Document:

Exhibit
10.12

 

Execution Copy

 

INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT

 

Dated as of July 1, 2008

 

By and Among

 

BANK OF AMERICA, N.A.,

AS COLLATERAL AGENT

 

And

 

BANK OF AMERICA, N.A., AS ADMINISTRATIVE
AGENT UNDER THE CREDIT 

FACILITY AGREEMENT ON BEHALF OF THE SECURED LENDER PARTIES

 

And

 

THE INSTITUTIONAL INVESTORS LISTED ON
SCHEDULE 1 HERETO, AS NOTEHOLDERS

 

 

WITH RESPECT TO INDEBTEDNESS ISSUED BY
KAPSTONE KRAFT PAPER CORPORATION

 

 

TABLE OF
CONTENTS

 

	
  SECTION

  	
   

  	
  HEADING

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 1.

  	
  Definitions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 1.1.

  	
  Definitions

  	
   

  	
  2

  
	
  Section 1.2.

  	
  Effectiveness of this
  Agreement

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 2.

  	
  Relationships Among
  Secured Parties

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 2.1.

  	
  Equal and Ratable Sharing
  of Collateral

  	
   

  	
  7

  
	
  Section 2.2.

  	
  Restrictions on Actions

  	
   

  	
  8

  
	
  Section 2.3.

  	
  Representations and
  Warranties

  	
   

  	
  10

  
	
  Section 2.4.

  	
  Cooperation; Accountings

  	
   

  	
  10

  
	
  Section 2.5.

  	
  Termination Note Agreement, Credit Facility
  Agreement or Franchise Loan Facility Agreement

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 3.

  	
  Appointment and
  Authorization of Collateral Agent

  	
   

  	
  10

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 4.

  	
  Agency Provisions

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 4.1.

  	
  Delegation of Duties

  	
   

  	
  12

  
	
  Section 4.2.

  	
  Exculpatory Provisions

  	
   

  	
  12

  
	
  Section 4.3.

  	
  Reliance by Collateral
  Agent

  	
   

  	
  12

  
	
  Section 4.4.

  	
  Knowledge or Notice of
  Default or Event of Default

  	
   

  	
  13

  
	
  Section 4.5.

  	
  Non-Reliance on Collateral
  Agent and Other Creditors

  	
   

  	
  13

  
	
  Section 4.6.

  	
  Indemnification

  	
   

  	
  13

  
	
  Section 4.7.

  	
  Collateral Agent in Its
  Individual Capacity

  	
   

  	
  15

  
	
  Section 4.8.

  	
  Successor Collateral Agent

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 5.

  	
  Actions by the Collateral
  Agent

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  Section 5.1.

  	
  Duties and Obligations

  	
   

  	
  16

  
	
  Section 5.2.

  	
  Notification of Default

  	
   

  	
  16

  
	
  Section 5.3.

  	
  Exercise of Remedies

  	
   

  	
  16

  
	
  Section 5.4.

  	
  Changes to Security
  Documents

  	
   

  	
  17

  
	
  Section 5.5.

  	
  Release of Collateral

  	
   

  	
  17

  
	
  Section 5.6.

  	
  Other Actions

  	
   

  	
  17

  
	
  Section 5.7.

  	
  Cooperation

  	
   

  	
  17

  
	
  Section 5.8.

  	
  Distribution of Proceeds

  	
   

  	
  18

  
	
  Section 5.9.

  	
  Authorized Investments

  	
   

  	
  19

  
	
  Section 5.10.

  	
  Determination of Amount of
  Senior Secured Obligations

  	
   

  	
  20

  
	
  Section 5.11.

  	
  Reinstatement

  	
   

  	
  20

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 6.

  	
  Bankruptcy Proceedings

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  SECTION 7.

  	
  Miscellaneous

  	
   

  	
  22

  

 

 

	
  Section 7.1.

  	
  Creditors; Other
  Collateral

  	
   

  	
  22

  
	
  Section 7.2.

  	
  Marshalling

  	
   

  	
  22

  
	
  Section 7.3.

  	
  Consents, Amendments,
  Waivers

  	
   

  	
  22

  
	
  Section 7.4.

  	
  Governing Law

  	
   

  	
  22

  
	
  Section 7.5.

  	
  Parties in Interest

  	
   

  	
  22

  
	
  Section 7.6.

  	
  Counterparts

  	
   

  	
  22

  
	
  Section 7.7.

  	
  Termination

  	
   

  	
  23

  
	
  Section 7.8.

  	
  Notices

  	
   

  	
  23

  

 

 

ATTACHMENTS TO INTERCREDITOR AND COLLATERAL
AGENCY AGREEMENT:

 

Schedule 1 – Information relating to the
Noteholders

 

Exhibit A – List of Security Documents

 

 

INTERCREDITOR
AND COLLATERAL AGENCY AGREEMENT

 

THIS
INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT dated as of July 1, 2008
(this “Agreement”), is
entered into by and among (i) Bank of America, N.A., in its capacity as Collateral Agent (as hereinafter defined), (ii) Bank
of America, N.A., in its capacity as administrative agent (the “Credit Facility Agent”) under the Credit Facility Agreement
(as hereinafter defined) on behalf of itself and each of the Secured Lender
Parties (as hereinafter defined), (iii) each of the institutional
investors listed on Schedule 1 attached hereto (together with their
respective successors and assigns, each a “Noteholder”
and collectively, the “Noteholders”),
(iv) the Company (as hereinafter defined) and (v) the Guarantors (as
hereinafter defined).

 

RECITALS:

 

A.           KapStone Kraft Paper Corporation, a Delaware
corporation (the “Company”), is concurrently
herewith entering into that certain Note Purchase Agreement dated as of July 1,
2008 (as amended, supplemented or restated from time to time, the “Note Agreement”) with the institutional investors listed on
Schedule A attached thereto, (the “Holders”) pursuant to which the Holders are
purchasing from the Company those certain 8.30% senior secured notes due 2015
in the original aggregate principal amount of $40,000,000 (as amended,
supplemented or restated from time to time, the “Private Placement Notes”).

 

B.             The Company has heretofore entered into
that certain Credit Agreement dated as of June 12, 2008 with the Credit
Facility Lenders and the Credit Facility Agent (as amended, supplemented or
restated from time to time, the “Credit Facility Agreement”),
pursuant to which the Credit Facility Lenders may from time to time make
certain extensions of credit to the Company in an aggregate amount not to
exceed $515,000,000.

 

C.             The obligations of the Company to the
Noteholders under the Note Agreement and the Private Placement Notes and the
other Note Documents, the obligations of the Company to the Credit Facility
Lenders, the Credit Facility Agent and the other Secured Lender Parties under
the Credit Facility Agreement and the other Credit Facility Loan Documents (as
hereinafter defined), and the other Senior Secured Obligations (as hereinafter
defined), if any, will be secured equally and ratably by the Collateral (as
hereinafter defined) pursuant to certain documents set forth on Exhibit A
hereto and the other Security Documents and
administered in accordance with the terms and conditions hereof and thereof.  The Noteholders, and
the Credit Facility Agent on behalf of the Secured Lender Parties desire to
appoint Bank of America, N.A. as the collateral agent (the “Collateral
Agent”)  to act on behalf of the Noteholders and the Secured Lender
Parties regarding the Collateral, all as more fully provided herein.  The parties hereto have entered into this
Agreement to, among other things, further define the rights, duties, authority
and responsibilities of the Collateral Agent and the relationship between the
Noteholders, and the Secured Lender Parties regarding their equal and ratable
interests in the Collateral.

 

 

NOW, THEREFORE,
in consideration of the premises and other good and valuable consideration, the
sufficiency and receipt of which are hereby acknowledged, the parties hereto
hereby agree as follows:

 

SECTION 1.                                DEFINITIONS.

 

Section 1.1.             Definitions.  The following terms shall have the meanings assigned to them below in
this Section 1.1 or in the
provisions of this Agreement referred to below:

 

“Affiliate” means,
with respect to any Person, another Person that directly, or indirectly through
one or more intermediaries, Controls or is Controlled by or is under common
Control with the Person specified.  “Control” means
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled”
have meanings correlative thereto.

 

“Agreement”
is defined in the preamble hereof, and shall include
such agreement as amended, restated, supplemented or otherwise modified in
accordance with its terms.

 

“Bankruptcy
Proceeding” shall mean, with respect to any Person, a
general assignment by such Person for the benefit of its creditors, or the
institution by or against such Person of any proceeding seeking relief as
debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of such Person
or its debts, under any law relating to bankruptcy, insolvency, reorganization
or relief of debtors, or seeking appointment of a receiver, trustee, custodian
or other similar official for such Person or for any substantial part of its
property.

 

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

 

“Cash
Equivalent Investments” shall mean, (a) direct
obligations of the United States Government or any agencies thereof and
obligations guaranteed by the United States Government, in each case having
remaining terms to maturity of not more than 30 days; and (b) certificates
of deposit, time deposits and acceptances, having remaining terms to maturity
of not more than 60 days issued by United States banks which have a combined
capital and surplus of at least $1,000,000,000 and having an “A”  rating
or better assigned thereto by Standard & Poor’s Ratings Group, a
Division of The McGraw Hill Companies, Inc. or Moody’s Investors Service, Inc.

 

“Cash
Management Agreements” shall mean the Cash Management
Agreements under and as defined in the Credit Facility Agreement.

 

“Collateral”
shall mean all collateral under, and cash received in
respect of, the Security Documents.

 

“Collateral Agent”
shall be the party identified as such in the Recitals hereof, and its
successors and permitted assigns.

 

2

 

“Commitment”
means the “Commitment” under and as defined in the Credit Facility Agreement as
in effect on the date hereof.

 

“Company
Proceeds” shall have the meaning assigned thereto in Section 2.1(c).

 

“Credit
Facility Agent” shall have the meaning assigned
thereto in the Recitals hereof, and shall include its successors and permitted
assigns.

 

“Credit
Facility Agreement” shall have the meaning assigned
thereto in the Recitals hereof.

 

“Credit
Facility Agreement Obligations” shall mean the “Obligations”
under and as defined in the Credit Facility Agreement as in effect on the date
hereof.

 

“Credit
Facility Loan Documents” mean the “Loan Documents”
under and as defined in the Credit Facility Agreement as in effect on the date
hereof.

 

“Credit
Facility Lenders” shall mean the financial
institutions from time to time party to the Credit Facility Agreement as
Lenders thereunder and as defined therein and their successors and permitted
assigns.

 

“Credit
Facility Notes” shall mean the “Notes” under and as
defined in the Credit Facility Agreement as in effect on the date hereof.

 

“Creditor” shall
mean any one of the Noteholders or the Secured Lender Parties, but, in each
case, only in such capacity, and any successors and permitted assigns to the
interests in the Senior Secured Obligations owing to any such Person in such
capacity.

 

“Default” shall
mean any event or condition, the occurrence of which would, with the lapse of
time or the giving of notice, or both, constitute an Event of Default.

 

“Default
Notice” shall have the meaning assigned thereto in Section 5.2.

 

“Disallowed
Obligations” shall have the meaning assigned thereto
in Section 5.10(b).

 

“Enforcement
Event” shall mean (a) the commencement of a
Bankruptcy Proceeding with respect to the Company or any Subsidiary, (b) the
acceleration of the obligations pursuant to the Private Placement Notes or
Private Placement Note Purchase Agreement or the Credit Facility Agreement
Obligations or (c) the exercise of any remedy by the Collateral Agent
against the Company or any Subsidiary with respect to the Collateral.

 

“Event of
Default” shall mean any event or occurrence which
would constitute an “Event of Default”
under the terms of the Note Agreement, the Credit Facility Agreement or any
Security Document.

 

 “Financing Documents” means
the Credit Facility Loan Documents and the Note Documents.

 

3

 

“Governmental
Authority” means the government of the United States or any other
nation, or of any political subdivision thereof, whether state or local, and
any agency, authority, instrumentality, regulatory body, court, central bank or
other entity exercising executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government (including
any supra-national bodies such as the European Union or the European Central
Bank).

 

“Guaranties” shall mean each of the Guaranty (as defined
in the Credit Facility Agreement and the Guaranty Agreement (as defined in the
Note Agreement), as applicable) as each is in effect on the date hereof and as
each may be amended, restated, supplemented, replaced or otherwise modified in
accordance with the terms thereof.

 

 “Guarantors”
shall mean the “Guarantors” under and as defined in the Credit Facility
Agreement and/or the Note Agreement, as applicable.

 

“Hedging
Agreements” shall mean the Secured Hedge Agreements
under and as defined in the Credit Facility Agreement.

 

“Indemnity
Share” shall have the meaning assigned thereto in Section 4.6.

 

“L/C Issuer”
shall mean the L/C Issuer under and as defined in the Credit Facility
Agreement, and shall include any successor thereof.

 

“Letter of
Credit Collateral Account” shall have the meaning
assigned thereto in Section 5.8 hereof.

 

“Letter of
Credit Exposure” shall mean, at any time and without
duplication, the sum of (a) the aggregate undrawn portion of all
uncancelled and unexpired Letters of Credit and (b) the aggregate unpaid
reimbursement obligations of the Company in respect of drawings under any
Letter of Credit.

 

“Letters of Credit” shall mean all Letters of Credit issued
under or pursuant to the Credit Facility Agreement.

 

“Lien”
shall mean, with respect to any Person, any interest granted by such Person in
any real or personal property, asset or other right owned or being purchased or
acquired by such Person (including an interest in respect of a Capital Lease)
which secures payment or performance of any obligation and shall include any
mortgage, lien, encumbrance, title retention lien, charge or other security
interest of any kind, whether arising by contract, as a matter of law, by
judicial process or otherwise.

 

 “Majority Creditors” shall
mean Creditors holding more than 50% of
the sum of (a) the aggregate outstanding principal amount of the
indebtedness evidenced by the Private Placement Notes and (b) Total
Outstandings (as defined in the Credit Facility Agreement).

 

“Non-Indemnifying
Creditor” shall have the meaning assigned thereto in Section 4.6.

 

“Note
Agreement” shall have the meaning assigned thereto in
the Recitals hereof.

 

4

 

“Note
Documents” shall mean the Note Agreement, the Private
Placement Notes and all other “Transaction Documents” under and as defined in
the Note Agreement as in effect on the date hereof.

 

“Noteholders”
shall mean the parties identified as such in the
Recitals hereof, and their successors and permitted assigns.

 

“Notice of
Default” shall mean a notice pursuant to Section 5.2 hereof from the Collateral Agent to
the Creditors of the occurrence of an Event of Default.

 

“Outstanding
Amount” shall have the meaning assigned thereto in the
Credit Facility Agreement as in effect on the date hereof.

 

 “Person” means any
natural person, corporation, partnership, trust, limited liability company,
association, Governmental Authority or unit, or any other entity, whether
acting in an individual, fiduciary or other capacity.

 

“Preferential
Amount” shall mean, with respect to any Creditor, an
amount equal to (a) the outstanding principal amount of any Loans under
the Credit Facility Agreement owed to such Creditor, the outstanding principal
amount of any Private Placement Notes held by such Creditor, the outstanding
amount of such Creditor’s Letter of Credit Exposure and/or the outstanding
amount of all obligations of the Company or any of its Affiliates owed to such
Creditor in respect of any Cash Management Agreements on the date of the
occurrence of the Sharing Date with respect to an Enforcement Event, less (b) the
outstanding principal amount of any Loans under the Credit Facility Agreement
owed to such Creditor, the outstanding principal amount of any Private
Placement Notes held by such Creditor, the outstanding amount of such Creditor’s
Letter of Credit Exposure and/or the outstanding amount of all obligations of
the Company or its Affiliates owed to such Creditor in respect of any Cash
Management Agreement on the date of such Enforcement Event.

 

“Requisite
Creditors” shall mean (a) the Noteholders holding
obligations under the Private Placement Notes, the approval of which is
required to approve any contemplated amendment or modification of, termination
or waiver of any provision of or consent to any departure from the terms of
this Agreement under the terms of the Note Agreement and (b) the Credit
Facility Lenders the approval of which is required to approve any contemplated
amendment or modification of, termination or waiver of any provision of or
consent to any departure from the terms of this Agreement under the terms of
the Credit Facility Agreement, in each case, voting as a separate class.

 

“Returned
Amount” shall have the meaning assigned thereto in Section 5.11.

 

“Secured
Lender Parties” shall mean the Credit Facility Agent,
the L/C Issuer, the Credit Facility Lenders and any Hedge Bank (as defined in
the Credit Facility Agreement) and any Cash Management Bank (as defined in the
Credit Facility Agreement).

 

 “Security” shall have
the same meaning as in Section 2(1) of the Securities Act of 1933, as
amended.

 

5

 

“Security
Documents” shall mean the documents set forth on Exhibit A
hereto including all agreements, documents and instruments relating to, arising
out of, or in any way connected with any of the foregoing documents or granting
to the Collateral Agent Liens to secure the Senior Secured Obligations, whether
now or hereafter executed, each as amended or amended and restated in
conjunction herewith, or as may be amended, restated, replaced, supplemented or
otherwise modified from time to time hereafter in accordance with the terms
hereof.  Security Documents shall not
include the Note Agreement, the Private Placement Notes, the Credit Facility
Notes or the Credit Facility Agreement.

 

“Senior
Secured Obligations” shall mean collectively (a) the
indebtedness, obligations and liabilities of the Company and its Affiliates
(including, without limitation, the Guarantors) to the Noteholders under the
Note Documents (including, but not limited to, all unpaid principal of, and the
Yield-Maintenance Amount, if any, and accrued and unpaid interest on, the Private
Placement Notes) and (b) the indebtedness, obligations and liabilities of
the Company and its Affiliates (including, without limitation, the Guarantors)
to the Secured Lender Parties under the Credit Facility Loan Documents
(including, but not limited to, all amounts owed in respect of Secured Hedge
Agreements or Cash Management Agreements of the Company or its Affiliates owing
to a Credit Facility Secured Creditor or any of its Affiliates)  and any other Credit Facility Agreement Obligation, in each
case whether now existing or hereafter arising, joint or several, direct or
indirect, absolute or contingent, due or to become due, matured or unmatured,
liquidated or unliquidated, arising by contract, operation of law or otherwise,
and all obligations of the Company and their Affiliates to the Creditors
arising out of any extension, refinancing or refunding of any of the foregoing
obligations.

 

“Sharing
Date” with respect to an Enforcement Event shall mean
the earliest date on or prior to the date of such Enforcement Event (a) on
which a Sharing Event occurred and (b) on each date after which, until the
date of such Enforcement Event, one or more Sharing Events were in effect.

 

“Sharing
Event” shall mean the delivery to the Collateral
Agent or the Credit Facility Agent of written notice (which
notice the Collateral Agent or the Credit Facility Agent, as the case may
be, shall promptly forward to each Creditor or to such Creditor’s agent
or representative) of, or the actual knowledge of the Collateral Agent or
the Credit Facility Agent of, (a) the occurrence of any Specified Event of
Default, or (b) any refusal by any Secured Lender Party to make any loan
under the Credit Facility Agreement or issue any Letter of Credit requested by
the Company, either when obligated to do so under the Credit Facility Agreement
or on the grounds that an Event of Default has occurred or that
a representation or warranty of the Company is not true as of the
date of the requested loan or Letter of Credit where such loan or
issuance would not cause the Company to exceed the limitations set forth in Section 2.01
or 2.03 of the Credit Facility Agreement, so long as such refusal continues for
a period of at least three (3) consecutive Business Days. Any Sharing
Event occurring under clause (b) shall be deemed to have ceased to be in
effect at such time as the Secured Lender Parties make loans and issue Letters
of Credit under the Credit Facility Agreement as requested by the Company.

 

“Specified
Event of Default” shall mean (a) any default in
any payment of any Senior Secured Obligation when due, (b) an Event of
Default described in Section 8.01(d) of the Credit Facility Agreement
or clause (vii) of paragraph 7A of the Note Agreement, or (c) an
Event of 

 

6

 

Default described in clause 8.01(e)(i) of the Credit Facility
Agreement or clause (v) of paragraph 7A of the Note Agreement, provided
that any Specified Event of Default which occurs under this clause (c) shall,
unless otherwise agreed by the Credit Facility Agent and the Required Holders
(as defined in the Note Agreement), be deemed to have ceased to be in effect if
such Specified Event of Default has been cured or waived (in accordance with
the provisions of the Credit Facility Agreement and/or the Note Agreement, as
applicable) or if, within 365 days of the occurrence thereof, no Enforcement
Event, Sharing Event described in clause (b) of the definition thereof, or
Specified Event of Default described in clause (a) or (b) of this
definition has occurred.

 

“Subsidiary”
shall mean, as to any Person, any corporation, association or other business entity
in which at least a majority of the outstanding voting securities shall be
beneficially owned, directly or indirectly, by such Person.  Unless the context otherwise clearly
requires, any reference to a “Subsidiary” is a reference to a Subsidiary of the
Company.

 

“Yield-Maintenance
Amount” shall have the meaning assigned thereto in the
Note Agreement as in effect on the date hereof.

 

Section 1.2.                                Effectiveness of this
Agreement.  The effectiveness of this Agreement is
conditioned upon the execution and delivery of (a) this Agreement by the
Collateral Agent, the Noteholders and the Credit Facility Agent, (b) the
Note Agreement by each of the parties thereto and the Private Placement Notes
by the Company, (c) the Credit Facility Agreement by each of the parties
thereto and (d) the Security Documents by each of the parties thereto that
are necessary for such agreements to be legally effective.

 

SECTION 2.                                RELATIONSHIPS
AMONG SECURED PARTIES.

 

Section 2.1.                                Equal  and Ratable Sharing of
Collateral.

 

(a)                                  The equal and ratable sharing of Collateral
by the Creditors as provided for by this Agreement shall not be altered or
otherwise affected by any amendment, modification, supplement, extension,
renewal, restatement or refinancing of any of the Note Agreement, the Credit
Facility Agreement or the institution of any Bankruptcy Proceeding unless
expressly agreed to in writing by the Requisite Creditors.

 

(b)                                 Notwithstanding the order or time of
attachment of, or the order, time, or manner of perfection or the order or time
of filing or recordation of any document or instrument, or other method of
perfecting any Lien which may have heretofore been, or may hereafter be,
granted to, or created in favor of, any Creditor (in its capacity as such) in
any property or assets included or intended to be included in the Collateral,
and notwithstanding any conflicting terms or conditions which may be contained
in any Financing Document or Security Document and notwithstanding any
provision of the Uniform Commercial Code (as in effect in any applicable
jurisdiction) or other applicable law, the Collateral Agent shall have a senior
priority lien on and security interest in the Collateral.  No Creditor (in its capacity as such) shall
have apart from its interest as provided herein and in the Security Documents, (i) any
Lien on or security interest in the property and assets included in the
Collateral or (ii) any Lien on or security interest in 

 

7

 

any other property or assets of the Company
or any Subsidiary, and, notwithstanding the foregoing, to the extent any
Creditor acquires any such Liens or security interests, such Creditor shall be
deemed to (and by its acceptance of this Agreement agrees to) hold those Liens
and security interests for the ratable benefit of all Creditors and such
property or assets shall be deemed a part of the Collateral.

 

(c)                                  All proceeds received by the Collateral Agent
or any Creditor upon the sale, exchange, collection, foreclosure, or other
disposition of or realization upon all or any part of the Collateral, in each
case pursuant to the exercise of remedies under any Financing Document or any
Security Document, or upon any collection or enforcement under any guaranty of
the Senior Secured Obligations in connection with, or during the existence of,
an Enforcement Event and any payment received by the Collateral Agent or any
Creditor with respect to the Senior Secured Obligations on or after the
occurrence of an Enforcement Event (together, the “Company
Proceeds”), which term shall include, without limitation, (i) the
proceeds of any liquidation, foreclosure sale, enforcement of any Lien, or
other realization upon any Collateral or of any collection or enforcement under
any guaranty of the Senior Secured Obligations, together with any other sums
thereafter received by any Creditor or the Collateral Agent as part of the
Collateral (including, without limitation, all amounts received by the
Collateral Agent or any Creditor pursuant to the exercise by it of any right of
set off in respect of the Senior Secured Obligations held by it) and (ii) the
proceeds of any distributions of Collateral received by any Creditor or the
Collateral Agent in respect of any amounts owing to it under any of the
Financing Documents following any marshaling of the assets of the Company
(whether in bankruptcy, reorganization, winding up proceedings or similar
proceedings, or otherwise), or following confirmation of any plan of
arrangement or plan of reorganization of Company or any guarantor, shall be
delivered to the Collateral Agent and distributed among the Creditors and the
Collateral Agent as set forth in Section 5.8.

 

(d)                                 Subject to clause (e) below,
upon the occurrence of an Enforcement Event each Creditor shall deliver such
Creditor’s Preferential Amount, if any, to the Collateral Agent, which shall be
distributed among the Creditors and the Collateral Agent as set forth in Section 5.8.

 

(e)                                  Notwithstanding the
provision of subsection (c) and (d) of this Section 2.1, upon
agreement between the Collateral Agent and any Creditor who is required to
deliver any Company Proceeds or Preferential Amount to the Collateral Agent
under either such subsection, such Creditor may deliver an amount of such
Company Proceeds or Preferential Amount which is net of the amount thereof
which would be distributed to such Creditor under Section 5.8, in which
event such Creditor shall be deemed to have delivered the full amount of such
Company Proceeds or Preferential Amount to the Collateral Agent and to have
received the amount thereof which would have been distributed to such Creditor
under Section 5.8 for all purposes hereof.

 

Section 2.2.                                Restrictions on Actions.  Each Creditor agrees that, so long as any Senior Secured Obligations are
outstanding, the provisions of this Agreement shall provide the exclusive
method by which any Creditor may exercise rights and remedies under the
Security 

 

8

 

Documents
or with respect to the Collateral. 
Therefore, each Creditor shall, for the mutual benefit of all Creditors,
except as permitted under this Agreement:

 

(a)                                  refrain from taking or filing any action,
judicial or otherwise, to enforce any rights or pursue any remedy under the
Security Documents, except for delivering notices hereunder;

 

(b)                                 refrain from (1) selling any Senior
Secured Obligations to the Company or any Affiliate of the Company or (2) accepting
any guaranty of, or any other security for, the Senior Secured Obligations from
the Company or any Affiliate of the Company, except (i) the Guaranties,
including any joinders thereto pursuant to Section 6.10(a) of the
Credit Facility Agreement or paragraph 5K of the Note Agreement and (ii) any
other guaranty or security granted to the Collateral Agent for the benefit of
all Creditors; and

 

(c)                                  refrain from exercising any rights or
remedies under the Security Documents which have or may have arisen or which may
arise as a result of a Default or Event of Default or exercising any rights of
set-off against any account of the Company or any of its Affiliates (other than
in connection with ordinary course set-off rights including, but not limited
to, for the payment of account fees);

 

provided,
however, that nothing contained in subsections (a) through
(c) above, shall prevent any Creditor from exercising any remedy under its
documents that does not exercise a right under the Security Documents or with
respect to the Collateral, constitute a demand for payment under the Guaranties
or constitute an exercise of rights of set-off against an account of the
Company or any of its Affiliates (other than in connection with ordinary course
set-off rights including, but not limited to, for the payment of account
fees).  For the avoidance of doubt, the
Creditors agree that this Section 2.2 shall not prohibit any of the
following: (i) imposing a default rate of interest in accordance with the
Note Agreement, the Private Placement Notes or the Credit Facility Agreement,
as applicable, (ii) ceasing to honor requests for credit extensions of any
kind including the issuance, extension or increase of Letters of Credit, (iii) ceasing
to continue or make Eurodollar Rate Loans under and as defined in the Credit
Facility Agreement, (iv) raising any defenses in any action in which it
has been made a party defendant or has been joined as a third party, except
that the Collateral Agent may direct and control any defense directly relating
solely to the Collateral or any one or more of the Security Documents but not
relating to any Creditor, which shall be governed by the provisions of this
Agreement, (v) exercising any right of setoff, recoupment or similar
right; provided that, with
respect to this clause (v) and other than in connection with ordinary
course set-off rights (including, but not limited to, for the payment of
account fees), such action has been authorized in writing by the Majority
Creditors and the amounts so set-off or recouped shall constitute Collateral
for purposes of this Agreement and the Creditor shall promptly cause such
amounts to be delivered to the Collateral Agent for application pursuant to Section 5.8,
(vi) accelerating the obligations pursuant to the Private Placement Notes
or Private Placement Note Purchase Agreement or the Credit Facility Agreement
Obligations in accordance with the Note Agreement, the Private Placement Notes
or the Credit Facility Agreement, as applicable, or (vii) subject to
subsection (b) above, agreeing to new or modified covenants and other
terms under, or otherwise amending, the Note Agreement, the Private Placement
Notes or the Credit Facility Agreement, as applicable.

 

9

 

Section 2.3.           Representations and Warranties.

 

(a)           Each of the parties hereto represents and warrants to the other parties
hereto that:

 

(i)            the
execution, delivery and performance by such Person of this Agreement has been
duly authorized by all necessary corporate proceedings and does not and will
not contravene any provision of law, its charter or by-laws or any amendment
thereof, or of any indenture, agreement, instrument or undertaking binding upon
such Person; and

 

(ii)           the
execution, delivery and performance by such Person of this Agreement will
result in a valid and legally binding obligation of such Person enforceable in
accordance with its terms.

 

(b)           The Credit Facility Agent represents and warrants to the other parties
hereto that it is authorized to execute this Agreement on behalf of itself and
each other Credit Facility Secured Creditor and the execution, delivery and
performance by the Credit Facility Agent of this Agreement will result in a
valid and legally binding obligation of each Credit Facility Secured Creditor
enforceable in accordance with its terms.

 

Section 2.4.           Cooperation; Accountings.  Each of the Creditors will, upon the reasonable request of another
Creditor, from time to time execute and deliver or cause to be executed and
delivered such further instruments, and do and cause to be done such further
acts as may be necessary or proper to carry out more effectively the provisions
of this Agreement.  Each of the
Noteholders and the Credit Facility Agent, on behalf of the Secured Lender
Parties, agree to provide to each other upon reasonable request a statement of
all payments received in respect of Senior Secured Obligations.

 

Section 2.5.           Termination of Note Agreement or
Credit Facility Agreement.  Upon payment in full to any Creditor of all
Senior Secured Obligations of such Creditor, and, in the case of the Credit
Facility Lenders, the termination of such Credit Facility Lender’s Commitment
and the expiration or cancellation of any Letter of Credit under such facility,
and provided that no Sharing Event or Enforcement Event shall be continuing at
such time, such Creditor (a “Former Creditor”) shall, subject to Section 5.11
hereof, cease to be a party to this Agreement; provided,
however, if all or any part of any payments to any Creditor made
prior to such Former Creditor ceasing to be a party to this Agreement become a
Returned Amount, then this Agreement in respect of such Former Creditor shall
be renewed as of such date and shall thereafter continue in full force and
effect to the extent of the Senior Secured Obligations so invalidated, set
aside or repaid.

 

SECTION 3.           APPOINTMENT
AND AUTHORIZATION OF COLLATERAL AGENT.

 

(a)           Each Creditor and each other holder of Senior Secured Obligations by
its acceptance thereof hereby designates and appoints Bank of America, N.A. as
the Collateral Agent of such Creditor under this Agreement and the Security
Documents.  The appointment made by this Section 3(a) is
given for valuable consideration and 

 

10

 

coupled with an interest and, subject to Section 4.8,
is irrevocable so long as the Senior Secured Obligations, or any part thereof,
shall remain unpaid or any Credit Facility Lender is obligated to fund its
Commitment or make or fund any advances under the Letters of Credit.

 

(b)           Each Creditor and each other holder of Senior Secured Obligations by
its acceptance thereof hereby irrevocably authorizes Bank of America, N.A. as
the Collateral Agent for such Creditor to (1) execute and enter into each
of the Security Documents and all other instruments relating to said Security
Documents, (2) take action on its behalf expressly permitted to perfect,
maintain and preserve the Liens granted thereby, (3) execute instruments
of release or to take such other action necessary to release Liens upon the
Collateral to the extent authorized by this Agreement or the Financing Documents
or the Requisite Creditors, (4) act as its agent for perfection and (5) exercise
such other powers and perform such other duties as are, in each case, expressly
delegated to the Collateral Agent by the terms hereof together with such powers
as are reasonably incidental thereto.

 

(c)           Notwithstanding any provision to the contrary elsewhere in this
Agreement or the Security Documents, the Collateral Agent shall not have any
duties or responsibilities except those expressly set forth herein or therein
and no implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into the Security Documents or this Agreement or
otherwise be deemed to exist for, be undertaken by or apply to the Collateral
Agent.

 

(d)           The relationship between the Collateral Agent and each of the Creditors
is that of an independent contractor. 
The use of the term “Collateral Agent” is for convenience only and is
used to describe, as a form of convention, the independent contractual
relationship between the Collateral Agent and each of the Creditors.  Nothing contained in this Agreement nor the
other Security Documents shall be construed to create an agency, trust or other
fiduciary relationship between the Collateral Agent and any of the Creditors or
the Company.  As an independent
contractor empowered by the Creditors to exercise certain rights and perform
certain duties and responsibilities hereunder and under the other Security
Documents, the Collateral Agent is nevertheless a “representative” of the
Creditors, as that term is defined in Article 1 of the Uniform Commercial
Code, for purposes of actions for the benefit of the Creditors and the
Collateral Agent with respect to all Collateral.  Such actions include the designation of the
Collateral Agent as “secured party”, “mortgagee” or the like on all financing
statements and other documents and instruments, whether recorded or otherwise,
relating to the attachment, perfection, priority or enforcement of any security
interests, mortgages or deeds of trust in collateral security intended to
secure the payment or performance of any of the Senior Secured Obligations, all
for the benefit of the Creditors and the Collateral Agent.

 

11

 

SECTION 4.           AGENCY
PROVISIONS.

 

Section 4.1.           Delegation of Duties.  The Collateral Agent may exercise its powers and execute any of its
duties under this Agreement and the Security Documents by or through employees,
agents or attorneys-in-fact and shall be entitled to take and to rely on advice
of counsel concerning all matters pertaining to such powers and duties.  The Collateral Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.  The Collateral
Agent may utilize the services of such Persons as the Collateral Agent in its
sole discretion may determine, and all reasonable fees and expenses of such
Persons shall be borne by the Company (and shall constitute a Senior Secured
Obligation under the Security Documents and hereunder) and shall be subject to
the indemnity provisions of Section 4.6.

 

Section 4.2.           Exculpatory Provisions.  Neither the Collateral Agent nor any of the Collateral Agent’s
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall
be (a) liable for any action lawfully taken or omitted to be taken by it
or such Person under or in connection with this Agreement or any Security
Document (except for its or such Person’s own gross negligence or willful
misconduct) or (b) responsible in any manner to any of the Creditors for
any recitals, statements, representations or warranties made by the Company or
any officer, representative, agent or employee thereof contained in any
Security Document or in any certificate, report, statement or other document
referred to or provided for in, or received by, the Collateral Agent under or
in connection with this Agreement or any Security Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of the
Security Documents or for any failure of the Company to perform its obligations
thereunder.  The Collateral Agent shall
be under no obligation to the Creditors to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, the Security Documents or any of the Note Documents or the Credit Facility
Loan Documents.

 

Section 4.3.           Reliance by Collateral
Agent.  The Collateral Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document or conversation
reasonably believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons and upon advice and statements of
legal counsel (including, without limitation, counsel to the Company),
independent accountants and other experts selected by the Collateral
Agent.  The Collateral Agent shall be
fully justified in failing or refusing to take action under this Agreement or
any Security Document unless it shall first receive such advice or concurrence
of the Majority Creditors as is contemplated by Section 5 hereof and it shall first be indemnified to its
reasonable satisfaction by the Creditors against any and all liability and
expense which may be incurred by it by reason of taking, continuing to take or
refraining from taking any such action. 
The Collateral Agent shall in all cases be fully protected in acting, or
in refraining from acting, under this Agreement and the Security Documents in
accordance with the provisions of Section 5.6  hereof
and in accordance with written instructions of the Majority Creditors pursuant
to Section 5.3 hereof, and
such request and any action taken or failure to act pursuant thereto shall be
binding upon all the Creditors and all future holders of the Senior Secured
Obligations.

 

12

 

Section 4.4.           Knowledge or Notice of Default or
Event of Default.  The Collateral Agent shall not be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
unless the Collateral Agent has received written notice from a Creditor or the
Company referring to the Note Agreement or the Credit Facility Agreement,
describing such Default or Event of Default, setting forth in reasonable detail
the facts and circumstances thereof and stating that the Collateral Agent may
rely on such notice without further inquiry; provided
that the failure of any Creditor to provide such notice shall not impair any
rights of such Creditor hereunder.

 

Section 4.5.           Non-Reliance on Collateral Agent
and Other Creditors.  Each Creditor expressly acknowledges that
except as set forth in Section 2.3(a) hereof, neither the Collateral
Agent nor any of the Collateral Agent’s officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
it.  Each Creditor represents that it
has, independently and without reliance upon the Collateral Agent or any other
Creditor, and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, operations,
property, financial and other condition and creditworthiness of the
Company.  Each Creditor also represents
that it will, independently and without reliance upon the Collateral Agent or
any other Creditor, 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 the Security
Documents and this Agreement and to make such investigation as it deems
necessary to inform itself as to the business, operations, property, financial
and other condition and creditworthiness of the Company.  The Collateral Agent shall have no duty or
responsibility to provide any Creditor with information concerning the
business, operations, property, financial or other condition, or
creditworthiness of Company that may come into the possession of the Collateral
Agent or any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates; provided, however,
that the foregoing shall not alter the obligations of the Credit Facility Agent
(in its capacity as such) under the Credit Facility Agreement to deliver to the
Credit Facility Lenders certain financial information and other notices.

 

Section 4.6.           Indemnification.

 

(a)           Each Creditor agrees to indemnify the Collateral Agent and its
employees, directors, officers, agents and attorneys-in-fact in their capacity
as such (to the extent not reimbursed by the Company and without limiting the
obligation of the Company to do so), ratably according to its respective share
of the sum of the aggregate outstanding principal amount of indebtedness
evidenced by the Private Placement Notes and the aggregate Outstanding Amount
under the Credit Facility Agreement and all amounts owed in respect of Secured
Hedge Agreements or Cash Management Agreements by the Company or its Affiliates
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following an Event of Default or the payment of the Senior Secured
Obligations) be imposed on, incurred by or asserted against the Collateral
Agent arising out of or relating to the Security Documents, the actions or
omissions of the Collateral Agent specifically required or permitted by this
Agreement or the Security Documents or the exercise of remedies pursuant to written
instructions of the Majority Creditors pursuant to Section 5.3

 

13

 

hereof; provided that
no Creditor shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting solely from the Collateral Agent’s gross
negligence or willful misconduct.  If any
Creditor (a “Non-Indemnifying Creditor”) fails to
tender payment of its ratable share of any of such Indemnified Liabilities (its
“Indemnity Share”), then the Collateral
Agent is hereby expressly granted the right thereafter to, and shall, withhold
from any distributions of Collateral otherwise payable to such Non-Indemnifying
Creditor an amount equal to its Indemnity Share remaining unpaid at such time
of receipt of such distributions and apply such amount withheld in satisfaction
of such Indemnity Share.  The Collateral
Agent shall also have the right to collect from such Non-Indemnifying Creditor,
or withhold from any distributions to otherwise be made to such
Non-Indemnifying Secured Creditor, the Collateral Agent’s reasonable costs and
expenses incurred in collecting such Non-Indemnifying Creditor’s Indemnity
Share.  The agreements in this Section 4.6(a) shall
survive the payment of the Senior Secured Obligations, the resignation or
removal of the Collateral Agent and the termination of this Agreement, the
Security Documents and the Financing Documents.

 

(b)           The Company agrees to indemnify the Collateral Agent its employees,
directors, officers, agents and attorneys-in-fact in their capacity as such
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever (including, without limitation, reasonable attorneys’ fees and
expenses) which may at any time (including, without limitation, at any time
following an Event of Default or the payment of the Senior Secured Obligations)
be imposed on, incurred by or asserted against the Collateral Agent arising out
of or relating to (i) the Security Documents, (ii) the actions or
omissions of the Collateral Agent specifically required or permitted by this
Agreement or the Security Documents or the exercise of remedies pursuant to
written instructions of the Majority Creditors pursuant to Section 5.3
hereof, (iii) any actual or prospective claim, litigation, investigation
or proceeding relating to any of the foregoing, whether based on contract, tort
or any other theory, whether brought by a third party or by the Company, and
regardless of whether any Person to be indemnified hereunder is a party
thereto, in all cases, whether or not caused by or arising, in whole or in
part, out of the comparative, contributory or sole negligence of such
indemnitee and (iv) the payment, failure to pay, or delay in payment of
any taxes in respect of the granting of security under this Agreement or the
Security Documents, any stamp or other taxes in respect of Senior Secured
Obligations, or any other taxes imposed upon or assessed against the Collateral
Agent relating to or, in connection with its services hereunder and thereunder
(but excluding therefrom net income taxes and franchise taxes in lieu of net
income taxes imposed on the Collateral Agent as a result of a present or former
connection between the jurisdiction of the governmental authority imposing such
tax and the Collateral Agent (except a connection arising solely from the
Collateral Agent having executed, delivered or performed its obligations or
received a payment under, or enforced, any of the Security Documents or any of
the Financing Documents), provided that
the Company shall not be liable under this Section 4.6(b) for any
such loss, claim, damage, liability, expense or obligation incurred by the
Collateral Agent to the extent resulting from its own gross negligence or
willful misconduct.  It is the express
intention of the parties hereto that each Person to be indemnified hereunder
shall be indemnified and held harmless against 

 

14

 

any and all losses, liabilities, claims or
damages arising out of or resulting from the ordinary, sole or contributory
negligence of such Person.  The Company
shall also reimburse any Creditor upon demand for any indemnification
obligation in respect of which such Creditor shall become liable to the
Collateral Agent as contemplated by Section 4.6(a) of this
Agreement.  The indemnity rights set
forth in this Section 4.6(b) shall survive the payment of the Senior
Secured Obligations, the resignation or removal of the Collateral Agent and the
termination of this Agreement, the Security Documents and the Financing
Documents.

 

Section 4.7.           Collateral Agent in Its
Individual Capacity.  Bank of America, N.A. and its Affiliates may
make loans to, accept deposits from and generally engage in any kind of
business with the Company and its Affiliates as though such Person was not the
Collateral Agent hereunder.  With respect
to any obligations owed to it under the Credit Facility Agreement, Bank of
America, N.A. shall have the same rights and powers under this Agreement as any
Creditor and may exercise the same as though it were not the Collateral Agent,
and the terms “Creditor” and “Creditors” shall include the Collateral Agent in its
individual capacity.

 

Section 4.8.           Successor Collateral Agent.

 

(a)           The Collateral Agent may resign at any time upon 60 days’ written
notice to the Creditors and the Company and may be removed at any time, with or
without cause, by the Majority Creditors by written notice delivered to the
Company, the Collateral Agent and the Creditors.  After any resignation or removal hereunder of
the Collateral Agent, the provisions of this Section 4 shall continue to
inure to its benefit as to any actions taken or omitted to be taken by it in
connection with its agency hereunder while it was the Collateral Agent under
this Agreement.

 

(b)           Upon receiving written notice of any such resignation or removal, a
successor Collateral Agent shall be appointed by the Majority Creditors; provided, however, that such successor Collateral Agent
shall be (1) a bank or trust company having a combined capital and surplus
of at least $1,000,000,000, subject to supervision or examination by a Federal
or state banking authority; and (2) authorized under the laws of the
jurisdiction of its incorporation or organization to assume the functions of
the Collateral Agent.  If a successor
Collateral Agent shall not have been appointed pursuant to this Section 4.8(b) within such
60 day period after the Collateral Agent’s resignation or upon removal of the
Collateral Agent then any Creditor or the Collateral Agent (unless the
Collateral Agent is being removed) may petition a court of competent
jurisdiction for the appointment of a successor Collateral Agent.  Such court shall, after such notice as it may
deem proper, appoint a successor Collateral Agent meeting the qualifications
specified in this Section 4.8(b).  The Creditors hereby consent to such petition
and appointment so long as such criteria are met.

 

(c)           The resignation or removal of a Collateral Agent shall take effect on
the day specified in the notice described in Section 4.8(a), unless previously a successor Collateral
Agent shall have been appointed and shall have accepted such appointment, in
which event such resignation or removal shall take effect immediately upon the
acceptance of such appointment by such successor Collateral Agent, provided, however, 

 

15

 

that no such resignation or removal shall be
effective hereunder unless and until a successor Collateral Agent shall have
been appointed and shall have accepted such appointment.

 

(d)           The appointment of a successor Collateral Agent pursuant to Section 4.8(b) shall
become effective upon the acceptance of the appointment as Collateral Agent
hereunder by a successor Collateral Agent. 
Upon such effective appointment, the successor Collateral Agent shall
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent.  Such
appointment and designation shall be full evidence of the right and authority
to act as Collateral Agent hereunder and all Collateral, power, trusts, duties,
documents, rights and authority of the previous Collateral Agent shall rest in
the successor, without any further deed or conveyance.  The predecessor Collateral Agent shall,
nevertheless, on the written request of the Majority Creditors or successor Collateral
Agent, execute and deliver any other such instrument transferring to such
successor Collateral Agent all the Collateral, properties, rights, power,
trust, duties, authority and title of such predecessor.  The Company, to the extent requested by the
Majority Creditors or the Collateral Agent shall procure any and all documents,
conveyances or instruments and execute the same, to the extent required, in
order to reflect the transfer to the successor Collateral Agent.

 

SECTION 5.           ACTIONS BY THE
COLLATERAL AGENT.

 

Section 5.1.           Duties and Obligations.  The duties and obligations of the Collateral Agent are only those set
forth in this Agreement and in the Security Documents.

 

Section 5.2.           Notification of Default.  If the Collateral Agent has been notified in writing that a Default or
an Event of Default has occurred, the Collateral Agent shall notify the
Creditors and may notify the Company of such determination.  Any Creditor which has actual knowledge of a
Default or an Event of Default, shall deliver to the Collateral Agent a written
statement to such effect (a “Default Notice”).  Failure to deliver a Default Notice to the
Collateral Agent, however, shall not (a) constitute a waiver of such
Default or Event of Default by the Creditors or (b) impair any rights of
such Creditor hereunder.  No Default
Notice from any Creditor shall be required to be given (i) if such Event
of Default is waived or cured by amendment prior to the time a Default Notice
is delivered or (ii) if notice of such Event of Default has previously
been delivered to the Collateral Agent. 
Upon receipt of a Default Notice or a notice as required by Section 4.4 from a Creditor, the
Collateral Agent shall promptly (and in any event no later than five (5) Business
Days after receipt of such notice in the manner provided in Section 7.8 hereof) issue its “Notice
of Default” to all Creditors.  The Notice
of Default may contain a recommendation of actions by the Creditors and/or
request instructions from the Creditors as to specific matters and shall
specify a date on which responses are due.

 

Section 5.3.           Exercise
of Remedies.  Except for the
preservation of Collateral (and similar actions) in exigent circumstances to
prevent the damage, destruction or perishing of the Collateral or to the extent
expressly authorized herein, the Collateral Agent shall take only such actions
and exercise only such remedies under the Security Documents as are approved in
a written notice delivered to the Collateral Agent and signed by the Majority
Creditors; provided, however, that if, solely in
connection with the initial exercise of remedies against the Collateral, 

 

16

 

such action has not been
approved by (a) Noteholders holding more than 50% of the aggregate outstanding principal amount of the
indebtedness evidenced by the Private Placement Notes and (b) Credit
Facility Lenders holding more than 50%
of the sum of (i) Total Outstandings (as defined in the Credit
Facility Agreement) and (ii) aggregate unused Revolving Credit Commitments
aggregate (as defined in the Credit Facility Agreement), in each case, voting
as a separate class, then the Collateral Agent shall not take such action until
ten (10) Business Days have elapsed from the date of the Collateral Agent’s
request for approval (during which time the disapproving Creditors shall have
the opportunity to voice their objections and potentially alter the voting of
the Majority Creditors).

 

Section 5.4.           Changes to Security
Documents.  Any term of the Security Documents may be
amended, and the performance or observance by the parties to a Security
Document of any term of such Security Document may be waived (either generally
or in a particular instance and either retroactively or prospectively) by the
Collateral Agent only upon the written consent of the Requisite Creditors.

 

Section 5.5.           Release of Collateral.  Unless an Event of Default has occurred and is continuing and the
Collateral Agent shall have received a Default Notice in connection therewith,
the Collateral Agent may (but shall not be obligated to), without the approval
of the Majority Creditors as required by Section 5.3 hereof, release any Collateral under the Security
Documents which is permitted to be sold or disposed of by the Company and its
Affiliates pursuant to the Note Agreement and the Credit Facility Agreement and
execute and deliver such releases as may be necessary to terminate of record
the Collateral Agent’s security interest in such Collateral so long as, if such
sale or disposition causes the Company to be required to make a mandatory
prepayment of the loans under the Credit Facility Agreement or an offer to
prepay the Private Placement Notes under the Note Agreement, the proceeds from
such sale or disposition are used to prepay such loans and, to the extent such
offer has been accepted (or deemed to have been accepted) under the Note
Agreement, the Private Placement Notes in accordance with the terms of the
Credit Facility Agreement and the Note Agreement.  In determining whether any such release is
permitted, the Collateral Agent may rely upon the instructions or stipulation
from the class of Majority Creditors party to such agreement.

 

Section 5.6.           Other Actions.  The Collateral Agent shall have the right to take such actions, or omit
to take such actions, hereunder and under the Security Documents not
inconsistent with the written instructions of the Majority Creditors delivered
pursuant to Section 5.3 hereof
or the terms of this Agreement, including actions the Collateral Agent deems
necessary or appropriate to perfect or continue the perfection of the Liens on
the Collateral for the benefit of the Creditors.  Except as otherwise provided by applicable
law, the Collateral Agent shall have no duty as to the collection or protection
of the Collateral or any income thereon, nor as to the preservation of rights
against prior parties, nor as to the preservation of rights pertaining to the
Collateral beyond those duties imposed by Section 207 of Article 9 of
the Uniform Commercial Code with respect to any Collateral in the Collateral
Agent’s actual possession.

 

Section 5.7.           Cooperation.  To the extent that the exercise of the rights, powers and remedies of
the Collateral Agent in accordance with this Agreement requires that any action
be taken by any Creditor, such Creditor shall take such reasonable action and
cooperate with the 

 

17

 

Collateral
Agent to reasonably ensure that the rights, powers and remedies of all
Creditors are exercised in full.

 

Section 5.8.           Distribution of Proceeds.  All amounts owing with respect to the Senior Secured Obligations shall
be secured pro rata by the Collateral without distinction as to whether some
Senior Secured Obligations are then due and payable and other Senior Secured
Obligations are not then due and payable. 
The Collateral Agent shall distribute any Company Proceeds or
Preferential Amount received by it in accordance with the provisions of this Section 5.8.  Upon any realization upon the Collateral
and/or the receipt of any payments under any Security Document after the
occurrence of an Enforcement Event and any payments under any Guaranty and any
other guaranty of any Senior Secured Obligations, the Creditors agree that the
proceeds thereof shall be applied:

 

first, to
any amounts owing to the Collateral Agent by the Company or the Creditors
pursuant to this Agreement or the Security Documents, including, without
limitation, payment of expenses incurred by the Collateral Agent with respect
to maintenance and protection of the Collateral and of expenses incurred with
respect to the sale of or realization upon any of the Collateral or the
perfection, enforcement or protection of the rights of the Creditors (including
reasonable attorneys’ fees and expenses);

 

second, equally
and ratably to the payment of all amounts of the Senior Secured Obligations
constituting reimbursement of expenses (including attorney fees and other
expenses of other professionals) and indemnities (other than breakage costs)
required to be paid pursuant to the Note Agreement or the Credit Facility
Agreement;

 

third, equally
and ratably to the payment of all amounts of interest outstanding that
constitute Senior Secured Obligations (other than any Yield-Maintenance Amount
or breakage costs but including any periodic payments due under any Hedging
Agreement constituting a Senior Secured Obligation) and letter of credit fees
and commitment fees that constitute Senior Secured Obligations and are required
to be paid pursuant to any Financing Document according to the aggregate
amounts of such interest and fees then owing to each Creditor;

 

fourth, equally
and ratably to the payment of all outstanding amounts of principal, Letter of
Credit Exposure, the termination value of any Hedging Agreement or Cash
Management Agreement, breakage compensation, prepayment premiums and the
Yield-Maintenance Amount, if any, which constitute Senior Secured Obligations;

 

fifth, equally
and ratably to all other amounts then due to the Creditors under the Note
Agreement and the Credit Facility Agreement;

 

sixth, equally
and ratably to all Disallowed Obligations under the Note Agreement and the
Credit Facility Agreement; and

 

seventh, the
balance, if any, shall be returned to the Company or such other Persons as are
entitled thereto.

 

18

 

Any
payment pursuant to this Section 5.8 with respect to the outstanding
amount of any undrawn Letters of Credit shall be paid to the Collateral Agent
for deposit in an account (the “Letter of
Credit Collateral Account”) to be held as collateral for the Senior
Secured Obligations and disposed of as provided herein.  On each date on which a payment is made to a
beneficiary pursuant to a draw on a Letter of Credit, the Collateral Agent
shall distribute from the Letter of Credit Collateral Account for application
to the payment of the reimbursement obligation due to the Credit Facility
Lenders with respect to such draw an amount equal to the product of (1) the
amount then on deposit in the Letter of Credit Collateral Account, and (2) a
fraction, the numerator of which is the amount of such draw and the denominator
of which is the outstanding amount of all undrawn Letters of Credit immediately
prior to such draw.  On each date on
which a reduction in the outstanding amount of undrawn Letters of Credit occurs
other than on account of a payment made to a beneficiary pursuant to a draw on
a Letter of Credit, then the Collateral Agent shall distribute from the Letter
of Credit Collateral Account an amount equal to the product of (i) the
amount then on deposit in the Letter of Credit Collateral Account, and (ii) a
fraction, the numerator of which is the amount of such reduction in the
outstanding amount of undrawn Letters of Credit and the denominator of which is
the amount of all undrawn Letters of Credit immediately prior to such
reduction, which amount shall be distributed as provided in the first paragraph
of this Section 5.8.  At such time
as the outstanding amount of all undrawn Letters of Credit is reduced to zero,
any amount remaining in the Letter of Credit Collateral Account, after the
distribution therefrom as provided above, shall be distributed as provided in
the first paragraph of this Section 5.8. 
All payments by the Collateral Agent hereunder shall be made (x) if
to a Noteholder, directly to the applicable Noteholder, (y) if to any
Credit Facility Secured Creditor, to the Credit Facility Agent for the account
of the applicable Credit Facility Secured Creditor and (z) if to the
Collateral Agent, directly to the Collateral Agent.

 

The
Company and each Guarantor agrees that in the event the Company or any
Guarantor shall make any payment to any Creditor with respect to the Senior
Secured Obligations that such Creditor is required to deliver to the Collateral
Agent for distribution pursuant to this Section 5.8, then, notwithstanding
that such payment was initially delivered to such Creditor, such payment shall
discharge the Senior Secured Obligations to the extent such payment is
distributed with respect to the various Senior Secured Obligations pursuant to
the provisions of this Section 5.8.

 

Section 5.9.           Authorized Investments.  Any and all funds held by the Collateral Agent in its capacity as
Collateral Agent, whether pursuant to any provision of any of the Security
Documents or otherwise, shall to the extent feasible within a reasonable time
be invested by the Collateral Agent in Cash Equivalent Investments.  Any interest earned on such funds shall be
disbursed to the Creditors in accordance with Section 5.8.  The
Collateral Agent may hold any such funds in a common interest bearing
account.  The Collateral Agent shall have
no duty to place funds held pursuant to this Section 5.9 in investments which
provide a maximum return; provided, however, that
the Collateral Agent shall to the extent feasible invest funds in Cash
Equivalent Investments with reasonable promptness.  In the absence of gross negligence or willful
misconduct, the Collateral Agent shall not be responsible for any loss of any
funds invested in accordance with this Section 5.9.

 

19

 

Section 5.10.        Determination of Amount of Senior Secured Obligations.

 

(a)           In determining the amount of the Senior Secured Obligations owed to
each Creditor and the portions thereof which are due on account of principal,
interest, fees or expenses or otherwise, the Collateral Agent may request from
each Creditor, and shall be entitled to rely upon, a statement from each
Creditor setting forth the Senior Secured Obligations owed to it in such detail
as shall permit the Collateral Agent to make the foregoing distributions.  In the event of any dispute between any
Creditors as to the Senior Secured Obligations owed to them or the amounts
thereof, the Collateral Agent shall be entitled to hold such portion of the
proceeds to be distributed as are subject to such dispute pending the
resolution by the parties or pursuant to a judicial determination.

 

(b)           If in connection with a Bankruptcy Proceeding of the Company any
portion of the Senior Secured Obligations referred to in clauses SECOND, THIRD,
FOURTH or FIFTH of Section 5.8 is determined to be unenforceable or is
disallowed (such portion to be hereinafter referred to as a “Disallowed Obligation”), then such Disallowed Obligation
shall not be included in the calculation of amounts to be paid pursuant to
clauses SECOND, THIRD, FOURTH or FIFTH of Section 5.8 but shall be
included in clause SIXTH of Section 5.8; provided,
that in no event shall a claim pursuant to a Guaranty or any other guaranty of
a Senior Secured Obligation be included as a Disallowed Obligation unless the
Senior Secured Obligation which is guaranteed by such Guaranty or other
guaranty also constitutes a Disallowed Obligation.  In no event shall any Creditor take any
action to challenge, contest or dispute the validity, extent, enforceability or
priority of the Liens or claims of any other Creditor on the Collateral, or
that would have the effect of invalidating such liens, or support any person
who takes any such action.  Each of the
Creditors agrees that it will not take any action to challenge, contest or
dispute the validity, extent, enforceability or the secured status of any other
Creditor’s claims against the Company (other than any such claim resulting from
the breach of this Agreement), or that would have the effect of invalidating
such claim or support any person who takes any such action.  For the avoidance of doubt, a Creditor’s
claims that constitute Senior Secured Obligations shall be included in any
distribution of proceeds pursuant to Section 5.8 whether or not a Lien
held by such Creditor is invalidated or set aside.  This Section 5.10(b) is without
prejudice to the obligation of the Credit Facility Lenders to reimburse the
Credit Facility Agent for fees, expenses and other charges under the terms of
the Credit Facility Agreement irrespective of the disallowance of such fees,
expenses or charges.

 

(c)           If in connection with a Bankruptcy Proceeding of Company, the fees and
expenses of the Collateral Agent referred to in clause First of Section 5.8
are determined to be unenforceable or are disallowed, in whole or in part, each
Creditor agrees to pay its Indemnity Share of such fees and expenses.

 

Section 5.11.        Reinstatement.  If at any time the Collateral Agent or any Creditor shall be required
to restore or return, or if such Person restores or returns in good faith
settlement of pending or threatened avoidance claims, to the Company or any
Guarantor or to the bankruptcy estate of the Company or any Guarantor any
payments or distributions theretofore applied to the Senior Secured Obligations
or any portion thereof, whether by reason of the insolvency, 

 

20

 

bankruptcy,
reorganization or other similar event in respect of the Company (a “Returned Amount”), then, (a) the Collateral Agent (or
Creditor, as applicable) shall promptly give notice of the Returned Amount to
each Creditor and (b) each of the Creditors shall promptly transfer to the
Collateral Agent (for reimbursement to the Collateral Agent or such Creditor,
as the case may be) such amounts as are necessary such that each Creditor shall
have received and retained the amount it would have received under Section 5.8
had the Returned Amount not previously been distributed (its “Returned Amount Share”). 
If any Creditor (a “Non-Returning Secured
Creditor”) fails to tender payment of its Returned Amount Share,
then the Collateral Agent is hereby expressly granted the right thereafter to,
and shall, withhold from any distributions otherwise payable to such
Non-Returning Secured Creditor an amount equal to its Returned Amount Share
remaining unpaid at such time of receipt of such distributions and apply such
amount withheld in satisfaction of such Returned Amount Share.  The Collateral Agent shall also have the
right to collect from such Non-Returning Secured Creditor, or withhold from any
distributions under Section 5.8 to otherwise be made to such Non-Returning
Secured Creditor, the Collateral Agent’s reasonable costs and expenses incurred
in collecting such Non-Returning Secured Creditor’s Returned Amount Share.  The agreements in this Section 5.11
shall survive the payment of the Senior Secured Obligations and the termination
of the Financing Documents or this Agreement.

 

SECTION 6.           BANKRUPTCY PROCEEDINGS.

 

The following
provisions shall apply during any Bankruptcy Proceeding of the Company or any
Affiliate of the Company:

 

(a)           The Collateral Agent shall act on the instructions of the Majority
Creditors with respect to the administration of the Collateral in such
Bankruptcy Proceeding (including with respect to questions regarding adequate
protection and post-petition use of Collateral) and each Creditor agrees to be
bound by such instructions with respect to matters pertaining to the Collateral;
provided that no such vote by the
Majority Creditors shall treat the Noteholders or the Revolving Credit Facility
Lenders differently with respect to rights in the Collateral.

 

(b)           Each Creditor shall be free to act independently on any issue not
directly relating solely to the Collateral. 
Each Creditor shall give prior notice to the Collateral Agent of any
action hereunder to the extent that such notice is possible.  If such prior notice is not given, such
Creditor shall give prompt notice following any action taken hereunder.

 

(c)           Any proceeds of the Collateral received by any Creditor as a result of,
or during, any Bankruptcy Proceeding will be delivered promptly to the
Collateral Agent for distribution in accordance with Section 5.8.

 

(d)           No
Creditor shall enter into any post-petition financing arrangements with the
Company or any Affiliate of the Company in any Bankruptcy Proceeding unless
authorized in writing by the Majority Creditors and unless all Creditors shall
have been given the opportunity to participate ratably in such post-petition
financing arrangements.

 

21

 

SECTION 7.                                MISCELLANEOUS.

 

Section 7.1.                                Creditors; Other Collateral.  The Creditors agree that all of the provisions of this Agreement shall
apply to any and all properties, assets and rights of the Company and their
Affiliates, including, without limitation, the Guarantors, in which the
Collateral Agent at any time acquires a security interest or Lien pursuant to
the Security Documents, the Note Agreement, the Credit Facility Agreement
including, without limitation, real property or rights in, on or over real
property, notwithstanding any provision to the contrary in any mortgage,
security agreement, pledge agreement or other document purporting to grant or
perfect any Lien in favor of the Creditors or any of them or the Collateral
Agent for the benefit of the Creditors.

 

Section 7.2.                                Marshalling.  The Collateral Agent shall not be required to marshall any present or
future security for (including, without limitation, the Collateral), or
guaranties of, the Senior Secured Obligations or any of them, or to resort to
such security or guaranties in any particular order; and all of each of such
Person’s rights in respect of such security and guaranties shall be cumulative
and in addition to all other rights, however existing or arising.  To the extent that they lawfully may, the
Creditors hereby agree that they will not invoke any law relating to the
marshalling of collateral which might cause delay in or impede the enforcement
of the Creditors’ rights under the Security Documents or under any other
instrument evidencing any of the Senior Secured Obligations or under which any
of the Senior Secured Obligations is outstanding or by which any of the Senior
Secured Obligations is secured or guaranteed.

 

Section 7.3.                                Consents, Amendments,
Waivers.  All amendments, waivers or consents of any
provision of this Agreement shall be effective only if the same shall be in
writing and signed by the Requisite Creditors referred to in clause (a) of the definition thereof,  the Credit Facility Agent and the
Collateral Agent.

 

Section 7.4.                                Governing Law.  This Agreement shall be deemed to be a contract under seal and shall
for all purposes be governed by and construed in accordance with the laws of
the State of Illinois.

 

Section 7.5.                                Parties in Interest.  All terms of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto, including, without limitation, any future holder of the Senior
Secured Obligations; provided that
no Creditor may assign or transfer its rights hereunder or under the Security
Documents without such assignees or transferees agreeing, by executing an
instrument in form and substance reasonably acceptable to the Collateral Agent,
to be bound by the terms of this Agreement as though named herein; provided further, (a) that with respect to the Secured
Lender Parties (other than the Credit Facility Agent), the requirements of this
Section 7.5 shall be satisfied upon satisfaction of the assignment
provisions set forth in the Credit Facility Agreement and (b) that with
respect to the Credit Facility Agent, the requirements of this Section 7.5
shall be satisfied upon the satisfaction of the resignation of the Credit
Facility Agent in accordance with the terms of the Credit Facility Agreement
and appointment of a successor thereto in accordance with the terms of the
Credit Facility Agreement.

 

Section 7.6.                                Counterparts.  This Agreement and any amendment hereof may be executed in several
counterparts and by each party on a separate counterpart, each of which when 

 

22

 

so
executed and delivered shall be an original, but all of which together shall
constitute one instrument.  In proving
this Agreement it shall not be necessary to produce or account for more than
one such counterpart signed by the party against whom enforcement is
sought.  Delivery of executed
counterparts of this Agreement electronically or by telecopy shall be effective
as an original and shall constitute a representation that an original shall be
delivered.

 

Section 7.7.                                Termination.  Subject to Section 5.11, upon payment in full of the Senior
Secured Obligations in accordance with their respective terms, the termination
of the Commitments and the expiration or cancellation of all undrawn Letters of
Credit under the Credit Facility Loan Documents, this Agreement shall
terminate.

 

Section 7.8.                                Notices.  Except as otherwise expressly provided herein, all notices, consents
and waivers and other communications made or required to be given pursuant to
this Agreement shall be in writing and shall be delivered by hand, mailed by
registered or certified mail or prepaid overnight air courier, or by facsimile
communications, addressed as follows:

 

	
  If to the Collateral Agent, at:

  	
   

  	
  Bank of America, N.A.

  
	
   

  	
   

  	
  231 S. LaSalle Street

  
	
   

  	
   

  	
  Mail Code:  IL1-231-10-41

  
	
   

  	
   

  	
  Chicago, IL  60697

  
	
   

  	
   

  	
  Attention:   Suzanne M. Paul

  
	
   

  	
   

  	
  Telephone:  312-923-1640

  
	
   

  	
   

  	
  Telecopier:  877-206-8435

  
	
   

  	
   

  	
  Electronic Mail:  

  suzanne.m.paul@bankofamerica.com

  
	
   

  	
   

  	
   

  
	
  If to any Credit Facility

  	
   

  	
  c/o Credit Facility Agent,

  
	
  Secured Creditor, at:

  	
   

  	
  Bank of America, N.A.

  
	
   

  	
   

  	
  231 S. LaSalle Street

  
	
   

  	
   

  	
  Mail Code:  IL1-231-10-41

  
	
   

  	
   

  	
  Chicago, IL  60697

  
	
   

  	
   

  	
  Attention:   Suzanne M. Paul

  
	
   

  	
   

  	
  Telephone:  312-923-1640

  
	
   

  	
   

  	
  Telecopier:  877-206-8435

  
	
   

  	
   

  	
  Electronic Mail:  

  suzanne.m.paul@bankofamerica.com

  
	
   

  	
   

  	
   

  
	
  If to any Noteholder, at:

  	
   

  	
  Such address as set forth for such
  Noteholder on Schedule 1 hereto

  
	
   

  	
   

  	
   

  
	
  If to the
  Company, at:

  	
   

  	
  KapStone Kraft Paper Corporation

  
	
   

  	
   

  	
  1101 Skokie Blvd., STE 300

  
	
   

  	
   

  	
  Northbrook, IL 60062

  
	
   

  	
   

  	
  Attention:

  
	
   

  	
   

  	
  Telephone:

  
	
   

  	
   

  	
  Telecopier:

  

 

23

 

or at such
other address for notice as the Collateral Agent, such Creditor or the Company
shall last have furnished in writing to the Person giving the notice, provided that a notice by overnight air courier shall only
be effective if delivered at a street address designated for such purpose and a
notice by facsimile communication shall only be effective if made by confirmed
transmission at a telephone number designated for such purpose.  Notwithstanding any provision of this
Agreement to the contrary, all notices to the Secured Lender Parties shall be
delivered to the Credit Facility Agent.  
The obligation of any Credit Facility Secured Creditor to give notice
hereunder may be satisfied by the giving of such notice by the Credit Facility
Agent.

 

24

 

IN WITNESS WHEREOF, the parties hereto have caused these presents to be
duly executed as an instrument under seal by their authorized representatives
as of the date first written above.

 

 

	
   

  	
  BANK OF AMERICA, N.A., as Collateral Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Suzanne M. Paul

  
	
   

  	
   

  	
  Name:  Suzanne M. Paul

  
	
   

  	
   

  	
  Title:    Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BANK OF AMERICA, N.A., as Credit Facility Agent

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Suzanne M. Paul

  
	
   

  	
   

  	
  Name:  Suzanne M. Paul

  
	
   

  	
   

  	
  Title:    Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  [Insert Signature Blocks for Noteholders]

  

 

25

 

Each of the
undersigned hereby acknowledges (a) the terms of the foregoing Agreement, (b) that
the foregoing Agreement is for the sole benefit of the Creditors and that it
has no rights or benefits under such Agreement, and (c) that the
provisions of the foregoing Agreement may be waived, amended or modified without
its consent.

 

 

	
   

  	
  KAPSTONE KRAFT PAPER CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Roger W. Stone

  
	
   

  	
   

  	
  Name:  Roger W. Stone

  
	
   

  	
   

  	
  Title:    Chief Executive
  Officer CEO

  
	
   

  	
   

  
	
   

  	
  KAPSTONE PAPER AND PACKAGING

  
	
   

  	
  CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Roger W. Stone

  
	
   

  	
   

  	
  Name:  Roger W. Stone

  
	
   

  	
   

  	
  Title:    Chairman of the Board
  and CEO

  
	
   

  	
   

  
	
   

  	
  KAPSTONE CHARLESTON KRAFT LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
   /s/ Roger W. Stone

  
	
   

  	
   

  	
  Name:  Roger W. Stone

  
	
   

  	
   

  	
  Title:    Chief Executive
  Officer

  

 

26

 

INFORMATION RELATING TO THE NOTEHOLDERS

 

(to
Intercreditor and Collateral Agency Agreement)

 

 

SECURITY DOCUMENTS

 

(to
Intercreditor and Collateral Agency Agreement)Exhibit 10.1

 

AMENDMENT NO. 12 TO

CREDIT AGREEMENT

 

THIS AMENDMENT
NO. 12 dated as of June 27,
2008 (the “Amendment”) to the Credit Agreement, dated as of June 30, 2004,
by and among P&F INDUSTRIES, INC., a
Delaware corporation  (“P&F”), FLORIDA PNEUMATIC MANUFACTURING CORPORATION,
a Florida corporation (“Florida Pneumatic”), EMBASSY
INDUSTRIES, INC., a New York corporation (“Embassy”), GREEN MANUFACTURING, INC., a Delaware
corporation (“Green”), COUNTRYWIDE HARDWARE,
INC., a Delaware corporation (“Countrywide”), NATIONWIDE INDUSTRIES, INC., a Florida
corporation (“Nationwide”), WOODMARK INTERNATIONAL,
L.P., a Delaware limited partnership (“Woodmark”), PACIFIC STAIR PRODUCTS, INC., a Delaware corporation (“Pacific”),
WILP HOLDINGS, INC., a Delaware
corporation (“WILP”), CONTINENTAL TOOL GROUP,
INC., a Delaware corporation (“Continental”) and HY-TECH MACHINE, INC., a Delaware corporation (“Hy-Tech”;
and collectively with P&F, Florida Pneumatic, Embassy, Green, Countrywide,
Nationwide, Woodmark, Pacific, WILP and Continental,  the
“Co-Borrowers”), CITIBANK, N.A. and HSBC BANK USA, NATIONAL ASSOCIATION (formerly known as HSBC
Bank USA) (collectively, the “Lenders”) and CITIBANK,
N.A., as Administrative Agent for the Lenders (as same has been and
may be further amended, restated, supplemented or otherwise modified, from time
to time, the “Credit Agreement”).

 

RECITALS

 

The
Co-Borrowers have requested, and the Administrative Agent and the Lenders have
agreed, subject to the terms and conditions of this Amendment, to extend the
Revolving Credit Commitment Termination Date.

 

Accordingly,
in consideration of the premises and of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:

 

ARTICLE I.

Amendment to Credit
Agreement.

 

Section 1.1.            The definition of “Revolving Credit
Commitment Termination Date” in Section 1.01 of the Credit Agreement is
hereby amended in its entirety to provide as follows:

 

“Revolving Credit Commitment Termination Date” shall
mean July 31, 2008.

 

ARTICLE II.

Conditions of Effectiveness.

 

Section 2.1.            This Amendment shall become effective as of
the date hereof, upon receipt by the Administrative Agent of this Amendment,
duly executed by each Co-Borrower.

 

ARTICLE III.

Representations and
Warranties; Effect on Credit Agreement.

 

Section 3.1.  Each Co-Borrower hereby represents and
warrants as follows:

 

a.             This Amendment and the Credit Agreement, as
amended hereby, constitute legal, valid and binding obligations of the
Co-Borrowers and are enforceable against the Co-Borrowers in accordance with
their respective terms.

 

 

b.             Upon the effectiveness of this Amendment, the
Co-Borrowers hereby reaffirm all covenants, representations and warranties made
in the Credit Agreement to the extent that the same are not amended hereby and
each Co-Borrower agrees that all such covenants, representations and warranties
shall be deemed to have been remade as of the date hereof.

 

c.             No Default or Event of Default has occurred
and is continuing or would exist after giving effect to this Amendment.

 

d.             No Co-Borrower has any defense, counterclaim
or offset with respect to the Credit Agreement.

 

e.             All corporate and limited partnership action
of each Co-Borrower appropriate and necessary, including, if necessary,
resolutions of the Board of Directors of each of P&F, Florida Pneumatic,
Embassy, Green, Countrywide, Nationwide, Pacific and WILP and resolutions of
the general partner of Woodmark, to authorize the execution, delivery and
performance of this Amendment, has been taken.

 

Section 3.2.           Effect on Credit Agreement and Loan Documents.

 

a.             Upon the effectiveness of this Amendment,
each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”,
“herein” or words of like import shall mean and be a reference to the Credit
Agreement as amended hereby.

 

b.             Except as specifically amended herein, the
Credit Agreement, and all other documents, instruments and agreements executed
and/or delivered in connection therewith, shall remain in full force and
effect, and are hereby ratified and confirmed.

 

c.             Except as expressly provided herein, the
execution, delivery and effectiveness of this Amendment shall not operate as a
waiver of any right, power or remedy of the Administrative Agent or the
Lenders, nor constitute a waiver of any provision of the Credit Agreement, or
any other documents, instruments or agreements executed and/or delivered under
or in connection therewith.

 

d.             The other Loan Documents and all agreements,
instruments and documents executed and delivered in connection with the Credit
Agreement and any other Loan Documents shall each be deemed to be amended and
supplemented hereby to the extent necessary, if any, to give effect to the
provisions of this Amendment.

 

ARTICLE IV.

Miscellaneous.

 

Section 4.1.           This Amendment shall be governed by and
construed in accordance with the laws of the State of New York.

 

Section 4.2.           Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.

 

Section 4.3.           This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, and all of which,
taken together, shall be deemed to constitute one and the same agreement.

 

2

 

IN WITNESS
WHEREOF, the
Co-Borrowers, the Lenders and the Administrative Agent have caused this
Amendment to be duly executed by their duly authorized officers as of the day
and year first above written.

 

	
   

  	
  P&F INDUSTRIES, INC.

  
	
   

  	
  FLORIDA PNEUMATIC MANUFACTURING CORPORATION
  

  
	
   

  	
  EMBASSY INDUSTRIES, INC.

  
	
   

  	
  GREEN MANUFACTURING, INC.

  
	
   

  	
  COUNTRYWIDE HARDWARE, INC.

  
	
   

  	
  NATIONWIDE INDUSTRIES, INC.

  
	
   

  	
  WOODMARK INTERNATIONAL, L.P.

  
	
   

  	
  By:

  	
  Countrywide Hardware, Inc., its General

  
	
   

  	
   

  	
  Partner

  
	
   

  	
  PACIFIC STAIR PRODUCTS, INC.

  
	
   

  	
  WILP HOLDINGS, INC.

  
	
   

  	
  CONTINENTAL TOOL GROUP, INC.

  
	
   

  	
  HY-TECH MACHINE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Joseph A. Molino, Jr.

  
	
   

  	
   

  	
  Joseph A.
  Molino, Jr., the Vice President of each

  of the corporations named above

  
	
   

  	
   

  
	
   

  	
  CITIBANK, N.A., as a Lender and as

  
	
   

  	
  Administrative Agent

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Stephen Kelly

  
	
   

  	
   

  	
  Stephen Kelly, Vice
  President

  
	
   

  	
   

  
	
   

  	
  HSBC BANK USA, NATIONAL

  
	
   

  	
  ASSOCIATION, as a Lender

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Raymond Fincken

  
	
   

  	
   

  	
  Raymond Fincken, Vice President

  
				

 

3

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