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AMENDED AND RESTATED  

 LOAN AND SECURITY AGREEMENT  

 by and among  

 GUITAR CENTER, INC.,  

 and  

 GUITAR CENTER STORES, INC.,  

 and  

 MUSICIAN'S FRIEND, INC.  

 and  

 THE LENDERS THAT ARE SIGNATORIES HERETO  

 as the Lenders,  

 and  

 FOOTHILL CAPITAL CORPORATION  

 as Agent,  

 and  

 FLEET RETAIL FINANCE, INC.  

 as Documentation Agent  

 Dated as of April 16, 2001  

  

 
 

17.9.a.i.1.1 TABLE OF CONTENTS    
  

	1.	 	DEFINITIONS AND CONSTRUCTION	 	1
	 	 	1.1	 	Definitions	 	1
	 	 	1.2	 	Accounting Terms	 	22
	 	 	1.3	 	Code	 	22
	 	 	1.4	 	Construction	 	22
	 	 	1.5	 	Schedules and Exhibits	 	22
	
2.	
 	

LOAN AND TERMS OF PAYMENT	
 	

22
	 	 	2.1	 	Revolver Advances	 	22
	 	 	2.2	 	Reduction in Facility Amount and Commitments	 	24
	 	 	2.3	 	Borrowing Procedures and Settlement	 	24
	 	 	2.4	 	Payments	 	29
	 	 	2.5	 	Overadvances	 	31
	 	 	2.6	 	Interest and Letter of Credit Fees Rates, Payments, and Calculations	 	31
	 	 	2.7	 	Cash Management	 	32
	 	 	2.8	 	Crediting Payments	 	33
	 	 	2.9	 	Designated Account	 	34
	 	 	2.10	 	Maintenance of Loan Account; Statements of Obligations	 	34
	 	 	2.11	 	Fees	 	34
	 	 	2.12	 	Letters of Credit	 	35
	 	 	2.13	 	LIBOR Option	 	36
	 	 	2.14	 	Capital Requirements	 	39
	 	 	2.15	 	Joint and Several Liability of the Obligors	 	39
	 	 	2.16	 	Prior Loan Agreement	 	41
	
3.	
 	

CONDITIONS; TERM OF AGREEMENT	
 	

41
	 	 	3.1	 	Conditions Precedent to the Initial Extension of Credit	 	41
	 	 	3.2	 	Conditions Subsequent to the Initial Extension of Credit	 	43
	 	 	3.3	 	Conditions Precedent to all Extensions of Credit	 	43
	 	 	3.4	 	Term	 	44
	 	 	3.5	 	Effect of Termination	 	44
	 	 	3.6	 	Early Termination by Borrowers	 	44
	
4.	
 	

CREATION OF SECURITY INTEREST	
 	

45
	 	 	4.1	 	Grant of Security Interest	 	45
	 	 	4.2	 	Negotiable Collateral	 	45
	 	 	4.3	 	Collection of Accounts, General Intangibles, and Negotiable Collateral	 	45
	 	 	4.4	 	Delivery of Additional Documentation Required	 	45
	 	 	4.5	 	Power of Attorney	 	45
	 	 	4.6	 	Right to Inspect	 	46
	 	 	4.7	 	Control Agreements	 	46
	
5.	
 	

REPRESENTATIONS AND WARRANTIES	
 	

46
	 	 	5.1	 	No Encumbrances	 	47
	 	 	5.2	 	Eligible Accounts	 	47
	 	 	5.3	 	Eligible Inventory	 	47
	 	 	5.4	 	Equipment	 	47
	 	 	5.5	 	Location of Inventory and Equipment	 	47
	 	 	5.6	 	Inventory Records	 	47
	 	 	5.7	 	Location of Chief Executive Office; FEIN	 	47

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	 	 	5.8	 	Due Organization and Qualification; Subsidiaries	 	47
	 	 	5.9	 	Due Authorization; No Conflict	 	48
	 	 	5.10	 	Litigation	 	48
	 	 	5.11	 	No Material Adverse Change	 	48
	 	 	5.12	 	Fraudulent Transfer	 	49
	 	 	5.13	 	Employee Benefits	 	49
	 	 	5.14	 	Environmental Condition	 	49
	 	 	5.15	 	Brokerage Fees	 	49
	 	 	5.16	 	Intentionally Omitted	 	49
	 	 	5.17	 	Intellectual Property	 	49
	 	 	5.18	 	Leases	 	49
	 	 	5.19	 	DDAs	 	49
	 	 	5.20	 	Offsite Storage Locations	 	50
	 	 	5.21	 	American Music Acquisition	 	50
	
6.	
 	

AFFIRMATIVE COVENANTS	
 	

50
	 	 	6.1	 	Accounting System	 	50
	 	 	6.2	 	Collateral Reporting	 	51
	 	 	6.3	 	Financial Statements, Reports, Certificates	 	52
	 	 	6.4	 	Guarantor Reports	 	54
	 	 	6.5	 	Return	 	54
	 	 	6.6	 	Title to Equipment	 	54
	 	 	6.7	 	Maintenance of Equipment	 	54
	 	 	6.8	 	Taxes	 	54
	 	 	6.9	 	Insurance	 	55
	 	 	6.10	 	No Setoffs or Counterclaims	 	56
	 	 	6.11	 	Location of Inventory and Equipment	 	56
	 	 	6.12	 	Compliance with Laws	 	56
	 	 	6.13	 	Employee Benefits	 	56
	 	 	6.14	 	Leases	 	57
	 	 	6.15	 	[Intentionally Omitted]	 	57
	 	 	6.16	 	Projections	 	57
	 	 	6.17	 	Corporate Existence, etc	 	57
	 	 	6.18	 	Disclosure Updates	 	57
	 	 	6.19	 	Mailing Lists	 	57
	 	 	6.20	 	Inventory Cycle Counts	 	57
	 	 	6.21	 	Distribution Centers	 	57
	 	 	6.22	 	Permitted Acquisitions	 	57
	 	 	6.23	 	American Music Acquisition	 	58
	 	 	6.24	 	American Music Acquisition Documents	 	58
	
7.	
 	

NEGATIVE COVENANTS	
 	

58
	 	 	7.1	 	Indebtedness	 	58
	 	 	7.2	 	Liens	 	59
	 	 	7.3	 	Restrictions on Fundamental Changes	 	59
	 	 	7.4	 	Disposal of Assets	 	59
	 	 	7.5	 	Change Name	 	59
	 	 	7.6	 	Guarantee	 	60
	 	 	7.7	 	Nature of Business	 	60
	 	 	7.8	 	Prepayments and Amendments	 	60
	 	 	7.9	 	Change of Control	 	60
	 	 	7.10	 	Consignments	 	60

ii

 

	 	 	7.11	 	Distributions	 	60
	 	 	7.12	 	Accounting Methods	 	61
	 	 	7.13	 	Investments	 	61
	 	 	7.14	 	Transactions with Affiliates	 	61
	 	 	7.15	 	Suspension	 	61
	 	 	7.16	 	[Intentionally Omitted]	 	61
	 	 	7.17	 	Use of Proceeds	 	61
	 	 	7.18	 	Change in Location of Chief Executive Office; Inventory and Equipment with Bailees	 	61
	 	 	7.19	 	No Prohibited Transactions Under ERISA	 	62
	 	 	7.20	 	Financial Covenants. Fail to maintain	 	62
	 	 	7.21	 	Credit Card Receipts	 	63
	 	 	7.22	 	Capital Expenditures	 	63
	 	 	7.23	 	Securities Accounts	 	63
	
8.	
 	

EVENTS OF DEFAULT	
 	

63
	
9.	
 	

THE LENDER GROUP'S RIGHTS AND REMEDIES	
 	

65
	 	 	9.1	 	Rights and Remedies	 	65
	 	 	9.2	 	Remedies Cumulative	 	67
	
10.	
 	

TAXES AND EXPENSES	
 	

67
	
11.	
 	

WAIVERS; INDEMNIFICATION	
 	

68
	 	 	11.1	 	Demand; Protest; etc	 	68
	 	 	11.2	 	The Lender Group's Liability for Collateral	 	68
	 	 	11.3	 	Indemnification	 	68
	
12.	
 	

NOTICES	
 	

69
	
13.	
 	

CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER	
 	

69
	
14.	
 	

ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS	
 	

70
	 	 	14.1	 	Assignments and Participations	 	70
	 	 	14.2	 	Successors	 	72
	
15.	
 	

AMENDMENTS; WAIVERS	
 	

72
	 	 	15.1	 	Amendments and Waivers	 	72
	 	 	15.2	 	No Waivers; Cumulative Remedies	 	73
	
16.	
 	

AGENT; THE LENDER GROUP	
 	

73
	 	 	16.1	 	Appointment and Authorization of Agent	 	73
	 	 	16.2	 	Delegation of Duties	 	74
	 	 	16.3	 	Liability of Agent	 	74
	 	 	16.4	 	Reliance by Agent	 	74
	 	 	16.5	 	Notice of Default or Event of Default	 	75
	 	 	16.6	 	Credit Decision	 	75
	 	 	16.7	 	Costs and Expenses; Indemnification	 	75
	 	 	16.8	 	Agent in Individual Capacity	 	76
	 	 	16.9	 	Successor Agent	 	76
	 	 	16.10	 	Lender in Individual Capacity	 	77
	 	 	16.11	 	Withholding Tax	 	77
	 	 	16.12	 	Collateral Matters	 	78
	 	 	16.13	 	Restrictions on Actions by Lenders; Sharing of Payments	 	79
	 	 	16.14	 	Agency for Perfection	 	79

iii

 

	 	 	16.15	 	Payments by Agent to the Lenders	 	79
	 	 	16.16	 	Concerning the Collateral and Related Loan Documents	 	79
	 	 	16.17	 	Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and Information	 	80
	 	 	16.18	 	Several Obligations; No Liability	 	81
	 	 	16.19	 	Legal Representation of Agent	 	81
	 	 	16.20	 	Documentation Agent	 	81
	
17.	
 	

GENERAL PROVISIONS	
 	

81
	 	 	17.1	 	Effectiveness	 	81
	 	 	17.2	 	Section Headings	 	81
	 	 	17.3	 	Interpretation	 	81
	 	 	17.4	 	Severability of Provisions	 	82
	 	 	17.5	 	Amendments in Writing	 	82
	 	 	17.6	 	Counterparts; Telefacsimile Execution	 	82
	 	 	17.7	 	Revival and Reinstatement of Obligations	 	82
	 	 	17.8	 	Integration	 	82
	 	 	17.9	 	GCI as Agent for Borrowers	 	82

iv

 
 
 

Exhibits and Schedules    
  

	Exhibit A-1	 	Form of Assignment and Acceptance
	Exhibit B-1	 	Form of Borrowing Base Certificate
	Exhibit C-2	 	Form of Compliance Certificate
	Exhibit L-1	 	Form of LIBOR Notice
	

Schedule C-1	
 	

Revolving Credit Commitments
	Schedule E-1	 	Warehouse Locations
	Schedule E-2	 	Retail Stores
	Schedule E-3	 	Offsite Storage Locations
	Schedule P-1	 	Permitted Liens
	Schedule R-1	 	Real Property Collateral
	Schedule 2.7(a)	 	GCI Cash Management
	Schedule 2.7(b)	 	GCS Cash Management
	Schedule 2.7(c)	 	MFI Cash Management
	Schedule 5.7	 	Chief Executive Office; FEIN
	Schedule 5.8	 	Organization and Qualification
	Schedule 5.10	 	Litigation
	Schedule 5.19	 	Demand Deposit Accounts
	Schedule 6.11	 	Location of Inventory and Equipment
	Schedule 7.1	 	Permitted Indebtedness

v

  

 
 

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT    
  

    THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement"), is entered into as of April 16, 2001, between and among, on the one hand, the lenders identified on the signature pages hereof
(such lenders, together with their respective successors and assigns, are referred to hereinafter each individually as a "Lender" and collectively as
the "Lenders"), FOOTHILL CAPITAL CORPORATION, a California corporation, as agent for the Lenders (in
such capacity, together with its successors, if any, "Agent"), and FLEET RETAIL FINANCE INC., a
Delaware corporation, formerly know as BankBoston Retail Finance Inc., as documentation agent for the Lenders (in such capacity, together with its successors, if any,
"Documentation Agent"), with a place of business at 40 Broad Street, 10th Floor, Boston, Massachusetts 02110, and, on the other hand,  GUITAR CENTER, INC., a Delaware corporation ("GCI"), GUITAR CENTER
STORES, INC., a Delaware corporation ("GCS"), and MUSICIAN'S
FRIEND, INC., a Delaware corporation ("MFI") 

 
 

RECITALS    
  

    WHEREAS, Lender Group, Documentation Agent, GCI and MFI are parties to that certain Loan and Security
Agreement, dated as of December 17, 1999 (the "Prior Loan Agreement"); 

    WHEREAS, Borrowers have requested that Lender Group amend and restate the Prior Loan Agreement in its entirety to, among other things,
(a) provide for an increase in the Facility Amount to the Maximum Facility Amount, (b) permit the American Music Acquisition (as hereinafter defined) pursuant to the terms and conditions
of the American Music Acquisition Documents (as hereinafter defined), and (c) modify the documentation reflected in the Prior Loan Agreement to reflect the transfer to GCS by GCI of the
day-to-day operations of the retail store business; 

    WHEREAS, Borrowers hereby reaffirm, among other things (a) that the Obligations under the Prior Loan Agreement remain
outstanding, and (b) that each of Guarantor Security Agreement, Inventory Security Agreement, and Trademark Security Agreement, as well as the other Loan Documents, as amended on the date
hereof, entered into for the benefit of the Lender Group in connection with the Prior Loan Agreement, to the extent that such documents are not being amended and restated herewith, are incorporated
into this Agreement by reference herein, and shall remain in full force and effect and are deemed to be entered into for the benefit of Lender Group under this Agreement; and 

    WHEREAS, subject to the foregoing, Lender Group is willing to so amend and restate the Prior Loan Agreement in accordance with the
terms and conditions hereof; it being understood that no repayment of the outstanding amounts payable under the Prior Loan Agreement as of the Closing Date is being effected hereby but merely an
amendment and restatement in accordance with the terms hereof. 

    NOW, THEREFORE, in consideration of the above recitals, mutual premises and the agreements, provisions and covenants herein contained,
Lender Group and Borrowers hereby agree as follows: 

1.  DEFINITIONS AND CONSTRUCTION.  

    1.1  Definitions.  As used in this Agreement, the following terms shall have the
following definitions: 

    "Account Debtor" means any Person who is or who may become obligated under, with respect to, or on account of, an Account, a General
Intangible, or Negotiable Collateral. 

    "Accounts" means all of a Borrower's currently existing and hereafter arising "accounts" (as that term is defined in the Code), and any
and all credit insurance, guaranties, or security therefor. 

1

 

    "Acquired Indebtedness" means, with respect to any Permitted Acquisition, Indebtedness of a Person existing at the time such Person
becomes a Subsidiary or assumed in connection with the acquisition of assets from such Person, and not incurred in connection with, or in anticipation of, such Person becoming a Subsidiary or such
acquisition. 

    "Acquisition" means any purchase or other acquisition by a Borrower of the assets or Stock of any other Person, other than
(a) an Investment and (b) the purchase of Inventory or Equipment in the ordinary course of business. 

    "Administrative Borrower" has the meaning set forth in Section 17.9. 

    "Advances" has the meaning set forth in Section 2.1. 

    "Affiliate" means, as applied to any Person, any other Person who, directly or indirectly, controls, is controlled by, or is under
common control with, such Person. For purposes of this definition, "control" means the possession, directly or indirectly, of the power to direct the management and policies of a Person, whether
through the ownership of Stock, by contract, or otherwise. 

    "Agent" means Foothill Capital Corporation, a California corporation, solely in its capacity as agent for the Lenders, and shall
include any successor agent. 

    "Agent's Account" shall mean an account at a bank designated by Agent from time to time as the account into which Borrowers shall make
all payments to Agent for the benefit of the Lender Group, and into which the Lender Group shall make all payments to Agent, under this Agreement and the other Loan Documents. Initially, until Agent
notifies Administrative Borrower and the Lender Group to the contrary, the Agent Account shall be that certain deposit account bearing account number 323-266193 and maintained by Agent
with The Chase Manhattan Bank, N.A., 4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021-000-021. 

    "Agent Advances" has the meaning set forth in Section 2.3(e)(i). 

    "Agent's Liens" has the meaning set forth in Section 4.1. 

    "Agent-Related Persons" means Agent together with its Affiliates, officers, directors, employees, counsel, and agents. 

    "Agreement" has the meaning set forth in the preamble hereto. 

    "American Music" means American Music Group, Ltd., a New York corporation. 

    "American Music Acquisition" means the acquisition by GCS of substantially all of the assets of American Music and certain of its
Affiliates pursuant to the terms and conditions of the American Music Acquisition Documents. 

    "American Music Acquisition Documents" means, individually and collectively, the Asset Purchase Agreement, dated as of March 20,
2001, by and among GCS, American Music, with a principal place of business located at 310 West Jefferson Street, Syracuse, New York 13202, Eastern Musical Supply
Co., Inc., a New York corporation, with a principal place of business located at 106 Gray Road, West Falmouth, Maine 04105, Lyons Music, Inc., a New York corporation, with a principal
place of business located at 130 E. St. Charles Road, Suite B, Carol Stream, Illinois 60188-2075, American Music, Inc., a Florida corporation, with a principal place of business
located at 667 Florida Central Parkway, Longwood, Florida 32750, American Musical Instruments, Inc., a New York corporation, with a principal place of business located at 2710 West Bell Road,
Suite 1200, Phoenix, Arizona 85023, Giardinelli Band Instrument Co., Inc., a New York corporation, with a principal place of business located at 7845 Maltage Drive, Liverpool, New York 13090,
Central Music Supply, Inc., a New York corporation, with a principal place of business located at 310 West Jefferson Street, Syracuse, New York 13202, and GBI, Inc., a New York
corporation, with a principal place of business located at 7845 

2

 

Maltage Drive, Liverpool, New York 13090 (each a "Seller" and, collectively, the "Sellers"), and the
stockholders of Sellers each of whom is listed on the signature pages thereto (the "Asset Purchase Agreement"), and all other material agreements,
documents and instruments to be executed or delivered in connection therewith. 

    "American Music Division" means that certain division of Guitar Center Stores, Inc. which will continue the Business (as such
term is defined in the Asset Purchase Agreement) of American Music and certain of its Affiliates. 

    "Applicable Base Rate Margin" means, as of any date of determination, the following margin based upon the applicable Leverage Ratio;  provided, that for the period from
the Closing Date through the date Agent receives the first certified calculation of the Leverage Ratio delivered by
Borrowers pursuant to Section 6.3(b)(iv) establishing that a different Applicable Base Rate Margin applies, the Applicable Base Rate
Margin shall be 0.25 percentage points, 

	Leverage Ratio
 
	 	Applicable Base Rate Margin

	less than 2.25:1.0	 	0.25 percentage points
	equal to or greater than 2.25:1.0	 	0.50 percentage points

    The
Applicable Base Rate Margin shall be based upon GCI's Leverage Ratio which will be calculated quarterly as at the end of each fiscal quarter of GCI based upon the 4 immediately
preceding fiscal quarters, including the fiscal quarter then ended. The applicable margin shall be redetermined quarterly on the date Agent receives the certified calculation of the Leverage Ratio
pursuant to Section 6.3(b)(iv) hereof. 

    "Applicable LIBOR Rate Margin" means, as of any date of determination, the following margin based upon the applicable Leverage Ratio;  provided, that for the period from
the Closing Date through the date Agent receives the first certified calculation of the Leverage Ratio delivered by
Borrowers pursuant to Section 6.3(b)(iv) establishing that a different Applicable LIBOR Rate Margin applies, the Applicable LIBOR Rate
Margin shall be 1.375 percentage points, 

	Leverage Ratio
 
	 	Applicable LIBOR Rate Margin

	less than 2.25:1.0	 	1.375 percentage points
	equal to or greater than 2.25:1.0,	 	1.50 percentage points but less than 4.00:1.0
	equal to or greater than 4.00:1.0,	 	1.75 percentage points but less than 4.50:1.0
	equal to or greater than 4.50:1.0	 	2.00 percentage points

    The
Applicable LIBOR Rate Margin shall be based upon GCI's Leverage Ratio which will be calculated quarterly as at the end of each fiscal quarter of GCI based upon the 4 immediately
preceding fiscal quarters, including the quarter then ended. The applicable margin shall be redetermined quarterly on the date Agent receives the certified calculation of the Leverage Ratio pursuant
to Section 6.3(b)(iv) hereof. Anything to the contrary contained herein notwithstanding, any LIBOR Rate Advance that is outstanding on the
day on which the Applicable LIBOR Rate Margin changes, shall, until the end of the Interest Period relating to such LIBOR Rate Advance, continue to bear interest at the Applicable LIBOR Rate Margin
that was in effect on the date such LIBOR Rate Advance initially was made. 

    "Applicable Prepayment Premium" means, as of any date of determination, an amount equal to (a) during the period of time from
and after the date of the execution and delivery of this Agreement up to the date that is the first anniversary of the Closing Date, 0.50% times the
Maximum Facility Amount, (b) during the period of time from and including the date that is the first anniversary of the Closing Date up to the date that is the second anniversary of the Closing
Date, 0.375% times the Maximum Facility Amount, and (c) during the period of time from and including the date that is the 

3

 

second anniversary of the Closing Date up to the Maturity Date, 0.25% times the Maximum Facility Amount. 

    "Assignee" has the meaning set forth in Section 14.1. 

    "Assignment and Acceptance" means an Assignment and Acceptance in the form of  Exhibit A-1 attached hereto. 

    "Authorized Person" means any officer or other employee of Administrative Borrower. 

    "Availability" means, as of any date of determination, determined at the close of business on such date, if such date is a Business
Day, and determined at the close of business on the immediately preceding Business Day, if such date of determination is not a Business Day, the amount that Borrowers are entitled to borrow as
Advances under Section 2.1 (after giving effect to all then outstanding Obligations and all sublimits and Reserves applicable hereunder). 

    "Bankruptcy Code" means the United States Bankruptcy Code, as amended, and any successor statute. 

    "Base LIBOR Rate" means the rate per annum, determined by Agent (rounded upwards, if necessary, to the next 1/16%) at
which Dollar deposits are offered to Wells Fargo in the London interbank market on or about 11:00 a.m. (California time) 2 Business Days prior to the commencement of the applicable Interest
Period, for a term and in amounts comparable to the Interest Period and amount of the LIBOR Rate Advance requested by Borrowers in accordance with this Agreement. 

    "Base Rate" means, the rate of interest publicly announced by Wells Fargo as its "prime rate", with the understanding that the "prime
rate" is one of Wells Fargo's base rates (not necessarily the lowest of such rates) and serves as the basis upon which effective rates of interest are calculated for those loans making reference
thereto. 

    "Base Rate Advance" means each portion of an Advance bearing interest at a rate determined by reference to the Base Rate. 

    "Benefit Plan" means a "defined benefit plan" (as defined in Section 3(35) of
ERISA) for which any Borrower or any Subsidiary or ERISA Affiliate of such Borrower has been an "employer" (as defined in Section 3(5) of ERISA) within the past six years. 

    "Board of Directors" means the Board of Directors of GCI or any committee thereof duly authorized to act on behalf of the Board of
Directors. 

    "Books" means all of any Borrower's books and records (including all of its records indicating, summarizing, or evidencing its assets
(including the Collateral) or liabilities, all of its information relating to its business operations or financial condition, and all of its computer programs, disks, files, printouts, runs, or other
computer prepared information). 

    "Borrowers" means GCI, GCS and MFI, individually and collectively, jointly and severally, and each of them is referred to as a
"Borrower." 

    "Borrowing" means a borrowing hereunder consisting of Advances made on the same day by the Lenders, or Agent on behalf thereof, to
Administrative Borrower, or by Swing Lender in the case of a Swing Loan, or by Agent in the case of an Agent Advance. 

    "Borrowing Base" has the meaning set forth in Section 2.1. 

    "Borrowing Base Certificate" means a certificate in the form of  Exhibit B-1. 

    "Business" means the business of marketing, renting, selling, leasing or otherwise providing musical instruments or related services,
as well as other products, parts, materials, supplies and services relating 

4

 

to the marketing, rental, sale, lease or other distribution of musical instruments or related services heretofore conducted by Sellers. 

    "Business Day" means any day that is not a Saturday, Sunday, or other day on which national banks are authorized or required to close. 

    "Capital Lease" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. 

    "Capital Stock" of any Person means any and all shares, interests, participations, or other equivalents (however designated) of, or
rights, warrants, or options to purchase, corporate stock or any other equity interest (however designated) of or in such Person. 

    "Capitalized Lease Obligation" means any Indebtedness represented by obligations under Capital Lease. 

    "Cash Equivalents" means and refers to: (a) marketable direct obligations issued or unconditionally guaranteed by the United
States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one (1) year from the date of acquisition thereof;
(b) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public agency or instrumentality thereof maturing
within one (1) year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from either S&P or Moody's; (c) commercial paper maturing
no more than one (1) year from the date of acquisition thereof and, at the time of acquisition, having a rating of A-2 or P-2, or better, from S&P or Moody's;
(d) certificates of deposit or bankers' acceptances maturing within one (1) year from the date of acquisition thereof either (i) issued by any bank organized under the laws of the
United States of America or any state thereof or the District of Columbia which bank has a rating of A or A2, or better, from S&P or Moody's, or (ii) certificates of deposit less than or equal
to One Hundred Thousand Dollars ($100,000) in the aggregate issued by any other bank insured by the Federal Deposit Insurance Corporation. 

    "Change of Control" means and refers to the occurrence of one or more of the following events: (a) any Person, other than
Permitted Holders, or related group for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof, shall become the beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of GCI representing at least thirty percent (30%) of the Voting Stock of GCI, (b) GCI shall hold
directly less than 100% of the issued and outstanding Stock of GCS, (c) GCI shall hold directly less than 100% of the issued and outstanding Stock of MFI (d) GCI shall hold directly less
than 100% of the issued and outstanding Stock of each Guarantor other than MCI, or (e) a majority of the members of the Board of Directors shall not constitute Continuing Directors. For
purposes of this definition, "Board of Directors" does not include any committee thereof. 

    "Closing Date" means the date of the making of the initial Advance (or other extension of credit) hereunder. 

    "Code" means the California Uniform Commercial Code, as in effect from time to time. 

    "Collateral" means all of each Borrower's right, title, and interest in and to each of the following: 

    (a) the
Accounts, 

    (b) the
Books, 

    (c) the
Equipment, 

    (d) the
General Intangibles, 

    (e) the
Inventory, 

5

 

    (f)  the Investment Property, 

    (g) the
Negotiable Collateral, 

    (h) the
Real Property Collateral, 

    (i)  any
money, or other assets of a Borrower that now or hereafter come into the possession, custody, or control of any member of the Lender Group, and 

    (j)  the
proceeds and products, whether tangible or intangible, of any of the foregoing, including proceeds of insurance covering any or all of the foregoing, and any
and all Accounts, Books, Equipment, General Intangibles, Inventory, Investment Property, Negotiable Collateral, Real Property, money, deposit accounts, or other tangible or intangible property
resulting from the sale, exchange, collection, or other disposition of any of the foregoing, or any portion thereof or interest therein, and the proceeds thereof. 

The
foregoing notwithstanding, the "Collateral" shall not include any (i) General Intangibles that are now or hereafter held by a Borrower as licensee or otherwise, solely in the event and to
the extent that: (a) as the proximate result of the grant, assignment, transfer, or conveyance of a security interest, such Borrower's rights in or with respect to such item of General
Intangibles would be forfeited or would become void, voidable, terminable, or revocable, or if such Borrower would be deemed to have breached, violated, or defaulted the underlying license or other
agreement that governs such item of General Intangibles pursuant to the restrictions in the underlying license or other agreement that governs such item of General Intangibles; (b) any such
restriction shall be effective and enforceable under applicable law, including Section 9318(4) of the Code; and (c) any such forfeiture, voidness, voidability, terminability,
revocability, breach, violation, or default cannot be remedied by such Borrower using its best efforts (but without any obligation to make any material expenditures of money
or to commence legal proceedings); provided, however, that the grant, assignment, transfer, and conveyance of security interest hereunder shall extend
to, and the term "Collateral" shall include, (1) any and all proceeds of such item of General Intangibles to the extent that the assignment or encumbering of such proceeds is not so restricted,
and (2) upon any such licensor or other applicable party's consent with respect to any such otherwise excluded item of General Intangibles being obtained, thereafter such item of General
Intangibles as well as any proceeds thereof that might theretofore have been excluded from such grant, assignment, transfer, and conveyance of a security interest and the term "Collateral;"
(ii) Equipment, acquired with Permitted Purchase Money Indebtedness, that is subject to a Purchase Money Lien that is a Permitted Lien, and the holder of such Purchase Money Lien has prohibited
a Borrower from granting any other Lien in such Equipment as a condition to Borrower obtaining or maintaining the Permitted Money Indebtedness, and the Borrower has not otherwise obtained a waiver of
such condition; (iii) MCI's equity interest in Musician.com, to the extent that the grant, assignment, transfer, or conveyance of a security interest in such equity interests or foreclosure
thereof is prohibited by the Musician.com Agreements; and (iv) Equipment, acquired with Indebtedness permitted pursuant to Section 7.1(h),
that is subject of a Lien that is a Permitted Lien, and the holder of such Lien has prohibited the applicable Borrower from granting any other Lien in such Equipment as a condition to such Borrower
obtaining or maintaining such Indebtedness, and the Borrower has not otherwise obtained a waiver of such condition. 

    "Collateral Access Agreement" means a landlord waiver, bailee letter, or acknowledgement agreement of any lessor, warehouseman,
processor, consignee, or other Person in possession of, having a Lien upon, or having rights or interests in the Equipment or Inventory, in each case, in form and substance reasonably satisfactory to
Agent. 

    "Collections" means all cash, checks, notes, instruments, and other items of payment
(including insurance proceeds, proceeds of cash sales, rental proceeds, and tax refunds) of Borrowers. 

6

 

    "Commitment" means, with respect to each Lender, its Revolving Credit Commitment, and, with respect to all Lenders, their Revolving
Credit Commitments, in each case as such Dollar amounts are set forth beside such Lender's name under the applicable heading on  Schedule C-1 attached hereto or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 14.1. 

    "Compliance Certificate" means a certificate substantially in the form of  Exhibit C-2 delivered by the chief financial officer of Administrative Borrower to Agent.

    "Concentration Account Banks" means, collectively, the GCI Concentration Account Bank and the MFI Concentration Account Bank. 

    "Concentration Accounts" means, collectively, the GCI Concentration Account and the MFI Concentration Account. 

    "Continuing Director" means and refers to (a) any member of the Board of Directors who was a director of GCI on the Closing
Date, and (b) any person who becomes a member of the Board of Directors after the Closing Date if such person was appointed or nominated for election to the Board of Directors by a majority of
the Continuing Directors (including any such Continuing Director previously appointed pursuant to this clause (b)), but excluding any such person originally proposed for election in opposition
to the Board of Directors in office at the Closing Date in an actual or threatened election contest relating to the election of the directors of GCI (as such terms are used in
Rule 14a-11 under the Exchange Act) and whose initial assumption of office resulted from such contest or the settlement thereof. 

    "Control Agreement" means a control agreement, in form and substance reasonably satisfactory to Agent, between the applicable Obligor,
Agent, and the applicable securities intermediary with respect to the applicable Securities Account and related Investment Property. 

    "Credit Card Agreements" means those certain agreements between Agent and the credit card clearinghouses and processors of a Borrower
acceptable to Agent in the exercise of its Permitted Discretion, pursuant to which such credit card clearinghouses or processors agree to transfer on a daily basis all credit card receipts of such
Borrower, or other amounts payable by such clearinghouses or processors, into the Concentration Account. 

    "Cycle Count Manual" means that certain procedures manual of the Borrowers titled "Guitar Center Count Guide", which sets forth the
policies and procedures utilized by Borrowers in the conduct of their inventory cycle counts. 

    "Daily Balance" means, with respect to each day during the term of this Agreement, the amount of an Obligation owed at the end of such
day. 

    "DDA" means any checking or other demand deposit account maintained by Borrowers. 

    "Default" means an event, condition, or default that, with the giving of notice, the passage of time, or both, would be an Event of
Default. 

    "Defaulting Lender" means any Lender that fails to make any Advance that it is required to make hereunder on any Funding Date and that
has not cured such failure by making such Advance within 1 Business Day after written demand upon it by Agent to do so. 

    "Defaulting Lenders Rate" means the Base Rate for the first 3 days from and after the date the relevant payment is due and,
thereafter, at that interest rate then applicable to the relevant Loan. 

    "Designated Account" means account number 4629 103789 of GCS maintained with the Designated Account Bank, or such other deposit account
of GCS (located within the United States) that has been designated as such, in writing, by Administrative Borrower to Agent. 

7

 
    "Designated Account Bank" means Wells Fargo, whose office is located at Warner Ranch Commercial Banking Office, 6001 Topanga Canyon
Boulevard, Suite 205, Woodland Hills, California 91367, and whose ABA number is 121 000 248. 

    "Dilution" means, as of any date of determination, a percentage, based upon the experience of the Borrowers for such immediately prior
3 month period, that is the result of dividing the Dollar amount of (a) bad debt write-downs, discounts, advertising allowances, returns, credits, or other dilutive items with respect to
Eligible Accounts, by (b) Borrowers' Collections with respect to Eligible Accounts (excluding extraordinary items) plus the Dollar amount of
clause (a). 

    "Dilution Reserve" means, as of any date of determination, an amount sufficient to reduce the advance rate against Eligible Accounts by
one percentage point for each percentage point by which Dilution is in excess of percentage amount as is determined by Agent from time to time in its Permitted Discretion. 

    "Documentation Agent" means FRF, solely in its capacity as documentation agent for the Lenders, and shall include any successor
documentation agent. 

    "Documentation Agent-Related Persons" means Documentation Agent and any successor syndication and arrangement agent together with their
respective Affiliates, and the officers, directors, employees, counsel, agents, and attorneys-in-fact of such Persons and their Affiliates. 

    "Dollars" or "$" means United States dollars. 

    "EBITDA" means, with respect to any period, the consolidated net income of GCI and its Subsidiaries for such period (a) plus all
interest expense, income tax expense, depreciation and amortization (including amortization of any goodwill or other intangibles) for such period, (b) minus gains attributable to any fixed
asset sales in such period, (c) plus the transaction and conversion costs related to the acquisition of MFI,
(d) plus an amount equal to the cumulative effect of the accounting change for the pre-opening costs of GCI as required by GAAP,
(e) plus or minus any other non-cash charges or extraordinary expenses or income
which may have been subtracted or added in calculating consolidated net income for such period, and (f) plus, if the American Music Acquisition closes (i) for the period ending
June 30, 2001, $3,000,000, (ii) for the period ending September 30, 2001, $2,000,000, and (iii) for the period ending December 31, 2002, $1,000,000. 

    "Eligible Accounts" means, from and after the Receivables Activation Date, those rights to payment against credit card clearinghouses
or, processors subject to Credit Card Agreements acceptable to Agent, in the exercise of its Permitted Discretion, created by a Borrower in the ordinary course of its business, that arise out of such
Borrower's sale of goods or rendition of services, that comply with each and all of the representations and warranties respecting Eligible Accounts made by Borrowers in the Loan Documents, and that
are not excluded as ineligible by virtue of the one or more of the criteria for Eligible Accounts established by Agent from time to time in its Permitted Discretion as a result of its field audit or
other due diligence efforts. Any goods giving rise to Eligible Accounts have been delivered to the customer, or to the customer's agent for immediate shipment to and unconditional acceptance by the
customer. Eligible Account shall not include the following unless an exception to any of the following has been consented to in writing by Agent: 

    (a) an
Account owed by an employee, Affiliate, or agent of any Borrower, 

    (b) an
Account to the extent arising on account of a transaction wherein goods were placed on consignment or were sold pursuant to a guaranteed sale, a sale or return,
a sale on approval, a bill and hold, or on any other terms by reason of which the payment by the Account Debtor may be conditional, 

    (c) an
Account payable in a currency other than Dollars, 

8

 

    (d) an Account that is owed by an Account Debtor that has asserted a right of setoff, has disputed its liability, or has made any claim with respect to its obligation
to honor a Borrower's right to payment, to the extent of the amount owed by such Borrower to the Account Debtor, the amount of such actual or asserted right of setoff, or the amount of such dispute or
claim, as the case may be 

    (e) an
Account with respect to which the Account Debtor is subject to any Insolvency Proceeding, or becomes insolvent, or goes out of business; 

    (f)  an
Account to the extent that the collection of which Agent, in its Permitted Discretion, believes to be doubtful by reason of the Account Debtor's financial
condition; 

    (g) on
account of a transaction to the extent to which the goods, the sale of which gives rise to such right to payment, have not been shipped and billed to a
Borrower's customer or the services giving rise to such right to payment have not been performed and accepted by a Borrower's customer, 

    (h) with
the exception of Household Retail Services USA and Conseco Finance Services Corp. a right to payment against a private label credit card clearinghouse or
processor, 

    (i)  other
than a right to payment subject to a valid and enforceable Credit Card Agreement, 

    (j)  a
right to receive progress payments or other advance billings that are due prior to the completion of performance by a Borrower of the subject contract for goods
or services, and 

    (k) otherwise
not in compliance with any other criteria for eligibility established from time to time by Agent in its Permitted Discretion. 

    "Eligible Inventory" means Inventory consisting of first quality new, and merchantable used and vintage, finished goods held for sale
in the ordinary course of a Borrower's business, that complies with each and all of the representations and warranties respecting Eligible Inventory made by Borrowers in the Loan Documents, and that
are not excluded as ineligible by virtue of the one or more of the criteria set forth below. In determining the amount to be so included, Inventory shall be valued at the lower of cost or market on a
basis consistent with Borrowers' historical accounting practices. An item of Inventory shall not be included in Eligible Inventory if: 

    (a) a
Borrower does not have good, valid, and marketable title thereto, 

    (b) it
is not located at one of Borrowers' warehouse locations set forth on Schedule E-1 (or
in-transit from one of Borrowers' warehouse locations to another), or located at (or in-transit from one of Borrowers' warehouse locations to) one of Borrowers' business
locations set forth on Schedule E-2 that offers finished goods for sale to the general public (each a "Retail
Store"), or located at one of Borrowers' offsite storage locations set forth on Schedule E-3 (each an
"Offsite Storage Location") (or in-transit from a Retail Store to an Offsite Storage Location or in transit from an Offsite Storage Location
to a Retail Store), 

    (c) if
it is (i) located at one of Borrowers' warehouse locations set forth on Schedule E-1 or
stored with a warehouseman or other third Person and it is not subject to a Collateral Access Agreement executed by the lessor or warehouseman or (ii) located at one of Borrowers' Retail Stores
or Offsite Storage Locations and that is located in one of the Specified States unless it is subject to a Collateral Access Agreement executed by the lessor or unless Agent has established Reserves
with respect thereto against the Borrowing Base as provided in Section 2.1(b)(iii), 

    (d) it
is not subject to a valid and perfected first priority security interest in favor of Agent, for the benefit of the Lender Group, 

9

 

    (e) it consists of goods returned or rejected by a Borrower's customers (other than in the ordinary course of such Borrower's business and which otherwise comply with
the criteria for Eligible Inventory), 

    (f)  it
consists of Slow Moving Inventory, or 

    (g) it
consists of goods that are custom items, work-in-process, or goods that constitute spare parts, packaging and shipping materials,
supplies used or consumed in a Borrower's business (but not including accessories to musical instruments held for sale), bill and hold goods, damaged or defective goods, samples, "seconds," or
Inventory acquired on consignment. 

For
clarity, goods on consignment under rent-to-purchase programs or satellite arrangements with third parties for rent-to-purchase programs for musical
instruments shall not be classified as "Eligible Inventory." 

    "Eligible Transferee" means (a) any one or more of: Bank of America, N.A., FleetBoston, N.A., Union Bank of California, The CIT
Group, La Salle Bank, N.A., Sanwa Bank of California, and GECC, or any Affiliate thereof, (b) any Affiliate (other than individuals) of a pre-existing Lender, (c) so long as
no Event of Default has occurred and is continuing, any other Person approved by Agent and Administrative Borrower (such approval by Administrative Borrower not to be unreasonably withheld,
conditioned or delayed), and (d) during the continuation of an Event of Default, any other Person approved by Agent. 

    "Equipment" means all of Borrowers' present and hereafter acquired machinery, machine tools, motors, equipment, furniture, furnishings,
fixtures, vehicles (including motor vehicles and trailers), tools, parts, goods (other than consumer goods, farm products, or Inventory), wherever located, including all attachments, accessories,
accessions, replacements, substitutions, additions, and improvements to any of the foregoing. 

    "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and any successor statute thereto. 

    "ERISA Affiliate" means (a) any corporation subject to ERISA whose employees are treated as employed by the same employer as the
employees of a Borrower under IRC Section 414(b), (b) any trade or business subject to ERISA whose employees are treated as employed by the same employer as the employees of a Borrower
under IRC Section 414(c), (c) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any organization subject to ERISA that is a member of an affiliated
service group of which a Borrower is a member under IRC Section 414(m), or (d) solely for purposes of Section 302 of ERISA and Section 412 of the IRC, any party subject to
ERISA that is a party to an arrangement with a Borrower and whose employees are aggregated with the employees of a Borrower under IRC Section 414(o). 

    "ERISA Event" with respect to any Person means (a) the occurrence of a reportable event, within the meaning of
Section 4043 of ERISA, with respect to any Plan of such Person or any of its ERISA Affiliates unless the 30-day notice requirement with respect to such event has been waived by the
PBGC; (b) the provision by the administrator of any Plan of such Person or any of its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of
ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation of operations at a facility of such Person or any of its
ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (d) the withdrawal by such Person or any of its ERISA Affiliates from a Multiple Employer Plan during a plan
year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person or any of its ERISA Affiliates to make a payment to a Plan which
failure would result in the imposition of a Lien under Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of such Person or any of its ERISA Affiliates requiring the
provision of security to such Plan, pursuant to Section 307 of ERISA; or 

10

 

(g) the institution by the PBGC of proceedings to terminate any Plan of such Person or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that could constitute grounds for the termination of, or the appointment of a trustee to administer, such Plan. 

    "Event of Default" has the meaning set forth in Section 8. 

    "Excess Availability" means the amount, as of the date any determination thereof is to be made, equal to Availability  plus Borrowers' cash and Borrowers' Cash
Equivalents, minus the aggregate amount, if any, of all trade
payables of Borrowers aged in excess of Borrowers' historical levels with respect thereto and all book overdrafts in excess of Borrowers' historical practices with respect thereto, in each case as
determined by Agent in its Permitted Discretion. 

    "Exchange Act" means the Securities Exchange Act of 1934, as amended, and any successor statute. 

    "Facility Amount" means, as of the date of any determination thereof, the maximum amount of Advances that then may be outstanding
subject to the limitations, deductions, reserves and other
conditions set forth in Section 2.1, which amount (i) shall be subject to decrease in accordance with  Section 2.2, (ii) shall at no
time be less than $75,000,000, and (iii) shall at no time exceed the Maximum Facility Amount. 

    "Family Member" means, with respect to any individual, any other individual having a relationship by blood (to the second degree of
consanguinity), marriage, or adoption to such individual. 

    "Family Trusts" means, with respect to any individual, trusts or other estate planning vehicles established for the benefit of Family
Members of such individual and in respect of which such individual serves as trustee or in a similar capacity. 

    "Fee Letter" shall mean that certain letter agreement, dated as of the Prior Closing Date, between the Borrowers and Agent, for the
sole and separate account of Agent, setting forth certain fees payable to Agent, as amended as of the date hereof by the Omnibus Amendment. 

    "Fee Split Letter" shall mean that certain letter agreement, dated as of the Prior Closing Date, between Foothill, in its individual
capacity, and FRF, in its individual capacity, setting forth the allocation to FRF of certain fees payable by Borrowers to Agent pursuant to the Fee Letter, as amended as of the date hereof by the
Omnibus Amendment. 

    "FEIN" means Federal Employer Identification Number. 

    "Foothill" means Foothill Capital Corporation, a California corporation. 

    "FRF" means Fleet Retail Finance, Inc., a Delaware corporation, predecessor by name change to BankBoston Retail
Finance, Inc.. 

    "Funded Debt" means and refers to all consolidated Indebtedness of GCI or its Subsidiaries that matures one (1) year or more
from the date of issuance, or that is renewable or extendable, at the sole option of GCI or its Subsidiaries, as applicable, by its terms to a date that is one (1) year or more from the date of
issuance thereof, or that, under a revolving credit or similar agreement, obligates the lender to extend credit over a period of one (1) year or more from the date of issuance other than
Indebtedness permitted under Section 7.1(h). 

    "Funding Date" means the date on which a Borrowing occurs. 

    "Funding Losses" has the meaning set forth in Section 2.13(b)(ii). 

    "GAAP" means generally accepted accounting principles as in effect from time to time in the United States, consistently applied. 

11

 

    "GCI" has the meaning set forth in the preamble to this Agreement. 

    "GCI Concentration Account" has the meaning set forth in Section 2.7(a). 

    "GCI Concentration Account Bank" has the meaning set forth in Section 2.7(a). 

    "GCS" has the meaning set forth in the preamble to this Agreement. 

    "GCS Collection Account" has the meaning set forth in Section 2.7(b). 

    "GCS Collection Account Bank" has the meaning set forth in Section 2.7(b). 

    "General Intangibles" means all of Borrowers' present and future general intangibles and other personal property (including contract
rights, rights to payment against credit card clearinghouses and processors, rights arising under common law, statutes, or regulations, choses or things in action, goodwill, patents, trade names,
trademarks, servicemarks, copyrights, blueprints, drawings, purchase orders, customer lists, monies due or recoverable from pension funds, route lists, rights to payment and other rights under any
royalty or licensing agreements, infringement claims, computer programs, information contained on computer disks or tapes, literature, reports, catalogs, money, deposit accounts, insurance premium
rebates, tax refunds, and tax refund claims), other than goods, Accounts, Investment Property, and Negotiable Collateral. 

    "Governing Documents" means, with respect to any Person, the certificate or articles of incorporation, by-laws, or other
organizational documents of such Person. 

    "Governmental Authority" shall mean any federal, state, local, or other governmental or administrative body, instrumentality,
department, or agency or any court, tribunal, administrative hearing body, arbitration panel, commission, or other similar governmental or administrative dispute-resolving panel or body. 

    "Guarantor" means, individually and collectively, any one or more of MCI, for so long as the Borrowers hold 50% or more of the issued
and outstanding Stock of MCI, and each other Subsidiary of the Borrowers, other than MFI and GCS. 

    "Guarantor Security Agreement" means that certain Security Agreement, dated as of the Prior Closing Date, made by MCI in favor of
Agent, for the benefit of the Lender Group, as amended as of the date hereof by the Omnibus Amendment. 

    "Guaranty" means that certain General Continuing Guaranty, dated as of the Prior Closing Date, made by MCI in favor of Agent, for the
benefit of the Lender Group, as amended as of the date hereof by the Omnibus Amendment. 

    "Hazardous Materials" means (a) substances that are defined or listed in, or otherwise classified pursuant to, any applicable
laws or regulations as "hazardous substances," "hazardous materials," "hazardous wastes," "toxic substances," or any other formulation intended to define, list, or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity, carcinogenicity, reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or petroleum derived substances, natural gas,
natural gas liquids, synthetic gas, drilling fluids, produced waters, and other wastes associated with the exploration, development, or production of crude oil, natural gas, or geothermal resources,
(c) any flammable substances or explosives or any radioactive materials, and (d) asbestos in any form or electrical equipment that contains any oil or dielectric fluid containing levels
of polychlorinated biphenyls in excess of 50 parts per million. 

    "Indebtedness" means, with respect to any Person, without duplication, (a) all obligations for borrowed money, (b) all
obligations evidenced by bonds, debentures, notes, or other similar instruments and all reimbursement or other obligations in respect of letters of credit, bankers acceptances, interest rate swaps, or
other financial products, (c) all obligations under Capital Leases, (d) all obligations or 

12

 

liabilities of others secured by a Lien on any property or asset of such Person, irrespective of whether such obligation or liability is assumed, and (e) any obligation of such Person
guaranteeing or intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or sold with recourse to such Person) any obligation of any other Person. 

    "Indemnified Liabilities" has the meaning set forth in Section 11.3. 

    "Indemnified Person" has the meaning set forth in Section 11.3. 

    "Insolvency Proceeding" means any proceeding commenced by or against any Person under any provision of the Bankruptcy Code or under any
other bankruptcy or insolvency law, assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with a significant number of such Person's creditors, or
proceedings seeking reorganization, arrangement, or other similar relief. 

    "Intangible Assets" means, with respect to any Person, that portion of the book value of all of such Person's assets that would be
treated as intangibles under GAAP. 

    "Interest Period" means, with respect to each LIBOR Rate Advance, a period commencing on the date of the making of such LIBOR Rate
Advance and ending 1, 2, 3 or 6 months thereafter; provided, however, that (a) if any
Interest Period would end on a day that is not a Business Day, such Interest Period shall be extended (subject to clauses (c)-(e) below) to the next succeeding Business Day, (b) interest shall
accrue from and including the first day of each Interest Period to, but excluding, the day on which any Interest Period expires, (c) any Interest Period that would end on a day that is not a
Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business
Day, (d) with respect to an Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at
the end of such Interest Period), the Interest Period shall end on the last Business Day of the calendar month that is 1, 2, 3, or 6 months after the date on which the Interest Period began, as
applicable, and (e) Borrowers may not elect an Interest Period which will end after the Maturity Date. 

    "Inventory" means all present and future inventory in which any Borrower has any interest, including goods held for sale or lease or to
be furnished under a contract of service and all of Borrowers' present and future raw materials, work in process, finished goods, and packing and shipping materials, wherever located. 

    "Inventory Reappraisal" means an appraisal of the liquidation value of Borrowers' Inventory (the methodology and implementation of such
appraisal to be satisfactory to Agent in its Permitted Discretion), conducted by an appraisal or auctioneer firm acceptable to Agent. 

    "Inventory Security Agreement" means that certain Security Agreement, dated as of the Prior Closing Date, between the Borrowers, as
debtors, and Agent, as secured party, as amended by the Omnibus Amendment. 

    "Investment" means, with respect to any Person, any investment by such Person in any other Person (including Affiliates) in the form of
loans, guarantees, advances, or capital contributions (excluding (a) commission, travel, and similar advances to officers and employees of such Person made in the ordinary course of business,
and (b) bona fide accounts receivable arising from the sale of goods or services in the ordinary course of business consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness or Stock, and any other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. 

    "Investment Property" means "investment property" as that term is defined in of the Code, whether now owned or hereafter acquired. 

13

 
    "IRC" means the Internal Revenue Code of 1986, as amended, and any successor statute. 

    "L/C" has the meaning set forth in Section 2.12(a). 

    "L/C Undertaking" has the meaning set forth in Section 2.12(a). 

    "Lender" and "Lenders" have the respective meanings set forth in the preamble to this
Agreement, and shall include any other Person made a party to this Agreement in accordance with the provisions of Section 14.1 hereof. 

    "Lender Group" means, individually and collectively, each of the Lenders, and Agent. 

    "Lender Group Expenses" means all (a) costs or expenses (including taxes, and insurance premiums) required to be paid by
Borrowers under any of the Loan Documents that are paid or incurred by the Lender Group, (b) reasonable fees or charges paid or incurred by the Lender Group in connection with the Lender
Group's transactions with Borrowers, including, fees or charges for photocopying, notarization, couriers and messengers, telecommunication, public record searches (including tax lien, litigation, and
UCC searches and including searches with the patent and trademark office, the copyright office, or the department of motor vehicles), filing, recording, publication, appraisal (including Collateral
appraisals in accordance with the provisions of this Agreement), and real estate title policies and endorsements, (c) costs and expenses incurred by Agent in the disbursement of funds to
Borrowers (by wire transfer or otherwise), (d) charges paid or incurred by Agent resulting from the dishonor of checks, (e) reasonable costs and expenses paid or incurred by the Lender
Group to correct any default or enforce any provision of the Loan Documents, or in gaining possession of, maintaining, handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of whether a sale is consummated, (f) reasonable costs and expenses paid or incurred by the Lender Group in examining
the Books, (g) reasonable costs and expenses of third party claims or any other suit paid or incurred by the Lender Group in enforcing or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or the Lender Group's relationship with Borrowers or any guarantor under the Loan Documents, (h) Agent's reasonable fees and expenses (including
reasonable attorneys fees) incurred in advising, structuring, drafting, reviewing, administering, amending, terminating, enforcing (including reasonable attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding concerning any Borrower or any guarantor of the Obligations), defending, or concerning the Loan Documents, irrespective of
whether suit is brought, and (i) each of the Lenders' reasonable fees and expenses (including reasonable attorneys fees) incurred in terminating, enforcing (including reasonable attorneys fees
and expenses incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning any Borrower), or defending the Loan Documents, irrespective of whether suit is brought. 

    "Lender-Related Person" means, with respect to any Lender, such Lender, together with such Lender's Affiliates, and the officers,
directors, employees, counsel, and agents of such Lender. 

    "Letter of Credit" means an L/C or an L/C Undertaking, as the context requires. 

    "Letter of Credit Usage" means, as of any date of determination, the aggregate undrawn amount of all outstanding Letters of Credit. 

    "Leverage Ratio" means and refers to, for the period to be determined, the ratio of (a) the aggregate amount of Funded Debt as
of the last day of such period, to (b) consolidated EBITDA for such period. 

    "LIBOR Deadline" has the meaning set forth in Section 2.13(b)(ii). 

    "LIBOR Notice" means a written notice in the form of Exhibit L-1
attached hereto. 

14

 

    "LIBOR Rate" means, for each Interest Period for each LIBOR Rate Advance, the rate per annum determined by Agent (rounded upwards, if
necessary, to the next 1/16%) determined by dividing (a) the Base LIBOR Rate for such Interest Period, by (b) 100% minus the Reserve Percentage. The LIBOR Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage. 

    "LIBOR Rate Advance" means each portion of an Advance bearing interest at a rate determined by reference to the LIBOR Rate. 

    "Lien" means any interest in property securing an obligation owed to, or a claim by, any Person other than the owner of the property,
whether such interest shall be based on the common law, statute, or contract, whether such interest shall be recorded or perfected, and whether such interest shall be contingent upon the occurrence of
some future event or events or the existence of some future circumstance or circumstances, including the lien or security interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement, conditional sale or trust receipt, or from a lease, consignment, or bailment for security purposes and
also including reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases, and other title exceptions and encumbrances
affecting Real Property. 

    "Loan Account" has the meaning set forth in Section 2.10. 

    "Loan Documents" means this Agreement, the Disbursement Letter, the Letters of Credit, the Suretyship Agreement, the Guaranty, the
Guarantor Security Agreement, the tri-party blocked account agreements governing the GCS Collection Accounts, the GCI Concentration Account and the MFI Concentration Account, the
Collateral Access Agreements, any Control Agreement, the Mortgages, the Stock Pledge Agreement, the Trademark Security Agreement, the Inventory Security Agreement, the Fee Letter, the Omnibus
Amendment, and any other agreement entered into, now or in the future, by any Obligor and the Lender Group in connection with this Agreement. 

    "Material Adverse Change" means (a) a material adverse change in the business, operations, results of operations, assets,
liabilities or condition (financial or otherwise) of GCI and its Subsidiaries taken as a whole, (b) the material impairment of any Borrower's ability to perform its obligations under the Loan
Documents to which it is a party or of the Lender Group's ability to enforce the Obligations or realize upon the Collateral, or (c) a material impairment of the priority of the Agent's Liens
with respect to the Collateral as a result of an action or failure to act on the part of any Borrower. 

    "Maturity Date" has the meaning set forth in Section 3.4. 

    "Maximum Facility Amount" means $150,000,000. 

    "MCI" means Musician's Choice, Inc., a Delaware corporation. 

    "MFI" has the meaning set forth in the preamble to this Agreement. 

    "MFI Concentration Account" has the meaning set forth in Section 2.7(c). 

    "MFI Concentration Account Bank" has the meaning set forth in Section 2.7(c). 

    "Mortgage" means, individually and collectively, one or more mortgages, deeds of trust, or deeds to secure debt, executed and delivered
by an Obligor in favor of Agent, for the benefit of the Lender
Group, the form and substance of which shall be satisfactory to Agent, in Agent's Permitted Discretion, that encumber Real Property Collateral and the related improvements thereto. 

    "Multiemployer Plan" of any Person means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which such Person
or any of its ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. 

15

 

    "Multiple Employer Plan" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that
(a) is maintained for employees of such Person or any of its ERISA Affiliates and at least one Person other than such Person and its ERISA Affiliates or (b) was so maintained and in
respect of which such Person or any of its then current ERISA Affiliates could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. 

    "Musician.com Agreements" means (a) that certain Stockholders Agreement, dated as of August 11, 2000, by and among
Musician.com Internet Network, Musician's Choice, Inc., MusicianFirst, LLC and the other persons listed on the signatory pages thereto, and (b) the other agreements and documents related
to MCI's investment in Musician.com. 

    "Negotiable Collateral" means all of Borrowers' now owned and hereafter acquired letters of credit, notes, drafts, instruments,
security certificates, documents (as defined in the Code), and chattel paper. 

    "Net Cash Proceeds" means, (a) the gross cash proceeds received by any Borrower in respect of a Permitted Disposition of Real
Property Collateral, less (b) the sum of (i) the amount, if any, of all taxes (other than income taxes) payable by such Borrower in connection with such Permitted Disposition and such
Borrower's good faith best estimate of the amount of all income taxes payable in connection with such Permitted Disposition, (ii) (A) the amount of any reasonable reserve established in
accordance with GAAP against any liabilities associated with the Real Property Collateral sold and leased back and retained by any Borrower provided that the amount of any subsequent reduction of such
reserve (other than in connection with a payment in respect of any such liability) shall be deemed to be Net Cash Proceeds of such Permitted Disposition occurring on the date of such reduction, and
(B) the amount applied to repay any Indebtedness to the extent such Indebtedness is required by its terms to be repaid as a result of such Permitted Disposition, and (iii) reasonable and
customary fees, commissions, and expenses and other costs paid by such Borrower in connection with such Permitted Disposition (other than those payable to any Affiliate thereof), in each case only to
the extent not already deducted in arriving at the amount referred to in clause (a). 

    "Net Liquidation Percentage" means the percentage of book value estimated to be recoverable in an orderly liquidation of Borrowers'
Inventory, such percentage to be as determined by a qualified appraisal company selected by Agent. 

    "Obligations" means all loans, Advances, debts, principal, interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), contingent reimbursement obligations with respect to Letters of Credit, premiums, liabilities (including all amounts charged to Borrowers' Loan Account pursuant
hereto), obligations, fees, charges, costs, or Lender Group Expenses (including any fees or expenses that, but for the provisions of the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by any Borrower to the Lender Group of any kind and description pursuant to or evidenced by the Loan Documents (and irrespective of whether for the payment of
money), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and including all interest not paid when due and all Lender Group Expenses that a
Borrower is required to pay or reimburse by the Loan Documents, by law, or otherwise. 

    "Obligors" means, collectively, jointly and severally, Borrowers and the Guarantor, and
"Obligor" means any one of them. 

    "Offsite Storage Location" is defined in clause (b) of the definition of "Eligible Inventory." 

    "Omnibus Amendment" means that certain Omnibus Amendment, dated as of the date hereof, among the Obligors and Agent effecting certain
amendments to certain of the Loan Documents to reflect the capitalization of GCS and GCS becoming a Borrower hereunder. 

16

 

    "Originating Lender" has the meaning set forth in Section 14.1(e). 

    "Overadvance" has the meaning set forth in Section 2.5. 

    "Participant" has the meaning set forth in Section 14.1(e). 

    "Permitted Acquisition" means (i) the American Music Acquisition; and (ii) an Acquisition of all or substantially all of
the assets or Stock of another Person made by a Borrower so long as (a) no Default or Event of Default shall have occurred and be continuing or would result from the consummation of the
proposed Acquisition, (b) the assets being acquired, or the Person whose Stock is being acquired,
are useful in or engaged in, as applicable, the Business, (c) the aggregate consideration (but excluding consideration paid or payable in the common Stock of GCI or other Stock of GCI that does
not require any cash payment until after the second anniversary of the Maturity Date) paid or payable for Permitted Acquisitions during any fiscal year, after giving effect to the proposed
Acquisition, shall not exceed $7,500,000, (d) the aggregate consideration (but excluding consideration paid or payable in the common Stock of GCI or other Stock of GCI that does not require any
cash payment until after the second anniversary of the Maturity Date) paid or payable for all Permitted Acquisitions, after giving effect to the proposed Acquisition, shall not exceed $20,000,000, and
(e) such Borrower, as applicable, shall have complied with Section 6.22. Without limiting whether or not an Acquisition shall constitute a
Permitted Acquisition, in the event that Borrowers request of Agent that the Inventory and Accounts being acquired through a Permitted Acquisition be included in the Borrowing Base as Eligible
Accounts or Eligible Inventory, as the case may be, Agent shall have completed its audit, appraisal, and standard due diligence review with respect to the assets or Person that is to be the subject of
the proposed Permitted Acquisition and the results thereof shall be satisfactory to Agent in the exercise of its Permitted Discretion before such Inventory or Accounts shall be included in the
Borrowing Base. 

    "Permitted Discretion", with respect to any determination by a member of the Lender Group, means a determination made in good faith and
in the exercise of reasonable (from the perspective of a secured asset-based lender) business judgment. 

    "Permitted Dispositions" means (a) sales, exchanges, trade-ins, or other dispositions of Equipment that is
significantly worn, damaged, or obsolete in the ordinary course of a Borrower's business, (b) sales of Inventory to buyers in the ordinary course of a Borrower's business, (c) the use or
transfer of money, or Cash Equivalents by an Obligor to a Borrower or otherwise in a manner that is not prohibited by the terms of this Agreement or the other Loan Documents, (d) the licensing
by an Obligor, on a non-exclusive basis, of patents, trademarks, copyrights, and other intellectual property rights in the ordinary course of such Obligor's business, (e) provided
that no Event of Default has occurred and is continuing or would result therefrom, including an Event of Default resulting from a Change of Control, the sale, transfer, or other disposition by GCI of
the Stock or assets of MCI, (f) provided that no Event of Default has occurred and is continuing or would result therefrom, the sale, license, lease, exchange, transfer, or other dispositions
of any parcel or parcels of Real Property owned in fee by GCI (including goods that are fixtures and Equipment associated with the property in an amount not to exceed $50,000) as of the Closing Date
and not comprising Real Property Collateral, (g) provided that no Event of Default has occurred and is continuing or would result therefrom, the sale and lease-back of the retail
store #110 owned in fee by GCI and located in Hollywood, California, as more specifically described on Schedule R-1,  provided that GCI receives a
minimum of $3,000,000 in Net Cash Proceeds from such sale and lease-back, (h) provided that no Event of
Default has occurred and is continuing or would result therefrom, the sale or sale and lease-back of distribution center owned in fee by MFI and located in Medford, Oregon, as more
specifically described on Schedule R-1, provided that MFI receives a minimum of
$1,700,000 in Net Cash Proceeds from such sale and lease-back, and (i) provided that no Event of Default has occurred and is continuing or would result therefrom, including an Event
of Default resulting from a Change of Control, the sale, license, lease, 

17

 

exchange, transfer, or other dispositions of any other tangible personal property of the Obligors that do not exceed, on a book value basis, $500,000 in the aggregate is any fiscal year. 

    "Permitted Holders" means the individuals referenced in the Permitted Holders Side Letter and their Family Members, and their Family
Trusts. 

    "Permitted Holders Side Letter" means that certain side letter, dated as of the Prior Closing Date, between Borrowers and Agent. 

    "Permitted Investments" means (a) Investments in Cash Equivalents, (b) loans and advances to officers and employees of
the Obligors in the ordinary course of business, other than as provided for in clause (c), in an aggregate amount at any one time outstanding not to exceed $500,000, (c) loans and
advances to officers and employees of the Obligors in the ordinary course of business to facilitate the purchase by such officers or employees of the Stock of GCI and the repayment of any such loans
or advances is secured by a first priority Lien on the Stock purchased thereby, in an aggregate amount outstanding at any one time not to exceed $1,000,000, (d) Investments in negotiable
instruments for collection, (e) advances made in connection with purchases of goods or services in the ordinary course of business, (f) Permitted Acquisitions, (g) Investments by
the Borrowers in MCI not to exceed $10,000,000 outstanding at any one time, (h) Investments by a Borrower in any other Borrower, and (i) other Investments in an aggregate amount not to
exceed $250,000 outstanding at any one time. 

    "Permitted Liens" means (a) Liens held by Agent for the benefit of the Lender Group, (b) Liens for unpaid taxes that
either (i) are not yet overdue or (ii) do not constitute an Event of Default hereunder and are the subject of Permitted Protests, (c) Liens set forth on  Schedule P-1, (d) the
interests of lessors under operating leases, (e) Purchase Money Liens, but only if such Lien
shall at all times be confined solely to the fixed assets the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien, or the interests of
lessors under Capital Leases to the extent that such interests secure Permitted Purchase Money Indebtedness and so long as the Lien attaches only to the asset purchased or acquired and the proceeds
thereof, (f) Liens arising by operation of law in favor of warehousemen, landlords, carriers, mechanics, materialmen, laborers, or suppliers, incurred in the ordinary course of business of
Obligors and not in connection with the borrowing of money, and which Liens either (i) are for sums not yet overdue, or (ii) are the subject of Permitted Protests, (g) Liens
arising from deposits made in connection with obtaining worker's compensation or other unemployment insurance, (h) Liens or deposits to secure performance of bids, tenders, or leases incurred
in the ordinary course of business of Obligors and not in connection with the borrowing of money, (i) Liens arising by reason of security for surety or appeal bonds in the ordinary course of
business of Obligors, (j) Liens resulting from any judgment or award that is not an Event of Default hereunder, (k) Liens with respect to Real Property Collateral that exist as of the
Closing Date, (l) with respect to any Real Property, easements, rights of way, or zoning that do not materially interfere with or impair the use or operation of the Real Property by Borrowers,
(m) Liens arising in connection with any Acquired Indebtedness, (n) Liens to secure Indebtedness permitted pursuant to  Section 7.1(h), and (o) Liens arising in connection with MCI's
ownership of Musician.com. 

    "Permitted Protest" means the right of Borrowers to protest any Lien (other than any such Lien that secures the Obligations), tax
(other than payroll taxes or taxes that are the subject of a United States federal tax lien), or rental payment, provided that (a) a reserve with respect to such obligation is established on
the Books in such amount as is required under GAAP, (b) any such protest is instituted and diligently prosecuted by Borrowers in good faith, and (c) Agent, in the exercise of its
Permitted
Discretion, is satisfied that, while any such protest is pending, there will be no impairment of the enforceability, validity, or priority of any of the Liens of Agent on behalf of the Lender Group in
and to the Collateral. 

    "Permitted Purchase Money Indebtedness" means, as of any date of determination, (i) Purchase Money Indebtedness incurred after
the Closing Date in an aggregate amount outstanding at any one 

18

 

time not to exceed $10,000,000, or (ii) Purchase Money Indebtedness incurred on or before the Closing Date and as set forth on  Schedule 7.1. 

    "Person" means natural persons, corporations, limited liability companies, limited partnerships, general partnerships, limited
liability partnerships, joint ventures, trusts, land trusts, business trusts, or other organizations, irrespective of whether they are legal entities, and governments and agencies and political
subdivisions thereof. 

    "Personal Property Collateral" means all Collateral other than such of the Real Property Collateral. 

    "Physical Count" means a physical count of Borrowers' Inventory (the methodology and implementation of such physical count to be
satisfactory to Agent in its Permitted Discretion), conducted by an appraisal, accounting, auction, or other professional firm acceptable to Agent. 

    "Plan" means a Single Employer Plan or a Multiple Employer Plan. 

    "Prior Closing Date" means December 17, 1999. 

    "Prior Loan Agreement" has the meaning set forth in the recitals to this Agreement. 

    "Projections" means GCI's forecasted consolidated (a) balance sheets, (b) profit and loss statements, (c) cash
flow statements, and (d) capitalization statements, all prepared on a consistent basis with GCI's historical financial statements, together with appropriate supporting details and a statement
of underlying assumptions. 

    "Pro Rata Share" means the percentage obtained by dividing (i) such Lender's Revolving Credit Commitment, by (ii) the
aggregate amount of all Lenders' Revolving Credit Commitments. 

    "Public Offering" means an underwritten public offering of the common Stock of any Person. 

    "Purchase Money Indebtedness" means Indebtedness (other than the Obligations, but including Capitalized Lease Obligations), incurred at
the time of, or within 20 days after, the acquisition of any fixed assets for the purpose of financing all or any part of the acquisition cost thereof. 

    "Purchase Money Lien" means a Lien upon fixed assets that secures Purchase Money Indebtedness. 

    "Real Property" means any estates or interests in real property now owned or hereafter acquired by an Obligor, and the improvements
related thereto. 

    "Real Property Collateral" means (i) the retail store #110 owned in fee by GCI and located in Hollywood, California, and
(ii) the distribution center owned in fee by MFI and located in Medford, Oregon, in each case more specifically described on  Schedule R-1, and any Real Property hereafter acquired in fee by an
Obligor. 

    "Receivables Due Diligence Date" means that date as of which Agent has completed, to its satisfaction in its Permitted Discretion, its
field audit of Borrowers' Accounts, including historic dilution, cyclical patterns, and such other matters affecting credit quality and collectability as Agent shall determine. 

    "Receivables Activation Date" means that date, on or after the Receivables Due Diligence Date, designated by written notice from the
Administrative Borrower to the Agent as the date from and after which the Borrowers elect to include Eligible Accounts in the Borrowing Base, which written notice is to be received by Agent no less
than 15 days prior to the designated Receivables Activation Date. 

    "Required Availability" means, (i) as of any date of determination from the Closing Date through July 31, 2001, Excess
Availability in an amount no less than the lesser of (A) 15% of the Facility Amount in effect on such date of determination, and (B) $15,000,000, (ii) as of any date of
determination from August 1, 2001 through August 31, 2001, Excess Availability in an amount no less than the lesser of (A) 15% of the Facility Amount in effect on such date of
determination, and 

19

 

(B) $16,000,000, (iii) as of any date of determination from September 1, 2001 through September 30, 2001, Excess Availability in an amount no less than the lesser of
(A) 15% of the Facility Amount in effect on such date of determination, and (B) $17,000,000, (iv) as of any date of determination from October 1, 2001 through
October 31, 2001, Excess Availability in an amount no less than the lesser of (A) 15% of the Facility Amount in effect on such date of determination, and (B) $18,000,000,
(v) as of any date of determination from November 1, 2001 through November 30, 2001, Excess Availability in an amount no less than the lesser of (A) 15% of the Facility
Amount in effect on such date of determination, and (B) $19,000,000, and (vi) as of any date of determination on and after December 1, 2001, Excess Availability in an amount no
less than the lesser of (A) 15% of the Facility Amount in effect on such date of determination, and (B) $20,000,000. 

    "Required Lenders" means, at any time, Lenders whose Pro Rata Shares aggregate 51% of the Commitments, or if the Commitments have been
terminated irrevocably, 51% of the Obligations then outstanding. 

    "Reserve Percentage" means, on any day, that percentage prescribed by the Board of Governors of the Federal Reserve System (or any
successor Governmental Authority) for determining the reserve requirements (including any basic, supplemental, marginal, or emergency reserves) that is in effect on such date with respect to deposits
of Dollars in a non-United States or an international banking office of a bank used to fund a LIBOR Rate Advance. 

    "Retail Store" is defined in clause (b) of the definition of "Eligible Inventory." 

    "Revolving Credit Commitment" means, for each Lender, the Dollar amount of the obligation of such Lender to make Advances (in an
aggregate amount at any one time outstanding), as such amount is set forth opposite the name of such Lender under the caption Revolving Credit Commitment on  Schedule C-1 (as such amount shall be
increased or decreased pursuant to  Section 2.2). 

    "Revolver Usage" means, as of any date of determination, the sum of (a) the aggregate amount of Advances outstanding,  plus (b) the amount of the Letter of
Credit Usage. 

    "Risk Participation Liability" means, as to each Letter of Credit, all reimbursement obligations of Borrowers to the issuer of an L/C
or to the issuer of a letter of credit with respect to the transaction for which an L/C Undertaking was executed and delivered (to the extent such reimbursement obligations are subject to such L/C
Undertaking), consisting of (a) the amount available to be drawn or which may become available to be drawn under the Letter of Credit, (b) all amounts which that been paid and made
available by the issuing bank to the extent not reimbursed by Borrowers, whether by the making of an Advance or otherwise, and (c) all accrued and unpaid interest, fees, and expenses payable
with respect thereto. 

    "SEC" means the United States Securities and Exchange Commission and any successor thereto. 

    "Securities Account" means a "securities account" as that term is defined in Section 8-501 of the Code. 

    "Seller" and "Sellers" are defined in the definition of American Music Acquisition
Documents. 

    "Senior Indenture" means the Indenture, dated as of July 2, 1996, between Guitar Center Management Company, Inc., a
California corporation (predecessor in interest by merger to GCI), as issuer, and U.S. Trust Company of California, N.A., as trustee, pursuant to which the Senior Notes were issued, as modified,
amended or replaced from time to time in a manner permitted by this Agreement. 

    "Senior Indenture Indebtedness" means the Senior Notes and any other Indebtedness of any Obligor under the Senior Indenture, together
with any refinancings thereof permitted by the terms of Section 7.8(c). 

20

 

    "Senior Note Documents" means the collective reference to the Senior Notes, the Senior Indenture and each agreement, instrument and
document delivered in connection therewith or relating thereto, as modified, amended, or replaced from time to time in a manner permitted by this Agreement. 

    "Senior Notes" means the 11% Senior Notes due 2006 of GCI issued and outstanding pursuant to the Senior Indenture, as modified, amended
or replaced from time to time in a manner permitted by this Agreement. 

    "Settlement" has the meaning set forth in Section 2.3(f)(i). 

    "Settlement Date" has the meaning set forth in Section 2.3(f)(i). 

    "Single Employer Plan" of any Person means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that
(a) is maintained for employees of such Person or any of its ERISA Affiliates and no Person other than such Person and its ERISA Affiliates or (b) was so maintained and in respect of
which such Person or any of its then current ERISA Affiliates could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. 

    "Slow Moving Inventory" means goods (i) that have been included in Borrowers' Inventory for in excess of 120 days, or
(ii) classified as slow moving on Borrowers' books and records if not otherwise included in clause (i). 

    "Solvent" means, with respect to any Person on a particular date, that such Person is not insolvent (as such term is defined in the
Uniform Fraudulent Transfer Act). 

    "Specified State" means any State which provides for a statutory lien of distraint in favor of a lessor of real property that is prior
to the Liens of Agent hereunder. 

    "Stock" means all shares, options, warrants, interests, participations, or other equivalents (regardless of how designated) of or in a
Person, whether voting or nonvoting, including common stock, preferred stock, or any other "equity security" (as such term is defined in Rule 3a11-1 of the General Rules and
Regulations promulgated by the SEC under the Exchange Act). 

    "Stock Pledge Agreement" means that certain Stock Pledge Agreement executed and delivered by GCI to Agent, and dated as of the Prior
Closing Date, as amended by the Omnibus Amendment. 

    "Subordinated Indebtedness" means any Indebtedness of a Borrower that is subordinated to the Obligations of the Borrowers under the
Loan Documents on, and that otherwise contains, terms and conditions acceptable to Agent in the exercise of its Permitted Discretion. 

    "Subsidiary" of a Person means a corporation, partnership, limited liability company, or other entity in which that Person directly or
indirectly owns or controls the shares of Stock having ordinary voting power to elect a majority of the board of directors (or appoint other comparable managers) of such corporation, partnership,
limited liability company, or other entity. 

    "Suretyship Agreement" means that certain Suretyship Agreement, dated as of the Prior Closing Date, as amended by the Omnibus
Amendment. 

    "Swing Lender" means any Lender appointed by the Agent in writing, and which appointment has been accepted by such Lender in writing,
as the "Swing Lender". 

    "Swing Loan" has the meaning set forth in Section 2.3(d)(i). 

    "Tangible Net Worth" means, as of any date of determination, the result of (a) GCI's total stockholder's equity,  minus (b) all Intangible Assets of GCI on
a consolidated basis. 

    "Trademark Security Agreement" means that certain Trademark Security Agreement made by GCI for the benefit of the Lender Group, dated
as of the Prior Closing Date, as amended by the Omnibus Amendment. 

21

 

    "Veneman" means Veneman Music Company, a Maryland corporation. 

    "Voidable Transfer" has the meaning set forth in Section 17.7. 

    "Voting Stock" means, with respect to any Person, Capital Stock of any class or classes if the holders of such Capital Stock are
ordinarily, in the absence of contingencies, entitled to vote for the election of the directors (or other persons performing similar functions) of such Person even if the right to so vote has been
suspended by the happening of such a contingency. 

    "Wells Fargo" means Wells Fargo Bank, National Association, a national banking association. 

    "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. 

    1.2  Accounting Terms.  All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. When used herein, the term "financial statements" shall include the notes and schedules thereto. Whenever the term "Borrower" is used in respect of a
financial covenant or a related definition, it shall be understood to mean GCI on a consolidated basis unless the context clearly requires otherwise. All calculations made for the purposes of
determining compliance with this Agreement shall (except as otherwise expressly provided herein) be made by application of GAAP applied on a basis consistent with the most recent annual or quarterly
financial statements delivered pursuant hereto (or, prior to the delivery of the first financial statements hereunder, consistent with the financial statements as at December 31, 2000);  provided however, that if Administrative Borrower or Agent shall object to determining such compliance or such basis due to any change in GAAP or the
rules promulgated with respect thereto, then such calculations shall be made on a basis consistent with the most recent financial statements delivered by GCI hereunder as to which no such objection
shall have been made. 

    1.3  Code.  Any terms used in this Agreement that are defined in the Code shall
be construed and defined as set forth in the Code unless otherwise defined herein. 

    1.4  Construction.  Unless the context of this Agreement or any other Loan
Document clearly requires otherwise, references to the plural include the singular, references to the singular include the plural, the term "including" is not limiting, and the term "or" has, except
where otherwise indicated, the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder," and similar terms in this Agreement or any other Loan Document
refer to this Agreement or such other Loan Document, as the case may be, as a whole and not to any particular provision of this Agreement or such other Loan Document, as the case may be. Section,
subsection, clause, schedule, and exhibit references herein are to this Agreement unless otherwise specified. Any reference in this Agreement or in the Loan Documents to this Agreement or any of the
Loan Documents shall include all alterations, amendments, changes, extensions, modifications, renewals, replacements, substitutions, joinders, and supplements, thereto and thereof, as applicable. 

    1.5  Schedules and Exhibits.  All of the schedules and exhibits attached to this
Agreement shall be deemed incorporated herein by reference. 

2.  LOAN AND TERMS OF PAYMENT.  

    2.1  Revolver Advances.  

    (a) Subject
to the terms and conditions of this Agreement, and during the term of this Agreement, each Lender agrees to make advances
("Advances") to Borrowers in an amount at any one time outstanding not to exceed such Lender's Pro Rata Share of an amount equal to  the lowest of
(i) the Facility Amount in effect at the time of such Advance less the Letter of
Credit Usage, (ii) the Borrowing Base less the Letter of Credit Usage, or (iii) the maximum aggregate amount of Indebtedness permitted to
be incurred by Borrowers pursuant to the terms and conditions of the 

22

 

Senior Indenture. For purposes of this Agreement, "Borrowing Base," as of any date of determination, shall mean the result of: 

    (x) the lowest of

     (i) $30,000,000,
and 

    (ii) from
and after the Receivables Activation Date, 85% of the amount of Eligible Accounts, less the amount, if any, of
the Dilution Reserve, plus

    (y) the lesser of

     (i) 70%
of the value of Eligible Inventory, and 

    (ii) 80%
of the product of the value of Eligible Inventory times the Net Liquidation Percentage (such Net Liquidation Percentage as calculated by the most recently
concluded Inventory Reappraisal as of the date of determination of the Borrowing Base), minus

    (z) the
aggregate amount of reserves, if any, established by Agent under Section 2.1(b). 

    (b) Anything
to the contrary in this Section 2.1 notwithstanding, Agent shall have the right to establish
reserves in such amounts, and with respect to such matters, as Agent in its Permitted Discretion shall deem necessary or appropriate, against the Borrowing Base, including reserves with respect to
(i) sums that Borrowers are required to pay (such as taxes, assessments, insurance premiums, or, in the case of leased assets, rents or other amounts payable under such leases) and have failed
to pay under any Section of this Agreement or any other Loan Document, (ii) amounts owing by Borrowers to any Person to the extent secured by a Lien (other than any existing Permitted Lien set
forth on Schedule P-1 which is specifically identified thereon as entitled to have priority over Agent's Liens for the benefit of the
Lender Group) on, or trust over, any of the Collateral, which Lien or trust, in the Permitted Discretion of Agent, would be likely to have a priority superior to the Liens of Agent, for the benefit of
the Lender Group (such as landlord liens, ad valorem taxes, property taxes, or sales taxes where given priority under applicable law) in and to such item of the Collateral, (iii) a minimum of
3 months rent for each leased Retail Store or Offsite Storage Location located in a Specified State for which an acceptable Collateral Access Agreement has not been received by Agent
(irrespective of whether any rent is currently due), (iv) in-store customer credits and gift certificates, (v) layaway and customer deposits, and (vi) offsetting
through a reserve the value of assets (at the greater of cost or market) subject to senior Liens of third parties (such as Yamaha International Corporation) in the event that Borrowers
(I) integrate the operations of American Music Division with and into GCS or commingle the assets acquired pursuant to the American Music Division with other assets of GCS (or the assets of any
of the other Obligors) pursuant to Section 7.24 and (II) are unable or unwilling to provide documentation to Agent that adequately identifies the assets subject to senior Liens of third
parties from the assets subject to the senior Lien of Agent, for the benefit of the Lender Group, to avoid including, in error, assets subject to such third-party senior Liens in the Borrowing Base
(for example, including, in error, Inventory or Accounts subject to third-party senior Liens as Eligible Inventory or Eligible Accounts, respectively). In addition to the foregoing, Agent shall have
the right to have the Inventory (A) reappraised through the conduct of an Inventory Reappraisal from time to time after the
Closing Date for the purpose of redetermining the Net Liquidation Percentage of the Eligible Inventory portion of the Collateral and, as a result, redetermining the Borrowing Base;  provided,
however, for so long as no Event of Default has occurred and is continuing, Borrowers shall
have no obligation to pay for or reimburse Agent to the extent set forth in Section 2.11(c) for reappraisals of Inventory with a frequency
greater than 1 Inventory Reappraisal during any 12 month period and no more than 2 Inventory Reappraisals may be performed in any 12 month period, and (B) physically counted
through the conduct of a Physical Count from time to time after the Closing Date; provided, however, for
so long as no 

23

 

Event of Default has occurred and is continuing, Borrowers shall have no obligation to pay for or reimburse Agent to the extent set forth in  Section 2.11(c) for more than 1 Physical Count during
any 12 month period and no more than 2 Physical Counts may be conducted during any
12 month period. 

    (c) The
Lenders shall have no obligation to make further Advances hereunder to the extent such further Advances would cause the Revolver Usage to exceed the Facility
Amount or the maximum aggregate amount of Indebtedness permitted to be incurred by Borrowers pursuant to the terms and conditions of the Senior Indenture. 

    (d) Amounts
borrowed pursuant to this Section may be repaid and, subject to the terms and conditions of this Agreement, reborrowed at any time during the term of this
Agreement. 

    2.2  Reduction in Facility Amount and Commitments.  Provided that no Event of
Default has occurred and is continuing, and, provided further, that after giving effect to any such reduction, the Maximum Facility Amount shall not be less than $75,000,000, Borrowers shall have the
right to elect from time to time to permanently reduce the Maximum Facility Amount in an amount not to exceed the sum of (i) the difference between the Maximum Facility Amount and the Facility
Amount then in effect, and (ii) the unfunded portion of the Revolving Credit Commitments of all Lenders, with a corresponding permanent reduction in the Revolving Credit Commitments of the
Lenders. Administrative Borrower shall give Agent not less than 15 Business Days prior written notice designating the date (which shall be a Business Day) as of which such reduction is to be effective
and the amount of the proposed reduction. Such reduction shall be effective on the date specified in Administrative Borrower's notice given in compliance hereunder, and shall be in a minimum amount of
$10,000,000, and integral multiples of $5,000,000 in excess thereof. Any reduction of the Maximum Facility Amount pursuant to this Section 2.2(b)
shall be without premium or penalty, with the exception that from and after Borrowers' election to permanently reduce the Maximum Facility Amount and the Lenders' Revolving Credit Commitments pursuant
to this Section 2.2(b), Borrowers shall no longer have the right to request any further increase in the Maximum Facility Amount pursuant to  Section 2.2
(a). Any reduction of the Lenders' Revolving Credit Commitments pursuant to this  Section 2.2(b) shall reduce the Revolving Credit Commitment of each Lender by the amount of
its Pro Rata Share of the incremental reduction in
the Facility Amount and Schedule C-1 shall automatically be amended to reflect such reduction. 

    2.3  Borrowing Procedures and Settlements  

    (a)  Procedure for Borrowing.  Each Borrowing shall be made by an irrevocable written request by an
Authorized Person delivered to Agent (which notice must be received by Agent no later than 11:00 a.m. (California time) on the Business Day immediately preceding the requested Funding Date)
specifying (i) the amount of such Borrowing, and (ii) the requested Funding Date, which shall be a Business Day; provided,  however, that in the
case of a request for Swing Loan in an amount of $15,000,000, or less, such notice will be timely received if it is received by
Agent no later than 11:00 a.m. (California time) on the Business Day that is the requested Funding Date. At Agent's election, in lieu of delivering the above-described written request, any
Authorized Person may give Agent telephonic notice of such request by the required time, with such telephonic notice to be confirmed in writing within 24 hours of the giving of such notice. 

    (b)  Agent's Election.  Promptly after receipt of a request for a Borrowing pursuant to  Section 2.3(a), Agent shall elect, in its discretion,
(i) to have the terms of  Section 2.3(c) apply to such requested Borrowing, or (ii) to request Swing Lender to make a Swing Loan pursuant to the terms of  Section 2.3(d) in the amount of the requested Borrowing; provided, however, that if Swing Lender declines in its sole discretion to make a Swing
Loan pursuant to Section 2.3(d), Agent shall elect to have the terms of Section 2.3(c)
apply to such requested Borrowing. 

24

  

    (c)  Making of Advances.  

     (i) In
the event that Agent shall elect to have the terms of this Section 2.3(c) apply to a requested Borrowing
as described in Section 2.3(b), then promptly after receipt of a request for a Borrowing pursuant to  Section 2.3(a), Agent shall notify the
Lenders, not later than 1:00 p.m. (California time) on the Business Day immediately preceding the
Funding Date applicable thereto, by telecopy, telephone, or other similar form of transmission, of the requested Borrowing. Each Lender shall make the amount of such Lender's Pro Rata Share of the
requested Borrowing available to Agent in immediately available funds, to such account of Agent as Agent may designate, not later than 11:00 a.m. (California time) on the Funding Date
applicable thereto. After Agent's receipt of the proceeds of such Advances, upon satisfaction of the applicable conditions precedent set forth in  Section 3 hereof, Agent shall make the proceeds of
such Advances available to Borrowers on the applicable Funding Date by transferring same day
funds equal to the proceeds of such Advances received by Agent to the Designated Account; provided,  however, that, subject to the provisions of
Section 2.3(i), Agent shall not request any Lender to
make, and no Lender shall have the obligation to make, any Advance if Agent shall have received written notice from any Lender, or otherwise has actual knowledge, that (1) one or more of the
applicable conditions precedent set forth in Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless
such condition has been waived, or (2) the requested Borrowing would exceed the Availability of Borrowers on such Funding Date. 

    (ii) Unless
Agent receives notice from a Lender on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least 1 Business Day prior
to the date of such Borrowing, that such Lender will not make available as and when required hereunder to Agent for the account of Borrowers the amount of that Lender's Pro Rata Share of the
Borrowing, Agent may assume that each Lender has made or will make such amount available to Agent in immediately available funds on the Funding Date and Agent may (but shall not be so required), in
reliance upon such assumption, make available to Borrowers on such date a corresponding amount. If and to the extent any Lender shall not have made its full amount available to Agent in immediately
available funds and Agent in such circumstances has made available to Borrowers such amount, that Lender shall on the Business Day following such Funding Date make such amount available to Agent,
together with interest at the Defaulting Lenders Rate for each day during such period. A notice submitted by Agent to any Lender with respect to amounts owing under this subsection shall be
conclusive, absent manifest error. If such amount is so made available, such payment to Agent shall constitute such Lender's Advance on the date of Borrowing for all purposes of this Agreement. If
such amount is not made available to Agent on the Business Day following the Funding Date, Agent will notify Administrative Borrower of such failure to fund and, upon demand by Agent, Borrowers shall
pay such amount to Agent for Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Advances composing such Borrowing. The failure of any Lender to make any Advance on any Funding Date shall not relieve any other Lender of any obligation hereunder to make an Advance on
such Funding Date, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on any Funding Date. 

    (iii) Agent
shall not be obligated to transfer to a Defaulting Lender any payments made by Borrowers to Agent for the Defaulting Lender's benefit, and Agent may in its
discretion transfer any such payments to each other non-Defaulting Lender member of the Lender Group ratably in accordance with their Commitments (but only to the extent that such
Defaulting Lenders Advance was funded by the other members of the Lender Group) or, if so 

25

 

requested by Administrative Borrower and if no Default or Event of Default had occurred and is continuing (and to the extent such Defaulting Lender's Advance was not funded by the Lender Group),
retain same to be re-advanced to Borrowers as if such Defaulting Lender had made Advances to Borrowers; nor shall a Defaulting Lender be entitled to the sharing of any payments hereunder.
Amounts payable to a Defaulting Lender shall instead be paid to or retained by Agent as permitted herein. Subject to the foregoing, Agent may hold and, in its Permitted Discretion, re-lend
to Borrowers for the account of such Defaulting Lender the amount of all such payments received and retained by it for the account of such Defaulting Lender. Solely for the purposes of voting or
consenting to matters with respect to the Loan Documents, such Defaulting Lender shall be deemed not to be a "Lender" and such Lender's Commitment shall be deemed to be zero
(-0-). This section shall remain effective with respect to such Defaulting Lender until (x) the Obligations under this Agreement shall have been declared or shall have
become immediately due and payable, (y) the non-Defaulting Lenders, Agent, and Administrative Borrower shall have waived such Lender's default in writing, or (z) the
Defaulting Lender makes its Pro Rata Share of all outstanding Advances and pays to Agent all amounts owing by Defaulting Lender in respect thereof. The operation of this section shall not be construed
to increase or otherwise affect the Commitment of any Lender, to relieve or excuse the performance by such Defaulting Lender or any other Lender of its duties and obligations hereunder or to relieve
or excuse the performance by each Borrower of its duties and obligations hereunder to Agent or to Lenders other than such Defaulting Lender. Any such failure to fund by any Defaulting Lender shall
constitute a material breach by such Defaulting Lender of this Agreement and shall entitle Administrative Borrower at its option, upon written notice to Agent, to arrange for a substitute Lender to
assume the Commitment of such Defaulting Lender, such substitute Lender to be acceptable to Agent, such consent not to be unreasonably withheld. In connection with the arrangement of such a substitute
Lender, the Defaulting Lender shall have no right to refuse to be replaced hereunder, and agrees to execute and deliver a completed form of Assignment and Acceptance Agreement in favor of the
substitute Lender (and agrees that it shall be deemed to have executed and delivered such document if it fails to do so) subject only to being repaid its share of the outstanding Obligations
(including an assumption of its Pro Rata Share of the Risk Participation Liability) without any premium or penalty of any kind whatsoever; provided
further, however, that any such assumption of the Commitment of such Defaulting Lender shall not be deemed to constitute a
waiver of any of Borrowers' rights or remedies against any such Defaulting Lender's arising out of or in relation to such failure to fund. 

    (d)  Making of Swing Loans.  

     (i) In
the event Agent shall elect, with the consent of Swing Lender, as a Lender, to have the terms of this  Section 2.3(d) apply to a requested Borrowing as described in Section 2.3(b), Swing Lender
as a Lender shall make an Advance in the amount of such Borrowing (any such Advance made solely by Swing Lender as a Lender pursuant to this  Section 2.3(d) being referred to as a "Swing Loan" and such Advances being referred to
collectively as "Swing Loans") available to Borrowers on the Funding Date
applicable thereto by transferring same day funds to the Designated Account. Each Swing Loan is an Advance hereunder and shall be subject to all the terms and conditions applicable to other Advances,
except that all payments thereon shall be payable to Swing Lender as a Lender solely for its own account (and for the account of the holder of any participation interest with respect to such Advance).
Subject to the provisions of Section 2.3(i), Agent shall not request Swing Lender as a Lender to make, and Swing Lender as a Lender shall not
make, any Swing Loan if Agent shall have received written notice from any Lender, or otherwise has actual knowledge, that (i) one or more of the applicable conditions precedent set forth in  Section 3 will not be satisfied on the requested Funding Date for the applicable Borrowing unless such 

26

 

condition has been waived, or (ii) the requested Borrowing would exceed the Availability of Borrowers on such Funding Date. Swing Lender as a Lender shall not otherwise be required to determine
whether the applicable conditions precedent set forth in Section 3 have been satisfied on the Funding Date applicable thereto prior to making, in
its sole discretion, any Swing Loan. 

    (ii) The
Swing Loans shall be secured by the Collateral and shall constitute Advances and Obligations hereunder, and shall bear interest at the rate applicable from
time to time to Advances pursuant to Section 2.6 hereof. 

    (e)  Agent Advances.  

     (i) Subject
to the limitations set forth in the proviso contained in this Section 2.3(e), Agent hereby is
authorized by Borrowers and the Lenders, from time to time in Agent's sole discretion, (1) after the occurrence and during the continuance of a Default or an Event of Default, or (2) at
any time that any of the other applicable conditions precedent set forth in Section 3 have not been satisfied, to make Advances to Borrowers on
behalf of the Lenders that Agent, in the exercise of its Permitted Discretion, deems necessary or appropriate (A) to preserve or protect the Collateral, or any portion thereof, (B) to
enhance the likelihood of repayment of the Obligations, or (C) to pay any other amount chargeable to Borrowers pursuant to the terms of this Agreement, including Lender Group Expenses and the
costs, fees, and expenses described in Section 10 (any of the Advances described in this  Section 2.3(e) being hereinafter referred to as
"Agent Advances");  provided, however, that at no time shall the aggregate amount of outstanding Agent
Advances under this  Section 2.3(e) exceed the result of (1) the lesser of (A) $10,000,000, and (B) 10% of the Borrowing Base then in effect,
minus (2) the amount of optional Overadvance Loans made by Agent to the Borrowers pursuant to  Section 2.3(i). 

    (ii) Agent
Advances shall be repayable on demand and secured by the Collateral, shall constitute Advances and Obligations hereunder, and shall bear interest at the rate
applicable from time to time to Base Rate Advances pursuant to Section 2.6 hereof. 

    (f)  Settlement.  It is agreed that each Lender's funded portion of the Advances is intended by the
Lenders to equal, at all times, such Lender's Pro Rata Share of the outstanding Advances. Such
agreement notwithstanding, Agent, Swing Lender, and the other Lenders agree (which agreement shall not be for the benefit of or enforceable by Borrowers) that in order to facilitate the administration
of this Agreement and the other Loan Documents, settlement among them as to the Advances, the Swing Loans, and the Agent Advances shall take place on a periodic basis in accordance with the following
provisions: 

     (i) Agent
shall request settlement ("Settlement") with the Lenders on a weekly basis, or on a more frequent basis if so
determined by Agent, (1) on behalf of Swing Lender, with respect to each outstanding Swing Loan, (2) for itself, with respect to each Agent Advance, and (3) with respect to
Collections received, as to each by notifying the Lenders by telecopy, telephone, or other similar form of transmission, of such requested Settlement, no later than 2:00 p.m. (California time)
on the Business Day immediately prior to the date of such requested Settlement (the date of such requested Settlement being the "Settlement Date"). Such
notice of a Settlement Date shall include a summary statement of the amount of outstanding Advances, Swing Loans, and Agent Advances for the period since the prior Settlement Date, the amount of
repayments received in such period, and the amounts allocated to each Lender of the interest, fees, and other charges for such period. Subject to the terms and conditions contained herein (including  Section 2.3(c)(iii)
): (y) if a Lender's balance of the Advances, Swing Loans, and Agent Advances exceeds such Lender's Pro Rata Share of
the Advances, Swing Loans, and Agent Advances as of a Settlement Date, then 

27

 

Agent shall by no later than 12:00 p.m. (California time) on the Settlement Date transfer in immediately available funds to the account of such Lender as such Lender may designate, an amount
such that each such Lender shall, upon receipt of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances; and (z) if a Lender's balance
of the Advances, Swing Loans, and Agent Advances is less than such Lender's Pro Rata Share of the Advances, Swing Loans, and Agent Advances as of a Settlement Date, such Lender shall no later than
12:00 p.m. (California time) on the Settlement Date transfer in immediately available funds to such account of Agent as Agent may designate, an amount such that each such Lender shall, upon
transfer of such amount, have as of the Settlement Date, its Pro Rata Share of the Advances, Swing Loans, and Agent Advances. Such amounts made available to Agent under clause (z) of the
immediately preceding sentence shall be applied against the amounts of the applicable Swing Loan or Agent Advance and, together with the portion of such Swing Loan or Agent Advance representing Swing
Lender's Pro Rata Share thereof, shall constitute Advances of such Lenders. If any such amount is not made available to Agent by any Lender on the Settlement Date applicable thereto to the extent
required by the terms hereof, Agent shall be entitled to recover for its account such amount on demand from such Lender together with interest thereon at the Defaulting Lenders Rate. 

    (ii) In
determining whether a Lender's balance of the Advances, Swing Loans, and Agent Advances is less than, equal to, or greater than such Lender's Pro Rata Share of
the Advances, Swing Loans, and Agent Advances as of a Settlement Date, Agent shall, as part of the relevant Settlement, apply to such balance the portion of payments actually received in good funds by
Agent or Swing Lender with respect to principal, interest, fees payable by Borrowers and allocable to the Lenders hereunder, and proceeds of Collateral. To the extent that a net amount is owed to any
such Lender after such application, such net amount shall be distributed by Agent or Swing Lender to that Lender as part of such next Settlement. 

    (iii) Between
Settlement Dates, Agent, to the extent no Agent Advances or Swing Loans are outstanding, may pay over to Swing Lender any payments received by Agent, that
in accordance with the terms of this Agreement would be applied to the reduction of the Advances, for application to Swing Lender's Pro Rata Share of the Advances. If, as of any Settlement Date,
Collections received since the then immediately preceding Settlement Date have been applied to Swing Lender's Pro Rata Share of the Advances other than to Swing Loans or Agent Advances, as provided
for in the previous sentence, Swing Lender shall pay to Agent for the accounts of the Lenders, and Agent shall pay to the Lenders, to be applied to the outstanding Advances of such Lenders, an amount
such that each Lender shall, upon receipt of such amount, have, as of such Settlement Date, its Pro Rata Share of the Advances. During the period between Settlement Dates, Swing Lender with respect to
Swing Loans, Agent with respect to Agent Advances, and each Lender with respect to the Advances other than Swing Loans and Agent Advances, shall be entitled to interest at the applicable rate or rates
payable under this Agreement on the daily amount of funds employed by Swing Lender, Agent, or the Lenders, as applicable. 

    (g)  Notation.  Agent shall record on its books the principal amount of the Advances owing to each
Lender, including the Swing Loans owing to Swing Lender, and Agent Advances owing to Agent, and the interests therein of each Lender, from time to time. In addition, each Lender is authorized, at such
Lender's option, to note the date and amount of each payment or prepayment of principal of such Lender's Advances in its books and records, including computer records, such books and records
constituting rebuttably presumptive evidence, absent manifest error, of the accuracy of the information contained therein. 

28

 

    (h)  Lenders' Failure to Perform.  All Advances (other than Swing Loans and Agent Advances) shall be made
by the Lenders simultaneously and in accordance with their Pro Rata Shares. It is understood that (i) no Lender shall be responsible for any failure by any other Lender to perform its
obligation to make any Advances hereunder, nor shall any Commitment of any Lender be increased or decreased as a result of any failure by any other Lender to perform its obligation to make any
Advances hereunder, and (ii) no failure by any Lender to perform its obligation to make any Advances hereunder shall excuse any other Lender from its obligation to make any Advances hereunder. 

    (i)  Optional Overadvances.  Any contrary provision of this Agreement notwithstanding, if the condition
for borrowing under Section 3.3(d) cannot be fulfilled, the Lenders nonetheless hereby authorize Agent or Swing Lender, as applicable, and Agent
or Swing Lender, as applicable, may, but is not obligated to, knowingly and intentionally continue to make Advances (including Swing Loans) to Borrowers such failure of condition notwithstanding, so
long as, at any time, (i) the outstanding Revolver Usage does not exceed the Borrowing Base by more than the lesser of (A) $10,000,000 and (B) 10% of the Borrowing Base then in
effect, and (ii) the outstanding Revolver Usage (except for and excluding amounts charged to the Loan Account for interest, fees, or Lender Group Expenses) does not exceed the Facility Amount.
The foregoing provisions are for the sole and exclusive benefit of Agent, Swing Lender, and the Lenders and are not intended to benefit Borrowers in any way. The Advances and Swing Loans, as
applicable, that are made pursuant to this Section 2.3(i) shall be subject to the same terms and conditions as any other Advance or Swing Loan,
as applicable, except that the rate of
interest applicable thereto shall be the rates set forth in Section 2.6(c) hereof without regard to the presence or absence of a Default or Event
of Default. 

     (i) In
the event Agent obtains actual knowledge that the Revolver Usage exceeds the amounts permitted by the preceding paragraph, regardless of the amount of or reason
for such excess, Agent shall notify Lenders as soon as practicable (and prior to making any (or any further) intentional Overadvances (except for and excluding amounts charged to the Loan Account for
interest, fees, or Lender Group Expenses) unless Agent determines that prior notice would result in imminent harm to the Collateral or its value), and the Lenders thereupon shall, together with Agent,
jointly determine the terms of arrangements that shall be implemented with Borrowers intended to reduce, within a reasonable time, the outstanding principal amount of the Advances to Borrowers to an
amount permitted by the preceding paragraph. In the event Agent or any Lender disagrees over the terms of reduction or repayment of any Overadvance, the terms of reduction and/or repayment thereof
shall be implemented according to the determination of the Required Lenders. 

    (ii) Each
Lender shall be obligated to settle with Agent as provided in Section 2.3(f) for the amount of such
Lender's Pro Rata Share of any unintentional Overadvances by Agent reported to such Lender, any intentional Overadvances made as permitted under this  Section 2.3(i), and any Overadvances resulting
from the charging to the Loan Account of interest, fees, or Lender Group Expenses. 

    2.4  Payments.  

    (a)  Payments by Borrowers.  

     (i) All
payments to be made by Borrowers shall be made without set-off, recoupment, deduction, or counterclaim, except as otherwise required by law. Except
as otherwise expressly provided herein, all payments by Borrowers shall be made to Agent for the account of the Lender Group at Agent's address set forth in  Section 12, and shall be made in
immediately available funds, no later than 11:00 a.m. (California time) on the date specified herein. Any
payment received by Agent later than 11:00 a.m. (California time), at the option of Agent, 

29

 

shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue until such following Business Day. 

    (ii) Whenever
any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the case may be. 

    (iii) Unless
Agent receives notice from Administrative Borrower prior to the date on which any payment is due to the Lenders that Borrowers will not make such payment
in full as and when required, Agent may assume that Borrowers have made (or will make) such payment in full to Agent on such date in immediately available funds and Agent may (but shall not be so
required), in reliance upon such assumption, distribute to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent Borrowers do not make such payment in
full to Agent on the date when due, each Lender severally shall repay to Agent on demand such amount distributed to such Lender, together with interest thereon at the Defaulting Lender Rate for each
day from the date such amount is distributed to such Lender until the date repaid. 

    (b)  Apportionment, Application, and Reversal of Payments.  Except as otherwise provided with respect to
Defaulting Lenders, principal and interest payments shall be apportioned ratably among the Lenders (according to the unpaid principal balance of the Obligations to which such payments relate held by
each individual Lender) and payments of fees (other than fees designated for Agent's sole and separate account) shall, as applicable, be apportioned ratably among the Lenders having a Pro Rata Share
of the type of credit facility as to which the particular fee is applicable. All payments shall be remitted to Agent and all such payments not relating to principal or interest of specific Obligations
or not constituting payment of specific fees, and all proceeds of Collateral received by Agent, shall be applied as in the following order: 

     (i) to
pay any fees or expense reimbursements then due to Agent from Borrowers, 

    (ii) to
pay any fees or expense reimbursements then due to the Lenders from Borrowers, 

    (iii) to
pay interest due in respect of all outstanding Advances (including Swing Loans and Agent Advances), 

    (iv) to
pay fees, charges, commissions, and costs in respect of all outstanding Letters of Credit, 

    (v) to
pay or prepay principal of Agent Advances, 

    (vi) to
pay principal of all outstanding Advances that are Base Rate Advances (other than Agent Advances), such prepayment to be made, first, to the outstanding Swing
Loans that are Base Rate Advances and, second, to all other outstanding Advances that are Base Rate Advances, 

   (vii) to
pay principal of all outstanding Advances that are LIBOR Rate Advances, such prepayment to be made, first, to the outstanding Swing Loans that are LIBOR Rate
Advances and, second, to all other outstanding Advances that are LIBOR Rate Advances, 

   (viii) if
an Event of Default has occurred and is continuing, to provide cash collateral to be held by Agent, for the ratable benefit of those Lenders having a Pro Rata
Share of the Letters of Credit, in an amount equal to 105% of the maximum amount of the Lender Group's obligations under Letters of Credit, 

    (ix) ratably
to pay any other Obligations due to Agent, or any Lender by Borrowers, and 

    (x) to
Borrowers and wired to the Designated Account. 

30

       2.5  Overadvances.  Subject to  Section 2.3(i), if, at any time or for any reason, the amount of Obligations owed by Borrowers to the Lender Group pursuant to  Sections 2.1, 2.12, or 2.13 is greater than either the Dollar or percentage
limitations set forth in Sections 2.1, 2.12, or
2.13, (an "Overadvance"), Borrowers immediately shall pay to Agent, in cash, the amount of such excess, which amount shall be
used by Agent to reduce the Obligations in accordance with the priority set forth in Section 2.4(b). In addition, each Borrower hereby promises
to pay the Obligations (including principal, interest, fees, costs, and expenses) in Dollars in full to the Lender Group as and when due and payable under the terms of this Agreement and the other
Loan Documents. 

    2.6  Interest and Letter of Credit Fees: Rates, Payments, and Calculations.  

    (a)  Interest Rates.  Except as provided in clause (c) below, all Obligations (except for undrawn
Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily Balance thereof as follows (y) if a LIBOR Rate Advance, at a per
annum rate equal to the LIBOR Rate plus the Applicable LIBOR Margin, and (z) otherwise, at a per annum rate equal to the Base Rate plus the Applicable Base Rate Margin. 

    (b)  Letter of Credit Fee.  Borrowers shall pay Agent (for the ratable benefit of the Lenders with a
Revolving Credit Commitment based upon their Pro Rata Share of the Revolving Credit Commitment), a fee (in addition to the charges, commissions, fees, and costs set forth in  Section 2.12(e)) equal
to 1.50% per annum times the aggregate undrawn amount of all outstanding Letters of Credit.
 

    (c)  Default Rate.  Upon the occurrence and during the continuation of an Event of Default, and at
Agent's discretion (or as the Agent is directed by the Required Lenders), 

     (i) all
Obligations (except for undrawn Letters of Credit) that have been charged to the Loan Account pursuant to the terms hereof shall bear interest on the Daily
Balance thereof at a per annum rate equal to 2 percentage points above the per annum rate otherwise applicable hereunder, and 

    (ii) the
Letter of Credit fee provided for above shall be increased to 2 percentage points above the per annum rate otherwise applicable hereunder. 

    (d)  Payments.  Interest, Letter of Credit fees, and all other fees payable hereunder shall be due and
payable, in arrears, on the first day of each month during the term hereof. Each Borrower hereby authorizes Agent, without prior notice to such Borrower, to charge such interest and fees, all Lender
Group Expenses (as and when incurred), the charges, commissions, fees, and costs provided for in Section 2.12(e) (as and when accrued or
incurred), the charges, commissions, fees, and costs provided for in Section 2.13 (as and when accrued or incurred), the fees and charges
provided for in Section 2.11 (as and when accrued or incurred), and all other payments due under any Loan Document to Borrowers' Loan Account, in
each case to the extent not otherwise paid by Borrowers, which amounts thereafter shall accrue interest at the rate then applicable to Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then applicable to Advances hereunder. 

    (e)  Computation.  All interest and fees chargeable under the Loan Documents shall be computed on the
basis of a 360 day year for the actual number of days elapsed. In the event the Base Rate is changed from time to time hereafter, the applicable rates of interest hereunder based upon the Base
Rate automatically and immediately shall be increased or decreased by an amount equal to such change in the Base Rate. 

    (f)  Intent to Limit Charges to Maximum Lawful Rate.  In no event shall the interest rate or rates
payable under this Agreement, plus any other amounts paid in connection herewith, exceed the highest rate permissible under any applicable law. Borrowers and the Lender Group, in 

31

 

executing and delivering this Agreement, intend legally to agree upon the rate or rates of interest and manner of payment stated within it; provided, however, that, anything contained herein to the
contrary notwithstanding, if said rate or rates of interest or manner of payment exceeds the maximum allowable under applicable law, then, ipso facto as of the date of this Agreement, each Borrower is
and shall be liable only for the payment of such maximum as allowed by law, and payment received from such Borrower in excess of such legal maximum, whenever received, shall be applied to reduce the
principal balance of the Obligations to the extent of such excess. 

    2.7  Cash Management.  

    (a) GCI
shall (i) establish and maintain a concentration account in the name of Agent (the "GCI Concentration
Account") at the bank which shall be designated as the concentration account bank for GCI and GCS on Schedule 2.7(a) (the
"GCI Concentration Account Bank"), and (ii) deposit or cause to be deposited promptly, and in any event no later than the first Business Day
after the date of receipt thereof, all Collections, including cash, credit card sales drafts, credit card sales or change slips or receipts, checks, drafts and all forms of daily store receipts or
other similar items of payment into the GCI Concentration Account. The GCI Concentration Account Bank shall be satisfactory to the Agent in the exercise of its Permitted Discretion. 

    (b) GCS
shall deposit or cause to be deposited promptly, and in any event no later than the first Business Day after the date of receipt thereof, all Collections,
including cash, credit card sales drafts, credit card sales or change slips or receipts, checks, drafts and all forms of daily store receipts or other similar items of payment into either the GCI
Concentration Account or other bank accounts in GCS's name (each a "GCS Collection Account" and, collectively, the "GCS
Collection Accounts") at banks other than the GCI Concentration Account Bank as set forth on Schedule 2.7(b) (each a
"GCS Collection Account Bank'' and, collectively, the "GCS Collection Account Banks"). GCS further
agrees that with respect to each bank at which a GCS Collection Account is located, GCS shall require each such bank to forward immediately by daily sweep all amounts in each GCS Collection Account
into the GCI Concentration Account, provided, however, up to $30,000 may be retained and not swept daily in each GCS Collection Account which is
established and maintained at a GCS Collection Account Bank. All GCS Collection Account Banks shall be satisfactory to the Agent in the exercise of its Permitted Discretion. 

    (c) MFI
shall (i) establish and maintain an account in the name of Agent (the "MFI Concentration Account") at the
bank which shall be designated as the deposit account bank for MFI on Schedule 2.7(c) (the "MFI Concentration Account
Bank"), which bank shall be satisfactory to the Agent in the exercise of its Permitted Discretion, and (ii) deposit or cause to be deposited promptly, and in any event
no later than the first Business Day after the date of receipt thereof, all Collections, including cash, credit card sales drafts, credit card sales or change slips or receipts, checks, drafts and all
forms of daily store receipts or other similar items of payment into the MFI Concentration Account. 

    (d) Each
of the Concentration Account Banks and the Designated Account Bank shall establish and maintain tri-party blocked account agreements with the Agent
and the applicable Borrower, in form and substance acceptable to the Agent in the exercise of its Permitted Discretion. Each such blocked account agreement shall provide, among other things, that
(i) all items of payment deposited in such accounts and proceeds thereof are held by such banks as agent or bailee-in-possession for the Agent, (ii) the bank
executing such agreement has no rights of setoff or recoupment or any other claim against such account, as the case may be, other than for payment of its service fee and other charges directly related
to the administration of such account and for returned checks or other items of payment, and (iii) each such bank agrees to immediately forward all amounts received in the applicable GCI
Concentration Account or MFI Concentration Account to the Agent's Account; provided, however, that Agent reserves the right, in its sole 

32

 

discretion, to require that collections representing amounts attributable to trust fund taxes be segregated by the GCI Concentration Account or the MFI Concentration Account Bank and held in a
separate account, (it being the intent of the Agent, to the extent it has sufficient information to do so, to so segregate trust fund taxes, and avoid the deposit of such funds into the Agent's
Account). No Borrower shall, or shall cause or permit any Subsidiary thereof to, accumulate or maintain cash in disbursement or payroll accounts as of any date of determination in excess of checks
outstanding against such accounts as of that date and amounts necessary to meet minimum balance requirements. 

    (e) So
long as no Default or Event of Default has occurred and is continuing, the Borrowers may amend Schedules 2.7(a),  (b) or (c)
to add or replace a GCS Collection Account Bank or a GCS Collection Account, or to
replace the GCI Concentration Account, the MFI Concentration Account or
the Designated Account; provided, however, that (i) Agent shall have consented in writing in advance to the opening of such account with the
relevant bank and (ii) prior to the time of the opening of an account to replace the GCI Concentration Account, the MFI Concentration Account, or the Designated Account, the applicable Obligor
or the Subsidiaries thereof, as applicable, and such bank shall have executed and delivered to Agent a tri-party blocked account agreement, in form and substance satisfactory to Agent in
the exercise of its Permitted Discretion. The Obligors shall close any of their accounts (and establish replacement accounts in accordance with the foregoing sentence) promptly and in any event within
45 days of notice from Agent that the creditworthiness of any bank holding an account is no longer acceptable to Agent in the exercise of its Permitted Discretion, or as promptly as practicable
and in any event within 60 days of notice from Agent that the operating performance, funds transfer or availability procedures or performance with respect to accounts of the bank holding such
accounts or Agent's liability under any tri-party blocked account agreement with such bank is no longer acceptable to Agent in the exercise of its Permitted Discretion. 

    (f)  The
GCS Collection Accounts, the Designated Account, and the Concentration Accounts shall all be cash collateral accounts, with all cash, checks and similar items
of payment in such accounts securing payment of the Advances and all other Obligations, and in which each Obligor and each Subsidiary Guarantor shall have granted a Lien to Agent pursuant to this
Agreement. 

    (g) Each
Obligor shall and shall cause its Affiliates, officers, employees, agents, directors or other Persons acting for or in concert with such Obligor (each a
"Related Person") to (i) hold in trust for Agent all checks, cash and other items of payment received by Obligor or any such Related Person, and
(ii) within one (1) Business day after receipt by such Obligor or any Related Person of any checks, cash or other items of payment, deposit the same into a GCS Collection Account, the
GCI Concentration Account, or the MFI Concentration Account, as applicable. Each Obligor and each Related Person thereof acknowledges and agrees that all Collections are the property of Agent for the
benefit of the Lenders. All proceeds of the sale or other disposition of any Collateral shall be deposited directly into a GCS Collection Account, the GCI Concentration Account, or the MFI
Concentration Account, as applicable. 

    2.8  Crediting Payments.  The receipt of any payment by Agent (whether from
transfers to Agent by the Concentration Account Banks or otherwise) shall not be considered a payment on account unless such payment item is a wire transfer of immediately available federal funds made
to the Agent Account or unless and until such payment item is honored when presented for payment. Should any payment item not be honored when presented for payment, then Borrowers shall be deemed not
to have made such payment and interest shall be calculated accordingly. Anything to the contrary contained herein notwithstanding, any payment item shall be deemed received by Lender only if it is
received into the Agent Account on a Business Day on or before 11:00 a.m. (California time). If any Collection item is received into the Agent Account on or after 11:00 a.m. (California
time) on a 

33

 

Business Day, it shall be deemed to have been received by Agent as of the opening of business on the immediately following Business Day. 

    2.9  Designated Account.  Agent is authorized to make the Advances, and issue the
Letters of Credit under this Agreement based upon telephonic or other instructions received from anyone purporting to be an Authorized Person, or without instructions if pursuant to  Section 2.6(d).
Administrative Borrower agrees to establish and maintain the Designated Account with the Designated Account Bank for the purpose
of receiving the proceeds of the Advances requested by Borrowers and made by Agent or the Lenders hereunder. Unless otherwise agreed by Agent and Borrowers, any Advance, Agent Advance, or Swing Loan
requested by Borrowers and made by Agent or the Lenders hereunder shall be made to the Designated Account. 

    2.10  Maintenance of Loan Account; Statements of Obligations.  Agent shall
maintain an account on its books in the name of Borrowers (the "Loan Account") on which Borrowers will be charged with all Advances made by Agent or the
Lenders to Borrowers or for Borrowers' account, including, accrued interest, Lender Group Expenses, and any other payment Obligations of Borrowers. In accordance with  Section 2.8, the Loan Account
will be credited with all payments received by Agent from Borrowers or for Borrowers' account, including all
amounts received in the Agent Account from any the Concentration Accounts. Agent shall render statements regarding the Loan Account to Administrative Borrower, including principal, interest, fees, and
including an itemization of all charges and expenses constituting Lender Group Expenses owing, and such statements shall be conclusively presumed to be correct and accurate and constitute an account
stated between each Borrower and the Lender Group unless, within 60 days after receipt thereof by Administrative Borrower, Administrative Borrower shall deliver to Agent written objection
thereto describing the error or errors contained in any such statements. 

    2.11  Fees.  Borrowers shall pay to Agent the following fees, which fees shall be
non-refundable when paid (irrespective of whether this Agreement is terminated thereafter): 

    (a)  Fee Letter Fees.  Borrowers shall pay to the Agent the fees set forth in the Fee Letter in
accordance with the terms thereof, and such fees constitute Indebtedness hereunder. 

    (b)  Unused Line Fee.  To the Agent, for the ratable benefit of each Lender with a Revolving Credit
Commitment, on the first day of each month during the term of this Agreement, an unused line fee in an amount equal to 0.25% per annum times the result
of (a) the average Facility Amount in effect during the immediately preceding month, less (b) the sum of (i) the average Daily
Balance of Advances that were outstanding during the immediately preceding month, plus (ii) the average Daily Balance of the Letter of Credit
Usage during the immediately preceding month, and 

    (c)  Financial Examination, Valuation, and Appraisal Fees.  (i) For the sole and separate account
of Agent, a separate fee of $750 pay day, per examiner, plus out-of-pocket expenses for each financial analysis and examination (i.e., audits) of Borrowers performed by
personnel employed by Agent; provided, however, that if no Event of Default is continuing, there shall be no more than 4 such audits during any
12 month period and Borrower shall be required to pay no more that $65,000 plus out-of-pocket expenses to reimburse Agent for audits conducted during any 12 month
period; (ii) a one-time charge of $3,000 plus reasonable out-of-pocket expenses for the establishment of electronic collateral reporting systems;
(iii) for the sole and separate accounts of Agent and each Lender that exercises its rights under  Section 4.6, the actual charges paid or incurred by Agent or any Lender if it elects to employ
the services of one or more third Persons to
perform such audits of Borrowers or their Books, to appraise the Collateral, or to assess a Borrower's business valuation; and (iv) subject to the limitations set forth in  Section 2.1(b), for
the sole and separate account of Agent, the out-of-pocket costs and expenses incurred by Agent for 

34

 

the engagement of appraisal, accounting, auction, or other professional firms to conduct Inventory Appraisals or Physical Counts. 

    2.12  Letters of Credit.  

    (a) Subject
to the terms and conditions of this Agreement, Agent agrees to issue letters of credit for the account of a Borrower (each, an
"L/C") or to purchase participations, or execute indemnities or reimbursement obligations (each such undertaking, an "L/C
Undertaking") with respect to letters of credit issued by an issuing bank for the account of a Borrower. Agent shall have no obligation to issue a Letter of Credit if any of
the following would result: 

     (i) the
Letter of Credit Usage would exceed the Borrowing Base less the amount of outstanding Advances, 

    (ii) the
Letter of Credit Usage would exceed $10,000,000, or 

    (iii) the
Revolver Usage would exceed the Facility Amount then in effect. 

Borrowers
and Agent acknowledge and agree that certain of the letters of credit that are to be the subject of L/C Undertakings may be outstanding on the Closing Date. Each Letter of Credit shall have
an expiry date no later than the Maturity Date (without regard to any potential renewal term) and all such Letters of Credit shall be in form and substance acceptable to Agent (in the exercise of its
Permitted Discretion). If Agent is obligated to advance funds under a Letter of Credit, Borrowers immediately shall reimburse such amount to Agent and, in the absence of such reimbursement, the amount
so advanced immediately and automatically shall be deemed to be an Advance hereunder and, thereafter, shall bear interest at the rate then applicable to Base Rate Advances under  Section 2.6.

    (b) Each
Lender agrees to fund its Pro Rata Share of any Advance deemed made pursuant to the foregoing subsection on the same terms and conditions as if Borrowers had
requested such Advance. Each Lender with a Pro Rata Share of the Letters of Credit shall be deemed to have purchased a participation in each Letter of Credit, in an amount equal to its Pro Rata Share
of the Risk
Participation Liability of such Letter of Credit, and each Lender agrees to pay to Agent such Lender's Pro Rata Share of any payments made by Agent under such Letter of Credit. The obligation of each
Lender to deliver to Agent an amount equal to its respective Pro Rata Share pursuant to the preceding two sentences shall be absolute and unconditional and such remittance shall be made
notwithstanding the occurrence or continuation of an Event of Default or Default or the failure to satisfy any condition set forth in Section 3
hereof. If any Lender fails to make available to Agent the amount of such Lender's Pro Rata Share of any payments made by Agent in respect of such Letter of Credit as provided in this Section, Agent
shall be entitled to recover such amount on demand from such Lender together with interest thereon at the Base Rate until paid in full. 

    (c) Each
Borrower hereby agrees to indemnify, save, defend, and hold the Lender Group harmless from any loss, cost, expense, or liability, expenses, and reasonable
attorneys fees incurred by the Lender Group arising out of or in connection with any Letter of Credit unless arising as a result of the gross negligence or willful misconduct of the Lender Group, any
Lender-Related Person, the issuing bank, or any of their Affiliates. Each Borrower agrees to be bound by the issuing bank's regulations and interpretations of any letter of credit that is the subject
of an L/C Undertaking and opened to or for such Borrower's account or by Agent's interpretations of any L/C issued by Agent to or for such Borrower's account, even though this interpretation may be
different from such Borrower's own, and each Borrower understands and agrees that the Lender Group shall not be liable for any error, negligence, or mistake, whether of omission or commission, in
following a Borrower's instructions or those contained in the Letter of Credit or any modifications, amendments, or supplements thereto. Each Borrower understands that the L/C 

35

 

Undertakings may require Agent to indemnify the issuing bank for certain costs or liabilities arising out of claims by a Borrower against such issuing bank. Each Borrower hereby agrees to indemnify,
save, defend, and hold the Lender Group harmless with respect to any loss, cost, expense (including reasonable attorneys fees), or liability incurred by the Lender Group under any L/C Undertaking as a
result of the Lender Group's indemnification of any such issuing bank unless such indemnification results from the gross negligence or willful misconduct of the Lender Group or any Lender-Related
Person. 

    (d) Each
Borrower hereby authorizes and directs any bank that issues a letter of credit that is the subject of an L/C Undertaking to deliver to Agent all instruments,
documents, and other writings and property received by the issuing bank pursuant to such letter of credit, and to accept and rely upon Agent's instructions with respect to all matters arising in
connection with such letter of credit and the related application. 

    (e) Any
and all charges, commissions, fees, and costs incurred by Agent relating to the letters of credit that are the subject of an L/C Undertaking but not in excess
of the issuing bank's standard schedule for such charges, commissions, fees, and costs then in effect, shall be considered Lender Group Expenses for purposes of this Agreement and immediately shall be
reimbursable by Borrowers to Agent. 

    (f)  If
by reason of (i) any change in any applicable law, treaty, rule, or regulation or any change in the interpretation or application thereof by any
Governmental Authority, or (ii) compliance by the issuing bank or the Lender Group with any direction, request, or requirement (irrespective of whether having the force of law) of any
Governmental Authority or monetary authority including, Regulation D of the Federal Reserve Board as from time to time in effect (and any successor thereto): 

     (i) any
reserve, deposit, or similar requirement is or shall be imposed or modified in respect of any Letters of Credit issued hereunder, or 

    (ii) there
shall be imposed on the issuing bank or the Lender Group any other condition regarding any Letter of Credit issued pursuant hereto; 

    and
the result of the foregoing is to increase, directly or indirectly, the cost to the Lender Group of issuing, making, guaranteeing, or maintaining any Letter of Credit or to reduce
the amount receivable in respect thereof by the Lender Group, then, and in any such case, Agent may, at any time within a reasonable period, and in any event within 180 days, after the
additional cost is incurred or the amount received is reduced, notify Administrative Borrower, and Borrowers shall pay on demand such amounts Agent may specify to be necessary to compensate the Lender
Group for such additional cost or reduced receipt, together with interest on such amount from the date of such demand until payment in full thereof at the rate then applicable to Advances hereunder;  provided,
however, that (x) before making any such demand, the Agent agrees to use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, in its reasonable discretion, in any legal, economic, or regulatory manner) to avoid the need for, or
materially reduce the amount of, such increased cost, and (y) Borrowers shall not be obligated to pay any such increased cost which relates to a period ending more than 180 days prior to
the date of receipt by Administrative Borrower of such notice. The determination by Agent of any amount due pursuant to this Section, as set forth in a certificate setting forth the calculation
thereof in reasonable detail, shall, in the absence of manifest or demonstrable error, be final and conclusive and binding on all of the parties hereto. 

    2.13  LIBOR Option.  

    (a)  Interest and Interest Payment Dates.  In lieu of having interest charged at the rate based upon the
Base Rate, Borrowers shall have the option (the "LIBOR Option") to have interest 

36

 

on a portion (whether upon the making of such Advance or at any time subsequent thereto that such portion is outstanding) of the Advances be charged at the LIBOR Rate. Interest on LIBOR Rate Advances
shall be payable on the first day of each month and on the last day of each Interest Period applicable thereto. On the last day of each applicable Interest Period, unless Administrative Borrower has
properly exercised the LIBOR Option with respect thereto, the interest rate applicable to such LIBOR Rate Advances automatically shall convert to the rate of interest then applicable to
non-LIBOR
Rate Advances under Section 2.6 hereof. At any time that an Event of Default has occurred and is continuing, Agent shall have the right to
convert the interest rate on all outstanding LIBOR Rate Advances to the rate then applicable to Base Rate Advances under Section 2.6 hereof;  provided, however, that, unless the Lender Group shall declare all Obligations immediately due and payable pursuant to  Section 9 hereof, any outstanding LIBOR Rate Advances shall continue to bear interest at
the rate applicable thereto that is based upon the LIBOR
Rate (subject to the ability of the Lender Group to apply Section 2.6(c)(i) thereto) until the last day of each such Interest Period, at which
time the interest rate applicable thereto automatically shall convert to the rate of interest then applicable to non-LIBOR Rate Advances under  Section 2.6 hereof. 

    (b) LIBOR
Election. 

     (i) Administrative
Borrower may, at any time and from time to time, so long as no Event of Default has occurred and is continuing, elect to exercise the LIBOR Option by
notifying Agent prior to 11:00 a.m. (California time) at least 3 Business Days prior to the commencement (including the extension or continuation of any prior Interest Period) of the proposed
Interest Period (the "LIBOR Deadline"). Notice of Administrative Borrower's election of the LIBOR Option for a permitted portion of the Advances and an
Interest Period pursuant to this Section shall be made by delivery to Agent of a LIBOR Notice received by Agent before the LIBOR Deadline, or by telephonic notice received by Agent before the LIBOR
Deadline (to be confirmed by delivery to Agent of a LIBOR Notice received by Agent prior to 5:00 p.m. (California time) on the same day. Promptly (but in no event later than 3:00 p.m.
(California time) on the date of receipt thereof) upon its receipt of each such LIBOR Notice, Agent shall provide a copy thereof to each of the Lenders. 

    (ii) Each
LIBOR Notice shall be irrevocable and binding on Borrowers. In connection with each LIBOR Rate Advance, Borrowers shall indemnify, defend, and hold Agent and
the Lenders harmless against any loss, cost, or expense incurred by Agent or any Lender as a result of any failure to fulfill, on or before the date specified in the LIBOR Notice, the applicable
conditions set forth herein or the termination, prior to the end of the applicable Interest Period, of the applicability of interest at the LIBOR Rate, as provided hereunder, including any loss
(including loss of anticipated profits which shall be determined based upon the difference between the effective interest rate charged on redeployed funds and the LIBOR Rate that would have applied to
the Advance in question), cost, or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired or committed to be acquired by Agent, any Lender or any of their
participants to fund the requested LIBOR Rate Advances that, as a result of such failure, are not so employed on such date (such losses, costs, and expenses, collectively,
"Funding Losses") other than Funding Losses which are the result of the gross negligence or willful misconduct of Agent, any Agent-Related Person, any
Lender, or any Lender-Related Person. 

    (iii) Borrowers
shall have not more than seven (7) Interest Periods in effect at any given time. Borrowers only may exercise the LIBOR Option for LIBOR Rate
Advances of at least $1,000,000 and integral multiples of $500,000 in excess thereof. 

37

  

    (c)  Prepayments.  Borrowers may prepay LIBOR Rate Advances at any time;  provided, however, that in the
event that LIBOR Rate Advances are prepaid on any date that is not the
last day of the Interest Period applicable thereto, including as a result of any automatic prepayment through the required application by Agent of proceeds of Collections or for any other reason,
including early termination of the term of this Agreement or acceleration of the Obligations pursuant to the terms hereof, Borrowers shall indemnify, defend, and hold Agent and the Lenders and their
participants harmless against any and all Funding Losses that arise in connection with such prepayment other than Funding Losses which are the result of the gross negligence or willful misconduct of
Agent, any Agent-Related Person, any Lender, or any Lender-Related Person. 

    (d)  Special Provisions Applicable to LIBOR Rate.  

     (i) The
LIBOR Rate may be adjusted by Agent with respect to any Lender on a prospective basis to take into account any additional or increased costs to such Lender of
maintaining or obtaining any eurodollar deposits or increased costs due to changes in applicable law occurring subsequent to the commencement of the then applicable Interest Period, including but not
limited to changes in tax laws (except changes of general applicability in corporate income tax laws) and changes in the reserve requirements imposed by the Board of Governors of the Federal Reserve
System (or any successor), excluding the Reserve Percentage, which additional or increased costs would increase the cost of funding loans bearing interest at the LIBOR Rate. In any such event, the
affected Lender shall give Administrative Borrower and Agent notice of such a determination and adjustment; provided,  however, that (x) before making
any such demand, the affected Lender agrees to use reasonable efforts (consistent with its internal policy and
legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, in its reasonable discretion, in any legal, economic, or regulatory manner) to designate a different
eurodollar lending office if the making of such designation would allow the affected Lender to continue to perform its obligations to make LIBOR Rate Advances or to continue to fund or maintain LIBOR
Rate Advances and avoid the need for, or materially reduce the amount of, such increased cost, and (y) Borrowers shall not be obligated to pay any such increased cost which relates to a period
ending more than 180 days prior to the date of receipt by Administrative Borrower of such notice and certificate; and the Agent shall promptly transmit the notice to each other Lender and
Borrowers may, by notice to such affected Lender (1) require such Lender to furnish to Administrative Borrower a statement setting forth the basis for adjusting such LIBOR Rate and the method
for determining the amount of such adjustment, or (2) repay the LIBOR Rate Advances with respect to which such adjustment is made. 

    (ii) In
the event that any change in market conditions or any law, regulation, treaty, or directive, or any change therein or in the interpretation of application
thereof, shall at any time after the date hereof, in the reasonable opinion of any Lender, make it unlawful or impractical for such Lender to fund or maintain LIBOR Advances or to continue such
funding or maintaining, or to determine or charge interest rates at the LIBOR Rate, such Lender shall give notice of such changed circumstances to Agent and Administrative Borrower;  provided,
however, that before making any such demand, the
affected Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions and so long as such efforts would not be disadvantageous to it, in its
reasonable discretion, in any legal, economic, or regulatory manner) to designate a different eurodollar lending office if the making of such designation would allow the affected Lender to continue to
perform its obligations to make LIBOR Rate Advances or to continue to fund or maintain LIBOR Rate Advances; and the Agent shall immediately transmit the notice to each other Lender and (y) in
the case of any LIBOR Rate Advances that are outstanding, the date specified in such Lender's notice shall be deemed to be the last day of the Interest Period of 

38

 

such LIBOR Rate Advances, and interest upon the LIBOR Advances of the affected Lender then outstanding shall thereafter accrue interest at the rate then applicable to Base Rate Advances as provided in  Section 2.6 hereof, and (z) Borrowers shall not be entitled to elect the LIBOR Option from such affected Lender until such affected Lender
determines that it would no longer be unlawful or impractical to do so, provided, however, that each
other Lender shall remain obligated as provided in this Agreement to make LIBOR Rate Advances. 

    (e)  No Requirement of Matched Funding.  Anything to the contrary contained herein notwithstanding,
neither Agent, nor any Lender, nor any participant is required actually to acquire eurodollar deposits to fund or otherwise match fund any Advances as to which interest accrues at the LIBOR Rate. The
provisions of this Section shall apply as if each Lender or its participants had match funded any Advances as to which interest is accruing at the LIBOR Rate by acquiring eurodollar deposits for each
Interest Period in the amount of the LIBOR Rate Advances. 

    2.14  Capital Requirements.  If after the date hereof any Lender determines that
(i) the adoption of or change in any law, rule, regulation or guideline regarding capital requirements for banks or bank holding companies, or any change in the interpretation or application
thereof by any Governmental Authority charged with the administration thereof, or (ii) compliance by such Lender or its parent bank holding company with any guideline, request or directive of
any such entity regarding capital adequacy (whether or not having the force of law), the effect of reducing the return on such Lender's or such holding company's capital as a consequence of such
Lender's Commitment to make Advances hereunder or its obligations in respect of any Letter of Credit to a level below that which such Lender or such holding company could have achieved but for such
adoption, change or compliance (taking into consideration such Lender's or such holding company's then existing policies with respect to capital adequacy and assuming the full utilization of such
entity's capital) by any amount deemed by such Lender to be material, than such Lender may, by written notice given to Agent and Administrative Borrower, require Borrowers to pay, on demand, an amount
equal to such Lender's additional costs incurred during the ninety (90) days preceding the date on which such notice is given and during each fiscal quarter thereafter;  provided, however, that in the event that payments to any Lender are required to be made hereunder as a
result of such additional costs, Borrowers shall be entitled to substitute for such Lender any other bank or financial institution reasonably acceptable to the Agent and the Required Lenders. Each
such Lender shall state in the notice required by this Section 2.14, in reasonable detail, the cause and amount of such additional cost. Within
30 days after receipt of such notice, Borrowers may, at their option, elect to terminate that portion of the Revolving Credit Commitment that is held by such Lender. 

    2.15  Joint and Several Liability of the Obligors.  

    (a) Each
of the Obligors (with the exception of MCI) is accepting joint and several liability hereunder and under the other Loan Documents in consideration of the
financial accommodations to be provided by the Agent and the Lenders under this Agreement, for the mutual benefit, directly and indirectly, of each of the Borrowers and in consideration of the
undertakings of the other Obligors (with the exception of MCI) to accept joint and several liability for the Obligations. 

    (b) Each
of the Obligors (with the exception of MCI), jointly and severally, hereby irrevocably and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Obligors (with the exception of MCI), with respect to the payment and performance of all of the Obligations (including, without
limitation, any Obligations arising under this Section 2.15), it being the intention of the parties hereto that all the Obligations shall be the
joint and several obligations of each Person comprising the Obligors (with the exception of MCI) without preferences or distinction among them. 

    (c) If
and to the extent that any of the Borrowers shall fail to make any payment with respect to any of the Obligations as and when due or to perform any of the
Obligations in accordance with 

39

 

the terms thereof, then in each such event the other Persons comprising the Obligors (with the exception of MCI) will make such payment with respect to, or perform, such Obligation. 

    (d) The
Obligations of each Person comprising the Obligors (with the exception of MCI) under the provisions of this  Section 2.15 constitute the absolute and unconditional, full recourse Obligations of each
Person comprising the Obligors (with the exception of
MCI) enforceable against each such Obligor to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances
whatsoever. 

    (e) Except
as otherwise expressly provided in this Agreement, each Person comprising the Obligors (with the exception of MCI) hereby waives notice of acceptance of its
joint and several liability, notice of any Advances issued under or pursuant to this Agreement, notice of the occurrence of any Default, Event of Default, or of any demand for any payment under this
Agreement, notice of any action at any time taken or omitted by Agent or Lenders under or in respect of any of the Obligations, any requirement of diligence or to mitigate damages and, generally, to
the extent permitted by applicable law, all demands, notices and other formalities of every kind in connection with this Agreement (except as otherwise provided in this Agreement). Except as otherwise
expressly provided in this Agreement, each Person comprising the Obligors (with the exception of MCI) hereby assents to, and waives notice of, any extension or postponement of the time for the payment
of any of the Obligations, the acceptance of any payment of any of the Obligations, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by Agent or
Lenders at any time or times in respect of any default by any Person comprising the Obligors (with the exception of MCI) in the
performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by Agent or Lenders in respect of any of the Obligations, and the
taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of the Obligations or the addition, substitution or release, in whole or in part, of any
Person comprising the Obligors (with the exception of MCI). Without limiting the generality of the foregoing except as otherwise expressly provided in this Agreement, each of the Obligors (with the
exception of MCI) assents to any other action or delay in acting or failure to act on the part of Agent or any Lender with respect to the failure by any Person comprising the Obligors (with the
exception of MCI) to comply with any of its respective Obligations, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully
with applicable laws or regulations thereunder, which might, but for the provisions of this Section 2.15 afford grounds for terminating,
discharging or relieving any Person comprising the Obligors (with the exception of MCI), in whole or in part, from any of its Obligations under this  Section 2.15, it being the intention of each
Person comprising the Obligors (with the exception of MCI) that, so long as any of the Obligations
hereunder remain unsatisfied, the Obligations of such Person comprising the Obligors (with the exception of MCI) under this Section 2.15 shall
not be discharged except by performance and then only to the extent of such performance. The Obligations of each Person comprising the Obligors (with the exception of MCI) under this  Section 2.15
shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or
similar proceeding with respect to any Person comprising the Obligors (with the exception of MCI) or any Agent or Lender. The joint and several liability of the Persons comprising the Obligors (with
the exception of MCI) hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, constitution or place of
formation of any of the Persons comprising the Obligors (with the exception of MCI) or Agent or any Lender. 

    (f)  The
provisions of this Section 2.15 are made for the benefit of the Agent, the Lenders and their respective
successors and assigns, and may be enforced by it or them from time to time against any or all of the Persons comprising the Obligors (with the exception of MCI) as often as 

40

 

occasion therefor may arise and without requirement on the part of the Agent, any such Lender, successor or assign first to marshall any of its or their claims or to exercise any of its or their
rights against any of the other Persons comprising the Obligors (with the exception of MCI) or to exhaust any remedies available to it or them against any of the other Persons comprising the Obligors
(with the exception of MCI) or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this  Section 2.15
shall remain in effect until all of the Obligations, other than contingent indemnity obligations, shall have been paid in full or
otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be restored or returned by Agent or any Lender
upon the insolvency, bankruptcy or reorganization of any of the Persons comprising the Borrowers, or otherwise, the provisions of this  Section 2.15 will forthwith be reinstated in effect, as though
such payment had not been made. 

    (g) Each
of the Persons comprising the Obligors (with the exception of MCI) hereby agrees that it will not enforce any of its rights of contribution or subrogation
against the other Person comprising the Obligors (with the exception of MCI) with respect to any liability incurred by it hereunder or under any of the other Loan Documents, any payments made by it to
the Agent or the Lenders with respect to any of the Obligations or any collateral security therefor until such time as all of the Obligations, other
than contingent indemnity obligations, have been paid in full in cash. Any claim which any Obligor (with the exception of MCI) may have against any other Obligor (with the exception of MCI) with
respect to any payments to Agent or any Lender hereunder or under any other Loan Documents are hereby expressly made subordinate and junior in right of payment, without limitation as to any increases
in the Obligations arising hereunder or thereunder, to the prior payment in full in cash of the Obligations. 

    (h) Each
Obligor (with the exception of MCI) hereby agrees that after the occurrence and during the continuance of any Default or Event of Default, such Obligor (with
the exception of MCI) will not demand, sue for or otherwise attempt to collect any indebtedness of any other Obligor (with the exception of MCI) owing to such Obligor until the Obligations, other than
contingent indemnity obligations, shall have been paid in full in cash. If, notwithstanding the foregoing sentence, such Obligor shall collect, enforce or receive any amounts in respect of such
indebtedness, such amounts shall be collected, enforced and received by such Obligor as trustee for the Lender Group, and shall deliver any such amounts to the Agent for application to the Obligations
in accordance with Section 2.4(b). 

    2.16  Prior Loan Agreement.  Anything herein to the contrary notwithstanding, it
is the express intent of the parties hereto to preserve the outstanding nature of all loans and other financial accommodations made or issued under the Prior Loan Agreement and outstanding prior to
the Closing Date. To that end, all such outstanding loans or other financial accommodations shall be converted on the Closing Date to the loans or other financial accommodations made or issued
hereunder, and shall not be deemed to have been repaid or cancelled and reloaned or reissued, but rather, at all times, continuously to have remained outstanding, and all repayment obligations of the
Obligors under or related to the Prior Loan Agreement, whether evidenced by notes or otherwise, shall be deemed restated by the promise of the Obligors to pay the Obligations hereunder. 

3.  CONDITIONS; TERM OF AGREEMENT.  

    3.1  Conditions Precedent to the Initial Extension of Credit.  The obligation of
the Lender Group (or any member thereof) to make the initial Advance (or otherwise to extend any credit provided for hereunder), is subject to the fulfillment, to the reasonable satisfaction of Agent,
of each of conditions precedent set forth below: 

    (a) the
Closing Date shall occur on or before April 13, 2001; 

41

 

    (b) Agent shall have received all financing statements required by Agent, duly executed by GCS, and Agent shall have received endorsed filed copies from the appropriate
governmental agencies reflecting the filing of all such financing statements; 

    (c) Agent
shall have received each of the following documents, in form and substance satisfactory to Agent, duly executed, and each such document shall be in full force
and effect: 

     (i) this
Agreement; 

    (ii) tri-party
blocked account agreements governing the Concentration Accounts and the Designated Account, as required to reflect the formation of GCS; 

    (iii) the
Control Agreement(s), if any; 

    (iv) the
Omnibus Amendment; 

    (v) amendment
to the Mortgage with respect to MFI's Medford, Oregon facility, in form and substance satisfactory to the Agent; 

    (vi) amendment
to the Mortgage with respect to GCI's Hollywood, California Retail Store, in form and substance satisfactory to the Agent; 

   (vii) Agent
shall have received a certificate from the Secretary of GCI attesting to the resolutions of each Borrower's Boards of Directors authorizing their execution,
delivery, and performance of this Agreement and the other Loan Documents to which they are a party and authorizing specific officers of each Borrower to execute the same; 

    (d) Agent
shall have received copies of each Borrower's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of
GCI; 

    (e) Agent
shall have received a certificate of status with respect to each Borrower, dated within 14 days of the Closing Date, such certificate to be issued by
the appropriate officer of the jurisdiction of
organization of each Borrower, which certificate shall indicate that each Borrower is in good standing in such jurisdiction; 

    (f)  Agent
shall have received certificates of status with respect to each Borrower, each dated within 21 days of the Closing Date, such certificates to be
issued by the appropriate officer of the jurisdictions in which its failure to be duly qualified or licensed would constitute a Material Adverse Change, which certificates shall indicate that each
Borrower is in good standing in such jurisdictions; 

    (g) Agent
shall have received a certificate from the Secretary of GCI attesting to the resolutions of Guarantor's Board of Directors authorizing Guarantor's execution,
delivery, and performance of the Loan Documents to which Guarantor is a party and authorizing specific officers of Guarantor to execute the same; 

    (h) Agent
shall have received copies of Guarantor's Governing Documents, as amended, modified, or supplemented to the Closing Date, certified by the Secretary of GCI; 

    (i)  Agent
shall have received an opinion of Obligors' counsel in form and substance satisfactory to Agent in its Permitted Discretion; 

    (j)  Borrowers
shall pay all Lender Group Expenses incurred by Agent or any other Lender in connection with the entry of Agent and the Lenders into this Agreement; and 

    (k) all
other documents and legal matters in connection with the transactions contemplated by this Agreement shall have been delivered, executed, or recorded and shall
be in form and substance reasonably satisfactory to Agent and its counsel. 

42

       3.2  Conditions Subsequent to the Initial Extension of Credit.  The obligations
of the Lender Group (or any member thereof) to continue to make Advances or to issue Letters of Credit is subject to the fulfillment, on or before the date applicable thereto, of each of the
conditions subsequent set forth below (the failure by Borrowers to so perform or cause to be performed constituting an Event of Default): 

    (a) within
5 Business Days of the Closing Date, Agent shall have received a certificate of status with respect to GCI, dated within 14 days of the Closing Date,
such certificate to be issued by the appropriate officer of the State of Delaware, which certificate shall indicate that GCI is in good standing in such jurisdiction; 

    (b) within
5 Business Days of the Closing Date, Agent shall have received a certificate of status with respect to MFI, dated within 14 days of the Closing Date,
such certificate to be issued by the appropriate officer of Tennessee, which certificate shall indicate that MFI is in good standing in such jurisdiction; 

    (c) within
5 Business Days of the Closing Date, Agent shall have received executed copies of Uniform Commercial Code termination statements for all financing statements
filed by BSB Bank & Trust Co. and The Chase Manhattan Bank, N.A. against American Music and certain of its Affiliates; 

    (d) within
5 Business Days of the Closing Date, Agent shall have received a mortgagee title insurance policy (or marked commitments to issue the same) for MFI's
Medford, Oregon facility issued by a title insurance company satisfactory to Agent in amounts satisfactory to Agent assuring Agent that the Mortgage on such Real Property Collateral is a valid and
enforceable first priority mortgage Lien on such Real Property Collateral free and clear of all defects and encumbrances except Permitted Liens, and the mortgagee title insurance policy otherwise
shall be in form and substance satisfactory to Agent; 

    (e) within
5 Business Days of the Closing Date, a mortgagee title insurance policy (or marked commitments to issue the same) for GCI's Hollywood, California Retail
Store issued by a title insurance company satisfactory to Agent in amounts satisfactory to Agent assuring Agent that the Mortgage on such Real Property Collateral is a valid and enforceable first
priority mortgage Lien on such Real Property Collateral free and clear of all defects and encumbrances except Permitted Liens, and the mortgagee title insurance policy otherwise shall be in form and
substance satisfactory to Agent; 

    (f)  within
14 days of the Closing Date, Agent shall have received an intercreditor agreement between Yamaha Corporation of America and Agent, for the benefit of
the Lender Group, in form and substance satisfactory to Agent; 

    (g) within
30 days of the Closing Date, Borrowers shall deliver to Agent evidence satisfactory to the Agent that GCI has merged Veneman with and into GCI with
GCI as the surviving corporation; and 

    (h) within
30 days of the Closing Date, Agent shall have received searches from the appropriate governmental agencies reflecting the filing of all such financing
statements and the first priority position, with the exception of Permitted Liens, of the security interest of Agent in the Personal Property Collateral. 

    3.3  Conditions Precedent to all Extensions of Credit.  The obligation of the
Lender Group (or any member thereof) to make all Advances, Swing Loans, or to issue Letters of Credit (and to make any other extensions of credit provided for hereunder) shall be subject to the
following conditions precedent: 

43

 

    (a) the
representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the date
of such extension of credit, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), 

    (b) no
Default or Event of Default shall have occurred and be continuing on the date of such extension of credit, nor shall either result from the making thereof, 

    (c) no
injunction, writ, restraining order, or other order of any nature prohibiting, directly or indirectly, the extending of such credit shall have been issued and
remain in force by any Governmental Authority against any Borrower, Agent, any Lender, or any of their Affiliates, and 

    (d) the
amount of the Revolver Usage, after giving effect to the requested Advances or Letter of Credit, shall not exceed the Availability. 

    The
foregoing conditions precedent are not conditions to each Lender (i) participating in or reimbursing Agent for such Lenders' Pro Rata Share of any drawings under Letters of
Credit as provided herein, or (ii) participating in or reimbursing Swing Lender or the Agent for such Lenders' Pro Rata Share of any Swing Loan or Agent Advance as provided herein. 

    3.4  Term.  This Agreement shall become effective upon the execution and delivery
hereof by Borrowers and the Lender Group and shall continue in full force and effect for a term ending on December 16, 2004 (the "Maturity
Date"). The foregoing notwithstanding, the Lender Group shall have the right to terminate its obligations under this Agreement immediately and without notice upon the
occurrence and during the continuation of an Event of Default. 

    3.5  Effect of Termination.  On the date of termination of this Agreement, all
Obligations (including contingent reimbursement obligations of Borrowers with respect to any outstanding Letters of Credit) immediately shall become due and payable without notice or demand. No
termination of this Agreement, however, shall relieve or discharge Borrowers of Borrowers' duties, Obligations, or covenants hereunder, continuing security interests in the Collateral, for the benefit
of the Lender Group, shall remain in effect until all Obligations have been fully and finally discharged and the Lender Group's obligations to provide additional credit hereunder have been terminated.
Upon termination of this Agreement and after all Obligations (other than contingent indemnification obligations) have been fully and finally discharged and the Lender Group's obligations to provide
additional credit under the Loan Documents have been terminated irrevocably, Agent will, at Borrowers' sole expense, execute and deliver any Uniform Commercial Code termination statements, lien
releases, mortgage releases, re-assignments of trademarks, discharges of security interests, and other similar discharge or release documents (and, if applicable, in recordable form) as
are reasonably necessary to release, as of record, the security interests, financing statements, and all other notices of security interests and liens previously filed by Agent for the benefit of the
Lender Group with respect to the Obligations. 

    3.6  Early Termination by Borrowers.  Borrowers have the option, at any time upon
90 days prior written notice by Administrative Borrower to Agent, to terminate this Agreement by paying to Agent, for the benefit of the Lender Group, in cash, the Obligations (including either
(i) providing cash collateral to be held by Agent for the benefit of those Lenders with a Revolving Credit Commitment in an amount equal to 105% of the then extant Letter of Credit Usage, or
(ii) causing the original Letters of Credit to be returned to the Agent), in full, together with the Applicable Prepayment Premium (for the ratable benefit of the Lenders with a Revolving
Credit Commitment based upon their Pro Rata Share of the Revolving Credit Commitment). If Administrative Borrower has sent a notice of termination pursuant to the provisions of this Section, then the
Commitments shall terminate and Borrowers shall be obligated to repay the Obligations (including either (i) providing cash collateral to be held by Agent for the benefit of those Lenders with a
Revolving Credit Commitment in an amount 

44

 

equal to 105% of the then extant Letter of Credit Usage, or (ii) causing the original Letters of Credit to be returned to the Agent), in full, together with the Applicable Prepayment Premium,
on the date set forth as the date of termination of this Agreement in such notice. In the event of the termination of this Agreement and repayment of the Obligations at any time prior to the Maturity
Date, for any other reason, including (a) termination upon the election of the Required Lenders to terminate after the occurrence of an Event of Default, (b) foreclosure and sale of
Collateral, (c) sale of the Collateral in any Insolvency Proceeding, or (iv) restructure, reorganization or compromise of the Obligations by the confirmation of a plan of reorganization,
or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding, then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to
the Lender Group or profits lost by the Lender Group as a result of
such early termination, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, Borrowers shall pay the Applicable
Prepayment Premium to Agent (for the ratable benefit of the Lenders with a Revolving Credit Commitment based upon their Pro Rata Share of the Revolving Credit Commitment), measured as of the date of
such termination. 

4.  CREATION OF SECURITY INTEREST.  

    4.1  Grant of Security Interest.  Each Borrower hereby grants to Agent, for the
benefit of the Lender Group a continuing security interest in all currently existing and hereafter acquired or arising Personal Property Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrowers of each of their covenants and duties under the Loan Documents ("Agent's Liens"). The
Agent's Liens in and to the Personal Property Collateral shall attach to all Personal Property Collateral without further act on the part of the Lender Group or Borrowers. Anything contained in this
Agreement or any other Loan Document to the contrary notwithstanding, except for Permitted Dispositions, no Borrower has authority, express or implied, to dispose of any item or portion of the
Collateral. 

    4.2  Negotiable Collateral.  In the event that any Collateral, including
proceeds, is evidenced by or consists of Negotiable Collateral, and if and to the extent that perfection of priority of Agent's security interest is dependent on possession, each Borrower, immediately
upon the request of Agent, shall endorse and deliver physical possession of such Negotiable Collateral to Agent. 

    4.3  Collection of Accounts, General Intangibles, and Negotiable Collateral.  At
any time after the occurrence and during the continuation of an Event of Default, Agent or Agent's designee may (a) notify customers or Account Debtors of Borrowers that the Accounts, General
Intangibles, or Negotiable Collateral have been assigned to Agent for the benefit of the Lender Group or that Agent for the benefit of the Lender Group or that Agent for the benefit of the Lender
Group has a security interest therein, or (b) collect the Accounts, General Intangibles, and Negotiable Collateral directly and charge the collection costs and expenses to the Loan Account.
Each Borrower agrees that it will hold in trust for the Lender Group, as the Lender Group's trustee, any Collections that it receives and promptly will deliver said Collections to Agent in their
original form as received by Borrowers. 

    4.4  Delivery of Additional Documentation Required.  At any time upon the
reasonable request of Agent, each Borrower shall execute and deliver to Agent, all financing statements, fixture filings, security agreements, Control Agreements, pledges, assignments, endorsements of
certificates of title, and all other documents that Agent reasonably may request, in form and substance reasonably satisfactory to Agent, to perfect and continue perfected Agent's Liens in the
Collateral (whether now owned or hereafter arising or acquired), and in order to fully consummate all of the transactions contemplated hereby and under the other the Loan Documents. 

    4.5  Power of Attorney.  Each Borrower hereby irrevocably makes, constitutes, and
appoints Agent (and any of Agent's officers, employees, or agents designated by Agent) as such Borrower's true and 

45

 

lawful attorney, with power to (a) if such Borrower refuses to, or fails timely to execute and deliver any of the documents described in  Section 4.4, sign the name of such Borrower on any of
the documents described in  Section 4.4, (b) at any time that an Event of Default has occurred and is continuing, sign such Borrower's name on any invoice or bill of
lading relating to any Account, drafts against Account Debtors, and notices to Account Debtors, (c) send requests for verification of Accounts,  provided that if no Event of Default is continuing,
Agent shall send out such requests no more often that 2 times during any 12 month period,
(d) endorse such Borrower's name on any Collection item that may come into the Lender Group's possession and deposit into Agent's Account, (e) at any time that an Event of Default has
occurred and is continuing, notify the post office authorities to change the address for delivery of such Borrower's mail to an address designated by Agent, to receive and open all mail addressed to
such Borrower, and to retain all mail relating to the Collateral and forward all other mail to such Borrower, (f) at any time that an Event of Default has occurred and is continuing, make,
settle, and adjust all claims under such Borrower's policies of insurance and make all determinations and decisions with respect to such policies of insurance, and (g) at any time that an Event
of Default has occurred and is continuing, settle and adjust disputes and claims respecting the Accounts directly with Account Debtors, for amounts and upon terms that Agent determines to be
reasonable, and Agent may cause to be executed and delivered any documents and releases that Agent determines, in the exercise of its Permitted Discretion, to be necessary. The appointment of Agent as
each Borrower's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable until all of the Obligations have been fully and finally repaid and performed
and the Lender Group's obligations to extend credit hereunder are terminated. 

    4.6  Right to Inspect.  Agent and each Lender (through any of their respective
officers, employees, or agents) shall have the right, from time to time hereafter to inspect the Books and to check, test, and appraise the Collateral in order to verify each Borrower's financial
condition or the amount, quality, value, condition of, or any other matter relating to, the Collateral, provided that prior to the occurrence and continuance of an Event of Default, such inspections,
checks, tests, and appraisals shall occur only during a Borrower's normal business hours upon at least one Business Day's prior notice. Without in any way limiting the foregoing, each Borrower will,
upon the request of Agent and the Required Lenders, (i) during any period when no Event of Default has occurred and is continuing, participate in a meeting of the Agent and Lenders once during
each calendar year to be held at GCI' corporate offices (or such other location as may be agreed upon between Agent and Administrative Borrower) at such time as may be agreed to by Administrative
Borrower and Agent, and (ii) following the occurrence and during the continuance of an Event of Default, participate in meetings of the Agent and Lenders at such frequency as the Agent shall
request in the exercise of its Permitted Discretion to be held at GCI' corporate offices (or such other location as may be agreed upon between Agent and Administrative Borrower) at such time as may be
agreed to by Administrative Borrower and Agent. 

    4.7  Control Agreements.  Each Obligor agrees that it will not transfer assets
out of any Securities Accounts other than as permitted under Section 7.24 and, if to another securities intermediary, unless each of such
Obligor, Agent, and the substitute securities intermediary have entered into a Control Agreement. No arrangement contemplated hereby or by any Control Agreement in respect of any Securities
Accounts or other investment property shall be modified by an Obligor without the prior written consent of Agent. Upon the occurrence and during the continuance of a Default or Event of Default, Agent
may notify any securities intermediary to liquidate or transfer the applicable Securities Account or any related investment property maintained or held thereby and remit the proceeds thereof to the
Agent Account. 

5.  REPRESENTATIONS AND WARRANTIES.  

    In order to induce the Lender Group to enter into this Agreement, GCI and each of its Subsidiaries (with the exception of Veneman), as applicable, makes the
following representations and 

46

 

warranties to the Lender Group which shall be true, correct, and complete, in all material respects, as of the date hereof, and shall be true, correct, and complete in all material respects as of the
Closing Date, and at and as of the date of the making of each Advance (or other extension of credit) made thereafter, as though made on and as of the date of such Advance (or other extension of
credit) (except to the extent that such representations and warranties relate solely to an earlier date) and such representations and warranties shall survive the execution and delivery of this
Agreement: 

    5.1  No Encumbrances.  Each Borrower has good and indefeasible title to the
Collateral, free and clear of Liens except for Permitted Liens. 

    5.2  Eligible Accounts.  (a) The Eligible Accounts are bona fide existing
payment obligations of Account Debtors created by the sale and delivery of Inventory or the rendition of services to Borrowers' customers in the ordinary course of Borrowers' business, owed to a
Borrower without defenses, disputes, offsets, counterclaims, or rights of return or cancellation. As to each Eligible Account, such Eligible Account is in compliance with the criteria for eligibility
set forth under the definition of "Eligible Accounts" in Section 1.1. 

    5.3  Eligible Inventory.  All Eligible Inventory is of good and merchantable
quality, free from defects. As to each item of Eligible Inventory, such Inventory is in compliance with the criteria for eligibility set forth under the definition of "Eligible Inventory" in  Section 1.1. 

    5.4  Equipment.  All of the Equipment is used or held for use in the Obligors'
business and substantially all of such Equipment is fit for such purposes. 

    5.5  Location of Inventory and Equipment.  The Inventory and Equipment are not
stored with a bailee, warehouseman, or similar party and are located only at the locations identified on Schedule 6.11 permitted by  Section 6.11.

    5.6  Inventory Records.  Each Obligor keeps correct and accurate records, with
the exception of insignificant errors, itemizing and describing the type, quality, and quantity of the Inventory and its cost therefor. 

    5.7  Location of Chief Executive Office; FEIN.  The chief executive office of the
Obligors is located at the address indicated in Schedule 5.7 and each Obligor's FEIN is identified in  Schedule 5.7. 

    5.8  Due Organization and Qualification; Subsidiaries.  

    (a) Each
Obligor is duly organized and existing and in good standing under the laws of the jurisdiction of its organization and qualified to do business in any state
where the failure to be so qualified would reasonably be expected to cause a Material Adverse Change. 

    (b) Set
forth on Schedule 5.8, is a complete and accurate description of the authorized capital Stock of each
Obligor (other than GCI) as of the Closing Date, by class, and, as of the Closing Date, a description of the number of shares of each such class that are issued and outstanding. Other than as
described on Schedule 5.8, there are no subscriptions, options, warrants, or calls relating to any shares of the capital Stock of any Obligor
(other than GCI) as of the Closing Date, including any right of conversion or exchange under any outstanding security or other instrument. No Obligor is subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any shares of its capital Stock or any security convertible into or exchangeable for any of its capital Stock. 

    (c) Set
forth on Schedule 5.8, is a complete and accurate list of GCI's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their incorporation; (ii) the number of shares of each class of common and preferred Stock authorized for each of such Subsidiaries; and (iii) the
number and the percentage of the outstanding shares of each such class owned directly or 

47

 

indirectly by GCI. All of the outstanding capital Stock of each such Subsidiary has been validly issued and is fully paid and non-assessable. 

    (d) Except
(i) as set forth on Schedule 5.8 and (ii) issuance to management or employees of the
Obligors of up to 20% of the outstanding Stock of MCI, no capital Stock (or any securities, instruments, warrants, options, purchase rights, conversion or exchange rights, calls, commitments or claims
of any character convertible into or exercisable for Stock) of any direct or indirect Subsidiary of GCI is subject
to the issuance of any security, instrument, warrant, option, purchase right, conversion or exchange right, call, commitment or claim of any right, title, or interest therein or thereto. 

    5.9  Due Authorization; No Conflict.  

    (a) The
execution, delivery, and performance by each Obligor of the Loan Documents to which it is a party have been duly authorized by all necessary action on the part
of such Obligor. 

    (b) The
execution, delivery, and performance by each Obligor of the Loan Documents to which it is a party do not and will not (i) violate any provision of
federal, state, or local law or regulation (including Regulations T, U, and X of the Federal Reserve Board), applicable to such Obligor, the Governing Documents of such Obligor, or any order,
judgment, or decree of any court or other Governmental Authority binding on such Obligor, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a
default under any material contractual obligation of such Obligor, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of
such Obligor, other than Permitted Liens, or (iv) except to the extent previously obtained, require any approval of stockholders or any approval or consent of any Person under any material
contractual obligation of such Obligor. 

    (c) Other
than the filing of financing statements, fixture filings, and Mortgages, the execution, delivery, and performance by each Obligor of the Loan Documents to
which such Obligor is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person. 

    (d) The
Loan Documents to which each Obligor is a party, and all other documents contemplated hereby and thereby, when executed and delivered by such Obligor will be
the legally valid and binding obligations of such Obligor, enforceable against such Obligor in accordance with their respective terms, except as enforcement may be limited by equitable principles or
by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors' rights generally. 

    (e) The
Agent's Liens granted by Obligors to Agent, for the benefit of the Lender Group, in and to its assets pursuant to this Agreement and the other Loan Documents
are validly created, perfected (except where the lack of perfection is the result of the Agent's failure to file a financing statement, or to continue a financing statement once filed, or to
continue possession of Collateral where the security interest therein is perfected through possession), and first priority Liens, subject only to Permitted Liens. 

    5.10  Litigation.  Other than those matters disclosed on  Schedule 5.10,
there are no actions, suits, or proceedings pending or, to the best knowledge of the Obligors, threatened against an Obligor, or
any of its Subsidiaries, as applicable, except for matters arising after the Closing Date that, if decided
adversely to an Obligor, or any of its Subsidiaries, as applicable, would not reasonably be expected to cause in a Material Adverse Change. 

    5.11  No Material Adverse Change.  All financial statements relating to Borrowers
or any guarantor of the Obligations that have been delivered by GCI to the Lender Group have been prepared in accordance with GAAP (except, in the case of unaudited financial statements, for the lack
of footnotes 

48

 

and being subject to year-end audit adjustments) and fairly present Borrowers' (or such guarantor's, as applicable) financial condition as of the date thereof and results of operations for
the period then ended. There has not been a Material Adverse Change with respect to any Borrower (or such guarantor, as applicable) since the date of the latest financial statements submitted to the
Lender Group on or before the Closing Date. 

    5.12  Fraudulent Transfer.  

    (a) Each
Obligor is Solvent. 

    (b) No
transfer of property is being made by an Obligor and no obligation is being incurred by an Obligor in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or defraud either present or future creditors of such Obligor. 

    5.13  Employee Benefits.  (a) no ERISA Event has occurred or is reasonably
expected to occur with respect to any Plan of an Obligor or any of its ERISA Affiliates; (b) no Obligor nor any of its ERISA Affiliates has incurred or is reasonably expected to incur any
Withdrawal Liability to any Multiemployer Plan; and (c) no Obligor nor any of its ERISA Affiliates has been notified by the sponsor of a Multiemployer Plan of an Obligor or any of its ERISA
Affiliates that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title IV of ERISA, and any such event, either individually or in the aggregate could reasonably be expected to result in a liability of the
Obligors and their Subsidiaries in excess of $250,000. As of the Closing Date, none of Obligors, any of their Subsidiaries, nor any of their ERISA Affiliates maintains or contributes to any Benefit
Plan. 

    5.14  Environmental Condition.  None of Obligors' properties or assets has ever
been used to produce, treat, release, or transport, any Hazardous Materials. None of Obligors' properties or assets has ever been designated or identified in any manner pursuant to any environmental
protection statute as a Hazardous Materials disposal site, or a candidate for closure pursuant to any environmental protection statute. No Lien arising under any environmental protection statute has
attached to any revenues or to
any real or personal property owned or operated by an Obligor. No Obligor has received a summons, citation, notice, or directive from the Environmental Protection Agency or any other federal or state
governmental agency concerning any action or omission by such Obligor resulting in the releasing or disposing of Hazardous Materials into the environment. 

    5.15  Brokerage Fees.  No Obligor has utilized the services of any broker or
finder in connection with Borrowers' obtaining financing from the Lender Group under this Agreement and no brokerage commission or finders fee is payable in connection herewith. 

    5.16  Intentionally Omitted.  

    5.17  Intellectual Property.  Each Obligor owns, or holds licenses in, all
trademarks, trade names, copyrights, patents, patent rights, and licenses that are necessary to the conduct of its business as currently conducted. 

    5.18  Leases.  Each Obligor enjoys peaceful and undisturbed possession under all
leases material to the business of such Obligor and to which it is a party or under which it is operating. All of such leases are valid and subsisting and no material default by such Obligor exists
under any of them. 

    5.19  DDAs.  Set forth on  Schedule 5.19 are all of Obligors' current DDAs,
including, with respect to each depository (i) the name and address of that depository;
and (ii) the account number(s) of the account(s) maintained with such depository. 

49

 

    5.20  Offsite Storage Locations.  With respect to each Offsite Storage Location,
(i) no more than $500,000 in Inventory is stored at each such location and no more than $1,500,000 in the aggregate is stored at all Offsite Storage Locations, and (ii) GCI has complete
and unrestricted access to each such location and the Inventory located thereat. 

    5.21  American Music Acquisition.  As of the date of the closing of the American
Music Acquisition (the "American Music Acquisition Closing Date"): 

    (a) The
American Music Acquisition Documents and the transactions contemplated thereunder have been duly executed and delivered by the respective parties thereto and
have been, or will be, performed in accordance with their terms by the respective parties thereto in all material respects, including the fulfillment (not merely the waiver, except as may be disclosed
in writing to Agent and consented to in
writing by Agent) of all material conditions precedent set forth therein, and has as of the American Music Acquisition Closing Date good and marketable title to substantially all of the assets and
business comprising the Business as conducted as of the American Music Acquisition Closing Date free and clear of all material claims, liens, pledges and encumbrances of any kind, except Permitted
Liens and as disclosed in writing to Agent. 

    (b) All
actions and proceedings required by the American Music Acquisition Documents, applicable law or regulation (including, but not limited to, compliance with the
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended) that were required to be taken on or before the American Music Acquisition Closing Date will have been taken,
and the transactions required thereunder to be taken and consummated on or before the American Music Acquisition Closing Date (or, if later, the date that this representation and warranty is made)
will have been duly and validly taken and consummated. 

    (c) No
court of competent jurisdiction has issued any injunction, restraining order or other order which prohibits consummation of the transactions described in the
American Music Acquisition Documents and no governmental or other action or proceeding has been threatened or commenced, seeking any injunction, restraining order or other order which seeks to void or
otherwise modify the transactions described in the American Music Acquisition Documents. 

    (d) GCS
will have delivered, or caused to be delivered, to Agent true, correct and complete copies of the American Music Acquisition Documents. 

    (e) The
acquisition of substantially all of the assets and business comprising the Business as conducted as of the American Music Acquisition Closing Date will have
been concluded in accordance with the terms of the American Music Acquisition Documents. 

6.  AFFIRMATIVE COVENANTS.  

    Each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations (other than
contingent indemnification obligations), each Obligor or its Subsidiaries, as applicable, shall do all of the following: 

    6.1  Accounting System.  Maintain a system of accounting that enables Borrowers
to produce financial statements in accordance with GAAP and maintain records pertaining to the Collateral that contain information as from time to time reasonably may be requested by Agent. Each
Borrower also shall keep an inventory reporting system that shows all additions, sales, claims, returns, and allowances with respect to the Inventory. 

50

       6.2  Collateral Reporting.  Provide Agent with the following documents at the
following times in form reasonably satisfactory to Agent: 

    (a) on
a daily basis, from and after the Receivables Activation Date and during any period after the occurrence and during the continuance of an Event of Default, a
sales journal, collection journal, and credit register since the last such schedule, 

    (b) on
a weekly basis and, in any event, by no later than the third Business Day of the immediately following week 

     (i) from
and after the Receivables Activation Date and during any period when no Event of Default has occurred and is continuing, a sales journal, collection journal,
and credit register since the last such schedule, 

    (ii) during
any period after the occurrence and during the continuance of an Event of Default, (A) a Borrowing Base Certificate setting forth the calculation of
the Borrowing Base as of such date and demonstrating Borrowers' compliance with the limitation on Advances set forth in Section 2.1(c), and,
(B) Inventory reports specifying Borrowers' cost and the wholesale market value of its Inventory by category, with additional detail showing additions to and deletions from the Inventory (the
so-called "Roll Forward Inventory Collateral Report"), and 

    (iii) during
any period after the occurrence and during the continuance of an Event of Default, an additional Inventory report listing goods on consignment under
rent-to-purchase programs or satellite arrangements with third parties for rent-to-purchase programs for musical instruments. 

    (c) on
a monthly basis and, in any event, by no later than the 15th day of each month during the term of this Agreement, 

     (i) prior
to the Receivables Activation Date, a sales journal, collection journal, and credit register since the last such schedule, 

    (ii) during
any period when no Event of Default has occurred and is continuing, a Borrowing Base Certificate setting forth the calculation of the Borrowing Base and
demonstrating Borrowers' compliance with the limitation on Advances set forth in Section 2.1(a)(iii) as of the last day of the immediately
preceding month, 

    (iii) during
any period when no Event of Default has occurred and is continuing, Inventory reports specifying the cost of Borrowers' Inventory by category, with
additional detail showing additions to and deletions from the Inventory (the so-called "Roll Forward Inventory Collateral Report"), 

    (iv) during
any period when no Event of Default has occurred and is continuing, an additional Inventory report listing goods on consignment under
rent-to-purchase programs or satellite arrangements with third parties for rent-to-purchase programs for musical instruments, 

    (v) a
listing, by vendor, of Borrowers' accounts payable and any book overdraft, 

    (vi) a
consigned inventory report by vendor, 

   (vii) an
inventory reconciliation to general ledger, and 

   (viii) a
calculation of Dilution for the prior month, 

    (d) on
a monthly basis and, in any event, by no later than the 16th day of each month during the term of this Agreement, a detailed aging, by total, of the Eligible
Accounts, together with a reconciliation to the detailed calculation of the Borrowing Base previously provided to Agent, 

51

 

together with a calculation of Accounts or rights to payment that are not Eligible Accounts, gift certificates, and merchandise credits, 

    (e) promptly
upon request of Agent in the exercise of its Permitted Discretion, 

     (i) copies
of invoices in connection with the Accounts, customer statements, credit memos, remittance advices and reports, deposit slips, shipping and delivery
documents in connection with the Accounts and for Inventory and Equipment acquired by Borrowers, purchase orders and invoices 

    (ii) a
list of all unissued credit memos and a copy of Borrowers' unissued credit log, 

    (iii) notice
of all returns, or credit memos as reported in the accounts receivable activity report, 

    (iv) copies
of all draft or unaudited results of the then most recently completed component of Borrowers' Inventory cycle count program, together with a report of all
adjustments to Borrowers' Inventory made on the basis of the results of such cycle count component. 

    (v) evidence
of payment of sales taxes, and 

    (vi) such
other reports as to the Collateral or the financial condition of Borrowers, or the above reports but at a greater reporting frequency, as Agent may request
from time to time in its Permitted Discretion, 

    (f)  on
the Receivables Activation Date, a roll-forward to the Business day immediately preceding the Receivables Activation Date of the sales journal,
collection journal, and credit register delivered by Borrower to Agent for the immediately preceding month pursuant to Section 6.2(c)(i). 

    6.3  Financial Statements, Reports, Certificates.  Deliver to Agent, with copies
to each Lender: 

    (a) as
soon as available, but in any event within 45 days after the end of each month during each of GCI's fiscal years, 

     (i) a
company prepared balance sheet, income statement, and statement of cash flow covering GCI's consolidated operations during such period, and 

    (ii) a
certificate signed by the chief financial officer of Administrative Borrower to the effect that: 

    (A) the
financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end
audit adjustments) and fairly present the consolidated financial condition of GCI in all material respects, 

    (B) the
representations and warranties of each Obligor contained in this Agreement and the other Loan Documents are true and correct in all material respects on and as
of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), and 

    (C) there
does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have knowledge and what action Borrowers have taken, are taking, or propose to take with respect thereto). 

    (b) as
soon as available, but in any event within 45 days after the end of each fiscal quarter during each of GCI's fiscal years, 

52

 

     (i) a
company prepared balance sheet, income statement, and statement of cash flow covering GCI's consolidated operations during such period, 

    (ii) a
company prepared segmented balance sheet and profit and loss statement for the operations of each of the American Music Division and MFI during such period, and
for the consolidated operations of GCI and GCS during such period, 

    (iii) a
certificate signed by the chief financial officer of Administrative Borrower to the effect that: 

    (A) the
financial statements delivered hereunder have been prepared in accordance with GAAP (except for the lack of footnotes and being subject to year-end
audit adjustments) and fairly present the consolidated financial condition of GCI in all material respects, 

    (B) the
representations and warranties of GCI and the Obligors contained in this Agreement and the other Loan Documents are true and correct in all material respects on
and as of the date of such certificate, as though made on and as of such date (except to the extent that such representations and warranties relate solely to an earlier date), 

    (C) there
does not exist any condition or event that constitutes a Default or Event of Default (or, to the extent of any non-compliance, describing such
non-compliance as to which he or she may have
knowledge and what action the Obligors have taken, are taking, or propose to take with respect thereto), 

    (iv) a
Compliance Certificate demonstrating, in reasonable detail, compliance at the end of such quarter period with the financial covenants contained in  Section 7.20, and 

    (v) a
detailed calculation of the Leverage Ratio, certified as correct by the chief financial officer of Administrative Borrower, in sufficient detail as determined by
Agent in its Permitted Discretion, to permit the redetermination of the applicable interest rate margins. 

    (c) as
soon as available, but in any event within 105 days after the end of each of GCI's fiscal years, consolidated financial statements of GCI for each such
fiscal year, audited by independent certified public accountants reasonably acceptable to Agent and certified, without any qualifications, by such accountants to have been prepared in accordance with
GAAP (such audited financial statements to include a balance sheet, income statement, and statement of cash flow and, if prepared, such accountants' letter to management), and the delivery by GCI of
its Form 10-K annual report to the Lender Group within 105 days of the end of its fiscal year, which report is otherwise in compliance with the auditors' certification
requirements of this clause (c), shall be deemed to satisfy the delivery requirement of this clause (c), 

    (d) if
filed by GCI, within 5 Business Days following such filing, 

     (i) 10-Q
quarterly reports, Form 10-K annual reports, and Form 8-K current reports, 

    (ii) any
other filings made by GCI with the SEC, and 

    (iii) any
other material information that is provided by GCI to its shareholders generally, 

    (e) if
and when filed by any Borrower and as requested by Agent in the exercise of its Permitted Discretion, satisfactory evidence of payment of applicable excise taxes
in each jurisdictions in which (i) any Borrower conducts business or is required to pay any such excise tax, (ii) where any Borrower's failure to pay any such applicable excise tax would
result in a Lien on the properties or assets of such Borrower, as applicable, or (iii) where any Borrower's failure to pay any such applicable excise tax would constitute a Material Adverse
Change, 

53

 

    (f)  not later than 45 days after the end of each of GCI's fiscal quarters, a "Same Store Sales Analysis" comparing the sales of each Borrower's retail locations
for such fiscal quarter to the comparable period for each such retail location for the immediately preceding fiscal year; and 

    (g) upon
the request of Agent, in the exercise of its Permitted Discretion, any other report reasonably requested relating to the financial condition of Borrowers. 

    Each
Borrower agrees to deliver financial statements prepared on a consolidated basis and that no Obligor will have a fiscal year different from that of GCI. 

    6.4  Guarantor Reports.  Cause each Guarantor of any of the Obligations to
deliver its annual financial statements at the time when GCI provides its audited financial statements to Agent and, upon the request of Agent following and during the continuation of an Event of
Default, copies of all federal income tax returns as soon as the same are available and in any event no later than 30 days after the same are required to be filed by law. 

    6.5  Return.  Cause returns and allowances, if any, as between a Borrower and its
Account Debtors to be on the same basis and in accordance with the usual customary practices of such Borrower, as they exist at the time of the execution and delivery of this Agreement. If, at a time
when an Event of Default has occurred and is continuing, any Account Debtor returns any Inventory to a Borrower that exceeds $100,000 for any particular sale transaction, such Borrower promptly shall
determine the reason for such return and, if Agent consents (which consent shall not be unreasonably withheld), issue a credit memorandum (with a copy to be sent to Agent) in the appropriate amount to
such Account Debtor. 

    6.6  Title to Equipment.  Upon Agent's request in the exercise of its Permitted
Discretion, immediately deliver to Agent, properly endorsed, any and all certificates or documents of title to any items of Equipment which, individually, have a value in excess of $100,000, or in the
aggregate have a value in excess of $750,000. 

    6.7  Maintenance of Equipment.  Maintain the Equipment in good operating
condition and repair (ordinary wear and tear excepted), and to the extent necessary to the continued operations of an Obligor make all necessary replacements thereto so that the value and operating
efficiency thereof shall at all times be maintained and preserved. Other than those items of Equipment that constitute fixtures on the Closing Date or Equipment with an aggregate book value to
Borrowers in an amount not to exceed $1,000,000 during any fiscal year, no Borrower shall permit any item of Equipment to become a fixture to real estate or an accession to other property, other than
Real Property Collateral, and such Equipment shall at all times remain personal property unless a part of Real Property Collateral. 

    6.8  Taxes.  Cause all assessments and taxes, whether real, personal, or
otherwise, due or payable by, or imposed, levied, or assessed against any Obligor or any of its property to be paid in full, before delinquency or before the expiration of any extension period, except
to the extent that the validity of such assessment or tax shall be the subject of a Permitted Protest. The Obligors will make timely payment or deposit of all tax payments and withholding taxes
required of it by applicable laws, including those laws concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal income taxes, and will, upon request, furnish Agent with proof
satisfactory to Agent indicating that each Obligor has made such payments or deposits. Upon the request of Agent in the exercise of its Permitted Discretion, Administrative Borrower shall deliver
satisfactory evidence of payment of applicable excise taxes in each jurisdictions in which (a) such Obligor conducts business or is required to pay any such excise tax, or (b) where such
Obligor's failure to pay any such applicable excise tax would result in a Lien on the properties or assets of such Obligor, in each case, where such Obligor's failure to pay any such applicable excise
tax would constitute a Material Adverse Change. 

54

 

    6.9  Insurance.  

    (a) At
their expense, maintain insurance respecting the Collateral wherever located and with respect to Borrowers' business, covering loss or damage by fire, theft,
explosion, and all other hazards and risks as ordinarily are insured against by other Persons engaged in the same or similar businesses. Each Borrower also shall maintain business interruption, public
liability, and product liability insurance, as well as insurance against "employee dishonesty." All such policies of insurance shall be in such amounts and with such insurance companies as are
reasonably satisfactory to Agent. Each Borrower shall deliver certified copies of all such policies to Agent with 438 BFU lender's loss payable endorsements or other reasonably satisfactory lender's
loss payable endorsements, naming Agent as sole loss payee or additional insured, as appropriate. Each policy of insurance or endorsement shall contain a clause requiring the insurer to give not less
than 30 days prior written notice to Agent in the event of cancellation of the policy for any reason whatsoever, other than for the non-payment of premium, for which the notice
period shall be 10 days. If a Borrower fails to provide and pay for such insurance, Agent may, at its option, but shall not be required to, procure the same and charge Borrowers' Loan Account
therefor. 

    (b) At
its expense, maintain key man life insurance policies with respect to the following individuals and in the following amounts: 

	Name
 
	 	Amount

	Mr. Marty Albertson	 	$	3,500,000
	Mr. Larry Thomas	 	$	5,000,000

    All
proceeds payable under such life insurance policies shall be payable to Agent for the benefit of the Lender Group to be applied on account of the Obligations in accordance with  Section 2.4(b).

    (c) At
its expense, obtain and maintain (i) insurance of the type necessary to insure the Improvements and Chattels (as such terms are defined in the Mortgages),
for the full replacement cost thereof, against any loss by fire, lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle damage, earthquakes (but only for Obligors' locations in the
States of California, Arizona, Nevada and Washington, and any States in which any Obligor initiates business operations after the Closing Date where Persons engaged in the same or similar businesses
as such Obligor customarily obtain earthquake insurance), elevator collision, and other risks from time to time included under "extended coverage" policies, in such amounts as Agent may require, but
in any event in amounts sufficient to prevent any Obligor from becoming a co-insurer under such policies, (ii) combined single limit bodily injury and property damages insurance
against any loss, liability, or damages on, about, or relating to each parcel of Real Property Collateral, in an amount of not less than $2,000,000; and (iii) business rental insurance covering
annual receipts for a 12 month period for each parcel of Real Property Collateral. 

    (d) Each
Borrower shall give Agent prompt notice of any material loss covered by such insurance. Agent shall have the exclusive right to adjust any losses payable under
any such insurance policies, without any liability to Borrowers whatsoever in respect of such adjustments; provided, however, prior to the occurrence
and during the continuance of an Event of Default, Borrowers shall have the right to adjust any losses payable under any such insurance policies involving amounts less than $2,500,000. Any monies
received as payment for any loss under any insurance policy mentioned above (other than liability insurance policies) or as payment of any award or compensation for condemnation or taking by eminent
domain, shall be paid over to Agent to be applied at the option of the Required Lenders either to the prepayment of the Obligations without premium, in such order or manner as the Required Lenders may
elect, or shall be disbursed to Borrowers under staged payment terms reasonably satisfactory to the Required 

55

 

Lenders for application to the cost of repairs, replacements, or restorations. All repairs, replacements, or restorations shall be effected with reasonable promptness and shall be of a value at least
equal to the value of the items or property destroyed prior to such damage or destruction. Upon the occurrence and during the continuance of an Event of Default, Agent shall have the right to apply
all prepaid premiums to the payment of the Obligations in such order or form as Agent shall determine in its Permitted Discretion. 

    (e) No
Borrower shall take out separate insurance concurrent in form or contributing in the event of loss with that required to be maintained under this  Section 6.9, unless Agent is included thereon as
named insured with the loss payable to Agent under a standard California 438BFU (NS) Mortgagee
endorsement, or its equivalent. Administrative Borrower immediately shall notify Agent whenever such separate insurance is taken out, specifying the insurer thereunder and full particulars as to the
policies evidencing the same, and originals of such policies immediately shall be provided to Agent. 

    6.10  No Setoffs or Counterclaims.  Make payments hereunder and under the other
Loan Documents by or on behalf of the Obligors without setoff or counterclaim and free and clear of, and without deduction or withholding for or on account of, any federal, state, or local taxes. 

    6.11  Location of Inventory and Equipment.  Keep the Inventory and Equipment only
at the locations identified on Schedule 6.11; provided, however, that Borrowers may amend  Schedule 6.11 so long as such amendment occurs by
written notice to Agent not less than 30 days prior to the date on which the Inventory
or Equipment is moved to such new location, so long as such new location is within the continental United States, and so long as, not less than 30 days prior to the effectiveness of such
amendment, Borrowers provide any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens on such assets and, if requested by Agent in the exercise of its
Permitted Discretion, also provides to Agent a Collateral Access Agreement. 

    6.12  Compliance with Laws.  Comply with the requirements of all applicable laws,
rules, regulations, and orders of any governmental authority, including the Fair Labor Standards Act and the Americans With Disabilities Act, other than laws, rules, regulations, and orders the
non-compliance with which, individually or in the aggregate, would not result in and would reasonably not be expected to result in a Material Adverse Change. 

    6.13  Employee Benefits.  

    (a)  ERISA Events.  Promptly and in any event within 10 days after an Obligor or any of its
Subsidiaries knows or has reason to know that any ERISA Event with respect to such Obligor or any of its ERISA Affiliates has occurred, a statement of the chief financial officer of Administrative
Borrower describing such ERISA Event and the action, if any, that such Obligor or such ERISA Affiliate has taken and proposes to take with respect thereto. 

    (b)  Plan Terminations.  Promptly and in any event within 5 Business Days after receipt thereof by an
Obligor, any of its Subsidiaries, or, to the knowledge of such Obligor, any of its other ERISA Affiliates, copies of each notice from the PBGC stating its intention to terminate any Plan of such
Obligor or any of its ERISA Affiliates or to have a trustee appointed to administer any such Plan. 

    (c)  Plan Annual Reports.  Promptly and in any event within 30 days after the filing thereof with
the Internal Revenue Service, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Plan of Obligors or any of their ERISA
Affiliates. 

    (d)  Multiemployer Plan Notices.  Promptly and in any event within 5 Business Days after  receipt thereof by an Obligor, any of its Subsidiaries, or, to
the knowledge of such Obligor, any of 

56

 

its other ERISA Affiliates from the sponsor of a Multiemployer Plan of such Obligor or any of its ERISA Affiliates, copies of each notice concerning (i) the imposition of Withdrawal Liability
by any such Multiemployer Plan, (ii) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the amount of liability incurred,
or that may be incurred, by such Obligor or any of its ERISA Affiliates in connection with any event described in clause (i) or (ii). 

    6.14  Leases.  Pay when due (after giving effect to all cure periods under such
leases) all rents and other amounts payable under any leases to which any Borrower is a party or by which a Borrower's properties and assets are bound, unless such payments are the subject of a
Permitted Protest or where the failure to make such payment would have only a de minimis effect on the business, operations, results of operations,
assets, liabilities or condition (financial or otherwise) of the Borrowers taken as a whole. To the extent that any Borrower fails timely to make payment of such rents and other amounts payable when
due under its leases, Agent shall be entitled, in its discretion, to reserve an amount equal to such unpaid amounts against the Borrowing Base. 

    6.15  [Intentionally Omitted].  

    6.16  Projections.  Not later than 30 days prior to the end of each fiscal
year of GCI, deliver to Agent Projections of GCI, in form and substance (including as to scope and underlying assumptions) satisfactory to Agent in its Permitted Discretion, for the forthcoming fiscal
year, month by month, certified by the chief financial officer of Administrative Borrower as being such officer's good faith best estimate of the financial performance of the Obligors during the
period covered thereby. 

    6.17  Corporate Existence, etc.  Except as otherwise permitted hereunder, at all
time preserve and keep in full force and effect each Obligor's valid corporate existence and good standing and any rights and franchises material to such Obligor's businesses. 

    6.18  Disclosure Updates.  Promptly and in no event later than 5 Business Days
after obtaining knowledge thereof, (i) notify Agent if any written information, exhibit, or report furnished to the Lender Group contained any untrue statement of a material fact or omitted to
state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which made, and (ii) correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgement, filing, or recordation thereof. 

    6.19  Mailing Lists.  Add Agent as an addressee on all mailing lists maintained
by or for the Obligors. 

    6.20  Inventory Cycle Counts.  Perform Inventory cycle counts in the manner and
at the times described in GCS's Cycle Count Manual as in effect on the Closing Date. 

    6.21  Distribution Centers.  From and after the Closing Date, Inventory located
at the Medford, Oregon and Knoxville, Tennessee distribution centers of MFI shall be used solely to support direct response sales fulfillment, provided,
however, Borrowers may from time to time transfer Inventory from MFI to GCS in order to correct overstock situations and to use repackaged, slow moving, or discontinued items
for promotional purposes or as GCS may otherwise reasonably deem appropriate. 

    6.22  Permitted Acquisitions.  In connection with any Permitted Acquisition
involving the acquisition of the Stock of another Person by any Borrower, Borrowers shall execute and deliver to Agent such amendments, modifications, or supplements to the Loan Documents as Agent may
request in the exercise of its Permitted Discretion, including an amendment to the Stock Pledge Agreement to pledge all of the issued and outstanding Stock of such acquired Person thereunder together
with the delivery of certificates (if any) representing such shares of Stock with attached stock powers endorsed in blank, and shall cause the Person that is the subject of the Permitted Acquisition
to execute and deliver to Agent all appropriate joinder documents to make it an Obligor party to the Loan Documents and appropriate UCC-1 financing statements, fixture filings, Collateral
Access Agreements, mortgages or deeds of trust, and any other documents, instruments, or Agreements that Agent may request in the exercise of its Permitted Discretion. 

57

       6.23  American Music Acquisition.  

    (a) On
or before the close of the American Music Acquisition, Agent shall have received and reviewed copies, certified as true, correct, and complete by an appropriate
officer of GCI, of each of the American Music Acquisition Documents, the form and substance of which shall be reasonably satisfactory to Agent. 

    (b) Within
15 days of the close of the American Music Acquisition, Agent shall have received evidence, satisfactory to Agent, that the American Music Acquisition
Documents have been duly executed and delivered by each of the parties thereto and, in each case, remain in full force and effect; and 

    (c) Within
15 days of the close of the American Music Acquisition, Agent shall have received satisfactory evidence of the consummation of the transactions
contemplated by the American Music Acquisition Documents. 

    6.24  American Music Acquisition Documents.  

    After
the American Music Acquisition Date, no Borrower shall, without the prior written consent of Agent, directly or indirectly, amend, modify, cancel or terminate, or permit the
amendment, modification, cancellation or termination of any American Music Acquisition Document if the effect thereof would or reasonably could be expected to result in a Material Adverse Change. 

7.  NEGATIVE COVENANTS.  

    GCI and each Borrower covenants and agrees that, so long as any credit hereunder shall be available and until full and final payment of the Obligations (other
than contingent indemnification obligations), no Obligor nor any of its Subsidiaries will do any of the following: 

    7.1  Indebtedness.  Create, incur, assume, permit, guarantee, or otherwise become
or remain, directly or indirectly, liable with respect to any Indebtedness, except: 

    (a) Indebtedness
evidenced by this Agreement, together with Indebtedness to issuers of letters of credit that are the subject of L/C Undertakings; 

    (b) Indebtedness
set forth on Schedule 7.1; 

    (c) Permitted
Purchase Money Indebtedness; 

    (d) Subordinated
Indebtedness in an aggregate amount not to exceed $2,000,000 outstanding at any one time; 

    (e) unsecured
Indebtedness incurred by any Borrower in the ordinary course of business for borrowed money, in an aggregate amount not in excess of $2,000,000; 

    (f)  Acquired
Indebtedness in an amount not to exceed $5,000,000 outstanding at any one time; 

    (g) Indebtedness
not otherwise permitted under this Section 7.1 in an aggregate amount outstanding at any time
less than or equal to $500,000; 

    (h) Indebtedness
incurred by GCS (including such Indebtedness assumed in connection with the American Music Acquisition) to purchase musical instruments from trade
creditors on extended terms; provided that the amount of such Indebtedness shall not exceed $7,500,000 at any time outstanding; 

    (i)  intercompany
indebtedness owed from one Borrower to any other Borrower; 

58

 

    (j)  endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; 

    (k) Indebtedness
from MCI to any Borrower to the extent permitted under clause (g) of the definition of Permitted Investments; and 

    (l)  refinancings,
renewals, or extensions of Indebtedness permitted under clauses (b) through (j) of this  Section 7.1 (and continuance or renewal of any Permitted Liens associated therewith) so long as:
(i) the terms and conditions of such
refinancings, renewals, or extensions do not materially impair the prospects of repayment of the Obligations by Borrowers, (ii) the net cash proceeds of such refinancings, renewals, or
extensions do not result in an increase in the aggregate principal amount of the Indebtedness so refinanced, renewed, or extended, (iii) such refinancings, renewals, refundings, or extensions
do not result in a shortening of the average weighted maturity of the Indebtedness so refinanced, renewed, or extended, (iv) to the extent that Indebtedness that is refinanced, renewed, or
extended was subordinated in right of payment to the Obligations, then the subordination terms and conditions of the refinancing, renewal, or extension Indebtedness must be at least as favorable to
the Lender Group as those applicable to the refinanced, renewed, or extended Indebtedness, and (v) if such refinancing, renewal, refunding, or extension involves the Senior Notes, such
refinancing, renewal, refunding, or extension also complies with Section 7.8(c). 

    7.2  Liens.  Create, incur, assume, or permit to exist, directly or indirectly,
any Lien on or with respect to any of its property or assets, of any kind, whether now owned or hereafter acquired, or any income or profits therefrom, except for Permitted Liens (including Liens that
are replacements of Permitted Liens to the extent that the original Indebtedness is refinanced under Section 7.1(l) and so long as the
replacement Liens only encumber those assets or property that secured the original Indebtedness). 

    7.3  Restrictions on Fundamental Changes.  

    (a) Enter
into any merger, consolidation, reorganization, or recapitalization, or reclassify its Stock. 

    (b) Liquidate,
wind up, or dissolve itself (or suffer any liquidation or dissolution). 

    (c) Convey,
sell, assign, lease, transfer, or otherwise dispose of, in one transaction or a series of transactions, all or any substantial part of its property or
assets; 

provided, however, that nothing contained in this Section 7.3 shall be construed to restrict or
limit (i) any offering, issuance, or sale by GCI, in one or more transactions, public or private, of its common Stock or other Stock that does not require any cash payment until after the
second anniversary of the Maturity Date (including any concomitant increase in the number of authorized shares of Stock of GCI or in the authorized share capital of GCI), so long as such offerings,
issuances, and sales are made in compliance with all applicable laws and regulations and would not, individually or collectively, result in a Change of Control, (ii) Permitted Acquisitions,
(iii) the merger or consolidation of a wholly owned Solvent Subsidiary into another wholly owned Solvent Subsidiary or a wholly owned Solvent Subsidiary
with and into a Borrower, (iv) Permitted Dispositions, (v) the merger or consolidation of MCI with any other Person provided that such merger or consolidation would not result in a
Change of Control, or (vi) Permitted Investments. 

    7.4  Disposal of Assets.  Sell, lease, assign, transfer, or otherwise dispose of
any of Obligors' properties or assets, other than pursuant to Permitted Dispositions. 

    7.5  Change Name.  Change any Obligor's name, FEIN, corporate structure (within
the meaning of Section 9402(7) of the Code), or identity, or add any new fictitious name, except that any Obligor may do so upon at least
30 days prior written notice to Agent of such change and so long as, at the time of such written notification, Administrative Borrower provides any financing statements or fixture 

59

 

filings necessary to perfect and continue perfected Agent's or any other member of the Lender Group's security interests in the Collateral. 

    7.6  Guarantee.  Guarantee or otherwise become in any way liable with respect to
the obligations of any third Person (other than a Borrower) except by endorsement of instruments or items of payment for deposit to the account of an Obligor or which are transmitted or turned over to
Agent or guarantees of the Obligations or trade guarantees made in the ordinary course of business in an aggregate contingent amount not to exceed $250,000 outstanding at any one time. 

    7.7  Nature of Business.  Make any change in the principal nature of a Obligor's
business to include activities other than the Business. 

    7.8  Prepayments and Amendments.  

    (a) Except
in connection with a refinancing permitted by Section 7.1(j) or as provided in subsection
(c) or (d) below, prepay, redeem, retire, defease, purchase, or otherwise acquire any Indebtedness owing to any third Person, other than the Obligations and Indebtedness owing to any
Borrower in accordance with this Agreement, 

    (b) Except
as permitted by subsection (c) below, directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any
agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c), or  (d),

    (c) GCI
shall not, and shall not permit any Subsidiary to, amend, supplement, or modify any Senior Note Document or repay the principal of, or make any other payment in
relation to, the Senior Notes; provided, so long as no Event of Default has occurred and is continuing or would result therefrom, the foregoing shall
not prohibit (i) the payment of regularly scheduled interest on the Senior Notes, (ii) the repayment of the Senior Notes at the stated maturity date of July 1, 2006,
(iii) the repayment of the Senior Notes with the proceeds of any refinancing thereof (provided that such refinancing Indebtedness complies with the requirements of  Section 7.1(i) and is
otherwise on terms substantially similar to the Senior Notes), and (iv) modifications or amendments to the Senior
Notes or the Senior Note Documents if the effect thereof could not be expected to result in a Material Adverse Change and otherwise do not involve the amendment or modification of provisions which
would increase interest rates, principal or interest payment amounts, total principal amounts, or require payment of any such amounts at earlier times, or similar terms and provisions, and 

    (d) Notwithstanding
anything to the contrary contained in this Agreement or in any other Loan Document, Borrowers may prepay any other Indebtedness, if, after giving
effect to such prepayment, no Event of Default shall have occurred or is continuing and Excess Availability shall be at least equal to $30,000,000. 

    7.9  Change of Control.  Cause, permit, or suffer, directly or indirectly, any
Change of Control without the prior written consent of Agent and the Required Lenders. 

    7.10  Consignments.  Consign any Inventory or sell any Inventory on bill and
hold, sale or return, sale on approval, or other conditional terms of sale (except for (a) Borrowers' customary return policy applicable to the return of inventory purchased by Borrowers'
retail customers in the ordinary course of Borrowers' business and (b) rent-to-purchase programs and satellite arrangements with third parties for
rent-to-purchase programs for musical instruments, both in the ordinary course of business), or have possession of any property on consignment to an Obligor. 

    7.11  Distributions.  Make any distribution or declare or pay any dividends (in
cash or other property, other than Stock) on, or purchase, acquire, redeem, or retire any of any Obligor's Stock, of 

60

 

any class, whether now or hereafter outstanding; provided, however, that the foregoing shall not restrict the ability of: 

     (i) Any
Borrower's Subsidiaries to make any dividend or other distribution to such Borrower; or 

    (ii) GCI
to make any dividend or other distribution to its shareholders consisting of shares of its common Stock or warrants or other rights to acquire GCI' common
Stock 

     7.12  Accounting Methods.  Modify or change its method of accounting (other than as may be required to
conform to GAAP) or enter into, modify, or terminate any agreement currently existing, or at any time hereafter entered into with any third party accounting firm or service bureau for the preparation
or storage of Obligors' accounting records without said accounting firm or service bureau agreeing to provide Agent information regarding the Collateral or the Obligors' financial condition. 

    7.13  Investments.  Except for Permitted Investments, directly or indirectly
make, acquire, or incur any liabilities (including contingent obligations) for or in connection with any Investment; provided, however, that no Obligor
shall have Permitted Investments consisting of Investment Property or Cash Equivalents (other than in the GCS Collection Accounts, the Concentration Accounts, or the Designated Account) in excess of
$100,000 outstanding at any one time without the prior written consent of Agent, which consent may be conditioned, at Agent's election, on such Obligor entering into Control Agreements or similar
arrangements governing such Permitted Investments, as Agent shall determine in its Permitted Discretion, to perfect (and further establish) Agent's Liens in such Permitted Investments. 

    7.14  Transactions with Affiliates.  Except as otherwise permitted by this
Agreement and except for management, accounting, or other business services to be provided by GCI to the other Obligors and the license of intellectual property rights by GCI to the other Obligors,
directly or indirectly enter into or permit to exist any material transaction with any Affiliate of any Obligor except for transactions that are in the ordinary course of such Obligor's business, upon
fair and reasonable terms, that are fully disclosed to Agent, and that are no less favorable to such Obligor than would be obtained in an arm's length transaction with a non-Affiliate. 

     7.15  Suspension.  Suspend or go out of a substantial portion of its business. 

    7.16  [Intentionally Omitted].  

    7.17  Use of Proceeds.  Use the proceeds of the Advances for any purpose other
than (a) on the Closing Date, (i) to repay in full the outstanding principal, accrued interest, and accrued fees and expenses owing to Existing Lender, and (ii) to pay
transactional fees, costs, and expenses incurred in connection with this Agreement, and (b) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted corporate
purposes including the financing of working capital, store expansion via development or purchase, and capital expenditures. 

    7.18  Change in Location of Chief Executive Office; Inventory and Equipment with
Bailees.  Relocate its chief executive office to a new location without providing 30 days prior written notification thereof to Agent and so long as,
within 10 days prior to such relocation, Administrative Borrower provides any financing statements or fixture filings necessary to perfect and continue perfected the Agent's Liens and also
provides to Agent a Collateral Access Agreement with respect to such new location. The Inventory and
Equipment shall not at any time now or hereafter be stored with a bailee, warehouseman, or similar party without Agent's prior written consent. Agent hereby acknowledges that the Borrowers have given
proper notice of their move of their chief executive office to Westlake Village, California as indicated in the Schedules to this Agreement. 

61

 

    7.19  No Prohibited Transactions Under ERISA.  Directly or indirectly: 

    (a) engage,
or permit any Subsidiary of an Obligor to engage, in any prohibited transaction which is reasonably likely to result in a civil penalty or excise tax
described in Sections 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the Department of Labor; 

    (b) permit
to exist with respect to any Plan any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC), whether or not waived; 

    (c) fail,
or permit any Subsidiary of an Obligor to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency
to any Plan; 

    (d) terminate,
or permit any Subsidiary of an Obligor to terminate, any Plan where such event would result in any liability of such Borrower, any of its Subsidiaries or
any ERISA Affiliate under Title IV of ERISA; 

    (e) fail,
or permit any Subsidiary of an Obligor to fail, to make any required contribution or payment to any Multiemployer Plan; 

    (f)  fail,
or permit any Subsidiary of an Obligor to fail, to pay any required installment or any other payment required under Section 412 of the IRC on or
before the due date for such installment or other payment; 

    (g) amend,
or permit any Subsidiary of an Obligor to amend, a Plan resulting in an increase in current liability for the plan year such that either an Obligor, any
Subsidiary of an Obligor or any ERISA Affiliate thereof is required to provide security to such Plan under Section 401(a)(29) of the IRC; or 

    (h) withdraw,
or permit any Subsidiary of an Obligor to withdraw, from any Multiemployer Plan where such withdrawal is reasonably likely to result in any liability of
any such entity under Title IV of ERISA; 

which,
individually or in the aggregate with all other events under clauses (a) through (h), results in or reasonably would be expected to result in a claim against or liability of Borrowers,
any of their Subsidiaries or any ERISA Affiliate in excess of $250,000. 

    7.20  Financial Covenants.  Fail to maintain: 

    (a) Tangible
Net Worth for the relevant fiscal quarter of not less than the relevant amount set forth in the following table, measured on a fiscal
quarter-end basis: 

	Period Ending
 
	 	Minimum Tangible Net Worth

	03/31/01	 	$	81,000,000
	06/30/01	 	$	79,700,000
	09/30/01	 	$	83,400,000
	12/31/01	 	$	93,100,000
	03/31/02	 	$	97,400,000
	06/30/02	 	$	101,700,000
	09/30/02	 	$	106,300,000
	12/31/02	 	$	118,500,000
	03/31/03 and each fiscal quarter thereafter	 	$	119,000,000

    (b) Required
Availability, measured at any time. 

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       7.21  Credit Card Receipts.  Amend, modify, supplement or restate the Credit Card
Agreements in any material respect without the prior written consent of Agent, which shall not be unreasonably withheld. 

    7.22  Capital Expenditures.  Make consolidated capital expenditures (other than
Permitted Acquisitions) in any fiscal year in excess of the amount set forth in the following table for the applicable period (the "Maximum Consolidated Capital Expenditures
Amount"); provided that the Maximum Consolidated Capital Expenditures Amount for any fiscal year as set forth below shall be
increased by an amount equal to that portion, if any, of the Maximum Consolidated Expenditures Amount set forth for the previous fiscal year that was not utilized for actual capital expenditures
during such fiscal year: 

	Applicable Period
 
	 	Maximum Consolidated Capital

Expenditures Amount

	Fiscal Year 2001	 	$	30,300,000
	Fiscal Year 2002	 	$	32,900,000
	Fiscal Year 2003	 	$	36,800,000
	Fiscal Year 2004	 	$	38,700,000

    7.23  Securities Accounts.  No Obligor shall establish or maintain any Securities
Account unless Agent shall have received a Control Agreement, duly executed and in full force and effect, in respect of such Securities Account. Each Obligor agrees that it will not transfer assets
out of any Securities Accounts; provided, however, that, so long as no Event of Default has occurred and is continuing or would result therefrom, such
Obligor may use such assets to the extent permitted by this Agreement. 

    7.24  American Music Division.  

    From
and after the effective date of the American Music Acquisition, GCS shall not (i) integrate the operations of the American Music Division with and into the operations of
GCS that were conducted prior to the American Music Acquisition or (ii) commingle the assets acquired pursuant to the
American Music Acquisition with any other assets of GCS (or with the assets of any of the other Obligors) unless GCS provides Agent with 60 days written notice prior to the effectiveness of any
such integration or commingling of GCS' intent to integrate operations or commingle assets. Upon any such notice, Agent shall have the right pursuant to  Section 2.1(b)(vi) to establish
reserves with respect to such integration or commingling in such amounts as Agent in its Permitted
Discretion shall deem necessary or appropriate. 

8.  EVENTS OF DEFAULT.  

    Any one or more of the following events shall constitute an event of default (each, an "Event of Default")
under this Agreement: 

    8.1 If
any Obligor, or any of its Subsidiaries, fails to pay when due and payable or when declared due and payable, any portion of the Obligations (whether of
principal, interest (including any interest which, but for the provisions of the Bankruptcy Code, would have accrued on such amounts), fees and charges due the Lender Group, reimbursement of Lender
Group Expenses, or other amounts constituting Obligations); provided, however, that in the case of
Overadvances that are caused by the charging of interest, fees, or Lender Group Expenses to Borrowers' Loan Account, such event shall not constitute an Event of Default if, within 3 Business Days of
incurring such Overadvance, Borrowers repay, or otherwise eliminate, such Overadvance; 

    8.2 If
any Obligor: 

    (a) fails
to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections 2.7
(Cash Management), 3.3(Conditions Precedent to all 

63

 

Extensions of Credit), 4.2 (Negotiable Collateral), 4.4 (Delivery of Additional Documentation Required),  6.9
(Insurance), 6.10 (No Setoffs or Counterclaims),  6.17 (Corporate Existence, etc.), 7.1 (Indebtedness),
7.2 (Liens), 7.3 (Restrictions on Fundamental Changes), 7.4 (Disposition of
Assets), 7.6 (Guarantee), 7.7 (Nature of Business), 7.8 (Prepayments and
Amendments), 7.9 (Change of Control), 7.11 (Distributions),  7.12 (Accounting Methods), 7.13 (Investments), 7.14
(Transactions with Affiliates), 7.15 (Suspension), 7.17 (Use of Proceeds),  7.20 (Financial Covenants),
7.21 (Credit Card receipts),  7.22 (Capital Expenditures), or 7.23 (Securities Accounts) of this Agreement,
or makes any knowing or
intentional breach of any negative covenant contained in any of the other Loan Documents (excluding Section 5 (Representations and Warranties)
which is covered by Section 8.12); 

    (b) fails
or neglects to perform, keep, or observe any term, provision, condition, covenant, or agreement contained in Sections
4.5 (Power of Attorney), 6.2 (Collateral Reporting), 6.3 (Financial Statements,
Reports, Certificates), 6.5 (Returns), 6.6 (Title to Equipment),  6.8 (Taxes), 6.11 (Location of Inventory
and Equipment), 6.12 (Compliance with Laws), 6.13 (Employee Benefits)  7.5 (Change Name), 7.10 (Consignments), 7.18 (Change in
Location of Chief Executive Office; Inventory and Equipment with Bailees), or 7.19 (No Prohibited Transaction Under ERISA) of this Agreement and such
failure continues for a period of 5 Business Days; or 

    (c) fails
or neglects to perform, keep, or observe any other term, provision, condition, covenant, or agreement contained in this Agreement, or in any of the other Loan
Documents (giving effect to any grace periods, cure periods, or required notices, if any, expressly provided for in such Loan Documents); in each case, other than any such term, provision, condition,
covenant, or agreement that is the subject of another provision of this Section 8, in which event such other provision of this  Section 8 shall
govern), and such failure continues for a period of 15 Business Days; 

provided that, during any period of time that any such failure or neglect of any such Obligor referred to in this paragraph exists, even if such failure
or neglect is not yet an Event of Default by virtue of the existence of a grace or cure period or the pre-condition of the giving of a notice, the Lender Group shall be relieved of its
obligation to extend credit hereunder; 

    8.3 If
there is a Material Adverse Change; 

    8.4 If
any material portion of an Obligor's, or any of its Subsidiaries', properties or assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any third Person in connection with a claim of such Person, in an amount, together with (a) the amount of all existing attachments, seizures, writs
or distress warrants, levies, or possessions plus (b) the amount of all existing judgements or claims subject to the provisions of  Section 8.9,
is in excess of $500,000 in the aggregate, and any such attachment, seizure, subjection to writ or distress warrant, levy, or
possession is not released or discharged within 15 days after the occurrence thereof, (provided that Agent may maintain reserves with respect to
all such attachments, seizures, writs or distress warrants, levies, or possessions that affect any Collateral included in the Borrowing Base without regard to whether an Event of Default exists under
this Section 8.4); 

    8.5 If
an Insolvency Proceeding is commenced by any Obligor or any of its Subsidiaries; 

    8.6 If
an Insolvency Proceeding is commenced against any Obligor, or any of its Subsidiaries, and any of the following events occur: (a) such Obligor or the
Subsidiary consents to the institution of the Insolvency Proceeding against it; (b) the petition commencing the Insolvency Proceeding is not timely controverted; (c) the petition
commencing the Insolvency Proceeding is not dismissed within 60 calendar days of the date of the filing thereof; provided, however, that, 

64

 

during the pendency of such period, Agent (including any successor agent) and each other member of the Lender Group shall be relieved of its obligation to extend credit hereunder; (d) an
interim trustee is appointed to take possession of all or a substantial portion of the properties or assets of, or to operate all or any substantial portion of the business of, a Borrower or any of
its Subsidiaries; or (e) an order for relief shall have been issued or entered therein; 

    8.7 If
any Obligor or any of its Subsidiaries is enjoined, restrained, or in any way prevented by court order from continuing to conduct all or any material part of its
business affairs and such order shall remain undischarged or unstayed for a period in excess of 30 days; 

    8.8 If
a notice of Lien, levy, or assessment is filed of record with respect to any of any Obligor's or any of its Subsidiaries' properties or assets in an amount in
excess of $500,000 by the United States Government, or any department, agency, or instrumentality thereof, or by any state, county, municipal, or governmental agency, or if any taxes or debts owing at
any time hereafter to any one or more of such entities becomes a Lien, whether choate or otherwise, upon any of an Obligor's or any of its Subsidiaries' properties or assets and the same is not paid
within 30 days of the payment date thereof (provided that Agent may maintain reserves with respect to all such notice of Lien, levies, or
assessments that affect any Collateral included in the Borrowing Base without regard to whether an Event of Default exists under this  Section 8.8); 

    8.9 If
a judgment or other claim becomes a Lien or encumbrance upon any material portion of any Obligor's or any of its Subsidiaries' properties or assets and such
judgment or claim is not removed or released or stayed within 15 days of the entry of such judgment (provided that Agent may maintain reserves
with respect to all such Liens that affect any Collateral included in the Borrowing Base without regard to whether an Event of Default exists under this  Section 8.9); 

    8.10 If
there is a default (after giving effect to all waivers of and cure periods under such material agreements) in any material agreement to which any Obligor or any
of its Subsidiaries is a party with one or more third Persons involving claims, Indebtedness, or other obligations in excess of $5,000,000, and such default (a) occurs at the final maturity of
the obligations thereunder, or (b) results in a right by such third Person(s), irrespective of whether exercised, to accelerate the maturity of any Obligor's or any of its Subsidiaries'
obligations thereunder to terminate such agreement, or to refuse to renew such agreement pursuant to an automatic renewal right therein; 

    8.11 If
any Obligor or any of its Subsidiaries makes any payment on account of Indebtedness that has been contractually subordinated in right of payment to the payment
of the Obligations, except to the extent such payment is permitted by the terms of the subordination provisions applicable to such Indebtedness; 

    8.12 If
any material misstatement or misrepresentation exists now or hereafter in any warranty, representation, statement, or report made to the Lender Group by any
Obligor, any of its Subsidiaries,
or any officer, employee, agent, or director of any Obligor or any of its Subsidiaries, or if any such warranty or representation is withdrawn; or 

    8.13 If
the obligation of any guarantor of the Obligations under its guaranty is limited or terminated by operation of law or by the guarantor thereunder, or any such
guarantor becomes the subject of an Insolvency Proceeding; provided, however, the termination of the Guaranty with respect to MCI at any time after the
date on which GCI ceases to hold 50% or more of the issued and outstanding Stock of MCI shall not constitute an Event of Default under this  Section 8.13. 

9.  THE LENDER GROUP'S RIGHTS AND REMEDIES.  

    9.1  Rights and Remedies.  Upon the occurrence, and during the continuation, of
an Event of Default, the Required Lenders (at their election but without notice of their election and without 

65

 

demand) may, except to the extent otherwise expressly provided or required below, authorize and instruct Agent to do any one or more of the following on behalf of the Lender Group (and Agent, acting
upon the instructions of the Required Lenders, shall do the same on behalf of the Lender Group), all of which are authorized by Borrowers: 

    (a) Declare
all Obligations, whether evidenced by this Agreement, by any of the other Loan Documents, or otherwise, immediately due and payable; 

    (b) Cease
advancing money or extending credit to or for the benefit of Borrowers under this Agreement, under any of the Loan Documents; 

    (c) Terminate
this Agreement and any of the other Loan Documents as to any future liability or obligation of the Lender Group, but without affecting Agent's rights and
security interests, for the benefit of the Lender Group, in the Personal Property Collateral or the Real Property Collateral and without affecting the Obligations; 

    (d) Settle
or adjust disputes and claims directly with Account Debtors for amounts and upon terms which Agent considers advisable, and in such cases, Agent will credit
Borrowers' Loan Account with
only the net amounts received by Agent in payment of such disputed Accounts after deducting all Lender Group Expenses incurred or expended in connection therewith; 

    (e) Cause
Borrowers to hold all returned Inventory in trust for the Lender Group, segregate all returned Inventory from all other property of Borrowers or in a
Borrower's possession and conspicuously label said returned Inventory as the property of the Lender Group; 

    (f)  Without
notice to or demand upon any Obligor or any guarantor, make such payments and do such acts as Agent considers necessary or reasonable to protect its
security interests in the Collateral. Each Borrower agrees to assemble the Personal Property Collateral if Agent so requires, and to make the Personal Property Collateral available to Agent as Agent
may designate. Each Borrower authorizes Agent to enter the premises where the Personal Property Collateral is located, to take and maintain possession of the Personal Property Collateral, or any part
of it, and to pay, purchase, contest, or compromise any encumbrance, charge, or Lien that in Agent's determination appears to conflict with the Agent's Liens and to pay all expenses incurred in
connection therewith. With respect to any of a Borrower's owned or leased premises, each Borrower hereby grants Agent a license to enter into possession of such premises and to occupy the same,
without charge, for up to 120 days in order to exercise any of the Lender Group's rights or remedies provided herein, at law, in equity, or otherwise; 

    (g) Without
notice to any Obligor (such notice being expressly waived), and without constituting a retention of any collateral in satisfaction of an obligation (within
the meaning of Section 9505 of the Code), set off and apply to the Obligations any and all (i) balances and deposits of any Borrower held by the Lender Group (including any amounts
received in the GCS Collection Accounts), or (ii) indebtedness at any time owing to or for the credit or the account of any Borrower held by the Lender Group; 

    (h) Hold,
as cash collateral, any and all balances and deposits of any Borrower held by the Lender Group, and any amounts received in the GCS Collection Accounts or the
Concentration Accounts, to secure the full and final repayment of all of the Obligations; 

    (i)  Ship,
reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell (in the manner provided for herein) the Personal Property
Collateral. Each Borrower hereby grants to Agent a license or other right to use, without charge, such Borrower's labels, patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks, service marks, and advertising matter, or any property of a similar nature, as it pertains to the Personal Property Collateral, in completing production of, advertising for sale, and
selling any Personal 

66

 

Property Collateral and such Borrower's rights under all licenses and all franchise agreements shall inure to the Lender Group's benefit; 

    (j)  Sell
the Personal Property Collateral at either a public or private sale, or both, by way of one or more contracts or transactions, for cash or on terms, in such
manner and at such places (including a Borrower's premises) as Agent determines is commercially reasonable. It is not necessary that the Personal Property Collateral be present at any such sale; 

    (k) Agent
shall give notice of the disposition of the Personal Property Collateral as follows: 

     (i) Agent
shall give Borrowers and each holder of a security interest in the Personal Property Collateral who has filed with Agent a written request for notice, a
notice in writing of the time and place of public sale, or, if the sale is a private sale or some other disposition other than a public sale is to be made of the Personal Property Collateral, then the
time on or after which the private sale or other disposition is to be made; 

    (ii) The
notice shall be personally delivered or mailed, postage prepaid, to Borrowers as provided in Section 12,
at least 10 days before the date fixed for the sale, or at least 10 days before the date on or after which the private sale or other disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the Personal Property Collateral that is perishable or threatens to decline speedily in value or that is of a type customarily sold on a recognized
market. Notice to Persons other than Borrowers claiming an interest in the Personal Property Collateral shall be sent to such addresses as they have furnished to Agent; 

    (iii) If
the sale is to be a public sale, Agent also shall give notice of the time and place by publishing a notice one time at least 10 days before the date of
the sale in a newspaper of general circulation in the county in which the sale is to be held; 

    (l)  The
Lender Group may credit bid and purchase at any public sale; and 

    (m) The
Lender Group shall have all other rights and remedies available to it at law or in equity pursuant to any other Loan Documents; and 

    (n) Any
deficiency that exists after disposition of the Personal Property Collateral as provided above will be paid immediately by Borrowers. Any excess will be
returned, without interest and subject to the rights of third Persons, by Agent to Borrowers. 

    9.2  Remedies Cumulative.  The rights and remedies of the Lender Group under this
Agreement, the other Loan Documents, and all other agreements shall be cumulative. The Lender Group shall have all other rights and remedies not inconsistent herewith as provided under the Code, by
law, or in equity. No
exercise by the Lender Group of one right or remedy shall be deemed an election, and no waiver by the Lender Group of any Event of Default shall be deemed a continuing waiver. No delay by the Lender
Group shall constitute a waiver, election, or acquiescence by it. 

10. TAXES AND EXPENSES.  

    If any Obligor fails to pay any monies (whether taxes, assessments, insurance premiums, or, in the case of leased properties or assets, rents or other amounts
payable under such leases) due to third Persons, or fails to make any deposits or furnish any required proof of payment or deposit, all as required under the terms of this Agreement, then, to the
extent that Agent determines that such failure by such Obligor would reasonably be expected to result in a Material Adverse Change, in its discretion and without prior notice to the Obligors, Agent
may do any or all of the following: (a) make payment of the same or any part thereof; (b) set up such reserves in Borrowers' Loan Account as Agent deems necessary, in its Permitted
Discretion, to protect the Lender Group from the exposure created by such failure; or (c) obtain and maintain insurance policies of the type described in  Section 6.9 and take any action with
respect to such policies as Agent deems prudent, in its Permitted Discretion. Any such 

67

 

amounts paid by Agent shall constitute Lender Group Expenses. Any such payments made by Agent shall not constitute an agreement by the Lender Group to make similar payments in the future or a waiver
by the Lender Group of any Event of Default under this Agreement. Agent need not inquire as to, or contest the validity of, any such expense, tax, or Lien and the receipt of the usual official notice
for the payment thereof shall be conclusive evidence that the same was validly due and owing. 

11. WAIVERS; INDEMNIFICATION.  

    11.1  Demand; Protest; etc.  Except as set forth in this Agreement and the other
Loan Documents, each Borrower waives demand, protest, notice of protest, notice of default or dishonor, notice of payment and nonpayment, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees relating to the Obligations or the Collateral at any time held by the Lender Group on which such Borrower may
in any way be liable. 

    11.2  The Lender Group's Liability for Collateral.  Each Borrower hereby agrees
that: (a) so long as the Lender Group complies with its obligations, if any, under Section 9207 of the Code and as otherwise required by law, the Lender Group shall not in any way or
manner be liable or responsible for: (i) the safekeeping of the Collateral; (ii) any loss or damage thereto occurring or arising in any manner or fashion from any cause other than as a
result of the gross negligence or willful misconduct of Agent, any other member of the Lender Group, or any Lender-Related Persons; (iii) any diminution in the value thereof; or (iv) any
act or default of any carrier, warehouseman, bailee, forwarding agency, or
other third party; and (b) all risk of loss, damage, or destruction of the Collateral shall be borne by the Obligors. 

    11.3  Indemnification.  Each Obligor shall pay, indemnify, defend, and hold the
Agent-Related Persons, the Lender-Related Persons with respect to each Lender, each Participant, and each of their respective officers, directors, employees, counsel, agents, and
attorneys-in-fact (each, an "Indemnified Person") harmless (to the fullest extent permitted by law) from and against any and all
claims, demands, suits, actions, investigations, proceedings, and damages, and all reasonable attorneys fees and disbursements and other costs and expenses actually incurred in connection therewith
(as and when they are incurred and irrespective of whether suit is brought), at any time asserted against, imposed upon, or incurred by any of them in connection with or as a result of or related to
the execution, delivery, enforcement, performance, and administration of this Agreement and any other Loan Documents or the transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or the use of the proceeds of the credit provided hereunder (irrespective of whether any Indemnified Person is a party
thereto), or any act, omission, event or circumstance in any manner related thereto (all the foregoing, collectively, the "Indemnified Liabilities").
The Obligors shall have no obligation to any Indemnified Person under this Section 11.3 with respect to any Indemnified Liability that a court of
competent jurisdiction finally determines to have resulted from the gross negligence or willful misconduct of such Indemnified Person. This provision shall survive the termination of this Agreement
and the repayment of the Obligations. If any Indemnified Person makes any payment to any other Indemnified Person with respect to an Indemnified Liability for which the Obligors were required to
indemnify the Indemnified Person receiving such payment, the Indemnified Person making such payment is entitled to be indemnified and reimbursed by the Obligors with respect thereto. 

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   12. NOTICES.  

    Unless otherwise provided in this Agreement, all notices or demands by any party relating to this Agreement or any other Loan Document shall be in writing and
(except for financial statements and other informational documents which may be sent by first-class mail, postage prepaid) shall be personally delivered or sent by registered or certified mail
(postage prepaid, return receipt requested), overnight courier, or telefacsimile to the Administrative Borrower or the Agent, as the case may be, at its address set forth below: 

	If to Administrative Obligor or to an Obligor:	 	GUITAR CENTER, INC.

5795 Lindero Canyon Road

Westlake Village, California 91326

Attn: Chief Financial Officer

Fax No. 818.735.4923
	

with copies to:	
 	
LATHAM & WATKINS

135 Commonwealth Drive

Menlo Park, California 94025

Attn: Anthony J. Richmond, Esq.

Fax No. 650.463.2600
	

to Agent:	
 	
FOOTHILL CAPITAL CORPORATION

2450 Colorado Avenue

Suite 3000 West

Santa Monica, California 90404

Attn: Business Finance Division Manager

Fax No. 310.453.3345
	

with copies to:	
 	
BROBECK, PHLEGER & HARRISON LLP

550 South Hope Street

Los Angeles, California 90071

Attn: John Francis Hilson, Esq.

Fax No. 213.745.3345

The
parties hereto may change the address at which they are to receive notices hereunder, by notice in writing in the foregoing manner given to all other parties. All notices or demands sent in
accordance with this Section 12, other than notices by the Lender Group in connection with Sections 9504 or 9505 of the Code, shall be deemed
received on the earlier of the date of actual receipt or 3 days after the deposit thereof in the mail. Each Borrower acknowledges and agrees that notices sent by the Lender Group in connection
with Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the mail or personally delivered, or, where permitted by law, transmitted telefacsimile or other similar method set forth
above. 

13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.  

    THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN
DOCUMENT), THE CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF, AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED
HERETO OR THERETO SHALL BE 

69

 

DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. 

    THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL
COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT
SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE REQUIRED LENDERS' OPTION, IN THE COURTS OF ANY JURISDICTION WHERE THE REQUIRED LENDERS ELECT TO BRING SUCH ACTION OR
WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. EACH BORROWER AND EACH MEMBER OF THE LENDER GROUP WAIVE, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE
DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION
13. 

    EACH
BORROWER AND EACH MEMBER OF THE LENDER GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN
DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH BORROWER AND EACH MEMBER OF
THE LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 

14. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.  

    14.1  Assignments and Participations.  

    (a) Any
Lender may assign and delegate to one or more Eligible Transferees (each an "Assignee") all, or any ratable part
of all, of the Obligations, the Commitments and the other rights and obligations of such Lender hereunder and under the other Loan Documents, in a minimum amount of $2,500,000; provided, however, that
Borrowers and Agent may continue to deal solely and directly with such Lender in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to the Assignee, shall have been given to Administrative Borrower and Agent by such Lender and the Assignee; (ii) such
Lender and its Assignee shall have delivered to Administrative Borrower and Agent an Assignment and Acceptance in form and substance satisfactory to Agent; and (iii) the assignor Lender or
Assignee has paid to Agent for Agent's sole and separate account a processing fee in the amount of $5,000. Anything contained herein to the contrary notwithstanding, the consent of Agent shall not be
required (and payment of any fees shall not be required) if such assignment is in connection with any merger, consolidation, sale, transfer, or other disposition of all or any substantial portion of
the business or loan portfolio of such Lender. 

    (b) From
and after the date that Agent notifies the assignor Lender (with a copy to Agent) that it has received an executed Assignment and Acceptance and payment of the
above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Lender under the Loan Documents, and (ii) the assignor Lender shall, to the extent that rights and obligations hereunder
and under the other Loan 

70

 

Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (except with respect to Section 11.3 hereof)
and be released from its obligations under this Agreement (and in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under
this Agreement and the other Loan Documents, such Lender shall cease to be a party hereto and thereto), and such assignment shall effect a novation between each of the Borrowers and the Assignee. 

    (c) By
executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the Assignee thereunder confirm to and agree with each other and the
other parties hereto as follows:
(1) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties
or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Loan Document
furnished pursuant hereto; (2) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrowers or the performance or
observance by Borrowers of any of their obligations under this Agreement or any other Loan Document furnished pursuant hereto; (3) such Assignee confirms that it has received a copy of this
Agreement, together with such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (4) such
Assignee will, independently and without reliance upon Agent, such assigning Lender or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue
to make its own credit decisions in taking or not taking action under this Agreement; (5) such Assignee appoints and authorizes Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to Agent, by the terms hereof, together with such powers as are reasonably incidental thereto; and (6) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. 

    (d) Immediately
upon each Assignee's making its processing fee payment under the Assignment and Acceptance and receipt and acknowledgment by Agent of such fully
executed Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment
of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments of the assigning Lender pro tanto. 

    (e) Any
Lender may at any time, with the written consent of Agent, sell to one or more commercial banks, financial institutions, or other Persons not Affiliates of such
Lender (a "Participant") participating interests in the Obligations, the Commitment, and the other rights and interests of that Lender (the
"Originating Lender") hereunder and under the other Loan Documents (provided that no written consent of Agent shall be required in connection with any
sale of any such participating interests by a Lender to an Eligible Transferee); provided, however, that (i) the Originating Lender's obligations under this Agreement shall remain unchanged,
(ii) the Originating Lender shall remain solely responsible for the performance of such obligations, (iii) each Borrower, Agent, and the Lenders shall continue to deal solely and
directly with the Originating Lender in connection with the Originating Lender's rights and obligations under this Agreement and the other Loan Documents, (iv) no Lender shall transfer or grant
any participating interest under which the Participant has the right to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the
extent such amendment to, or consent or waiver with respect to this Agreement or of any other Loan Document would (A) extend the final maturity date of the Obligations hereunder in which such
Participant is participating; (B) reduce the interest rate applicable to the Obligations hereunder in which such Participant is participating; (C) release all or a material portion of
the Collateral or 

71

 

guaranties (except to the extent expressly provided herein or in any of the Loan Documents) supporting the Obligations hereunder in which such Participant is participating; (D) postpone the
payment of, or reduce the amount of, the interest or fees payable to such Participant through such
Lender; or (E) change the amount or due dates of scheduled principal repayments or prepayments or premiums; and (v) all amounts payable by Borrowers hereunder shall be determined as if
such Lender had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same
extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement (and the rights of the Originating Lender shall be reduced by a corresponding amount).
The rights of any Participant only shall be derivative through the Originating Lender with whom such Participant participates and no Participant shall have any direct rights as to the other Lenders,
Agent, Borrowers, the Collections, the Collateral, or otherwise in respect of the Obligations. No Participant shall have the right to participate directly in the making of decisions by the Lenders
among themselves. 

    (f)  Subject
to Section 16.17(d), in connection with any such assignment or participation or proposed assignment
or participation, a Lender may disclose all documents and information which it now or hereafter may have relating to Borrowers or Borrowers' business. 

    (g) Any
other provision in this Agreement notwithstanding, any Lender may at any time create a security interest in, or pledge, all or any portion of its rights under
and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Bank or U.S. Treasury Regulation 31 CFR §203.14,
and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 

    14.2  Successors.  This Agreement shall bind and inure to the benefit of the
respective successors and assigns of each of the parties; provided, however, no Borrower may assign this
Agreement or any rights or duties hereunder without the Lenders' prior written consent and any prohibited assignment shall be absolutely void ab initio.
No consent to assignment by the Lenders shall release Borrowers from their Obligations prior to the date of such assignment. A Lender may assign this Agreement and the other Loan Documents and its
rights and duties hereunder and thereunder pursuant to Section 14.1 hereof and, except as expressly required pursuant to  Section 14.1 hereof, no
consent or approval by any Borrower is required in connection with any such assignment. 

15. AMENDMENTS; WAIVERS.  

    15.1  Amendments and Waivers.  No amendment or waiver of any provision of this
Agreement or any other Loan Document, and no consent with respect to any departure by any Borrower therefrom, shall be effective unless the same shall be in writing and signed by the Required Lenders
(or by Agent at the written request of the Required Lenders) and Borrowers and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which
given; provided, however,
that no such waiver, amendment, or consent shall, unless in writing and signed by all the Lenders and Borrowers and acknowledged by Agent, do any of the following: 

    (a) increase
or extend the Commitment of any Lender; 

    (b) postpone
or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or
any of them) hereunder or under any other Loan Document; 

    (c) reduce
the principal of, or the rate of interest specified herein on any Loan, or any fees or other amounts payable hereunder or under any other Loan Document; 

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    (d) change the percentage of the Commitments that is required for the Lenders or any of them to take any action hereunder; 

    (e) amend
Section 2.1(a)(x)(ii) with respect to the 85% advance rate,  Section 2.1(a)(y)(i) with respect to the 70% advance rate, or Section 2.1(a)(y)(ii) with
respect to the 80% advance rate, to increase any such advance rate percentage to a percentage amount in excess of the foregoing stated percentages; 

    (f)  amend
Section 2.2(a); 

    (g) amend
this Section or any provision of the Agreement providing for consent or other action by all Lenders; 

    (h) release
Collateral other than as permitted by Section 16.12; 

    (i)  change
the definition of "Required Lenders"; 

    (j)  release
any Borrower from any Obligation for the payment of money; or 

    (k) amend
any of the provisions of Section 16. 

and,
provided further, however, that no amendment, waiver or consent shall, unless in writing and signed by Agent, affect the rights or duties of Agent under this Agreement or any other Loan Document.
The foregoing notwithstanding, any amendment, modification, waiver, consent, termination, or release of or with respect to any provision of this Agreement or any other Loan Document that relates only
to the relationship of the Lender Group among themselves, and that does not affect the rights or obligations of Borrowers, shall not require consent by or the agreement of Borrowers. 

    15.2  No Waivers; Cumulative Remedies.  No failure by Agent or any Lender to
exercise any right, remedy, or option under this Agreement, any other Loan Document, or any present or future supplement hereto or thereto, or in any other agreement between or among any Borrower and
Agent or any Lender, or delay by Agent or any Lender in exercising the same, will operate as a waiver thereof. No waiver by Agent or any Lender will be effective unless it is in writing, and then only
to the extent specifically stated. No waiver by Agent or the Lenders on any occasion shall affect or diminish Agent's and each Lender's rights thereafter to require strict performance by Borrowers of
any provision of this Agreement. Agent's and each Lender's rights under this Agreement and the other Loan Documents will be cumulative and not exclusive of any other right or remedy which Agent or any
Lender may have. 

16. AGENT; THE LENDER GROUP.  

    16.1  Appointment and Authorization of Agent.  Each Lender hereby designates and
appoints Foothill as its agent under this Agreement and the other Loan Documents and each Lender hereby irrevocably authorizes Agent to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to Agent by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Agent agrees to act as such on the express conditions contained in this Section 16. The
provisions of this Section 16 are solely for the benefit of Agent, and the Lenders and Borrowers shall have no rights as a third party
beneficiary of any of the provisions contained herein; provided, however, that certain of the provisions
of Section 16.10, 16.11 and 16.17(d) hereof also
shall be for the benefit of Borrowers. Any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document notwithstanding, Agent shall not have any duties or
responsibilities, except those expressly set forth herein, nor shall Agent have or be deemed to have any fiduciary relationship with each other or any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against Agent; it being expressly understood and agreed that the
use of 

73

 

the word "Agent" is for convenience only, that Foothill is merely the representatives of the Lenders, and has only the contractual duties set forth herein. Except as expressly otherwise provided in
this Agreement, Agent shall have and may use its sole discretion with respect to exercising or refraining from exercising any discretionary rights or taking or refraining from taking any actions which
Agent is expressly entitled to take or assert under or pursuant to this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, or of any other provision of the Loan
Documents that provides rights or powers to Agent, Lenders agree that Agent shall have the right to exercise the following powers as long as this Agreement remains in effect: (a) maintain, in
accordance with its customary business practices, ledgers and records reflecting the status of the Advances, the Collateral, the Collections, and related matters; (b) execute or file any and
all financing or similar statements or notices, amendments, renewals, supplements, documents, instruments, proofs of claim, notices and other written agreements with respect to the Loan Documents;
(c) make Advances, for itself or on behalf of Lenders as provided in the Loan Documents; (d) exclusively receive, apply, and distribute the Collections as provided in the Loan Documents;
(e) open and maintain such bank accounts and lock boxes as Agent deems necessary and appropriate in accordance with the Loan Documents for the foregoing purposes with respect to the Collateral
and the Collections; (f) perform, exercise, and enforce any and all other rights and remedies of the Lender Group with respect to Borrowers, the Obligations, the Collateral, the Collections, or
otherwise related to any of same as provided in the Loan Documents; and (g) incur and pay such Lender Group Expenses as Agent may deem necessary or appropriate for the performance and
fulfillment of its functions and powers pursuant to the Loan Documents. 

    16.2  Delegation of Duties.  Except as otherwise provided in this section, Agent
may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects as long as
such selection was made in compliance with this section and without gross negligence or willful misconduct. 

    16.3  Liability of Agent.  None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own
gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Lenders for any recital, statement, representation or warranty made by Borrowers or any Subsidiary or
Affiliate of Borrowers, or any officer or director thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or
provided for in, or received by Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of any Borrower or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be
under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or
to inspect the Books or properties of Borrowers or the books or records or properties of any of Borrowers' Subsidiaries or Affiliates. 

    16.4  Reliance by Agent.  Agent shall be entitled to rely, and shall be fully
protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation
believed by it to be genuine and correct and to have been signed, sent, or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to any Borrower or counsel to any Lender), independent accountants and other experts selected by Agent. Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Loan Document unless Agent shall first receive such advice or concurrence of the Lenders as it deems appropriate and until such instructions are 

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received, Agent shall act, or refrain from acting, as it deems advisable. If Agent so requests, it shall first be indemnified to its reasonable satisfaction by Lenders against any and all liability
and expense that may be incurred by it by reason of taking or continuing to take any such action. Agent shall in all cases be fully protected in acting, or in refraining from acting, under this
Agreement or any other Loan Document in accordance with a request or consent of the Lenders and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders. 

    16.5  Notice of Default or Event of Default.  Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest, fees, and expenses required to be paid to Agent for the
account of the Lenders, except with respect to Events of Default of which Agent has actual knowledge, unless Agent shall have received written notice from a Lender or Borrowers referring to this
Agreement, describing such Default or Event of Default, and stating that such notice is a "notice of default." Agent promptly will notify the Lenders of its receipt of any such notice or of any Event
of Default of which Agent has actual knowledge. If any Lender obtains actual knowledge of any Event of Default, such Lender promptly shall notify the other Lenders and Agent of such Event of Default.
Each Lender shall be solely responsible for giving any notices to its Participants, if any. Subject to Section 16.4, Agent shall take such action
with respect to such Default or Event of Default as may be requested by the Required Lenders in accordance with Section 9; provided, however,
that unless and until Agent has received any such request, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable. 

    16.6  Credit Decision.  Each Lender acknowledges that none of the Agent-Related
Persons has made any representation or warranty to it, and that no act by Agent hereinafter taken, including any review of the affairs of Borrowers and their Subsidiaries or Affiliates, shall be
deemed to constitute any representation or warranty by any Agent-Related Person to any Lender. Each Lender represents to Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other
condition and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document, and all applicable bank regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to Borrowers. Each Lender also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and
other condition and creditworthiness of Borrowers and any other Person (other than the Lender Group) party to a Loan Document. Except for notices, reports and other documents expressly herein required
to be furnished to the Lenders by Agent, Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, prospects, operations,
property, financial and
other condition or creditworthiness of Borrowers and any other Person party to a Loan Document that may come into the possession of any of the Agent-Related Persons. 

    16.7  Costs and Expenses; Indemnification.  Agent may incur and pay Lender Group
Expenses to the extent Agent reasonably deems necessary or appropriate for the performance and fulfillment of its functions, powers, and obligations pursuant to the Loan Documents, including without
limiting the generality of the foregoing, court costs, reasonable attorneys fees and expenses, costs of collection by outside collection agencies and auctioneer fees and costs of security guards or
insurance premiums paid to maintain the Collateral, whether or not Borrowers are obligated to reimburse Agent or Lenders for such expenses pursuant to the Loan Agreement or otherwise. Agent is
authorized and directed to deduct and retain sufficient amounts from Collections to reimburse Agent for such out-of-pocket costs 

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and expenses prior to the distribution of any amounts to Lenders. In the event Agent is not reimbursed for such costs and expenses from Collections, each Lender hereby agrees that it is and shall be
obligated to pay to or reimburse Agent for the amount of such Lender's Pro Rata Share thereof. Whether or not the transactions contemplated hereby are consummated, the Lenders shall indemnify upon
demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of Borrowers and without limiting the obligation of Borrowers to do so), according to their Pro Rata Shares, from and
against any and all Indemnified Liabilities; provided, however, that no Lender shall be liable for the payment to any Agent-Related Person of any portion of such Indemnified Liabilities resulting
solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender shall reimburse Agent upon demand for such Lender's ratable share of any costs or
out-of-pocket expenses (including attorneys fees and expenses) incurred by Agent in connection with the preparation, execution, delivery, administration, modification,
amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that Agent is not reimbursed for such expenses by or on behalf of Borrowers. The undertaking in this section shall survive the payment
of all Obligations hereunder and the resignation or replacement of Agent. 

    16.8  Agent in Individual Capacity.  Foothill and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business
with any Borrower and its Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though Foothill were not Agent hereunder, and, in each case,
without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, Foothill or its Affiliates may receive information regarding a Borrower or its Affiliates and
any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations in favor of such Borrower or such other Person and that prohibit the
disclosure of such information to the Lenders, and the Lenders acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver Agent will use
its reasonable best efforts to obtain), Agent shall not be under any obligation to provide such information to them. The terms "Lender" and "Lenders" include Foothill in its individual capacity. 

    16.9  Successor Agent.  Agent may resign as Agent upon 45 days notice to
the Lenders. If Agent resigns under this Agreement, the Required Lenders shall appoint a successor Agent for the Lenders. If no successor Agent is appointed prior to the effective date of the
resignation of Agent, Agent may appoint, after consulting with the Lenders, a successor Agent. If Agent has materially breached or failed to perform any material provision of this Agreement or of
applicable law, the Required Lenders may agree in writing to remove and replace Agent with a successor Agent from among the Lenders. In any such event, upon the acceptance of its appointment as
successor Agent hereunder, such successor Agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor Agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this  Section 16 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this Agreement. If no
successor Agent has accepted appointment as Agent by the date which is 45 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Lenders shall perform all of the duties of Agent hereunder until such time, if any, as the Lenders appoint a successor Agent as provided for above. 

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       16.10  Lender in Individual Capacity.  Any Lender and its respective Affiliates
may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or
other business with each Borrower and its Subsidiaries and Affiliates and any other Person (other than the Lender Group) party to any Loan Documents as though such Lender were not the agent of Agent
hereunder without notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to such activities, such Lender and its respective Affiliates may receive information regarding Borrowers
or their Affiliates and any other Person (other than the Lender Group) party to any Loan Documents that is subject to confidentiality obligations set forth in  Section 16.17(d) in favor of Borrowers
or such other Person and that prohibit the disclosure of such information to the Lenders, and the Lenders
acknowledge that, in such circumstances (and in the absence of a waiver of such confidentiality obligations, which waiver such Lender will use its reasonable best efforts to obtain), such Lender not
shall be under any obligation to provide such information to them. With respect to the Swing Loans and Agent Advances, Swing Lender shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not the sub-agent of the Agent. 

    16.11  Withholding Tax.  

    (a) If
any Lender is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Lender claims exemption from, or a reduction of, U.S.
withholding tax under Sections 1441 or 1442 of the IRC, such Lender agrees with and in favor of Agent and Borrowers, to deliver to Agent and Borrowers: 

    (i)  if
such Lender claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, properly completed IRS Forms 1001 and W-8
before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; 

    (ii) if
such Lender claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States
trade or business of such Lender, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Lender and in each
succeeding taxable year of such Lender during which interest may be paid under this Agreement, and IRS Form W-9; and 

    (iii) such
other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States
withholding tax. 

Such
Lender agrees promptly to notify Agent and Administrative Borrower of any change in circumstances which would modify or render invalid any claimed exemption or reduction. 

    (b) If
any Lender claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Lender sells,
assigns, grants a participation in, or otherwise transfers all or part of the Obligations of Borrowers to such Lender, such Lender agrees to notify Agent of the percentage amount in which it is no
longer the beneficial owner of Obligations of Borrowers to such Lender. To the extent of such percentage amount, Agent will treat such Lender's IRS Form 1001 as no longer valid. 

    (c) If
any Lender claiming exemption from United States withholding tax by filing IRS Form 4224 with Agent sells, assigns, grants a participation in, or
otherwise transfers all or part of the Obligations of Borrowers to such Lender, such Lender agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by
Sections 1441 and 1442 of the IRC. 

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    (d) If any Lender is entitled to a reduction in the applicable withholding tax, Agent may withhold from any interest payment to such Lender an amount equivalent to the
applicable withholding tax after taking into account such reduction. If the forms or other documentation required by subsection (a) of this Section are not delivered to Agent, then Agent may
withhold from any interest payment to such Lender not providing such forms or other documentation an amount equivalent to the applicable withholding tax. 

    (e) If
the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that Agent did not properly withhold tax from amounts paid
to or for the account of any Lender (because the appropriate form was not delivered, was not properly executed, or because such Lender failed to notify Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Lender shall indemnify Agent fully for all amounts paid, directly or indirectly, by Agent as
tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to Agent under this Section, together with all costs and expenses
(including attorneys fees and expenses). The obligation of the Lenders under this subsection shall survive the payment of all Obligations and the resignation or replacement of Agent. 

    16.12  Collateral Matters.  

    (a) The
Lenders hereby irrevocably authorize Agent, at its option and in its sole discretion, to release any Lien on any Collateral (i) upon the termination of
the Commitments and payment and satisfaction in full by Borrowers of all Obligations; (ii) constituting property being sold or disposed of if a release is required or desirable in connection
therewith and if Administrative Borrower certifies to Agent that the
sale or disposition is permitted under Section 7.4 of this Agreement or the other Loan Documents (and Agent may rely conclusively on any such
certificate, without further inquiry); (iii) constituting property in which Borrowers owned no interest at the time the security interest was granted or at any time thereafter; or
(iv) constituting property leased to Borrowers under a lease that has expired or is terminated in a transaction permitted under this Agreement. Except as provided above, Agent will not execute
and deliver a release of any Lien on any Collateral without the prior written authorization of (y) if the release is of all or substantially all of the Collateral, all of the Lenders, or
(z) otherwise, the Required Lenders. Upon request by Agent or Administrative Borrower at any time, the Lenders will confirm in writing Agent's authority to release any such Liens on particular
types or items of Collateral pursuant to this Section 16.12; provided, however, that (1) Agent shall not be required to execute any
document necessary to evidence such release on terms that, in Agent's opinion, would expose Agent to liability or create any obligation or entail any consequence other than the release of such Lien
without recourse, representation, or warranty, and (2) such release shall not in any manner discharge, affect, or impair the Obligations or any Liens (other than those expressly being released)
upon (or obligations of Borrowers in respect of) all interests retained by Borrowers, including, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. 

    (b) Agent
shall have no obligation whatsoever to any of the Lenders to assure that the Collateral exists or is owned by Borrowers or is cared for, protected, or insured
or has been encumbered, or that the Agent's Liens have been properly or sufficiently or lawfully created, perfected, protected, or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or fidelity, or to continue exercising, any of the rights, authorities and powers granted or available to Agent pursuant to any
of the Loan Documents, it being understood and agreed that in respect of the Collateral, or any act, omission or event related thereto, subject to the terms and conditions contained herein, Agent may
act in any manner it may deem appropriate, in its sole discretion given Agent's own interest in the Collateral in its capacity as one of the Lenders and that Agent shall have no other duty or
liability whatsoever to any Lender as to any of the foregoing, except as otherwise provided herein. 

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    16.13  Restrictions on Actions by Lenders; Sharing of Payments.  

    (a) Each
of the Lenders agrees that it shall not, without the express consent of Agent, and that it shall, to the extent it is lawfully entitled to do so, upon the
request of Agent, set off against the Obligations, any amounts owing by such Lender to Borrowers or any accounts of Borrowers now or hereafter maintained with such Lender. Each of the Lenders further
agrees that it shall not, unless specifically requested to do so by Agent, take or cause to be taken any action, including, the commencement of any legal or equitable proceedings, to foreclose any
Lien on, or otherwise enforce any security interest in, any of the Collateral the purpose of which is, or could be, to give such Lender any preference or priority against the other Lenders with
respect to the Collateral. 

    (b) If,
at any time or times any Lender shall receive (i) by payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any payments with respect
to the Obligations arising under, or relating to, this Agreement or the other Loan Documents, except for any such proceeds or payments received by such
Lender from Agent pursuant to the terms of this Agreement, or (ii) payments from Agent in excess of such Lender's ratable portion of all such distributions by Agent, such Lender promptly shall
(1) turn the same over to Agent, in kind, and with such endorsements as may be required to negotiate the same to Agent, or in same day funds, as applicable, for the account of all of the
Lenders and for application to the Obligations in accordance with the applicable provisions of this Agreement, or (2) purchase, without recourse or warranty, an undivided interest and
participation in the Obligations owed to the other Lenders so that such excess payment received shall be applied ratably as among the Lenders in accordance with their Pro Rata Shares; provided,
however, that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases of participations shall be rescinded in whole or in part, as
applicable, and the applicable portion of the purchase price paid therefor shall be returned to such purchasing party, but without interest except to the extent that such purchasing party is required
to pay interest in connection with the recovery of the excess payment. 

    16.14  Agency for Perfection.  Agent and each Lender hereby appoints each other
Lender as agent for the purpose of perfecting the Agent's Liens in assets which, in accordance with Article 9 of the UCC can be perfected only by possession. Should any Lender obtain possession
of any such Collateral, such Lender shall notify Agent thereof, and, promptly upon Agent's request therefor shall deliver such Collateral to Agent or in accordance with Agent's instructions. 

    16.15  Payments by Agent to the Lenders.  All payments to be made by Agent to the
Lenders shall be made by bank wire transfer or internal transfer of immediately available funds pursuant to such wire transfer instructions as each party may designate for itself by written notice to
Agent. Concurrently with each such payment, Agent shall identify whether such payment (or any portion thereof) represents principal, premium or interest on Advances or otherwise. 

    16.16  Concerning the Collateral and Related Loan Documents.  Each member of the
Lender Group authorizes and directs Agent to enter into this Agreement and the other Loan Documents relating to the Collateral, for the benefit of the Lender Group. Each member of the Lender Group
agrees that any action taken by Agent or all Lenders, as applicable, in accordance with the terms of this Agreement or the other Loan Documents relating to the Collateral and the exercise by Agent or
all Lenders, as applicable, of their respective powers set forth therein or herein, together with such other powers that are reasonably incidental thereto, shall be binding upon all of the Lenders. 

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    16.17  Field Audits and Examination Reports; Confidentiality; Disclaimers by Lenders; Other Reports and
Information.  

    By
signing this Agreement, Agent (with respect to clause (d) below only) and each Lender: 

    (a) is
deemed to have requested that Agent furnish such Lender, promptly after it becomes available, a copy of each field audit or examination report (each a
"Report" and collectively, "Reports") prepared by Agent, and Agent shall so furnish each Lender with
such Reports; 

    (b) expressly
agrees and acknowledges that Agent does not (i) make any representation or warranty as to the accuracy of any Report, and (ii) shall not be
liable for any information contained in any Report; 

    (c) expressly
agrees and acknowledges that the Reports are not comprehensive audits or examinations, that Agent or other party performing any audit or examination will
inspect only specific information regarding Borrowers and will rely significantly upon the Books, as well as on representations of Borrowers' personnel; 

    (d) agrees
to keep, and, as to Agent, to cause all Agent-Related Persons, and as to each Lender, to cause all Lender-Related Persons of such Lender, to keep, all
Reports and other material, non-public information regarding each Borrower and its Subsidiaries and their operations, assets, and existing and contemplated business plans in a confidential
manner; it being understood and agreed by Borrowers that in any event such Lender may make disclosures (a) to the extent necessary to counsel for and other advisors, accountants, and auditors
to such Lender, (b) reasonably required by any bona fide potential or actual Assignee, transferee, or Participant in connection with any contemplated or actual assignment or transfer by such
Lender of an interest herein or any participation interest in such Lender's rights hereunder, (c) of information that has become public by disclosures made by Persons other than such Lender,
its Affiliates, assignees, transferees, or participants, or (d) to the extent required or requested by any court, governmental or administrative agency, pursuant to any subpoena or other legal
process, or by any law, statute, regulation, or court order; provided, however, that, unless prohibited by applicable law, statute, regulation, or court order, such Lender shall notify Administrative
Borrower of any request by any court, governmental or administrative agency, or pursuant to any subpoena or other legal process for disclosure of any such non-public material information
concurrent with, or where practicable, prior to the disclosure thereof; and 

    (e) without
limiting the generality of any other indemnification provision contained in this Agreement, agrees: (i) to hold Agent and any such other Lender
preparing a Report harmless from any action the indemnifying Lender may take or conclusion the indemnifying Lender may reach or draw from any Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make to Borrowers, or the indemnifying Lender's participation in, or the indemnifying Lender's purchase of, a loan or loans of Borrowers;
and (ii) to pay and protect, and indemnify, defend and hold Agent, and any such other Lender preparing a Report harmless from and against, the claims, actions, proceedings, damages, costs,
expenses and other amounts (including, attorney costs) incurred by Agent and any such other Lender preparing a Report as the direct or indirect result of any third parties who might obtain all or part
of any Report through the indemnifying Lender. 

In
addition to the foregoing: (x) Any Lender may from time to time request of Agent in writing that Agent provide to such Lender a copy of any report or document provided by Borrowers to Agent
that has not been contemporaneously provided by Borrowers to such Lender, and, upon receipt of such request, Agent shall provide a copy of same to such Lender promptly upon receipt thereof from
Borrowers; (y) To the extent that Agent is entitled, under any provision of the Loan Documents, to request additional reports or information from Borrowers, any Lender may, from time to time, 

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reasonably request Agent to exercise such right as specified in such Lender's notice to Agent, whereupon Agent promptly shall request of Administrative Borrower the additional reports or information
specified by such Lender, and, upon receipt thereof from Administrative Borrower, Agent promptly shall provide a copy of same to such Lender; and (z) Any time that Agent renders to Borrowers a
statement regarding the Loan Account, Agent shall send a copy of such statement to each Lender. 

    16.18  Several Obligations; No Liability.  Notwithstanding that certain of the
Loan Documents now or hereafter may have been or will be executed only by or in favor of Agent in its capacity as such, and not by or in favor of the Lenders, any and all obligations on the part of
Agent (if any) to make any credit available hereunder shall constitute the several (and not joint) obligations of the respective Lenders on a ratable basis, according to their respective Commitments,
to make an amount of such credit not to exceed, in principal amount, at any one time outstanding, the amount of their respective Commitments. Nothing contained herein shall confer upon any Lender any
interest in, or subject any Lender to any liability for, or in respect of, the business, assets, profits, losses, or liabilities of any other Lender. Each Lender shall be solely responsible for
notifying its Participants of any matters relating to the Loan Documents to the extent any such notice may be required, and no Lender shall have any obligation, duty, or liability to any Participant
of any other Lender. Except as provided in Section 16.7, no member of the Lender Group shall have any liability for the acts or any other member
of the Lender Group. No Lender shall be responsible to Borrowers or any other Person for any failure by any other Lender to fulfill its obligations to make credit available hereunder, nor to advance
for such other Lender or on its behalf in connection with its Commitment, nor to take any other action on its behalf hereunder or in connection with the financing contemplated herein. 

    16.19  Legal Representation of Agent.  In connection with the negotiation,
drafting, and execution of this Agreement and the other Loan Documents, or in connection with future legal representation relating to loan administration, amendments, modifications, waivers, or
enforcement of remedies, Brobeck, Phleger & Harrison LLP ("Brobeck") only has represented and only shall represent Foothill in its capacity as
Agent and as a Lender. Each other Lender hereby acknowledges that Brobeck does not represent any other Lender in connection with any such matters. 

    16.20  Documentation Agent.  

    Notwithstanding
the provisions of this Agreement or any of the other Loan Documents, FRF (in its capacity as Documentation Agent as opposed to its capacity as a Lender) shall have no
powers, rights, duties, responsibilities, or liabilities with respect to this Agreement and the other Loan Documents nor shall FRF have or be deemed to have any fiduciary relationship with any Lender. 

17. GENERAL PROVISIONS.  

    17.1  Effectiveness.  This Agreement shall be binding and deemed effective when
executed by each Borrower and each member of the Lender Group whose signature is provided for on the signature pages hereof. 

    17.2  Section Headings.  Headings and numbers have been set forth herein for
convenience only. Unless the contrary is compelled by the context, everything contained in each section applies equally to this entire Agreement. 

    17.3  Interpretation.  Neither this Agreement nor any uncertainty or ambiguity
herein shall be construed or resolved against the Lender Group or Borrowers, whether under any rule of construction or otherwise. On the contrary, this Agreement has been reviewed by all parties and
shall be construed and interpreted according to the ordinary meaning of the words used so as to fairly accomplish the purposes and intentions of all parties hereto. 

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    17.4  Severability of Provisions.  Each provision of this Agreement shall be
severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. 

    17.5  Amendments in Writing.  Except as set forth in  Section 15.1, this
Agreement can only be amended by a writing signed by Agent, the Required Lenders, and each Borrower. 

    17.6  Counterparts; Telefacsimile Execution.  This Agreement may be executed in
any number of counterparts and by different parties on separate counterparts, each of which, when executed and delivered, shall be deemed to be an original, and all of which, when taken together,
shall constitute but one and the same Agreement. Delivery of an executed counterpart of this Agreement by telefacsimile shall be equally as effective as delivery of an original executed counterpart of
this Agreement. Any party delivering an executed counterpart of this Agreement by telefacsimile also shall deliver an original executed counterpart of this Agreement but the failure to deliver an
original executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. The foregoing shall apply to each other Loan Document mutatis mutandis. 

    17.7  Revival and Reinstatement of Obligations.  If the incurrence or payment of
the Obligations by Borrowers or any guarantor of the Obligations or the transfer by either or both of such parties to the Lender Group of any property of either or both of such parties should for any
reason subsequently be declared to be void or voidable under any state or federal law relating to creditors' rights, including provisions of the Bankruptcy Code relating to fraudulent conveyances,
preferences, and other voidable or recoverable payments of money or transfers of property (collectively, a "Voidable Transfer"), and if the Lender Group
is required to repay or restore, in whole or in part, any such Voidable Transfer, or elects to do so upon the reasonable advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that the Lender Group is required or elects to repay or restore, and as to all reasonable costs, expenses, and attorneys fees of the Lender Group related thereto, the liability of Borrowers or
such guarantor automatically shall be revived, reinstated, and restored and shall exist as though such Voidable Transfer had never been made. 

    17.8  Integration.  This Agreement, together with the other Loan Documents,
reflects the entire understanding of the parties with respect to the transactions contemplated hereby and shall not be contradicted or qualified by any other agreement, oral or written, before the
date hereof. 

    17.9  GCI as Agent for Borrowers.  Each Borrower hereby irrevocably appoints GCI
as the borrowing agent and attorney-in-fact for such Borrower (the "Administrative Borrower") which appointment shall remain in
full force and effect unless and until Agent shall have received prior written notice signed by each Borrower that such appointment has been revoked and that another Borrower has been appointed
Administrative Borrower. Each Borrower hereby irrevocably appoints and authorizes the Administrative Borrower (i) to provide Agent with all notices with respect to Advances and Letters of
Credit obtained for the benefit of any Borrower and all other notices and instructions under this Agreement and (ii) to take such action as the Administrative Borrower deems appropriate on its
behalf to obtain Advances and Letters of Credit and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement. It is understood that the handling
of the Loan Account and Collateral of Borrowers in a combined fashion, as more fully set forth herein, is done solely as an accommodation to Borrowers in order to utilize the collective borrowing
powers of Borrowers in the most efficient and economical manner and at their request, and that Lender Group shall not incur liability to any Borrower as a result hereof. Each Obligor expects to derive
benefit, directly or indirectly, from the handling of the Loan Account and the Collateral in a combined fashion since the successful operation of each Borrower is dependent on the continued successful
performance of the integrated group. To induce Lender Group to do so, and in consideration thereof, each Obligor hereby jointly and severally agrees to indemnify Lender Group and hold Lender Group
harmless against any and all liability, expense, loss or claim of damage or injury, made against 

82

 

Lender Group by any Borrower or by any third party whosoever, arising from or incurred by reason of (a) the handling of the Loan Account and Collateral of Borrowers as herein provided,
(b) Lender Group's relying on any instructions of the Administrative Borrower, or (c) any other action taken by Lender Group hereunder or under the other Loan Documents, except that
Borrowers will have no liability to the relevant Agent-Related Person or Lender-Related Person under this Section 17.9 with respect to any
liability that has been finally determined by a court of competent jurisdiction to have resulted solely from the gross negligence or willful misconduct of such Agent-Related Person or Lender-Related
Person, as the case may be. 

[Signature
page to follow.] 

83

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

	 	 	GUITAR CENTER, INC.,

a Delaware corporation
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Title:	 	 
	

 	
 	

 	
 	

 
	
 	
 	

GUITAR CENTER STORES, INC.,

a Delaware corporation
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Title	 	 
	

 	
 	

 	
 	

 
	
 	
 	

MUSICIAN'S FRIEND, INC.,

a Delaware corporation
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Title:	 	 
	

 	
 	

 	
 	

 
	

 	
 	

[signature page continues]

S–1

 

	 	 	FOOTHILL CAPITAL CORPORATION,

a California corporation, as Agent and as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:	 	Robert Castine
	 	 	Title:	 	Vice President
	

 	
 	
Wiring Instructions:

The Chase Manhattan Bank

New York, NY

ABA# 021000021

Credit: Foothill Capital Corporation

Account No. 323-266193

Reference: For the benefit of Guitar Center, Inc.
	

 	
 	

[signature page continues]

S–2

 

	 	 	FLEET RETAIL FINANCE INC,

a Delaware corporation, formerly know as BankBoston Retail Finance Inc., as Documentation Agent and as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:	 	Christine M. Scott
	 	 	Title:	 	Vice President
	

 	
 	
Wiring Instructions:

Fleet Retail Finance Inc.

40 Broad Street, 10th Fl.

Boston, MA 02109

ABA# 011000138

Account No. 53039952

Account Name: BankBoston Retail Finance

Reference: Guitar Center Settlement
	

 	
 	

[signature page continues]

S–3

 

	 	 	BANK OF AMERICA, N.A.,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:	 	Robert M. Dalton
	 	 	Title:	 	Vice President
	

 	
 	
Wiring Instructions:

Bank of America, N.A.

555 California Street

San Francisco, CA 94104

ABA# 121000358

Credit Account No. 12575-03561

Credit Account Name: Bank of America Business Credit
	

 	
 	

Reference: Guitar Center
	

 	
 	

[signature page continues]

S–4

 

	 	 	UNION BANK OF CALIFORNIA, N.A.,

as a Lender
	

 	
 	

By:	
 	

 
	 	 	 	 	

	 	 	Name:	 	Albert R. Joseph
	 	 	Title:	 	Vice President
	

 	
 	
Wiring Instructions:

Union Bank of California, N.A.

1980 Saturn Street

Monterey Park, California 81754-7417

ABA# 122000496

Office: Commercial Finance Division

Credit To: RC# 95300

Wire Transfer Clearing A/C#196431

Reference: Guitar Center

S–5

QuickLinks

17.9.a.i.1.1 TABLE OF CONTENTS

Exhibits and Schedules

AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT

RECITALS<PAGE>

================================================================================

                               S.Y. BANCORP, INC.

                                       AND

                           WILMINGTON TRUST COMPANY,
                                   AS TRUSTEE

                                    INDENTURE

                      __% SUBORDINATED DEBENTURES DUE 2031

                         DATED AS OF ________ ____, 2001

================================================================================

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            Page
                                                                            ----
<S>                                                                         <C>
ARTICLE I. DEFINITIONS.........................................................2
           Section 1.1. Definitions of Terms...................................2

ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND
           EXCHANGE OF THE DEBENTURES.........................................10
           Section 2.1. Designation and Principal Amount......................10
           Section 2.2. Maturity..............................................10
           Section 2.3. Form and Payment......................................11
           Section 2.4. [Intentionally Omitted]...............................11
           Section 2.5. Interest..............................................11
           Section 2.6. Execution and Authentication..........................12
           Section 2.7. Registration of Transfer and Exchange.................13
           Section 2.8. Temporary Debentures..................................14
           Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures.......14
           Section 2.10. Cancellation.........................................15
           Section 2.11. Benefit of Indenture.................................15
           Section 2.12. Authentication Agent.................................16

ARTICLE III. REDEMPTION OF DEBENTURES.........................................16
           Section 3.1. Redemption............................................16
           Section 3.2. Special Event Redemption..............................16
           Section 3.3. Optional Redemption by the Company....................17
           Section 3.4. Notice of Redemption..................................18
           Section 3.5. Payment upon Redemption...............................19
           Section 3.6. No Sinking Fund.......................................19

ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD..............................19
           Section 4.1. Extension of Interest Payment Period..................19
           Section 4.2. Notice of Extension...................................20
           Section 4.3. Limitation on Transactions............................20

ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY................................21
           Section 5.1. Payment of Principal and Interest.....................21
           Section 5.2. Maintenance of Agency.................................21
           Section 5.3. Paying Agents.........................................22
           Section 5.4. Appointment to Fill Vacancy in Office of the Trustee..23
           Section 5.5. Compliance with Consolidation Provisions..............23
           Section 5.6. Limitation on Transactions............................23
           Section 5.7. Covenants as to the Trust.............................23
           Section 5.8. Covenants as to Purchases.............................24
           Section 5.9. Waiver of Usury, Stay or Extension Laws...............24
           Section 5.10. Limitation on Additional Junior Indebtedness.........24
           Section 5.11. No Intent to Commence Extension Period...............26

                                       i
<PAGE>

ARTICLE VI. THE DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND
           THE TRUSTEE........................................................26
           Section 6.1. The Company to Furnish the Trustee Names and
                    Addresses of the Debentureholders.........................26
           Section 6.2. Preservation of Information Communications with
                    the Debentureholders......................................27
           Section 6.3. Reports by the Company................................27
           Section 6.4. Reports by the Trustee................................28

ARTICLE VII. REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF
           DEFAULT............................................................28
           Section 7.1. Events of Default.....................................28
           Section 7.2. Collection of Indebtedness and Suits for
                    Enforcement by the Trustee................................30
           Section 7.3. Application of Moneys Collected.......................31
           Section 7.4. Limitation on Suits...................................31
           Section 7.5. Rights and Remedies Cumulative; Delay or Omission
                    not Waiver................................................32
           Section 7.6. Control by the Debentureholders.......................33
           Section 7.7. Undertaking to Pay Costs..............................33
           Section 7.8. Direct Action; Right of Set-Off.......................34

ARTICLE VIII. FORM OF THE DEBENTURE AND ORIGINAL ISSUE........................34
           Section 8.1. Form of Debenture.....................................34
           Section 8.2. Original Issue of the Debentures......................34

ARTICLE IX. CONCERNING THE TRUSTEE............................................34
           Section 9.1. Certain Duties and Responsibilities of the Trustee....34
           Section 9.2. Notice of Defaults....................................36
           Section 9.3. Certain Rights of the Trustee.........................36
           Section 9.4. The Trustee not Responsible for Recitals, Etc.........37
           Section 9.5. May Hold the Debentures...............................37
           Section 9.6. Moneys Held in Trust..................................38
           Section 9.7. Compensation and Reimbursement........................38
           Section 9.8. Reliance on Officers' Certificate.....................38
           Section 9.9. Disqualification; Conflicting Interests...............38
           Section 9.10. Corporate Trustee Required; Eligibility..............39
           Section 9.11. Resignation and Removal; Appointment of Successor....39
           Section 9.12. Acceptance of Appointment by Successor...............40
           Section 9.13. Merger, Conversion, Consolidation or Succession
                    to Business...............................................41
           Section 9.14. Preferential Collection of Claims against the
                    Company...................................................41

ARTICLE X. CONCERNING THE DEBENTUREHOLDERS....................................41
           Section 10.1. Evidence of Action by the Holders....................41
           Section 10.2. Proof of Execution by the Debentureholders...........42
           Section 10.3. Who May Be Deemed Owners.............................42
           Section 10.4. Certain Debentures Owned by Company Disregarded......42

                                       ii
<PAGE>

           Section 10.5. Actions Binding on the Future Debentureholders.......43

ARTICLE XI. SUPPLEMENTAL INDENTURES...........................................43
           Section 11.1. Supplemental Indentures without the Consent of the
                    Debentureholders..........................................43
           Section 11.2. Supplemental Indentures with Consent of the
                    Debentureholders..........................................44
           Section 11.3. Effect of Supplemental Indentures....................45
           Section 11.4. The Debentures Affected by Supplemental Indentures...45
           Section 11.5. Execution of Supplemental Indentures.................45

ARTICLE XII. SUCCESSOR CORPORATION............................................45
           Section 12.1. The Company May Consolidate, Etc.....................45
           Section 12.2. Successor Corporation Substituted....................46
           Section 12.3. Evidence of Consolidation, Etc. to Trustee...........46

ARTICLE XIII. SATISFACTION AND DISCHARGE......................................47
           Section 13.1. Satisfaction and Discharge of Indenture..............47
           Section 13.2. Discharge of Obligations.............................47
           Section 13.3. Deposited Moneys to Be Held in Trust.................47
           Section 13.4. Payment of Monies Held by Paying Agents..............48
           Section 13.5. Repayment to the Company.............................48

ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND
           DIRECTORS..........................................................48
           Section 14.1. No Recourse..........................................48

ARTICLE XV. MISCELLANEOUS PROVISIONS..........................................48
           Section 15.1. Effect on Successors and Assigns.....................49
           Section 15.2. Actions by Successor.................................49
           Section 15.3. Surrender of the Company Powers......................49
           Section 15.4. Notices..............................................49
           Section 15.5. Governing Law........................................49
           Section 15.6. Treatment of the Debentures as Debt..................49
           Section 15.7. Compliance Certificates and Opinions.................49
           Section 15.8. Payments on Business Days............................50
           Section 15.9. Conflict with Trust Indenture Act....................50
           Section 15.10. Counterparts........................................50
           Section 15.11. Separability........................................50
           Section 15.12. Assignment..........................................50
           Section 15.13. Acknowledgment of Rights; Right of Setoff...........51

ARTICLE XVI. SUBORDINATION OF THE DEBENTURES..................................51
           Section 16.1. Agreement to Subordinate.............................51
           Section 16.2. Default on Senior Indebtedness.......................51
           Section 16.3. Liquidation; Dissolution; Bankruptcy.................52
           Section 16.4. Subrogation..........................................53

                                      iii
<PAGE>

           Section 16.5. The Trustee to Effectuate Subordination..............54
           Section 16.6. Notice by the Company................................54
           Section 16.7. Rights of the Trustee; Holders of the Senior
                    Indebtedness..............................................55
           Section 16.8. Subordination May not Be Impaired....................55

EXHIBIT A .....................................................................1
</TABLE>

                                       iv
<PAGE>

                              CROSS-REFERENCE TABLE

<TABLE>
<CAPTION>
Section of
Trust Indenture Act                                                   Section of
of 1939, as amended                                                   Indenture
-------------------                                                   ---------
<S>                                                               <C>
310(a) .....................................................................9.10
310(b) ................................................................9.9, 9.11
310(c) ...........................................................Not Applicable
311(a) .....................................................................9.14
311(b) .....................................................................9.14
311(c) ...........................................................Not Applicable
312(a) ............................................................. 6.1, 6.2(a)
312(b) .................................................................. 6.2(c)
312(c) .................................................................. 6.2(c)
313(a) .................................................................. 6.4(a)
313(b) .................................................................. 6.4(b)
313(c) ...........................................................6.4(a), 6.4(b)
313(d) ...................................................................6.4(c)
314(a) ...................................................................6.3(a)
314(b) ...........................................................Not Applicable
314(c) .....................................................................15.7
314(d) ...........................................................Not Applicable
314(e) .....................................................................15.7
314(f) ...........................................................Not Applicable
315(a) ..............................................................9.1(a), 9.3
315(b) ......................................................................9.2
315(c) ...................................................................9.1(a)
315(d) ...................................................................9.1(b)
315(e) ......................................................................7.7
316(a) .................................................................1.1, 7.6
316(b) ...................................................................7.4(b)
316(c) ..................................................................10.1(b)
317(a) ......................................................................7.2
317(b) ......................................................................5.3
318(a) .....................................................................15.9
</TABLE>

Note: This reconciliation and tie sheet shall not, for any purpose, be deemed to
be a part of the Indenture.

                                       v
<PAGE>

                                    INDENTURE

      INDENTURE, dated as of ________ _______, 2001, between S.Y. BANCORP,
INC., a Kentucky corporation (the "Company"), and WILMINGTON TRUST COMPANY, a
banking corporation duly organized and existing under the laws of the State
of Delaware, as trustee (the "Trustee").

                                    RECITALS

      WHEREAS, for its lawful corporate purposes, the Company has duly
authorized the execution and delivery of this Indenture to provide for the
issuance of securities to be known as its __% Subordinated Debentures due 2031
(hereinafter referred to as the "Debentures"), the form and substance of such
Debentures and the terms, provisions and conditions thereof to be set forth as
provided in this Indenture;

      WHEREAS, S.Y. Bancorp Capital Trust I, a Delaware statutory business trust
(the "Trust"), has offered to the public $18,000,000 aggregate liquidation
amount of its Preferred Securities (as defined herein) ($20,000,000 if the
Underwriters exercise their Option (as defined herein)) and proposes to invest
the proceeds from such offering, together with the proceeds of the issuance and
sale by the Trust to the Company of $556,710 aggregate liquidation amount of its
Common Securities (as defined herein) ($618,570 if the Underwriters exercise
their Option) in $18,556,710 aggregate principal amount of the Debentures
($20,618,570 if the Underwriters exercise their Option);

      WHEREAS, the Company has requested that the Trustee execute and deliver
this Indenture;

      WHEREAS, all requirements necessary to make this Indenture a valid
instrument in accordance with its terms, and to make the Debentures, when
executed by the Company and authenticated and delivered by the Trustee, the
valid obligations of the Company, have been performed, and the execution and
delivery of this Indenture have been duly authorized in all respects;

      WHEREAS, to provide the terms and conditions upon which the Debentures are
to be authenticated, issued and delivered, the Company has duly authorized the
execution of this Indenture; and

      WHEREAS, all things necessary to make this Indenture a valid agreement of
the Company, in accordance with its terms, have been done.

      NOW, THEREFORE, in consideration of the premises and the purchase of the
Debentures by the holders thereof, it is mutually covenanted and agreed as
follows for the equal and ratable benefit of the holders of the Debentures:

<PAGE>

                                   ARTICLE I.
                                   DEFINITIONS

      Section 1.1. Definitions of Terms. The terms defined in this Section 1.1
(except as in this Indenture otherwise expressly provided or unless the context
otherwise requires) for all purposes of this Indenture and of any indenture
supplemental hereto shall have the respective meanings specified in this Section
1.1 and shall include the plural as well as the singular. All other terms used
in this Indenture that are defined in the Trust Indenture Act, or that are by
reference in the Trust Indenture Act defined in the Securities Act (except as
herein otherwise expressly provided or unless the context otherwise requires),
shall have the meanings assigned to such terms in the Trust Indenture Act and in
the Securities Act as in force at the date of the execution of this instrument.
All accounting terms used herein and not expressly defined shall have the
meanings assigned to such terms in accordance with Generally Accepted Accounting
Principles.

      "Accelerated Maturity Date" means if the Company elects to accelerate the
Maturity Date in accordance with Section 2.2(b), the date selected by the
Company which is prior to the Scheduled Maturity Date, but is after June 30,
2006.

      "Additional Junior Indebtedness" means, without duplication, (A) any
indebtedness, liabilities or obligations of the Company, or any Subsidiary of
the Company, under debt securities (or guarantees in respect of debt securities)
initially issued to any trust, or a trustee of a trust, partnership or other
entity affiliated with the Company that is, directly or indirectly, a finance
subsidiary (as such term is defined in Rule 3a-5) under the Investment Company
Act (or any successor Rule applicable thereto)) or other financing vehicle of
the Company or any Subsidiary of the Company in connection with the issuance by
that entity of preferred securities or other securities that are intended to
qualify for Tier 1 capital treatment (or the then equivalent thereof) for
purposes of the capital adequacy guidelines of the Federal Reserve, as then in
effect and applicable to the Company, other than the Debentures; provided,
however, that the inability of the Company to treat all or any portion of the
Additional Junior Indebtedness as Tier 1 capital shall not disqualify it as
Additional Junior Indebtedness if such inability results from the Company having
cumulative preferred stock, minority interests in consolidated subsidiaries, or
any other class of security or interest to which the Federal Reserve now accords
or may hereafter accord Tier 1 capital treatment (including the Debentures) in
excess of the amount which may qualify for treatment as Tier 1 capital under
applicable capital adequacy guidelines of the Federal Reserve and (B) any
indebtedness, liabilities or obligations of the Company, or any Subsidiary of
the Company, that is junior or otherwise subordinate in right of payment to
Senior Indebtedness of the Company and that has a maturity or is otherwise due
and payable by the Company on a date twelve (12) months or more after its date
of original issuance, other than the Debentures.

      "Additional Payments" shall have the meaning set forth in Section 2.5(c).

      "Additional Senior Obligations" means all indebtedness of the Company
whether incurred on or prior to the date of this Indenture or thereafter
incurred, for claims in respect of derivative products such as interest and
foreign exchange rate contracts, commodity contracts

                                       2
<PAGE>

and similar arrangements; provided, however, that Additional Senior Obligations
does not include claims in respect of Senior Debt or Subordinated Debt or
obligations which, by their terms, are expressly stated to be not superior in
right of payment to the Debentures or to rank pari passu in right of payment
with the Debentures. For purposes of this definition, "claim" shall have the
meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code
of 1978, as amended.

      "Administrative Trustees" shall have the meaning set forth in the Trust
Agreement.

      "Affiliate" means, with respect to a specified Person, (a) any Person
directly or indirectly owning, controlling or holding with power to vote 10% or
more of the outstanding voting securities or other ownership interests of the
specified Person; (b) any Person 10% or more of whose outstanding voting
securities or other ownership interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person; (c) any Person
directly or indirectly controlling, controlled by, or under common control with
the specified Person; (d) a partnership in which the specified Person is a
general partner; (e) any officer or director of the specified Person; and (f) if
the specified Person is an individual, any entity of which the specified Person
is an officer, director or general partner.

      "Authenticating Agent" means an authenticating agent with respect to the
Debentures appointed by the Trustee pursuant to Section 2.12.

      "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or
state law for the relief of debtors.

      "Board of Directors" means the Board of Directors of the Company or any
duly authorized committee of such Board.

      "Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company to have been duly adopted by the Board
of Directors and to be in full force and effect on the date of such
certification.

      "Business Day" means, with respect to the Debentures, any day other than a
Saturday or a Sunday or a day on which federal or state banking institutions in
the Borough of Manhattan, the City of New York, are authorized or required by
law, executive order or regulation to close, or a day on which the Corporate
Trust Office of the Trustee or the Property Trustee is closed for business.

      "Capital Treatment Event" means the receipt by the Company and the Trust
of an Opinion of Counsel, rendered by counsel experienced in such matters within
a reasonable period of time after the applicable occurrence, to the effect that,
as a result of any amendment to or change (including any announced prospective
change) in the laws (or any regulations thereunder) of the United States or any
political subdivision thereof or therein, or as a result of any official or
administrative pronouncement, action or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or,
which pronouncement, action or judicial decision is announced on or after the
date of issuance of the Preferred Securities under the Trust

                                       3
<PAGE>

Agreement, there is more than an insubstantial risk of impairment of the
Company's ability to treat the aggregate Liquidation Amount (as defined in the
Trust Agreement) of the Preferred Securities (or any substantial portion
thereof) as Tier 1 capital (or the then equivalent thereof) for purposes of the
capital adequacy guidelines of the Federal Reserve, as then in effect and
applicable to the Company; provided, however, that the Trust or the Company
shall have requested and received such an Opinion of Counsel with regard to such
matters within a reasonable period of time after the Trust or the Company shall
have become aware of the occurrence or the possible occurrence of any of the
events described above.

      "Change in 1940 Act Law" shall have the meaning set forth in the
definition of "Investment Company Event."

      "Code" means the Internal Revenue Code of 1986, as amended.

      "Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or, if at any time after the
execution of this instrument such Commission is not existing and performing the
duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.

      "Common Securities" means undivided beneficial interests in the assets of
the Trust which rank pari passu with the Preferred Securities; provided,
however, that upon the occurrence and during the continuation of an Event of
Default, the rights of holders of Common Securities to payment in respect of (a)
distributions, and (b) payments upon liquidation, redemption and otherwise, are
subordinated to the rights of holders of Preferred Securities.

      "Company" means S.Y. Bancorp, Inc., a corporation duly organized and
existing under the laws of the Commonwealth of Kentucky, and, subject to the
provisions of Article XII, shall also include its successors and assigns.

      "Compounded Interest" shall have the meaning set forth in Section 4.1.

      "Corporate Trust Office" means the office of the Trustee at which, at any
particular time, its corporate trust business shall be principally administered,
which office at the date hereof is located at Rodney Square North, 1100 North
Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust
Administration.

      "Coupon Rate" shall have the meaning set forth in Section 2.5.

      "Custodian" means any receiver, trustee, assignee, liquidator, or similar
official under any Bankruptcy Law.

      "Debentures" shall have the meaning set forth in the Recitals hereto.

      "Debentureholder," "holder of Debentures," "registered holder," or other
similar term, means the Person or Persons in whose name or names a particular
Debenture shall be registered

                                       4
<PAGE>

on the books of the Company or the Trustee kept for that purpose in accordance
with the terms of this Indenture.

      "Debenture Register" shall have the meaning set forth in Section 2.7(b).

      "Debenture Registrar" shall have the meaning set forth in Section 2.7(b).

      "Debt" means with respect to any Person, whether recourse is to all or a
portion of the assets of such Person and whether or not contingent, (a) every
obligation of such Person for money borrowed; (b) every obligation of such
Person evidenced by bonds, debentures, notes or other similar instruments,
including obligations incurred in connection with the acquisition of property,
assets or businesses; (c) every reimbursement obligation of such Person with
respect to letters of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (d) every obligation of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course of
business); (e) every capital lease obligation of such Person; and (f) and every
obligation of the type referred to in clauses (a) through (e) of another Person
and all dividends of another Person the payment of which, in either case, such
Person has guaranteed or is responsible or liable, directly or indirectly, as
obligor or otherwise.

      "Default" means any event, act or condition that with notice or lapse of
time, or both, would constitute an Event of Default.

      "Deferred Payments" shall have the meaning set forth in Section 4.1.

      "Direct Action" shall have the meaning set forth in Section 7.8.

      "Dissolution Event" means that as a result of the occurrence and
continuation of a Special Event, the Trust is to be dissolved in accordance with
the Trust Agreement and the Debentures held by the Property Trustee are to be
distributed to the holders of the Trust Securities issued by the Trust pro rata
in accordance with the Trust Agreement.

      "Distribution" shall have the meaning set forth in the Trust Agreement.

      "Event of Default" means, with respect to the Debentures, any event
specified in Section 7.1, which has continued for the period of time, if any,
and after the giving of the notice, if any, therein designated.

      "Exchange Act" means the Securities Exchange Act of 1934, as amended, as
in effect at the date of execution of this Indenture.

      "Extension Period" shall have the meaning set forth in Section 4.1.

      "Federal Reserve" means the Board of Governors of the Federal Reserve
System.

      "Guarantee" shall have the meaning set forth in the Trust Agreement.

                                       5
<PAGE>

      "Generally Accepted Accounting Principles" means such accounting
principles as are generally accepted at the time of any computation required
hereunder.

      "Governmental Obligations" means securities that are (a) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America that, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such Governmental
Obligation or a specific payment of principal of or interest on any such
Governmental Obligation held by such custodian for the account of the holder of
such depositary receipt; provided, however, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depositary receipt from any amount received by the
custodian in respect of the Governmental Obligation or the specific payment of
principal of or interest on the Governmental Obligation evidenced by such
depositary receipt.

      "Herein," "hereof," and "hereunder," and other words of similar import,
refer to this Indenture as a whole and not to any particular Article, Section or
other subdivision.

      "Indenture" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more indentures supplemental
hereto entered into in accordance with the terms hereof.

      "Interest Payment Date" shall have the meaning set forth in Section
2.5(a).

      "Investment Company Act" means the Investment Company Act of 1940, as
amended, as in effect at the date of execution of this Indenture.

      "Investment Company Event" means the receipt by the Trust and the Company
of an Opinion of Counsel, rendered by counsel experienced in such matters within
a reasonable amount of time after the applicable occurrence, to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
the Trust is or shall be considered an "investment company" that is required to
be registered under the Investment Company Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of the Preferred
Securities under the Trust Agreement; provided, however, that the Trust or the
Company shall have requested and received such an Opinion of Counsel with regard
to such matters within a reasonable period of time after the Trust or the
Company shall have become aware of the occurrence or the possible occurrence of
any such Change in 1940 Act Law.

      "Maturity Date" means the date on which the Debentures mature and on which
the principal shall be due and payable together with all accrued and unpaid
interest thereon including Compounded Interest and Additional Payments, if any.

                                       6
<PAGE>

      "Ministerial Action" shall have the meaning set forth in Section 3.2.

      "Officers' Certificate" means a certificate signed by the Chief Executive
Officer, President or an Executive Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the Company
that is delivered to the Trustee in accordance with the terms hereof. Each such
certificate shall include the statements provided for in Section 15.7, if and to
the extent required by the provisions thereof.

      "Opinion of Counsel" means an opinion in writing of independent, outside
legal counsel for the Company, that is delivered to the Trustee in accordance
with the terms hereof. Each such opinion shall include the statements provided
for in Section 15.7, if and to the extent required by the provisions thereof.

      "Outstanding," when used with reference to the Debentures, means, subject
to the provisions of Section 10.4, as of any particular time, all Debentures
theretofore authenticated and delivered by the Trustee under this Indenture,
except (a) Debentures theretofore canceled by the Trustee or any Paying Agent,
or delivered to the Trustee or any paying agent for cancellation or that have
previously been canceled; (b) Debentures or portions thereof for the payment or
redemption of which money or Governmental Obligations in the necessary amount
shall have been deposited in trust with the Trustee or with any Paying Agent
(other than the Company) or shall have been set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent); provided,
however, that, if such Debentures or portions of such Debentures are to be
redeemed prior to the maturity thereof, notice of such redemption shall have
been given as in Article III provided, or provision satisfactory to the Trustee
shall have been made for giving such notice; and (c) Debentures in lieu of or in
substitution for which other Debentures shall have been authenticated and
delivered pursuant to the terms of Section 2.7; provided, however, that in
determining whether the holders of the requisite percentage of Debentures have
given any request, notice, consent or waiver hereunder, Debentures held by the
Company or any Affiliate of the Company shall not be included; provided,
further, that the Trustee shall be protected in relying upon any request,
notice, consent or waiver unless a Responsible Officer of the Trustee shall have
actual knowledge that the holder of such Debenture is the Company or an
Affiliate thereof.

      "Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.3.

      "Person" means any individual, corporation, partnership, joint-venture,
limited liability company, trust, joint-stock company, unincorporated
organization or government or any agency or political subdivision thereof.

      "Predecessor Debenture" means every previous Debenture evidencing all or a
portion of the same debt as that evidenced by such particular Debenture; and,
for the purposes of this definition, any Debenture authenticated and delivered
under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be
deemed to evidence the same debt as the lost, destroyed or stolen Debenture.

                                       7
<PAGE>

      "Preferred Securities" means the __% Cumulative Trust Preferred Securities
representing undivided beneficial interests in the assets of the Trust which
rank pari passu with Common Securities issued by the Trust; provided, however,
that upon the occurrence and during the continuation of an Event of Default, the
rights of holders of Common Securities to payment in respect of (a)
distributions, and (b) payments upon liquidation, redemption and otherwise, are
subordinated to the rights of holders of Preferred Securities.

      "Preferred Securities Guarantee" means any guarantee that the Company may
enter into with the Trustee or other Persons that operates directly or
indirectly for the benefit of holders of Preferred Securities.

      "Property Trustee" has the meaning set forth in the Trust Agreement.

      "Redemption Price" shall have the meaning set forth in Section 3.2.

      "Responsible Officer" when used with respect to the Trustee means any
officer within the Corporate Trust Office of the Trustee or, for purposes of
the Trust Agreement, the Property Trustee (as defined in the Trust Agreement)
with direct responsibility for the administration of this Indenture,
including any vice president, any assistant vice president, any assistant
secretary or any other officer or assistant officer of the Trustee who
customarily performs functions similar to those performed by the Persons who
at the time shall be such officers, respectively, or to whom any corporate
trust matter is referred because of his or her knowledge of and familiarity
with the particular subject.

      "Scheduled Maturity Date" means June 30, 2031.

      "Securities Act" means the Securities Act of 1933, as amended, as in
effect at the date of execution of this Indenture.

      "Senior Debt" means the principal of (and premium, if any) and interest,
if any (including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding), on all Debt,
whether incurred on or prior to the date of this Indenture or thereafter
incurred, unless, in the instrument creating or evidencing the same or pursuant
to which the same is outstanding, it is provided that such obligations are not
superior in right of payment to the Debentures or to other Debt which is pari
passu with, or subordinated to, the Debentures; provided, that Senior Debt shall
not be deemed to include (a) any Debt of the Company which when incurred and
without respect to any election under section 1111(b) of the United States
Bankruptcy Code of 1978, as amended, was without recourse to the Company; (b)
the Guarantee Agreement; (c) Debt to any employee of the Company; (d) Debt which
by its terms is subordinated to trade accounts payable or accrued liabilities
arising in the ordinary course of business to the extent that payments made to
the holders of such Debt by the holders of the Debentures as a result of the
subordination provisions of this Indenture would be greater than they otherwise
would have been as a result of any obligation of such holders to pay amounts
over to the obligees on such trade accounts payable or accrued liabilities
arising in the ordinary course of business as a result of subordination
provisions to which such Debt is subject; and (e) Debt which constitutes
Subordinated Debt.

                                       8
<PAGE>

      "Senior Indebtedness" shall have the meaning set forth in Section 16.1.

      "Special Event" means a Tax Event, a Capital Treatment Event or an
Investment Company Event.

      "Subordinated Debt" means the principal of (and premium, if any) and
interest, if any (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not such claim for post-petition interest is allowed in such proceeding), on
Debt (other than the Debentures), whether incurred on or prior to the date of
this Indenture or thereafter incurred, which is by its terms expressly provided
to be junior and subordinate to other Debt of the Company (other than the
Debentures); provided, however, that Subordinated Debt will not be deemed to
include (a) any Debt of the Company which when incurred and without respect to
any election under section 1111(b) of the United States Bankruptcy Code of 1978,
as amended, was without recourse to the Company, (b) Debt which constitutes
Senior Debt; (c) Debt to any employee of the Company; (d) Debt which by its
terms is subordinated to trade accounts payable or accrued liabilities arising
in the ordinary course of business to the extent that payments made to the
holders of such Debt by the holders of the Debentures as a result of the
subordination provisions of this Indenture would be greater than they otherwise
would have been as a result of any obligation of such holders to pay amounts
over to the obligees on such trade accounts payable or accrued liabilities
arising in the ordinary course of business as a result of subordination
provisions to which such Debt is subject; and (e) any Debt of the Company under
debt securities (and guarantees in respect of these debt securities) initially
issued to any trust, or a trustee of a trust, partnership or other entity
affiliated with the Company that is, directly or indirectly, a financing vehicle
of the Company in connection with the issuance by that entity of preferred
securities or other securities which are intended to qualify for Tier 1 capital
treatment.

      "Subsidiary" means, with respect to any Person, (a) any corporation at
least a majority of whose outstanding Voting Stock shall at the time be owned,
directly or indirectly, by such Person or by one or more of its Subsidiaries or
by such Person and one or more of its Subsidiaries; (b) any general partnership,
limited liability company, joint venture, trust or similar entity, at least a
majority of whose outstanding partnership or similar interests shall at the time
be owned by such Person, or by one or more of its Subsidiaries, or by such
Person and one or more of its Subsidiaries; and (c) any limited partnership of
which such Person or any of its Subsidiaries is a general partner.

      "Tax Event" means the receipt by the Company and the Trust of an Opinion
of Counsel, rendered by counsel experienced in such matters within a reasonable
amount of time after the applicable occurrence, to the effect that, as a result
of any amendment to, or change (including any announced prospective change) in,
the laws (or any regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, or as a result of any
official administrative pronouncement or judicial decision interpreting or
applying such laws or regulations, which amendment or change is effective or
which pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities under the Trust Agreement, there is more than an
insubstantial risk that (a) the Trust is, or shall be within ninety (90) days

                                       9
<PAGE>

after the date of such Opinion of Counsel, subject to United States federal
income tax with respect to income received or accrued on the Debentures; (b)
interest payable by the Company on the Debentures is not, or within ninety (90)
days after the date of such Opinion of Counsel, shall not be, deductible by the
Company, in whole or in part, for United States federal income tax purposes; or
(c) the Trust is, or shall be within ninety (90) days after the date of such
Opinion of Counsel, subject to more than a de minimis amount of other taxes,
duties, assessments or other governmental charges; provided, however, that the
Trust or the Company shall have requested and received such an Opinion of
Counsel with regard to such matters within a reasonable period of time after the
Trust or the Company shall have become aware of the occurrence or the possible
occurrence of any of the events described in clauses (a) through (c) above.

      "Trust" means S.Y. Bancorp Capital Trust I, a Delaware statutory business
trust.

      "Trust Agreement" means the Amended and Restated Trust Agreement, dated as
of ______________ ____, 2001, of the Trust.

      "Trustee" means Wilmington Trust Company, a Delaware banking corporation,
and, subject to the provisions of Article IX, shall also include its successors
and assigns, and, if at any time there is more than one Person acting in such
capacity hereunder, "Trustee" shall mean each such Person.

      "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the
date of execution of this Indenture.

      "Trust Securities" means the Common Securities and Preferred Securities,
collectively.

      "Voting Stock," as applied to stock of any Person, means shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person having ordinary voting power for the election of a
majority of the directors (or the equivalent) of such Person, other than shares,
interests, participations or other equivalents having such power only by reason
of the occurrence of a contingency.

                                   ARTICLE II.
                     ISSUE, DESCRIPTION, TERMS, CONDITIONS,
                   REGISTRATION AND EXCHANGE OF THE DEBENTURES

      Section 2.1. Designation and Principal Amount. There are hereby authorized
Debentures designated the "____% Subordinated Debentures due 2031," limited in
aggregate principal amount up to $20,618,570, which amount shall be as set forth
in any written order of the Company for the authentication and delivery of
Debentures pursuant to Section 2.6.

      Section 2.2. Maturity.

      (a)   The Maturity Date shall be either:

            (i)   the Scheduled Maturity Date; or

                                       10
<PAGE>

            (ii) if the Company elects to accelerate the Maturity Date to be a
      date prior to the Scheduled Maturity Date in accordance with Section
      2.2(c), the Accelerated Maturity Date.

      (b) The Company may at any time before the day which is ninety (90) days
before the Scheduled Maturity Date and after June 30, 2006, elect to shorten the
Maturity Date only once to the Accelerated Maturity Date provided that the
Company has received the prior approval of the Federal Reserve if then required
under applicable capital guidelines, policies or regulations of the Federal
Reserve.

      (c) If the Company elects to accelerate the Maturity Date in accordance
with Section 2.2(b), the Company shall give notice to the Trustee and the Trust
(unless the Trust is not the holder of the Debentures, in which case the Trustee
will give notice to the holders of the Debentures) of the acceleration of the
Maturity Date and the Accelerated Maturity Date at least thirty (30) days and no
more than 180 days before the Accelerated Maturity Date; provided, however, that
nothing provided in this Section 2.2 shall limit the Company's rights, as
provided in Article III hereof, to redeem all or a portion of the Debentures at
such time or times on or after June 30, 2006, as the Company may so determine,
or at any time upon the occurrence of a Special Event.

      Section 2.3. Form and Payment. The Debentures shall be issued in fully
registered certificated form without interest coupons. Principal and interest on
the Debentures issued in certificated form shall be payable, the transfer of
such Debentures shall be registrable and such Debentures shall be exchangeable
for Debentures bearing identical terms and provisions at the office or agency of
the Trustee; provided, however, that payment of interest may be made at the
option of the Company by check mailed to the holder at such address as shall
appear in the Debenture Register or by wire transfer to an account maintained by
the holder as specified in the Debenture Register, provided that the holder
provides proper transfer instructions by the regular record date.
Notwithstanding the foregoing, so long as the holder of any Debentures is the
Property Trustee, the payment of principal of and interest (including Compounded
Interest and Additional Payments, if any) on such Debentures held by the
Property Trustee shall be made at such place and to such account as may be
designated by the Property Trustee.

      Section 2.4. [Intentionally Omitted].

      Section 2.5. Interest.

      (a) Each Debenture shall bear interest at a rate of __% per annum (the
"Coupon Rate") from the original date of issuance until the principal thereof
becomes due and payable, and on any overdue principal and (to the extent that
payment of such interest is enforceable under applicable law) on any overdue
installment of interest at the Coupon Rate, compounded quarterly, payable
(subject to the provisions of Article IV) quarterly in arrears on March 31, June
30, September 30, and December 31 of each year (each, an "Interest Payment
Date"), commencing on September 30, 2001, to the Person in whose name such
Debenture or any Predecessor Debenture is registered, at the close of business
on the regular record date for such interest installment, which shall be the
fifteenth day of the last month of the calendar quarter.

                                       11
<PAGE>

      (b) The amount of interest payable for any period shall be computed on the
basis of a 360-day year of twelve 30-day months. The amount of interest payable
for any period shorter than a full quarterly period for which interest is
computed shall be computed on the basis of the number of days elapsed in a
360-day year of twelve 30-day months. In the event that any date on which
interest is payable on the Debentures is not a Business Day, then payment of
interest payable on such date shall be made on the next succeeding day which is
a Business Day (and without any interest or other payment in respect of any such
delay) except that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding Business Day (and
without any reduction of interest or any other payment in respect of any such
acceleration), in each case with the same force and effect as if made on the
date such payment was originally payable.

      (c) If, at any time while the Property Trustee is the holder of any
Debentures, the Trust or the Property Trustee is required to pay any taxes,
duties, assessments or governmental charges of whatever nature (other than
withholding taxes) imposed by the United States, or any other taxing authority,
then, in any case, the Company shall pay as additional payments ("Additional
Payments") on the Debentures held by the Property Trustee, such additional
amounts as shall be required so that the net amounts received and retained by
the Trust and the Property Trustee after paying such taxes, duties, assessments
or other governmental charges shall be equal to the amounts the Trust and the
Property Trustee would have received had no such taxes, duties, assessments or
other government charges been imposed.

      Section 2.6. Execution and Authentication.

      (a) The Debentures shall be signed on behalf of the Company by its Chief
Executive Officer, President or one of its Executive Vice Presidents, under its
corporate seal attested by its Secretary or one of its Assistant Secretaries.
Signatures may be in the form of a manual or facsimile signature. The Company
may use the facsimile signature of any Person who shall have been a Chief
Executive Officer, President or Executive Vice President thereof, or of any
Person who shall have been a Secretary or Assistant Secretary thereof,
notwithstanding the fact that at the time the Debentures shall be authenticated
and delivered or disposed of such Person shall have ceased to be the Chief
Executive Officer, President or an Executive Vice President, or the Secretary or
an Assistant Secretary, of the Company (and any such signature shall be binding
on the Company). The seal of the Company may be in the form of a facsimile of
such seal and may be impressed, affixed, imprinted or otherwise reproduced on
the Debentures. The Debentures may contain such notations, legends or
endorsements required by law, stock exchange rule or usage. Each Debenture shall
be dated the date of its authentication by the Trustee.

      (b) A Debenture shall not be valid until manually authenticated by an
authorized signatory of the Trustee, or by an Authenticating Agent. Such
signature shall be conclusive evidence that the Debenture so authenticated has
been duly authenticated and delivered hereunder and that the holder is entitled
to the benefits of this Indenture.

      (c) At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Debentures executed by the Company to
the Trustee for

                                       12
<PAGE>

authentication, together with a written order of the Company for the
authentication and delivery of such Debentures signed by its Chief Executive
Officer, President or any Executive Vice President and its Treasurer or any
Assistant Treasurer, and the Trustee in accordance with such written order shall
authenticate and deliver such Debentures.

      (d) In authenticating such Debentures and accepting the additional
responsibilities under this Indenture in relation to such Debentures, the
Trustee shall be entitled to receive, and (subject to Section 9.1) shall be
fully protected in relying upon, an Opinion of Counsel stating that the form and
terms thereof have been established in conformity with the provisions of this
Indenture.

      (e) The Trustee shall not be required to authenticate such Debentures if
the issue of such Debentures pursuant to this Indenture shall affect the
Trustee's own rights, duties or immunities under the Debentures and this
Indenture or otherwise in a manner that is not reasonably acceptable to the
Trustee.

      Section 2.7. Registration of Transfer and Exchange.

      (a) Debentures may be exchanged upon presentation thereof at the office or
agency of the Company designated for such purpose in the Borough of Manhattan,
the City of New York, or at the office of the Debenture Registrar, for other
Debentures and for a like aggregate principal amount in denominations of
integral multiples of $10, upon payment of a sum sufficient to cover any tax or
other governmental charge in relation thereto, all as provided in this Section
2.7. In respect of any Debentures so surrendered for exchange, the Company shall
execute, the Trustee shall authenticate and such office or agency shall deliver
in exchange therefor the Debenture or Debentures that the Debentureholder making
the exchange shall be entitled to receive, bearing numbers not contemporaneously
outstanding.

      (b) The Company shall keep, or cause to be kept, at its office or agency
designated for such purpose in the Borough of Manhattan, the City of New York,
or at the office of the Debenture Registrar, or such other location designated
by the Company a register or registers (herein referred to as the "Debenture
Register") in which, subject to such reasonable regulations as the Debenture
Registrar (as defined below) may prescribe, the Company shall register the
Debentures and the transfers of Debentures as in this Article II provided and
which at all reasonable times shall be open for inspection by the Trustee. The
registrar for the purpose of registering Debentures and transfer of Debentures
as herein provided shall initially be the Trustee and thereafter as may be
appointed by the Company as authorized by Board Resolution (the "Debenture
Registrar"). Upon surrender for transfer of any Debenture at the office or
agency of the Company designated for such purpose, the Company shall execute,
the Trustee shall authenticate and such office or agency shall deliver in the
name of the transferee or transferees a new Debenture or Debentures for a like
aggregate principal amount. All Debentures presented or surrendered for exchange
or registration of transfer, as provided in this Section 2.7, shall be
accompanied (if so required by the Company or the Debenture Registrar) by a
written instrument or instruments of transfer, in form satisfactory to the
Company or the Debenture Registrar, duly executed by the registered holder or by
such holder's duly authorized attorney in writing.

                                       13
<PAGE>

      (c) No service charge shall be made for any exchange or registration of
transfer of Debentures, or issue of new Debentures in case of partial
redemption, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge in relation thereto, other than exchanges
pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not involving any
transfer.

      (d) The Company shall not be required (i) to issue, exchange or register
the transfer of any Debentures during a period beginning at the opening of
business fifteen (15) days before the day of the mailing of a notice of
redemption of less than all the Outstanding Debentures and ending at the close
of business on the day of such mailing; nor (ii) to register the transfer of or
exchange any Debentures or portions thereof called for redemption.

      (e) Debentures may only be transferred, in whole or in part, in accordance
with the terms and conditions set forth in this Indenture. Any transfer or
purported transfer of any Debenture not made in accordance with this Indenture
shall be null and void.

      Section 2.8. Temporary Debentures. Pending the preparation of definitive
Debentures, the Company may execute, and the Trustee shall authenticate and
deliver, temporary Debentures (printed, lithographed, or typewritten). Such
temporary Debentures shall be substantially in the form of the definitive
Debentures in lieu of which they are issued, but with such omissions, insertions
and variations as may be appropriate for temporary Debentures, all as may be
determined by the Company. Every temporary Debenture shall be executed by the
Company and be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the definitive
Debentures. Without unnecessary delay, the Company shall execute and shall
furnish definitive Debentures and thereupon any or all temporary Debentures may
be surrendered in exchange therefor (without charge to the holders), at the
office or agency of the Company designated for the purpose and the Trustee shall
authenticate and such office or agency shall deliver in exchange for such
temporary Debentures an equal aggregate principal amount of definitive
Debentures, unless the Company advises the Trustee to the effect that definitive
Debentures need not be authenticated and furnished until further notice from the
Company. Until so exchanged, the temporary Debentures shall be entitled to the
same benefits under this Indenture as definitive Debentures authenticated and
delivered hereunder.

      Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures.

      (a) In case any temporary or definitive Debenture shall become mutilated
or be destroyed, lost or stolen, the Company (subject to the next succeeding
sentence) shall execute, and upon the Company's request the Trustee (subject as
aforesaid) shall authenticate and deliver, a new Debenture bearing a number not
contemporaneously outstanding, in exchange and substitution for the mutilated
Debenture, or in lieu of and in substitution for the Debenture so destroyed,
lost, stolen or mutilated. In every case the applicant for a substituted
Debenture shall furnish to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless, and, in
every case of destruction, loss

                                       14
<PAGE>

or theft, the applicant shall also furnish to the Company and the Trustee
evidence to their satisfaction of the destruction, loss or theft of the
applicant's Debenture and of the ownership thereof. The Trustee shall
authenticate any such substituted Debenture and deliver the same upon the
written request or authorization of the Chief Executive Officer, President or
any Executive Vice President and the Treasurer or any Assistant Treasurer of the
Company. Upon the issuance of any substituted Debenture, the Company may require
the payment of a sum sufficient to cover any tax or other governmental charge
that may be imposed in relation thereto and any other expenses (including the
fees and expenses of the Trustee) connected therewith. In case any Debenture
that has matured or is about to mature shall become mutilated or be destroyed,
lost or stolen, the Company may, instead of issuing a substitute Debenture, pay
or authorize the payment of the same (without surrender thereof except in the
case of a mutilated Debenture) if the applicant for such payment shall furnish
to the Company and the Trustee such security or indemnity as they may require to
save them harmless, and, in case of destruction, loss or theft, evidence to the
satisfaction of the Company and the Trustee of the destruction, loss or theft of
such Debenture and of the ownership thereof.

      (b) Every replacement Debenture issued pursuant to the provisions of this
Section 2.9 shall constitute an additional contractual obligation of the Company
whether or not the mutilated, destroyed, lost or stolen Debenture shall be found
at any time, or be enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Debentures duly issued hereunder. All Debentures shall be held and owned upon
the express condition that the foregoing provisions are exclusive with respect
to the replacement or payment of mutilated, destroyed, lost or stolen
Debentures, and shall preclude (to the extent lawful) any and all other rights
or remedies, notwithstanding any law or statute existing or hereafter enacted to
the contrary with respect to the replacement or payment of negotiable
instruments or other securities without their surrender.

      Section 2.10. Cancellation. All Debentures surrendered for the purpose of
payment, redemption, exchange or registration of transfer shall, if surrendered
to the Company or any Paying Agent, be delivered to the Trustee for
cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no
Debentures shall be issued in lieu thereof except as expressly required or
permitted by any of the provisions of this Indenture. On request of the Company
at the time of such surrender, the Trustee shall deliver to the Company canceled
Debentures held by the Trustee. In the absence of such request the Trustee may
dispose of canceled Debentures in accordance with its standard procedures and
deliver a certificate of disposition to the Company. If the Company shall
otherwise acquire any of the Debentures, however, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Debentures unless and until the same are delivered to the Trustee for
cancellation.

      Section 2.11. Benefit of Indenture. Nothing in this Indenture or in the
Debentures, express or implied, shall give or be construed to give to any
Person, other than the parties hereto and the holders of the Debentures (and,
with respect to the provisions of Article XVI, the holders of the Senior
Indebtedness) any legal or equitable right, remedy or claim under or in respect
of this Indenture, or under any covenant, condition or provision herein
contained; all such covenants, conditions and provisions being for the sole
benefit of the parties hereto and of the

                                       15
<PAGE>

holders of the Debentures (and, with respect to the provisions of Article XVI,
the holders of the Senior Indebtedness).

      Section 2.12. Authentication Agent.

      (a) So long as any of the Debentures remain Outstanding there may be an
Authenticating Agent for any or all such Debentures, which Authenticating Agent
the Trustee shall have the right to appoint. Said Authenticating Agent shall be
authorized to act on behalf of the Trustee to authenticate Debentures issued
upon exchange, transfer or partial redemption thereof, and Debentures so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. All references in this Indenture to the authentication of Debentures
by the Trustee shall be deemed to include authentication by an Authenticating
Agent. Each Authenticating Agent shall be acceptable to the Company and shall be
a corporation that has a combined capital and surplus, as most recently reported
or determined by it, sufficient under the laws of any jurisdiction under which
it is organized or in which it is doing business to conduct a trust business,
and that is otherwise authorized under such laws to conduct such business and is
subject to supervision or examination by federal or state authorities. If at any
time any Authenticating Agent shall cease to be eligible in accordance with
these provisions, it shall resign immediately.

      (b) Any Authenticating Agent may at any time resign by giving written
notice of resignation to the Trustee and to the Company. The Trustee may at any
time (and upon request by the Company shall) terminate the agency of any
Authenticating Agent by giving written notice of termination to such
Authenticating Agent and to the Company. Upon resignation, termination or
cessation of eligibility of any Authenticating Agent, the Trustee may appoint a
successor Authenticating Agent eligible under the provisions of Section 12.2(a)
of this Indenture. Any successor Authenticating Agent, upon acceptance of its
appointment hereunder, shall become vested with all the rights, powers and
duties of its predecessor hereunder as if originally named as an Authenticating
Agent pursuant hereto.

                                  ARTICLE III.
                            REDEMPTION OF DEBENTURES

      Section 3.1. Redemption. Subject to the Company having received prior
approval of the Federal Reserve, if then required under the applicable capital
guidelines, policies or regulations of the Federal Reserve, the Company may
redeem the Debentures issued hereunder on and after the dates set forth in and
in accordance with the terms of this Article III.

      Section 3.2. Special Event Redemption. Subject to the Company having
received the prior approval of the Federal Reserve, if then required under the
applicable capital guidelines, policies or regulations of the Federal Reserve,
if a Special Event has occurred and is continuing, then, notwithstanding Section
3.3(a) but subject to Section 3.3(b), the Company shall have the right upon not
less than thirty (30) days' nor more than sixty (60) days' notice to the holders
of the Debentures to redeem the Debentures, in whole but not in part, for cash
within 180 days following the occurrence of such Special Event (the "180-Day
Period") at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest

                                       16
<PAGE>

thereon to the date of such redemption (the "Redemption Price"), provided that
if at the time there is available to the Company the opportunity to eliminate,
within the 180-Day Period, a Tax Event by taking some ministerial action (a
"Ministerial Action"), such as filing a form or making an election, or pursuing
some other similar reasonable measure which has no adverse effect on the
Company, the Trust or the holders of the Trust Securities issued by the Trust,
the Company shall pursue such Ministerial Action in lieu of redemption, and,
provided further, that the Company shall have no right to redeem the Debentures
pursuant to this Section 3.2 while it is pursuing any Ministerial Action
pursuant to its obligations hereunder, and, provided further, that, if it is
determined that the taking of a Ministerial Action would not eliminate the Tax
Event within the 180 Day Period, the Company's right to redeem the Debentures
pursuant to this Section 3.2 shall be restored and it shall have no further
obligations to pursue the Ministerial Action. The Redemption Price shall be paid
prior to 12:00 noon, New York time, on the date of such redemption or such
earlier time as the Company determines, provided that the Company shall deposit
with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m.,
New York time, on the date such Redemption Price is to be paid.

      Section 3.3. Optional Redemption by the Company.

      (a) Subject to the provisions of Section 3.3(c), except as otherwise may
be specified in this Indenture, the Company shall have the right to redeem the
Debentures, in whole or in part, from time to time, on or after June 30, 2006,
at a Redemption Price equal to 100% of the principal amount to be redeemed plus
any accrued and unpaid interest thereon to the date of such redemption. Any
redemption pursuant to this Section 3.3(a) shall be made upon not less than
thirty (30) days' nor more than sixty (60) days' notice to the holder of the
Debentures, at the Redemption Price. If the Debentures are only partially
redeemed pursuant to this Section 3.3(a), the Debentures shall be redeemed pro
rata or by lot or in such other manner as the Trustee shall deem appropriate and
fair in its discretion. The Redemption Price shall be paid prior to 12:00 noon,
New York time, on the date of such redemption or at such earlier time as the
Company determines provided that the Company shall deposit with the Trustee an
amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on
the date such Redemption Price is to be paid.

      (b) Subject to the provisions of Section 3.3(c), the Company shall have
the right to redeem Debentures at any time and from time to time in a principal
amount equal to the Liquidation Amount (as defined in the Trust Agreement) of
any Preferred Securities purchased and beneficially owned by the Company, plus
an additional principal amount of Debentures equal to the Liquidation Amount of
that number of Common Securities that bears the same proportion to the total
number of Common Securities then outstanding as the number of Preferred
Securities to be redeemed bears to the total number of Preferred Securities then
outstanding. Such Debentures shall be redeemed pursuant to this Section 3.3(b)
only in exchange for and upon surrender by the Company to the Property Trustee
of the Preferred Securities and a proportionate amount of Common Securities,
whereupon the Property Trustee shall cancel the Preferred Securities and Common
Securities so surrendered and a Like Amount (as defined in the Trust Agreement)
of Debentures shall be extinguished by the Trustee and shall no longer be deemed
Outstanding.

                                       17
<PAGE>

      (c) If a partial redemption of the Debentures would result in the
delisting of the Preferred Securities from the American Stock Exchange, Inc. or
from any national securities exchange or in the termination of inclusion of the
Preferred Securities issued by the Trust from the Nasdaq National Market or
other self-regulatory organization on or in which the Preferred Securities are
then listed, quoted or included, the Company shall not be permitted to effect
such partial redemption and may only redeem the Debentures in whole.

      Section 3.4. Notice of Redemption.

      (a) Except in the case of a redemption pursuant to Section 3.3(b), in case
the Company shall desire to exercise such right to redeem all or, as the case
may be, a portion of the Debentures in accordance with the right reserved so to
do, the Company shall, or shall cause the Trustee to upon receipt of forty-five
(45) days' written notice from the Company (which notice shall, in the event of
a partial redemption, include a representation to the effect that such partial
redemption will not result in the delisting of the Preferred Securities as
described in Section 3.3(c) above), give notice of such redemption to holders of
the Debentures to be redeemed by mailing, first class postage prepaid, a notice
of such redemption not less than thirty (30) days and not more than sixty (60)
days before the date fixed for redemption to such holders at their last
addresses as they shall appear upon the Debenture Register unless a shorter
period is specified in the Debentures to be redeemed. Any notice that is mailed
in the manner herein provided shall be conclusively presumed to have been duly
given, whether or not the registered holder receives the notice. In any case,
failure duly to give such notice to the holder of any Debenture designated for
redemption in whole or in part, or any defect in the notice, shall not affect
the validity of the proceedings for the redemption of any other Debentures. In
the case of any redemption of Debentures prior to the expiration of any
restriction on such redemption provided in the terms of such Debentures or
elsewhere in this Indenture, the Company shall furnish the Trustee with an
Officers' Certificate evidencing compliance with any such restriction. Each such
notice of redemption shall specify the date fixed for redemption and the
Redemption Price and shall state that payment of the Redemption Price shall be
made at the office or agency of the Company in the Borough of Manhattan, the
City of New York or at the Corporate Trust Office, upon presentation and
surrender of such Debentures, that interest accrued to the date fixed for
redemption shall be paid as specified in said notice and that from and after
said date interest shall cease to accrue. If less than all the Debentures are to
be redeemed, the notice to the holders of the Debentures shall specify the
particular Debentures to be redeemed. If the Debentures are to be redeemed in
part only, the notice shall state the portion of the principal amount thereof to
be redeemed and shall state that on and after the redemption date, upon
surrender of such Debenture, a new Debenture or Debentures in principal amount
equal to the unredeemed portion thereof shall be issued.

      (b) Except in the case of a redemption pursuant to Section 3.3(b), if less
than all the Debentures are to be redeemed, the Company shall give the Trustee
at least forty-five (45) days' written notice in advance of the date fixed for
redemption as to the aggregate principal amount of Debentures to be redeemed,
and thereupon the Trustee shall select, pro rata or by lot or in such other
manner as it shall deem appropriate and fair in its discretion, the portion or
portions (equal to $10 or any integral multiple thereof) of the Debentures to be
redeemed and shall thereafter

                                       18
<PAGE>

promptly notify the Company in writing of the numbers of the Debentures to be
redeemed, in whole or in part. The Company may, if and whenever it shall so
elect pursuant to the terms hereof, by delivery of instructions signed on its
behalf by its Chief Executive Officer, President or any Executive Vice
President, instruct the Trustee or any Paying Agent to call all or any part of
the Debentures for redemption and to give notice of redemption in the manner set
forth in this Section 3.4, such notice to be in the name of the Company or its
own name as the Trustee or such Paying Agent may deem advisable. In any case in
which notice of redemption is to be given by the Trustee or any such Paying
Agent, the Company shall deliver or cause to be delivered to, or permit to
remain with, the Trustee or such Paying Agent, as the case may be, such
Debenture Register, transfer books or other records, or suitable copies or
extracts therefrom, sufficient to enable the Trustee or such Paying Agent to
give any notice by mail that may be required under the provisions of this
Section 3.4.

      Section 3.5. Payment upon Redemption.

      (a) If the giving of notice of redemption shall have been completed as
above provided, the Debentures or portions of Debentures to be redeemed
specified in such notice shall become due and payable on the date and at the
place stated in such notice at the applicable Redemption Price, and interest on
such Debentures or portions of Debentures shall cease to accrue on and after the
date fixed for redemption, unless the Company shall default in the payment of
such Redemption Price with respect to any such Debenture or portion thereof. On
presentation and surrender of such Debentures on or after the date fixed for
redemption at the place of payment specified in the notice, said Debentures
shall be paid and redeemed at the Redemption Price (but if the date fixed for
redemption is an Interest Payment Date, the interest installment payable on such
date shall be payable to the registered holder at the close of business on the
applicable record date pursuant to Section 3.3).

      (b) Upon presentation of any Debenture that is to be redeemed in part
only, the Company shall execute and the Trustee shall authenticate and the
office or agency where the Debenture is presented shall deliver to the holder
thereof, at the expense of the Company, a new Debenture of authorized
denomination in principal amount equal to the unredeemed portion of the
Debenture so presented.

      Section 3.6. No Sinking Fund.

      The Debentures are not entitled to the benefit of any sinking fund.

                                   ARTICLE IV.
                      EXTENSION OF INTEREST PAYMENT PERIOD

      Section 4.1. Extension of Interest Payment Period. So long as no Event of
Default has occurred and is continuing, the Company shall have the right, at any
time and from time to time during the term of the Debentures, to defer payments
of interest by extending the interest payment period of such Debentures for a
period not exceeding twenty (20) consecutive quarters (the "Extension Period"),
during which Extension Period no interest shall be due and payable; provided
that no Extension Period may extend beyond the Maturity Date or end on a date
other

                                       19
<PAGE>

than an Interest Payment Date. To the extent permitted by applicable law,
interest, the payment of which has been deferred because of the extension of the
interest payment period pursuant to this Section 4.1, shall bear interest
thereon at the Coupon Rate compounded quarterly for each quarter of the
Extension Period ("Compounded Interest"). At the end of the Extension Period,
the Company shall calculate (and deliver such calculation to the Trustee) and
pay all interest accrued and unpaid on the Debentures, including any Additional
Payments and Compounded Interest (together, "Deferred Payments") that shall be
payable to the holders of the Debentures in whose names the Debentures are
registered in the Debenture Register on the first record date after the end of
the Extension Period. Before the termination of any Extension Period, the
Company may further extend such period so long as no Event of Default has
occurred and is continuing, provided that such period together with all such
further extensions thereof shall not exceed twenty (20) consecutive quarters, or
extend beyond the Maturity Date of the Debentures or end on a date other than an
Interest Payment Date. Upon the termination of any Extension Period and upon the
payment of all Deferred Payments then due, the Company may commence a new
Extension Period, subject to the foregoing requirements. No interest shall be
due and payable during an Extension Period, except at the end thereof, but the
Company may prepay at any time all or any portion of the interest accrued during
an Extension Period.

      Section 4.2. Notice of Extension.

      (a) If the Property Trustee is the only registered holder of the
Debentures at the time the Company selects an Extension Period, the Company
shall give written notice to the Administrative Trustees, the Property Trustee
and the Trustee of its selection of such Extension Period at least two Business
Days before the earlier of (i) the next succeeding date on which Distributions
on the Trust Securities issued by the Trust are payable; or (ii) the date the
Trust is required to give notice of the record date, or the date such
Distributions are payable, to the American Stock Exchange, Inc. or other
applicable exchange or self-regulatory organization or to holders of the
Preferred Securities issued by the Trust, but in any event at least one Business
Day before such record date.

      (b) If the Property Trustee is not the only holder of the Debentures at
the time the Company selects an Extension Period, the Company shall give the
holders of the Debentures and the Trustee written notice of its selection of
such Extension Period at least two Business Days before the earlier of (i) the
next succeeding Interest Payment Date; or (ii) the date the Company is required
to give notice of the record or payment date of such interest payment to the
American Stock Exchange, Inc. or other applicable exchange or self-regulatory
organization or to holders of the Debentures.

      (c) The quarter in which any notice is given pursuant to paragraphs (a) or
(b) of this Section 4.2 shall be counted as one of the twenty (20) quarters
permitted in the maximum Extension Period permitted under Section 4.1.

      Section 4.3. Limitation on Transactions. If (a) the Company shall exercise
its right to defer payment of interest as provided in Section 4.1; or (b) there
shall have occurred and be continuing any Event of Default, then (i) neither the
Company nor any of its Subsidiaries shall

                                       20
<PAGE>

declare or pay any dividend on, make any distributions with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
its capital stock (other than (A) dividends or distributions in common stock of
the Company, or any declaration of a non-cash dividend in connection with the
implementation of a shareholder rights plan, or the issuance of stock under any
such plan in the future, or the redemption or repurchase of any such rights
pursuant thereto, (B) purchases of common stock of the Company related to the
rights under any of the Company's benefit plans for its directors, officers or
employees, (C) as a result of a reclassification of its capital stock for
another class of its capital stock, (D) dividends or distributions made by a
Subsidiary to the Company, or (E) dividends or distributions made by a
Subsidiary to a Subsidiary); (ii) neither the Company nor any Subsidiary shall
make any payment of interest, principal or premium, if any, or repay, repurchase
or redeem any debt securities issued by the Company or any Subsidiary which rank
pari passu with or junior to the Debentures or make any guarantee payments with
respect to any guarantee by the Company of any debt securities if such guarantee
ranks pari passu with or junior in interest to the Debentures; provided,
however, that notwithstanding the foregoing the Company may make payments
pursuant to its obligations under the Preferred Securities Guarantee; and (iii)
the Company shall not redeem, purchase or acquire less than all of the
Outstanding Debentures or any of the Preferred Securities.

                                   ARTICLE V.
                       PARTICULAR COVENANTS OF THE COMPANY

      Section 5.1. Payment of Principal and Interest. The Company shall duly and
punctually pay or cause to be paid the principal of and interest on the
Debentures at the time and place and in the manner provided herein. Each such
payment of the principal of and interest on the Debentures shall relate only to
the Debentures, shall not be combined with any other payment of the principal of
or interest on any other obligation of the Company, and shall be clearly and
unmistakably identified as pertaining to the Debentures.

      Section 5.2. Maintenance of Agency. So long as any of the Debentures
remain Outstanding, the Company shall maintain, or shall cause to be maintained,
an office or agency in the Borough of Manhattan, the City of New York, and at
such other location or locations as may be designated as provided in this
Section 5.2, where (a) Debentures may be presented for payment; (b) Debentures
may be presented as hereinabove authorized for registration of transfer and
exchange; and (c) notices and demands to or upon the Company in respect of the
Debentures and this Indenture may be given or served, such designation to
continue with respect to such office or agency until the Company shall, by
written notice signed by its President or an Executive Vice President and
delivered to the Trustee, designate some other office or agency for such
purposes or any of them. If at any time the Company shall fail to maintain any
such required office or agency or shall fail to furnish the Trustee with the
address thereof, such presentations, notices and demands may be made or served
at the Corporate Trust Office of the Trustee, and the Company hereby appoints
the Trustee as its agent to receive all such presentations, notices and demands.
In addition to any such office or agency, the Company may from time to time
designate one or more offices or agencies outside of the Borough of Manhattan,
the City of New York, where the Debentures may be presented for registration or

                                       21
<PAGE>

transfer and for exchange in the manner provided herein, and the Company may
from time to time rescind such designation as the Company may deem desirable or
expedient; provided, however, that no such designation or rescission shall in
any manner relieve the Company of its obligation to maintain any such office or
agency in the Borough of Manhattan, the City of New York, for the purposes above
mentioned. The Company shall give the Trustee prompt written notice of any such
designation or rescission thereof.

      Section 5.3. Paying Agents.

      (a) The Company shall be the initial Paying Agent. If the Company shall
appoint one or more Paying Agents for the Debentures, other than the Trustee,
the Company shall cause each such Paying Agent to execute and deliver to the
Trustee an instrument in which such agent shall agree with the Trustee, subject
to the provisions of this Section 5.3:

            (i) that it shall hold all sums held by it as such agent for the
      payment of the principal of or interest on the Debentures (whether such
      sums have been paid to it by the Company or by any other obligor of such
      Debentures) in trust for the benefit of the Persons entitled thereto;

            (ii) that it shall give the Trustee notice of any failure by the
      Company (or by any other obligor of such Debentures) to make any payment
      of the principal of or interest on the Debentures when the same shall be
      due and payable;

            (iii) that it shall, at any time during the continuance of any
      failure referred to in the preceding paragraph (a)(ii) above, upon the
      written request of the Trustee, forthwith pay to the Trustee all sums so
      held in trust by such Paying Agent; and

            (iv) that it shall perform all other duties of Paying Agent as set
      forth in this Indenture.

      (b) If the Company shall act as its own Paying Agent with respect to the
Debentures, it shall on or before each due date of the principal of or interest
on such Debentures, set aside, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay such principal or interest
so becoming due on Debentures until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and shall promptly notify the Trustee
of such action, or any failure (by it or any other obligor on such Debentures)
to take such action. Whenever the Company shall have one or more Paying Agents
for the Debentures, it shall, prior to each due date of the principal of or
interest on any Debentures, deposit with the Paying Agent a sum sufficient to
pay the principal or interest so becoming due, such sum to be held in trust for
the benefit of the Persons entitled to such principal or interest, and (unless
such Paying Agent is the Trustee) the Company shall promptly notify the Trustee
of this action or failure so to act.

      (c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the
agreement to hold sums in trust as provided in this Section 5.3 is subject to
the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time,
for the purpose of obtaining the satisfaction and discharge of this Indenture or
for any other purpose, pay, or direct any Paying Agent to pay, to

                                       22
<PAGE>

the Trustee all sums held in trust by the Company or such Paying Agent, such
sums to be held by the Trustee upon the same terms and conditions as those upon
which such sums were held by the Company or such Paying Agent; and, upon such
payment by any Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money.

      Section 5.4. Appointment to Fill Vacancy in Office of the Trustee. The
Company, whenever necessary to avoid or fill a vacancy in the office of Trustee,
shall appoint, in the manner provided in Section 9.11, a Trustee, so that there
shall at all times be a Trustee hereunder.

      Section 5.5. Compliance with Consolidation Provisions. The Company shall
not, while any of the Debentures remain Outstanding, consolidate with, or merge
into, or merge into itself, or sell or convey all or substantially all of its
property to any other company unless the provisions of Article XII hereof are
complied with.

      Section 5.6. Limitation on Transactions. If Debentures are issued to the
Trust or a trustee of the Trust in connection with the issuance of Trust
Securities by the Trust and (a) there shall have occurred and be continuing an
Event of Default; (b) the Company shall be in default with respect to its
payment of any obligations under the Preferred Securities Guarantee relating to
the Trust; or (c) if the Company shall have given notice of its election to
defer payments of interest on such Debentures by extending the interest payment
period as provided in this Indenture and such Extension Period, or any extension
thereof, shall be continuing, then (i) neither the Company nor any of its
Subsidiaries shall declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock (other than (A) dividends or distributions
in common stock of the Company, or any declaration of a non-cash dividend in
connection with the implementation of a shareholder rights plan, or the issuance
of stock under any such plan in the future, or the redemption or repurchase of
any such rights pursuant thereto, (B) purchases of common stock of the Company
related to the rights under any of the Company's benefit plans for its
directors, officers or employees, (C) as a result of a reclassification of its
capital stock, or (D) dividends or distributions made by a Subsidiary to the
Company, or (E) dividends or distributions made by a Subsidiary to a
Subsidiary); (ii) neither the Company nor any Subsidiary shall make any payment
of principal, interest or premium, if any, or repay, repurchase or redeem any
debt securities issued by the Company or any Subsidiary which rank pari passu
with or junior in interest to the Debentures or make any guarantee payments with
respect to any guarantee by the Company of any debt securities if such guarantee
ranks pari passu with or junior in interest to the Debentures; provided,
however, that the Company may make payments pursuant to its obligations under
the Preferred Securities Guarantee; and (iii) the Company shall not redeem,
purchase or acquire less than all of the Outstanding Debentures or any of the
Preferred Securities.

      Section 5.7. Covenants as to the Trust. For so long as the Trust
Securities of the Trust remain outstanding, the Company (a) shall maintain 100%
direct or indirect ownership of the Common Securities of the Trust; provided,
however, that any permitted successor of the Company under this Indenture may
succeed to the Company's ownership of the Common Securities; (b) shall not
voluntarily terminate, wind up or liquidate the Trust, except upon prior

                                       23
<PAGE>

approval of the Federal Reserve if then so required under applicable capital
guidelines, policies or regulations of the Federal Reserve; (c) shall use its
reasonable efforts to cause the Trust (i) to remain a business trust (and to
avoid involuntary termination, winding up or liquidation), except in connection
with a distribution of Debentures, the redemption of all of the Trust Securities
of the Trust or certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement; and (ii) to otherwise continue not to be
treated as an association taxable as a corporation or partnership for United
States federal income tax purposes; (d) shall use its reasonable efforts to
cause each holder of Trust Securities to be treated as owning an individual
beneficial interest in the Debentures; and (e) including any successor to the
Company, shall use reasonable efforts to maintain the eligibility of the
Preferred Securities for listing, quotation or inclusion on or in any national
securities exchange or other self-regulatory organization on or in which the
Preferred Securities are then listed, quoted or included (including, if
applicable, the American Stock Exchange, Inc.) and shall use reasonable efforts
to keep the Preferred Securities so listed, quoted or included for so long as
the Preferred Securities remain outstanding. In connection with the distribution
of the Debentures to the holders of the Preferred Securities issued by the Trust
upon a Dissolution Event, the Company shall use its best efforts to list such
Debentures on the American Stock Exchange, Inc. or such other exchange or to
include such Debentures in such self-regulatory organization as the Preferred
Securities are then listed, quoted or included.

      Section 5.8. Covenants as to Purchases. Except upon the exercise by the
Company of its right to redeem the Debentures pursuant to Section 3.2 upon the
occurrence and continuation of a Special Event, the Company shall not purchase
any Debentures, in whole or in part, from the Trust prior to June 30, 2006.

      Section 5.9. Waiver of Usury, Stay or Extension Laws. The Company shall
not at any time insist upon, or plead, or in any manner whatsoever claim or take
the benefit or advantage of, any usury, stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performances of this Indenture, and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the extension of
every such power as though no such law had been enacted.

      Section 5.10. Limitation on Additional Junior Indebtedness. The Company
shall not, and it shall not cause or permit any Subsidiary of the Company to,
incur, issue or be obligated on any Additional Junior Indebtedness, either
directly or indirectly, by way of guarantee, suretyship or otherwise, other
than:

      (a) Additional Junior Indebtedness that, by its terms, is expressly stated
to be junior and subordinate in all respects to the Debentures; or

      (b) Additional Junior Indebtedness that, by its terms, is expressly stated
to be pari passu and rank equally in all respects with the Debentures; provided,
however, that neither the Company nor any of its Subsidiaries shall incur, issue
or otherwise become obligated on any

                                       24
<PAGE>

Additional Junior Indebtedness pursuant to this Section 5.10(b) unless the
quotient of "X" divided by "Y" is less than 0.60, where "X" and "Y" are
calculated as described in Section 5.10(c) and 5.10(d), respectively.

      (c) As used in Section 5.10(b), "X" means the sum of the following:

            (i) the aggregate liquidation amount or principal amount, as the
      case may be, of the Debentures Outstanding at the time of the proposed
      issuance of such Additional Junior Indebtedness pursuant to Section
      5.10(b), plus

            (ii) the aggregate liquidation amount or principal amount, as the
      case may be, of any Additional Junior Indebtedness previously issued and
      outstanding at the time of the proposed issuance of such Additional Junior
      Indebtedness pursuant to Section 5.10(b), excluding any such Additional
      Junior Indebtedness that, by its terms, is expressly stated to be junior
      and subordinate in all respects to the Debentures, plus

            (iii) the aggregate liquidation amount or principal amount, as the
      case may be, of the Additional Junior Indebtedness proposed to be issued
      or otherwise incurred pursuant to Section 5.10(b), plus

            (iv) the principal amount of any Senior Indebtedness of the Company
      outstanding at the time of the proposed issuance of such Additional Junior
      Indebtedness pursuant to Section 5.10(b) and that has a maturity or is
      otherwise due and payable by the Company on a date twelve (12) months or
      more after the time of the proposed issuance of such Additional Junior
      Indebtedness pursuant to Section 5.10(b).

      (d) As used in Section 5.10(b), "Y" means the sum of the following:

            (i) the sum of (y) the "common stockholders' equity" of the Company,
      plus (z) the "perpetual preferred stock" of the Company, each calculated
      on a consolidated basis and in accordance with Appendix A to Part 225
      (Capital adequacy guidelines for bank-holding companies; risk-based
      measure) of Federal Reserve Regulation Y (12 CFR 225, as amended, as in
      effect at the date of execution of this Indenture), without regard to
      limitations therein with respect to the inclusion of perpetual preferred
      stock (whether cumulative or noncumulative) in Tier 1 capital, determined
      as of the last day of the month immediately preceding the month during
      which the proposed issuance of the Additional Junior Indebtedness pursuant
      to Section 5.10(b) is scheduled to occur, (provided, however, that in no
      event shall any portion of the Debentures, the Additional Junior
      Indebtedness or the Senior Indebtedness described in Section 5.10(c) also
      be included in "Y" under this Section 5.10(d)), plus

            (ii) any other preferred stock of the Company that does not
      otherwise qualify as "perpetual preferred stock" and is not included in
      clause (d)(i) above, plus

                                       25
<PAGE>

            (iii) the aggregate liquidation amount or principal amount, as the
      case may be, of any Additional Junior Indebtedness, which by its terms is
      expressly stated to be junior and subordinate in all respects to the
      Debentures and which was previously issued and outstanding at the time of
      the proposed issuance of such Additional Junior Indebtedness pursuant to
      Section 5.10(b).

      (e) Notwithstanding the foregoing, the limitations of this Section 5.10
shall not in any way preclude the Company from merging with or into, or from
acquiring or being acquired by, another Person (including by way of merger,
stock purchase or acquisition of assets) that is not directly or indirectly
controlling, controlled by or under common control with the Company in an arm's
length transaction entered into in good faith, even though the pro forma
consolidated balance sheet of the surviving Person immediately following the
consummation of such merger, or of the acquiror immediately following the
completion of such acquisition transaction, may include Additional Junior
Indebtedness in amounts in excess of amounts that would otherwise be permitted
by this Section 5.10; provided, however, that thereafter the limitations on
future incurrences of Additional Junior Indebtedness in this Section 5.10 shall
continue to apply to the Company (in the event that it is the surviving
corporation in such merger transaction or the acquiror in such acquisition
transaction) and shall apply to the other Person (in the event that it is the
surviving corporation in such merger transaction or the acquiror in such
acquisition transaction) whether or not such other Person is expressly made a
party hereto.

      Section 5.11. No Intent to Commence Extension Period. The Company has no
present intention to exercise its right under Section 4.1 to defer payments of
interest on the Debentures by selecting an Extension Period. The Company
believes that the likelihood that it would exercise its right under Section 4.1
to defer payments of interest on the Debentures by selecting an Extension Period
at any time during which the Debentures are outstanding is remote because of the
restrictions that would be imposed on the Company pursuant to Sections 4.3 and
5.6 of this Indenture.

                                   ARTICLE VI.
                     THE DEBENTUREHOLDERS' LISTS AND REPORTS
                         BY THE COMPANY AND THE TRUSTEE

      Section 6.1. The Company to Furnish the Trustee Names and Addresses of the
Debentureholders. The Company shall furnish or cause to be furnished to the
Trustee (a) on a quarterly basis on each regular record date (as described in
Section 2.5) a list, in such form as the Trustee may reasonably require, of the
names and addresses of the holders of the Debentures as of such regular record
date, provided that the Company shall not be obligated to furnish or cause to be
furnished such list at any time that the list shall not differ in any respect
from the most recent list furnished to the Trustee by the Company (in the event
the Company fails to provide such list on a quarterly basis, the Trustee shall
be entitled to rely on the most recent list provided by the Company); and (b) at
such other times as the Trustee may request in writing within thirty (30) days
after the receipt by the Company of any such request, a list in similar form and
content as of a date not more than fifteen (15) days prior to the time such list
is furnished; provided,

                                       26
<PAGE>

however, that, in either case, no such list need be furnished if the Trustee
shall be the Debenture Registrar.

      Section 6.2. Preservation of Information Communications with the
Debentureholders.

      (a) The Trustee shall preserve, in as current a form as is reasonably
practicable, all information as to the names and addresses of the holders of
Debentures contained in the most recent list furnished to it as provided in
Section 6.1 and as to the names and addresses of holders of Debentures received
by the Trustee in its capacity as Debenture Registrar for the Debentures (if
acting in such capacity).

      (b) The Trustee may destroy any list furnished to it as provided in
Section 6.1 upon receipt of a new list so furnished.

      (c) Debentureholders may communicate as provided in Section 312(b) of the
Trust Indenture Act with other Debentureholders with respect to their rights
under this Indenture or under the Debentures.

      Section 6.3. Reports by the Company.

      (a) The Company covenants and agrees to file with the Trustee, within
fifteen (15) days after the Company is required to file the same with the
Commission, copies of the annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may from time to time by rules and regulations prescribe) that the
Company may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company is not required to file
information, documents or reports pursuant to either of such sections, then to
file with the Trustee and the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports that may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations.

      (b) The Company covenants and agrees to file with the Trustee and the
Commission, in accordance with the rules and regulations prescribed from time to
time by the Commission, such additional information, documents and reports with
respect to compliance by the Company with the conditions and covenants provided
for in this Indenture as may be required from time to time by such rules and
regulations.

      (c) The Company covenants and agrees to transmit by mail, first class
postage prepaid, or reputable overnight delivery service that provides for
evidence of receipt, to the Debentureholders, as their names and addresses
appear upon the Debenture Register, within thirty (30) days after the filing
thereof with the Trustee, such summaries of any information, documents and
reports required to be filed by the Company pursuant to subsections (a) and (b)
of

                                       27
<PAGE>

this Section 6.3 as may be required by rules and regulations prescribed from
time to time by the Commission.

      Section 6.4. Reports by the Trustee.

      (a) On or before October 15 in each year in which any of the Debentures
are Outstanding, the Trustee shall transmit by mail, first class postage
prepaid, to the Debentureholders, as their names and addresses appear upon the
Debenture Register, a brief report dated as of the preceding September 30, if
and to the extent required under Section 313(a) of the Trust Indenture Act.

      (b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust
Indenture Act.

      (c) A copy of each such report shall, at the time of such transmission to
Debentureholders, be filed by the Trustee with the Company, with the American
Stock Exchange, Inc., or other stock exchange on which any Debentures are listed
and/or any other self-regulatory organization on or in which any Debentures are
quoted or included (if so listed, quoted or included) and also with the
Commission. The Company agrees to notify the Trustee when any Debentures become
listed on the American Stock Exchange, Inc. or on any other stock exchange or
designated for inclusion or quotation in or on any other self-regulatory
organization.

                                  ARTICLE VII.
                  REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS
                               ON EVENT OF DEFAULT

      Section 7.1. Events of Default.

      (a) Whenever used herein with respect to the Debentures, "Event of
Default" means any one or more of the following events that has occurred and is
continuing:

            (i) the Company defaults in the payment of any installment of
      interest upon any of the Debentures, as and when the same shall become due
      and payable, and continuance of such default for a period of thirty (30)
      days; provided, however, that a valid extension of an interest payment
      period by the Company in accordance with the terms of this Indenture shall
      not constitute a default in the payment of interest for this purpose;

            (ii) the Company defaults in the payment of the principal on the
      Debentures as and when the same shall become due and payable whether at
      maturity, upon redemption, by declaration or otherwise;

            (iii) the Company fails to observe or perform any other of its
      covenants or agreements with respect to the Debentures for a period of
      ninety (90) days after the date on which written notice of such failure,
      requiring the same to be remedied and stating that such notice is a
      "Notice of Default" hereunder, shall have been given to the Company by

                                       28
<PAGE>

      the Trustee, by registered or certified mail, or to the Company and the
      Trustee by the holders of at least twenty-five percent (25%) in principal
      amount of the Debentures at the time Outstanding;

            (iv) the Company pursuant to or within the meaning of any Bankruptcy
      Law (A) commences a voluntary case; (B) consents to the entry of an order
      for relief against it in an involuntary case; (C) consents to the
      appointment of a Custodian of it or for all or substantially all of its
      property; or (D) makes a general assignment for the benefit of its
      creditors;

            (v) a court of competent jurisdiction enters an order under any
      Bankruptcy Law that (A) is for relief against the Company in an
      involuntary case; (B) appoints a Custodian of the Company for all or
      substantially all of its property; or (C) orders the liquidation of the
      Company, and the order or decree remains unstayed and in effect for ninety
      (90) days; or

            (vi) the Trust shall have voluntarily or involuntarily dissolved,
      wound-up its business or otherwise terminated its existence except in
      connection with (A) the distribution of Debentures to holders of Trust
      Securities in liquidation of their interests in the Trust; (B) the
      redemption of all of the outstanding Trust Securities of the Trust; or (C)
      certain mergers, consolidations or amalgamations, each as permitted by the
      Trust Agreement.

      (b) In each and every such case referred to in items (i) through (vi) of
Section 7.1(a), unless the principal of all the Debentures shall have already
become due and payable, either the Trustee or the holders of not less than
twenty-five percent (25%) in aggregate principal amount of the Debentures then
Outstanding hereunder, by notice in writing to the Company (and to the Trustee
if given by such Debentureholders) may declare the principal of all the
Debentures to be due and payable immediately, and upon any such declaration the
same shall become and shall be immediately due and payable, notwithstanding
anything contained in this Indenture or in the Debentures.

      (c) At any time after the principal of the Debentures shall have been so
declared due and payable, and before any judgment or decree for the payment of
the moneys due shall have been obtained or entered as hereinafter provided, the
holders of at least a majority in aggregate principal amount of the Debentures
then Outstanding hereunder, by written notice to the Company and the Trustee,
may rescind and annul such declaration and its consequences if: (i) the Company
has paid or deposited with the Trustee a sum sufficient to pay all matured
installments of interest upon all the Debentures and the principal of any and
all Debentures that shall have become due otherwise than by acceleration (with
interest upon such principal, and, to the extent that such payment is
enforceable under applicable law, upon overdue installments of interest, at the
rate per annum expressed in the Debentures to the date of such payment or
deposit) and the amount payable to the Trustee under Section 9.7; and (ii) any
and all Events of Default under this Indenture, other than the nonpayment of
principal on Debentures that shall not have become due by their terms, shall
have been remedied or waived as provided in Section 7.6. No such

                                       29
<PAGE>

rescission and annulment shall extend to or shall affect any subsequent default
or impair any right consequent thereon.

      (d) In case the Trustee shall have proceeded to enforce any right with
respect to Debentures under this Indenture and such proceedings shall have been
discontinued or abandoned because of such rescission or annulment or for any
other reason or shall have been determined adversely to the Trustee, then and in
every such case the Company and the Trustee shall be restored respectively to
their former positions and rights hereunder, and all rights, remedies and powers
of the Company and the Trustee shall continue as though no such proceedings had
been taken.

      Section 7.2. Collection of Indebtedness and Suits for Enforcement by the
Trustee.

      (a) The Company covenants that (i) in case it shall default in the payment
of any installment of interest on any of the Debentures, and such default shall
have continued for a period of thirty (30) days (other than by reason of a valid
extension of an interest payment period by the Company in accordance with the
terms of this Indenture); or (ii) in case it shall default in the payment of the
principal of any of the Debentures when the same shall have become due and
payable, whether upon maturity of the Debentures or upon redemption or upon
declaration or otherwise, then, upon demand of the Trustee, the Company shall
pay to the Trustee, for the benefit of the holders of the Debentures, the whole
amount that then shall have been become due and payable on all such Debentures
for principal or interest, or both, as the case may be, with interest upon the
overdue principal; and (to the extent that payment of such interest is
enforceable under applicable law and, if the Debentures are held by the Trust or
a trustee of the Trust, without duplication of any other amounts paid by the
Trust or trustee in respect thereof) upon overdue installments of interest at
the rate per annum expressed in the Debentures; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, and the amount payable to the Trustee under Section 9.7.

      (b) If the Company shall fail to pay such amounts set forth in Section
7.2(a) forthwith upon such demand, the Trustee, in its own name and as trustee
of an express trust, shall be entitled and empowered to institute any action or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and may prosecute any such action or proceeding to judgment or final
decree, and may enforce any such judgment or final decree against the Company or
other obligor upon the Debentures and collect the moneys adjudged or decreed to
be payable in the manner provided by law out of the property of the Company or
other obligor upon the Debentures, wherever situated.

      (c) In case of any receivership, insolvency, liquidation, bankruptcy,
reorganization, readjustment, arrangement, composition or judicial proceedings
affecting the Company, the Trust, or the creditors or property of either, the
Trustee shall have power to intervene in such proceedings and take any action
therein that may be permitted by the court and shall (except as may be otherwise
provided by law) be entitled to file such proofs of claim and other papers and
documents as may be necessary or advisable in order to have the claims of the
Trustee and of the holders of the Debentures allowed for the entire amount due
and payable by the Company under

                                       30
<PAGE>

this Indenture at the date of institution of such proceedings and for any
additional amount that may become due and payable by the Company after such
date, and to collect and receive any moneys or other property payable or
deliverable on any such claim, and to distribute the same after the deduction of
the amount payable to the Trustee under Section 9.7; and any receiver, assignee
or trustee in bankruptcy or reorganization is hereby authorized by each of the
holders of the Debentures to make such payments to the Trustee, and, in the
event that the Trustee shall consent to the making of such payments directly to
such Debentureholders, to pay to the Trustee any amount due it under Section
9.7.

      (d) All rights of action and of asserting claims under this Indenture, or
under any of the terms established with respect to the Debentures, may be
enforced by the Trustee without the possession of any of such Debentures, or the
production thereof at any trial or other proceeding relative thereto, and any
such suit or proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall, after
provision for payment to the Trustee of any amounts due under Section 9.7, be
for the ratable benefit of the holders of the Debentures. In case of an Event of
Default hereunder which is continuing, the Trustee may in its discretion proceed
to protect and enforce the rights vested in it by this Indenture by such
appropriate judicial proceedings as the Trustee shall deem most effectual to
protect and enforce any of such rights, either at law or in equity or in
bankruptcy or otherwise, whether for the specific enforcement of any covenant or
agreement contained in this Indenture or in aid of the exercise of any power
granted in this Indenture, or to enforce any other legal or equitable right
vested in the Trustee by this Indenture or by law. Nothing contained herein
shall be deemed to authorize the Trustee to authorize or consent to or accept or
adopt on behalf of any Debentureholder any plan of reorganization, arrangement,
adjustment or composition affecting the Debentures or the rights of any holder
thereof or to authorize the Trustee to vote in respect of the claim of any
Debentureholder in any such proceeding.

      Section 7.3. Application of Moneys Collected. Any moneys or other assets
collected by the Trustee pursuant to this Article VII with respect to the
Debentures shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such moneys or other assets
on account of principal or interest, upon presentation of the Debentures, and
notation thereon of the payment, if only partially paid, and upon surrender
thereof if fully paid:

            FIRST: To the payment of costs and expenses of collection and of all
      amounts payable to the Trustee under Section 9.7;

            SECOND: To the payment of all Senior Indebtedness if and to the
      extent required by Article XVI; and

            THIRD: To the payment of the amounts then due and unpaid upon the
      Debentures for principal and interest, in respect of which or for the
      benefit of which such money has been collected, ratably, without
      preference or priority of any kind, according to the amounts due and
      payable on such Debentures for principal and interest, respectively.

      Section 7.4. Limitation on Suits.

                                       31
<PAGE>

      (a) Except as set forth in this Indenture, no holder of any Debenture
shall have any right by virtue or by availing of any provision of this Indenture
to institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Indenture or for the appointment of a receiver or trustee,
or for any other remedy hereunder, unless (i) such holder previously shall have
given to the Trustee written notice of an Event of Default and of the
continuance thereof with respect to the Debentures specifying such Event of
Default, as hereinbefore provided; (ii) the holders of not less than twenty-five
(25%) in aggregate principal amount of the Debentures then Outstanding shall
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as trustee hereunder; (iii) such holder or holders
shall have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby;
and (iv) the Trustee for sixty (60) days after its receipt of such notice,
request and offer of indemnity shall have failed to institute any such action,
suit or proceeding and during such sixty (60) day period, the holders of at
least a majority in principal amount of the Debentures do not give the Trustee a
direction inconsistent with the request.

      (b) Notwithstanding anything contained herein to the contrary or any other
provisions of this Indenture, the right of any holder of the Debentures to
receive payment of the principal of and interest on the Debentures, as therein
provided, on or after the respective due dates expressed in such Debenture (or
in the case of redemption, on the redemption date), or to institute suit for the
enforcement of any such payment on or after such respective dates or redemption
date, shall not be impaired or affected without the consent of such holder and
by accepting a Debenture hereunder it is expressly understood, intended and
covenanted by the taker and holder of every Debenture with every other such
taker and holder and the Trustee that no one or more holders of the Debentures
shall have any right in any manner whatsoever by virtue or by availing of any
provision of this Indenture to affect, disturb or prejudice the rights of the
holders of any other of such Debentures, or to obtain or seek to obtain priority
over or preference to any other such holder, or to enforce any right under this
Indenture, except in the manner herein provided and for the equal, ratable and
common benefit of all holders of the Debentures. For the protection and
enforcement of the provisions of this Section 7.4, each and every
Debentureholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity.

      Section 7.5. Rights and Remedies Cumulative; Delay or Omission not Waiver.

      (a) Except as otherwise provided in Section 2.9(b), all powers and
remedies given by this Article VII to the Trustee or to the Debentureholders
shall, to the extent permitted by law, be deemed cumulative and not exclusive of
any other powers and remedies available to the Trustee or the holders of the
Debentures, by judicial proceedings or otherwise, to enforce the performance or
observance of the covenants and agreements contained in this Indenture or
otherwise established with respect to such Debentures.

      (b) No delay or omission of the Trustee or of any holder of any of the
Debentures to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and, subject to the provisions of Section 7.4, every power and

                                       32
<PAGE>

remedy given by this Article VII or by law to the Trustee or the
Debentureholders may be exercised from time to time, and as often as shall be
deemed expedient, by the Trustee or by the Debentureholders.

      Section 7.6. Control by the Debentureholders. The holders of at least a
majority in aggregate principal amount of the Debentures at the time
Outstanding, determined in accordance with Section 10.4, shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee; provided, however, that such direction shall not be in conflict with
any rule of law or with this Indenture. Subject to the provisions of Section
9.1, the Trustee shall have the right to decline to follow any such direction if
the Trustee in good faith shall determine that the action so directed would be
unjustly prejudicial to the holders not taking part in such direction or if the
Trustee, being advised by counsel, determines that the action or proceeding so
directed may not lawfully be taken, or if a Responsible Officer or Officers of
the Trustee, determine that the proceeding so directed would involve the Trustee
in personal liability. The holders of at least a majority in aggregate principal
amount of the Debentures at the time Outstanding affected thereby, or the
holders of at least a majority in liquidation preference of the Trust Securities
of the Trust at the time Outstanding affected thereby, in each case determined
in accordance with Section 10.4, may on behalf of the holders of all of the
Debentures or of all of the Preferred Securities waive any past default in the
performance of any of the covenants contained herein and its consequences or any
past Default or Event of Default, except (i) a default in the payment of the
principal of or interest on any of the Debentures as and when the same shall
become due by the terms of such Debentures otherwise than by acceleration
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration has
been deposited with the Trustee (in accordance with Section 7.1(c)); (ii) a
default in the covenants contained in Section 5.7; or (iii) in respect of a
covenant or provision hereof which cannot be modified or amended without the
consent of the holder of each Outstanding Debenture affected; provided, however,
that if the Debentures are held by the Trust or a trustee of the Trust, such
waiver or modification to such waiver shall not be effective until the holders
of a majority in liquidation preference of Trust Securities of the Trust shall
have consented to such waiver or modification to such waiver; provided further,
that if the Debentures are held by the Trust or a trustee of the Trust, and if
the consent of the holder of each Outstanding Debenture is required, such waiver
shall not be effective until each holder of the Trust Securities of the Trust
shall have consented to such waiver. Upon any such waiver, the default covered
thereby shall be deemed to be cured for all purposes of this Indenture and the
Company, the Trustee and the holders of the Debentures shall be restored to
their former positions and rights hereunder, respectively; but no such waiver
shall extend to any subsequent or other default or impair any right consequent
thereon.

      Section 7.7. Undertaking to Pay Costs. All parties to this Indenture
agree, and each holder of any Debentures by such holder's acceptance thereof
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture, or in
any suit against the Trustee for any action taken or omitted by it as the
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable

                                       33
<PAGE>

attorneys' fees, against any party litigant in such suit, having due regard to
the merits and good faith of the claims or defenses made by such party litigant;
but the provisions of this Section 7.7 shall not apply to any suit instituted by
the Trustee, to any suit instituted by any Debentureholder, or group of the
Debentureholders holding more than ten percent (10%) in aggregate principal
amount of the Outstanding Debentures, or to any suit instituted by any
Debentureholder for the enforcement of the payment of the principal of or
interest on the Debentures, on or after the respective due dates expressed in
such Debenture or established pursuant to this Indenture.

      Section 7.8. Direct Action; Right of Set-Off. In the event that an Event
of Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest on or principal of the Debentures on an
Interest Payment Date or Maturity Date, as applicable, then a holder of
Preferred Securities may institute and prosecute a legal proceeding directly
against the Company for enforcement of payment to such holder of the principal
of or interest on such Debentures having a principal amount equal to the
aggregate Liquidation Amount of the Preferred Securities of such holders (a
"Direct Action"). In connection with such Direct Action, the Company will have a
right of set-off under this Indenture to the extent of any payment actually made
by the Company to such holder of the Preferred Securities with respect to such
Direct Action.

                                  ARTICLE VIII.
                    FORM OF THE DEBENTURE AND ORIGINAL ISSUE

      Section 8.1. Form of Debenture. The Debenture and the Trustee's
Certificate of Authentication to be endorsed thereon are to be substantially in
the forms contained as Exhibit A to this Indenture, attached hereto and
incorporated herein by reference.

      Section 8.2. Original Issue of the Debentures. Debentures in the aggregate
principal amount of $18,556,710 may, upon execution of this Indenture, be
executed by the Company and delivered to the Trustee for authentication. If the
Underwriters exercise their Option and there is an Option Closing Date (as such
terms are defined in the Underwriting Agreement, dated ______ , 2001, by and
among the Company, the Trust, Stifel, Nicolaus & Company, Incorporated, J.J.B.
Hilliard, W.L. Lyons, Inc., as Representatives of the several Underwriters named
therein, then, on such Option Closing Date, Debentures in the additional
aggregate amount of up to $2,061,860 may be executed by the Company and
delivered to the Trustee for authentication. The Trustee shall thereupon
authenticate and deliver said Debentures to or upon the written order of the
Company, signed by its Chief Executive Officer, its President, or any Executive
Vice President and its Treasurer or an Assistant Treasurer, without any further
action by the Company.

                                   ARTICLE IX.
                             CONCERNING THE TRUSTEE

      Section 9.1. Certain Duties and Responsibilities of the Trustee.

                                       34
<PAGE>

      (a) The Trustee, prior to the occurrence of an Event of Default and after
the curing of all Events of Default that may have occurred, shall undertake to
perform with respect to the Debentures such duties and only such duties as are
specifically set forth in this Indenture, and no implied covenants shall be read
into this Indenture against the Trustee. In case an Event of Default has
occurred that has not been cured or waived, the Trustee shall exercise such of
the rights and powers vested in it by this Indenture, and use the same degree of
care and skill in its exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.

      (b) No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act, or its own willful misconduct, except that:

            (i) prior to the occurrence of an Event of Default and after the
      curing or waiving of all such Events of Default that may have occurred:

                  (A) the duties and obligations of the Trustee shall with
            respect to the Debentures be determined solely by the express
            provisions of this Indenture, and the Trustee shall not be liable
            with respect to the Debentures except for the performance of such
            duties and obligations as are specifically set forth in this
            Indenture, and no implied covenants or obligations shall be read
            into this Indenture against the Trustee; and

                  (B) in the absence of bad faith on the part of the Trustee,
            the Trustee may with respect to the Debentures conclusively rely, as
            to the truth of the statements and the correctness of the opinions
            expressed therein, upon any certificates or opinions furnished to
            the Trustee and conforming to the requirements of this Indenture;
            but in the case of any such certificates or opinions that by any
            provision hereof are specifically required to be furnished to the
            Trustee, the Trustee shall be under a duty to examine the same to
            determine whether or not they conform to the requirements of this
            Indenture;

            (ii) the Trustee shall not be liable for any error of judgment made
      in good faith by a Responsible Officer or Responsible Officers of the
      Trustee, unless it shall be proved that the Trustee was negligent in
      ascertaining the pertinent facts;

            (iii) the Trustee shall not be liable with respect to any action
      taken or omitted to be taken by it in good faith in accordance with the
      direction of the holders of not less than a majority in principal amount
      of the Debentures at the time Outstanding relating to the time, method and
      place of conducting any proceeding for any remedy available to the
      Trustee, or exercising any trust or power conferred upon the Trustee under
      this Indenture with respect to the Debentures; and

            (iv) none of the provisions contained in this Indenture shall
      require the Trustee to expend or risk its own funds or otherwise incur
      personal financial liability in the performance of any of its duties or in
      the exercise of any of its rights or powers, if there is

                                       35
<PAGE>

      reasonable ground for believing that the repayment of such funds or
      liability is not reasonably assured to it under the terms of this
      Indenture or adequate indemnity against such risk is not reasonably
      assured to it.

      Section 9.2. Notice of Defaults. Within ninety (90) days after actual
knowledge by a Responsible Officer of the Trustee of the occurrence of any
Default hereunder with respect to the Debentures, the Trustee shall transmit by
mail to all holders of the Debentures, as their names and addresses appear in
the Debenture Register, notice of such Default, unless such Default shall have
been cured or waived; provided, however, that, except in the case of a default
in the payment of the principal or interest (including any Additional Payments)
on any Debenture, the Trustee shall be protected in withholding such notice if
and so long as the board of directors, the executive committee or a trust
committee of the directors and/or Responsible Officers of the Trustee determines
in good faith that the withholding of such notice is in the interests of the
holders of such Debentures; and provided, further, that in the case of any
Default of the character specified in section 7.1(a)(iii), no such notice to
holders of Debentures need be sent until at least thirty (30) days after the
occurrence thereof.

      Section 9.3. Certain Rights of the Trustee. Except as otherwise provided
in Section 9.1:

      (a) The Trustee may rely and shall be protected in acting or refraining
from acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval, bond, security or other paper
or document believed by it to be genuine and to have been signed or presented by
the proper party or parties;

      (b) Any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Board Resolution or an instrument
signed in the name of the Company by its President or any Executive Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer thereof (unless other evidence in respect thereof is
specifically prescribed herein);

      (c) The Trustee shall not be deemed to have knowledge of a Default or an
Event of Default, other than an Event of Default specified in Section 7.1(a)(i)
or (ii), unless and until it receives written notification of such Event of
Default from the Company or by holders of at least twenty-five percent (25%) of
the aggregate principal amount of the Debentures at the time Outstanding;

      (d) The Trustee may consult with counsel and the written advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted hereunder in
good faith and in reliance thereon;

      (e) The Trustee shall be under no obligation to exercise any of the rights
or powers vested in it by this Indenture at the request, order or direction of
any of the Debentureholders, pursuant to the provisions of this Indenture,
unless such Debentureholders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities that may be
incurred therein or thereby; nothing contained herein shall, however, relieve
the Trustee of the

                                       36
<PAGE>

obligation, upon the occurrence of an Event of Default (that is continuing and
has not been cured or waived) to exercise with respect to the Debentures such of
the rights and powers vested in it by this Indenture, and to use the same degree
of care and skill in its exercise, as a prudent man would exercise or use under
the circumstances in the conduct of his own affairs;

      (f) The Trustee shall not be liable for any action taken or omitted to be
taken by it in good faith and believed by it to be authorized or within the
discretion or rights or powers conferred upon it by this Indenture;

      (g) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, bond, security, or
other papers or documents, unless requested in writing so to do by the holders
of not less than a majority in principal amount of the Outstanding Debentures
(determined as provided in Section 10.4); provided, however, that if the payment
within a reasonable time to the Trustee of the costs, expenses or liabilities
likely to be incurred by it in the making of such investigation is, in the
opinion of the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such costs, expenses or liabilities as a condition
to so proceeding, and the reasonable expense of every such examination shall be
paid by the Company or, if paid by the Trustee, shall be repaid by the Company
upon demand; and

      (h) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.

      Section 9.4. The Trustee not Responsible for Recitals, Etc.

      (a) The Recitals contained herein and in the Debentures shall be taken as
the statements of the Company, and the Trustee assumes no responsibility for the
correctness of the same.

      (b) The Trustee makes no representations as to the validity or sufficiency
of this Indenture or of the Debentures.

      (c) The Trustee shall not be accountable for the use or application by the
Company of any of the Debentures or of the proceeds of such Debentures, or for
the use or application of any moneys paid over by the Trustee in accordance with
any provision of this Indenture, or for the use or application of any moneys
received by any Paying Agent other than the Trustee.

      Section 9.5. May Hold the Debentures. The Trustee or any Paying Agent or
Debenture Registrar for the Debentures, in its individual or any other capacity,
may become the owner or pledgee of the Debentures with the same rights it would
have if it were not Trustee, Paying Agent or Debenture Registrar.

                                       37
<PAGE>

      Section 9.6. Moneys Held in Trust. Subject to the provisions of Section
13.5, all moneys received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required by law.
The Trustee shall be under no liability for interest on any moneys received by
it hereunder except such as it may agree with the Company to pay thereon.

      Section 9.7. Compensation and Reimbursement.

      (a) The Company covenants and agrees to pay to the Trustee, and the
Trustee shall be entitled to, such reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust), as the Company and the Trustee may from time to time agree in
writing, for all services rendered by it in the execution of the trusts hereby
created and in the exercise and performance of any of the powers and duties
hereunder of the Trustee, and, except as otherwise expressly provided herein,
the Company shall pay or reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the Trustee
in accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all persons not regularly in its employ) except any such expense, disbursement
or advance as may arise from its negligence or bad faith. The Company also
covenants to indemnify the Trustee (and its officers, agents, directors and
employees) for, and to hold it harmless against, any loss, liability or expense
incurred without negligence or bad faith on the part of the Trustee and arising
out of or in connection with the acceptance or administration of this Indenture,
including the costs and expenses of defending itself against any claim of
liability in the premises.

      (b) The obligations of the Company under this Section 9.7 to compensate
and indemnify the Trustee and to pay or reimburse the Trustee for expenses,
disbursements and advances shall constitute additional indebtedness hereunder.
Such additional indebtedness shall be secured by a lien prior to that of the
Debentures upon all property and funds held or collected by the Trustee as such,
except funds held in trust for the benefit of the holders of particular
Debentures.

      Section 9.8. Reliance on Officers' Certificate. Except as otherwise
provided in Section 9.1, whenever in the administration of the provisions of
this Indenture the Trustee shall deem it necessary or desirable that a matter
be proved or established prior to taking or suffering or omitting to take any
action hereunder, such matter (unless other evidence in respect thereof is
herein specifically prescribed) may, in the absence of negligence or bad
faith on the part of the Trustee, be deemed to be conclusively proved and
established by an Officers' Certificate delivered to the Trustee and such
certificate, in the absence of negligence or bad faith on the part of the
Trustee, shall be full warrant to the Trustee for any action taken, suffered
or omitted to be taken by it under the provisions of this Indenture upon the
faith thereof.

      Section 9.9. Disqualification; Conflicting Interests. If the Trustee has
or shall acquire any "conflicting interest" within the meaning of Section 310(b)
of the Trust Indenture Act, the Trustee and the Company shall in all respects
comply with the provisions of Section 310(b) of the Trust Indenture Act.

                                       38
<PAGE>

      Section 9.10. Corporate Trustee Required; Eligibility. There shall at all
times be a Trustee with respect to the Debentures issued hereunder which shall
at all times be a corporation organized and doing business under the laws of the
United States or any state or territory thereof or of the District of Columbia,
or a corporation or other Person permitted to act as trustee by the Commission,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $50,000,000, and subject to supervision or
examination by federal, state, territorial, or District of Columbia authority.
If such Person publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section 9.10, the combined capital and surplus of such
Person shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. The Company may not, nor may
any Person directly or indirectly controlling, controlled by, or under common
control with the Company, serve as Trustee. In case at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section
9.10, the Trustee shall resign immediately in the manner and with the effect
specified in Section 9.11.

      Section 9.11. Resignation and Removal; Appointment of Successor.

      (a) The Trustee or any successor hereafter appointed, may at any time
resign by giving written notice thereof to the Company and by transmitting
notice of resignation by mail, first class postage prepaid, to the
Debentureholders, as their names and addresses appear upon the Debenture
Register. Upon receiving such notice of resignation, the Company shall promptly
appoint a successor trustee with respect to Debentures by written instrument, in
duplicate, executed by order of the Board of Directors, one copy of which
instrument shall be delivered to the resigning Trustee and one copy to the
successor trustee. If no successor trustee shall have been so appointed and have
accepted appointment within thirty (30) days after the mailing of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee with respect to
Debentures, or any Debentureholder who has been a bona fide holder of a
Debenture or Debentures for at least six (6) months may, subject to the
provisions of Sections 9.9 and 9.10, on behalf of himself or herself and all
others similarly situated, petition any such court for the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, appoint a successor trustee.

      (b) In case at any time any one of the following shall occur:

            (i) the Trustee shall fail to comply with the provisions of Section
      9.9 after written request therefor by the Company or by any
      Debentureholder who has been a bona fide holder of a Debenture or
      Debentures for at least six months; or

            (ii) the Trustee shall cease to be eligible in accordance with the
      provisions of Section 9.10 and shall fail to resign after written request
      therefor by the Company or by any such Debentureholder; or

            (iii) the Trustee shall become incapable of acting, or shall be
      adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy
      proceeding, or a receiver of

                                       39
<PAGE>

      the Trustee or of its property shall be appointed or consented to, or any
      public officer shall take charge or control of the Trustee or of its
      property or affairs for the purpose of rehabilitation, conservation or
      liquidation;

then, in any such case, the Company may remove the Trustee with respect to all
Debentures and appoint a successor trustee by written instrument, in duplicate,
executed by order of the Board of Directors, one copy of which instrument shall
be delivered to the Trustee so removed and one copy to the successor trustee,
or, subject to the provisions of Section 9.10, unless the Trustee's duty to
resign is stayed as provided herein, any Debentureholder who has been a bona
fide holder of a Debenture or Debentures for at least six months may, on behalf
of that holder and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee and the appointment of a
successor trustee. Such court may thereupon after such notice, if any, as it may
deem proper and prescribe, remove the Trustee and appoint a successor trustee.

      (c) The holders of at least a majority in aggregate principal amount of
the Debentures at the time Outstanding may at any time remove the Trustee by so
notifying the Trustee and the Company and may appoint a successor Trustee with
the consent of the Company.

      (d) Any resignation or removal of the Trustee and appointment of a
successor trustee with respect to the Debentures pursuant to any of the
provisions of this Section 9.11 shall become effective upon acceptance of
appointment by the successor trustee as provided in Section 9.12.

      (e) Any successor trustee appointed pursuant to this Section 9.11 may be
appointed with respect to the Debentures, and at any time there shall be only
one Trustee with respect to the Debentures.

      Section 9.12. Acceptance of Appointment by Successor.

      (a) In case of the appointment hereunder of a successor trustee with
respect to the Debentures, every successor trustee so appointed shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of the
Company or the successor trustee, such retiring Trustee shall, upon payment of
its charges, execute and deliver an instrument transferring to such successor
trustee all the rights, powers, and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor trustee all property and
money held by such retiring Trustee hereunder.

      (b) Upon request of any successor trustee, the Company shall execute any
and all instruments for more fully and certainly vesting in and confirming to
such successor trustee all such rights, powers and trusts referred to in
paragraph (a) of this Section 9.12.

      (c) No successor trustee shall accept its appointment unless at the time
of such acceptance such successor trustee shall be qualified and eligible under
this Article IX.

                                       40
<PAGE>

      (d) Upon acceptance of appointment by a successor trustee as provided in
this Section 9.12, the Company shall transmit notice of the succession of such
trustee hereunder by mail, first class postage prepaid, to the Debentureholders,
as their names and addresses appear upon the Debenture Register. If the Company
fails to transmit such notice within ten days after acceptance of appointment by
the successor trustee, the successor trustee shall cause such notice to be
transmitted at the expense of the Company.

      Section 9.13. Merger, Conversion, Consolidation or Succession to Business.
Any Person into which the Trustee may be merged or converted or with which it
may be consolidated, or any Person resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any Person succeeding to
the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder, provided that such Person shall be qualified under the
provisions of Section 9.9 and eligible under the provisions of Section 9.10,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. In
case any Debentures shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Debentures so authenticated with the same effect as if such successor Trustee
had itself authenticated such Debentures.

      Section 9.14. Preferential Collection of Claims against the Company. The
Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding
any creditor relationship described in Section 311(b) of the Trust Indenture
Act. A Trustee who has resigned or been removed shall be subject to Section
311(a) of the Trust Indenture Act to the extent included therein.

                                   ARTICLE X.
                         CONCERNING THE DEBENTUREHOLDERS

      Section 10.1. Evidence of Action by the Holders.

      (a) Whenever in this Indenture it is provided that the holders of at least
a majority or specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or request,
the giving of any notice, consent or waiver or the taking of any other action),
the fact that at the time of taking any such action the holders of such majority
or specified percentage have joined therein may be evidenced by any instrument
or any number of instruments of similar tenor executed by such holders of
Debentures in person or by agent or proxy appointed in writing.

      (b) If the Company shall solicit from the Debentureholders any request,
demand, authorization, direction, notice, consent, waiver or other action, the
Company may, at its option, as evidenced by an Officers' Certificate, fix in
advance a record date for the determination of Debentureholders entitled to give
such request, demand, authorization, direction, notice, consent, waiver or other
action, but the Company shall have no obligation to do so. If such a record date
is fixed, such request, demand, authorization, direction, notice, consent,
waiver or other action may be given before or after the record date, but only
the Debentureholders of record at the close

                                       41
<PAGE>

of business on the record date shall be deemed to be Debentureholders for the
purposes of determining whether Debentureholders of the requisite proportion of
Outstanding Debentures have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other action, and
for that purpose the Outstanding Debentures shall be computed as of the record
date; provided, however, that no such authorization, agreement or consent by
such Debentureholders on the record date shall be deemed effective unless it
shall become effective pursuant to the provisions of this Indenture not later
than six (6) months after the record date.

      Section 10.2. Proof of Execution by the Debentureholders. Subject to the
provisions of Section 9.1, proof of the execution of any instrument by a
Debentureholder (such proof shall not require notarization) or such
Debentureholder's agent or proxy and proof of the holding by any Person of any
of the Debentures shall be sufficient if made in the following manner:

      (a) The fact and date of the execution by any such Person of any
instrument may be proved in any reasonable manner acceptable to the Trustee.

      (b) The ownership of Debentures shall be proved by the Debenture Register
of such Debentures or by a certificate of the Debenture Registrar thereof.

      (c) The Trustee may require such additional proof of any matter referred
to in this Section 10.2 as it shall deem necessary.

      Section 10.3. Who May Be Deemed Owners. Prior to the due presentment for
registration of transfer of any Debenture, the Company, the Trustee, any Paying
Agent, any Authenticating Agent and any Debenture Registrar may deem and treat
the Person in whose name such Debenture shall be registered upon the books of
the Company as the absolute owner of such Debenture (whether or not such
Debenture shall be overdue and notwithstanding any notice of ownership or
writing thereon made by anyone other than the Debenture Registrar) for the
purpose of receiving payment of or on account of the principal of and interest
on such Debenture (subject to Section 2.3) and for all other purposes; and
neither the Company nor the Trustee nor any Paying Agent nor any Authenticating
Agent nor any Debenture Registrar shall be affected by any notice to the
contrary.

      Section 10.4. Certain Debentures Owned by Company Disregarded. In
determining whether the holders of the requisite aggregate principal amount of
the Debentures have concurred in any direction, consent or waiver under this
Indenture, the Debentures that are owned by the Company or any other obligor on
the Debentures or by any Person directly or indirectly controlling or controlled
by or under common control with the Company or any other obligor on the
Debentures shall be disregarded and deemed not to be Outstanding for the purpose
of any such determination, except that (a) for the purpose of determining
whether the Trustee shall be protected in relying on any such direction, consent
or waiver, only Debentures that a Responsible Officer of the Trustee actually
knows are so owned shall be so disregarded; and (b) for purposes of this Section
10.4, the Trust shall be deemed not to be controlled by the Company. The
Debentures so owned that have been pledged in good faith may be regarded as
Outstanding for the purposes of this Section 10.4, if the pledgee shall
establish to the satisfaction of the Trustee

                                       42
<PAGE>

the pledgee's right so to act with respect to such Debentures and that the
pledgee is not a Person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Company or any such other
obligor. In case of a dispute as to such right, any decision by the Trustee
taken upon the advice of counsel shall be full protection to the Trustee.

      Section 10.5. Actions Binding on the Future Debentureholders. At any time
prior to (but not after) the evidencing to the Trustee, as provided in Section
10.1, of the taking of any action by the holders of the majority or percentage
in aggregate principal amount of the Debentures specified in this Indenture in
connection with such action, any holder of a Debenture that is shown by the
evidence to be included in the Debentures the holders of which have consented to
such action may, by filing written notice with the Trustee, and upon proof of
holding as provided in Section 10.2, revoke such action so far as concerns such
Debenture. Except as aforesaid, any such action taken by the holder of any
Debenture shall be conclusive and binding upon such holder and upon all future
holders and owners of such Debenture, and of any Debenture issued in exchange
therefor, on registration of transfer thereof or in place thereof, irrespective
of whether or not any notation in regard thereto is made upon such Debenture.
Any action taken by the holders of the majority or percentage in aggregate
principal amount of the Debentures specified in this Indenture in connection
with such action shall be conclusively binding upon the Company, the Trustee and
the holders of all the Debentures.

                                   ARTICLE XI.
                             SUPPLEMENTAL INDENTURES

      Section 11.1. Supplemental Indentures without the Consent of the
Debentureholders. In addition to any supplemental indenture otherwise authorized
by this Indenture, the Company and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act as then in effect), without
the consent of the Debentureholders, for one or more of the following purposes:

      (a) to cure any ambiguity, defect, or inconsistency herein, or in the
Debentures;

      (b) to comply with Article X;

      (c) to provide for uncertificated Debentures in addition to or in place of
certificated Debentures;

      (d) to add to the covenants of the Company for the benefit of the holders
of all or any of the Debentures or to surrender any right or power herein
conferred upon the Company;

      (e) to add to, delete from, or revise the conditions, limitations and
restrictions on the authorized amount, terms or purposes of issue,
authentication and delivery of Debentures, as herein set forth;

      (f) to make any change that does not adversely affect the rights of any
Debentureholder in any material respect;

                                       43
<PAGE>

      (g) to provide for the issuance of and establish the form and terms and
conditions of the Debentures, to establish the form of any certifications
required to be furnished pursuant to the terms of this Indenture or of the
Debentures, or to add to the rights of the holders of the Debentures;

      (h) to qualify or maintain the qualification of this Indenture under the
Trust Indenture Act; or

      (i) to evidence a consolidation or merger involving the Company as
permitted under Section 12.1.

      The Trustee is hereby authorized to join with the Company in the execution
of any such supplemental indenture, and to make any further appropriate
agreements and stipulations that may be therein contained, but the Trustee shall
not be obligated to enter into any such supplemental indenture that affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this Section 11.1 may
be executed by the Company and the Trustee without the consent of the holders of
any of the Debentures at the time Outstanding, notwithstanding any of the
provisions of Section 11.2.

      Section 11.2. Supplemental Indentures with Consent of the
Debentureholders. With the consent (evidenced as provided in Section 10.1) of
the holders of not less than a majority in aggregate principal amount of the
Debentures at the time Outstanding, the Company, when authorized by Board
Resolutions, and the Trustee may from time to time and at any time enter into an
indenture or indentures supplemental hereto (which shall conform to the
provisions of the Trust Indenture Act as then in effect) for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of any supplemental indenture or of modifying in
any manner not covered by Section 11.1 the rights of the holders of the
Debentures under this Indenture; provided, however, that no such supplemental
indenture shall without the consent of the holders of each Debenture then
Outstanding and affected thereby, (a) extend the fixed maturity of any
Debentures, reduce the principal amount thereof, reduce the rate or extend the
time of payment of interest thereon, or limit the right of a holder of Preferred
Securities to institute and prosecute a Direct Action; or (b) reduce the
aforesaid percentage of Debentures, the holders of which are required to consent
to any such supplemental indenture; provided further, that if the Debentures are
held by the Trust or a trustee of the Trust, such supplemental indenture shall
not be effective until the holders of at least a majority in liquidation
preference of Trust Securities of the Trust shall have consented to such
supplemental indenture; provided further, that if the Debentures are held by the
Trust or a trustee of the Trust and if the consent of the holder of each
Outstanding Debenture is required, such supplemental indenture shall not be
effective until each holder of the Trust Securities of the Trust shall have
consented to such supplemental indenture. It shall not be necessary for the
consent of the Debentureholders affected thereby under this Section 11.2 to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such consent shall approve the substance thereof.

                                       44
<PAGE>

      Section 11.3. Effect of Supplemental Indentures. Upon the execution of any
supplemental indenture pursuant to the provisions of this Article XI, this
Indenture shall be and be deemed to be modified and amended in accordance
therewith and the respective rights, limitations of rights, obligations, duties
and immunities under this Indenture of the Trustee, the Company and the holders
of Debentures shall thereafter be determined, exercised and enforced hereunder
subject in all respects to such modifications and amendments, and all the terms
and conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.

      Section 11.4. The Debentures Affected by Supplemental Indentures. The
Debentures affected by a supplemental indenture, authenticated and delivered
after the execution of such supplemental indenture pursuant to the provisions of
this Article XI, may bear a notation in form approved by the Company, provided
such form meets the requirements of any exchange upon which the Debentures may
be listed, as to any matter provided for in such supplemental indenture. If the
Company shall so determine, new Debentures so modified as to conform, in the
opinion of the Board of Directors of the Company, to any modification of this
Indenture contained in any such supplemental indenture may be prepared by the
Company, authenticated by the Trustee and delivered in exchange for the
Debentures then Outstanding.

      Section 11.5. Execution of Supplemental Indentures.

      (a) Upon the request of the Company, accompanied by its Board Resolutions
authorizing the execution of any such supplemental indenture, and upon the
filing with the Trustee of evidence of the consent of the Debentureholders
required to consent thereto as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such supplemental
indenture affects the Trustee's own rights, duties or immunities under this
Indenture or otherwise, in which case the Trustee may in its discretion, but
shall not be obligated, to enter into such supplemental indenture. The Trustee,
subject to the provisions of Sections 9.1, may receive an Opinion of Counsel as
conclusive evidence that any supplemental indenture executed pursuant to this
Article XI is authorized or permitted by, and conforms to, the terms of this
Article XI and that it is proper for the Trustee under the provisions of this
Article XI to join in the execution thereof.

      (b) Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section 11.5, the
Trustee shall transmit by mail, first class postage prepaid, a notice, setting
forth in general terms the substance of such supplemental indenture, to the
Debentureholders as their names and addresses appear upon the Debenture
Register. Any failure of the Trustee to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture.

                                  ARTICLE XII.
                              SUCCESSOR CORPORATION

      Section 12.1. The Company May Consolidate, Etc. Nothing contained in this
Indenture or in any of the Debentures shall prevent any consolidation or merger
of the Company with or into any other corporation or corporations (whether or
not affiliated with the Company,

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<PAGE>

as the case may be), or successive consolidations or mergers in which the
Company, as the case may be, or its successor or successors shall be a party or
parties, or shall prevent any sale, conveyance, transfer or other disposition of
the property of the Company, as the case may be, or its successor or successors
as an entirety, or substantially as an entirety, to any other corporation
(whether or not affiliated with the Company, as the case may be, or its
successor or successors) authorized to acquire and operate the same; provided,
however, that the Company hereby covenants and agrees that (a) upon any such
consolidation, merger, sale, conveyance, transfer or other disposition, the due
and punctual payment, in the case of the Company, of the principal of and
interest on all of the Debentures, according to their tenor and the due and
punctual performance and observance of all the covenants and conditions of this
Indenture to be kept or performed by the Company, as the case may be, shall be
expressly assumed, by supplemental indenture (which shall conform to the
provisions of the Trust Indenture Act, as then in effect) satisfactory in form
to the Trustee executed and delivered to the Trustee by the entity formed by
such consolidation, or into which the Company, as the case may be, shall have
been merged, or by the entity which shall have acquired such property; (b) in
case the Company consolidates with or merges into another Person or conveys or
transfers its properties and assets substantially as an entirety to any Person,
the successor Person is organized under the laws of the United States or any
state or the District of Columbia; and (c) immediately after giving effect
thereto, an Event of Default, and no event which, after notice or lapse of time
or both, would become an Event of Default, shall have occurred and be
continuing.

      Section 12.2. Successor Corporation Substituted.

      (a) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition and upon the assumption by the successor corporation, by
supplemental indenture, executed and delivered to the Trustee and satisfactory
in form to the Trustee, of, in the case of the Company, the due and punctual
payment of the principal of and interest on all of the Debentures Outstanding
and the due and punctual performance of all of the covenants and conditions of
this Indenture to be performed by the Company, as the case may be, such
successor corporation shall succeed to and be substituted for the Company, with
the same effect as if it had been named as the Company herein, and thereupon the
predecessor corporation shall be relieved of all obligations and covenants under
this Indenture and the Debentures.

      (b) In case of any such consolidation, merger, sale, conveyance, transfer
or other disposition, such changes in phraseology and form (but not in
substance) may be made in the Debentures thereafter to be issued as may be
appropriate.

      (c) Nothing contained in this Indenture or in any of the Debentures shall
prevent the Company from merging into itself or acquiring by purchase or
otherwise, all or any part of, the property of any other Person (whether or not
affiliated with the Company).

      Section 12.3. Evidence of Consolidation, Etc. to Trustee. The Trustee,
subject to the provisions of Section 9.1, may receive an Opinion of Counsel as
conclusive evidence that any such consolidation, merger, sale, conveyance,
transfer or other disposition, and any such assumption, comply with the
provisions of this Article XII.

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<PAGE>

                                  ARTICLE XIII.
                           SATISFACTION AND DISCHARGE

      Section 13.1. Satisfaction and Discharge of Indenture. If at any time: (a)
the Company shall have delivered to the Trustee for cancellation all Debentures
theretofore authenticated (other than any Debentures that shall have been
destroyed, lost or stolen and that shall have been replaced or paid as provided
in Section 2.9) and all Debentures for whose payment money or Governmental
Obligations have theretofore been deposited in trust or segregated and held in
trust by the Company (and thereupon repaid to the Company or discharged from
such trust, as provided in Section 13.5); or (b) all such Debentures not
theretofore delivered to the Trustee for cancellation shall have become due and
payable, or are by their terms to become due and payable within one year or are
to be called for redemption within one year under arrangements satisfactory to
the Trustee for the giving of notice of redemption, and the Company shall
deposit or cause to be deposited with the Trustee as trust funds the entire
amount in moneys or Governmental Obligations sufficient, or a combination
thereof sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay at maturity or upon redemption all Debentures
not theretofore delivered to the Trustee for cancellation, including principal
and interest due or to become due on such date of maturity or date fixed for
redemption, as the case may be, and if the Company shall also pay or cause to be
paid all other sums payable hereunder by the Company; then this Indenture shall
thereupon cease to be of further effect except for the provisions of Sections
2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.7 and 9.10, that shall survive until the date of
maturity or redemption date, as the case may be, and Sections 9.7 and 13.5, that
shall survive to such date and thereafter, and the Trustee, on demand of the
Company and at the cost and expense of the Company, shall execute proper
instruments acknowledging satisfaction of and discharging this Indenture.

      Section 13.2. Discharge of Obligations. If at any time all Debentures not
heretofore delivered to the Trustee for cancellation or that have not become due
and payable as described in Section 13.1 shall have been paid by the Company by
depositing irrevocably with the Trustee as trust funds moneys or an amount of
Governmental Obligations sufficient in the opinion of a nationally recognized
certified public accounting firm to pay at maturity or upon redemption all
Debentures not theretofore delivered to the Trustee for cancellation, including
principal and interest due or to become due to such date of maturity or date
fixed for redemption, as the case may be, and if the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company, then after the
date such moneys or Governmental Obligations, as the case may be, are deposited
with the Trustee, the obligations of the Company under this Indenture shall
cease to be of further effect except for the provisions of Sections 2.3, 2.7,
2.9, 5.1, 5.2, 5.3, 9.7 and 13.5, that shall survive until such Debentures shall
mature and be paid. Thereafter, Sections 9.7 and 13.5 shall survive.

      Section 13.3. Deposited Moneys to Be Held in Trust. All monies or
Governmental Obligations deposited with the Trustee pursuant to Sections 13.1 or
13.2 shall be held in trust and shall be available for payment as due, either
directly or through any Paying Agent (including the Company acting as its own
Paying Agent), to the holders of the Debentures for the payment or

                                       47
<PAGE>

redemption of which such moneys or Governmental Obligations have been deposited
with the Trustee.

      Section 13.4. Payment of Monies Held by Paying Agents. In connection with
the satisfaction and discharge of this Indenture, all moneys or Governmental
Obligations then held by any Paying Agent under the provisions of this Indenture
shall, upon demand of the Company, be paid to the Trustee and thereupon such
Paying Agent shall be released from all further liability with respect to such
moneys or Governmental Obligations.

      Section 13.5. Repayment to the Company. Any monies or Governmental
Obligations deposited with any Paying Agent or the Trustee, or then held by the
Company in trust, for payment of principal of or interest on the Debentures that
are not applied but remain unclaimed by the holders of such Debentures for at
least two years after the date upon which the principal of or interest on such
Debentures shall have respectively become due and payable, shall be repaid to
the Company, as the case may be, on June 30 of each year or (if then held by the
Company) shall be discharged from such trust; and thereupon the Paying Agent and
the Trustee shall be released from all further liability with respect to such
moneys or Governmental Obligations, and the holder of any of the Debentures
entitled to receive such payment shall thereafter, as an unsecured general
creditor, look only to the Company for the payment thereof.

                                  ARTICLE XIV.
                    IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
                             OFFICERS AND DIRECTORS

      Section 14.1. No Recourse. No recourse under or upon any obligation,
covenant or agreement of this Indenture, or of the Debentures, or for any claim
based thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, either
directly or through the Company or any such predecessor or successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Indenture and the obligations issued hereunder are solely
corporate obligations, and that no such personal liability whatever, shall
attach to, or is or shall be incurred by, the incorporators, stockholders,
officers or directors as such, of the Company or of any predecessor or successor
corporation, or any of them, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Indenture or in any of the Debentures or implied therefrom;
and that any and all such personal liability of every name and nature, either at
common law or in equity or by constitution or statute, and any and all such
rights and claims against, every such incorporator, stockholder, officer or
director as such, because of the creation of the indebtedness hereby authorized,
or under or by reason of the obligations, covenants or agreements contained in
this Indenture or in any of the Debentures or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for, the
execution of this Indenture and the issuance of such Debentures.

                                   ARTICLE XV.

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<PAGE>

                            MISCELLANEOUS PROVISIONS

      Section 15.1. Effect on Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Indenture contained by or on
behalf of the Company shall bind its respective successors and assigns, whether
so expressed or not.

      Section 15.2. Actions by Successor. Any act or proceeding by any provision
of this Indenture authorized or required to be done or performed by any board,
committee or officer of the Company shall and may be done and performed with
like force and effect by the corresponding board, committee or officer of any
corporation that shall at the time be the lawful sole successor of the Company.

      Section 15.3. Surrender of the Company Powers. The Company by instrument
in writing executed by appropriate authority of its Board of Directors and
delivered to the Trustee may surrender any of the powers reserved to the
Company, and thereupon such power so surrendered shall terminate both as to the
Company, as the case may be, and as to any successor corporation.

      Section 15.4. Notices. Except as otherwise expressly provided herein any
notice or demand that by any provision of this Indenture is required or
permitted to be given or served by the Trustee or by the holders of Debentures
to or on the Company may be given or served by being deposited first class
postage prepaid in a post-office letterbox addressed (until another address is
filed in writing by the Company with the Trustee), as follows: c/o S.Y. Bancorp,
Inc., 1040 East Main Street, Louisville, Kentucky 40206, Attention: Chief
Financial Officer. Any notice, election, request or demand by the Company or any
Debentureholder to or upon the Trustee shall be deemed to have been sufficiently
given or made, for all purposes, if given or made in writing at the Corporate
Trust Office of the Trustee.

      Section 15.5. Governing Law. This Indenture and each Debenture shall be
deemed to be a contract made under the internal laws of the State of Delaware
and for all purposes shall be construed in accordance with the laws of said
State.

      Section 15.6. Treatment of the Debentures as Debt. It is intended that the
Debentures shall be treated as indebtedness and not as equity for federal income
tax purposes. The provisions of this Indenture shall be interpreted to further
this intention. The Company (with respect to its separate books and records),
the Trustee and, by acceptance of a Debenture, each holder of a Debenture, agree
to treat the Debentures as indebtedness of the Company and not as equity for all
tax (including without limitation, federal income tax) and financial accounting
purposes.

      Section 15.7. Compliance Certificates and Opinions.

      (a) Upon any application or demand by the Company to the Trustee to take
any action under any of the provisions of this Indenture, the Company shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent provided for in this Indenture relating to the proposed action have
been complied with and an Opinion of Counsel stating that in the

                                       49
<PAGE>

opinion of such counsel all such conditions precedent have been complied with,
except that in the case of any such application or demand as to which the
furnishing of such documents is specifically required by any provision of this
Indenture relating to such particular application or demand, no additional
certificate or opinion need be furnished.

      (b) Each certificate or opinion of the Company provided for in this
Indenture and delivered to the Trustee with respect to compliance with a
condition or covenant in this Indenture shall include (i) a statement that the
Person making such certificate or opinion has read such covenant or condition;
(ii) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based; (iii) a statement that, in the opinion of such
Person, he or she has made such examination or investigation as, in the opinion
of such Person, is necessary to enable him or her to express an informed opinion
as to whether or not such covenant or condition has been complied with; and (iv)
a statement as to whether or not, in the opinion of such Person, such condition
or covenant has been complied with; provided, however, that each such
certificate shall comply with the provisions of Section 314 of the Trust
Indenture Act.

      Section 15.8. Payments on Business Days.

      In any case where the date of maturity of interest or principal of any
Debenture or the date of redemption of any Debenture shall not be a Business
Day, then payment of interest or principal may (subject to Section 2.5(b)) be
made on the next succeeding Business Day with the same force and effect as if
made on the nominal date of maturity or redemption, and no interest shall accrue
for the period after such nominal date.

      Section 15.9. Conflict with Trust Indenture Act.

      If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall control.

      Section 15.10. Counterparts. This Indenture may be executed in any number
of counterparts, each of which shall be an original, but such counterparts shall
together constitute but one and the same instrument.

      Section 15.11. Separability. In case any one or more of the provisions
contained in this Indenture or in the Debentures shall for any reason be held to
be invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Indenture or
of the Debentures, but this Indenture and the Debentures shall be construed as
if such invalid or illegal or unenforceable provision had never been contained
herein or therein.

      Section 15.12. Assignment. The Company shall have the right at all times
to assign any of its respective rights or obligations under this Indenture to a
direct or indirect wholly owned Subsidiary of the Company, provided that, in the
event of any such assignment, the Company shall remain liable for all such
obligations. Subject to the foregoing, this Indenture is binding

                                       50
<PAGE>

upon and inures to the benefit of the parties thereto and their respective
successors and assigns. This Indenture may not otherwise be assigned by the
parties thereto.

      Section 15.13. Acknowledgment of Rights; Right of Setoff.

      (a) The Company acknowledges that, with respect to any Debentures held by
the Trust or a trustee of the Trust, if the Property Trustee fails to enforce
its rights under this Indenture as the holder of the Debentures held as the
assets of the Trust, any holder of Preferred Securities may institute legal
proceedings directly against the Company to enforce such Property Trustee's
rights under this Indenture without first instituting any legal proceedings
against such Property Trustee or any other person or entity. Notwithstanding the
foregoing, and notwithstanding the provisions of Section 7.4(a) hereof, if an
Event of Default has occurred and is continuing and such event is attributable
to the failure of the Company to pay principal or interest on the Debentures on
the date such principal or interest is otherwise payable (or in the case of
redemption, on the redemption date), the Company acknowledges that a holder of
Preferred Securities may directly institute a proceeding for enforcement of
payment to such holder of the principal of or interest on the Debentures having
a principal amount equal to the aggregate liquidation amount of the Preferred
Securities of such holder on or after the respective due date specified in the
Debentures.

      (b) Notwithstanding anything to the contrary contained in this Indenture,
the Company shall have the right to setoff any payment it is otherwise required
to make hereunder in respect of any Trust Securities to the extent that the
Company has previously made, or is concurrently making, a payment to the holder
of such Trust Securities under the Preferred Securities Guarantee or in
connection with a proceeding for enforcement of payment of the principal of or
interest on the Debentures directly brought by holders of any Trust Securities.

                                  ARTICLE XVI.
                         SUBORDINATION OF THE DEBENTURES

      Section 16.1. Agreement to Subordinate. The Company covenants and agrees,
and each holder of the Debentures issued hereunder by such holder's acceptance
thereof likewise covenants and agrees, that all the Debentures shall be issued
subject to the provisions of this Article XVI; and each holder of a Debenture,
whether upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions. The payment by the Company of the
principal of and interest on all the Debentures issued hereunder shall, to the
extent and in the manner hereinafter set forth, be subordinated and junior in
right of payment to the prior payment in full of all Senior Debt, Subordinated
Debt and Additional Senior Obligations of the Company (collectively, "Senior
Indebtedness") to the extent provided herein, whether outstanding at the date of
this Indenture or thereafter incurred. No provision of this Article XVI shall
prevent the occurrence of any default or Event of Default hereunder.

      Section 16.2. Default on Senior Indebtedness. Upon the occurrence and any
continuation of any default by the Company in the payment of principal, premium,
interest or any other payment due on any Senior Indebtedness, or in the event
that the maturity of any Senior Indebtedness has been accelerated because of
such a default, or in the event of the

                                       51
<PAGE>

commencement of a judicial proceeding with regard to such an alleged default or
event of default, then, in any case, no payment shall be made by the Company
with respect to the principal (including redemption payments) of or interest on
the Debentures. In the event that, notwithstanding the foregoing, any payment
shall be received by the Trustee when such payment is prohibited by the
preceding sentence of this Section 16.2, such payment shall be held in trust for
the benefit of, and shall be paid over or delivered to, the holders of Senior
Indebtedness or their respective representatives, or to the trustee or trustees
under any indenture pursuant to which any of such Senior Indebtedness may have
been issued, as their respective interests may appear, but only to the extent
that the holders of the Senior Indebtedness (or their representative or
representatives or a trustee) notify the Trustee in writing within 90 days of
such payment of the amounts then due and owing on the Senior Indebtedness and
only the amounts specified in such notice to the Trustee shall be paid to the
holders of the Senior Indebtedness.

      Section 16.3. Liquidation; Dissolution; Bankruptcy.

      (a) Upon any payment by the Company or distribution of assets of the
Company of any kind or character, whether in cash, property or securities, to
creditors upon any dissolution or winding-up or liquidation or reorganization of
the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due upon all Senior Indebtedness
shall first be paid in full, or payment thereof provided for in money in
accordance with its terms, before any payment is made by the Company on account
of the principal or interest on the Debentures; and upon any such dissolution or
winding-up or liquidation or reorganization, any payment by the Company, or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the holders of the Debentures or the Trustee
would be entitled to receive from the Company, except for the provisions of this
Article XVI, shall be paid by the Company or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other Person making such payment or
distribution, or by the holders of the Debentures or by the Trustee under this
Indenture if received by them or it, directly to the holders of Senior
Indebtedness (pro rata to such holders on the basis of the respective amounts of
Senior Indebtedness held by such holders, as calculated by the Company) or their
representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing such Senior Indebtedness
may have been issued, as their respective interests may appear, to the extent
necessary to pay such Senior Indebtedness in full, in money or money's worth,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness, before any payment or distribution is made
to the holders of the Debentures or to the Trustee.

      (b) In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, prohibited by the foregoing, shall be received by the
Trustee before all Senior Indebtedness is paid in full, or provision is made for
such payment in money in accordance with its terms, such payment or distribution
shall be held in trust for the benefit of and shall be paid over or delivered to
the holders of such Senior Indebtedness or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Indebtedness may have been issued,
as their respective interests may appear, as calculated by the

                                       52
<PAGE>

Company, for application to the payment of all Senior Indebtedness, as the case
may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness
in full in money in accordance with its terms, after giving effect to any
concurrent payment or distribution to or for the benefit of the holders of such
Senior Indebtedness.

      (c) For purposes of this Article XVI, the words "cash, property or
securities" shall not be deemed to include shares of stock of the Company as
reorganized or readjusted, or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinated at least to the extent provided in this Article XVI with respect
to the Debentures to the payment of all Senior Indebtedness, as the case may be,
that may at the time be outstanding, provided that (i) such Senior Indebtedness
is assumed by the new corporation, if any, resulting from any such
reorganization or readjustment; and (ii) the rights of the holders of such
Senior Indebtedness are not, without the consent of such holders, altered by
such reorganization or readjustment. The consolidation of the Company with, or
the merger of the Company into, another corporation or the liquidation or
dissolution of the Company following the conveyance or transfer of its property
as an entirety, or substantially as an entirety, to another corporation upon the
terms and conditions provided for in Article XII shall not be deemed a
dissolution, winding-up, liquidation or reorganization for the purposes of this
Section 16.3 if such other corporation shall, as a part of such consolidation,
merger, conveyance or transfer, comply with the conditions stated in Article
XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 9.7.

      Section 16.4. Subrogation.

      (a) Subject to the payment in full of all Senior Indebtedness, the rights
of the holders of the Debentures shall be subrogated to the rights of the
holders of such Senior Indebtedness to receive payments or distributions of
cash, property or securities of the Company, as the case may be, applicable to
such Senior Indebtedness until the principal of and interest on the Debentures
shall be paid in full; and, for the purposes of such subrogation, no payments or
distributions to the holders of such Senior Indebtedness of any cash, property
or securities to which the holders of the Debentures or the Trustee would be
entitled except for the provisions of this Article XVI, and no payment over
pursuant to the provisions of this Article XVI to or for the benefit of the
holders of such Senior Indebtedness by holders of the Debentures or the Trustee,
shall, as between the Company, its creditors (other than holders of Senior
Indebtedness of the Company), and the holders of the Debentures, be deemed to be
a payment by the Company to or on account of such Senior Indebtedness. It is
understood that the provisions of this Article XVI are and are intended solely
for the purposes of defining the relative rights of the holders of the
Debentures, on the one hand, and the holders of such Senior Indebtedness on the
other hand.

      (b) Nothing contained in this Article XVI or elsewhere in this Indenture
or in the Debentures is intended to or shall impair, as between the Company, its
creditors (other than the holders of Senior Indebtedness), and the holders of
the Debentures, the obligation of the Company, which is absolute and
unconditional, to pay to the holders of the Debentures the principal of and
interest on the Debentures as and when the same shall become due and payable

                                       53
<PAGE>

in accordance with their terms, or is intended to or shall affect the relative
rights of the holders of the Debentures and creditors of the Company, as the
case may be, other than the holders of Senior Indebtedness, as the case may be,
nor shall anything herein or therein prevent the Trustee or the holder of any
Debenture from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XVI of the holders of such Senior Indebtedness in respect of cash,
property or securities of the Company, as the case may be, received upon the
exercise of any such remedy.

      (c) Upon any payment or distribution of assets of the Company referred to
in this Article XVI, the Trustee, subject to the provisions of Article IX, and
the holders of the Debentures shall be entitled to conclusively rely upon any
order or decree made by any court of competent jurisdiction in which such
dissolution, winding-up, liquidation or reorganization proceedings are pending,
or a certificate of the receiver, trustee in bankruptcy, liquidation trustee,
agent or other Person making such payment or distribution, delivered to the
Trustee or to the holders of the Debentures, for the purposes of ascertaining
the Persons entitled to participate in such distribution, the holders of Senior
Indebtedness and other indebtedness of the Company, as the case may be, the
amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article XVI.

      Section 16.5. The Trustee to Effectuate Subordination. Each holder of
Debentures by such holder's acceptance thereof authorizes and directs the
Trustee on such holder's behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XVI and
appoints the Trustee such holder's attorney-in-fact for any and all such
purposes.

      Section 16.6. Notice by the Company.

      (a) The Company shall give prompt written notice to a Responsible Officer
of the Trustee of any fact known to the Company that would prohibit the making
of any payment of monies to or by the Trustee in respect of the Debentures
pursuant to the provisions of this Article XVI. Notwithstanding the provisions
of this Article XVI or any other provision of this Indenture, the Trustee shall
not be charged with knowledge of the existence of any facts that would prohibit
the making of any payment of monies to or by the Trustee in respect of the
Debentures pursuant to the provisions of this Article XVI, unless and until a
Responsible Officer of the Trustee shall have received written notice thereof
from the Company or a holder or holders of Senior Indebtedness or from any
trustee therefor; and before the receipt of any such written notice, the
Trustee, subject to the provisions of Section 9.1, shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Trustee shall not have received the notice provided for in this Section 16.6 at
least two Business Days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of or interest on any Debenture), then, anything herein
contained to the contrary notwithstanding, the Trustee shall have full power and
authority to receive such money and to apply the same to the purposes for which
they were received, and shall not be affected by any notice to the contrary that
may be received by it within two Business Days prior to such date.

                                       54
<PAGE>

      (b) The Trustee, subject to the provisions of Section 9.1, shall be
entitled to conclusively rely on the delivery to it of a written notice by a
Person representing himself or herself to be a holder of Senior Indebtedness (or
a trustee on behalf of such holder) to establish that such notice has been given
by a holder of such Senior Indebtedness or a trustee on behalf of any such
holder or holders. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of such Senior Indebtedness to participate in any payment or distribution
pursuant to this Article XVI, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of such
Senior Indebtedness held by such Person, the extent to which such Person is
entitled to participate in such payment or distribution and any other facts
pertinent to the rights of such Person under this Article XVI, and, if such
evidence is not furnished, the Trustee may defer any payment to such Person
pending judicial determination as to the right of such Person to receive such
payment.

      Section 16.7. Rights of the Trustee; Holders of the Senior Indebtedness.

      (a) The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XVI in respect of any Senior Indebtedness at
any time held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. The Trustee's right to compensation and reimbursement
of expenses as set forth in Section 9.7 shall not be subject to the
subordination provisions of this Article XVI.

      (b) With respect to the holders of the Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article XVI, and no implied covenants or
obligations with respect to the holders of such Senior Indebtedness shall be
read into this Indenture against the Trustee. The Trustee shall not be deemed to
owe any fiduciary duty to the holders of such Senior Indebtedness and, subject
to the provisions of Section 9.1, the Trustee shall not be liable to any holder
of such Senior Indebtedness if it shall pay over or deliver to holders of
Debentures, the Company or any other Person money or assets to which any holder
of such Senior Indebtedness shall be entitled by virtue of this Article XVI or
otherwise.

      Section 16.8. Subordination May not Be Impaired.

      (a) No right of any present or future holder of any Senior Indebtedness to
enforce subordination as herein provided shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such holder may have or
otherwise be charged with.

      (b) Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Indebtedness may, at any time and from time to time,
without the consent of or notice to the Trustee or the holders of the
Debentures, without incurring responsibility to the holders of the Debentures
and without impairing or releasing the subordination provided in this Article
XVI

                                       55
<PAGE>

or the obligations hereunder of the holders of the Debentures to the holders of
such Senior Indebtedness, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, such Senior Indebtedness, or otherwise amend or supplement in any manner
such Senior Indebtedness or any instrument evidencing the same or any agreement
under which such Senior Indebtedness is outstanding; (ii) sell, exchange,
release or otherwise deal with any property pledged, mortgaged or otherwise
securing such Senior Indebtedness; (iii) release any Person liable in any manner
for the collection of such Senior Indebtedness; and (iv) exercise or refrain
from exercising any rights against the Company and any other Person.

                                    * * * * *

                                       56
<PAGE>

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

                                     S.Y. BANCORP, INC.

                                     By: ______________________________________
                                     Name: David H. Brooks
                                     Title: Chairman and Chief Executive Officer

Attest:

_______________________

                                     WILMINGTON TRUST COMPANY, as Trustee

                                     By: ______________________________________
                                     Name:_____________________________________
                                     Title:____________________________________
Attest:

_______________________

                                       57
<PAGE>

COMMONWEALTH OF KENTUCKY   )
                           ) ss
COUNTY OF ___________      )

      On this _____ day of __________, 2001, before me appeared _______, to me
personally known, who, being by me duly sworn, did say that he is the _________
of S.Y. Bancorp, Inc., and that the seal affixed to said instrument is the
corporate seal of said corporation, and that said instrument was signed and
sealed on behalf of said corporation by authority of its Board of Directors and
said ____________ acknowledged said instrument to be the free act and deed of
said corporation.

      In testimony whereof I have hereunto set my hand and affixed my official
seal at my office in said county and state the day and year last above written.

                                        ________________________________________
                                        Notary Public

                                        My term expires:________________________

STATE OF DELAWARE          )
                           ) ss
COUNTY OF ___________      )

      On this _____ day of ___________, 2001, before me appeared
___________________, to me personally known, who, being by me duly sworn, did
say that he is the _____________________ of Wilmington Trust Company, and that
the seal affixed to said instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed on behalf of said
corporation by authority of its Board of Directors and said
_____________________________, acknowledged said instrument to be the free
act and deed of said corporation.

      In testimony whereof I have hereunto set my hand and affixed my official
seal at my office in said county and commonwealth the day and year last above
written.

                                        ________________________________________
                                        Notary Public

                                        My term expires:________________________

                                       58
<PAGE>

                                    EXHIBIT A

                           (Form of Face of Debenture)

No. _____                                                            $__________

CUSIP No._____________.

                               S.Y. BANCORP, INC.

                           __% SUBORDINATED DEBENTURE

                                    DUE 2031

      S.Y. Bancorp, Inc., a Kentucky corporation (the "Company," which term
includes any successor corporation under the Indenture hereinafter referred
to), for value received, hereby promises to pay to Wilmington Trust Company,
as Property Trustee for S.Y. Bancorp Capital Trust I, or registered assigns,
the principal sum of __________ ($__________) on June 30, 2031 (the "Stated
Maturity"), and to pay interest on said principal sum from June 30, 2001, or
from the most recent interest payment date (each such date, an "Interest
Payment Date") to which interest has been paid or duly provided for,
quarterly (subject to deferral as set forth herein) in arrears on March 31,
June 30, September 30 and December 31 of each year commencing September 30,
2001, at the rate of __% per annum until the principal hereof shall have
become due and payable, and on any overdue principal and (without duplication
and to the extent that payment of such interest is enforceable under
applicable law) on any overdue installment of interest at the same rate per
annum compounded quarterly. The amount of interest payable on any Interest
Payment Date shall be computed on the basis of a 360-day year of twelve
30-day months. The amount of interest for any partial period shall be
computed on the basis of the number of days elapsed in a 360-day year of
twelve 30-day months. In the event that any date on which interest is payable
on this Debenture is not a business day, then payment of interest payable on
such date shall be made on the next succeeding day that is a business day
(and without any interest or other payment in respect of any such delay)
except that, if such business day is in the next succeeding calendar year,
payment of such interest will be made on the immediately preceding business
day, in each case, with the same force and effect as if made on such date.
The interest installment so payable, and punctually paid or duly provided
for, on any Interest Payment Date shall, as provided in the Indenture, be
paid to the person in whose name this Debenture (or one or more Predecessor
Debentures, as defined in said Indenture) is registered at the close of
business on the regular record date for such interest installment, which
shall be the close of business on the business day next preceding such
Interest Payment Date unless otherwise provided in the Indenture. Any such
interest installment not punctually paid or duly provided for shall forthwith
cease to be payable to the registered holders on such regular record date and
may be paid to the Person in whose name this Debenture (or one or more
Predecessor Debentures) is registered at the close of business on a special
record date to be fixed by the Trustee for the payment of such defaulted
interest, notice thereof shall be fixed by the

                                      A-1
<PAGE>

Trustee for the payment of such defaulted interest, notice thereof shall be
given to the registered holders of the Debentures not less than 10 days prior to
such special record date, or may be paid at any time in any other lawful manner
not inconsistent with the requirements of any securities exchange or quotation
system on or in which the Debentures may be listed or quoted, and upon such
notice as may be required by such exchange, all as more fully provided in the
Indenture. The principal of and the interest on this Debenture shall be payable
at the office or agency of the Trustee maintained for that purpose in any coin
or currency of the United States of America that at the time of payment is legal
tender for payment of public and private debts; provided, however, that payment
of interest may be made at the option of the Company by check mailed to the
registered holder at such address as shall appear in the Debenture Register.
Notwithstanding the foregoing, so long as the holder of this Debenture is the
Property Trustee, the payment of the principal of and interest on this Debenture
shall be made at such place and to such account as may be designated by the
Trustee.

      The Stated Maturity may be shortened at any time by the Company to any
date not earlier than June 30, 2006, subject to the Company having received
prior approval of the Federal Reserve if then required under applicable capital
guidelines, policies or regulations of the Federal Reserve.

      The indebtedness evidenced by this Debenture is, to the extent provided in
the Indenture, subordinate and junior in right of payment to the prior payment
in full of all Senior Indebtedness (as defined in the Indenture). This Debenture
is issued subject to the provisions of the Indenture with respect thereto. Each
holder of this Debenture, by accepting the same, (a) agrees to and shall be
bound by such provisions; (b) authorizes and directs the Trustee on his or her
behalf to take such action as may be necessary or appropriate to acknowledge or
effectuate the subordination so provided; and (c) appoints the Trustee his or
her attorney-in-fact for any and all such purposes. Each holder hereof, by his
or her acceptance hereof, hereby waives all notice of the acceptance of the
subordination provisions contained herein and in the Indenture by each holder of
Senior Indebtedness, whether now outstanding or hereafter incurred, and waives
reliance by each such holder upon said provisions.

      This Debenture shall not be entitled to any benefit under the Indenture
hereinafter referred to, be valid or become obligatory for any purpose until the
Certificate of Authentication hereon shall have been signed by or on behalf of
the Trustee.

      The provisions of this Debenture are continued on the reverse side hereof
and such continued provisions shall for all purposes have the same effect as
though fully set forth at this place.

                                      A-2
<PAGE>

      IN WITNESS WHEREOF, the Company has caused this instrument to be executed.

Dated: _________  __, 2001

                                 S.Y. BANCORP, INC.

                                 By: ___________________________________________
                                     Name: David H. Brooks
                                     Title: Chairman and Chief Executive Officer

Attest:

By: _____________________________
    Name: _______________________
    Title: ______________________

                                      A-3
<PAGE>

                     [Form of Certificate of Authentication]

                          CERTIFICATE OF AUTHENTICATION

   This is one of the Debentures described in the within-mentioned Indenture.

Dated: ______________, 2001

Wilmington Trust Company,                          _____________________________
as Trustee                                         or Authenticating Agent

By: _______________________________                By: _________________________
         Authorized Signatory

                                      A-4
<PAGE>

                         [Form of Reverse of Debenture]

                       __% SUBORDINATED DEBENTURE DUE 2031

                                   (CONTINUED)

      This Debenture is one of the subordinated debentures of the Company
(herein sometimes referred to as the "Debentures"), all issued or to be
issued under and pursuant to an Indenture dated as of ______ __, 2001 (the
"Indenture") duly executed and delivered between the Company and Wilmington
Trust Company, as Trustee (the "Trustee"), to which Indenture reference is
hereby made for a description of the rights, limitations of rights,
obligations, duties and immunities thereunder of the Trustee, the Company and
the holders of the Debentures. The Debentures are limited in aggregate
principal amount as specified in the Indenture.

      Because of the occurrence and continuation of a Special Event (as defined
in the Indenture), in certain circumstances, this Debenture may become due and
payable at the principal amount together with any interest accrued thereon (the
"Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon
Eastern Standard Time, on the date of such redemption or at such earlier time as
the Company determines. The Company shall have the right as set forth in the
Indenture to redeem this Debenture at the option of the Company, without premium
or penalty, in whole or in part at any time on or after June 30, 2006 (an
"Optional Redemption"), or at any time in certain circumstances upon the
occurrence of a Special Event, at a Redemption Price equal to 100% of the
principal amount hereof plus any accrued but unpaid interest hereon, to the date
of such redemption. Any redemption pursuant to this paragraph shall be made upon
not less than thirty (30) days' nor more than sixty (60) days' notice, at the
Redemption Price. The Redemption Price shall be paid at the time and in the
manner provided therefor in the Indenture. If the Debentures are only partially
redeemed by the Company pursuant to an Optional Redemption, the Debentures shall
be redeemed pro rata or by lot or by any other method utilized by the Trustee as
described in the Indenture. In the event of an Optional Redemption of this
Debenture in part only, a new Debenture or Debentures for the unredeemed portion
hereof shall be issued in the name of the holder hereof upon the cancellation
hereof.

      In case an Event of Default (as defined in the Indenture) shall have
occurred and be continuing, the principal of all of the Debentures may be
declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the Indenture.

      The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in aggregate
principal amount of the Debentures at the time Outstanding (as defined in the
Indenture), to execute supplemental indentures for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
the Indenture or of any supplemental indenture or of modifying in any manner the
rights of the holders of the Debentures; provided, however, that no such
supplemental indenture shall, except as provided in the Indenture, (i) extend
the fixed maturity of the Debentures, reduce the principal amount thereof, or
reduce the rate or extend the time of payment of interest thereon without the
consent of the holder of each Debenture so affected thereby; or (ii) reduce the

                                      A-5
<PAGE>

aforesaid percentage of the Debentures, the holders of which are required to
consent to any such supplemental indenture, without the consent of the holder of
each Debenture then Outstanding and so affected thereby. The Indenture also
contains provisions permitting the holders of at least a majority in aggregate
principal amount of the Debentures at the time Outstanding, on behalf of all of
the holders of the Debentures, to waive any past default in the performance of
any of the covenants contained in the Indenture, or established pursuant to the
Indenture, and its consequences, except a default in the payment of the
principal of or interest on any of the Debentures. Any such consent or waiver by
the registered holder of this Debenture (unless revoked as provided in the
Indenture) shall be conclusive and binding upon such holder and upon all future
holders and owners of this Debenture and of any Debenture issued in exchange
herefor or in place hereof (whether by registration of transfer or otherwise),
irrespective of whether or not any notation of such consent or waiver is made
upon this Debenture.

      No reference herein to the Indenture and no provision of this Debenture or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal and interest on this Debenture
at the time and place and at the rate and in the manner herein prescribed.

      The Company, as further described in the Indenture, shall have the right
at any time during the term of the Debentures and from time to time to defer
payments of interest by extending the interest payment period of such Debentures
for up to twenty (20) consecutive quarters (each, an "Extension Period"), at the
end of which period the Company shall pay all interest then accrued (together
with interest thereon at the rate specified for the Debentures to the extent
that payment of such interest is enforceable under applicable law). Before the
termination of any such Extension Period, so long as no Event of Default shall
have occurred and be continuing, the Company may further extend such Extension
Period, provided that such Extension Period together with all such further
extensions thereof shall not exceed twenty (20) consecutive quarters, extend
beyond June 30, 2031, or end on a date other than an Interest Payment Date. At
the termination of any such Extension Period and upon the payment of all
Deferred Payments then due, the Company may commence a new Extension Period.

      As provided in the Indenture and subject to certain limitations therein
set forth, this Debenture is transferable by the registered holder hereof on the
Debenture Register (as defined in the Indenture) of the Company, upon surrender
of this Debenture for registration of transfer at the office or agency of the
Trustee accompanied by a written instrument or instruments of transfer in form
satisfactory to the Company or the Trustee duly executed by the registered
holder hereof or his or her attorney duly authorized in writing, and thereupon
one or more new Debentures of authorized denominations and for the same
aggregate principal amount shall be issued to the designated transferee or
transferees. No service charge shall be made for any such transfer, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in relation thereto.

      Prior to due presentment for registration of transfer of this Debenture,
the Company, the Trustee, any Paying Agent (as defined in the Indenture) and the
Debenture Registrar may deem and treat the registered holder hereof as the
absolute owner hereof (whether or not this Debenture

                                      A-6
<PAGE>

shall be overdue and notwithstanding any notice of ownership or writing hereon
made by anyone other than the Debenture Registrar) for the purpose of receiving
payment of or on account of the principal hereof and interest due hereon and for
all other purposes, and neither the Company nor the Trustee nor any Paying Agent
nor any Debenture Registrar shall be affected by any notice to the contrary.

      No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture, against any
incorporator, stockholder, officer or director, past, present or future, as
such, of the Company or of any predecessor or successor corporation, whether by
virtue of any constitution, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise, all such liability being, by the acceptance
hereof and as part of the consideration for the issuance hereof, expressly
waived and released.

      The Debentures are issuable only in registered form without coupons in
denominations of $10 and any integral multiple thereof (or such other
denominations and any integral multiple thereof as may be deemed necessary by
the Company for the purpose of maintaining the eligibility of the Debentures for
listing on the American Stock Exchange, Inc. or any successor thereto).

      All terms used in this Debenture that are defined in the Indenture shall
have the meanings assigned to them in the Indenture.

                                      A-7

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