Document:

<PAGE>

                                                                    Exhibit 4.16

                            REIMBURSEMENT AGREEMENT
                            -----------------------

         This REIMBURSEMENT AGREEMENT ("Agreement"), dated as of March 1, 2000,
is by and between AEROVOX INCORPORATED, a Delaware corporation (the "Borrower")
and KEYBANK NATIONAL ASSOCIATION, a national banking association (the "Bank").

         WHEREAS, in order to provide financing for (i) a new building to be
constructed on the Premises (the "Building"), (ii) related equipment to be
purchased for the Premises (the "Equipment") and (iii) related costs and
expenses, the Borrower proposes to issue its Taxable Adjustable Rate Notes,
Series 2000, in the aggregate principal amount of up to Ten Million, One Hundred
Seventy Thousand Dollars ($10,170,000) (the "Notes") under the terms and
conditions more fully set forth in the Trust Indenture, dated as of March 1,
2000 (the "Indenture"), by and between the Borrower and The Huntington National
Bank, Columbus, Ohio, as Trustee; and

         WHEREAS, to enhance the marketability of the Notes, the Borrower has
applied to the Bank for the issuance of a letter of credit (the "Letter of
Credit") in favor of the Trustee in an amount of up to Ten Million, Four Hundred
Forty-Three Thousand, Fifty-Eight Dollars ($10,443,058.00) to secure the payment
of the principal of and accrued interest on the Notes; and

         WHEREAS, it is the purpose of this Agreement to set forth the Bank's
commitment to issue the Letter of Credit and the Borrower's agreement to
reimburse the Bank for any and all payments made by the Bank pursuant to the
Letter of Credit; and

         NOW THEREFORE, in consideration of the mutual agreements made herein
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:

                                  SECTION ONE
                                  -----------

                                  DEFINITIONS
                                  -----------

         Section 1.1. Terms Defined. As used in this Agreement, the following
                      -------------
terms have the following respective meanings. Any accounting term used but not
specifically defined herein shall be construed in accordance with GAAP. The
definition of each agreement, document, and instrument set forth in this Section
1.1 shall be deemed to mean and include such agreement, document, or instrument
as amended, restated, or modified from time to time:

         "Assignment" shall mean the Assignment of Project Documents dated as of
          ----------
February 29, 2000 and given by the Borrower to the Bank with respect to the
Premises.

         "Bank Obligation" shall mean an amount equal to the aggregate
          ---------------
outstanding liability of the Bank from time to time under the Letter of Credit.

         "Bank" shall mean KeyBank National Association, its successors and
          ----
assigns.
<PAGE>

         "Borrower" shall mean Aerovox Incorporated, a Delaware corporation.
          --------

         "Business Day" means any day of the year other than (i) a Saturday or
          ------------
Sunday, (ii) any day on which banks located in either Albany, New York,
Portland, Maine, or the city in which the principal corporate trust office of
the Trustee is located are required or authorized by law to remain closed, or
(iii) any day on which the New York Stock Exchange is closed.

         "Capital Expenditures" shall mean the Borrower's capital expenditures
          --------------------
as determined in accordance with GAAP.

         "Closing Date" shall mean March 22, 2000, or another date agreed upon
          ------------
in writing by the Borrower and the Bank.

         "Completion Date" shall mean August 1, 2000 or another date agreed upon
          ---------------
in writing by the Borrower and the Bank.

         "Construction Loan Agreement" shall mean the Construction Loan
          ---------------------------
Agreement dated as of February 29, 2000 between the Borrower and the Bank.

         "Credit Documents" shall mean, collectively, this Reimbursement
          ----------------
Agreement, the Mortgage, the Assignment, the Recognition Agreement, the Note
Pledge Agreement and the Construction Loan Agreement.

         "Date of Issuance" shall mean the date of issuance of the Letter of
          ----------------
Credit.

         "Debt Service Coverage Ratio" shall mean the ratio of (i) EBITDA, less
          ---------------------------
the sum of cash taxes paid, unfinanced capital expenditures, distributions and
dividends to (ii) the sum of the Borrower's interest expense and scheduled
payments of principal of long-term Indebtedness.

         "Default Rate" shall mean interest at a rate per annum equal to one
          ------------
percent (1%) in excess of the Prime Rate, with each change in the Prime Rate
automatically changing the Default Rate.

         "EBITDA" shall mean, for the previous twelve (12) months, the
          ------
Borrower's earnings before taxes, interest expense, depreciation, amortization
and extraordinary charges.

         "Environmental Law" means any federal, state, or local statute, law,
          -----------------
ordinance, code, rule, regulation, order or decree regulating, relating to, or
imposing liability upon a Person in connection with the use, release or disposal
of any hazardous, toxic or dangerous substance, waste or material.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
          -----
as the same may from time to time be amended or supplemented, and all
regulations thereunder.

         "Event of Default" shall have the meaning assigned thereto in Section 8
          ----------------
hereof.

         "Expiration Date" means March 22, 2005, unless extended by the Bank in
          ---------------
writing pursuant to Section 2.5.

                                       2
<PAGE>

         "Fee Calculation Amount" shall have the meaning set forth in Section
          ----------------------
2.2(b).

         "GAAP" shall mean generally accepted accounting principles as then in
          ----
effect, which shall include the official interpretations thereof by the
Financial Accounting Standards Board, consistently applied.

         "General Contractor" shall mean Dacon Corporation.
          ------------------

         "Indebtedness" shall mean, at a particular date, the liabilities of a
          ------------
Person, as determined in accordance with GAAP, consistently applied, including,
without limitation, all indebtedness for money borrowed or for the deferred
purchase price of property and lease obligations of such Person which have been,
or which in accordance with Statement of Financial Accounting Standards No. 13,
as from time to time amended, should be, capitalized.

         "Indenture" shall mean the Trust Indenture, dated as of March 1, 2000
          ---------
between the Borrower and the Trustee.

         "Indenture Default" shall mean an Event of Default under and pursuant
          -----------------
to the Indenture.

         "Interest Commitment" shall have the meaning set forth in the Letter of
          -------------------
Credit.

         "Interest Drawing" shall have the meaning set forth in the Letter of
          ----------------
Credit.

         "Interest Payment Date" shall mean Interest Payment Date as defined in
          ---------------------
the Indenture.

         "Letter of Credit" shall mean the Letter of Credit to be issued by the
          ----------------
Bank on the Closing Date pursuant to this Agreement, such Letter of Credit to be
substantially in the form of Exhibit A attached hereto and any extensions,
renewals, amendments or replacements thereof.

         "Letter of Credit Commitment" shall have the meaning set forth in the
          ---------------------------
Letter of Credit.

         "Letter of Credit Fee" shall have the meaning set forth in Section
          --------------------
2.2(b) of this Agreement.

         "Mortgage" shall mean the First Leasehold Mortgage, Security Agreement,
          --------
Assignment of Leases and Rents, and Financing Statement, executed and delivered
by the Borrower, dated as of February 29, 2000 and recorded in the Bristol
County (Massachusetts), South District, Registry of Deeds in Book 4630,
beginning at Page 166.

         "Note Documents" shall mean, collectively the Indenture and any other
          --------------
document executed by the Borrower in connection with the issuance of the Notes
(other than the Credit Documents).

         "Note Pledge Agreement" shall mean the Note Pledge Agreement dated as
          ---------------------
of March 1, 2000, among the Borrower, the Bank, and the Trustee.

         "Notes" shall mean the Ten Million, One Hundred Seventy Thousand
          -----
Dollars ($10,170,000.00) Aerovox Incorporated Taxable Adjustable Rate Notes,
Series 2000, issued by

                                       3
<PAGE>

the Borrower pursuant to the Indenture.

         "Organizational Documents" shall mean with respect to a corporation,
          ------------------------
its articles of incorporation and bylaws, with respect to a limited liability
company, its articles of organization and operating agreement, with respect to a
partnership, its partnership agreement, and with respect to other entities, such
documents as create and continue the existence of the entity and specify the
manner in which its affairs are governed.

         "PBGC" shall mean the Pension Benefit Guaranty Corporation established
          ----
pursuant to Title IV of ERISA.

         "Permitted Encumbrances" shall mean, as of any particular time, (a)
          ----------------------
liens for ad valorem taxes and special assessments not then delinquent, (b) this
Agreement, the Mortgage, the Assignments, the Note Pledge Agreement and any
security interest or other lien created thereby, (c) such minor defects,
irregularities, encumbrances and clouds on title as normally exist with respect
to property similar in character to the Pledged Collateral and as do not, in the
written opinion of counsel to the Borrower, interfere with or impair the use or
value of the property affected thereby, (d) any security interest granted from
time to time to the Bank, and (e) any items set forth on Exhibit B attached
hereto.

         "Person" means any natural person, corporation (which shall be deemed
          ------
to include business trust), association, partnership, political entity, or
political subdivision thereof.

         "Plan" shall mean any plan defined in Section 4021(a) of ERISA in
          ----
respect of which Borrower is an "employer" or a "substantial employer" as
defined in Section 3(5) and 4001(a)(2) of ERISA, respectively.

         "Plans and Specifications" shall mean the plans and specifications for
          ------------------------
the Project accepted by the Bank as of the Closing Date, as the same may be
modified in accordance with section 6.12.

         "Pledged Collateral" shall mean the collateral in which the Borrower
          ------------------
has given the Bank a mortgage lien or a security interest pursuant to the
Mortgage, Assignment, and/or the Note Pledge Agreement.

         "Premises" shall mean the leased premises which are described in the
          --------
Mortgage and which are located in the New Bedford Industrial Park, John Vertente
Boulevard Extension, New Bedford, Massachusetts, consisting of Borrower's
leasehold estate in a certain Ground Sublease dated January 4, 2000, between
Borrower as sublessee and the New Bedford Redevelopment Authority as sublessor.

         "Prime Rate" shall mean that interest rate established from time to
          ----------
time by the Bank as Bank's Prime Rate, whether or not such rate is publicly
announced. The Prime Rate may not be the lowest rate charged by the Bank for
commercial or other extensions of credit.

         "Principal Commitment" shall have the meaning set forth in the Letter
          --------------------
of Credit.

         "Principal Drawing" shall have the meaning set forth in the Letter of
          -----------------
Credit.

                                       4
<PAGE>

         "Prohibited Transaction" shall mean any prohibited transaction as that
          ----------------------
term is defined for purposes of ERISA.

         "Project" shall mean the Building and the Equipment.
          -------

         "Project Fund" shall have the meaning ascribed to such term in the
          ------------
Indenture.

         "Purchaser" shall mean the original purchaser or purchasers of the
          ---------
Notes.

         "Recognition Agreement" shall mean the Recognition Agreement and
          ---------------------
Estoppel Certificate dated as of February 29, 2000 by and between Bank as
Lender, Borrower as Sublessee, New Bedford (Massachusetts) Redevelopment
Authority as Lessee and Sublessor, and the City of New Bedford (Massachusetts)
as Owner and Lessor and recorded in the Bristol County (Massachusetts), South
District, Registry of Deeds in Book 4638, beginning at Page 100.

         "Remarketing Agent" shall mean, initially, McDonald Investments Inc.
          -----------------

         "Remarketing Commitment" shall have the meaning set forth in the Letter
          ----------------------
of Credit.

         "Remarketing Drawing" shall have the meaning set forth in the Letter of
          -------------------
Credit.

         "Reportable Event" shall mean any reportable event as that term is
          ----------------
defined in ERISA.

         "Subordinated Debt" shall mean Indebtedness of the Borrower which is
          -----------------
subordinated, in a manner satisfactory to the Bank, to all Indebtedness owing to
the Bank and to all other indebtedness which is pari passu therewith or senior
thereto.

         "Subsidiary" shall mean (i) any for profit corporation more than fifty
          ----------
percent (50%) of the capital stock of which is owned or controlled, directly or
indirectly, by a Person or any Subsidiary and whose accounts are required to be
consolidated with those of such Person in accordance with GAAP and (ii) any
non-profit corporation which is controlled, directly or indirectly, by such
Person.

         "Tender Agent" shall have the meaning ascribed to such term in the
          ------------
Indenture.

         "Title Company" shall mean Lawyers Title Insurance Corporation.
          -------------

         "Title Policy" shall mean the ALTA Loan Policy issued by the Title
          ------------
Company with respect to the Premises.

         "Total Funded Debt" shall mean the sum of all debt for borrowed money
          -----------------
and similar monetary obligations evidenced by bonds, notes, debentures, all
liabilities secured by any lien existing on any property owned or acquired
subject thereto, whether or not the liability secured thereby shall have been
assumed, all capitalized lease obligations, all reimbursement obligations under
outstanding letters of credit, bankers acceptances and similar instruments and
all guarantees and other contingent liabilities with respect to any obligations
or liabilities of the type described above.

                                       5
<PAGE>

         "Trustee" means The Huntington National Bank, Columbus, Ohio, or any
          -------
successor Trustee under the Indenture.

                                  SECTION TWO
                                  -----------

                         ISSUANCE OF LETTER OF CREDIT
                         ----------------------------

         Section 2.1. Issuance of Letter of Credit. Subject to the terms and
                      ----------------------------
conditions hereof, the Bank agrees to execute and deliver the Letter of Credit.
The obligations of the Bank under the Letter of Credit shall be absolute and
irrevocable and shall be performed strictly in accordance with the terms of the
Letter of Credit and this Agreement.

         The Borrower hereby confirms and approves of the issuance and terms of
the Letter of Credit. The Borrower will promptly notify the Bank of any
irregularity or claim of non-compliance with the Borrower's instructions. The
Borrower is conclusively deemed to have waived any such claim against the Bank
and its correspondents unless such notice is given.

         Section 2.2. Fees and Reimbursement for Letter of Credit
                      -------------------------------------------

         (a)   The Borrower hereby agrees to pay to the Bank:

               (i)   Before 2:00 p.m., Albany, New York time, on each date that
                     any amount is drawn under the Letter of Credit pursuant to
                     a Principal Drawing or an Interest Drawing and/or a
                     Remarketing Drawing, each as defined in the Letter of
                     Credit, a sum equal to the amount drawn under the Letter of
                     Credit, plus (x) interest accrued, if any, on the amount so
                     drawn under the Letter of Credit as determined pursuant to
                     clause (iii) of this subsection (a) of this Section 2.2,
                     plus (y) any and all charges and expenses which the Bank
                     may pay or incur relative to such drawing under the Letter
                     of Credit, plus (z) a fee in the amount of Two Hundred
                     Dollars ($200) for each Principal Drawing, Remarketing
                     Drawing, or Interest Drawing under the Letter of Credit.

               (ii)  Upon a Remarketing Drawing under the Letter of Credit,
                     provided there is then no uncured Event of Default, the
                     Borrower shall have until the Expiration Date to reimburse
                     the Bank for the amount of the Remarketing Drawing, subject
                     to the right of the Bank to require redemption or
                     acceleration of the Notes pursuant to Section 8.2 hereof.
                     Any amounts received by the Bank from the remarketing of
                     Notes purchased out of a Remarketing Drawing and registered
                     to the Bank or, at the direction of the Bank, to the
                     Borrower, shall be applied against the Borrower's
                     obligation to reimburse the Bank for the amount of the
                     Remarketing Drawing. The amount of any unreimbursed
                     Remarketing Drawing shall bear interest from the date of
                     the Remarketing Drawing at a rate per annum equal to the
                     Prime Rate. Such interest shall be payable on each Interest
                     Payment Date for so long as such Remarketing Drawing or any
                     portion thereof is unreimbursed. The payments of interest
                     hereunder shall be credited against the interest accrued on
                     the Notes pledged to the Bank under the

                                       6
<PAGE>

                       Note Pledge Agreement. Interest hereunder shall be
                       calculated based on a 360-day year, but calculated on the
                       number of actual days elapsed.

               (iii)   Upon each transfer of the Letter of Credit in accordance
                       with its terms and as a condition thereto, a transfer fee
                       of Five Hundred Dollars ($500.00) and such additional
                       amounts as shall be reasonably necessary to cover the
                       costs and expenses to the Bank incurred in connection
                       with such transfer;

               (iv)    The Borrower shall pay interest at the Default Rate,
                       payable on demand on any and all amounts of any Principal
                       Drawing, Interest Drawing and/or Remarketing Drawing not
                       paid by the Borrower when due under any section of this
                       Agreement from the date such amounts become due until
                       payment in full.

               (v)     For any payment of principal and/or interest not paid
                       within ten (10) days when due, the Borrower shall pay a
                       late charge of an amount equal to the greater of fifty
                       dollars ($50) or five percent (5%) of the amount of the
                       payment.

               (vi)    The Borrower shall pay on demand, reasonable costs, fees
                       and expenses incurred by the Bank in connection with the
                       issuance or sale of the Notes or issuance of the Letter
                       of Credit or the preparation or execution of any
                       documents or opinions related thereto.

               (vii)   The Borrower shall pay on demand, any and all reasonable
                       expenses incurred by the Bank in enforcing any of its
                       rights under the Credit Documents;

               (viii)  On or prior to the Closing Date, the Borrower shall pay
                       an origination fee equal to the greater of (A) seventy-
                       five hundredths of one percent (0.75%) of the principal
                       amount of the Notes, issued on such date, or (B) $82,500;
                       and

               (ix)    On or prior to the Closing Date, the Borrower shall pay
                       any and all appraisal fees relating to appraisal of all
                       or any portion of the Premises.

     (b)       The Borrower hereby agrees to pay to the Bank a fee (the "Letter
               of Credit Fee") in an amount equal to the Fee Calculation Rate
               (as hereinafter defined) multiplied by the Fee Calculation Amount
               (as hereinafter defined) multiplied by one or any portion of a
               year for which the Letter of Credit Fee is paid (using a 360-day
               year but calculated on the number of actual days elapsed). The
               Letter of Credit Fee shall be payable in annual installments in
               advance on March 31 (the "Fee Payment Date") of each year until
               the Expiration Date or the date of earlier termination of the
               Letter of Credit; provided, however, that upon the Date of
               Issuance, the Borrower shall pay an installment of the Letter of
               Credit Fee for the period from the Date of Issuance to and
               including the day prior to the Fee Payment Date in 2001. The "Fee
               Calculation Amount" shall be the sum of (i) the maximum amount
               available on each date of payment of the Letter of Credit Fee to

                                       7
<PAGE>

               be drawn under the Letter of Credit with respect to the Principal
               Commitment plus (ii) the maximum amount available on each date of
               payment of the Letter of Credit Fee to be drawn under the Letter
               of Credit with respect to the Interest Commitment. On the Date of
               Issuance, the "Fee Calculation Rate" shall be two percent (2.00%)
               per annum. On each Fee Payment Date after the Date of Issuance,
               the "Fee Calculation Rate" shall be the rate per annum, set forth
               below, for certain ratios of Total Funded Debt to EBITDA, set
               forth below:

     (i)       If the ratio of Total Funded Debt to EBITDA for the prior fiscal
               year of the Borrower is less than 2.5 to 1.0, then the Fee
               Calculation Rate shall be one percent (1.00%) per annum;

     (ii)      If the ratio of Total Funded Debt to EBITDA for the prior fiscal
               year of the Borrower is less than (A) 3.75 for the fiscal year
               ending December 31, 2000, or (B) 3.5 for the fiscal year ending
               December 31, 2001 and each fiscal year thereafter, to 1.0 but
               greater than or equal to 2.5 to 1.0, then the Fee Calculation
               Rate shall be one and five tenths percent (1.5%) per annum; and

     (iii)     If the ratio of Total Funded Debt to EBITDA for the prior fiscal
               year of the Borrower is equal to or greater than (A) 3.75 for the
               fiscal year ending December 31, 2000, or (B) 3.5 for the fiscal
               year ending December 31, 2001 and each fiscal year thereafter, to
               1.0, then the Fee Calculation Rate shall be two percent (2.00%)
               per annum.

     (c)       If any change in any law or regulation or in the interpretation
               thereof by any court or administrative or governmental authority
               charged with the administration thereof shall impose, modify or
               deem applicable any reserve, special deposit or similar
               requirement which would increase or decrease the Bank's costs (i)
               generally upon the issuance or maintenance of letters of credit
               by the Bank, (ii) specifically in respect of this Agreement or
               the Letter of Credit, or (iii) in respect of any capital adequacy
               requirement (including, without limitation, a requirement which
               affects the manner in which the Bank allocates capital resources
               to its commitments), and the result of such an increase or
               decrease in costs as described in clause (i), (ii), or (iii)
               above shall be to increase or decrease the costs to the Bank of
               issuing or maintaining the Letter of Credit (which increase or
               decrease in costs shall be the result of the Bank's reasonable
               allocation, of the aggregate of such cost increases or decreases
               resulting from such events), then, (x) within thirty (30) days of
               the Bank's obtaining knowledge of such change in law, regulations
               or interpretation thereof, the Bank shall so notify the Borrower
               and (y) upon receipt of such notice from the Bank, accompanied by
               a certificate as to such increased or decreased cost, the
               Borrower shall pay or receive a refund of, as of the effective
               date of such change or interpretation, all additional amounts
               which are necessary to compensate the Bank or the Borrower for
               such increased or decreased cost incurred by the Bank.

     (d)       The Borrower's obligations to make payments to the Bank under
               this Section 2.2 shall be deemed satisfied to the extent of
               payments made by the Trustee to the

                                       8
<PAGE>

               Bank from funds on deposit with and held by the Trustee pursuant
               to the Indenture.

         Section 2.3. Borrower's Obligations Unconditional. The payment
                      ------------------------------------
obligations of the Borrower under this Agreement shall be absolute,
unconditional and irrevocable and shall be satisfied strictly in accordance with
the terms of this Agreement, under all circumstances whatsoever, including,
without limitation, the following circumstances:

         (a)   Any lack of validity or enforceability of the Credit Documents,
               the Note Documents or any other agreement or instrument relating
               thereto;

         (b)   Any amendment or waiver of or any consent to departure from the
               terms of the Letter of Credit, the Credit Documents, the Note
               Documents or any other agreement or instrument relating thereto;

         (c)   The existence of any claim, setoff, defense or right which the
               Borrower may have at any time against any beneficiary or any
               transferee of the Letter of Credit (or any persons or entities
               for whom any such beneficiary or any such transferee may be
               acting), the Bank, or any other person or entity, whether in
               connection with this Agreement, the transactions contemplated by
               the Credit Documents, the Note Documents, or any unrelated
               transaction;

         (d)   Any statement or any other document presented under the Letter of
               Credit proving to be forged, fraudulent, invalid or insufficient
               in any respect or any statement therein being untrue or
               inaccurate in any respect whatsoever;

         (e)   Payment by the Bank under the Letter of Credit against
               presentation of a request which on its face appears to be in
               accordance with the terms of the Letter of Credit; or

         (f)   Any other circumstance or happening whatsoever, whether or not
               similar to any of the foregoing.

         Section 2.4. Payments. The payments and amounts due the Bank under
                      --------
Sections 2.2 and 2.3 above shall be made by the Bank's debiting the Borrower's
operating account with the Bank presently identified as Account No. 199681002614
("Operating Account"). The Borrower covenants and agrees that on the date any
payment or other amount is due under Section 2.2 above, the Borrower will have
unrestricted funds in the Operating Account in an amount no less than the amount
then due. Subject to the previous sentence, all payments by the Borrower
hereunder to the Bank shall be made in lawful currency of the United States and
in immediately available funds to the main office of the Bank at 66 South Pearl
Street, Albany, New York 12207-1501, Attention: International Department.

         Section 2.5. Letter of Credit Extension. The Bank may in writing,
                      --------------------------
effective on each anniversary of the Date of Issuance, commencing with such
anniversary in 2001, extend the Expiration Date of the Letter of Credit for an
additional one-year period; provided, however, that such extension shall be, in
                            --------
each instance, made in the sole discretion of the Bank and the Bank may at any
time, upon written notice delivered to Borrower and Trustee, elect not to extend
the

                                       9
<PAGE>

Expiration Date. The Bank shall notify Borrower and Trustee of its decision of
whether the Expiration Date shall be extended no later than thirty (30) days
prior to the anniversary of the Date of Issuance in each year, provided that the
failure of the Bank to deliver such notice, or to deliver any notice, shall not
mean that the Bank has elected to extend the Expiration Date. If the Bank
extends the Expiration Date, it shall do so in the form of an amendment to the
Letter of Credit, which it shall promptly deliver to Trustee.

                                 SECTION THREE
                                 -------------

                        REPRESENTATIONS AND WARRANTIES
                        ------------------------------

         The Borrower expressly represents and warrants that:

         Section 3.1. Organization and Legal Authority. The Borrower is a
                      --------------------------------
corporation duly organized and validly existing and in full force and effect
under the laws of the State of Delaware and has all requisite power and
authority to own its property and to carry on its business as now being
conducted, to enter into the Credit Documents and the other agreements referred
to herein and transactions contemplated thereby, and to carry out the provisions
and conditions of the Credit Documents. The Borrower is duly qualified to do
business and is in good standing in every jurisdiction where the failure to so
qualify would have a material adverse effect on the business of the Borrower.

         Section 3.2. Due Execution and Delivery. The Borrower has full power,
                      --------------------------
authority and legal right to incur the obligations provided for in, and to
execute and deliver and to perform and observe the terms and provisions of, the
Credit Documents, and each of them has been duly executed and delivered by the
Borrower and authorized, by all required organizational action, and the Borrower
has obtained all requisite consents to the transactions contemplated thereby
under any instrument to which it is a party, and the Credit Documents constitute
the legal, valid and binding obligations of the Borrower enforceable against the
Borrower in accordance with their respective terms, except as the enforceability
thereof may be limited by applicable bankruptcy, insolvency or other similar
laws affecting creditors' rights generally.

         Section 3.3. No Breach of Other Instruments. Neither the execution and
                      ------------------------------
delivery of the Credit Documents, nor the compliance by the Borrower with the
terms and conditions of the Credit Documents, nor the consummation of the
transactions contemplated thereby, will conflict with or result in a breach of
any of the Organizational Documents of the Borrower, or any of the terms,
conditions or provisions of any agreement or instrument or any charter or other
organizational restriction or law, regulation, rule or order of any governmental
body or agency to which the Borrower is now a party or is subject, or imposition
of a lien, charge or encumbrance of any nature whatsoever upon any of the
property or assets of the Borrower pursuant to the terms of any such agreement
or instrument.

         Section 3.4. Government Authorization. Except for any consent,
                      ------------------------
approval, authorization or filing which may be required under any federal or
state securities laws, no consent, approval, authorization or order of any court
or governmental agency or body is

                                       10
<PAGE>

required for the consummation by the Borrower of the transactions contemplated
by the Credit Documents.

         Section 3.5. Pledged Collateral. (a) As of the date hereof, the
                      ------------------
Borrower holds a valid leasehold interest in the Premises, free and clear of all
liens, pledges, mortgage, security interests, charges, claims and other
encumbrances, except the Permitted Encumbrances. Each of the Mortgage, the
Assignments and the Note Pledge Agreement create a valid and prior perfected
security interest and lien in favor of the Bank, subject to no other liens or
encumbrances arising by, through or under the Borrower or any other Person,
except for Permitted Encumbrances or as otherwise provided in the Note
Documents.

         Section 3.6. Absence of Defaults, etc. The Borrower is not (i) in
                      ------------------------
material default under any indenture or contract or agreement to which it is a
party or by which it is bound, (ii) in violation of any of its Organizational
Documents, (iii) in default with respect to any order, writ, injunction or
decree of any court, or (iv) in default under any order or license of any
federal or state governmental department, which default or violation in any of
the aforesaid cases materially and adversely affects its business or property.
There exists no condition, event or act which constitutes, or after notice or
lapse of time or both would constitute, an Event of Default.

         Section 3.7. Indebtedness of Borrower. The Borrower does not have
                      ------------------------
outstanding, on the date hereof, any Indebtedness, except for such Indebtedness
reflected on the financial statements referred to in Section 3.8 hereof and
except for any Indebtedness owed to the Bank.

         Section 3.8. Financial Condition. The Borrower has furnished to the
                      -------------------
Bank true and correct copies of its financial statements accompanied by an
unqualified opinion of a certified public accountant as of December 31, 1999,
which financial statements present fairly the Borrower's financial condition as
of such date, and there has been no material adverse change in the Borrower's
financial condition since such date.

         Section 3.9. No Adverse Change. Subsequent to the date of the financial
                      -----------------
statements referred to in Section 3.8 hereof, the Borrower has not incurred any
liabilities or obligations, direct or contingent, not in the ordinary course of
business, nor has there been any change in the business, properties or
condition, financial or otherwise, of the Borrower, except for changes arising
in the ordinary course of business or in connection with the issuance and sale
of the Notes or as may be otherwise disclosed in writing to the Bank prior to
the date hereof.

         Section 3.10. Taxes. The Borrower has filed all tax returns which are
                       -----
to be filed and has paid, or has made adequate provision for the payment of, all
taxes which have or may become due pursuant to said returns or to assessments
received by it. The provisions for taxes reflected in the most recent balance
sheet referred to in Section 3.8 are believed adequate to cover any and all
accrued and unpaid taxes for which the Borrower is liable for the period ended
on the date of such balance sheet and all prior periods. The Borrower knows of
no deficiency assessment or proposed deficiency assessment of taxes against the
Borrower, except as may be otherwise disclosed in writing to the Bank prior to
the date hereof.

         Section 3.11. Litigation. Except as set forth on Exhibit D attached
                       ----------
hereto, prior to the date hereof, there are no actions, suits or proceedings
pending, or to the knowledge of the

                                       11
<PAGE>

Borrower, threatened against or affecting the Borrower or its property in any
court, or before or by any federal, state or municipal or other governmental
department, commission, board, bureau, agency or other instrumentality, domestic
or foreign, which could result in any adverse change in the business, property
or assets, or in the condition, financial or otherwise, of the Borrower, except
for actions, suits or proceedings of a character normally incident to the kind
of business conducted by the Borrower, none of which, either individually or in
the aggregate, if adversely determined, would materially impair the Borrower's
right or ability to carry on its business substantially as now conducted or
materially adversely affect the financial position or operations of the
Borrower.

         Section 3.12. Ownership of Property. Except for Permitted Encumbrances
                       ---------------------
or as otherwise permitted in the Mortgage or this Agreement, the Borrower has
good and marketable fee title to, or valid leasehold interests in, its real
properties in accordance with the laws of the jurisdiction where located, and
good and marketable title to substantially all its other property and assets.
Except for Permitted Encumbrances, the real property and all other property and
assets of the Borrower are free from any liens or encumbrance securing
Indebtedness and from any other liens, encumbrances, charges or security
interests of any kind. Each lease, if any, to which the Borrower is a party is
in full force and effect, and no material default on the part of the Borrower
or, to its knowledge, any other party thereto exists.

         Section 3.13. Environmental Matters. The Borrower is in compliance with
                       ---------------------
all Environmental Laws and all applicable federal, state and local health and
safety laws, regulations, ordinances or rules, except to the extent that any
non-compliance will not, in the aggregate, have a materially adverse effect on
the Borrower or the ability of the Borrower to fulfill its obligations under
this Agreement, the Mortgage or the Assignments.

                                 SECTION FOUR
                                 ------------

                              CLOSING CONDITIONS
                              ------------------

         The obligations of the Bank to issue the Letter of Credit on the
Closing Date shall be subject to the following conditions precedent:

         Section 4.1. Execution and Delivery of the Credit Documents and the
                      ------------------------------------------------------
Note Documents. With respect to issuance of the Letter of Credit, the Borrower
--------------
shall have delivered to the Bank fully executed copies of each of the Credit
Documents, and the Trustee and the Borrower shall have duly executed and
delivered the Note Documents.

         Section 4.2. Issuance and Sale of the Notes. The Notes shall have been
                      ------------------------------
duly issued and sold to the Purchaser pursuant to the Note Documents.

         Section 4.3. Representations and Warranties True as of Closing and No
                      --------------------------------------------------------
Event of Default. The representations and warranties contained in this Agreement
----------------
and the other Credit Documents shall be true in all material respects on the
Closing Date with the same effect as though made on and as of that date and no
condition, event or act shall have occurred which constitutes an Event of
Default or, with notice or lapse of time, or both, would constitute an Event of
Default.

                                       12
<PAGE>

         Section 4.4. Opinion of Borrower's Counsel. The Bank shall have
                      -----------------------------
received from counsel to the Borrower an opinion with respect to (i) the matters
described in Sections 3.1, 3.2, and 3.4 of this Agreement, (ii) the matters
described in Sections 3.3, 3.6 and 3.11 of this Agreement, to such counsel's
knowledge and belief after inquiry and (iii) such other matters incident to the
transactions contemplated hereby as the Bank may reasonably request.

         Section 4.5. Proceedings Satisfactory. All proceedings taken in
                      ------------------------
connection with the execution and delivery of this Reimbursement Agreement and
the other Credit Documents shall be satisfactory to the Bank and the Bank shall
have received copies of such certificates, documents and papers as reasonably
requested in connection therewith, all in form and substance satisfactory to the
Bank.

         Section 4.6. Additional Deliveries. Except as provided below, Borrower
                      ---------------------
shall furnish the following documentation to the Bank at least three (3)
Business Days prior to the Closing Date, all in form, substance and execution
satisfactory to Bank:

         (a)   A current environmental site assessment report with respect to
               the Premises prepared by an environmental engineer acceptable to
               the Bank disclosing that the Premises are free from petroleum
               products or byproducts, hazardous substances, wastes and
               materials and underground storage tanks;

         (b)   Evidence satisfactory to the Bank that the Borrower's remediation
               reserve for cleaning up a former manufacturing facility pursuant
               to an EPA Consent Order is sufficient; and

         (c)   Evidence satisfactory to the Bank that all written consents to
               the Borrower's signing and performing the Credit Documents,
               determined by the Bank in its sole discretion to be necessary,
               have been obtained and that the collateral status of an
               outstanding industrial revenue bond has not been altered.

                                 SECTION FIVE
                                 ------------

                        DISBURSEMENTS FROM PROJECT FUND

         The Borrower shall not request or receive any disbursement of funds
from the Project Fund unless and until the Bank shall have approved such
disbursement in writing and all of the following conditions shall be true with
respect to each such disbursement:

         Section 5.1. Execution and Delivery of Miscellaneous Documents. The
                      -------------------------------------------------
Borrower shall have delivered to the Bank:

         (a) Evidence that no portion of the Premises is located in a special
flood hazard area as identified by HUD;

         (b) Certificates of insurance and evidence of payment of premiums
therefor with respect to the insurance required by the Bank with respect to each
portion of the Premises as set forth in

                                       13
<PAGE>

Section 6.2 below, including, but not limited to, general liability insurance
and hazard insurance, and flood insurance if applicable;

         (c) A current certified survey of the Premises prepared by a registered
surveyor satisfactory to the Bank, and containing on the face thereof the
completed certificate of the surveyor in the form of the surveyor's certificate
required by the Bank, dated not more than ninety (90) days prior to the Date of
Issuance, and in compliance with the Minimum Standard Detail Requirements for
ALTA/ASCM Class A land title surveys, as adopted by the American Land Title
Association and American Congress on Surveying and Mapping in 1992 (the "Initial
Survey"). As construction progresses, Borrower shall furnish evidence
satisfactory to Bank that the Project is located and built within the boundaries
of the Premises. Within thirty (30) days after completion of the Project, the
Borrower shall provide the Bank with an as-built survey of the Premises which
survey shall comply with the standards set forth above for the Initial Survey;

         (d) A current Phase I environmental audit of each portion of the
Premises satisfactory to the Bank in its sole discretion prepared by an
environmental consultant satisfactory to the Bank;

         (e) A Commitment to issue an ALTA Loan Policy of Title Insurance issued
by the Title Company in the amount of the Letter of Credit (i) insuring that the
Mortgage, as of the time of its filing for record, is a first and best lien upon
the Premises, and that the title to the Premises is free, clear and
unencumbered, subject only to Permitted Encumbrances; (ii) insuring the priority
of the Mortgage over mechanics or materialmen's liens; (iii) obligating the
Title Company to affirmatively insure that access to the applicable portion of
the Premises is by a dedicated and accepted public right-of-way; and (iv)
including such endorsements and affirmative insurance as may be required by the
Bank, including, but not limited to, the so-called "Pending Disbursement
Endorsement" and "Revolving Credit Endorsement";

         (f) Evidence satisfactory to the Bank that the Project, when completed,
and the Premises, and the proposed and actual use thereof, will comply with all
applicable laws, statutes, codes, ordinances, rules and regulations, including,
but not limited to, zoning and Environmental Laws, of all governmental
authorities having jurisdiction over the same, and that there is no action or
proceeding pending (or any time for an appeal of any decision rendered) before
any court, quasi-judicial body or administrative agency at the Date of Issuance
relating to the validity of this Reimbursement Agreement or the transactions
contemplated hereby or the proposed or actual use or operation of each portion
of the Premises.

         (g) A written appraisal (the "Appraisal") of the Premises satisfactory
             to the Bank in all respects, prepared by an appraiser selected and
             directly engaged by the Bank pursuant to an engagement letter
             issued by the Bank, the cost of which Appraisal will be charged to
             the Borrower at Closing Date, and which Appraisal shall be prepared
             in accordance with the Uniform Standards of Professional Appraisal
             Practice applicable to Federally Related Transactions as set out in
             Appendix A to the real estate appraisal regulations adopted by the
             Office of the Comptroller of the Currency pursuant to the Financial
             Institutions Reform, Recovery and Enforcement Act of 1989
             ("FIRREA") (Sub-part C of 12 C.F.R. 34) and which Appraisal shall
             be updated, at the Borrower's cost, upon the occurrence of an event
             of default under any of the Credit Documents;

                                       14
<PAGE>

             provided that the sum of (i) the appraised value of the Building
             multiplied by 85% and (ii) the appraised value of the Equipment
             multiplied by 100% shall be an amount equal to or greater than the
             Letter of Credit Commitment.

         (h) Copies of all documentation relating to the Borrower's credit
             facilities with lenders who will or may have liens and security
             interests superior to the Bank's liens, a review of which by the
             Bank shall establish, in the Bank's sole judgment, that the Bank is
             sufficiently collateralized and otherwise protected in issuing the
             Letter of Credit.

         Section 5.2. Bank's Inspector's Certificate. As directed by the Bank
                      ------------------------------
from time to time, the Bank's inspector shall inspect the Premises to verify
that the request for disbursement accurately indicates the amount of
construction completed. The Bank shall have received a certificate from the
Bank's inspector certifying (i) that the construction of the Project theretofore
completed, if any, has been performed substantially in accordance with the Plans
and Specifications; (ii) that the quality of construction of the Project
theretofore completed is in accordance with generally accepted standards in the
construction industry for the cost of the construction of the Project; (iii)
that the undisbursed portion of the Project Fund together with other monies to
be provided by Borrower are adequate to complete the construction and equipping
of the Project pursuant to the Plans and Specifications by the Completion Date;
and (iv) that it is reasonable to expect that the completion of the Project will
occur on or before the Completion Date. It is understood and agreed that the
Bank shall not be liable for any reason as a result of such inspections, the
parties hereby agreeing that the inspections are solely for the benefit of the
Bank.

         Section 5.3. No Liens. The Bank shall have received evidence
                      --------
satisfactory to the Bank that since the last preceding disbursement from the
Project Fund there has been no change in the state of title to the Premises. The
Borrower shall pay the cost of the title update required by the Bank from the
Title Company in connection with each request for approval of disbursement
relating to the Project and each endorsement to the Title Policy insuring the
Premises.

         Section 5.4. Request for Approval of Disbursement. Not later than ten
                      ------------------------------------
(10) business days before the date on which the Borrower desires a disbursement
from the Project Fund, the Borrower shall submit to the Bank (i) a written
request for approval of the disbursement from the Project Fund; (ii) a
certification of the Borrower that, among other things, the Borrower has paid or
actually incurred the costs for which the request is being made; (iii) a revised
Project Budget showing the balance of each category of Project costs; and (iv) a
requisition using AIA Form G702 and/or G703 if the draw is used for construction
or such other form as the Bank may request, accompanied by a cost breakdown, the
accuracy of which shall be verified by the Bank's Inspector.

         Section 5.5. Timing. The Borrower will submit draw requests not more
                      ------
often than once every month. Each disbursement shall not be more than 95% of the
value of work-in-place and the balance will be paid upon completion based on
requirements set forth below. Retainage will be held on a subcontract by
subcontract basis, and released in connection with a particular subcontract upon
the expiration of the time for filing of any mechanic's lien with respect to
such subcontract provided all work thereunder has been completed to the
satisfaction of the Bank and

                                       15
<PAGE>

its inspector and a mechanic's lien waiver has been received from the
subcontractor for all their work done on the Premises.

         Section 5.6. Supporting Documentation. The Borrower shall furnish the
                      ------------------------
Bank with an affidavit of the Borrower identifying all subcontractors and
materialmen who have performed work or furnished materials in connection with
the portion of the Project for which disbursement is being sought, together with
lien waivers from the General Contractor for the Project and from all
subcontractors and materialmen who have provided notices of furnishing or who
have performed work or furnished materials in connection with such portion of
the Project, current through the end of the period covered by the Borrower's
most recent request, and such other evidence or affidavits required by the Bank
at the time of each request to ensure that all bills then due and payable for
labor and materials used in constructing such portion of the Project and all
bills due and payable to the General Contractor, subcontractors, materialmen and
their respective subcontractors, laborers, and material suppliers have been paid
in full, except those bills to be paid with the proceeds of such disbursement,
and except for retainages.

         Section 5.7. Material Damage. Notwithstanding any provision of this
                      ---------------
Reimbursement Agreement to the contrary, if any portion of the Premises shall
have suffered any material damage or destruction prior to any disbursement from
the Project Fund, such damaged or destroyed portion shall be restored or
replaced in a manner acceptable to the Bank without cost to the Bank prior to
the approval by the Bank of any further disbursement from the Project Fund.

         Section 5.8. Other Disbursement Approval Conditions. The Bank shall not
                      --------------------------------------
be obligated to approve any disbursement from the Project Fund if, at the time
of a proposed disbursement, (i) an Event of Default or an event which, with the
passage of time or service of notice, or both, would be an Event of Default
under any of the Credit Documents has occurred, or (ii) any representation or
warranty made by the Borrower in any of the Credit Documents proves to be untrue
in any material respect, or (iii) the Bank determines, at any time, that the
Project or a portion thereof will not be approved by the appropriate
governmental regulatory authorities.

         Section 5.9. Permits. The Borrower shall have delivered to the Bank
                      -------
building, zoning, and other required permits covering construction of any
portion of the Project together with evidence satisfactory to the Bank that all
approvals required with respect to the Premises from third parties or any
governmental or quasi-governmental authorities have been obtained or, in the
case of approvals relating to the operation of any portion of the Project which
cannot be obtained until completion of construction, evidence satisfactory to
the Bank that such approvals are obtainable. Such evidence shall include copies
of all letters of grant or approval of all zoning changes and other site plan
approvals and subdivision approvals, all variances of zoning regulations
affecting the height, bulk, location or configuration of any portion of the
Project and the Premises (or satisfactory opinion of counsel that the same are
not required), and all approvals or variances relating to parking or loading
areas (both on-street and off-street) and all appurtenant easements required by
governmental authorities with respect to the Premises.

         Section 5.10. Utilities. The Borrower shall have delivered to the Bank
                       ---------
evidence satisfactory to the Bank that (i) the Premises have available to it
adequate water, gas and electrical supply, storm and sanitary sewage facilities,
other required public utilities, and means

                                       16
<PAGE>

of access between the Premises and public highways; and (ii) that all such
facilities comply with all applicable laws, rules and regulations, and all
necessary easements to provide such utility service to the Premises have been
obtained.

         Section 5.11. Borrower's Affidavit. The Borrower shall have delivered
                       --------------------
to the Bank the affidavit of the Borrower affirming (among other things) as of
the date of each disbursement, (i) that all costs for labor and material for the
construction and equipping of all improvements comprising any part of the
Project furnished to the date of Borrower's affidavit have been paid in full (in
accordance with Section 5.6 above), and (ii) that no bankruptcy or other
insolvency proceedings have been instituted by or against the Borrower.

         Section 5.12. Subordination of Leases. Prior to each disbursement
                       -----------------------
following the initial disbursement, the Borrower shall have furnished to the
Bank (i) a subordination agreement from each tenant possessing any portion of
the Premises wherein such tenant subordinates its leasehold interest to the lien
of the Mortgage or (ii) an endorsement to the Title Policy affirmatively
insuring the superiority of the lien of the Mortgage against any such tenant's
leasehold interest.

         Section 5.13. Construction Loan Agreement. Prior to each disbursement
                       ---------------------------
following the initial disbursement, the Borrower shall have furnished to the
Bank all materials required pursuant to the Construction Loan Agreement not
otherwise required hereunder prior to any disbursement.

                                  SECTION SIX
                                  -----------

                                   COVENANTS
                                   ---------

         The Borrower covenants and agrees that, from the date of this Agreement
and until the obligations of the Borrower to the Bank hereunder are satisfied in
full, it will comply with the following provisions:

         Section 6.1. Accounting; Financial Statements and Other Information.
                      ------------------------------------------------------
The Borrower will maintain a standard system of accounting, established and
administered in accordance with GAAP consistently followed throughout the
periods involved, and will set aside on its books, for each fiscal year, the
proper amounts for depreciation, obsolescence, amortization, bad debts, current
and deferred taxes, and other purposes as shall be required by GAAP. The
Borrower will deliver to the Bank or cause to be delivered to the Bank:

         (a)   Within thirty (30) days after the close of each fiscal quarter,
               the Borrower's internally prepared financial statements
               including: balance sheet, profit and loss statement, comparison
               of actual results to budget, explanation from significant
               variances, with such additional information and in such form as
               the Bank may require, signed by a representative of the Borrower
               who has principal responsibility for financial matters;

         (b)   Within ninety (90) days after the close of the Borrower's fiscal
               year, audited financial statements accompanied by an unqualified
               opinion prepared by an independent certified

                                       17
<PAGE>

               public accountant satisfactory to the Bank and such certified
               public accountant's management letter with respect to the
               Borrower;

         (c)   No less than thirty (30) days prior to the commencement of each
               fiscal year of the Borrower, a budget for the Borrower for such
               fiscal year, in form and substance satisfactory to the Bank;

         (d)   Promptly upon receipt thereof, copies of all other written
               reports submitted to the Borrower by independent accountants in
               connection with any annual or interim audit of the corporate
               books of the Borrower; and

         (e)   With reasonable promptness, such other data and information as
               from time to time may be reasonably requested by the Bank,
               including Borrower's annual tax return.

         Section 6.2. Insurance and Maintenance of Properties and Business. The
                      ----------------------------------------------------
Borrower shall maintain insurance in responsible companies in such amounts and
against such risks as is satisfactory to the Bank, and all such policies shall
provide that the proceeds thereof shall be payable to it and Bank, as their
respective interests may appear. All said policies or certificates thereof,
including the endorsements, shall be deposited with the Bank; and such policies
shall contain provisions that no such insurance may be canceled or decreased
without thirty (30) days prior written notice to the Bank. In the event of
acquisition by the Borrower of additional insurable Pledged Collateral, it shall
cause such insurance coverage to be increased or amended in such manner and to
such extent as prudent business judgment would dictate. If the Borrower shall at
any time or times hereafter fail to obtain and/or maintain any of the policies
of insurance required herein, or fail to pay any premium in whole or in part
relating to such policies, Bank may, but shall not be obligated to, obtain
and/or cause to be maintained insurance coverage with respect to the Pledged
Collateral, including, at Bank's option, the coverage provided by all or any of
the policies of the Borrower, and pay all or any part of the premium therefor,
without waiving any default by Borrower; any sums disbursed by Bank shall be
additional loans to Borrower by Bank payable on demand. Bank shall have the
right to settle and compromise any and all claims under any of the policies
required to be maintained by Borrower hereunder and the Borrower hereby appoints
Bank as its attorney-in-fact, with power to demand, receive, and receipt for all
monies payable thereunder, to execute in its name or the name of the Bank or
both any proof of loss, notice, draft, or other instruments in connection with
such policies or any loss thereunder and generally to do and perform any and all
acts as Borrower, but for this appointment, might or could perform. The Borrower
will, upon request, furnish to the Bank a schedule of all insurance carried by
it, setting forth in detail the amount and type of such insurance. The Borrower
will maintain, in good repair, working order and condition, all properties used
or useful in its the business.

         Section 6.3. Payment of Indebtedness and Taxes. The Borrower will pay
                      ---------------------------------
(a) all of its Indebtedness (not required to be subordinated hereunder) and
other obligations in accordance with normal terms or any applicable grace
periods and (b) all taxes, assessments, and other governmental charges levied
upon any of its respective properties or assets or in respect of its respective
franchises, business, income, or profits before the same become delinquent,
except that no such Indebtedness, obligations, taxes, assessments, or other
charges need be paid if contested by the Borrower in good faith and by
appropriate proceedings promptly initiated and

                                       18
<PAGE>

diligently conducted and if appropriate provision, if any, as shall be required
by GAAP, shall have been made therefor.

         Section 6.4. Litigation; Adverse Changes. The Borrower will promptly
                      ---------------------------
notify the Bank in writing of (a) any event which, if existing at the date
hereof, would require a material qualification of the representations and
warranties set forth in Section 3.6 and (b) any material adverse change in the
condition, business, or prospects, financial or otherwise, of the Borrower.

         Section 6.5. Notice of Default. The Borrower will promptly notify the
                      -----------------
Bank of (a) any Event of Default or event which with the passage of time or
service of notice or both would constitute an Event of Default hereunder and (b)
any demands made upon the Borrower by any Person for the acceleration and
immediate payment of any material Indebtedness owed to such Person.

         Section 6.6. Inspection. The Borrower will make available for
                      ----------
inspection by duly authorized representatives of the Bank, its books, records,
and properties, and will furnish the Bank such information regarding its
respective business affairs and financial condition within a reasonable time
after written request therefor.

         Section 6.7. Environmental Matters. The Borrower:
                      ---------------------

         (a)   Shall comply in all material respects with all Environmental
               Laws;

         (b)   Shall deliver promptly to the Bank (i) copies of any documents
               received from the United States Environmental Protection Agency
               or any state, county or municipal environmental or health agency,
               and (ii) copies of any documents submitted by the Borrower to the
               United States Environmental Protection Agency or any state,
               county or municipal environmental or health agency concerning its
               operations; and

         (c)   Hereby indemnifies and holds the Bank harmless from all liability
               or loss arising out of the application of any Environmental Law
               to the Bank or to any collateral (including without limitation
               the Premises) for any loan to the Borrower, including, without
               limitation, any Environmental Law creating a lien upon property
               or imposing any liability upon the Bank for any clean up costs;
               provided, however, that this indemnity shall not apply to
               liability arising out of willful violation of Environmental laws
               by the Bank.

         Section 6.8. Payment Schedule of Notes. The Borrower shall cause the
                      -------------------------
principal amount of the Notes to be repaid not later than the scheduled payments
as indicated on Exhibit C attached hereto and made a part hereof. On the Date of
Issuance, the Borrower shall direct the Trustee to redeem Notes on the dates and
in the amounts set forth on Exhibit C pursuant to the Borrower's right to
optionally redeem Notes pursuant to the Indenture.

         Section 6.9. Existence; Business. The Borrower will cause to be done
                      -------------------
all things reasonably necessary to preserve and keep in full force and effect
its existence and rights, to conduct its business in a prudent manner, to
maintain in full force and effect, and renew from time to time, its franchises,
permits, licenses, patents, and trademarks that are necessary to

                                       19
<PAGE>

operate its business. The Borrower will comply in all material respects with all
valid laws and regulations now in effect or hereafter promulgated by any
properly constituted governmental authority having jurisdiction, and the
Borrower will act to eliminate any nuisance or nuisances which it creates on any
portion of the Premises; provided, however, the Borrower shall not be required
to comply with any law or regulation which it is contesting in good faith by
appropriate proceedings as long as either the effect of such law or regulation
is stayed pending the resolution of such proceedings or the effect of not
complying with such law or regulation is not to jeopardize any franchise,
license, permit, patent, or trademark necessary to conduct the Borrower's
business.

         Section 6.10. Total Funded Debt to EBITDA. The Borrower shall maintain
                       ---------------------------
a ratio of Total Funded Debt to EBITDA of 4.0 to 1.0 as of December 31, 2000;
3.5 to 1.0 as of December 31, 2001; and 3.0 to 1.0 as of December 31, 2002 and
December 31 of each fiscal year thereafter. The Borrower will provide the Bank
with a certificate of an authorized officer of the Borrower demonstrating
compliance with this section 6.10 within the period required for the delivery of
financial statements pursuant to subsection 6.1(b) of this Agreement.

         Section 6.11. Minimum Debt Service Coverage Ratio. The Borrower shall
                       -----------------------------------
maintain a minimum Debt Service Coverage Ratio of 1.25 to 1.0 as of the end of
each fiscal quarter, calculated using information for the previous twelve (12)
months, beginning with the fiscal quarter ending June 30, 2000 and continuing
quarterly thereafter. The Borrower will provide the Bank with a certificate of
an authorized officer of the Borrower demonstrating compliance with this section
6.11 within each applicable period required for the delivery of financial
statements pursuant to subsections 6.1(a) and (b) of this Agreement.

         Section 6.12. Changes to Plans and Specifications, General Contract.
                       -----------------------------------------------------
The Borrower will not make or permit to be made (a) any material change in the
Plans and Specifications; (b) any changes in excess of 10% in any line item of
the Project budget, (c) any material change in the terms and conditions of the
construction contract with the General Contractor or (d) any change in the
identity of the General Contractor.

         Section 6.13. Construction of Project. The Borrower will cause the
                       -----------------------
construction of the Project to be carried forward with diligence and continuity
and to be completed by the Completion Date, and in accordance with the Plans and
Specifications and all applicable zoning, building and other laws, statutes,
codes, ordinances, rules and regulations. The Borrower will comply with its
obligations under its construction contract with the General Contractor.

         Section 6.14. Additional Funds. The Borrower will, at any time or times
                       ----------------
upon request of the Bank, deposit with the Bank such additional funds as are
determined by the Bank or the Bank's Inspector to be necessary (in excess of the
proceeds of the Bonds) to pay for completion of the Project and all costs and
expenses related thereto.

         Section 6.15. Evidence of Payment of Costs. The Borrower will furnish
                       ----------------------------
to the Bank copies of all affidavits, lien waivers, releases or other evidence
requested by the Bank from time to time to establish that all bills for labor
and materials performed or furnished in connection with the Project and all
bills of the General Contractor and its subcontractors and material suppliers,
have been paid in full, except for retainages.

                                       20
<PAGE>

         Section 6.16. Entry; Correction of Defective Work. The Borrower will
                       -----------------------------------
allow the Bank, through the Bank's Inspector, and the Bank's officers, agents or
employees, at all reasonable times, (a) the right of entry and free access to
the Premises to inspect all work done, labor performed and materials furnished
in furtherance of the Project and (b) to require to be replaced or otherwise
corrected any materials or work which fails to comply with the Plans and
Specifications.

         Section 6.17. Title. The Borrower will keep the title to the Premises
                       -----
free and clear of all liens, encumbrances, easements, restrictions and claims,
except for (a) the Permitted Encumbrances, (b) any lien, restriction or
encumbrance created in connection with this Agreement or otherwise approved by
the Bank, and (c) real estate taxes and installments of special assessments, if
any, which are a lien but not yet due and payable.

                                 SECTION SEVEN
                                 -------------

                              NEGATIVE COVENANTS

         The Borrower further covenants and agrees that, from the date of this
Agreement and until the obligations of the Borrower to the Bank hereunder are
satisfied in full, the Borrower will, unless the Bank shall otherwise consent or
agree, comply with the following provisions:

         Section 7.1. Sale, Purchase of Assets. The Borrower will not, directly
                      ------------------------
or indirectly, (a) purchase, lease, or otherwise acquire any assets, including
without limitation shares of corporate stock or other equity interests in
entities (other than Borrower and its Subsidiaries), except in connection with
the Project or in the ordinary course of business or as otherwise permitted
under this Agreement, or (b) sell, lease, transfer, or otherwise dispose of any
building or real property or other assets except for (i) tangible assets sold
for full and adequate consideration which the Borrower has determined to be worn
out or obsolete or not useful in the ordinary course of its business or (ii)
tangible assets sold in the ordinary course of business provided that the
Borrower receives full and adequate consideration in exchange for such assets
sold.

         Section 7.2. Mortgage, Security Interests, and Liens. The Borrower will
                      ---------------------------------------
not, directly or indirectly, create, incur, assume, or permit to exist any
mortgage, security interest, lien, charge, encumbrance on, or pledge,
conditional sale or other title retention agreement with respect to, the Pledged
Collateral now owned or hereafter acquired (herein called "Liens") other than:

         (a)   Liens for taxes, assessments, or governmental charges or levies
               the payment of which is not at the time required by Section 6.3
               hereof;

         (b)   Liens imposed by law, such as Liens of landlords, carriers,
               warehousemen, mechanics, and materialmen arising in the ordinary
               course of business for sums not yet due or being contested by
               appropriate proceedings promptly initiated and diligently
               conducted, provided other appropriate provision, if any, as shall
               be required by GAAP shall have been made therefor;

                                       21
<PAGE>

         (c)   Liens incurred or deposits made in the ordinary course of
               business in connection with workers' compensation, unemployment
               insurance, and other types of social security, or to secure the
               performance of tenders, statutory obligations, and surety and
               appeal bonds, or to secure the performance and return of money
               bonds and other similar obligations, excluding obligations for
               the payment of borrowed money;

         (d)   Any judgment Lien, unless the judgment it secures shall not,
               within thirty (30) days after the entry thereof, have been
               discharged or execution therefor stayed pending appeal, or shall
               not have been discharged within thirty (30) days after the
               expiration of any such stay;

         (e)   Other Liens incidental to the conduct of the business or
               ownership of properties and assets of the Borrower, which are not
               incurred or granted in connection with the borrowing of money or
               the obtaining of advances or credits, and which do not in the
               aggregate materially detract from the value of its or their
               respective property or assets or materially impair the use
               thereof in the ordinary course of business; and

         (f)   Liens evidenced by or permitted under the terms of the Mortgage,
               as well as any other Permitted Encumbrances.

         Section 7.3. Assumptions; Guaranties. The Borrower will not assume,
                      -----------------------
guarantee, endorse, or otherwise become directly or contingently liable for
(including, without limitation, liable by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to, or
otherwise invest in any debtor, other than to a Subsidiary, or otherwise to
assure the creditor against loss) any obligation or Indebtedness of any other
Person, other than a Subsidiary, except guaranties by endorsement of negotiable
instruments for deposit, collection, or similar transactions in the ordinary
course of business.

         Section 7.4. Mergers; Consolidation. The Borrower will not merge or
                      ----------------------
consolidate with any Person, dissolve, wind up its affairs, or sell, assign,
lease, or otherwise dispose of (whether in one transaction or in a series of
transactions), all or substantially all of its assets (whether now owned or
hereafter acquired) to any Person.

         Section 7.5. Investments and Loans. The Borrower will not, directly or
                      ---------------------
indirectly, (a) purchase or otherwise acquire or own any stock or other
securities of any Person, other than a Subsidiary, including without limitation,
the Borrower's own securities or stock, except pursuant to agreements to which
the Borrower is a party as of the date of this Agreement, or pursuant to the
provisions of any current or future awards under Borrower's employee stock
incentive plans, or (b) make or permit to be outstanding any loan or advance or
enter into any arrangements to provide funds or credit, to any other Person,
except that it may purchase or otherwise acquire and own marketable U.S.
Treasury and Agency obligations, and certificates of deposit and bankers'
acceptances issued or created by any domestic commercial bank.

         Section 7.6. Subordinated Debt. The Borrower will not make any payment
                      -----------------
upon its outstanding Subordinated Debt, except in such manner and amounts as may
be expressly

                                       22
<PAGE>

authorized in any subordination agreement presently or hereafter held by the
Bank.

         Section 7.7. Note Documents. The Borrower will not enter into an
                      --------------
amendment of the Note Documents, without the prior written consent of the Bank.

         Section 7.8. Indebtedness. The Borrower will not, and the Borrower will
                      ------------
not permit any Subsidiary to, directly or indirectly, create, incur or assume
Indebtedness, or otherwise become, be, or remain liable with respect to, any
Indebtedness, provided that the foregoing restrictions shall not apply to:

         (a)   The Indebtedness evidenced by the Credit Documents, Indebtedness
               evidenced by the Note Documents, and any other Indebtedness now
               or hereafter payable by it to the Bank;

         (b)   current accounts, payable or accrued, incurred by it or any of
               its Subsidiaries in the ordinary course of its business, provided
               that the same shall be paid when due in accordance with customary
               trade terms unless contested by appropriate proceedings; and

         (c)   Existing Indebtedness which is reflected on its financial
               statements referred to in Section 3.8 hereof.

                                 SECTION EIGHT
                                 -------------

                               EVENTS OF DEFAULT
                               -----------------

         Section 8.1. Events of Default. The occurrence of any one or more of
                      -----------------
the following events shall constitute an Event of Default under this Agreement:

         (a)   If Borrower fails to make or cause to be made any payment to the
               Bank required to be made pursuant to the terms of this Agreement
               or any of the other Credit Documents, or

         (b)   If any representation or warranty made by the Borrower herein, in
               any of the other Credit Documents or in any other written
               statement, certificate, report, or financial statement at any
               time furnished by or for the Borrower in connection herewith,
               proves to be incorrect in any material respect when made, or

         (c)   If the Borrower fails to perform or observe any other provision,
               covenant, or agreement contained in this Agreement or in any of
               the other Credit Documents, and such failure remains unremedied
               for thirty (30) calendar days after the Bank shall have given
               written notice thereof to the Borrower, or

         (d)   If the Borrower (i) fails to pay any Indebtedness (other than as
               arising under this Agreement) owing by the Borrower when due,
               whether at maturity, by acceleration, or otherwise or (ii) fails
               to perform any term, covenant, or agreement

                                       23
<PAGE>

               on its part to be performed under any agreement or instrument
               (other than this Agreement) evidencing, securing or relating to
               such Indebtedness when required to be performed, or is otherwise
               in default thereunder, if the effect of such failure is to
               accelerate, or to permit the holder(s) of such Indebtedness or
               the trustee(s) under any such agreement or instrument to
               accelerate, the maturity of such Indebtedness, whether or not
               such failure shall be waived by such holder(s) or trustee(s), or

         (e)   An Indenture Default shall have occurred, or

         (f)   If the Borrower discontinues business, or if there occurs a
               material adverse change in the business, property, or the
               condition or operations, financial or otherwise, of the Borrower,
               or

         (g)   If any of the following events occur: (i) any Reportable Event,
               which the Bank determines in good faith might constitute grounds
               for the termination of any Plan or for the appointment by the
               appropriate United States district court of a trustee to
               administer any Plan, continues for thirty (30) days after the
               Bank has given written notice thereof to the Borrower, (ii) any
               Plan incurs any "accumulated funding deficiency" (as such term is
               defined in ERISA) whether waived or not, (iii) the Borrower
               engages in any Prohibited Transaction, (iv) a trustee is
               appointed by an appropriate United States district court to
               administer any Plan, or (v) the PBGC institutes proceedings to
               terminate any Plan or to appoint a trustee to administer any
               Plan, or

         (h)   If the Borrower is adjudicated a debtor or insolvent, or ceases,
               is unable, or admits in writing its inability to pay its debts as
               they mature, or makes an assignment for the benefit of creditors,
               (ii) applies for, or consents to, the appointment of any
               receiver, trustee, or similar officer for it or for all or any
               substantial part of its property, or any such receiver, trustee,
               or similar officer is appointed without the application or
               consent of the Borrower, (iii) institutes, or consents to the
               institution of, by petition, application, or otherwise, any
               bankruptcy reorganization, arrangement, readjustment of debt,
               dissolution, liquidation, or similar proceeding relating to it
               under the laws of any jurisdiction, (iv) has any such proceeding
               described in clause (iii) instituted against it which remains
               thereafter undismissed for a period of sixty (60) days, or (v)
               has any judgment, writ, warrant of attachment or execution or
               similar process issued or levied against a substantial part of
               its property and such judgment, writ, or similar process is not
               released, vacated, or fully bonded within sixty (60) days after
               its issue or levy; or

         (i)   If an event of default occurs under any of the Credit Documents;
               or

         (j)   Except as otherwise permitted in this Agreement, if at any time,
               (i) the sum of the undisbursed portion of the Project Fund is
               less than the amount determined by the Bank to be necessary for
               the timely and full payment of (a) all work done and not
               theretofore paid for or to be done in connection with the
               completion of the Project

                                       24
<PAGE>

               in accordance with the Plans and Specifications, including
               installation of all fixtures, furniture and equipment
               contemplated by the Plans and Specifications, and (b) all other
               costs incurred and not theretofore paid for, or to be incurred in
               connection with the Project, and (ii) the Borrower fails, within
               fifteen (15) Business Days after written request by the Bank, to
               deposit the deficiency with the Bank.

         Section 8.2. No Waiver; Remedies. If an Event of Default occurs, the
                      -------------------
Bank may exercise any and all remedies, legal or equitable on behalf of the
Bank, to collect the amounts due from the Borrower pursuant to this Agreement,
and, in its sole discretion, may instruct the Trustee to accelerate the maturity
of the Notes or redeem the Notes. Upon receipt by the Trustee of such
instructions from the Bank, the Notes shall be accelerated or redeemed pursuant
to the Indenture. No failure on the part of the Bank to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right or remedy. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law or equity.

                                 SECTION NINE
                                 ------------

            TRANSFER, REDUCTION OR TERMINATION OF LETTER OF CREDIT
            ------------------------------------------------------

         Section 9.1. Transfer of Letter of Credit; Reduction of Letter of
                      ----------------------------------------------------
Credit Commitment and Termination of Letter of Credit and Related Matters.
-------------------------------------------------------------------------

         (a)   The Letter of Credit may be transferred in accordance with the
               provisions set forth therein.

         (b)   The Borrower shall be entitled to a credit against the principal
               amount of the Notes prior to maturity (the "Credit") pursuant to
               an optional redemption of a portion of the Notes or to the
               purchase of Notes in the open market and cancellation of such
               Notes in accordance with the provisions of the Indenture, if such
               amounts have been paid by or on behalf of the Borrower other than
               by the Bank. If the Borrower is entitled to a Credit, the
               Borrower shall have the right at any time thereafter to reduce
               permanently, without penalty or premium, the Letter of Credit
               Commitment in the manner set forth below. The Letter of Credit
               Commitment will be reduced by an amount equal to the sum of the
               following corresponding reductions in the Principal Commitment
               and the Interest Commitment: (a) the Principal Commitment will be
               reduced by an amount equal to the amount of such Credit; and (b)
               the Interest Commitment will be reduced by an amount equal to
               ninety-eight (98) days' interest on the amount of such Credit at
               the rate of ten percent (10%) per annum (calculated on the basis
               of a 365-day year; 366 days in a leap year). The aforementioned
               reduction will occur not less than three (3) Business Days' after
               written notice to the Bank, accompanied by the original Letter of
               Credit and the written certificate of the Trustee and the
               Borrower stating that the Borrower is entitled to such Credit and
               designating the amount of such Credit and the date upon which
               such Credit and the corresponding

                                       25
<PAGE>

               reduction in the Letter of Credit Commitment shall become
               effective (which shall be a Business Day).

         (c)   If the Letter of Credit Commitment shall be reduced pursuant to
               paragraph (b) hereof, and the Bank shall have received the
               certificate required by paragraph (b) hereof, then the Bank shall
               deliver to the Trustee an amendment to the Letter of Credit,
               dated as of the effective date of the reduction as indicated,
               which amendment shall reduce the Letter of Credit Commitment
               accordingly, but otherwise does not change the terms of the
               Letter of Credit.

         (d)   The obligation of the Bank to honor Interest Drawings, under the
               Letter of Credit, up to the amount of the Interest Commitment,
               (as same may have been reduced pursuant to subsection (b) of this
               Section 9.1), will be automatically reinstated after each
               Interest Drawing to an amount equal to the Interest Commitment.

         (e)   The Bank shall reinstate amounts drawn under the Letter of Credit
               pursuant to a Remarketing Drawing, as to the Interest Commitment,
               immediately and, as to the Principal Commitment, to the extent
               money is received by the Bank (other than from drawings under the
               Letter of Credit) from the tender agent described in the
               Indenture, which money was held by such tender agent for the sole
               purpose of reimbursing the Bank for all or a portion of amounts
               drawn under the Letter of Credit pertaining to such Remarketing
               Drawing for Notes tendered for purchase to and remarketed by the
               Remarketing Agent, or upon the Trustee's certification that the
               Trustee or the tender agent is holding for the Bank's benefit
               Notes together with an amount of money, the aggregate amount of
               which Notes and money is equal to or greater than the principal
               portion of the Remarketing Drawing.

         The Letter of Credit shall terminate automatically on the earliest of
(i) the payment by the Bank to the Trustee of the final drawing available to be
made under the Letter of Credit; (ii) receipt by the Bank of the Letter of
Credit and a certificate signed by an officer of the Trustee and an authorized
representative of Borrower stating that no Notes remain outstanding; (iii)
receipt by the Bank of the Letter of Credit and a certificate signed by an
officer of the Trustee and an authorized representative of Borrower stating that
an "Alternate Credit Facility" in substitution for the Letter of Credit has been
accepted by the Trustee and is in effect"; or (iv) the stated Expiration Date.

         This Reimbursement Agreement will terminate on the later of the
Expiration Date or Borrower's satisfaction in full of all of the Borrower's
obligations pursuant to this Reimbursement Agreement, subject to any provision
of this Reimbursement Agreement for survival of any provision of this
Reimbursement Agreement.

                                  SECTION TEN
                                  -----------

                                 MISCELLANEOUS
                                 -------------

         Section 10.1. Liability of the Bank. Between the Borrower and the Bank,
                       ---------------------
the Borrower assumes all risks of the acts or omissions of the Trustee and any
transferee of the Letter of Credit

                                       26
<PAGE>

with respect to its use of the Letter of Credit or its proceeds. Neither the
Bank nor any of its officers or directors shall be liable or responsible for:
(a) the use which may be made of the Letter of Credit or any of the proceeds
thereof, or for any acts or omissions of the Trustee and any transferee in
connection therewith; (b) the validity, sufficiency or genuineness of documents,
inaccuracy of any of the statements or representations contained therein or of
any endorsement(s) thereon, even if such documents should in fact prove to be in
any or all respects invalid, insufficient, fraudulent or forged; (c) payment by
the Bank against presentation of documents which do not strictly comply with the
terms of the Letter of Credit, including any failure of any documents to bear
any reference or adequate reference to the Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under the Letter
of Credit, except the Borrower shall have a claim against the Bank, and the Bank
shall be liable to the Borrower, to the extent, but only to the extent of any
direct, as opposed to consequential, damages suffered by the Borrower which the
Borrower proves were caused by (i) the Bank's willful misconduct or gross
negligence in honoring a draft under the Letter of Credit, or (ii) the Bank's
willful failure to pay under the Letter of Credit after presentation to it by
the Trustee (or a successor trustee under the Indenture to whom the Letter of
Credit has been transferred in accordance with its terms) of a sight draft and
certificate strictly complying with the terms and conditions of the Letter of
Credit. In furtherance and not in limitation of the foregoing, the Bank may
accept documents that appear on their face to be in order, and may assume the
genuineness and rightfulness of any signature thereon, without responsibility
for further investigation, regardless of any notice or information to the
contrary unless actually received by the Bank; provided, that if the Bank shall
receive written notification from both the Trustee and the Borrower that
documents conforming to the terms of the Letter of Credit to be presented to the
Bank are not to be honored, the Bank agrees that it will not honor such
documents and the Borrower shall indemnify and hold the Bank harmless from such
failure to honor.

         In the event any claim, demand, action or suit, loss, or liability is
asserted against Bank arising in any manner from the issuance, presentation or
acceptance of drafts under the Letter of Credit or the interpretation of or
actions under the Letter of Credit, the Borrower agrees to indemnify, hold
harmless and defend Bank, its agents, officers and directors from any loss or
damage, including without limitation, reasonable attorneys' fees and costs,
except for Bank's obligations stated in the Letter of Credit and for loss or
liability incurred by Bank's willful misconduct or gross negligence as
referenced above. The agreements in this paragraph will survive any payment
under or termination of this Reimbursement Agreement.

         Section 10.2. Right to Set-Off. Upon the occurrence of any Event of
                       ----------------
Default hereunder the Bank is hereby irrevocably authorized at any time and from
time to time without notice to the Borrower, any such notice being expressly
waived by the Borrower, to set-off and appropriate and apply any and all
deposits (general or special, time or demand, provisional or final), in any
currency, any other credits, indebtedness or claims, in any currency, in each
case whether direct or indirect or contingent or matured or unmatured, at any
time held or owing by the Bank to or for the credit or the account of the
Borrower, or any part thereof in such amounts as such Bank may elect, against
and on account of the obligations and liabilities of the Borrower to the Bank
hereunder and claims of every nature and description of the Bank against the
Borrower, whether arising hereunder or otherwise, as the Bank may elect, whether
or not the Bank has made any demand for payment and although such obligations,
liabilities and claims may be contingent or unmatured. The Bank agrees to notify
the Borrower promptly of any such set-off and the

                                       27
<PAGE>

application made by the Bank, provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Bank under this subsection are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Bank may
have.

         Section 10.3. Additional Collateral. As additional security for this
                       ---------------------
Agreement, the Borrower agrees that in the event that Trustee shall, at any time
or from time to time, draw upon the Letter of Credit, the Bank shall be and
become the assignee of all rights and interests of the Borrower and the Trustee.
The Borrower does hereby consent to such assignment, and does agree to execute
any and all such documents, instruments and certificates in connection therewith
as the Bank shall deem appropriate.

         Section 10.4. Notices. All notices, requests, consents and other
                       -------
communications hereunder shall be in writing and shall be deemed to have been
made when delivered, or mailed first-class postage prepaid, or sent by wire,
telex, telecopier or similar electronic means of communication or delivered to a
telegraph office for transmission, addressed to the appropriate address set
forth below,

         if to the Bank, at:

                  KeyBank National Association
                  66 South Pearl Street
                  Albany, New York   12207-1501
                  Attention: International Department
                  Fax Number: (518) 487-4998

                  with a copy to:

                  Stephen P. Lubelczyk, Senior Vice President
                  KeyBank National Association
                  Commercial Banking Division
                  One Canal Plaza
                  Portland, Maine 04101-4035
                  Fax Number:  (207) 874-7070

or at such other address as may have been furnished for such purpose to the
Borrower by the Bank in writing; or

         if to the Borrower, at:

                  Robert D. Elliott, President and Chief Executive Officer
                  Aerovox Incorporated
                  740 Belleville Avenue
                  New Bedford, MA  02745
                  Fax Number:  (508) 910-3123

                  with a copy to:

                                       28
<PAGE>

                  Stanley B. Kay, Esq.
                  85 Wells Avenue, Suite 200
                  Newton, MA  02459-3215
                  Fax Number:  (617) 558-8029

or at such other address as may have been furnished for such purpose to the Bank
by the Borrower in writing.

         Section 10.5. Survival of Representations and Warranties. All
                       ------------------------------------------
agreements, representations and warranties contained in the Credit Documents
shall survive the execution and delivery of this Agreement, any investigation at
any time made by or on behalf of the Bank and the issuance and acceptance of the
Letter of Credit. All statements contained in any certificates or other
instruments delivered by the Borrower pursuant hereto shall constitute
representations and warranties by the Borrower under this Agreement.

         Section 10.6. Payments on Holidays. Whenever any payment to be made
                       --------------------
pursuant to this Agreement shall be stated to be due on a public holiday in the
State of Maine, Saturday or Sunday, such payment may be made on the next
succeeding business day and such extension of time shall in such case be
included in computing interest, if any, in connection with such payment.

         Section 10.7. Computation of Interest. Except as otherwise provided,
                       -----------------------
all computations of interest with respect to the Letter of Credit hereunder
shall be made on the basis of a three hundred sixty-five (365) day year.

         Section 10.8. Entire Agreement. The Credit Documents and the Letter of
                       ----------------
Credit embody the entire agreement and understanding among the parties hereto
and supersede all prior agreements and understandings relating to the subject
matter hereof.

         Section 10.9. Parties in Interest. All the terms and provisions of this
                       -------------------
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto.

         Section 10.10. Expenses. Regardless of whether or not the Notes are
                        --------
eventually issued and sold and regardless of whether or not the transactions
contemplated hereby shall be consummated, Borrower will pay or reimburse Bank,
on demand, for all expenses incurred or paid by Bank in connection with (i) the
preparation, interpretation or amendment of this Agreement, the Letter of Credit
or the Credit Documents, (ii) the administration, supervision, protection or
realization of any Pledged Collateral, (iii) any action or participation by Bank
in connection with any bankruptcy case or proceeding involving Borrower or any
of the Pledged Collateral, and (iv) the defense, settlement or satisfaction of
any action, claim or demand asserted against Bank with respect to Bank's rights
or liabilities under the Credit Documents (exclusive of any final judgment
rendered by a court of competent jurisdiction pursuant to which the Bank has
been found expressly liable for willful misconduct or gross negligence in
honoring, or failing to honor, a draft under the Letter of Credit), including,
but not limited to, with respect to all of the foregoing, all reasonable
out-of-pocket expenses incurred by the Bank for the Bank's

                                       29
<PAGE>

attorneys (whether special outside counsel or attorneys in its Law Group) and
paralegal fees, disbursements, and costs, all at such reasonable rates and with
respect to such services as the Bank in its discretion may elect to pay (as such
rates may vary from time to time during the course of the performance of such
services) including the costs of appraisers, engineers, investment bankers,
environmental consultants and other experts that may be retained by the Bank in
connection with such efforts. At its option, and without limiting any other
rights or remedies, the Bank may pay or discharge taxes, liens, security
interests or other encumbrances at any time levied against or placed on any of
the Pledged Collateral, and may procure and pay any premiums on any insurance to
be carried by Borrower, or provide for the maintenance and preservation of any
of the Pledged Collateral, and add the expense thereof to the amount due from
the Borrower pursuant to subsection 2.2(a).

         Section 10.11. Payments. Borrower irrevocably waives the right to
                        --------
direct the application of any and all payments at any time or times hereafter
received by Bank from Borrower, and Borrower does hereby irrevocably agree that
Bank shall have the continuing exclusive right to apply and reapply any and all
payments received at any time or times hereafter against the Borrower's
obligations hereunder or under Bank's other loans with Borrower in such manner
as Bank may deem advisable.

         Borrower agrees that to the extent that Borrower makes a payment or
payments to Bank, which payment or payments, or any part thereof, are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to Borrower, its estate, trustee, receiver or any
other party under any bankruptcy law, state or federal law, common law or
equitable cause, then to the extent of such payment or repayment, the liability
or part thereof which has been paid, reduced or satisfied by the amount so
repaid shall be reinstated and included within the Credit Documents as of the
date such initial payment, reduction or satisfaction occurred.

         Section 10.12. 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 of the parties hereto may execute this Agreement by
signing any such counterpart.

         Section 10.13. Maine Contract. This Agreement shall be construed and
                        --------------
enforced in accordance with and be governed by the laws of the State of Maine.

         Section 10.14. Waiver of Jury Trial. THE BORROWER HEREBY KNOWINGLY,
                        --------------------
VOLUNTARILY AND INTENTIONALLY WAIVES THE RIGHT TO A JURY TRIAL, WHETHER ARISING
UNDER THE MAINE CONSTITUTION, THE UNITED STATES CONSTITUTION, OR ANY STATE OR
FEDERAL STATUTE, REGULATION, COMMON LAW, OR RULE OF CIVIL PROCEDURE, WITH
RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH ANY
OF THE CREDIT DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. THE BORROWER (A) CERTIFIES THAT
NO REPRESENTATIVE, AGENT OR ATTORNEY OF THE BANK HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE BANK WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE
THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT THE BANK HAS BEEN INDUCED TO
ENTER INTO THE

                                       30
<PAGE>

CREDIT DOCUMENTS BY, AMONG OTHER THINGS, THE WAIVER AND CERTIFICATION CONTAINED
HEREIN.

         IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.

                                          AEROVOX INCORPORATED

                                          By: ROBERT D. ELLIOTT
                                              Robert D. Elliott, President and
                                              Chief Executive Officer

                                          KEYBANK NATIONAL ASSOCIATION

                                          By: STEPHEN P. LUBELCZYK
                                              Stephen P. Lubelczyk, Senior Vice
                                              President

                                       31
<PAGE>

                                   EXHIBIT A

                         KEYBANK NATIONAL ASSOCIATION
                           International Department
                             66 South Pearl Street
                          Albany, New York 12207-1501

                                                Date of Issuance: March 22, 2000

Irrevocable Transferable Direct Pay Letter of Credit No. NSL093053

Beneficiary:                                   Applicant:

The Huntington National Bank, Trustee          Aerovox Incorporated
41 South High Street                           740 Belleville Avenue
HC1112                                         New Bedford, MA  02745
Columbus, Ohio 43215
Attention:  Corporate Trust Department

                                               Amount:  USD $10,443,058.00

                                               Expiration Date: March 22, 2005

Dear Sirs:

         You, as Trustee under the Trust Indenture dated as of March 1, 2000
(the "Indenture") between you and Aerovox Incorporated, a Delaware corporation
(the "Borrower"), pursuant to which Ten Million, One Hundred Seventy Thousand
Dollars ($10,170,000.00) in aggregate principal amount of Taxable Adjustable
Rate Notes, Series 2000 (such Notes, together with beneficial Ownership
Interests (as defined in the Indenture) in such Notes, are hereinafter referred
to as the "Notes") are being issued by the Borrower, are hereby irrevocably
authorized to draw on KeyBank National Association pursuant to our Irrevocable
Transferable Direct Pay Letter of Credit, for the account of the Borrower,
available by one or more of your drafts at sight, upon the terms and conditions
hereinafter set forth, an amount (subject to reinstatement as hereinafter set
forth) not exceeding Ten Million, Four Hundred Forty-Three Thousand, Fifty-Eight
Dollars ($10,443,058.00) (the "Letter of Credit Commitment") of which (a) an
amount not exceeding Ten Million, One Hundred Seventy Thousand Dollars
($10,170,000.00) may be drawn with respect to the payment of (i) the unpaid
principal amount of the Notes as and when the same become due at maturity or by
acceleration or by redemption, or pursuant to any mandatory sinking fund
requirements, (the "Principal Commitment") or (ii) that portion of the purchase
price of the Notes corresponding to the principal thereof when delivered to the
Remarketing Agent for remarketing and not remarketed and an amount not exceeding
Two Hundred Seventy Three Thousand, Fifty-Eight Dollars ($273,058.00) may be
drawn with respect to the payment of up to ninety-eight (98) days' interest at a
maximum rate of ten percent (10%) per annum (calculated on the basis of a year
of 365 days; 366 days in a leap year) (the "Maximum Rate") accrued on the Notes
on or prior to their stated maturity dates or (ii) the portion of the purchase

                                       32
<PAGE>

price of Notes corresponding to up to 98 days' interest accrued on such Notes at
the Maximum Rate when delivered to the Remarketing Agent for remarketing and not
remarketed (the "Interest Commitment"), effective immediately and expiring at
the close of business on March 22, 2005 (the "Expiration Date").

         Funds under this Letter of Credit are available to you against your
executed sight draft(s) drawn on us, stating on their face: "Drawn under KeyBank
National Association Irrevocable Transferable Direct Pay Letter of Credit No.
NSL093053" and accompanied by: (A) if the drawing is being made with respect to
the payment of principal on the Notes, whether due at maturity, upon call for
redemption, upon acceleration or pursuant to any mandatory sinking fund
requirements (a "Principal Drawing"), a certificate signed by you in the form of
Schedule 1 attached hereto appropriately completed; (B) if the drawing is being
made with respect to a payment of purchase price corresponding to the unpaid
principal amount of, and the interest accrued on, the Notes when delivered to
the Remarketing Agent for remarketing and not remarketed (a "Remarketing
Drawing"), a certificate signed by you in the form of Schedule 2 attached hereto
appropriately completed; and (C) if the drawing is being made with respect to a
payment of interest on the Notes (an "Interest Drawing"), a certificate signed
by you in the form of Schedule 3 hereto appropriately completed. Presentation of
such draft(s) and certificate(s) shall be made by telephone facsimile confirmed
in writing at our Main Office, 66 South Pearl Street, Albany, New York
12207-1501, Attention: International Department, or at any other office of ours
which may be designated by us by written notice delivered to you.

         We hereby agree that all drafts drawn under and in compliance with the
terms of this Letter of Credit will be duly honored by us by 12:00 noon (Albany,
New York time) of the Business Day following the transmission of the telephone
facsimile of the draft(s) and certificate(s) (originals thereof to be presented
before 10:00 a.m. (Albany, New York time) within one (1) Business Day following
a telephone facsimile transmission) as specified at such office on or before the
Expiration Date; provided, however, if a drawing is presented to pay the
purchase price of Notes which have not been remarketed by the Remarketing Agent
and if conforming drawing documentation is presented at or prior to 11:00 a.m.
(Albany, New York time) on a Business Day, payments shall be made to you on such
Business Day. If requested by you, payment under this Letter of Credit may be
made by wire transfer of federal funds to your account at the Federal Reserve
Bank of New York, or by deposit of immediately available funds into a designated
account that you maintain with us. All payments under this Letter of Credit
shall be made from our own funds. As used herein, "Business Day" shall mean any
day of the year other than (i) a Saturday or Sunday, (ii) any day on which banks
located in either Albany, New York, or the city in which the principal corporate
trust office of the Trustee pursuant to the Indenture is located are required or
authorized by law to remain closed, or (iii) any day on which the New York Stock
Exchange is closed.

         Drawings hereunder shall not exceed the Letter of Credit Commitment, as
the Letter of Credit Commitment may be reduced or reinstated pursuant hereto,
and, except as hereinafter modified, each drawing honored by us shall pro tanto
                                                                      --- -----
reduce the amount available under this

___________________________________     ___________________________________
Authorized Signature                    Authorized Signature

                                       33
<PAGE>

Letter of Credit.

         In connection with any Interest Drawing, the Interest Commitment will
be automatically decreased by the amount of such Interest Drawing and will be
automatically reinstated by the amount of such Interest Drawing on the date of
such Interest Drawing

         We will reinstate amounts drawn pursuant to a Remarketing Drawing
hereunder, as to the Interest Commitment, immediately and, as to the Principal
Commitment, to the extent that money is received by us (other than from drawings
under this Letter of Credit) from the Tender Agent described in the Indenture,
which money was held by the Tender Agent for the sole purpose of reimbursing us
for all or a portion of amounts drawn hereunder pertaining to such Remarketing
Drawing, or upon your certification that you or the Tender Agent is holding for
our benefit Notes together with an amount of money, the aggregate amount of
which Notes and money is equal to or greater than the principal portion of the
Remarketing Drawing.

         Upon presentation by you of any Principal Drawing, the amount of this
Letter of Credit and the amounts available to be drawn by you by any subsequent
Principal Drawing shall be automatically and permanently decreased by an amount
equal to the amount of such Principal Drawing plus the amount of corresponding
interest allocable to such Principal Drawing in the Interest Commitment.

         If the Borrower shall be entitled to a credit against the principal
amount of the Notes prior to maturity (the "Credit") pursuant to an optional
redemption of a portion of the Notes or to the purchase of Notes in the open
market and cancellation thereof in accordance with the provisions of the
Indenture, and such amounts have been paid by or on behalf of the Borrower other
than by us, the Borrower shall have the right at any time thereafter to reduce
permanently, without penalty or premium, the Letter of Credit Commitment in the
manner set forth below. The Letter of Credit Commitment will be reduced by an
amount equal to the sum of the following corresponding reductions in the
Principal Commitment and the Interest Commitment: (i) the Principal Commitment
will be reduced by an amount equal to the amount of such Credit and (ii) the
Interest Commitment will be reduced by an amount equal to ninety-eight (98)
days' interest on the amount of such Credit at the Maximum Rate.

         The reduction in the Letter of Credit Commitment pursuant to such
Credit will occur not less than three (3) Business Days after written notice to
us, accompanied by this Letter of Credit and the written certificate of you and
the Borrower in the form of Schedule 4 attached hereto stating that the Borrower
is entitled to such reduction and designating the amount of such Credit and the
date of the Business Day upon which such reduction shall become effective. Upon
such presentation we will either reissue this Letter of Credit in the maximum
amount available hereunder or otherwise amend this Letter of Credit to reflect
such maximum amount then available.

         Only you, as Trustee, may make a drawing under this Letter of Credit.
Upon the payment

___________________________________     ___________________________________
Authorized Signature                    Authorized Signature

                                       34
<PAGE>

to you or your account of the amount specified in a sight draft drawn hereunder,
we shall be fully discharged on our obligation under this Letter of Credit with
respect to such sight draft, and we shall not thereafter be obligated to make
any further payments under this Letter of Credit in respect of such sight draft
to you or to any other person who may have made to you or who makes to you a
demand for payment of principal of or interest on any of the Notes.

         Except as otherwise provided herein, this Letter of Credit shall be
governed by and construed in accordance with the Uniform Customs and Practice
for Documentary Credits (1993 Revision), Publication No. 500 of the
International Chamber of Commerce (the "UCP"); provided, however, that Article
41, paragraphs d, e, f, g, h, i and j of Article 48 and the second sentence of
Article 17 shall not apply to this Letter of Credit. Furthermore, as provided in
the first sentence of Article 17 of the UCP, we assume no liability or
responsibility for consequences arising out of the interruption of our business
by Acts of God, riots, civil commotions, insurrections, wars or any other causes
beyond our control, or strikes or lockouts. As to matters not covered by the UCP
and to the extent not inconsistent with the UCP or made inapplicable by this
Letter of Credit, this Letter of Credit shall be governed by the laws of the
State of Ohio, including the Uniform Commercial Code as in effect in the State
of Ohio.

         Communications with respect to this Letter of Credit shall be in
writing and shall be addressed to KeyBank National Association, 66 South Pearl
Street, Albany, New York 12207-1501, Attention: International Department
specifically referring thereon to KeyBank National Association Irrevocable
Transferable Direct Pay Letter of Credit No. NSL093053.

         This Letter of Credit is transferable in its entirety (but not in part)
to any transferee who has succeeded you as Trustee under the Indenture and such
transferred Letter of Credit may be successively transferred to any Successor
Trustee or Co-Trustee thereunder, but may not be assigned, transferred or
conveyed under any other circumstance. Transfer of the amount available under
this Letter of Credit to such transferee shall be effected by the presentation
to us of this Letter of Credit accompanied by a transfer fee of $500.00 and the
transfer form in the form attached hereto as Schedule 5 and, unless this Letter
of Credit is so presented to us, we shall have no obligation hereunder to any
transferee. Upon such transfer, we will either reissue this Letter of Credit in
the maximum amount then available hereunder or otherwise amend this Letter of
Credit to reflect such maximum amount then available.

         Upon the earliest of (i) the payment by us to the Trustee of the final
drawing available to be made under the Letter of Credit, (ii) our receipt of
this outstanding Letter of Credit and a written certificate signed by your
officer and an authorized representative of the Borrower in the form of Schedule
6 hereto appropriately completed, stating that: (a) no Notes remain outstanding
within the meaning of the Indenture; and (b) such officer and representative are
duly authorized to sign such certificate on behalf of you and the Borrower,
(iii) the twentieth (20th) Business Day after our receipt of this Letter of
Credit and a written certificate signed by your officer and an authorized
representative of the Borrower in the form of Schedule 7 hereto appropriately
completed, stating that: (a) an Alternate Credit Facility in substitution of
this Letter of Credit has

___________________________________     ___________________________________
Authorized Signature                    Authorized Signature

                                       35
<PAGE>

been accepted by you and is in effect; and (b) such officer and representative
are duly authorized to sign such certificate on behalf of you and the Borrower,
or (iv) the stated Expiration Date, this Letter of Credit shall automatically
terminate and be delivered to us for cancellation.

         This Letter of Credit sets forth in full our undertaking, and such
undertaking shall not in any way be modified, amended, amplified or limited by
reference to any document, instrument or agreement referred to herein
(including, without limitation, the Notes or the Reimbursement Agreement),
except only the certificate(s) and the sight draft(s) referred to herein; and
any such reference shall not be deemed to incorporate herein by reference any
document, instrument or agreement except for such certificate(s) and such sight
draft(s).

___________________________________     ___________________________________
Authorized Signature                    Authorized Signature

                                       36
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 1
                                  ----------

                   CERTIFICATE FOR THE PAYMENT OF PRINCIPAL
                            OF AEROVOX INCORPORATED
                  TAXABLE ADJUSTABLE RATE NOTES, SERIES 2000
                                 (THE "NOTES")
                                 -------------

     The undersigned, a duly authorized officer of The Huntington National Bank
(the "Trustee"), hereby certifies to KeyBank National Association (the "Bank"),
with reference to Irrevocable Transferable Direct Pay Letter of Credit No.
NSL093053 (the term "Letter of Credit" and other capitalized terms used herein
and not defined shall have its respective meaning as set forth in the Letter of
Credit) issued by the Bank in favor of the Trustee, that:

     The Trustee is the Trustee under the Indenture for the holders of the
Notes.

     The Trustee is making a drawing under the Letter of Credit with respect to
the payment of the principal of the Notes.

The amount of principal of the Notes which will be due and payable on ______,
______________ is $____________________.

     The amount of the sight draft accompanying this Certificate ($ ), together
with the aggregate of all prior payments made pursuant to Principal Drawings
under this Letter of Credit for the payment of the Notes, does not exceed
$______________.

     The amount of the sight draft accompanying this Certificate was computed in
accordance with the terms and conditions of the Letter of Credit, Reimbursement
Agreement, the Notes, and the Indenture.

IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate as
of the  _____ day of _________, _____.

                                       THE HUNTINGTON NATIONAL BANK,
                                       as Trustee

                                       By:___________________________________
                                       Its:__________________________________

___________________________                   ________________________________
Authorized Signature                          Authorized Signature

                                       37
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 2
                                  ----------

              CERTIFICATE FOR THE PAYMENT OF REMARKETING DRAWING
                            OF AEROVOX INCORPORATED
                  TAXABLE ADJUSTABLE RATE NOTES, SERIES 2000
                                 (THE "NOTES")

     The undersigned, a duly authorized officer of The Huntington National Bank,
as Trustee (the "Trustee"), hereby certifies to KeyBank National Association
(the "Bank") with reference to KeyBank National Association Irrevocable
Transferable Direct Pay Letter of Credit No. NSL093053 (the "Letter of Credit",
the capitalized terms defined therein and not defined herein being used as
therein defined) issued by the Bank in favor of the Trustee that:

     1.   The Trustee is the Trustee under the Indenture for the holders of the
Notes. The total amount of Notes outstanding (as defined in the Indenture) is
$_________________.

     2.   The Trustee is making a drawing under the Letter of Credit at the
written request of the Remarketing Agent (as defined in the Indenture), to pay,
pursuant to the terms of the Remarketing Agreement (as defined in the
Indenture), the purchase price equal to the principal amount of those Notes
which the Remarketing Agent has been unable to remarket and the interest accrued
on such Notes but not paid.

     3.   The Trustee: (a) is delivering or causing to be delivered to the Bank,
or its designated agent, a principal amount of the Notes, registered in the
names of the Borrower as pledgor and the Bank as pledgee, equal to the amount of
the draft accompanying this Certificate; (b) acknowledges the pledge by the
Borrower to the Bank of the Notes delivered pursuant to subparagraph (a) and (c)
agrees that all payments of principal, premium, if any, and interest made on
such Notes shall be made to the Bank, so long as the Bank is the pledgee of such
Notes.

     4.   The principal amount of the Notes delivered to the Remarketing Agent
which the Remarketing Agent has been unable to remarket is $____________. The
amount of interest upon such Notes which has accrued but is unpaid is
$_________________. The amount of the draft accompanying this Certificate does
not exceed such amount due as the purchase price of such Notes corresponding to
such principal amount of, and interest on, such Notes.

     5.   The amount of the draft accompanying this Certificate, together with
the aggregate of all prior payments pursuant to Remarketing Drawings which have
not been reinstated under the Letter of Credit for the payment of purchase price
of the Notes, does not exceed the Letter of Credit Commitment.

     Upon receipt by the Trustee of the amount demanded hereby, (a) the Trustee
will deliver it to Note holders only for the purpose of payment of the principal
amount of the Notes referenced in the second paragraph hereof, (b) no portion of
it shall be applied by the Trustee for any other purpose, and (c) no portion of
it shall be commingled with other funds held by the Trustee. This drawing is
made in accordance with the provisions of the Indenture and the Letter of
Credit.

     The amount of the draw accompanying this Certificate was computed in
accordance with the

__________________________                       _____________________________
Authorized Signature                             Authorized Signature

                                       38
<PAGE>

                                                                    Exhibit 4.16

terms and conditions of the Notes and the Indenture.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this certificate
as of the _____ day of ________, ______.

                                         THE HUNTINGTON NATIONAL BANK,
                                         as Trustee

                                         By:___________________________________
                                         Its:__________________________________

__________________________               ______________________________________
Authorized Signature                     Authorized Signature

                                       39
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 3
                                  ----------

                    CERTIFICATE FOR THE PAYMENT OF INTEREST
                            OF AEROVOX INCORPORATED
                  TAXABLE ADJUSTABLE RATE NOTES, SERIES 2000
                                 (THE "NOTES")

                                 -------------

     The undersigned, a duly authorized officer of The Huntington National Bank
(the "Trustee"), hereby certifies to KeyBank National Association (the "Bank"),
with reference to Irrevocable Transferable Direct Pay Letter of Credit No.
NSL093053 (the term "Letter of Credit" and other capitalized term used herein
and not defined shall have its respective meaning as set forth in the Letter of
Credit) issued by the Bank in favor of the Trustee, that:

     The Trustee is the Trustee under the Indenture for the holders of the
Notes.

     The Trustee is making a drawing under the Letter of Credit with respect to
a payment of interest accrued on the Notes on or prior to their stated maturity
date.

     The amount of interest on the Notes which will be due and payable on _____,
_________, is $_________________.

     The amount of the sight draft accompanying this Certificate
($______________) does not exceed the amount available on the date hereof to be
drawn under the Letter of Credit in respect of the payment of interest accrued
on the Notes on or prior to their stated maturity date.

     The amount of the sight draft accompanying this Certificate was computed in
accordance with the terms and conditions of the Letter of Credit, the
Reimbursement Agreement, the Notes and the Indenture.

     IN WITNESS WHEREOF, the Trustee has executed and delivered this Certificate
as of the day of _______________, ___________.

                                   THE HUNTINGTON NATIONAL BANK,
                                   as Trustee

                                   By:___________________________________
                                   Its:__________________________________

__________________________         ______________________________________
Authorized Signature               Authorized Signature

                                       40
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 4
                                  ----------

                          CERTIFICATE AS TO REDUCTION
                        OF LETTER OF CREDIT COMMITMENT

KeyBank National Association
66 South Pearl Street
Albany, New York   12207-1501

Attention: International Department

               RE:    KeyBank National Association Irrevocable Transferable
                      Direct Pay Letter of Credit No. NSL093053

Gentlemen:

     The undersigned, a duly authorized officer of The Huntington National Bank,
as Trustee (the "Trustee"), and a duly authorized representative of Aerovox
Incorporated ("Borrower"), respectively, hereby certify to KeyBank National
Association with reference to KeyBank National Association Irrevocable
Transferable Direct Pay Letter of Credit No. NSL093053 (the "Letter of Credit"),
the capitalized terms defined therein and not defined herein being used as
therein defined, issued by KeyBank National Association in favor of the Trustee
that:

     The Trustee is the Trustee under the Indenture for the holders of the
Notes.

     The Borrower is entitled to a reduction in the Letter of Credit Commitment.
The Letter of Credit Commitment shall be reduced, effective as of , as follows:

     (i)   The Principal Commitment shall be reduced to $ __________________.

     (ii)  The Interest Commitment shall be reduced to $ ___________________.

__________________________                       _____________________________
Authorized Signature                             Authorized Signature

                                       41
<PAGE>

                                                                    Exhibit 4.16

     The undersigned officer and representative are duly authorized to sign this
certificate on behalf of the Trustee, and on behalf of the Borrower,
respectively.

IN WITNESS WHEREOF, the Trustee and the Borrower have executed and delivered
this Certificate as of the ______ day of _______________, ___.

     TRUSTEE:                           THE HUNTINGTON NATIONAL BANK,
                                        as Trustee

                                        By:____________________________________
                                        Title:_________________________________

     BORROWER:                          AEROVOX INCORPORATED

                                        By:____________________________________
                                        Title:_________________________________

__________________________              _______________________________________
Authorized Signature                    Authorized Signature

                                       42
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 5
                                  ----------

KeyBank National Association
66 South Pearl Street
Albany, New York   12207-1501

Attention:  International Department

Date:_______________, _____

     RE:  KeyBank National Association Irrevocable Transferable Direct Pay
          Letter of Credit No. NSL093053

Gentlemen:

     For value received, the undersigned beneficiary hereby irrevocably
transfers to the following (the "Transferee"):

                             (Name of Transferee)
                                   (Address)

all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.

     By this transfer, all rights of the undersigned beneficiary in the Letter
of Credit are transferred to the Transferee and the Transferee shall have the
sole rights as beneficiary thereof, including sole rights relating to any
amendments of the Letter of Credit, whether increases in the amount to be drawn
thereunder, extensions of the Expiration Date thereof, or other amendments, and
whether such amendments now exist or are made after the date hereof. All
amendments of the Letter of Credit are to be advised direct to the Transferee
without necessity of any consent of or notice to the undersigned beneficiary.

     The undersigned hereby certifies that the Transferee has become successor
Trustee under the Trust Indenture dated as of ______________ ______, between the
undersigned and Aerovox Incorporated (the "Borrower") relating to the Borrower's
$10,170,000 Taxable Adjustable Rate Notes, Series 2000, and has accepted such
appointment in writing.

     We enclose our check in the amount of $500.00 representing your transfer
fee.

     The original of such Letter of Credit is returned herewith, and in
accordance therewith we ask you to endorse the within transfer on the reverse
thereof, and forward it directly to the Transferee with your customary notice of
transfer, or issue a replacement Letter of Credit to the Transferee as provided
therein.

__________________________                       _____________________________
Authorized Signature                             Authorized Signature

                                       43
<PAGE>

                                                                    Exhibit 4.16

Very truly yours,

SIGNATURE AUTHENTICATED                     THE HUNTINGTON NATIONAL BANK,
                                            as Trustee

By:________________________                 By:___________________________
(Bank)                                      (Authorized Officer)

__________________________                  ______________________________
Authorized Signature                        Authorized Signature

                                       44
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 6
                                  ----------

                   CERTIFICATE THAT NO NOTES ARE OUTSTANDING
                   -----------------------------------------

KeyBank National Association
66 South Pearl Street
Albany, New York   12207-1501

Attention:  International Department

     RE:  KeyBank National Association Irrevocable Transferable Direct Pay
          Letter of Credit No. NSL093053

Gentlemen:

     The undersigned, a duly authorized officer of The Huntington National Bank,
as Trustee (the "Trustee"), and a duly authorized representative of Aerovox
Incorporated ("Borrower"), hereby certify to KeyBank National Association with
reference to KeyBank National Association Irrevocable Transferable Direct Pay
Letter of Credit No. NSL093053 (the "Letter of Credit," the capitalized terms
defined therein and not defined herein being used as therein defined) issued by
KeyBank National Association in favor of the Trustee that:

     (i)    The Trustee is the Trustee under the Indenture for the holders of
            the Notes.

     (ii)   No Notes are Outstanding within the meaning of the Indenture.

     (iii)  The undersigned officer and representative are duly authorized to
            sign this certificate on behalf of the Trustee and on behalf of the
            Borrower, respectively.

     IN WITNESS WHEREOF, the Trustee and the Borrower have executed and
delivered this certificate as of the ____ day of _______, ______.

                                             THE HUNTINGTON NATIONAL BANK,
                                             as Trustee

                                             By:______________________________
                                             Its:_____________________________

                                             AEROVOX INCORPORATED

                                             By:______________________________
                                             Its:_____________________________

__________________________                   _________________________________
Authorized Signature                         Authorized Signature

                                       45
<PAGE>

                                                                    Exhibit 4.16

                                  SCHEDULE 7
                                  ----------

                CERTIFICATE OF ACCEPTANCE OF ALTERNATE SECURITY
                -----------------------------------------------

KeyBank National Association
66 South Pearl Street
Albany, New York 12207-1501

Attention:  International Department

     RE:  KeyBank National Association Irrevocable Transferable Direct Pay
          Letter of Credit No. NSL093053

Gentlemen:.

     The undersigned, a duly authorized officer of The Huntington National Bank,
as Trustee (the "Trustee"), and a duly authorized representative of Aerovox
Incorporated ("Borrower"), respectively, hereby certify to KeyBank National
Association with reference to KeyBank National Association Irrevocable
Transferable Direct Pay Letter of Credit No. NSL093053 (the "Letter of Credit",
and other capitalized terms used herein and not defined shall have their
respective meanings as set forth in the Letter of Credit) issued by KeyBank
National Association in favor of the Trustee that:

     (i)    The Trustee is the Trustee under the Indenture for the holders of
            the Notes.
     (ii)   An Alternate Credit Facility in substitution for the Letter of
            Credit has been accepted by the Trustee.
     (iii)  The undersigned officer of the Trustee and representative of the
            Borrower are duly authorized to sign this certificate on behalf of
            the Trustee and the Borrower, respectively.

     IN WITNESS WHEREOF, the Trustee and the Borrower have executed and
delivered this certificate as of the _____ day of ________, _____.

                                       THE HUNTINGTON NATIONAL BANK,
                                       as Trustee

                                       By:____________________________________
                                       Its:___________________________________

                                       AEROVOX INCORPORATED

                                       By:____________________________________
                                       Its:___________________________________

__________________________             _______________________________________
Authorized Signature                   Authorized Signature

                                       46
<PAGE>

                                                                    Exhibit 4.16

                                   EXHIBIT B

                            PERMITTED ENCUMBRANCES
                            ----------------------

                All items set forth in Schedule B, Section 2 of
                               the Title Policy

__________________________                       _____________________________
Authorized Signature                             Authorized Signature

                                       47
<PAGE>

                                   EXHIBIT C

                           PAYMENT SCHEDULE OF NOTES
                           -------------------------

--------------------------------------------------------------------------------
   Payment Due Date    Principal Amount    Payment Due Date    Principal Amount
================================================================================
March 1, 2001              $95,000.00        June 1, 2008           $175,000.00
--------------------------------------------------------------------------------
June 1, 2001              $100,000.00        September 1, 2008      $175,000.00
--------------------------------------------------------------------------------
September 1, 2001         $100,000.00        December 1, 2008       $180,000.00
--------------------------------------------------------------------------------
December 1, 2001          $105,000.00        March 1, 2009          $185,000.00
--------------------------------------------------------------------------------
March 1, 2002             $105,000.00        June 1, 2009           $185,000.00
--------------------------------------------------------------------------------
June 1, 2002              $105,000.00        September 1, 2009      $190,000.00
--------------------------------------------------------------------------------
September 1, 2002         $110,000.00        December 1, 2009       $195,000.00
--------------------------------------------------------------------------------
December 1, 2002          $110,000.00        March 1, 2010          $200,000.00
--------------------------------------------------------------------------------
March 1, 2003             $115,000.00        June 1, 2010           $200,000.00
--------------------------------------------------------------------------------
June 1, 2003              $115,000.00        September 1, 2010      $205,000.00
--------------------------------------------------------------------------------
September 1, 2003         $120,000.00        December 1, 2010       $210,000.00
--------------------------------------------------------------------------------
December 1, 2003          $120,000.00        March 1, 2011          $215,000.00
--------------------------------------------------------------------------------
March 1, 2004             $125,000.00        June 1, 2011           $220,000.00
--------------------------------------------------------------------------------
June 1, 2004              $125,000.00        September 1, 2011      $225,000.00
--------------------------------------------------------------------------------
September 1, 2004         $130,000.00        December 1, 2011       $230,000.00
--------------------------------------------------------------------------------
December 1, 2004          $130,000.00        March 1, 2012          $235,000.00
--------------------------------------------------------------------------------
March 1, 2005             $135,000.00        June 1, 2012           $235,000.00
--------------------------------------------------------------------------------
June 1, 2005              $135,000.00        September 1, 2012      $240,000.00
--------------------------------------------------------------------------------
September 1, 2005         $140,000.00        December 1, 2012       $245,000.00
--------------------------------------------------------------------------------
December 1, 2005          $140,000.00        March 1, 2013          $250,000.00
--------------------------------------------------------------------------------
March 1, 2006             $145,000.00        June 1, 2013           $255,000.00
--------------------------------------------------------------------------------
June 1, 2006              $150,000.00        September 1, 2013      $260,000.00
--------------------------------------------------------------------------------
September 1, 2006         $150,000.00        December 1, 2013       $265,000.00
--------------------------------------------------------------------------------
December 1, 2006          $155,000.00        March 1, 2014          $270,000.00
--------------------------------------------------------------------------------
March 1, 2007             $155,000.00        June 1, 2014           $280,000.00
--------------------------------------------------------------------------------
June 1, 2007              $160,000.00        September 1, 2014      $285,000.00
--------------------------------------------------------------------------------
September 1, 2007         $165,000.00        December 1, 2014       $290,000.00
--------------------------------------------------------------------------------
December, 2007            $165,000.00        March 1, 2015          $295,000.00
--------------------------------------------------------------------------------
March 1, 2008             $170,000.00
--------------------------------------------------------------------------------

                                       48
<PAGE>

                                   EXHIBIT D

                                  LITIGATION
                                  ----------

                                     None

                                       49<PAGE>

                                                                    Exhibit 4.17

                             REMARKETING AGREEMENT

                                    between

                             Aerovox Incorporated

                                      and

                           McDonald Investments Inc.

                      __________________________________

                           Dated as of March 1, 2000
                      __________________________________

                                  $10,170,000
                             Aerovox Incorporated
                  Taxable Adjustable Rate Notes, Series 2000
<PAGE>
                                                                    Exhibit 4.17

                             REMARKETING AGREEMENT
                             ---------------------

          This REMARKETING AGREEMENT, dated as of March 1, 2000 (the
"Remarketing Agreement"), is made by and between Aerovox Incorporated (the
"Issuer") and McDonald Investments Inc., as placement agent and remarketing
agent (the "Remarketing Agent"), and is entered in connection with the issuance
of Aerovox Incorporated Taxable Adjustable Rate Notes, Series 2000 in the total
aggregate principal amount not to exceed $10,170,000 (the "Notes").

                                   ARTICLE I
                                   ---------

                                  Definitions
                                  -----------

Section 1.01.  Capitalized Terms.
               -----------------

          Capitalized terms used in this Remarketing Agreement, unless otherwise
defined herein, shall have the meanings assigned to them in the Trust Indenture,
dated as of March 1, 2000 (the "Indenture"), between the Issuer and The
Huntington National Bank, Columbus, Ohio, as Trustee, with respect to the Notes.

Section 1.02.  Rules of Interpretation.
               -----------------------

          (a)  This Remarketing Agreement shall be interpreted in accordance
               with and governed by the laws of the State of Maine.

          (b)  The words "herein" and "hereof" and words of similar import,
               without reference to any particular Article, Section or
               subsection, refer to this Remarketing Agreement as a whole rather
               than to any particular Article, Section or subsection hereof.

          (c)  The headings of Articles and Sections herein are for convenience
               only and shall not affect the construction hereof.

                                  ARTICLE II
                                  ----------

                             Remarketing of Notes
                             --------------------

Section 2.01.  Representations and Warranties of the Issuer.
               --------------------------------------------

          The Issuer hereby represents and warrants, for the benefit of the
Remarketing Agent, as remarketing agent and as placement agent in connection
with the initial placement of the Notes on the delivery date, that:

          (a)  The Issuer is a corporation, duly formed and existing under the
               laws of the State of Delaware, and has full power and authority
               to enter into the

                                      -1-
<PAGE>

               Indenture, this Remarketing Agreement and the Reimbursement
               Agreement and to issue the Notes and to carry out the provisions
               hereof and thereof.

          (b)  The Indenture, the Reimbursement Agreement, this Remarketing
               Agreement and the Notes have been duly authorized, executed and
               delivered by the Issuer and, assuming the due execution and
               delivery of such agreements by the other parties thereto, are
               valid obligations legally binding upon the Issuer and enforceable
               in accordance with their respective terms, except as
               enforceability may be limited by bankruptcy or other laws
               affecting the enforcement of creditors' rights generally or by
               general principles of equity and public policy. The Notes have
               been duly authorized by the Issuer. The Issuer has approved the
               use and distribution of the Limited Offering Memorandum dated as
               of March 22, 2000 (the "Limited Offering Memorandum") in
               connection with the initial placement of the Notes.

          (c)  Except for all consents, approvals or authorizations of, or
               declaration or filing under any federal or state securities or
               "blue sky" laws, to Issuer's actual knowledge, no consent,
               approval or authorization of, or declaration or filing with, any
               governmental authority or any other third party is a condition to
               the execution and delivery by the Issuer of the Indenture, this
               Remarketing Agreement or the Reimbursement Agreement, or is
               required in connection with the offer, issuance and delivery by
               the Issuer of the instruments contemplated hereby. Neither the
               execution and delivery of the Indenture, the Reimbursement
               Agreement, this Remarketing Agreement or the Notes nor
               consummation of the transaction contemplated hereby or thereby or
               by the Limited Offering Memorandum, will, to Issuer's actual
               knowledge, violate any provision of applicable law or any
               applicable regulation, order, writ or decree of any court or
               governmental authority affecting the Issuer as of the date
               hereof, or will conflict or will be inconsistent with, or will
               result in any breach of any of the terms of, or will constitute a
               default under, any indenture, mortgage, deed of trust, agreement
               or other instrument to which the Issuer is a party or by which it
               is bound, or will violate any provision of the Issuer's Articles
               of Incorporation or By-laws.

          (d)  To Issuer's actual knowledge, there is no action, suit,
               proceeding, inquiry or investigation, at law or in equity, or
               before or by any court, public board or body, pending or, to the
               actual knowledge of the Issuer, threatened which challenges the
               validity of or seeks to enjoin the execution and delivery by the
               Issuer of, or the performance by the Issuer of its obligations
               with respect to, the Indenture, this Remarketing Agreement, the
               Reimbursement Agreement or the Notes, and, to Issuer's actual
               knowledge, there is no action, suit, proceeding, inquiry or
               investigation, at

                                      -2-
<PAGE>

               law or in equity, or before or by any court, public board or
               body, pending or, to the actual knowledge of the Issuer,
               threatened against or affecting the Issuer (and to the actual
               knowledge of the Issuer there is no basis therefor) wherein there
               is a reasonable possibility of an unfavorable decision, ruling or
               finding which would materially adversely affect any of the
               transactions contemplated by the Limited Offering Memorandum, or
               which might result in any material adverse change in the
               properties, condition (financial or otherwise) or operations of
               the Issuer.

          (e)  Subject to the proviso that the Limited Offering Memorandum is a
               summary and does not contain detailed information about the
               Issuer or its intended use of proceeds from the sale of the
               Notes, and that the Issuer makes no representation as to the
               financial condition of the Bank, the Limited Offering Memorandum
               does not contain an untrue or misleading statement of a material
               fact relating to the Issuer or the use of proceeds or omit to
               state any material fact relating to the Issuer or the use of
               proceeds necessary in order to make the statements contained
               therein relating to the Issuer or the use of proceeds, in light
               of the circumstances under which they were made, not misleading.

Section 2.02.  Remarketing Agent's Acceptance.
               ------------------------------

          McDonald Investments Inc. hereby accepts the appointment made by the
Issuer pursuant to the Indenture to serve as Remarketing Agent for the Notes.
Acceptance of that appointment as Remarketing Agent under the Indenture is
expressly subject to the condition that the Remarketing Agent shall not
undertake to perform any duties or assume any obligations to the Trustee, the
Holders or the Issuer other than those expressly set forth herein and in the
Indenture.

Section 2.03.  Remarketing Agent's Obligations.
               -------------------------------

          McDonald Investments Inc. agrees to accept the duties and obligations
imposed upon it as Remarketing Agent under the Indenture, which duties and
obligations are incorporated into and made a part of this Remarketing Agreement,
and in particular agrees:

          (a)  to determine the interest rates on the Notes in accordance with
               Section 2.02 of the Indenture;

          (b)  to give notice, by wire, telex, telegraph or telecopier or other
               similar means of communication, of each interest rate on the
               Notes on the date of determination of said interest rates as
               provided in Section 2.02 of the Indenture to the Trustee;

          (c)  to keep such books and records as shall be consistent with
               prudent industry practice and to make such books and records
               available for inspection by the Issuer and the Trustee at all
               reasonable times;

                                      -3-
<PAGE>

          (d)  to use its best efforts to remarket the Notes in accordance with
               Section 3.02 of the Indenture; and

          (e)  to comply with all applicable laws in connection with its efforts
               to remarket the Notes.

          The Remarketing Agent hereby represents that it has the necessary
authority to enter into this Remarketing Agreement and to perform its duties and
obligations set forth in this Remarketing Agreement and the Indenture and that
it has made all required registrations with federal and state securities
regulation agencies for those purposes.

                                  ARTICLE III
                                  -----------

                                  Disclosure
                                  ----------

Section 3.01.  Provision of Disclosure Materials.
               ---------------------------------

          In connection with the Remarketing Agent's placement efforts with
respect to the initial placement of the Notes, the Issuer agrees to provide for
the use of the Remarketing Agent a Limited Offering Memorandum (the "Limited
Offering Memorandum") satisfactory to the Remarketing Agent. In addition, if the
Remarketing Agent determines that it is necessary or desirable to use an amended
or supplemented Limited Offering Memorandum in connection with any remarketing
of Notes, the Remarketing Agent will so notify the Issuer and the Issuer agrees
that the Issuer shall provide an amended or supplemented Limited Offering
Memorandum reasonably satisfactory to the Remarketing Agent for use in
connection with the marketing of the Notes. The Issuer agrees to supply to the
Remarketing Agent such number of copies of any Limited Offering Memorandum and
documents related thereto as are reasonably requested from time to time by the
Remarketing Agent and further agrees to amend or supplement such Limited
Offering Memorandum (and/or any documents incorporated by reference therein), in
connection with any future remarketing, so that at all times the Limited
Offering Memorandum and documents related thereto are reasonable satisfactory to
the Remarketing Agent.

                                  ARTICLE IV
                                  ----------

                                    General
                                    -------
Section 4.01.  Indemnification.
               ---------------

          The Issuer agrees to indemnify the Remarketing Agent for and to hold
it harmless against all liabilities, claims, costs and expenses incurred without
gross negligence or bad faith on the part of the Remarketing Agent on account of
any action taken or omitted to be taken by the Remarketing Agent in accordance
with the terms of the Notes, the Reimbursement Agreement, the Letter of Credit
or the Indenture, or in connection with the placement or remarketing of the
Notes, including the use of the Limited Offering Memorandum, or any action taken
at the request of or with the consent of the Issuer, including the reasonable
costs and expenses of the Remarketing Agent in defending itself against any such
claim, action or proceeding brought in

                                      -4-
<PAGE>

connection with the exercise or performance of any of its powers or duties under
the Notes, the Indenture, the Reimbursement Agreement or the Letter of Credit;
except to the extent that any such claim, liability, cost or expense arises in
connection with (i) the failure by the Remarketing Agent to deliver the Limited
Offering Memorandum, or any amended or supplemented Limited Offering Memorandum
or amendment or supplement to the Limited Offering Memorandum, to any purchaser
of the Notes if the Issuer has provided the Limited Offering Memorandum, or any
amended or supplemented Limited Offering Memorandum or amendment or supplement
to the Limited Offering Memorandum (in accordance with Section 3.01 hereof), as
the case may be, to the Remarketing Agent for use in connection with the
placement or remarketing of the Notes, or (ii) any untrue or misleading
statement, or alleged untrue or misleading statement, or omission or alleged
omission in information relating to the Remarketing Agent provided by the
Remarketing Agent for inclusion in the Limited Offering Memorandum or any
amended or supplemented Limited Offering Memorandum or any amendment or
supplement to the Limited Offering Memorandum.

          In case any claim, action or proceeding is brought against the
Remarketing Agent in respect of which indemnity may be sought hereunder, the
Remarketing Agent promptly shall give notice of that claim, action or proceeding
to the Issuer, and the Issuer, upon receipt of that notice, shall have the
obligation and the right to assume the defense of the claim, action or
proceeding at the Issuer's expense; provided, that failure of the Remarketing
Agent to give that notice shall not relieve the Issuer from any of its
obligations under this Section unless that failure prejudices the defense of the
claim, action or proceeding by the Issuer. At its own expense, the Remarketing
Agent may employ separate counsel and participate in the defense. The Issuer
shall not be liable for any settlement made without its consent, which consent
shall not be unreasonably withheld.

          The indemnification set forth above is intended to and shall include
the indemnification of all affected officials, directors, officers and employees
of the Remarketing Agent. Such indemnification is intended to and shall be
enforceable by the Remarketing Agent to the full extent permitted by law.

Section 4.02.  Placement and Remarketing Fees.
               ------------------------------

          The Issuer shall pay the Remarketing Agent, for its services as
remarketing agent, an annual fee equal to 12.5 basis points (1/8th of 1%) per
annum of the amount of the Notes outstanding, payable semi-annually in arrears,
and a fee with respect to the initial placement of the Notes equal to seventy-
five one hundredths percent (0.75%) of the aggregate principal amount of the
Notes, payable from the proceeds of the sale of the Notes on March 22, 2000.

          The Issuer also shall pay (i) all expenses in connection with the
provision of information required for the preparation of the Limited Offering
Memorandum or supplement thereto provided pursuant to Section 3.01 of this
Remarketing Agreement, (ii) all fees and expenses incurred in connection with
the registration of the Notes under any state securities laws, (iii) all
expenses and costs to effect the authorization, preparation, issuance,
registration under any federal securities laws or the procurement of an
exemption therefrom, delivery and sale of

                                      -5-
<PAGE>

the Notes, including, without limitation, the reasonable fees and disbursements
of counsel to the Letter of Credit Bank, counsel to McDonald Investments Inc. as
placement agent and remarketing agent and counsel to the Issuer, and the
expenses and costs for the preparation, printing, photocopying, execution and
delivery of the Notes, the Indenture, the Reimbursement Agreement, this
Remarketing Agreement, the Limited Offering Memorandum and all other agreements
and documents contemplated by such documents, and (iv) the cost of obtaining any
rating on the Notes.

Section 4.03.  Term.
               ----

          This Remarketing Agreement will terminate upon the effective date of
the resignation or removal of McDonald Investments Inc. as Remarketing Agent in
accordance with the provisions of this Remarketing Agreement and Section 12.01
of the Indenture.

          Upon the termination of this Remarketing Agreement, the provisions of
Section 4.01 hereof will continue to remain in effect and any Notes or moneys
then held by McDonald Investments Inc. as Remarketing Agent will be delivered to
the successor remarketing agent or, if there is no successor, to the Trustee.

Section 4.04.  Remarketing Agent's Performance.
               -------------------------------

          The duties and obligations of the Remarketing Agent shall be
determined solely by the express provisions of this Remarketing Agreement and
the Indenture, and the Remarketing Agent shall not be responsible for the
performance of any duties and obligations other than as are specifically set
forth in this Remarketing Agreement and the Indenture, and no implied covenants
or obligations shall be read into this Remarketing Agreement or the Indenture
against the Remarketing Agent. The Remarketing Agent may conclusively rely upon
any notice or document given or furnished to it, and conforming to the
requirements of this Remarketing Agreement or the Indenture, and the Remarketing
Agent may rely and shall be protected in acting upon such notice or any document
reasonably believed by it to be genuine and to have been given, signed or
presented by the proper party or parties. The Remarketing Agent will use its
best efforts to comply with all applicable laws and regulations in the
performance of its duties and obligations hereunder and under the Indenture and
use its best efforts to perform such duties and obligations.

Section 4.05.  Notices.
               -------

          Unless otherwise specified, any notices, requests or other
communications given or made hereunder or pursuant hereto shall be made in
writing and shall be deemed to have been validly given or made if either duly
mailed by certified or registered mail, return receipt requested, or hand
delivered, or overnight mail, or facsimile, addressed as follows: if to the
Issuer, Aerovox Incorporated, 740 Belleville Avenue, New Bedford, Massachusetts
02745, Attention: President, with a copy to Stanley B. Kay, Esq., 85 Wells
Avenue, Suite 200, Newton, Massachusetts 02459-3215, and if to the Remarketing
Agent, McDonald Investments Inc., 800 Superior Avenue, 17th Floor, Fixed Income
Department, Cleveland, Ohio 44114. The Notice Address shall constitute, for the
purposes set forth in the Indenture, the principal office of McDonald
Investments Inc. as Remarketing Agent.

                                      -6-
<PAGE>

          IN WITNESS WHEREOF, the Issuer and the Remarketing Agent have caused
this Remarketing Agreement to be duly executed by their duly authorized
representatives, respectively, as of the date first above written.

                                   AEROVOX INCORPORATED

                                   By: ROBERT D. ELLIOTT
                                       Robert D. Elliott
                                       President and Chief Executive Officer

                                   MCDONALD INVESTMENTS INC.

                                   By: JEFFREY S. FREESE
                                       Jeffrey S. Freese, Managing Director

                                      -7-

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