a Lien upon any of its properties or assets
prior to the time when any material penalty or fine shall be incurred with
respect thereto; provided, however, that no such charge or claim
need be paid if it is a Contested Claim.

 

(b)           Holdings
will not, nor will it permit any of its Subsidiaries to, file or consent to the
filing of any consolidated, combined or unitary income or franchise tax return
with any Person (other than with Holdings or any of its Subsidiaries so long as
the filing of such tax return is permitted by applicable Law).

 

5.4           Maintenance of Properties;
Insurance.  Holdings will
maintain or cause to be maintained in good repair, working order and condition,
ordinary wear and tear excepted, all properties used or useful in the business
of Holdings and its Subsidiaries and from time to time promptly will make or
cause to be made all necessary repairs, renewals and replacements thereof.  Holdings will maintain or cause to be
maintained, with financially sound and reputable insurers or with self
insurance programs, in each case to the extent consistent with prudent business
practices and customary in its industries, insurance with respect to its
properties and business and the properties and businesses of its Subsidiaries
against loss or damage of the kinds (including, in any event, business
interruption insurance) and in the amounts customarily carried or maintained
under similar circumstances by corporations of established reputation engaged
in similar businesses and owning similar properties in the same general
respective areas in which Holdings and its Subsidiaries operate.  Each such policy of insurance shall (i) name
the Collateral Agent as an additional insured thereunder as its interests may
appear and (ii) in the case of each casualty insurance policy, contain a loss
payable clause or endorsement, satisfactory in form and substance to the
Lenders, that names the Collateral Agent as the loss payee thereunder and
provides that the insurer will endeavor to give at least thirty (30) days’
prior written notice to the Collateral Agent of any cancellation or material
modification of such policy.

 

5.5           Inspection.  Holdings shall permit any authorized
representatives designated by the Lenders to visit and inspect any of the
properties of Holdings or its Subsidiaries, including, without limitation, its
and their financial and accounting records, and to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and accounts
with its and their officers and independent public accountants, all upon
reasonable notice and at such reasonable times during normal business hours and
as often as may be reasonably requested.

 

31

 

5.6           Equal Security for Loans and Notes.   If Holdings or any of its Subsidiaries
shall create, assume or suffer to exist any Lien upon any of their respective
property or assets, whether now owned or hereafter acquired, other than Liens
permitted by the provisions of Section 6.2, Holdings shall, concurrently
with the effectiveness of such Lien, make or cause to be made effective
provision whereby the Obligations under this Agreement will be secured by such
Lien equally and ratably with any and all other Indebtedness thereby secured as
long as any such Indebtedness shall be secured; provided, however,
that this covenant shall not be construed as or deemed to be a consent by the
Lenders to any violation of the provisions of Section 6.2.

 

5.7           Compliance
with Laws, Etc.   Holdings shall
and shall cause each of its Subsidiaries to comply in all material respects
with the requirements of all applicable Laws of any Tribunal.

 

5.8           Maintenance of Accurate Records, Etc.  Holdings shall keep, and will cause each of
its Subsidiaries to keep, true books and records and accounts in which full and
correct entries will be made of all its respective business transactions, and
will reflect, and cause each of its Subsidiaries to reflect, in its respective
financial statements adequate accruals and appropriations to reserves all in
accordance with GAAP and consistent with prior business practices.

 

5.9           Permits.  Holdings shall, and shall cause each of its
Subsidiaries to, at all times promptly obtain as required, preserve, maintain,
protect, keep in full force and effect and comply with all terms, conditions
and requirements of its respective permits and other licenses, authorizations,
approvals and consents necessary or material in the conduct of its operations
and all rights and interests therein or thereunder, except where the failure do
so would not have a Material Adverse Effect.

 

5.10         Take-Out
Facility.   Holdings shall, and
shall cause each of its Subsidiaries to, take all actions necessary or deemed
advisable by the Lenders to cause the Take-Out Facility to be entered into
promptly after the Closing Date for the purpose of refinancing the Loans.

 

5.11         ERISA
Compliance.  Each of Holdings
and its Subsidiaries will (a) make prompt payment of all contributions which it
is obligated to make under all Pension Plans and which are required to meet the
minimum funding standard set forth in ERISA with respect to each of the Pension
Plans, (b) within 30 days after the filing thereof, furnish to the Lenders each
Schedule B to the annual return/report (Form 5500 Series), required to be filed
with the Department of Labor and/or the Internal Revenue Service pursuant to
ERISA, with respect to each of the Pension Plans that is not a Multiemployer
Plan for each Plan year, and (c) notify the Lenders promptly upon becoming
aware of any fact, including but not limited to, any Reportable Event arising
in connection with any of the Pension Plans that is not a Multiemployer Plan,
which could be reasonably expected to constitute grounds for termination
thereof by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer such Pension Plan, together with a
statement as to the action, if any, proposed to be taken with respect thereto.

 

5.12         Additional
Subsidiaries.   Holdings will
cause any Person that becomes a Subsidiary of Holdings (whether by creation, acquisition
or otherwise), to (a) promptly (and, in any event, no later than five (5) Business Days
after such Person becomes a Subsidiary) execute and deliver to the
Lenders a Joinder to Guarantee, in the form of Exhibit VI annexed
hereto, and otherwise in form and substance satisfactory to the Lenders
pursuant to which such Subsidiary shall become a Guarantor of the Loans and
this Agreement in accordance with Section 9 with the same effect and to
the same extent as if such Person had been named herein as a Guarantor, (b)
promptly (and, in any
event, no later than five (5) Business Days after such Person becomes a
Subsidiary) become a “Grantor” under the Pledge and Security Agreement
by executing and delivering to the Lenders and the Collateral Agent a joinder
thereto, 

 

32

 

in all respects satisfactory to the Lenders, and (c)
promptly (and,
in any event, no later than five (5) Business Days after such Person becomes a
Subsidiary) take all such actions and execute and deliver, or cause to
be executed and delivered, all such documents, instruments, agreements,
opinions and certificates as the Lenders shall require (including, without
limitation, documents, instruments, agreements and certificates comparable to those
described in Sections 3.1(a)(i), (ii), (iii), (iv),
(x), (xi) and (xii). 
In the event that any Loan Party acquires Capital Stock of any Person
after the Closing Date, such Loan Party will promptly (and, in any event, no later than five (5) Business Days
after such acquisition) notify the Collateral Agent and the Lenders of
that fact and execute and deliver to the Collateral Agent a counterpart of the
Pledge and Security Agreement, in all respects satisfactory to the Lenders, and
take all such further actions and execute all such further documents and
instruments (including, without limitation, actions, documents and instruments
comparable to those described in Section 3.1(a)(x)) as may be necessary
or, in the opinion of the Lenders, desirable to create in favor of the
Collateral Agent, for the benefit of the Lenders, a valid and perfected first
priority Lien on 100% of such Capital Stock.

 

5.13         Controlling
Group.               Each of the
Lenders party hereto on the Closing Date and any of their Affiliates that is an
assignee Lender (collectively, the “Controlling Group”) shall be
entitled:

 

(a)           to
discuss the business operations, properties, financial and other conditions,
and plans and prospects of Holdings with any director, senior executive officer
and/or other authorized officer of Holdings designated by the Board of
Directors of Holdings and, upon reasonable notice to Holdings, with any
director, senior executive officer and/or other authorized officer of any
Subsidiary of Holdings;

 

(b)           to
submit suggestions from time to time to the management of Holdings with the
requirement that one or more senior executive officers of Holdings shall
discuss such suggestions with the applicable member of the Controlling Group
within a reasonable period of time after such submission; and

 

(c)           to
meet with one or more senior executive officers of Holdings, at reasonable
times and on reasonable notice, in order to discuss any suggestions made under
clause (b) above or for other purposes.

 

The rights granted to each member of the Controlling
Group hereunder are not in substitution for, and shall not be deemed to be in
limitation of, any rights otherwise available to it as a Lender.  In addition, Holdings shall use its
reasonable efforts to require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of Holdings to expressly assume and agree to perform
the covenants contained in this Section in the same manner and to the same
extent that Holdings would have been required to perform if no succession had
taken place

 

SECTION
6.                            NEGATIVE
COVENANTS

 

Each Loan Party covenants and agrees that, until the
Loans and the Notes and all other amounts due under this Agreement have been
indefeasibly paid in full in cash and all Commitments have terminated, it shall
fully and timely perform all covenants in this Section 6.

 

6.1           Indebtedness.  Holdings shall not, nor shall it cause or
permit any of its Subsidiaries, directly or indirectly, to Incur any Indebtedness,
except for the following (“Permitted Indebtedness”):

 

(a)           Obligations
under the Loan Documents;

 

33

 

(b)           Indebtedness
of Holdings and its Subsidiaries outstanding on the Closing Date and described
on Schedule B, reduced by the amount of any scheduled amortization
payments or mandatory prepayments when actually paid or permanent reductions
thereon;

 

(c)           Indebtedness
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently drawn against insufficient funds in
the ordinary course of business so long as such Indebtedness is extinguished
within two (2) Business Days of the incurrence thereof;

 

(d)           Indebtedness
under Currency Agreements; provided that in the case of Currency
Agreements which relate to Indebtedness, such Currency Agreements do not
increase the Indebtedness of Holdings and its Subsidiaries outstanding other
than as a result of fluctuations in foreign currency exchange rates or by reason
of fees, indemnities and compensation payable thereunder;

 

(e)           Indebtedness
of Holdings to a Subsidiary and Indebtedness of a Subsidiary to Holdings or to
another Subsidiary for so long as such Indebtedness is held by Holdings or a
Subsidiary, as applicable, in each case made in the ordinary course of business
and not exceeding in the aggregate at any one time outstanding $25,000; provided
that (i) any such Indebtedness is unsecured and subordinated in right of
payment, pursuant to a written agreement satisfactory to the Required Lenders,
to the Obligations under the Loan Documents; (ii) if as of any date any Person
other than Holdings or a Subsidiary owns or holds any such Indebtedness or any
Person holds a Lien in respect of such Indebtedness, such date shall be deemed
the Incurrence of Indebtedness not constituting Permitted Indebtedness; and
(iii) no such intercompany Indebtedness shall be evidenced by any note or other
instrument unless such note is in form and substance satisfactory to the Lenders
and the payee
thereunder shall immediately endorse and deliver the same to Collateral Agent;

 

(f)            Indebtedness
of Holdings or any of its Subsidiaries in order to finance insurance premiums
and Indebtedness represented by letters of credit for the account of Holdings
or such Subsidiary, as the case may be, in order to provide security for
workers’ compensation claims, payment obligations in connection with
self-insurance or similar requirements, all in the ordinary course of business;

 

(g)           obligations
in respect of performance and surety bonds and completion guarantees provided
by Holdings or any Subsidiary in the ordinary course of business in accordance
with customary industry practice, in amounts and for purposes customary in the
Borrower’s industry;

 

(h)           Indebtedness
with respect to Capitalized Lease Obligations entered into after the Closing
Date in an aggregate principal amount not to exceed at any time outstanding
$100,000;

 

(i)            purchase
money Indebtedness in an aggregate principal amount not to exceed at any time
outstanding $100,000; provided, any such Indebtedness (i) shall be
secured only by the asset (and any accession, addition or improvement thereto,
any replacement thereof and the proceeds thereof) acquired in connection with
the incurrence of such Indebtedness, and (ii) shall not exceed 100.0% of the
aggregate consideration paid with respect to such asset;

 

(j)            Indebtedness
of Holdings and its Subsidiaries incurred in connection with the Exchange
Offer, as contemplated by the Exchange Agreement; and

 

(k)           guaranties
by Holdings and its Subsidiaries of each other’s Indebtedness to the extent
that such Indebtedness otherwise constitutes “Permitted Indebtedness”.

 

34

 

6.2           Liens.   Holdings will not, and will not cause or
permit any of its Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens of any kind against or upon any
property or assets of Holdings or any of its Subsidiaries whether owned on the
Closing Date or acquired after the Closing Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom,
except for the following (“Permitted Liens”):

 

(a)                           Liens
existing as of the Closing Date and described on Schedule D to the
extent and in the manner such Liens are in effect on the Closing Date and
described on Schedule D;

 

(b)                           Liens
in favor of the Collateral Agent granted pursuant to any Loan Document;

 

(c)                           Liens
for taxes, assessments or governmental charges or claims not delinquent;

 

(d)                           statutory
Liens of landlords or of mortgagees of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by Law incurred in the ordinary course of business for sums not yet
delinquent or constituting Contested Claims;

 

(e)                           Liens
incurred or deposits made in the ordinary course of business in connection with
workers’ compensation, unemployment insurance and other types of social
security, including any Lien securing letters of credit issued in the ordinary
course of business consistent with past practice in connection therewith, or to
secure the performance of tenders, statutory obligations, surety and appeal
bonds, bids, leases, government contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the payment
of borrowed money);

 

(f)                            judgment
Liens not giving rise to an Event of Default so long as and in respect of which
Holdings or any of its Subsidiaries shall in good faith be prosecuting an
appeal or proceedings for review in respect of which there shall be secured a
subsisting stay of execution pending such appeal or proceedings;

 

(g)                           easements,
rights-of-way, zoning restrictions and other similar charges or encumbrances in
respect of real property not interfering in any material respect with the
ordinary conduct of the business of Holdings or any of its Subsidiaries;

 

(h)                           Liens
encumbering deposits made to secure obligations arising from statutory,
regulatory, contractual, or warranty requirements of Holdings or any of its
Subsidiaries, including rights of offset and set-off;

 

(i)                            leases
or subleases granted to others that do not materially interfere with the
ordinary course of business of Holdings and its Subsidiaries;

 

(j)                            Liens
securing Indebtedness permitted pursuant to Section 6.1(h) or 6.1(i);
provided, any such Lien shall encumber only the asset acquired with the
proceeds of such Indebtedness and any accessions, additions, parts,
replacements, fixtures, improvements and attachments thereto, and the proceeds
thereof; and

 

(k)                           precautionary
UCC financing statement filings regarding operating leases or with respect to
any inventory held on consignment in the ordinary course of business.

 

35

 

6.3           Restricted Payments.

 

(a)           Holdings
will not and will not cause or permit any of its Subsidiaries to, directly or
indirectly, (i) declare or pay any dividend or make any distribution (other
than dividends or distributions payable in Qualified Capital Stock of Holdings)
on or in respect of shares of Holdings’s or its Subsidiary’s Capital Stock to
holders of such Capital Stock, (ii) purchase, redeem or otherwise acquire or
retire for value any Capital Stock of Holdings or any of its Subsidiaries or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock, (iii) make any principal payment on, purchase, defease,
redeem, prepay or otherwise acquire or retire for value, prior to any scheduled
final maturity, scheduled repayment or scheduled sinking fund payment, any
Subordinated Indebtedness, (iv) make (or give any notice in respect thereof)
any mandatory, voluntary or optional payment or prepayment on (whether for
principal, interest or otherwise) or redemption or acquisition for value of, or
any prepayment or redemption as a result of any asset sale, change of control
or similar event of, or purchase, defease or otherwise acquire or retire for
value, any Indebtedness outstanding in respect of Holdings’ 97/8% Senior Notes due 2008
(other than prepayments and exchanges thereof pursuant to the Exchange Offer,
as contemplated by the Exchange Agreement), or (v) make any Investment (other
than Permitted Investments) (each of the foregoing actions set forth in clauses
(i), (ii), (iii), (iv) and (v) being referred to as a “Restricted Payment”).

 

(b)           Notwithstanding anything herein to the
contrary, the Borrower may make distributions or payments on behalf of Holdings
in an amount sufficient to enable Holdings to pay foreign, Federal, state or
local tax liabilities (“Tax Payments”), not to exceed the amount of any
tax liabilities that would be otherwise payable by the Borrower and its
Subsidiaries to the appropriate taxing authorities if they filed separate tax
returns to the extent that Holdings has an obligation to pay such tax
liabilities relating to the operations, assets or capital of the Borrower or
its Subsidiaries; provided, however, that (i) notwithstanding the
foregoing, in the case of determining the amount of a Tax Payment that is
permitted to be paid by the Borrower and any of its Subsidiaries in respect of
their income tax liability, such payment shall not exceed an amount determined
on the basis of assuming that the Borrower is the parent company of an
affiliated, combined, unitary or similar group (the “Borrower Affiliated
Group”) filing a consolidated Federal or consolidated, combined or similar
state income tax return and that Holdings and each such Subsidiary is a member
of the Borrower Affiliated Group, and (ii) any Tax Payments shall either be
used by Holdings to pay such tax liabilities within 10 days of Holdings’
receipt of such payment or refunded to the Borrower; provided  further,
however, so long as a Default or Event of Default shall have occurred
and be continuing or would occur as a consequence of such Tax Payment, the
Borrower shall not make any Tax Payment otherwise permitted pursuant to this
paragraph without the prior written consent of the Required Lenders.  Notwithstanding any other document to the
contrary, for the avoidance of doubt and for so long as any Obligations are
outstanding, the Borrower shall be entitled to utilize any and all net
operating losses, tax credits or other tax attributes of Holdings or any other
member of the Borrower Affiliated Group without payment or compensation to
Holdings or such other member for all purposes including for purposes of
determining the amount of the Tax Payment otherwise required to be paid by the
Borrower pursuant to this paragraph.

 

6.4           Restriction on Fundamental Changes.  Except as otherwise permitted in this
Agreement, Holdings will not and will not cause or permit any of its
Subsidiaries to, directly or indirectly, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its assets, whether as an entirety or substantially as an entirety to
any Person.

 

For purposes of the foregoing, the transfer (by lease,
assignment, sale, merger, consolidation or otherwise, in a single transaction
or series of transactions) of all or substantially all of the properties or
assets of one or more Subsidiaries of Holdings, the Capital Stock of which constitutes
all or substantially all of the properties and assets of Holdings or such
Subsidiary, as the case may be, shall be deemed to be 

 

36

 

the transfer of all or substantially all of the properties and assets
of Holdings or such Subsidiary, as the case may be.

 

6.5           Limitation on Dividend and Other
Payment Restrictions Affecting Subsidiaries.    Holdings will not, and
will not cause or permit any of its Subsidiaries to, directly or indirectly,
create or otherwise cause or permit to exist or become effective any
encumbrance or restriction on the ability of any Subsidiary of Holdings to (a)
pay dividends or make any other distributions on or in respect of its Capital
Stock owned by Holdings or any of its Subsidiaries; (b) make loans or advances
or to pay any Indebtedness or other obligation owed to Holdings or any other
Subsidiary of Holdings; or (c) transfer any of its property or assets to
Holdings or any other Subsidiary, except, with respect to (a), (b) and (c)
above, for such encumbrances or restrictions existing under or by reason of:
(i) applicable Law; (ii) the Loan Documents; (iii) customary non-assignment
provisions of any contract or any lease governing a leasehold interest of any
Subsidiary; (iv) any agreements in effect on the Closing Date and described on Schedule
G attached hereto; (v) in the case of clause (c) above, (A) any agreement
setting forth customary restrictions on the subletting, assignment or transfer
of any property or asset that is leased or licensed or (B) any agreement,
instrument or other document evidencing a Permitted Lien that restricts, on
customary terms, the transfer of any property or assets subject thereto; and
(vi) pursuant to the Exchange Offer, as contemplated by the Exchange Agreement.

 

6.6           Transactions with Shareholders and
Affiliates; Payments.          Holdings will not, and will not permit
any of its Subsidiaries to, directly or indirectly, enter into or permit to
exist any transaction or series of related transactions (including, without
limitation, the purchase, sale, lease or exchange of any property or the
rendering of any service) with, or for the benefit of, any of its Affiliates,
except for (i) Permitted Investments, (ii) distributions permitted under Section
6.3(b), (iii) such transactions with Affiliates in existence on the Closing
Date as disclosed on Schedule H attached hereto.  Without limiting the foregoing and except as
permitted on the Closing Date or in this sentence, Holdings will not, and will
not permit any of its Subsidiaries to, directly or indirectly, make any
payments to Joseph Stroud or to attorneys, JFL or any of JFL’s Affiliates without the prior written consent of
the Required Lenders (which consent shall not be unreasonably withheld); provided that, so long as the
Borrower has provided the Lenders with prior written notice and back-up
documentation as required in Section 5.1(k), Holdings and the
Borrower shall be permitted to make reasonable payments to outside counsel to
Holdings and the Borrower and to JFL for services rendered in connection with
the transactions contemplated by the
Exchange Agreement.

 

6.7           Business
Activities.  Holdings shall not,
nor shall Holdings cause or permit any of its Subsidiaries to, directly or
indirectly, materially alter the nature of the consolidated business of
Holdings and its Subsidiaries from that in existence as of the Closing Date or
similar or related businesses.

 

6.8           Amendments to Charter Documents.  Holdings shall not, nor shall it cause or
permit any of its Subsidiaries to, amend its certificate of incorporation or
by-laws or any other organizational document in any respect which could be
adverse to the interests of the Lenders.

 

6.9           Asset Sales.          Holdings
shall not, nor shall it cause or permit any of its Subsidiaries to, directly or
indirectly, consummate any Asset Sale unless (a) Holdings or such applicable
Subsidiary has obtained the prior written consent of the Required Lenders
thereto and (b) all of the Net Cash Proceeds in respect thereof are applied by
Holdings or such Subsidiary in accordance with Section 2.4(b)(i).

 

6.10         Maximum
Capital Expenditures.         Holdings shall not, and shall not permit
its Subsidiaries to, make or incur any Capital Expenditure that would cause the
aggregate amount of all 

 

37

 

Capital Expenditures made by the Loan Parties and
their Subsidiaries to exceed $50,000 in any calendar month.

 

6.11         Lease
Obligations.               Holdings shall not, and shall not
permit its Subsidiaries to, create, incur or suffer to exist, any obligations
as lessee for the payment of rent for any real or personal property under
leases or agreements to lease other than (i) Capitalized Lease Obligations
permitted under Section 6.01 and (ii) except as set forth on Schedule
I attached hereto, Operating Lease Obligations which would not cause the
aggregate amount of all Operating Lease Obligations owing by all Loan Parties
and their Subsidiaries in any calendar month to exceed $5,000.

 

6.12         Amendments
to Indebtedness.         Holdings shall not, and shall not permit
its Subsidiaries to, amend or otherwise change the terms of any Indebtedness,
or make any payment consistent with an amendment thereof or change thereto, if
the effect of such amendment or change is to increase the interest rate on such
Indebtedness, change (to earlier dates) any dates upon which payments of
principal or interest are due thereon, change any event of default or condition
to an event of default with respect thereto (other than to eliminate any such
event of default or increase any grace period related thereto), change the
redemption, prepayment or defeasance provisions thereof, change the
subordination provisions of such Indebtedness (or of any guaranty thereof), or
if the effect of such amendment or change, together with all other amendments
or changes made, is to increase materially the obligations of the obligor
thereunder or to confer any additional rights on the holders of such
Indebtedness (or a trustee or other representative on their behalf) which would
be adverse to any Loan Party or the Lenders.

 

SECTION
7.                            EVENTS
OF DEFAULT

 

If any of the following conditions or events (any such
condition or event, an “Event of Default”) shall occur and be
continuing:

 

7.1           Failure To Make Payments When Due.   Failure to pay any installment of principal
of the Loans when due, whether at stated maturity, by acceleration, by notice
of prepayment or otherwise; or failure to pay any fee or any interest on the
Loans or any other amount due under this Agreement within one (1) day or more
after the date due; or

 

7.2           Default
in Other Agreements.   Failure
of Holdings or any of its Subsidiaries to pay any principal or other amounts
due on one or more issues of Indebtedness of Holdings or of any of its
Subsidiaries (other than Indebtedness referred to in Section 7.1) having
an outstanding principal amount of $100,000 or greater or breach or default by
Holdings or any of its Subsidiaries with respect to any other term of any one
or more issues of Indebtedness of Holdings or of any of its Subsidiaries having
an outstanding principal amount of $100,000 or greater or any agreement or
instrument evidencing or securing such Indebtedness and such default or breach
results or, with notice or the passage of time, would result in the acceleration
of that Indebtedness prior to its stated maturity (or permit the holders of
such Indebtedness to accelerate such maturity); or

 

7.3           Breach
of Certain Covenants.   Failure
of Holdings, the Borrower or any of their respective Subsidiaries to perform or
comply with any covenant, term or condition contained in Section 2.4(b),
Section 5.1(e), Section 5.2, Section 5.4 or Section 6;
or

 

7.4           Breach
of Warranty.   Any
representation, warranty or certification made or delivered by the Borrower or
any Guarantor in any Loan Document or in any statement or certificate at any
time given by the Borrower or any Guarantor in writing pursuant hereto or
thereto or in connection herewith or therewith shall be false or incorrect in
any respect in all respects (with respect to representations, warranties and
certifications qualified by materiality or Material Adverse Effect) and in 

 

38

 

all material respects (with respect to all other
representations, warranties and certifications) on the date as of which made or
deemed made; or

 

7.5           Other Defaults Under This Agreement
or Any Other Loan Document.  
Any Loan Party shall default in the performance of or compliance with
any covenant, term or condition contained in this Agreement or any other Loan
Document (other than those covered by Sections 7.1, 7.3, 7.4,
or 7.10) and such default shall not have been remedied or waived in
accordance with this Agreement within ten (10) days after the earlier of (i) an
officer of such Loan Party becoming aware of such default or (ii) receipt by
the Borrower of notice from any Lender of such default; or

 

7.6           Involuntary Bankruptcy; Appointment
of Custodian, Etc.  A court of
competent jurisdiction enters a Bankruptcy Order, or an involuntary petition
shall be filed, under any Bankruptcy Law that:

 

(a)           is
for relief against Holdings or any Subsidiary in an involuntary case or
proceeding, or

 

(b)           appoints
a Custodian of Holdings or any Subsidiary for all or substantially all of its
properties, or

 

(c)           orders
the liquidation of Holdings or any Subsidiary;

 

and in each case the order or decree remains unstayed and in effect for
sixty (60) days; or

 

7.7           Voluntary Bankruptcy; Appointment
of Custodian, Etc.  Holdings or
any Subsidiary pursuant to or within the meaning of any Bankruptcy Law:

 

(a)           commences
a voluntary case or proceeding, or

 

(b)           consents
to the entry of a Bankruptcy Order for relief against it in an involuntary case
or proceeding, or

 

(c)           consents
to the appointment of a Custodian of it or for all or substantially all of its
property, or

 

(d)           makes
a general assignment for the benefit of its creditors or files a proposal or
scheme of arrangement involving the rescheduling or composition of its
indebtedness, or

 

(e)           consents
to the filing of a petition in bankruptcy against it, or

 

(f)            shall
generally not pay its debts when such debts become due or shall admit in
writing its inability to pay its debts generally; or

 

7.8           Judgments
and Attachments.  Any money
judgment, writ of attachment or warrant of attachment, or similar process
involving in any individual case or in the aggregate at any time an amount in
excess of $100,000 (to the extent not covered by third-party insurance as to
which the insurance company has acknowledged coverage) shall be entered or
filed against Holdings or any of its Subsidiaries or any of their respective
properties or assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of thirty (30) days or in any event later than five days
prior to the date of any proposed sale thereunder; or

 

39

 

7.9           Dissolution.  Any order, judgment or decree shall be
entered against Holdings or any Subsidiary decreeing the dissolution or
split-up of Holdings or that Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 30 days; or 

 

7.10         Guarantee.  (a) Any Guarantee or any provision thereof
shall cease to be in full force or effect (other than in accordance with its
express terms), or (b) any Guarantor or any Person acting by or on behalf of
such Guarantor shall deny or disaffirm such Guarantor’s obligations under its
Guarantee, or (c) any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed, after giving effect to any applicable grace periods, pursuant to its
Guarantee; or

 

7.11         Material
Contracts.  Holdings or any of
its Subsidiaries shall breach or default under any Material Contract and such
breach or default, if capable of remedy, is not remedied within any applicable
grace period; or

 

7.12         Liens.  Any of the Loan Documents to which the
Borrower, JFL or any Guarantor is a party shall for any reason fail to result
in the Collateral Agent, for the benefit of the Lenders, having a valid, first
priority perfected Lien on the collateral pledged under such Loan Document; or

 

7.13         ERISA Event.  An ERISA Event shall have occurred that,
when taken together with all other ERISA Events that have occurred, has had or
could reasonably be expected to result in a Material Adverse Effect; or

 

7.14         Change of Control.   A Change of Control shall occur;

 

THEN (i) upon the occurrence of any Event of Default described in the
foregoing Sections 7.6 or 7.7, all of the unpaid principal amount
of and accrued interest on the Loans and an amount as liquidated damages for
the loss of the bargain evidenced hereby (and not as a penalty) equal to the
amount that would be payable as a Termination Fee (without duplication of Section
2.4(b)) by the Borrower determined as of the date of the occurrence of any
Event of Default, and all other outstanding Obligations shall automatically
become immediately due and payable, without presentment, demand, protest or
other requirements of any kind, all of which are hereby expressly waived by the
Borrower, and the Commitments of the Lenders hereunder shall thereupon
terminate, and (ii) upon the occurrence of any other Event of Default, the
Required Lenders, by written notice to the Borrower, may declare all of the
unpaid principal amount of and accrued interest on the Loans and an amount as
liquidated damages for the loss of the bargain evidenced hereby (and not as a
penalty) equal to the amount that would be payable as a Termination Fee by the
Borrower determined as of the date of the occurrence of any Event of Default,
and all other outstanding Obligations to be, and the same shall forthwith
become, due and payable, and the Commitments of the Lenders hereunder shall
thereupon terminate, and the Required Lenders may cause the Collateral Agent to
enforce any and all Liens and security interests created pursuant to the Loan
Documents.

 

The provisions of clause (ii) above are subject to the condition that
if the principal of and accrued interest on all or any outstanding Loans and
the Termination Fee and all other outstanding Obligations have been declared
immediately due and payable by reason of the occurrence of any Event of Default
other than an Event of Default described in Sections 7.6 or 7.7,
the Required Lenders may, by written instrument filed with the Borrower,
rescind and annul such declaration and the consequences thereof; provided  that at the time such
declaration is annulled and rescinded:

 

40

 

(A)          no
judgment or decree has been entered for the payment of any monies due pursuant
to the Loans or this Agreement;

 

(B)           all
arrears of interest upon all the Loans and all other sums payable under the
Loans and under this Agreement (except any principal, interest or Termination
Fee on the Loans which has become due and payable solely by reason of such
declaration under clause (ii) above) shall have been duly paid; and

 

(C)           each
and every other Default and Event of Default shall have been made good, cured
or waived pursuant to the terms of this Agreement;

 

and provided, further, that no such
rescission and annulment shall extend to or affect any subsequent Default or
Event of Default or impair any right consequent thereto.

 

SECTION
8.                            THE
COLLATERAL AGENT

 

8.1           Appointment.  Each Lender hereby irrevocably designates
and appoints U.S. Bank National Association as Collateral Agent of such Lender
to act as specified herein and in the other Loan Documents, and each Lender
hereby irrevocably authorizes U.S. Bank National Association as the Collateral
Agent to take such action on its behalf under the provisions of this Agreement
and the other Loan Documents and to exercise such powers and perform such
duties as are expressly delegated to the Collateral Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto.  The
Collateral Agent is authorized to hold all Collateral as Collateral Agent, for
the benefit of itself and the Lenders, to enter into all applicable Loan
Documents, for and on behalf of itself and the Lenders, and to take all actions
that it is directly or indirectly authorized or permitted to take under the
Loan Documents (subject to the ability of the Required Lenders to direct the Collateral
Agent’s actions) with respect to the Collateral, the perfection of Liens in the
Collateral, the exercise of remedies with respect to the Collateral and
otherwise.  The Collateral Agent agrees
to act as such upon the express conditions contained in this Section 8.  Notwithstanding any provision to the
contrary elsewhere in this Agreement or in any other Loan Document, the
Collateral Agent shall have no duties or responsibilities, except those
expressly set forth herein or in the other Loan Documents, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or otherwise exist against the Collateral Agent.  The provisions of this Section 8 are
solely for the benefit of the Collateral Agent and the Lenders, and none of
Holdings, the Borrower nor any of their respective Subsidiaries shall have any
rights as a third party beneficiary of any of the provisions hereof.  In performing its functions and duties under
this Agreement, the Collateral Agent shall act solely as agent of the Lenders
and the Collateral Agent neither assumes nor shall be deemed to have assumed
any obligation or relationship of agent or trust with or for Holdings, the
Borrower or any of their respective Subsidiaries.

 

8.2           Delegation
of Duties.  The Collateral Agent
may execute any of its duties under this Agreement or any other Loan Document
by or through agents or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties (including counsel to
the Borrower).  The Collateral Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by Section 8.3.

 

8.3           Exculpatory
Provisions.  Neither the
Collateral Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall be (a) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection with
this Agreement or the other Loan Documents (except for its or such Person’s own
gross negligence or willful misconduct as finally and 

 

41

 

unappealably determined by a court of competent
jurisdiction) or (b) responsible in any manner to any of the Lenders for any
recitals, statements, representations or warranties made by the Borrower or any
Guarantor or any of their respective officers contained in this Agreement, any
other Loan Documents, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Collateral Agent
under or in connection with, this Agreement or any other Loan Document or for
any failure of the Borrower or any Guarantor or any of their respective
Subsidiaries or any of their respective officers to perform its obligations
hereunder or thereunder.  The Collateral
Agent shall be under no obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or the other Loan Documents, or to inspect the
properties, books or records of the Borrower or any Guarantor or any of their
respective Subsidiaries.  The Collateral
Agent shall not be responsible to any Lender for the effectiveness,
genuineness, validity, enforceability, collectability or sufficiency of this
Agreement or any other Loan Document or for any representations, warranties,
recitals or statements made herein or therein or made in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Collateral Agent to the Lenders or by or on behalf of
the Borrower or any Guarantor or any of their respective Subsidiaries to the
Collateral Agent or any Lender or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained herein or therein or as to the use of the proceeds of
the Loans or of the existence or possible existence of any Default or Event of
Default.

 

8.4           Reliance by the Collateral Agent.  The Collateral Agent shall be entitled to
rely, and shall be fully protected in relying, upon any note, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, facsimile or e-mail message, statement, order or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including, without limitation, counsel to the Borrower or any
Guarantor), independent accountants and other experts selected by the
Collateral Agent.  The Collateral Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall
first be indemnified to its satisfaction by the Lenders against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action.  As
between the Collateral Agent and the Lenders, the Collateral Agent shall in all
cases be fully protected in acting, or in refraining from acting, under this
Agreement and the other Loan Documents in accordance with a request of the
Required Lenders, and such request and any action taken or failure to act
pursuant thereto shall be binding upon all the Lenders.

 

8.5           Notice
of Default.  The Collateral
Agent shall not be deemed to have knowledge or notice of the occurrence of any
Default or Event of Default hereunder unless the Collateral Agent has actually
received notice from a Lender or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
“notice of default.”  In the event that
the Collateral Agent receives such a notice, the Collateral Agent shall give
prompt notice thereof to the Lenders. 
The Collateral Agent shall take such action with respect to such Default
or Event of Default as shall be reasonably directed by the Required Lenders; provided,
that, as between the Collateral Agent and the Lenders unless and until the
Collateral Agent shall have received such directions, the Collateral 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 in the best interests of the Lenders.

 

8.6           Non-Reliance on the Collateral Agent
and Other Lenders.  Each Lender
expressly acknowledges that neither the Collateral Agent nor any of its
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates have made any representations or warranties to it and that no act by
the Collateral Agent hereinafter taken, including any review of the affairs of
the Borrower or any Guarantor shall be deemed to constitute any representation
or warranty by the Collateral Agent to any 

 

42

 

Lender.  Each
Lender represents to the Collateral Agent that it has, independently and
without reliance upon the Collateral Agent or any other Lender, and based on
such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, assets, operations, property,
financial and other condition, prospects and creditworthiness of the Borrower
or any Guarantor and made its own decision to make its Loans hereunder and
enter into this Agreement.  Each Lender
also represents that it will, independently and without reliance upon the
Collateral Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
condition, prospects and creditworthiness of the Borrower or any
Guarantor.  The Collateral Agent shall
have no duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, assets, liabilities, property,
financial and other condition or creditworthiness of the Borrower or any
Guarantor which may come into the possession of the Collateral Agent or any of
its officers, directors, employees, agents, attorneys-in-fact or affiliates.

 

8.7           Indemnification.  The Lenders agree to indemnify the
Collateral Agent in its capacity as such ratably according to their respective
“percentages” as used in determining the Required Lenders at such time, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time (including, without limitation, at any time
following the payment of the Obligations) be imposed on, incurred by or
asserted against the Collateral Agent in its capacity as such in any way
relating to or arising out of this Agreement or any other Loan Document, or any
documents contemplated by or referred to herein or the transactions contemplated
hereby of any action taken or omitted to be taken by the Collateral Agent under
or in connection with any of the foregoing, but only to the extent that any of
the foregoing is not paid by Holdings or any of its Subsidiaries; provided,
that no Lender shall be liable to the Collateral Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Collateral Agent as finally and
unappealably determined by a court of competent jurisdiction.  If any indemnity furnished to the Collateral
Agent for any purpose shall, in the opinion of the Collateral Agent be
insufficient or become impaired, the Collateral Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. 
The agreements in this Section 8.7 shall survive the payment of
all Obligations.

 

8.8           Collateral Agent in Its Individual
Capacity.  The Collateral Agent
and its Affiliates may make loans to, accept deposits from and generally engage
in any kind of business with Holdings and its Subsidiaries as though the
Collateral Agent were not a Collateral Agent hereunder.  With respect to any Loans made by it and all
Obligations owing to it, the Collateral Agent shall have the same rights and
powers under this Agreement as any Lender and may exercise the same as though
it were not the Collateral Agent and the terms “Lender” and “Lenders” shall
include the Collateral Agent in its individual capacity.

 

SECTION
9.                            GUARANTEE

 

9.1           Unconditional
Guarantee.  Each Guarantor
hereby unconditionally, jointly and severally, guarantees (such guarantee to be
referred to herein as the “Guarantee”) to each of the Lenders and to the
Collateral Agent and their respective successors and assigns, that the
principal of and interest and Termination Fee on the Loans will be promptly
paid in full when due, whether at maturity, by acceleration or otherwise and
interest on the overdue principal, if any, and interest on any interest, to the
extent lawful, of the Loans and all other obligations of the Borrower to the
Lenders or the Collateral Agent hereunder or thereunder (including the Obligations)
will be promptly paid in full or performed, all in accordance with the terms
hereof and thereof; subject, however, to the limitations set forth in Section 9.4.  

 

43

 

Each Guarantor hereby agrees that its obligations
hereunder shall be unconditional, irrespective of the validity, regularity or
enforceability of the Loans or this Agreement or any other Loan Document, the
absence of any action to enforce the same, any waiver or consent by any of the
Lenders with respect to any provisions hereof or thereof, the recovery of any
judgment against the Borrower, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a Guarantor.  Each Guarantor
agrees that this is a guaranty of payment and not of collection.  Each Guarantor hereby waives diligence,
presentment, demand of payment, filing of claims with a court in the event of
insolvency or bankruptcy of the Borrower, any right to require a proceeding
first against the Borrower, protest, notice and all demands whatsoever and
covenants that this Guarantee will not be discharged except by complete
performance of the obligations (including, without limitation, payment of all
Obligations) contained in the Loans, this Agreement, the other Loan Documents
and in this Guarantee.  If any Lender or
the Collateral Agent is required by any court or otherwise to return to the
Borrower, any Guarantor, or any custodian, trustee, liquidator or other similar
official acting in relation to the Borrower or any Guarantor, any amount paid
by the Borrower or any Guarantor to the Collateral Agent or such Lender, this
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect.  Each Guarantor
further agrees that, as between each Guarantor, on the one hand, and the
Lenders and the Collateral Agent, on the other hand, (x) the maturity of the
obligations guaranteed hereby may be accelerated as provided in Section 7
for the purposes of this Guarantee, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the obligations
guaranteed hereby, and (y) in the event of any acceleration of such obligations
as provided in Section 7, such obligations (whether or not due and
payable) shall forthwith become due and payable by each Guarantor for the
purpose of this Guarantee.

 

9.2           Severability.  In case any provision of this Guarantee
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality, and enforceability of the remaining provisions in such jurisdiction,
or of such provision in any other jurisdiction, shall not in any way be
affected or impaired thereby.

 

9.3           Release
of a Guarantor.  Upon the sale
or disposition (whether by merger, stock purchase, asset sale or otherwise) of
a Guarantor (or all or substantially all its assets) to an entity which is not
a Subsidiary of Holdings and which sale or disposition is otherwise in
compliance with the terms of this Agreement, such Guarantor shall be deemed
released from all obligations under this Section 9 without any further
action required on the part of the Collateral Agent or any Lender.  The Lenders shall deliver an appropriate
instrument evidencing such release upon receipt of a request by the Borrower
accompanied by an Officers’ Certificate certifying as to the compliance with
this Section 9.3.  Any Guarantor
not so released remains liable in all respects with respect to its Guarantee as
provided in this Section 9.

 

9.4           Limitation of Guarantor’s Liability.  Each Guarantor and, by its acceptance hereof
each of the Lenders, hereby confirms that it is the intention of all such
parties that the guarantee by such Guarantor pursuant to its Guarantee not
constitute a fraudulent transfer or conveyance for purposes of any Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar Federal or state Law.  To
effect the foregoing intention, the Lenders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all
other contingent and fixed liabilities of such Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Guarantor in respect of the obligations of such other Guarantor under its
Guarantee or pursuant to Section 9.5, result in the obligations of such
Guarantor under the Guarantee not constituting such fraudulent transfer or conveyance.

 

44

 

9.5           Contribution.  In order to provide for just and equitable
contribution among the Guarantors, the Guarantors agree, inter  se,
that in the event any payment or distribution is made by any Guarantor (a “Funding
Guarantor”) under its Guarantee, such Funding Guarantor shall be entitled
to a contribution from all other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging the Borrower’s
obligations with respect to the Obligations. 
“Adjusted Net Assets” of such Guarantor at any date shall mean
the lesser of (x) the amount by which the fair value of the property of such
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities Incurred on such date (other than liabilities of such
Guarantor under Subordinated Indebtedness)), but excluding liabilities under
the Guarantee, of such Guarantor at such date and (y) the amount by which the
present fair salable value of the assets of such Guarantor at such date exceeds
the amount that will be required to pay the probable liabilities of such
Guarantor on its debts, excluding debt in respect of the Guarantee of such
Guarantor, as they become absolute and matured.  The allocation among Guarantors of their obligations as set forth
in this Section 9.5 shall not be construed in any way to limit the
liability of any Guarantor hereunder. 

 

9.6           Waiver
of Subrogation.  Until such time
as all Obligations on the Loans are paid in full, each Guarantor hereby
irrevocably waives any claim or other rights which it may now or hereafter
acquire against the Borrower that arise from the existence, payment,
performance or enforcement of such Guarantor’s obligations under its Guarantee
and this Agreement, including, without limitation, any right of subrogation,
reimbursement, exoneration, indemnification, and any right to participate in
any claim or remedy of any Lender against the Borrower, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Borrower, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other
rights.  If any amount shall be paid to
any Guarantor in violation of the preceding sentence and the Loans shall not
have been paid in full, such amount shall be deemed to have been paid to such
Guarantor for the benefit of, and held in trust for the benefit of, the
Lenders, and shall forthwith be paid to the Lenders to be credited and applied
upon the Loans, whether matured or unmatured, in accordance with the terms of
this Agreement.  Each Guarantor
acknowledges that it will receive direct and indirect benefits from the
financing arrangements contemplated by this Agreement and that the waiver set
forth in this Section 9.6 is knowingly made in contemplation of such
benefits.

 

9.7           Waiver of Stay, Extension, Usury and
Other Laws.   (a)   Each Guarantor covenants (to the extent
that it may lawfully do so) that it will not at any time insist upon, plead, or
in any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other Law that would prohibit or forgive such
Guarantor from performing its Guarantee as contemplated herein, wherever
enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Agreement; and (to the extent that it may
lawfully do so) each Guarantor hereby expressly waives all benefit or advantage
of any such Law, and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Collateral Agent or any Lender,
but will suffer and permit the execution of every such power as though no such
Law had been enacted.

 

(b)           As used in this paragraph, any
reference to “the principal” includes the Borrower, and any reference to “the
creditor” includes the Collateral Agent and each Lender.  In accordance
with Section 2856 of the California Civil Code (i) each Guarantor waives
any and all rights and defenses available to it by reason of Sections 2787 to
2855, inclusive, 2899 and 3433 of the California Civil Code, including without
limitation any and all rights or defenses such Guarantor may have by reason of
protection afforded to the principal with respect to any of the guaranteed
Obligations, or to any other guarantor of any of the guaranteed Obligations
with respect to any of such guarantor’s obligations under 

 

45

 

its guaranty, in either case pursuant to the
antideficiency or other laws of the State of California limiting or discharging
the principal’s indebtedness or such guarantor’s obligations, including without
limitation Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure;
and (ii) each Guarantor waives all rights and defenses arising out of an
election of remedies by the creditor, even though that election of remedies,
such as a nonjudicial foreclosure with respect to security for a guaranteed
Obligation, has destroyed such Guarantor’s rights of subrogation and
reimbursement against the principal by the operation of Section 580d of the
Code of Civil Procedure or otherwise; and even though that election of remedies
by the creditor, such as nonjudicial foreclosure with respect to security for
an obligation of any other guarantor of any of the guaranteed Obligations, has
destroyed such Guarantor’s rights of contribution against such other
guarantor.  No other provision of this
Guarantee shall be construed as limiting the generality of any of the covenants
and waivers set forth in this paragraph. 
As provided below, this Guarantee shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of New
York.  This paragraph is included solely
out of an abundance of caution, and shall not be construed to mean that any of
the above-referenced provisions of California law are in any way applicable to
this Guarantee or to any of the guaranteed Obligations.

 

SECTION
10.                     MISCELLANEOUS

 

10.1         [Intentionally Omitted]

 

10.2         Participations in and Assignments
of Loans and Notes.

 

(a)           Each
Lender shall have the right at any time to sell, assign, transfer or negotiate
(an “Assignment”) all or any portion of its Loans or Commitment to any
Eligible Assignee.  In the case of any
sale, transfer or negotiation of all or part of the Loans or any Commitment
authorized under this Section 10.2(a), the assignee, transferee or
recipient shall become a party to this Agreement as a Lender by execution of an
assignment and assumption agreement; provided that (i) at such time Section
2.1(a) shall be deemed modified to reflect the Commitment of such new
Lender and of the existing Lenders, and (ii) upon surrender of the Notes, new
Notes will be issued, at the Borrower’s expense, to such new Lender and to the
assigning Lender, such new Notes to be in conformity with the requirements of Section
2.1(d) (with appropriate modifications) to the extent needed to reflect the
revised Commitment or the sale, assignment, transfer or negotiation of
Loans.  To the extent of any Assignment
pursuant to this Section 10.2(a), the assigning Lender shall be relieved
of its obligations hereunder with respect to its assigned Loans or Commitment,
and the assignee, transferee or recipient shall have, to the extent of such
Assignment, the same rights, benefits and obligations as it would if it were a
Lender with respect to such Loans or Commitment, including, without limitation,
the right to approve or disapprove actions which, in accordance with the terms
hereof, require the approval of a Lender. 
At the time of each Assignment pursuant to this Section 10.2(a)
to an Eligible Assignee which is not already a Lender hereunder and which is
not a United States Person (as such term is defined in Section 7701(a)(30) of
the Internal Revenue Code) for Federal income tax purposes, the respective
Eligible Assignee, if, and to the extent, required by Section 10.19(f),
shall provide to the Borrower the appropriate Internal Revenue Service Forms
described in Section 10.19(f).

 

(b)           Each
Lender may grant participations in all or any part of its Loans or its
Commitment to any Person (a “participant”); provided, however,
that (i) such Lender’s obligations under this Agreement shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties hereto
for the performance of such obligations and (iii) the Borrower, the Collateral
Agent and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender’s rights and obligations under the
Agreement and such Lender shall retain the sole right to enforce the
obligations of the Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement (other than amendments,
modifications or waivers with respect 

 

46

 

to any fees payable hereunder or the amount of principal of or the rate
at which interest is payable on the Loans, or the dates fixed for payments of
fees or principal of or interest on the Loans or termination of the
Commitment).  The Borrower agrees that
each participant shall be entitled to the benefits of Section 10.19 to
the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to Section 10.2(a); provided, however,
that a participant shall not be entitled to receive any greater payment under Section
10.19 than the applicable Lender would have been entitled to receive with
respect to the participation sold to such participant, unless the sale of the
participation to such participant is made with the Borrower’s prior written
consent.  To the extent permitted by
law, each participant also shall be entitled to the benefits of Section 10.5
as though it were a Lender, provided such participant agrees to be subject to Section
10.18 as though it were a Lender.

 

(c)           The
Borrower shall, at its own cost and expense, provide such certificates,
acknowledgments and further assurances in respect of this Agreement and the
Loans as any Lender may reasonably require in connection with any
participation, transfer or assignment pursuant to this Section 10.2.

 

(d)           Nothing
in this Agreement shall prevent or prohibit any Lender from pledging its Loan
and Notes hereunder to a Federal Reserve Bank in support of borrowings made by
such Lender from such Federal Reserve Bank.

 

10.3         Expenses.  Whether or not the transactions contemplated
hereby shall be consummated, the Borrower agrees to promptly pay (a) all the
costs and expenses incurred by the Lenders and the Collateral Agent in
connection with the transactions contemplated by the Loan Documents, including,
without limitation, the reasonable fees, expenses and disbursements of counsel
to the Lenders (including allocated costs of internal counsel) in connection
with the negotiation, preparation, execution and administration of the Loan
Documents and the Loans hereunder, and any amendments, modifications and
waivers hereto or thereto and consents to departures from the terms hereof and
thereof; and (b) all costs and expenses (including attorneys’ fees and costs of
settlement) incurred by the Lenders or the Collateral Agent in enforcing any
Obligations of or in collecting any payments due from the Borrower or any
Guarantor hereunder or under the Notes or any other Loan Document or in
connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a “work-out” or in connection
with any insolvency or bankruptcy proceedings.

 

10.4         Indemnity.  In addition to the payment of expenses
pursuant to Section 10.3, whether or not the transactions contemplated
hereby shall be consummated, the Borrower agrees to indemnify, pay and hold
each of the Lenders, the Collateral Agent and any holder of any of the Notes,
and each of their respective officers, directors, employees, agents,
representatives and affiliates (collectively called the “Indemnitees”),
harmless from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without limitation,
the reasonable fees and disbursements of counsel for such Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened, whether or not such Indemnitee shall be designated as
a party thereto), which may be suffered by, imposed on, incurred by, or
asserted against that Indemnitee, in any manner resulting from, connected with,
in respect of, relating to or arising out of this Agreement or any other Loan
Document, the Lenders’ agreements to make the Loans or the use or intended use
of any of the proceeds of the Loans hereunder (the “indemnified liabilities”); provided,
however, that the Borrower shall have no obligation to an Indemnitee
hereunder with respect to indemnified liabilities to the extent such
liabilities are finally and unappealably judicially determined by a court of
competent jurisdiction to have resulted solely from the gross negligence or
willful misconduct of that Indemnitee. 
To the extent that the undertaking to indemnify, pay and hold harmless
set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Borrower shall contribute the
maximum portion which it is 

 

47

 

permitted to pay and satisfy under applicable law to
the payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them.

 

10.5         Setoff.   In addition to any rights now or hereafter
granted under applicable Law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Default or Event of
Default, each Lender, the Collateral Agent and each subsequent holder of any
Note and any Affiliate thereof is hereby authorized by the Borrower and the
Guarantors at any time or from time to time, without notice to the Borrower or
any Guarantor, any such notice being hereby expressly waived, to set off and to
appropriate and to apply any and all deposits (general or special, including,
but not limited to, Indebtedness evidenced by certificates of deposit, whether
matured or unmatured) and any other Indebtedness or obligations at any time
held or owing by the Collateral Agent, such Lender, such subsequent holder or
such Affiliate to or for the credit or the account of the Borrower or such
Guarantor against and on account of the obligations and liabilities of the
Borrower or such Guarantor to the Lenders under this Agreement, the Notes and
the other Loan Documents, including, but not limited to, all claims of any
nature or description arising out of or connected with this Agreement, the
Notes, the Guarantees or the other Loan Documents, irrespective of whether or
not (a) the Collateral Agent, such Lender, such subsequent holder or such
Affiliate shall have made any demand hereunder or (b) the Collateral Agent,
such Lender, such subsequent holder or such Affiliate shall have declared the
principal of or the interest on its portion of the Loans and its Notes and
other amounts due hereunder to be due and payable as permitted by Section 7
and although said obligations and liabilities, or any of them, may be
contingent or unmatured.

 

10.6         Amendments
and Waivers.  No amendment,
modification, termination or waiver of any term or provision of this Agreement,
of the Notes, any Guarantee or the Pledge and Security Agreement or consent to
any departure by the Borrower or any Guarantor therefrom, shall in any event be
effective without the prior written concurrence of the Borrower or such
Guarantor, as the case may be, and the Required Lenders, and, upon the request
of any Lender, the receipt of a written opinion of counsel of the Borrower
addressed to the Lenders to the effect that such amendment, modification,
termination, waiver or consent does not violate or conflict with any of the
terms and provisions of any Contractual Obligation of the Borrower; provided,
however, that without the prior written consent of each Lender affected,
an amendment, modification, termination or waiver of this Agreement, any Notes,
any Guarantee, the Pledge and Security Agreement or consent to departure from a
term or provision hereof or thereof may not: 
(a) reduce the principal amount of Notes whose holders must consent to
any such amendment, modification, termination, waiver or consent; (b) reduce
the rate of or extend the time for payment of principal or interest on any
Note; (c) reduce the principal amount of any Note; (d) make any change in the
definition of Change of Control, in the last paragraph of Section 7 or
in this Section 10.6; (e) reduce the rate or extend the time of payment
of fees or other compensation payable to the Lenders hereunder (including the
Termination Fee); (f) increase the amount of the Commitment; (g) release all or
substantially all of the collateral purported to be subject to the Liens of any
Loan Document or all or substantially all of the Guarantors from the Guarantee
(in each case other than releases necessary to effectuate transactions
otherwise permitted under this Agreement); or (h) change the definition of
“Required Lenders”; and provided, further, that without the
consent of the Collateral Agent, no such amendment, modification, termination
or waiver may amend, modify, terminate or waive any provision of Section 8
as the same applies to the Collateral Agent or any other provision of this
Agreement or any other Loan Document as it relates to the rights or obligations
of the Collateral Agent.  Any waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which it was given.  No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any further notice or demand in similar or other circumstances.  Any amendment, modification, termination,
waiver or consent effected in accordance with this Section 10.6 shall be
binding upon each Lender, and, if signed by the Borrower or a Guarantor, on the
Borrower and such Guarantor.

 

48

 

10.7         Independence
of Covenants.  All covenants
hereunder shall be given independent effect so that if a particular action or
condition is not permitted by any of such covenants, the fact that it would be
permitted by an exception to, or be otherwise within the limitation of, another
covenant shall not avoid the occurrence of a Default or Event of Default if
such action is taken or condition exists.

 

10.8         Entirety.  The Loan Documents embody the entire
agreement of the parties and supersede all prior agreements and understandings,
if any, relating to the subject matter hereof and thereof.

 

10.9         Notices.  Unless otherwise provided herein, any notice
or other communications herein required or permitted to be given shall be in
writing and may be personally served or delivered, telecopied, or sent by mail
and shall be deemed to have been given when delivered in person, upon receipt
of telecopy against receipt of answer back or four (4) Business Days after
depositing it in the mail, registered or certified, with postage prepaid and
properly addressed; provided, however, that notices to the
Collateral Agent and the Lenders shall not be effective until received.  For the purposes hereof, the addresses of
the parties hereto (until notice of a change thereof is delivered as provided
in this Section 10.9) shall be set forth under each party’s name on the
signature pages hereto.

 

10.10       Survival of Warranties and Certain
Agreements.

 

(a)           All
agreements, representations and warranties made herein shall survive the execution
and delivery of this Agreement, the making of the Loans hereunder and the
execution and delivery of the Notes and, notwithstanding the making of the
Loans, the execution and delivery of the Notes or any investigation made by or
on behalf of any party, shall continue in full force and effect.  The closing of the transactions herein
contemplated shall not prejudice any right of one party against any other party
in respect of anything done or omitted hereunder or in respect of any right to
damages or other remedies.

 

(b)           Notwithstanding
anything in this Agreement or implied by Law to the contrary, the agreements of
the Borrower set forth in Sections 10.3, 10.4, 10.14, 10.15,
10.17 and 10.19 shall survive the payment of the Loans and the
Notes and the termination of this Agreement.

 

10.11       Failure or Indulgence Not Waiver;
Remedies Cumulative.   No
failure or delay on the part of the Collateral Agent or any Lender or any
holder of any Note in the exercise of any power, right or privilege hereunder
or under any other Loan Document shall impair such power, right or privilege or
be construed to be a waiver of any default or acquiescence therein, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or
privilege.  All rights and remedies
existing under this Agreement or any other Loan Document are cumulative to and
not exclusive of any rights or remedies otherwise available.

 

10.12       Severability.  In case any provision in or obligation under
this Agreement or any other Loan Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations in such jurisdiction, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

 

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

 

10.14       Applicable
Law.  THIS AGREEMENT, EACH GUARANTEE, THE PLEDGE AND SECURITY AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, 

 

49

 

AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING, WITHOUT LIMITATION, SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW.

 

10.15       Successors and Assigns; Subsequent
Holders of Notes.  This Agreement
shall be binding upon the parties hereto and their respective successors and
assigns and shall inure to the benefit of the parties hereto and the permitted
successors and assigns of the Lenders. 
The terms and provisions of this Agreement, each Guarantee, the Pledge
and Security Agreement and the other Loan Documents shall inure to the benefit
of any assignee or transferee of the Loans pursuant to Section 10.2(a),
and in the event of such transfer or assignment, the rights and privileges
herein conferred upon the Lenders shall automatically extend to and be vested
in such transferee or assignee, all subject to the terms and conditions
hereof.  In determining whether the
holders of a sufficient aggregate principal amount of the Loans shall have
consented to any action under this Agreement, any amount of the Loans owned or
held by the Borrower, any Guarantor or any of their respective Affiliates shall
be disregarded.  The Borrower’s rights
or any interest therein hereunder and the Borrower’s or any Guarantor’s
obligations under the Loan Documents (including the Obligations) may not be
assigned without the prior express written consent of each of the Lenders.

 

10.16       Counterparts;
Effectiveness.  This Agreement
and any amendments, waivers, consents or supplements may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such 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 (including the Lenders and the Collateral Agent) and delivery
thereof to the Lenders.

 

10.17       Consent to Jurisdiction; Venue;
Waiver of Jury Trial.

 

(a)           ANY
LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT, ANY NOTE, ANY
GUARANTEE, THE PLEDGE AND SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE
BROUGHT IN THE COURTS IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION
IN THE STATE, COUNTY AND CITY OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH LOAN PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS RESPECTIVE PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS.  EACH OF THE LOAN PARTIES HEREBY FURTHER IRREVOCABLY WAIVES ANY
CLAIM THAT ANY SUCH COURTS LACK JURISDICTION OVER ITSELF, AND AGREES NOT TO
PLEAD OR CLAIM, IN ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT, THE NOTES, THE GUARANTEES, THE PLEDGE AND SECURITY AGREEMENT OR ANY
OTHER LOAN DOCUMENT BROUGHT IN ANY OF THE AFORESAID COURTS, THAT ANY SUCH COURT
LACKS JURISDICTION OVER SUCH PARTY. 
EACH OF THE LOAN PARTIES IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH LOAN PARTY, AT ITS RESPECTIVE
ADDRESS FOR NOTICES PURSUANT TO SECTION 10.9.  EACH OF THE LOAN PARTIES AGREES THAT SERVICE AS PROVIDED IN THIS
CLAUSE (a) IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE
PARTY IN ANY SUCH PROCEEDING IN ANY OF THE AFORESAID COURTS, AND OTHERWISE
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.  TO THE EXTENT PERMITTED BY LAW, EACH OF THE
LOAN PARTIES HEREBY IRREVOCABLY WAIVES ANY OBJECTION TO SUCH SERVICE OF PROCESS
AND 

 

50

 

FURTHER IRREVOCABLY WAIVES AND AGREES
NOT TO PLEAD OR CLAIM IN ANY ACTION OR PROCEEDING COMMENCED HEREUNDER OR UNDER
ANY NOTE, ANY GUARANTEE, THE PLEDGE AND SECURITY AGREEMENT OR ANY OTHER LOAN
DOCUMENT THAT SERVICE OF PROCESS WAS IN ANY WAY INVALID OR INEFFECTIVE.  NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
LENDER OR THE COLLATERAL AGENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED
BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY PARTY
IN ANY OTHER JURISDICTION.

 

(b)           EACH OF THE LOAN PARTIES HEREBY
IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT, THE NOTES, THE GUARANTEES, THE PLEDGE AND
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT BROUGHT IN THE COURTS REFERRED TO
IN CLAUSE (a) ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO
PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN
ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

(c)           EACH OF THE PARTIES TO THIS AGREEMENT
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
NOTES, THE GUARANTEES, THE PLEDGE AND SECURITY AGREEMENT OR ANY OTHER LOAN
DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.

 

10.18       Payments Pro Rata.

 

Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker’s lien, by counterclaim or cross
action, by the enforcement of any right under the Loan Documents, or otherwise)
which is applicable to the payment of the principal of, or interest on, the
Loans of a sum which with respect to the related sum or sums received by other
Lenders is in a greater proportion than the total of such Obligations then owed
and due to such Lender bears to the total of such Obligations then owed and due
to all of the Lenders immediately prior to such receipt, then such Lender
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Lenders an interest in the Obligations of the Borrower
to such Lenders in such amount as shall result in a proportional participation
by all of the Lenders in such amount; provided that, if all or any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.

 

10.19       Taxes.

 

(a)           Any
and all payments by the Borrower hereunder or under any of the other Loan
Documents shall be made free and clear of and without deduction or withholding
for or on account of any and all present or future Taxes, unless such deduction
or withholding is required by Law or the administration thereof and excluding
in the case of each Lender, Taxes imposed on the net income of, and branch
profit taxes of, any Lender or the Collateral Agent (i) by the jurisdiction in
which such Lender or the Collateral Agent is organized or any political
subdivision thereof or taxing authority thereof, or (ii) by any jurisdiction in
which such Person’s principal office or relevant lending office is located or
in which such Person is doing business, other than solely by reason of this
Agreement, or any political subdivision 

 

51

 

or taxing authority of any such jurisdiction, or (iii) by reason of a
failure by a Lender to which Section 10.19(f) applies to deliver the
Required Forms or to otherwise comply with the requirements of Section
10.19(f) unless such failure is due to a change in law occurring after the
date on which such Lender became a Lender (all such nonexcluded Taxes
hereinafter referred to as “Covered Taxes”).  If the Borrower shall be required by Law or the administration
thereof to deduct or withhold any Covered Taxes from or in respect of any sum
payable hereunder or under any other Loan Document, (i) the sum payable shall
be increased as may be necessary so that after making all required deductions
or withholdings (including deductions or withholdings applicable to additional
amounts paid under this paragraph), the Lender receives an amount equal to the
sum it would have received if no such deduction or withholding had been made;
(ii) the Borrower shall make such deductions or withholdings; and (iii) the
Borrower forthwith shall pay the full amount deducted or withheld to the
relevant authority in accordance with applicable Law.

 

(b)           The
Borrower agrees to pay forthwith any present or future stamp, duty or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as “Other
Taxes”) imposed by any jurisdiction (or any political subdivision or taxing
authority thereof or therein) which arise from any payment made by the Borrower
hereunder or under any other Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Document.

 

(c)           The
Borrower agrees to indemnify the Collateral Agent and each of the Lenders for
the full amount of Covered Taxes or Other Taxes not deducted or withheld and
paid by the Borrower in accordance with Section 10.19(a) and (b)
to the relevant authority and any Taxes other than Covered Taxes or Other Taxes
imposed by any jurisdiction on amounts payable by the Borrower under this Section
10.19 paid by the Lender or the Collateral Agent and any liability
(including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not any such Taxes or Other Taxes
were correctly or legally asserted. 
Payment under this indemnification shall be made within 30 days from the
date such Lender makes written demand therefor.  A certificate as to the amount of such Taxes or Other Taxes and
evidence of payment thereof submitted to the Borrower shall be prima facie
evidence, absent manifest error, of the amount due from the Borrower to such
Lender.

 

(d)           The
Borrower shall promptly furnish to each Lender the original or a certified copy
of a receipt (or, if a receipt is not available, such other documentation as
shall be reasonably satisfactory to the Lenders) evidencing any payment of
Taxes or Other Taxes made by the Borrower.

 

(e)           The
provisions of this Section 10.19 shall survive the termination of the
Agreement and repayment of all Obligations.

 

(f)                    Each Lender that is (i) an assignee or
transferee of an interest under this Agreement pursuant to Section 10.2(a)
(unless the respective Lender was already a Lender hereunder immediately prior
to such assignment or transfer), (ii) eligible to receive all payments of
interest to be made to such Lender hereunder free from, or at reduced rates of,
withholding of United States federal income tax, and (iii) organized in a
jurisdiction other than the United States, a State thereof or the District of
Columbia hereby agrees that:

 

(i)    it shall, no later than the date upon which such Lender becomes a party
hereto, and on each date that any form required by this Section expires or
becomes obsolete, deliver to the Borrower: (A) two accurate, complete and
signed originals of U.S. Internal Revenue Service Form W-8ECI or successor
form, or (B) two accurate, complete and signed originals of U.S. Internal
Revenue Service Form W-8BEN or successor form, in each case, indicating that
such Lender is on the date of delivery thereof entitled to receive payments of 

 

52

 

interest
for the account of its lending office under this Agreement free from, or at
reduced rates of, withholding of United States federal income tax (the “Required
Forms”); and

 

(ii)   if at any time such Lender changes its lending office or offices or
selects an additional lending office for purposes of this Agreement, it shall,
at the same time or reasonably promptly thereafter, deliver to the Borrower and
the Agents the appropriate forms as described in clause (i) above in
replacement for, or in addition to, the forms previously delivered by it
hereunder.

 

(g)           If the Borrower is required to make
any deduction or withholding as a result of the fact that a Lender is organized
outside the United States, such Lender shall use its reasonable efforts to
transfer its Loan to an affiliate in respect of which no such deduction or
withholding would be imposed if such transfer would have no adverse effect on
such Lender or the Loan.

 

10.20       Waiver
of Stay, Extension or Usury Laws. 
The Borrower covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other Law that would prohibit or forgive the Borrower from paying all or any
portion of the principal of or interest on the Loans as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this Agreement; and (to the extent that it
may lawfully do so) the Borrower hereby expressly waives all benefit or
advantage of any such Law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Collateral Agent or any
Lender, but will suffer and permit the execution of every such power as though
no such Law had been enacted.

 

10.21       Requirements
of Law.  In the event that any
change in Law occurring after the date that any lender becomes a Lender party
to this Agreement with respect to such Lender shall, in the opinion of such
Lender, require that any Commitment of such Lender be treated as an asset or
otherwise be included for purposes of calculating the appropriate amount of
capital to be maintained by such Lender or any corporation controlling such
Lender, and such change in Law shall have the effect of reducing the rate of
return on such Lender’s or such corporation’s capital, as the case may be, as a
consequence of such Lender’s obligations hereunder to a level below that which
such Lender or such corporation, as the case may be, could have achieved but
for such change in Law (taking into account such Lender’s or such corporation’s
policies, as the case may be, with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time following notice
by such Lender to the Borrower of such change in Law, within fifteen (15) days
after demand by such Lender, the Borrower shall pay to such Lender such
additional amount or amounts as will compensate such Lender or such
corporation, as the case may be, for such reduction.

 

10.22       Confidentiality.

 

(a)           Each
Lender shall hold all non-public information obtained pursuant to the
requirements of or in connection with this Agreement which has been identified
as confidential by the Borrower in accordance with such Lender’s customary
procedures for handling confidential information of this nature, it being
understood and agreed by the Borrower that (i) in any event a Lender may make
disclosures reasonably required by any Eligible Assignee, transferee or
participant in connection with the contemplated assignment or transfer by such
Lender of any Loans or any participation therein (provided that such Eligible
Assignee, transferee or participant agrees to be bound by the terms of this Section
10.22) or as required or requested by any governmental agency or
representative thereof or pursuant to legal process; provided that
unless specifically prohibited by applicable Law or court order, each Lender
shall notify the Borrower of any request by any governmental agency or
representative thereof (other than 

 

53

 

any such request in connection with any examination of the financial
condition of such Lender by such governmental agency) for disclosure of any
such non-public information prior to disclosure of such information, (ii) a
Lender may share with any of its Affiliates, and such Affiliates may share with
any Lender, any information related to the Borrower or the Borrower’s or their
respective Affiliates (including information relating to creditworthiness) (it
being understood that the Persons to whom such disclosure is made will be
informed of the confidential nature of such information and instructed to keep
such information confidential pursuant to the terms hereof) and (iii) a Lender
may make disclosures in connection with the enforcement or exercise of rights
and remedies hereof or of any other Loan Document or any litigation relating
hereto or to any other Loan Document; and provided, further, that
in no event shall any Lender be obligated or required to return any materials
furnished by Holdings or any of its Subsidiaries.

 

(b)           Notwithstanding
the foregoing, the parties (and each employee, representative, or other agent
of the parties) may disclose to any and all Persons, without limitation of any
kind, the tax treatment and tax structure of the transaction contemplated by
this Agreement; provided, however, that this clause (b) shall not
permit any party (or any employee, representative, or other agent thereof) to
disclose any information, the disclosure of which would otherwise be prohibited
by this Agreement and that is not necessary to understanding the tax treatment
and tax structure of the transaction (including the identity of the parties,
any information that could lead another to determine the identity of the
parties, or any other information to the extent that such disclosure could
result in a violation of any federal or state securities law).

 

[signature
pages follow]

 

54

 

IN
WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

 

	
   

  	
  “Borrower”:

  
	
   

  	
   

  
	
   

  	
  ELGAR ELECTRONICS CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John P. Mei

  	
   

  
	
   

  	
   

  	
  Name:  John
  P. Mei

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President, Finance, and Chief 

  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  “Guarantor”:

  
	
   

  	
   

  
	
   

  	
  ELGAR HOLDINGS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John P. Mei

  	
   

  
	
   

  	
   

  	
  Name:  John
  P. Mei

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President, Finance, and Chief 

  Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Notice Address for each Loan Party:

  
	
   

  	
   

  
	
   

  	
  Elgar Electronics Corporation

  
	
   

  	
  9250 Brown Deer Road

  
	
   

  	
  San Diego, California 92121

  
	
   

  	
  Attn:  Chief
  Financial Officer

  
	
   

  	
  Facsimile:  858-458-0267

  
	
   

  	
   

  
	
   

  	
  with a copy to:

  
	
   

  	
   

  
	
   

  	
  Gibson Dunn &
  Crutcher LLP

  
	
   

  	
  200 Park Avenue, 47th
  Floor

  
	
   

  	
  New York, New York  10166

  
	
   

  	
  Attn:  Conor D. Reilly

  
	
   

  	
  Facsimile:  212-351-4035

  
					

 

55

 

 

	
   

  	
  “Collateral
  Agent”:

  
	
   

  	
   

  
	
   

  	
  U.S.
  BANK NATIONAL ASSOCIATION,

  as Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Frank P. Leslie III

  	
   

  
	
   

  	
   

  	
  Name:  Frank
  P. Leslie

  	
   

  
	
   

  	
   

  	
  Title:  Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Notice Address:

  
	
   

  	
   

  
	
   

  	
  U.S. Bank National
  Association

  
	
   

  	
  180 East Fifth Street

  
	
   

  	
  St. Paul, Minnesota 55101

  
	
   

  	
  Attn: 
      Corporate Trust Department

  
	
   

  	
  Facsimile:       651-244-0711

  

 

56

 

“Lenders”:

 

Commitment:  $18,750,000.00   OCM/GFI POWER OPPORTUNITIES
FUND, L.P.

 

 

	
   

  	
  By:

  	
  GFI Energy Ventures LLC,
  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Larry Gilson

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Larry Gilson

  
	
   

  	
   

  	
   

  	
  Title:  Chairman

  

 

Commitment:  $6,250,000.00     OCM PRINCIPAL OPPORTUNITIES FUND II, L.P.

 

	
   

  	
  By:

  	
  Oaktree Capital
  Management, LLC, its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Stephen A. Kaplan

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Stephen A. Kaplan

  
	
   

  	
   

  	
   

  	
  Title:  Principal

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Vincent J. Cebula

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Vincent J. Cebula

  
	
   

  	
   

  	
   

  	
  Title:  Managing Director

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Notice Address for the Lenders:

  
	
   

  	
   

  
	
   

  	
  Oaktree Capital
  Management, LLC

  333 South Grand Avenue

  Los Angeles, California  90071

  Attn:  Jordon Kruse

  Facsimile:  (213) 830-6394

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  with copies to:

  
	
   

  	
   

  
	
   

  	
  Oaktree Capital
  Management, LLC

  1301 Avenue of the Americas

  34th Floor

  New York, New York 10019

  Attn:  Vincent Cebula

  Facsimile:  (212) 284-1949

  
	
   

  	
   

  
	
   

  	
  GFI Energy Ventures, LLC

  11611 San Vincente Boulevard # 710

  Los Angeles, California  90049

  Attn:  Ian A. Schapiro

  Facsimile: (310) 442-0540

  
	
   

  	
   

  
	
   

  	
  and

  

 

57

 

	
   

  	
  Skadden, Arps, Slate,
  Meagher & Flom LLP 

  300 South Grand Avenue

  Los Angeles, California  90071

  Attn:  Jeffrey H. Cohen

  Facsimile:  (213) 687-560

  

 

58

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