Document:

Exhibit 10.3

 

SUBORDINATION AGREEMENT

 

SUBORDINATION AGREEMENT (as amended or otherwise modified from time
to time in accordance with the terms hereof, this “Agreement”), dated as
of August 29, 2005, among (i) MERRILL LYNCH CAPITAL, a
division of Merrill Lynch Business Financial Services Inc., in its capacity as
administrative agent (together with any successor administrative agent,
including in connection with a Permitted Refinancing (as defined below), the “Agent”)
for the Senior Lenders (as defined below), (ii) OCM MEZZANINE FUND,
L.P. in its capacity as a holder of the Subordinated Debt (a “Subordinating
Creditor” and together with its successors and assigns in such capacity,
the “Subordinated Debtholders”), (iii) LOUD TECHNOLOGIES
INC., a Washington corporation (“LOUD”), (iv) ST. LOUIS MUSIC, INC., a
Missouri corporation (“SLM”; each of LOUD and SLM being referred to
herein as a “Company” and, together, as the “Companies”) and (v) each
of the subsidiaries, if any, of either Company party hereto from time to time
(each, a “Guarantor”).

 

Recitals

 

A.            Pursuant to the Senior Credit
Agreement (as defined below), the Senior Lenders have agreed, upon the terms
and subject to the conditions contained in the Senior Credit Agreement, to make
loans and otherwise to extend credit to the Companies.  The obligations of each Company under the
Senior Credit Agreement will be guaranteed by each subsidiary of either Company
under the Senior Guarantees (as defined below).

 

B.            Pursuant to the Securities Purchase
Agreement, dated as of August 29, 2005 (as amended and in effect from time to
time to the extent not prohibited hereunder, the “Securities Purchase
Agreement”), among the Subordinating Creditors, the Companies and the
Guarantors, the Subordinating Creditors have agreed to purchase the 14% senior
subordinated notes due February 29, 2012 (the “Notes”) of the
Companies.  The Securities Purchase
Agreement provides for guarantees (the “Subordinated Guarantees”) of the
Notes by the Guarantors.

 

C.            It is a condition precedent to the
Senior Lenders’ willingness to make loans and otherwise to extend credit to the
Companies pursuant to the Senior Credit Agreement that the Companies and the
Guarantors (collectively with the Companies, the “Obligors”) and the
Subordinating Creditors enter into this Agreement with the Agent, and it is a
condition precedent to the Subordinating Creditors’ willingness to purchase the
Notes evidencing Subordinated Debt (as defined below) of the Companies pursuant
to the Securities Purchase Agreement that the Agent and the Obligors enter into
this Agreement with the Subordinating Creditors.

 

NOW, THEREFORE, in consideration of the foregoing, the
mutual agreements contained in this Agreement and other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:

 

1.             Definitions; Rules of
Construction; Headings.

 

(a)           Definitions.  The following terms shall have the following
meanings:

 

 

“Affiliate” means, with respect to any
Person, (a) each Person that, directly or indirectly, owns or
controls, whether beneficially, or as a trustee, guardian or other fiduciary,
10% or more of the capital stock of such Person, including, without limitation,
any shares, options, warrants, general or limited partnership interests,
membership interests or other equivalents, having ordinary voting power in the
election of directors of such Person, (b) each Person that
controls, is controlled by or is under common control with such Person, (c) each
of such Person’s officers, directors, joint venturers and partners and (d) in
the case of either Company, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of such Company.  For the purposes of this definition, “control”
of a Person shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of its management or policies, whether through
the ownership of voting securities, by contract or otherwise.

 

“Bankruptcy Code” means title 11 of the
United States Code, as amended.

 

“Business Day” means any day except Saturday,
Sunday, any day which in Chicago is a legal holiday or on which banking
institutions are authorized or required by law or other government action to
close.

 

“Default Notice” means a notice delivered by
Agent pursuant to Section 2(b)(i) or Section 2(b)(ii) to the
Companies and to the Subordinated Debtholders designated to receive notices
pursuant to Section 10 and Section 16(b), which notice
describes the Payment Default or Non-Payment Event of Default (as the case may
be) that is the subject of the Default Notice.

 

“Enforcement Action” is defined in Section
3(a).

 

“Insolvency Proceeding” means any action,
case or proceeding commenced by or against a Person, for (a) the
entry of an order for relief under any chapter of the Bankruptcy Code or other
insolvency, reorganization, receivership or similar debt adjustment law
(whether state, federal or foreign), (b) the appointment of a
receiver, trustee, liquidator or other custodian for such Person or any part of
its property, (c) a general assignment for the benefit of creditors
of such Person or a marshaling of assets of such Person or (d) the
liquidation, dissolution or winding up of the affairs of such Person.

 

“Loan Documents”
means the “Financing Documents” as defined under the Senior Credit Agreement,
in each case as in effect on the date hereof or entered into pursuant to the
Senior Credit Agreement, and in each case as from time to time amended and/or restated,
supplemented or modified thereafter, but without giving effect to any amendment
and/or restatement, supplement or modification prohibited by this Agreement.

 

“Non-Payment Blockage Period” is defined in Section
2(b)(ii).

 

“Non-Payment Event of Default” means the
occurrence of any event of default (excluding a Payment Default) under the
Senior Credit Agreement permitting the Senior Lenders to accelerate the
maturity of the obligations under the Senior Credit Agreement,

 

2

 

or
any default that, with notice or lapse of time, or both, will constitute such
an event of default if that default is not cured or removed within any
applicable grace or cure period.

 

“Notes” is defined in the recitals.

 

“Obligations” is defined in the Senior Credit
Agreement.

 

“Obligors” is defined in the recitals.

 

“Payment Blockage Period” is defined in Section
2(b)(i).

 

“Payment Default” means the occurrence of any
default in the payment when due, whether at maturity, upon any redemption or
otherwise, of any principal of, interest on, unpaid drawings for letters of
credit issued in respect of, premium (if any) on, or regularly accruing
fees or other amounts payable with respect to, any Senior Debt.

 

“payment in full” or “paid in full”
means the payment in full, in cash, immediately available funds or other
consideration acceptable to the Required Lenders, of all of the Senior Debt in
the manner provided under the terms of the Senior Loan Documents or in such
other manner acceptable to the Required Lenders.

 

“Permitted Junior Securities” means, for
purposes of this Agreement, debt or equity securities of any Obligor or any
other Person (a) (i) in the case of debt securities, the
payment of which is subordinated at least to the extent provided in this
Agreement with respect to the Subordinated Debt, to the payment of all then
outstanding Senior Debt and debt securities then issued to the holders of
Senior Debt in exchange for such Senior Debt and (ii) in the case of
equity securities, which do not provide for any mandatory repurchase,
redemption, defeasance, sinking fund or other retirement of such equity
securities in cash or any other mandatory payment or distribution in respect
thereof in cash prior to the payment in full of the Senior Debt and the
termination (except in the context of a payment or distribution to the
Subordinated Debtholders in respect of the Subordinated Debt in an Insolvency
Proceeding) of all lending commitments under the Senior Credit Agreement, (b)
do not have the benefit of any obligation of either Company or any of their
respective Subsidiaries (whether as issuer, guarantor or otherwise) unless the
Senior Debt has at least the same benefit of the obligation of such Person, (c)
do not have any terms, and are not subject to or entitled to the benefit of any
agreement or instrument that has terms, that are more burdensome to the issuer
of or other obligor on such debt or equity securities than are the terms of the
Senior Debt and (d) in the case of any such debt or equities securities
not issued pursuant to a confirmed plan of reorganization or adjustment, such
debt or equity securities do not require any cash payments prior to the payment
in full of the Senior Debt.

 

“Permitted Refinancing” means any refinancing
of the Senior Debt under the Loan Documents pursuant to financing documentation
that constitutes Permitted Refinancing Senior Loan Documents and the aggregate
principal amount of which does not exceed the principal amount specified in the
proviso to the definition of “Senior Debt” hereunder as determined in
accordance with such proviso.

 

3

 

“Permitted Refinancing Senior Loan Documents”
means any financing documentation which replaces the Loan Documents pursuant to
which the Senior Debt under the Loan Documents is refinanced, as from time to
time amended and/or restated, supplemented or modified, but specifically
excluding any financing documentation to the extent that it contains, either
initially or by amendment and/or restatement, supplement or modification, any
material terms, conditions, covenants or defaults other than those which (a)
then exist in the Loan Documents or (b) could be included in the Loan
Documents by an amendment and/or restatement, supplement or modification not
prohibited by this Agreement.

 

“Permitted Subordinated Debt Payments” means
payments of (a) interest on the Subordinated Debt due and payable at the
applicable non-default interest rate on a non-accelerated basis and (b)
indemnity obligations payable pursuant to the Subordinated Note Documents
(other than any such indemnity obligations arising from the non-payment of
Subordinated Debt, which Subordinated Debt is prohibited from being paid due to
the provisions of this Agreement), in each case in accordance with the terms of
the Subordinated Note Documents as in effect on the date hereof or as modified
in a manner not prohibited by the terms of this Agreement.

 

“Person” means an individual, partnership,
corporation, limited liability company, governmental authority or other entity
of whatever nature.

 

“Required Lenders” means the “Required
Lenders” under the Senior Credit Agreement; provided, that after the
consummation of any Permitted Refinancing, the term “Required Lenders” shall
mean the holders of Senior Debt having the right and/or ability under the
Permitted Refinancing Loan Documents to effectuate the waiver, amendment,
granting of consent or other matter in question.

 

“Required Holders” means at
any time the holders of a majority of the outstanding principal amount
of the Notes at such time outstanding, excluding any Notes held by a Company or
an Affiliate of a Company.

 

“Senior Credit Agreement” means that certain
Credit Agreement dated as of the date hereof among the Companies, the Agent and
the Senior Lenders, as from time to time amended and/or restated, supplemented
or modified, but without giving effect to any amendment and/or restatement,
supplement or modification prohibited by this Agreement, and including any
replacement credit agreement that constitutes a Permitted Refinancing Senior
Loan Document.

 

“Senior Debt” means (a) any and
all obligations, liabilities and indebtedness of any nature that is now or may
hereafter be owing by any Obligor under or in connection with any of the Senior
Loan Documents, whether for
principal, interest, prepayment premium, fees, expenses or otherwise, and
whether from time to time reduced and thereafter increased or entirely
extinguished and thereafter reincurred, and whether direct or indirect,
absolute or contingent, joint or several, due or to become due, (b) after
the commencement of an Insolvency Proceeding by or against either Company or
any other Obligor, any interest which, but for the filing by or against such
Obligor of any such

 

4

 

Insolvency
Proceeding, would constitute part of the foregoing indebtedness, obligations or
liabilities, whether or not a claim for post-filing or post-petition interest
is allowed in such Insolvency Proceeding and (c) any and all
obligations, liabilities and indebtedness pursuant to any Swap Contract
required pursuant to the Senior Credit Agreement; provided that the
aggregate principal amount of Senior Debt (other than with respect to Swap
Contracts) shall not exceed $77,000,000, as such aggregate principal amount is
reduced by (i) actual paid principal installments of any term loan under
the Senior Credit Agreement and (ii) any repayment of revolving loans
under the Senior Credit Agreement to the extent made in connection with a
permanent reduction of any revolving credit commitment under the Senior Credit
Agreement (excluding any such repayment or reduction occurring by reason of a
Permitted Refinancing, in an amount up to the aggregate principal amount of term
loans and/or revolving credit commitments borrowed or provided, as applicable,
in such Permitted Refinancing); provided  further that,
notwithstanding any reduction pursuant to the foregoing clauses (i) and (ii),
up to $15,000,000 of Senior Debt constituting Debt with respect to a revolving
credit facility shall be permitted.

 

“Senior Guarantees” means any guarantee
entered into by a Guarantor guaranteeing any Senior Debt.

 

“Senior Lenders” means the lenders from time
to time party to the Senior Credit Agreement and their permitted successors and
assigns thereunder.

 

“Senior Loan Documents” means the Loan
Documents, and after the consummation of any Permitted Refinancing, the
Permitted Refinancing Senior Loan Documents.

 

“Standstill Period” is defined in Section 3(a).

 

“Subordinated Debt” means and includes all
liabilities and obligations of any Company and any other Obligor to the
Subordinated Debtholders under the Subordinated Note Documents (including the
Subordinated Guarantees) whether direct or indirect, absolute or contingent,
due or to become due, or now existing or hereafter incurred, which may arise
under, out of, or in connection with the Subordinated Note Documents, but
excluding reasonable and customary fees (other than periodic recurring fees)
and reimbursement of reasonable out-of-pocket costs and expenses (such fees and
costs and expenses hereinafter are collectively referred to as the “Unrestricted
Subordinated Debt Payments”).

 

“Subordinated Debt Event of Default” means
the occurrence of any Event of Default under the Securities Purchase Agreement
permitting the Subordinated Debtholders to accelerate the maturity of the
obligations under the Notes.

 

“Subordinated Note Documents” means
collectively, the Securities Purchase Agreement, the Notes and any and all
guarantees directly or indirectly guaranteeing any liabilities or obligations
of any Obligor to the Subordinated Debtholders under any of the foregoing
(including the Subordinated Guarantees), in each case as in effect on the date

 

5

 

hereof
or entered into pursuant to the Securities Purchase Agreement, and in each case
as from time to time amended and/or restated, supplemented or modified
thereafter, but without giving effect to any amendment and/or restatement,
supplement or modification prohibited by this Agreement.

 

“Swap Contract”: means any “swap agreement”,
as defined in Section 101 of the Bankruptcy Code, that is intended to provide
protection against fluctuations in interest or currency exchange rates and is
entered into in the ordinary course of business and not for speculation.

 

“Unrestricted Subordinated Debt Payments” is
defined within the definition of the term “Subordinated Debt”.

 

“Voided Payment” is defined in Section
5(a)(iii).

 

(b)           Rules of Construction.  For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:

 

(i)            the terms defined in this Agreement
have the meanings assigned to them in this Agreement;

 

(ii)           “or” is not exclusive;

 

(iii)          all accounting terms not otherwise
defined herein have the meanings assigned to them in accordance with GAAP (as
such term is defined in the Senior Credit Agreement as in effect on the date
hereof);

 

(iv)          the words “herein,” “hereof” and
“hereunder” and other words of similar import refer to this Agreement as a
whole and not to any particular Section or other subdivision;

 

(v)           all references to “$” or “dollars”
shall refer to the lawful currency of the United States of America;

 

(vi)          the words “include,” “included”
and “including” as used herein shall be deemed in each case to be
followed by the phrase “without limitation,” if not expressly followed
by such phrase or the phrase “but not limited to”;

 

(vii)         words in the singular include the
plural, and words in the plural include the singular; and

 

(viii)        any reference to a Section refers
to such Section of this Agreement.

 

(c)           Headings.  Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.

 

6

 

2.             Subordination; Certain Payments
Restricted.

 

(a)           Agreement to Subordinate.  Each Obligor agrees, for itself and its
respective successors and assigns, and each Subordinating Creditor agrees, and
each Subordinated Debtholder by its acquisition and acceptance of any Note or
other Subordinated Debt shall be deemed to have agreed, that the payment of the
Subordinated Debt is hereby subordinated in right of payment as provided herein
to the prior payment in full of all Senior Debt and the termination (except in
the context of a payment or distribution to the Subordinated Debtholders in
respect of the Subordinated Debt in an Insolvency Proceeding otherwise
permitted herein) of all lending commitments under the Senior Credit
Agreement.  Upon the final maturity of
any Senior Debt or the acceleration thereof, no Obligor may make any payment or
distribution of any kind or character on, or in respect of any Subordinated
Debt, or acquire any Subordinated Debt for cash or property or otherwise, and
the Subordinated Debtholders shall not receive or accept any of the foregoing
(subject to Section 5.(c)), without the prior written consent of the Agent
on behalf of the Senior Lenders, unless and until the Senior Debt at the time
outstanding has been paid in full and, except in the context of a payment or
distribution to the Subordinated Debtholders in respect of the Subordinated
Debt in an Insolvency Proceeding, all lending commitments under the Senior
Credit Agreement have been terminated. Notwithstanding any provision of the
Subordinated Note Documents to the contrary and in addition to any other
limitations set forth herein or therein, no payment (whether made in cash,
securities (other than Permitted Junior Securities) or other property or by
set-off) with respect to the Subordinated Debt shall be made or received, and
no Subordinated Debtholder shall exercise any right of set-off or recoupment with
respect to any Subordinated Debt, until all of the Senior Debt is paid in full
and, except in the context of a payment or distribution to the Subordinated
Debtholders in respect of the Subordinated Debt in an Insolvency Proceeding,
all lending commitments under the Senior Credit Agreement have been terminated;
provided, however, that except as provided in Section 2.(b)
or Section 5, the Obligors may make, and the Subordinated Debtholders
may accept, Permitted Subordinated Debt Payments.  For the avoidance of doubt, the Unrestricted
Subordinated Debt Payments may be made at any time without any restriction.

 

(b)           Default on Senior Debt.

 

(i)            Payment Default.  Subject to the provisions of Section 2(c),
none of the Obligors shall make, nor shall any Subordinated Debtholders accept,
any payment of any kind or character on or with respect to the Subordinated
Debt otherwise permitted hereunder, nor shall any of the Obligors acquire any
Subordinated Debt for cash, property or other value (subject to Section 5(c)),
if a Payment Default shall have occurred and shall be continuing (the period
during which any such Payment Default shall be continuing being herein called a
“Payment Blockage Period”) and the Companies and the Subordinated
Debtholders shall have received a Default Notice with respect thereto.
Notwithstanding anything to the contrary contained herein, if the Agent or any
Senior Lender notifies the Subordinated Debtholders of the occurrence of such
Payment Default within fifteen (15) Business Days after the occurrence of any
such Payment Default, the Subordinated Debtholders shall promptly pay or remit
to the Agent on behalf of the Senior Lenders pursuant to Section 4 any
payment received by the Subordinated Debtholders following the occurrence of
such Payment Default.

 

(ii)           Non-Payment Event of Default.  In addition, none of the Obligors shall make,
nor shall any Subordinated Debtholders accept, any payment of any kind or
character on or with respect to the Subordinated Debt otherwise permitted
hereunder, nor shall any of the Obligors

 

7

 

acquire any Subordinated Debt for cash or property
or other value (subject to Section 5(c)), if a Non-Payment Event of
Default shall have occurred and shall be continuing, and the Companies and the
Subordinated Debtholders shall have received a Default Notice with respect
thereto, for a period not to exceed one hundred seventy-nine (179) consecutive
days (any such period being herein called a “Non-Payment Blockage
Period” following receipt of such Default Notice by the Companies and the
Subordinated Debtholders, subject to the provisions of Section 2(c); provided
that (A) there shall be not more than two Non-Payment Blockage
Periods in any three hundred sixty-five (365) consecutive day period, (B)
the Subordinated Debtholders shall not be prohibited from receiving payments on
the Subordinated Debt otherwise permitted hereunder due to a Non-Payment
Blockage Period for more than an aggregate of one hundred seventy-nine (179)
days within any three hundred sixty-five (365) consecutive day period, (C) there
shall be not more than four Non-Payment Blockage Periods over the term of the
Notes and (D) no Default Notice commencing a Non-Payment Blockage
Period may be based on a Non-Payment Event of Default which was in existence as
of the time of the issuance of any earlier Default Notice commencing a Non-Payment
Blockage Period unless such Non-Payment Event of Default shall have been cured
or waived for not less than sixty (60) days
(it being agreed that breaches of the same financial covenants for different
(including, without limitation, consecutive) periods shall constitute separate
and distinct Non-Payment Events of Default).

 

(c)           Resumption of Payments.

 

(i)            Resumption after Payment Default.  The Obligors shall promptly resume payments
on the Subordinated Debt, including any missed payments during the applicable
Payment Blockage Period, following the commencement of a Payment Blockage
Period, on the earlier to occur of:

 

(A)          the date on which all Payment Defaults
have been cured or waived; and

 

(B)           the final payment in full of all
Senior Debt then outstanding.

 

(ii)           Resumption after Non-Payment
Default.  The Obligors shall promptly
resume payments on the Subordinated Debt, including any missed payments during
the applicable Non-Payment Blockage Period, following the commencement of a
Non-Payment Blockage Period, on the earliest to occur of:

 

(A)          the
expiration of the applicable Non-Payment Blockage Period;

 

(B)           the date on which all Non-Payment
Events of Default giving rise to any Non-Payment Blockage Period have been
cured or waived; and

 

(C)           the final payment in full of all
Senior Debt then outstanding.

 

3.             Enforcement; Subrogation.

 

(a)           Standstill Period for Subordinated
Debt.  During any Standstill Period,
the Subordinated Debtholders shall not take any Enforcement Action, except that
any Subordinated Debtholder may make any filing that may be required to toll
the running of any applicable statute

 

8

 

of limitations (which filing is not made any earlier
than 30 days prior to the expiration of such statute of limitations or such
earlier date as any such filing is required to be made).

 

As
used in this Section 3(a), the terms set forth below shall have the
following meanings:

 

“Enforcement
Action” shall mean (a) to take from or for the account of any
Obligor or any other Person (i) by set-off, or (ii) in any other
manner (except for the acceptance of payments not prohibited under Section 2),
the whole or any part of any moneys which may now or hereafter be owing by any
Obligor with respect to the Subordinated Debt, (b) to sue for payment
of, or to initiate or participate with others in any suit, action or proceeding
against any Obligor or any other Person to (i) enforce payment of or to
collect the whole or any part of the Subordinated Debt or (ii) commence
judicial enforcement of any of the rights and remedies under the Subordinated
Note Documents or applicable law with respect to the Subordinated Debt, (c)
to accelerate all or any part of the Subordinated Debt or (d) to take
any action under the provisions of any state or federal law, including, without
limitation, the Uniform Commercial Code, foreign law (if applicable) or under
any contract or agreement, to enforce, foreclose upon, take possession of or
sell any property or assets of any Obligor or otherwise realize upon the
Subordinated Debt or any part thereof.

 

“Standstill
Period” means the period beginning on the occurrence of a Subordinated Debt
Event of Default and ending on the earliest to occur of (a) the
date that is one hundred twenty (120) days following the date that any
Subordinated Debtholder shall have given notice to the Agent that any
Subordinated Debt Event of Default shall have occurred and be continuing, and
stating that such notice is delivered for purposes of commencing a Standstill
Period under this Agreement, (b) the acceleration of any Senior Debt, (c)
the commencement of any action to foreclose upon any portion of the collateral
securing payment of the Senior Debt, or the commencement of any case,
proceeding or other judicial action by any holder of the Senior Debt against
any Obligor to enforce the payment of or collect the Senior Debt, (d)
the commencement by or against any Obligor of any Insolvency Proceeding or (e) the
date that all of the Senior Debt shall have been paid in full.

 

The
Subordinated Debtholders shall provide a copy to the Agent of any notice of any
Subordinated Note Event of Default delivered by any Subordinated Debtholder to
the Companies pursuant to any Subordinated Note Document.  Each Subordinated Debtholder agrees to use
commercially reasonable efforts to notify the Agent of any Subordinated Note
Event of Default that shall have occurred and be continuing, of which such
Subordinated Debtholder has actual knowledge. 
The Agent shall provide a copy to the Subordinated Debtholders of any
notice of any Event of Default (as defined in the Senior Credit Agreement) delivered
by the Senior Lenders to the Companies pursuant to the Senior Credit
Agreement.  The Agent agrees to use
commercially reasonable efforts to notify the Subordinated Debtholders of any
such Event of Default that shall have occurred and be continuing, of which the
Agent has actual knowledge.

 

(b)           Subrogation.  Without limiting the foregoing, after all
Senior Debt has been indefeasibly paid in full (subject to any reinstatement as
provided in Section 5(a) and all lending commitments under the Senior
Credit Agreement have been terminated, the Subordinated Debtholders shall be
subrogated to the extent of any payments made by the Subordinated Debtholders
to the Agent, or otherwise applied to the payment of the Senior Debt by reason
of

 

9

 

the provisions of this Agreement, to the rights of
holders of the Senior Debt to receive distributions applicable to such Senior
Debt.  For purposes of such subrogation,
(i) no payments or distributions to the holders of the Senior Debt
of any cash, property or securities to which the Subordinated Debtholders would
be entitled except for the provisions of this Agreement, and (ii) no
payment over pursuant to the provisions of this Agreement to the holders of the
Senior Debt by or for the account of the Subordinated Debtholders, shall, as
among the Obligors and their creditors (other than holders of the Senior Debt)
and the Subordinated Debtholders, be deemed to be a payment or distribution by
the Obligors to or on account of the Senior Debt.

 

4.             Payments Held in Trust.  If any payment or distribution of any kind or
character is made to any Subordinated Debtholder on account of the Subordinated
Debt at a time when such payment or distribution is prohibited by this
Agreement before the Senior Debt is indefeasibly paid in full, such
Subordinated Debtholder will hold such payment or distribution in trust for the
benefit of the holders of the Senior Debt. 
Each such Subordinated Debtholder shall promptly pay such payment or
distribution over to the Agent on behalf of the Senior Lenders in the same form
of payment received by such Subordinated Debtholder with appropriate
endorsements, for application to the Senior Debt.

 

Each
Obligor hereby acknowledges that provisions of this Agreement require the
Subordinated Debtholders to pay over to the Agent on behalf of the holders of
the Senior Debt any payments received by the Subordinated Debtholders in
contravention of this Agreement, and hereby irrevocably authorizes such payment
to the Agent on behalf of such holders of the Senior Debt, notwithstanding any
instructions to the contrary that such Obligor may deliver to the Subordinated
Debtholders after the date hereof.  Each
Obligor hereby acknowledges that no such payment shall reduce the amount or
otherwise alter the obligations under the Subordinated Debt or the Subordinated
Note Documents.

 

5.             Bankruptcy, etc.

 

(a)           Payments relating to Subordinated
Debt.

 

(i)            The holders of the Senior Debt are
entitled to receive payment in full of all Senior Debt prior to the payment of
all or any part of the Subordinated Debt (subject to Section 5(c)) in
the event of any distribution to creditors of any Obligor in connection with
any Insolvency Proceeding.

 

(ii)           Upon any payment or distribution of
assets of any Obligor of any kind or character, whether in cash, property or
securities, to creditors in an Insolvency Proceeding relating to any Obligor or
its property, whether voluntary or involuntary, all Senior Debt shall first be
paid in full before any payment or distribution of any kind or character
(subject to Section 5(c)) is made on account of any Subordinated Debt.

 

Upon
any such Insolvency Proceeding, any payment or distribution of assets of any
Obligor of any kind or character, whether in cash, property or securities, to
which the Subordinated Debtholders would be entitled except for the provisions
hereof (and in any event, excluding payments made pursuant to Section 5(c)),
shall be paid by such Obligor or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other Person making such payment

 

10

 

or distribution, or by the Subordinated
Debtholders if received by them, to the Agent on behalf of the holders of the
Senior Debt, for application to the payment of the Senior Debt remaining unpaid
until all such Senior Debt has been paid in full after giving effect to any
concurrent payment or distribution to or for the holders of the Senior
Debt.  Each Subordinated Debtholder
irrevocably authorizes, empowers and directs any obligor, receiver, trustee, liquidator, custodian, conservator or other Person
having authority, to pay or otherwise deliver all such payments and
distributions to the Agent.  Each
Subordinated Debtholder irrevocably authorizes and empowers the Agent, in the
name of such Subordinated Debtholder, to demand, sue to collect and receive any
and all such payments and distributions.

 

Upon
any payment or distribution of assets or securities of an Obligor referred to
in this Section 5(a), the Subordinated Debtholders shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction in
which bankruptcy, dissolution, winding-up, liquidation or reorganization
proceedings are pending, for the purpose of ascertaining the persons entitled
to participate in such distribution, the holders of the Senior Debt and other
indebtedness of the Obligors, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto or
to this Section 5(a), subject, in all cases, to the terms of this
Agreement.

 

(iii)          In the event that any payment on the
Senior Debt is subsequently invalidated, declared to be fraudulent or
preferential or set aside or is required to be repaid or returned to a trustee,
receiver or any other Person, under any bankruptcy, insolvency, reorganization
or similar act or law, state, federal or foreign law, common law or equitable
cause (such payment being hereinafter referred to as a “Voided Payment”):

 

(A)          then
to the extent of such Voided Payment, that portion of the Senior Debt that had
been previously satisfied by such Voided Payment shall be revived and continue
in full force and effect as if such Voided Payment had never been made; and

 

(B)           the provisions of this Agreement
shall be reinstated and continue in full force and effect until the full amount
of such Voided Payment (together with interest thereon) is indefeasibly paid in
full.

 

(b)           Subordinated Debt Voting Rights.

 

(i)            The Subordinated Debtholders shall
retain the exclusive right to vote and (subject to the other provisions hereof)
otherwise act with respect to the Subordinated Debt (including, without
limitation, the right to vote to accept or reject any plan of partial or
complete liquidation, reorganization, arrangement, composition or extension),
whether at any meeting of creditors or in the event of any Insolvency
Proceeding.

 

(ii)           If any Subordinated Debtholder shall
not file a claim or proof of debt as shall be necessary in order to have the
claims of such Subordinated Debtholder allowed in any Insolvency Proceeding by
or against any Obligor, or its respective property, in the form required in any
such proceeding, at least 10 days prior to the last day fixed by statute, court
rule or court order for the expiration of the period for filing of such claim
or proof of debt, then the Agent is hereby irrevocably authorized and shall
have the right (but not the obligation) to file an

 

11

 

appropriate claim or proof of debt in such
proceeding for and on behalf of such Subordinated Debtholder, provided that (A) the
Agent shall have no obligation to file any such claim, (B) the
Agent shall promptly notify such Subordinated Debtholder that it has filed such
claim or proof and shall provide a copy thereof to such Subordinated Debtholder
and (C) such Subordinated Debtholder shall retain the right to
correct any material error contained in such proof of claim by amendment or
otherwise.

 

(c)           Permitted Distributions.  Notwithstanding anything to the contrary
herein, the Subordinated Debtholders shall be entitled to receive and retain (i) payments
of interest in kind or fees in kind as permitted by the Securities Purchase
Agreement, and (ii) Permitted Junior Securities, including, without
limitation, those issued in exchange for the Notes or any part thereof, or in
respect of any obligations relating to or arising in connection with the Notes
or any part thereof.

 

(d)           No Challenge; Continuing Effect.  Each Subordinated Debtholder agrees not to
initiate, prosecute or participate in any claim, action or other proceeding
challenging the enforceability, validity, perfection or priority of the Senior
Debt (except to the extent such Senior Debt violates the terms of this
Agreement) or any liens and security interests securing the Senior Debt.  The Senior Debt shall continue to be treated
as Senior Debt and the provisions of this Agreement shall continue to govern
the relative rights and priorities of the Senior Lenders and each Subordinated
Debtholder even if all or part of the Senior Debt or the security interests
securing the Senior Debt are subordinated, set aside, avoided, invalidated or
disallowed (other than with respect to any such Senior Debt or part thereof
that is subordinated, set aside, avoided, invalidated or disallowed by a court
of competent jurisdiction due to the willful misconduct of, or conduct
perpetrated in bad faith by, the Senior Lender or Senior Lenders who is or are
the holder or holders of such Senior Debt or part thereof).

 

(e)           Agreement to Release Liens and
Security Interests.  The Subordinated
Debtholders shall not take or obtain any liens or security interests in the
Collateral (as defined in the Senior Loan Documents) as security for all or
part of the Subordinated Debt other than judgment liens obtained in connection
with an Enforcement Action permitted hereby and, in the event that any
Subordinated Debtholder obtains any liens or security interests in any
Collateral not otherwise permitted hereby, (i) such Subordinated
Debtholder shall (or shall cause its agent to) promptly execute and deliver to
the Agent such documents, agreements and instruments, and take such other
actions as the Agent shall reasonably request to release such liens and
security interests in such Collateral and (ii) Agent shall be deemed
fully authorized by such Subordinated Debtholder to file any and all UCC
termination statements necessary or appropriate, in Agent’s sole determination,
to terminate such liens and security interests.

 

(f)            Waiver of Consolidation.  Each Subordinated Debtholder acknowledges and
agrees that (i) each Obligor is a separate and distinct entity and (ii)
it will not at any time insist upon, plead or seek the entry of any order or
judgment of, or take advantage of any substantive consolidation, piercing
corporate veil or any other order or judgment that causes an effective
consolidation of the assets and liabilities of the Obligors in any Insolvency
Proceeding or otherwise.

 

12

 

6.             Legend.  Each promissory note issued by the Companies
to the Subordinated Debtholders, each Subordinated Guarantee and each other
instrument representing or evidencing any Subordinated Debt shall contain the
following legend:

 

THIS
INSTRUMENT AND THE OBLIGATIONS EVIDENCED HEREBY ARE AND SHALL AT ALL TIMES BE
AND REMAIN SUBORDINATED TO THE EXTENT AND IN THE MANNER SET FORTH IN THAT
CERTAIN SUBORDINATION AGREEMENT, DATED AS OF AUGUST 29, 2005, AMONG LOUD
TECHNOLOGIES INC., ST. LOUIS MUSIC, INC., CERTAIN OTHER PARTIES NAMED THEREIN
AS GUARANTORS, MERRILL LYNCH CAPITAL, A DIVISION OF MERRILL LYNCH BUSINESS
FINANCIAL SERVICES INC., AS AGENT, AND THE HOLDERS OF THE SENIOR SUBORDINATED
NOTES, WHICH AMONG OTHER THINGS, SUBORDINATES EACH COMPANY’S AND EACH
GUARANTOR’S OBLIGATIONS HEREUNDER TO EACH COMPANY’S AND EACH GUARANTOR’S
OBLIGATIONS TO CERTAIN HOLDERS OF SENIOR DEBT, AS MORE FULLY DESCRIBED IN SAID
SUBORDINATION AGREEMENT.

 

7.             Obligations Absolute; Actions by
Holders.

 

(a)           Nothing contained in this Agreement
shall (i) impair, as among the Obligors and the Subordinated
Debtholders, the obligation of the Obligors to pay to the Subordinated
Debtholders all amounts payable in respect of the Subordinated Debt as and when
the same shall become due and payable in accordance with the terms thereof or
any other obligations of the Obligors set forth in the Subordinated Note
Documents or under applicable law, (ii) except as expressly
otherwise provided in Sections 2, 3 and 5 of this
Agreement, prevent the Subordinated Debtholders from exercising all rights,
powers and remedies otherwise permitted by Subordinated Note Documents and by
applicable law upon a default in the payment or performance of the Subordinated
Debt or under any Subordinated Note Document or (iii) except as
expressly otherwise provided in Section 3 of this Agreement, prevent or
be deemed or construed to prevent, as among the Obligors and the Subordinated
Debtholders, any Subordinated Debtholders from accelerating the maturity of the
Subordinated Debt in accordance with the provisions of the Subordinated Note
Documents or from exercising any other remedies upon an event of default
thereunder which may at the time otherwise be available to such holder.

 

(b)           The holders of the Senior Debt may,
at any time and from time to time, without the consent of or notice to the
Subordinated Debtholders, without incurring responsibility to the Subordinated
Debtholders hereunder and without impairing or releasing the subordination
provided in this Agreement or the obligations hereunder of the Subordinated
Debtholders to the holders of the Senior Debt, take any action with respect to
the Senior Debt and the Obligors (in each case, subject to the other provisions
hereof, including, without limitation, the proviso in the definition of the
Senior Debt contained herein and the provisions of Section 8 below)
including, without limitation:  (i) change
the manner, place, terms or time of payment of outstanding the Senior Debt; (ii) sell,
exchange, release or otherwise deal with any property pledged, mortgaged or
otherwise securing the Senior Debt; (iii) release any Person liable
in any manner for the collection or payment of the Senior Debt and (iv) exercise
or refrain from exercising any rights against any Obligor and any other Person.

 

13

 

8.             Amendments to Senior Loan
Documents and Subordinated Note Documents.

 

(a)           No provision of the Senior Loan
Documents shall, without the prior written consent of the Required Holders, be
amended, supplemented or otherwise modified to the extent the effect of such
amendment, supplement or other modification would be to (i) (A)
increase any interest rate margin on the Senior Debt by more than 200 basis
points (2.0%) (it being understood that (x) in the case of a pricing matrix
or grid based upon a measure or financial performance, (1) any change in
rate due to the operation thereof shall not constitute such amendment,
supplement or modification and (2) each of the margins specified in such
matrix or grid may be increased by an amount up to 200 basis points and (y)
any increase attributable to the exercise of any so-called “market flex” rights
within one-hundred eighty (180) days after the date hereof will not count
against such two percent (2%) figure, provided in no event shall such exercise
of “market-flex” rights exceed 50 basis points (.5%)) or increase the default
rate margin, (B) change the ‘base’ rate to which any such interest rate
margin applies in any manner adverse to the Companies (it being understood that
the change from one ‘base’ rate to an alternate ‘base’ or ‘prime’ rate as
previously provided for in the Senior Loan Documents shall not constitute such
a change and fluctuation in such rates shall not constitute such a change), (ii)
advance the final maturity of the Senior Debt (other than due to acceleration)
or extend the final maturity of the Senior Debt beyond the final maturity of
the Subordinated Debt, (iii) advance any other scheduled date for
the payment of principal or interest payable in respect of the Senior Debt, (iv)
change any redemption or call premium in respect of the Senior Debt in a manner
adverse to Obligor or (v) to the extent not covered in the other
provisions of this Section 8(a), impose on the Obligors any
representations, warranties, covenants, events of default or remedies that are
materially more restrictive or burdensome to the Obligors or the Subordinated
Debtholders than the terms and provisions of the Senior Loan Documents as in
effect on the date of this Agreement, or alter any definitions to effect any of
the foregoing, except (in the case of any such change affecting the Obligors
only) to the extent (A) the Subordinated Note Documents shall also
be modified, and shall be permitted to be so modified, on identical terms or on
substantially similar terms reasonably satisfactory to the Required Holders, or
(B) with respect to any numerical threshold or limitation contained in
any financial covenant, the Subordinated Note Documents shall also be modified,
and shall be permitted to be so modified, in a manner that preserves, on
equivalent economic terms, the absolute or percentage margin amount (whichever
is less, in the case of any threshold or limitation in the form of a ratio, and
whichever is greater, in the case of any threshold or limitation in the form of
a specified amount) that exists on the date hereof between such numerical
threshold or limitation contained in the Senior Loan Documents and the
corresponding threshold or limitation contained in the Subordinated Note
Documents, respectively, as in effect on the date of this Agreement; provided,
that, (i) the Subordinated Note Documents shall not be required or
permitted to be modified (A) if the Subordinated Debtholders elect not
to accept such modification or (B) the effectiveness of such
modification is conditional in a manner that is more restrictive or burdensome
to the Obligors than the amendment to the Senior Loan Documents or such
modification requires the payment of any amounts other than reasonable fees and
the reimbursement of reasonable costs and expenses, and (ii) such
modification otherwise shall be acceptable to the Required Lenders; provided,
however, that, if the Subordinated Note Documents are not modified
because such modification is not acceptable to the Required Lenders, the
applicable amendment to the Senior Loan Documents under clause (v) of this Section
8(a) shall not be permitted.  Nothing
contained in this

 

14

 

Section 8(a) or elsewhere in this Agreement shall be
construed to require the consent of the Required Holders to any waiver by the
Senior Lenders of any default or event of default under the Senior Loan
Documents or other term, provision or condition contained in any of the Senior
Loan Documents or of any of the rights and remedies of the Senior Lender
thereunder.

 

(b)           No provision of the Subordinated Note
Documents shall, without the prior written consent of the Agent and the
Required Lenders, be amended, supplemented or otherwise modified if the effect
of such amendment, supplement or other modification would be to (i)
advance the final maturity date of the Subordinated Debt or any other scheduled
date for the payment of principal or interest payable in respect of the
Subordinated Debt, (ii) increase the interest rate or cash interest
rate on the Subordinated Debt other than (A) by the imposition of a
default rate of interest, as such default rate of interest exists in the
Subordinated Note Documents as of the date hereof, and/or (B) an
increase of up to 250 basis points (2.5%), in the non-cash interest rate, (iii) change
any redemption, put or call provision in respect of the Subordinated Debt in a
manner adverse to the Obligors, (iv) increase the maximum principal
amount of the Subordinated Debt (it being understood that an increase in the
principal amount of the Notes due to the payment of fees and interest in kind
to the extent permitted under Section 5(c) shall not constitute such an
amendment, supplement or modification) or (v) impose on the Obligors any
representations, warranties, financial covenants, events of default or remedies
that are materially more restrictive or burdensome to the Obligors than the
terms and provisions of the Subordinated Note Documents as in effect on the
date of this Agreement, or alter any definitions to effect any of the
foregoing, except as permitted by clause (v) of Section 8(a); provided
that nothing contained in this Section 8(b) or elsewhere in
this Agreement shall be construed to require the consent of the Agent or the Required
Lenders to any waiver by the Subordinated Debtholders of any default or
Subordinated Debt Event of Default under the Subordinated Note Documents or
other term, provision or condition contained in any of the Subordinated Note
Documents or of any of the rights and remedies of the Subordinated Debtholders
thereunder.

 

9.             Termination of Subordination.  This Agreement shall continue in full force
and effect, and the obligations and agreements of the Subordinated Debtholders
and the Obligors hereunder shall continue to be fully operative, until all of
the Senior Debt at the time outstanding (including any outstanding
reimbursement obligations under any letters of credit) shall have been paid in
full (subject to any reinstatement as provided in Section 5), the
lending commitments under the Senior Credit Agreement have been terminated, and
all then outstanding letters of credit issued under the Senior Credit Agreement
shall have terminated, expired or been cash collateralized.

 

10.           Notices.

 

(a)           All notices and other communications
which are required and may be given pursuant to the terms of this Agreement
shall be in writing and shall be sufficient and effective in all respects if
given in writing or telecopied, delivered or mailed by registered or certified
mail, postage prepaid, as follows:

 

If
to the Agent under the Senior Credit Agreement:

 

Merrill
Lynch Capital

 

15

 

222
North LaSalle Street

16th
floor

Chicago,
Illinois 60601

Attention:  Legal Department and Account Manager for LOUD
Technologies transaction

Facsimile:  (312) 750-6372

 

With
a copy to:

 

Merrill
Lynch Capital

222
North LaSalle Street

16th
floor

Chicago,
Illinois 60601

Attention: 
Group Senior Transaction Attorney, 

Corporate Finance, for LOUD Technologies transaction

Facsimile:  (312) 499-3126

 

and

 

Goldberg,
Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.

55
East Monroe Street, Suite 3700

Chicago,
Illinois 60603

Attention:  David M. Mason, Esq.

Facsimile:
(312) 332-2196

 

If
to the Subordinating Creditors:

 

c/o Oaktree Capital Management, LLC

1301 Avenue of the Americas

34th Floor

New York, New York 10019

Attention: 
Gary Trabka and Raj Makam

Facsimile: 
(212) 284-1969

 

With
a copy to:

 

Debevoise & Plimpton LLP

919 Third Avenue

New York, New York 10022

Attention: David A. Brittenham, Esq.

Facsimile: (212) 909-6836

 

16

 

If
to the Companies or any Guarantor:

 

Loud Technologies Inc

c/o Sun Mackie, LLC

c/o Sun Capital Partners, Inc.

5200 Town Center Circle, Suite 470

Boca Raton, Florida 33486

Attention: 
Marc J. Leder, Rodger R. Krouse and C.

Deryl Couch

Facsimile: 
(561) 394-0540

 

With
a copy to

 

LOUD
Technologies Inc.

16220
Wood-Red Road Northeast

Woodinvalle,
Washington 98072

Attention:  Timothy P. O’Neil

Facsimile:  (425) 483-1801

 

and

 

Kirkland
& Ellis LLP

200 East Randolph Drive

Chicago, Illinois 60601

Attention: Francesco Penati, Esq.

Telecopy: (312) 861-2200

 

or
such other address or addresses as any party hereto shall have designated by
written notice to the other parties hereto. 
Notices shall be deemed given and effective upon the earlier to occur of
(i) the third business day following deposit thereof in the U.S.
mail, (ii) if delivered in person, when delivered, (iii) if
delivered by facsimile transmission, on the date of transmission if transmitted
on a business day before 4:00 p.m. Chicago Time or, if not, on the next
succeeding business day or (iv) if delivered by overnight courier, one
business day after delivery to such courier properly addressed.

 

(b)           For purposes of this Agreement, (i) any
notice required to be delivered to the holders of the Senior Debt by the
Subordinated Debtholders will be deemed to have been duly delivered to all
holders of the Senior Debt if such notice was delivered to the Agent (on behalf
of the Senior Lenders) at the Agent’s address indicated above, and (ii) any
notice required to be delivered to the Subordinated Debtholders by the holders
of the Senior Debt will be deemed to have been duly delivered to all
Subordinated Debtholders if such notice was delivered to (A) each
Subordinating Creditor at its address indicated above and to each other
Subordinated Debtholder that has executed an Acknowledgement and Consent in the
form attached hereto as Exhibit A and has notified in writing the Agent
of such Subordinated Debtholder’s address and other contact information (it
being understood that until such time as such other Subordinated Debtholders
shall have so delivered their contact information, each such Subordinated

 

17

 

Debtholder shall nevertheless be subject to the
terms and provisions of this Agreement (including Sections 2, 3, 5
and 16) as if such Subordinated Debtholders had received (and shall be
deemed to have received) all notices required to be delivered to them) or (B)
the agent appointed pursuant to Section 16(b).

 

11.           Governing Law.  THIS
AGREEMENT AND (UNLESS OTHERWISE EXPRESSLY PROVIDED) ALL AMENDMENTS AND
SUPPLEMENTS TO, AND ALL CONSENTS AND WAIVERS PURSUANT TO, THIS AGREEMENT SHALL
IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR
RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES ARE NOT MANDATORILY
APPLICABLE BY STATUTE AND WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION.

 

12.           Submission to Jurisdiction.  Each party hereto irrevocably submits to the
non-exclusive jurisdiction of any state or federal court sitting in Cook
County, State of Illinois, over any suit, action or proceeding arising out of
or relating to this Agreement.  To the
fullest extent it may effectively do so under applicable law, each party hereto
irrevocably waives and agrees not to assert, by way of motion, as a defense or
otherwise, any claim that it is not subject to the jurisdiction of any such
court, any objection that it may now or hereafter have to the laying of the
venue of any such suit, action or proceeding brought in any such court and any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.

 

13.           Waiver of Jury Trial.  EACH PARTY
HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS
AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE
EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH
PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE BREACH,
TERMINATION OR VALIDITY OF THIS AGREEMENT. 
EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER, (B) EACH SUCH PARTY UNDERSTANDS
AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY, AND (D) EACH SUCH PARTY HAS
BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS SECTION 13.

 

14.           Miscellaneous. This Agreement
may be executed in several counterparts and by each party hereto on a separate
counterpart, each of which when so executed and delivered shall be an original,
and all of which together shall constitute one instrument.

 

18

 

The
Subordinated Debtholders acknowledge and agree that the provisions of this
Agreement are for the benefit of, and are, and are intended to be, an
inducement and a consideration to, each holder of Senior Debt (whether or not a
party hereto), and each holder of Senior Debt shall be deemed conclusively to
have relied upon the subordination provisions contained in this Agreement in
acquiring and continuing to hold such Senior Debt.

 

15.           Amendments; Waivers.

 

(a)           None of the terms or provisions of
this Agreement may be waived, amended, supplemented or otherwise modified,
except by a written instrument executed by the Agent and the Required Holders.

 

(b)           No failure to exercise, nor any delay
in exercising, on the part of the Senior Lenders or the Subordinated
Debtholders, as the case may be, any right, power or privilege hereunder shall
operate as a suspension or waiver thereof; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy
hereunder.  The remedies herein provided
are cumulative and not exclusive of any remedies provided by law.  No single or partial exercise of any right,
power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.

 

16.           Successors and Assigns.

 

(a)           This Agreement shall be binding upon
the Subordinated Debtholders, the Agent, the other holders of the Senior Debt
and the Obligors, and their respective successors and assigns, and shall inure
to the benefit of the Subordinated Debtholders, the Agent and the other holders
of the Senior Debt, and their respective successors and assigns.

 

(b)           No Subordinated Debtholder shall
sell, assign, pledge, dispose of or otherwise transfer all or any portion of
the Subordinated Debt or a Subordinated Note Document unless (i) the
transferee thereof shall have executed and delivered an Acknowledgment and
Consent, in the form attached hereto as Exhibit A, providing for, among
other things, the agreement of such transferee to be bound by the provisions of
this Agreement as a “Subordinated Debtholder” hereunder and (ii)
following the consummation of any such action, there shall be either (A)
no more than five Subordinated Debtholders or (B) one Person acting as
agent for all Subordinated Debtholders for purposes of receiving any Default
Notices and other notices and communications to be delivered to the
Subordinated Debtholders hereunder.

 

(c)           Notwithstanding the failure of any
transferee to execute or deliver an Acknowledgment and Consent or any other
agreement substantially identical to this Agreement, the subordination effected
hereby shall survive any sale, assignment, pledge, disposition or other
transfer of all or any portion of the Subordinated Debt or a Subordinated Note
Document, and the terms of this Agreement shall be binding upon the successors
and assigns of Subordinated Debtholders, as provided herein.

 

19

 

17.           No Benefit to Obligors.  The Obligors and their respective successors
and assigns are not a beneficiary of any portion of this Agreement and shall
not have any rights arising under this Agreement or the right to enforce any
provision hereof.

 

18.           Additional Obligors.  Any Subsidiary of a Company that shall become
a guarantor of the Subordinated Debt pursuant to the terms of the Subordinated
Note Documents shall execute and deliver a Joinder, in the form attached hereto
as Exhibit B, providing for such Subsidiary to become a party
hereto as a Guarantor.

 

[The remainder of this page left intentionally blank]

 

20

 

IN
WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.

 

	
  AGENT:

  	
  MERRILL LYNCH CAPITAL, a division of Merrill Lynch Business
  Financial Services Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Emily L. Koehn

  	
   

  
	
   

  	
  Name:
  Emily L. Koehn

  
	
   

  	
  Title:
  Assistant Vice President

  
	
   

  	
   

  
	
  SUBORDINATING

  	
   

  
	
  CREDITORS:

  	
  OCM MEZZANINE FUND, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Oaktree
  Capital Management, LLC,

  
	
   

  	
   

  	
  its
  general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Gary D. Trabka

  	
   

  
	
   

  	
  Name:
  Gary D. Trabka

  
	
   

  	
  Title:
  Managing Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Raj Makam

  	
   

  
	
   

  	
  Name:
  Raj Makam

  
	
   

  	
  Title:
  Senior Vice President 

  
						

 

[Signature
Page to Subordination Agreement]

 

 

	
  COMPANIES:

  	
  LOUD TECHNOLOGIES INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Tim O’Neil

  	
   

  
	
   

  	
  Name:
  Tim O’Neil

  
	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ST. LOUIS MUSIC, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Tim O’Neil

  	
   

  
	
   

  	
  Name:
  Tim O’Neil

  
	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
  GUARANTORS:

  	
  MACKIE DESIGNS INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Tim O’Neil

  	
   

  
	
   

  	
  Name:
  Tim O’Neil

  
	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SIA SOFTWARE COMPANY, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Tim O’Neil

  	
   

  
	
   

  	
  Name:
  Tim O’Neil

  
	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SLM HOLDING CORP.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Tim O’Neil

  	
   

  
	
   

  	
  Name:
  Tim O’Neil

  
	
   

  	
  Title:
  Vice PresidentExhibit
10.1

 

AMENDED AND RESTATED
EMPLOYMENT AGREEMENT

 

THIS
AMENDED AND RESTATED EMPLOYMENT AGREEMENT is made as of August 31, 2005 among
DPL INC., an Ohio corporation (“DPL” or “Company”), The Dayton Power and Light
Company, an Ohio corporation (“DP&L”; and, collectively with DPL, the “Companies”)
and Robert D. Biggs (“Executive”) under the following circumstances:

 

A.                                   DPL
is a holding company headquartered in Dayton, Ohio, having as its principal
subsidiary DP&L; and

 

B.                                     Executive
is currently the Executive Chairman of DPL and DP&L pursuant to an
employment agreement among Executive and the Companies dated as of July 21,
2004; and

 

C.                                     The
Companies and Executive believe that it is in the best interests of the
Companies for Executive to continue to render services to the Companies as
their Executive Chairman; and

 

D.                                    Subject
to the terms and considerations hereinafter set forth, the Companies wish to
continue to employ Executive in the positions set forth herein and Executive
wishes to continue such employment pursuant to the terms of this Amended and
Restated Employment Agreement.

 

NOW, THEREFORE, the parties agree as follows:

 

Section 1.  Employment and Duties.  The Companies hereby employ Executive and
Executive hereby accepts such employment, as an executive of the Companies,
subject to the terms and conditions set forth in this Agreement.  Executive shall serve as Executive Chairman
of the Boards of Directors of DPL and DP&L and shall properly perform such
duties as may reasonably be assigned to him from time to time by each such
Board of Directors.  If requested by the
Companies’ Boards of Directors, Executive shall serve on any committee of the
Companies’ Boards of Directors without additional compensation.  During the Term of this Agreement, Executive
shall devote such time as Executive and Companies’ Boards of Directors deem
necessary for the performance of Executive’s duties hereunder.

 

Section 2.  Term.  The term of this Agreement (the “Term”) shall
commence on January 1, 2005 (the “Effective Date”) and shall continue until
June 30, 2006; provided that the Term shall be extended for successive periods
of six months in accordance with Section 10 hereof.

 

 

Section 3.  Compensation.  As compensation for his services hereunder,
Executive shall receive the following:

 

(a)           Base Salary.  During the Term, the Companies shall pay to
Executive an annual base salary of Five Hundred Thousand Dollars ($500,000) for
his services hereunder.  Executive’s base
salary, as in effect at any time, is hereinafter referred to as the “Base
Salary.”  Executive’s Base Salary shall
be paid in substantially equal installments on a basis consistent with the
Companies’ payroll practices.

 

(b)           Participation in MICP.  For each calendar year during the Term
(commencing with calendar year 2005), Executive shall be eligible to receive an
annual bonus under the Companies’ Management Incentive Compensation Plan (“MICP”)
in an amount determined by the Board of Directors of DPL in its discretion, but
in no event less than $500,000.  The parties
acknowledge that the special bonus of $500,000 paid to Executive in the first
half of 2005 in connection with the successful sale of the financial asset
portfolio (the “Special Bonus”) is in addition to and not in lieu of any
bonuses payable under this Section 3(b).

 

(c)           Stock Options.  Upon execution of this Agreement by
Executive, DPL shall grant to Executive an option to purchase 350,000 common
shares of DPL (the “Option”) under the DPL Inc. Stock Option Plan (the “Option
Plan”).  The per share exercise of the
Option will be the Fair Market Value (as defined in the Option Plan) of such
shares on the date of grant.  Subject to
Executive’s continued employment with the Company, the Option will become
vested and exercisable as to 100% of the shares subject thereto on June 30,
2006 and shall remain exercisable until the third anniversary of the date of
grant on which date the Option shall terminate. 
The Option shall become fully vested and exercisable upon the consummation
of a Change of Control (as defined below) occurring prior to June 30, 2006.

 

(d)           Benefits.  During the Term, Executive shall be entitled
to receive such fringe benefits as are generally made available to senior
executives of the Companies in accordance with the plans, practices, programs
and policies of the Companies in effect from time to time; provided, however,
that the Executive shall not be entitled to participate in the Company’s long
term incentive plan and shall not be provided with medical coverage, disability
or qualified retirement plan benefits or reimbursement for club
memberships.  In addition, during the
Term, the Companies shall provide Executive with a term life insurance policy
with a death benefit of $1,000,000.

 

Section 4.  Dayton Residence and
Automobile.  During the
Term, the Companies shall provide, at their expense, such place of residence
and automobile for Executive’s use while in Dayton, Ohio as Executive and the
Companies may reasonably agree.  In
addition, the Companies shall pay Executive a tax gross up in respect of such
residence and automobile.

 

 

Section 5.  Expenses; Corporate
Aircraft.  The Companies
shall reimburse Executive for all reasonable out-of-pocket expenses properly
incurred by him in connection with the performance of his duties hereunder in accordance
with the policies established from time to time by the Companies.  In addition, the Companies shall provide
Executive with the use of corporate aircraft in connection with Executive’s
travel between Dayton, Ohio and Executive’s home in Florida or to other
residences of family members within approximately the same radius from Dayton,
Ohio as Executive’s home in Florida, and the Companies shall pay the Executive
a tax gross up in respect of such use. 
The Companies’ corporate aircraft will be available for Executive’s
personal use.  Notwithstanding the
foregoing, should the Internal Revenue Service or the U.S. Congress change,
amend or modify the rules of taxation on the personal use of corporate
aircrafts such that the income allocated to Executive materially increases,
then Executive shall be permitted to enter into discussions with the Companies
regarding whether a tax gross up would be appropriate.

 

Section 6.  Withholding.  The Companies may withhold from any amounts
payable to Executive hereunder such federal, state or local taxes or other
amounts as the Companies shall be required to withhold pursuant to applicable
law.

 

Section 7.  Termination.  (a) 
This Agreement and Executive’s employment with the Companies may be
terminated at any time, with or without Cause (as hereinafter defined), by
either the Companies or Executive upon ninety [90] days’ prior written notice;
provided this Agreement and Executive’s employment with the Companies may be
terminated by the Companies for Cause without prior notice.

 

(b)  In addition, this Agreement and Executive’s
employment with the Companies shall automatically terminate upon Executive’s
death or Disability (as hereinafter defined).

 

(c)  Upon the termination of this Agreement for
any reason, this Agreement shall forthwith be of no further force and effect
(except that the provisions of Sections 8 through 14 and 24 shall continue in
full force and effect) and there shall be no further liability on the part of
either party, other than based upon (i) its obligations under this Agreement
arising prior to such termination or (ii) the obligations of such party
contained in Sections 8 through 14 and 24.

 

Section 8.  Severance Benefits Generally.  Notwithstanding any other provisions of this
agreement to the contrary, upon termination of employment for any reason at any
time, the Companies shall pay or provide the following amounts and benefits
(the “Section 8 Amounts”) to Executive in compensation for services previously
rendered:

 

(a) 
the amount of
Executive’s unpaid Base Salary earned through the Date of Termination at the
rate in effect at the Date of Termination;

 

(b) 
the amounts of
any MICP awards with respect to any completed period or periods which, pursuant to
the MICP, have been earned by Executive and vested, but which have not yet been
paid to him; and

 

 

(c)  all other accrued benefits of any kind
to which Executive is, or would otherwise have been, entitled through the Date
of Termination including any vested stock options under the Option Plan.

 

Section 9.  Severance Benefits Prior to a Change of
Control.  In the event of a termination of Executive’s
employment prior to a Change of Control, the following provisions shall apply:

 

(a)  Termination for Cause; Death or Disability.  If (i) the Companies terminate Executive’s
employment for Cause; or (ii) Executive’s employment is terminated due to his
death or Disability, Executive shall receive the Section 8 Amounts.

 

(b)  Termination Without Cause.  If the Companies terminate Executive’s
employment without Cause, Executive shall receive:

 

(i)   the Section 8
Amounts;

 

(ii)  a lump sum
amount equal to the sum of 1 years’ Base Salary payable within 15 days
following the Date of Termination;

 

(iii)  the amount of
any MICP awards earned with respect to any completed period, but unvested as of
the Date of Termination; provided that in the event the Date of
Termination precedes the completion of a period in which, pursuant to the MICP,
Executive could have earned compensation thereunder, or in the event the Date of
Termination precedes the determination of compensation that he has earned for a
completed period under the MICP, then, with respect to each such period,
Executive shall be entitled to an amount equal to the average of the sum of (i)
the Special Bonus and (ii) award payments made to him under the MICP for the
three years preceding the Date of Termination (or for the number of years he
has participated in such plan, if less than three), including any portion of
any such payments that he elected to defer to his Standard Deferral Account in
the DP&L Key Employees Deferred Compensation Plan;

 

(iv) the Companies shall, at their expense, maintain
in full force and effect for Executive’s continued benefit all life insurance
and accident plans in which he was entitled to participate immediately prior to
the Date of Termination, provided that his continued participation is possible
under the terms of such plans and programs. 
In the event that the terms of any such plan do not permit Executive’s
continued participation or that any such plan is discontinued or the benefits
thereunder materially reduced, the Companies shall arrange to provide, at their
expense, benefits to Executive that are substantially similar to those he was
entitled to receive under such plan immediately prior to the Date of
Termination.  The obligation of Companies
under this subsection (iv) shall terminate on the

 

 

earlier of: (1) the first
anniversary date of the earlier Date of Termination or (2) the date an
essentially equivalent and no less favorable benefit is made available to
Executive at no cost by a subsequent employer. 
At the end of the applicable period of coverage set forth above,
Executive shall have the option to have assigned to him, at no cost and with no
apportionment of prepaid premiums, any assignable insurance owned by the
Company and relating specifically to Executive; and

 

(v) all unvested stock
options awarded to Executive under the Option Plan shall become fully vested.

 

(c)  Termination by Executive.  If Executive terminates his employment for
any reason at any time, Executive shall receive the Section 8 Amounts.

 

(d)  Full Satisfaction.  The foregoing payments under this Section 9
shall be the entire obligation of the Companies to Executive in the event of a
termination of Executive’s employment not related to a Change of Control, and
Executive will execute a full and unconditional release of any claims which he
may have against the Companies as a condition to receiving such payment, except
for termination pursuant to Section 9(a).

 

Section 10.  Severance Benefits
Related to a Change of Control.  If, on June
30, 2006, the Company is in discussions with a potential acquirer relating to a
transaction that could result in a Change of Control, Executive may elect to
extend the Term for successive periods of six months until such time as the
Change of Control is consummated.  In
the event of the occurrence of Change of Control, the following provisions
shall apply:

 

(a)  Upon a Change of Control.  Executive’s employment hereunder shall
automatically terminate upon a Change of Control and Executive shall receive
the following:

 

(i)  the Section 8
Amounts;

 

(ii) an amount equal to 200% of the sum of (1)
Executive’s Base Salary (which Base Salary is computed before deduction for any
deferred compensation or other employee deferrals) at the highest of (A) the
rate in effect as of Date of Termination, or (B) the rate in effect at the time
of the Change of Control, plus (2) the average of the sum of (i) the Special
Bonus and (ii) the award payments made to him under the MICP for the three
years preceding the Date of Termination (or for the number of years he has
participated in such plan, if less than three), including any portion of any
such payments that Executive elected to defer to his Standard Deferral Account
in the DP&L Key Employees Deferred Compensation Plan;

 

(iii)  the amount of
any MICP awards earned with respect to any completed period, but unvested as of
the Date of Termination; provided that in the event the Date of Termination
precedes the completion of a

 

 

period in which, pursuant
to the MICP, Executive could have earned compensation thereunder, or in the
event the Date of Termination precedes the determination of compensation that
he has earned for a completed period under the MICP, then, with respect to each
such period, Executive shall be entitled to an amount equal to the average of
the sum of (i) the Special Bonus and (ii) award payments made to him under the
MICP for the three years preceding the Date of Termination (or for the number
of years he has participated in such plan, if less than three), including any
portion of any such payments that he elected to defer to his Standard Deferral
Account in the DP&L’s Key Employees Deferred Compensation Plan;

 

(iv)  all unvested stock options awarded to
Executive under the Option Plan shall become fully vested.

 

(v)  the Companies shall, at their expense,
maintain in full force and effect for Executive’s continued benefit all life
insurance and accident plans in which he was entitled to participate
immediately prior to the Date of Termination, or, if more favorable to
Executive, on the date of a prior Change of Control, provided that his
continued participation is possible under the terms of such plans and programs.  In the event that the terms of any such plan
do not permit Executive’s continued participation or that any such plan is
discontinued or the benefits thereunder materially reduced, the Companies shall
arrange to provide, at their expense, benefits to Executive that are
substantially similar to those he was entitled to receive under such plan
immediately prior to the Date of Termination. 
The obligation of the Companies under this subsection (v) shall
terminate on the earlier of: (1) the third anniversary date of the earlier Date
of Termination or (2) the date an essentially equivalent and no less favorable
benefit is made available to Executive at no cost by a subsequent
employer.  At the end of the applicable
period of coverage set forth above, Executive shall have the option to have
assigned to him, at no cost and with no apportionment of prepaid premiums, any
assignable insurance owned by the Companies and relating specifically to
Executive; and

 

(vi) any gross up amount payable under Section 11 hereof.

 

The Companies shall make the foregoing cash payments to
Executive as severance in a lump sum in cash not later than the Date of
Termination (or in the case of any payments due under clause (v), if, and to
the extent the amount of such payments are not known or calculable as of such
due date, as soon as the amount is known and calculable).

 

(b)  Additional Payment.  In consideration of Executive agreeing to the
covenants in Section 14 hereof, if Executive receives payments under Section
10(a)(ii), Executive shall be

 

 

paid an additional amount
equal to one-half (1/2) the amount determined under Section 10(a)(ii) payable
on the date on which the payment under Section 10(a)(ii) is made.

 

(c)  Anticipatory Termination. If Executive’s
employment is terminated by the Companies without Cause (other than due to
Executive’s death, Disability, or expiration of the Term), and the Company is
then in, or within six (6) months thereof the Company commences, discussions
with a potential acquirer relating to a transaction that could result in a
Change of Control and such Change in Control occurs, then the Companies shall
pay and provide Executive the amounts and benefits provided for in Section
10(a) above as if the date of the Change of Control were the Date of
Termination.

 

(d) Nature of Payments; No Mitigation. 
The payments and benefits provided upon termination of employment under
this Section 10 shall not be treated as damages, but rather shall be treated as
severance compensation to which Executive is entitled under the terms and
conditions provided herein.  Executive
shall not be required to mitigate the amount of any benefit provided under this
agreement by seeking other employment or otherwise.

 

Section
11.  Gross-Up Payment.  In the event that any payment pursuant to
this agreement or any other agreement will be subject to the tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue Code of 1986 (“Code”) or
any successor or similar provision, the Companies shall pay Executive an
additional amount (the “Gross-Up Payment”) such that the net amount retained by
Executive after deduction of any Excise Tax on such payments (excluding
payments pursuant to this paragraph 9), and after deduction for any federal,
state and local income tax and Excise Tax upon the payment provided for by this
paragraph, shall be equal to the amount of such payments (excluding payments
pursuant to this paragraph 9) before payment of any Excise Tax (hereinafter the
“Excise Tax Compensation Net Payment”). For purposes of determining whether any
of such payments will be subject to the Excise Tax and the amount of such
Excise Tax, any payments or benefits received or to be received by Executive in
connection with a Change of Control or Executive’s termination of employment
shall be treated as “parachute payments” within the meaning of Section 280G of
the Code, and all “excess parachute payments” within the meaning of Section
280G of the Code shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel selected by the Company’s independent auditors and
acceptable to Executive such payments or benefits do not constitute parachute
payments or excess parachute payments. For purposes of determining the amount
of the Gross-Up Payment, Executive shall be deemed to pay all federal income
taxes at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made and state and local income
taxes at the highest marginal rates of taxation in the state and locality in
which Executive is taxed on the payments giving rise to the Gross-Up Payment,
net of the maximum reduction in federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the Excise Tax
is subsequently determined to be less than the amount taken into account
hereunder, Executive shall repay to the Companies, at the time that the amount
of such reduction in Excise Tax is finally determined, an amount necessary so
that the total payments hereunder equal the Excise Tax Compensation Net
Payment, plus interest on the amount of such repayment at a rate equivalent to
the rate described in Section 280G (d) (4) of the Code. In the event that the
Excise Tax is

 

 

determined to exceed the
amount taken into account hereunder, the Companies shall make an additional
Gross-Up Payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is finally
determined.  The Gross-Up Payment shall be
paid not later than the date on which the payments giving rise to the Gross-Up
Payment are made, or, if and to the extent such payment is not known or
calculable as of such date, as soon as the amount is known and calculable.

 

Section 12.            Indemnification.  The Companies shall indemnify Executive
against any and all losses, liabilities, damages, expenses (including attorneys’
fees) judgments, fines and amounts paid in settlement incurred by Executive in
connection with any claim, action, suit or proceeding (whether civil, criminal,
administrative or investigative), including any action by or in the right of
either of the Companies, by reason of any act or omission to act in connection
with the performance of his duties hereunder to the full extent that the
Companies are permitted to indemnify a director, officer, employee or agent
against the foregoing under Ohio law, including, without limitation, Section
1701.13(E) of the Ohio Revised Code.  The
Companies shall at all times cause Executive to be included, in his capacities
hereunder, under all liability insurance coverage (or similar insurance
coverage) maintained by any of the Companies from time to time.  Upon Executive’s written request and
substantiation, the Companies shall make prompt payment of the legal fees and
expenses incurred in connection with an indemnifiable claim involving Executive
(but not more frequently than once per calendar quarter); provided that if it
is finally determined by a court that Executive is not entitled to
indemnification under Ohio law with respect to a claim for which his legal fees
and expenses were paid pursuant to this Section 12, then any legal fees and
expenses paid by the Companies shall be immediately repaid to the Companies by
Executive.

 

Section 13.            Legal Expenses.  The Companies shall pay Executive in full for
all legal fees and expenses reasonably incurred by him in connection with this
Agreement (including, without limitation, any such fees and expenses incurred
in contesting or disputing any termination of this or related Agreement or in
seeking to obtain or enforce any right or benefit provided herein, regardless
of the outcome), unless, in the case of a legal action brought by Executive or
in his name, a court finally determines that such action was not brought in
good faith.  The Companies shall pay the
reasonable attorneys fees, costs and expenses incurred by Executive in
connection with the negotiation, execution and delivery of this Agreement.  Upon Executive’s written request and
substantiation, the Companies shall make prompt payment of the legal fees and
expenses provided for under this Section 13 (but not more frequently than once
per calendar quarter); provided that if a legal action brought by Executive, or
in his name, is finally determined by a court to have not been brought in good
faith, any legal fees and expenses paid by the Companies shall be immediately
repaid to the Companies by Executive.

 

Section 14.  Non-Competition and Confidentiality.  (a)  In
consideration of the
Companies’ entering into this Agreement and as an inducement for them to do so,
and in consideration of the Companies’ agreement to pay Executive the amount
set forth under Section 10(b) hereof, in the event and only in the event that
he receives the payment under Section 10(b) hereof, Executive agrees as follows: for a period of
two years after termination of his employment for any reason, he will not,
without the Companies’ prior written consent, directly or indirectly, (i)
participate or be interested in any business (aa) which is engaged in Ohio,

 

 

Indiana, Kentucky,
Michigan and/or Pennsylvania in providing (as a public utility or otherwise)
electric power or services on a retail and/or wholesale basis or in providing
energy marketing, aggregation and/or procurement services, or (bb) which is
engaged in any other business being conducted or proposed to be conducted by
the Companies; (ii) solicit for employment with himself or any firm or entity
with which he is associated, any employee of the Companies or otherwise
disrupt, impair, damage or interfere with the Companies’ relationship with
their employees; (iii) solicit for his own behalf or on behalf of any other
person(s), any customer of the Companies that has purchased products or
services from the Companies at any time in the twelve (12) months preceding his
Date of Termination or that the Companies are actively soliciting or have known
plans to solicit, for the purpose of marketing or distributing any product,
pricing or service competitive with any product, pricing or service then
offered by the companies or which the Companies have known plans to offer; or
(iv) engage or be affiliated with any person(s), in the development or
marketing, including but not limited to the establishment of product or service
prices, of any product or service which will compete with any product or
service the Companies are then developing or marketing in any geographic market
where the Companies are doing or preparing to do business.

 

(b)  At all times, Executive (i) will keep all
confidential, nonpublic and/or proprietary information (including, for example,
trade secrets, financial information, customer information and business and
strategic plans) of the Companies (regardless of when he became aware of such
information) in strict confidence and (ii) will not, directly or indirectly,
use or disclose to any person in any manner any of such information, except to
the extent directly related to and required by his performance of the duties
assigned to him by the Companies. 
Executive will take all appropriate steps to safeguard such information
and to protect it against unauthorized disclosure, misuse, loss or theft.  Upon termination of his employment, he will
promptly return to the Companies, without retaining any copies, all written or
computer readable material containing any of such information, as well as all
other property and records of the Companies, in his possession or control.

 

Section 15.  Certain Definitions.  For purposes of this Agreement, the following
terms have the following meanings:

 

“Cause”
shall mean (a) commission of a felony, (b) embezzlement; (c) the illegal use of
drugs, or (d) the failure by Executive to substantially perform his duties with
the Companies (other than any such failure resulting from Executive’s physical
or mental illness or other physical or mental incapacity) as determined by the
Companies’ Boards of Directors. Notwithstanding the foregoing, Cause shall not
be deemed to exist unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by written consent of not less
than three-fourths of the number of directors then in office of each Board of
Directors (after reasonable notice to Executive and an opportunity for
Executive, together with Executive’s counsel, to be heard at a meeting of the
Companies' Boards of Directors called and held for that purpose), finding that
in the good faith opinion of the Companies’ Boards of Directors Executive is
guilty of conduct set forth above in clauses (a), (b), (c) or (d) of the first
sentence of this definition and specifying the particulars thereof in detail.

 

 

“Change of Control”means the consummation
of any Change of Control of DPL, or its principal subsidiary, DP&L, of a
nature that would be required to be reported in response to Item 6 (e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the ‘Exchange Act’) as determined by the Board of Directors
of DPL in its sole discretion; provided that, without limitation, such a Change
of Control shall be deemed to have occurred if (i) any ‘person’ (as such term
is defined in Sections 13 (d) and 14 (d) (2) of the Exchange Act; hereafter, a ‘Person’)
other than DPL or DP&L or an entity then directly or indirectly
controlling, controlled by or under common control with DPL or DP&L is on
the date hereof or becomes the beneficial owner, directly or indirectly, of
securities of DPL or DP&L representing (A) 25% or more of the combined
voting power of the then outstanding securities of DPL or DP&L if the
acquisition of such beneficial ownership or such tender offer is not approved
by the Board of Directors of DPL prior to the acquisition or the commencement
of such tender offer or (B) 50% or more of such combined voting power in all
other cases; (ii) DPL or DP&L consummates a merger or consolidation, or
consummates a ‘combination’ or ‘majority share acquisition’ in which it is the ‘acquiring
corporation’ (as such terms are defined in Ohio Rev. Code § 1701.01 as in
effect on December 31, 1990) and in which shareholders of DPL or DP&L, as
the case may be, immediately prior to entering into such agreement, will
beneficially own, immediately after the effective time of the merger,
consolidation, combination or majority share acquisition, securities of DPL or
DP&L or any surviving or new corporation, as the case may be, having less
than 50% of the ‘voting power’ of DPL or DP&L or any surviving or new
corporation, as the case may be, including ‘voting power’ exercisable on a
contingent or deferred basis as well as immediately exercisable ‘voting power’,
excluding any merger of DPL into DP&L or of DP&L into DPL; (iii) DPL or
DP&L consummates a sale, lease, exchange or other transfer or disposition
of all or substantially all of its assets to any Person other than to a wholly
owned subsidiary or, in the case of DP&L, to DPL or a wholly owned
subsidiary(ies) of DPL; but not including (A) a mortgage or pledge of assets
granted in connection with a financing or (B) a spin-off or sale of assets if
DPL continues in existence and its common shares are listed on a national
securities exchange, quoted on the automated quotation system of a national
securities association or traded in the over-the-counter market; or (iv) those
persons serving as directors of DPL or DP&L on the date of this Agreement
(the ‘Original Directors’) and/or their Successors do not constitute a majority
of the whole Board of Directors of DPL or DP&L, as the case may be (the
term ‘Successors’ shall mean those directors whose election or nomination for
election by shareholders has been approved by the vote of at least two-thirds
of the Original Directors and previously qualified Successors serving as
directors of DPL or DP&L, as the case may be, at the time of such election
or nomination for election).

 

“Date of Termination”
shall mean (a) the date specified in a Notice of Termination or (b) if this
Agreement is terminated due to Executive’s death or expiration of the Term, the
date of such termination.

 

“Disability”
shall mean, for the purposes of this agreement, Executive’s inability to perform
the duties required of Executive on a full-time basis for a period of six
consecutive months because of physical or mental illness or other physical or
mental disability or incapacity.

 

Section 16.  Parties in Interest.  This Agreement is for the sole benefit of the
parties and shall not create any rights to any person not a party.  This Agreement is personal and may not be

 

 

assigned by any party without the prior written consent of the other
party.  Subject to the foregoing, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable
by, the respective successors and assigns of the parties (including the heirs
and estate of Executive), but no assignment shall, of itself, relieve any party
of its obligations hereunder.

 

Section 17.  Successors.  (a)  The Companies shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of DPL or DP&L, by
agreement to expressly and unconditionally assume and agree to perform this
agreement in the same manner and to the same extent that the Companies would be
required to perform it if no such succession had taken place.  Failure of the Companies to obtain such
agreement prior to the effectiveness of such succession shall be a breach of
this agreement.  The foregoing provisions
of this Section 17(a) shall not apply to (i) a spin-off or sale of assets, or
(ii) a transaction described in item (ii) of the definition of Change of
Control above involving only DP&L if in each case DPL continues in
existence and its common shares are listed on a national securities exchange,
quoted on the automated quotation system of a national securities association
or traded in the over-the-counter market.

 

(b)  This Agreement shall inure to the benefit of
and be enforceable by Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.  If Executive should die while any amounts
would still be payable to him hereunder if he had continued to live, all such
amounts, unless otherwise provided herein, shall be paid to such beneficiary or
beneficiaries as he shall have designated by written notice delivered to the
Companies prior to his death or, failing written notice, to his estate.

 

Section 18. 
Notices.  All notices required or permitted to be
given under this agreement shall be in writing and shall be mailed (postage
prepaid by either registered or certified mail) or delivered, if to the
Companies, addressed to the Corporate Secretary of the Companies at:

 

	
   

  	
  DPL Inc. and The Dayton Power and Light Company

  
	
   

  	
  MacGregor Park

  
	
   

  	
  1065 Woodman Drive

  
	
   

  	
  Dayton, Ohio 45432

  
	
   

  	
  Attention: Corporate Secretary

  

 

and if
to Executive, addressed to Executive at the address of his personal residence
on file in the Companies’ records.  Any
party may change the address to which notices to such party are to be directed
by giving written notice of such change to the other parties in the manner
specified in this Section 18.

 

 

Section 19.  Entire Agreement.  This Agreement sets forth the entire
agreement and understandings of the parties in respect to the subject matter
hereof and supersedes all prior agreements, arrangements and understandings
relating to the subject matter hereof.

 

Section 20.  Interpretation.  The section and other headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.  Words used in this Agreement in the singular
number shall include the plural, and vice versa, unless the context requires
otherwise.  Words of gender used in this
Agreement may be read as masculine, feminine or neuter as the context may
require.  The terms “this Agreement”, “hereto”
“herein”, “hereby”, “hereof” and similar expressions refer to this Agreement in
its entirety and not to any particular provision or portion of this
Agreement.  When a reference is made to
Sections, such reference shall be to a Section of this Agreement, unless
otherwise indicated.  Whenever the words “include”,
“includes” or “including” are used herein, they shall be deemed to be followed
by the words “without limitation”.

 

Section 21.  Law Governing.  This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Ohio
without regard to its conflicts of laws rules.

 

Section 22.  Counterparts.  This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original but all
of which taken together shall constitute one and the same instrument.

 

Section 23.  Amendment.  Any amendment to this Agreement or any waiver
of rights or any consent hereunder shall not be operative unless it is in
writing and signed by the party sought to be charged.  The parties agree to make such reasonable
amendments to this Agreement, if any, as are necessary to avoid imposition of
taxes and penalties upon the Executive under section 409A of the Code; provided
that such amendment does not result in a material increase in the liability and
obligations of the Company under this Agreement or otherwise.

 

Section 24.  Equitable Relief.  Executive acknowledges that the Companies may
be irreparably injured by any breach of Section 14.  Accordingly, the Companies shall be entitled
to specific performance and other injunctive relief as remedies for any breach
(or threatened breach) of Section 14, in addition to all other remedies
available at law or in equity.

 

Section 25.  Severability.  If any provision of this Agreement or the
application thereof to any party or circumstance shall be held invalid or
unenforceable to any extent, the remainder of this Agreement and the
application of such provision to another party or circumstance shall not be
affected thereby and such provision shall be enforced to the greatest extent
permitted by applicable law.

 

Section 26.  Waiver.  The failure or delay on the part of any party
to insist upon strict performance of any of the terms or conditions of this
Agreement will not constitute a waiver of any of its rights hereunder.  No right or remedy herein conferred upon or
reserved to any party is intended to be exclusive of any other right or remedy
and all such rights and remedies shall be cumulative.

 

 

Section 27.  No Mitigation.  Executive shall not be required to mitigate
the amount of any payment provided for pursuant to this Agreement by seeking
other employment and, to the extent that Executive obtains or undertakes other
employment, the payment will not be reduced by the earnings of Executive from
the other employment.

 

[SIGNATURE PAGE
FOLLOWS]

 

 

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

 

 

	
   

  	
  DPL INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  James V. Mahoney

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Paul R. Bishop

  
	
   

  	
  Director and Chairman
  of the Compensation Committee of the

  Board of Directors of DPL Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE DAYTON POWER AND
  LIGHT COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  James V. Mahoney

  
	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Paul R. Bishop

  
	
   

  	
  Director and Chairman
  of the Compensation Committee of the

  Board of Directors of The Dayton Power and Light Company

  
	
   

  	
   

  
	
   

  	
   

  
	
  EXECUTIVE

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Robert D. Biggs

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