Document:

Exhibit
10.1

 

EXECUTIVE
EMPLOYMENT AGREEMENT

 

THIS EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”)
is made and entered into this 10th day of December, 2007 (the “Effective Date”) by and between GENOPTIX, INC., a Delaware corporation (“Company”),
and CHRISTIAN V. KUHLEN, M.D., ESQ. (“Executive”).

 

RECITALS:

 

Executive is currently employed by the Company as its
Vice President, General Counsel and Corporate Secretary.

 

The Company and Executive desire to formally state the
terms and conditions of Executive’s employment by the Company and to provide
Executive with certain benefits upon a qualifying termination of such
employment.

 

The Company desires to employ Executive in the
executive capacity hereinafter stated, and the Executive desires to enter into
the employ of the Company in such capacity for the period and with the terms
and conditions set forth herein.

 

AGREEMENT:

 

NOW, THEREFORE, in consideration of the promises and the covenants
set forth in this Agreement and for other valuable consideration, the parties
hereby agree as follows:

 

1.             Employment.  The Company hereby employs Executive as Vice
President, General Counsel and Corporate Secretary, assigned with responsibilities
to do and perform all services, acts, or things necessary or advisable to
manage and conduct the business of the Company, subject at all times to the
policies set by the Board of Directors of the Company (the “Board”),
and to the consent of the Board when required by the terms of this contract.  Executive hereby accepts such employment and
agrees to devote such time and energies as appropriate to fulfill all
responsibilities to the Company.  Executive
shall be employed at will.

 

2.             Compensation.  In consideration for all services rendered by Executive
under this Agreement, Executive shall receive the compensation described in this
Section 2.  All such compensation
shall be paid subject to appropriate tax withholding and similar deductions.

 

(a)           Salary.  Executive shall be paid an initial annual salary of $235,000,
payable in accordance with the Company’s normal practices in the payment of
salary and wages practices, in equal installments, but not less than 26
increments annually.

 

(b)           Executive Benefit and Incentive
Compensation Plans.  During employment hereunder, Executive
shall be entitled to receive those benefits which are routinely made available
to executive officers of the Company, including participation in any executive
stock ownership plan, profit sharing plan, incentive compensation or bonus
plan, retirement plan, Company-provided life insurance, or similar executive
benefit plans maintained or sponsored by the Company.   The Company shall not take any action that
would substantially diminish the 

 

1

 

aggregate value of
Executive’s fringe benefits as they exist as of the Effective Date of this
Agreement or as the same may be increased from time to time.

 

(c)           Expense Reimbursement.  The Company shall promptly reimburse Executive for all
reasonable expenses necessarily incurred during conduct of Company business,
and for which adequate documentation is presented, but in no event later than December 31
of the year following the year in which the expense was incurred.

 

(d)           Personal Time Off.  Executive shall be entitled to paid time off in
accordance with the Company’s policies applicable to executives.

 

3.             Termination.  Executive’s employment may be terminated as follows,
with the following effects:

 

(a)           Death.  Executive’s employment shall terminate immediately
upon the Executive’s death, in which event the Company’s only obligations hereunder
shall be to pay all compensation and expense reimbursements owing for services
rendered and reasonable business expenses incurred by the Executive prior to
the date of his death.

 

(b)           Disability.  In the event the Executive is disabled from performing
his assigned duties under this agreement due to illness or injury for a period
in excess of forty-five (45) consecutive days or a period or periods of more
than one hundred and twenty (120) days in the aggregate in any twelve month
period, the Board, in its sole discretion, may terminate Executive’s employment
immediately upon written notice to Executive, in which event the Company’s only
obligations hereunder shall be to pay all compensation and expense reimbursements
owing for services rendered and reasonable business expenses incurred by the
Executive prior to the effective date of termination.

 

(c)           For Cause.  The Company may terminate Executive’s employment for Cause
immediately upon written notice from the Board to Executive.  For purposes of this Agreement, “Cause” means the
occurrence of any one or more of the following: 
(i) Executive’s conviction of or plea of nolo contendere to any
felony crime involving fraud, dishonesty or moral turpitude under the laws of
the United States or any state thereof; (ii) Executive’s attempted
commission of, or participation in, a fraud or act of dishonesty against the
Company; (iii) Executive’s intentional, material violation of any contract
or agreement between the Participant and the Company or of any statutory duty
owed to the Company; (iv) Executive’s unauthorized use or disclosure of
the Company’s confidential information or trade secrets; or (v) Executive’s
gross misconduct.  In the event Executive’s
employment is terminated for Cause, the Company shall have no further
obligations to Executive other than to pay all compensation and expense
reimbursements owing for services rendered and reasonable business expenses
incurred by Executive prior to the effective date of such termination.

 

(d)           Without Cause.  The Company in its sole discretion may terminate
Executive’s employment without cause or prior warning immediately upon written
notice from the Board to Executive, in which event the Company shall pay to
Executive all compensation and expense reimbursements owing for services
rendered and reasonable business expenses incurred by Executive prior to the
effective date of termination, and, contingent upon 

 

2

 

Executive’s delivery to
the Company of an effective Release and Waiver as provided in Section 3(e) below,
provide the following benefits to Executive: 
(i) severance consisting of continued payment of Executive’s base
salary at the rate in effect as of the effective date of termination, less
standard deductions and withholdings, for a period of six (6) months
following the effective date of termination, subject to acceleration of such
payments into a single lump-sum cash severance payment in the event a Change in
Control (as defined below) of the Company has occurred prior to the date of
termination or a Change in Control occurs within ninety (90) days after the
date of termination of Executive’s employment; (ii) upon timely election
by Executive complying with COBRA, payment of all premiums required to continue
Executive’s medical, dental and vision insurance coverage pursuant to COBRA for
a period of six (6) months following the date of termination; and (iii) immediately
accelerate the vesting of all options to purchase the common stock of the
Company granted to Executive prior to the effective date of such termination
(the “Options”) such that Executive shall be
deemed vested as to the same number of shares as if Executive had continued to
be employed by the Company for a period of six (6) months following the
effective date of such termination (subject to the additional accelerated
vesting provided in Section 4(b) in the event Executive is terminated
by the Company without Cause within 90 days prior to or within 13 months
following the effective date of a Change in Control).  As a condition to receiving the continuing
benefits specified in this Section 3(d), during the six (6) month
period following the Executive’s termination date, Executive shall not engage
in any employment or business activity that is directly competitive with the
Company’s business activities as of such termination date and Executive shall
not induce any employee of the Company to leave the employ of the Company.

 

(e)           Release and Waiver. 
As a condition to receiving the benefits specified in Sections 3(d) and
4(b) of this Agreement, Executive must deliver to the Company a fully
effective waiver and release of claims in the form attached hereto as Exhibit A (the “Release
and Waiver”) within the time frame set forth therein, but in no
event later than forty-five (45) days following the Executive’s termination
date.

 

(f)            Voluntary Termination by
Executive.  Executive may terminate his employment
hereunder at any time, whether with or without cause, effective sixty (60) days
after delivery of written notice of such termination to the Company, except for
Executive’s Emergency Need.  “Emergency Need”, as used in this Section,
is defined to be the advent of illness or related health issues in Executive or
his immediate family which a medical doctor would conclude poses a mortal
health risk to that person.  The Company
shall have the option, in its sole discretion, to specify an earlier
termination date than that provided by Executive in the written notice.  Upon voluntary termination pursuant to this
Section, the Company shall have no further obligations to Executive other than
to pay all compensation and expense reimbursements owing for services rendered and
reasonable business expenses incurred by Executive prior to effective date of
termination as determined by the Company.

 

(g)           Returning Company Documents.  In the event of any termination of Executive’s
employment hereunder, Executive shall, prior to or on such termination deliver
to the Company (and will not maintain possession of or deliver to anyone else)
any and all devices, records, data, data bases software, software
documentation, laboratory notebooks, notes, reports, proposals, lists, customer
lists, correspondence, specifications, drawings, blueprints, sketches, 

 

3

 

materials, equipment, other
documents or property, or reproductions of any of the above aforementioned
items belonging to the Company, its successors or assigns.

 

4.             Change in Control.

 

(a)           Option Acceleration Upon A Change
in Control.  Effective immediately upon the closing of
a Change in Control of the Company, the vesting of fifty percent (50%) of the
then unvested shares of Common Stock subject to the Options shall be
accelerated in full and shall be fully vested and immediately exercisable (and,
if any Options have been early exercised by Executive, the reacquisition or
repurchase rights held by the Company with respect to the shares of Common
Stock subject to such acceleration shall lapse in full, as appropriate).  Thereafter, the balance of the Options’
unvested shares of Common Stock subject to such Options shall vest in six (6) equal
monthly installments over the six-month period immediately following the
closing of the Change in Control, except as provided in Section 4(b) below.

 

(b)           Benefits Upon Termination. 
In the event that Executive’s employment by the Company is terminated
without Cause (as defined above) or Executive terminates his employment for
Good Reason (as defined below) within ninety (90) days prior to or within
thirteen (13) months following the effective date of a Change in Control (as
defined below) of the Company, contingent upon Executive’s delivery to the
Company of a fully effective Release and Waiver as provided in Section 3(e),
the Executive shall be entitled to the benefits and payments specified in
Sections 3(d)(i) and 3(d)(ii) above, and the vesting of the unvested
shares of Common Stock subject to the Options shall immediately accelerate in
full such that all of the shares of Common Stock subject to such Options shall
be fully vested and immediately exercisable (and, if any Options have been
early exercised by Executive, the reacquisition or repurchase rights held by
the Company with respect to the shares of Common Stock subject to such
acceleration shall lapse in full, as appropriate).

 

(c)           Change in Control.   “Change in Control” means the occurrence, in a single
transaction or in a series of related transactions, of any one or more of the
following events:

 

(i)            any Exchange Act Person (as defined
below) becomes the beneficial owner, directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then
outstanding securities other than by virtue of a merger, consolidation or
similar transaction.  Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur (A) on account of the acquisition of
securities of the Company by an investor, any affiliate thereof or any other
Exchange Act Person from the Company in a transaction or series of related
transactions the primary purpose of which is to obtain financing for the
Company through the issuance of equity securities or (B) solely because
the level of beneficial ownership held by any Exchange Act Person (the “Subject Person”) exceeds the
designated percentage threshold of the outstanding voting securities as a
result of a repurchase or other acquisition of voting securities by the Company
reducing the number of shares outstanding, provided that if a Change in Control
would occur (but for the operation of this sentence) as a result of the
acquisition of voting securities by the Company, and after such share
acquisition, the Subject Person becomes the beneficial owner of any additional
voting 

 

4

 

securities
that, assuming the repurchase or other acquisition had not occurred, increases
the percentage of the then outstanding voting securities beneficially owned by
the Subject Person over the designated percentage threshold, then a Change in
Control shall be deemed to occur (for purposes of this Section 4(c), “Exchange Act Person”  means any natural person, entity or “group”
(within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended (“Exchange Act”)),
except that “Exchange Act Person” shall not include (A) the Company or any
subsidiary of the Company, (B) any employee benefit plan of the Company or
any subsidiary of the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any subsidiary of
the Company, (C) an underwriter temporarily holding securities pursuant to
an offering of such securities, (D) an entity beneficially owned, directly
or indirectly, by the stockholders of the Company in substantially the same
proportions as their beneficial ownership of stock of the Company; or (E) any
natural person, entity or “group” (within the meaning of Section 13(d) or
14(d) of the Exchange Act) that, as of the date of this Agreement, is the
beneficial owner, directly or indirectly, of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the
Company’s then outstanding securities);

 

(ii)           there is consummated a merger,
consolidation or similar transaction involving (directly or indirectly) the
Company and, immediately after the consummation of such merger, consolidation
or similar transaction, the stockholders of the Company immediately prior
thereto do not beneficially own, directly or indirectly, either (A) outstanding
voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the
surviving entity in such merger, consolidation or similar transaction or (B) more
than fifty percent (50%) of the
combined outstanding voting power of the parent of the surviving entity in such
merger, consolidation or similar transaction, in each case in substantially the
same proportions relative to each other as their beneficial ownership of the
outstanding voting securities of the Company immediately prior to such
transaction;

 

(iii)         the stockholders of the Company approve
or the Board approves a plan of complete dissolution or liquidation of the
Company, or a complete dissolution or liquidation of the Company shall
otherwise occur, except for a liquidation into a parent corporation;

 

(iv)          there is consummated a sale, lease,
exclusive license or other disposition of all or substantially all of the
consolidated assets of the Company and its subsidiaries, other than a sale,
lease, license or other disposition of all or substantially all of the
consolidated assets of the Company and its subsidiaries to an entity, more than
fifty percent (50%) of the
combined voting power of the voting securities of which are beneficially owned
by stockholders of the Company in substantially the same proportions relative
to each other as their beneficial ownership of the outstanding voting
securities of the Company immediately prior to such sale, lease, license or
other disposition; or

 

(v)            individuals who, on the date of this
Agreement, are members of the Board (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the members of the
Board; (provided, however, that if the appointment
or election (or nomination for election) of any new Board member was approved
or recommended by a majority vote of the 

 

5

 

members of the Incumbent
Board then still in office, such new member shall, for purposes of the Plan, be
considered as a member of the Incumbent Board).

 

(d)           Good Reason.  “Good Reason” for the Executive to
terminate the Executive’s employment hereunder shall mean the occurrence of any
of the following events without the Executive’s consent:

 

(i)            a material adverse change in the nature
of the Executive’s authority, duties or responsibilities, as they exist on the
Effective Date of this Agreement;

 

(ii)           a material adverse change in the
Executive’s reporting level requiring that the Executive report to a corporate
officer or executive other than the Company’s Chief Executive Officer;

 

(iii)         the relocation of the Company’s executive
offices or principal business location to a point more than sixty (60) miles
from their location as of the Effective Date of this Agreement; or

 

(iv)          a material reduction by the Company of
the Executive’s base salary as initially set forth herein or as the same may be
increased from time to time.

 

Provided however  that, such termination by
the Executive shall only be deemed for Good Reason pursuant to the foregoing
definition if: (i) the Executive gives the Company written notice of the
intent to terminate for Good Reason within thirty (30) days following the first
occurrence of the condition(s) that the Executive believes constitutes
Good Reason, which notice shall describe such condition(s); (ii) the
Company fails to remedy such condition(s) within thirty (30) days
following receipt of the written notice (the “Cure
Period”); and (iii) the Executive terminates employment
within thirty (30) days following the end of the Cure Period.

 

5.             Application of Internal
Revenue Code Section 409A. Benefits payable under the Agreement, to the extent
of payments made from the date of termination of the Executive through March 15th
of the calendar year following such termination, are intended to constitute
separate payments for purposes of Section 1.409A-2(b)(2) of the
Treasury Regulations and thus payable pursuant to the “short-term deferral” rule set
forth in Section 1.409A-1(b)(4) of the Treasury Regulations; to the
extent such payments are made following said March 15th, they are subject
to the distribution requirements  of Section 409A(a)(2)(A) of
the Internal Revenue Code of 1986, as amended (the “Code”),
including, without limitation, the requirement of Section 409A(a)(2)(B)(i) of
the Code that payment to the Executive be delayed until 6 months after
separation from service if the Executive is a “specified Executive” within the
meaning of the aforesaid section of the Code at the time of such separation
from service.

 

6.             Code Section 280G. 
If any payment or benefit Executive would receive pursuant to a
Corporate Transaction from the Company or otherwise (“Payment”) would (i) constitute a “parachute
payment” within the meaning of Section 280G of the Code, and (ii) but
for this sentence, be subject to the excise tax imposed by Section 4999 of
the Code (the “Excise Tax”),
then the Company shall cause to be determined, before any amounts of the
Payment are paid to Executive, which of the following two amounts would
maximize Executive’s after-tax proceeds: 

 

6

 

(i) payment in full
of the entire amount of the Payment (a “Full Payment”),
or (ii) payment of only a part of the Payment so that Executive receives
the largest payment possible without the imposition of the Excise Tax (a “Reduced Payment”), whichever
amount results in Executive’s receipt, on an after-tax basis, of the greater
amount of the Payment notwithstanding that all or some portion of the Payment
may be subject to the Excise Tax.  For
purposes of determining whether to make a Full Payment or a Reduced Payment,
the Company shall cause to be taken into account all applicable federal, state
and local income and employment taxes and the Excise Tax (all computed at the
highest applicable marginal rate, net of the maximum reduction in federal
income taxes which could be obtained from a deduction of such state and local
taxes).  If a Reduced Payment is made, (i) the
Payment shall be paid only to the extent permitted under the Reduced Payment
alternative, and Executive shall have no rights to any additional payments
and/or benefits constituting the Payment, and (ii) reduction in payments
and/or benefits shall occur in the following order unless Executive elects in
writing a different order (provided, however,
that such election shall be subject to Company approval if made on or after the
date on which the event that triggers the Payment occurs): reduction of cash
payments, cancellation of accelerated vesting of stock awards, and reduction of
other benefits.  In the event that
acceleration of compensation from Executive’s equity awards is to be reduced,
such acceleration of vesting shall be canceled in the reverse order of the date
of grant unless Executive elects in writing a different order for cancellation.

 

The independent
registered public accounting firm engaged by the Company for general audit
purposes as of the day prior to the effective date of the Corporate Transaction
shall make all determinations required to be made under this Section 6.  If the independent registered public
accounting firm so engaged by the Company is serving as accountant or auditor
for the individual, entity or group effecting the Corporate Transaction, the
Company shall appoint a different nationally recognized independent registered
public accounting firm to make the determinations required hereunder.  The Company shall bear all expenses with
respect to the determinations by such independent registered public accounting
firm required to be made hereunder.  The
independent registered public accounting firm engaged to make the
determinations hereunder shall provide its calculations, together with detailed
supporting documentation, to the Company and Executive within fifteen (15)
calendar days after the date on which Executive’s right to a Payment is
triggered (if requested at that time by the Company or Executive) or at such
other time as requested by the Company. 
If the independent registered public accounting firm determines that no
Excise Tax is payable with respect to a Payment, either before or after the
application of the Reduced Amount, it shall furnish the Company and Executive
with an opinion reasonably acceptable to Executive that no Excise Tax will be
imposed with respect to such Payment. 
Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon the Company and Executive.

 

7.             Conflict Of Interest.  During the Employment Period, Executive shall devote
such time and energies as appropriate to fulfill all responsibilities to the
Company in the capacity set forth in Section 1.  Executive shall be free to pursue business
activities which do not interfere with the performance of his duties and responsibilities
under this Agreement, however, Executive shall not engage in any outside
business activity which involves actual or potential competition with the
business of the Company, except with the written consent of the Board.

 

7

 

8.             Executive Benefit Plans.  All of the Executive benefit plans referred to or
contemplated by this Agreement shall be governed solely by the terms of the
underlying plan documents and applicable law. 
Nothing in this Agreement shall impair the Company’s right to amend,
modify, replace, and terminate any and all such plans in its sole discretion as
provided by law.  This Agreement is for
the sole benefit of Executive and the Company, and is not intended to create an
Executive benefit plan or to modify existing terms of existing plans.

 

9.             Assignment.  This Agreement may not be assigned by Executive.  This Agreement shall bind and inure to the
benefit of the Company’s successors and assigns, as well as Executive’s heirs,
executors, administrators, and legal representatives.The Company shall obtain
from any successor, before the succession takes place, an agreement to assume
the obligations and perform all of the terms and conditions of this Agreement.

 

10.          Notices.  All notices required by this Agreement may be
delivered by first class mail at the following addresses:

 

To Company:                  Genoptix, Inc.

Attn: Board of Directors

2110 Rutherford Road

Carlsbad, CA 92008

 

To Executive:                  Christian V. Kuhlen, M.D., Esq.

2110 Rutherford Road

Carlsbad, CA 92008

 

11.          Amendment.  This Agreement may be modified only by written agreement
signed by both the Company and Executive.

 

12.          Choice Of Law.  This Agreement shall be governed by the laws of the State
of California, without regard to choice of law principles.

 

13.          Partial Invalidity.  In the event any provision of this Agreement is void
or unenforceable, the remaining provisions shall continue in full force and
effect.

 

14.          Waiver.  No waiver of any breach of this Agreement shall
constitute a waiver of any subsequent breach.

 

15.          Complete Agreement.  As of the Effective Date, this Agreement, together
with the stock option agreements and equity incentive plans governing the
Options, constitutes the entire agreement between the parties in connection
with the subject matter hereof and supersedes any and all prior or
contemporaneous oral and written agreements or understandings between the
parties.

 

16.          Headings.  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.

 

17.          Miscellaneous.  Executive acknowledges full understanding of the matters
set forth herein and the obligations undertaken upon the execution hereof.

 

8

 

IN WITNESS WHEREOF, the parties have executed this EXECUTIVE EMPLOYMENT AGREEMENT as of the date first written
above.

 

GENOPTIX,
INC.

 

 

	
  By:

  	
    /s/ Tina S.
  Nova, Ph.D.

  	
   

  
	
   

  
	
  Name:

  	
   Tina S. Nova,
  Ph.D.

  	
   

  
	
   

  
	
  Title:

  	
     President
  and Chief Executive Officer

  	
   

  
	
   

  
	
  Dated:

  	
   December 10,
  2007

  	
   

  
						

 

EXECUTIVE:

 

 

	
  /s/ Christian V.
  Kuhlen, M.D., Esq.

  	
   

  
	
  CHRISTIAN
  V. KUHLEN, M.D., ESQ.

  	
   

  

 

	
  Dated:

  	
    December 10,
  2007

  	
   

  

 

9

 

EXHIBIT
A

 

RELEASE
AND WAIVER OF CLAIMS

 

In consideration of the payments and other benefits
set forth in the Employment Agreement dated                   ,
2007 (the “Employment Agreement”), to
which this form is attached, I, CHRISTIAN V.
KUHLEN, M.D., ESQ., hereby furnish GENOPTIX,
INC.  (the “Company”), with the
following release and waiver (“Release and Waiver”).

 

In exchange for the consideration provided to me by
the Employment Agreement that I am not otherwise entitled to receive, I hereby
generally and completely release the Company and its directors, officers, Executives,
shareholders, partners, agents, attorneys, predecessors, successors, parent and
subsidiary entities, insurers, Affiliates, and assigns from any and all claims,
liabilities and obligations, both known and unknown, that arise out of or are
in any way related to events, acts, conduct, or omissions occurring prior to my
signing this Release and Waiver.  This
general release includes, but is not limited to: (1) all claims arising
out of or in any way related to my employment with the Company or the
termination of that employment; (2) all claims related to my compensation
or benefits from the Company, including, but not limited to, salary, bonuses,
commissions, vacation pay, expense reimbursements, severance pay, fringe
benefits, stock, stock options, or any other ownership interests in the
Company; (3) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (4) all
tort claims, including, but not limited to, claims for fraud, defamation,
emotional distress, and discharge in violation of public policy; and (5) all
federal, state, and local statutory claims, including, but not limited to,
claims for discrimination, harassment, retaliation, attorneys’ fees, or other
claims arising under the federal Civil Rights Act of 1964 (as amended), the
federal Americans with Disabilities Act of 1990, the federal Age Discrimination
in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment
and Housing Act (as amended).

 

I also acknowledge that I have read and understand Section 1542
of the California Civil Code which reads as follows:  “A general
release does not extend to claims which the creditor does not know or suspect
to exist in his or her favor at the time of executing the release, which if
known by him or her must have materially affected his or her settlement with
the debtor.”  I hereby
expressly waive and relinquish all rights and benefits under that section and
any law of any jurisdiction of similar effect with respect to any claims I may
have against the Company.

 

I acknowledge that, among other rights, I am waiving
and releasing any rights I may have under ADEA, that this Release and Waiver is
knowing and voluntary, and that the consideration given for this Release and
Waiver is in addition to anything of value to which I was already entitled as
an executive of the Company.  I further
acknowledge that I have been advised, as required by the Older Workers Benefit
Protection Act, that:  (a) the
release and waiver granted herein does not relate to claims under the ADEA
which may arise after this Release and Waiver is executed; (b) I should consult
with an attorney prior to executing this Release and Waiver; (c) I have
twenty-one (21) days from the date of termination of my employment with the
Company in which to consider this Release and Waiver (although I may choose
voluntarily to execute this 

 

10

 

Release and Waiver
earlier); (d) I have seven (7) days following the execution of this
Release and Waiver to revoke my consent to this Release and Waiver; and (e) this
Release and Waiver shall not be effective until the seven (7) day
revocation period has expired unexercised and no benefits will be paid unless
and until this Release and Waiver has become effective.  In the event that this Release and Waiver is
requested in connection with an exit incentive or other employment termination
program offered to a group or class of employees, I have forty-five (45) days
to consider this Release and Waiver and I shall be provided with the
information required by 29 U.S.C. Section 626 (f)(1)(H).

 

This Release and Waiver constitutes the complete,
final and exclusive embodiment of the entire agreement between the Company and
me with regard to the subject matter hereof. 
I am not relying on any promise or representation by the Company that is
not expressly stated herein.  This
Release and Waiver may only be modified by a writing signed by both me and the a
duly authorized member of the Board of Directors of the Company.

 

	
  Date:

  	
   

  	
   

  	
   

  
	
   

  	
  CHRISTIAN
  V. KUHLEN, M.D., ESQ.

  

 

11Exhibit 10.139

 

NOTE PURCHASE AGREEMENT

dated September 12, 2007

 

 

FIRST INVESTORS FINANCIAL SERVICES GROUP,
INC.

 

 

12.75% Senior Subordinated Notes due September 12,
2017

 

 

14.75% Senior Subordinated Paid-In-Kind Notes
due September 12, 2017

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  
	
  Article I

  	
  Authorization of Notes

  	
  1

  
	
  Article II

  	
  Sale and Purchase of Notes; Guaranty Agreement

  	
  1

  
	
  Section 2.1

  	
  Sale and Purchase of Notes

  	
  1

  
	
  Section 2.2

  	
  Guaranty Agreement

  	
  2

  
	
  Article III 

  	
  Closing

  	
  2

  
	
  Section 3.1

  	
  Senior Subordinated Notes

  	
  2

  
	
  Section 3.2

  	
  Senior Subordinated PIK Notes

  	
  2

  
	
  Article IV 

  	
  Conditions to Closing

  	
  3

  
	
  Section 4.1

  	
  Representations and Warranties

  	
  3

  
	
  Section 4.2

  	
  Performance; No Default

  	
  3

  
	
  Section 4.3

  	
  Compliance Certificates

  	
  3

  
	
  Section 4.4

  	
  Opinions of Counsel

  	
  4

  
	
  Section 4.5

  	
  Purchase Permitted By Applicable Law, etc

  	
  4

  
	
  Section 4.6

  	
  Reserved

  	
  4

  
	
  Section 4.7

  	
  Payment of Fees

  	
  4

  
	
  Section 4.8

  	
  Reserved

  	
  4

  
	
  Section 4.9

  	
  Changes in Corporate Structure

  	
  4

  
	
  Section 4.10

  	
  Proceedings and Documents

  	
  4

  
	
  Section 4.11

  	
  Guaranty Agreement

  	
  5

  
	
  Section 4.12

  	
  Junior Debt

  	
  5

  
	
  Article V 

  	
  Representations and Warranties of the Company

  	
  5

  
	
  Section 5.1

  	
  Organization; Power and Authority

  	
  5

  
	
  Section 5.2

  	
  Authorization, etc

  	
  5

  
	
  Section 5.3

  	
  Disclosure

  	
  5

  
	
  Section 5.4

  	
  Organization and Ownership of Shares of Subsidiaries; Affiliates

  	
  6

  
	
  Section 5.5

  	
  Financial Statements

  	
  7

  
	
  Section 5.6

  	
  Compliance with Laws, Other Instruments, etc

  	
  7

  
	
  Section 5.7

  	
  Governmental Authorizations, etc

  	
  7

  
	
  Section 5.8

  	
  Litigation; Observance of Agreements, Statutes and Orders

  	
  7

  
	
  Section 5.9

  	
  Taxes

  	
  8

  
	
  Section 5.10

  	
  Title to Property; Leases

  	
  8

  
	
  Section 5.11

  	
  Licenses, Permits, etc

  	
  8

  
	
  Section 5.12

  	
  Compliance with ERISA

  	
  9

  
	
  Section 5.13

  	
  Private Offering by the Company

  	
  9

  
	
  Section 5.14

  	
  Use of Proceeds; Margin Regulations

  	
  10

  
	
  Section 5.15

  	
  Existing Indebtedness; Future Liens

  	
  10

  
	
  Section 5.16

  	
  Foreign Assets Control Regulations, etc.

  	
  10

  
	
  Section 5.17

  	
  Status under Certain Statutes

  	
  11

  
	
  Section 5.18

  	
  Environmental Matters

  	
  11

  
	
  Article VI 

  	
  Representations of the Purchaser

  	
  11

  
	
  Section 6.1

  	
  Purchase for Investment

  	
  11

  
	
  Section 6.2

  	
  Source of Funds

  	
  12

  
	
  Article VII 

  	
  Information as to Company

  	
  13

  
						

 

i

 

	
  Section 7.1

  	
  Financial and Business Information

  	
  13

  
	
  Section 7.2

  	
  Officer’s Certificate

  	
  15

  
	
  Section 7.3

  	
  Inspection

  	
  15

  
	
  Article VIII 

  	
  Prepayment of the Notes

  	
  16

  
	
  Section 8.1

  	
  Required Prepayments

  	
  16

  
	
  Section 8.2

  	
  Optional Prepayments

  	
  16

  
	
  Section 8.3

  	
  Allocation of Partial Prepayments

  	
  16

  
	
  Section 8.4

  	
  Maturity; Surrender, etc.

  	
  17

  
	
  Section 8.5

  	
  Purchase of Notes

  	
  17

  
	
  Article IX 

  	
  Affirmative Covenants

  	
  17

  
	
  Section 9.1

  	
  Compliance with Law

  	
  17

  
	
  Section 9.2

  	
  Insurance

  	
  17

  
	
  Section 9.3

  	
  Maintenance of Properties

  	
  18

  
	
  Section 9.4

  	
  Payment of Taxes and Claims

  	
  18

  
	
  Section 9.5

  	
  Corporate Existence, etc.

  	
  18

  
	
  Section 9.6

  	
  Guaranty Agreement

  	
  18

  
	
  Section 9.7

  	
  Financial Statement; Other Information

  	
  20

  
	
  Section 9.8

  	
  Ranking of Notes

  	
  20

  
	
  Section 9.9

  	
  Use of Proceeds

  	
  20

  
	
  Article X 

  	
  Negative Covenants

  	
  20

  
	
  Section 10.1

  	
  Transactions with Affiliates

  	
  20

  
	
  Section 10.2

  	
  Merger, Consolidation, etc.

  	
  20

  
	
  Section 10.3

  	
  Liens

  	
  21

  
	
  Section 10.4

  	
  Financial Covenants

  	
  22

  
	
  Section 10.5

  	
  Debt

  	
  22

  
	
  Section 10.6

  	
  Sale of Assets, etc.

  	
  23

  
	
  Section 10.7

  	
  Dividends, Distributions and Stock Repurchases

  	
  23

  
	
  Section 10.8

  	
  Reserved

  	
  24

  
	
  Section 10.9

  	
  Nature of Business

  	
  24

  
	
  Section 10.10

  	
  Restrictions on Guarantors

  	
  24

  
	
  Section 10.11

  	
  Limitation on Issuance of Capital Stock

  	
  24

  
	
  Section 10.12

  	
  Limitation on Transfer of Capital Stock

  	
  25

  
	
  Section 10.13

  	
  Junior Debt

  	
  25

  
	
  Section 10.14

  	
  Subordination of Intercompany Debt

  	
  25

  
	
  Article XI 

  	
  Events of Default

  	
  26

  
	
  Article XII 

  	
  Remedies on Default, etc.

  	
  28

  
	
  Section 12.1

  	
  Acceleration

  	
  28

  
	
  Section 12.2

  	
  Other Remedies

  	
  29

  
	
  Section 12.3

  	
  Rescission

  	
  29

  
	
  Section 12.4

  	
  No Waivers or Election of Remedies, Expenses, etc.

  	
  29

  
	
  Article XIII 

  	
  Registration; Exchange; Substitution of Notes

  	
  30

  
	
  Section 13.1

  	
  Registration of Notes

  	
  30

  
	
  Section 13.2

  	
  Transfer and Exchange of Notes

  	
  30

  
	
  Section 13.3

  	
  Replacement of Notes

  	
  31

  
	
  Article XIV 

  	
  Payments on Notes

  	
  31

  
				

 

ii

 

	
  Section 14.1

  	
  Place of Payment

  	
  31

  
	
  Section 14.2

  	
  Home Office Payment

  	
  31

  
	
  Article XV 

  	
  Expenses, etc.

  	
  32

  
	
  Section 15.1

  	
  Transaction Expenses

  	
  32

  
	
  Section 15.2

  	
  Survival

  	
  32

  
	
  Article XVI 

  	
  Survival of Representations and Warranties; Entire Agreement

  	
  32

  
	
  Article XVII 

  	
  Amendment and Waiver

  	
  33

  
	
  Section 17.1

  	
  Requirements

  	
  33

  
	
  Section 17.2

  	
  Solicitation of Holders of Notes

  	
  33

  
	
  Section 17.3

  	
  Binding Effect, etc.

  	
  33

  
	
  Section 17.4

  	
  Notes held by Company, etc.

  	
  34

  
	
  Article XVIII 

  	
  Notices

  	
  34

  
	
  Article XIX 

  	
  Reproduction of Documents

  	
  34

  
	
  Article XX 

  	
  Confidential Information

  	
  35

  
	
  Article XXI 

  	
  Substitution of Purchaser

  	
  36

  
	
  Article XXII 

  	
  Miscellaneous

  	
  36

  
	
  Section 22.1

  	
  Successors and Assigns

  	
  36

  
	
  Section 22.2

  	
  Payments Due on Non-Business Days

  	
  36

  
	
  Section 22.3

  	
  Severability

  	
  36

  
	
  Section 22.4

  	
  Construction

  	
  37

  
	
  Section 22.5

  	
  Counterparts

  	
  37

  
	
  Section 22.6

  	
  Governing Law

  	
  37

  
	
  Article XXIII 

  	
  Subordination

  	
  37

  
	
  Section 23.1

  	
  Agreement to Subordinate

  	
  37

  
	
  Section 23.2

  	
  General Subordination to Senior Debt

  	
  37

  
	
  Section 23.3

  	
  Amendments and Exchanges of Subordinated Debt

  	
  37

  
	
  Section 23.4

  	
  Payments Received in Contravention of Subordination Provisions

  	
  38

  
	
  Section 23.5

  	
  Subrogation

  	
  38

  
	
  Section 23.6

  	
  Relative Rights

  	
  38

  
	
  Section 23.7

  	
  Reliance on Judicial Order or Decree or Senior Debtholder Certificate

  	
  39

  
	
  Section 23.8

  	
  Proof of Claim

  	
  39

  
				

 

Schedules and Exhibits

 

	
  SCHEDULE A

  	
   

  	
  —

  	
   

  	
  Information Relating to Purchasers

  
	
  SCHEDULE B

  	
   

  	
  —

  	
   

  	
  Defined Terms

  
	
  EXHIBIT 1

  	
   

  	
  —

  	
   

  	
  Form of Senior Subordinated Note

  
	
  EXHIBIT 2

  	
   

  	
  —

  	
   

  	
  Form of Senior Subordinated
  Paid-In-Kind Note

  
	
  EXHIBIT 3

  	
   

  	
  —

  	
   

  	
  Form of Guaranty Agreement

  
	
  EXHIBIT 4.4

  	
   

  	
  —

  	
   

  	
  Form of Opinion of Special Counsel for
  the Company

  

 

iii

 

September 12, 2007

 

TO EACH OF THE PURCHASERS LISTED IN

THE ATTACHED SCHEDULE A:

 

Ladies and Gentlemen:

 

First Investors Financial Services Group, Inc., a Texas
corporation (the “Company”),
agrees with you as follows:

 

Article I

Authorization of Notes

 

The Company will authorize the issue and sale of its 12.75% Senior
Subordinated Notes in the aggregate principal amount of $5,000,000 due September 12,
2017 (the “Senior Subordinated Notes,”
such term to include any such notes issued in substitution therefor pursuant to
Article XIII of this Agreement or the Other Agreements (as
hereinafter defined)), and may authorize the issue and sale from time to time
of its 14.75% Senior Subordinated Paid-In-Kind Notes in the aggregate principal
amount of up to $318,750 due September 12, 2017 (the “Senior Subordinated PIK Notes,” such
term to include any such notes issued in substitution therefor pursuant to Article XIII
of this Agreement, and together with the Senior Subordinated Notes, the “Notes”).  The Senior Subordinated Notes shall be
substantially in the form set out in Exhibit 1, with such changes
therefrom, if any, as may be approved by you and the Company.  The Senior Subordinated PIK Notes shall be
substantially in the form set out in Exhibit 2, with such changes
therefrom, if any, as may be approved by you and the Company.  Certain capitalized terms used in this
Agreement are defined in Schedule B; references to a “Schedule” or an “Exhibit”
are, unless otherwise specified, to a Schedule or an Exhibit attached to
this Agreement.

 

Article II

Sale and Purchase of Notes; Guaranty Agreement

 

Section 2.1            Sale and Purchase
of Notes.

 

Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3.1, Senior Subordinated Notes in the
principal amount specified opposite your name in Schedule A at the
purchase price of 100% of the principal amount thereof.  Subject to the terms and conditions of this
Agreement, the Company may issue and sell to you and you will purchase from the
Company, at par at each PIK Closing provided for in Section 3.2,
Senior Subordinated PIK Notes in the principal amount specified in the
applicable Senior Subordinated PIK Note.

 

 

Section 2.2            Guaranty Agreement.

 

The obligations of the Company hereunder and under the Notes are
absolutely, unconditionally and irrevocably guaranteed by the Company’s
Subsidiaries (other than the Insurance Subsidiary and any Securitization
Subsidiary) and each other Company Subsidiary from time to time required to
guaranty the Notes pursuant to Section 9.6 (each a “Guarantor” and, collectively, the “Guarantors”), pursuant to that certain
Subsidiary Guaranty Agreement dated as of September 12, 2007 (as the same
may be amended, supplemented, restated or otherwise modified from time to time,
the “Guaranty Agreement”)
substantially in the form of Exhibit 3.

 

Article III

Closing

 

Section 3.1            Senior Subordinated
Notes.

 

The sale and purchase of the Senior Subordinated Notes to be purchased
by you shall occur at the offices of Hunton & Williams LLP, 101 South
Tryon Street, Suite 3500, Charlotte, North Carolina 28280, at 10:00 a.m.,
Charlotte time, at a closing (the “Closing”)
on September 12, 2007 or on such other Business Day thereafter on or prior
to September 30, 2007 as may be agreed upon by the Company and you.  At the Closing the Company will deliver to
you the Senior Subordinated Notes to be purchased by you in the form of a
single Senior Subordinated Note (or such greater number of Senior Subordinated
Notes in denominations of at least $100,000 as you may request) dated the date
of the Closing and registered in your name (or in the name of your nominee),
against delivery by you to the Company or its order of immediately available
funds in the amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company to account number
1294161139 at Bank of America, N.A., ABA Number 111222212, Account Name-First
Investors Financial Services-Holding Company Operating Account.  If at the Closing the Company shall fail to
tender such Senior Subordinated Notes to you as provided above in this Section 3.1,
or any of the conditions specified in Section 4 shall not have been
fulfilled to your satisfaction, you shall, at your election, be relieved of all
further obligations under this Agreement, without thereby waiving any rights
you may have by reason of such failure or such nonfulfillment.

 

Section 3.2            Senior Subordinated
PIK Notes.

 

Each sale and purchase of the Senior Subordinated PIK Notes to be
purchased by you shall occur at the offices of Hunton & Williams LLP,
101 South Tryon Street, Suite 3500, Charlotte, North Carolina 28280, at
10:00 a.m., Charlotte time, at a closing (each, a “PIK Closing”) on a date on which an
interest payment is due under the Senior Subordinated Notes, provided
that there shall not be more than six PIK Closings and the aggregate amount of
Senior Subordinated PIK Notes issued on at any PIK Closing shall not exceed one
month’s accrued interest on the Senior Subordinated Notes.  The Company will give you not less than five (5) Business
Days prior written notice of each PIK Closing. 
At each PIK Closing the Company will deliver to you the Senior
Subordinated PIK Notes to be purchased by you in the form of a single Senior
Subordinated Note (or such greater number of Senior Subordinated Notes in

 

2

 

denominations of at least $25,000 as you may request) dated the date of
the PIK Closing and registered in your name (or in the name of your nominee),
against delivery by you to the Company or its order of immediately available
funds in the amount of the purchase price therefor to be applied to the payment
of interest accrued and unpaid interest then due on the Senior Subordinated
Notes.  If at the PIK Closing the Company
shall fail to tender such Senior Subordinated PIK Notes to you as provided above
in this Section 3.2, or any of the conditions specified in Sections
4.1, 4.2 or 4.5, shall not have been fulfilled to your satisfaction with
respect to such PIK Closing,  you shall,
at your election, be relieved of all further obligations under this Agreement,
without thereby waiving any rights you may have by reason of such failure or
such nonfulfillment.

 

Article IV

Conditions to Closing

 

Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:

 

Section 4.1            Representations and
Warranties.

 

The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.  The representations and warranties of each
Obligated Party in the Guaranty Agreement shall be correct when made and at the
time of the Closing.

 

Section 4.2            Performance; No
Default.

 

The Company and each Obligated Party shall have performed and complied
with all agreements and conditions contained in this Agreement and the Guaranty
Agreement required to be performed or complied with by it prior to or at the
Closing or the applicable PIK Closing and after giving effect to the issue and
sale of the Notes (and the application of the proceeds thereof as contemplated
by Schedule 5.14) no Default or Event of Default shall have occurred and
be continuing.  Neither the Company nor
any Subsidiary shall have entered into any transaction since the date of the
Memorandum that would have been prohibited by Sections 10.1, 10.3,
10.5, and 10.7 hereof had such Sections applied since such date.

 

Section 4.3            Compliance
Certificates.

 

(a)           Officer’s
Certificate.  The Company shall have
delivered to you an Officer’s Certificate, dated the date of the Closing
certifying that the conditions specified in Sections 4.1, 4.2 and
4.9 have been fulfilled.

 

(b)           Secretary’s
Certificate.  At the Closing, the
Company shall have delivered to you a certificate certifying as to the
resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Notes, the Guaranty Agreement and
this Agreement.

 

3

 

Section 4.4            Opinions of Counsel.

 

At the Closing, you shall have received an opinion in form and
substance satisfactory to you dated the date of the Closing from Thompson &
Knight LLP, outside counsel for the Company, covering the matters set forth in Exhibit 4.4
and covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to you).

 

Section 4.5            Purchase Permitted
By Applicable Law, etc.

 

On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, (ii) not violate any applicable law or regulation (including,
without limitation, Regulation G, T or X of the Board of Governors of the
Federal Reserve System) and (iii) not subject you to any tax, penalty or
liability under or pursuant to any applicable law or regulation, which law or
regulation was not in effect on the date hereof.  If requested by you, you shall have received
an Officer’s Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.

 

Section 4.6            Reserved.

 

Section 4.7            Payment of Fees.

 

Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4 to the extent
reflected in a statement of such counsel rendered to the Company at least one
Business Day prior to the Closing or the applicable PIK Closing.  Furthermore, the Company shall have paid all
other fees and expenses of you required to be paid as a condition to the
purchase of any Notes, including, without limitation, any fees described in the
Fee Letter.

 

Section 4.8            Reserved.

 

Section 4.9            Changes in
Corporate Structure.

 

Except as specified in Schedule 4.9, the Company shall not have
changed its jurisdiction of incorporation or been a party to any merger or
consolidation or other transaction pursuant to which it shall have succeeded to
any Material liabilities of any other entity at any time following the date of
the most recent financial statements referred to in Schedule 5.5.

 

Section 4.10         Proceedings and
Documents.

 

All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and
you and your special counsel shall have received all such counterpart originals
or certified or other copies of such documents as you or they may reasonably
request.

 

4

 

Section 4.11         Guaranty Agreement.

 

The Guaranty Agreement shall have been duly authorized, executed and
delivered by each Guarantor and shall be in full force and effect and the
purchaser hereof shall have received a duly executed copy thereof.

 

Section 4.12         Junior Debt.

 

The Company shall provide to the Purchaser evidence that the Junior
Debt has a maturity date of not earlier than three (3) years from the date
of the Closing or PIK Closing, as applicable.

 

Article V

Representations and Warranties of the Company

 

The Company represents and warrants to you that:

 

Section 5.1            Organization; Power
and Authority.

 

The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is duly
qualified as a foreign corporation and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  The Company has the
corporate power and authority to own or hold under lease the properties it
purports to own or hold under lease, to transact the business it transacts and
proposes to transact, to execute and deliver this Agreement and the Notes and
to perform the provisions hereof and thereof.

 

Section 5.2            Authorization, etc.

 

This Agreement and the Notes have been duly authorized by all necessary
corporate action on the part of the Company, and this Agreement constitutes,
and upon execution and delivery thereof each Note will constitute, a legal,
valid and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors’ rights generally and (ii) general
principles of equity (regardless of whether such enforceability is considered
in a proceeding in equity or at law).

 

Section 5.3            Disclosure.

 

The Company has delivered to you a copy of a Confidential Information
Memorandum, dated May 2007, as supplemented June 2007 (collectively,
the “Memorandum”),
relating to the Company’s intention to raise additional capital.  The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. 
Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum (except for the financial projections contained therein, as to which
no representation is made herein), the documents, certificates or other
writings delivered to you by or on behalf of the Company in

 

5

 

connection with the transactions contemplated hereby and the financial
statements listed in Schedule 5.5, taken as a whole, do not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. 
Except as disclosed in the Memorandum or as expressly described in Schedule
5.3, or in one of the documents, certificates or other writings identified
therein, or in the financial statements listed in Schedule 5.5, since April 30,
2007, there has been no change in the financial condition, operations, business,
properties or prospects of the Company or any Subsidiary except changes that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect.  Other than
conditions affecting the financial markets and consumer finance industry
generally, there is no fact known to the Company that could reasonably be
expected to have a Material Adverse Effect that has not been set forth herein
or in the Memorandum or in the other documents, certificates and other writings
delivered to you by or on behalf of the Company specifically for use in
connection with the transactions contemplated hereby.

 

Section 5.4            Organization and
Ownership of Shares of Subsidiaries; Affiliates.

 

(a)           Schedule
5.4 contains (except as noted therein) complete and correct lists (i) of
the Company’s Subsidiaries, showing, as to each Subsidiary, the correct name
thereof, the jurisdiction of its organization, and the percentage of shares of
each class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary, (ii) of the Company’s Affiliates,
other than Subsidiaries, and (iii) of the Company’s directors and senior
officers.

 

(b)           All
of the outstanding shares of capital stock or similar equity interests of each
Subsidiary shown in Schedule 5.4 as being owned by the Company and its
Subsidiaries have been validly issued, are fully paid and nonassessable and are
owned by the Company or another Subsidiary free and clear of any Lien (except
as otherwise disclosed in Schedule 5.4).

 

(c)           Each
Subsidiary identified in Schedule 5.4 is a corporation or other legal
entity duly organized, validly existing and in good standing under the laws of
its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.  Each such Subsidiary has
the corporate or other power and authority to own or hold under lease the
properties it purports to own or hold under lease and to transact the business
it transacts and proposes to transact, and in the case of each Subsidiary that
is an Obligated Party, to execute and deliver the Guaranty Agreement and to
perform the provisions thereof.

 

(d)           No
Guarantor is a party to, or otherwise subject to any legal restriction or any
agreement (other than this Agreement, the agreements listed on Schedule 5.4
and customary limitations imposed by corporate law statutes) restricting the
ability of such Guarantor to pay dividends out of profits or make any other
similar distributions of profits to the Company or each other Guarantor that
owns outstanding shares of capital stock or similar equity interests of such
Guarantor.

 

6

 

Section 5.5            Financial
Statements.

 

The Company has delivered to each you copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.5.  All of said financial statements (including
in each case the related schedules and notes) fairly present in all material
respects the consolidated financial position of the Company and its
Subsidiaries as of the respective dates specified in such Schedule and the
consolidated results of their operations and cash flows for the respective
periods so specified and have been prepared in accordance with GAAP
consistently applied throughout the periods involved except as set forth in the
notes thereto (subject, in the case of any interim financial statements, to
normal year-end adjustments).

 

Section 5.6            Compliance with
Laws, Other Instruments, etc.

 

The execution, delivery and performance by the Company of this
Agreement and the Notes and the execution, delivery and performance by each
Obligated Party of the Guaranty Agreement will not (i) contravene, result
in any breach of, or constitute a default under, or result in the creation of
any Lien in respect of any property of the Company or any Subsidiary under, any
indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease,
corporate charter or by-laws, or any other agreement or instrument to which the
Company or any Subsidiary is bound or by which the Company or any Subsidiary or
any of their respective properties may be bound or affected, (ii) conflict
with or result in a breach of any of the terms, conditions or provisions of any
order, judgment, decree, or ruling of any court, arbitrator or Governmental
Authority applicable to the Company or any Subsidiary or (iii) violate any
provision of any statute or other rule or regulation of any Governmental
Authority applicable to the Company or any Subsidiary.

 

Section 5.7            Governmental
Authorizations, etc.

 

Except for routine filings in connection with exemptions from
registration under blue sky laws and federal securities laws applicable to the
offer and sale of the Notes and the Guaranty Agreement, no consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
(a) by the Company of this Agreement or the Notes or (b) by any
Obligated Party of the Guaranty Agreement.

 

Section 5.8            Litigation;
Observance of Agreements, Statutes and Orders.

 

(a)           Except
as disclosed in Schedule 5.8, there are no actions, suits or proceedings
pending or, to the knowledge of the Company, threatened against or affecting
the Company or any Subsidiary or any property of the Company or any Subsidiary
in any court or before any arbitrator of any kind or before or by any
Governmental Authority that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.

 

(b)           Neither
the Company nor any Subsidiary is in default under any term of any agreement or
instrument to which it is a party or by which it is bound, or any order,
judgment, decree or ruling of any court, arbitrator or Governmental Authority
or is in violation of any applicable law, ordinance, rule or regulation
(including without limitation Environmental Laws)

 

7

 

of any
Governmental Authority, which default or violation, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.

 

Section 5.9            Taxes.

 

The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such terms and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which
is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith
by appropriate proceedings and with respect to which the Company or a
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP.  The Company knows of no basis
for any other tax or assessment that could reasonably be expected to have a
Material Adverse Effect.  The charges,
accruals and reserves on the books of the Company and its Subsidiaries in
respect of Federal, state or other taxes for all fiscal periods are adequate.

 

Section 5.10         Title to Property;
Leases.

 

The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance
sheet referred to in Section 5.5 or purported to have been acquired
by the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens prohibited by this Agreement.  All
leases that individually or in the aggregate are Material are valid and
subsisting and are in full force and effect in all material respects.

 

Section 5.11         Licenses, Permits, etc.

 

Except as disclosed in Schedule 5.11,

 

(a)           the
Company and its Subsidiaries own or possess all licenses, permits, franchises,
authorizations, patents, copyrights, service marks, trademarks and trade names,
or rights thereto, that individually or in the aggregate are Material, without
known conflict with the rights of others;

 

(b)           to
the best knowledge of the Company, no product of the Company infringes in any
material respect any license, permit, franchise, authorization, patent,
copyright, service mark, trademark, trade name or other right owned by any
other Person; and

 

(c)           to
the best knowledge of the Company, there is no Material violation by any Person
of any right of the Company or any of its Subsidiaries with respect to any
patent, copyright, service mark, trademark, trade name or other right owned or
used by the Company or any of its Subsidiaries.

 

8

 

Section 5.12         Compliance with ERISA.

 

(a)           The
Company and each ERISA Affiliate have operated and administered each Plan in
compliance with all applicable laws except for such instances of noncompliance
as have not resulted in and could not reasonably be expected to result in a Material
Adverse Effect.  Neither the Company nor
any ERISA Affiliate has incurred any liability pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans (as defined in Section 3 of ERISA), and no event,
transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or
any ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to Section 401(a)(29) or 412 of the Code, other than such liabilities
or Liens as would not be individually or in the aggregate Material.

 

(b)           The
present value of the aggregate benefit liabilities under each of the Plans
(other than Multiemployer Plans), determined as of the end of such Plan’s most
recently ended plan year on the basis of the actuarial assumptions specified
for funding purposes in such Plan’s most recent actuarial valuation report, did
not exceed the aggregate current value of the assets of such Plan allocable to
such benefit liabilities.  The term “benefit liabilities” has the meaning specified in
section 4001 of ERISA and the terms “current value” and “present value” have
the meaning specified in section 3 of ERISA.

 

(c)           The
Company and its ERISA Affiliates have not incurred withdrawal liabilities (and
are not subject to contingent withdrawal liabilities) under section 4201 or
4204 of ERISA in respect of Multiemployer Plans that individually or in the
aggregate are Material.

 

(d)           The
expected post-retirement benefit obligation (determined as of the last day of
the Company’s most recently ended fiscal year in accordance with Financial
Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Subsidiaries is not Material.

 

(e)           The
execution and delivery, of this Agreement and the issuance and sale of the
Notes hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)-(D) of the Code.  The representation by the Company in the
first sentence of this Section 5.12(e) is made in reliance
upon and subject to (i) the accuracy of your representation in Section 6.2
as to the sources of the funds used to pay the purchase price of the Notes to
be purchased by you and (ii) the assumption, made solely for the purpose
of making such representation, that Department of Labor Interpretive Bulletin
75-2 with respect to prohibited transactions remains valid in the circumstances
of the transactions contemplated herein.

 

Section 5.13         Private Offering by
the Company.

 

Neither the Company nor anyone acting on its behalf has offered the
Notes, the Guaranty Agreement or any similar securities for sale to, or
solicited any offer to buy any of the same

 

9

 

from, or otherwise approached or negotiated in respect thereof with,
any person other than you, and not more than 10 other Institutional Investors,
each of which has been offered the Notes and the Guaranty Agreement at a
private sale for investment.  Neither the
Company nor anyone acting on its behalf has taken, or will take, any action
that would subject the issuance or sale of the Notes or the Guaranty Agreement
to the registration requirements of Section 5 of the Securities Act.

 

Section 5.14         Use of Proceeds;
Margin Regulations.

 

The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14.  No part
of the proceeds from the sale of the Notes hereunder will be used, directly or
indirectly, for the purpose of buying or carrying any margin stock within the
meaning of Regulation G of the Board of Governors of the Federal Reserve System
(12 CFR 207), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220).  Margin stock does not constitute more than
25% of the value of the consolidated assets of the Company and its Subsidiaries
and the Company does not have any present intention that margin stock will
constitute more than 25% of the value of such assets. As used in this Section,
the terms “margin stock”
and “purpose of buying or carrying”
shall have the meanings assigned to them in said Regulation G.

 

Section 5.15         Existing Indebtedness;
Future Liens.

 

(a)           Except
as described therein, Schedule 5.15 sets forth a complete and correct
list of all outstanding Debt of the Company and its Subsidiaries as of July 31,
2007, since which date there has been no Material change in the amounts,
interest rates, sinking funds, installment payments or maturities of the
Indebtedness of the Company or its Subsidiaries.  Neither the Company nor any Subsidiary is in
default and no waiver of default is currently in effect, in the payment of any
principal or interest on any Indebtedness of the Company or such Subsidiary and
no event or condition exists with respect to any Indebtedness of the Company or
any Subsidiary that would permit (or that with notice or the lapse of time, or
both, would permit) one or more Persons to cause such Indebtedness to become
due and payable before its stated maturity or before its regularly scheduled
dates of payment.

 

(b)           Except
as disclosed in Schedule 5.15, neither the Company nor any Guarantor has
agreed or consented to cause or permit in the future (upon the happening of a
contingency or otherwise) any of its property, whether now owned or hereafter
acquired, to be subject to a Lien not permitted by Section 10.3.

 

Section 5.16         Foreign Assets Control
Regulations, etc.

 

Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Anti-Terrorism Order, the Patriot Act,
the Trading with the Enemy Act, as amended, or any of the foreign assets
control regulations of the United States Treasury Department (31 CFR, Subtitle
B, Chapter V, as amended) or any enabling legislation or executive order
relating thereto.

 

10

 

Section 5.17         Status under Certain
Statutes.

 

Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.

 

Section 5.18         Environmental Matters.

 

Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
raising any claim against the Company or any of its Subsidiaries or any of
their respective real properties now or formerly owned, leased or operated by
any of them or other assets, alleging any damage to the environment or
violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect.  Except as otherwise disclosed to you in
writing,

 

(a)           neither
the Company nor any Subsidiary has knowledge of any facts which would give rise
to any claim, public or private, of violation of Environmental Laws or damage
to the environment emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by any of them or to other
assets or their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;

 

(b)           neither
the Company nor any of its Subsidiaries has stored any Hazardous Materials on
real properties now or formerly owned, leased or operated by any of them and
has not disposed of any Hazardous Materials in a manner contrary to any
Environmental Laws in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect; and

 

(c)           all
buildings on all real properties now owned, leased or operated by the Company or
any of its Subsidiaries are in compliance with applicable Environmental Laws,
except where failure to comply could not reasonably be expected to result in a
Material Adverse Effect.

 

Article VI

Representations of the Purchaser

 

Section 6.1            Purchase for Investment.

 

You represent that (i) you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, and (ii) your ability to transfer the Notes is
restricted pursuant to Section 13.2 of this Agreement.  You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.

 

11

 

Section 6.2            Source of Funds.

 

You represent that at least one of the following statements is an
accurate representation as to each source of funds (a “Source”) to be used by you to pay the
purchase price of the Notes to be purchased by you hereunder:

 

(a)           if
you are an insurance company, the Source does not include assets allocated to
any separate account maintained by you in which any employee benefit plan (or
its related trust) has any interest, other than a separate account that is
maintained solely in connection with your fixed contractual obligations under
which the amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in any
manner by the investment performance of the separate account; or

 

(b)           the
Source is either (i) an insurance company pooled separate account, within
the meaning of Prohibited Transaction Exemption (“PTE”) 90-1 (issued January 29, 1990), or (ii) a
bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12,
1991) and, except as you have disclosed to the Company in writing pursuant to
this paragraph (b), no employee benefit plan or group of plans
maintained by the same employer or employee organization beneficially owns more
than 10% of all assets allocated to such pooled separate account or collective
investment fund; or

 

(c)           the
Source constitutes assets of an “investment fund” (within the meaning of Part V
of the QPAM Exemption) managed by a “qualified professional asset manager” or “QPAM”
(within the meaning of Part V of the QPAM Exemption), no employee benefit
plan’s assets that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by such
QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption
are satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of “control” in Section V(e) of the
QPAM Exemption) owns a 5% or more interest in the Company and (i) the
identity of such QPAM and (ii) the names of all employee benefit plans
whose assets are included in such investment fund have been disclosed to the
Company in writing pursuant to this paragraph (c); or

 

(d)           the
Source is a governmental plan; or

 

(e)           the
Source is one or more employee benefit plans, or a separate account or trust
fund comprised of one or more employee benefit plans, each of which has ‘ been
identified to the Company in writing pursuant to this paragraph (e); or

 

(f)            the
Source does not include assets of any employee benefit plan, other than a plan
exempt from the coverage of ERISA.

 

As used in this Section 6.2, the terms “employee benefit
plan”, “governmental plan”, “party in interest” and “separate account” shall
have the respective meanings assigned to such terms in Section 3 of ERISA.

 

12

 

Article VII

Information as to Company

 

Section 7.1            Financial and
Business Information.

 

The Company shall deliver to each holder of Notes:

 

(a)           Quarterly
Statements.  Within 60 days after the
end of each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year), duplicate
copies of,

 

(i)            a
consolidated balance sheet of the Company and its Subsidiaries as at the end of
such quarter, and

 

(ii)           consolidated
statements of income, changes in shareholders’ equity and cash flows of the
Company and its Subsidiaries, for such quarter and (in the case of the second
and third quarters) for the portion of the fiscal year ending with such
quarter, setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial statements
generally, and certified by a Senior Financial Officer as fairly presenting, in
all material respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to changes resulting
from year-end adjustments, provided that delivery within the time period
specified above of copies of the Company’s Quarterly Report on Form 10-Q
prepared in compliance with the requirements therefor and filed with the
Securities and Exchange Commission shall be deemed to satisfy the requirements
of this Section 7.1(a);

 

(b)           Annual
Statements.  Within 120 days after
the end of each fiscal year of the Company, duplicate copies of,

 

(i)            a
consolidated balance sheet of the Company and its Subsidiaries, as at the end
of such year, and

 

(ii)           consolidated
statements of income, changes in shareholders’ equity and cash flows of the
Company and its Subsidiaries, for such year, 

 

setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance with
GAAP, and accompanied by an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall state that
such financial statements present fairly, in all material respects, the
financial position of the companies being reported upon and their results of
operations and cash flows and have been prepared in conformity with GAAP, and
that the examination of such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for such opinion in
the circumstances, provided that the delivery within the time period
specified above of the Company’s Annual Report on Form 10-K for such
fiscal year (together with the Company’s annual report to shareholders, if any,
prepared pursuant to Rule 14a-3 under the Exchange Act) prepared in

 

13

 

accordance with the requirements therefor and filed with the Securities
and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(b);

 

(c)           SEC
and Other Reports.  Promptly upon
their becoming available, one copy of each financial statement, report, notice
or proxy statement sent by the Company or any Subsidiary to public securities
holders generally, and (ii)each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder), and
each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Company or any
Subsidiary to the public concerning developments that are Material;

 

(d)           Notice
of Default or Event of Default. 
Promptly, and in any event within five days after a Responsible Officer
becoming aware of the existence of any Default or Event of Default or that any
Person has given any notice or taken any action with respect to a claimed
default hereunder or that any Person has given any notice or taken any action
with respect to a claimed default of the type referred to in Article XI(f),
a written notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;

 

(e)           ERISA
Matters.  Promptly, and in any event
within five (5) days after a Responsible Officer becoming aware of any of
the following, a written notice setting forth the nature thereof and the
action, if any, that the Company or an ERISA Affiliate proposes to take with
respect thereto:

 

(i)            with
respect to any Plan, any reportable event, as defined in section 4043(b) of
ERISA and the regulations thereunder, for which notice thereof has not been
waived pursuant to such regulations as in effect on the date hereof; or

 

(ii)           the
taking by the PBGC of steps to institute, or the threatening by the PBGC of the
institution of, proceedings under section 4042 of ERISA for the termination of,
or the appointment of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such Multiemployer Plan; or

 

(iii)          any
event, transaction or condition that could result in the incurrence of any
liability by the Company or any ERISA Affiliate pursuant to Title I or IV of
ERISA or the penalty or excise tax provisions of the Code relating to employee
benefit plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate pursuant to Title I
or IV of ERISA or such penalty or excise tax provisions, if such liability or
Lien, taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;

 

(f)            Notices
from Governmental Authority. 
Promptly, and in any event within 30 days of receipt thereof, copies of
any notice to the Company or any Subsidiary from any Federal or state
Governmental Authority relating to any order, ruling, statute or other law or
regulation that could reasonably be expected to have a Material Adverse Effect;
and

 

14

 

(g)           Requested
Information.  With reasonable
promptness, such other data and information relating to the business,
operations, affairs, financial condition, assets or properties of the Company
or any of its Subsidiaries or relating to the ability of the Company to perform
its obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes.

 

Section 7.2            Officer’s
Certificate.

 

Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof
shall be accompanied by a certificate of a Senior Financial Officer setting
forth:

 

(a)           Covenant
Compliance.  The information
(including reasonably detailed calculations) required in order to establish
whether the Company was in compliance with the requirements of Section 10.4(a) through
Section 10.4(c) hereof, inclusive, during the quarterly or
annual period covered by the statements then being furnished (including with
respect to each such Section, where applicable, the calculations of the maximum
or minimum amount, ratio or percentage, as the case may be, permissible under
the terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence); and

 

(b)           Event
of Default.  A statement that such
officer has reviewed the relevant terms hereof and has made, or caused to be
made, under his or her supervision, a review of the transactions and conditions
of the Company and its Subsidiaries from the beginning of the quarterly or
annual period covered by the statements then being furnished to the date of the
certificate and that such review shall not have disclosed the existence during
such period of any condition or event that constitutes a Default or an Event of
Default or, if any such condition or event existed or exists (including,
without limitation, any such event or condition resulting from the failure of
the Company or any Subsidiary to comply with any Environmental Law), specifying
the nature and period of existence thereof and what action the Company shall
have taken or proposes to take with respect thereto.

 

Section 7.3            Inspection.

 

The Company shall permit the representatives of each holder of Notes:

 

(a)           No
Default.  If no Default or Event of
Default then exists, at the expense of such holder and upon reasonable prior
notice to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company’s officers, and (with the consent of the Company,
which consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Company, which consent will not be
unreasonably withheld) to visit the other offices and properties of, the
Company and each Subsidiary, all at such reasonable times and as often as may
be reasonably requested in writing; and

 

(b)           Default.  If a Default or Event of Default then exists,
at the expense of the Company to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and
extracts therefrom, and to discuss their respective affairs, finances and
accounts with

 

15

 

their
respective officers and independent public accountants (and by this provision
the Company authorizes said accountants to discuss the affairs, finances and
accounts of the Company and its Subsidiaries), all at such reasonable times and
as often as may be reasonably requested in writing.

 

Article VIII

Prepayment of the Notes

 

Section 8.1            Required
Prepayments.

 

The Company shall prepay the Notes, at the election of the any holder
thereof, at a redemption price equal to the full principal amount of the Notes
times the applicable Redemption Price Percentage set forth below, plus all
accrued and unpaid interest thereon, upon the earlier to occur of the
following:  a Change in Control of the
Company, a sale of a Material portion of the assets of the Company (excluding a
sale pursuant to any whole loan sale arrangement with you, any other holder of
the Notes or any of their respective Affiliates), or an Event of Default which
results in the acceleration of the Notes as set forth in Section 12.1.

 

	
  Years from Closing

  	
   

  	
  Redemption Price Percentage

  	
   

  
	
  Less than or equal to 1

  	
   

  	
   

  	
  106

  	
  %

  
	
  Greater than 1 and less than or equal to 2

  	
   

  	
   

  	
  104

  	
  %

  
	
  Greater than 2 and less than or equal to 3

  	
   

  	
   

  	
  102

  	
  %

  
	
  Greater than three and less than or equal to 5

  	
   

  	
   

  	
  101

  	
  %

  
	
  Thereafter

  	
   

  	
   

  	
  100

  	
  %

  

 

Section 8.2            Optional
Prepayments.

 

The Company may, at its option, upon notice as provided below, prepay
at any time all, or from time to time any part of, the Notes, in an amount
equal to the principal amount of such Notes being prepaid, whether in all or in
part, times the applicable Redemption Price Percentage set forth in Section 8.1
above, plus all accrued and unpaid interest thereon.  The Company will give each holder of Notes
written notice of each optional prepayment under this Section 8.2
not less than 30 days and not more than 60 days prior to the date fixed for
such prepayment.  Each such notice shall
specify such date, the aggregate principal amount of the Notes to be prepaid on
such date, the principal amount of each Note held by such holder to be prepaid
(determined in accordance with Section 8.3), and the interest to be
paid on the prepayment date with respect to such principal amount being
prepaid.

 

Section 8.3            Allocation of
Partial Prepayments.

 

In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment.

 

16

 

Section 8.4            Maturity;
Surrender, etc.

 

In the case of each prepayment of Notes pursuant to this Article VIII,
the principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date. 
From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, interest on such principal amount
shall cease to accrue.  Any Note paid or
prepaid in full shall be surrendered to the Company and cancelled and shall not
be reissued, and no Note shall be issued in lieu of any prepaid principal
amount of any Note.

 

Section 8.5            Purchase of Notes.

 

The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes.  The Company will promptly cancel all Notes
acquired by it or any Affiliate pursuant to any payment, prepayment or purchase
of Notes pursuant to any provision of this Agreement and no Notes may be issued
in substitution or exchange for any such Notes.

 

Article IX

Affirmative Covenants

 

The Company covenants that so long as any of the Notes are outstanding:

 

Section 9.1            Compliance with Law.

 

The Company will and will cause each of its Subsidiaries to comply with
all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.

 

Section 9.2            Insurance.

 

The Company shall maintain the insurance coverages described on Schedule
9.2, and the Company shall not make any changes to reduce such coverages or
to increase the deductibles, or co-insurance thereunder.  In addition, the Company will and will cause
each of its Subsidiaries to maintain, with financially sound and reputable
insurers, such additional insurance with respect to their respective properties
and businesses against such casualties and contingencies, of such types, on
such terms and in such amounts (including deductibles, co-insurance and
self-insurance, if adequate reserves are maintained with respect thereto) as
the Required Holders may reasonably require, to the extent that such additional
insurance is customary in the case of

 

17

 

entities of established reputations engaged in the same or a similar
business and similarly situated.

 

Section 9.3            Maintenance of
Properties.

 

The Company will and will cause each of its Subsidiaries to maintain
and keep, or cause to be maintained and kept, their respective properties in
good repair, working order and condition (other than ordinary wear and tear),
so that the business carried on in connection therewith may be properly
conducted at all times, provided that this Section shall not
prevent the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.

 

Section 9.4            Payment of Taxes
and Claims.

 

The Company will and will cause each of its Subsidiaries to file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is
contested by the Company or such Subsidiary on a timely basis in good faith and
in appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such taxes and
assessments in the aggregate could not reasonably be expected to have a
Material Adverse Effect.

 

Section 9.5            Corporate
Existence, etc.

 

The Company will at all times preserve and keep in full force and
effect its corporate existence.  Subject
to Sections 10.2 and 10.6, the Company will at all times preserve
and keep in full force and effect the corporate existence of each of its
Subsidiaries (unless merged into the Company or a Subsidiary) and all rights
and franchises of the Company and its Subsidiaries unless, in the good faith
judgment of the Company, the termination of or failure to preserve and keep in
full force and effect such corporate existence, right or franchise could not,
individually or in the aggregate, have a Material Adverse Effect.

 

Section 9.6            Guaranty Agreement.

 

(a)           (1)           Concurrently with the
formation or acquisition of any Subsidiary (other than a Securitization
Subsidiary), the Company shall cause such Subsidiary to execute and deliver a
supplement to the Guaranty Agreement (a “Supplement”)
in the form of Exhibit A to the Guaranty Agreement.

 

18

 

(2)           Concurrently
with the delivery by any Subsidiary of a Supplement pursuant to Section 9.6(a)(1),
the Company shall cause such Subsidiary to deliver to each holder of Notes (i) such
documents and evidence with respect to such Subsidiary as any holder may
reasonably request in order to establish the existence and good standing of
such Subsidiary and evidence that the Board of Directors of such Subsidiary has
adopted resolutions authorizing the execution and delivery of such Supplement
and the guaranty of the Notes, (ii) evidence of compliance with such
Subsidiary’s outstanding Debt instruments in the form of (A) a compliance
certificate from such Subsidiary to the effect that such Subsidiary is in
compliance with all terms and conditions of its outstanding Debt instruments, (B) consents
or approvals of the holder or holders of any evidence of Debt or Security,
and/or (C) amendments of agreements pursuant to which any evidence of Debt
or Security may have been issued, all as may be reasonably deemed necessary by
the holders of Notes to permit the execution and delivery of such Supplement by
such Subsidiary, (iii) an opinion of counsel to the effect that (A) such
Subsidiary is a corporation or other business entity, duly organized, validly
existing and in good standing, if applicable, under the laws of its
jurisdiction of organization, has the corporate or other power and the
authority to execute and deliver such Supplement and to perform the Guaranty
Agreement, (B) the execution and delivery of such Supplement and
performance of the Guaranty Agreement has been duly authorized by all necessary
action on the part of such Subsidiary, such Supplement has been duly executed
and delivered by such Subsidiary and the Guaranty Agreement constitutes the
legal, valid and binding contract of such Subsidiary enforceable against such
Subsidiary in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors’ rights generally,
and general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law), (C) the
execution and delivery of such Supplement and the performance by such
Subsidiary of the Guaranty Agreement do not conflict with or result in any
breach of any of the provisions of or constitute a default under or result in
the creation of a Lien upon any of the property of such Subsidiary pursuant to
the provisions of any applicable law, order, rule or regulation, its
charter documents or any agreement or other instrument known to such counsel to
which such Subsidiary is a party to or by which such Subsidiary may be bound
and (D) no approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any applicable Governmental
Authority, Federal or state, is necessary in connection with the lawful
execution and delivery of such Supplement by such Subsidiary or the performance
of the Guaranty Agreement by such Subsidiary, which opinion may contain such
assumptions and qualifications as are reasonably acceptable to the Required
Holders and (iv) all other documents and showings reasonably requested by
the holders of Notes in connection with the execution and delivery of such
Supplement, which documents shall be reasonably satisfactory in form and
substance to such holders and their special counsel, and each holder of Notes
shall have received a copy (executed or certified as may be appropriate) of all
of the foregoing legal documents.

 

(b)           The
Company agrees that it will not, nor will it permit any Subsidiary or Affiliate
to, directly or indirectly, pay or cause to be paid any consideration or
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any creditor of the Company, of any Guarantor or any Affiliate as
consideration for or as an inducement to the entering into by any such creditor
of any release or discharge of any Guarantor with respect to any liability of
such Guarantor as an obligor or guarantor under or in respect of Debt of the
Company, unless such consideration or remuneration is concurrently paid, on the
same terms, ratably to each of the holders of the Notes.

 

19

 

Section 9.7            Financial
Statement; Other Information.

 

The Company will deliver to the holders of the Notes the financial
information set forth in Section 5.5 and Section 7.1,
other financial information reasonably requested by the holders of the Notes
and any financial material and minutes prepared for meetings of the Board of
Directors of the Company.

 

Section 9.8            Ranking of Notes.

 

The Notes and all other obligations of the Company and the Guarantors
under this Agreement and the Guaranty Agreement shall be subordinated to the
Senior Debt, on the terms set forth herein, shall be at least pari passu with
the Junior Debt, and shall be senior to all other Debt of the Company and the
Guarantors.

 

Section 9.9            Use of Proceeds.

 

The Company will use not more than $2,500,000 of the proceeds of the
sale of the Notes to purchase outstanding common equity of the Company.

 

Article X

Negative Covenants

 

The Company covenants that so long as any of the Notes are outstanding:

 

Section 10.1         Transactions with
Affiliates.

 

The Company will not and will not permit any Subsidiary to enter into
directly or indirectly any Material transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or
exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company’s or
such Subsidiary’s business and upon fair and reasonable terms no less favorable
to the Company or such Subsidiary than would be obtainable in a comparable arm’s-length
transaction with a Person not an Affiliate.

 

Section 10.2         Merger, Consolidation,
etc.

 

The Company shall not, and shall not permit any Subsidiary to, become a
party to a merger or consolidation, or purchase or otherwise acquire all or a
substantial part of the business or Property of any Person or all or a
substantial part of the business or Property of a division or branch of a
Person or a majority interest in the Capital Stock of any Person, or wind up,
dissolve, or liquidate itself; provided that as long as no Default or
Event of Default exists or would result therefrom and provided the Company
gives you prior written notice:

 

(a)           A
Subsidiary of the Company may wind-up, dissolve, or liquidate if its Property
is transferred to the Company or a Wholly-Owned Subsidiary of the Company; and

 

20

 

(b)           Any
Subsidiary of the Company may merge or consolidate with the Company (provided
the Company is the surviving entity) or with any Wholly-Owned Subsidiary of the
Company (provided the Wholly Owned Subsidiary is the surviving entity).

 

Section 10.3         Liens.

 

The Company shall not, and shall not permit any of the Guarantors to,
incur, create, assume, or permit to exist any Lien upon any of its property, assets,
or revenues, whether now owned or hereafter acquired, except the following (“Permitted Liens”):

 

(a)           Liens
described on Schedule 10.3 hereto or securing Senior Debt, and any
extensions, renewals, or refinancings of the Debt secured by such Liens, provided
that (i) no such Lien is expanded to cover any additional property (other
than after acquired title in or on such Property and proceeds of the existing
collateral) after the Closing and (ii) no such Lien is spread to secure
any additional Debt after the Closing;

 

(b)           Liens
in favor of the for the equal and ratable benefit of the holders of the Notes;

 

(c)           Encumbrances
consisting of easements, zoning restrictions, or other restrictions on the use
of real property that do not (individually or in the aggregate) materially
detract from the value of the real property encumbered thereby;

 

(d)           Liens
for taxes, assessments, or other governmental charges (but excluding Liens
under ERISA or Environmental Laws) that are not delinquent or which are being
contested in good faith and for which adequate reserves have been established
in accordance with GAAP;

 

(e)           Liens
of mechanics, materialmen, warehousemen, carriers, landlords, or other similar
statutory Liens securing obligations that are not overdue or are being contested
in good faith by appropriate proceedings diligently pursued and for which
adequate reserves have been established in accordance with GAAP and are
incurred in the ordinary course of business;

 

(f)            Liens
resulting from deposits to secure payments of worker’s compensation,
unemployment insurance or other social security programs or to secure the
performance of tenders, statutory obligations, leases, insurance contracts,
surety and appeal bonds, bids, and other contracts incurred in the ordinary
course of business (other than for payment of Debt);

 

(g)           Liens
for purchase money obligations and Liens securing Capital Lease Obligations; provided
that: (i) the Debt secured by any such Lien is permitted under Section 10.5(d) hereof;
and (ii) any such Lien encumbers only the property so purchased or leased;

 

(h)           Any
interest or title of a licensor, lessor, or sublessor under any license or
lease entered into in the ordinary course of business;

 

(i)            Liens
against equipment arising from precautionary UCC financing statement filings
regarding operating leases entered into by the Company or a Subsidiary in the
ordinary course of business;

 

21

 

(j)            Nonconsensual
Liens in favor of banking institutions arising as a matter of law and
encumbering the deposits (including the right of set-off) held by such banking
institutions in the ordinary course of business; and

 

(k)           Liens
securing Debt arising under Swaps permitted under Section 10.5(g) hereof.

 

Notwithstanding the foregoing Permitted Liens or any other provision in
this Agreement or any other Transaction Document to the contrary, the Company
shall not enter into, and the Company shall not permit any of the Guarantors to
enter into, any agreement that (i) prohibits the creation or assumption of
any Lien upon, or the pledge, hypothecation or encumbrance of, any Property of
the Company or such Guarantor in favor of any Person, or (ii) requires any
obligation of the Company, or such Subsidiary to be secured in favor of another
Person if any Debt of the Company is so secured.

 

Section 10.4         Financial Covenants.

 

(a)           Minimum
Shareholders’ Equity.  At the end of
any fiscal quarter, the Company shall not permit its Shareholders’ Equity to be
less than the sum of (i) $27,000,000 and (ii) 50% of the aggregate of
the net income of the Company (determined in accordance with GAAP and without
deduction for any net losses) for such fiscal quarter and all prior fiscal
quarters ending after April 30, 2007.

 

(b)           Minimum
Shareholders’ Equity to Receivables Ratio. 
As of the end of any fiscal quarter, the Company shall not permit the
sum of its Shareholders’ Equity plus any outstanding principal amounts of the
Junior Debt and the Notes, as a percentage of Managed Assets, to be less than
7.0%

 

(c)           Minimum
Consolidated Fixed Charge Coverage Ratio. 
As of the end of any fiscal quarter, the Company shall not permit the
ratio of (i) EBITDA plus Rental Expense of the Company and its
consolidated Subsidiaries for the prior four fiscal quarters to (ii) the
sum of (A) Interest Expense for such fiscal quarters, plus (B) Rental
Expense for such fiscal quarters, to be less than 1.10 to 1.00.

 

Section 10.5         Debt.

 

The Company will not, and shall not permit any Guarantor to, incur,
create, assume, or permit to exist any Debt, except:

 

(a)           Debt
described on Schedule 10.5 or in this Section 10.5 (a), and
any extensions, renewals, or refinancings of such existing Debt so long as (A) the
principal amount of such Debt after such renewal, extension, or refinancing
shall not exceed the principal amount of such Debt which was outstanding
immediately prior to such renewal, extension, or refinancing and (B) such
Debt shall not be secured by any assets other than assets securing such Debt,
if any, prior to such renewal, extension, or refinancing;

 

(b)           Debt
of a Guarantor, other than any such Debt incurred in the ordinary course of
business, owed to the Company or another Guarantor provided that such Debt is
on terms satisfactory to you in your sole discretion;

 

22

 

(c)           Contingent
Obligations and other Debt incurred in the ordinary course of business with
respect to Receivables purchase commitments, or a Receivables portfolio
purchase, reinsurance obligations, surety and appeal bonds and performance and
return-of-money bonds;

 

(d)           Debt
of the Company or any Guarantor constituting purchase money Debt (including,
without limitation, Capital Lease Obligations) incurred after the Closing not
to exceed $500,000 in the aggregate at any time outstanding secured by purchase
money Liens constituting Permitted Liens;

 

(e)           Debt
constituting obligations to reimburse worker’s compensation insurance companies
for claims paid by such companies on the Company’s or any of its Subsidiaries’
behalf in accordance with the policies issued to the Company or such Subsidiary
of the Company;

 

(f)            Debt
secured by the Permitted Liens;

 

(g)           Debt
arising under, created by and consisting of Swaps, provided, (i) such
Swaps shall have been entered into for the purpose of hedging actual risk and
not for speculative purposes and (ii) that each counterparty to such Swap
shall be Wachovia Bank, National Association or one of its Affiliates or shall
be rated in one of the two highest rating categories of S&P or Moody’s; and

 

(h)           Intercompany
obligations among the Company and the Guarantors for reasonable net rent
allocation, reasonable management fees, dividends declared, equity investments
and intercompany debt service.

 

Section 10.6         Sale of Assets, etc.

 

The Company shall not, and shall not permit any Subsidiary to, sell,
lease, assign, transfer, or otherwise voluntarily dispose of: (a) any of
its Receivables other than the transfer and assignment of Receivables (i) to
FIRC (directly or through any Wholly-Owned Subsidiary) pursuant to the FIRC
Purchase Agreement, (ii) to FIARC pursuant to the FIARC Purchase
Agreement, and (iii) to any Wholly-Owned Subsidiary (directly or through
any Wholly-Owned Subsidiary) for inclusion in a Securitization program pursuant
to which such Wholly-Owned Subsidiary transfers directly or indirectly all of
its subordinated and residual interests in such Securitization to the issuer in
any Securitization; (b) any substantial portion of the consolidated assets
of the Company or such Subsidiary; or (c) any other property other than
dispositions of inventory and equipment in the ordinary course of business and
sales of charged off deficiency balances in the ordinary course of business
generating aggregate Net Proceeds not in excess of $500,000 in any calendar
year.

 

Section 10.7         Dividends,
Distributions and Stock Repurchases.

 

The Company shall not, and shall not permit any Subsidiary to, directly
or indirectly declare, order, pay, make, or set apart any sum for (a) any
dividend or other distribution, direct or indirect, on account of any shares of
any class of Capital Stock of such Person now or hereafter outstanding; (b) any
redemption, conversion, exchange, retirement, sinking fund, or similar payment,
purchase, or other acquisition for value, direct or indirect, of any shares of
any class of

 

23

 

Capital Stock of Person now or hereafter outstanding; or (c) any
payment made to retire, or to obtain the surrender of, any outstanding
warrants, options, or other rights to acquire shares of any class of Capital
Stock of such Person now or hereafter outstanding except:

 

(a)           Subsidiaries
of the Company may make, declare, and pay dividends and make other
distributions with respect to their Capital Stock to the Company;

 

(b)           the
Company may declare and pay dividends on any class of its Capital Stock payable
solely in shares of Capital Stock of the Company;

 

(c)           the
Company may acquire or redeem Capital Stock of the Company held by any former
officer, director, or employee of the Company or beneficiaries of any such
Person’s estate or trusts created by or for the benefit of any such Person or
their beneficiaries; and

 

(d)           if
no Default or Event of Default has occurred and is continuing, or would occur
after giving effect thereto, the Company may acquire or redeem Capital Stock of
the Company from any stockholder of the Company in an aggregate amount not to
exceed $2,500,000 during the term of this Agreement.

 

Section 10.8         Reserved.

 

Section 10.9         Nature of Business.

 

The Company shall not, and shall not permit any Subsidiary to, engage
in any business if, as a result thereof, the general nature of the business,
which would then be engaged in by the Company and its Subsidiaries taken as a
whole would be substantially changed from the general nature of the business
engaged in by the Company and its Subsidiaries on the date of the Closing.

 

Section 10.10       Restrictions on
Guarantors.

 

Other than as required pursuant to the terms of any Senior Debt
Documents, the Company shall not, and shall not permit any Guarantor to, enter
into or assume any material agreement (other than the Transaction Documents)
prohibiting the creation or assumption of any Lien upon its material properties
or assets, whether now owned or hereafter acquired.  Except as provided herein, the Company shall
not, and shall not permit any Guarantor to, directly or indirectly create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of the Company or any of
the Guarantors to:  (a) pay
dividends or make any other distribution on any of such Guarantor’s Capital
Stock owned by the Company or any of its Affiliates; (b) pay any Debt owed
to any Person; (c) make loans or advances to any Person; or (d) transfer
any of its Property to any Person, except pursuant to non-assignment provisions
of licenses and leases entered into in the ordinary course of business.

 

Section 10.11       Limitation on Issuance
of Capital Stock.

 

The Company shall not permit any Subsidiary to, at any time issue,
sell, assign, or otherwise dispose of, except to the Company, a Subsidiary of
the Company, or a newly created Wholly-Owned Subsidiary of the Company, (i) any
of its Capital Stock, (ii) any securities

 

24

 

exchangeable for or convertible into or carrying any rights to acquire
any of its Capital Stock, or (iii) any option, warrant, or other right to
acquire any of its Capital Stock.

 

Section 10.12       Limitation on Transfer
of Capital Stock.

 

The Company shall not transfer, sell, assign, grant a security interest
in, or transfer any other interest into or under any Capital Stock of any
Subsidiary owned by it or in any rights represented by such Capital Stock.

 

Section 10.13       Junior Debt.

 

The Company shall not permit the outstanding principal balance of the
Junior Debt to be less than $2,500,000 at any time or to have a maturity date
of less than three (3) years.

 

Section 10.14       Subordination of
Intercompany Debt.

 

The Company and, by execution of the Guaranty Agreement, each Obligated
Party, agrees that the Subordinated Intercompany Indebtedness (as defined
below) shall be subordinate and junior in right of payment to, inter alia, the
prior payment in full of all obligations, indebtedness and liabilities of the
Obligated Parties to the holders of Notes under this Agreement and the Guaranty
Agreement  (the “Obligated Party Obligations”) as
herein provided.

 

(a)           Payment
Subordination.  The Subordinated
Intercompany Indebtedness shall not be payable, and no payment of principal,
interest or other amounts on account thereof, and no property or guarantee of
any nature to secure or pay the Subordinated Intercompany Indebtedness shall be
made or given, directly or indirectly by or on behalf of any Obligated Party or
received, accepted, retained or applied by the Company unless and until the
Obligated Party Obligations shall have been paid in full in cash; provided
that prior to the occurrence and continuance of an Event of Default, the
Company shall have the right to receive payments on the Subordinated
Intercompany Indebtedness made in the ordinary course of business.  After the occurrence and during the
continuance of an Event of Default, no payments may be made or given, directly
or indirectly, by or on behalf of any Obligated Party or received, accepted,
retained or applied by the Company unless and until the Obligated Party
obligations shall have been paid in full in cash.  If any sums shall be paid to the Company by
any Obligated Party or any other Person on account of the Subordinated
Intercompany Indebtedness when such payment is not permitted hereunder, such
sums shall be held in trust by the Company for the benefit of holders of the
Notes and the Obligated Parties.  The
term “Subordinated Intercompany
Indebtedness” shall mean all indebtedness, liabilities, and
obligations of any Obligated Party to the Company, whether such indebtedness,
liabilities, and obligations now exist or are hereafter incurred or arise, or
are direct, indirect, contingent, primary, secondary, several, joint and
several, or otherwise, and irrespective of whether such indebtedness,
liabilities, or obligations are evidenced by a note, contract, open account, or
otherwise, and irrespective of the Person or Persons in whose favor such
indebtedness, obligations, or liabilities may, at their inception, have been,
or may hereafter be created, or the manner in which they have been or may
hereafter be acquired by the Company.

 

(b)           Lien
Subordination; Remedy Standstill. 
The Company agrees that any and all Liens (including any judgment
liens), upon any Obligated Party’s assets securing payment of any

 

25

 

Subordinated
Intercompany Indebtedness shall be and remain inferior and subordinate to any
and all Liens upon any Obligated Party’s assets securing payment of the
Obligated Party Obligations or any part thereof, regardless of whether such
Liens in favor of the Company, a holder of Notes, another creditor of the
Company or an Obligated Party.  Without
the prior written consent of the Required Holders, the Company shall not (1) file
suit against any Obligated Party or exercise or enforce any other creditor’s
right it may have against any Obligated Party, or (2) foreclose,
repossess, sequester, or otherwise take steps or institute any action or
proceedings (judicial or otherwise, including without limitation the
commencement of, or joinder in, any liquidation, bankruptcy, rearrangement,
debtor’s relief or insolvency proceeding) to enforce any obligations of any
Obligated Party to the Company or any Liens held by the Company on assets of
any Obligated Party.

 

(c)           Bankruptcy
Proceedings.  In the event of any
receivership, bankruptcy, reorganization, rearrangement, debtor’s relief, or
other insolvency proceeding involving any Obligated Party as debtor, holders of
Notes shall have the right to prove and vote any claim under the Subordinated
Intercompany Indebtedness and to receive directly from the receiver, trustee or
other court custodian all dividends, distributions, and payments made in
respect of the Subordinated Intercompany Indebtedness until the Obligated Party
Obligations have been paid in full in cash.

 

Article XI

Events of Default

 

An “Event of Default” shall exist if any of the following conditions or
events shall occur and be continuing:

 

(a)           the
Company defaults in the payment of any principal on any Note when the same
becomes due and payable, whether at maturity or at a date fixed for prepayment
or by declaration or otherwise; or

 

(b)           the
Company defaults in the payment of any interest on any Note for more than five
Business Days after the same becomes due and payable; or

 

(c)           the
Company defaults in the performance of or compliance with any term contained in
Sections 7.1(d) and 9.5 or Article X; or

 

(d)           the
Company defaults in the performance of or compliance with any term contained
herein (other than those referred to in paragraphs (a), (b) and
(c) of this Article XI) and such default is not
remedied within 30 days after the earlier of (i) a Responsible Officer
obtaining actual knowledge of such default and (ii) the Company receiving
written notice of such default from any holder of a Note (any such written
notice to be identified as a “notice of default” and to refer specifically to
this paragraph (d) of Article XI); or

 

(e)           any
representation or warranty made in writing by or on behalf of the Company or
any Obligated Party by any officer of the Company or any Obligated Party in
this Agreement, in the Guaranty Agreement, in any Other Agreement or in any
writing furnished in connection with

 

26

 

the
transactions contemplated hereby or thereby proves to have been false or
incorrect in any material respect on the date as of which made; or

 

(f)            (i) the
Company or any Subsidiary is in default (as principal or as guarantor or other
surety) in the payment of any principal of or premium or interest on any
Indebtedness, with the exception of the Senior Debt, that is outstanding in an
aggregate principal amount of at least $1,000,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary is in
default in the performance of or compliance with any term of any evidence of
any Indebtedness, with the exception of the Senior Debt, in an aggregate
outstanding principal amount of at least $1,000,000 or of any mortgage,
indenture or other agreement relating thereto or any other condition exists,
and as a consequence of such default or condition such Indebtedness has become,
or has been declared (or one or more Persons are entitled to declare such
Indebtedness to be), due and payable before its stated maturity or before its
regularly scheduled dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other than the passage of
time or the fight of the holder of Indebtedness to convert such Indebtedness
into equity interests), (x) the Company or any Subsidiary has become
obligated to purchase or repay Indebtedness, with the exception of the Senior
Debt, before its regular maturity or before its regularly scheduled dates of
payment in an aggregate outstanding principal amount of at least $1,000,000, or
(y) one or more Persons have the right to require the Company or any Subsidiary
so to purchase or repay such Indebtedness, with the exception of the Senior
Debt; or

 

(g)           the
Company or any Subsidiary (i) is generally not paying, or admits in
writing its inability to pay, its debts as they become due, (ii) files, or
consents by answer or otherwise to the filing against it of, a petition for
relief or reorganization or arrangement or any other petition in bankruptcy,
for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the
appointment of a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part of its property,
(v) is adjudicated as insolvent or to be liquidated, or (vi) takes
corporate action for the purpose of any of the foregoing; or

 

(h)           a
court or governmental authority of competent jurisdiction enters an order
appointing, without consent by the Company or any of its Subsidiaries, a
custodian, receiver, trustee or other officer with similar powers with respect
to it or with respect to any substantial part of its property, or constituting
an order for relief or approving a petition for relief or reorganization or any
other petition in bankruptcy or for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any of its Subsidiaries, or any
such petition shall be filed against the Company or any of its Subsidiaries and
such petition shall not be dismissed within 60 days; or

 

(i)            a
final judgment or judgments for the payment of money aggregating in excess of
$1,000,000 (excluding for the purposes of such calculation the $450,000 paid by
the Company with respect to the settlement of the judgment relating to the Kudlicki lawsuit) during any single fiscal
year are rendered against one or more of the Company and its Subsidiaries and
which

 

27

 

judgments are
not, within 60 days after entry thereof, bonded, discharged or stayed pending
appeal, or are not discharged within 60 days after the expiration of such stay;
or

 

(j)            if
(i) any Plan shall fail to satisfy the minimum funding standards of ERISA
or the Code for any plan year or part thereof or a waiver of such standards or
extension of any amortization period is sought or granted under section 412 of
the Code, (ii) a notice of intent to terminate any Plan shall have been or
is reasonably expected to be filed with the PBGC or the PBGC shall have
instituted proceedings under ERISA section 4042 to terminate or appoint a
trustee to administer any Plan or the PBGC shall have notified the Company or
any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the
aggregate “amount of unfunded benefit liabilities” (within the meaning of
section 4001(a)(18) of ERISA) under all Plans, determined in accordance with
Title IV of ERISA, shall exceed $1,000,000, (iv)the Company or any ERISA
Affiliate shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or
any Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase the
liability of the Company or any Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above,
either individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect; or

 

(k)           (1) default
shall occur under the Guaranty Agreement and such default shall continue beyond
the period of grace, if any, allowed with respect thereto or (2) the
Guaranty Agreement shall cease to be in full force and effect for any reason
whatsoever, including, without limitation, a determination by any Governmental
Authority or court that such agreement is invalid, void or unenforceable or any
Guarantor shall contest or deny in writing the validity or enforceability of
the Guaranty Agreement.

 

As used in Article XI(j), the terms “employee benefit plan”
and “employee welfare benefit plan” shall have the respective meanings assigned
to such terms in Section 3 of ERISA.

 

Article XII

Remedies on Default, etc

 

Section 12.1         Acceleration.

 

(a)           If
an Event of Default with respect to the Company described in paragraph (g) or
(h) of Article XI (other than an Event of Default
described in clause (i) of paragraph (g) or described
in clause (vi) of paragraph (g) by virtue of the fact
that such clause encompasses clause (i) of paragraph (g))
has occurred, all the Notes then outstanding shall automatically become
immediately due and payable.

 

(b)           If
any other Event of Default has occurred and is continuing, any holder or
holders of more than 51% in principal amount of the Notes at the time
outstanding may at any time at its or their option, by notice or notices to the
Company, declare all the Notes then outstanding to be immediately due and
payable.

 

28

 

(c)           If
any Event of Default described in paragraph (a) or (b) of
Article XI has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at any
time, at its or their option, by notice or notices to the Company, declare all
the Notes held by it or them to be immediately due and payable.

 

Upon and during the continuance of a Default or Event of Default, the
Notes shall bear interest at a default rate of 16% per annum payable monthly as
set forth in the Notes.  Notwithstanding
the foregoing, upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal, which will be equal to the full principal amount
of such Notes times the applicable Redemption Price Percentage set forth in Section 8.1,
plus all accrued and unpaid interest thereon, shall all be immediately due and
payable, in each and every case without presentment, demand, protest or further
notice, all of which are hereby waived. 
The Company acknowledges, and the parties hereto agree, that each holder
of a Note has the right to maintain its investment in the Notes free from
repayment by the Company (except as herein specifically provided for).

 

Section 12.2         Other Remedies.

 

If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the
time outstanding may proceed to protect and enforce the rights of such holder
by an action at law, suit in equity or other appropriate proceeding, whether
for the specific performance of any agreement contained herein or in any Note,
or for an injunction against a violation of any of the terms hereof or thereof,
or in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.

 

Section 12.3         Rescission.

 

At any time after any Notes have been declared due and payable pursuant
to clause (b) or (c) of Section 12.1, the
holders of not less than 51% in principal amount of the Notes then outstanding,
by written notice to the Company, may rescind and annul any such declaration
and its consequences if (a) the Company has paid all overdue interest on
the Notes, all principal on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal, and (to the extent permitted by applicable law) any overdue interest
in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to Article XVII,
and (c) no judgment or decree has been entered for the payment of any
monies due pursuant hereto or to the Notes. 
No rescission and annulment under this Section 12.3 will
extend to or affect any subsequent Event of Default or Default or impair any
right consequent thereon.

 

Section 12.4         No Waivers or Election
of Remedies, Expenses, etc.

 

No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder’s rights, powers or remedies.  No right, power or remedy conferred by this
Agreement or by any Note or the Guaranty Agreement upon any holder thereof
shall be exclusive of any other right,

 

29

 

power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Article XV, the Company will pay to the
holder of each Note on demand such further amount as shall be sufficient to
cover all costs and expenses of such holder incurred in any enforcement or
collection under this Article XII, including, without limitation,
reasonable attorneys’ fees, expenses and disbursements.

 

Article XIII

Registration; Exchange; Substitution of Notes

 

Section 13.1   Registration
of Notes.

 

The Company
shall keep at its principal executive office a register for the registration
and registration of transfers of Notes. The name and address of each holder of
one or more Notes, each transfer thereof and the name and address of each
transferee of one or more Notes shall be registered in such register. Prior to
due presentment for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary. The Company shall give to any holder of a Note that
is an Institutional Investor promptly upon request therefor, a complete and
correct copy of the names and addresses of all registered holders of Notes.

 

Section 13.2   Transfer
and Exchange of Notes.

 

Notes shall
not be transferable by you to a Competitor prior to an Event of Default. Upon
surrender of any Note at the principal executive office of the Company for
registration of a permitted transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company’s expense (except as provided below), one
or more new Notes (as requested by the holder thereof) in exchange therefor, in
an aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such permitted
transferee as such holder may request and shall be substantially in the form of
Exhibit 1. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $25,000, provided
that if necessary to enable the registration of transfer by a holder of its
entire holding of Notes, one Note may be in a denomination of less than
$25,000. Any transferee, by its acceptance of a Note registered in its name (or
the name of its nominee), shall be deemed to have made the representation set
forth in Section 6.2.

 

30

 

Section 13.3   Replacement
of Notes.

 

Upon receipt
by the Company of evidence reasonably satisfactory to it of the ownership of and
the loss, theft, destruction or mutilation of any Note (which evidence shall
be, in the case of an Institutional Investor, notice from such Institutional
Investor of such ownership and such loss, theft, destruction or mutilation),
and

 

(a)      in
the case of loss, theft or destruction, of indemnity reasonably satisfactory to
it (provided that if the holder of such Note is, or is a nominee for,
you or another holder of a Note with a minimum net worth of at least
$50,000,000, such Person’s own unsecured agreement of indemnity shall be deemed
to be satisfactory), or

 

(b)      in
the case of mutilation, upon surrender and cancellation thereof, the Company at
its own expense shall execute and deliver, in lieu thereof, a new Note, dated
and beating interest from the date to which interest shall have been paid on
such lost, stolen. destroyed or mutilated Note or dated the date of such lost,
stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.

 

Article XIV

Payments on Notes

 

Section 14.1   Place
of Payment.

 

Subject to Section
14.2, payments of principal, and interest becoming due and payable on the
Notes shall be made in Charlotte, North Carolina at the principal office of
Wachovia Bank, National Association in such jurisdiction. The Company may at
any time, by notice to each holder of a Note, change the place of payment of
the Notes so long as such place of payment shall be either the principal office
of the Company in such jurisdiction or the principal office of a bank or trust
company in such jurisdiction.

 

Section 14.2   Home
Office Payment.

 

So long as you
or your nominee shall be the holder of any Note, and notwithstanding anything
contained in Section 14.l or in such Note to the contrary, the Company
will pay all sums becoming due on such Note for principal, and interest by the
method and at the address specified for such purpose below your name in Schedule
A, or by such other method or at such other address as you shall have from
time to time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 14.1.
Prior to any sale or other disposition of any Note held by you or your nominee
you will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to Section
13.2. The Company will afford the benefits of this Section 14.2 to
any Institutional Investor that is the direct or indirect transferee of any
Note

 

31

 

purchased by you under this Agreement and that has made the same
agreement relating to such Note as you have made in this Section 14.2.

 

Article XV

Expenses, etc.

 

Section 15.1   Transaction
Expenses.

 

Whether or not
the transactions contemplated hereby are consummated, the Company will pay all
costs and expenses (including reasonable attorneys’ fees of a special counsel
and, if reasonably required, local or other counsel) incurred by you in
connection with such transactions up to $25,000 in the aggregate, as well as
all costs and expenses reasonably incurred by you (including reasonable
attorneys’ fees of a special counsel and, if reasonably required, local or
other counsel) in connection with any amendments, waivers or consents under or
in respect of this Agreement or the Notes or the Guaranty Agreement (whether or
not such amendment, waiver or consent becomes effective), including, without
limitation: (a) the costs and expenses incurred in enforcing or defending (or
determining whether or how to enforce or defend) any rights under this
Agreement or the Notes or the Guaranty Agreement or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the Notes or the Guaranty Agreement, or by
reason of being a holder of any Note, and (b) the costs and expenses, including
financial advisors’ fees, incurred in connection with the insolvency or
bankruptcy of the Company or any Subsidiary or in connection with any work-out
or restructuring of the transactions contemplated hereby and by the Notes. The
Company will pay, and will save you and each other holder of a Note harmless
from, all claims in respect of any fees, costs or expenses if any, of brokers
and finders (other than those retained by you).

 

Section 15.2   Survival.

 

The
obligations of the Company under this Article XV will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes or the Guaranty Agreement, and the
termination of this Agreement.

 

Article XVI

Survival of Representations and Warranties; Entire Agreement

 

All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement and the Notes, the purchase or transfer by you of
any Note or portion thereof or interest therein and the payment of any Note,
and may be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of you or any other holder of a
Note. All statements contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement shall be deemed
representations and warranties of the Company under this Agreement. Subject to
the preceding sentence, this Agreement and the Notes embody the entire
agreement and understanding between you and the Company and supersede all prior
agreements and understandings relating to the subject matter hereof.

 

32

 

Article XVII

Amendment and Waiver

 

Section 17.1   Requirements.

 

This Agreement
and the Notes may be amended, and the observance of any term hereof or of the
Notes may be waived (either retroactively or prospectively), with (and only
with) the written consent of the Company and the Required Holders, except that
(a) no amendment or waiver of any of the provisions of  Articles I, II, III, IV,
V, VI or XXI hereof, or any defined term (as it is used
therein), will be effective as to you unless consented to by you in writing,
and (b) no such amendment or waiver may, without the written consent of the
holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Article XII relating to acceleration or rescission,
change the amount or time of any prepayment or payment of principal of (ii)
change the percentage of the principal amount of the Notes the holders of which
are required to consent to any such amendment or waiver, or (iii) amend any of Articles
VIII, XI(a), XI(b), XII, XVII or XX.

 

Section 17.2   Solicitation
of Holders of Notes.

 

(a)      Solicitation.
The Company will provide each holder of the Notes (irrespective of the amount
of Notes then owned by it) with sufficient information, sufficiently far in
advance of the date a decision is required, to enable such holder to make an
informed and considered decision with respect to any proposed amendment, waiver
or consent in respect of any of the provisions hereof or of the Notes. The
Company will deliver executed or true and correct copies of each amendment,
waiver or consent effected pursuant to the provisions of this Article XVII
to each holder of outstanding Notes promptly following the date on which it is
executed and delivered by, or receives the consent or approval of, the
requisite holders of Notes.

 

(b)      Payment.
The Company will not directly or indirectly pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, or grant any security, to any holder of Notes as consideration for
or as an inducement to the entering into by any holder of Notes or any waiver
or amendment of any of the terms and provisions hereof unless such remuneration
is concurrently paid, or security is concurrently granted, on the same terms,
ratably to each holder of Notes then outstanding even if such holder did not
consent to such waiver or amendment.

 

Section 17.3   Binding
Effect, etc.

 

Any amendment
or waiver consented to as provided in this Article XVII applies equally
to all holders of Notes and is binding upon them and upon each future holder of
any Note and upon the Company without regard to whether such Note has been
marked to indicate such amendment or waiver. No such amendment or waiver will
extend to or affect any obligation, covenant, agreement, Default or Event of
Default not expressly amended or waived or impair any right consequent thereon.
No course of dealing between the Company and the holder of any Note nor any
delay in exercising any rights hereunder or under any Note shall operate as a
waiver of any rights of any holder of such Note. As used herein, the term “this
Agreement” and

 

33

 

references thereto shall mean this Agreement as it may from time to
time be amended or supplemented.

 

Section 17.4   Notes
held by Company, etc.

 

Solely for the
purpose of determining whether the holders of the requisite percentage of the
aggregate principal amount of Notes then outstanding approved or consented to
any amendment, waiver or consent to be given under this Agreement or the Notes,
or have directed the taking of any action provided herein or in the Notes to be
taken upon the direction of the holders of a specified percentage of the
aggregate principal amount of Notes then outstanding, Notes directly or
indirectly owned by the Company or any of its Affiliates shall be deemed not to
be outstanding.

 

Article XVIII

Notices

 

All notices
and communications provided for hereunder shall be in writing and sent (a) by
telecopy if the sender on the same day sends a confirming copy of such notice
by a recognized overnight delivery service (charges prepaid), or (b) by
registered or certified mail with return receipt requested (postage prepaid),
or (c) by a recognized overnight delivery service (with charges prepaid). Any
such notice must be sent:

 

(a)      if
to you or your nominee, to you or it at the address specified for such
communications in Schedule A, or at such other address as you or it
shall have specified to the Company in writing,

 

(b)      if
to any other holder of any Note, to such holder at such address as such other
holder shall have specified to the Company in writing, or

 

(c)      if
to the Company, to the Company at its address set forth at the beginning hereof
to the attention of Bennie H. Duck, Executive Vice President,or at such other
address as the Company shall have specified to the holder of each Note in
writing.

 

Notices under this Article XVIII will be deemed given only when
actually received.

 

Article XIX

Reproduction of Documents

 

This Agreement
and all documents relating thereto, including, without limitation, (a)
consents, waivers and modifications that may hereafter be executed, (b)
documents received by you at the Closing (except the Notes themselves), and (c)
financial statements, certificates and other information previously or
hereafter furnished to you, may be reproduced by you by any photographic,
photostatic, microfilm, microcard, miniature photographic or other similar
process and you may destroy any original document so reproduced. The Company
agrees and stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in

 

34

 

evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Article XIX shall not prohibit
the Company or any other holder of Notes from contesting any such reproduction
to the same extent that it could contest the original, or from introducing
evidence to demonstrate the inaccuracy of any such reproduction.

 

Article XX

Confidential Information

 

For the
purposes of this Article XX, “Confidential Information”
means information delivered to you by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by you as
being confidential information of the Company or such Subsidiary, provided
that such term does not include information that (a) was publicly known or
otherwise known to you prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by you or any person acting
on your behalf, (c) otherwise becomes known to you other than through
disclosure by the Company or any Subsidiary or (d) constitutes financial
statements delivered to you under Section 7.1 that are otherwise
publicly available. You will maintain the confidentiality of such Confidential
Information in accordance with procedures adopted by you in good faith to
protect confidential information of third parties delivered to you, provided
that you may deliver or disclose Confidential Information to (i)your directors,
officers, employees, agents, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by your
Notes), (ii) your financial advisors and other professional advisors who agree
to hold confidential the Confidential Information substantially in accordance
with the terms of this Article XX, (iii) any other holder of any Note,
(iv) any Institutional Investor to which you sell or offer to sell such Note or
any part thereof or any participation therein (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be bound by
the provisions of this Article XX), (v) any Person from which you offer
to purchase any security of the Company (if such Person has agreed in writing
prior to its receipt of such Confidential Information to be bound by the
provisions of this Article XX), (vi) pursuant to the specific request of
any federal or state regulatory authority having jurisdiction over you, (vii)
the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access
to information about your investment portfolio or (viii) any other Person to
which such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Article XX as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder

 

35

 

under this Agreement or requested by such holder (other than a holder
that is a party to this Agreement or its nominee), such holder will enter into
an agreement with the Company embodying the provisions of this Article XX.

 

Article XXI

Substitution of Purchaser

 

You shall have
the right to substitute any one of your Affiliates as the purchaser of the
Notes that you have agreed to purchase hereunder, by written notice to the
Company, which notice shall be signed by both you and such Affiliate, shall
contain such Affiliate’s agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the representations set forth in Article XI. Upon receipt of such
notice, wherever the word “you” is
used in this Agreement (other than in this Article XXI), such word shall
be deemed to refer to such Affiliate in lieu of you. In the event that such
Affiliate is so substituted as a purchaser hereunder and such Affiliate
thereafter transfers to you all of the Notes then held by such Affiliate, upon
receipt by the Company of notice of such transfer, wherever the word “you” is used in this Agreement
(other than in this Article XXI), such word shall no longer be deemed to refer
to such Affiliate, but shall refer to you, and you shall have all the rights of
an original holder of the Notes under this Agreement.

 

Article XXII

Miscellaneous

 

Section 22.1   Successors
and Assigns.

 

All covenants
and other agreements contained in this Agreement by or on behalf of any of the
parties hereto bind and inure to the benefit of their respective successors and
assigns (including, without limitation, any subsequent holder of a Note)
whether so expressed or not.

 

Section 22.2   Payments
Due on Non-Business Days.

 

Anything in
this Agreement or the Notes to the contrary notwithstanding, any payment of
principal or interest on any Note that is due on a date other than a Business
Day shall be made on the next succeeding Business Day without including the additional
days elapsed in the computation of the interest payable on such next succeeding
Business Day.

 

Section 22.3   Severability.

 

Any provision
of this Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any jurisdiction shall
(to the full extent permitted by law) not invalidate or render unenforceable
such provision in any other jurisdiction.

 

36

 

Section 22.4   Construction.

 

Each covenant
contained herein shall be construed (absent express provision to the contrary)
as being independent of each other covenant contained herein, so that
compliance with any one covenant shall not (absent such an express contrary
provision) be deemed to excuse compliance with any other covenant. Where any
provision herein refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person.

 

Section 22.5   Counterparts.

 

This Agreement
may be executed in any number of counterparts, each of which shall be an
original but all of which together shall constitute one instrument. Each
counterpart may consist of a number of copies hereof, each signed by less than
all, but together signed by all, of the parties hereto.

 

Section 22.6   Governing
Law.

 

This Agreement
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the law of the State of New York without
reference to its conflict of laws provisions (other than Section 5-1401 of New
York General Obligations Law).

 

Article XXIII

Subordination

 

Section 23.1   Agreement
to Subordinate.

 

The Company
and, by execution of the Guaranty Agreement, each Obligated Party, and each
holder of the Notes, by acceptance of a Note, covenant and agree that the
Senior Subordinated Debt shall, to the extent and in the manner set forth
herein, be subordinated in right of payment to the prior payment by the Company
and the Guarantors of the Senior Debt, whether now outstanding or hereafter
created, incurred, assumed or guaranteed.

 

Section 23.2   General
Subordination to Senior Debt.

 

Until the
Senior Debt is repaid in full in cash or cash equivalents and all commitments
to extend Senior Debt have been terminated, no payment or distribution of
assets of the Company or any other Obligated Party of any kind or character
shall be made by the Company for or on account of the Senior Subordinated Debt
or any principal, interest, fees or judgment related thereto, or on account of
the purchase or redemption or other acquisition of Senior Subordinated Debt,
other than payment of interest on the Notes as described therein.

 

Section 23.3   Amendments
and Exchanges of Subordinated Debt.

 

Without the
prior written consent of the Requisite Senior Debtholders, but without limiting
the obligations of the Company and the other Obligated Parties to the Senior
Debtholders with regard thereto under the Senior Debt Documents, the Company,
the Obligated

 

37

 

Parties and the holders of the Notes 
shall not amend, supplement or otherwise modify the terms of the Senior
Subordinated Debt if the effect of such amendment, supplement or other
modification is to  (a) change (to
earlier dates) any dates upon which payments of principal or interest are due
on such Senior Subordinated Debt, (b) cause any Liens to be taken in any
property of the Company other than as expressly set forth herein, (c) change
any affirmative or negative covenant in any significant respect, (d) change the
redemption or prepayment provisions thereof or change any of the subordination
provisions thereof (including, without limitation, subordinating the Senior
Subordinated Debt to any other debt) or (e) increase materially the obligations
of the obligor thereunder or to confer any additional rights on the holders of
the Notes (or a trustee or other representative on their behalf) which would be
adverse to any Senior Debtholder. Notwithstanding any other term or provision
of this Agreement (including Section 17.1), no amendment, modification,
termination or waiver of any material term or provision of this Article
XXIII, or of any definitions used herein, or of the form of any Note issued
hereunder, shall be effective without the express written consent of the
Requisite Senior Debtholders.

 

Section 23.4   Payments
Received in Contravention of Subordination Provisions.

 

If any holder
of a Note receives any payment or distribution of assets in violation of this Article
XXIII, such holder shall receive such payment or distribution of assets in
trust for the Senior Debtholders’ benefit and shall forthwith remit such
payment or distribution of assets, as the case may be, to the Senior
Debtholders in the form in which it was received, together with such
endorsements or documents as may be necessary to effectively negotiate or
transfer the same (but without recourse and without representation or
warranty).

 

Section 23.5   Subrogation.

 

After all
Senior Debt of the Company has been paid in full in cash or cash equivalents
and until the Notes are paid in full in cash or Cash Equivalents, the holders
of the Notes shall be subrogated to any rights of the Senior Debtholders to
receive payments or distributions of assets applicable to such Senior Debt to
the extent that payments or distributions otherwise payable to the holders of
the Notes have been applied to the payment of such Senior Debt. A distribution
made under this Article XXIII to the Senior Debtholders that otherwise
would have been made to the holders of the Notes is not, as between the Company
and the holders of the Notes, a payment by the Company on its Senior Debt.

 

Section 23.6   Relative
Rights.

 

This Article
XXIII defines the relative rights of holders of the Notes and Senior
Debtholders and this Article XXIII shall constitute a continuing offer
to all persons who become holders of, or continue to hold, Senior Debt. Nothing
in this Article XXIII or elsewhere in this Agreement or any Note is
intended to or shall:

 

(a)       impair,
as between the Company, the other Obligated Parties and the holders of the
Notes, the Company’s obligations, which are absolute and unconditional, to pay
principal of, and premium, if any, and interest on, the Notes in accordance
with their terms;

 

38

 

(b)       affect
the relative rights of the holders of the Notes and the creditors of the
Company and the Other Obligated Parties other than the rights of the holders of
the Notes in relation to the Senior Debtholders; or

 

(c)       prevent
the holders of the Notes from accelerating the Senior Subordinated Debt in
accordance with Section 12.1 and exercising their available remedies
upon a Default or Event of Default, after the Senior Debt has been paid in full
and the Senior Debt Documents have been terminated.

 

The failure to make a payment on account of principal of, or interest
on, the Notes by reason of any provision of this Article XXIII shall not
be construed as preventing the occurrence of an Event of Default under Article
XI(a).

 

Section 23.7   Reliance
on Judicial Order or Decree or Senior Debtholder Certificate.

 

The holders of
the Notes shall be entitled to rely upon any order or decree of any court of
competent jurisdiction or any certificate of any Senior Debtholder ascertaining
any amount to be paid or distributed to such Senior Debtholders and all other
facts pertinent to such payment or distribution or to this Article XXIII,
provided that, in the case of any such order or decree, such court has
been fully apprised of the provisions of, or the order or decree makes
reference to, the provisions of this Article XXIII.

 

Section 23.8   Proof
of Claim.

 

In the event
that, while any Senior Debt is outstanding, any bankruptcy or insolvency
proceeding is commenced by or against the Company, any Obligated Party or any
property of the Company or any Obligated Party and the holders of the Notes
have not filed appropriate proofs of claim as of the tenth business day
preceding the bar date therefor, the Senior Debtholders will be irrevocably
authorized and empowered (in its own name or otherwise), but shall have no
obligation, to file appropriate proofs of claim for the exercise or enforcement
of any of the rights or interests of the holders of the Notes with respect to
the Senior Subordinated Debt in such proceeding. Notwithstanding the foregoing,
no Senior Debtholder shall have any right whatsoever to vote any claim that any
holder of a Note may have in such proceeding to accept or reject any plan of
partial or complete liquidation, reorganization, arrangement, composition or extension.

 

[SIGNATURE PAGE FOLLOWS]

 

39

 

If you are in
agreement with the foregoing, please sign the form of agreement on the
accompanying counterpart of this Agreement and return it to the Company,
whereupon the foregoing shall become a binding agreement between you and the
Company.

 

	
   

  	
   

  	
  Very truly yours,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  FIRST INVESTORS FINANCIAL SERVICES, 

  GROUP, INC., a Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Bennie H. Duck

  
	
   

  	
   

  	
   

  	
  Executive Vice President

  
					

 

	
  The
  foregoing is hereby

  
	
  agreed to as
  of the date

  
	
  thereof.

  
	
   

  
	
  WACHOVIA BANK, NATIONAL ASSOCIATION,

  
	
  a national banking association

  
	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
					

 

40

 

SCHEDULE A

 

INFORMATION RELATING TO PURCHASERS

 

Principal Amount of

 

Name and Address of Purchaser              Notes
to be Purchased

 

Wachovia Bank, National Association                                  $5,000,000.00

301 S. College Street

Charlotte, North Carolina  28288-0610

 

(1)           All payments by wire
transfer

of immediately available funds to:

 

Wachovia Bank, National Association

ABA 053 000219

Acct# 1459160104880

Ref: First Investors Subordinated Debt

Attn: Weatherly McGowan

 

with sufficient information to

identify the source and application

of such funds.

 

(2)           All notices of
payments and

written confirmations of such wire

transfers:

 

Weatherly McGowan

201 S. College St., NC0820

Charlotte, NC

P: (704)715-4125

F: (704)715-1823

 

[CONTINUES ON FOLLOWING PAGE]

 

A-1

 

(3)           All other
communications:

 

Wachovia Bank, National Association

Attn: Curt Sidden

301 S. College St., NC0610

Charlotte, NC 28288-0610

P: (704)715-6030

F: (704)383-9106

 

A-2

 

SCHEDULE B

 

DEFINED
TERMS

 

As used herein,
the following terms have the respective meanings set forth below or set forth
in the Section hereof following such term:

 

“Adjusted Net Income” means, for any
period and any Person, such Person’s consolidated net income (or loss)
determined in accordance with GAAP, but excluding: (a) the income of any other
Person (other than its Subsidiaries) in which such Person or any of its
Subsidiaries has an ownership interest, unless received by such Person or its
Subsidiary in a cash distribution; (b) any after-tax gains or losses
attributable to an asset disposition other than in the ordinary course of
business; and (c) to the extent not included in clause (a) and clause
(b) above, any after-tax extraordinary, non-cash or nonrecurring gains or
losses.

 

“Affiliate” means, at any time, and
with respect to any Person, (a) any other Person that at such time directly or
indirectly through one or more intermediaries Controls, or is Controlled by, or
is under common Control with, such first Person, and (b) any Person
beneficially owning or holding, directly or indirectly, 10% or more of any
class of voting or equity interests of the Company or any Subsidiary or any
corporation of which the Company and its Subsidiaries beneficially own or hold,
in the aggregate, directly or indirectly, 10% or more of any class of voting or
equity interests. As used in this definition, “Control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise. Unless the context
otherwise clearly requires, any reference to an “Affiliate”
is a reference to an Affiliate of the Company.

 

“Anti-Terrorism Order” shall mean
Executive Order No. 13,224 66 Fed Reg. 49,079 (2001) issued by the President of
the United States of America (Executive Order Blocking Property and Prohibiting
Transactions with Persons Who Commit, Threaten to Commit, or Support
Terrorism).

 

“Business Day” means any day other
than a Saturday, a Sunday or a day on which commercial banks in Charlotte,
North Carolina, New York, New York or Houston, Texas are required or authorized
to be closed.

 

“Capital Lease” means, at any time, a
lease with respect to which the lessee is required concurrently to recognize
the acquisition of an asset and the incurrence of a liability in accordance
with GAAP.

 

“Capital Lease Obligations” shall
mean, as to any Person, the obligations of such Person to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) real
and/or personal property, which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person according to
GAAP. For purposes of this Agreement, the amount of such Capital Lease
Obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.

 

B-1

 

“Capital Stock”  shall
mean corporate stock and any and all shares, partnership interests, membership
interests, equity interests, rights, securities, or other equivalent evidences
of ownership, or any options, warrants, voting trust certificates, or other
instruments evidencing an ownership interest or a right to acquire an ownership
interest in a Person (however designated) issued by any entity (whether a
corporation, partnership, limited liability company, limited partnership, or
other type of entity).

 

“Cash Equivalents” shall mean (a)
direct obligations of the United States of America and agencies thereof and (b)
obligations fully guaranteed by the United States of America, provided
that, in each case, such obligations mature within 90 days from the date of
acquisition thereof.

 

“Closing” is defined in Section
3.1.

 

“Change in Control” shall mean the
occurrence of one or more of the following events: (a) any sale, lease,
exchange or other transfer (in a single transaction or a series of related
transactions) of all or substantially all of the assets of the Company to any
Person or “group” (within the meaning of the Securities Exchange Act of 1934
and the rules of the Securities and Exchange Commission thereunder in effect on
the date hereof), (b) the acquisition of ownership, directly or indirectly,
beneficially or of record, by any Person or “group” (within the meaning of the
Securities Exchange Act of 1934 and the rules of the Securities and Exchange
Commission thereunder as in effect on the date hereof) of 50.1% or more of the
outstanding shares of the voting stock of the Company; or (c) occupation of a
majority of the seats (other than vacant seats) on the board of directors of
the Company by Persons who were neither (i) nominated by the current board of
directors or (ii) appointed by directors so nominated.

 

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

 

“Company” means First Investors
Financial Services Group, Inc., a Texas corporation.

 

“Competitor”  means a Person engaged primarily in the
business of retail auto finance, provided that any of such Person’s Affiliates
shall not be deemed a Competitor hereunder if such Affiliate is not primarily
engaged , directly or indirectly, in the business of retail auto finance.

 

“Confidential Information” is defined
in Article XX.

 

“Contingent Obligations”  shall mean, with respect to any Person, any obligation or
arrangement of such Person to guarantee or intended to guarantee any Debt,
leases, dividends or other payment obligations (“primary obligations”) of any
other Person (the “primary obligor”) in any manner, whether directly or
indirectly, including, without limitation, (a) the direct or indirect
guarantee, endorsement (other than for collection or deposit in the ordinary
course of business), co-making, discounting with recourse or sale with recourse
by such Person of the obligation of a primary obligor, (b) the obligation to
make take-or-pay or similar payments, if required, regardless of nonperformance
by any other party or parties to an agreement or (c) 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 (A) for the purchase or payment of any such primary
obligation or (B) to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency of the

 

B-2

 

primary obligor, (iii) to purchase property, assets, securities or
services primarily for the purpose of 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. 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 less, the maximum amount of such primary
obligation for which such Person may be liable pursuant to the terms of the
instrument evidencing such Contingent Obligation) 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.

 

“Debt” shall mean, as to any Person
at any time (without duplication): (a) all obligations of such Person for
borrowed money; (b) all obligations of such Person evidenced by bonds, notes,
debentures, or other similar instruments; (c) all obligations of such Person to
pay the deferred purchase price of property or services, except trade accounts
payable of such Person arising in the ordinary course of business that are not
past due by more than ninety (90) days or that are being contested in good
faith by appropriate proceedings diligently pursued and for which adequate
reserves have been established to the reasonable satisfaction of the Required
Holders; (d) all Capital Lease Obligations of such Person; (e) all Contingent
Obligations of such Person; (f) all obligations secured by a Lien existing on
property owned by such Person, whether or not the obligations secured thereby
have been assumed by such Person or are non recourse to the credit of such
Person; provided, however, that the amount of such Debt of any
Person described in this clause (f) shall, for purposes of this
Agreement, be deemed to be equal to the lesser of (i) the aggregate unpaid
amount of such Debt or (ii) the fair market value of the property or asset
encumbered, as determined by the Required Holders in their reasonable
discretion; (g) all reimbursement obligations of such Person (whether
contingent or otherwise) in respect of letters of credit, bankers’ acceptances,
surety or other bonds, and similar instruments; (h) all liabilities of such
Person in respect of unfunded vested benefits under any Plan (excluding
obligations to deliver stock in respect of stock options or stock ownership plans);
and (i) all vested obligations of such Person for the payment of money under
any noncompete, consulting, or similar arrangements providing for the deferred
payment of the purchase price for an acquisition consummated prior to the date
hereof to the extent that any such obligations are, according to GAAP,
reflected as a capitalized liability on a balance sheet of such Person.

 

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

 

“Default Rate” means that rate of
interest that is the greater of (i) 16% or (ii) 3% over the rate of interest
publicly announced by Wachovia Bank, National Association in Charlotte, North
Carolina as its “base” or “prime” rate.

 

 “EBITDA”  shall mean for any period and any Person, the total of the
following calculated without duplication for such Person on a consolidated
basis for such period: (a) Adjusted Net Income; plus (b) any provision for (or
less any benefit from) income or franchise taxes deducted in determining
Adjusted Net Income; plus (c) Interest Expense deducted in determining Adjusted
Net Income; plus (d) amortization and depreciation expense deducted in
determining

 

B-3

 

Adjusted Net Income; plus (e) other noncash charges deducted in
determining Adjusted Net Income and not already deducted in accordance with clause
(d) above or clause (b) and clause (c) of the definition of
Adjusted Net Income; minus (f) noncash credits included in determining
consolidated Adjusted Net Income and not already excluded in accordance with
the definition of Adjusted Net Income.

 

“Environmental Laws” means any and
all Federal, state, local, and foreign statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees, permits, concessions, grants, franchises,
licenses, agreements or governmental restrictions relating to pollution and the
protection of the environment or the release of any materials into the
environment, including but not limited to those related to hazardous substances
or wastes, air emissions and discharges to waste or public systems.

 

“ERISA” means the Employee Retirement
Income Security Act of 1974, as amended from time to time, and the rules and
regulations promulgated thereunder from time to time in effect.

 

“ERISA Affiliate” means any trade or
business (whether or not incorporated) that is treated as a single employer
together with the Company under section 414 of the Code.

 

“Event of Default” is defined in Article
XI.

 

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

 

“Fee Letter” means the letter dated
September 12, 2007, between the Company and you.

 

“FIARC”  means
First Investors Auto Receivables Corp., a Delaware corporation.

 

“FIARC Purchase Agreement” means that
certain Purchase Agreement, dated as of October 22, 1996, as amended, between
the Company and FIARC, as the same may hereafter be amended, restated,
modified, renewed or extended from time to time

 

“FIRC Agreement” means the Amended
and Restated Purchase Agreement, dated as of October 30, 1996, between the
Company and FIRC, as the same has been and may hereafter be amended, restated,
modified, renewed or extended from time to time.

 

“FIRF”  means
First Investors Residual Funding LP, a Delaware limited partnership.

 

“FIRF Agreement” means the Note
Purchase Agreement, dated as of December 6, 2001, between FIRF, the note
investors identified therein, Variable Funding Capital Corporation, First Union
Securities, Inc., as deal agent, and First Union National Bank, as liquidity
agent, as the same has been and may hereafter be amended, restated, modified,
renewed or extended from time to time.

 

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

 

“Governmental Authority” means

 

B-4

 

(a)      the
government of

 

(i)       the
United States of America or any State or other political subdivision thereof,
or

 

(ii)      any
jurisdiction in which the Company or any Subsidiary conducts all or any part of
its business, or which asserts jurisdiction over any properties of the Company
or any Subsidiary, or

 

(b)      any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of, or pertaining to, any such government.

 

“Guarantor” is defined in Section
2.2.

 

“Guaranty Agreement” is defined in Section
2.2.

 

“Hazardous Material” means any and
all pollutants, toxic or hazardous wastes or any other substances that might
pose a hazard to health or safety, the removal of which may be required or the
generation, manufacture, refining, production, processing, treatment, storage,
handling, transportation, transfer, use, disposal, release, discharge, spillage,
seepage, or filtration of which is or shall be restricted, prohibited or
penalized by any applicable law (including, without limitation, asbestos, urea
formaldehyde foam insulation and polycholorinated biphenyls).

 

“holder” means, with respect to any
Note, the Person in whose name such Note is registered in the register
maintained by the Company pursuant to Section 13.1.

 

“Institutional Investor” means (a)
any original purchaser of a Note, (b) any holder of a Note holding more than
10% of the aggregate principal amount of the Notes then outstanding, and (c)
any bank, trust company, savings and loan association or other financial
institution, any pension plan, any investment company, any insurance company,
any broker or dealer, or any other similar financial institution or entity,
regardless of legal form.

 

“Insurance Subsidiary” means First
Investors Insurance Company, an insurance company organized under the laws of
the State of Vermont.

 

“Interest Expense”  shall mean for any period and for any Person, the sum of
(a) interest expense of such Person calculated without duplication on a
consolidated basis for such period in accordance with GAAP, plus (b) expenses
paid under Swaps during such period, minus (c) payments received under Swaps
during such period.

 

“Junior Debt” means that certain
promissory note issued to Walter A. Stockard L.P. in the original principal
amount of $2,500,000, dated December 6, 2004 including all amendments and
extensions thereto.

 

“Lien” means, with respect to any
Person, any mortgage, lien, pledge, charge, security interest or other
encumbrance, or any interest or title of any vendor, lessor, lender or other
secured party to or of such Person under any conditional sale or other title
retention agreement or

 

B-5

 

Capital Lease, upon or with respect to any property or asset of such
Person (including in the case of stock, stockholder agreements, voting trust
agreements and all similar arrangements).

 

“Managed Assets”  means
“Receivables Held for Investment” as determined historically for inclusion
under such item in the consolidated balance sheet of the Company provided
that such term shall: (i) not be adjusted for any changes in GAAP; and (ii)
include Receivables of the Company and its Subsidiaries that have been included
in an off-balance sheet Securitization program created by the Company or such
Subsidiaries after the Closing.

 

“Material” means material in relation
to the business, operations, affairs, financial condition, assets, properties,
or prospects of the Company and its Subsidiaries taken as a whole.

 

“Material Adverse Effect” means a
material adverse effect on (a) the business, operations, affairs, financial
condition, assets or properties of the Company and its Subsidiaries taken as a
whole, or (b) the ability of the Company to perform its obligations under this
Agreement and the Notes, or (c) the validity or enforceability of this
Agreement or the Notes.

 

“Memorandum” is defined in Section
5.3.

 

“Moody’s”  shall
mean Moody’s Investors Service, Inc., and, if such corporation shall be
dissolved or liquidated or shall no longer perform the functions of a
securities rating agency, “Moody’s” shall be deemed to refer to any other
nationally recognized securities rating agency designated by you.

 

“Multiemployer Plan” means any Plan
that is a “multiemployer plan” (as such term is defined in section 4001(a)(3)
of ERISA).

 

“Net Proceeds”  means
(i) in connection with any disposition of assets of the Company or any
Subsidiary (or the assets of any direct or indirect Subsidiary of the Company
or any Subsidiary), the cash proceeds received by such the Company or
Subsidiary from such disposition (including, without limitation, payments under
notes or other debt securities received in connection with any such
disposition, but only as and when received) net of (a) the costs of such
disposition (including reasonable, out-of-pocket professional fees and
expenses, investment banking fees, financial advisory fees, taxes, notarial
fees, survey costs, title insurance premiums, required escrow deposits, and
purchase price adjustments and other customary fees and expenses, in each case
attributable to and actually paid in connection with such disposition), and (b)
amounts applied to repayment of Debt secured by a lien, security interest,
claim or encumbrance on the asset or property disposed and (ii) in connection
with issuance of any equity Securities, the cash proceeds received from such
issuance, net of all costs of such issuance (including, without limitation,
reasonable, out-of-pocket professional fees and expenses, notarial fees,
underwriting discounts and commissions, and other customary fees and expenses)
actually paid.

 

“Notes” is defined in Article I.

 

“Obligated Parties” means any Person
(other than the Company) who is or becomes a party to any agreement that
guarantees or secures payment and performance of this Agreement or the Notes or
any part thereof.

 

B-6

 

“Officer’s Certificate” means a
certificate of a Senior Financial Officer or of any other officer of the
Company whose responsibilities extend to the subject matter of such
certificate.

 

“Patriot Act”  shall
mean Public Law 107-56 of the United States of America, United and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT Act) Act of 2001.

 

“PBGC” means the Pension Benefit
Guaranty Corporation referred to and defined in ERISA or any successor thereto.

 

“Permitted Lien”  is
defined in Section  10.3.

 

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

 

“PIK Closing” is defined in Section
3.2.

 

“Plan” means an “employee benefit
plan” (as defined in section 3(3) of ERISA) that is or, within the preceding
five years, has been established or maintained, or to which contributions are
or, within the preceding five years, have been made or required to be made, by the
Company or any ERISA Affiliate or with respect to which the Company or any
ERISA Affiliate may have any liability.

 

“Preferred Stock” means any class of
capital stock of a corporation that is preferred over any other class of
capital stock of such corporation as to the payment of dividends or the payment
of any amount upon liquidation or dissolution of such corporation.

 

“property” or “properties”
means, unless otherwise specifically limited, real or personal property of any
kind, tangible or intangible, choate or inchoate.

 

“QPAM Exemption” means Prohibited
Transaction Class Exemption 84-14 issued by the United States Department of
Labor.

 

“Receivables”  shall
mean at any date of determination thereof, each and every present and future
right to payment under any retail installment sales contract or installment
note and related security agreement, arising from the sale of a motor vehicle
or the refinancing thereof.

 

“Rental Expense”  shall
mean for any period and for any Person, the rental or lease expense of such
Person under operating leases calculated without duplication on a consolidated
basis for such period as determined in accordance with GAAP.

 

“Required Holders” means, at any
time, the holders of at least 51% in principal amount of the Notes at the time
outstanding (exclusive of Notes then owned by the Company or any of its
Affiliates).

 

“Requisite Senior Debtholders” means,
with respect to any action which may be taken by the Senior Debtholders in
connection with any term of this Agreement, the Senior Debtholder or

 

B-7

 

Senior Debtholders necessary to approve or consent to such action
pursuant to the terms of the Senior Debt Documents.

 

“Responsible Officer” means any
Senior Financial Officer and any other officer of the Company with
responsibility for the administration of the relevant portion of this
agreement.

 

“S&P” means Standard &
Poor’s, a division of McGraw-Hill, Inc., a corporation organized and existing
under the laws of the State of New York, its successors and assigns, and, if
such corporation shall be dissolved or liquidated or shall no longer perform
the functions of a securities rating agency, “S&P” shall be deemed to refer
to any other nationally recognized securities rating agency designated by you.

 

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

 

“Securitization”  shall
mean the Receivables warehouse line provided by the FIRC Agreement, the
commercial paper facility provided by Variable Funding Capital Company to
FIARC, the residual funding facility provided by the FIRF Agreement, and any
securitization occurring after the Closing of the Company’s or any of its
Affiliates’ Receivables through the issuance of asset-backed securities
(including First Investors Auto Owner Trust 2005-A and First Investors Auto
Owner Trust 2006-A).

 

“Securitization Subsidiary” shall
mean a Subsidiary that is the issuer in (or has been formed for the sole
purpose of engaging in) a Securitization.

 

“Senior Debt” means (i) any Secured
Debt of the Company in an aggregate principal amount not in excess of
$1,000,000 at any time outstanding which by its express terms states that it is
“Senior” to the Notes, and (ii) Debt of the Company approved by each holder of
the Notes, in such holder’s sole and absolute discretion, as Debt to which the
Notes shall be subordinated in accordance with the terms of this Agreement.
Senior Debt includes all principal, interest, fees, expenses, attorneys’ fees
and any other sum chargeable to the Company under the Senior Debt Documents,
together with, subject to the last sentence hereof, (a) all complete or partial
refinancings of the Senior Debt, (b) any amendments, modifications, renewals or
extensions of any of the foregoing and (c) any interest accruing on the
foregoing after the commencement of any bankruptcy, insolvency or similar
proceeding, without regard to whether or not such interest accrues in any such
proceeding or is an allowed claim in any such proceeding. Senior Debt shall be
considered to be outstanding whenever any loan commitment under any of the
Senior Debt Documents is outstanding.

 

“Senior Debt Documents” means all
agreements, instruments and documents that govern, evidence or secure the
Senior Debt and shall include all agreements, instruments and documents that
govern, evidence or secure any amendment, modification, renewal or extension of
any of the foregoing.

 

“Senior Debtholder” means a holder of
Senior Debt.

 

“Senior Financial Officer” means the
chief financial officer, principal accounting officer, treasurer or comptroller
of the Company.

 

B-8

 

“Senior Subordinated Debt” means all
debts, liabilities and obligations, for the performance of covenants, tasks or
duties or for the payment of monetary amounts (whether or not such performance
is then required or contingent, or amounts are liquidated or determinable)
owing by the Company or its subsidiaries to the purchaser hereunder under this
Agreement and the Notes, and all covenants and duties regarding such amounts,
of any kind or nature, present or future, whether or not evidenced by any note,
agreement or other instrument, arising under this Agreement and the Notes.
Senior Subordinated Debt includes all principal, interest, fees, expenses, attorneys’
fees, indemnification and any other sum chargeable to the Company under this
Agreement and the Notes, together with, subject to the last sentence hereof,
(a) any amendments, modifications, renewals or extensions of any of the
foregoing and (b) any interest accruing on the foregoing after the commencement
of any bankruptcy, insolvency or similar proceeding, without regard to whether
or not such interest accrues in any such proceeding or is an allowed claim in
any such proceeding.

 

“Shareholder’s Equity”  means, on any date with respect to (a) the Company, an
amount equal to the Total Assets less the Total Debt and (b) any Person other
than the Company such Person’s shareholder’s equity determined in accordance
with GAAP, consistently applied.

 

“Subordinated Debt”  means, on any date, the aggregate principal amount of any
outstanding non-recourse, unsecured subordinated debt owing by the Company
(including, but not limited to, any shareholder’s loans) that matures more than
eighteen (18) months after such date, but
excluding the Notes.

 

“Subsidiary” means, as to any Person,
any corporation, association or other business entity in which such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries owns sufficient equity or voting interests to enable it or them
(as a group) ordinarily, in the absence of contingencies, to elect a majority
of the directors (or Persons performing similar functions) of such entity, and
any partnership or joint venture if more than a 50% interest in the profits or
capital thereof is owned by such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries (unless such partnership can
and does ordinarily take major business actions without the prior approval of such
Person or one or more of its Subsidiaries). Unless the context otherwise
clearly requires, any reference to a “Subsidiary” is a reference to a
Subsidiary of the Company.

 

“Swaps” means, with respect to any
Person, payment obligations with respect to interest rate swaps, currency swaps
and similar obligations obligating such Person to make payments, whether
periodically or upon the happening of a contingency. For the purposes of this
Agreement, the amount of the obligation under any Swap shall be the amount
determined in respect thereof as of the end of the then most recently ended
fiscal quarter of such Person, based on the assumption that such Swap had
terminated at the end of such fiscal quarter, and in making such determination,
if any agreement relating to such Swap provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount so determined.

 

“Total Assets” means, on any date, an
amount equal to the sum of (i) the aggregate amount of assets of the Company on
such date, determined in accordance with GAAP and (ii) to

 

B-9

 

the extent not included in clause (i), the aggregate amount of
Subordinated Debt of the Company on such date.

 

“Total Debt” means, with respect to
the Company on any date, an amount equal to the sum of (i) the aggregate amount
of liabilities of the Company on such date, determined in accordance with GAAP,
less (ii) the aggregate amount of Subordinated Debt of the Company on such
date.

 

 “Wholly-Owned Subsidiary”
means, at any time, any Subsidiary one hundred percent (100%) of all of the
equity interests (except directors’ qualifying shares) and voting interests of
which are owned by any one or more of the Company and the Company’s other
Wholly-Owned Subsidiaries at such time.

 

B-10

EXHIBIT 1

 

FORM OF SENIOR SUBORDINATED NOTE

 

FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.

 

12.75% SENIOR SUBORDINATED NOTE DUE SEPTEMBER 12, 2017

 

	
  No. [      ]

  	
   

  	
  [Date]

  
	
  $[           ]

  	
   

  	
  PPN
  [             ]

  

 

FOR VALUE
RECEIVED, the undersigned, FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(herein called the “Company”), a corporation organized and existing under the
laws of the State of Texas, hereby promises to pay to [                    ],
or registered assigns, the principal sum of
[                           ]
DOLLARS on                      
   , 2017, with interest (computed on the basis of a 360-day
year of twelve 30-day months) (a) on the unpaid balance thereof at the rate of
12.75% per annum from the date hereof, payable monthly in arrears, with the
first installment being payable on the first (1st ) day of October,
2007, and subsequent installments being payable on the first (1st)
day of each succeeding month, until the principal hereof shall have become due
and payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal and any overdue payment of
interest, payable monthly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to
16.00%.

 

Payments of
principal of, interest on this Note are to be made in lawful money of the
United States of America at [                       ]
or at such other place as the Company shall have designated by written notice
to the holder of this Note as provided in the Note Purchase Agreements referred
to below.

 

This Note is
one of a series of Senior Subordinated Notes (herein called the “Notes”) issued
pursuant to separate Note Purchase Agreements, dated as of                 
    , 2007 (as from time to time amended, the “Note
Purchase Agreements”), between the Company and the respective purchasers named
therein and is entitled to the benefits thereof. Each holder of this Note will
be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements, (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements, and (iii) to abide by the transfer restrictions set forth in
Section 13.2 of the Note Purchase Agreements.

 

This Note is a
registered Note and, as provided in the Note Purchase Agreements, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder’s attorney duly authorized in writing,
a new Note for a like principal amount will be issued to, and registered in the
name of, the transferee. Prior to due presentment for registration of transfer,
the Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company will not be affected by any notice to the contrary.

 

1-1

 

[The Company
will make required prepayments of principal on the dates and in the amounts
specified in the Note Purchase Agreements.] [This Note is [also] subject to
[optional] prepayment, in whole or from time to time in part, at the times and
on the terms specified in the Note Purchase Agreements, but not otherwise.]

 

If an Event of
Default, as defined in the Note Purchase Agreements, occurs and is continuing,
the principal of this Note may be declared or otherwise become due and payable
in the manner, at the price and with the effect provided in the Note Purchase
Agreements.

 

[Add governing
law clause conforming to that of the Note Purchase Agreements]

 

	
   

  	
   

  	
  FIRST INVESTORS SERVICES GROUP, INC., a

  
	
   

  	
   

  	
  Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
              [Name]

  
	
   

  	
   

  	
              [Title]

  

 

1-2

EXHIBIT 2

 

FORM OF SENIOR SUBORDINATED PAID-IN-KIND NOTE

 

FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.

 

14.75% SENIOR SUBORDINATED PAID-IN-KIND NOTE DUE SEPTEMBER
12, 2017

 

	
  No. [      ]

  	
   

  	
  [Date]

  
	
  $[           ]

  	
   

  	
  PPN
  [             ]

  

 

FOR VALUE
RECEIVED, the undersigned, FIRST INVESTORS FINANCIAL SERVICES GROUP, INC.
(herein called the “Company”), a corporation organized and existing under the
laws of the State of Texas, hereby promises to pay to [                    ],
or registered assigns, the principal sum of
[                           ]
DOLLARS on                  
    , 2017, with interest (computed on the basis of a
360-day year of twelve 30-day months) (a) on the unpaid balance thereof at the
rate of 14.75% per annum from the date hereof, payable monthly in arrears, with
the first installment being payable on the first (1st ) day of                   ,
200  , and subsequent installments being payable on the first (1st)
day of each succeeding month, until the principal hereof shall have become due
and payable, and (b) to the extent permitted by law on any overdue payment
(including any overdue prepayment) of principal and any overdue payment of
interest, payable monthly as aforesaid (or, at the option of the registered
holder hereof, on demand), at a rate per annum from time to time equal to
16.00%.

 

Payments of
principal of, interest on this Note are to be made in lawful money of the
United States of America at [                ]
or at such other place as the Company shall have designated by written notice
to the holder of this Note as provided in the Note Purchase Agreements referred
to below.

 

This Note is
one of a series of Senior Subordinated Paid-In-Kind Notes (herein called the
“Notes”) issued pursuant to separate Note Purchase Agreements, dated as of                   
    , 2007 (as from time to time amended, the “Note
Purchase Agreements”), between the Company and the respective purchasers named
therein and is entitled to the benefits thereof. Each holder of this Note will
be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality
provisions set forth in Section 20 of the Note Purchase Agreements, (ii) to
have made the representation set forth in Section 6.2 of the Note Purchase
Agreements, and (iii) to abide by the transfer restrictions set forth in
Section 13.2 of the Note Purchase Agreements.

 

This Note is a
registered Note and, as provided in the Note Purchase Agreements, upon
surrender of this Note for registration of transfer, duly endorsed, or
accompanied by a written instrument of transfer duly executed, by the
registered holder hereof or such holder’s attorney duly authorized in writing,
a new Note for a like principal amount will be issued to, and registered in the
name of, the transferee. Prior to due presentment for registration of transfer,
the Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes,
and the Company will not be affected by any notice to the contrary.

 

2-1

 

[The Company
will make required prepayments of principal on the dates and in the amounts
specified in the Note Purchase Agreements.] [This Note is [also] subject to
[optional] prepayment, in whole or from time to time in part, at the times and
on the terms specified in the Note Purchase Agreements, but not otherwise.]

 

If an Event of
Default, as defined in the Note Purchase Agreements, occurs and is continuing,
the principal of this Note may be declared or otherwise become due and payable
in the manner, at the price and with the effect provided in the Note Purchase
Agreements.

 

[Add governing
law clause conforming to that of the Note Purchase Agreements]

 

	
   

  	
   

  	
  FIRST INVESTORS SERVICES GROUP, INC., a

  
	
   

  	
   

  	
  Texas corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
              [Name]

  
	
   

  	
   

  	
              [Title]

  

 

2-2

EXHIBIT 3

 

FORM OF GUARANTY AGREEMENT

 

See attached.

 

3-1

EXHIBIT 4.4

 

FORM OF OPINION OF SPECIAL COUNSEL

TO THE COMPANY

 

Matters To Be Covered In

Opinion of Special Counsel To the Company

 

1.             Each of the Company and its
Subsidiaries being duly incorporated, validly existing and in good standing and
having requisite corporate power and authority to issue and sell the Notes and
to execute and deliver the documents.

 

2.             Each of the Company and its
Subsidiaries being duly qualified and in good standing as a foreign corporation
in jurisdictions identified to such counsel as necessitating such
qualification.

 

3.             Due authorization and execution of
the documents and such documents being legal, valid, binding and enforceable.

 

4.             No conflicts with charter
documents, laws customarily governing transactions of the type represented by
the Notes or agreements known to such counsel.

 

5.             All governmental and corporate
consents or approvals required to issue and sell the Notes and to execute and
deliver the documents having been obtained.

 

6.             No litigation known to such counsel
questioning validity of documents.

 

7.             The Notes not requiring
registration under the Securities Act of 1933, as amended; no need to qualify
an indenture under the Trust Indenture Act of 1939, as amended.

 

8.             No violation of Regulations G, T or
X of the Federal Reserve Board.

 

9.             Company not an “investment
company”, or a company “controlled” by an “investment company”, under the
Investment Company Act of 1940, as amended.

 

4.4-1

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