Document:

Exhibit
10.2

	
  

  	
   

  	
  Owens-Illinois, Inc.

  

 

November 21, 2006

Mr. Albert P.L. Stroucken

12 Apple Orchard Court

Dellwood,
MN  55110

Re:          Employment

Dear
Al:

On
behalf of the Board of Directors of Owens-Illinois, Inc. (the “Company”), I am
pleased to offer you employment as Chairman of the Board and Chief Executive
Officer of the Company according to the material terms set forth on the
attached Term Sheet, which are to be incorporated into a formal written
employment agreement.

In
addition, the Company agrees to grant you on your first day of employment,
stock and options (“additional equity”) with a value equal to $3.75 million
which represents a portion of the compensation, benefits, and/or equity that
you will forfeit by reason of terminating employment with your current employer
prior to March 31, 2007, the expiration of your current employment agreement.

The
additional equity shall be (a) 50% in the form of unrestricted common stock of
the Company (the “Stock”) and (b) 50% in the form of non-qualified stock
options with an exercise price equal to the fair market value of the Company’s
common stock on the date of grant as determined under the Owens-Illinois 2005
Incentive Award Plan and having a life of seven years, all of which will be fully
vested and exercisable on the date of the grant thereof (the “Options”).  The value of the Stock will be the closing
price of the Company’s common stock on the trading date immediately prior to
your first day of employment and the value of the Options will be the
Black-Scholes value on the date of grant. 
Otherwise the Options shall have the same terms as the option grants
noted on the attached term sheet.

Notwithstanding
the foregoing, the Company may, at its sole option, replace the Stock with cash
payable on your first day of employment, which after deducting taxes on the
cash received; you will then invest in Stock purchased in the open market.  This purchase will not count towards the
requirement that you purchase $1,000,000 of Company common stock.

As
you are aware, the payment of the additional equity in stock and/or cash will
be taxable compensation to you and will be subject to applicable tax
withholding.  These taxes will be paid by reducing the number of shares of
stock you own to the extent the cash to be paid will not cover the withholding
and will reduce the amount of cash you will have available to purchase Company
stock in the open market.

 

 

We
understand that you will be providing some transition services to your current
employer through the end of 2006. To the extent that such services do not
interfere with the performance of your duties to O-I, we confirm that such
services will not be considered a violation of any of your agreements with O-I.

We
are pleased that you have agreed to join the Company and look forward to
working with you in your new capacity. 
Please acknowledge your acceptance of our offer by signing below and
returning a copy of this letter to my attention.

	
  

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Anastasia D. Kelly

  
	
   

  	
  Chair, Compensation Committee

  

 

	
  Agreed to and Accepted:

  
	
   

  
	
  /s/ Albert P. L. Stroucken

  	
   

  
	
  Albert P.L. Stroucken

  
	
   

  
	
  Date: November 21, 2006

  

 

 2

 

Al Stroucken Employment Agreement
Terms

	
  

  	
   

  	
  Type

  	
   

  	
  Terms

  
	
  1.

  	
   

  	
  Position

  	
   

  	
  CEO and Chairman of the Board

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
   

  	
  Term of Agreement

  	
   

  	
  December 1, 2006 or other agreed to date but not
  later than December 6, 2006 through-December 31, 2011 (the “Initial Term”);
  with 2 automatic 1 year renewals (the “Automatic Renewals”) unless Company or
  Al gives 9 mos. advance notice of non-renewal. If Company does not renew
  after the Initial Term, for either of the two one-year periods after the
  Initial Term, such non- renewal by the Company will be treated as termination
  without cause. However, any non-renewal of the contract by Al or by Company
  after the two Automatic Renewals will not result in a termination without
  cause, but a retirement of Al.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
   

  	
  Base Annual Salary

  	
   

  	
  $950,000; plus increases as determined from time to
  time by the Compensation Committee of the Board

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
   

  	
  Annual Bonus

  	
   

  	
  According to Incentive Bonus Plan:

  
	
   

  	
   

  	
   

  	
   

  	
  Target: 150% of
  Base Salary;

  
	
   

  	
   

  	
   

  	
   

  	
  Maximum: 300% of
  Base Salary.

  
	
   

  	
   

  	
   

  	
   

  	
  Bonus for 2007
  guaranteed at minimum of Target, but is eligible for bonus over target based
  on performance.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
   

  	
  Equity

  	
   

  	
  1.

  	
   

  	
  Al will purchase common shares with a value of
  $1,000,000.

  
	
   

  	
   

  	
   

  	
   

  	
  2.

  	
   

  	
  Grants of stock
  options, restricted shares and performance shares (restricted stock units) to
  be made under 2005 Incentive Award Plan (or possible inducement plan with
  same terms) and terms of form stock option, restricted share and restricted
  stock units agreements.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ·  Initial sign-on grant with fair value equal
  to $3M, 50% of which would take the form of options and 50% of restricted
  stock

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  ·  Additional grant in lieu of 2007 grant based
  on fair value equal to $3M at time of commencement of employment. 40% of
  which would be in the form of options, 20% in restricted stock and 40% in the
  form of performance shares. Options and restricted stock would be granted at
  the time of commencement of employment. The target number of performance
  shares would be determined at time of commencement of employment but would
  not be granted until normal 2007 cycle grant is made for other employees
  based on performance targets set for other employees.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  For all such equity
  grants (a) the fair value would be determined using the same methodology
  used by the Company for expensing such instruments, (b) the terms of the
  grants (vesting periods, etc.) would be consistent with the terms used in the
  granting of such forms of equity to other employees of the Company, and the
  forms of the agreements under which the equity is granted would be consistent
  with those noted as S-K Item 601 Documents Nos. 10.29, 10.30 and
  10.32 in the Company’s Annual Report on Form 10-K for the year ended
  December 31, 2005.

  
	
   

  	
   

  	
   

  	
   

  	
  3.

  	
   

  	
  Participation in all
  equity and incentive plans in effect from time to time; plus additional
  equity at Board discretion.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
   

  	
  Retirement Benefits

  	
   

  	
  ·

  	
   

  	
  401(k) plan with match

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Executive Deferred
  Savings Plan—excess 401(k) plan

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Provided he neither
  resigns nor is terminated for cause prior to the expiration of the Initial
  Term, the Executive would receive upon his retirement from the Company a lump
  sum non-qualified pension benefit based on the Executive’s actual years of
  service with the Company, plus 1.5 years, and on the Executive’s final
  average 

  

 

 

 1
 

 

 

	
  

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  earnings, as currently calculated under the
  Owens-Illinois Salary Retirement Plan and Supplemental Retirement Benefit
  Plan (the “Plans”). The lump-sum amount would be determined by calculating
  the actuarial equivalent of the 100% single life annuity amount on the date
  of retirement using (i) the applicable interest rate then in effect under the
  Plans and (ii) a remaining life expectancy at the time of retirement using
  the then applicable mortality table under the Plans.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
   

  	
  Employee Benefit Plans other than Perqs

  	
   

  	
  Participation in O-I Employee benefit plans on same
  terms as other senior executives including:

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Health (medical,
  dental, vision, RX);

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Life;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  STD;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  LTD.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
   

  	
  Perqs

  	
   

  	
  In accordance with O-I policy applicable to senior
  executives. Current perqs are:

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Car allowance of
  $24,000 per year;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Executive life—pay
  premium and gross up for taxes on term policy minimum of 3X Base Salary;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Use of company aircraft
  for business use, as well as personal use up to 50 hours annually;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Access to O-I drivers;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Tax and Financial
  services up to $15,000 per year, plus gross-up in accordance with O-I policy;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Home security system;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  5 weeks of vacation;

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Relocation costs for
  move from MN (including temporary living expenses, and brokerage commission
  for sale of home in MN);

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Physical Exam-full cost
  with tax gross-up.

  
	
   

  	
   

  	
   

  	
   

  	
  In addition:

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Payment of reasonable professional
  costs (e.g., legal and consulting) associated with this contract, subject to
  a negotiated maximum.

  
	
   

  	
   

  	
   

  	
   

  	
  ·

  	
   

  	
  Upon termination at or
  anytime after the Initial Term, reimbursement for any loss on sale of home
  subject to a maximum reimbursement equal to 20% of the then appraised value
  of the home. (e.g., home appraised value is $1.2 million. Reimbursement for
  loss will not exceed $240,000, or 20% of the appraised value.) Loss on sale
  is difference between appraised value and actual sale price, after deducting
  brokerage commissions.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
   

  	
  Termination without Cause/Severance

  	
   

  	
  Payable only if terminated without cause
  during term of agreement: Accrued Rights:

  
	
   

  	
   

  	
   

  	
   

  	
  (A)  Base Salary through date of termination;

  
	
   

  	
   

  	
   

  	
   

  	
  (B)   Annual bonus earned but unpaid for previous
  fiscal year; 

  
	
   

  	
   

  	
   

  	
   

  	
  (C)   Employee Benefit entitlements.

  
	
   

  	
   

  	
   

  	
   

  	
  Plus Severance Pay:
  Amount = 2 x Annual Base Salary plus Target Bonus, payable over 24 months 

  

 

 2
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  24 months continued health coverage at same rate as
  active employees unless enrolled for coverage in another employer’s health
  plan 

  
	
   

  	
   

  	
   

  	
   

  	
  Severance subject to
  release and continued compliance with 2 year non-compete / 2 year
  nonsolicitation and confidentiality requirements

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Payments to be made in compliance with Section 409A

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
   

  	
  Change of Control

  	
   

  	
  If terminate employment without Cause within 1 year
  after Change of Control, or significantly reduce or alter responsibilities
  following a Change of Control; same as Termination without Cause with protection
  against negative excise tax.

  
	
   

  	
   

  	
   

  	
   

  	
  Change of Control shall
  be defined as:

  
	
   

  	
   

  	
   

  	
   

  	
  (a)      A
  transaction or series of transactions (other than an offering of Stock to the
  general public through a registration statement filed with the Securities and
  Exchange Commission) whereby any “person” or related “group” of “persons” (as
  such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act)
  (other than the Company, any of its subsidiaries, an employee benefit plan
  maintained by the Company or any of its subsidiaries or a “person” that,
  prior to such transaction, directly or indirectly controls, is controlled by,
  or is under common control with, the Company) directly or indirectly acquires
  beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
  Act) of securities of the Company possessing more than 50% of the total
  combined voting power of the Company’s securities outstanding immediately
  after such acquisition; or

  
	
   

  	
   

  	
   

  	
   

  	
  (b)      During
  any period of two consecutive years, individuals who, at the beginning of
  such period, constitute the Board of Directors of the Company (the “Board”)
  together with any new director(s) (other than a director designated by a
  person who shall have entered into an agreement with the Company to effect a
  transaction described in paragraphs (a) or (c)) whose election by the Board
  or nomination for election by the Company’s stockholders was approved by a
  vote of at least two-thirds of the directors then still in office who either
  were directors at the beginning of the two-year period or whose election or
  nomination for election was previously so approved, cease for any reason to
  constitute a majority thereof; or 

  
	
   

  	
   

  	
   

  	
   

  	
  (c)      The
  consummation by the Company (whether directly involving the Company or
  indirectly involving the Company through one or more intermediaries) of (x) a
  merger, consolidation, reorganization, or business combination or (y) a sale
  or other disposition of all or substantially all of the Company’s assets in
  any single transaction or series of related transactions or (z) the
  acquisition of assets or stock of another entity, in each case other than a
  transaction: 

  
	
   

  	
   

  	
   

  	
   

  	
  (i)      Which
  results in the Company’s voting securities outstanding immediately before the
  transaction continuing to represent (either by remaining outstanding or by
  being converted into voting securities of the Company or the person that, as
  a result of the transaction, controls, directly or indirectly, the Company or
  owns, directly or indirectly, all or substantially all of the Company’s
  assets or otherwise succeeds to the business of the Company (the Company or
  such person, the “Successor Entity”)) directly or indirectly, at least a
  majority of the combined voting power of the Successor Entity’s outstanding
  voting securities immediately after the transaction, and

  
	
   

  	
   

  	
   

  	
   

  	
  (ii)      After
  which no person or group beneficially owns voting securities representing 50%
  or more of the combined voting power of the Successor Entity; provided,
  however, that no person or group shall be treated for purposes of this
  subparagraph (c)(ii) as beneficially owning 50% or more of combined voting
  power of the Successor Entity solely as a result of the voting power held in

  

 

 3
 

 

 

	
  

  	
   

  	
   

  	
   

  	
  the Company prior to the consummation of the
  transaction; or

  
	
   

  	
   

  	
   

  	
   

  	
  (d)      The
  Company’s stockholders approve a liquidation or dissolution of the Company.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
   

  	
  Termination due to Death or Disability

  	
   

  	
  Termination due to disability treated as a
  termination without Cause. Termination due to death or disability will also
  cause acceleration of vesting of any and all outstanding options, restricted
  stock and applicable LTIP and SERP.

  
	
   

  	
   

  	
   

  	
   

  	
  Upon death, pay
  surviving spouse, or estate applicable Target Incentive Bonus earned and not
  paid and SERP.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
   

  	
  Other Termination—Voluntary and Cause

  	
   

  	
  Accrued Rights:

  
	
   

  	
   

  	
   

  	
   

  	
  A.    Base Salary through date of termination;

  
	
   

  	
   

  	
   

  	
   

  	
  B.    Employee Benefit entitlements;

  
	
   

  	
   

  	
   

  	
   

  	
  C.    Annual bonus earned but unpaid for
  previous fiscal year for voluntary termination only.

  
	
   

  	
   

  	
   

  	
   

  	
  Definition for Cause:

  
	
   

  	
   

  	
   

  	
   

  	
  (i) the commission of
  an act of fraud against the Company or any affiliate thereof or embezzlement,
  (ii) breach of one or more of the following duties to the Company: (A) the
  duty of loyalty, (B) the duty not to take willful actions which would
  reasonably be viewed by the Company as placing the Executive’s interest in a
  position adverse to the interest of the Company, (C) the duty not to engage
  in self-dealing with respect to the Company’s assets, properties or business
  opportunities, (D) the duty of honesty or (E) any other fiduciary duty which
  the Executive owes to the Company, (iii) a conviction of the Executive (or a
  plea of nolo contendere in
  lieu thereof) for (A) a felony or (B) a crime involving fraud, dishonesty or
  moral turpitude, (iv) intentional misconduct as an Executive of the Company,
  including, but not limited to, knowing and intentional violation by the
  Executive of material written policies of the Company or specific directions
  of the Board, which policies or directives are neither illegal (or do not
  involve illegal conduct) nor do they require the Executive to violate
  reasonable business ethical standards, or (v) the failure of the Executive to
  substantially perform his duties for the Company (other than as a result of
  total or partial incapacity due to physical or mental illness) for a period
  of 10 days following written notice by the Company of such failure.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
   

  	
  Governing Law

  	
   

  	
  OH; Arbitration of all contract disputes

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
   

  	
  Other Misc

  	
   

  	
  Miscellaneous provisions to be agreed upon.

  
	
   

  	
   

  	
   

  	
   

  	
   

  

 

 4Exhibit 10.1

 

SECOND AMENDED AND RESTATED

REVOLVING CREDIT AND TERM LOAN AGREEMENT

among

HARDINGE INC.

(the “Borrower”)

the Banks signatory hereto

MANUFACTURERS AND TRADERS TRUST COMPANY

as Agent

and

Lead Arranger

JPMORGAN CHASE BANK, N.A.

as Syndication Agent

and

KEYBANK NATIONAL ASSOCIATION

As Documentation Agent

Amended and Restated as of November 21, 2006

 

 

TABLE OF CONTENTS 

	
  ARTICLE 1. DEFINITIONS;
  ACCOUNTING TERMS

  	
   

  	
   

  
	
  Section 1.01  Definitions

  	
   

  	
   

  
	
  Section 1.02. Other
  Defined Terms; Rules of Interpretation

  	
   

  	
   

  
	
  Section 1.02. Other Defined
  Terms; Rules of Interpretation

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2. THE CREDIT

  	
   

  	
   

  
	
  Section 2.01. The
  Commitments

  	
   

  	
   

  
	
  Section 2.02. The Notes
  and Recordkeeping

  	
   

  	
   

  
	
  Section 2.03. Purpose

  	
   

  	
   

  
	
  Section 2.04. Borrowing
  Procedures

  	
   

  	
   

  
	
  Section 2.05. Payments

  	
   

  	
   

  
	
  Section 2.06. Interest
  Periods

  	
   

  	
   

  
	
  Section 2.07. Interest

  	
   

  	
   

  
	
  Section 2.08. Certain
  Notices

  	
   

  	
   

  
	
  Section 2.09. Changes in
  Commitment

  	
   

  	
   

  
	
  Section 2.10. Minimum
  Amounts

  	
   

  	
   

  
	
  Section 2.11. Fees

  	
   

  	
   

  
	
  Section 2.12.
  Prepayments

  	
   

  	
   

  
	
  Section 2.13. Swing Loans

  	
   

  	
   

  
	
  Section 2.14. Facility Letters of
  Credit

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3.
  YIELD PROTECTION; ILLEGALITY; ETC.

  	
   

  	
   

  
	
  Section 3.01. Additional
  Costs

  	
   

  	
   

  
	
  Section 3.02. Limitation
  on Types of Loans

  	
   

  	
   

  
	
  Section 3.03. Illegality

  	
   

  	
   

  
	
  Section 3.04. Certain
  Variable Rate Loans Pursuant to Sections 3.01 and 3.03

  	
   

  	
   

  
	
  Section 3.05.
  Compensation

  	
   

  	
   

  
	
  Section 3.06. Survival

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4.
  CONDITIONS PRECEDENT

  	
   

  	
   

  
	
  Section 4.01.
  Documentary Conditions Precedent

  	
   

  	
   

  
	
  Section 4.02. Additional
  Conditions Precedent

  	
   

  	
   

  
	
  Section 4.03. Deemed
  Representations

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5.
  REPRESENTATIONS AND WARRANTIES

  	
   

  	
   

  
	
  Section 5.01.
  Incorporation, Good Standing and Due Qualification

  	
   

  	
   

  
	
  Section 5.02. Corporate
  Power and Authority: No Conflicts

  	
   

  	
   

  
	
  Section 5.03.
  Governmental Approval

  	
   

  	
   

  
	
  Section 5.04. Legally
  Enforceable Agreements

  	
   

  	
   

  
	
  Section 5.05. Financial
  Statements

  	
   

  	
   

  
	
  Section 5.06. Litigation

  	
   

  	
   

  
	
  Section 5.07. Margin
  Stock

  	
   

  	
   

  
	
  Section 5.08. Use of
  Loan Proceeds

  	
   

  	
   

  
	
  Section 5.09. Tax
  Returns

  	
   

  	
   

  
	
  Section 5.10. ERISA

  	
   

  	
   

  
	
  Section 5.11.
  Subsidiaries

  	
   

  	
   

  
	
  Section 5.12. Ownership
  and Liens

  	
   

  	
   

  
	
  Section 5.13. Hazardous
  Materials

  	
   

  	
   

  
	
  Section 5.14. No Default
  on Other Agreements

  	
   

  	
   

  
	
  Section 5.15.
  Partnerships

  	
   

  	
   

  
	
  Section 5.16. No
  Forfeiture

  	
   

  	
   

  
	
  Section 5.17. Solvency

  	
   

  	
   

  

 i
 

 

 

	
  Section 5.18. Operation of
  Business

  	
   

  	
   

  
	
  Section 5.19. No
  Defaults on Outstanding Judgments or Orders

  	
   

  	
   

  
	
  Section 5.20. No
  Defaults on Other Agreements

  	
   

  	
   

  
	
  Section 5.21. Labor
  Disputes and Acts of God

  	
   

  	
   

  
	
  Section 5.22.
  Governmental Regulation

  	
   

  	
   

  
	
  Section 5.23. Compliance
  with Terms and Conditions of the ROC Joint Venture Agreement

  	
   

  	
   

  
	
  Section 5.24. Compliance
  with Terms and Conditions of the Bridgeport Acquisition Documents

  	
   

  	
   

  
	
  Section 5.25. Disclosure

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 6.
  AFFIRMATIVE COVENANTS

  	
   

  	
   

  
	
  Section 6.01. Compliance
  With Laws, Corporate Existence

  	
   

  	
   

  
	
  Section 6.02. Reporting
  Requirements

  	
   

  	
   

  
	
  Section 6.03. Notice of
  Proceedings

  	
   

  	
   

  
	
  Section 6.04. Insurance

  	
   

  	
   

  
	
  Section 6.05.
  Environmental Laws

  	
   

  	
   

  
	
  Section
  6.06. Books and Records; Inspection Rights

  	
   

  	
   

  
	
  Section
  6.07. Notice of Default

  	
   

  	
   

  
	
  Section
  6.08. Subsidiaries

  	
   

  	
   

  
	
  Section
  6.09. Material Adverse Changes

  	
   

  	
   

  
	
  Section
  6.10. Reports to Other Creditors

  	
   

  	
   

  
	
  Section
  6.11. Payment of Obligations

  	
   

  	
   

  
	
  Section
  6.12. General Information

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7.
  NEGATIVE COVENANTS

  	
   

  	
   

  
	
  Section 7.01. Debt

  	
   

  	
   

  
	
  Section 7.02.
  Liens, Etc

  	
   

  	
   

  
	
  Section
  7.03. Lease Obligations

  	
   

  	
   

  
	
  Section
  7.04. Prohibited Transactions

  	
   

  	
   

  
	
  Section
  7.05. Margin Stock

  	
   

  	
   

  
	
  Section
  7.06. Consolidations, Mergers, Acquisitions and Sales of Assets

  	
   

  	
   

  
	
  Section
  7.07. Affiliate Transactions

  	
   

  	
   

  
	
  Section
  7.08. Loans and Advances

  	
   

  	
   

  
	
  Section
  7.09. No Activities Leading to Forfeiture

  	
   

  	
   

  
	
  Section
  7.10. Capital Expenditures

  	
   

  	
   

  
	
  Section
  7.11. Restricted Payments

  	
   

  	
   

  
	
  Section
  7.12. Restrictive Agreements; Put Agreements

  	
   

  	
   

  
	
  Section
  7.13. Changes in Accounting Principles; Fiscal Year

  	
   

  	
   

  
	
  Section
  7.14. Amendments to Organic Documents

  	
   

  	
   

  
	
  Section
  7.15 Plan Terminations, Minimum Funding, Etc.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8.
  FINANCIAL COVENANTS

  	
   

  	
   

  
	
  Section
  8.01. Leverage Ratio

  	
   

  	
   

  
	
  Section
  8.02. Consolidated Tangible Net Worth

  	
   

  	
   

  
	
  Section
  8.03. Fixed Charges Coverage Ratio

  	
   

  	
   

  
	
  Section
  8.04. Calculations

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9. EVENTS OF
  DEFAULT

  	
   

  	
   

  
	
  Section
  9.01. Events of Default

  	
   

  	
   

  
	
  Section 9.02.
  Remedies

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 10.
  THE AGENT; RELATIONS AMONG BANKS AND BORROWER

  	
   

  	
   

  
	
  Section
  10.01. Appointment, Powers and Immunities of Agent

  	
   

  	
   

  
	
  Section
  10.02. Reliance by Agent

  	
   

  	
   

  
	
  Section
  10.03. Defaults

  	
   

  	
   

  

 ii
 

 

 

	
  Section 10.04. Rights of
  Agent as a Bank

  	
   

  	
   

  
	
  Section
  10.05. Indemnification of Agent

  	
   

  	
   

  
	
  Section
  10.06. Documents

  	
   

  	
   

  
	
  Section
  10.07. Non-Reliance on Agent and Other Banks

  	
   

  	
   

  
	
  Section
  10.08. Failure of Agent to Act

  	
   

  	
   

  
	
  Section
  10.09. Resignation of Agent

  	
   

  	
   

  
	
  Section
  10.10. Amendments Concerning Agency Function

  	
   

  	
   

  
	
  Section
  10.11. Liability of Agent

  	
   

  	
   

  
	
  Section
  10.12. Transfer of Agency Function

  	
   

  	
   

  
	
  Section
  10.13. Withholding Taxes

  	
   

  	
   

  
	
  Section
  10.14. Several Obligations and Rights of Banks

  	
   

  	
   

  
	
  Section
  10.15. Sharing of Payments Among Banks

  	
   

  	
   

  
	
  Section
  10.16. No Other Agents

  	
   

  	
   

  
	
  Section
  10.17 Benefit of Article

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 11.
  MISCELLANEOUS

  	
   

  	
   

  
	
  Section
  11.01. Amendments and Waivers

  	
   

  	
   

  
	
  Section 11.02.
  Usury

  	
   

  	
   

  
	
  Section
  11.03. Expenses and Indemnification

  	
   

  	
   

  
	
  Section 11.04.
  Survival

  	
   

  	
   

  
	
  Section
  11.05. Assignment; Participations

  	
   

  	
   

  
	
  Section 11.06.
  Notices

  	
   

  	
   

  
	
  Section 11.07.
  Setoff

  	
   

  	
   

  
	
  Section 11.08. Jurisdiction; Immunities

  	
   

  	
   

  
	
  Section
  11.09. Table of Contents; Headings

  	
   

  	
   

  
	
  Section
  11.10. Severability

  	
   

  	
   

  
	
  Section
  11.11. Counterparts

  	
   

  	
   

  
	
  Section
  11.12. Integration

  	
   

  	
   

  
	
  Section 11.13. Governing Law

  	
   

  	
   

  
	
  Section
  11.14. Confidentiality

  	
   

  	
   

  
	
  Section
  11.15. Treatment of Certain Information

  	
   

  	
   

  
	
  Section
  11.16. USA Patriot Act

  	
   

  	
   

  

 iii
 

 

 

EXHIBITS

	
  Exhibit A

  	
   

  	
  Authorization Letter

  
	
  Exhibit B

  	
   

  	
  Form of Revolving Credit Note

  
	
  Exhibit C

  	
   

  	
  Form of Swing Line Note

  
	
  Exhibit D

  	
   

  	
  Form of Term Loan Note

  
	
  Exhibit E

  	
   

  	
  Opinion of Counsel for
  Borrower

  
	
  Exhibit F

  	
   

  	
  Confidentiality Agreement

  
	
  Exhibit G

  	
   

  	
  Form Notice of Borrowing

  
	
  Exhibit H

  	
   

  	
  Assignment and Assumption
  Agreement

  
	
  Exhibit I

  	
   

  	
  Compliance Certificate

  

 

SCHEDULES

 

	
  Schedule I

  	
   

  	
  Existing JP Morgan Letters of Credit

  
	
  Schedule II

  	
   

  	
  Existing Other Debt

  
	
  Schedule III

  	
   

  	
  Revolving Commitment Amounts

  
	
  Schedule IV

  	
   

  	
  Term Loan Commitment Amounts

  
	
  Schedule V

  	
   

  	
  Subsidiaries of Borrower

  
	
  Schedule VI

  	
   

  	
  Hazardous Materials

  
	
  Schedule VII

  	
   

  	
  Insurance

  

 

 iv

 

 

SECOND AMENDED AND RESTATED
REVOLVING CREDIT AND

TERM LOAN AGREEMENT

THIS SECOND
AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT dated
as of November 21, 2006 is entered into by and among HARDINGE
INC., a corporation organized under the laws of New York, each of
the banks which is a signatory hereto, MANUFACTURERS AND TRADERS
TRUST COMPANY, a New York banking corporation, as Agent and Lead
Arranger for the Banks, JPMORGAN CHASE BANK, N.A.,
a national banking association formed and existing under the laws of the United
States of America, as Syndication Agent and KEYBANK
NATIONAL ASSOCIATION, a national banking association formed and
existing under the laws of the United States of America, as Documentation
Agent.

RECITALS

A.            The Borrower, the Banks,
the Agent, the Syndication Agent and the Documentation Agent are parties to an
Amended and Restated Revolving Credit and Term Loan Agreement dated January 28,
2005, as the same has been amended by Amendment No. 1 to the Amended and
Restated Revolving Credit and Term Loan Agreement dated February 11, 2005,
Amendment No. 2 to the to the Amended and Restated Revolving Credit and Term
Loan Agreement dated July 16, 2005, Amendment No. 3 to the Amended and Restated
Revolving Credit and Term Loan Agreement dated December 22, 2005 and Amendment
No. 4 to the Amended and Restated Revolving Credit and Term Loan Agreement
dated June 7, 2006. (collectively, the “Existing Credit Agreement”).

B.            The parties hereto desire to amend, restate and modify,
but not extinguish, the Existing Credit Agreement in its entirety, as herein
provided.

NOW,
THEREFORE, in consideration of the premises and the mutual agreements contained
herein, the parties hereto agree as follows:

ARTICLE 1.
DEFINITIONS; ACCOUNTING TERMS

Section
1.01  Definitions.  As used in this Agreement the following terms
have the following meanings:

“Account
Control Agreements” means the Account Control Agreements as may
be required pursuant to the terms of the Security Documents, given by the
Borrower and the applicable financial institutions where Borrower maintains its
operating accounts in favor of the Agent for the benefit of the Banks, which
Account Control Agreements shall in all respects be acceptable to the Agent and
the Banks, as such agreement may be amended, restated, supplemented or
otherwise modified from time to time.

 

 

“Acquisition”
means the acquisition of: (a) a controlling equity interest in another Person
(including the purchase of an option, warrant or convertible or similar type
security to acquire such a controlling interest at the time it becomes
exercisable by the holder thereof), whether by purchase of such equity interest
or upon exercise of an option or warrant for, or conversion of securities into,
such equity interest, or (b) assets of another Person which constitute all or
substantially all of the assets of such Person or of a line or lines of
business conducted by such Person.

“Additional
Costs” has the meaning given to such term in Section 3.01
hereof.

“Additional
Technical Information” shall mean and refer to the technical
information required for the manufacture of the products, accessories and
spares, including but not limited to the blueprints, designs, schematics,
drawings, specifications, computer source and object codes, customer lists and
other proprietary rights and assets of a similar nature, all as described with
particularity in the Bridgeport Acquisition Documents.

“Administrative
Questionnaire” means the administrative questionnaire in the
form supplied by the Agent.

“Affected
Loans” has the meaning given to such term in Section 3.04
hereof.

“Affected
Type” has the meaning given to such term in Section 3.04 hereof.

“Affiliate”
means any Person: (a) which directly or indirectly controls, or is controlled
by, or is under common control with, the Borrower or any of its Subsidiaries;
(b) which directly or indirectly beneficially owns or holds 5% or more of any
class of voting stock of the Borrower or any such Subsidiary; (c) 5% or more of
the voting stock of which is directly or indirectly beneficially owned or held
by the Borrower or such Subsidiary; or (d) which is a partnership in which the
Borrower or any of its Subsidiaries is a general partner.  The term “control”
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.

“Agent”
means M&T Bank in its capacity as agent of the Banks pursuant to Article
10, and not in its individual capacity as a Bank, and any successor Agent
appointed pursuant to Article 10.

“Agreement”
means this Second Amended and Restated Revolving Credit and Term Loan
Agreement, as amended, supplemented, restated or otherwise modified from time
to time.  References to Articles,
Sections, Exhibits, schedules and the like refer to the Articles, Sections,
Exhibits, schedules and the like of this Agreement unless otherwise indicated.

 2
 

 

 

“Aggregate Commitment”
means, on any date of determination, the aggregate amount on such date of the
Commitments of all of the Banks.  On the
Effective Date, the Aggregate Commitment is $91,600,000.

“Aggregate Revolving
Commitment” means, on any date of determination, the aggregate
amount on such date of the Revolving Commitments of all of the Banks.  On the Effective Date, the Aggregate
Revolving Commitment is $70,000,000.

“Aggregate Revolving Credit
Exposure” means as of any date of determination, the sum of
Revolving Credit Exposure of all the Banks.

“Aggregate Term Loan Commitment” means on any date of determination, the
aggregate amount on such date of the Term Loan Commitments of all of the
Banks..

“Applicable
Margin” means for each Variable Rate Loan or Eurocurrency Loan,
or with respect to the Revolving Commitment Fees payable hereunder, as the case
may be, the applicable rate per annum on the table next following under the
caption “Variable Margin”, “Eurocurrency Margin” or “Revolving Commitment Fee
Rate”, respectively, under the Pricing Level then in effect based upon Borrower’s
Leverage Ratio as reflected in the Financials for the immediately preceding
four Fiscal Quarters for income statement items and the most recently ended
Fiscal Quarter for balance sheet items, computed as provided below.

	
  Pricing

  Level

  	
   

  	
  Leverage Ratio

  	
   

  	
  Variable
Rate Margin

  	
   

  	
  Eurocurrency
Margin

  	
   

  	
  Revolving

  Commitment

  Fee Rate

  
	
  Level I

  	
   

  	
  Less than 1.5

  	
   

  	
  0 Basis Points

  	
   

  	
  100 Basis

  Points

  	
   

  	
  15 Basis

  Points

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level
  II

  	
   

  	
  Equal to or greater

  than 1.5 and less than 2.0

  	
   

  	
  0 Basis Points

  	
   

  	
  125 Basis

  Points

  	
   

  	
  17.5 Basis

  Points

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level
  III

  	
   

  	
  Equal to or greater

  than 2.0 and less than 2.5

  	
   

  	
  25 Basis Points

  	
   

  	
  150 Basis

  Points

  	
   

  	
  20 Basis

  Points

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level
  IV

  	
   

  	
  Equal to or greater

  than 2.5 and less than 3.0

  	
   

  	
  50 Basis Points

  	
   

  	
  175 Basis

  Points

  	
   

  	
  25 Basis

  Points

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Level
  V

  	
   

  	
  Equal to or greater

  than or equal to 3.0

  	
   

  	
  75 Basis Points

  	
   

  	
  200 Basis

  Points

  	
   

  	
  37.5 Basis

  Points

  

 

For purposes of the foregoing, notwithstanding
anything herein to the contrary

 3
 

 

 

(a)           if
at any time the Borrower fails to deliver the Financials required under
Sections 6.02(a) or 6.02(b) on or before the date such Financials are due,
Pricing Level V shall be deemed applicable for the period commencing five (5)
Business Days after such required date of delivery and ending on the date which
is five (5) Business Days after such Financials are actually delivered, after
which the Pricing Level shall be determined using such Financials in accordance
with the table above as applicable;

(b)           adjustments,
if any, to the Pricing Level then in effect shall be effective five (5)
Business Days after the Agent has received the applicable Financials (it being
understood and agreed that each change in Pricing Level shall apply during the
period commencing on the effective date of such change and ending on the date
immediately preceding the effective date of the next such change); and

(c)           each
determination of the Applicable Margin made by the Agent in accordance with the
foregoing shall, in the absence of demonstrable error, be conclusive and
binding on the Borrower and each Bank; and

(d)           the initial Applicable Margin on the Effective Date shall
be based on Level IV until the first adjustment thereto as provided above.

“Arranger”
means M&T Bank in its capacity as sole arranger for the credit facilities
provided under this Agreement.

“Assignment
and Assumption Agreement” has the meaning given to such term in
Section 11.05(b) hereof.

“Assignment
of Leases and Rents” means that certain Assignment of Leases and
Rents dated as of the Original Effective Date (as the same may be amended,
restated, supplemented or otherwise modified from time to time), as granted by
Hardinge Technology Systems, Inc. in favor of the Agent for the benefit of the
Banks, whereby Hardinge Technology Systems, Inc. granted, as collateral for the
Obligations, an assignment of the leases and rents for the principal place of
business for the Borrower.

“Authorization Letter”
means the letter agreement executed by the Borrower in the form of Exhibit A hereto.

“Authorized
Officer” means the president, chief executive officer, chief
financial officer or the secretary of the Borrower or any other Person
designated by any of the foregoing in writing to the Agent from time to time to
act on behalf of any Borrower which designation has not been rescinded in
writing, in each case acting singly, provided that two Authorized Officers
shall be required to modify the wiring instructions for any Loan.

“Bank”
means the banks who are parties to this Agreement on the date hereof and any
other bank that shall become a party hereto after the date hereof pursuant to
an Assignment and Assumption, other than any such Person that shall have ceased
to be a party hereto pursuant to an

 4
 

 

Assignment
and Assumption.  Unless the context otherwise requires, the term “Bank”
includes the Swing Line Bank.  In
addition to the foregoing, for the purpose of identifying the Persons entitled
to share in the collateral and the proceeds thereof under, and in accordance
with the provisions of, this Agreement and the Security Documents, the term “Bank”
shall include Affiliates of a Bank providing Bank Products.

“Bank
Product Agreements” means those agreements entered into from
time to time by the Borrower or any Subsidiary in connection with any of the
Bank Products.

“Bank
Product Obligations” means all obligations, liabilities,
contingent reimbursement obligations, fees, and expenses owing pursuant to or
evidenced by the Bank Product Agreements and irrespective of whether for the
payment of money, whether direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising, and including all such amounts
that the Borrower or any of its Subsidiaries is obligated to reimburse to
anyone as a result of purchasing participations or executing indemnities or
reimbursement obligations with respect to the Bank Products.

“Bank
Products” means any service or facility (but excluding the Loans
and the Facility Letters of Credit) extended to Borrower or any Subsidiary,
including: (a) credit cards, (b) credit card processing services, (c) debit
cards, (d) purchase cards, (e) ACH Transactions, (f) cash management, including
controlled disbursement accounts or services, or (g) facilities for foreign
exchange, foreign derivative products and foreign exposures.

“Bankruptcy
Event” has the meaning given to such term in Section 2.08(b)
thereof.

“Basis
Point” means one one-hundredth of one percent.

“Borrower”
means Hardinge Inc., a New York corporation, and its successors.

“Bridgeport
Acquisition Documents” means the various agreements and
instruments executed by and between the Borrower and BPT IP, LLC, including but
not limited to, that certain Alliance Agreement dated November, 2004, whereby
among other things, BP IP, LLC granted to the Borrower an option to purchase
the Additional Technical Information on or before December 31, 2005, as
described with particularity in Section 7.6.3 of the Alliance Agreement.

“Business
Day” means any day that is not a Saturday, Sunday or other day
on which commercial banks in New York City are authorized or required by law to
remain closed; provided that when used in connection with a Eurocurrency Loan,
the term “Business Day” shall also exclude any day on which banks are not open
for dealings in deposits in the applicable currency in the London interbank
market.

“Capital
Expenditures” means for any period, the sum of (without duplication) of all expenditures
during such period (including, but not limited to, the purchase, construction
or rehabilitation of equipment or other physical assets) that are required to
be capitalized under GAAP, whether or not financed.

 5
 

 

 

“Capital
Lease” means any lease which has been or should be capitalized
on the books of the lessee in accordance with GAAP.

“Capital
Securities” means,
with respect to any Person, all shares, interests, participations or other
equivalents (however designated, whether voting or non-voting) of such Person’s
capital, whether now outstanding or issued or acquired after the Original
Effective Date, including common shares, preferred shares, membership interests
in a limited liability company, limited or general partnership interests in a
partnership, interests in a trust, interests in other unincorporated
organizations or any other equivalent of such ownership interest.

“Change
in Control” means: (a) except as to: (i) officers and directors
in office as of the Original Effective Date, and (ii) the Hardinge Inc. Pension
Plan, Hardinge Inc. Retirement Plan or other compensation plan of Borrower, the
acquisition of ownership, directly or indirectly, beneficially or of record, of
any Person or group (within the meaning of the Securities Act of 1934 and Rule
13d-5 of the Securities and Exchange Commission as in effect on the date
hereof) of Capital Securities representing more than twenty five percent (25%)
of the aggregate ordinary voting power in the election of Borrower’s directors;
or (b) occupation of a majority of the seats (other than vacant seats) on the
board of directors of the Borrower by Persons who are neither: (i) nominated by
the board of directors of the Borrower, nor (ii) appointed by the directors so
nominated.

“Code”
means the Internal Revenue Code of 1986, as amended from time to time.

“Commercial
Letter of Credit” shall mean a documentary Letter of Credit
issued in respect of the purchase of goods or services by Borrower or any of
its Subsidiaries in the ordinary course of its business.

“Commitment”
means, with respect to a Bank, both its Revolving Commitment and its Term Loan
Commitment.

“Compliance
Certificate” has the meaning given to such term in Section
6.02(c) hereof.

“consolidated”
and “consolidating”, when used with
reference to any term, mean that term as applied to the accounts of the
Borrower (or other specified Person) and all of its Subsidiaries (or other specified
group of Persons), or such of its Subsidiaries as may be specified,
consolidated or consolidating, as the case may be, in accordance with GAAP.

“Consolidated
Interest Expense” means for any period, the sum for the Borrower
and its Consolidated Subsidiaries (determined on a consolidated basis without
duplication, in accordance with GAAP) of the following: (a) all interest with
respect of Funded Debt (including, without limitation, the interest component
of any payments in respect of Capital Leases) accrued or capitalized during
such period (whether or not actually paid during such period), (b) the net
amount payable (or minus the net amount receivable) under Hedging Agreements
during such period (whether or not actually paid or received during such period);
(c) without duplication any

 6
 

 

periodic commitment fees and other fees payable
to the Agent or the Bank pursuant to the Loan Documents; and (d) without
duplication, any periodic fees paid by the Borrower or any of its Subsidiaries
to other creditors, which fees shall be related to or arising out of any Debt
owed to other creditors.

“Consolidated
Net Income” means for any period the net income or loss of the
Borrower and its Consolidated Subsidiaries for such period determined on a
consolidated basis, without duplication, in accordance with GAAP, provided that
there shall be excluded from such net income or loss: (a) the income of any
Person (other than a Consolidated Subsidiary) in which any other Person (other
than the Borrower or any Consolidated Subsidiary or any director holding
qualifying shares in compliance with applicable law) owns an Equity Interest,
except to the extent of the amount of dividends or other distributions actually
paid to the Borrower or any of the consolidated Subsidiaries by such Person
during such period, and (b) the income or loss of any Person accrued prior to
the date on which it becomes a Subsidiary or is merged into or consolidated
with the Borrower or any consolidated Subsidiary or the date on which such
Person’s assets are acquired by the Borrower or any Consolidated Subsidiary.

“Consolidated
Tangible Net Worth” means as of the date of determination,
without duplication and determined in accordance with GAAP: (a) the total
assets of the Borrower and its Consolidated Subsidiaries, minus (b) the total
liabilities of Borrower and its Consolidated Subsidiaries and all intangible
assets of the Borrower and its Consolidated Subsidiaries, and (c) minus any
decrease or plus any increase in the value of intangible assets related to the
translation of adjustments, provided, however, that there shall be excluded
from all such calculations both: (x) cumulative foreign currency translation
adjustments, and (y) changes in pension liabilities recorded in accordance with
SFAS 87.

“Credit Party”
or “Credit
Parties,”
individually or collectively, means and refers to the Borrower and the
Subsidiary Guarantors.

“Customer
Notes” means any and all notes and other evidence of
indebtedness (except accounts receivable arising in the ordinary course of business)
listed on that certain Due Diligence Certificate to be delivered by the
Borrower to the Agent on or before the Effective Date, which notes were issued
prior to the Original Effective Date to the Borrower and its Subsidiaries for
the payment obligations of customers for goods or services provided in the
ordinary course of business and that Borrower and its Subsidiaries sold prior
to the Original Effective Date pursuant to the Customer Note Sale Agreements.

“Customer
Note Sale Agreements” means, collectively, those agreements
entered into prior to the Original Effective Date, between the Borrower and
certain third party purchasers, for the sale, by the Borrower of certain of its
Customer Notes, all of which are listed on that certain Due Diligence Certificate
to be delivered by the Borrower to the Agent on or before the Effective Date.

“Customer
Note Sale Agreement Guaranties” means, collectively, those
limited guaranties granted by the Borrower prior to the Original Effective
Date, whereby the Borrower

 7
 

 

guaranteed, on a limited basis, the payment of
its certain of its Customer Notes as contemplated under the terms of the
Customer Note Sale Agreements, all of which are listed on listed on that
certain Due Diligence Certificate to be delivered by the Borrower to the Agent
on or before the Effective Date.

“Debt”
means, with respect to any Person: (a) indebtedness of such Person for borrowed
money whether or not evidenced by bonds, debentures, notes or similar
instruments; (b) obligations of such Person as lessee under Capital Leases or
Synthetic Lease Obligations, (c) obligations under direct or indirect
guaranties in respect of, and obligations (contingent or otherwise) to purchase
or otherwise acquire, or otherwise to assure a creditor against loss in respect
of, indebtedness or obligations of others of the kinds referred to in clause
(a) and (b) above, (not otherwise reserved for), which in the case of the
Borrower, shall specifically include any contingent and direct obligations
arising under or in connection with the Customer Note Sale Agreement
Guaranties, (d) all obligations of such Person to pay the deferred purchase
price of property or services (excluding trade accounts payable in the ordinary
course of business and accrued expenses arising in the ordinary course of
business), (e) all obligations, contingent or otherwise, with respect to the
face amount of all letters of credit, including the Facility Letters of Credit
issued hereunder (whether or not drawn) (excluding, however, in all cases, Commercial
Letters of Credit), bankers’ acceptances and similar obligations issued for the
account of such Person, , (f) all guaranties of indebtedness of any Person, and
(g) all Debt of any partnership of which such Person is a general partner.

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

“Default
Rate” means, with respect to the principal of any Loan and, to
the extent permitted by law, any other amount payable by the Borrower under
this Agreement (including the repayment of any Facility LC Disbursement) or any
Note that is not paid when due (whether at stated maturity, by acceleration or
otherwise), a rate per annum during the period from and including the due date,
to, but excluding the date on which such amount is paid in full equal to three
percent (3.0%) above the Variable Rate as in effect from time to time plus the
Applicable Margin (provided that, if the amount so in default is principal of a
Eurocurrency Loan and the due date thereof is a day other than the last day of
the Interest period therefor, the “Default Rate” for such principal shall be,
for the period from and including the due date and to but excluding the last
day of the Interest Period therefor, three percent (3.0%) above the interest
rate for such Loan as provided in Section 2.07 hereof and, thereafter, the rate
provided for above in this definition).

“Documentation
Agent” means KeyBank National Association in its capacity as
documentation agent of the Banks, and not in its individual capacity as a Bank.

“Domestic
Subsidiary” means any Subsidiary of Borrower that is organized
and existing under the laws of any jurisdiction in the United States of
America.

 8
 

 

 

“EBITDA”
means Consolidated Net Income prior to the deduction of Consolidated Interest
Expense, prior to the deduction of federal or foreign corporate income and
corporate franchise taxes, prior to the deduction of depreciation and
amortization and MINUS to the extent included in the determination of
Consolidated Net Income for such period, the sum of the following for the
Borrower and its Consolidated Subsidiaries: (a) interest income, (b) any
extraordinary, unusual or non-recurring income or gains (including, whether or
not otherwise able to be included as a separate item in the statement of
Consolidated Net Income for such period, gains on the sales of assets outside
the ordinary course of business), and (c) any other non-cash income, all as
determined on a consolidated basis.

“Effective
Date” means November 21, 2006, or, if later, the date on which
the conditions contained in Article 4 have been satisfied (or waived in
accordance with Section 11.01).

“Environmental
Laws” means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, toxic or hazardous substances or wastes into the
environment including, without limitation, ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing
distribution, use, treatment, storage, disposal, transport, or handling-of
pollutants, contaminants, chemicals, or industrial, toxic or hazardous
substances or wastes.

“ERISA
Affiliate” means each Person (as defined in Section 3(9) of
ERISA), which together with the Borrower or a Subsidiary of the Borrower, would
be deemed to be a “single employer” (i) within the meaning of Section 414(b),
(c), (m) or (o) of the Code or Section 4001(a)(14) or 4001(b)(i) of ERISA or
(ii) as a result of the Borrower or a Subsidiary of the Borrower being or
having been a general partner of such Person.

“Equity
Issuance” means: (a) any issuance or sale by the Borrower or any
of its Subsidiaries of: (i) any Capital Securities, (ii) any warrants or
options exercisable in respect of Capital Securities (other than any warrants
or options issued to directors, officers or employees of the Borrower or any of
its Subsidiaries in their capacity as such and any Capital Securities of the
Borrower issued upon the exercise of such warrants), or (iii) any other
security or instrument representing an equity interest (or the right to obtain
any equity interest) in the Borrower, or (b) the receipt by the Borrower of any
contribution to its capital (whether or not evidenced by any Capital
Securities).

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

“Eurocurrency
Loan” means any Loan when and to the extent the interest rate is
determined on the basis of the definition of “LIBOR Rate”.

 9

 

“Eurocurrency
Rate” means for any Interest Period for any Eurocurrency Loan a
rate per annum determined by the Agent to be equal to the relevant LIBOR Rate
for the Eurocurrency Loan, adjusted for any applicable Reserve Requirement.

“Existing Bridge Loans” means the Bridge Loans made pursuant to, and
as defined in, Amendment No. 3 to the Existing Credit Agreement that are
outstanding immediately prior to the Effective Date.

“Existing
Facility Letter of Credit” means a Facility Letter of Credit
issued by the Issuing Bank pursuant to Section 2.14 of the Existing
Agreement.  For the avoidance of doubt,
Existing Facility Letters of Credit do not include the JPMorgan Letters of
Credit.

“Existing
JP Morgan Letters of Credit” means the outstanding Letters of Credit
issued by JPMorgan for the account of the Borrower prior to the date of this
Agreement which are set forth on Schedule I
to this Agreement.

“Excluded
Foreign Subsidiaries” has the meaning given thereto in Section
5.12(b).

“Existing Other Debt” means the Debt of the Borrower and its
Subsidiaries existing as of the Original Effective Date, all of which is set
forth in Schedule II to
this Agreement

“Existing Revolving Loans” means the Loans made pursuant to, and as
defined in, the Existing Credit Agreement that are outstanding immediately
prior to the Effective Date.

“Existing
Term Loans” means the
Loans made pursuant to, and as defined in, the Existing Credit Agreement that
are outstanding immediately prior to the Effective Date.

“Event
of Default” has the meaning given such term in Section 9.01
hereof.

“Facility
LC Commitment” means the commitment
of the Issuing Bank to issue Facility Letters of Credit pursuant to Section
2.14.

“Facility
LC Disbursement” means a payment made by the Issuing Bank
pursuant to a Facility Letter of Credit.

“Facility
Letter of Credit Collateral Account” has
the meaning given to such term in Section 2.14(i) hereof.

“Facility LC Exposure” means, at any time, the sum of: (a) the
aggregate undrawn amount of all outstanding Facility Letters of Credit at such
time, plus (b) the aggregate amount of all unreimbursed Facility LC
Disbursements.  The Facility LC Exposure
of any Bank at any time shall be its Pro Rata Share of the Facility LC Exposure
at such time determined in accordance with the foregoing sentence.

 10
 

 

“Facility
Letter of Credit” means a Letter of Credit issued by the Issuing
Bank pursuant to Section 2.14 of this Agreement.  For the avoidance of doubt, Facility Letters
of Credit do not include JPMorgan Letters of Credit.

“Facility
Letter of Credit Fee” has the meaning given to such term in
Section 2.11(b) hereof.

“Facility
Letter of Credit Fronting Fee” has
the meaning given to such term in Section 2.11(b).

“Facility
Letter of Credit Collateral Shortfall Amount” has the meaning
given to such term in Section 9.02(a) hereof.

“Federal
Funds Rate” means, for any day, the rate per annum equal to the
weighted average of the rates on overnight federal funds transactions as
published by the Federal Reserve Bank of New York for such day (or for any day
that is not a Business Day, for the immediately preceding Business Day).

“Fee
Letters” means the Engagement Letter dated October 11, 2006
between Borrower and M&T Bank, the letter agreement dated December 14, 2004
between Borrower and M&T Bank, both relating to certain fees payable by the
Borrower with respect to the transactions contemplated by the Existing Credit
Agreement and this Agreement

“Financials”
means the annual or quarterly financial statements, and accompanying
certificates and other documents, of the Borrower required to be delivered
pursuant to Section 6.02(a) or 6.02(b).

“Fiscal
Quarter” means the three (3) month period ending on or around
March 31, June 30, September 30 and December 31 of each year.

“Fiscal
Year” means the twelve (12) month period ending on December 31
of each year.

“Fixed
Charges” means as of the date of determination all of the
scheduled principal payments on Debt, interest payments on Debt, dividends and
all other distributions of the Borrower and its Subsidiaries (excluding
dividends and distributions from a Subsidiary to the Borrower) for the twelve
(12) month period ending on such date.

“Fixed
Charges Coverage Ratio” means as of the date of determination,
the ratio of: (a) EBITDA minus: (i)
Non-Financed Capital Expenditures, and (ii) Taxes paid in cash, for the twelve
(12) month period ending on such date, divided by (b) Fixed Charges for the
same period.

“Foreign
Subsidiary” means any Subsidiary of Borrower that is not a
Domestic Subsidiary.

 11
 

 

“Forfeiture
Proceeding” means any action, proceeding or investigation
affecting the Borrower or any of its Subsidiaries or Affiliates before any
court, governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or the receipt of notice by any such
party that any of them is a suspect in or a target of any governmental inquiry
or investigation, which may result in an indictment of any of them or the
seizure or forfeiture of any of their property.

“Funded
Debt” means, without duplication determined in accordance with
GAAP, all of Borrower’s and its Consolidated Subsidiaries’ Debt.

“GAAP”
means generally accepted accounting principles in the United States of America
as in effect from time to time, applied on a basis consistent with those used
in the preparation of the audited financial statements referred to in Section
5.05 (except for changes concurred in by the Borrower’s independent public
accountants).

“Guaranty”
means the Amended and Restated Guaranty made by Hardinge Technology Systems,
Inc. in favor of the Agent for the benefit of the Banks dated as of the
Original Effective Date, as it may be amended, supplemented, restated or
otherwise modified from time to time.

“Guaranty
Supplement” means supplements to the Guaranty to be executed by
the required Subsidiaries of the Borrower pursuant to Section 6.08 herein,
which shall be in the form attached to the Guaranty as an exhibit.

“Hazardous
Materials” means any substance regulated under any Environmental
Laws.

“Hedging
Agreement” means any interest rate swap agreement, cap agreement
or collar agreement, and any other agreement or arrangement designed to protect
a Person against fluctuations in interest rates.

“Hedging
Obligation” means any liability of the Borrower or any of its
Subsidiaries under any Hedging Agreement. 
The amount of obligation in respect of any Hedging Obligation shall be
deemed to be the incremental obligation that would be reflected in the
financial statements of the Borrower and its Consolidated Subsidiaries in accordance
with GAAP.

“Indemnified
Liability” has the meaning given to such term in Section 11.03
hereof.

“Intellectual
Property Security Agreement” means the Intellectual Property
Security Agreement granted by the Borrower, certain Subsidiaries of the Borrower
and any other Person listed in the signature pages thereto, in favor of the
Agent for the benefit of the Banks dated as of Original Effective Date securing
the Obligations and in the form attached to the Security Agreement as an
exhibit, as such agreement may be amended, supplemented, restated or otherwise
modified from time to time.

“Intellectual
Property Security Agreement Supplement” means supplements to the
Intellectual Property Security Agreement to be executed by the required
Subsidiaries of the

 12
 

Borrower pursuant to Section 6.08 herein, which
shall be in a the form attached to the Intellectual Property Security Agreement
as an exhibit.

“Intercompany
Debt” shall mean Debt that is owed by a Subsidiary to the
Borrower or any other Subsidiary or by any Subsidiary to any other Subsidiary.

“Interest
Period” means the period commencing on the date a Loan is made
and ending, as the Borrower may select pursuant to Section 2.08: (a) in the
case of Variable Rate Loans, the period commencing on the date such Variable
Rate Loan is made and ending on the Quarterly Date next succeeding such date;
and (b) in the case of Eurocurrency Loans, on the numerically corresponding day
in the first, second, third, or sixth calendar month thereafter, provided,
however, that each such Interest Period which commences on the last
Business Day of a calendar month (or any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on
the last Business Day of the subsequent calendar month.

“Issuing
Bank” means M&T Bank in its
capacity as the Issuing Bank of a Facility Letter of Credit or any Affiliate of
M&T Bank that may from time to time issue Facility Letters of Credit, and
their successors and assigns in such capacity.

“JPMorgan”
means JPMorgan Chase Bank, N.A., a national association formed and existing
under the laws of the United States of America.

“JPMorgan
Exposure” means the sum of: (a) the aggregate maximum amount that Borrower and its Subsidiaries
could be required to pay under the Customer Note Sale Guaranties and the
JPMorgan Letters of Credit, plus (b) the aggregate amount of all unreimbursed
disbursements made by JPMorgan or its Affiliates pursuant to the JPMorgan
Letters of Credit.

“JPMorgan
Letters of Credit” means the Existing JPMorgan Letters of Credit
and the Letters of Credit issued by JPMorgan after the Original Effective Date
for the account of the Borrower or any of its Subsidiaries.

“JPMorgan
Obligations” means the
obligation of the Borrower and its Subsidiaries to pay to JPMorgan under the
Customer Note Sale Guaranties and the obligation of the Borrower and its
Subsidiaries to reimburse JPMorgan or its Affiliates with respect to any
disbursement made pursuant to a JPMorgan Letters of Credit.

“Letter
of Credit” of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.

“Leverage
Ratio” means, as of the date of its determination, with respect
to the Borrower, the ratio of: (a) Funded Debt as of such date, over (b) EBITDA
for the twelve (12) months ending as of such date.

 13
 

 

“LIBOR Rate” means with respect to a Eurocurrency Loan
for any Interest Period thereof:

(a)           an interest rate per
annum at which U.S. dollar deposits are offered in the London interbank market
in an amount approximately equal to the portion of the Loan subject to the
LIBOR Rate for a period of time equal to such Interest Period that appears on
Page 3750 of the Dow Jones Markets Service (or on an successor to or substitute
for such service, providing rate quotations comparable to those currently
provided on such page of such service), as determined by the Agent after 11:00
a.m. (London time) on the day that is two (2) Business Days prior to the first
day of such Interest Period;

(b)           if
no such rate appears on the Telerate Page 3750, the rate of interest determined
by the Agent to be the average of up to four interest rates per annum at which
U.S. Dollar deposits are offered in the London interbank market in an amount
approximately equal to the portion of the Loan subject to the LIBOR Rate, for a
period of time equal to such Interest Period which appear on the Reuter’s
Screen LIBOR Page as of 11:00 a.m. (London time) two (2) Business Days prior to
the Business Day on which such Interest Period begins if at least two such
offered rates so appear on the Reuter’s Screen LIBOR Page, or

(c)           if
no such rate appears on the Telerate Page 3750 and fewer than two offered rates
appear on the Reuter’s Screen LIBOR Page, the rate of interest at which
deposits in an amount approximately equal to the portion of the Loan as to
which the related LIBOR Rate has been elected and which have a term
corresponding to such Interest Period are offered to the Agent by first class
banks in the London inter-bank market for delivery in immediately available
funds at a LIBOR Office on the first day of such Interest Period as determined
by the Agent at approximately 11:00 a.m. (London time) two (2) Business Days
prior to the date upon which such Interest Period is to commence (which
determination by shall, in the absence of manifest error, be conclusive).

“Lien”
means any interest in property securing any Debt or other obligation owed to,
or a claim by, a Person other than the owner of the property, whether the
interest is based on common law, statute or contract (including the security
interest or lien arising from a mortgage, encumbrance, pledge, conditional sale
or trust receipt or a lease, consignment or bailment for security
purposes).  The term “Lien” shall not
include minor reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions and other minor title
exceptions affecting real property, provided that they do not constitute
security for a monetary obligation.  For
the purposes of this Agreement, the Borrower or a Subsidiary shall be deemed to
be the owner of any property which it has acquired or holds subject to a
conditional sale agreement, Capital Lease or other arrangement pursuant to
which title to the property has been retained by or vested in some other Person
for security purposes, and such retention or vesting shall be deemed to be a
Lien.

“Loan”
or “Loans” means, as the context may
require, Revolving Loans, Term Loans and/or Swing Line Loans.

 14
 

 

“Loan
Documents” means this Agreement, the Notes, the Facility Letters
of Credit, the Fee Letter, the Authorization Letter, the Security Documents,
the Guaranty, the Omnibus Assignment, the Termination Agreement, the letter
agreement described in Section 4.01(l) below and any certificate or other
document furnished pursuant to or in connection with this Agreement or any of
the foregoing.

“Material
Adverse Effect” means a material adverse effect on: (a) the
business, assets, operations, prospects or financial condition of the Borrower
and the Subsidiaries taken as a whole, (b) the ability of the Borrower to
perform any of its obligations under this Agreement or any other Loan Document,
(c) the ability of any of the Credit Parties other than the Borrower to perform
any of their respective obligations under any other Loan Document, or (c) the
rights of or benefits available to the Agent or any of the Banks under this
Agreement and the other Loan Documents, including, without limitation, the
enforceability of the Security Documents or the attachment, perfection or
priority of any Liens intended to be created thereby, or the validity of any of
the Loan Documents or the consummation of any of the transactions contemplated
therein.

“M&T
Bank” means Manufacturers and Traders Trust Company, a New York
banking corporation, and its successors.

“Multiemployer Plan”
means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA to which
the Borrower or any Subsidiary of the Borrower or any ERISA Affiliate is making
or accruing an obligation to make contributions or has within any of the
preceding five plan years made or accrued an obligation to make contributions.

“Multiple Employer Plan”
means an employee benefit plan, other than a Multiemployer Plan, to which the
Borrower or any Subsidiary of the Borrower or any ERISA Affiliate, and one or
more employers other than the Borrower or a Subsidiary of the Borrower or an
ERISA Affiliate, is making or accruing an obligation to make contributions or,
in the event that any such plan has been terminated, to which the Borrower or a
Subsidiary of the Borrower or an ERISA Affiliate made or accrued an obligation
to make contributions during any of the five plan years preceding the date of
termination of such plan.

“Net Cash Proceeds” means:

(a)           with respect to any sale, lease, transfer, casualty loss
or other disposition (including condemnation, confiscation or other similar
event) or loss of any assets of the Borrower or its Subsidiaries other than
those contemplated by Sections 7.06(b) and (c), the aggregate cash proceeds
(including cash proceeds received pursuant to policies of insurance or by way
of deferred payment of principal pursuant to a note, installment receivable or otherwise,
but only as and when received) received by the Borrower or any of its
Subsidiaries pursuant to such disposition net of: (i) the direct costs relating
to any non-Affiliate for such sale, lease, transfer, casualty loss or other
disposition (including condemnation, confiscation or other similar event) or
loss (including sales commissions and legal, accounting and investment banking
fees), (ii) taxes paid or reasonably estimated by the Borrower to be
payable as a result thereof (after

 15
 

taking into account any available tax credits or
deductions and any tax sharing arrangements), and (iii) amounts required to be
applied to the repayment of any Debt secured by a Lien on the asset subject to
such any sale, lease, transfer, casualty loss or other disposition (including
condemnation, confiscation or other similar event) or loss (other than the
Obligations);

(b)           with respect to any Equity Issuances, the aggregate cash
proceeds received by the Borrower or any of its Subsidiaries pursuant to such
issuance, net of the direct costs relating to such issuance (including sales
and underwriters’ commissions); and

(c)           with respect to any issuance of Funded Debt, the aggregate
cash proceeds received by the Borrower or any of its Subsidiaries pursuant to
such issuance, net of the direct costs of such issuance (including up-front,
underwriters’ and placement fees).

“Non-Financed
Capital Expenditures” means, with respect to the Borrower and
its Subsidiaries (determined on a consolidated basis), as of the date of
determination, all Capital Expenditures for the for the twelve (12) month
period ending on such date paid out of the operating cash flow or the proceeds
of the Revolving Loans or Swing Line Loans.

“Notes”
mean the Revolving Credit Notes, the Swing Line Note and the Term Loan Notes.

“Notice”
means that form Notice of Borrowing/Conversion/Continuation in the form of Exhibit G hereto evidencing the
Borrower’s request for funding and/or the continuation or conversion of an
applicable rate of interest.  In the case
of any Eurocurrency Loans, such Notice shall also indicate the applicable
Interest Period.

“Obligations”
means all: (a) Loans, unreimbursed Facility LC Disbursements, advances, debts,
liabilities, obligations (monetary or otherwise, including post-petition interest,
allowed or not), covenants and duties owing by any Credit Party to the Agent,
any Bank, the Swing Bank, the Issuing Bank or any Affiliate of any of the
foregoing or any indemnified Person hereunder, of any kind or nature, present
or future, arising under this Agreement or any other Loan Document, including
all interest, charges, expenses, fees, reasonable attorneys’ fees and
disbursements, and any reimbursement obligations of each Credit Party in
respect of Letters of Credit and surety bonds, (b) all Hedging Obligations of
each Credit Party permitted hereunder which are owed to any Bank or its
Affiliate, (c) all Bank Product Obligations of the Borrower or any of its
Subsidiaries permitted hereunder which are owed to any Bank or its Affiliates,
and (d) JPMorgan Obligations, in all cases whether or not evidenced by any
note, guaranty or other instrument, whether or not for the payment of money,
whether arising by reason of an extension of credit, loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due,
now existing or hereafter arising and however acquired.

“Omnibus
Assignment” means that certain Omnibus Assignment dated as of
the Original Effective Date, whereby the Borrower and the Banks agreed, among
other things, to: (a) accept the resignation of JPMorgan Chase Bank, N.A. as
Agent, (b) appoint the Agent as the successor

 16
 

agent
to JPMorgan Chase Bank, N.A., and (c) JPMorgan Chase Bank, N.A. assigned to the
Agent all of its rights, title and interest under, in and to guaranties,
security agreement and other instruments executed by the Borrower and certain
of its Subsidiaries in connection with: (i) that certain Multicurrency
Agreement entered into by and among the Borrower and the Banks dated October
24, 2002, which Multicurrency Agreement was superseded and replaced by the
terms of the Existing Credit Agreement, and (ii) that certain Term Loan
Agreement entered into by and among the Borrower and the Banks dated October
24, 2002, which Term Loan Agreement was superseded and replaced by the terms of
the Existing Credit Agreement.

“Original
Effective Date” means January 28,
2005.

“Payor”
has the meaning given to such term in Section 10.13 hereof.

“PBGC”
means the Pension Benefit Guaranty Corporation and any entity succeeding to any
or all of its functions under ERISA.

“Permitted Acquisitions” means any Acquisition by the Borrower
involving a Person which is engaged in a line of business which is the same or
substantially similar to the business of the Borrower; provided (a) the Agent
shall have received evidence reasonably satisfactory to them that any assets of
such Person which are the subject of the Permitted Acquisition are, or will be
promptly following the closing of such Permitted Acquisition, free and clear of
all Liens, except Liens permitted pursuant to Section 7.02 and other Liens for
which the Borrower has sought and obtained the prior written consent of the
Agent, which consent may be withheld, conditioned or delayed in the sole
discretion of the Agent; (b) no Default or Event of Default shall have occurred
and be continuing immediately prior to or would occur after giving effect to
the Acquisition on a pro forma basis, and (c) the Acquisition has either: (i)
been approved by an officer of such Person which is transferring assets having
authority to grant such approval, (ii) been approved by the Board of Directors
or other governing body of the Person which is the subject of the Acquisition,
or (iii) been recommended for approval by the Board of Directors or other
governing body of such Person to the shareholders or other members of such
Person and subsequently approved by the shareholders or such members if
shareholder or such member approval is required under applicable law or the
by-laws, certificate of incorporation or other governing instruments of such
Person.

“Person”
means an individual, partnership, corporation, limited liability company,
business trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority or other entity of whatever nature.

“Plan” means
any Multiemployer Plan or Single-Employer Plan.

“Pledged
Subsidiary” means any: (a) Domestic Subsidiary which has all of
its outstanding capital stock has been pledged to the Agent for the benefit of
the Banks pursuant to the Security Documents, and (b) Foreign Subsidiary which
has at least sixty five percent (65%) of its outstanding capital stock pledged
to the Agent for the benefit of the Banks pursuant to the Security Documents.

 17

 

 

“Prime
Rate” means that rate of interest from time to time announced by
the Reference Bank at its Principal Office as its prime commercial lending
rate.

“Principal
Office” means the principal office of the Agent, presently
located at One M&T Plaza, Buffalo, New York.

“Prohibited Transaction”
means a transaction with respect to a Plan that is prohibited under Section
4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of
the Code or Section 408 of ERISA.

“Pro Rata Share” means:

(a)           with
respect to a Bank’s obligation to make Revolving Loans, participate in Facility
Letters of Credit, reimburse the Issuing Bank, participate in Swing Loans and
prior to an acceleration of all amounts due under the Notes in accordance with
Section 9.02, to receive payments of principal, interest, fees, costs, and
expenses with respect thereto: (i) prior to the Aggregate Revolving Commitment
being terminated or reduced to zero, the percentage obtained by dividing (1)
such Bank’s Revolving Commitment, by (2) the Aggregate Revolving Commitment,
and (ii) from and after the time the Aggregate Revolving Commitment has been
terminated or reduced to zero, the percentage obtained by dividing (1) the
aggregate unpaid principal amount of such Bank’s Revolving Credit Exposure
(after settlement and repayment of all Swing Line Loans by the Banks), by (2)
the Aggregate Revolving Credit Exposure;

(b)           with respect to a Bank’s obligation to make a Term Loan
and prior to an acceleration of all amounts due under the Notes in accordance
with Section 9.02, to receive payments of interest, fees, and principal with
respect thereto: (i) prior to the making of the Term Loans, the percentage
obtained by dividing: (1) such Bank’s Term Loan Commitment, by (2) the
Aggregate Term Loan Commitment, and (ii) from and after the making of the Term
Loans, the percentage obtained by dividing: (1) the unpaid principal amount of
such Bank’s Term Loan, by (2) the unpaid principal amount of all Term Loans of
all Banks;

(c)           with
respect to the allocation and payment of any proceeds received after the
acceleration of all amounts due under the Notes in accordance with Section
9.02, the percentage obtained by dividing: (i) all of the Obligations
(including required payments into the Facility Letter of Credit Collateral
Shortfall Account) owed to the applicable Bank and payable under the applicable
subsection of Section 2.05(a)(iv), by (ii) the aggregate amount of all
Obligations (including required payments into the Facility Letter of Credit
Collateral Shortfall Account) owed to all the Banks and payable under the
applicable subsection of Section 2.05(a)(iv); and

(d)           with respect to all other matters as to a particular Bank,
the percentage obtained by dividing: (i) the amount of such Bank’s Revolving
Credit Exposure (after settlement and repayment of all Swing Line Loans by the
Banks) plus the unpaid principal amount of such

 18
 

 

Bank’s Term Loan, by (ii) the Aggregate Revolving
Credit Exposure plus the unpaid principal amount of all Term Loans.

“Purchase
Money Debt” means and includes: (a) Debt (other than the
Obligations) for the payment of all or any part of the purchase price of any
fixed assets, (b) any Debt (other than the Obligations) incurred at the time of
or within ten (10) days prior to or after the acquisition of any fixed assets
for the purpose of financing all or any part of the purchase price thereof, and
(c) any renewals, extensions, or refinancings thereof, but not any increases in
the principal amounts thereof outstanding at such time, including, for purposes
of this definition, any such Debt constituting a Capital Lease.

“Purchase
Money Lien” means a Lien upon fixed assets which secures
Purchase Money Debt, but only if such Lien shall at all times be confined
solely to the fixed assets to the extent they had their purchase price financed
through the incurrence of Purchase Money Debt.

“Quarterly
Date” means the last day of March, June, September, and December
in each year, the first of which shall be the first such day after the date of
this Agreement.

“Reaffirmation
Agreement” shall mean and refer to the Reaffirmation Agreement
dated on or about the date of this Agreement, whereby: (a) the Borrower,
certain Subsidiaries of the Borrower and any other Persons listed on the
signature pages to the Security Agreement, shall among other things, reaffirm
their respective obligations under the Security Agreement, as such agreement
may be amended, supplemented, restated or otherwise modified from time to time,
and (b) each Guarantor shall, among other things, reaffirm its respective
obligations under the Guaranty, as such agreement may be amended, supplemented,
restated or otherwise modified from time to time.

“Reference
Bank” means M&T Bank.

“Regulation
D” means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.

“Regulation
U” means Regulation U of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.

“Regulatory
Change” means, with respect to any Bank, any change after the
Original Effective Date in United States federal, state, municipal or foreign
laws or regulations (including, without limitation, Regulation D) or the
adoption or making after such date of any interpretations, directives or
requests applying to a class of banks including such Bank of or under any
United States, federal, state, municipal or foreign laws or regulations
(whether or not having the force of law) by any court or governmental or
monetary authority charged with the interpretation or administration thereof.

“Required
Banks” means, (a) at any time while no Obligations are
outstanding, Banks having Commitments equal to at least 66 2/3% of the
Aggregate Commitments and, (b) at any

 19
 

 

time while any Obligations remain outstanding and
unpaid, Banks having a Revolving Credit Exposure, unused Revolving Commitment
and unpaid principal with respect to their Term Loans which constitute at least
66 2/3% of the sum of (i) the Aggregate Revolving Credit Exposure and, to the
extent unused, the Aggregate Revolving Commitment, and (ii) the unpaid
principal amount of all outstanding Term Loans.

“Required
Payment” has the meaning given to such term in Section 10.13
hereof.

“Reportable
Event” means an event described in Section 4043 of ERISA or the
regulations thereunder with respect to a Plan, other than those events as to
which the notice requirement is waived under subsection .22, .23, .25, .27,
..28, .29, .30, .31, .32, .34, .35, .62, .63, 64, .65 or .67 of PBGC Regulation
Section 4043.

“Reserve
Requirement” means,
with respect to any Interest Period, the reserve percentage (expressed as a
decimal) in effect from time to time during such Interest Period, as provided
by the Federal Reserve Board, or any other governmental authority, applied for
determining the maximum reserve requirements (including, without limitation,
basic, supplemental, marginal and emergency reserves) applicable to M&T
Bank under Regulation D of the of the Board of Governors of the Federal Reserve
System with respect to “Eurocurrency liabilities” within the meaning of
Regulation D, or under any similar or successor regulation with respect to
Eurocurrency liabilities or Eurocurrency funding.  Without limiting the effect of
the foregoing, the Reserve Requirement shall also reflect any other reserves
required to be maintained by M&T Bank by reason of any Regulatory Change
against: (a) any category of liabilities which includes deposits by reference
to which the LIBOR Rate for Eurocurrency Loans is to be determined as provided
in the definition of “LIBOR Rate” in this Section 1.01 or (b) any category of
extensions of credit or other assets which include Eurocurrency Loans.

“Revolving
Commitment” means, with respect to each Bank, the commitment and
obligation of such Bank to make Revolving Loans under the terms of this
Agreement and to participate in Facility Letters of Credit and Swing Line Loans
under the terms of this Agreement, in an aggregate principal amount not to
exceed the amount set forth opposite such Bank’s name on Schedule
III, or in an Assignment and Assumption Agreement executed
by it, in all cases as such amount may be modified from time to time in
accordance with the terms hereof.

“Revolving Credit Exposure”
means, with respect to any Bank at any time, the sum of: (a) the outstanding
principal amount of such Bank’s Revolving Loans, (b) such Bank’s Facility LC
Exposure, and (c) such Bank’s Swing Line Exposure at such time.

“Revolving
Credit Notes” means the Amended and Restated Revolving Credit Notes
of the Borrower to each of the Banks in the principal amount of their
respective Revolving Commitment, in the form of Exhibit
B hereto evidencing the Revolving Loans made by the Banks
hereunder (each a “Revolving Loan Note”) as the
same may be amended, modified, extended, renewed, restated, consolidated and
replaced from time to time.

“Revolving
Loans” means any Loan made pursuant to Section 2.01.

 20
 

 

 

“ROC
Joint Venture Agreement” means the Joint Venture Agreement dated
as of February 12, 1999 entered into by and among the Borrower and the ROC
Shareholders, as the same may have been amended, supplemented, restated or
otherwise modified from time to time.

“ROC
Shareholders” shall mean and refer to the ROC Shareholders
identified under the terms of the Joint Venture Agreement (as such agreement
was in effect on February 12, 1999) as Mr. R.M. Yang, Ms. Shain Wu, Mr. Paul
Ling and Ms. J.R. Ho.

“Security
Agreement” means the Amended and Restated Security Agreement
granted by the Borrower, certain Subsidiaries of the Borrower and any other
Persons listed on the signature pages thereto, in favor of the Agent for the
benefit of the Banks dated as of the Original Effective Date, securing among
other things, the Obligations and in form and substance satisfactory to the
Agent and the Banks, as such agreement may be amended, supplemented, restated
or otherwise modified from time to time.

“Security
Agreement Supplement” means supplements to the Security
Agreement to be executed by the required Subsidiaries of the Borrower pursuant
to Section 6.08 herein, which shall be in the form attached to the Security
Agreement as an exhibit.

“Security
Documents” means collectively any and all documentation executed
in connection with this Agreement which is intended, by virtue of its terms and
conditions to serve as security for the Obligations of the Borrower under the
terms of this Agreement or any Loan Document, any Credit Party under any Loan
Document or otherwise, including, but not limited to, the Account Control
Agreements, the Assignment of Leases and Rents, the Security Agreement, the
Intellectual Property Security Agreement, each Security Agreement Supplement,
each Intellectual Property Security Agreement Supplement, the Guaranty and each
Guaranty Supplement.

“Single
Employer Plan” means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, to which the Borrower, any Subsidiary of the
Borrower or any ERISA Affiliate is making or accruing an obligation to make
contributions or, in the event that any such plan has been terminated, to which
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate made or
accrued an obligation to make contributions during any of the five plan years
preceding the date of termination of such plan.

“Subsidiary”
means, with respect to any Person, any corporation or other entity of which at
least a majority of the securities or other ownership interests having ordinary
voting power (absolutely or on a contingent basis) for the election of
directors or other persons performing similar functions are at the time owned
directly or indirectly by such Person.

“Subsidiary
Guarantor” means certain of the Domestic Subsidiaries that have
executed and delivered to the Agent for the benefit of the Banks the Guaranty
or a Guaranty Supplement.

 21
 

 

 

“Subsidiary
Real Property Liens” has the meaning given to such term in
Section 5.12 hereof.

“Swing
Bank” means M&T Bank, in its capacity as Bank of Swing Line
Loans hereunder.

“Swing Line Exposure”
means, at any time, the aggregate principal amount of all Swing Line Loans
outstanding at such time.  The Swing Line
Exposure of any Bank at any time shall be its Pro Rata Share of the Swing Line
Exposure at such time determined in accordance with the foregoing sentence.

“Swing
Line Loan” has the meaning given to such term in Section 2.13
hereof.

“Swing
Line Note” means the Amended and Restated Swing Line Note of the
Borrower to the Swing Line Bank in the principal amount of $7,000,000, in the
form of Exhibit C
hereto evidencing the Swing Line Loans made by the Swing Line Bank, as the same
may be amended, modified, extended, renewed, restated, consolidated and
replaced from time to time.

“Syndication
Agent” means JPMorgan Chase Bank, N.A. in its capacity as the
syndication agent of the Banks, and not in its individual capacity as a Bank.

“Synthetic
Lease Obligations” means all monetary obligations of a Person
under: (a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property creating obligations which
do not appear on the balance sheet of such Person but which, upon the
insolvency or bankruptcy of such Person, would be characterized as the Debt of
such Person (without regard to accounting treatment).

“Termination
Agreement” means the Termination Agreement by and among the
Existing Agent, the Documentation Agent and the Banks dated as of the Original
Effective Date, whereby the parties thereto agreed, among other things, to
terminate that certain Intercreditor Agreement dated on or about October 24, 2002
by and among such parties.

“Termination Date”
means January 28, 2010.

“Term
Loan Commitment” means, with respect to each Bank, the
commitment and obligation of such Bank to make Term Loans under this Agreement,
in an aggregate principal amount not to exceed the amount set forth opposite
such Bank’s name on Schedule IV,
or in an Assignment and Assumption Agreement executed by it, in all cases as
such amount may be modified from time to time in accordance with the terms
hereof.

“Term
Loan Maturity Date” means January 28, 2011.

“Term
Loan Notes” means the Amended and Restated Term Loan Notes of
the Borrower to each of the Banks in the principal amount of their respective
Term Loan Commitment, in the form of Exhibit D hereto
evidencing the Term Loans made by the Banks hereunder (each a

 22
 

 

 

“Term
Loan Note”) as the same may be amended, modified, extended,
renewed, restated, consolidated and replaced from time to time.

“Term
Loan Quarterly Payment Dates” means the 20th day of each June, September, December and March in each year.

“Taiwanese
Property” shall mean and refer to the lands located at and
commonly known as 305 Nan-Kang Sub-section Lin-Tze Section, Nanto County,
Taiwan and the buildings thereon (including a four-floor office building and a
factory with two floors above the ground level and one basement below the
ground level.

“USA
Patriot Act” means the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001.

“Variable
Rate” means, for any day, the higher of: (a) the Federal Funds
Rate for such day plus fifty (50) Basis Points, and (b) the Prime Rate for such
day. Any change in the Variable Rate due to a change in the Prime Rate or the
Federal Funds Rate shall be effective from and including the effective date of
such change in the Prime Rate or the Federal Funds Rate, respectively.

“Variable
Rate Loan” means any Loan when and to the extent the interest
rate for such Loan is determined in relation to the Variable Rate.

“Wholly
Owned Subsidiary” shall mean a Subsidiary for which all of the
outstanding shares of stock or other equity of such entity is owned directly or
indirectly by Borrower or one of Borrower’s Wholly Owned Subsidiaries.

Section
1.02.  Other Defined Terms; Rules of
Interpretation .

(a)           All
terms defined in this Agreement shall have the defined meanings when used in
any certificate or other document made or delivered pursuant hereto, unless
otherwise expressly provided therein.

(b)           As
used herein and in any certificate or other document made or delivered pursuant
hereto, accounting terms not defined herein and accounting terms partly defined
herein to the extent not defined, shall have the respective meanings given to
them under GAAP.

(c)           The
words “hereof,”  “herein” and “hereunder” and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. 
The words “include,”  “includes” and “including” shall be deemed to be followed by the
phrase “without limitation.” 
Unless the context in which used herein otherwise clearly requires, “or”
has the inclusive meaning represented by the phrase “and/or.”

 23
 

 

 

(d)           Terms
defined in this Agreement by reference to any other agreement, document or
instrument shall have the meanings assigned to them in such agreement, document
or instrument, whether or not such agreement, document or instrument is then in
effect.

(e)           All
terms defined in the UCC and not otherwise defined herein have the meanings
assigned to them in the UCC.

(f)            References
to Articles, Sections, subsections, Exhibits, Schedules and the like, are to
Articles, Sections, subsections of, or Exhibits or Schedules attached to, this
Agreement (as amended from time to time) unless otherwise expressly provided.

(g)           Defined
terms include in the singular number the plural and in the plural number the
singular.

(h)           Reference
to any law, rule, regulation, order, decree, requirement, policy, guideline,
directive or interpretation means as amended, modified, codified, replaced or
reenacted, in whole or in part, and in effect on the determination date,
including rules and regulations promulgated thereunder.

(i)            All
references herein to the Banks or any of them shall be deemed to include the
Issuing Bank unless specifically provided otherwise or the context otherwise
requires.

Section 1.03.  Amendment and Restatement.
This Agreement is and shall for all purposes be deemed to be an amendment and a
restatement of the provisions of the Existing Credit Agreement. This Agreement
shall supersede the Existing Credit Agreement insofar as it constitutes the
entire agreement between the parties concerning the subject matter of this
Agreement, but does not constitute a novation of the Existing Credit Agreement
or any of the Indebtedness, liabilities or obligations of the Borrower
thereunder.  All Existing Revolving Loans
and Existing Term Loans together with all Existing Facility Letters of Credit pursuant to the
Existing Credit Agreement shall be deemed
to be Loans and Letters of Credit
under this Agreement, and all Obligations (as defined in the Existing Credit
Agreement) shall be deemed to be
Obligations under this Agreement.

 24

 

 

ARTICLE 2. THE CREDITS

Section
2.01.  The Commitments.

(a)           Revolving
Loans.

(i)            On the Effective
Date, the Existing Revolving Loans and the Existing Bridge Loans shall
automatically, and without any action on the part of any Person, be deemed to
be Revolving Loans under this Agreement, and the Banks shall , through the
Agent, make such adjustments as shall be necessary so that after giving effect
thereto, each Bank holds its Pro Rata Share of the outstanding Revolving loans,
provided that such amount is not greater than its Revolving Commitment.

(ii)           Subject
to the terms and conditions set forth in this Agreement, each Bank agrees to
make Revolving Loans to the Borrower from time to time from the Effective Date
until the Termination Date in an aggregate principal amount that will not
result in: (A) such Bank’s Revolving Credit Exposure exceeding such Bank’s
Revolving Commitment, and (B) the Aggregate Revolving Credit Exposure exceeding
the Aggregate Revolving Commitment. 
Within the foregoing limits and subject to the terms and conditions set
forth herein, the Borrower may borrow, repay and re-borrow from time to time
Revolving Loans.

(b)           Term
Loans.  Immediately prior
to the Effective Date, the Banks held the Existing Term Loans with an aggregate
outstanding principal amount being $21,600,000. 
On the Effective Date, the Existing Term Loans held by each Bank shall
automatically, and without any action on the part of any Person, be deemed to
be Term Loans under this Agreement.

Section
2.02.  The Notes and Recordkeeping.

(a)           The Revolving Credit Loans of each Bank shall be evidenced
by a Revolving Credit Note, with appropriate insertions, payable to the order
of such Bank in a face principal amount equal to the sum of such Bank’s
Revolving Commitment.  The Term Loans
of each Bank shall be evidenced by a Term Loan Note, with appropriate
insertions, payable to the order of such Bank in a face principal amount equal
to the sum of such Bank’s Term Loan Commitment. 
The Swing Loans shall be evidenced by a Swing Line Note, with
appropriate insertions, payable to the order of the Swing Line Bank in a face
principal amount equal to $7,000,000. 
Each Note shall be dated the date of this Agreement and otherwise duly
completed and executed by the Borrower.

(b)           The
date, type, amount, interest rate, duration of Interest Period, and conversion
of each Loan made by each Bank to the Borrower, and each payment made on
account of the principal thereof, shall be recorded by such Bank on its books
and, on the schedule attached to each Note or any continuation thereof.  The aggregate unpaid principal amount so
recorded shall be presumptive evidence of the principal amount of the Loans
owing and unpaid.  The failure of such
Bank to make, or any error in making, any such recordation shall not affect the
Obligations of Borrower hereunder or under any Note to pay when due of any

 25
 

 

amount owing hereunder or under such Note in respect of
the Loan together with interest accruing thereon.

Section
2.03.  Purpose.  The Borrower shall use the proceeds of the
Revolving Loans to refinance Existing Revolving Loans and Existing Bridge Loans
and Swing Line Loans and may otherwise use the proceeds of the Revolving Loans:
(i) for working capital requirements and other general corporate purposes in
the ordinary course of business and (ii) up to a maximum of $5,000,000 to fund
Permitted Acquisitions.  The proceeds of
Swing Line Loans may be used only for working capital requirements and general
corporate purposes in the ordinary course of business.  The Borrower shall use the proceeds of the
Term Loans to refinance the Existing Term Loans.  Notwithstanding any provision herein to the
contrary, the proceeds of the Borrower shall not use the proceeds from any
Loans, whether immediately, incidental or ultimate, for the purpose of buying
or carrying “margin stock” within the meaning of Regulation U.

Section
2.04.  Borrowing Procedures.

(a)           To effect a funding, the Borrower shall give the Agent a
Notice, delivered in accordance with this Section 2.04 and in Section 2.08,
specifying the type, amount and date of each intended borrowing and the manner
in which the same will be disbursed.

(b)           Each Revolving Loan shall be, and each Term Loan may be,
divided into tranches which are, either a Variable Rate Loan or a Eurocurrency
Loan (each a “type” of Loan), as the
Borrower shall specify in the related notice of borrowing or conversion
pursuant to Section 2.08.  Both Variable
Rate Loans and Eurocurrency Loans may be outstanding at the same time, provided
that not more than eight (8) different Eurocurrency Loans shall be outstanding
at any one time.  Each request for a
Eurocurrency Loan shall be treated as a single Loan, this despite any
Eurocurrency Loans having the same Interest Period which expire on the same
day.  All borrowings, conversions and
repayments of Loans shall be effected so that each Bank will have a ratable
share, according to its Pro Rata Share, of all types of Loans.

(c)           Promptly upon receipt of each Notice, the Agent shall
advise each Bank thereof and their respective proportionate share of the
Loans.  The amount so received by the
Agent shall, subject to the conditions of this Agreement, be made available to
the Borrower, in immediately available funds, by the Agent crediting an account
of the Borrower designated by the Borrower and maintained with the Agent at a
banking office designated by the Agent, provided that Revolving Loans made to
finance the reimbursement of a Facility LC Disbursement as provided in Section
2.14(e) shall be remitted by the Agent to the Issuing Bank.

(d)           Unless
the Agent shall have received notice from a Bank prior to the proposed date of
any borrowing under this Agreement that such Bank will not make available to
the Agent such Bank’s share of such borrowing, the Agent may assume that such
Bank has made such share available on such date in accordance with Section
2.04(c) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount.  In such
event, if a Bank has not in fact made its share of the applicable borrowing
available to the Agent, then the applicable Bank and the Borrower severally
agree to pay to the Agent forthwith on demand such

 26
 

 

corresponding amount with interest thereon, for each day
from and including the date such amount is made available to the Borrower to
but excluding the date of payment to the Agent, at: (i) in the case of such
Bank, the greater of the Federal Funds Rate and a rate determined by the Agent
in accordance with banking industry rules on interbank compensation, or (ii) in
the case of the Borrower, the interest rate applicable to Variable Loans.  If such Bank pays such amount to the Agent,
then such amount shall constitute such Bank’s Loan included in such borrowing.

Section
2.05.  Payments.

(a)           Except to the extent otherwise provided herein, all
payments of principal of and interest on Loans payable by the Borrower under
this Agreement and the Notes shall be made in immediately available funds not
later than 11:00 a.m. New York time on the date on which such payments shall
become due (each such payment made after such time on such date to be deemed to
have been made on the next succeeding Business Day).  So long as no Default or Event of Default has
occurred and is continuing: (i) payments matching specific scheduled payments
then due shall be applied to those scheduled payments, and (ii) voluntary and
mandatory prepayments shall be applied as set forth in Section 2.12.  Subject to the foregoing, and except as
otherwise below, all principal payments in respect of the Loans (other than the
Swing Line Loans) shall be applied first, to repay outstanding Variable Rate
Loans and then to repay outstanding Eurocurrency Loans in direct order of
Interest Period maturities.  After the
occurrence and during the continuance of a Default or Event of Default, payment
by Borrower or any Credit Party to and all amounts collected or received by the
Agent or any Bank as payments from the Borrower or any Credit Party or
otherwise or as proceeds from the sale of, or other realization upon, all or
any part of the collateral, shall be applied as follows anything contained
herein to the contrary notwithstanding:

(i)            first, to the payment of any outstanding costs and
expenses incurred by the Agent in protecting, preserving or enforcing rights
under this Agreement and the other Loan Documents and in any event including
all costs and expenses of a character which the Borrower has agreed to pay
under Section 11.03 hereof (such funds to be retained by the Agent for its own
account unless it has previously been reimbursed for such costs and expenses by
the Banks, in which event such amounts shall be remitted to the Banks to
reimburse them for payments theretofore made to the Agent);

(ii)           second, to the payment of any outstanding interest or
other fees or indemnification amounts due with respect to the Obligations,
ratably as among the Agent and the Banks in accord with the amount of such
interest and other fees or indemnification amounts owing each;

(iii)          third, to the payment of the principal of the Swing Loans;

(iv)          fourth, to the payment of all other Obligations in
accordance with each Bank’s Pro Rata Share (including required payments into
the Facility Letter of Credit Shortfall Collateral Account), except that the
JPMorgan Obligations shall be only to a maximum

 27
 

 

amount of $8,000,000 and the Bank Product
Obligations of Subsidiaries of the Borrower that are not Credit Parties shall
be only to a maximum of $3,000,000;

(v)           fifth,  to payment
of any remaining unpaid JPMorgan Obligations and Bank Product Obligations; and

(vi)          sixth, to the Borrower or to whomever the Agent reasonably
determines to be lawfully entitled thereto.

If the due date of any payment under this Agreement or
the Notes would otherwise fall on a day which is not a Business Day, such date
shall be extended to the next succeeding Business Day and interest shall be
payable for any principal so extended for the period of such extension.  Each payment received by the Agent hereunder
or under the Notes for the account of a Bank shall be paid promptly to such
Bank, in immediately available funds.

(b)           Unless earlier due pursuant to Section 2.12 or Section
9.02, the Revolving Loans of each Bank shall be paid in full and the Revolving
Commitments shall terminate on the Termination Date.

(c)           Unless earlier due pursuant to Section 2.12 or Section
9.02, the Borrower promises to pay to the Agent, for the pro rata accounts of
the Banks in accordance with their Pro Rata Share, the principal amount of the
Term Loans in seventeen (17) consecutive quarterly payments on each Term Loan
Quarterly Payment Date in an amount equal to the amount set forth in the table
below opposite the calendar year containing the date of such payment (subject
to reductions from prepayments as set forth in Section 2.12), commencing on December
20, 2006, with a final payment due on the Term Loan Maturity Date in an amount
equal to the unpaid balance of the Term Loans.

	
  Calendar Year

  	
   

  	
  Amount of

  Quarterly Payment

  	
   

  
	
  2006

  	
   

  	
  $

  	
  1,200,000

  	
   

  
	
  2007

  	
   

  	
  $

  	
  1,275,000

  	
   

  
	
  2008

  	
   

  	
  $

  	
  1,275,000

  	
   

  
	
  2009

  	
   

  	
  $

  	
  1,275,000

  	
   

  
	
  2010

  	
   

  	
  $

  	
  1,275,000

  	
   

  

 

Section
2.06.  Interest Periods.  In the case of each Eurocurrency Loan, the
Borrower shall select in each Notice an Interest Period of any duration in
accordance with the definition of Interest Period in Section 1.01 hereof,
subject to the following limitations: (a) in the case of Revolving Loans, no
Interest Period may extend beyond the Termination Date; (b) in the case of Term
Loans if, after giving effect to
an Interest Period, the aggregate principal amount of all Term Loans having
Interest Periods ending after any date on which an installment of the Term

 28
 

 

Loans is scheduled to be repaid would exceed the
aggregate principal amount of the Term Loans scheduled to be outstanding after
giving effect to such repayment, such Interest period may not be selected, (c) notwithstanding clause (a) above, no Interest
Period for a Eurocurrency Loan shall have a duration less than one month and if
any such proposed Interest Period would otherwise be for a shorter period, such
Interest Period shall not be available; and (d) if an Interest Period would end
on a day which is not a Business Day, such Interest Period shall be extended to
the next Business Day, unless, in the case of a Eurocurrency Loan, such
Business Day would fall in the next calendar month in which event such Interest
Period shall end on the immediately preceding Business Day.

Section
2.07.  Interest.

(a)           Interest shall accrue on the outstanding and unpaid
principal amount of each Loan for the period from and including the date of
such Loan to but excluding the date such Loan is paid at the following rates
per annum: (i) for a Variable Rate Loan, at a rate per annum equal to the
Variable Rate plus the Applicable Margin, and (ii) for a Eurocurrency Loan, at
a fixed rate equal to the Eurocurrency Rate plus the Applicable Margin.  If the principal amount of any Loan and any
other Obligation payable by the Borrower hereunder or under a Note or other
Loan Document shall not be paid when due (at stated maturity, by acceleration
or otherwise), interest shall accrue at the Default Rate on such amount to the
full extent permitted by law from and including such due date to but excluding
the date such amount is paid in full.

(b)           The
applicable LIBOR Rate for each Interest Period for each Eurocurrency Loan shall
be determined by the Agent, and notice thereof shall be given by the Agent
promptly to the Borrower and each Bank. Each determination of the applicable
LIBOR Rate by the Agent shall be conclusive and binding upon the parties
hereto, in the absence of demonstrable error. 
The Agent shall, upon written request of the Borrower or any Bank,
deliver to the Borrower or such Bank a statement showing the computations used
by the Agent in determining any applicable LIBOR Rate hereunder.

(c)           Interest
shall be computed for the actual number of days elapsed on the basis of a year
of 360 days; provided that calculations of interest with respect to Variable
Rate Loans shall be for the actual number of days elapsed on the basis of a year
of 365/366 days.  The applicable interest
rate for each Variable Rate Loan shall change simultaneously with each change
in the Variable Rate.

(d)           Accrued
interest on each Variable Rate Loan shall be payable in arrears on each
Quarterly Date for Revolving Loans and each Term Loan Quarterly Payment Date
for Term Loans, upon a prepayment of any such Loan and at maturity of any such
Loan.  Accrued interest on each
Eurocurrency Loan shall be payable on the last day of each Interest Period
relating to such Loan (and, in the case of a Eurocurrency Loan with an Interest
Period in excess of three months, on the three-month anniversary of the first
day of such Interest Period), upon a prepayment of any such Loan, and at
maturity of any such Loan. After maturity, and at any time an Event of Default
exists, accrued interest on all Loans shall be payable on demand.

 29

 

 

Section
2.08.  Certain Notices.

(a)           The
Borrower shall deliver to the Agent a Notice for: (1) each borrowing pursuant
to Section 2.04, and (2) each conversion/continuation of an Interest Period
pursuant to Section 2.08(b).  The
Borrower shall also deliver to the Agent advance written notice pursuant to
this Section 2.08 of each prepayment pursuant to Section 2.12 and each
reduction or termination of the Revolving Commitments pursuant to Section
2.09(b).  All Notices received by the
Agent shall be irrevocable and shall be effective only if received by the
Agent: (i) in the case of borrowings for Variable Rate Loans, the Borrower
shall deliver a Notice to the Agent no later than 2:00 p.m. New York time at
least one (1) Business Day prior to the date of such borrowing, (ii) in the
case of any prepayment for Variable Rate Loans, written notice shall be
delivered to the Agent no later than 11:00 p.m. New York time on the date of
prepayment, (iii) in the case of borrowings, conversion from a Variable Rate
Loan to a Eurocurrency Loan, a conversion/ continuation of an Interest Period,
prepayment or required prepayment for Eurocurrency Loans, written notice or a
Notice (as applicable) shall be delivered to the Agent by 2:00 p.m., at least
three (3) Business Days prior to the date of such borrowing, conversion of the
applicable rate of interest, conversion/continuation of an Interest Period,
prepayments and/or required prepayment for Eurocurrency Loans; (iv) in the case
of Swing Line Loans, a Notice shall be delivered to the Agent no later than
12:00 noon, New York time, on the date of such borrowing, and (v) in the case
of reductions or terminations of the Revolving Commitments, written notice
shall be delivered to the Agent at least three (3) Business Days prior thereto.  Each written notice of reduction or
termination shall specify the amount of the Revolving Commitments to be reduced
or terminated.  Each Notice for the
conversion/continuation of a Loan shall specify the proposed date of conversion
or continuation; the aggregate amount of Loans to be converted or continued;
the type of Loans resulting from the proposed conversion or continuation; and
in the case of conversion into, or continuation of, Eurocurrency Loans the
duration of the requested Interest Period therefor.  Without limiting the foregoing, any failure
by the Borrower to deliver the required notice in connection with the
prepayment of any Eurocurrency Loan will result in the payment of any necessary
fees or costs (if any) as described in Section 3.05 below.

(b)           If
upon the expiration of any Interest Period applicable to Eurocurrency Loans,
the Borrower has failed to select timely a new Interest Period to be applicable
to such Eurocurrency Loans, the Borrower shall be deemed to have elected to
convert such Eurocurrency Loans into Variable Rate Loans effective on the last
day of such Interest Period. 
Furthermore, unless the Required Banks otherwise consent in writing, if
there exists a Default or Event of Default, Borrower may not thereafter elect
to have an existing Loan converted to a Eurocurrency Loan or have any new
Eurocurrency Loans extended thereafter. 
Further, at the sole discretion of the Agent and the Required Banks, the
Agent may convert any Eurocurrency Loan to a Variable Rate Loan.  Notwithstanding the foregoing, if Borrower
commences, or has commenced against it, any proceeding or request for relief
under any bankruptcy, insolvency or similar laws not or hereafter in effect in
the United States of America or any state or territory thereof or any foreign
jurisdiction or any formal or informal proceeding for dissolution, liquidation
or settlement of claims against or winding up of affairs of Borrower (sometimes
hereinafter collectively referred to as a “Bankruptcy Event”), any outstanding Eurocurrency Loans
shall be automatically converted to Variable Rate Loans without further action
of the Agent and/or the Banks,  Nothing

 30
 

 

herein shall be construed as a waiver by the Banks to have any
Obligations accrue interest at the Default Rate.

(c)           Subject
to Sections 2.08(a) and 2.10, and subject to the restrictions on the number of
Eurocurrency Loans that may be outstanding at any given time as set forth in
Section 2.04(b) above, the Borrower may, upon irrevocable written notice to the
Agent:

(i)            Elect, as of any Business Day, to convert any Variable
Rate Loans into Eurocurrency Loans; or

(ii)           Elect, as of the last day of the applicable Interest
Period, to continue all or any part of any Eurocurrency Loans having Interest
Periods expiring on such day  for a new
Interest Period of its choice, provided that after giving effect to any
prepayment, conversion or continuation: or

(iii)          Elect, as of the last day of the applicable Interest
Period, to convert any or a part of any Eurocurrency Loan into a Variable Rate
Loan.

Section
2.09.  Changes in Revolving Commitment.

(a)           The Borrower shall have the right to reduce or terminate
the amount of unused Revolving Commitments at any time or from time to time,
provided that: (i) the Borrower shall give notice of each reduction or
termination to the Agent as provided in Section 2.08(a); and (ii) each partial
reduction shall be in an aggregate amount of at least Three Million Dollars
($3,000,000).

(b)           The Revolving Commitments once reduced or terminated may
not be reinstated.  All reductions in the
Revolving Commitments shall be made pro rata according to the amount of each
Bank’s Revolving Commitment. Any reduction of the Revolving Commitments
to a level below the maximum principal amount set forth in Section 2.13(a) for
Swing Line Loans and the maximum Facility LC Exposure set forth in Section
2.14(a) for Facility Letters of Credit shall effect a concurrent reduction in
those amounts so as to equal the total Aggregate Revolving Commitments after
giving effect to such reduction.

Section
2.10.  Minimum Amounts.

(a)           Except for borrowings which exhaust the full remaining
amount of the Aggregate Revolving Commitment, and prepayments which result in
the prepayment of all Revolving Loans, each borrowing and prepayment of
principal shall be in an amount equal to at least One Million Dollars
($1,000,000) and shall be in incremental multiples of One Hundred Thousand
Dollars ($100,000).

(b)           Except for borrowings which exhaust the full remaining
amount of the Swing Line Loan available to the Borrower, all Swing Line Loans
shall be in an amount equal to

 31
 

 

at least One Hundred Thousand Dollars ($100,000)
and shall be in incremental multiples of Fifty Thousand Dollars ($50,000).

Section
2.11.  Fees.

(a)           The Borrower shall pay to the Agent for the account of
each Bank a fee (the “Revolving Commitment Fee”)
on the daily average unused Revolving Commitment of such Bank for the period
from and including the Original Effective Date to the earlier of the date the
Bank’s Revolving Commitment is terminated or the Termination Date.  The Revolving Commitment Fee shall equal the
daily average unused Revolving Commitment of such Bank during the period for
which payment is due, multiplied by the applicable Revolving Commitment Fee
Rate.  For purposes of calculating usage
under this Section, the Revolving Commitment of each Bank shall be deemed used
to the extent of the Revolving Credit Exposure, except that the Swing Loan
Exposure shall not be taken into account for such purpose.  The accrued Revolving Commitment Fee shall be
due and payable in arrears, upon any reduction or termination of the Revolving
Commitments and on each Quarterly Date commencing on the first such date after
the Original Effective Date, and shall be calculated on the basis of a year of three
hundred sixty (360) days for the actual number of days elapsed.

(b)           The Borrower shall pay to the Agent, for the benefit of
the Banks, an amount equal to the Applicable Margin for Eurocurrency Loans
multiplied by the aggregate face amount of all outstanding Facility Letters of
Credit as of each payment date therefor (the “Facility
Letter of Credit Fee”) prior to the termination of such Facility
Letter of Credit.  In addition, the
Borrower shall also pay to the Agent for the benefit of the Issuing Bank, a
fronting fee for each Facility Letter of Credit equal to one eighth of one
percent (.125%) per annum multiplied by the aggregate face amount of all
outstanding Facility Letters of Credit as of each payment date therefor (“Facility Letter of Credit Fronting Fee”)
prior to the termination of such Facility Letter of Credit.  Finally, the Borrower, shall upon demand of
the Agent, and for the benefit of the Issuing Bank, pay to the Agent, such other fees and expenses as the Issuing
Bank customarily requires in connection with the issuance, negotiation,
processing and/or administration of letters of credit in similar situations.

(c)           The accrued Facility Letter of Credit Fee and Facility
Letter of Credit Fronting Fee shall be due and payable on each Quarterly Date
commencing on the first such date after the Original Effective Date that a
Facility Letter of Credit is issued and on the Termination Date.  The Facility Letter of Credit Fee and the
Facility Letter of Credit Fronting Fee shall be calculated on the basis of a
year of three hundred sixty (360) days for the actual number of days elapsed.

(d)           The Borrower shall pay such other fees, if any, as the
Borrower has otherwise agreed in writing to pay to the Agent, Arranger, and/or
the Banks, including but not limited to any fees described in the Fee Letter.

 32
 

 

 

Section
2.12.  Prepayments.

(a)           Subject
to the notice provisions contained within Section 2.08 or as otherwise stated
in this Agreement, the Borrower shall have the right to prepay the Loans at any
time or from time to time provided that each such voluntary prepayment of
principal shall be in an amount of at least Three Million Dollars ($3,000,000)
and shall be in incremental multiples of One Million Dollars ($1,000,000).

(b)           Notwithstanding
anything herein to the contrary, if at any time (including after giving effect
to any reduction or termination of the Revolving Commitments pursuant to
Section 2.09 hereof), the Aggregate Revolving Commitments exceeds the Aggregate
Revolving Credit Exposure, the Borrower shall pay or repay the Revolving Loans
on the date of such reduction or termination in an aggregate principal amount
equal to the excess, together with interest thereon accrued to the date of such
payment or repayment and any amounts payable pursuant to Section 3.05 in
connection therewith.

(c)           Until the Term Loans has been paid in full, the Borrower
shall make a mandatory prepayment in accordance with this Section 2.12(c) upon
the occurrence of any of the following at the following times and in the
following amounts:

(i)            Unless otherwise permitted in Sections 7.06(b) and (c), concurrently with the receipt by any Credit
Party of any Net Cash Proceeds from the sale, lease, transfer, casualty loss
(whether due to damage or destruction) or other disposition or loss of any
assets of the Borrower or any of its Subsidiaries, in an amount equal to 100%
of such Net Cash Proceeds provided, however, that: (A) the foregoing provisions
shall be inapplicable to proceeds received by the Agent under the Security
Documents if and so long as, pursuant to the terms of the Security Documents,
the same are to be held by the Agent and disbursed for the restoration, repair
or replacement of the property in respect of which such proceeds were received,
(B) no prepayment shall be required with respect to the first $500,000 of Net
Cash Proceeds received during any Fiscal Year from the sale or other
disposition (including condemnation,
confiscation or other similar event) of equipment, furniture and
fixtures of the Borrower and its Subsidiaries, taken together, which are worn
out, obsolete or, in the good faith judgment of the Borrower or such
Subsidiary, no longer desirable to the efficient conduct of its business as
then conducted, (C) no prepayment shall be required with respect to proceeds
received from the sale, damage or destruction of any of the equipment or other
assets subject to Liens permitted by Section 7.02 hereof if and to the extent
such proceeds are applied to reduce the indebtedness secured by such Liens, and
(D) so long as no Default or Event of Default has occurred or is continuing the
Borrower or such Subsidiary, as the case may be, may retain the proceeds
derived from the sale, damage or destruction of fixtures, furniture and
equipment if and to the extent that the Borrower or such Subsidiary establishes
to the reasonable satisfaction of the Agent that the equipment sold, damaged,
or destroyed has been replaced within one hundred eighty (180) days of the
sale, damage or destruction of fixtures, furniture and equipment (or repaired
in the case of damaged property) with fixtures, furniture or equipment of at
least equal value and utility to that replaced (before any such damage or
destruction) which is subject to a first Lien in favor of the Agent for the
benefit of the Banks.  Nothing herein
contained shall in any manner impair or otherwise affect the prohibitions
against the sale or other disposition (including
condemnation, confiscation or other similar event) of collateral
contained herein and in the Security Documents.

 33
 

 

(ii)           Concurrently
with the receipt by any Credit Party of any Net Cash Proceeds from any Equity
Issuances (excluding: (A) any issuance of Capital Securities pursuant to any
employee or director option program, benefit plan or compensation program, and
(B) any issuance by a Subsidiary to the Borrower or another Subsidiary), in an
amount equal to 50% of such Net Cash Proceeds; provided, however,
that notwithstanding the foregoing, the Borrower shall not be required to make
the prepayment described in this Section 2.12(c)(ii) if: (1) no Default or
Event of Default exists at the time when any Credit Party receives the Net Cash
Proceeds from any Equity Issuances, (2) and no Default or Event of Default
would be created by the failure to pay over the receipts by any Credit Party of
any Net Cash Proceeds from any Equity Issuances.

(iii)          Concurrently
with the receipt by any Credit Party of any Net Cash Proceeds from any issuance
of any Funded Debt of any Credit Party (excluding  Debt permitted by clauses (a)(ii), (a)(iii)
and (a)(iv) of Section 7.01), in an amount equal to 100% of such Net Cash
Proceeds.

The proceeds from each such prepayment made by the
Borrower shall be applied to the prepayment of the Term Loans.

(d)           Each
prepayment shall hereunder be applied pro rata among the Term Loans and
Revolving Loans, as the case may be, according to each Bank’s Pro Rata Share
and, as to each Term Loan, to the remaining installments thereof in the inverse
order of the maturity thereof, starting with the final payment due on the Term
Loan Maturity Date.  All voluntary and
mandatory prepayments of an existing Eurocurrency Loan on a day other than the
last day of an Interest Period therefor shall include interest on the principal
amount being repaid and shall be subject to Section 3.05.

Section 2.13. Swing Loans.

(a)           Subject to the terms
and conditions hereof, the Swing Line Bank may, in its sole discretion, make
available from time to time until the Termination Date one or more loans (each,
a “Swing Line Loan”), provided that
after giving effect to such Swing Line Loan: (i) the aggregate principal amount
of all outstanding Swing Line Loans does not exceed $7,000,000, and (ii) the
sum of the total Aggregate Revolving Credit Exposures does not exceed the
Aggregate Revolving Commitment.  Until
the Termination Date, the Borrower may from time to time borrow, repay and
re-borrow under this Section 2.13.

(b)           Each Swing Line Loan
shall be made pursuant to a notice of borrowing delivered by the Borrower to
the Agent in accordance with Section 2.08. 
Each such notice shall be irrevocable and shall specify the requested
date (which shall be a Business Day) and amount of the requested Swing Line
Loan.  The Agent will promptly advise the
Swing Line Bank of any such notice received from the Borrower.  Unless the Swing Line Bank has received prior
written notice from the Required Banks instructing it not to make a Swing Line
Loan, the Swing Line Bank shall, notwithstanding the failure of any condition
precedent set forth in Section 4.02, be

 34
 

 

entitled
to fund that Swing Line Loan, and to have such Bank purchase participating
interests in accordance with Section 2.13(c). 
The Swing Line Bank shall make each Swing Line Loan available to the
Borrower by means of a credit to the general deposit account of the Borrower
with the Swing Line Bank (or, in the case of a Swing Line Loan made to finance
the reimbursement of an Facility LC Disbursement as provided in Section
2.14(d), by remittance to the Issuing Bank) by 3:00 p.m., New York time, on the
requested date of such Swing Line Loan.

(c)           The Swing Line Bank
may by written notice given to the Agent require the Banks to acquire
participations on such Business Day in all or a portion of the Swing Line Loans
outstanding.  Such notice shall specify
the aggregate amount of Swing Line Loans in which the Banks will
participate.  Promptly upon receipt of
such notice, the Agent will give notice thereof to each Bank, specifying in
such notice such Bank’s Pro Rata Share of such Swing Line Loan or Swing Line
Loans.  Each Bank hereby absolutely and
unconditionally agrees, upon receipt of notice as provided above, to pay to the
Agent, for the account of the Swing Line Bank, such Bank’s Pro Rata Share of
such Swing Line Loan or Swing Line Loans. 
Each Bank acknowledges and agrees that its obligation to acquire
participations in Swing Line Loans pursuant to this Section 2.13(c) is absolute
and unconditional and shall not be affected by any circumstance, including: (i)
any setoff, counterclaim, recoupment, defense or other right that such
Bank  may have against the Swing Line
Bank, the Borrower or any other Person for any reason whatsoever; (ii) the
occurrence or continuance of any Default or Event of Default; (iii) any
inability of the Borrower to satisfy the conditions precedent to borrowing set
forth in this Agreement at any time, (iv) the reduction or termination of the
Revolving Commitments, or (v) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.  Each Bank shall comply with its obligation
under this Section 2.13(c) by wire transfer of immediately available funds, in
the same manner as provided in Section 2.04 with respect to Loans made by such
Bank (and Section 2.04 shall apply, mutatis mutandis, to the payment obligations
of the Bank), and the Agent shall promptly pay to the Swing Line Bank the
amounts so received by it from the Bank. 
The Agent shall notify the Borrower of any participations in any Swing
Line Loan acquired pursuant to this Section, and thereafter payments in respect
of such Swing Line Loan shall be made to the Agent and not to the Swing Line
Bank.  Any amounts received by the Swing
Line Bank from the Borrower (or other party on behalf of the Borrower) in
respect of a Swing Line Loan after receipt by the Swing Line Bank of the
proceeds of a sale of participations therein shall be promptly remitted to the
Agent; any such amounts received by the Agent shall be promptly remitted by the
Agent to the Banks that shall have made their payments pursuant to this Swing
Line Loan and to the Swing Line Bank, as their interests may appear.  The purchase of participations in a Swing
Line Loan pursuant to this Section 2.13 shall not relieve the Borrower of any
default in the payment thereof.

(d)           Notwithstanding
anything herein or in any the other Loan Document to the contrary, each Swing
Line Loan shall constitute a Variable Rate Loan.  The Borrower shall repay all principal
(together with accrued interest) on each Swing Line Loan no later than 3:00
p.m., New York time on the earliest of: (i) the date that is five (5) Business
Days after the date that such Swing Line Loan is made, (ii) the date that
demand is made therefore by the Swing Bank, or (iii) the Termination Date.

 35

 

 

Section 2.14. Facility Letters of Credit.

(a)           All
Existing Facility Letters of Credit outstanding on the Effective Date shall be
deemed to be Facility Letters of Credit. 
..Subject to the terms and conditions set forth herein, the Borrower may
request from the Issuing Bank the issuance of Facility Letters of Credit for
its own account in a form reasonably acceptable to the Agent and the Issuing
Bank, at any time and from time to time from the Effective Date and continuing
through Termination Date.  In the event
of any inconsistency between the terms and conditions of this Agreement and the
terms and conditions of any form of letter of credit application or other
agreement submitted by the Borrower to, or entered into by the Borrower with,
the Issuing Bank relating to any Facility Letter of Credit, the terms and
conditions of this Agreement shall control. 
The parties hereto acknowledge and agree that (i) Facility Letters of
Credit may be issued to support obligations of Subsidiaries of the Borrower as
well as the Borrower, (ii) Facility Letters of Credit issued to support
obligations of a Subsidiary may state that they are issued for such Subsidiary’s
account and (iii) regardless of any such statement in any Facility Letter of
Credit, the Borrower is the “account party” in respect of all Facility Letters
of Credit and will be responsible for reimbursement of Facility LC
Disbursements as provided herein.

(b)           To
request the issuance of a Facility Letter of Credit (or the amendment, renewal
or extension of an outstanding Facility Letter of Credit), the Borrower shall
hand deliver (or transmit by electronic communication or facsimile
transmission, if arrangements for doing so have been approved by the applicable
Issuing Bank) to the Issuing Bank and the Agent (reasonably in advance of the
requested date of issuance, amendment, renewal or extension) a notice
requesting the issuance of a Facility Letter of Credit, or identifying the
Facility Letter of Credit to be amended, renewed or extended, and specifying
the date of issuance, amendment, renewal or extension (which shall be a
Business Day), the date on which such Facility Letter of Credit is to expire
(which shall comply with Section 2.14(c)), the amount of such Facility Letter
of Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare, amend, renew or extend such
Facility Letter of Credit.  If requested
by the applicable Issuing Bank, the Borrower also shall submit a letter of
credit application on such Issuing Bank’s standard form in connection with any
request for a Facility Letter of Credit. 
A Facility Letter of Credit shall be issued, amended, renewed or
extended only if (and upon issuance, amendment, renewal or extension of each
Facility Letter of Credit the Borrower shall be deemed to represent and warrant
that), after giving effect to such issuance, amendment, renewal or extension
(i) the Facility LC Exposure shall not exceed $10,000,000, and (ii) the
Aggregate Revolving Credit Exposure shall not exceed the Aggregate Revolving
Commitment.

(c)           Each
Facility Letter of Credit shall expire at or prior to the close of business on
the earlier of: (i) the date one year after the date of the issuance of such
Facility Letter of Credit (or, in the case of any renewal or extension thereof,
one year after such renewal or extension), and (ii) the date that is thirty
(30) Business Days prior to the Termination Date.

(d)           By
the issuance of a Facility Letter of Credit (or an amendment to a Facility
Letter of Credit increasing the amount thereof) and without any further action
on the part of the Issuing Bank or the Bank, such Issuing Bank hereby grants to
each Bank, and each Bank

 36
 

 

hereby acquires from such Issuing Bank, a participation in such
Facility Letter of Credit equal to such Bank’s Pro Rata Share of the aggregate
amount available to be drawn under such Facility Letter of Credit.  In consideration and in furtherance of the
foregoing, each Bank hereby absolutely and unconditionally agrees to pay to the
Agent, for the account of the Issuing Bank, such Bank’s Pro Rata Share of each
Facility LC Disbursement made by such Issuing Bank and not reimbursed by the
Borrower on the date due as provided in Section 2.14(e), or of any
reimbursement payment required to be refunded to the Borrower for any reason.
Each Bank acknowledges and agrees that its obligation to acquire participations
pursuant to this Section 2.14(d) in respect of Facility Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including: (i) any amendment, renewal or extension of any Facility
Letter of Credit, (ii) the occurrence and continuance of a Default or Event of
Default, (iii) the reduction or termination of the Revolving Commitments, (iv)
any setoff, counterclaim, recoupment, defense or other right that such Bank may
have against the Issuing Bank, (v) any inability of the Borrower to satisfy the
conditions precedent to borrowing set forth in this Agreement at any time, or
(iv) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.

(e)           If
an Issuing Bank shall make any Facility LC Disbursement, the Borrower shall
reimburse such Facility LC Disbursement by paying to the Agent an amount equal
to such Facility LC Disbursement not later than 12:00 Noon, New York time, on
the date that such Facility LC Disbursement is made, if the Borrower shall have
received notice of such Facility LC Disbursement prior to 10:00 A.M., New York
time, on such date, or, if such notice has not been received by the Borrower
prior to such time on such date, then not later than 12:00 Noon, New York time,
on  the Business Day immediately
following the day that the Borrower receives such notice.  If the Borrower fails to make such payment
when due, the Agent shall notify each Bank of the applicable Facility LC
Disbursement, the payment then due from the Borrower in respect thereof and
such Bank’s Pro Rata Share thereof. Promptly following receipt of such notice,
each Bank shall pay to the Agent its Pro Rata Share of the payment then due
from the Borrower, in the same manner as provided in Section 2.04 with respect
to Revolving Loans made by such Bank (and Section 2.04 shall apply, mutatis
mutandis, to the payment obligations of the Bank), and the Agent shall promptly
pay to the Issuing Bank the amounts so received by the Agent from the
Banks.  Promptly following receipt by the
Agent of any payment from the Borrower pursuant to this Section 2.14(e), the
Agent shall distribute such payment to the Issuing Bank or, to the extent that
Banks have made payments pursuant to this Section 2.14(e) to reimburse the
Issuing Bank, then to such Banks and the Issuing Bank as their interests may
appear.  Any payment made by a Bank
pursuant to this Section 2.14(e) to reimburse the Issuing Bank for any Facility
LC Disbursement shall not constitute a Loan and shall not relieve the Borrower
of its obligation to reimburse such Facility LC Disbursement.

(f)            The
Borrower’s obligation to reimburse Facility LC Disbursements as provided in
Section 2.14(e) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement under any and
all circumstances whatsoever and irrespective of: (i) any lack of validity or
enforceability of any Facility Letter of Credit, this Agreement or any other
Loan Document, or any term or provision therein, (ii) any draft or other
document presented under a Facility Letter of Credit proving to be

 37
 

 

forged, fraudulent or invalid in any respect or any statement therein
being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank
under a Facility Letter of Credit against presentation of a draft or other
document that does not comply with the terms of such Facility Letter of Credit,
or (iv) any other event or circumstance whatsoever, whether or not similar to
any of the foregoing, that might, but for the provisions of this Section
2.14(f), constitute a legal or equitable discharge of, or provide a right of
setoff against, the Borrower’s obligations hereunder.  Neither the Agent, the Banks nor the Issuing
Bank (nor any of their Affiliates, directors, officers, employees, agents and
advisors, or their Affiliates’ directors, officers, employees, agents and
advisors), shall have any liability or responsibility by reason of or in
connection with the issuance or transfer of any Facility Letter of Credit or
any payment or failure to make any payment thereunder (irrespective of any of
the circumstances referred to in the preceding sentence), or any error,
omission, interruption, loss or delay in transmission or delivery of any draft,
notice or other communication under or relating to any Facility Letter of
Credit (including any document required to make a drawing thereunder), any error
in interpretation of technical terms or any consequence arising from causes
beyond the control of the Issuing Bank; provided that the foregoing shall not
be construed to excuse any Issuing Bank from liability to the Borrower to the
extent of any direct damages (as opposed to consequential damages, claims in
respect of which are hereby waived by the Borrower to the extent permitted by
applicable law) suffered by the Borrower that are caused by such Issuing Bank’s
failure to exercise care when determining whether drafts and other documents
presented under a Facility Letter of Credit comply with the terms thereof.  The parties hereto expressly agree that, in
the absence of gross negligence or willful misconduct on the part of the
Issuing Bank (as finally determined by a court of competent jurisdiction), the
Issuing Bank shall be deemed to have exercised care in each such
determination.  In furtherance of the
foregoing and without limiting the generality thereof, the parties agree that,
with respect to documents presented which appear on their face to be in
substantial compliance with the terms of a Facility Letter of Credit, the
applicable Issuing Bank may, in its sole discretion, either accept and make
payment upon such documents without responsibility for further investigation,
regardless of any notice or information to the contrary, or refuse to accept
and make payment upon such documents if such documents are not in strict
compliance with the terms of such Facility Letter of Credit.

(g)           If
an Issuing Bank shall make any Facility LC Disbursement, then, unless the
Borrower shall reimburse such Facility LC Disbursement in full on the date such
Facility LC Disbursement is made, the unpaid amount thereof shall bear
interest, for each day from and including the date such Facility LC
Disbursement is made to but excluding the date that the Borrower reimburses
such Facility LC Disbursement at the Default Rate for Variable Rate Loans.  Interest accrued pursuant to this Section
2.14(g) shall be for the account of the Issuing Bank, except that interest
accrued on and after the date of payment by any Bank pursuant to Section
2.14(e) to reimburse the Issuing Bank shall be for the account of the Bank to
the extent of such payment.

(h)           If
any Default or Event of Default shall occur and be continuing, on the Business
Day that the Borrower receives notice from the Agent that the Required Banks
are demanding the deposit of cash collateral pursuant to this Section 2.14(i),
the Borrower shall deposit in an account with the Agent (the “Facility Letter of Credit
Collateral Account”),
in the

 38
 

 

name of the Agent and for
the benefit of the Issuing Bank and the Banks, an amount in cash equal to the
Facility LC Exposure as of such date plus any accrued and unpaid interest
thereon; provided that the obligation to deposit such cash collateral shall
become effective immediately, and such deposit shall become immediately due and
payable, without demand or other notice of any kind, upon the occurrence of any
Event of Default with respect to the Borrower described in Section 9.01(e) or
Section 9.01(h).  Such deposit shall be
held by the Agent as collateral for the payment and performance of the
Obligations.  The Agent shall have
exclusive dominion and control, including the exclusive right of withdrawal,
over such account.  Other than any
interest earned on the investment of such deposits, which investments shall be
made at the option and sole discretion of the Agent and at the Borrower’s risk
and expense, such deposits shall not bear interest. Interest or profits, if
any, on such investments shall accumulate in such account.  Moneys in such account shall be applied by
the Agent to reimburse the Issuing Bank for Facility LC Disbursements for which
it has not been reimbursed and, to the extent not so applied, shall be held for
the satisfaction of the reimbursement obligations of the Borrower for the
Facility LC Exposure at such time or, if the maturity of the Loans has been
accelerated (but subject to the consent of the Required Banks), be applied to satisfy
other Obligations of the Credit Parties to the Banks.  If the Borrower is required to provide an
amount of cash collateral hereunder as a result of the occurrence of a Default
or Event of Default, such amount (to the extent not applied as aforesaid) shall
be returned to the Borrower within three (3) Business Days after all Defaults
or Events of Default have been cured or waived so long as the Loans have not
been accelerated and the Commitments and the Facility LC Commitment terminated
pursuant to Section 9.02.

ARTICLE 3.
YIELD PROTECTION; ILLEGALITY; ETC.

Section
3.01.  Additional Costs.

(a)           Within thirty (30) days of any demand therefor, the
Borrower shall pay directly to each Bank from time to time on demand such
amounts as such Bank may reasonably determine to be necessary to compensate it
for any costs which such Bank determines are attributable to its making or
maintaining any Eurocurrency Loans under this Agreement or its Note or its
obligation to make any such Loans hereunder, or any reduction in any amount
receivable by such Bank hereunder in respect of any such Loans or such
obligation (such increases in costs and reductions in amounts receivable being
herein called “Additional Costs”), resulting
from any Regulatory Change, or any Reserve Requirement for any such Loans
which: (i) changes the basis of taxation of any amounts payable to such Bank
under this Agreement or its Note in respect of any of such Loans (other than
taxes imposed on the overall net income of such Bank by the jurisdiction in which
such Bank has its principal office); or (ii) imposes or modifies any reserve,
special deposit, deposit insurance or assessment, minimum capital, capital
ratio or similar requirements relating to any extensions of credit or other
assets of, or any deposits with or other liabilities of, such Bank (including
any of such Loans or any deposits referred to in the definition of “LIBOR Rate”
in Section 1.01); or (iii) imposes any other condition affecting this Agreement
or its Note (or any of such extensions of credit or liabilities).  Each Bank will notify the Borrower of any
event occurring after the Original Effective Date which will entitle such Bank
to compensation pursuant to this Section 3.01(a) as promptly as practicable
after it obtains knowledge thereof and determines to request such
compensation.  The

 39
 

 

amount payable to any such Bank shall be computed
from the date of the occurrence giving rise to Additional Cost, or the date
that is one hundred twenty (120) days prior to the date of demand by such Bank,
whichever is later.  If any Bank requests
compensation from the Borrower under this Section 3.01(a), or under Section
3.01(c), the Borrower may, by notice to such Bank (with a copy to the Agent),
suspend the obligation of such Bank to maintain Loans of the type with respect
to which such compensation is requested (in which case the provisions of
Section 3.04 shall be applicable).

(b)           Without limiting the effect of the foregoing provisions of
this Section 3.01, in the event that, by reason of any Regulatory Change, any
Bank either: (i) incurs Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of such Bank which includes deposits by reference to which the
interest rate on Eurocurrency Loans is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Bank which
includes Eurocurrency Loans, or (ii) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, if
such Bank so elects by notice to the Borrower (with a copy to the Agent), the
obligation of such Bank to make Loans of such type hereunder shall be suspended
until the date such Regulatory Change ceases to be in effect (in which case the
provisions of Section 3.04 shall be applicable).

(c)           Without limiting the effect of the foregoing provisions of
this Section 3.01 (but without duplication), the Borrower shall pay directly to
each Bank from time to time on request such amounts as such Bank may reasonably
determine to be necessary to compensate such Bank for any costs which it
determines are attributable to the maintenance of capital by it or any of its
Affiliates pursuant to any future law or regulation of any jurisdiction or any
interpretation, directive or request (whether or not having the force of law
and whether in effect on the Original Effective Date or thereafter) of any
court or governmental or monetary authority in respect of its Loan hereunder or
its obligation to make its Loan hereunder (such compensation to include,
without limitation, an amount equal to any reduction in return on assets or
equity of such Bank to a level below that which it could have achieved but for
such law, regulation, interpretation, directive or request).  Each Bank will notify the Borrower if it is
entitled to compensation pursuant to this Section 3.01(c) as promptly as
practicable after it determines to request such compensation.  The amount payable to any Bank shall be
computed from the date of the occurrence entitling such Bank to compensation,
or the date that is one hundred twenty (120) days prior to the date of demand
by such Bank, whichever is later.

(d)           Determinations and allocations by a Bank for purposes of
this Section 3.01 of the effect of any Regulatory Change pursuant to
subsections (a) or (b), or of the effect of capital maintained pursuant to
subsection (c), on its costs of making or maintaining Loans or its obligation
to make Loans, or on amounts receivable by, or the rate of return to, it in
respect of Loans or such obligation, and of the additional amounts required to
compensate such Bank under this Section 3.01, shall be conclusive, provided
that such determinations and allocations are made on a reasonable basis.

 40
 

 

 

Section
3.02.  Limitation on Types of Loans.  Anything herein to the contrary
notwithstanding, if:

(a)           the Agent determines (which determination shall be
conclusive) that quotations of interest rates for the relevant deposits
referred to in the definition of “Variable Rate” in Section 1.01 are not being
provided in the relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for any type of Eurocurrency Loans as provided
in this Agreement; or

(b)           the Required Banks determine (which determination shall be
conclusive) and notify the Agent and the Borrower (which notice shall include
each Bank’s respective calculation of cost) that the relevant rates of interest
referred to in the definition of “LIBOR Rate” in Section 1.01 upon the basis of
which the rate of interest for any type of Eurocurrency Loans is to be
determined do not adequately cover the cost to the Banks of making or
maintaining such Loans;

then the Agent shall give the Borrower and each
Bank prompt notice thereof, and so long as such condition remains in effect,
the Banks shall be under no obligation to make or maintain a Loan of such type.

Section
3.03.  Illegality.  Notwithstanding any other provision in this
Agreement, in the event that it becomes unlawful for any Bank to honor its
obligation to make or maintain a Eurocurrency Loan hereunder, then such Bank
shall promptly notify the Borrower thereof (with a copy to the Agent) and such
Bank’s obligation to make or maintain a Eurocurrency Loan hereunder shall be
suspended until such time as such Bank may again make and maintain such
affected Loan (in which case the provisions of Section 3.04 shall be
applicable).

Section
3.04.  Certain Variable Rate Loans Pursuant to Sections
3.01 and 3.03.  If the
obligations of any Bank to make a Loan of a particular type (Loans of such type
being herein called “Affected Loans”
and such type being herein called the “Affected Type”)
shall be suspended pursuant to Sections 3.01 or 3.03, a Loan which would
otherwise be maintained by such Bank as a Loan of the Affected Type shall be
made instead as Variable Rate Loan and, if an event referred to in Sections
3.01(b) or 3.03 has occurred and such Bank so requests by notice to the
Borrower (with a copy to the Agent), the Affected Loan of such Bank then
outstanding shall be automatically converted into Variable Rate Loan on the
date specified by such Bank in such notice.

Section
3.05.  Compensation.

(a)           The Borrower shall immediately pay to the Agent for the
account of each Bank, upon the demand of such Bank through the Agent, such
amount or amounts as shall be sufficient (in the reasonable opinion of such
Bank) to compensate it for the higher of $250.00, or any loss, cost, funding
expenses or other expenses which such Bank reasonably determines is directly or
indirectly attributable to: (a) any payment to such Bank of a Eurocurrency Loan
made by such Bank on a date other than the last day of an Interest Period for
such Loan (whether by

 41
 

 

reason of acceleration or otherwise);  (b) any failure by the Borrower (for whatever
reason) to borrow, in whole or in part, on a Eurocurrency Loan to be made by a
Bank on the date specified therefor in the relevant notice given under Section
2.08 or on the day specified therefore in such notice, (c) Borrower otherwise
tries to revoke any Eurocurrency Loan, in whole or in part, or (d) there occurs
a Bankruptcy Event or the applicable Eurocurrency Loan of interest in converted
to a Variable Rate Loan or Variable Rate Loans (as the case may be), in
accordance with the terms of this Agreement. 
All such amounts shall be determined by the applicable Bank, and in the
absence of manifest error, shall be conclusive and binding upon the
Borrower.  Without limiting the
foregoing, any loss, cost, funding expenses or other expenses by reason of: (i)
any reduction in yield, by reason of liquidation or reemployment of any deposit
or other funds acquired by the Bank, or (ii) the fixing of the interest rate
payable on any Eurocurrency Loan(s) shall fall within the purview of this Section
3.05.

(b)           Without limiting the foregoing, such compensation shall
also include an amount equal to the excess, if any, of: (i) the amount of
interest which otherwise would have accrued on the principal amount so paid or
not borrowed for the period from and including the date of such payment or
failure to borrow to but excluding the last day of the Interest Period for such
Loan (or, in the case of a failure to borrow, to but excluding the last day of
the Interest Period for such Loan which would have commenced on the date
specified therefor in the relevant notice) at the applicable rate of interest
for such Loan provided for herein; over (ii) the amount of interest (as
reasonably determined by such Bank) such Bank would have bid in the London
interbank market for amounts comparable to such principal amount and maturities
comparable to such period.

Section
3.06.  Survival.  The obligations of the Borrower under this
Article 3 shall survive the repayment of the Loans and the termination of the
Revolving Commitment.

ARTICLE 4.
CONDITIONS PRECEDENT

Section
4.01.  Documentary Conditions Precedent.  The obligations of the Banks to make the
Loans constituting the borrowing hereunder are subject to the condition
precedent that the Agent shall have received on or before the date of such
Loans each of the following, in form and substance satisfactory to the Agent
and its counsel:

(a)           the Notes duly executed by the Borrower for each Bank;

(b)           the Reaffirmation Agreement duly executed by the parties
thereto, together with all instruments, transfer powers and other items
required to be delivered in connection therewith;

(c)           a Due Diligence Certificate completed and executed by each
Credit Party;

(d)           in the case of any leased real property on which
any collateral described under any of the Security Documents is located, to the
extent not previously provided to Agent,

 42
 

 

an agreement from the landlord for such property
waiving any landlord’s Lien in respect of personal property kept at the
premises subject to such lease;

(e)           a
search of all relevant real property indexes covering the period from the date
that the Borrower or Hardinge Technology Systems, Inc. took title to the real
property described in the Assignment of Leases and Rents through and including
the Effective Date (with title re-dates through the Effective Date, if
necessary), which will among other things, indicate: (i) that such Credit
Parties are the owner of the fee simple interest in such real property, (b)
that there are no liens or encumbrances thereon (including but not limited to,
mortgages, judgment liens, mechanic’s liens, lease, security interest, easement
and right-of-way or any other tight to, or interest in, property, which
subsists in a third party and which constitutes a claim, lien, charge or liability
attached to and binding upon such real property); provided, however, that the
Agent will review all easements, covenants and conditions of record, and so
long as such easements, covenants and/or conditions do not, in the sole
discretion of the Agent and counsel for the Agent, interfere with the current
or future intended use of such real property or render the title unmarketable,
Agent may permit such easements, covenants and conditions to remain of record;

(f)            evidence of the existence of insurance required
to be maintained pursuant to Section 6.04, together with evidence that the
Agent has been named as a Bank’s loss payee and an additional insured on all
related insurance policies;

(g)           payment
by the Borrower of all fees, costs and expenses (including attorney costs) of
the Agent to the extent invoiced prior to the Effective Date, plus such
additional amounts of attorney costs as shall constitute the Agent’s reasonable
estimate of attorney costs incurred or to be incurred by the Agent through the
closing proceedings (provided that such estimate shall not thereafter preclude
final settling of accounts between the Borrower and the Agent);

(h)           certified
copies of Uniform Commercial Code search reports dated a date reasonably near
to the Effective Date, listing all effective financing statements which name
any Credit Party as debtors ( together with 
copies of such financing statements)

(i)            Agent
shall be satisfied that existing financing statements filed against Borrower
naming Agent for the benefit of Bank as the secured creditor are sufficient to
create a first priority security interest in all personal property collateral
described in the Security Documents, except as otherwise permitted herein;

(j)            Tax,
and judgment search reports with respect to each Credit Party in all necessary
or appropriate jurisdictions and under all legal and appropriate trade names
indicating that there are no tax Liens or judgments on any of the collateral
described in the Security Documents; and

(k)           if
required by the Agent, an Account Control Agreement, as referred to in the
Security Documents duly executed by Chemung Canal Trust Company and any other
parties required under the Security Document, the applicable Credit Party and
the Agent;

 43

 

 

(l)            the delivery of the letter agreement by the Borrower to
the Agent whereby the Borrower shall agree to deliver certain delineated items
to the Bank on a post closing basis and within a specified time frame;

(m)          Agent
shall be satisfied that existing collateral assignments and/or intellectual
property security agreements filed against Borrower and other Credit Parties in
favor of Agent for the benefit of Bank as secured creditor are sufficient to
create a first priority security interest in all registered intellectual
property of the Credit Parties described in the Intellectual Property Security
Agreement;

(n)           a certificate of the Secretary or Assistant Secretary of
each Credit Party, dated the Effective Date, attesting to all corporate action
taken by the Credit Party, including certified copies of all resolutions of its
Board of Directors authorizing the execution, delivery and performance of the
Loan Documents to which it is a party;

(o)           a certificate of the Secretary or Assistant Secretary of
each Credit Party, dated the Effective Date, certifying the names and true
signatures of the officers of the Credit Party authorized to sign the Loan
Documents to which it is a party;

(p)           a certificate of a duly Authorized Officer of the
Borrower, dated the Effective Date, stating that the representations and
warranties in Article 5 are true and correct on such date as though made on and
as of such date and that no event has occurred and is continuing which
constitutes a Default or Event of Default;

(q)           a favorable opinion of counsel for the Credit Parties,
dated the Effective Date, in substantially the form of Exhibit
E and as to such other matters as the Agent or any Bank may
reasonably request;

(r)            a recently dated certificate of the Secretary of State of
the State of formation and of each foreign jurisdiction where it is required to
be qualified to conduct business of the good standing of each Credit Party; and

(s)           such
other documents as the Agent or any Bank may reasonably request.

Section
4.02.  Additional Conditions Precedent.  The obligations of the Banks to make the
Loans and the Issuing Bank’s obligation to issue Facility Letters of Credit
shall be subject to the further conditions precedent that on the date of such
Loan:

(a)           the following statements shall be true: (i) the
representations and warranties contained in Article 5 and by the Credit Parties
in the other Loan Documents are true and correct on and as of the date that the
Loan is made or the Facility Letter of Credit is issued as though made on and as
of such date; and (ii) no Default or Event of Default has occurred and is
continuing, or would result from such Loan or issuance of the Facility Letter
of Credit; and

 44
 

 

 

(b)           the Agent shall have received such approvals, opinions or
documents as the Agent or any Bank may reasonably request.

Section
4.03.  Deemed Representations.  Each request for a Loan and acceptance by the
Borrower of the proceeds thereof and each notice of a request for the issuance
of a Facility Letter of Credit and the issuance thereof shall constitute a
representation of warranty that the statements contained in Section 4.02(a)
hereof are true and correct both on the date of such notice and, unless the
Borrower otherwise notifies the Agent prior to such Borrowing, as of the date
of such Loan or issuance of the Facility Letter of Credit.

ARTICLE 5.
REPRESENTATIONS AND WARRANTIES

The Borrower hereby represents and warrants to
the Agent and each Bank that:

Section
5.01.  Incorporation, Good Standing and Due Qualification.  The Borrower and each of its Subsidiaries is
a corporation duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its formation, has all power and authority to
carry on its business as now being conducted and to own its properties and is
duly licensed or qualified and in good standing or a foreign corporation in
each other jurisdiction in which its properties are located or in which failure
to qualify would reasonably be expected to have a Material Adverse Effect.

Section
5.02.  Corporate Power and Authority: No Conflicts.  The execution, delivery and performance by
the Borrower of the Loan Documents are within the Borrower’s corporate powers,
have been duly authorized by all necessary corporate action, and do not
contravene (a) the Borrower’s charter or by-laws, or (b) any law or any
contractual restriction or provision binding on or affecting the Borrower.

Section
5.03.  Governmental Approval.  No authorization or approval or other action
by, and no notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by the
Borrower of the Loan Documents to which the Borrower is a party.

Section
5.04.  Legally Enforceable Agreements.  Each Loan Document to which Borrower is a
party is, or when delivered hereunder will be, legal, valid and binding
obligations of the Borrower enforceable against the Borrower in accordance with
their respective terms.

Section
5.05.  Financial Statements.  The audited consolidated balance sheets of
the Borrower and its Consolidated Subsidiaries as at December 31, 2005, and the
related statements of income, retained earnings and cash flows of the Borrower
and its Consolidated Subsidiaries for the Fiscal Year then ended, and the
unaudited balance sheet of the Borrower and its Subsidiaries as at June 30,
2006 and the related statements of income, retained earnings and cash flows,
copies of which have been furnished to Agent and each Bank, fairly present the
assets, liabilities and financial condition of the Borrower and its
Consolidated Subsidiaries at such date and the results of the operations and
the changes in financial condition of the Borrower and its

 45
 

 

Consolidated Subsidiaries for
the period ended on such date, all in accordance with GAAP.  Since June 30, 2006, there has been no
material adverse change in the business, assets, operations, prospects or
financial condition of the Borrower and its Subsidiaries, taken as a whole.

Section
5.06.  Litigation.  There is no pending or threatened action or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, which may have a Material Adverse Effect.

Section
5.07.  Margin Stock.  The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U issued by the Board of Governors of the
Federal Reserve System).

Section
5.08.  Use of Loan Proceeds.  No part of the proceeds of the Loans or from
Facility Letters of Credit will be used, whether directly or indirectly, and
whether immediately, incidentally or ultimately: (a) to purchase or to carry
margin stock or to extend credit to others for the purpose of purchasing or
carrying margin stock, or to refund indebtedness originally incurred for such
purpose, or (b) for any purpose which violates or is inconsistent with the
provisions of the Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.

Section
5.09.  Tax Returns.  Each of the Borrower and its Subsidiaries has
filed (or has obtained extensions of the time by which it is required to file)
all United States federal income tax returns and all other material tax returns
required to be filed by it and has paid all taxes shown due on the returns so
filed as well as all other taxes, assessments and governmental charges which
have become due, except such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided.

Section
5.10.  ERISA.  The Borrower and each of its Subsidiaries and
each ERISA Affiliate (a) has fulfilled all material obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan that
is not a Multiemployer Plan or a Multiple Employer Plan, (b) has satisfied all
material contribution obligations in respect of each Multiemployer Plan and
each Multiple Employer Plan, (c) is in compliance in all material respects with
all other applicable provisions of ERISA and the Code with respect to each
Plan, each Multiemployer Plan and each Multiple Employer Plan, and (d) has not
incurred any unsatisfied material liability under Title IV of ERISA to the PBGC
(other than required premium payments to the PBGC) with respect to any Plan,
any Multiemployer Plan, any Multiple Employer Plan, or any trust established
thereunder. No Plan or trust created thereunder has been terminated, and there
have been no Reportable Events, with respect to any Plan or trust created
thereunder or with respect to any Multiemployer Plan or Multiple Employer Plan,
which termination or Reportable Event will or could reasonably be expected to
give rise to a material liability of the Borrower or any ERISA Affiliate in
respect thereof.  Neither the Borrower
nor any Subsidiary of the Borrower nor any ERISA Affiliate was as of the
Original Effective Date, or has been at any time within the five years
preceding the date hereof, an employer required to contribute to any
Multiemployer Plan or Multiple Employer Plan, or a “contributing sponsor” (as

 46
 

 

such term is defined in
Section 4001 of ERISA) in any Multiemployer Plan or Multiple Employer
Plan.  Neither the Borrower nor any
Subsidiary of the Borrower nor any ERISA Affiliate has any contingent liability
with respect to any post-retirement “welfare benefit plan” (as such term is
defined in ERISA) except as has been disclosed to the Agent and the Bank in
writing or as would not have or be reasonably be expected to have a Material
Adverse Effect.

Section
5.11.  Subsidiaries.  The Borrower has no Subsidiaries other than
those set forth on Schedule V
attached hereto as amended from time to time to reflect changes which occur
after the date hereof.

Section
5.12.  Ownership and Liens.

(a)           Each of the Borrower and its Subsidiaries has good and
marketable title to its properties and assets reflected on the balance sheet
dated as of June 30, 2006 referred to in Section 5.05 hereof and any properties
and assets acquired since that date, except for such properties and assets of a
nonmaterial nature as have been disposed of since the date of such balance
sheet as no longer used or useful in the conduct of its business or as have
been disposed of in the ordinary course of business, and all such properties
and assets are free and clear of mortgages, pledges, liens, charges and other
encumbrances, except: (a) the Assignment of Leases and Rents encumbering the
principal place of business for the Borrower, (b) mortgages encumbering real
property located in (i) Switzerland in the approximate principal amount of Sfr.
15,100,000 and (ii) the United Kingdom in the approximate principal amount of L
1,080,000, (c) encumbrances that do not materially interfere with the use or
operation of such property or assets (the encumbrances referred to in
sub-sections (b) and (c) above shall collectively hereinafter be referred to as
the “Subsidiary Real Property Liens”).

(b)           The Borrower and each of its Pledged Subsidiaries owns, or
is licensed to use, all patents, trademarks, trade names, service marks,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted and as contemplated to be conducted (the “Intellectual Property”), and the use
of such Intellectual Property by the Borrower and each of its Pledged
Subsidiaries does not infringe on the rights of any Person.  The Security Agreement grants a first
priority, perfected and enforceable Lien on all of the Domestic Subsidiaries
owned by Borrower except (i) for those having assets with a book value of
$1,000,000 or less and (ii) 65% of the Capital Securities of the Foreign
Subsidiaries owned by the Borrower except for those Foreign Subsidiaries
existing as of the Original Effective Date with assets having a net worth of
$2,000,000 or less (the “Excluded Foreign
Subsidiaries”).  At all
times after the Original Effective Date, Borrower has been, and shall continue
to be in compliance with Section 6.08.

Section
5.13.  Hazardous Materials.  Except as set forth in Schedule
VI hereof, and qualified in each instance whereby a breach
of this representation set forth in this Section 5.13 would not reasonably be
expected to have a Material Adverse Effect, the Borrower is in compliance in
all material respects with all Environmental Laws governing Hazardous Materials
and the Borrower has not used Hazardous Materials on, from, or affecting any
property now owned or occupied or hereafter owned or occupied by the Borrower
in any manner which

 47
 

 

violates federal, state or
local laws, ordinances, rules, regulations, or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials, and that, to the best of the
Borrower’s knowledge, no prior owner of any such property or any tenant,
subtenant, prior tenant or prior subtenant have used Hazardous Materials on,
from, or affecting such property in any manner which violates federal, state or
local laws, ordinances, rules, regulations, or policies governing the use,
storage, treatment, transportation, manufacture, refinement, handling,
production or disposal of Hazardous Materials; without limiting the foregoing,
the Borrower shall not cause or permit any property owned or occupied by it to
be used to generate, manufacture, refine, transport, treat, store, handle,
dispose, transfer, produce or process Hazardous Materials, except in compliance
with all applicable Federal, state and local laws or regulations, nor shall the
Borrower cause or permit, as a result of any intentional or unintentional act
or omission on its part or any tenant or subtenant, a release of Hazardous
Materials onto any property owned or occupied by the Borrower or onto any other
property; the Borrower shall comply with and ensure compliance by all tenants
and subtenants with all applicable Environmental Laws, whenever and by whomever
triggered, and shall obtain and comply with any and all approvals,
registrations or permits required thereunder.

Section
5.14.  No Default on Other Agreements.  Neither the Borrower or any of its
Subsidiaries is in default in any manner which would reasonably be expected to
have a Material Adverse Effect or in the Borrower’s or any Subsidiaries’
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any material agreement or instrument to which it is a
party.

Section
5.15.  Partnerships.  Neither the Borrower nor any of its
Subsidiaries is a partner in any partnership.

Section
5.16.  No Forfeiture.  Neither the Borrower nor any of its
Subsidiaries or to the knowledge of Borrower Affiliates, is engaged in or proposes
to be engaged in the conduct of any business or activity which could result in
a Forfeiture Proceeding and no Forfeiture Proceeding against any of them is
pending or threatened, which reasonably be expected to have a Material Adverse
Effect.

Section
5.17.  Solvency.

(a)           The present fair saleable value of the assets of the
Borrower after giving effect to all the transactions contemplated by the Loan
Documents and the funding of all Revolving Commitments hereunder exceeds the
amount that will be required to be paid on or in respect of the existing debts
and other liabilities (including contingent liabilities) of the Borrower and
its Subsidiaries as they mature.

(b)           The property of the Borrower does not constitute
unreasonably small capital for the Borrower to carry out its business as now
conducted and as proposed to be conducted including the capital needs of the
Borrower.

 48
 

 

 

(c)           The Borrower does not intend to, nor does it believe that
it will, incur debts beyond its ability to pay such debts as they mature
(taking into account the timing and amounts of cash to be received by the
Borrower, and of amounts to be payable on or in respect of debt of the
Borrower).  The cash available to the
Borrower after taking into account all other anticipated uses of the cash of
the Borrower, is anticipated to be sufficient to pay all such amounts on or in
respect of debt of the Borrower when such amounts are required to be paid.

(d)           The Borrower does not believe that final judgments against
it in actions for money damages will be rendered at a time when, or in an
amount such that, the Borrower will be unable to satisfy any such judgments
promptly in accordance with their terms (taking into account the maximum
reasonable amount of such judgments in any such actions and the earliest
reasonable time at which such judgments might be rendered).  The cash available to the Borrower after
taking into account all other anticipated uses of the cash of the Borrower
(including the payments on or in respect of debt referred to in paragraph (c)
of this Section 5.17), is anticipated to be
sufficient to pay all such judgments promptly in accordance with their terms.

Section
5.18.  Operation of Business.  The Borrower and its Subsidiaries possess all
licenses, permits, franchises, patents, copyrights, trademarks and trade names,
or rights thereto, to conduct its business substantially as now conducted and
as presently proposed to be conducted, and neither the Borrower nor any of its
Subsidiaries is in violation of any valid rights of others with respect to any
of the foregoing.

Section
5.19.  No Defaults on Outstanding Judgments or Orders.  The Borrower and its Subsidiaries has
satisfied all judgments and neither the Borrower nor any of its Subsidiaries is
in default with respect to any judgment, writ, injunction, decree, rule or
regulation of any court, arbitrator or federal, state, municipal or other
governmental authority, commission, board, bureau, agency or instrumentality,
domestic or foreign.

Section
5.20.  No Defaults on Other Agreements.  Neither the Borrower nor any of its
Subsidiaries is a party to any indenture, loan or credit agreement or any lease
or other agreement or instrument or subject to any charter or corporate
restriction which could have a Material Adverse Effect.  Neither the Borrower nor any of its
Subsidiaries is in default in any material respect in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument material to a business to which it is
a party.

Section
5.21.  Labor Disputes and Acts of God.  Neither the business nor the properties of
the Borrower or any of its Subsidiaries are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God, or of the public enemy or other casualty (whether or not
covered by insurance)which could have a Material Adverse Effect.

Section
5.22.  Governmental Regulation.  Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Investment Company Act of 1940, the Interstate Commerce Act,
the Federal Power Act or any

 49
 

 

statute or regulation limiting
its ability to incur indebtedness for borrowed money as contemplated hereby.

Section 5.23  Compliance with Terms and
Conditions of the ROC Joint Venture Agreement. The Borrower and its Subsidiaries have been
and remain in compliance with the terms and conditions of the ROC Joint Venture
Agreement and/or the Lease Agreement referenced in and attached to the ROC
Joint venture Agreement as an Exhibit thereto.

Section 5.24  Compliance with Terms and
Conditions of the Bridgeport Acquisition Documents and Termination of Royalty
Payments .  The
Borrower and its Subsidiaries have been and remain in compliance with the terms
and conditions of the Bridgeport Acquisition Documents.  In addition, with the exception of the
payment of any royalties due under the terms of the Bridgeport Acquisition
Documents for transactions contemplated prior to the date of the Borrower’s
purchase of the Additional Technical Information, then on and after the date of
the Borrower’s purchase of the Additional Technical Information, no further
royalty payments shall be due and owing to any of the parties under the
Bridgeport Acquisition Documents.

Section
5.25.  Disclosure. Neither the reports,
financial statements, certificates or other information furnished by or on
behalf of any Credit Party to the Agent or any Bank in connection with the
negotiation of the Existing Credit Agreement or this Agreement or any other
Loan Document or delivered hereunder or thereunder (as modified or supplemented
by other information so furnished) contains any material misstatement of fact
or omits to state any material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
provided that with respect to projected financial information, Borrower
represents only that such information was prepared in good faith based upon
assumptions believed by it to be reasonable at the time delivered and as of the
Effective Date.

ARTICLE 6.
AFFIRMATIVE COVENANTS

Until the Commitments have
expired or terminated and the Obligations have been paid in full and all
Facility Letters of Credit and JPMorgan Letters of Credit have expired or
terminated, the Borrower shall comply with each of the following covenants:

Section
6.01.  Compliance With Laws, Corporate Existence.  The Borrower shall comply, and cause each of
its Subsidiaries to (a) comply, in all material respects with all applicable
laws, rules, regulations and orders of any governmental authority, the breach
of which would be reasonably expected to have a Material Adverse Effect.  Such compliance shall include, without limitation,
paying before the same become delinquent all taxes, assessments and
governmental charges or levies imposed upon it or on its income or profits or
upon its property except to the extent: (i) such payment is being contested in
good faith and by proper proceedings, and (ii) adequate reserves are being
maintained with respect thereto; (b) do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence, rights, franchises, trade names and preserve all of its property
used or useful in the conduct of its business and keep same in good repair and
working condition except for property it deems no

 50
 

 

longer useful; and (c) carry
on and conduct its principal business substantially as it is now conducted.

Section
6.02.  Reporting Requirements.  The Borrower shall furnish directly to each
of the Banks:

(a)           as soon as available and in any event within forty-five
(45) days after the end of each of the first three Fiscal Quarters of each
Fiscal Year of the Borrower, consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as of the end of such quarter and statements
of income, retained earnings and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous Fiscal Year
and ending with the end of such Fiscal Quarter, all in reasonable detail
setting forth in comparative form the corresponding figures for the preceding
Fiscal Year and prepared by the Borrower in accordance with GAAP other than the
absence of footnotes and subject to year-end audit and adjustments and, if
applicable, containing disclosure of the effect on the financial position or
results of operations of any change in the application of accounting principles
and practices during the period and certified by the chief financial officer of
the Borrower that such Financials comply with the foregoing requirements;

(b)           as soon as available and in any event within ninety (90)
days after the end of each Fiscal Year of the Borrower, a copy of Borrower’s
Annual Report on Form 10-K for such Fiscal Year, containing consolidated
balance sheets of the Borrower and its Subsidiaries as of the end of such
Fiscal year and statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for such Fiscal Year prepared in accordance with
GAAP, and audited by Ernst & Young, LLP or other independent certified
public accountants of national standing reasonably acceptable to the Agent and,
if applicable, containing disclosure of the effect on the financial position or
results of operation of any change in the application of accounting principles
and practices during the year, and accompanied by a report thereon by such
certified public accountants that is not qualified with respect to scope limitations
imposed by the Borrower or any of its Consolidated Subsidiaries or with respect
to accounting principles followed by the Borrower or any of its Consolidated
Subsidiaries not in accordance with GAAP

(c)           concurrently with the deliveries being made pursuant to
Section 6.02(b) consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such Fiscal year and statements of income,
retained earnings and cash flows of the Borrower and its Subsidiaries for such
Fiscal Year prepared in accordance with GAAP;

(d)           with
the Financials submitted under subsections (a) and (b) above, a certificate in
a form and substance similar to the compliance certificate attached hereto as Exhibit I (the “Compliance Certificate”) signed by
the chief financial officer of the Borrower, stating: (i) the representations
and warranties made in Article 5 and in the other Loan Documents by the Credit
Parties are true and correct as of the date of the Compliance Certificate (ii)
the calculation of all financial covenants and ratios required under Article 8
hereof, (iii) whether a Default has occurred and, if a Default has occurred,
specifying the details thereof and any action taken or proposed to be taken
with respect thereto, (iv) the determination of the Applicable Rate,

 51
 

 

and (iv) whether any change in GAAP or in the
application thereof has occurred since the date of the audited financial
statements referred to in Section 5.05 and, if any such change has occurred,
specifying the effect of such change on the financial statements accompanying
such certificate;

(e)           promptly upon receipt thereof, copies of any reports
submitted to the Borrower or any of its Subsidiaries by the independent
certified public accountant in connection with the examination of the financial
statements of the Borrower or any such Subsidiary made by such accountants
including, without limitation, accountant letters, management reports, and
management responses thereto;

(f)            promptly after the sending or filing thereof, copies of
all reports which the Borrower sends to any of its security holders, and copies
of all reports and registration statements which the Borrower or any Subsidiary
files with the Securities and Exchange Commission or any national securities
exchange;

(g)           promptly upon request, any documentation or other
information that a Bank reasonably requests in order to comply with its ongoing
obligations under applicable “know your customer” and anti-money laundering
rules and regulations, including the USA Patriot Act;

(h)           prior to the end of each Fiscal Year of the Borrower, a
budget (in format satisfactory to the Agent and approved by Borrower’s Board of
Directors) for the succeeding Fiscal Year of the Borrower, plus from time to
time any revisions or modifications to such budget within forty-five (45) days
of the adoption of such revision or modification; and

(i)            promptly upon request, such other information respecting
the condition or operations, financial or otherwise, of the Borrower or any of
its Subsidiaries as any Bank through the Agent may from time to time reasonably
request.

Section
6.03.  Notice of Proceedings.  The Borrower shall promptly give notice in
writing to the Agent and each of the Banks of all litigation, arbitral
proceedings, regulatory proceedings and Forfeiture Proceedings affecting the
Borrower or any Subsidiary, except litigation or proceedings which, if
adversely determined, could not have a Material Adverse Effect.

Section
6.04.  Insurance.  The Borrower shall, and shall cause each
Subsidiary to, maintain insurance with insurance companies or associations
rated “A-” or better by A.M. Best & Company or a comparable rating agency
in such amounts and against such risks as is set forth in Schedule
VII.

Section
6.05.  Environmental Laws.  The Borrower shall comply in all material
respects with all Environmental Laws and provide to the Agent all documentation
in connection with such compliance that the Agent may reasonably request.

 52

 

 

Section
6.06.  Books
and Records; Inspection Rights. The Borrower will, and
will cause each of its Subsidiaries to: (a) maintain complete and accurate
books and financial records in accordance with GAAP; and (b) at any reasonable
time and from time to time, upon reasonable notice and during normal business
hours, permit the Agent and each of the Banks, or any agent or representative
thereof to examine the records and books of account and visit the properties of
the Borrower or its Subsidiaries and to discuss the affairs, finances and
accounts of the Borrower and any Subsidiary with any of the officers and
directors of Borrower or any Subsidiary.

Section
6.07.  Notice
of Default.  The Borrower shall in the event any financial
officer of the Borrower or any Subsidiary knows of any default or event of
default under any material agreement to which the Borrower or any Subsidiary is
a party or any Default or Event of Default which shall have occurred, promptly
and in any event within ten (10) days after the occurrence of each Default or
Event of Default, furnish to the Agent a written statement as to such
occurrence specifying the nature and extent thereof and the action (if any)
which is proposed to be taken with respect thereto.

Section
6.08.  Subsidiaries.

(a)           The Borrower and its Subsidiaries shall within ten (10)
days of the creation or acquisition of any new Domestic Subsidiary having
assets with a book value of One Million Dollars ($1,000,000) or more, or the
acquisition of assets by or the transfer of assets to any existing Domestic
Subsidiary which after such transfer will have assets with a book value of One
Million Dollars ($1,000,000) or more deliver or cause to be delivered to the
Agent (i) a pledge of all its outstanding capital stock pursuant to the Security
Agreement by delivering to Agent  undated
stock power(s) for such certificate(s), executed in blank (or if any such
shares of capital stock are uncertificated, confirmation and evidence
reasonably satisfactory to Agent that the security interest in such
uncertificated securities has been transferred to and perfected by the Agent),
for the benefit of the Banks, in accordance with the applicable Sections under
Articles 8 and 9 of the UCC or any other similar law that may be applicable and
(ii) if required by the Agent or the Banks in their sole discretion, a Guaranty
Supplement, Security Agreement Supplement and Intellectual Property Security
Agreement Supplement from such Subsidiary and take such other actions as may be
necessary for the Agent to perfect, for the benefit of the Banks, in accordance
with the applicable Sections under Articles 8 and 9 of the UCC or any other
similar or local or foreign law that may be applicable to its first priority
Lien in the assets (if any) covered by the Security Agreement Supplement and
the Intellectual Property Security Agreement Supplement.

(b)           Except for the Excluded Foreign Subsidiaries, the Borrower
and its Subsidiaries shall within ten (10) days of the creation or acquisition
of any new Foreign Subsidiary having assets with a book value of One Million
Dollars ($1,000,000) or more, or the acquisition of assets by or the transfer
of assets to any existing Foreign Subsidiary which after such transfer will
have assets with a book value of One Million Dollars ($1,000,000) pledge to
Agent, or cause the Subsidiary holding such new Foreign Subsidiary’s capital
stock to pledge to the Agent, sixty five percent (65)% of the outstanding
capital stock of each such new Foreign Subsidiary or Foreign Subsidiary by
delivery to Agent undated stock powers for such

 53
 

 

 

certificates, executed in blank (or if any such
shares of capital stock are uncertificated, confirmation and evidence
reasonably satisfactory to Agent that the security interest in such
uncertificated securities has been transferred to and perfected by the Agent),
for the benefit of the Bank, in accordance with the applicable Sections under
Articles 8 and 9 of the UCC or any other similar or local or foreign law that
may be applicable.

(c)           If: (i) at any time the net worth for an Excluded Foreign
Subsidiary exceeds Two Million Dollars ($2,000,000), or (ii) the acquisition of
assets by and/or the transfer of assets to any Excluded Foreign Subsidiary
shall, after the acquisition and/or transfer (as the case may be), cause such
Excluded Foreign Subsidiary to have a net worth of Two Million Dollars
($2,000,000) or more, then the Borrower and its Subsidiaries shall, within ten
(10) days, pledge to Agent, or cause the Subsidiary holding such Foreign
Subsidiary’s capital stock to pledge to the Agent, sixty five percent (65%) of
the outstanding capital stock of each such Foreign Subsidiary by delivery to
Agent undated stock powers for such certificates, executed in blank (or if any
such shares of capital stock are uncertificated, confirmation and evidence
reasonably satisfactory to Agent that the security interest in such
uncertificated securities has been transferred to and perfected by the Agent),
for the benefit of the Bank, in accordance with the applicable Sections under
Articles 8 and 9 of the UCC or any other similar or local or foreign law that
may be applicable.

(d)           In connection with the deliveries described in subsections
(a) and (b) and (c) above, the Agent may also require that the applicable
Subsidiary deliver to the Agent its governing documents, authorizing
resolutions and a legal opinion satisfactory to Agent, provided, however,
nothing contained in this Section 6.08 shall be deemed to be consent by the
Agent or any Bank of such creation, acquisition or transfer.

Section
6.09.  Material
Adverse Changes.

                                (a)           The Borrower shall promptly notify
the Agent and the Banks of any of the following which has resulted in, or could
reasonably be expected to have a Material Adverse Effect: (a) any litigation
matter, investigation, audit, business development or change in financial
condition or could; (b) any notice of any violation received by Borrower or any
of its Subsidiaries from any governmental authority, including, without
limitation, any notice of violation of Environmental Laws; (c) any labor
controversy that has resulted in a strike or other work action against Borrower
or any of its Subsidiaries; (d) any event which makes any of the
representations set forth in Article 5 inaccurate in any respect; or (e) any
other development.  Each notice delivered under this Section shall be accompanied by a statement of the Chief
Financial Officer or other executive officer of the Borrower setting forth the
details of the event or development requiring such notice and any action taken or
proposed to be taken with respect thereto.

                                (b)           The
Borrower shall promptly notify the Agent and the Banks of any of the following,
and at such time will deliver to the Agent and each of the Banks a certificate
on behalf of the Borrower of an Authorized Officer of the Borrower setting
forth the details as to such occurrence and the action, if any, that the
Borrower or such Subsidiary of the Borrower or such

 54
 

 

 

ERISA Affiliate is required or proposes to take, together with any
notices required or proposed to be given by the 
Borrower or such Subsidiary of the Borrower or the ERISA Affiliate to or
filed with the PBGC, a Plan participant or the Plan administrator with respect
thereto: (i) that a Reportable Event has occurred with respect to any Plan;
(ii) the institution of any steps by the Borrower, any Subsidiary of the
Borrower, any ERISA Affiliate, the PBGC or any other Person to terminate any
Plan or the occurrence of any event or condition described in Section 4042 of
ERISA that constitutes grounds for the termination of, or the appointment of a
trustee to administer a Plan; (iii) the institution of any steps by the
Borrower, any Subsidiary of the Borrower or any ERISA Affiliate to withdraw
from any Multiemployer Plan or Multiple Employer Plan, if such withdrawal could
result in withdrawal liability (as described in Part 1 of Subtitle E of Title
IV of ERISA or in Section 4063 of ERISA) in excess of $250,000; (iv) a
non-exempt “prohibited transaction” within the meaning of Section 406 of ERISA
in connection with any Plan; (v) the cessation of operations at a facility of
the Borrower, any Subsidiary of the Borrower or any ERISA Affiliate in the
circumstances described in Section 4062(e) of ERISA; (vi) the conditions for
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to a Plan; (vii) the adoption of an amendment to a Plan requiring the
provision of security to such Plan pursuant to Section 307 of ERISA; (viii) the
insolvency of or commencement of reorganization proceedings with respect to a
Multiemployer Plan; or (ix) the taking of any action by the Internal Revenue
Service, the Department of Labor or the PBGC with respect to any of the
foregoing.

Section
6.10.  Reports
to Other Creditors.  The Borrower shall promptly after the
furnishing thereof, deliver to the Agent copies of any statement or report
furnished to any other party pursuant to the terms of any indenture, loan or
credit or similar agreement and not otherwise required to be furnished to the
Agent or the Banks pursuant to any clause of this Article 6.

Section
6.11.  Payment of Obligations. The Borrower will, and will cause each of its
Subsidiaries to, pay and discharge, before they become delinquent, all taxes,
assessments and other governmental charges imposed upon it, its properties, or
any part thereof, or upon the income or profits therefrom and all claims for
labor, materials or supplies which if unpaid might be or become a Lien or
charge upon any of its property and other material obligations, except such items
as it is in good faith appropriately contesting and as to which adequate
reserves have been provided to the Agent’s satisfaction.

Section
6.12.  General
Information.  The Borrower shall provide the Agent such
other information respecting the condition or operations, financial or
otherwise, of the Borrower or any of its Subsidiaries as the Agent may from
time to time reasonably request.

ARTICLE 7. NEGATIVE COVENANTS

Until the Commitments have expired or terminated
and the Obligations have been paid in full and all Facility Letters of Credit
and JPMorgan Letters of Credit have expired or terminated, the Borrower shall
not:

 55
 

 

 

Section
7.01.  Debt.

(a)           Create, incur, assume or permit to exist, or permit any of
its Subsidiaries to create, incur, assume or permit to exist any Debt, except:

(i)            Debt under this Agreement and the other Loan Documents;

(ii)           Intercompany
Debt;

(iii)          Existing Other Debt and refinancings or renewals of such
borrowed money; provided that any such refinancing of such Debt is of the same
type, of the same tenor, and in an aggregate principal amount not greater than
the aggregate principal amount of the Debt being renewed or refinanced, plus
the amount of any premiums required to be paid thereon and reasonable fees and
expenses associated therewith;

(iv)          Debt incurred after the Original Effective Date that is not
secured by a Lien (including, without limitation, Capital Leases), provided
that (A) prior written notice thereof describing its terms and intended use is
given to Agent and the Banks and (B) such Debt does not collectively, exceed at
any time the aggregate principal amount and committed availability of
$2,000,000;

(v)           JPMorgan Obligations, provided that the JPMorgan Exposure
does not at any time exceed in the aggregate $8,000,000;

(vi)          Debt other than Existing Other Debt incurred after the
Original Effective Date by Foreign Subsidiaries which does not any time exceed
in the aggregate $5,000,000;

(vii)         Debt arising in connection with endorsement of instruments
for deposit in the ordinary course of business;

(viii)        Debt
arising from the honoring by a bank or other financial institution of a check,
draft or similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business; provided, however, that such Indebtedness is extinguished within five
(5) Business Days of incurrence;

(ix)           Purchase
Money Debt that does not exceed at any time $3,000,000 in the aggregate;

(x)            Any Debt approved in advance by the Agent and the
Required Banks in writing; and

(xi)           Provided that the Borrower is at all times in compliance
with the terms and conditions of this Agreement, no Default or Event of Default
exists, and no event or condition has occurred or is continuing which with the
giving of notice, lapse of time or other

 56
 

 

 

condition would constitute a Default or Event of
Default, the Borrower and/or its Subsidiaries may incur, assume or permit to
exist Debt in connection
with the mortgage of the Taiwanese Property; provided, however, that:
(a) the aggregate amount of any such mortgage Debt shall not at any one time or
from time to time exceed $6,000,000.00, (b) said mortgage Debt shall be secured
only by a mortgage on the Taiwanese Property or a sale/leaseback transaction
affecting the Taiwanese Property, and (c) all net proceeds (with net proceeds
being defined as the proceeds available to the Borrower after the payment of
the Purchase Price for the Taiwanese Property in accordance with the terms of
the ROC Joint Venture Agreement and the Lease Agreement attached thereto, and
the payment of any reasonable costs and expenses incurred in connection with
the Borrower’s purchase of the Taiwanese Property) received by the Borrower or
any of its Subsidiaries (whether directly or indirectly) in connection with
incurrence of such mortgage Debt shall be paid over to the Agent within five
(5) Business Days and shall be applied by the Agent as a mandatory prepayment
under the terms of this Agreement.  In
all events, if completed in accordance with the terms of this Agreement, any
resulting liens and encumbrances on the Taiwanese Property shall be considered
a permitted Subsidiary Real Property Lien under the terms of Section 5.12(a) of
this Agreement.

For purposes of this Section 7.01, the amount of
the Debt incurred by a Foreign Subsidiary shall be determined and fixed by
using the “rate of
exchange” to purchase United States Dollars in effect as of the documented
closing date for such Debt.

                                (b)           Prepay, redeem, purchase, defease or
otherwise satisfy prior to the scheduled maturity thereof in any manner, or
make any payment in violation of any subordination terms of, any Debt other
than the Obligations.

Section
7.02.  Liens,
Etc.  Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any Lien, or any other type of
preferential arrangement, upon or with respect to any of its properties,
whether now owned or hereafter acquired, or assign, or permit any of its
Subsidiaries to assign, any right to receive income, in each case to secure any
Debt of any Person or entity, other than:

(a)           Liens securing the Obligations hereunder;

(b)           The Assignment of Leases and Rents;

(c)           Liens securing the payment of taxes, assessments or
governmental charges or levies or the demands of suppliers, mechanics,
carriers, warehouses, landlords and other like Persons, provided that: (i) they
do not in the aggregate materially reduce the value of any properties subject
to the Liens or materially interfere with their use in the ordinary conduct of
the owning business, and (ii) all claims which the Liens secure are being
actively contested in good faith and by appropriate proceedings so long as they
have been revered for by Borrower in accordance with GAAP;

(d)           Liens incurred or deposits made in the ordinary course of
business: (i) in connection with worker’s compensation, unemployment insurance,
social security and other like

 57
 

 

 

laws, or (ii) to secure the performance of
letters of credit, bids, tenders, sales contract, leases, statutory obligations,
surety, appeal and performance bonds and other similar obligations, in each
case not incurred in connection with the borrowing of money, the obtaining of
advances or the payment of the deferred purchase price of property;

(e)           attachment, judgment and other similar Liens arising in
connection with court proceedings provided that: (i) execution and other
enforcement are effectively stayed, and (ii) all claims which the Liens secure
are being actively contested in good faith and by appropriate proceedings;

(f)            Subsidiary Real Property Liens to the extent securing
Existing Other Debt;

(g)           Liens securing Debt incurred by Foreign Subsidiaries to
the extent permitted by Section 7.01 (a)(vi);

(h)           Liens related to operating lease obligations, and within
the limitations, described in Section 7.03; and

(i)            Purchase Money Liens to the extent securing Purchase
Money Debt permitted by Section 7.01(a)(ix).

Section
7.03.  Lease
Obligations.   Create or suffer to exist, or permit any of
its Subsidiaries to create or suffer to exist, any obligations for the payment
of rental for any property under leases or agreements to lease, other than
Capital Leases and Synthetic Lease Obligations, which would cause the
liabilities of the Borrower and its Subsidiaries, on a consolidated basis, in
respect of all such obligations to exceed $5,000,000 payable in any period of
twelve (12) months.

Section
7.04.  Prohibited
Transactions.  Use the proceeds of any Loan either directly
or as the proceeds of an Intercompany Loan to acquire any security in any
transaction which is subject to Sections 13 and 14 of the Securities Exchange
Act of 1934 or use the proceeds of any Loan to otherwise acquire any public
company other than on a friendly basis.

Section
7.05.  Margin
Stock.  Use the proceeds of any Loan either directly
or as the proceeds of an Intercompany Loan to purchase or carry any margin
stock or to extend credit to others for the purpose of purchasing or carrying
any margin stock.

Section
7.06.  Consolidations,
Mergers, Acquisitions and Sales of Assets.  Consolidate or merge with or into, or sell,
lease, transfer, abandon or otherwise dispose of any of its assets to any
Person, liquidate or dissolve itself (or suffer any liquidation or dissolution)
or otherwise wind up its business  or
engage in an Acquisition, except that:

(a)           any Subsidiary may consolidate or merge with the Borrower
or any wholly-owned Subsidiary of the Borrower;

 58
 

 

 

(b)           the
Borrower or any Subsidiary may sell, lease, transfer or otherwise dispose of
any of its inventory in the ordinary course of business;

(c)           the Borrower or any Subsidiary may use and consume assets
in the ordinary course of business;

(d)           the Borrower or any Subsidiary may sell, lease, transfer
or otherwise dispose of equipment, furniture and fixtures in the ordinary
course of business, provided, however, that the aggregate net
book value of all such assets of the Borrower and its Subsidiaries sold,
leased, transferred or otherwise disposed of during any Fiscal Year of the
Borrower pursuant to this clause (d) shall not exceed $2,000,000 in the
aggregate;

(e)           the Borrower may engage in Permitted Acquisitions,
provided that the aggregate purchase price (including covenant not to compete
and other forms of purchase price payment) does not exceed $5,000,000 (in the
aggregate) for any given Fiscal Year.

All sales, leases, transfer or other disposition
of assets pursuant to clauses (b) or (d) shall be not less than at fair market
value.

Section
7.07.  Affiliate
Transactions.  Enter into or permit any Subsidiary to enter
into any transaction (including the purchase, sale or exchange of Property or
the rendering of any service) with any Affiliate except in the ordinary course
of and pursuant to the reasonable requirements of such Person’s business upon
fair and reasonable terms which are at least as favorable to the Borrower or
the Subsidiary as would be obtained in a comparable arms-length transaction
with a non-Affiliate.

Section
7.08.  Loans
and Advances.  Make or permit to exist or permit any of its
Subsidiaries to make or permit to exist any loans or advances to or any other
investment in any Person, except investments in:

(a)           interest-bearing United States Government obligations,

(b)           certificates of deposit issued by or time deposits with
any commercial bank organized and existing under the laws of the United States
or any state thereof having capital and surplus of not less than $25,000,000,

(c)           prime commercial paper rated AAA by S&P or Prime P-1 by
Moody’s,

(d)           agreements involving the sale and guaranteed repurchase of
United States government securities,

(e)           investments in securities of trade creditors or customers
in the ordinary course of business and consistent with the Borrower’s or such
Subsidiaries’ past practices that are received in settlement of bona fide
disputes or pursuant to any plan of reorganization or 

 59
 

 

 

liquidation or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers,

(f)             loans and advances made in the ordinary course of
business for bona fide business purposes, including but not limited to any
loans evidenced by Customer Notes, which in the aggregate do not exceed
$3,000,000.00 at any time outstanding,

(g)           investments in the Borrower,

(h)           the endorsement of negotiable instruments held for
collection in the ordinary
course of business and the making of lease, utility and other similar deposits
in the ordinary course of business,

(i)            loans
and advances made to, and investments in a Wholly-Owned Subsidiary provided
that: (i) it is a Pledged Subsidiary and (ii) if it is a Domestic Subsidiary,
it is a Creditor Party.

All instruments and documents evidencing such investments shall be
pledged to the Agent promptly after the relevant Person’s receipt thereof,
shall be security for the Obligations.

Section
7.09.  No
Activities Leading to Forfeiture.  Engage in or propose to be engaged in, or
permit any Subsidiary to engage in or propose to be engaged in, the conduct of
any business or activity which could result in a Forfeiture Proceeding, which
could, individually or in the aggregate, have a Material Adverse Effect.

Section
7.10.  Capital
Expenditures.  Make, incur or permit Capital Expenditures by
the Borrower and its Subsidiaries during any twelve (12) month period which in
the aggregate exceed $7,500,000 in any Fiscal Year.

Section
7.11.  Restricted
Payments .  The Borrower will not, and will not permit
any of its Subsidiaries to, declare or pay any dividends on or make any other
distributions in respect of its Capital Securities or redeem or otherwise
acquire any such Capital Securities without in each instance obtaining the
prior written consent of the Required Banks; provided, however, that: (a) any
Subsidiary of the Borrower may pay dividends or other distributions to the
Borrower, (b) Borrower may pay regularly scheduled dividends with respect to
its common stock, and (c) Borrower may redeem Capital Securities owned by any
executive of Borrower, if such Capital Securities were acquired by such person
pursuant to the Hardinge Inc. 2002 Stock Incentive Plan, and any such executive
has the right to require the Borrower to redeem such Capital Securities to
discharge tax liabilities resulting from the acquisition or ownership of such
Capital Securities, provided that in each of the foregoing cases: (i) on the date
of payment, there exists no Default or Event of Default, and (ii) Borrower
would have been in compliance with all financial covenants set forth in Article
8 as of the last Quarterly Date if any such proposed dividend or payment had
been made as of such last Quarterly Date.

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                Section 7.12.  Restrictive Agreements; Put Agreements; Speculative
Hedging.

(a)           The Borrower will not, and will not permit any of its
Subsidiaries to, directly or indirectly, enter into, incur or permit to exist
any agreement or other arrangement that conflicts with any provision of this
Agreement or the other Loan Documents. 
Furthermore, with the exception of the Subsidiary Real Property Liens,
the Borrower will not, and will not permit any of its Subsidiaries to, enter
into any agreement in connection with or incur any Debt which contains any
covenants (including, without limitation, a negative pledge on assets that does
not permit the Liens securing the Obligations) more restrictive than the
provisions of Articles 6 and 7, or any negative pledge on assets that does not
permit the Liens securing the Obligations.

(b)           The
Borrower will not, and will not permit any of its Subsidiaries to: (i), enter
into any put agreement or similar agreement with any other Person granting such
Person put rights or similar arrangements with respect to the Capital
Securities of the Borrower or its Subsidiaries (other than in connection with
compensation arrangements with directors, officers or employees of the Borrower
or any Subsidiary); or (ii) or for speculative purposes any interest rate,
currency or commodity swap agreement, cap agreement or collar agreement, and
any other agreement or arrangement designed to protect a Person against
fluctuations in interest rates, currency exchange rates or commodity prices.

                Section 7.13.  Changes in Accounting Principles; Fiscal Year.  The Borrower will not, and will not permit
any of its Subsidiaries to, make any change in its principles or methods of
accounting as currently in effect, except such changes as are required by GAAP,
nor, without first obtaining the Agent’s written consent, change its Fiscal
Year.

                Section 7.14.  Amendments to Governing
Documents.  The Borrower will not, and will not permit
any of its Subsidiaries to, amend or otherwise modify their respective
certificate or articles of incorporation or by-laws or any similar governing
documents in any manner that would affect the Agent or the Banks without the
prior written consent of the Required Banks.

                Section 7.15 
Plan Terminations, Minimum Funding, Etc. The Borrower will not, and will not permit any Subsidiary of the
Borrower or ERISA Affiliate to,fail to materially comply with the minimum
funding standards of ERISA and the Code with respect to any Plan, or  fail to satisfy all material contribution
obligations in respect of any Multiemployer Plan or Multiple Employer Plan.

ARTICLE 8.
FINANCIAL COVENANTS

Until the Commitments have
expired or terminated and the Obligations have been paid in full and all
Facility Letters of Credit and JPMorgan Letters of Credit have expired or
terminated, the Borrower shall comply with each of the following financial
covenants:

                Section 8.01.  Leverage Ratio. 
The Leverage Ratio measured as of each Quarterly Date shall not exceed:
(a) 3.50 to 1.00 for the period from the Effective Date through and including
December 31, 2007; (b) 3.25 to 1.00 for the period from January 1, 2008 through
and including September 30, 2008, and (c) 3.00 to 1.00 from October 1, 2008 and
at all times thereafter.

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Section
8.02. Consolidated Tangible Net Worth.  The Consolidated Tangible Net Worth as
measured as of each Quarterly Date of not less than the sum of: (a) 85% of the
Consolidated Tangible Net Worth as of December 31, 2004, (b) an additional
$500,000 as of each successive Quarterly Date after December 31, 2004, and (c)
90% of the Net Cash Proceeds received by Borrower or any of its Subsidiaries
after the Effective Date from any Equity Issuances.

Section
8.03.  Fixed
Charges Coverage Ratio.  The Fixed Charges Coverage Ratio measured as
of each Quarterly Date of not less than 1.25 to 1.00.

Section
8.04.  Calculations. 
Whenever appropriate and without duplication, calculations made
pursuant to this Article 8 shall give effect, on a pro-forma basis, to the Permitted
Acquisitions, if any, and/or acquisitions of the Additional Technical
Information and the minority interests of the ROC Shareholders made during the
quarter or year to which the required compliance relates, as if such
acquisitions had been consummated on the first day of the applicable reporting
period.

ARTICLE 9. EVENTS OF DEFAULT

Section
9.01.  Events
of Default.  Any of the following events shall be an “Event of Default”:

(a)           The
Borrower shall fail to pay when due any installment of principal of, or
interest on, any Loan, any reimbursement obligation in respect of any Facility
LC Disbursement, any amount of a fee or any other amount payable under this
Agreement or any other Loan Document, as and when due and payable or at a date
fixed for prepayment or otherwise; or

(b)           Any representation or warranty made or deemed made by or
on behalf of the Borrower herein or any Credit Party in any other Loan
Document, or by the Borrower (or any of its officers) in connection with this
Agreement shall prove to have been incorrect in any material respect when made
or deemed made; or

(c)           The Borrower shall fail to perform or observe any other
term, covenant or agreement required of it in this Agreement or any Credit
Party shall fail to perform or observe any other term, covenant or agreement
required of it in any other Loan Documents; provided, however, with respect to
the affirmative covenants set forth in Article 6 hereof, the Borrower’s
non-compliance shall not be considered an Event of Default unless any such failure
shall remain unremedied for ten (10) days after written notice thereof shall
have been given to the Borrower by the Agent (which notice shall be given at
the request of the Required Banks); or

(d)           The Borrower or any of its Subsidiaries shall fail to pay
any Debt (but excluding Debt evidenced by the Notes) of the Borrower or such
Subsidiary as the case may be, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period,
if any, specified in the agreement or instrument relating to such Debt; or any
other default under any agreement or instrument relating to any such Debt, or
any other

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event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Debt; or any such Debt shall be declared
to be due and payable, or required to be prepaid (other than by a regularly
scheduled required prepayment), prior to the stated maturity thereof; or

(e)           The Borrower or any of its Subsidiaries shall generally
not pay its debts as such debts become due, or shall admit in writing its
inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against
the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief, or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief or the appointment of a receiver,
trustee, or other similar official for it or for any substantial part of its
property; or the Borrower or any of its Subsidiaries shall take any corporate
action to authorize any of the actions set forth above in this subsection (e);
or

(f)            Any judgment or order for the payment of money in excess
of $1,000,000 shall be rendered against the Borrower or any of its Subsidiaries
or any combination thereof, and either: (i) enforcement proceedings shall have
been commenced by any creditor upon such judgment or order or (ii) there shall
be any period of twenty (20) consecutive days during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or

(g)           any of the events described in clauses (i) through (ix) of
Section 6.09(b) shall have occurred; or

(h)           Any Forfeiture Proceeding shall have been commenced or the
Borrower shall have given any Bank written notice of the commencement of any
Forfeiture Proceeding, which would, individually or in the aggregate, have a
Material Adverse Effect, or any Bank has a good faith basis to believe that a
Forfeiture Proceeding has been threatened or commenced, which would,
individually or in the aggregate, have a Material Adverse Effect; or

(i)            A Change in Control shall occur; or

(j)            Any
of the Loan Documents shall cease in any material respect to be in full force
and effect or shall be declared to be null and void in whole or in a material
part by the final judgment of a court or other governmental or regulatory
authority having jurisdiction or the validity or enforceability thereof shall
be contested by, or on behalf of, any Credit Party; or any Credit Party shall
renounce any of the same or deny that it has any or further liability under any
Credit Document to which it is a party; or any security interest purported to
be created by any Credit Document shall cease to be, or shall be asserted by
any Credit Party not to be, a valid, perfected, first priority (except as expressly
otherwise provided in this Agreement or such Credit Document) security interest
in the collateral covered thereby.

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Section
9.02.  Remedies.

(a)           If any Event of Default referred to
in Section 9.01(e) or Section 9.01(h) above shall occur: (i) the Commitments
shall immediately terminate, (ii) the Notes, all interest thereon and all
Obligations shall be immediately due and payable without notice, presentment,
demand protest or other formalities of any kind, all of which are hereby
expressly waived by the Borrower, and (iii) the Borrower will be and become
thereby unconditionally obligated, without the need for demand or the necessity
of any act or evidence, to deliver to the Agent, at its Principal Offices, for
deposit into the Facility Letter of Credit Collateral Account, an amount (the “Facility Letter of Credit Collateral Shortfall
Amount”) equal to the excess, if any, of: (A) 100% of the
sum of the aggregate maximum amount remaining available to be drawn under the
Facility Letters of Credit (assuming compliance with all conditions for drawing
thereunder) issued by the Issuing Bank and outstanding as of such time, over
(B) the amount on deposit for such Borrower in the Facility Letter of Credit
Collateral Account at such time that is free and clear of all rights and claims
of third parties (other than the Agent and the Banks).

(b)           If any Event of Default, other than those
specified in Section 9.01(e) or Section 9.01(h), shall occur and be continuing,
the Agent shall, upon request of the Required Banks, by notice to the Borrower:
(i) declare the Commitments to be terminated, whereupon the same shall
forthwith terminate, (ii) declare the outstanding principal of the Notes, all
interest thereon and all other Obligations to be forthwith due and payable,
whereupon the outstanding principal of the Notes, all such interest and all
such other Obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; and (iii) make the deposit of the
Facility Letter of Credit Collateral Shortfall Amount in the Facility Letter of
Credit Collateral Account.

ARTICLE 10.
THE AGENT; RELATIONS AMONG BANKS AND BORROWER

Section
10.01.  Appointment,
Powers and Immunities of Agent.

(a)           Each Bank, the Swing Bank and the Issuing Bank hereby
irrevocably appoints and authorizes the Agent to act as its agent hereunder and
under any other Loan Document with such powers as are specifically delegated to
the Agent by the terms of this Agreement and any other Loan Document, together
with such other powers as are reasonably incidental thereto.  The Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement and any
other Loan Document, and shall not by reason of this Agreement be a trustee for
any Bank.  The Agent shall not be
responsible to the Banks for any recitals, statements, representations or
warranties made by the Borrower or any officer or official of the Borrower or
any other Person contained in this Agreement or any other Loan Document, or in
any certificate or other document or instrument referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, legality, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement or any other Loan Document or any other
document or instrument referred to or provided for herein or therein, for the
satisfaction of any conditions in Article 4, for the perfection or priority of
any collateral

 64
 

 

 

security for any Obligations or for any failure
by the Borrower to perform any of its obligations hereunder or thereunder.  The Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or
securities received by it or its authorized agents, for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it with
reasonable care.  Neither the Agent nor
any of its directors, officers, employees or agents shall be liable or
responsible for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith, except
for its or their own gross negligence or willful misconduct.  The Borrower shall pay any fee agreed to by
the Borrower and the Agent with respect to the Agent’s services hereunder,
including but not limited to all fees described in the Fee Letter.

                                (b)           The Issuing Bank shall act on behalf
of the Banks (according to their Pro Rata Shares) with respect to any Facility
Letters of Credit issued by it and the documents associated therewith.  The Issuing Bank shall have all of the
benefits and immunities: (i) provided to the Agent in this Section 10 with
respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Facility Letters of Credit issued by it or proposed to be
issued by it and the applications and agreements for letters of credit
pertaining to such Letters of Credit as fully as if the term “Agent”, as used
in this Section 10, included the Issuing Bank with respect to such acts or
omissions and (ii) as additionally provided in this Agreement with respect to
the Issuing Bank.

Section
10.02.  Reliance
by Agent.  The Agent shall be entitled to
rely upon any certification, notice or other communication (including any
thereof by telephone, telex, telegram or cable) believed by it to be genuine
and correct and to have been signed or sent by or on behalf of the proper
Person or Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Agent.  The Agent may deem and treat each Bank as the
holder of the Loan made by it for all purposes hereof unless and until a notice
of the assignment or transfer thereof satisfactory to the Agent signed by such
Bank shall have been furnished to the Agent together with the assignment fee
referred to in Section 11.05(b), but the Agent shall not be required to deal
with any Person who has acquired a participation in any Loan from a Bank.  As to any matters not expressly provided for
by this Agreement or any other Loan Document, the Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in
accordance with instructions signed by the Required Banks, and such
instructions of the Required Banks and any action taken or failure to act
pursuant thereto shall be binding on all of the Banks and any other holder of
all or any portion of any Loan.

Section
10.03.  Defaults.  The
Agent shall not be deemed to have knowledge of the occurrence of a Default or
Event of Default  unless the Agent has
received notice from a Bank or the Borrower specifying such Default or Event of
Default..  The Agent shall (subject to
Section 10.08) take such action with respect to such Default or Event of
Default which is continuing as shall be directed by the Required Banks;
provided that, unless and until the Agent shall have received such directions,
the Agent may take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interest of the Banks; and provided further that the Agent shall not be
required to take any such action which it determines to be contrary to law.

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Section
10.04.  Rights
of Agent as a Bank.  With respect to its Commitments and the Loans
made by it, the Agent in its capacity as a Bank hereunder shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not acting as the Agent, and the term “Bank” or “Banks” shall,
unless the context otherwise indicates, include the Agent in its capacity as a
Bank.  The Agent and its affiliates may
(without having to account therefor to any Bank) accept deposits from, lend
money to (on a secured or unsecured basis), issue letters of credit, and
generally engage in any kind of banking, trust or other business with, the
Borrower (and any of its affiliates) as if it were not acting as the Agent, and
the Agent may accept fees and other consideration from the Borrower for such
services in connection with this Agreement or otherwise without having to
account for the same to the Banks. 
Although the Agent and its affiliates may in the course of such
relationships and relationships with other Persons acquire information about
the Borrower, its Affiliates and such other Persons, the Agent shall have no
duty to disclose such information to the Banks except to the extent, if any,
expressly required by this Agreement or any other Loan Documents.

Section
10.05.  Indemnification
of Agent.

(a)           The Banks agree to indemnify the Agent (to the extent not
reimbursed under Section 11.03 or under the applicable provisions of any other
Loan Document, but without limiting the obligations of the Borrower under
Section 11.03 or such provisions) and its directors, officers, employees and
agents, ratably in accordance with their Pro Rata Share (without giving effect
to any participations, in all or any portion of any Obligations, sold by them
to any Person other than another Bank), for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be
imposed on, incurred by or asserted against the Agent in any way relating to or
arising out of this Agreement, any other Loan Document or any other documents
contemplated by or referred to herein or the transactions contemplated hereby
or thereby (including, without limitation, the costs and expenses which the
Borrower is obligated to pay under Section 11.03 or under the applicable
provisions of any other Loan Document but excluding, unless a Default or Event
of Default has occurred, normal administrative costs and expenses incident to
the performance of its agency duties hereunder) or the enforcement of any of
the terms hereof or thereof or of any such other documents or instruments;
provided that no Bank shall be liable for any of the foregoing to the extent to
the extent determined by a final, non-appealable judgment by a court of
competent jurisdiction to have resulted from the applicable Person’s they arise
from the gross negligence or willful misconduct of the party to be indemnified.

                                (b)           Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs or out-of-pocket expenses (including attorney costs and taxes) incurred
by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the
Agent is not reimbursed for such expenses by or on behalf of the Borrower.

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                                (c)           The undertaking in this Section 10.06
shall survive repayment of the Loans, cancellation of the Notes, expiration or
termination of the Facility Letters of Credit, any foreclosure under, or
modification, release or discharge of, any or all of the Security Documents,
termination of this Agreement and the resignation or replacement of the Agent.

Section
10.06.  Documents. 
The Agent will forward to each Bank, promptly after the Agent’s receipt
thereof, a copy of each report, notice or other document required by this
Agreement or any other Loan Document to be delivered to the Agent for such
Bank.

Section
10.07.  Non-Reliance
on Agent and Other Banks.  Each Bank agrees that it has, independently
and without reliance on the Agent or any other Bank, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of the Borrower and its Subsidiaries and decision to enter into this
Agreement and that it will, independently and without reliance upon the Agent
or any other Bank, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own analysis and decisions in
taking or not taking action under this Agreement or any other Loan Document.  The Agent shall not be required to keep
itself informed as to the performance or observance by the Borrower of this
Agreement or of the Borrower or any other Credit Party in any other Loan
Document or any other document referred to or provided for herein or therein or
to inspect the properties or books of the Borrower or any Subsidiary.  Except for notices, reports and other
documents and information expressly required to be furnished to the Banks by
the Agent hereunder, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the affairs,
financial condition or business of the Borrower or any Subsidiary (or any of
their Affiliates) which may come into the possession of the Agent or any of its
affiliates.  The Agent shall not be
required to file this Agreement, any other Loan Document or any document or
instrument referred to herein or therein, for record or give notice of this
Agreement, any other Loan Document or any document or instrument referred to
herein or therein, to anyone.

Section
10.08.  Failure
of Agent to Act.  Except for action expressly required of the
Agent hereunder, the Agent shall in all cases be fully justified in failing or
refusing to act hereunder unless it shall have received further assurances
(which may include cash collateral) of the indemnification obligations of the
Banks under Section 10.05 in respect of any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.

Section
10.09.  Resignation
of Agent.  Subject to the appointment and acceptance of
a successor Agent as provided below, the Agent may resign at any time by giving
written notice thereof to the Banks and the Borrower; provided that the
Borrower and the other Banks shall be promptly notified thereof.  Upon any such resignation, the Required Banks
shall have the right to appoint a successor Agent.  If no successor Agent shall have been so
appointed by the Required Banks and shall have accepted such appointment within
thirty (30) days after the retiring Agent’s giving of notice of resignation,
then the retiring Agent may, on behalf of the Banks, appoint a successor
Agent.  The Required Banks or the
retiring Agent, as the case may be, shall upon the

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appointment of a successor
Agent promptly so notify the Borrower and the other Banks.  Upon the acceptance of any appointment as
Agent hereunder by a successor Agent, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations hereunder and any other Loan Document.  After any retiring Agent’s resignation
hereunder as Agent, the provisions of this Article 10 shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Agent.

Section
10.10.  Amendments
Concerning Agency Function.  The Agent shall not be bound by any waiver,
amendment, supplement or modification of this Agreement or any other Loan
Document which affects its duties hereunder or thereunder unless it shall have
given its prior consent thereto.

Section
10.11.  Liability
of Agent.  The Agent shall not have any liabilities or
responsibilities to the Borrower on account of the failure of any Bank to
perform its obligations hereunder or to any Bank on account of the failure of
the Borrower to perform its obligations hereunder or under any other Loan
Document.  This Section 10.11 shall not
be construed to limit the Agent’s liability or responsibility where the Agent
is acting as a Bank under this Agreement.

Section
10.12.  Transfer
of Agency Function.  Without the consent of the
Borrower or any Bank, the Agent may at any time or from time to time transfer
its functions as Agent hereunder to any of its offices wherever located,
provided that the Agent shall promptly notify the Borrower and the Banks
thereof.

Section
10.13.  Withholding
Taxes.  Each Bank represents that it is entitled to
receive any payments to be made to it hereunder without the withholding of any
U.S. tax and will furnish to the Agent such forms, certifications, statements
and other documents as the Agent may request from time to time to evidence such
Bank’s exemption from the withholding of any U.S. tax imposed by any domestic
jurisdiction or to enable the Agent to comply with any applicable laws or
regulations relating thereto.  Without
limiting the effect of the foregoing, if any Bank is not created or organized
under the laws of the United States of America or any state thereof, in the
event that the payment of interest by the Borrower is treated for U.S. income
tax purposes as derived in whole or in part from sources from within the U.S.,
such Bank will furnish to the Agent Form W-8BEN or Form W-8ECI of the Internal
Revenue Service, or such other forms, certifications, statements or documents,
duly executed and completed by such Bank as evidence of such Bank’s exemption
from the withholding of U.S. tax with respect thereto.  The Agent shall not be obligated to make any
payments hereunder to such Bank in respect of any Loan or such Bank’s Revolving
Commitment until such Bank shall have furnished to the Agent the requested
form, certification, statement or document.

Section
10.14.  Several
Obligations and Rights of Banks.  The failure of any Bank to make the Loan to
be made by it on the date specified therefor shall not relieve any other Bank
of its obligation to make its Loan on such date, but no Bank shall be
responsible for the failure of any other Bank to make the Loan to be made by
such other Bank.  The amounts payable at
any time hereunder to each Bank shall be a separate and independent debt, and
each Bank shall be

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entitled to protect and
enforce its rights arising out of this Agreement, and it shall not be necessary
for any other Bank to be joined as an additional party in any proceeding for
such purpose.

Section
10.15.  Sharing
of Payments Among Banks.  If a Bank shall obtain payment of any
principal of or interest on any Obligation made by it through the exercise of
any right of setoff, banker’s lien, counterclaim, or by any other means
(including any payment obtained from or charged against any Third Party), in
excess of its applicable Pro Rata Share (determined pursuant to subpart (c) of
the definition of Pro Rata Share herein) it shall promptly purchase from the
other Banks participations in (or, if and to the extent specified by such Bank,
direct interests in) the Obligations made by the other Banks in such amounts,
and make such other adjustments from time to time as shall be equitable to the
end that all the Banks shall share the benefit of such payment (net of any
expenses which may be incurred by such Bank in obtaining or preserving such
benefit) in accordance with Section 2.05(a). 
To such end the Banks shall make appropriate adjustments among
themselves (by the resale of participations sold or otherwise) if such payment
is rescinded or must otherwise be restored. The Borrower agrees that any Bank
so purchasing a participation (or direct interest) in the Obligations made by
other Banks may exercise all rights of setoff, banker’s lien, counterclaim or
similar rights with respect to such participation (or direct interest).  Nothing contained herein shall require any
Bank to exercise any such right or shall affect the right of any Bank to
exercise, and retain the benefits of exercising, any such right with respect to
any other indebtedness of the Borrower.

Section
10.16.  No
Other Agents.  None of the Banks or other Persons identified
herein, including on the facing page or signature pages of this Agreement, as a
“syndication agent,” “Arranger”, “documentation agent” or “lead arranger” shall
have any right, power, obligation, liability, responsibility or duty under this
Agreement other than, in the case of such Banks, those applicable to all Banks
as such.  Without limiting the foregoing,
none of the Banks or the Persons so identified shall have or be deemed to have
any fiduciary relationship with any Bank. Each Bank acknowledges that it has
not relied, and will not rely, on any of the Banks or other Persons so
identified in deciding to enter into this Agreement or in taking or not taking
action hereunder.

                Section 10.17  Benefit of Article. The provisions contained in this Article are solely for the benefit of
the Agent, the Issuing Bank, and the Banks and are not for the benefit of, nor
may they be relied upon by, the Borrower, any Credit Party, or any third party.

ARTICLE 11.
MISCELLANEOUS

Section
11.01.  Amendments
and Waivers.

(a)           Except
as otherwise expressly provided in this Agreement, any provision of this
Agreement may be amended or modified only by an instrument in writing signed by
the Borrower, the Agent and the Required Banks, or by the Borrower and the
Agent acting with the consent of the Required Banks and any provision of this
Agreement may be waived by the Required Banks or by the Agent acting with the
consent of the Required Banks; PROVIDED

 69
 

 

 

that no amendment, modification or waiver shall, unless by an instrument
signed by all of the Banks or by the Agent acting with the consent of all of
the Banks: (i) increase or extend the term, or extend the time or waive any
requirement for the reduction or termination, of the Commitments, (ii) extend
the date fixed for the payment of principal of or interest on any Loan or any
fee payable hereunder, (iii) reduce the amount of any payment of principal
thereof or the rate at which interest is payable thereon or any fee payable
hereunder, (iv) alter the terms of this Section 11.01, (v) amend the definition
of the term “Required Banks”, (v) waive any of the documentary conditions
precedent set forth in Section 4.01 hereof, or (vi) release all or
substantially all of the collateral described in the Security Documents or the
release of any of the Guarantors.  No
provision of Section 2.12 with respect to the timing or application of
mandatory prepayments of the Loans shall be amended, modified or waived without
the consent of Banks having a majority of the aggregate Pro Rata Shares of the
Term Loans affected thereby.  No
provision of Article 10 or other provision of this Agreement affecting the
Agent in its capacity as such shall be amended, modified or waived without the
consent of the Agent.  No provision of
this Agreement relating to the rights or duties of the Issuing Bank in its
capacity as such shall be amended modified or waived without the consent of the
Issuing Bank.  No provision of this
Agreement relating to the rights or duties of the Swing Line Bank in its
capacity as such shall be amended modified or waived without the consent of the
Swing Line Bank.

(b)           No failure on the part of the Agent or any Bank to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof or preclude any other or further exercise thereof or the
exercise of any other right.  The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.

Section
11.02.  Usury. 
Anything herein to the contrary notwithstanding, the obligations of the
Borrower under this Agreement and the Notes shall be subject to the limitation
that payments of interest shall not be required to the extent that receipt
thereof would be contrary to provisions of law applicable to a Bank limiting
rates of interest which may be charged or collected by such Bank.

Section
11.03.  Expenses
and Indemnification.  The Borrower shall reimburse the Agent and
the Banks on demand for all costs, expenses, and charges (including, without
limitation, fees and charges of legal counsel for the Agent and each Bank)
incurred by the Agent or the Banks in connection with the enforcement of this
Agreement or the Notes by reason of any Event of Default or any event which,
after the giving of notice or passage of time, or both, would constitute an Event
of Default.  The Borrower agrees to
indemnify and hold harmless the Agent and each Bank from and against any and
all claims, damages, liabilities and expenses (including, without limitation,
fees and disbursements of counsel) (each an “Indemnified
Liability”) which may be incurred by or asserted against the
Agent or such Bank in connection with or arising out of any threatened or
actual litigation, or proceeding related to any acquisition or proposed
acquisition by the Borrower, or by any Subsidiary, of all or any portion of the
stock of substantially all the assets of any Person whether or not the Agent or
such Bank is a party thereto.  The
Borrower agrees that any Indemnified Liability will be promptly paid to the
Person to be indemnified upon the written demand of such Person.

 70
 

 

 

Section
11.04.  Survival. 
The obligations of the Borrower under Sections 3.01, 3.05 and 11.03
shall survive the repayment of the Obligations and the termination of the
Commitments.

Section
11.05.  Assignment;
Participations.

(a)           This Agreement shall be binding upon, and shall inure to
the benefit of, the Borrower, the Agent, the Banks and their respective
successors and assigns, except that the Borrower may not assign or transfer its
rights or obligations hereunder.

(b)           Each
Bank may, with the consent of the Agent and the Issuing Bank (for an assignment
of Facility Letters of Credit (which consent will not be unreasonably withheld
or delayed) assign all or any part of its Revolving Commitments, its Note or
Loans to another bank or other Person provided, however, that: (i) no consent
of the Borrower shall be required if an Event of Default under Section 9.01
hereof shall have occurred and is continuing; (ii) no such consent by the
Borrower or the Agent shall be required in the case of any assignment to a
Bank; and (iii) any such partial assignment shall be made in an amount of at
least $5,000,000.  Upon execution and
delivery by the assignee to the Borrower and the Agent of an instrument in writing
pursuant to which such assignee agrees to become a “Bank” hereunder (if not
already a Bank) having the Commitment and Loan specified in such instrument,
and upon consent thereto by the Borrower and the Agent, to the extent required
above, the assignee shall have, to the extent of such assignment (unless
otherwise provided in such assignment with the consent of the Borrower and the
Agent), the obligations, rights and benefits of a Bank hereunder holding the
Commitments and Loans (or portions thereof) assigned to it (in addition to the
Commitments and Loans, if any, theretofore held by such Assignee) and the
assigning Bank shall, to the extent of assignment, be released from the
Commitments (or portion thereof) so assigned. 
The parties to each such assignment shall execute and deliver to the Agent,
for its acceptance, an Assignment and Assumption Agreement in the form of Exhibit H (each, an “Assignment and Assumption Agreement”)
together with an assignment fee of $3,500. 
Furthermore, if the assignee shall not be a Bank, the parties to the assignment
shall deliver to the Agent an Administrative Questionnaire.

(c)           A Bank may sell or agree to sell to one or more banks or
other Persons a participation in all or any part of any Loans held by it, or in
its Commitment, in which event each purchaser of a participation (a “Participant”) shall not, have any
rights or benefits under this Agreement or any Note or other Loan Document (the
Participant’s rights against such Bank in respect of such participation to be
those set forth in the agreements executed by such Bank in favor of the
Participant).  All amounts payable by the
Borrower to any Bank under Article 2 hereof in respect of Obligations held by
it and its Commitment, shall be determined as if such Bank had not sold or
agreed to sell any participations in such Loan and Commitment, and as if such
Bank were funding each of such Obligations and Commitment in the same way that
it is funding the portion of such Obligations and Commitment in which no
participations have been sold.  The
agreement executed by such Bank in favor of the Participant shall not give the
Participant the right to require such Bank to take or omit to take any action
hereunder except action directly relating to: (i) the extension of the
Termination Date with respect to any interest acquired in the Revolving
Commitment and the Revolving Loans and the Term Loan Maturity

 71
 

 

 

Date with respect to any interest acquired in the
Term Loan Commitment and the Term Loans, (ii) the extension of a payment date
with respect to any fees payable hereunder or any portion of the principal of
or interest on any amount outstanding hereunder allocated to such Participant,
(iii) the reduction of the principal amount outstanding hereunder, or (iv) the
reduction of the rate of interest payable on such amount or any amount of fees
payable hereunder to a rate or amount, as the case may be, below that which the
Participant is entitled to receive under its agreement with such Bank.

(d)           In addition to the assignments and participations
permitted under paragraphs (b) and (c) above, any Bank may assign and pledge
all or any portion of its Loan and Note to: (i) any affiliate of such Bank, or
(ii) any Federal Reserve Bank as collateral security pursuant to Regulation A
of the Board of Governors of the Federal Reserve System and any operating
Circular issued by such Federal Reserve Bank. 
No such assignment shall release the assigning Bank from its obligations
hereunder.

(e)           A Bank may furnish any information concerning the Borrower
or any of its Subsidiaries in the possession of such Bank from time to time to
assignees and Participants (including prospective assignees and participants),
provided that such Bank shall require any assignee or Participant (prospective
or otherwise) to agree in writing to maintain the confidentiality of such
information.

Section
11.06.  Notices. 
All notices, requests and other communications provided for herein
(including, and not by way of limitation, any modifications of, or waivers,
requests or consents under, this Agreement) shall be given or made in writing
(including and not by way of limitation by telecopy), or, with respect to
notices given pursuant to Section 2.04 hereof, by telephone confirmed in
writing by telecopier or other writing by the close of business on the day
notice is given, delivered (or telephoned, as the case may be) to the intended
recipient at the “Address for Notices” specified below its name on the
signature pages hereof); or, as to any party, at such other address as shall be
designated by such party in a notice to each other party.  Except as otherwise provided in this
Agreement, (a) notices shall be given to the Agent by telephone, confirmed by
telecopy or other writing by the close of business on the day notice is given,
and (b) notices to the Banks and to the Borrower by telecopy, commercial
overnight courier service, or ordinary mail, or addressed to such party at its
address on the signature page of this Agreement.  Notices shall be effective: (i) if given by
mail, three (3) days after deposit in the mails with first class postage
prepaid, addressed as aforesaid; and (ii) in all other cases when delivered or
received.  Provided, however, that
notices to the Agent and the Banks shall be effective upon receipt.

Section
11.07.  Setoff. 
The Borrower agrees that, in addition to (and without limitation of) any
right of setoff, banker’s lien or counterclaim a Bank may otherwise have, each
Bank shall be entitled, at its option, to offset balances (general or special,
time or demand, provisional or final) held by it for the account of the
Borrower at any of such Bank’s offices, in Dollars or in any other Currency,
against any amount payable by the Borrower to such Bank under this Agreement or
such Bank’s Note which is not paid when due (regardless of whether such
balances are then due to the Borrower), in which case it shall promptly notify
the Borrower and the Agent

 72
 

 

 

thereof; provided that such
Bank’s failure to give such notice shall not affect the validity thereof.
Payments by the Borrower hereunder shall be made without setoff or
counterclaim.

Section
11.08.  Jurisdiction;
Immunities.

(a)           THE BORROWER HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT SITTING IN
ERIE COUNTY NEW YORK OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE NOTES, AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT
ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH NEW YORK STATE OR FEDERAL COURT. THE BORROWER IRREVOCABLY CONSENTS TO
THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE
MAILING OF COPIES OF SUCH PROCESS TO THE BORROWER AT ITS ADDRESS SPECIFIED IN
SECTION 11.06.  THE BORROWER AGREES THAT
A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY
BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER
MANNER PROVIDED BY LAW.  THE BORROWER
FURTHER WAIVES ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN
ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS.  THE BORROWER FURTHER AGREES THAT ANY ACTION
OR PROCEEDING BROUGHT AGAINST THE AGENT SHALL BE BROUGHT ONLY IN NEW YORK STATE
OR UNITED STATES FEDERAL COURT SITTING IN ERIE COUNTY.  THE BORROWER WAIVES ANY RIGHT IT MAY HAVE TO
JURY TRIAL.

(b)           Nothing in this Section 11.08 shall affect the right of
the Agent or any Bank to serve legal process in any other manner permitted by
law or affect the right of the Agent or any Bank to bring any action or
proceeding against the Borrower or its property in the courts of any other
jurisdictions.

(c)           To the extent that the Borrower has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether from service or notice, attachment prior to judgment, attachment in aid
of execution, execution or otherwise) with respect to itself or its property,
the Borrower hereby irrevocably waives such immunity in respect of its
obligations under this Agreement and the Notes.

Section
11.09.  Table
of Contents; Headings.  Any table of contents and the headings and
captions hereunder are for convenience only and shall not affect the
interpretation or construction of this Agreement.

Section
11.10.  Severability. 
The provisions of this Agreement are intended to be severable.  If for any reason any provision of this
Agreement shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such provision shall, as to such jurisdiction, be ineffective to
the extent of such invalidity or unenforceability without in any manner
affecting

 73
 

 

 

the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.

Section
11.11.  Counterparts. 
This Agreement may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any
party hereto may execute this Agreement by signing any such counterpart.

Section
11.12.  Integration. 
The Loan Documents set forth the entire agreement among the parties
hereto relating to the transactions contemplated thereby and supersede any
prior oral or written statements or agreements with respect to such
transactions.

Section
11.13.  Governing
Law.  THIS AGREEMENT SHALL BE GOVERNED BY, AND
INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, INCLUDING SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW, BUT
EXCLUDING ALL OTHER CONFLICT-OF-LAW RULES.

Section
11.14.  Confidentiality.  Each Bank and the Agent agrees (on behalf of
itself and each of its affiliates, directors, officers, employees and
representatives) to use reasonable pre cautions to keep confidential, in
accordance with safe and sound banking practices, any non-public information
supplied to it by the Borrower pursuant to this Agreement which is identified
by the Borrower as being confidential at the time the same is delivered to the
Banks or the Agent, provided that nothing herein shall limit the disclosure of
any such information: (a) to the extent required by statute, rule, regulation
or judicial process, (b) to counsel for any of the Banks or the Agent, (c) to
bank examiners, auditors or accountants, (d) in connection with any litigation
to which any one or more of the Banks is a party, (e) to any assignee or
participant (or prospective assignee or participant) so long as such assignee
or participant (or prospective assignee or participant) first executes and
delivers to the respective Bank a Confidentiality Agreement in substantially
the form of Exhibit F
hereto; or (f) to the extent such information becomes publicly available other
than as a result of disclosure by a Bank; and provided further that in no event
shall any Bank or the Agent be obligated or required to return any materials
furnished by the Borrower.

Section
11.15.  Treatment
of Certain Information.  The Borrower: (a) acknowledges that services
may be offered or provided to it (in connection with this Agreement or
otherwise) by each Bank or by one or more of their respective subsidiaries or
affiliates and (b) acknowledges that any information delivered to each Bank or
its subsidiaries or affiliates regarding the Borrower may be shared among such
Bank and such subsidiaries and affiliates. 
This Section 11.15 shall survive the repayment of the Loans and the
termination of the Revolving Commitments.

Section
11.16. USA Patriot Act. 
Each Bank hereby notifies the Borrower that pursuant to the requirements
of the USA Patriot Act, it is required to obtain, verify and record information
that identifies the Borrower, which information includes the name and address
of the Borrower and other information that will allow such Bank to identify the
Borrower in accordance with the

 74
 

 

 

requirements of the USA
Patriot Act.  The Borrower hereby agrees
to cooperate with each Bank to provide such information promptly following a
request therefor from such Bank.

[Signature Pages To Follow]

 75

 

 

BORROWER:

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

	
  

  	
  HARDINGE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ CHARLES R. TREGO, JR.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:  Charles R.
  Trego, Jr.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:    Senior Vice President and Chief Financial
  Officer

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  One Hardinge Drive

  
	
   

  	
  Elmira, New York 14902

  
	
   

  	
  Attention: Chief Financial
  Officer

  
	
   

  	
  Telephone No.: (607) 734-2281

  
	
   

  	
  Telecopier No.: (607) 734-5517

  

 

 76
 

 

 

AGENT:

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

	
  

  	
  MANUFACTURERS AND TRADERS
  TRUST COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ KEVIN P. O’HARA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin P. O’Hara

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address For Notices:

  
	
   

  	
   

  
	
   

  	
  Manufacturers and Traders
  Trust Company

  
	
   

  	
  2 Court Street

  
	
   

  	
  Binghamton, New York 13901

  
	
   

  	
  Attention: Susan A. Burtis,
  Vice President

  
	
   

  	
  Telephone No.: (607) 217-3242

  
	
   

  	
  Telecopier No.: (607) 724-6627

  

 

 77
 

 

 

SYNDICATION AGENT:

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

	
  

  	
  JPMORGAN CHASE BANK, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ CHRISTINE M. DESCHAMPS

  
	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Christine M. Deschamps

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  JPMorgan Chase Bank, N.A.

  
	
   

  	
  1975 Lake Street

  
	
   

  	
  Elmira, New York 14901

  
	
   

  	
  Attn: Christine M. Deschamps,
  Senior Vice President

  
	
   

  	
  Telephone No.: 607-734-7824

  
	
   

  	
  Telecopier No.: 607-734-7645

  

 

 78
 

 

 

DOCUMENTATION AGENT:

 

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

	
   

  	
  KEYBANK NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ CARL J. LUGER, JR.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carl J. Luger, Jr.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  Keybank National Association

  
	
   

  	
  1700 Bausch & Lomb Place

  
	
   

  	
  Rochester, New York 14604

  
	
   

  	
  Attn: Carl J. Luger, Jr., Vice
  President

  
	
   

  	
  Telephone No.: 585-238-4118

  
	
   

  	
  Telecopier No.: 585-238-4142

  

 

 79
 

 

 

BANKS:

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

	
  

  	
  MANUFACTURERS AND TRADERS
  TRUST COMPANY

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ KEVIN P. O’HARA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Kevin P. O’Hara_

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  Manufacturers and Traders
  Trust Company

  
	
   

  	
  2 Court Street

  
	
   

  	
  Binghamton, New York 13901

  
	
   

  	
  Attention: Susan A. Burtis,
  Vice President

  
	
   

  	
  Telephone No.: (607) 217-3242

  
	
   

  	
  Telecopier No.: (607) 724-6627

  
					

 

 80
 

 

 

BANKS:

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

	
   

  	
  JPMORGAN CHASE BANK, N.A.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ CHRISTINE M. DESCHAMPS

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Christine M. Deschamps

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  JPMorgan Chase Bank, N.A.

  
	
   

  	
  1975 Lake Street

  
	
   

  	
  Elmira, New York 14901

  
	
   

  	
  Attn: Christine M. Deschamps,
  Senior Vice President

  
	
   

  	
  Telephone No.: 607-734-7824

  
	
   

  	
  Telecopier No.: 607-734-7645

  

 

 81
 

 

 

BANKS:

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

	
   

  	
  KEYBANK NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ CARL J. LUGER, JR.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Carl J. Luger, Jr.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  Keybank National Association

  
	
   

  	
  1700 Bausch & Lomb Place

  
	
   

  	
  Rochester, New York 14604

  
	
   

  	
  Attn: Carl J. Luger, Jr., Vice
  President

  
	
   

  	
  Telephone No.: 585-238-4118

  
	
   

  	
  Telecopier No.: 585-238-4142

  

 

 82
 

 

 

BANKS:

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

	
   

  	
  NBT BANK, NATIONAL ASSOCIATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /S/ RONALD G. GOODWIN

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Ronald G. Goodwin

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Senior Vice President

  
	
   

  	
   

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
  NBT Bank National Association

  
	
   

  	
  3121 Vestal Parkway East

  
	
   

  	
  Vestal, New York 13850

  
	
   

  	
  Attn: Ronald G. Goodwin,
  Senior Vice President

  
	
   

  	
  Telephone No.: 607-797-3434

  
	
   

  	
  Telecopier No.: 607-797-1559

  

 

 83

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