-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S2sIPKSiDM1+p2Bo3UR2+/Dx9SEuNCwvJpNe098UYvvg5OyhTsAubGGj8QkLFqfG ipkCuPvkyJm42PWA1iosIQ== 0000912057-97-030410.txt : 19970912 0000912057-97-030410.hdr.sgml : 19970912 ACCESSION NUMBER: 0000912057-97-030410 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970824 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19970910 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KERR GROUP INC CENTRAL INDEX KEY: 0000055454 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS PRODUCTS, NEC [3089] IRS NUMBER: 950898810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-07272 FILM NUMBER: 97678457 BUSINESS ADDRESS: STREET 1: 500 NEW HOLLAND AVE CITY: LANCASTER STATE: PA ZIP: 17602 BUSINESS PHONE: 3105562200 MAIL ADDRESS: STREET 1: 1840 CENTURY PARK EAST CITY: LOS ANGELES STATE: CA ZIP: 90067 FORMER COMPANY: FORMER CONFORMED NAME: KERR GLASS MANUFACTURING CORP DATE OF NAME CHANGE: 19920518 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): August 24, 1997 KERR GROUP, INC. -------------------------- (Exact name of registrant as specified in charter) DELAWARE 1-7272 95-0898810 - -------------- -------------- ----------------- (State or other (Commission File (IRS Employer jurisdiction of Number) Identification No.) incorporation) 500 NEW HOLLAND AVENUE, LANCASTER, PA 17602 - -------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (717) 299-6511 NOT APPLICABLE (Former name or former address, if changed from last report) ITEM 1. CHANGES IN CONTROL OF REGISTRANT a. On August 26, 1997, Fremont Acquisition Company, LLC ("Fremont") and Kerr Acquisition Corporation ("KAC") completed their previously announced cash tender offer (the "Tender Offer") for all of the shares of Common Stock, par value $.50 per share (the "Common Stock") and $1.70 Class B Cumulative Convertible Preferred Stock, Series D, par value $.50 per share (the "Preferred Stock") of Kerr Group, Inc. (the "Company") pursuant to the Agreement and Plan of Merger, dated July 1, 1997, among the Company, Fremont and KAC (the "Merger Agreement"). Fremont now beneficially owns approximately 93% of the Common Stock outstanding, approximately 63% of the Preferred Stock outstanding and approximately 81% of the Common Stock outstanding on an as-converted, fully diluted basis. Fremont acquired the Common Stock and Preferred Stock from shareholders who tendered their shares pursuant to the Tender Offer. Subject to the terms of the Merger Agreement, shares of Common Stock and Preferred Stock not tendered will be converted into the right to receive $5.40 net per share of Common Stock and $12.50 net per share of Preferred Stock pursuant to a second step merger between KAC and the Company (the "Merger"). In connection with the Merger and the consummation of the Tender Offer, the Company entered into that certain Loan and Security Agreement, dated as of August 26, 1997 (the "Loan and Security Agreement"), by and among the Company, the lenders from time to time party thereto (the "Lenders"), L/C Issuer (as defined therein) and NationsBank of Texas, N.A. ("NationsBank") as agent for the Lenders, pursuant to which the Lenders extended credit facilities to the Company in an aggregate amount of $62 million dollars, which credit facilities were used, among other things, (i) to refinance the outstanding principal balance of funded indebtedness (including premium, and accrued and unpaid interest) of the Company at the time of the consummation of the Tender Offer, (ii) to pay a portion of the fees and expenses incurred in connection with the Tender Offer and (iii) to provide for working capital and general corporate purposes of the Company after the consummation of the Tender Offer. NationsBank received a first priority, perfected security interest in all of the tangible and intangible assets of the Company. Pursuant to the Loan and Security Agreement, NationsBank, in its capacity as initial Lender, provided the Company with credit facilities in the aggregate amount of up to $62 million consisting of a $20 million revolving credit facility (which includes a sublimit for the issuance of standby and commercial letters of credit) (the "Revolving Credit Facility"), a $32 million term loan facility (the "Term Loan Facility") and a $10 million equipment acquisition facility (the "CAPEX Facility" and together with the Revolving Credit Facility and the Term Loan Facility, the "Senior Credit Facilities"). The Revolving Credit Facility bears interest at a rate equal to LIBOR plus 225 basis points or the Base Rate (defined as the higher of (i) the NationsBank prime rate and (ii) the Federal Funds rate), at all times subject to applicable maximum legal interest rates. The Term Loan Facility and the CAPEX Facility bear interest at a rate equal to LIBOR plus 275 basis points or the Base 2 Rate plus 50 basis points, in each case at all times subject to applicable maximum legal interest rates. The Company may select interest periods of 1, 2, 3 or 6 months for LIBOR loans, subject to availability. A default rate of interest applies on all loans in the event of default at a rate per annum of 2% above the applicable interest rate. The Revolving Credit Facility terminates and all amounts outstanding thereunder will be due and payable in full five years from the closing of the Tender Offer (the "Closing"). The Term Loan Facility is subject to repayment according to scheduled amortization, with the final payment of all amounts outstanding, plus accrued interest due five years from the Closing or upon termination of the Revolving Credit Facility, whichever is earlier. The CAPEX Facility also is subject to amortization, with the final payment of all amounts outstanding, plus accrued interest, due five years from the Closing or upon termination of the Revolving Credit Facility, whichever is earlier. The Loan and Security Agreement provides for prepayment of the Senior Credit Facilities provided that the Company pays liquidated damages in an amount equal to the appropriate percentage of the maximum approved amount of the Senior Credit Facilities: (i) 1.0% if such termination or reduction occurs during the first year following the closing, (ii) 0.50% if such termination or reduction occurs during the second year following the Closing and (iii) 0.25% if such termination or reduction occurs at any time thereafter. However, no such payment is required upon termination in connection with refinancing of the Senior Credit Facilities with NationsBank or any of its affiliates. Fremont and KAC each have guaranteed the payment obligations of the Company under the Loan and Security Agreement. b. None. ITEM 5. OTHER EVENTS a. On August 24, 1997, the Company and the Pension Benefit Guaranty Corporation (the "PBGC") entered into a definitive agreement pursuant to which the PBGC agreed to dismiss its lawsuit now pending before the United States District court for the Eastern District of Pennsylvania seeking to terminate the Company's pension plan, withdraw its Notice of Determination and forbear from instituting new proceedings with respect to the acquisition. Pursuant to the terms of the definitive agreement, the Company agreed to 3 (i) future enhanced pension plan contributions, (ii) grant to the PBGC a second lien in the amount of $40.7 million secured by substantially all of the assets of the Company, (iii) various restrictions on future secured indebtedness and (iv) provisions regarding notice of certain events. The definitive agreement became effective upon the consummation of the Tender Offer. b. On August 26, 1997, the Company refinanced all of its existing indebtedness, including its 9.45% Senior Series A and 8.99% Series B Notes and its credit facility with Madeleine L.L.C., through a secured credit facility with NationsBank. See Item 1. c. On August 26, 1997, pursuant to terms of the Merger Agreement, upon the completion of the Tender Offer, (i) all of the Company's directors retired or resigned except for Harvey L. Sperry and (ii) Mr. Sperry appointed Mark N. Williamson and Gregory P. Spivy to the Company's Board of Directors. Currently, the Company's directors are Mr. Sperry, Mr. Spivy and Mr. Williamson. d. Effective as of August 31, 1997, the Company's Board of Directors (i) appointed Richard D. Hofmann as President and Chief Executive Officer and Lawrence C. Caldwell as Chief Financial Officer, Treasurer and Secretary of the Company, and (ii) removed each of the following individuals from their respective offices: D. Gordon Strickland as President and Chief Executive Officer, Robert S. Reeves as Senior Vice President, Sales, Richard H. Dittmar as Vice President, Employee Relations, Larry R. Knipple as Vice President and Secretary and Geoffrey A. Whynot as Vice President, Finance and Chief Financial Officer of the Company. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of businesses acquired: None. (b) Pro Forma financial information: None. (c) Exhibits: 10.42 Agreement, dated August 24, 1997, by and between the PBGC and the Company. 10.43 Security Agreement, dated as of August 24, 1997, by and between the PBGC and the Company. 4 10.44 Subordination and Standby Agreement, dated August 24, 1997, by and among NationsBank, the Company and the PBGC. 10.45 Loan and Security Agreement, dated as of August 26, 1997, by and among the Company, the Lenders, L/C Issuer and NationsBank. 10.46 Guaranty Agreement, dated as of August 26, 1997, by and between Kerr Acquisition Corporation and NationsBank. 10.47 Guaranty Agreement, dated as of August 26, 1997, by and between Fremont and NationsBank. 5 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. KERR GROUP, INC. By: /s/ Lawrence C. Caldwell ------------------------------ Name: Lawrence C. Caldwell Title: Chief Financial Officer, Treasurer and Secretary Dated: September 10, 1997 6 EXHIBIT INDEX Exhibit - ------- 10.42 Agreement, dated August 24, 1997, between the PBGC and the Company. 10.43 Security Agreement, dated as of August 24, 1997, by and between the PBGC and the Company. 10.44 Subordination and Standby Agreement, dated August 24, 1997, by and among NationsBank, the Company and the PBGC. 10.45 Loan and Security Agreement, dated as of August 21, 1997, by and among the Company, the Lenders, L/C Issuer and NationsBank. 10.46 Guaranty Agreement, dated as of August 26, 1997, by and between Kerr Acquisition Corporation and NationsBank. 10.47 Guaranty Agreement, dated as of August 26, 1997, by and between Fremont and NationsBank. 7 EX-10.42 2 EXHIBIT 10.42 AGREEMENT BETWEEN PENSION BENEFIT GUARANTY CORPORATION AND KERR GROUP, INC. DATED AS OF AUGUST 24, 1997 TABLE OF CONTENTS ARTICLE I......................................................................2 DEFINITIONS .............................................................. 2 1.1 GENERAL........................................................2 ARTICLE II.....................................................................4 ENHANCED CONTRIBUTIONS .................................................. 4 2.1 GENERAL........................................................4 2.2 CONTRIBUTIONS FOR PLAN YEAR 2003 AND THEREAFTER................5 2.3 MEETING THE STATUTORY FUNDING REQUIREMENTS.....................5 ARTICLE III....................................................................6 PERMITTED FUTURE FINANCINGS AND FUTURE FINANCING PAYMENTS ................ 6 3.1 SECURED DEBT...................................................6 3.2 UNSECURED DEBT.................................................6 3.3 EFFECT ON ENHANCED CONTRIBUTIONS AND STATUTORY FUNDING REQUIREMENTS...................................................6 ARTICLE IV.....................................................................6 PBGC LIEN ................................................................ 6 4.1 AGREED TERMINATION LIABILITY...................................6 4.2 PBGC SECURITY AGREEMENT AND INTERCREDITOR AGREEMENT............7 4.3 FINANCING STATEMENTS...........................................7 ARTICLE V......................................................................7 TAX DEDUCTIBILITY ........................................................ 7 5.1 GENERAL........................................................7 5.2 DETERMINING DEDUCTIBILITY......................................7 5.3 CARRYOVER......................................................8 5.4 NOTICE TO PBGC.................................................8 ARTICLE VI.....................................................................8 PLAN LIEN .................................................................8 6.1 GENERAL........................................................8 6.2 FINANCING STATEMENTS...........................................8 6.3 PLAN LIEN IS SUBORDINATE TO SECURED DEBT...................... 8 ARTICLE VII....................................................................9 PBGC FORBEARANCE ......................................................... 9 7.1 DISMISSAL OF TERMINATION ACTION................................9 7.2 PBGC'S FORBEARANCE.............................................9 ARTICLE VIII...................................................................9 TERMINATION................................................................9 8.1 TERMINATION OF AGREEMENT.......................................9 8.2 EFFECT OF TERMINATION.........................................10 8.3 EARLIER RELEASE OF PBGC LIEN..................................10 8.4 EFFECT ON PLAN LIEN...........................................10 8.5 NOTICE TO PBGC................................................11 8.6 EFFECT OF PLAN LIEN...........................................11 ARTICLE IX....................................................................11 NOTICES TO PBGC...........................................................11 9.1 GENERAL.......................................................11 9.2 NOTICE OF MERGER OR CONSOLIDATION.............................12 ARTICLE X.....................................................................13 THE CLOSING AND EVENTS OF DEFAULT.........................................13 10.1 GENERAL.......................................................13 10.2 EVENTS OF DEFAULT BY KERR.....................................13 ARTICLE XI....................................................................13 GENERAL PROVISIONS........................................................13 11.1 LIMITATION OF RIGHTS..........................................13 11.2 SEVERABILITY..................................................14 11.3 NOTICES.......................................................14 11.4 WEEKENDS AND HOLIDAYS.........................................14 11.5 COUNTERPARTS..................................................15 11.6 ENTIRE AGREEMENT..............................................15 11.7 NO ADMISSION OF LIABILITY.....................................15 11.8 REPRESENTATIONS AND WARRANTIES................................15 11.9 NO RELIANCE...................................................15 11.10 AMENDMENTS AND WAIVERS........................................16 11.11 HEADINGS......................................................16 11.12 GOVERNING LAW.................................................16 11.13 BINDING EFFECT................................................16 11.14 CONSTRUCTION..................................................16 11.15 ASSIGNMENT....................................................16 11.16 NO CHANGE TO GOVERNING PLAN DOCUMENTS OR PLAN ADMINISTRATION................................................16 11.17 RESERVATION OF RIGHTS.........................................16 11.18 SUBORDINATION AND STANDBY AGREEMENT...........................17 AGREEMENT THIS AGREEMENT is entered into on August 24, 1997, between the PENSION BENEFIT GUARANTY CORPORATION ("PBGC"), for its own benefit and for the benefit of the Kerr Group, Inc. Retirement Income Plan ("Plan"), and KERR GROUP, INC. ("Kerr"). RECITALS WHEREAS, Kerr is the contributing sponsor of the Plan; and WHEREAS, Fremont Acquisition Company, LLC ("Fremont"), proposes to consummate the Proposed Acquisition (as hereinafter defined) no later than August 25, 1997; and WHEREAS, simultaneously with or immediately following the consummation of the Proposed Acquisition (as hereinafter defined), Kerr will enter into the Loan and Security Agreement and incur the Senior Debt (as both such terms are hereinafter defined) and will use approximately $45 million of the borrowed funds to repay certain outstanding unsecured indebtedness of Kerr (the "Refinancing"); and WHEREAS, PBGC filed a civil action (the "Termination Action") in the United States District Court for the Eastern District of Pennsylvania, asserting that PBGC's possible long run loss with respect to the Plan could reasonably be expected to increase unreasonably as a result of the Proposed Acquisition and Refinancing, and seeking to terminate the Plan pursuant to 29 U.S.C. Section 1342 effective before the Proposed Acquisition is consummated; and WHEREAS, in consideration of Kerr's agreement to undertake the obligations set forth below in this Agreement, PBGC has agreed to dismiss the Termination Action and to forbear from taking further action to terminate the Plan as a result of the Proposed Acquisition and Refinancing; NOW THEREFORE, for good and valuable consideration, and intending to be bound hereby, PBGC and Kerr agree as follows: 1 ARTICLE I DEFINITIONS 1.1 GENERAL. As used in this Agreement, the following terms have the following meanings: "Additional Contributions" means the contributions required under section 2.2(b) of this Agreement. "Agent means the "Agent" as defined in the Loan and Security Agreement. "Agreement" means this Agreement and all exhibits, addenda and other attachments hereto, and any renewal, extension, amendment, modification, restatement or supplement hereof. "CAPEX Loan Facility" means the loan facility to be used for the purchase of property, plant and equipment provided for under Article 5 of the Loan and Security Agreement (as hereinafter defined). "Closing" means the date and time of the closing of the Refinancing. "Code" means the Internal Revenue Code of 1986, as amended, 26 U.S.C. Section 1, et seq., and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of the Code shall be construed to refer also to any successor or substantially related sections of similar import. "Controlled Group" has the meaning set forth in section 4001(a)(14) of ERISA. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1001, et seq., and any successor statute of similar import, together with the regulations thereunder, in each case as in effect from time to time. References to sections of ERISA shall be construed to refer also to any successor or substantially related sections of similar import. "Debt" and "Indebtedness" mean obligations to third parties for borrowed money. "Enhanced Contributions" means the contributions required under section 2.1 of this Agreement. "Funding Standard Account" means the funding standard account maintained for the Plan pursuant to section 412 of the Code and section 302 of ERISA. 2 "Future Financing" means, after the Closing, additional Indebtedness, beyond the Senior Debt (as hereinafter defined), that is secured by a lien senior to or pari passu with the PBGC Lien (as hereinafter defined). "Future Financing Payments" means the contributions to the Plan required under section 3.1 of this Agreement. "Intercreditor Agreement" means the Subordination and Standby Agreement substantially in the form of Exhibit B to this Agreement among PBGC, Lender, and Kerr, as the same may be renewed, extended, modified, amended or restated from time to time. "Lender" means each Lender as defined in the Loan and Security Agreement. "Loan and Security Agreement" means the Loan and Security Agreement, Dated as of the date of the Closing, among Kerr, Lender (in its capacity as Agent and Lender thereunder) and other lenders, if any, from time to time a party thereto, and all exhibits, schedules, addenda and other attachments thereto, and any renewal, extension, amendment, modification, restatement or supplement thereof. "Minimum Contributions" means the contributions required under section 2.2(a) of this Agreement. "PBGC Funding Ratio" as of any date means the market value of Plan's assets on that date divided by the value of Plan benefit liabilities on that date determined under sections 4001(a)(16) and (a)(18) of ERISA. "PBGC Lien" means the security interests, liens, mortgages, rights and interests in property of Kerr granted by Kerr to PBGC as provided in article IV of this Agreement. "PBGC Notice Amount" means the amount, not to exceed $25,000.00, expended by PBGC for advertisements to publicize PBGC's Notice of Determination respecting the Plan dated August 1, 1997, which amount Kerr has agreed to pay to PBGC as soon as practicable after this Agreement is executed but in no event later than the Closing. "Permitted Future Financings" means any Future Financing where Future Financing Payments are made as set forth in section 3.1 of this Agreement. "Plan" has the meaning set forth in the recitals portion of this Agreement. 3 "Plan Lien" means the security interests, liens, mortgages, rights and interests in property of Kerr granted by Kerr to PBGC for the benefit of the Plan as provided in article VI of this Agreement. "Plan Year" means a calendar year of twelve months beginning on January 1 and ending on December 31. Kerr shall not change the Plan Year of the Plan without PBGC's prior written consent. "Proposed Acquisition" means the offer to purchase for cash all outstanding shares of common stock and all outstanding shares of $1.70 of Class B Cumulative Convertible Preferred Stock, Series D, of Kerr by Kerr Acquisition Corporation, pursuant to an agreement and plan of merger dated as of July 1, 1997 among Fremont, Kerr Acquisition Corporation and Kerr. "Refinancing" has the meaning set forth in the recitals portion of this Agreement. "Required Credit Balance" means, as of the end of any Plan Year ending after December 31, 2002, the Funding Standard Account credit balance as of December 31, 2002, plus the Funding Standard Account credit balance attributable to the Additional Contributions, plus the excess of Minimum Contributions over Statutory Funding Requirements, plus Future Financing Payments on or after January 1, 2003, all adjusted for interest to the end of the Plan Year. "Senior Debt" means (i) the Indebtedness incurred by Kerr under the Loan and Security Agreement, on a fully secured basis, of up to $52 million in the form of term loans in the aggregate total amount of no more than $32 million and a revolving credit facility in the aggregate total amount of no more than $20 million, including any refinancings thereof, and of no more than $10 million (and no more than $17.5 million after June 30, 1999) under the CAPEX Loan Facility, (ii) all accrued interest, fees, costs, expenses and other obligations payable by Kerr under the Loan and Security Agreement, (iii) any Permitted Future Financings (excluding any such Permitted Future Financings which by their express terms are secured by a lien which is not senior to, but is pari passu with, the PBGC Lien) and (iv) in each case all renewals, extensions, modifications, rearrangements or refinancings thereof. "Senior Lien" means all of the continuing security interests, liens, mortgages, rights and interests in and to all property now or hereafter owned by Kerr granted by Kerr to the Agent under the Loan and Security Agreement, pursuant to the Senior Security Documents, or to a similar agent under such future loan and security agreements that reflect Permitted Future Financings under section 3.1. 4 "Senior Security Documents" means the Loan and Security Agreement and all other Security Documents (as that term is defined in the Loan and Security Agreement), as the same may be renewed, extended, modified, amended, supplemented or restated from time to time. "Statutory Funding Requirements" means the minimum funding requirements for the Plan under section 302 of ERISA and section 412 of the Code. ARTICLE II ENHANCED CONTRIBUTIONS 2.1 GENERAL. Notwithstanding any credit balance in the Plan's Funding Standard Account, Kerr shall contribute the following amounts in cash to the Plan ("Enhanced Contributions") no later than the due dates specified below:
DUE DATE AMOUNT DUE DATE AMOUNT - ------------------ --------------- --------------- ------------- Closing $3.5 million April 15, 2000 $1.50 million October 15, 1997 $1.75 million July 15, 2000 $1.50 million January 15, 1998 $1.75 million October 15, 2000 $1.50 million April 15, 1998 $1.75 million January 15, 2001 $1.50 million July 15, 1998 $1.75 million April 15, 2001 $1.50 million October 15, 1998 $1.75 million July 15, 2001 $1.50 million January 15, 1999 $1.75 million October 15, 2001 $1.50 million April 15, 1999 $1.75 million January 15, 2002 $1.50 million July 15, 1999 $1.75 million April 15, 2002 $1.50 million October 15, 1999 $1.75 million July 15, 2002 $1.50 million January 15, 2000 $1.75 million October 15, 2002 $1.50 million January 15, 2003 $1.50 million
2.2 CONTRIBUTIONS FOR PLAN YEAR 2003 AND THEREAFTER. For Plan Years beginning January 1, 2003, and thereafter, Kerr shall make Minimum Contributions and Additional Contributions in cash to the Plan as provided below. (a) MINIMUM CONTRIBUTIONS. For Plan Years beginning January 1, 2003, and thereafter, Kerr will pay Minimum Contributions determined as follows. The Minimum Contribution for a Plan Year is the minimum amount of cash required under the Statutory Funding Requirements to be contributed for the Plan Year in equal quarterly installments on April 15, July 15, and October 15 of the Plan Year and on January 15 of the following year, except that (i) the Required Credit Balance shall not be used in calculating the Minimum Contributions, and (ii) the Required Credit Balance shall not be 5 included in the assets used in calculating the unfunded current liability under section 302(d)(8)(A) of ERISA and section 412(l)(8)(A) of the Code. (b) ADDITIONAL CONTRIBUTIONS. For each of the Plan Years beginning January 1, 2003, and thereafter, Kerr will pay an Additional Contribution of $1 million per year into the Plan, in addition to the Minimum Contributions, in equal quarterly installments on April 15, July 15, and October 15 of the Plan Year and on January 15 of the following year. 2.3 MEETING THE STATUTORY FUNDING REQUIREMENTS. Amounts paid as Enhanced Contributions, Minimum Contributions, and Additional Contributions will be on account of and applied to the amounts required to be contributed for a Plan Year under the Statutory Funding Requirements. If the amount required to be contributed for a Plan Year under the Statutory Funding Requirements, before any offset for the Plan's credit balance, exceeds the amount of Enhanced Contributions required for that Plan Year, Kerr shall pay in cash to the Plan the greater amounts. Nothing in this section 2.3 is intended to preclude the use of the prior Year's credit balance in making determinations concerning the deficit reduction contribution for Plan Years beginning before January 1, 2003. The Enhanced Contributions attributable to a Plan Year for purposes of section 412 of the Code are the payments specified in section 2.1 of this Agreement that are due April 15, July 15, and October 15 of that year and January 15 of the following year. For this purpose, the $3.5 million Enhanced Contribution payable at Closing shall be assigned to Kerr's 1997 Plan Year. ARTICLE III PERMITTED FUTURE FINANCINGS AND FUTURE FINANCING PAYMENTS 3.1 SECURED DEBT. If, after the Closing, Kerr incurs Future Financing, Kerr shall immediately contribute one dollar ($1.00) of every three dollars ($3.00) of the funds received from such borrowing to the Plan (the "Future Financing Payments") until the Plan's PBGC Funding Ratio is at least 0.90. Notwithstanding the preceding sentence, Kerr may not incur Future Financing if a Plan Lien exists at the time of the proposed Future Financing. Except as otherwise expressly permitted in this Agreement and the Senior Security Documents, Kerr shall not grant to any person any security interest, lien, mortgage, right or interest in its property now or hereafter owned, except that security interests, liens, rights or interests that Kerr provides in connection with purchase money Indebtedness permitted under credit facilities with the Lender shall not exceed the aggregate amount of $1 million. 6 3.2 UNSECURED DEBT. If, after the Closing, Kerr desires to incur additional unsecured Indebtedness (which, as unsecured Indebtedness, is subordinate to the PBGC Lien), Kerr may do so without limitation. Such unsecured Indebtedness will not be subject to the Future Financing Payment obligations described in section 3.1, provided that the PBGC Lien is still in place. If PBGC has released the PBGC Lien pursuant to section 8.3 of this Agreement, then, for purposes of this Agreement only, any unsecured Indebtedness incurred after the PBGC Lien is released shall be treated as if it were Future Financing for purposes of subjecting such additional Indebtedness to the requirements of section 3.1. Notwithstanding the preceding sentence, Kerr may, at its option, elect to provide PBGC with all documents and information necessary to perfect the PBGC Lien, in which case the unsecured borrowings will not be subject to Future Financing Payments in accordance with the first two sentences of this section 3.2. 3.3 EFFECT ON ENHANCED CONTRIBUTIONS AND STATUTORY FUNDING REQUIREMENTS. Amounts contributed to the Plan to satisfy any obligations to make Future Financing Payments are in addition to Enhanced Contributions, Minimum Contributions, Additional Contributions and any amounts required to be contributed pursuant to the Statutory Funding Requirements, and may not be applied to satisfy Kerr's obligations to make Enhanced Contributions, Minimum Contributions, Additional Contributions, or Statutory Funding Requirements. 3.4 REPAYMENT OF CERTAIN AMOUNTS INCLUDED IN SENIOR DEBT. (a) Kerr will not borrow under the CAPEX Loan Facility an aggregate total amount that is more than the lesser of (i) $10 million (or $17.5 million after June 30, 1999) or (ii) 80% of the Cost Value of Eligible Purchased Equipments (as defined in the Loan and Security Agreement). The principal amount of each such borrowing shall be repaid in 84 equal, consecutive monthly amounts, with each such amount equal to one eighty-fourth (1/84th) of the original principal amount of each such advance; PROVIDED, however, that Kerr shall have the right to make prepayments on such borrowings as provided in the Loan and Security Agreement with such prepayments being applied to the principal installments in inverse order of maturity. Once borrowings are repaid, they may not be borrowed again. (b) Kerr will not borrow in the form of term loans pursuant to the Loan and Security Agreement an aggregate total amount that is more than $32 million. The principal amounts of term loan borrowings shall be repaid in consecutive monthly amounts of $333,333.33 from September 1, 1997 through and including August 1, 1998, $416,666.66 from September 1, 1998 through and including August 1, 1999, $500,000.00 from September 1, 1999 through and including August 1, 2001, $916,666.66 from September 1, 2001 through and including August 1, 2002, and the remaining balance on 7 the termination date of the loans; PROVIDED, however, that Kerr shall have the right to make prepayments on such borrowings as provided in the Loan and Security Agreement with such prepayments being applied to the principal installments in inverse order of maturity. Once borrowings are repaid, they may not be borrowed again. ARTICLE IV PBGC LIEN 4.1 AGREED TERMINATION LIABILITY. Upon termination of the Plan after the Closing (other than in a standard termination pursuant to section 4041(b) of ERISA), Kerr will pay PBGC a sum of money ("Agreed Termination Liability") equal to the total amount of the Plan's unfunded benefit liabilities, as calculated in accordance with section 4001(a)(18) of ERISA, associated with the Plan as of the Plan termination date as set in accordance with section 4048 of ERISA. Kerr's obligation to pay Agreed Termination Liability in an amount up to $40,700,000.00 shall be secured with security interests, liens, mortgages, rights and interests in property of Kerr (the "PBGC Lien") as described in sections 4.2 and 4.3 below. The PBGC Lien, and the rights and interests of PBGC thereunder, shall be subordinate to the Senior Lien and subject to the terms of the Intercreditor Agreement and such other intercreditor agreements that PBGC enters into pursuant to section 4.2. 4.2 PBGC SECURITY AGREEMENT AND INTERCREDITOR AGREEMENT. Upon execution of this Agreement, Kerr shall execute and deliver to PBGC security agreements, substantially in the form of Exhibit A-1 to this Agreement, and mortgages, substantially in the form of Exhibit A-2 to this Agreement, sufficient to create the PBGC Lien. Upon execution of this Agreement, PBGC shall execute and deliver to Fremont and the Agent under the Loan and Security Agreement the Intercreditor Agreement. If and when Kerr obtains Permitted Future Financings, PBGC shall, at Kerr's cost, execute and deliver to Kerr additional intercreditor agreement(s) respecting such Permitted Future Financings substantially in the form of the Intercreditor Agreement or in such other form as PBGC and Kerr may agree to at that time. 4.3 FINANCING STATEMENTS. As soon as practicable after execution of this Agreement, but in no event later than September 30, 1997, PBGC shall prepare such documents (including without limitation, Uniform Commercial Code financing statements) as are necessary to establish and perfect the PBGC Lien. Kerr shall provide such information as PBGC reasonably requests in order to prepare such filings. Filings prepared by PBGC shall be executed by Kerr and delivered to PBGC within five (5) business days of receipt, after which time PBGC may file, register and record such documents, as appropriate, with state and local recordation offices to perfect the PBGC Lien. 8 ARTICLE V TAX DEDUCTIBILITY 5.1 GENERAL. Notwithstanding any other provision of this Agreement, Kerr shall not be required to make that portion of any Enhanced Contribution, Minimum Contribution, Additional Contribution, or Future Financing Payment that would not be deductible under section 404 of the Code. 5.2 DETERMINING DEDUCTIBILITY. For purposes of this Agreement, deductibility under section 404 of the Code shall be determined subject to the following requirements: (a) Enhanced Contributions, Minimum Contributions and Additional Contributions made on April 15, July 15 and October 15 are made for the current Plan Year, and payments made on January 15 are made for the previous Plan Year. Future Financing Payments shall be allocated to the Plan Year when paid; and (b) "Current liability" shall be computed using the lowest interest rate in the "permissible range" prescribed under section 412(b)(5)(B)(ii) of the Code. 5.3 CARRYOVER. If any portion of an Enhanced Contribution, Minimum Contribution, Additional Contribution, or Future Financing Payment is not deductible under sections 5.1 and 5.2 of this Agreement, then that portion shall be carried over and paid in the next taxable year of Kerr in which it is deductible under such sections. Any such carryover payment will be in addition to any other Enhanced Contributions, Minimum Contributions, Additional Contributions, and Future Financing Payments required for such next year. 5.4 NOTICE TO PBGC. If Kerr determines that any portion of an Enhanced Contribution, Minimum Contribution, Additional Contribution or Future Financing Payment is not required to be paid as a result of the provisions in this Article V, Kerr shall as soon as practicable provide PBGC with the computations supporting that determination, together with such additional information, if any, that PBGC reasonably requests in order to review those computations. ARTICLE VI PLAN LIEN 6.1 GENERAL. If any Enhanced Contribution, Minimum Contribution, Additional Contribution, or Future Financing Payment is not paid when due and such delinquency is 9 not cured within ten (10) days following the due date, then there shall be a lien and security interest in favor of the PBGC, for the benefit of the Plan ("Plan Lien"), on all of Kerr's property and rights to property, for the aggregate unpaid balance of Enhanced Contributions, Minimum Contributions, Additional Contributions, and Future Financing Payments (including interest). The Plan Lien shall arise on the due date for the required Enhanced Contribution, Minimum Contribution, Additional Contribution, or Future Financing Payment and shall continue in effect until all such delinquencies are cured (or, in the case of an event covered by section 8.4, until the amount of the Plan Lien provided for under that section is paid in full). 6.2 FINANCING STATEMENTS. As soon as practicable after execution of this Agreement, PBGC shall prepare, and Kerr shall execute and deliver, such documents (including, without limitation, Uniform Commercial Code financing statements) as are necessary to establish and perfect the Plan Lien described in this Article VI. Kerr shall provide such information as PBGC reasonably requests in order to prepare such documents. Such documents shall be held in escrow by PBGC or, if Kerr so elects at Kerr's expense, by an escrow agent mutually and reasonably acceptable to Kerr and PBGC, until such time as the Plan Lien shall arise, at which time the PBGC may file, register and record such documents, as appropriate, with state and local recordation offices to perfect such Plan Lien. In the event that this Agreement shall terminate prior to the time a Plan Lien arises, PBGC shall surrender such documents to Kerr as soon as practicable after the date of termination. 6.3 PLAN LIEN IS SUBORDINATE TO SECURED DEBT. Any Plan Lien arising under this Article VI, and the rights and interests of the PBGC thereunder, shall be subordinate to the Senior Lien and subject to the terms of the Intercreditor Agreement. ARTICLE VII PBGC FORBEARANCE 7.1 DISMISSAL OF TERMINATION ACTION. As soon as practicable after execution of this Agreement and Kerr's payment to the PBGC in cash of the PBGC Notice Amount, PBGC shall (a) cause the Termination Action to be dismissed without prejudice, (b) withdraw its Notice of Determination regarding termination of the Plan, and (c) if Kerr elects and at Kerr's expense, assist in Kerr's efforts to publicize PBGC's withdrawal of the Notice of Determination. 7.2 PBGC'S FORBEARANCE. From and after the Closing, PBGC shall forbear from instituting proceedings to terminate the Plan under section 4042(a)(4) of ERISA as a 10 result of the Proposed Acquisition, the Loan and Security Agreement, the Senior Debt, the Refinancing or any Permitted Future Financings. ARTICLE VIII TERMINATION 8.1 TERMINATION OF AGREEMENT. Except as provided in section 8.6, this Agreement will terminate upon the earliest to occur of (a), (b), (c) and (d) below. (a) Termination of the Plan in a standard termination under section 4041(b) of ERISA. (b) The date after August 31, 2002, on which Kerr obtains both of the credit ratings (which may be private ratings in the event a public rating is not available) specified below, or better, on either actual unsecured debt or hypothetical unsecured debt in the amount of at least $50 million: RATING AGENCY RATING Standard & Poor's BBB- Moody's Baa3 (c) The date after August 31, 2002, on which Kerr demonstrates to PBGC that the Plan has no unfunded benefit liabilities as determined under section 4001(a)(18) of ERISA as of the last day of the Plan Year for any two full consecutive calendar years after the date of this Agreement. (d) The date after August 31, 2002, on which Kerr is merged into, or becomes a member of a Controlled Group with, a person that satisfies the minimum credit rating test specified in section 8.1(b) on a pro forma basis after the merger or combination is completed. 8.2 EFFECT OF TERMINATION. All obligations of Kerr and PBGC under this Agreement shall terminate immediately upon termination of this Agreement. Upon such termination, PBGC shall release and return to Kerr all financing statements and other documents furnished to PBGC pursuant to sections 4.3 and 6.2. 8.3 EARLIER RELEASE OF PBGC LIEN. Except as provided in section 8.6, PBGC shall release the PBGC Lien, before August 31, 2002, under the circumstances and conditions specified in (a), (b), or (c) below. 11 (a) If, before August 31, 2000, Kerr satisfies the minimum credit rating test specified in section 8.1(b) and maintains those minimum ratings, or better, continuously for two years, PBGC shall release the PBGC Lien at the end of such two-year period. (b) If, before August 31, 2001, Kerr is merged into, or becomes a member of a Controlled Group with, a person whose minimum credit ratings (which may be private ratings in the event a public rating is not available) on either actual unsecured debt or hypothetical unsecured debt in the amount of at least $50 million are BBB by S&P and Baa2 by Moody's on a pro forma basis after giving effect to the merger or combination, and such person maintains those minimum ratings, or better, continuously for one year, PBGC shall release the PBGC Lien at the end of such one-year period. (c) If Kerr is merged into, or becomes a member of a Controlled Group with, a person whose minimum credit ratings (which may be private ratings in the event a public rating is not available) on either actual unsecured debt or hypothetical unsecured debt in the amount of at least $50 million are A- by Standard & Poor's and A3 by Moody's on a pro forma basis after giving effect to the merger or combination, PBGC shall release the PBGC Lien on the date of such merger or combination. 8.4 EFFECT ON PLAN LIEN. In the event the PBGC Lien is released pursuant to section 8.3 of this Agreement, and a Plan Lien arises before August 31, 2002, pursuant to section 6.1 of this Agreement, then (a) the amount of the Plan Lien shall equal (i) the aggregate unpaid balance of Enhanced Contributions, Minimum Contributions, Additional Contributions, and Future Financing Payments, plus (ii) an amount equal to one hundred fifteen percent (115%) of the Plan's benefit liabilities (as defined in sections 4001(a)(16) and (18)(A) of ERISA), calculated as of the end of the prior Plan Year, based on actuarial data as of the beginning of the prior Plan Year, minus (iii)an amount equal to the market value of the Plan's assets, determined as of the end of the prior Plan Year; and 12 (b) the amount described in section 8.4(a) above shall immediately become due and payable to the Plan. 8.5 NOTICE TO PBGC. (a) Kerr shall provide PBGC with written notice of any determination by Kerr that it has achieved one of the tests in section 8.1 for termination of the Agreement or in section 8.3 for earlier release of the PBGC Lien. Within thirty (30) days of receipt of such notice, PBGC will respond in writing to Kerr that it concurs with the determination, such concurrence not to be unreasonably withheld. (b) In the event a Plan Lien arises in the amount described in section 8.4(a) above, Kerr shall provide PBGC by January 31 of each Plan Year with calculations showing the amount of the Plan's benefit liabilities and with the value of the Plan's assets, all as required for section 8.4(a)(ii) and (iii) of this Agreement. 8.6 EFFECT OF PLAN LIEN. If a Plan Lien arises before this Agreement terminates pursuant to section 8.1, then, notwithstanding anything to the contrary in sections 8.1, 8.2, 8.3, 8.4, and 8.5 of this Agreement, this Agreement shall not terminate, any PBGC Lien shall not be released, and the obligations of Kerr and PBGC shall not terminate hereunder unless and until any such then-existing Plan Lien is released. ARTICLE IX NOTICES TO PBGC 9.1 GENERAL. From and after the Closing and until termination of this Agreement, and in addition to any reporting obligations that Kerr may have under ERISA, Kerr shall deliver or cause to be delivered to PBGC the following: (a) thirty (30) days' prior written notice of any refinancing of Kerr's outstanding Indebtedness; (b) ten (10) days' prior written notice of any borrowings under the Loan and Security Agreement (except the revolving credit facility), any refinancings thereof and any other Indebtedness of more than $1 million incurred after the Closing; (c) as soon as practicable upon their issuance, Kerr's quarterly financial statements and audited annual financial statements; (d) written notice of all payments made with respect to the outstanding amounts of the term loan portions of the debts to the Lender (and any other person 13 that is a Lender under the Loan and Security Agreement) within thirty (30) days of such payment; (e) thirty (30) days' prior written notice of any actual change in any of the Plan's actuarial assumptions or methods for the purposes of the Statutory Funding Requirements, which change shall be subject to PBGC's consent, such consent not to be unreasonably withheld; (f) a written statement of the amount and date of any contributions made to the Plan, within ten (10) days of payment of that contribution; (g) a written statement of the amount and date of any failure to make a contribution when due, within two (2) days of such due date; (h) (intentionally deleted); (i) for each Plan year, a copy of the Plan's annual report on Internal Revenue Service Form 5500, at the same time that report is filed with the Internal Revenue Service; (j) for each Plan year, a copy of the Plan's actuarial valuation report, within ten (10) days after that report is completed in final form by the Plan's actuary; (k) to the Director of PBGC's Corporate Finance and Negotiations Department, a copy of any reportable event notices at the same time such notice is filed in accordance with 29 C.F.R. part 4043; (l) a copy of any Plan amendment within ten (10) days after adoption of that amendment; and (m) a copy of any notices required to be given by, or required to be provided to, the Lender, or by any other party to Kerr's Loan and Security Agreement, at the same time such notice is given or required to be given. 9.2 NOTICE OF MERGER OR CONSOLIDATION. From and after the Closing, and until termination of this Agreement, Kerr shall notify PBGC thirty (30) days in advance of any merger or consolidation involving Kerr, or any sale or disposition of Kerr's assets that is outside the ordinary course of business if such sale or disposition (in any one transaction or series of related transactions) involves at least 5% of Kerr's annual revenues, operating profits, or assets. 14 ARTICLE X THE CLOSING AND EVENTS OF DEFAULT 10.1 GENERAL. Kerr's obligations under this Agreement shall become effective upon the Closing. If the Closing does not occur by September 10, 1997, this Agreement shall terminate automatically and the provisions of section 8.2 shall apply and PBGC shall refund the PBGC Notice Amount to Kerr. 10.2 EVENTS OF DEFAULT BY KERR. The occurrence of any of the following events shall constitute a default by Kerr, PROVIDED, however, that PBGC's exercise of rights and remedies upon the occurrence of such a default shall be subject to the terms of the Intercreditor Agreement and to any other intercreditor agreements entered into by PBGC pursuant to section 4.2: (a) Kerr breaches or is in default of any of its covenants or obligations under this Agreement, including without limitation, Kerr's obligation to make Enhanced Contributions, Minimum Contributions, Additional Contributions, and Future Financing Payments; (b) Kerr breaches or is in default of any of its covenants or obligations under its Loan and Security Agreement; (c) Kerr files or has filed against it a petition under Title 11 of the United States Code or under any similar Federal law or law of a State or political subdivision of a State; and (d) Kerr breaches or is in default of any of the representations and warranties listed in section 11.8 of this Agreement. ARTICLE XI GENERAL PROVISIONS 11.1 LIMITATION OF RIGHTS. This Agreement is intended to be and is for the sole and exclusive benefit of PBGC (acting for its own benefit and for the benefit of the Plan) and Kerr and the persons (if any) within Kerr's Controlled Group. Nothing expressed or mentioned in or to be implied from the Agreement gives any person other than PBGC, Kerr and the persons (if any) within Kerr's Controlled Group any legal or equitable right, remedy or claim against Fremont, PBGC, Kerr or the persons (if any) in Kerr's Controlled Group under or in respect of this Agreement. 15 11.2 SEVERABILITY. If any provision of this Agreement shall be invalid, inoperative or unenforceable as applied in any particular case, this shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance. If any provision of this Agreement shall be invalid, inoperative or unenforceable in all cases, this shall not have the effect of rendering any other provision of the Agreement invalid, inoperative, or unenforceable. The invalidity of any portion of this Agreement shall not affect the remaining portions of the Agreement. 11.3 NOTICES. All notices, demands, instructions and other communications required or permitted under the Agreement to any party to the Agreement shall be in writing and shall be personally delivered or sent by registered, certified or express mail, postage prepaid, return receipt requested; telefacsimile (which shall be immediately followed by the original of such communication); or pre-paid overnight delivery service with confirmed receipt; and shall be deemed to be given for purposes of this Agreement on the date the writing is received by the intended recipient, or in the case of telefacsimile, on the date transmitted to the intended recipient. Unless otherwise specified in a communication sent or delivered in accordance with the foregoing provisions of this section, notices, demands, instructions and other communications in writing shall be sent to the parties as indicated below: To Kerr: D. Gordon Strickland President and Chief Executive Officer Kerr Group, Inc. 500 New Holland Avenue Lancaster, PA 17602-2104 Telephone: (717) 299-6511 Telefacsimile:(717) 394-6398; and Groom and Nordberg, Chtd. Thomas S. Gigot, Esq. 1701 Pennsylvania Avenue, N.W. Suite 1200 Washington, D.C. 20006 Telephone: (202) 861-6624 Telefacsimile:(202) 659-4503 To PBGC: Director, Corporate Finance and Negotiations Department Pension Benefit Guaranty Corporation 1200 K Street, N.W. Washington, D.C. 20005-4026 16 Telephone: (202) 326-4070 Telefacsimile: (202) 842-2643; and General Counsel Pension Benefit Guaranty Corporation 1200 K Street, N.W. Washington, D.C. 20005-4026 Telephone: (202) 326-4020 Telefacsimile: (202) 326-4112 11.4 WEEKENDS AND HOLIDAYS. If the last date (whether measured by calendar days or business days) for performing any act or exercising any right provided for in the Agreement falls on a Saturday, Sunday, or federal holiday, unless otherwise expressly provided in this Agreement, the act may be performed or the right exercised on the next day that is not a Saturday, Sunday or federal holiday with the same force and effect as if done on the date provided in the Agreement. 11.5 COUNTERPARTS. This Agreement may be executed in two or more counterparts and by different parties on separate counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.6 ENTIRE AGREEMENT. The confidentiality agreement dated February 13, 1997, between Kerr and PBGC, and the confidentiality agreement dated June 27, 1997, between Fremont and PBGC shall remain in full force and effect in accordance with their respective terms. Those agreements together with this Agreement and its Exhibits contain the complete and exclusive statement of the agreement and understanding by and among the parties hereto and supersede all prior agreements, understandings, commitments, representations, communications, and proposals, oral or written, between the parties relating to the subject matter of this Agreement. This Agreement may not be amended, modified, or supplemented except by an instrument in writing executed by the parties to this Agreement. 11.7 NO ADMISSION OF LIABILITY. This Agreement is not and shall not be construed as or deemed to be an admission or concession by or on the part of any party of any liability or the applicability or inapplicability of any provision of ERISA in connection with any matter described in the Agreement, and each party expressly denies any liability whatsoever. 11.8 REPRESENTATIONS AND WARRANTIES. PBGC and Kerr each represents and warrants to the other that it has full power and authority to enter into this Agreement and 17 that this Agreement constitutes a legal, valid and binding obligation enforceable against the opposite party or parties in accordance with the Agreement's terms. Kerr also represents and warrants that the documents provided to PBGC on August 22, 1997, were true and correct copies of a late draft of the Loan and Security Agreement. 11.9 NO RELIANCE. Except for the representations and warranties stated in section 11.8 of this Agreement, each party to the Agreement has made its own independent inquiry concerning the matters, facts and circumstances material to the settlement embodied in the Agreement, including without limitation, the legal, tax and accounting aspects of the transactions contemplated in the Agreement and any related transactions. No party to the Agreement has relied and no party will rely upon any other party to the Agreement, or any other party's legal counsel or financial or actuarial advisors, for any information or advice of any kind in connection with any of the transactions contemplated in the Agreement or with any related transactions; PROVIDED, HOWEVER, that PBGC has relied on Kerr's and Fremont's representations that the information and documentation they have provided to PBGC has been, to the best of their knowledge and belief, accurate and complete. 11.10 AMENDMENTS AND WAIVERS. No amendment of any provision of this Agreement shall be valid unless the amendment is in writing and signed by the parties hereto and by the Lender. The failure of any party to the Agreement to enforce a provision of the Agreement shall not constitute a waiver of the party's right to enforce that provision of the Agreement. 11.11 HEADINGS. The section headings contained in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement. 11.12 GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the District of Columbia and by ERISA, the Code and other laws of the United States to the extent they preempt District of Columbia law. 11.13 BINDING EFFECT. This Agreement shall be binding upon Kerr and PBGC and their respective successors, if any. 11.14 CONSTRUCTION. The language used in this Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party hereto. Nor shall any rule of construction that favors a non-draftsman or a government agency be applied. 11.15 ASSIGNMENT. This Agreement may not be assigned in whole or in part by either party without the express written consent of the other party. 18 11.16 NO CHANGE TO GOVERNING PLAN DOCUMENTS OR PLAN ADMINISTRATION. This Agreement is not a document or instrument governing the Plan, nor does anything in this Agreement amend, supplement or derogate from the documents and instruments governing such Plan. Further, nothing in this Agreement alters, amends or otherwise modifies the operation or administration of the Plan. 11.17 RESERVATION OF RIGHTS. Nothing in this Agreement or the Intercreditor Agreement shall preclude PBGC from exercising its regulatory, enforcement, litigation or other authority as set forth in ERISA and the Code with respect to any person, other than as expressly provided otherwise in article VII of this Agreement. Nothing in this Agreement constitutes or reflects a waiver or modification by Kerr of any claim, right or defense that it has under law. 11.18 FURTHER COOPERATION. Kerr hereby agrees to execute and deliver to PBGC such further documents and agreements as PBGC shall reasonably request in order to implement further the intent of the parties reflected herein. PBGC hereby agrees, at Kerr's expense, to execute and deliver to Kerr such further documents and agreements as PBGC shall reasonably request in order to implement further the intent of the parties reflected herein. 11.19 SUBORDINATION AND STANDBY AGREEMENT. This Agreement and all rights and interests of PBGC and the Plan hereunder are subject to the Intercreditor Agreement, and to such other intercreditor agreements executed by PBGC pursuant to section 4.2. 19 AGREED AND ACCEPTED: PENSION BENEFIT GUARANTY KERR GROUP, INC. CORPORATION By: /s/ Andrea E. Schneider By: /s/ D. Gordon Strickland ------------------------ -------------------------- Its: Acting Deputy Director Its: President and Chief and Chief Negotiator Executive Officer Executed on August 24, 1997 Executed on August 24, 1997 20 EX-10.43 3 EXHIBIT 10.43 SECURITY AGREEMENT SECURITY AGREEMENT, dated as of August 24, 1997 (as the same may from time to time be amended, supplemented or otherwise modified, this "Security Agreement"), between the Pension Benefit Guaranty Corporation ("Secured Party"), and Kerr Group, Inc. ("Debtor"). W I T N E S S E T H: WHEREAS, the Secured Party has filed an action before the United States District Court for the Eastern District of Pennsylvania seeking to terminate the Kerr Group, Inc. Retirement Income Plan (the "Plan") pursuant to 29 U.S.C. Section 1342; and WHEREAS, in consideration of (i) the Debtor's willingness to undertake the obligations set forth in the Agreement, dated as of August 24, 1997 (the "Settlement Agreement"), between the Debtor and the Secured Party, and (ii) the Debtor's willingness to enter into this Security Agreement, the Secured Party is willing to dismiss the Termination Action and is willing to forbear from taking further action to terminate the Plan; NOW, THEREFORE, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINED TERMS. As used herein, the following terms shall have the following meanings: "ACCOUNT DEBTOR" shall mean the person who is obligated on a Receivable. "ACCOUNTS" shall mean "accounts" as such term is defined in Section 9-106 of the UCC. "ACQUISITION" shall mean the acquisition of not less than 51% of the fully diluted shares of capital stock of the Debtor by Kerr Acquisition Corporation, a Delaware corporation, and the subsequent merger of Kerr Acquisi- tion Corporation with and into the Debtor, with the Debtor remaining as the surviving corporation. "BANKRUPTCY CODE" shall mean Title 11 of the United States Code entitled "Bankruptcy", as amended from time to time, and any successor statute or statutes. "CHATTEL PAPER" shall mean "chattel paper" as such term is defined in Section 9-105(b) of the UCC. "COLLATERAL" shall have the meaning assigned to it in Article II hereof. "COLLATERAL RECORDS" shall mean books, records, computer software, computer printouts, customer lists, blueprints, technical specifications, manuals, and similar items which relate to any Collateral other than such items obtained under license or franchise security agreements which prohibit assignment or disclosure of such items. "CONTRACTS" shall mean all contracts, undertakings or other agreements (other than Chattel Paper, Documents and Instruments) in or under which the Debtor may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof. "DEBTOR" shall have the meaning set forth in the introductory clause to this Agreement. "DEPOSIT ACCOUNTS" shall mean and any deposit account, including without limitation, "deposit accounts" as such term is defined in Section 9-105(e) of the UCC and any other deposit or securities account (general or special), together with any funds, instruments or other items credited to any such account from time to time, and all interest thereon. "DOCUMENTS" shall mean "documents" as such term is defined in Section 9-105(f) of the UCC. "EQUIPMENT" shall mean "equipment" as such term is defined in Section 9-109(2) of the UCC, including, without limitation, machinery, manufacturing equipment, data processing equipment, computers, office equipment, furniture, appliances and tools. 2 "EVENT OF DEFAULT" shall mean the occurrence or continuance of any of the following events, acts, occurrences or conditions, whether such event, act, occurrence or condition is voluntary or involuntary or results from the operation of law or pursuant to or as a result of compliance by any Person with any judgment, decree, order, rule or regulation of any court or administrative or governmental body: (a) DEFAULT UNDER SECURED OBLIGATIONS. The Debtor shall default in the payment or performance when due (after satisfaction of any applicable grace period and notice requirements) of any of the Secured Obligations. (b) BREACH OF REPRESENTATION OR WARRANTY. Any representation or warranty made by the Debtor herein or in any other document or certificate or statement delivered pursuant hereto shall prove to be false or misleading in any material respect on the date as of which made or deemed made. (c) BREACH OF COVENANTS. The Debtor shall fail to perform or observe any agreement, covenant or obligation arising under this Security Agreement, and such failure shall continue after the end of the applicable grace period, if any, provided herein. (d) BANKRUPTCY, ETC. (i) The Debtor shall commence a voluntary case concerning itself under the Bankruptcy Code; or (ii) an involuntary case is commenced against the Debtor under the Bankruptcy Code and the petition is not controverted within 10 days, or is not dismissed within 30 days, after commencement of the case; or (iii) a custodian (as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or substantially all of the property of the Debtor or the Debtor commences any other proceedings under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Debtor or there is commenced against the Debtor any such proceedings which remains undismissed for a period of 30 days; or (iv) any order for relief or other order approving any such case or proceeding is entered; or (v) the Debtor is adjudicated insolvent or bankrupt; or (vi) the Debtor suffers any appointment of any custodian or the like for it or any substantial part of its property to continue undischarged or unstayed for a period of 30 days; or (vii) the Debtor makes a general assignment for the benefit of creditors; or (viii) the Debtor shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or (ix) the Debtor shall 3 call a meeting of its creditors with a view of arranging a composition or adjustment of its debts; or (x) the Debtor shall by any act or failure to act consent to, approve of or acquiesce in any of the foregoing; or (xi) any corporate action is taken by the Debtor for the purpose of effecting any of the foregoing. (e) SECURITY AGREEMENT. This Security Agreement shall for any reason cease to be in full force and effect, or shall cease to give the Secured Party the Liens, rights, powers and privileges purported to be created hereby including, without limitation, a perfected security interest in, and Lien on, all of the Collateral in accordance with the terms hereof. (f) JUDGMENTS. One or more judgments or decrees in an aggregate amount of $500,000 or more shall be entered by a court or courts of competent jurisdiction against the Debtor (other than any judgment as to which, and only to the extent, a reputable insurance company has acknowledged coverage of such claim in writing) and (i) any such judgments or decrees shall not be stayed, discharged, paid, bonded or vacated within 30 days or (ii) enforcement proceedings shall be commenced by any creditor on any such judgments or decrees. "FIXTURES" shall mean "fixtures" as such term is defined in Section 9-313 of the UCC. "FUTURE FINANCING" shall have the meaning given in the Settlement Agreement. "GENERAL INTANGIBLES" shall mean "general intangibles" as such term is defined in Section 9-106 of the UCC, including, without limitation, rights to the payment of money (other than Receivables), trademarks, copyrights, patents, and contracts, licenses and franchises (except in the case of licenses and franchises in respect of which the Debtor is the licensee or franchisee if the agreement in respect of such license or franchise prohibits by its terms any assignment or grant of a security interest, limited and general partnership interests and joint venture interests, federal income tax refunds, trade names, distributions on certificated securities (as defined in Section 8-102(1)(a) of the UCC and uncertificated securities (as defined in Section 8-102(1)(b) of the UCC, computer programs and other computer software, inventions, designs, trade secrets, goodwill, proprietary rights, customer lists, supplier contracts, sale orders, correspondence, advertising materials, payments due in connection with any requisition, confiscation, condemnation, seizure or forfeiture of any property, reversionary interests in pension and profit- 4 sharing plans and reversionary, beneficial and residual interests in trusts, credits with and other claims against any Person, other, together with any collateral for any of the foregoing and the rights under any security agreement granting a security interest in such collateral. "HEDGING AGREEMENTS" shall mean interest rate or currency protection or hedging arrangements, including without limitation, caps, collars, floors, forwards and any other similar or dissimilar interest rate or currency exchange agreements or other interest rate or currency hedging arrangements. "INSTRUMENTS" shall mean "instruments" as such term is defined in Section 9-105(1)(i) of the UCC. "INTERCREDITOR AGREEMENT" means that certain Subordination and Standby Agreement by and among the Debtor, Secured Party, and NationsBank of Texas, N.A., in its capacity as agent as provided therein as the same may be renewed, amended, extended, modified, or restated from time to time, and any similar agreement entered into hereafter in connection with any Future Financing. "INVENTORY" shall mean "inventory" as such term is defined in Section 9-109(4) of the UCC, including without limitation, all goods (whether such goods are in the possession of the Debtor or of a bailee or other Person for sale, lease, storage, transit, processing, use or otherwise and whether consisting of whole goods, spare parts, components, supplies, materials or consigned or returned or repossessed goods), including without limitation, all such goods which are held for sale or lease or are to be furnished (or which have been furnished) under any contract of service or which are raw materials or work in progress or materials used or consumed in the Debtor's business. "LIEN" shall mean any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority or other security agreement of any kind or nature whatsoever, including, without limitation, the filing of any financing statement or similar instrument under the UCC or comparable law of any jurisdiction, domestic or foreign. "MONEY" shall mean "money" as such term is defined in Section 1-201(24) of the UCC. "MOTOR VEHICLES" shall mean motor vehicles, tractors, trailers and other like property, if title thereto is governed by a certificate of title ownership. 5 "PERMITTED LIENS" shall mean: (a) Liens securing taxes, assessments and other charges or levies of a governmental authority or the claims of materialmen, mechanics, carriers, warehousemen or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, but in the case of warehousemen or landlords, only if such Liens are junior to the security interest in any of the Collateral; (b) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under worker's compensation, unemployment insurance, social security or similar legislation or under payment, bid, surety, appeal or performance bonds; (c) Liens constituting encumbrances in the nature of zoning restrictions, easements, leases, subleases, rights or restrictions of record on the use of real estate and other minor defects or irregularities in title and other similar charges or encumbrances, none of such Liens which materially detract from the value of such property or impair the use thereof in the business of the Debtor; (d) purchase money liens securing purchase money indebtedness incurred for the purchase of Equipment after the date hereof; (e) Liens shown on Schedule III hereto; (f) Liens of the Secured Party arising under this Security Agreement; and (g) Liens granted to NationsBank of Texas, N.A., as agent pursuant to the terms of that certain Loan and Security Agreement by and among the Debtor, the other Lenders (as defined therein) from time to time party thereto, the L/C Issuer (as defined therein), and NationsBank of Texas, N.A., as agent, and any Liens granted in connection with any Future Financings. (h) Liens arising in connection with judgments for the payments of money of an amount not to exceed $250,000 in any one case or $500,000 in the aggregate; provided that, as to any of such Liens, (i) the judgment or other court order giving rise to such Lien is being contested in good faith by appropriate proceedings diligently pursued and available to the Debtor prior to 6 the commencement of any foreclosure or similar proceeding, (ii) execution thereon is at all time effectively stayed (iii) an adequate reserve for the Indebtedness which such Lien secures has been established on Debtor's books in accordance with GAAP, and (iv) Debtor shall have given prior notice of such Lien to the Secured Party. "PERSON" shall mean and include any individual, partnership, joint venture, firm, corporation, association, trust or other enterprise or any government or political subdivision or agency, department or instrumentality thereof. "PROCEEDS" shall mean "proceeds" as such term is defined in Section 9-306(1) of the UCC. "RECEIVABLES" shall mean all rights to payment for goods sold or leased or services rendered, whether or not earned by performance and all rights in respect of the Account Debtor, including without limitation, all such rights in which the Debtor has any right, title or interest by reason of the purchase thereof by the Debtor, and including without limitation all such rights constituting or evidenced by any Account, Chattel Paper, Instrument, General Intangible, note, contract, invoice, purchase order, draft, acceptance, intercompany account, security agreement, or other evidence of indebtedness or security, together with (a) any collateral assigned, hypothecated or held to secure any of the foregoing and the rights under any security agreement granting a security interest in such collateral, (b) all goods, the sale of which gave rise to any of the foregoing, including, without limitation, all rights in any returned or repossessed goods and unpaid seller's rights, (c) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, and (d) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith. "RECEIVABLES RECORDS" shall mean (a) all original copies of all documents, instruments or other writings evidencing the Receivables, (b) all books, correspondence, credit or other files, records, ledger sheets or cards, invoices, and other papers relating to Receivables, including without limitation all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of the Debtor or any computer bureau or agent from time to time acting for the Debtor or otherwise, (c) all evidences of the filing of financing statements and the registration of other instruments in connection therewith and amendments, supplements or other modifications thereto, notices to other creditors or secured parties, and certificates, acknowledgements, 7 or other writings, including without limitation lien search reports, from filing or other registration officers, (d) all credit information, reports and memoranda relating thereto, and (e) all other written or non-written forms of information related in any way to the foregoing or any Receivable. "SECURED OBLIGATIONS" shall mean all obligations, liabilities and indebtedness of every nature of the Debtor to the Secured Party now existing or hereafter incurred, arising under or in connection with the Settlement Agreement or this Security Agreement. "SECURED PARTY" shall have the meaning set forth in the introductory clause to this Security Agreement. "SETTLEMENT AGREEMENT" shall have the meaning set forth in the recitals to this Agreement. "TERMINATION ACTION" shall have the meaning set forth in the recitals to this Agreement. "UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York. ARTICLE II GRANT OF SECURITY INTERESTS Subject to the terms of any Intercreditor Agreement and to any other Liens granted in connection with any Future Financing (as defined in the Settlement Agreement), as security for the prompt and complete payment and performance in full of all the Secured Obligations, the Debtor hereby grants to the Secured Party a security interest in and continuing lien on all of the Debtor's right, title and interest in, to and under the following, in each case, whether now owned or existing or hereafter acquired or arising, and wherever located (all of which being hereinafter collectively called the "COLLATERAL"): (i) all Accounts; (ii) all Chattel Paper; 8 (iii) all contracts; (iv) all Collateral Records; (v) all Deposit Accounts; (vi) all Documents; (vii) all Equipment; (viii) all Fixtures; (ix) all General Intangibles (x) all Hedging Agreements (xi) all Instruments; (xii) all Inventory; (xiii) all Money; (xiv) all Motor Vehicles; (xv) all Receivables; (xvi) all Receivables Records; (xvii) all other tangible and intangible personal property; and (xviii) all accessions and additions to any or all of the foregoing, all substitution and replacements for any or all of the foregoing and all Proceeds or products of any or all of the foregoing. 9 ARTICLE III REPRESENTATIONS AND WARRANTIES The Debtor hereby represents and warrants to the Secured Party, which representations and warranties shall survive execution and delivery of this Security Agreement, as follows: 3.1 VALIDITY, PERFECTION AND PRIORITY. Subject to the terms of any Intercreditor Agreement: (a) The security interests in the Collateral granted to the Secured Party hereunder constitute valid and continuing security interests in the Collateral; and (b) upon filing financing statements naming the Debtor as "debtor" and the Secured Party as "secured party" in the filing offices set forth on Schedule I hereto, the security interests in the Collateral granted to the Secured Party hereunder will constitute perfected security interests therein superior and prior to all Liens other than Permitted Liens, rights or claims of all other Persons. 3.2 NO LIENS; OTHER FINANCING STATEMENTS. Subject to the terms of any Intercreditor Agreement: (a) except for the Lien granted to the Secured Party hereunder, the Debtor owns and, as to all Collateral whether now existing or hereafter acquired, will continue to own, each item of the Collateral free and clear of any and all Liens, rights or claims of all other Persons other than Permitted Liens, and the Debtor shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party other than the holders of Permitted Liens. (b) No financing statement or other evidence of Lien covering or purporting to cover any of the Collateral is on file in any public office other than (1) financing statements filed or to be filed in connection with the security interests granted to the Secured Party hereunder, (ii) financing statements for which proper termination statements have been delivered to the Secured Party for filing, and (iii) financing statements filed in connection with Permitted Liens. 10 3.3 CHIEF EXECUTIVE OFFICE. The chief executive office of the Debtor is located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602. 3.4 LOCATION OF INVENTORY AND EQUIPMENT. All Inventory and Equipment now or from time to time included in the Collateral will be held at the locations set forth on Schedule II hereto. 3.5 BASIC REPRESENTATIONS AND WARRANTIES. (a) The Debtor is duly organized and validly existing in good standing under the laws of the jurisdiction of its formation; and (a) The Debtor has the power and authority to execute, deliver and carry out the terms and provisions of this Security Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Security Agreement. The Debtor has duly executed and delivered this Security Agreement, and this Security Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms. ARTICLE IV COVENANTS The Debtor covenants and agrees with the Secured Party that from and after the date of this Security Agreement: 4.1 FURTHER ASSURANCES. The Debtor will from time to time at the expense of the Debtor, promptly execute, deliver, file and record all further instruments, indorsements and other documents, and take such further action as the Secured Party may deem reasonably desirable in obtaining the full benefits of this Security Agreement and of the rights, remedies and powers herein granted, including, without limitation, the following: (i) the filing of any financing statements, in form acceptable to the Secured Party under the UCC in effect in any jurisdiction with respect to the liens and security interests granted hereby. The Debtor also hereby authorizes the Secured Party to file any such financing statement without the signature of the Debtor to the extent permitted by applicable law. A photocopy or other reproduction of this Security Agreement shall 11 be sufficient as a financing statement and may be filed in lieu of the original to the extent permitted by applicable law. The Debtor will pay or reimburse the Secured Party for all filing fees and related expenses; (ii) furnish to the Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Secured Party may reasonably request, all in reasonable detail and in form satisfactory to the Secured Party. 4.2 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR MATTERS. The Debtor will preserve and maintain its existence, rights, franchises, licenses and privileges in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign business enterprise and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization. 4.3 MAINTAIN RECORDS. The Debtor will keep and maintain at its own cost and expense satisfactory and complete records of the Collateral. 4.4 RIGHT OF INSPECTION. The Secured Party shall at all times have full and free access during normal business hours to all the books, correspondence and records of the Debtor, and the Secured Party and its representatives may examine the same, take extracts therefrom and make photocopies thereof, and the Debtor agrees to render the Secured Party at the Debtor's cost and expense, such clerical and other assistance as may be reasonable requested with regard thereto. The Secured Party and its representatives shall at all times also have the right to enter into and upon any premises where any of the Inventory or Equipment is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein. 4.5 INSURANCE. (a) The Debtor will maintain insurance with responsible insurance companies against such risks and in such amounts as is customarily maintained by similar businesses or as may be required by any applicable laws, and from time to time deliver to Secured Party upon its request a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. 12 (b) In addition to the foregoing, the following provisions shall apply with respect to the Collateral: (i) Debtor shall at all times maintain insurance on the Inventory and Equipment against loss or damage by fire, theft, burglary, pilferage and loss in transit, in amounts not to exceed those obtainable at commercially reasonable rates and under policies issued by qualified insurers. All premiums on such insurance shall be paid by Debtor. Debtor will not use or permit the Inventory or Equipment to be used in violation of any applicable law or in any manner which might render inapplicable any insurance coverage. (ii) All proceeds of insurance shall (except as otherwise required under the terms and conditions of any Senior Debt (as defined in the Settlement Agreement) or Future Financing) be reinvested in the business of Debtor. 4.6 PAYMENT OF OBLIGATIONS. The Debtor will pay promptly when due all taxes, assessments and governmental charges or levies imposed upon the Collateral, as well as all claims of any kind (including, without limitation, claims for labor, materials, supplies and services) against or with respect to the Collateral, except that no such charge need be paid if (i) the validity thereof is being contested in good faith by appropriate proceedings, (ii) such proceedings do not involve, in the sole opinion of the Secured Party, any material danger for the sale, forfeiture or loss of any of the Collateral or any interest therein, and (iii) such charge is adequately reserved against on the Debtor's books in accordance with generally accepted accounting principles. 4.7 NEGATIVE PLEDGE. The Debtor will not create, incur or permit to exist, will defend the Collateral against, and will take such other action as is necessary to remove, any Lien or claim on or to the Collateral, other than the Liens created hereby and other than Permitted Liens. 4.8 PERFORMANCE BY THE SECURED PARTY OF THE DEBTOR'S OBLIGATIONS; REIMBURSEMENT. If the Debtor fails to perform or comply with any of its security agreements contained herein, the Secured Party may, without notice to or consent by the Debtor, perform or comply or cause performance or compliance therewith and the expenses of the Secured Party incurred in connection with such performance or compliance shall be payable by the Debtor to the Secured Party on demand and such reimbursement obligation shall be secured hereby. 13 ARTICLE V POWER OF ATTORNEY Upon the occurrence of any Event of Default, the Debtor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Debtor and in the name of the Debtor or in its own name, from time to time in the Secured Party's discretion, for the purpose of carrying out the terms of this Security Agreement, to take any and all appropriate action by any technologically available means, which may include, without limitation, any form of electronic data transmission, and to execute in any appropriate manner, which may include, without limitation, using any symbol that the Secured Party may adopt to signify the Debtor's intent to authenticate, any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Security Agreement. The Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. ARTICLE VI REMEDIES; RIGHTS UPON DEFAULT 6.1 RIGHTS AND REMEDIES GENERALLY. If an Event of Default shall occur and be continuing, then and in every such case, the Secured Party shall have all the rights of a secured party under the UCC, shall have all rights now or hereafter existing under all other applicable laws, and, subject to any mandatory requirements of applicable law then in effect, shall have all the rights set forth in this Security Agreement and all the rights set forth with respect to the Collateral or this Security Agreement in any other security agreement between the parties. 6.2 ASSEMBLY OF COLLATERAL. If an Event of Default shall occur and be continuing, upon five days notice to the Debtor, the Debtor shall, at its own expense, assemble the Collateral (or from time to time any portion thereof) and make it available to the Secured Party at any place or places designated by the Secured Party which is reasonably convenient to both parties. 14 6.3 DISPOSITION OF COLLATERAL. The Secured Party will give the Debtor reasonable notice of the time and place of any public sale of the Collateral or any part thereof or of the time after which any private sale or any other intended disposition thereof is to be made. The Debtor agrees that the requirements of reasonable notice to it shall be met if such notice is mailed, postage prepaid to its address specified in Section 9.5 of this Security Agreement (or such other address that the Debtor may provide to the Secured Party in writing) at least ten (10) days before the time of any public sale or after which any private sale may be made. 6.4 RECOURSE. The Secured Party's sole recourse to satisfy the Secured Obligations shall be to the Collateral and the Debtor shall not be liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to satisfy the Secured Obligations. 6.5 EXPENSES; ATTORNEYS FEES. The Debtor shall reimburse the Secured Party for all its expenses in connection with the exercise of its rights hereunder, including, without limitation, all reasonable attorneys' fees and legal expenses incurred by the Secured Party. Expenses of retaking, holding, preparing for sale, selling or the like shall include the reasonable attorneys' fees and legal expenses of the Secured Party. All such expenses shall be secured hereby. 6.6 LIMITATION ON DUTIES REGARDING PRESERVATION OF COLLATERAL. (a) The Secured Party's sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Secured Party deals with similar property for its own account. (b) The Secured Party shall have no obligation to take any steps to preserve rights against prior parties to any Collateral. (c) Neither the Secured Party nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of the Debtor or otherwise. 6.7 INTERCREDITOR AGREEMENT. The rights and remedies of the Secured Party granted pursuant to this Article VI shall be subject in all instances to the terms and provisions of any Intercreditor Agreement. 15 ARTICLE VII MISCELLANEOUS 7.1 GOVERNING LAW. THIS SECURITY AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 7.2 NOTICES. Except as otherwise expressly provided herein, all notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy, telex, or cable communication), and shall be deemed to have been duly given or made when delivered by hand, or five days after being deposited in the United States mail, postage prepaid, or, in the case of telex notice, when sent, answer-back received, or in the case of telecopy notice, when sent, or in the case of a nationally recognized overnight courier service, one business day after delivery to such courier service, addressed, in the case of each party hereto, at its address specified opposite its signature below, or to such other address as may be designated by any party in a written notice to the other party hereto. If to the Debtor: Kerr Group, Inc. 500 New Holland Avenue Lancaster, Pennsylvania 17602-2104 Attention: Geoffrey A. Whynot Telephone: 717-299-6511 Facsimile: 717-394-6398 If to the Secured Party: Pension Benefit Guaranty Corporation 1200 K Street, N.W. Washington D.C. 20005-4026 Attention: Director, Corporate Finance and Negotiations Department Telephone: 202-326-4070 Facsimile: 202-842-2643 16 7.3 SUCCESSORS AND ASSIGNS. This Security Agreement shall be binding upon and shall inure to the benefit of the Debtor, the Secured Party, all future holders of the Secured Obligations and their respective successors and assigns, except that the Debtor may not assign or transfer any of its rights or obligations under this Security Agreement without the prior written consent of the Secured Party. 7.4 WAIVERS AND AMENDMENTS. None of the terms or provisions of this Security Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the party against whom enforcement is sought. In the case of any waiver, the Debtor and the Secured Party shall be restored to their former position and rights hereunder and under the outstanding Secured Obligations, and any Event of Default waived shall be deemed to be cured and not continuing, but no such waiver shall extend to any subsequent or other Event of Default, or impair any right consequent thereon. 7.5 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of the Secured Party in exercising any right, power or privilege hereunder and no course of dealing between the Debtor and the Secured Party shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Secured Party of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Secured Party would otherwise have on any future occasion. The rights and remedies herein expressly provided are cumulative and may be exercised singly or concurrently and as often and in such order as the Secured Party deems expedient and are not exclusive of any rights or remedies which the Secured Party would otherwise have whether by security agreement or now or hereafter existing under applicable law. No notice to or demand on the Debtor in any case shall entitle the Debtor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the rights of the Secured Party to any other or future action in any circumstances without notice or demand. 7.6 TERMINATION; RELEASE. When the Secured Obligations have been indefeasibly paid and performed in full, this Security Agreement shall terminate, and the Secured Party, at the request and sole expense of the Debtor, will execute and deliver to the Debtor the proper instruments (including UCC termination statements) acknowledging the termination of this Security Agreement, and will duly assign, transfer and deliver to the Debtor, without recourse, repre- 17 sentation or warranty of any kind whatsoever, such of the Collateral as may be in possession of the Secured Party and has not theretofore been disposed of, applied or released. 7.7 HEADINGS DESCRIPTIVE. The headings of the several Sections and subsections of this Security Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Security Agreement. 7.8 SEVERABILITY. In case any provision in or obligation under this Security Agreement or the Secured Obligations shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 7.9 INTERCREDITOR AGREEMENT. This Agreement and all rights and interests of the Secured Party and the Plan hereunder are subject to the terms and provisions of any Intercreditor Agreement. 18 IN WITNESS WHEREOF, the Debtor and the Secured Party have caused this Security Agreement to be duly executed and delivered as of the date first above written. KERR GROUP, INC. By: /s/ Geoffrey A.. Whynot ----------------------------- Name: Geoffrey A. Whynot Title: Vice President and Chief Financial Officer PENSION BENEFIT GUARANTY CORPORATION By: /s/ Andrea E. Schneider ----------------------------- Name: Andrea E. Schneider Title: Acting Deputy Director and Chief Negotiator 19 EX-10.44 4 EXHIBIT 10.44 SUBORDINATION AND STANDBY AGREEMENT This Agreement is executed by and among NATIONSBANK OF TEXAS, N.A., a national banking association, in its capacity as Agent (defined below), PENSION BENEFIT GUARANTY CORPORATION, a body corporate within the United States Department of Labor, for the benefit of itself and on behalf of Kerr Group, Inc. Retirement Income Plan and KERR GROUP, INC., a Delaware corporation ("Debtor"), as follows: DEFINITIONS "AGENT" means NationsBank of Texas, N.A., a national banking association with its principal place of business located at 901 Main Street, Dallas, Texas 75202, in its capacity as Agent under the Loan and Security Agreement. "AGENT COLLATERAL" means all "Collateral" defined in the Loan and Security Agreement (which definition is incorporated herein by reference), including without limitation all of the following, now owned and hereafter acquired by Debtor: all Receivables, Inventory, Equipment, Contract Rights, General Intangibles, Investment Property and Real Estate, as such terms are defined in the Loan and Security Agreement (which definitions are incorporated herein by reference), and all other property in which Agent is granted a security interest, lien, mortgage or other collateral interest under the Loan and Security Agreement or the other Agent Security Documents, now owned and hereafter acquired, and all proceeds of any of the foregoing. "AGENT LIEN" means all of Agent's continuing security interests, liens, mortgages, rights and interests (for itself and the Credit Parties as defined by the Loan and Security Agreement) in and to all property now or hereafter owned by Debtor and included within the Agent Collateral, as provided by the Agent Security Documents. "AGENT SECURITY DOCUMENTS" means the Loan and Security Agreement and all other "Security Documents" as defined therein, as the same may be renewed, extended, modified, amended, supplemented or restated from time to time. "COLLECTION ACTION" means (a) the filing of any action, suit or proceeding to collect all or any part of any amounts now or hereafter owing by Debtor under the PBGC Agreement, (b) any action (whether by judicial action or otherwise) to enforce the PBGC Agreement Lien or the Plan Lien, including without limitation any action to foreclose, repossess, marshal, control or otherwise exercise any remedies with respect to any property included within the Agent Collateral, (c) any contact or communication, directly or indirectly (including but not limited to notification or confirmation) with any account debtor or obligor on any accounts, chattel paper, instruments, general intangibles or other property included within the Agent Collateral or (d) any other action in respect of the interests of PBGC or the Plan under the PBGC Agreement which could reasonably be expected to interfere with the daily operation of Debtor's business. "Collection Action" does not include the filing of any proof of claim or statement of interest in any bankruptcy proceeding of Debtor with respect to amounts owed by Debtor under the PBGC Agreement, PROVIDED that any such proof of claim or statement of interest is expressly stated to be subject to this Agreement. "DEBTOR" means Kerr Group, Inc., a Delaware corporation with its principal place of business located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. Section 1368, ET SEQ. "LSA OBLIGATIONS" means all "Secured Obligations" defined in the Loan and Security Agreement (which definition hereby is incorporated herein by reference), including without limitation all obligations and indebtedness for loans, accrued interest, and all fees, costs and expenses under the Loan and Security Agreement and the other Agent Security Documents, and any and all "Permitted Future Financings" owing to the Lenders under the Loan and Security Agreement, as may be amended to provide for same (excluding any such Permitted Future Financings (if any) which by their express terms are secured by a lien which is not senior to, but is pari passu with, the PBGC Lien), as may be renewed, extended or modified, from time to time. "LOAN AND SECURITY AGREEMENT" means the certain Loan and Security Agreement among Agent, Debtor and the Lenders (as defined therein) from time to time party thereto, as may be renewed, extended, modified, amended or restated from time to time. "PBGC" means the Pension Benefit Guaranty Corporation, a body corporate within the United States Department of Labor, with its mailing address at 1200 K. Street, N.W., Washington, D.C. 20005-4026, acting under this Agreement and the PBGC Agreement both in its individual corporate capacity and also on behalf of, and for the benefit of, the Plan. "PBGC AGREEMENT" collectively means the certain Agreement dated August 24, 1997 between Debtor and PBGC, all security agreements, mortgages or other collateral agreements executed pursuant thereto, and all renewals, extensions, modifications, amendments or restatements of any of the foregoing. "PBGC AGREEMENT LIEN" means all security interests, liens, mortgages, rights and interests in property of Debtor granted by Debtor to PBGC under the PBGC Agreement. "PBGC STATUTORY LIEN" means any lien (if any) hereafter acquired by PBGC in property of Debtor pursuant to Section 4068 of the Employee Retirement Income Security Act of 1974, as amended, Section 412(n) of the Internal Revenue Code of 1986, as amended, or other applicable law. "PLAN" means the Kerr Group, Inc. Retirement Income Plan, as may be amended, modified or restated from time to time, and any successor thereto. 2 "PLAN LIEN" means all security interests, liens, mortgages, rights and interests in property of Debtor granted by Debtor to PBGC for the benefit of the Plan under the PBGC Agreement. RECITALS Debtor and Agent are parties to the Loan and Security Agreement which provides a secured credit facility for Debtor, subject to the terms thereof, reference to which is hereby made. Pursuant to the Agent Security Documents, the LSA Obligations are secured by continuing security interests and liens in the Agent Collateral granted by Debtor to or for the benefit of Agent, for the benefit of the Credit Parties (as defined by the Loan and Security Agreement). It is proposed that Debtor grant to PBGC a security interest in property included within the Agent Collateral to secure certain contingent obligations of Debtor to PBGC, pursuant to the PBGC Agreement. Agent requires that all security interests and liens of Agent in the Agent Collateral be first and prior in priority, and that any and all security interests, liens, rights and other interests of PBGC or the Plan under the PBGC Agreement, now or hereafter existing, be subordinated in favor of Agent for the benefit of the Credit Parties (as defined in the Loan and Security Agreement), as provided hereinbelow. NOW THEREFORE, for valuable consideration, the receipt of which hereby is acknowledged, and in consideration of the mutual benefits and agreements provided herein, Agent, PBGC and Debtor hereby agree as follows: AGREEMENT 1. The Agent Lien is and at all times shall be first, senior and prior to the PBGC Agreement Lien and the Plan Lien, respectively. The PBGC Agreement Lien and the Plan Lien, respectively, each is and at all times shall be expressly subordinated and made junior to the Agent Lien. 2. PBGC disclaims any interest in the Agent Collateral except as provided by the PBGC Agreement as of the effective date of this Agreement. Debtor represents to Agent that the Plan has no interest in the Agent Collateral. Debtor and PBGC each agrees that Debtor shall not grant to PBGC or the Plan any other security interest, lien or other interest in any property included within the Agent Collateral without the prior written consent of Agent. PBGC and Debtor are not party to any agreement between them other than the PBGC Agreement. 3. Until termination of this Agreement PBGC agrees that it will not take any Collection Action without the prior written consent of Agent. 3 4. Until termination of this Agreement, PBGC agrees that in the event it at any time receives or otherwise comes into possession of any property included within the Agent Collateral, or any proceeds thereof (other than scheduled payments made by Debtor to PBGC or the Plan under the PBGC Agreement in the ordinary course of Debtor's business and received by PBGC or the Plan prior to written notice by Agent of the occurrence of any Event of Default as defined by the Loan and Security Agreement), it will forthwith deliver same to Agent in the form received for the account of Debtor, and until so delivered the same shall be held in trust for the benefit of Agent, for the account of Debtor. At Agent's request, PBGC will provide any necessary endorsement or assignment (without recourse) as necessary to transfer or negotiate any check or other item constituting Agent Collateral. In the absence of any such endorsement or assignment, Agent is irrevocably appointed as attorney-in-fact with full power of substitution, coupled with an interest, with full authority for the limited purpose to make any such endorsement or assignment on behalf of PBGC as may be necessary to collect or enforce same. 5. Debtor and PBGC each agrees that: (a) The PBGC Agreement (including each security agreement, mortgage or other security document included therein) shall include a provision stating substantially the following: "This Agreement and all rights and interests of [PBGC] and [the Plan] thereunder are subject to the certain Subordination and Standby Agreement dated _______, 1997 among [PBGC], [Agent] and [Debtor], as the same may be renewed, extended, modified, amended or restated from time to time." (b) All financing statements filed by PBGC naming Debtor and covering any property included within the Agent Collateral shall state the following: "Secured Party's rights under the above referenced financing statement are subordinated in favor of NationsBank of Texas, N.A., in its capacity as Agent under the certain Loan and Security Agreement (herein called "Agent") among Debtor, Agent and the Lenders (as defined therein) from time to time party thereto, pursuant the certain Subordination and Standby Agreement among Secured Party, Debtor, [PBGC] and Agent, reference to which hereby is made." 6. PBGC and Debtor each agrees that the PBGC Agreement (including each security agreement, mortgage or other security document included therein) will not be amended without the prior written consent of Agent. 7. Agent may take any action, or defer or refrain from taking action, to enforce its rights and remedies with respect to the LSA Obligations and the Agent Lien, and may make such other determinations or take such other actions in connection therewith (including without limitation the timing or manner of disposition of any Agent Collateral, determination of funding or other actions after or during the continuance of an Event of Default (as defined by the Loan and Security Agreement), or make such waivers, or agree with Debtor for such amendments or modifications to the terms of the Loan and Security Agreement or any other Loan Document (as 4 defined therein) as Agent may determine in its discretion), without requirement of prior notice to or consent from PBGC and without in any manner impairing Agent's rights and obligations under this Agreement. Agent may release any person or entity now or hereafter liable upon any of the LSA Obligations, or permit substitutions, withdrawals or release of any of the Agent Collateral or any other security or collateral at any time securing same, or renew, extend or accept partial payments on any of the LSA Obligations. Agent shall not at any time be required to institute suit or exercise or exhaust remedies against any person or entity obligated to pay any of the LSA Obligations, or against the Agent Collateral or any other security for the LSA Obligations, prior to exercising its rights or receiving the benefits of this Agreement. 8. Nothing herein shall impair the rights of PBGC in respect of any PBGC Statutory Lien (if any) at any time arising, PROVIDED, that the Agent Lien shall have priority over any such PBGC Statutory Lien to the extent provided pursuant to Section 4068 of ERISA and notwithstanding anything to the contrary (if any) provided by other applicable law. PBGC agrees to notify Agent in writing upon providing any notice to Debtor of intention to institute proceedings to terminate the Plan. 9. The subordinations and priorities specified in this Agreement are applicable irrespective of the validity or the time or order of attachment or perfection of the security interests evidenced by the Agent Lien, the PBGC Agreement Lien and the Plan Lien, respectively, or the time or order of filing of financing statements with respect thereto. This Agreement is solely for the purpose of defining the relative rights of Agent and PBGC and shall not be deemed to create any rights or priorities in favor of any other person, including without limitation, Debtor or any debtor-in-possession or trustee in bankruptcy in any bankruptcy proceedings of Debtor. Nothing herein shall be construed to govern the relative priority between the PBGC Agreement Lien and the Plan Lien, respectively, as between them, which priority shall be determined by separate agreement between PBGC and the Plan or applicable law. 10. This Agreement is an irrevocable and continuing agreement of subordination, and Agent and the Credit Parties (as defined by the Loan and Security Agreement) may continue to rely upon same in lending money, extending credit, and making other financial accommodations to or for the account of Debtor, without notice to PBGC, pursuant to the Loan and Security Agreement and the other Loan Documents (defined therein). 11. Any notice or demand by one party to another under this Agreement shall be in writing and shall be deemed made and received upon delivery (VIA personal delivery, courier, telecopy or other electronic transmission) to the address specified below, or on the third day following deposit in the United States mail, postage prepaid, addressed as specified below: PBGC: Director, Corporate Finance and Negotiations Department Pension Benefit Guaranty Corporation 1200 K. Street, N.W. Washington, D.C. 2005-4026 Telecopy: (202) 842-2643 5 Debtor: D. Gordon Strickland President and Chief Executive Officer Kerr Group, Inc. 500 New Holland Avenue Lancaster, PA 17602-2104 Telecopy: (717) 394-6398 Agent: NationsBank of Texas, N.A. 901 Main Street Dallas, Texas 75202 Attention: Business Credit: Regional Manager/URGENT Telecopy: 214-508-0480 12. This Agreement shall terminate at such time that the LSA Obligations have been paid in full and the Loan and Security Agreement has terminated; PROVIDED HOWEVER, that in the event, following any such payment or termination, any amount previously applied in reduction of the LSA Obligations is revived pursuant to Section 18.7 of the Loan and Security Agreement, then all rights and obligations under this Agreement shall likewise be revived, and all amounts, if any, received by PBGC in respect of any property included within the Agent Collateral after such termination likewise shall be governed by the provisions of this Agreement as if the same had not been terminated. 13. No waiver shall be deemed to have been made by Agent of any of its rights hereunder unless such waiver is in writing and signed by Agent, and any such written waiver shall be limited to the specific instance specified therein. The rights of Agent hereunder are cumulative of all other rights of Agent under any other agreement with Debtor or PBGC, respectively, or as otherwise provided by law. 14. PBGC and Agent each represents to the other that (i) it has full corporate power and authority to enter into, execute, deliver and perform this Agreement, all of which have been duly authorized by all proper and necessary corporate action and are not prohibited by its charter, bylaws or applicable law and (ii) the officer signing this Agreement on its behalf is a duly authorized officer with full authority to execute this Agreement. 15. If any provision of this Agreement is for any reason held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability will not affect any other provision of this Agreement. 16. This Agreement is binding upon and inures to the benefit of the parties hereto and their respective assignees, transferees, and successors. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. EACH OF PBGC, AGENT AND DEBTOR HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY 6 IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST PBGC, AGENT OR DEBTOR ARISING OUT OF THIS AGREEMENT. EACH SUCH PARTY ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING. PBGC, AGENT AND DEBTOR HEREBY AGREE THAT THE FEDERAL COURT OF THE NORTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF AGENT, ANY COURT IN WHICH AGENT SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG PBGC, AGENT OR DEBTOR PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT. THE NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. 17. This Agreement may be executed in counterparts, each of which shall be an original, but all of which, taken together, shall constitute one and the same instrument. A telecopy of any such executed counterpart shall be deemed valid as an original. 18. All references herein to PBGC shall be deemed to mean, and all representations, warranties, covenants and agreements herein by PBGC are deemed made by and shall be binding upon, PBGC both in its individual corporate capacity and also in its capacity on behalf of the Plan, and all such representations, warranties, covenants and agreements by PBGC in such capacity on behalf of the Plan shall be binding upon the Plan. 19. Debtor agrees that this Agreement shall be deemed to be a "Loan Document" as defined by the Loan and Security Agreement. 7 SIGNED EFFECTIVE as of August 26, 1997. NATIONSBANK OF TEXAS, N.A. in its capacity as Agent under the Loan and Security Agreement defined herein By: /s/ Anne E. Carbone -------------------------------------------------- Name: Anne E. Carbone ------------------------------------------------- Title: Senior Vice President ------------------------------------------------ Authorized Officer KERR GROUP, INC. By: /s/ Geoffrey A. Whynot -------------------------------------------------- Name: Geoffrey A. Whynot ------------------------------------------------- Title: Vice President and Chief Financial Officer ------------------------------------------------ Authorized Officer PENSION BENEFIT GUARANTY CORPORATION By: /s/ Ellen A. Hennessy -------------------------------------------------- Name: Ellen A. Hennessy ------------------------------------------------- Title: Deputy Executive Director and Chief Negotiator ------------------------------------------------ Authorized Officer 8 WASHINGTON, D.C. Section Section Section BEFORE ME, the undersigned authority, on this day personally appeared Ellen A. Hennessy, known to me be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged me that the same was the act of Pension Benefit Guaranty Corporation, and that she executed the same for the purposes and considerations therein expressed. GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 25th day of August, 1997. /s/ Donna Lynne Griffiths -------------------------------------------- NOTARY PUBLIC, STATE OF WASHINGTON, D.C. My Commission Expires: 10/31/98 Donna Lynne Griffiths -------------------------------------------- (Printed Name of Notary) THE STATE OF PENNSYLVANIA Section Section COUNTY OF LANCASTER Section BEFORE ME, the undersigned authority, on this day personally appeared Geoffrey A. Whynot, known to me be the person and officer whose name is subscribed to the foregoing instrument, and acknowledged me that the same was the act of Kerr Group, Inc., and that he executed the same for the purposes and considerations therein expressed. GIVEN UNDER MY HAND AND SEAL OF OFFICE this the 26th day of August, 1997. /s/ Sherry S. Shertzer -------------------------------------------- NOTARY PUBLIC, STATE OF PENNSYLVANIA My Commission Expires: 2/26/2000 Sherry S. Shertzer -------------------------------------------- (Printed Name of Notary) 9 EX-10.45 5 EXHIBIT 10.45 NATIONSBANK NATIONSBANK OF TEXAS, N.A. - ------------------------------------------------------------------------------- LOAN AND SECURITY AGREEMENT among KERR GROUP, INC., as Borrower, NATIONSBANK OF TEXAS, N.A., as Agent and a Lender (AND OTHER LENDERS, IF ANY, FROM TIME TO TIME PARTY HERETO) Dated as of August 26, 1997 TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 Section 1.1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . .1 Section 1.2 GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 1.3 EXHIBITS AND SCHEDULES . . . . . . . . . . . . . . . . . . 38 ARTICLE 2 - REVOLVING CREDIT FACILITY. . . . . . . . . . . . . . . . . . . . . . . 38 Section 2.1 REVOLVING CREDIT LOANS . . . . . . . . . . . . . . . . . . 38 Section 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS . . . . . . . . 39 Section 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. . . . . . . . . . . . 40 Section 2.4 REVOLVING CREDIT NOTE. . . . . . . . . . . . . . . . . . . 40 Section 2.5 EXTENSION OF REVOLVING CREDIT FACILITY . . . . . . . . . . 40 ARTICLE 3 - LETTER OF CREDIT FACILITY. . . . . . . . . . . . . . . . . . . . . . . 41 Section 3.1 AGREEMENT TO ISSUE . . . . . . . . . . . . . . . . . . . . 41 Section 3.2 AMOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 3.3 CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 3.4 ISSUANCE OF LETTERS OF CREDIT. . . . . . . . . . . . . . . 42 Section 3.5 DUTIES OF L/C ISSUER . . . . . . . . . . . . . . . . . . . 42 Section 3.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS . . . . . . . . . . . 43 Section 3.7 PARTICIPATIONS . . . . . . . . . . . . . . . . . . . . . . 43 Section 3.8 INDEMNIFICATION, EXONERATION . . . . . . . . . . . . . . . 45 Section 3.9 SUPPORTING LETTER OF CREDIT; CASH COLLATERAL . . . . . . . 47 ARTICLE 4 - TERM LOAN FACILITY . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.1 TERM LOAN. . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.2 MANNER OF BORROWING AND DISBURSING TERM LOAN . . . . . . . 47 Section 4.3 REPAYMENT OF TERM LOAN . . . . . . . . . . . . . . . . . . 47 Section 4.4 TERM NOTES . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE 5 - CAPEX LOAN FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 5.1 CAPEX LOAN . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 5.2 MANNER OF BORROWING AND DISBURSING CAPEX LOAN. . . . . . . 48 Section 5.3 REPAYMENT OF CAPEX LOAN. . . . . . . . . . . . . . . . . . 48 Section 5.4 CAPEX NOTES. . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE 6- GENERAL LOAN PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6.1 PROCEDURE FOR BORROWING. . . . . . . . . . . . . . . . . . 49 Section 6.2 INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 6.3 INTEREST RATE OPTION . . . . . . . . . . . . . . . . . . . 50 Section 6.4 CERTAIN FEES . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.5 MANNER OF PAYMENT. . . . . . . . . . . . . . . . . . . . . 52 Section 6.6 PAYMENTS ON BUSINESS DAYS. . . . . . . . . . . . . . . . . 53
i Section 6.7 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT . . . . . . . . . . . 53 Section 6.8 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . 53 Section 6.9 MAKING OF LOANS. . . . . . . . . . . . . . . . . . . . . . 54 Section 6.10 SETTLEMENT AMONG LENDERS . . . . . . . . . . . . . . . . . 55 Section 6.11 MANDATORY PREPAYMENTS. . . . . . . . . . . . . . . . . . . 58 Section 6.12 PREPAYMENT FEE . . . . . . . . . . . . . . . . . . . . . . 60 ARTICLE 7- CHANGE OF CIRCUMSTANCES . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 7.1 INCREASED COST AND REDUCED RETURN. . . . . . . . . . . . . 60 Section 7.2 LIMITATION ON TYPES OF LOANS.. . . . . . . . . . . . . . . 62 Section 7.3 ILLEGALITY.. . . . . . . . . . . . . . . . . . . . . . . . 62 Section 7.4 TREATMENT OF AFFECTED LOANS. . . . . . . . . . . . . . . . 62 Section 7.5 COMPENSATION.. . . . . . . . . . . . . . . . . . . . . . . 63 Section 7.6 TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . 63 ARTICLE 8- CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 8.1 CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT. . . . 65 Section 8.2 ALL LOANS; LETTERS OF CREDIT . . . . . . . . . . . . . . . 70 ARTICLE 9- REPRESENTATIONS AND WARRANTIES OF BORROWER. . . . . . . . . . . . . . . 71 Section 9.1 REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 71 Section 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. . . . . . 83 ARTICLE 10- SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . . . . . . . 83 Section 10.1 SECURITY INTEREST. . . . . . . . . . . . . . . . . . . . . 83 Section 10.2 CONTINUED PRIORITY OF SECURITY INTEREST. . . . . . . . . . 84 ARTICLE 11- COLLATERAL COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 85 Section 11.1 COLLECTION OF RECEIVABLES. . . . . . . . . . . . . . . . . 85 Section 11.2 VERIFICATION AND NOTIFICATION. . . . . . . . . . . . . . . 86 Section 11.3 DISPUTES, RETURNS AND ADJUSTMENTS. . . . . . . . . . . . . 87 Section 11.4 INVOICES . . . . . . . . . . . . . . . . . . . . . . . . . 87 Section 11.5 DELIVERY OF INSTRUMENTS. . . . . . . . . . . . . . . . . . 87 Section 11.6 SALES OF INVENTORY . . . . . . . . . . . . . . . . . . . . 88 Section 11.7 OWNERSHIP AND DEFENSE OF TITLE . . . . . . . . . . . . . . 88 Section 11.8 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 88 Section 11.9 LOCATION OF OFFICES AND COLLATERAL.. . . . . . . . . . . . 90 Section 11.10 RECORDS RELATING TO COLLATERAL.. . . . . . . . . . . . . . 90 Section 11.11 INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . 90 Section 11.12 INFORMATION AND REPORTS. . . . . . . . . . . . . . . . . . 91 Section 11.13 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . . 92 Section 11.14 ADDITIONAL REAL ESTATE AND LEASES. . . . . . . . . . . . . 92 Section 11.15 ASSIGNMENT OF CLAIMS ACT . . . . . . . . . . . . . . . . . 93 ARTICLE 12- AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . 94 Section 12.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR MATTERS. . 94
ii Section 12.2 COMPLIANCE WITH APPLICABLE LAW . . . . . . . . . . . . . . 94 Section 12.3 MAINTENANCE OF PROPERTY. . . . . . . . . . . . . . . . . . 94 Section 12.4 CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . 95 Section 12.5 INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . 95 Section 12.6 PAYMENT OF TAXES AND CLAIMS. . . . . . . . . . . . . . . . 95 Section 12.7 ACCOUNTING METHODS AND FINANCIAL RECORDS . . . . . . . . . 95 Section 12.8 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . 95 Section 12.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . . . 96 ARTICLE 13 - INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 Section 13.1 FINANCIAL STATEMENTS.. . . . . . . . . . . . . . . . . . . 97 Section 13.2 ACCOUNTANTS' CERTIFICATE . . . . . . . . . . . . . . . . . 98 Section 13.3 OFFICER'S CERTIFICATE. . . . . . . . . . . . . . . . . . . 98 Section 13.4 COPIES OF OTHER REPORTS. . . . . . . . . . . . . . . . . . 98 Section 13.5 NOTICE OF LITIGATION AND OTHER MATTERS . . . . . . . . . . 99 Section 13.6 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . .100 Section 13.7 ACCURACY OF INFORMATION. . . . . . . . . . . . . . . . . .100 Section 13.8 REVISIONS OR UPDATES TO SCHEDULES. . . . . . . . . . . . .100 Section 13.9 ANNUAL PROJECTIONS . . . . . . . . . . . . . . . . . . . .101 Section 13.10 REAL ESTATE AND EQUIPMENT APPRAISALS . . . . . . . . . . .101 Section 13.11 PBGC AGREEMENTS. . . . . . . . . . . . . . . . . . . . . .101 Section 13.12 ADDITIONAL CAPITAL CONTRIBUTION. . . . . . . . . . . . . .101 ARTICLE 14 - NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . .101 Section 14.1 FINANCIAL PERFORMANCE. . . . . . . . . . . . . . . . . . .101 Section 14.2 INDEBTEDNESS FOR MONEY BORROWED. . . . . . . . . . . . . .103 Section 14.3 GUARANTIES . . . . . . . . . . . . . . . . . . . . . . . .103 Section 14.4 INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . .103 Section 14.5 RESTRICTED DIVIDEND PAYMENTS AND PURCHASES, ETC. . . . . .103 Section 14.6 MERGER, CONSOLIDATION AND SALE OF ASSETS . . . . . . . . .103 Section 14.7 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . .104 Section 14.8 LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . .104 Section 14.9 CAPITALIZED LEASE OBLIGATIONS. . . . . . . . . . . . . . .104 Section 14.10 OPERATING LEASES . . . . . . . . . . . . . . . . . . . . .104 Section 14.11 REAL ESTATE LEASES . . . . . . . . . . . . . . . . . . . .104 Section 14.12 PLANS. . . . . . . . . . . . . . . . . . . . . . . . . . .104 Section 14.13 SALES AND LEASEBACKS.. . . . . . . . . . . . . . . . . . .104 Section 14.14 SUBORDINATED INDEBTEDNESS. . . . . . . . . . . . . . . . .104 Section 14.15 BUSINESS ACTIVITIES OF FREMONT AND KAC . . . . . . . . . .105 Section 14.16 ACQUISITION FEES AND EXPENSES. . . . . . . . . . . . . . .105 ARTICLE 15- DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .105 Section 15.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . .105 Section 15.2 REMEDIES.. . . . . . . . . . . . . . . . . . . . . . . . .109 Section 15.3 APPLICATION OF PROCEEDS. . . . . . . . . . . . . . . . . .111
iii Section 15.4 POWER OF ATTORNEY. . . . . . . . . . . . . . . . . . . . .112 Section 15.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES.. . . . . . .113 Section 15.6 REGISTRATION RIGHTS; PRIVATE SALES; ETC. . . . . . . . . .114 ARTICLE 16 - ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .116 Section 16.1 ASSIGNMENTS AND PARTICIPATIONS.. . . . . . . . . . . . . .116 Section 16.2 REPRESENTATION OF LENDERS. . . . . . . . . . . . . . . . .117 ARTICLE 17 - AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .118 Section 17.1 APPOINTMENT, POWERS, AND IMMUNITIES. . . . . . . . . . . .118 Section 17.2 RELIANCE BY AGENT. . . . . . . . . . . . . . . . . . . . .118 Section 17.3 DEFAULTS.. . . . . . . . . . . . . . . . . . . . . . . . .119 Section 17.4 RIGHTS AS LENDER.. . . . . . . . . . . . . . . . . . . . .119 Section 17.5 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . .119 Section 17.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. . . . . . . . . .120 Section 17.7 RESIGNATION OF AGENT.. . . . . . . . . . . . . . . . . . .120 ARTICLE 18 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . .120 Section 18.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . .120 Section 18.2 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . .122 Section 18.3 STAMP AND OTHER TAXES. . . . . . . . . . . . . . . . . . .123 Section 18.4 RIGHT OF SET-OFF; ADJUSTMENTS. . . . . . . . . . . . . .123 Section 18.5 LITIGATION; WAIVER OF TRIAL BY JURY. . . . . . . . . . . .124 Section 18.6 REVERSAL OF PAYMENTS . . . . . . . . . . . . . . . . . . .125 Section 18.7 INJUNCTIVE RELIEF. . . . . . . . . . . . . . . . . . . . .125 Section 18.8 ACCOUNTING MATTERS . . . . . . . . . . . . . . . . . . . .125 Section 18.9 AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . .125 Section 18.10 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . .127 Section 18.11 PERFORMANCE OF BORROWER'S DUTIES . . . . . . . . . . . . .127 Section 18.12 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . .127 Section 18.13 ALL POWERS COUPLED WITH INTEREST.. . . . . . . . . . . . .128 Section 18.14 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . .128 Section 18.15 TITLES AND CAPTIONS. . . . . . . . . . . . . . . . . . . .129 Section 18.16 SEVERABILITY OF PROVISIONS . . . . . . . . . . . . . . . .129 Section 18.17 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . .129 Section 18.18 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . .129 Section 18.19 REPRODUCTION OF DOCUMENTS. . . . . . . . . . . . . . . . .129 Section 18.20 TERM OF AGREEMENT. . . . . . . . . . . . . . . . . . . . .129 Section 18.21 PRO-RATA PARTICIPATION . . . . . . . . . . . . . . . . . .130 Section 18.22 INTEREST LIMITATION. . . . . . . . . . . . . . . . . . . .130 Section 18.23 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . .131
iv EXHIBITS EXHIBIT "A" Form of Revolving Credit Note EXHIBIT "B" Form of Term Note EXHIBIT "C" Form of CAPEX Note EXHIBIT "D" Form of Borrowing Base Certificate EXHIBIT "E" Form of Assignment and Acceptance EXHIBIT "F" Form of Settlement Report EXHIBIT "G" Form of Notice of Borrowing, Prepayment, Conversion or Continuation EXHIBIT "H" Form of Compliance Certificate
SCHEDULES Schedule 1.1A Acquisition Documents Schedule 1.1B Permitted Investments Schedule 1.1C Permitted Liens Schedule 9.1(a) Qualification Schedule 9.1(b) Capitalization Schedule 9.1(c) Subsidiaries; Ownership of Stock Schedule 9.1(e) Compliance with Laws Schedule 9.1(g) Governmental Approvals Schedule 9.1(h) Title to Properties Schedule 9.1(i) Liens Schedule 9.1(j) Indebtedness for Money Borrowed; Guaranties Schedule 9.1(k) Litigation Schedule 9.1(l) Tax Matters Schedule 9.1(p) Benefit Plans Schedule 9.1(t) Chief Executive Office and Location of Records Schedule 9.1(u) Location of Inventory Schedule 9.1(v) Location of Equipment Schedule 9.1(w) Real Estate (Owned and Leased) Schedule 9.1(x) Corporate and Fictitious Names Schedule 9.1(aa) Employee Relations Schedule 9.1(bb) Proprietary Rights Schedule 9.1(cc) Trade Names Schedule 9.1(ff) Investment Property Schedule 12.8 Use of Proceeds Schedule 12.9 Environmental Liabilities v LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT ("AGREEMENT"), dated as of August 26, 1997, is executed and entered into by and among KERR GROUP, INC, a Delaware corporation ("BORROWER"), each of the lending institutions which is a party hereto, or any permitted successor or assignee thereof permitted pursuant to SECTION 16.1 (individually, a "LENDER" and collectively, the "LENDERS"), L/C Issuer (as such term is defined herein) and NATIONSBANK OF TEXAS, N.A., a national banking association, as agent for itself and the other Lenders (in such capacity, together with its successors and assigns in such capacity, "AGENT"). RECITALS: A. Borrower has requested that the Lenders extend a revolving loan facility, a term loan facility, a capital expenditures loan facility and a letter of credit facility to Borrower for the purpose of refinancing existing obligations of Borrower and providing working capital, and for other corporate purposes of Borrower. B. The Lenders have agreed to provide such loan and letter of credit facilities upon and subject to the terms and conditions set forth in this Agreement and the other Loan Documents (as defined below). NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto hereby agree as follows: ARTICLE 1 DEFINITIONS Section 1.1 DEFINITIONS. As used in this Agreement, the following terms have the following meanings: "ACCOUNT DEBTOR" means a Person who is obligated on a Receivable. "ACQUISITION" means the acquisition of not less than fifty-one percent (51.0%) of the fully diluted shares of Capital Stock of Borrower by KAC pursuant to the terms of the Tender Offer Statement. "ACQUISITION AGREEMENT" means the certain Agreement and Plan of Merger, dated as of July 1, 1997, among Borrower, KAC and Fremont, as such agreement may be amended up to and through the Agreement Date with the consent of Agent and the Lenders. "ACQUISITION DOCUMENTS" means, collectively, the Acquisition Agreement, the Tender Offer Statement and each other agreement, certificate, document and instrument executed or delivered in connection with, or otherwise related to, the Acquisition Agreement, the Acquisition or the Merger, 1 including, without limitation, the agreements, certificates, documents and instruments listed on SCHEDULE 1.1A ("Acquisition Documents") attached hereto. "ADJUSTED EURODOLLAR RATE" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) determined by Agent to be equal to the quotient obtained by dividing (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period by (b) one (1) minus the Reserve Requirement for such Eurodollar Loan for such Interest Period. "AFFECTED LOANS" has the meaning set forth in SECTION 7.4 of this Agreement "AFFECTED TYPE" has the meaning set forth in SECTION 7.4 of this Agreement. "AFFILIATE" means, with respect to any Person, (a) any partner, officer, shareholder (if holding more than ten percent (10.0%) of the outstanding Capital Stock of such Person), director, employee or managing agent of such Person, or (b) any other Person (other than a Subsidiary) that, (i) directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, such Person, (ii) directly or indirectly beneficially owns or holds ten percent (10.0%) or more of any class of Voting Stock of such Person or any Subsidiary of such Person, or (iii) ten percent (10.0%) or more of the Voting Stock of which is directly or indirectly beneficially owned or held by such Person or a Subsidiary of such Person. The term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of Voting Stock, by contract or otherwise. "AFFILIATE GUARANTY" means each Guaranty, dated as of the Agreement Date, executed by Fremont and KAC in favor of Agent, for the benefit of the Credit Parties, as such Guaranty may be amended, modified, restated or supplemented from time to time, and any other Guaranty executed by a Guarantor in favor of Agent, for the benefit of the Credit Parties, and "AFFILIATE GUARANTIES" means all of such agreements, collectively. "AGENCY ACCOUNT" means an account of Borrower maintained by it with a Clearing Bank pursuant to an Agency Account Agreement. "AGENCY ACCOUNT AGREEMENT" means any agreement (if required pursuant to SECTION 11.1(a)) among Borrower, Agent and a Clearing Bank, in form and substance satisfactory to Agent, which designates an Agency Account for the deposit of checks and items constituting proceeds of Receivables or any other Collateral, and establishes the terms for transferring balances therein to Agent. "AGENT" means NationsBank, in its capacity as agent for the Lenders and L/C Issuer as provided by this Agreement, and any successor agent appointed pursuant to SECTION 17.7 hereof. "AGREEMENT" means and includes this Agreement and all exhibits, schedules, addenda and other attachments hereto, and any renewal, extension, amendment, modification, restatement or supplement hereof. 2 "AGREEMENT DATE" means the date as of which this Agreement is dated. "APPLICABLE LAW" means, with respect to any Person, all provisions of constitutions, statutes, rules, regulations and orders of any Governmental Authority applicable to such Person or its property, including, without limitation, all orders and decrees of all courts and arbitrators in proceedings or actions to which such Person is a party and all Environmental Laws. "APPLICABLE LENDING OFFICE" means, for each Lender and for each Type of Loan, the "Lending Office" of such Lender (or of an Affiliate of such Lender) designated for such Type of Loan on the signature pages hereof or such other office of such Lender (or an Affiliate of such Lender) as such Lender may from time to time specify to Agent and Borrower by written notice in accordance with the terms hereof as the office by which its Loans of such Type are to be made and maintained. "APPLICABLE MARGIN" means the percentage corresponding to each Type of Loan as set forth below applicable to the Revolving Credit Loan, the Term Loan and the CAPEX Loan, respectively: - -------------------------------------------------------------------------- Type of Loan Revolving Loans Term Loan and CAPEX Loan - -------------------------------------------------------------------------- Base Rate Loans 0.00% 0.50% - -------------------------------------------------------------------------- Eurodollar Loans 2.25% 2.75% - -------------------------------------------------------------------------- PROVIDED that, notwithstanding the foregoing, if Borrower's Fixed Charge Coverage Ratio, calculated in accordance with SECTION 14.1(b), is not less than (a) 1.75 to 1.00 for the fiscal year ended December 31, 1998, or (b) 2.00 to 1.00 for the fiscal year ended December 31, 1999, respectively, then, in either (or both) of such events the Applicable Margin otherwise then applicable with respect to Base Rate Loans and Eurodollar Loans shall be permanently reduced by one-quarter of one percent (0.25%), any such reduction to be effective automatically as of the first day of the second calendar month following the calendar month of Agent's receipt of financial statements required by SECTION 13.1(a). "APPLICABLE RATE" means, at any time: (a) with respect to Base Rate Loans, the Base Rate plus the Applicable Margin; or (b) with respect to Eurodollar Loans, the Adjusted Eurodollar Rate plus the Applicable Margin, as the case may be, in effect at any time pursuant to a Notice of Borrowing or otherwise pursuant to the terms of this Agreement. "ASSET DISPOSITION" means, with respect to any Person, the disposition of any asset of such Person (including, without limitation, the sale of any Capital Stock of any Subsidiary of such Person) other than sales of Inventory in the ordinary course of business. 3 "ASSIGNMENT AND ACCEPTANCE" means an Assignment and Acceptance Agreement in the form attached hereto as EXHIBIT "E" assigning all or a portion of a Lender's interests, rights and obligations under this Agreement to an Eligible Assignee pursuant to SECTION 16.1. "AVAILABILITY" means, as of the date of any determination thereof, (a) the Borrowing Base at such time, MINUS (b) the aggregate outstanding principal balance of the Revolving Credit Loan as of such date. "BASE RATE" means, for any day, the rate per annum equal to the higher of (a) the Federal Funds Rate for such day or (b) the Prime Rate for such day. Any change in the Base Rate due to a change in the Federal Funds Rate or the Prime Rate shall be effective on the effective date of such change in the Federal Funds Rate or the Prime Rate; PROVIDED, that adjustments, if any, of the Applicable Rate resulting from any change in the Base Rate shall become effective as provided in SECTION 6.2(d). "BASE RATE LOAN" means any Loan that bears interest at rates based upon the Base Rate. "BENEFIT PLAN" means an "employee pension benefit plan" as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) in respect of which Borrower or any Related Company is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA, including such plans as may be established after the Agreement Date. "BENEFITTED LENDER" has the meaning set forth in SECTION 18.4 of this Agreement. "BORROWER" means Kerr Group, Inc., a Delaware corporation, with its chief executive office located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602, whose tax identification number is 95-0898810, and its successors and permitted assigns. "BORROWING BASE" means, at any time, an amount equal to the lesser of: (a) the maximum principal amount of the Revolving Credit Facility, MINUS the sum of (i) the Letter of Credit Reserve, PLUS (ii) the aggregate amount of the Environmental Compliance Reserves, PLUS (iii) such other reserves as Agent in its reasonable discretion may establish from time to time, or (b) an amount equal to the sum of (i) eighty-five percent (85%) (or such lesser percentage as Agent may in its reasonable discretion determine from time to time) of the face value of Eligible Receivables due and owing at such time, PLUS (ii) sixty percent (60%) (or such lesser percentage as Agent may in its reasonable discretion determine from time to time) of the lesser of cost determined on a FIFO (or first-in-first- out) accounting basis and 4 fair market value of Eligible Inventory, net of Borrower's reserve for obsolescence, at such time; PROVIDED, that the maximum amount included in the Borrowing Base in respect of work-in-process shall not at any time exceed $2,000,000, MINUS (iii) the sum of (A) the Letter of Credit Reserve, PLUS (B) the aggregate amount of the Environmental Compliance Reserves, PLUS (C) such other reserves as Agent in its reasonable discretion may establish from time to time. "BORROWING BASE CERTIFICATE" means a certificate, signed by an authorized representative of Borrower, in substantially the form attached hereto as EXHIBIT "D". "BROKER" means any "broker," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any Person defined as a broker or dealer under the federal securities laws, but without excluding a bank acting in that capacity. "BUSINESS DAY" means (a) any calendar day other than Saturday, Sunday or other day on which banks in Dallas, Texas are authorized to close, and (b) with respect to all Loans, payments, Conversions, Continuations, Interest Periods and notices in connection with any Eurodollar Loan, any day which is a Business Day described in CLAUSE (a) above and which is also a day on which dealings in Dollar deposits are carried out in the London interbank Eurodollar market. "BUSINESS UNIT" means all or substantially all of the assets constituting the business or an operating unit thereof, of any Person. "CAPEX LOAN" means each Loan made to Borrower pursuant to SECTION 5.1, as well as all such Loans collectively, as the context requires. "CAPEX LOAN AMORTIZATION PAYMENT" means an amount, determined as of each Installment Payment Date, equal to the sum of all CAPEX Loan Installments applicable to such date. "CAPEX LOAN AVAILABILITY" means with respect to any CAPEX Loan, an amount, determined as of the time of funding thereof, equal to the sum of eighty percent (80.0%) of the Cost Value of Eligible Purchased Equipment which is to be financed or refinanced by such CAPEX Loan. "CAPEX LOAN FACILITY" means the facility provided by ARTICLE 5 of this Agreement for Loans up to the maximum principal sum of Ten Million and no/100 Dollars ($10,000,000.00). "CAPEX LOAN INSTALLMENT" means an amount, determined with respect to each CAPEX Loan for each Installment Payment Date occurring after the date of funding thereof and prior to the Termination Date, equal to one eighty-fourth (1/84th) of the original principal amount of such CAPEX Loan. 5 "CAPEX NOTE" means a CAPEX Note made by Borrower payable to the order of a Lender evidencing the obligation of Borrower to pay the aggregate unpaid principal amount of the CAPEX Loan made to it by such Lender (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement or exchange therefor whether payable to such Lender or to a different Lender in connection with a Person becoming a Lender after the Effective Date or otherwise) substantially in the form of EXHIBIT "C" hereto, with all blanks properly completed, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced. "CAPITAL EXPENDITURES" means, with respect to any Person, all expenditures made and liabilities incurred for the acquisition of assets (other than assets which constitute a Business Unit) which are not, in accordance with GAAP, treated as expense items for such Person in the year made or incurred or as a prepaid expense applicable to a future year or years. "CAPITAL STOCK" means corporate stock and any and all shares, partnership interests, membership interests, equity interests, rights, securities or other equivalent evidences of ownership (however designated) issued by any entity (whether a corporation, partnership, limited liability company, limited partnership or other type of entity). "CAPITALIZED LEASE" means a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP. "CAPITALIZED LEASE OBLIGATION" means Indebtedness represented by obligations under a Capitalized Lease, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "CASH COLLATERAL" means Collateral consisting of cash or Cash Equivalents on which Agent, for the benefit the Credit Parties, has a first priority Lien. "CASH DIVIDENDS" means cash payments of dividends (to the extent not prohibited by this Agreement). "CASH EQUIVALENTS" means, with respect to any Person: (a) marketable direct obligations issued or unconditionally guaranteed by the U.S. or issued by any agency thereof and backed by the full faith and credit of the U.S., in each case maturing within one (1) year from the date of acquisition thereof; (b) commercial paper maturing no more than one (1) year from the date issued and, at the time of acquisition thereof, having a rating of at least A-1 from Standard & Poor's Corporation or at least P-1 from Moody's Investors Service, Inc.; (c) certificates of deposit or bankers' acceptances issued in Dollar denominations and maturing within one (1) year from the date of issuance thereof issued by any commercial bank organized under the laws of the U.S. or any state thereof or the District of Columbia 6 having combined capital and surplus of not less than $100,000,000 and, unless issued by Agent or a Lender, not subject to set-off or offset rights in favor of such bank arising from any banking relationship with such bank; (d) repurchase agreements with a term of not more than thirty (30) days for underlying securities of the types described in CLAUSE (a) above entered into with any commercial bank meeting the qualifications specified in CLAUSE (c) above; and (e) investments in money market funds and mutual funds which invest substantially all of their assets in securities of the types described in clauses (a) through (f) above. "CASH TAXES" means cash payments made in respect of income tax liabilities due and owing. "CLEARING BANK" means PNC Bank, National Association and any other banking institution with which an Agency Account has been established pursuant to an Agency Account Agreement. "CLEARING CORPORATION" means any "clearing corporation," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any (i) Person that is registered as a "clearing agency" under the federal securities laws, (ii) federal reserve bank, or (iii) other Person that provides clearance or settlement services with respect to Financial Assets that would require it to register as a clearing agency under the federal securities laws but for an exclusion or exemption from the registration requirement, if its activities as a clearing corporation, including promulgation of rules, are subject to regulation by a federal or state Governmental Authority. "COLLATERAL" means and includes all of Borrower's right, title and interest in and to each of the following, wherever located and whether now or hereafter existing or now owned or hereafter acquired or arising: (a) all Receivables; (b) all Inventory; (c) all Equipment; (d) all Contract Rights; (e) all General Intangibles; (f) all Investment Property; (g) all Real Estate; (h) all goods and other property, whether or not delivered, 7 (i) the sale or lease of which gives or purports to give rise to any Receivable, including, but not limited to, all merchandise returned or rejected by or repossessed from customers, or (ii) securing any Receivable, including, without limitation, all rights as an unpaid vendor or lienor (including, without limitation, stoppage in transit, replevin and reclamation) with respect to such goods and other property; (i) all mortgages, deeds to secure debt and deeds of trust on real or personal property, guaranties, leases, security agreements and other agreements and property which secure or relate to any Receivable or other Collateral, or are acquired for the purpose of securing and enforcing any item thereof; (j) all documents of title, policies and certificates of insurance, securities, chattel paper and other documents and instruments evidencing or pertaining to any and all items of Collateral; (k) all files, correspondence, computer programs, tapes, discs and related data processing software which contain information identifying or pertaining to any of the Receivables or any Account Debtor, or showing the amounts thereof or payments thereon or otherwise necessary or helpful in the realization thereon or the collection thereof; (l) all deposit accounts, including, without limitation, all cash deposited with Agent or any Lender or any Affiliate of Agent or any Lender or which Agent, for the benefit of the Credit Parties, or any Lender or such Affiliate is entitled to retain or otherwise possess as Collateral pursuant to the provisions of this Agreement or any of the Security Documents or any agreement relating to any Letter of Credit; and (m) any and all products and proceeds of the foregoing (including, but not limited to, any claim to any item referred to in this definition, and any claim against any third party for loss of, damage to or destruction of any or all of, the Collateral or for proceeds payable under, or unearned premiums with respect to, policies of insurance) in whatever form, including, but not limited to, cash, negotiable instruments and other instruments for the payment of money, chattel paper, security agreements and other documents. "COMMITMENT" means, as to each Lender, the amount set forth opposite such Lender's name on the signature pages hereof or in the Register, representing such Lender's obligation, upon and subject to the terms and conditions of this Agreement (including the applicable provisions of SECTION 16.1), to make the Revolving Credit Loan, the CAPEX Loan and the Term Loan and to purchase participations in Letters of Credit. "COMMITMENT PERCENTAGE" means, as to any Lender, the percentage obtained by dividing such Lender's Commitment by the Total Commitment. 8 "COMPLIANCE CERTIFICATE" means a certificate of Borrower's president or a Financial Officer, in substantially the form of EXHIBIT "H", containing the information required by SECTION 13.3 of this Agreement. "CONSOLIDATED", when used in connection with any accounting term with reference to a Person, means such accounting term determined with reference to such Person and its Subsidiaries, as consolidated according to GAAP (and, in the case of Net Income and Net Worth, after appropriate deductions for any minority interests in any Subsidiaries). "CONSOLIDATED SUBSIDIARIES" means, as to Borrower, the Subsidiaries of Borrower whose accounts are at the time in question, in accordance with GAAP and pursuant to the written consent of the Required Lenders, which consent may be withheld in their absolute discretion conditioned upon, INTER ALIA, the execution and delivery of guaranties, security agreements, mortgages and other documents required by the Required Lenders in their absolute discretion, consolidated with those of Borrower. "CONTAMINANT" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, or any constituent of any such substance or waste. "CONTINUE", "CONTINUATION" and "CONTINUED" mean the continuation pursuant to SECTION 6.3(b) hereof of a Eurodollar Loan as a Eurodollar Loan from one Interest Period to the next Interest Period. "CONTRACT RIGHTS" means any rights under contracts not yet earned by performance and not evidenced by an instrument or chattel paper, whether now existing or hereafter arising, to the extent that such rights may be lawfully assigned. "CONVERT", "CONVERSION" and "CONVERTED" mean a conversion pursuant to SECTION 6.3(c), or ARTICLE 7 of one Type of Loan into another Type of Loan. "COPYRIGHTS" means and includes, in each case whether now existing or hereafter arising, all of Borrower's right, title and interest in and to the following: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations and copyright applications; (b) all renewals of any of the foregoing; (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing, including, without limitation, damages or payments for past or future infringements of any of the foregoing; (d) the right to sue for past, present and future infringements of any of the foregoing; and 9 (e) all rights corresponding to any of the foregoing throughout the world. "COPYRIGHT SECURITY AGREEMENT" means any Copyright Security Agreement executed by Borrower to Agent, for the benefit of the Credit Parties, as such agreement may be amended, modified, restated or supplemented from time to time. "COST VALUE" means, with respect to any Eligible Purchased Equipment, the actual net purchase price (exclusive of taxes, freight, transportation, installation charges, service charges, maintenance charges or other charges not directly part of the base purchase price) thereof, as evidenced by a purchase contract, purchase order, invoice or other written evidence, satisfactory to Agent, issued by the seller thereof. "CREDIT PARTY" means each of Agent, L/C Issuer and the Lenders, and "CREDIT PARTIES" means all of such Persons, collectively. "CURRENT LIABILITIES" means, with respect to any Person, the aggregate amount of all Liabilities of such Person which should properly be classified as current liabilities in accordance with GAAP. "CURRENT MATURITIES" means, when used in connection with Long Term Liabilities, as of any date of determination, the principal amount of such Liabilities coming due on such date or during the twelve (12) month period following such date in accordance with the terms of any instrument or agreement evidencing such Liabilities or relating thereto. "DEFAULT" means any of the events specified in SECTION 15.1 which with the passage of time or giving of notice or both would constitute an Event of Default. "DEFAULT MARGIN" means two percent (2.0%). "DISBURSEMENT ACCOUNT" means one or more accounts maintained by and in the name of Borrower with a Disbursing Bank for the purposes of disbursing Revolving Credit Loan proceeds. "DISBURSING BANK" means any commercial bank with which a Disbursement Account is maintained after the Effective Date. "DOLLAR" and "$" each means freely transferable U.S. dollars. "EBITDA" means Net Income, PLUS interest expense, PLUS fees paid by Borrower pursuant to SECTION 6.4(a) and SECTION 6.4(c), PLUS income taxes, PLUS depreciation and amortization expense. "ERISA" means the Employee Retirement Income Security Act of 1974 (as amended), as in effect from time to time, any regulation promulgated thereunder and any successor statute. "EFFECTIVE DATE" means the later of: 10 (a) the Agreement Date; or (b) the first date on which all of the conditions set forth in ARTICLE 8 shall have been fulfilled or waived in accordance with the provisions of SECTION 18.9. "EFFECTIVE INTEREST RATE" means each rate of interest per annum on the Revolving Credit Loans and the Term Loan in effect from time to time pursuant to the provisions of SECTIONS 6.2(a) and (b). "ELIGIBLE ASSIGNEE" means (i) a Lender, (ii) any Affiliate of a Lender, and (iii) any other Person that is primarily engaged in the business of commercial lending or is a Subsidiary or Affiliate of a Person primarily engaged in the business of commercial lending, approved by Agent and, unless a Default or an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with SECTION 16.1, Borrower, such approval not to be unreasonably withheld or delayed by Borrower and such approval to be deemed given by Borrower if no objection is received by the assigning Lender and Agent from Borrower within two (2) Business Days after notice of such proposed assignment has been provided by the assigning Lender to Borrower; PROVIDED, HOWEVER, that neither Borrower nor an Affiliate of Borrower shall qualify as an Eligible Assignee. "ELIGIBLE INVENTORY" means Inventory which Agent, in its reasonable discretion determines to meet all of the following requirements: (a) such Inventory is owned by Borrower, is stored at a location listed on SCHEDULE 9.1(u), is subject to the Security Interest which is perfected as to such Inventory and is subject to no other Lien whatsoever other than a Permitted Lien; (b) such Inventory consists of finished goods, work-in-process or raw materials; (c) such Inventory is in good condition and meets all standards imposed by any Governmental Authority having regulatory authority over such goods, their use or sale; (d) such Inventory is currently either usable or salable, at prices approximating at least the cost of such Inventory, in the normal course of Borrower's business and is not slow moving or stale; (e) such Inventory is not obsolete or returned, repossessed or used goods taken in trade; (f) such Inventory is located within the U.S. at one of the locations set forth in the most recent Schedule of Inventory; (g) such Inventory is in the possession and control of Borrower and not any third party or if such Inventory is held by a third party bailee and a negotiable instrument has not been issued with respect thereto (i) a financing statement which names the third party bailee 11 as the debtor/bailee, names Borrower as the secured party/bailor, names Agent as assignee of the secured party/bailor and contains a description of such Inventory acceptable to Agent and otherwise in compliance with the requirements of Section 9-304(3) of the UCC has been filed in the appropriate filing office, and (ii) such other steps as Agent may reasonably require in order to establish and preserve the priority of the Security Interest against secured creditors of the third party bailee or Borrower shall have been taken (PROVIDED HOWEVER that, notwithstanding the foregoing, any such Inventory held by a third party bailee shall not be excluded from being considered as Eligible Inventory solely by reason of this CLAUSE (g) to the extent, if any, that the aggregate value of such Inventory, together with the value of all other such Inventory held by a third party bailee, does not exceed $100,000); (h) if such Inventory is located in a warehouse or other facility leased by Borrower, the lessor has delivered to Agent, on behalf of the Lenders, a waiver and consent in form and substance satisfactory to Agent; and (i) such Inventory is not determined by Agent, on behalf of the Lenders, in its reasonable discretion to be ineligible for any other reason. "ELIGIBLE PURCHASED EQUIPMENT" means, with respect to any CAPEX Loan, Equipment which is acquired or to be acquired by Borrower after the Agreement Date and within one (1) year prior to the funding of such CAPEX Loan and which is acceptable to Agent in its discretion for purposes of determination of the CAPEX Loan Availability for such CAPEX Loan, as determined by Agent in its reasonable discretion. "ELIGIBLE RECEIVABLE" means a Receivable that consists of the unpaid portion of the obligation stated on the invoice issued to an Account Debtor with respect to Inventory sold and shipped to or services performed for such Account Debtor in the ordinary course of Borrower's business, net of any credits or rebates owed by Borrower to the Account Debtor and net of any commissions payable by Borrower to third parties and that Agent, in its reasonable discretion determines to meet all of the following requirements: (a) such Receivable is owned by Borrower and represents a complete bona fide transaction which requires no further act under any circumstances on the part of Borrower to make such Receivable payable by the Account Debtor; (b) such Receivable is not more than sixty (60) days past due from the stated due date of the original invoice; (c) not more than one hundred twenty (120) days have elapsed from the date of the original invoice; (d) the goods the sale of which gave rise to such Receivable were shipped or delivered to the Account Debtor on an absolute sale basis and not on a bill and hold sale basis, a consignment sale basis, a guaranteed sale basis, a sale or return basis or on the basis 12 of any other similar understanding, and no material part of such goods has been returned or rejected; (e) such Receivable is not evidenced by chattel paper or an instrument of any kind unless such chattel paper or instrument has (i) been collaterally assigned to Agent, for the benefit of itself as agent and the Lenders, pursuant to an assignment in form and substance satisfactory to Agent and (ii) is in the possession of Agent; (f) the Account Debtor with respect to such Receivable is not insolvent or the subject of any bankruptcy or insolvency proceedings of any kind or of any other proceeding or action, threatened or pending, which might, in Agent's sole judgment, have a Materially Adverse Effect on such Account Debtor, and is not, in the reasonable discretion of Agent, deemed ineligible for credit or other reasons; (g) such Receivable is not owing by an Account Debtor having fifty percent (50%) or more in face value of its then existing accounts owing to Borrower which do not meet the requirements of CLAUSE (b) or CLAUSE (c) above; (h) such Receivable is not owing by an Account Debtor whose then existing accounts owing to Borrower exceed in face amount fifteen percent (15%) of Borrower's total Eligible Receivables; PROVIDED, HOWEVER, that only such portion of Receivables owing by an Account Debtor which exceeds fifteen percent (15%) of Borrower's total Eligible Receivables shall fail to qualify as an Eligible Receivable hereunder; (i) if such Receivable arises from the performance of services, such services have been fully rendered and do not relate to any warranty claim or obligation; (j) such Receivable is not owing by an Account Debtor that is located outside of the U.S. (for this purpose, the Commonwealth of Puerto Rico and other possessions of the U.S. shall be considered located within the U.S.) or Canada; (k) such Receivable is a valid, legally enforceable obligation of the Account Debtor with respect thereto and is not subject to any present or contingent (and no facts exist which are the basis for any future) offset, deduction or counterclaim, dispute or other defense on the part of such Account Debtor; (l) such Receivable is subject to the Security Interest, which is perfected as to such Receivable, and is subject to no other Lien whatsoever other than a Permitted Lien; (m) such Receivable is evidenced by an invoice or other documentation in form acceptable to Agent; (n) such Receivable is not subject to the Assignment of Claims Act of 1940, as amended from time to time, or any Applicable Law now or hereafter existing similar in effect thereto, or to any other prohibition (under Applicable Law, by contract or otherwise) against 13 its assignment or requiring notice of or consent to such assignment, unless all such required notices have been given, all such required consents have been received and all other procedures have been complied with such that such Receivable shall have been duly and validly assigned to Agent, for the benefit of the Credit Parties; (o) the goods giving rise to such Receivable were not, at the time of the sale thereof, subject to any Lien, except the Security Interest and Permitted Liens; (p) Borrower is not in breach of any express or implied representation or warranty with respect to the goods the sale of which gave rise to such Receivable nor in breach of any representation or warranty, covenant or other agreement contained in the Loan Documents with respect to such Receivable; (q) such Receivable does not arise out of any transaction with any Subsidiary, Affiliate, creditor, tenant, lessor or supplier of Borrower; (r) Borrower is not the beneficiary of any letter of credit, nor has any bond or other undertaking by a guarantor or surety been obtained, supporting such Receivable and the Account Debtor's obligations in respect thereof; (s) such Receivable does not arise out of finance or similar charges by Borrower or other fees for the time value of money; (t) the Account Debtor with respect to such Receivable is not located in New Jersey or any other state denying creditors access to its courts in the absence of qualification to transact business in such state or the filing of a Notice of Business Activities Report or other similar filing, unless Borrower has either qualified as a foreign corporation authorized to transact business in such state or has filed a Notice of Business Activities Report or similar filing with the applicable Governmental Authority for the then current year; and (u) neither the Account Debtor with respect to such Receivable, nor such Receivable, is determined by Agent in its reasonable discretion to be ineligible for any other reason. "ENTITLEMENT HOLDER" means any Person identified in the records of a Securities Intermediary as the Person having a Security Entitlement against the Securities Intermediary. "ENVIRONMENTAL COMPLIANCE FUNDINGS" means cash payments made in respect of, or for the purpose of, any Remedial Action. "ENVIRONMENTAL COMPLIANCE RESERVES" means reserves for the cost of Remedial Action by Borrower determined by Agent from time to time in its reasonable discretion based upon the reports delivered pursuant to SECTION 12.9(b) and such other advice, analysis and engineering studies as it deems appropriate. 14 "ENVIRONMENTAL LAWS" means all federal, state, local and foreign laws now or hereafter in effect relating to pollution or protection of the environment, including laws relating to emissions, discharges, Releases or threatened Releases of pollutants, Contaminants, chemicals or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water or land), or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, removal, transport or handling of pollutants, Contaminants, chemicals or industrial, toxic or hazardous substances or wastes, and any and all regulations, notices or demand letters issued, entered, promulgated or approved thereunder, including, but not limited to, the Resource Conservation and Recovery Act, 42 U.S.C. SECTION 6901 ET SEQ., as amended, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. SECTION 6901 ET SEQ., as amended, the Toxic Substances Control Act, 15 U.S.C. SECTION 2601 ET SEQ., as amended, the Clean Air Act, 46 U.S.C. SECTION 7401 ET SEQ., as amended, and state and federal lien and environmental cleanup programs. "ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental Authority for (a) any liability under Environmental Laws or (b) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of Contaminant into the environment. "EQUIPMENT" means and includes, with respect to any Person, all equipment, including, without limitation, all machinery, apparatus, equipment, molds, dies, tooling, motor vehicles, tractors, trailers, rolling stock, fittings, fixtures and other tangible personal property (other than Inventory) of every kind and description used in such Person's business operations or owned by such Person or in which such Person has an interest, and all parts, accessories and special tools and all increases and accessions thereto and substitutions and replacements therefor. "EURODOLLAR BUSINESS DAY" means a Business Day on which dealings in Dollars are carried out in the London interbank Eurodollar market. "EURODOLLAR LOAN" means any Loan that bears interest at rates based upon the Adjusted Eurodollar Rate. "EURODOLLAR RATE" means, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two (2) Eurodollar Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). 15 "EVENT OF DEFAULT" means any of the events specified in SECTION 15.1, PROVIDED that any requirement for notice or lapse of time or any other condition has been satisfied. "EXCESS CASH FLOW" means EBITDA, LESS Unfunded Capital Expenditures, LESS Cash Taxes, LESS Cash Dividends, LESS Environmental Compliance Fundings, LESS Pension Liability Fundings, LESS Retiree Health and Medical Fundings, LESS Restructuring Cost Fundings, LESS principal, interest, fees, costs and expenses paid under the Loan Documents, without duplication, in each case determined for Borrower for each fiscal year based on the financial statements delivered pursuant to SECTION 13.1(a). "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; PROVIDED that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to Agent (in its individual capacity) on such day on such transactions as determined by Agent. "FINANCIAL ASSET" means any financial asset, and in any event shall include, but not be limited to, any (i) Security, (ii) obligation of a Person or a share, participation or other interest in a Person or in property or an enterprise of a Person, which is, or is of a type, dealt in or traded on financial markets, or which is recognized in any area in which it is issued or dealt in as a medium for investment and (iii) any property that is held by a Securities Intermediary for another Person in a Securities Account if the Securities Intermediary has expressly agreed with the other Person that the property is to be treated as a Financial Asset under Chapter 8 (or Article 8) of the UCC. "FINANCIAL OFFICER" means the chief financial officer, treasurer, assistant treasurer or controller of Borrower. "FINANCING STATEMENTS" means any and all UCC financing statements, in form and substance satisfactory to Agent, executed and delivered by Borrower to Agent, naming Agent, for the benefit of the Credit Parties, as secured party and Borrower as debtor, in connection with this Agreement. "FIXED CHARGE COVERAGE RATIO" means, for any period, the ratio of (i) EBITDA, PLUS Pension Liability Accruals to (ii) the sum of interest expense, PLUS the aggregate amount of the CAPEX Loan Amortization Payments and the Term Loan Amortization Payments actually made by Borrower during such period, PLUS Cash Taxes, PLUS Pension Liability Fundings. "FREMONT" means Fremont Acquisition Company, LLC, a Delaware limited liability company, with its chief executive office located at 50 Fremont Street, Suite 3700, San Francisco, California 94105, whose tax identification number is 94-3277720, and its successors and permitted assigns. 16 "GAAP" means generally accepted accounting principles (existing as of the Agreement Date as promulgated by opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements of the Financial Accounting Standards Board) consistently applied and maintained throughout the period indicated and, when used with reference to Borrower or any Subsidiary of Borrower, consistent with the prior financial practice of Borrower or such Subsidiary, as reflected on the financial statements referred to in SECTION 9.1(n); PROVIDED, HOWEVER, that, in the event that changes shall be mandated by the Financial Accounting Standards Board or any similar accounting authority of comparable standing, or shall be recommended by Borrower's independent public accountants, such changes shall be included in GAAP as applicable to Borrower and any Subsidiary of Borrower only from and after such date as Borrower, the Required Lenders and Agent shall have amended this Agreement to the extent necessary to reflect any such changes in the financial covenants set forth in ARTICLE 14. "GENERAL INTANGIBLES" means all of Borrower's now owned or hereafter acquired general intangibles, choses in action and causes of action and all other intangible personal property of Borrower of every kind and nature (other than Receivables), including, without limitation, all Proprietary Rights, corporate or other business records, data, inventions, designs, blueprints, plans, specifications, goodwill, computer software, customer lists, registrations, licenses, franchises, tax refund claims, reversions or any rights thereto and any other amounts payable to Borrower from any Plan or other employee benefit plan, rights and claims against carriers and shippers, rights to indemnification, business interruption insurance and proceeds thereof, property, casualty or any similar type of insurance and any proceeds thereof, proceeds of insurance policies covering the lives of key employees on which Borrower is the beneficiary and any letter of credit, guarantee, claim, security interest or other security held by or granted to Borrower to secure payment by an Account Debtor of any Receivable. "GOVERNMENT ACTS" has the meaning set forth in SECTION 3.8(a) of this Agreement. "GOVERNMENTAL APPROVALS" means all authorizations, consents, approvals, licenses and exemptions of, registrations and filings with, and reports to, any Governmental Authority, whether federal, state, local or foreign national or provincial. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, county, municipal, parish, provincial or other political subdivision thereof and any department, commission, board, court, agency or other instrumentality or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GUARANTOR" means each of Fremont and KAC, respectively, and all existing and hereafter acquired direct and indirect domestic Subsidiaries of Borrower, Fremont or KAC, and "GUARANTORS" means all of such Persons, collectively. "GUARANTY", "GUARANTEED" or to "GUARANTEE" as applied to any obligation of another Person shall mean and include: 17 (a) any guaranty (other than by endorsement of negotiable instruments for collection in the ordinary course of business), directly or indirectly, in any manner, of any part or all of such obligation of such other Person; and (b) any agreement, direct or indirect, contingent or otherwise, and whether or not constituting a guaranty, the practical effect of which is to assure the payment or performance (or payment of damages in the event of nonperformance) of any part or all of such obligation of such other Person whether by (i) the purchase of securities or obligations, (ii) the purchase, sale or lease (as lessee or lessor) of property or the purchase or sale of services primarily for the purpose of enabling the obligor with respect to such obligation to make any payment or performance (or payment of damages in the event of nonperformance) of or on account of any part or all of such obligation, or to assure the owner of such obligation against loss, (iii) the supplying of funds to or in any other manner investing in the obligor with respect to such obligation, (iv) repayment of amounts drawn down by beneficiaries of letters of credit, or (v) the supplying of funds to or investing in a Person on account of all or any part of such Person's obligation under a Guaranty of any obligation or indemnifying or holding harmless, in any way, such Person against any part or all of such obligation. "INDEBTEDNESS" of any Person means, without duplication, all Liabilities of such Person, and to the extent not otherwise included in Liabilities, the following: (a) all obligations for Money Borrowed or for the deferred purchase price of property or services; (b) all obligations (including, during the noncancellable term of any lease in the nature of a title retention agreement, all future payment obligations under such lease discounted to their present value in accordance with GAAP) secured by any Lien to which any property or asset owned or held by such Person is subject, whether or not the obligation secured thereby shall have been assumed by such Person; (c) all obligations of other Persons which such Person has Guaranteed, including, but not limited to, all obligations of such Person consisting of recourse liability with respect to accounts receivable sold or otherwise disposed of by such Person; 18 (d) all obligations of such Person in respect of Interest Rate Protection Agreements; and (e) in the case of Borrower (without duplication) all obligations under the Revolving Credit Loan, the CAPEX Loan and the Term Loan. "INDEMNIFIED PARTY" has the meaning set forth in SECTION 18.12 of this Agreement. "INSTALLMENT PAYMENT DATE" means the first day of each calendar month, commencing on September 1, 1997, and continuing thereafter until each of the Term Loan and the CAPEX Loan has been irrevocably paid in full. "INTEREST PAYMENT DATE" means, with respect to all Loans, the first day of each calendar month, commencing on September 1, 1997, and, with respect to any Eurodollar Loan, on the last day of each corresponding Interest Period, and continuing thereafter until the Secured Obligations have been irrevocably paid in full. "INTEREST PERIOD" means the period beginning on the day any Eurodollar Loan is made and ending one (1), two (2), three (3) or six (6) months thereafter (as Borrower may select); PROVIDED, HOWEVER: (a) if any Interest Period would otherwise end on a day which is not a Eurodollar Business Day, such Interest Period shall be extended to the next succeeding Eurodollar Business Day, unless, with respect to a Eurodollar Loan, the result of such extension would be to extend such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Eurodollar Business Day; (b) any Interest Period with respect to a Eurodollar Loan that begins on the last Eurodollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Eurodollar Business Day of a calendar month; and (c) Borrower may not select any Interest Period which ends after the date of a scheduled principal payment on the Loans unless, after giving effect to such selection, the aggregate unpaid principal amount of the Eurodollar Loans for which Interest Periods end after such scheduled principal payment shall be equal to or less than the principal amount to which the Loans are required to be reduced after such scheduled principal payment is made. "INTEREST RATE PROTECTION AGREEMENT" shall mean an interest rate swap, cap or collar agreement or similar arrangement between a Person and a financial institution providing for the transfer or mitigation of interest risks either generally or under specific contingencies. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. 19 "INVENTORY" means all inventory and shall include, without limitation: (a) all goods held or intended for sale or lease, or for display or demonstration; (b) all work-in-process; (c) all raw materials and other materials and supplies of every nature and description used or which might be used in connection with the manufacture, packing, shipping, advertising, selling, leasing or furnishing of such goods or otherwise used or consumed in Borrower's business; and (d) all documents evidencing and general intangibles relating to any of the foregoing. "INVESTMENT" means, with respect to any Person: (a) the acquisition or ownership by such Person of any share of Capital Stock, evidence of Indebtedness or other security issued by any other Person; (b) any loan, advance or extension of credit to, or contribution to the capital of, any other Person, excluding advances to employees in the ordinary course of business for business expenses; (c) any Guaranty of the obligations of any other Person; (d) any other investment (other than the Acquisition of a Business Unit) in any other Person; and (e) any commitment or option (where the consideration for such option exceeds $100) to make any of the investments listed in CLAUSES (a) through (d) above. "INVESTMENT PROPERTY" means any investment property, now owned or hereafter acquired, and, in any event, shall include, without limitation, each of the following: (a) any Security, whether certificated or uncertificated, (b) any Security Entitlement, (c) any Securities Account, and (d) all proceeds of any of the foregoing. "IRS" means the Internal Revenue Service. "ISSUER" means any "issuer," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any Person that, with respect to an obligation on or a defense to a Security, (i) places or authorizes the placing of its name on a Security Certificate, other than as authenticating trustee, registrar, transfer agent or the like, to evidence a share, participation or other interest in its property or in an enterprise, or to evidence its duty to perform an obligation represented by the certificate, (ii) creates a share, participation or other interest in its property or in an enterprise, or undertakes an obligation, that is an Uncertificated Security; (iii) 20 directly or indirectly creates a fractional interest in its rights or property, if the fractional interest is represented by a Security Certificate or (iv) becomes responsible for, or in the place of, another Issuer. "KAC" means Kerr Acquisition Corporation, a Delaware corporation, with its chief executive office is located at 50 Fremont Street, Suite 3700, San Francisco, California 94105, whose tax identification number is 94-3276409, and its successors and permitted assigns. "L/C ISSUER" means NationsBank and any Affiliate of NationsBank that issues any Letter of Credit pursuant to this Agreement. "LENDER" means, at any time, each Lender signatory to this Agreement and any other Person becoming a party hereto pursuant to the provisions of ARTICLE 16, and in each case its successors and assigns, and "LENDERS" means, at any time, all such Persons, and their successors and assigns. "LETTER OF CREDIT" means any letter of credit issued by L/C Issuer for the account of Borrower pursuant to ARTICLE 3. "LETTER OF CREDIT AMOUNT" means, with respect to any Letter of Credit, the aggregate maximum amount at any time available for drawing under such Letter of Credit. "LETTER OF CREDIT FACILITY" means the facility provided under ARTICLE 3 of this Agreement for issuance of one or more Letters of Credit for the account of Borrower in an aggregate face amount not to exceed Two Million and No/100 Dollars ($2,000,000.00) at any time. "LETTER OF CREDIT OBLIGATIONS" means, at any time, the sum of (a) the Reimbursement Obligations of Borrower at such time, PLUS (b) the aggregate of all Letter of Credit Amounts outstanding at such time, PLUS (c) the aggregate of all Letter of Credit Amounts of Letters of Credit the issuance of which has been authorized by L/C Issuer pursuant to SECTION 3.4(b) but that have not yet been issued, in each case as determined by Agent. "LETTER OF CREDIT RESERVE" means, at any time, the Letter of Credit Obligations at such time, other than Letter of Credit Obligations that are fully secured by Cash Collateral. "LIABILITIES" means, with respect to any Person, all items (excluding Capital Stock, additional paid-in capital, retained earnings and general contingency items and deferred tax reserves) which in accordance with GAAP would be included in determining total liabilities as shown on a balance sheet of such Person as at the date for which Liabilities are to be determined. "LICENSES" means and includes, with respect to a Person, in each case whether now existing or hereinafter arising, all of such Person's right, title and interest in and to (a) any and all licensing agreements or similar arrangements in and to the Patents, Copyrights or Trademarks; (b) all income, royalties, damages, claims and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past and future breaches thereof; and (c) all rights to sue for past, present and future breaches thereof. 21 "LIEN" as applied to the property of any Person means: (a) any security interest, mortgage, deed to secure debt, deed of trust, lien, pledge, charge, lease constituting a Capitalized Lease Obligation, conditional sale or other title retention agreement, or other security interest, security title or encumbrance of any kind in respect of any property of such Person, or upon the income or profits therefrom; (b) any arrangement, express or implied, under which any property of such Person is transferred, sequestered or otherwise identified for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to the payment of the general, unsecured creditors of such Person; (c) any Indebtedness which is unpaid more than thirty (30) days after the same shall have become due and payable and which if unpaid might by law (including, but not limited to, bankruptcy and insolvency laws), or otherwise, be given any priority whatsoever over the claims of general unsecured creditors of such Person; and (d) the filing of, or any agreement to give, any financing statement under the UCC, or its equivalent, in any jurisdiction, excluding informational or precautionary financing statements relating to property leased by Borrower. "LOAN" means any Revolving Credit Loan, CAPEX Loan or Term Loan, as well as all such loans collectively, as the context requires, and in any case includes, without limitation, any and all renewals, extensions, modifications or replacements thereof. "LOAN ACCOUNT" and "LOAN ACCOUNTS" shall have the meanings ascribed thereto in SECTION 6.7. "LOAN DOCUMENTS" means collectively this Agreement, the Notes, the Reimbursement Agreements, the Security Documents and each other instrument, agreement, certificate or document executed by Borrower, any Guarantor or any Affiliate or Subsidiary of Borrower or any Guarantor in connection with this Agreement whether prior to, on or after the Effective Date and each other instrument, agreement, certificate or document referred to herein or contemplated hereby. "LOAN PARTY" means each of Borrower and the Guarantors, individually, and "LOAN PARTIES" means all of such Persons, collectively. "LOAN YEAR" means each annual period commencing on the Agreement Date, or any anniversary thereof, and ending on the day preceding the next successive anniversary of such commencement date. "LOCKBOX" means a U.S. post office box specified in, or pursuant to, an Agency Account Agreement or a Lockbox Agreement. 22 "LOCKBOX AGREEMENT" means any agreement established between Agent, Borrower and a Clearing Bank concerning the establishment of a Lockbox for the receipt and collection of checks and other items constituting proceeds of Receivables. "LONG TERM LIABILITIES" means, with respect to any Person, the aggregate amount of all Liabilities of such Person other than Current Liabilities. "MAKE-WHOLE AMOUNT" shall have the meaning set forth in SECTION 6.9(b) of this Agreement. "MARGIN STOCK" means margin stock as defined in Section 221.1(h) of Regulation U. "MATERIALLY ADVERSE EFFECT" means, with respect to any Person, a materially adverse effect upon such Person's business, assets, liabilities, condition (financial or otherwise), results of operations or business prospects, and in addition (i) with respect to Borrower, means a materially adverse effect upon Borrower's ability to perform its obligations hereunder or under any other Loan Document to which it is a party or upon the enforceability of such obligations against Borrower, (ii) with respect to any Guarantor, means a materially adverse effect upon such Guarantor's ability to perform its obligations under a Guaranty, or under any other Loan Document to which such Guarantor is a party or upon the enforceability of such obligations against such Guarantor, and (iii) with respect to any other Person which is a party to any Loan Document, means a materially adverse effect upon such Person's ability to perform its obligations under any Loan Document to which such Person is a party or upon the enforceability of such obligations against such Person. "MAXIMUM RATE" shall have the meaning set forth in SECTION 6.2(e) of this Agreement. "MERGER" means the merger of KAC with and into Borrower, as survivor, as contemplated pursuant to the terms of the Acquisition Agreement. "MONEY BORROWED" means, as applied to Indebtedness: (a) Indebtedness for money borrowed; (b) Indebtedness, whether or not in any such case the same was for money borrowed, (i) represented by notes payable, and drafts accepted, that represent extensions of credit, (ii) constituting obligations evidenced by bonds, debentures, notes or similar instruments, or (iii) upon which interest charges are customarily paid or that was issued or assumed as full or partial payment for property (other than trade credit that is incurred in the ordinary course of business); 23 (c) Indebtedness that constitutes a Capitalized Lease Obligation, and (d) Indebtedness that is such by virtue of CLAUSE (c) of the definition thereof, but only to the extent that the obligations Guaranteed are obligations that would constitute Indebtedness for money borrowed. "MORTGAGES" means and includes any and all of the mortgages, deeds of trust, deeds to secure debt, assignments and other instruments executed and delivered by Borrower to or for the benefit of Agent by which Agent, on behalf of the Credit Parties, acquires a Lien on Borrower's Real Estate or a collateral assignment of Borrower's interest under leases of Real Estate, and all amendments, modifications and supplements thereto. "MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which Borrower or a Related Company is required to contribute or has contributed within the immediately preceding six (6) years. "NATIONSBANK" means NationsBank of Texas, N.A., a national banking association whose principal office is located at 901 Main Street, Dallas, Dallas County, Texas 75202, and each of its successors and assigns. "NET AMOUNT" means, with respect to any Investments made by any Person, the gross amount of all such Investments minus the aggregate amount of all cash received and the fair value, at the time of receipt by such Person, of all property received as payments of principal or premiums, returns of capital, liquidating dividends or distributions, proceeds of sale or other dispositions with respect to such Investments. "NET INCOME" means, as applied to any Person, the net income (or net loss) of such Person for the period in question after giving effect to deduction of or provision for all operating expenses, all taxes and reserves (including reserves for deferred taxes) and all other proper deductions, all determined in accordance with GAAP, PROVIDED that there shall be excluded: (a) the net income (or net loss) of any Person accrued prior to the date it becomes a Subsidiary of, or is merged into or Consolidated with, the Person whose Net Income is being determined or a Consolidated Subsidiary of such Person; (b) the net income (or net loss) of any Person in which the Person whose Net Income is being determined or any Subsidiary of such Person has an ownership interest, EXCEPT, in the case of net income, to the extent that any such income has actually been received by such Person or such Subsidiary in the form of cash dividends or similar distributions; (c) any restoration of any contingency reserve, EXCEPT to the extent that provision for such reserve was made out of income during such period; 24 (d) any net gains or losses on the sale or other disposition, not in the ordinary course of business, of Investments, Business Units and other capital assets, PROVIDED that there shall also be excluded any related charges for taxes thereon; (e) any net gain arising from the collection of the proceeds of any insurance policy; (f) any write-up of any asset; and (g) any other extraordinary item; PROVIDED, HOWEVER, in determining Borrower's Net Income to calculate EBITDA for purposes of SECTION 14.1(b), such calculation shall be based on results of Borrower only without adjustment due to principles of consolidation otherwise required under GAAP. "NET OUTSTANDINGS" of any Lender means, at any time, the sum of (a) all amounts paid by such Lender (other than pursuant to SECTION 17.5) to Agent in respect of Revolving Credit Loans under this Agreement, MINUS (b) all amounts paid by Agent to such Lender which are received by Agent and which, pursuant to this Agreement, are paid over to such Lender for application in reduction of the outstanding principal balance of the Revolving Credit Loans. "NET PROCEEDS" means proceeds received by Borrower or any of its Subsidiaries in cash from any Asset Disposition (including, without limitation, payments under notes or other debt securities received in connection with any Asset Disposition), net of: (a) the transaction costs of such Asset Disposition; (b) any tax liability arising from such Asset Disposition; and (c) amounts applied to repayment of Indebtedness (other than the Secured Obligations) secured by a Lien on the asset or property disposed of. "NET WORTH" means, with respect to any Person, such Person's total shareholder's equity (including, without limitation, Capital Stock, additional paid-in capital and retained earnings, after deducting treasury stock) which would appear as such on a balance sheet of such Person prepared in accordance with GAAP. "NEW CANAAN" means New Canaan Investments, Inc., a Delaware corporation, with its chief executive office located at 1177 Summer Street, Stamford, Connecticut 06905, and whose tax identification number is 06-128-3088, including its officers, directors and employees. "NON-RATABLE LOAN" means a Revolving Credit Loan made by NationsBank in accordance with the provisions of SECTION 6.10(c). "NOTE" means any of the Revolving Credit Notes, the CAPEX Notes and the Term Notes and "NOTES" means more than one or all of such Notes, collectively, as the context may indicate. 25 "NOTICE OF BORROWING" means a Notice of Borrowing, Prepayment, Conversion or Continuation, signed by Borrower's President or a Financial Officer, in substantially the form attached hereto as EXHIBIT "G". "OPERATING LEASE" means any lease, excluding any lease constituting a Capitalized Lease Obligation, of real or personal property. "OTHER TAXES" shall have the meaning set forth in SECTION 7.6(b) of this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PBGC AGREEMENT" means the certain Agreement dated August __, 1997, between Borrower and PBGC, as such agreement may be amended, restated or otherwise modified to the extent allowed by the PBGC Intercreditor Agreement. "PBGC INTERCREDITOR AGREEMENT" means the certain Subordination and Standby Agreement of even date herewith among Agent, PBGC and Borrower, as such agreement may be amended, restated or otherwise modified. "PBGC LIENS" means the Liens granted or to be granted by Borrower to PBGC, for the benefit of itself and for the benefit of Kerr Group, Inc. Retirement Income Plan, pursuant to the PBGC Agreement, PROVIDED that such Liens at all times are expressly subject to the PBGC Intercreditor Agreement. "PATENT SECURITY AGREEMENT" means any Patent Security Agreement executed by Borrower to Agent, for the benefit of the Credit Parties, as such agreement may be amended, modified, restated or supplemented from time to time. "PATENTS" means and includes, in each case whether now existing or hereafter arising, all of Borrower's right, title and interest in and to: (a) any and all patents and patent applications; (b) all inventions and improvements described and claimed therein; (c) all reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof; (d) all income, royalties, damages, claims and payments now or hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past and future infringements thereof; (e) all rights to sue for past, present and future infringements thereof; and 26 (f) all rights corresponding to any of the foregoing throughout the world. "PENSION LIABILITY ACCRUALS" means all costs and expenses as reflected on Borrower's financial statements delivered pursuant to SECTION 13.1 relating to any Benefit Plan maintained by Borrower. "PENSION LIABILITY FUNDINGS" means "Enhanced Contributions" as such term is defined in the PBGC Agreement. "PERMITTED INVESTMENTS" means Investments of Borrower in: (a) cash or Cash Equivalents; (b) negotiable certificates of deposit and time deposits issued by (i) Agent, any Lender or any of their Affiliates, (ii) any U.S. bank or trust company having capital, surplus and undivided profits in excess of $100,000,000, or (iii) any U. S. thrift or savings and loan, to the extent that the full amount of such certificate of deposit is insured by any U. S. Governmental Authority; (c) any direct obligation of the U.S. or any Governmental Authority thereof which has a remaining maturity at the time of purchase of not more than one (1) year and repurchase agreements relating to the same; (d) Receivables arising from sales of Inventory on credit in the ordinary course of business; (e) shares of Capital Stock, evidence of Indebtedness or other security acquired by Borrower in consideration for or as evidence of past due or restructured Receivables in an aggregate face amount of such Receivables at any time not to exceed $100,000; (f) Guaranties permitted pursuant to SECTION 14.3; (g) those items described on SCHEDULE 1.1B ("Permitted Investments"); (h) loans by Borrower to any customer of Borrower (excluding any Affiliate or Subsidiary of Borrower), made by Borrower in the ordinary course of business, the proceeds of which are used by such customer to purchase molds and tooling to be used by Borrower in the production of Inventory for sale to such customer; and (i) other Investments, the net aggregate amount of which does not at any time exceed $100,000 individually or $250,000 in the aggregate in any fiscal year of Borrower. 27 "PERMITTED LIENS" means: (a) Liens securing taxes, assessments and other charges or levies of a Governmental Authority (excluding any Lien imposed pursuant to any of the provisions of ERISA) or the claims of materialmen, mechanics, carriers, warehousemen or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, but (i) in all cases only if payment shall not at the time be required to be made in accordance with SECTION 12.6, and (ii) in the case of warehousemen or landlords, only if such Liens are junior to the Security Interest in any of the Collateral; (b) Liens consisting of deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers' compensation, unemployment insurance, social security or similar legislation or under payment, bid, surety, appeal or performance bonds; (c) Liens constituting encumbrances in the nature of zoning restrictions, easements, leases, subleases, rights or restrictions of record on the use of Real Estate and other minor defects or irregularities in title and other similar charges or encumbrances, none of such Liens which materially detract from the value of such property or impair the use thereof in the business of Borrower; (d) Purchase Money Liens securing Permitted Purchase Money Indebtedness incurred for the purchase of Equipment after the Agreement Date; (e) Liens shown on SCHEDULE 1.1C ("Permitted Liens"); (f) Liens of Agent, for the benefit of the Credit Parties, arising under this Agreement and the other Loan Documents; (g) to the extent not otherwise covered by the foregoing, matters disclosed on any mortgagee's policy of title insurance delivered to and accepted by Agent that insures any of the Mortgages; (h) Liens arising in connection with judgments for the payment of money of an amount not to exceed $250,000 in any one case or $500,000 in the aggregate; PROVIDED that, as to any of such Liens, (i) the judgment or other court order giving rise to such Lien is being contested in good faith by appropriate proceedings diligently pursued and available to Borrower prior to the commencement of any foreclosure or similar proceeding, (ii) execution thereon is at all times effectively stayed, (iii) an adequate reserve for the Indebtedness which such Lien secures has been established on Borrower's books in accordance with GAAP, (iv) Borrower shall have given notice of such Lien to Agent pursuant to the terms of SECTION 18.1 hereof, and (v) Agent shall, at its option, have established a reserve against the Borrowing Base for the amount of such Lien; and 28 (i) the PBGC Liens (if any), subject at all times to the PBGC Intercreditor Agreement. "PERMITTED PURCHASE MONEY INDEBTEDNESS" means Purchase Money Indebtedness of Borrower incurred after the Agreement Date: (a) which is secured by a Purchase Money Lien; (b) the aggregate principal amount of which does not exceed an amount equal to one hundred percent (100%) of the lesser of (i) the cost (including the principal amount of such Indebtedness, whether or not assumed) of the property (excluding Inventory) subject to such Lien, and (ii) the fair value of such property (excluding Inventory) at the time of its acquisition, and (c) which, when aggregated with the principal amount of all other such Indebtedness and Capitalized Lease Obligations of Borrower at the time outstanding, does not exceed $5,000,000. For the purposes of this definition, the principal amount of any Purchase Money Indebtedness consisting of Capitalized Leases shall be computed as a Capitalized Lease Obligation. "PERSON" means any individual, corporation, limited liability company, joint venture, general or limited partnership, association, trust, unincorporated organization or Governmental Authority, or other similar entity. "PLAN" means any employee benefit plan as defined in Section 3(3) of ERISA in respect of which Borrower or any Related Company is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA, including, without limitation, a "multiemployer plan" as defined in Section 3(37) or Section 4001(a)(3) of ERISA. "PRIME RATE" means the per annum rate of interest established from time to time by NationsBank as its "prime rate", which rate may not be the lowest rate of interest charged by NationsBank to its customers. "PRINCIPAL OFFICE" means the principal office of Agent specified in or determined in accordance with the provisions of SECTION 18.1. "PRO FORMA" means (i) the pro forma projected financial statements of the Loan Parties, giving effect to the Acquisition, the transactions contemplated in connection therewith and this Agreement, and reflecting estimated purchase price accounting adjustments and including a balance sheet and income and cash flow statements, previously delivered to Agent by Borrower. 29 "PROPRIETARY RIGHTS" means all of Borrower's now owned and hereafter arising or acquired: Patents, Copyrights, Trademarks and Licenses, including, without limitation, those Proprietary Rights set forth on SCHEDULE 9.1(bb) hereto, and all other rights under any of the foregoing, all extensions, renewals, reissues, divisions, continuations and continuations-in-part of any of the foregoing, and all rights to sue for past, present and future infringement of any of the foregoing. "PURCHASE MONEY INDEBTEDNESS" means: (a) Indebtedness created to secure the payment of all or any part of the purchase price of any property (excluding Inventory); (b) any Indebtedness incurred at the time of or within forty-five (45) days prior to or after the acquisition of any property (excluding Inventory) for the purpose of financing all or any part of the purchase price thereof; and (c) any renewals, extensions or refinancings thereof, but not any increases in the principal amounts thereof outstanding at the time of any such renewal, extension or refinancing. "PURCHASE MONEY LIEN" means any Lien securing Purchase Money Indebtedness, but only if such Lien shall at all times be confined solely to the property (excluding Inventory) the purchase price of which was financed through the incurrence of the Purchase Money Indebtedness secured by such Lien. "REAL ESTATE" means all of Borrower's now or hereafter owned or leased estates in real property, including, without limitation, all fees, leaseholds and future interests, together with all of Borrower's now or hereafter owned or leased interests in the improvements and emblements thereon, the fixtures attached thereto and the easements appurtenant thereto, including, without limitation, the real property described on SCHEDULE 9.1(w). "RECEIVABLES" means and includes: (a) any and all rights to the payment of money or other forms of consideration of any kind (whether classified under the UCC as accounts, contract rights, chattel paper, general intangibles or otherwise) including, but not limited to, accounts receivable, letters of credit and the right to receive payment thereunder, chattel paper, tax refunds, insurance proceeds, Contract Rights, notes, drafts, instruments, documents, acceptances and all other debts, obligations and liabilities in whatever form from any Person; (b) all guarantees, security and Liens for payment of any Receivables listed in CLAUSE (a); (c) all goods, whether now owned or hereafter acquired, and whether sold, delivered, undelivered, in transit or returned, which may be represented by, or the sale or 30 lease of which may have given rise to, any such right to payment or other debt, obligation or liability; and (d) all proceeds of any of the foregoing. "REGISTER" has the meaning set forth in SECTION 16.1(b) of this Agreement. "REGULATION U" means Regulation U as promulgated by the Board of Governors of the Federal Reserve System (or any successor Governmental Authority), as the same may be amended or supplemented from time to time. "REIMBURSEMENT AGREEMENT" means, with respect to a Letter of Credit, such form of application therefor and form of reimbursement agreement therefor (whether in a single document or several documents) as L/C Issuer may employ in the ordinary course of business for its own account, with such modifications thereto as may be agreed upon by L/C Issuer and Borrower, PROVIDED that such application and agreement and any modifications thereto are not inconsistent with the terms of this Agreement. "REIMBURSEMENT OBLIGATIONS" means the reimbursement or repayment obligations of Borrower to any of the Credit Parties pursuant to SECTION 3.6 or pursuant to a Reimbursement Agreement with respect to amounts that have been drawn under Letters of Credit. "RELATED COMPANY" means any (i) corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Internal Revenue Code) as Borrower or any of its Subsidiaries, (ii) partnership or other trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the Internal Revenue Code) with Borrower or any of its Subsidiaries, or (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the Internal Revenue Code) as Borrower or any of its Subsidiaries, any corporation described in CLAUSE (i) above or any partnership, trade or business described in CLAUSE (ii) above. "RELEASE" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of any property, including, without limitation, the movement of Contaminants through or in the air, soil, surface water or groundwater. "REMEDIAL ACTION" means actions required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment, (ii) prevent the Release or threat of Release or minimize the further Release of Contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (iii) perform pre- remedial studies and investigations and post-remedial monitoring and care. "REPORTABLE EVENT" has the meaning set forth in Section 4043(b) of ERISA, but shall not include a Reportable Event as to which the provision for thirty (30) days' notice to the PBGC is waived under applicable regulations. 31 "REQUIRED LENDERS" means, at any time, any combination of Lenders whose Commitment Percentages at such time aggregate in excess of fifty-one percent (51.0%). "RESERVE REQUIREMENT" means, at any time, the maximum rate at which reserves (including, without limitation, any marginal, special, supplemental or emergency reserves) are required to be maintained under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) by member banks of the Federal Reserve System against, in the case of Eurodollar Loans, "Eurocurrency liabilities" (as such term is used in Regulation D). Without limiting the effect of the foregoing, the Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the Adjusted Eurodollar Rate is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Loans. The Adjusted Eurodollar Rate shall be adjusted automatically on and as of the effective date of any change in the Reserve Requirement. "RESTRICTED DIVIDEND PAYMENT" means any dividend, distribution or payment on or with respect to any shares of a Person's Capital Stock (other than dividends payable solely in shares or other evidence of ownership of its Capital Stock), excluding, however, any such dividend, distribution or payment to Borrower by any Subsidiary of Borrower. "RESTRICTED PAYMENT" means (a) any redemption or prepayment or other retirement, prior to the stated maturity thereof or prior to the due date of any regularly scheduled installment or amortization payment with respect thereto, of any Indebtedness for Borrowed Money or of any Indebtedness that is junior and subordinate to the Secured Obligations, (b) the payment by any Person of the principal amount of or interest on any Indebtedness (other than trade debt) owing to a shareholder, partner or equity holder of such Person or to any Affiliate of any such shareholder, partner or equity holder and (c) the payment of any management, consulting or similar fee by any Person to any Affiliate of such Person. "RESTRICTED PURCHASE" means any payment on account of the purchase, redemption or other acquisition or retirement by a Person of any shares of such Person's Capital Stock (except shares acquired on the conversion thereof into other shares of Capital Stock of such Person). "RESTRUCTURING COST FUNDINGS" means all costs chargeable to a restructuring reserve in accordance with GAAP. "RETIREE HEALTH AND MEDICAL FUNDINGS" means all cash fundings related to any retiree health or medical plan of Borrower for its retired employees. "REVOLVING CREDIT FACILITY" means the facility provided by ARTICLE 2 of this Agreement for Revolving Credit Loans up to the maximum principal sum of Twenty Million and No/100 Dollars ($20,000,000.00). "REVOLVING CREDIT LOAN" means each Loan made to Borrower pursuant to SECTION 2.1 as well as all such Loans, collectively, as the context requires. 32 "REVOLVING CREDIT NOTE" means a Revolving Credit Note made by Borrower payable to the order of a Lender evidencing the obligation of Borrower to pay the aggregate unpaid principal amount of the Revolving Credit Loans made to it by such Lender (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement or exchange therefor whether payable to such Lender or to a different Lender in connection with a Person becoming a Lender after the Effective Date or otherwise) substantially in the form of EXHIBIT "A" hereto, with all blanks properly completed, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or refinanced. "SCHEDULE OF INVENTORY" means a schedule delivered by Borrower to Agent pursuant to the provisions of SECTION 11.12(b). "SCHEDULE OF RECEIVABLES" means a schedule delivered by Borrower to Agent pursuant to the provisions of SECTION 11.12(a). "SECURED OBLIGATIONS" means, in each case whether now in existence or hereafter arising: (a) the principal of, and interest and premium, if any, on, the Loans; (b) the Reimbursement Obligations and all other obligations of Borrower to L/C Issuer or any Lender arising in connection with the issuance of any Letter of Credit; (c) all obligations of Borrower under any Interest Rate Protection Agreement between Borrower and any Lender; and (d) all indebtedness, liabilities, obligations, covenants and duties of Borrower to any of the Credit Parties of every kind, nature and description arising under or in respect of this Agreement, the Notes or any of the other Loan Documents, whether direct or indirect, absolute or contingent, due or not due, contractual or tortious, liquidated or unliquidated, and whether or not evidenced by any note, and whether or not for the payment of money, including, without limitation, fees required to be paid pursuant to ARTICLE 6 and expenses required to be paid or reimbursed pursuant to SECTION 18.2. "SECURITIES ACCOUNT" means any account to which a Financial Asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the Financial Asset. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time. "SECURITIES INTERMEDIARY" means any (i) Clearing Corporation, or (ii) Person, including a bank or Broker, that in the ordinary course of its business maintains Securities Accounts for others and is acting in that capacity. 33 "SECURITY" means any "security," as such term is defined in Chapter 8 (or Article 8) of the UCC and, in any event, shall include, but not be limited to, any obligation of an Issuer or a share, participation or other interest in an Issuer or in property or an enterprise of an Issuer: (i) which is represented by a Security Certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the Issuer; (ii) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests or obligations; and (iii) which (a) is, or is of a type, dealt in or traded on securities exchanges or securities markets or (b) is a medium for investment and by its terms expressly provides that it is a security governed by Chapter 8 (or Article 8) of the UCC. "SECURITY CERTIFICATE" means any certificate representing a Security. "SECURITY DOCUMENTS" means each of the following: (a) the Mortgages; (b) the Financing Statements; (c) the Affiliate Guaranties; (d) the Copyright Security Agreement, the Patent Security Agreement and the Trademark Agreement; and (e) each other writing executed and delivered by Borrower or any other Person securing or Guaranteeing the Secured Obligations. "SECURITY ENTITLEMENT" means any of the rights and property interests of an Entitlement Holder with respect to a Financial Asset. "SECURITY INTEREST" means the Liens of Agent, for the benefit of the Credit Parties, on and in the Collateral effected by this Agreement or by any of the Security Documents or pursuant to the terms hereof or thereof. "SETTLEMENT DATE" means each Business Day after the Effective Date selected by Agent in its sole discretion subject to and in accordance with the provisions of SECTION 6.10(c)(i) as of which a Settlement Report is delivered by Agent and on which settlement is to be made among the Lenders in accordance with the provisions of SECTION 6.10. "SETTLEMENT REPORT" means each report, substantially in the form attached hereto as EXHIBIT "F", prepared by Agent and delivered to each Lender and setting forth, among other things, as of the Settlement Date indicated thereon and as of the next preceding Settlement Date, the aggregate principal balance of all Revolving Credit Loans outstanding, each Lender's Commitment Percentage thereof, each Lender's Net Outstandings and all Non-Ratable Loans made, and all payments of principal, interest and fees received by Agent from Borrower during the period beginning on such next preceding Settlement Date and ending on such Settlement Date. 34 "SOLVENT" means, as to Borrower, that on the Agreement Date and as of the Effective Date (both before and after the granting of all security interests and liens contemplated hereby and the funding of the initial Loan(s) under this Agreement) (and both before and after giving effect to the Acquisition) (a) the sum of Borrower's debts is not greater than all of Borrower's property, at a fair valuation, (b) the sum of Borrower's debts is not greater than all of Borrower's assets, at a fair valuation, (c) Borrower is generally paying its debts as they become due, (d) Borrower is not engaged or about to engage in any business or any transaction for which (i) its property is an unreasonably small capital or (ii) the remaining assets of Borrower are unreasonably small in relation to any such business or transaction, (e) Borrower does not intend to incur, and does not believe that it will incur, debts that are or would be beyond its ability to pay as such debts mature or become due, and (f) Borrower does not intend to hinder, delay or defraud any creditor of Borrower. For this purpose (i) "debts," "property" and "assets," respectively, includes anything included within the definition of "debt," "property" and "assets," respectively, as used in Section 548 of the United States Bankruptcy Code or other Applicable Law. Contingent, unliquidated or disputed obligations or liabilities (if any) are valued at the amount which, in light of all relevant facts and circumstances, is reasonably expected to become absolute, liquidated or mature. "SUBORDINATED INDEBTEDNESS" means any Indebtedness of Borrower or any of its Subsidiaries which is subordinate in right of payment and claim in favor of the Credit Parties pursuant to any written subordination agreement satisfactory to Agent. "SUBSIDIARY" shall (a) when used to determine the relationship of a Person to another Person, mean a Person of which an aggregate of more than fifty percent (50%) or more of the Capital Stock is owned of record or beneficially by such other Person, or by one or more Subsidiaries of such other Person, or by such other Person and one or more Subsidiaries of such Person, (i) if the holders of such Capital Stock (A) are ordinarily, in the absence of contingencies, entitled to vote for the election of a majority of the directors (or other individuals performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency, or (B) are entitled, as such holders, to vote for the election of a majority of the directors (or individuals performing similar functions) of such Person, whether or not the right so to vote exists by reason of the happening of a contingency, or (ii) in the case of Capital Stock which is not issued by a corporation, if such ownership interests constitute a majority voting interest, and (b) when used with respect to a Plan, ERISA or a provision of the Internal Revenue Code pertaining to employee benefit plans, also mean any corporation, trade or business (whether or not incorporated) which is under common control with Borrower and is treated as a single employer with Borrower under Section 414(b) or (c) of the Internal Revenue Code and the regulations thereunder. 35 "SUPPORTING LETTER OF CREDIT" shall have the meaning set forth in SECTION 3.9 of this Agreement. "TAXES" shall have the meaning set forth in SECTION 7.6(a) of this Agreement. "TENDER OFFER STATEMENT" means that certain Tender Offer Statement on Schedule 14D-1, dated July 8, 1997, all attachments thereto and each other agreement, certificate, document and instrument executed or delivered in connection with such Tender Offer Statement or otherwise related to the Acquisition. "TERM LOAN" means each loan made to Borrower pursuant to SECTION 4.1, as well as all such loans collectively, as the context requires. "TERM LOAN AMORTIZATION PAYMENT" means the amount set forth below for each Installment Payment Date occurring within the corresponding period, which shall be the principal amount payable in respect of the Term Loan on such Installment Payment Date pursuant to SECTION 4.3 of this Agreement. ------------------------------------------------------------ ------------------------------------------------------------ PERIOD AMOUNT ------------------------------------------------------------ ------------------------------------------------------------ September 1, 1997 through and including August 1, 1998 $333,333.33 ------------------------------------------------------------ September 1, 1998 through and including August 1, 1999 $416,666.66 ------------------------------------------------------------ September 1, 1999 through and including August 1, 2000 $500,000.00 ------------------------------------------------------------ September 1, 2000 through and including August 1, 2001 $500,000.00 ------------------------------------------------------------ September 1, 2001 through and including July 1, 2002 $916,666.66 ------------------------------------------------------------ ------------------------------------------------------------ "TERM LOAN FACILITY" means the facility provided by SECTION 4.1 of this Agreement for the Term Loan in the maximum principal amount of Thirty-two Million and No/100 Dollars ($32,000,000.00). "TERM NOTE" means each Term Note made by Borrower payable to the order of a Lender evidencing the obligation of Borrower to pay the aggregate unpaid principal amount of the Term Loan made to it by such Lender (and any promissory note or notes that may be issued from time to time in substitution, renewal, extension, replacement, restatement or exchange therefor whether payable to such Lender or to a different Lender in connection with a Person becoming a Lender after the Effective Date or otherwise) substantially in the form of EXHIBIT "B" hereto, with all blanks 36 properly completed, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, restated, extended or refinanced. "TERMINATION DATE" means (a) with respect to the Revolving Credit Facility, the earlier of (i) August 26, 2002, or (ii) such earlier date as all Secured Obligations shall have been irrevocably paid in full and the Revolving Credit Facility shall have been terminated, or such later date as to which the same may be extended pursuant to the provisions of SECTION 2.5, and (b) with respect to the Term Loan Facility, the earlier of (i) the Termination Date with respect to the Revolving Credit Facility, or (ii) August 26, 2002, and (c) with respect to the CAPEX Loan Facility, the earlier of (i) the Termination Date with respect to the Revolving Credit Facility, or (ii) August 26, 2002. "TERMINATION EVENT" means (a) a Reportable Event, or (b) the filing of a notice of intent to terminate a Plan or the treatment of a Plan amendment as a termination under Section 4041 of ERISA, or (c) the institution of proceedings to terminate a Plan by the PBGC under Section 4042 of ERISA, or the appointment of a trustee to administer any Plan. "TOTAL COMMITMENT" means the sum of the Commitments. "TRADEMARK SECURITY AGREEMENT" means any Trademark Security Agreement executed by Borrower in favor of Agent for the benefit of the Credit Parties, as the same may be amended, modified, restated or supplemented from time to time. "TRADEMARKS" means and includes, with respect to a Person, in each case whether now existing or hereafter arising, all of such Person's right, title and interest in and to the following: (a) all trademarks (including service marks), trade names, trade dress and trade styles and the registrations and applications for registration thereof and the goodwill of the business symbolized by the foregoing; (b) all licenses of the foregoing, whether as licensee or licensor; (c) all renewals of the foregoing; (d) all income, royalties, damages and payments now or hereafter due and/or payable with respect thereto, including, without limitation, damages, claims and payments for past and future infringements thereof; (e) all rights to sue for past, present and future infringements of the foregoing, including the right to settle suits involving claims and demands for royalties owing; and 37 (f) all rights corresponding to any of the foregoing throughout the world. "TYPE" means any type of Loan (i.e., Base Rate Loan or a Eurodollar Loan). "UCC" means the Uniform Commercial Code as in effect from time to time in the State of Texas, as amended from time to time, and the Uniform Commercial Code applicable in such other states as any Collateral may be located. "UNCERTIFICATED SECURITY" means any "uncertificated security," as such term is defined in Chapter 8 (or Article 8) of the UCC, and in any event shall include, but not be limited to, any Security that is not represented by a certificate. "UNFUNDED CAPITAL EXPENDITURES" means Capital Expenditures which are paid for by a Person other than with the proceeds of Indebtedness for Money Borrowed (other than the Loans) incurred to finance such Capital Expenditures and other than those represented by Capitalized Lease Obligations. "UNFUNDED VESTED ACCRUED BENEFITS" means with respect to any Plan at any time, the amount (if any) by which (a) the present value of all vested nonforfeitable benefits under such Plan exceeds, (b) the fair market value of all Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plan. "U.S." means the United States of America. "VOTING STOCK" means Capital Stock of a Person having ordinary voting power for the election of a majority of the members of its board of directors or other governing body (not including shares having such power only in the event of a contingency). "WHOLLY-OWNED SUBSIDIARY" when used to determine the relationship of a Subsidiary to a Person, means a Subsidiary all of the issued and outstanding Capital Stock (other than directors' qualifying shares) of which shall at the time be owned by such Person or one or more of such Person's Wholly-Owned Subsidiaries or by such Person and one or more of such Person's Wholly-Owned Subsidiaries. Section 1.2 GENERAL. All terms of an accounting nature not specifically defined herein shall have the meaning ascribed thereto by GAAP. The terms accounts, chattel paper, contract rights, documents, equipment, instruments, general intangibles and inventory, as and when used in this Agreement or the Security Documents, shall have the meanings given those terms in the UCC. Unless otherwise specified, a reference in this Agreement to a particular section or subsection is a reference to that section or subsection of this Agreement, and the words "hereof," "herein," 38 "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision, section or subsection of this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. Words denoting individuals include corporations, limited liability companies, partnerships, joint ventures and other business entities and vice versa. References to any legislation or statute or code, or to any provisions of any legislation or statute or code, shall include any modification or reenactment of, or any legislative, statutory or code provision substituted for, such legislation, statute or code or provision thereof. References to any document or agreement (including this Agreement) shall include references to such document or agreement as amended, restated, novated, supplemented, modified or replaced from time to time, so long as and to the extent that such amendment, restatement, novation, supplement, modification or replacement is either not prohibited by the terms of this Agreement or is consented to by the Required Lenders and Agent. References to any Person include its successor or permitted substitutes and assigns. Standards of "reasonableness," or requirements of similar import, and the conduct of any Credit Party or Loan Party in connection with the Loan Documents, shall be measured according to applicable standards prescribed by the UCC. Borrower and Agent, on behalf of itself and the Lenders, each acknowledges and agrees that this Agreement and the other Loan Documents are the result of negotiation between such parties, that each has participated in the drafting and preparation thereof and that this Agreement and the other Loan Documents shall not be construed against either such party by reason of such participation. Section 1.3 EXHIBITS AND SCHEDULES. All Exhibits and Schedules attached hereto are incorporated fully herein by reference thereto. ARTICLE 2 REVOLVING CREDIT FACILITY Section 2.1 REVOLVING CREDIT LOANS. Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made under, this Agreement, each Lender agrees, severally, but not jointly, to make Revolving Credit Loans to Borrower from time to time from the Effective Date to but not including the Termination Date, as requested or deemed requested by Borrower in accordance with the terms of SECTION 2.2, in amounts equal to such Lender's Commitment Percentage of each such Loan requested or deemed requested hereunder up to an aggregate amount at any one time outstanding equal to such Lender's Commitment Percentage of the Borrowing Base; PROVIDED, HOWEVER, that the aggregate principal amount of all outstanding Revolving Credit Loans (after giving effect to the Loans requested) shall not exceed the Borrowing Base. It is expressly understood and agreed that the Lenders may and at present intend to use the Borrowing Base as a maximum ceiling on Revolving Credit Loans to Borrower; PROVIDED, HOWEVER, that it is agreed that should the Revolving Credit Loans exceed the ceiling so determined or any other limitation set forth in this Agreement, such Revolving Credit Loans shall nevertheless constitute Secured Obligations and, as such, shall be entitled to all benefits thereof and security therefor. The principal amount of any Revolving Credit Loan which is repaid pursuant to SECTION 2.3(c) may be reborrowed by Borrower, subject to the terms and conditions of this Agreement, in 39 accordance with the terms of this SECTION 2.1. Agent's and each Lender's books and records reflecting the date and the amount of each Revolving Credit Loan and each repayment of principal thereof shall constitute PRIMA FACIE evidence of the accuracy of the information contained therein, subject to the provisions of SECTION 6.10. Section 2.2 MANNER OF BORROWING REVOLVING CREDIT LOANS. Borrowings under the Revolving Credit Facility shall be made as follows: (a) REQUESTS FOR BORROWING. A request for a borrowing shall be made, or shall be deemed to be made, in the following manner: (i) requests for a Revolving Credit Loan shall be made in the manner prescribed by Article 6 (with respect to the initial Revolving Credit Loan, Borrower shall give Agent reasonable prior notice of the occurrence of the Effective Date, which notice shall be irrevocable); (ii) whenever a check or other item is presented to a Disbursing Bank for payment against a Disbursement Account in an amount greater than the then available balance in such account, such Disbursing Bank shall, and is hereby irrevocably authorized by Borrower to, give Agent notice thereof, which notice shall be deemed to be a request for a Revolving Credit Loan on the date of such notice in an amount equal to the excess of such check or other item over such available balance; (iii) unless payment is otherwise made by Borrower, the becoming due of any amount required to be paid under this Agreement or any of the Notes as interest shall be deemed to be a request for a Revolving Credit Loan on the due date in the amount required to pay such interest; (iv) unless payment is otherwise made by Borrower, the becoming due of any other Secured Obligation shall be deemed to be a request for a Revolving Credit Loan on the due date in the amount then so due, and such request shall be irrevocable; and (v) the receipt by Agent of notification from L/C Issuer to the effect that a drawing has been made under a Letter of Credit and that Borrower has failed to reimburse L/C Issuer therefor in accordance with the terms of the Letter of Credit, the Reimbursement Agreement and ARTICLE 3, shall be deemed to be a request for a Revolving Credit Loan on the date such notification is received in the amount of such drawing which is so unreimbursed. (b) DISBURSEMENT OF LOANS. Borrower hereby irrevocably authorizes Agent to disburse the proceeds of each borrowing requested, or deemed to be requested, pursuant to this SECTION 2.2 as follows: 40 (i) the proceeds of each borrowing requested under SECTIONS 2.2(a)(i) or (ii) shall be disbursed by Agent in Dollars in immediately available funds, (A) in the case of the initial borrowing under the Revolving Credit Facility, in accordance with the terms of the certificate from Borrower to Agent referred to in SECTION 8.1(f)(xvii), and (B) in the case of each subsequent borrowing, by wire transfer to a Disbursement Account or, in the absence of a Disbursement Account, by wire transfer to such other account as may be agreed upon by Borrower and Agent from time to time; (ii) the proceeds of each borrowing deemed requested under SECTION 2.2(a)(iii) or (iv) shall be disbursed by Agent by way of direct payment of the relevant interest or Secured Obligation, as the case may be; and (iii) the proceeds of each borrowing deemed requested under SECTION 2.2(a)(v) shall be disbursed by Agent directly to L/C Issuer on behalf of Borrower. Section 2.3 REPAYMENT OF REVOLVING CREDIT LOANS. The Revolving Credit Loans will be repaid as follows: (a) Whether or not any Default or Event of Default has occurred, the outstanding principal amount of all the Revolving Credit Loans is due and payable, and shall be repaid by Borrower in full, not later than the Termination Date; (b) If at any time the aggregate outstanding unpaid principal amount of the Revolving Credit Loans exceeds the Borrowing Base in effect at such time, Borrower shall repay the Revolving Credit Loans in an amount sufficient to reduce the aggregate unpaid principal amount of such Revolving Credit Loans by an amount equal to such excess, together with accrued and unpaid interest on the amount so repaid to the date of repayment; and (c) Borrower hereby instructs Agent to repay the Revolving Credit Loans outstanding on any day in an amount equal to the amount received by Agent on such day pursuant to SECTION 11.1(b). Section 2.4 REVOLVING CREDIT NOTE. Each Lender's Revolving Credit Loans and the obligation of Borrower to repay such Revolving Credit Loans shall be evidenced by a Revolving Credit Note payable to the order of such Lender. Each Revolving Credit Note shall be dated the Effective Date, or with respect to any Lender which is a party to an Assignment and Acceptance, the date of such Assignment and Acceptance, and be duly and validly executed and delivered by Borrower. Section 2.5 EXTENSION OF REVOLVING CREDIT FACILITY. Upon the request of Borrower, the Lenders may, in their sole discretion, effective as of any anniversary of the Effective Date, agree to extend the Revolving Credit Facility for such a period of time such that the Termination Date would fall on a date that is up to but not in excess of five years from such anniversary date. Each such 41 extension shall be effected by the delivery to Borrower of a written notice to that effect by the Lenders, not less than thirty (30) days prior to such anniversary date. ARTICLE 3 LETTER OF CREDIT FACILITY Section 3.1 AGREEMENT TO ISSUE. Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made under, this Agreement, L/C Issuer agrees to issue for the account of Borrower one or more Letters of Credit in accordance with this ARTICLE 3, from time to time during the period commencing on the Effective Date and ending on the Termination Date. Section 3.2 AMOUNTS. L/C Issuer shall not have any obligation to issue any Letter of Credit at any time: (a) if, after giving effect to the issuance of the requested Letter of Credit, (i) the aggregate Letter of Credit Obligations of Borrower would exceed the maximum amount of the Letter of Credit Facility then in effect or (ii) the aggregate principal amount of the Revolving Credit Loans outstanding would exceed the Borrowing Base (after reduction for the Letter of Credit Reserve in respect of such Letter of Credit); or (b) which has a term longer than one (1) calendar year or an expiration date after the last Business Day that is more than thirty (30) days prior to the Termination Date. Section 3.3 CONDITIONS. The obligation of L/C Issuer to issue any Letter of Credit is subject to the satisfaction of (i) the conditions precedent contained in ARTICLE 8 and (ii) the following additional conditions precedent in a manner satisfactory to Agent and L/C Issuer: (a) Borrower shall have delivered to L/C Issuer and Agent, at such times and in such manner as L/C Issuer or Agent may prescribe, an application in form and substance satisfactory to L/C Issuer and Agent for the issuance of the proposed Letter of Credit, a Reimbursement Agreement and such other documents as may be required pursuant to the terms thereof, and the form and terms of the proposed Letter of Credit shall be satisfactory to L/C Issuer and Agent; and (b) as of the date of issuance, no order of any court, arbitrator or other Governmental Authority having jurisdiction or authority over L/C Issuer shall purport by its terms to enjoin or restrain banks generally from issuing letters of credit of the type and in the amount of the proposed Letter of Credit, and no law, rule or regulation applicable to banks generally and no request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over banks generally shall prohibit or request that L/C Issuer refrain from the issuance of letters of credit generally or the issuance of such Letter of Credit. 42 (c) L/C Issuer shall have received from Agent confirmation of Borrower's compliance with the requirements of SECTION 3.4(b) and Agent's authorization to issue the requested Letter of Credit. Section 3.4 ISSUANCE OF LETTERS OF CREDIT. (a) REQUEST FOR ISSUANCE. Borrower shall give L/C Issuer and Agent written notice of Borrower's request for the issuance of a Letter of Credit no later than five (5) Business Days prior to the proposed date of issuance of the Letter of Credit. Such notice shall be irrevocable and shall specify the original face amount of the Letter of Credit requested, the effective date (which date shall be a Business Day) of issuance of such requested Letter of Credit, whether such Letter of Credit may be drawn in a single or in multiple draws, the date on which such requested Letter of Credit is to expire (which date shall be a Business Day that is more than thirty (30) days prior to the Termination Date), the purpose for which such Letter of Credit is to be issued and the beneficiary of the requested Letter of Credit. Borrower shall attach to such notice the form of the Letter of Credit that Borrower requests to be issued. (b) RESPONSIBILITIES OF AGENT; ISSUANCE. Agent shall determine, as of the Business Day immediately preceding the requested effective date of issuance of the Letter of Credit set forth in the notice from Borrower pursuant to SECTION 3.4(a), the amount of the unused portion of the Letter of Credit Facility and the Borrowing Base. If (i) the form of the Letter of Credit delivered by Borrower to Agent is acceptable to L/C Issuer and Agent in their sole, reasonable discretion, (ii) the undrawn face amount of the requested Letter of Credit is less than or equal to the lesser of (A) the amount of the unused portion of the Letter of Credit Facility and (B) the unused Borrowing Base, and (iii) Agent has received a certificate from Borrower stating that the applicable conditions set forth in ARTICLE 8 have been satisfied, then L/C Issuer will cause the Letter of Credit to be issued. NationsBank in its sole discretion may cause any Affiliate of NationsBank to issue any requested Letter of Credit, whereupon such Affiliate shall be L/C Issuer with respect to such Letter of Credit and shall have all of the rights, benefits and interests of L/C Issuer as are specified by the Loan Documents in connection therewith. Each such Affiliate, if any, shall be a third party beneficiary of the Loan Documents and shall be entitled to rely upon all representations, warranties and covenants contained herein and therein. Borrower hereby authorizes NationsBank and Agent to deliver or otherwise disclose to L/C Issuer copies of any of the Loan Documents and any other information from time to time in NationsBank's or Agent's possession concerning Borrower or any of the other Loan Parties or the transactions contemplated by the Loan Documents. (c) NOTICE OF ISSUANCE. Promptly after the issuance of any Letter of Credit, L/C Issuer shall give Agent written or facsimile notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance of such Letter of Credit, and Agent shall give each Lender written or facsimile notice, or telephonic notice confirmed promptly thereafter in writing, of the issuance of such Letter of Credit. 43 (d) NO EXTENSION OR AMENDMENT. No Letter of Credit shall be extended or amended unless the requirements of this SECTION 3.4 are met as though a new Letter of Credit were being requested and issued. Section 3.5 DUTIES OF L/C ISSUER. Any action taken or omitted to be taken by L/C Issuer under or in connection with any Letter of Credit, if taken or omitted in the absence of gross negligence or willful misconduct, shall not result in any liability of L/C Issuer to any Lender or relieve any Lender of its obligations hereunder to L/C Issuer. In determining whether to pay under any Letter of Credit, L/C Issuer shall have no obligation to any Lender other than to confirm that any documents required to be delivered under such Letter of Credit in connection with such drawing have been presented and appear on their face to comply with the requirements of such Letter of Credit. Section 3.6 PAYMENT OF REIMBURSEMENT OBLIGATIONS. (a) PAYMENT TO ISSUER. Notwithstanding any provisions to the contrary in any Reimbursement Agreement, Borrower agrees to reimburse L/C Issuer for any drawings (whether partial or full) under each Letter of Credit issued by L/C Issuer and agrees to pay to L/C Issuer the amount of all other Reimbursement Obligations and other amounts payable to L/C Issuer under or in connection with such Letter of Credit immediately when due, irrespective of any claim, set-off, defense or other right which Borrower may have at any time against L/C Issuer or any other Person. (b) RECOVERY OR AVOIDANCE OF PAYMENTS. In the event any payment by or on behalf of Borrower with respect to any Letter of Credit (or any Reimbursement Obligation relating thereto) received by L/C Issuer, or by Agent, and distributed by Agent to the Lenders on account of their respective participations therein, is thereafter set aside, avoided or recovered from L/C Issuer or Agent in connection with any receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon demand by Agent pay to Agent, for the account of Agent or L/C Issuer, their respective Commitment Percentages of such amount set aside, avoided or recovered together with interest at the rate required to be paid by L/C Issuer, or by Agent, upon the amount required to be repaid by it. Section 3.7 PARTICIPATIONS. (a) PURCHASE OF PARTICIPATIONS. Immediately upon issuance by L/C Issuer of a Letter of Credit, each Lender shall be deemed to have irrevocably and unconditionally purchased and received without recourse or warranty, an undivided interest and participation in such Letter of Credit, equal to such Lender's Commitment Percentage of the face amount thereof (including, without limitation, all obligations of Borrower with respect thereto). (b) SHARING OF LETTER OF CREDIT PAYMENTS. In the event that L/C Issuer makes a payment under any Letter of Credit and L/C Issuer shall not have been repaid such amount pursuant to SECTION 3.6, then NationsBank may make such repayment to L/C Issuer and thereupon be deemed to have made a Non-Ratable Loan in the amount of such repayment, 44 and notwithstanding the occurrence or continuance of a Default or Event of Default at the time of such repayment, such Non-Ratable Loan shall be subject to the provisions of SECTION 6.10(c) and the absolute obligations of the Lenders to pay for their respective participation interests therein. (c) SHARING OF REIMBURSEMENT OBLIGATION PAYMENTS. Whenever L/C Issuer receives a payment from or on behalf of Borrower on account of a Reimbursement Obligation as to which Agent has previously received for the account of L/C Issuer payment from a Lender pursuant to this SECTION 3.7, L/C Issuer shall promptly pay to Agent, for the benefit of such Lender, such Lender's Commitment Percentage of the amount of such payment from Borrower in Dollars. Each such payment shall be made by L/C Issuer on the Business Day on which L/C Issuer receives immediately available funds pursuant to the immediately preceding sentence, if received prior to 11:00 a.m. (Dallas, Texas time) on such Business Day and otherwise on the next succeeding Business Day. (d) DOCUMENTATION. Upon the request of any Lender, Agent shall furnish to such Lender copies of any Letter of Credit, Reimbursement Agreement or application for any Letter of Credit and such other documentation as may reasonably be requested by such Lender. (e) OBLIGATIONS IRREVOCABLE. The obligations of each Lender to make payments to Agent as required by SECTION 3.6(b) with respect to any Letter of Credit and their participations therein pursuant to the provisions of SECTION 6.10(c) hereof or otherwise and the obligations of Borrower to make payments to L/C Issuer or to Agent, for the account of the Lenders, shall be irrevocable, shall not be subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement (assuming, in the case of the obligations of the Lenders to make such payments, that the Letter of Credit has been issued in accordance with SECTION 3.4), including, without limitation, any of the following circumstances: (i) Any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (ii) The existence of any claim, set-off, defense or other right which Borrower may have at any time against a beneficiary named in a Letter of Credit or any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Lender, Agent, L/C Issuer or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transactions between Borrower or any other Person and the beneficiary named in any Letter of Credit); (iii) Any draft, certificate or any other document presented under the Letter of Credit upon which payment has been made in good faith and according to its terms proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; 45 (iv) The surrender or impairment of any Collateral or any other security for the Secured Obligations or the performance or observance of any of the terms of any of the Loan Documents; (v) The occurrence of any Default or Event of Default; or (vi) Agent's failure to deliver to the Lenders the notice provided for in SECTION 3.4(c). Section 3.8 INDEMNIFICATION, EXONERATION. (a) INDEMNIFICATION. WITHOUT LIMITING SECTION 18.12 AND IN ADDITION TO AMOUNTS PAYABLE AS ELSEWHERE PROVIDED IN THIS ARTICLE 3, BORROWER AGREES TO PROTECT, INDEMNIFY, PAY AND SAVE THE CREDIT PARTIES HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS, DEMANDS, LIABILITIES, DAMAGES, LOSSES, COSTS, CHARGES AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) WHICH L/C/ISSUER, ANY LENDER OR AGENT MAY INCUR OR BE SUBJECT TO AS A CONSEQUENCE, DIRECTLY OR INDIRECTLY, OF (i) THE ISSUANCE OF ANY LETTER OF CREDIT, OTHER THAN AS A RESULT OF ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED BY A COURT OF COMPETENT JURISDICTION OR (ii) THE FAILURE OF L/C/ISSUER TO HONOR A DRAWING UNDER ANY LETTER OF CREDIT AS A RESULT OF ANY ACT OR OMISSION, WHETHER RIGHTFUL OR WRONGFUL, OR ANY PRESENT OR FUTURE DE JURE OR DE FACTO GOVERNMENTAL AUTHORITY (ALL SUCH ACTS OR OMISSIONS BEING HEREINAFTER REFERRED TO COLLECTIVELY AS "GOVERNMENT ACTS". (b) ASSUMPTION OF RISK BY BORROWER. As among Borrower and the Credit Parties, Borrower assumes all risks of the acts and omissions of, or misuse of any of the Letters of Credit by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, subject to the provisions of the applications for the issuance of Letters of Credit, the Credit Parties and Agent shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any Person in connection with the application for and issuance of and presentation of drafts with respect to any of the Letters of Credit, even if it should prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; 46 (iii) the failure of the beneficiary of any Letter of Credit to comply duly with conditions required in order to draw upon such Letter of Credit; ( iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of any Credit Party, including, without limitation, any Government Acts. None of the foregoing shall affect, impair or prevent the vesting of any of the Credit Parties' rights or powers under this SECTION 3.8. (c) EXONERATION. In furtherance and extension, and not in limitation, of the specific provisions set forth above, any action taken or omitted by any of the Credit Parties under or in connection with any of the Letters of Credit or any related certificates, if taken or omitted in good faith, shall not result in any liability of any Credit Party to Borrower or relieve Borrower of any of its obligations hereunder to any such Person. (d) INDEMNIFICATION. WITHOUT LIMITING SECTION 17.5, THE LENDERS AGREE TO INDEMNIFY L/C ISSUER (TO THE EXTENT NOT REIMBURSED UNDER SECTION 18.2 HEREOF, BUT WITHOUT LIMITING THE OBLIGATIONS OF BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST L/C ISSUER (INCLUDING BY ANY LENDER) AS DESCRIBED IN THIS SECTION 3.8 OR OTHERWISE IN ANY WAY RELATING TO OR ARISING OUT OF ANY LETTER OF CREDIT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY L/C ISSUER UNDER ANY LETTER OF CREDIT OR ANY LOAN DOCUMENT IN CONNECTION THEREWITH (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF L/C ISSUER); PROVIDED THAT NO LENDER SHALL BE 47 LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE L/C ISSUER PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY COSTS OR EXPENSES PAYABLE BY BORROWER TO L/C ISSUER UNDER SECTION 18.2, TO THE EXTENT THAT L/C ISSUER IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES BY BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF ALL SECURED OBLIGATIONS. Section 3.9 SUPPORTING LETTER OF CREDIT; CASH COLLATERAL. If, notwithstanding the provisions of SECTION 3.2(b), any Letter of Credit is outstanding on the Termination Date, then on or prior to such Termination Date, or in any case upon the occurrence of an Event of Default, Borrower shall, promptly on demand by Agent, deposit with Agent, for the ratable benefit of the Credit Parties, with respect to each Letter of Credit then outstanding, as Agent shall specify, either (a) a standby letter of credit (a "SUPPORTING LETTER OF CREDIT") in form and substance satisfactory to Agent, issued by an issuer reasonably satisfactory to Agent in an amount equal to the greatest amount for which such Letter of Credit may be drawn, under which Supporting Letter of Credit Agent is entitled to draw amounts necessary to reimburse the Credit Parties for payments made by the Credit Parties resulting from any drawing under such Letter of Credit or under any reimbursement or guaranty agreement with respect thereto, or (b) Cash Collateral in an amount necessary to reimburse the Credit Parties for payments made by the Credit Parties resulting from any drawing under such Letter of Credit or under any reimbursement or guaranty agreement with respect thereto. Such Supporting Letter of Credit or Cash Collateral shall be held by Agent for the benefit of the Credit Parties, as security for, and to provide for the payment of, the Reimbursement Obligations. In addition, Agent may at any time after the Termination Date apply any or all of such Cash Collateral to the payment of any or all of the Secured Obligations then due and payable. At Borrower's request, but subject to Agent's reasonable approval, Agent shall invest any Cash Collateral consisting of cash or any proceeds of Cash Collateral consisting of cash in Cash Equivalents, and any commissions, expenses and penalties incurred by Agent in connection with any investment and redemption of such Cash Collateral shall be Secured Obligations hereunder secured by the Collateral, shall bear interest at the rates provided herein for the Loans and shall be charged to Borrower's Loan Accounts, or, at Agent's option, shall be paid out of the proceeds of any earnings received by Agent from the investment of such Cash Collateral as provided herein or out of such cash itself. Agent makes no representation or warranty as to, and shall not be responsible for, the rate of return, if any, earned on any Cash Collateral. Any earnings on Cash Collateral shall be held as additional Cash Collateral on the terms set forth in this SECTION 3.9. 48 ARTICLE 4 TERM LOAN FACILITY Section 4.1 TERM LOAN. Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made under, this Agreement, each Lender agrees severally, but not jointly, to make a Term Loan to Borrower on the Effective Date in a principal amount equal to such Lender's Commitment Percentage of the Term Loan Facility. Section 4.2 MANNER OF BORROWING AND DISBURSING TERM LOAN. Requests for the Term Loan shall be made in the manner prescribed by ARTICLE 6 (Borrower shall give Agent reasonable prior written notice of the occurrence of the Effective Date, which notice shall be irrevocable). Borrower hereby irrevocably authorizes Agent to disburse the proceeds of the Term Loan in Dollars in immediately available funds in accordance with the terms of the certificate from Borrower to Agent referred to in SECTION 8.1(f)(xvii). Section 4.3 REPAYMENT OF TERM LOAN. The principal of the Term Loan is due and payable, and shall be repaid in full by Borrower, in consecutive monthly payments on each Installment Payment Date each in the amount equal to the Term Loan Amortization Payment corresponding to each date as set forth in the definition thereof, plus one final installment of all remaining unpaid principal and interest which shall be due and payable on the Termination Date. Accrued interest under the Term Loan Facility shall be payable as provided by SECTION 6.2. Section 4.4 TERM NOTES. The Term Loan made by each Lender and the obligation of Borrower to repay such Loan shall be evidenced by a Term Note payable to the order of such Lender. Each such Term Note shall be dated the Effective Date, or with respect to any Lender which is a party to an Assignment and Acceptance, the date of such Assignment and Acceptance, and be duly and validly executed and delivered by Borrower. ARTICLE 5 CAPEX LOAN FACILITY Section 5.1 CAPEX LOAN. Upon the terms and subject to the conditions of, and in reliance upon the representations and warranties made under, this Agreement, each Lender agrees severally, but not jointly, to make CAPEX Loans to Borrower from time to time from the Effective Date to but not including the fifth anniversary of the Agreement Date, as requested by Borrower in accordance with the terms of SECTION 5.2, in an amount equal to such Lender's Commitment Percentage of each such Loan requested hereunder up to an aggregate amount equal to such Lender's Commitment Percentage of the CAPEX Loan Availability, PROVIDED that the maximum aggregate amount funded by the Lenders under the CAPEX Loan shall not exceed amount of the CAPEX Loan Facility. Subject to the terms of this Agreement, each Loan under the CAPEX Loan Facility shall be funded at such times on and after the Effective Date as Agent and Borrower may determine by mutual agreement. 49 Section 5.2 MANNER OF BORROWING AND DISBURSING CAPEX LOAN. Borrower shall give Agent reasonable prior written notice of its request for funding a CAPEX Loan and sufficient information to allow Agent to confirm Borrower's compliance with the conditions required by ARTICLE 8, PROVIDED that the minimum amount which may be requested by Borrower and funded at any time shall not in any event be less than Five Hundred Thousand Dollars ($500,000). Borrower hereby authorizes Agent to disburse the proceeds of the CAPEX Loan in accordance with Borrower's instructions, PROVIDED, that at Agent's option such proceeds may be disbursed directly to the holder of any Lien on Eligible Purchased Equipment which is the subject of any such CAPEX Loan as necessary to cause the release of such Lien. Section 5.3 REPAYMENT OF CAPEX LOAN. The principal of the CAPEX Loan is due and payable, and shall be repaid in full by Borrower in consecutive monthly payments on each Installment Payment Date each in an amount equal to the CAPEX Loan Amortization Payment, plus one final payment of all remaining unpaid principal which shall be due and payable on the Termination Date. Accrued interest under the CAPEX Loan Facility shall be payable as provided by SECTION 6.2. Section 5.4 CAPEX NOTES. The CAPEX Loan made by each Lender and the obligation of Borrower to repay such CAPEX Loan shall be evidenced by a CAPEX Note payable to the order of such Lender, in substantially the form of EXHIBIT "C". Each such CAPEX Note shall be dated the Effective Date, or with respect to any Lender which is a party to an Assignment and Acceptance, the date of such Assignment and Acceptance, and be duly and validly executed by Borrower. ARTICLE 6 GENERAL LOAN PROVISIONS Section 6.1 PROCEDURE FOR BORROWING. (a) In order to receive any Loan, Borrower shall notify Agent of a request for a Loan by means of a Notice of Borrowing or other notice acceptable to Agent, therein designating the amount of the Loan requested and the date on which funding is requested. Each request for a Loan shall be delivered to Agent not later than 11:00 a.m. (Dallas, Texas time) (i) in the case of a Base Rate Loan, on the Business Day on which funding of such Loan is requested and (ii) in the case of a Eurodollar Loan, at least two (2) Eurodollar Business Days prior to the Business Day on which funding of such Loan is requested. Such notice may be made in writing, by telephone or by telecopy or other electronic means and, unless otherwise agreed by Agent, shall be irrevocable upon receipt by Agent. Without limiting the other terms and conditions of this Agreement, at the time of each borrowing hereunder Borrower must be current in the delivery of all Compliance Certificates and Borrowing Base Certificates required to be delivered to Agent and the Lenders pursuant to this Agreement. (b) Unless Agent has elected periodic settlements pursuant to SECTION 6.10, Agent shall promptly notify the Lenders of any Notice of Borrowing given or deemed given 50 pursuant to this Agreement by 12:00 noon (Dallas, Texas time) on the proposed borrowing date. Not later than 1:30 p.m. (Dallas, Texas time) on the proposed borrowing date, each Lender will make available to Agent, for the account of Borrower, at Agent's Principal Office in funds immediately available to Agent, an amount equal to such Lender's Commitment Percentage of the Revolving Credit Loans to be made on such borrowing date. Section 6.2 INTEREST. (a) Subject to the provisions of SECTION 6.2(b), Borrower will pay interest on the unpaid principal amount of the Loans, for each day from the day each such Loan was made until such Loan is due (whether upon demand, at maturity, by reason of acceleration or otherwise) at a rate per annum equal to the lesser of the Applicable Rate or the Maximum Rate. Interest shall be payable monthly in arrears as it accrues on each Interest Payment Date. (b) If Borrower shall fail to pay when due (whether upon demand, at maturity, by reason of acceleration or otherwise) all or any portion of the principal amount of any Loan or if there shall occur any other Event of Default, at Agent's election (except with respect to any Event of Default arising from noncompliance with SECTION 14.1(b) for any applicable period ending on or after March 31, 1998, in which event the following provision of this SECTION 6.2(b) shall be applicable automatically without necessity of such election), the balance of the Loans shall no longer bear interest in accordance with the terms of SECTION 6.2(a), but shall bear interest for each day from the date of such failure to pay or other Event of Default, as the case may be, until such failure to pay or other Event of Default shall have been cured or waived in compliance with the terms of this Agreement, at a rate per annum equal to the lesser of (i) the sum of (1) the Default Margin and (2) the Applicable Rate, or (ii) the Maximum Rate, payable on demand. The interest rate provided for in the preceding sentence shall, to the extent permitted by Applicable Law, apply to and accrue on the amount of any judgment entered with respect to any Secured Obligation and shall continue to accrue at such rate during any proceeding described in SECTION 15.1(g) or (h). (c) Borrower will, to the extent permitted by Applicable Law, pay interest on the unpaid principal amount of any Secured Obligation that is due and payable other than the Loans in accordance with SECTIONS 6.2(a) or (b), as applicable, as if such Secured Obligation were a Loan. (d) The interest rates provided for in SECTION 6.2(a), SECTION 6.2(b) and SECTION 6.2(c) shall be computed on the basis of a year of 360 days and the actual number of days elapsed, and with respect to any Base Rate Loan shall be adjusted automatically as of the first day of the calendar month next following the calendar month of the effective date of each change in the Base Rate. (e) It is not intended by the Lenders, and nothing contained in this Agreement or the Notes shall be deemed, to establish or require the payment of a rate of interest in excess of the maximum rate permitted by Applicable Law (the "MAXIMUM RATE"). If, in any month, 51 the Effective Interest Rate, absent such limitation, would have exceeded the Maximum Rate, then the Effective Interest Rate for that month shall be the Maximum Rate, and, if in future months, the Effective Interest Rate would otherwise be less than the Maximum Rate, then the Effective Interest Rate shall remain at the Maximum Rate until such time as the amount of interest paid hereunder equals the amount of interest which would have been paid if the same had not been limited by the Maximum Rate. In the event, upon payment in full of the Secured Obligations, the total amount of interest paid or accrued under the terms of this Agreement is less than the total amount of interest which would have been paid or accrued if the Effective Interest Rate had at all times been in effect, then Borrower shall, to the extent permitted by Applicable Law, pay to the Lenders an amount equal to the excess, if any, of (i) the lesser of (A) the amount of interest which would have been charged if the Maximum Rate had, at all times, been in effect and (B) the amount of interest which would have accrued had the Effective Interest Rate, at all times, been in effect, and (ii) the amount of interest actually paid or accrued under this Agreement. In the event the Lenders receive, collect or apply as interest any sum in excess of the Maximum Rate, such excess amount shall be applied to the reduction of the principal balance of the Secured Obligations, and if no such principal is then outstanding, such excess or part thereof remaining, shall be paid to Borrower. Section 6.3 INTEREST RATE OPTION. Subject to the provisions hereof, Borrower shall have the option to have designated portions of the Loans bear interest at an Applicable Rate determined according to the Base Rate or the Adjusted Eurodollar Rate; PROVIDED, HOWEVER, that any portion of the Loans designated to bear interest at an Applicable Rate determined according to the Adjusted Eurodollar Rate for any particular Interest Period shall not be for less than $2,000,000 of unpaid principal or an integral multiple thereof, and no more than five (5) Interest Periods shall be allowed to exist at any one time. Any such option shall be exercised in the manner provided below: (a) AT TIME OF BORROWING. Contemporaneously with each request for a Loan, Borrower shall give Agent a Notice of Borrowing indicating the interest rate option selected with respect to the principal balance of such Loan. If the required Notice of Borrowing shall not have been timely received by Agent, Borrower shall be deemed to have designated the Base Rate and to have given Agent notice of such designation. Notwithstanding the foregoing, any request for a Revolving Credit Loan made pursuant to CLAUSES (ii), (iii), (iv) or (v) of SECTION 2.2(a) shall be deemed to be a request for a Base Rate Loan. (b) AT EXPIRATION OF INTEREST PERIODS. Not less than two (2) Eurodollar Business Days prior to the termination of any Interest Period for any Eurodollar Loan, Borrower shall give Agent a Notice of Borrowing indicating the interest rate option to be applicable to such Eurodollar Loan upon the expiration of such Interest Period if Borrower elects to have such Loan Continued as a Eurodollar Loan. If the required Notice of Borrowing shall not have been timely received by Agent prior to the expiration of such Interest Period, Borrower shall be deemed to have selected a rate based upon the Base Rate to be applicable to such Eurodollar Loan upon the expiration of such Interest Period and to have given Agent notice of such selection. 52 (c) CONVERSION FROM BASE RATE. Subject to the other provisions of this Agreement, during any period in which any Base Rate Loan is in existence, Borrower shall have the right, on any Eurodollar Business Day, to Convert all or a portion thereof to a Eurodollar Loan by giving Agent a Notice of Borrowing of such Conversion not less than two (2) Eurodollar Business Days prior to the date of such Conversion. Agent, at its option, may accept telephonic instructions as a Notice of Borrowing (PROVIDED that Borrower agrees that any such telephonic request shall promptly be confirmed to Agent by Borrower delivering a written Notice of Borrowing to Agent) and Agent hereby is authorized and directed to honor all telephonic or other oral notices from any Person authorized by Borrower to request a Loan. Borrower agrees to indemnify and hold Agent and the Lenders harmless from any loss or liability incurred by any of them in connection with honoring any telephonic or other oral notices. All written Notices of Borrowing are effective only upon receipt by Agent. Each Notice of Borrowing, whether written or oral, shall be irrevocable and binding upon Borrower. Section 6.4 CERTAIN FEES. (a) COMMITMENT FEE. Subject to the provisions of SECTION 18.22, in connection with and as consideration for the holding available for the use of Borrower hereunder the full amount of the Revolving Credit Facility, Borrower will pay a fee to Agent, for the ratable benefit of the Lenders, for each day from the Effective Date until the Termination Date, in an amount equal to one-half of one percent (0.5%) per annum of the unused portion of the Revolving Credit Facility for such day. Such fee shall be payable monthly in arrears on each Interest Payment Date and on the date of any permanent reduction in the Revolving Credit Facility and shall be fully earned when due and payable and shall not be subject to refund or rebate. Such fee is not, and shall not be deemed to be, interest or a charge for the use of money. (b) LETTER OF CREDIT FEES. (i) Borrower agrees to pay to Agent, for the ratable benefit of the Lenders, Letter of Credit fees equal to two and one-quarter percent (2.25%) per annum based on the average daily aggregate Letter of Credit Amount of all Letters of Credit from time to time outstanding during the term of this Agreement. Such fees shall be payable to Agent, for the ratable benefit of the Lenders in accordance with their respective Commitment Percentages, quarterly in advance on the date of issuance of each such Letter of Credit for the remaining portion of such calendar quarter and on the first Business Day of each January, April, July and October thereafter, as applicable, and shall be calculated according to the anticipated average daily Letter of Credit Amount based on the stated term of each Letter of Credit in a year of 360 days and for the actual number of days elapsed. (ii) Borrower agrees to pay to Agent, for the account of L/C Issuer, the standard fees and charges of L/C Issuer for issuing, administering, amending, renewing, paying and canceling Letters of Credit, as and when assessed. 53 (c) Subject to the provisions of SECTION 18.22, Borrower agrees to pay all other fees and expenses set forth in the certain letter agreement dated as of the Agreement Date between Agent and Borrower. Section 6.5 MANNER OF PAYMENT. (a) Except as otherwise expressly provided in SECTION 11.1(b), each payment (including prepayments) by Borrower on account of the principal of or interest on the Loans or of any other amounts payable to the Lenders under this Agreement or any Note shall be made not later than 12:00 noon (Dallas, Texas time) on the date specified for payment under this Agreement to Agent, for the account of the Lenders, at Agent's Principal Office, in Dollars, in immediately available funds and shall be made without any set-off, counterclaim or deduction whatsoever. Any payment received after such time but before 1:00 p.m. (Dallas, Texas time) on such day shall be deemed a payment on such date for the purposes of SECTION 15.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. (b) Borrower hereby irrevocably authorizes each Lender and each Affiliate of such Lender and each participant herein to charge any account of Borrower maintained with such Lender or such Affiliate or participant with such amounts as may be necessary from time to time to pay any Secured Obligations (whether or not owed to such Lender, Affiliate or participant) which are not paid when due. Section 6.6 PAYMENTS ON BUSINESS DAYS. If any payment under this Agreement or any Note shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall in such case be included in computing interest, if any, in accordance with such payment. Section 6.7 LOAN ACCOUNTS; STATEMENTS OF ACCOUNT. (a) Each Lender shall open and maintain on its books a loan account in Borrower's name (each, a "LOAN ACCOUNT" and collectively, the "LOAN ACCOUNTS"). Each such Loan Account shall show as debits thereto each Loan made under this Agreement by such Lender to Borrower and as credits thereto all payments received by such Lender and applied to principal of such Loan, so that the balance of the Loan Account at all times reflects the principal amount due such Lender from Borrower. (b) Agent shall maintain on its books a control account for Borrower in which shall be recorded (i) the amount of each disbursement made hereunder, (ii) the amount of any principal or interest due or to become due from Borrower hereunder, and (iii) the amount of any sum received by Agent hereunder from Borrower and each Lender's ratable share therein. 54 (c) The entries made in the accounts pursuant to SUBSECTIONS (a) and (b) shall be prima facie evidence, in the absence of manifest error, of the existence and amounts of the obligations of Borrower therein recorded and in case of discrepancy between such accounts, in the absence of manifest error, the accounts maintained pursuant to SUBSECTION (b) shall be controlling. (d) Agent will account separately to Borrower monthly with a statement of Loans, charges and payments made to and by Borrower pursuant to this Agreement, and such accounts rendered by Agent shall be deemed final, binding and conclusive, save for manifest error, unless Agent is notified by Borrower in writing to the contrary within thirty (30) days of the date the account to Borrower was so rendered. Such notice by Borrower shall be deemed an objection to only those items specifically objected to therein. Failure of Agent to render such account shall in no way affect the rights of Agent or of the Lenders hereunder. Section 6.8 TERMINATION OF AGREEMENT. Subject to the provisions of SECTION 6.12, Borrower shall have the right, at any time, to terminate this Agreement upon not less than thirty (30) Business Days' prior written notice of its intention to terminate this Agreement, which notice shall specify the effective date of such termination. Upon receipt of such notice, Agent shall promptly notify each Lender thereof. On the date specified in such notice, such termination shall be effected, PROVIDED, that Borrower shall, on or prior to such date, pay to Agent, for the account of the Lenders, in same day funds, an amount equal to all Secured Obligations then outstanding, including, without limitation, all (i) accrued interest thereon, (ii) all accrued fees provided for hereunder, and (iii) any amounts payable to the Lenders pursuant to SECTIONS 6.12, 18.2, 18.3 and 18.12, and, in addition thereto, shall deliver to Agent, in respect of each outstanding Letter of Credit, either the Supporting Letter of Credit or the Cash Collateral as provided in SECTION 3.9. Following the date specified in a notice of termination as provided for in this SECTION 6.8 and upon payment in full of the amounts specified in this SECTION 6.8, this Agreement shall be terminated and Agent, the Lenders and Borrower shall have no further obligations to any other party hereto except for the obligations to Agent and the Lenders pursuant to SECTION 18.12 hereof. Section 6.9 MAKING OF LOANS. (a) NATURE OF OBLIGATIONS OF LENDERS TO MAKE LOANS. The obligations of the Lenders under this Agreement to make the Loans are several and are not joint or joint and several. (b) ASSUMPTION BY AGENT. Subject to the provisions of SECTION 6.10 and notwithstanding the occurrence or continuance of a Default or Event of Default or other failure of any condition to the making of Revolving Credit Loans hereunder subsequent to the Revolving Credit Loans to be made on the Effective Date, unless Agent shall have received notice from a Lender in accordance with the provisions of SECTION 6.9(c) prior to a proposed borrowing date that such Lender will not make available to Agent such Lender's ratable portion of the amount to be borrowed on such date, Agent may assume that such Lender will make such portion available to Agent in accordance with SECTION 2.2(a), and Agent may, in reliance upon such assumption, make available to Borrower on such date a 55 corresponding amount. If and to the extent such Lender shall not make such ratable portion available to Agent, such Lender and Borrower severally agree to repay to Agent forthwith on demand such corresponding amount (the "MAKE-WHOLE AMOUNT"), together with interest thereon for each day from the date such amount is made available to Borrower until the date such amount is repaid to Agent at the Effective Interest Rate or, if lower, subject to SECTION 6.2(e), the Maximum Rate; PROVIDED, HOWEVER, if on the Interest Payment Date next following the date on which any Lender pays interest to Agent at the Effective Rate or the Maximum Rate on a Make-Whole Amount as aforesaid, Borrower defaults in making the interest payment due on such Interest Payment Date, then Agent shall reimburse such Lender for the excess, if any, of the amount of interest so paid by such Lender on the Make-Whole Amount and the amount of interest that such Lender would have paid had the Lender been required to pay interest on the Make-Whole Amount at the Federal Funds Rate. If such Lender shall repay to Agent such corresponding amount, the amount so repaid shall constitute such Lender's Commitment Percentage of the Loan made on such borrowing date for purposes of this Agreement. The failure of any Lender to make its Commitment Percentage of any Loan available shall not (without regard to whether Borrower shall have returned the amount thereof to Agent in accordance with this SECTION 6.9) relieve it or any other Lender of its obligation, if any, hereunder to make its Commitment Percentage of such Loan available on such borrowing date, but no Lender shall be responsible for the failure of any other Lender to make its Commitment Percentage of such Loan available on the borrowing date. (c) DELEGATION OF AUTHORITY TO AGENT. Without limiting the generality of SECTION 17.1, each Lender expressly authorizes Agent to determine on behalf of such Lender (i) any reduction or increase of advance rates applicable to the Borrowing Base, so long as such advance rates do not at any time exceed the rates set forth in the Borrowing Base definition, (ii) the creation or elimination of any reserves (other than the Letter of Credit Reserve) against the Revolving Credit Facility and the Borrowing Base, and (iii) whether or not Inventory or Receivables shall be deemed to constitute Eligible Inventory or Eligible Receivables. Unless and until Agent shall have received written notice from the Required Lenders as to the existence of a Default, an Event of Default or some other circumstance which would relieve the Lenders of their respective obligations to make Loans hereunder, which notice shall be in writing and shall be signed by the Required Lenders and shall expressly state that the Required Lenders do not intend to make available to Agent such Lenders' ratable share of Loans made after the effective date of such notice, Agent shall be entitled to continue to make the assumptions described in SECTION 6.9(b). After receipt of the notice described in the preceding sentence, which shall become effective on the third (3rd) Business Day after receipt of such notice by Agent unless otherwise agreed by Agent, Agent shall be entitled to make the assumptions described in SECTION 6.9(b) as to any Loans as to which it has not received a written notice to the contrary prior to 11:00 a.m. (Dallas, Texas time) on the Business Day next preceding the day on which the Loan is to be made. Agent shall not be required to make any Loan as to which it shall have received notice by a Lender of such Lender's intention not to make its ratable portion of such Loan available to Agent. Any withdrawal of authorization under this SECTION 6.9(c) shall not affect the validity of any Loans made prior to the effectiveness thereof. 56 Section 6.10 SETTLEMENT AMONG LENDERS. (a) TERM LOAN. Agent shall pay to each Lender on each Interest Payment Date or Installment Payment Date, as the case may be, its ratable share, based on the principal amount of the Term Loan owing to such Lender, of all payments received by Agent hereunder in immediately available funds in respect of the principal of, or interest on, the Term Loan, net of any amounts payable by such Lender to Agent, by wire transfer of same day funds. (b) REVOLVING CREDIT LOANS. It is agreed that each Lender's Net Outstandings are intended by the Lenders to be equal at all times to such Lender's Commitment Percentage of the aggregate principal amount of all Revolving Credit Loans outstanding. Notwithstanding such agreement, the several and not joint obligation of each Lender to fund Revolving Credit Loans made in accordance with the terms of this Agreement ratably in accordance with such Lender's Commitment Percentage and each Lender's right to receive its ratable share of principal payments on Revolving Credit Loans in accordance with its Commitment Percentage, the Lenders agree that in order to facilitate the administration of this Agreement and the Loan Documents that settlement among them may take place on a periodic basis in accordance with the provisions of this SECTION 6.10. (c) SETTLEMENT PROCEDURES AS TO REVOLVING CREDIT LOANS. To the extent and in the manner hereinafter provided in this SECTION 6.10, settlement among the Lenders as to Revolving Credit Loans may occur periodically on Settlement Dates determined from time to time by Agent, which may occur before or after the occurrence or during the continuance of a Default or Event of Default and whether or not all of the conditions set forth in SECTION 8.2 have been met. On each Settlement Date payments shall be made by or to the Lenders in the manner provided in this SECTION 6.10 in accordance with the Settlement Report delivered by Agent pursuant to the provisions of this SECTION 6.10 in respect of such Settlement Date so that as of each Settlement Date, and after giving effect to the transactions to take place on such Settlement Date, each Lender's Net Outstandings shall equal such Lender's Commitment Percentage of the Revolving Credit Loans outstanding. (i) SELECTION OF SETTLEMENT DATES. If Agent elects, in its discretion, but subject to the consent of NationsBank, to settle accounts among the Lenders with respect to principal amounts of Revolving Credit Loans less frequently than each Business Day, then Agent shall designate periodic Settlement Dates which may occur on any Business Day after the Effective Date; PROVIDED, HOWEVER, that Agent shall designate as a Settlement Date any Business Day which is an Interest Payment Date; and PROVIDED FURTHER, that a Settlement Date shall occur at least once during each seven day period. Agent shall designate a Settlement Date by delivering to each Lender a Settlement Report not later than 12:00 noon (Dallas, Texas time) on the proposed Settlement Date, which Settlement Report will be substantially in the form of EXHIBIT "F" hereto and shall be with respect to the period beginning on the next preceding Settlement Date and ending on such designated Settlement Date. 57 (ii) NON-RATABLE LOANS AND PAYMENTS. Between Settlement Dates, Agent shall request and NationsBank may (but shall not be obligated to) advance to Borrower out of NationsBank's own funds, the entire principal amount of any Revolving Credit Loan requested or deemed requested pursuant to SECTION 2.2(a) (any such Revolving Credit Loan being referred to as a "NON-RATABLE LOAN"). The making of each Non-Ratable Loan by NationsBank shall be deemed to be a purchase by NationsBank of a 100% participation in each other Lender's Commitment Percentage of the amount of such Non-Ratable Loan. All payments of principal, interest and any other amount with respect to such Non-Ratable Loan shall be payable to and received by Agent for the account of NationsBank. Upon demand by NationsBank, with notice thereof to Agent, each other Lender shall pay to NationsBank, as the repurchase of such participation, an amount equal to one hundred percent (100%) of such Lender's Commitment Percentage of the principal amount of such Non-Ratable Loan. Any payments received by Agent between Settlement Dates which in accordance with the terms of this Agreement are to be applied to the reduction of the outstanding principal balance of Revolving Credit Loans, shall be paid over to and retained by NationsBank for such application, and such payment to and retention by NationsBank shall be deemed, to the extent of each other Lender's Commitment Percentage of such payment, to be a purchase by each such other Lender of a participation in the Revolving Credit Loans (including the repurchase of participations in Non-Ratable Loans) held by NationsBank. Upon demand by another Lender, with notice thereof to Agent, NationsBank shall pay to Agent, for the account of such other Lender, as a repurchase of such participation, an amount equal to such other Lender's Commitment Percentage of any such amounts (after application thereof to the repurchase of any participations of NationsBank in such other Lender's Commitment Percentage of any Non-Ratable Loans) paid only to NationsBank by Agent. (iii) NET DECREASE IN OUTSTANDINGS. If on any Settlement Date the increase, if any, in the amount of any Lender's Net Outstandings which is required to comply with the first sentence of SECTION 6.10(b) is less than such Lender's Commitment Percentage of amounts received by Agent but paid only to NationsBank since the next preceding Settlement Date, such Lender and Agent, in their respective records, shall apply such Lender's Commitment Percentage of such amounts to the increase in such Lender's Net Outstandings, and NationsBank shall pay to Agent, for the account of such Lender, the excess allocable to such Lender. (iv) NET INCREASE IN OUTSTANDINGS. If on any Settlement Date the increase, if any, in the amount of any Lender's Net Outstandings which is required to comply with the first sentence of SECTION 6.10(b) exceeds such Lender's Commitment Percentage of amounts received by Agent but paid only to NationsBank since the next preceding Settlement Date, such Lender and Agent, in their respective records, shall apply such Lender's Commitment Percentage of such amounts to the increase 58 in such Lender's Net Outstandings, and such Lender shall pay to Agent, for the account of NationsBank, any excess. (v) NO CHANGE IN OUTSTANDINGS. If a Settlement Report indicates that no Revolving Credit Loans have been made during the period since the next preceding Settlement Date, then such Lender's Commitment Percentage of any amounts received by Agent but paid only to NationsBank shall be paid by NationsBank to Agent, for the account of such Lender. If a Settlement Report indicates that the increase in the amount of a Lender's Net Outstandings which is required to comply with the first sentence of SECTION 6.10(b) is exactly equal to such Lender's Commitment Percentage of amounts received by Agent but paid only to NationsBank since the next preceding Settlement Date, such Lender and Agent, in their respective records, shall apply such Lender's Commitment Percentage of such amounts to the increase in such Lender's Net Outstandings. (vi) RETURN OF PAYMENTS. If any amounts received by NationsBank in respect of the Secured Obligations are later required to be returned or repaid by NationsBank to Borrower or any other obligor or their respective representatives or successors in interest, whether by court order, settlement or otherwise, in excess of NationsBank's Commitment Percentage of all such amounts required to be returned by all Lenders, each other Lender shall, upon demand by NationsBank with notice to Agent, pay to Agent for the account of NationsBank, an amount equal to the excess of such Lender's Commitment Percentage of all such amounts required to be returned by all Lenders over the amount, if any, returned directly by such Lender. (vii) PAYMENTS TO AGENT, LENDERS. (A) Payment by any Lender to Agent shall be made not later than 1:00 p.m. (Dallas, Texas time) on the Business Day such payment is due, provided that if such payment is due on demand by another Lender, such demand is made on the paying Lender not later than 10:00 a.m. (Dallas, Texas time) on such Business Day. Payment by Agent to any Lender shall be made by wire transfer, promptly following Agent's receipt of funds for the account of such Lender and in the type of funds received by Agent, provided that if Agent receives such funds at or prior to 1:00 p.m. (Dallas, Texas time), Agent shall pay such funds to such Lender by 2:00 p.m. (Dallas, Texas time) on such Business Day. If a demand for payment is made after the applicable time set forth above, the payment due shall be made by 2:00 p.m. (Dallas, Texas time) on the first Business Day following the date of such demand. (B) If a Lender shall, at any time, fail to make any payment to Agent required hereunder, Agent may, but shall not be required to, retain payments that would otherwise be made to such Lender hereunder and apply such payments to such Lender's defaulted obligations hereunder, at such time, and in such order, as Agent may elect in its sole discretion. 59 (C) With respect to the payment of any funds under this SECTION 6.10(c), whether from Agent to a Lender or from a Lender to Agent, the party failing to make full payment when due pursuant to the terms hereof shall, upon demand by the other party, pay such amount together with interest on such amount at the Federal Funds Rate. (d) SETTLEMENT OF OTHER SECURED OBLIGATIONS. All other amounts received by Agent on account of, or applied by Agent to the payment of, any Secured Obligation owed to the Lenders (including, without limitation, fees payable to the Lenders pursuant to SECTIONS 6.4(a) and (d) and proceeds from the sale of, or other realization upon, all or any part of the Collateral following an Event of Default) that are received by Agent on or prior to 1:00 p.m. (Dallas, Texas time) on a Business Day will be paid by Agent to each Lender on the same Business Day, and any such amounts that are received by Agent after 1:00 p.m. (Dallas, Texas time) will be paid by Agent to each Lender on the following Business Day. Unless otherwise stated herein, Agent shall distribute fees payable to the Lenders pursuant to SECTIONS 6.4(a) and (d) ratably to the Lenders based on each Lender's Commitment Percentage and shall distribute proceeds from the sale of, or other realization upon, all or any part of the Collateral following an Event of Default ratably to the Lenders based on the amount of the Secured Obligations then owing to each Lender. Section 6.11 MANDATORY PREPAYMENTS. (a) PREPAYMENTS FROM ASSET DISPOSITIONS. Immediately upon receipt by Borrower or any of its Subsidiaries of the Net Proceeds of any Asset Disposition by Borrower or any of its Subsidiaries, Borrower shall make a prepayment in respect of the Secured Obligations equal to the amount of such Net Proceeds as provided in SECTION 6.11(d); PROVIDED, HOWEVER, that if no Default or Event of Default has occurred and is continuing, Borrower shall not be required to make such prepayment to the extent that the Net Proceeds from such Asset Dispositions during any fiscal year of Borrower do not exceed 50,000 in the aggregate. Concurrently with the making of any such payment, Borrower shall deliver to Agent a certificate of Borrower's Financial Officer demonstrating the calculations of the amount required to be prepaid. Notwithstanding the foregoing, if no Default or Event of Default has occurred and is continuing, or would result therefrom, to the extent that the gross proceeds from such Asset Dispositions during any fiscal year of Borrower do not exceed, in the aggregate, $500,000, if Borrower reasonably expects such proceeds to be reinvested within six (6) months in productive assets of a kind then used or useable in the business of Borrower or its Subsidiaries and that are not subject to any Lien other than in favor of Agent, for the benefit of the Credit Parties, then Borrower shall provide Agent with notice of such intent in accordance with SECTION 18.1, and (i) to the extent such proceeds do not exceed the balance from time to time of the Revolving Credit Loans, such proceeds shall be applied to the repayment of the outstanding balance of the Revolving Credit Loans and Agent shall, until such time as the reinvestment of such proceeds, establish a reserve against the Borrowing Base in the amount of the proceeds so applied and (ii) to the extent such proceeds exceed the balance from time to time of the Revolving Credit Loans, Borrower shall deposit such proceeds with Agent to be held as Cash Collateral in which Agent, for the 60 ratable benefit of the Credit Parties, shall have a first priority security interest. Upon Borrower's or its Subsidiaries' (as applicable) reinvestment of such proceeds as described above, and provided that Borrower provides Agent with copies of a purchase order, invoice or other written evidence of the purchase price of the assets which such proceeds are reinvested in, and such other information as may be requested by Agent with respect thereto, Agent shall release its security interest in such Cash Collateral in respect of the reinvested funds and shall eliminate the reserve against the Borrowing Base. To the extent that Borrower or its Subsidiaries (as applicable) fail to reinvest such proceeds within six (6) months as provided above, Borrower authorizes and directs Agent to eliminate such reserve, to apply the amount of the Cash Collateral in respect of the unreinvested amount to the prepayment of the Loans as provided in SECTION 6.11(d), to make Revolving Credit Loans in an amount equal to the reserved amount that is not reinvested and to apply the proceeds of such Revolving Credit Loans in prepayment of the Loans as provided in SECTION 6.11(d). (b) PREPAYMENTS FROM EQUITY OFFERINGS. In the event that at any time after the Effective Date, any of the Loan Parties or any of their respective Subsidiaries issues Capital Stock or other securities in any public offering or receives an additional capital contribution in respect of existing Capital Stock or other securities (excluding the net cash proceeds from any such issuance to or contribution from Fremont Partners, L.P. or New Canaan), no later than the third Business Day following the date of receipt of the proceeds from such issuance, Borrower shall apply such proceeds, net of underwriting discounts and commissions and other reasonable costs associated therewith, in prepayment of the Loans as provided in SECTION 6.11(d). (c) PREPAYMENTS FROM EXCESS CASH FLOW. Commencing with the fiscal year ending December 31, 1997, and continuing for each fiscal year end thereafter until the principal balance of the Term Loan Facility shall have been reduced to $27,000,000, or less, Borrower shall, no later than one hundred sixty (160) days following each fiscal year end, make a prepayment of the Loans as provided in SECTION 6.11(d) in an amount equal to fifty percent (50.0%) of Borrower's Excess Cash Flow for such fiscal year. (d) APPLICATION OF PROCEEDS OF PREPAYMENTS. All prepayments pursuant to this SECTION 6.11 shall be accompanied by an appropriate Notice of Borrowing and, except to the extent otherwise provided in CLAUSE (a), shall be applied first to the outstanding principal balance of the Term Loan to the extent thereof and thereafter to the outstanding balance of the CAPEX Loan, to the extent thereof, and thereafter to the outstanding Revolving Credit Loans to the extent thereof, with any excess to be deposited with Agent to be held as Cash Collateral for the Secured Obligations and applied by Agent from time to time to the outstanding Revolving Credit Loans promptly upon the making of such Revolving Credit Loans or, after the Termination Date, to any of the Secured Obligations in such manner as Agent shall determine in its sole discretion. All prepayments of the Term Loan or the CAPEX Loan shall be applied to the principal installments payable thereon in inverse order of maturity. 61 Section 6.12 PREPAYMENT FEE. Subject to the provisions of SECTION 18.22, if Borrower prepays the Loans in whole and terminates this Agreement prior to the Termination Date, for any reason other than refinancing of the Loans with NationsBank or any of its Affiliates, Borrower shall pay to Agent, for the ratable benefit of the Lenders, on the date of such prepayment, as liquidated damages and compensation for the costs of making funds available to Borrower under this Agreement, and not as a penalty, an amount equal to the percentage amount specified below for the Loan Year in which such prepayment is made multiplied by the sum of (a) the aggregate outstanding principal amount of the Term Loan and the CAPEX Loan plus (b) the amount of the Revolving Credit Facility then in effect: Loan Year Percent --------- -------- 1 1.00% 2 0.50% 3 0.25% 4 0.25% 5 0.25% ARTICLE 7 CHANGE OF CIRCUMSTANCES Section 7.1 INCREASED COST AND REDUCED RETURN. (a) If, after the date hereof, the adoption of any Applicable Law or any change in any Applicable Law or any change in the interpretation or administration thereof by any Governmental Authority (including, without limitation, any central bank or comparable agency) charged with the interpretation or administration thereof, or compliance by any Lender (or its Applicable Lending Office) with any request or directive (whether or not having the force of law) of any such Governmental Authority: (i) shall subject such Lender (or its Applicable Lending Office) to any tax, duty or other charge with respect to any Eurodollar Loans, its Notes, or its obligation to make Eurodollar Loans, or change the basis of taxation of any amounts payable to such Lender (or its Applicable Lending Office) under this Agreement or its Note in respect of any Eurodollar Loans (other than taxes imposed on the overall net income of such Lender by the jurisdiction in which such Lender has its principal office or such Applicable Lending Office); (ii) shall impose, modify or deem applicable any reserve, special deposit, assessment, compulsory loan or similar requirement (other than the Reserve Requirement utilized in the determination of the Adjusted Eurodollar Rate) relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, such Lender (or its Applicable Lending Office), including the Commitment of such Lender hereunder; or 62 (iii) shall impose on such Lender (or its Applicable Lending Office) or on the London interbank market any other condition affecting this Agreement or its Notes or any of such extensions of credit or liabilities or commitments; and the result of any of the foregoing is to increase the cost to such Lender (or its Applicable Lending Office) of making, Converting into, Continuing or maintaining any Eurodollar Loans or to reduce any sum received or receivable by such Lender (or its Applicable Lending Office) under this Agreement or its Notes with respect to any Eurodollar Loans, then Borrower shall pay to such Lender on demand such amount or amounts as will compensate such Lender for such increased cost or reduction. If any Lender requests compensation by Borrower under this SECTION 7.1(a), Borrower may, by notice to such Lender (with a copy to Agent), suspend the obligation of such Lender to make or Continue Loans of the Type with respect to which such compensation is requested, or to Convert Loans of any other Type into Loans of such Type, until the event or condition giving rise to such request ceases to be in effect (in which case the provisions of SECTION 7.4 shall be applicable); PROVIDED that such suspension shall not affect the right of such Lender to receive the compensation so requested. (b) If, after the date hereof, any Lender shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy or any change therein or in the interpretation or administration thereof by any Governmental Authority (including, without limitation, any central bank or comparable agency) charged with the interpretation or administration thereof, or any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of such Lender's obligations hereunder to a level below that which such Lender or such corporation could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy), then, from time to time upon demand, Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction. (c) Each Lender shall promptly notify Borrower and Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Lender to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Lender, be otherwise disadvantageous to it. Any Lender claiming compensation under this Section shall furnish to Borrower and Agent a statement setting forth the additional amount or amounts to be paid to it hereunder which shall be conclusive in the absence of manifest error. In determining such amount, such Lender may use any reasonable averaging and attribution methods. Section 7.2 LIMITATION ON TYPES OF LOANS. If on or prior to the first day of any Interest Period for any Eurodollar Loan: 63 (a) Agent determines (which determination shall be conclusive) that by reason of circumstances affecting the London interbank Eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period; or (b) the Required Lenders determine (which determination shall be conclusive) and notify Agent that the Adjusted Eurodollar Rate will not adequately and fairly reflect the cost to the Lenders of funding Eurodollar Loans for such Interest Period; then Agent shall give Borrower prompt notice thereof specifying the relevant Type of Loans and the relevant amounts or periods, and so long as such condition remains in effect, the Lenders shall be under no obligation to make additional Loans of such Type, Continue Loans of such Type, or to Convert Loans of any other Type into Loans of such Type and Borrower shall, on the last day(s) of the then current Interest Period(s) for the outstanding Loans of the affected Type, either prepay such Loans or Convert such Loans into another Type of Loan in accordance with the terms of this Agreement. Section 7.3 ILLEGALITY. Notwithstanding any other provision of this Agreement, in the event that it becomes unlawful for any Lender or its Applicable Lending Office to make, maintain or fund Eurodollar Loans hereunder, then such Lender shall promptly notify Borrower thereof and such Lender's obligation to make or Continue Eurodollar Loans, and to Convert other Types of Loans into Eurodollar Loans, shall be suspended until such time as such Lender may again make, maintain and fund Eurodollar Loans (in which case the provisions of SECTION 7.4 shall be applicable). Section 7.4 TREATMENT OF AFFECTED LOANS. If the obligation of any Lender to make Loans of a particular Type, or to Continue or Convert Loans of any other Type into Loans of a particular Type, shall be suspended pursuant to SECTION 7.1 or 7.3 hereof (Loans of such Type being herein called "AFFECTED LOANS" and such Type being herein called the "AFFECTED TYPE"), such Lender's Affected Loans shall be automatically Converted into Base Rate Loans on the last day(s) of the then current Interest Period(s) for the Affected Loans (or, in the case of a Conversion required by SECTION 7.3 hereof, on such earlier date as such Lender may specify to Borrower with a copy to Agent) and, unless and until such Lender gives notice as provided below that the circumstances specified in SECTION 7.1 or SECTION 7.3 hereof that gave rise to such Conversion no longer exist: (a) to the extent that such Lender's Affected Loans have been so Converted, all payments and prepayments of principal that would otherwise be applied to such Lender's Affected Loans shall be applied instead to its Base Rate Loans; and (b) all Loans that would otherwise be made or Continued by such Lender as Loans of the Affected Type shall be made or Continued instead as Base Rate Loans, and all Loans of such Lender that would otherwise be Converted into Loans of the Affected Type shall be Converted instead into (or shall remain as) Base Rate Loans. If such Lender gives notice to Borrower (with a copy to Agent) that the circumstances specified in SECTION 7.1 or SECTION 7.3 hereof that gave rise to the Conversion of such Lender's Affected Loans pursuant to this SECTION 7.4 no longer exist (which such Lender agrees to do promptly upon such 64 circumstances ceasing to exist) at a time when Loans of the Affected Type made by other Lenders are outstanding, such Lender's Base Rate Loans shall be automatically Converted, on the first day(s) of the next succeeding Interest Period(s) for such outstanding Loans of the Affected Type, to the extent necessary so that, after giving effect thereto, all Loans held by the Lenders holding Loans of the Affected Type and by such Lender are held pro rata (as to principal amounts, Types and Interest Periods) in accordance with their respective Commitments. Section 7.5 COMPENSATION. Upon the request of any Lender, Borrower shall pay to a Lender such amount or amounts as shall be sufficient (in the reasonable opinion of such Lender) to compensate it for any loss, cost or expense (including loss of anticipated profits) incurred by it as a result of: (a) any payment, prepayment or Conversion of a Eurodollar Loan for any reason (including, without limitation, the acceleration of the Loans pursuant to SECTION 15.2) on a date other than the last day of the Interest Period for such Loan; or (b) any failure by Borrower for any reason (including, without limitation, the failure of any condition precedent specified in ARTICLE 8 to be satisfied) to borrow, Convert, Continue or prepay a Eurodollar Loan on the date for such borrowing, Conversion, Continuation or prepayment specified in the relevant Notice of Borrowing under this Agreement. Section 7.6 TAXES. (a) Any and all payments by Borrower to or for the account of any Credit Party hereunder or under any other Loan Document shall be made free and clear of, and without deduction for, any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, EXCLUDING, in the case of each Credit Party, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which any Lender (or its Applicable Lending Office), L/C Issuer or Agent (as the case may be) is organized or any political subdivision thereof (all such non-excluded taxes, duties, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as "TAXES"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable under this Agreement or any other Loan Document to any Credit Party, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this SECTION 7.6) such Credit Party receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with Applicable Law, and (iv) Borrower shall furnish to Agent, at its address referred to in SECTION 18.1, the original or a certified copy of a receipt evidencing payment thereof. (b) In addition, Borrower agrees to pay any and all present or future stamp or documentary taxes and any other excise or property taxes or charges or similar levies which 65 arise from any payment made under this Agreement or any other Loan Document or from the execution or delivery of, or otherwise with respect to, this Agreement or any other Loan Document (hereinafter referred to as "OTHER TAXES"). (c) BORROWER AGREES TO INDEMNIFY EACH CREDIT PARTY FOR THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, WITHOUT LIMITATION, ANY TAXES OR OTHER TAXES IMPOSED OR ASSERTED BY ANY JURISDICTION ON AMOUNTS PAYABLE UNDER THIS SECTION 7.6) PAID BY SUCH CREDIT PARTY (AS THE CASE MAY BE) AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND EXPENSES) ARISING THEREFROM OR WITH RESPECT THERETO. (d) Each Lender organized under the laws of a jurisdiction outside the U.S., on or prior to the date of its execution and delivery of this Agreement in the case of each Lender listed on the signature pages hereof and on or prior to the date on which it becomes a Lender in the case of each other Lender, and from time to time thereafter if requested in writing by Borrower or Agent (but only so long as such Lender remains lawfully able to do so), shall provide Borrower and Agent with (i) IRS Form 1001 or 4224, as appropriate, or any successor form prescribed by the IRS, certifying that such Lender is entitled to benefits under an income tax treaty to which the U.S. is a party which reduces the rate of withholding tax on payments of interest or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the U.S., (ii) IRS Form W-8 or W-9, as appropriate, or any successor form prescribed by the IRS, and (iii) any other form or certificate required by any taxing authority (including any certificate required by Sections 871(h) and 881(c) of the Internal Revenue Code), certifying that such Lender is entitled to an exemption from or a reduced rate of tax on payments pursuant to this Agreement or any of the other Loan Documents. (e) For any period with respect to which a Lender has failed to provide Borrower and Agent with the appropriate form pursuant to SECTION 7.6(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under SECTION 7.6(a) or 7.6(b) with respect to Taxes or Other Taxes imposed by the U.S.; PROVIDED, HOWEVER, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes or Other Taxes because of its failure to deliver a form required hereunder, Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes or Other Taxes. (f) If Borrower is required to pay additional amounts to or for the account of any Lender pursuant to this SECTION 7.6, then such Lender will agree to use reasonable efforts to change the jurisdiction of its Applicable Lending Office so as to eliminate or reduce any such additional payment which may thereafter accrue if such change, in the judgment of such Lender, is not otherwise disadvantageous to such Lender. 66 (g) Within thirty (30) days after the date of any payment of Taxes or Other Taxes, Borrower shall furnish to Agent the original or a certified copy of a receipt evidencing such payment. (h) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this SECTION 7.6 shall survive the termination of the Commitments and the payment in full of the Notes. ARTICLE 8 CONDITIONS PRECEDENT Section 8.1 CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT. Notwithstanding any other provision of this Agreement, no Loan will be made, and no Letter of Credit shall be issued, until the fulfillment of each of the following conditions, and with respect to any reports, appraisals, reviews or other similar items, Agent's and the Lender's satisfaction with the contents thereof, prior to or contemporaneously with the making of the first to be made of such Loans or issuance of such Letter of Credit: (a) FINANCIAL CONDITION. Borrower shall have delivered to Agent the Pro Forma, together with a certificate executed by a Financial Officer and an opinion of Houlihan, Lokey, Howard & Zukin (or such other firm as is acceptable to Agent) concerning the financial condition and solvency of Borrower as of the Effective Date (after giving effect to the Acquisition and the initial Loan(s)), each in form and substance satisfactory to Agent, and the Pro Forma shall reflect Borrower's Net Worth as of the Agreement Date to be not less than $49,100,000.00. (b) FEES AND EXPENSES. Borrower shall have paid all of the fees and expenses payable on the Agreement Date. (c) CAPITALIZATION. Fremont shall have received a capital contribution of common equity of not less than $49,100,000, all of which shall have been contributed by Fremont to KAC as common equity for the purpose of consummating the Acquisition and the Merger and paying fees, costs and expenses in connection therewith, paying Indebtedness of Borrower and general corporate purposes of Borrower, and no dividends or distributions or payments with respect to Borrower's Capital Stock shall have been made as of the Effective Date except as required to comply with the terms of the Acquisition Agreement. (d) ACQUISITION DOCUMENTS. On the Effective Date, (i) Agent shall have received true and complete executed or conformed copies of the Acquisition Documents and any amendments thereto, (ii) the Acquisition Documents shall be in full force and effect and no material term or condition thereof shall have been amended, modified or waived after the execution thereof except with the prior written consent of Agent, (iii) none of the parties to any of the Acquisition Documents shall have failed to perform any material obligation or covenant required by such Acquisition Document to be performed or complied with by it on 67 or before the Effective Date, (iv) all representations and warranties of the parties to the Acquisition Documents contained therein shall be true and correct in all material respects with the same effect as though made on and as of the Effective Date, (v) all requisite approvals by Governmental Authorities having jurisdiction over the parties to the Acquisition Agreement in respect of the Acquisition or the Merger shall have been obtained by such parties, as the case may be, and no such approvals shall impose any conditions to the consummation of the Acquisition or the Merger, (vi) the Acquisition shall have been consummated in accordance with the terms and provisions of the Acquisition Agreement and the other Acquisition Documents, without any amendment or waiver of any material provision thereof, and (vii) Agent shall have received a certificate from Borrower's chief executive officer or other evidence satisfactory to it that each of the conditions set forth in CLAUSES (i) through (vi) above shall have been satisfied. In addition, each opinion letter (if any) delivered in connection with the Acquisition Documents and the transactions contemplated thereby shall be addressed to Agent, for the benefit of the Credit Parties, or accompanied by a written authorization from the firm delivering such opinion letter stating that Agent, for the benefit of the Credit Parties, may rely on such opinion letter as though it were addressed to it. (e) SECURITY INTERESTS. Agent shall have received satisfactory evidence that Agent (for the benefit of the Credit Parties) has a valid, exclusive (except for Permitted Liens) and perfected first priority security interest as of such date in all of the Collateral, subject only to Permitted Liens. (f) CLOSING DOCUMENTS. Agent shall have received each of the following documents, all of which shall be satisfactory in form and substance to Agent and its special counsel and to the Lenders: (i) certified copies of the articles or certificate of incorporation and bylaws of Borrower as in effect on the Effective Date; (ii) certified copies of all corporate action, including shareholder approval, if necessary, taken by Borrower to authorize the execution, delivery and performance of this Agreement, the other Loan Documents, the borrowings under this Agreement and the execution, delivery and performance of the Acquisition Agreement and the Acquisition Documents; (iii) certificates of incumbency and specimen signatures with respect to each of the officers of Borrower authorized to execute and deliver this Agreement and the other Loan Documents on behalf of Borrower and each other Person executing any document, certificate or instrument to be delivered in connection with this Agreement and the other Loan Documents and, in the case of Borrower, to request borrowings under this Agreement; (iv) a certificate evidencing the good standing of Borrower in the jurisdiction of its incorporation and in each other jurisdiction in which it is required 68 to be qualified as a foreign corporation to transact its business as presently conducted; (v) copies of all financial statements referred to in SECTION 9.1(n) and meeting the requirements thereof; (vi) a signed opinion of counsel for Borrower and the Guarantors and of such local counsel for Borrower as may be required, opining as to such matters in connection with the transactions contemplated by this Agreement as Agent or its special counsel may reasonably request in each case in form and substance satisfactory to Agent and the Lenders; (vii) the Financing Statements duly executed and delivered by Borrower as required by this Agreement and the Security Documents, and acknowledgment copies evidencing the filing of such Financing Statements in each jurisdiction where such filing may be necessary or appropriate to perfect the Security Interest; (viii) a certification from the principal officers of Borrower as to such factual matters as shall be requested by Agent; (ix) certificates or binders of insurance relating to each of the policies of insurance covering any of the Collateral together with loss payable clauses which comply with the terms of SECTION 11.8; (x) a certificate of the President or a Financial Officer of Borrower stating that, to the best of his/her knowledge and based on an examination sufficient to enable him/her to make an informed statement, (A) all of the representations and warranties made or deemed to be made under this Agreement are true and correct as of the Effective Date, after giving effect to the Revolving Credit Loans and the Term Loan to be made at such time and the application of the proceeds thereof, and (B) no Default or Event of Default exists; (xi) a Borrowing Base Certificate, a Schedule of Inventory and a Schedule of Receivables, prepared as of the Effective Date; (xii) copies of the Mortgages, covering Borrower's Real Estate located in Lancaster County, Pennsylvania and Ahoskie County, North Carolina, and at any time after the Effective Date, such other parcels of real property comprising the Real Estate as Agent may request pursuant to SECTION 11.14(a), duly executed and delivered by Borrower and evidencing the recording of each such instrument in the appropriate jurisdiction for the recording thereof on the Real Estate subject thereto or, at the option of Agent, in proper form for recording in such jurisdiction; 69 (xiii) one or more fully paid mortgagee title insurance policies or, at the option of Agent, unconditional commitments for the issuance thereof with all requirements and conditions to the issuance of the final policy deleted or marked satisfied, issued by a title insurance company satisfactory to Agent, each in an amount equal to not less than the fair market value of the Real Estate subject to the Mortgage insured thereby, insuring that such Mortgage creates a valid first lien on, and security title to, all Real Estate described therein, with no survey exceptions and no other exceptions which Agent shall not have approved in writing; (xiv) such materials and information concerning the Real Estate as Agent may require, including, without limitation, (A) current and accurate surveys (prepared within one (1) year prior to the Agreement Date) satisfactory to Agent of all of the owned Real Estate, certified (as current as of a date not more than thirty (30) days prior to the Agreement Date) to Agent by a credentialed surveyor acceptable to Agent and showing the location of the 100-year and 50-year flood plains thereon, (B) zoning letters as to the zoning status of all of the owned Real Estate, (C) certificates of occupancy covering all of the Real Estate, and (D) owner's affidavits as to such matters relating to the owned Real Estate as Agent may request; (xv) landlord's or mortgagee's waiver and consent agreements duly executed on behalf of each landlord or mortgagee, as the case may be, of Real Estate and any other real property on which any Collateral is located; (xvi) each Agency Account Agreement duly executed by Borrower and the Clearing Bank party thereto; (xvii) a certificate from Borrower to Agent requesting the initial Revolving Credit Loans and the Term Loan and specifying the method of disbursement pursuant to SECTION 12.8; (xviii) a report (or reports), including, without limitation any previously existing report (or reports) from a qualified engineering firm (or firms) or other qualified consultant with respect to an investigation and audit of all Real Estate, which shall be acceptable to Agent in its discretion and based on a thorough review of past and present uses, occupants, ownership and tenancy of the property and/or adjacent properties and/or up-gradient properties regarding: (A) subsurface ground water hazards, soils and/or test boring reports; (B) contact with local, state or federal agencies regarding known or suspected hazardous material contamination of the property or other properties in the area; 70 (C) review of aerial photographs; (D) visual site inspection noting unregulated fills, storage tanks or areas, ground discoloration or soil odors; and (E) other investigative methods deemed necessary by the consultant or Agent to enable the consultant to report that there is no apparent or likely contamination of the property or another property in the area; (xix) if deemed reasonably necessary to further investigate suspected or likely contamination, supplemental environmental reports prepared by qualified consultants of the analysis of core drilling or ground water samples from the property; (xx) certificates of title for all of Borrower's motor vehicles, trailers and other property for which a certificate of title has been issued, together with applications for the noting of Agent's security interest (on behalf of the Lenders) thereon, duly executed by Borrower and in form appropriate for submission to the applicable Governmental Authority that issued such certificate of title; (xxi) copies of each of the other Loan Documents duly executed by the parties thereto, together with evidence satisfactory to Agent of the due authorization and binding effect of each such Loan Document on such party; and (xxii) such other documents and instruments as Agent or any Lender may reasonably request. (g) GUARANTOR DOCUMENTS. Agent shall have received each of the following documents, all of which shall be satisfactory in form and substance to Agent and its special counsel and to the Lenders: (i) certified copies of (A) the certificate of incorporation or certificate of formation, as applicable, and (B) bylaws or operating agreement, as applicable, of each Guarantor as in effect on the Effective Date; (ii) certified copies of all corporate action, including shareholder or member approval, if necessary, taken by each Guarantor to authorize the execution, delivery and performance of the Affiliate Guaranty to which such Guarantor is a party; (iii) certificates of incumbency and specimen signatures with respect to each of the officers of each Guarantor authorized to execute and deliver the Affiliate Guaranty to which such Guarantor is a party on behalf of such Guarantor; 71 (iv) certificates evidencing the existence and good standing of each Guarantor in the jurisdiction of its incorporation or formation, as applicable, and in each other jurisdiction in which it is required to be qualified as a foreign business enterprise to transact its business as presently conducted; and (v) each Affiliate Guaranty, duly executed and delivered by the Guarantor party thereto. (h) NOTES. Each Lender shall have received a Revolving Credit Note, a Term Note and a CAPEX Note duly executed and delivered by Borrower, complying with the terms of SECTION 2.4 and SECTION 4.4, as applicable. (i) OTHER SECURITY DOCUMENTS. Agent shall have received each other Security Document, duly executed and delivered by Borrower. (j) AVAILABILITY. Agent shall be provided with evidence satisfactory to it confirmed by a certificate of a Financial Officer that, as of the Effective Date and after giving effect to the Acquisition, the initial Revolving Credit Loans and the refinancing of Borrower's existing Indebtedness for Money Borrowed, the Availability is not less than Six Million Five Hundred Thousand Dollars ($6,500,000). (k) NO INJUNCTIONS, ETC. No action, proceeding, investigation, regulation or legislation shall have been instituted, threatened or proposed by or before any Governmental Authority to enjoin, restrain or prohibit, or to obtain damages in respect of, or which is related to or arises out of the Acquisition or this Agreement or the consummation of the transactions contemplated by the Acquisition or this Agreement, respectively, or which, in the Agent's or the Lenders' reasonable discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement. (l) MATERIAL ADVERSE CHANGE. Except as disclosed in writing to Agent and the Lenders on or before the Agreement Date, as of the Effective Date, there shall not have occurred any change which is materially adverse, in the Lenders' reasonable discretion, to the assets, liabilities, businesses, operations, condition (financial or otherwise) or prospects of Borrower in comparison to such conditions as presented in the financial statements of Borrower dated March 31, 1997, previously delivered to Agent and the Lenders, and no Materially Adverse Effect with respect to any of the Loan Parties shall have occurred. (m) RELEASE OF SECURITY INTERESTS. Agent shall have received evidence satisfactory to it of the release and termination of all Liens other than Permitted Liens. (n) PBGC AGREEMENTS. Agent shall have received copies of all material agreements, if any, between Borrower and PBGC, together with all exhibits and schedules thereto, and each such agreement shall be satisfactory to Agent in its discretion. 72 Section 8.2 ALL LOANS; LETTERS OF CREDIT. At the time of making of each Loan, including the initial Revolving Credit Loan, the Term Loan and all subsequent Loans, and the issuance of each Letter of Credit: (a) all of the representations and warranties made or deemed to be made under this Agreement shall be true and correct at such time both with and without giving effect to the Loan to be made at such time and the application of the proceeds thereof; (b) the corporate actions of Borrower referred to in SECTION 8.1(f)(ii) shall remain in full force and effect and the incumbency of officers shall be as stated in the certificates of incumbency delivered pursuant to SECTION 8.1(f)(iii) or as subsequently modified and reflected in a certificate of incumbency delivered to Agent; and (c) each request or deemed request for any borrowing or the issuance of any Letter of Credit hereunder shall be deemed to be a certification by Borrower to the Credit Parties as to the matters set forth in SECTION 8.2(a) and (b) and Agent may, without waiving either condition, consider the conditions specified in SECTIONS 8.2(a) and (b) fulfilled and a representation by Borrower to such effect made, if no written notice to the contrary is received by Agent prior to the making of the Loan, or the issuance of the Letter of Credit then requested. Section 8.3 CAPEX LOAN. At the time of making any CAPEX Loan: (a) all of the requirements of SECTION 8.2 shall have been met by Borrower to Agent's and the Lenders' satisfaction; and (b) Borrower shall deliver to Agent, prior to Agent's funding of any requested CAPEX Loan, a purchase order, invoice or other written evidence of the purchase price of all Eligible Purchased Equipment to be financed by such CAPEX Loan, and such other information as may be requested by Agent with respect thereto. ARTICLE 9 REPRESENTATIONS AND WARRANTIES OF BORROWER Section 9.1 REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to each of the Credit Parties as follows: (a) ORGANIZATION; POWER; QUALIFICATION. Borrower and each of the other Loan Parties is a corporation (or, in the case of Fremont, a limited partnership), duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, having the power and authority to own its properties and to carry on its business as now being and hereafter proposed to be conducted and is duly qualified and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization. The jurisdictions in which each of 73 Borrower and the other Loan Parties is qualified to do business as a foreign organization are listed on SCHEDULE 9.1(a). (b) CAPITALIZATION. The outstanding Capital Stock of Borrower has been duly and validly issued and is fully paid and nonassessable, and the number and owners of such shares of Capital Stock of Borrower and each of the other Loan Parties, respectively, are set forth on SCHEDULE 9.1(b). The issuance and sale of Borrower's Capital Stock have been registered or qualified under applicable federal and state securities laws or are exempt therefrom. (c) SUBSIDIARIES. SCHEDULE 9.1(c) correctly sets forth the name of each Subsidiary of Borrower, its jurisdiction of incorporation, the name of its immediate parent or parents, and the percentage of its issued and outstanding Capital Stock owned by Borrower or any other Subsidiary of Borrower and indicating whether such Subsidiary is a Consolidated Subsidiary. Except as set forth on SCHEDULE 9.1(c), (i) no Subsidiary of Borrower has issued any securities convertible into shares of such Subsidiary's Capital Stock or any options, warrants or other rights to acquire any shares or securities convertible into such Capital Stock, (ii) the outstanding Capital Stock and other securities of each Subsidiary of Borrower are owned by Borrower or a Wholly-Owned Subsidiary of Borrower, or by Borrower and one or more of its Wholly- Owned Subsidiaries, free and clear of all Liens, warrants, options and rights of others of any kind whatsoever, and (iii) Borrower has no other Subsidiaries. The outstanding Capital Stock of each Subsidiary of Borrower has been duly and validly issued and is fully paid and nonassessable by the issuer, and the number and owners of the shares of such Capital Stock are set forth on SCHEDULE 9.1(c). (d) AUTHORIZATION OF AGREEMENT, NOTES, LOAN DOCUMENTS AND BORROWING. Borrower has the right and power, and has taken all necessary action to authorize it, to execute, deliver and perform this Agreement and each of the other Loan Documents in accordance with their respective terms. This Agreement and each of the other Loan Documents have been duly executed and delivered by the duly authorized officers of Borrower and each is, or each when executed and delivered in accordance with this Agreement will be, a legal, valid and binding obligation of Borrower, enforceable in accordance with its terms. (e) COMPLIANCE OF AGREEMENT, NOTES, LOAN DOCUMENTS AND BORROWING WITH LAWS, ETC. Except as set forth on SCHEDULE 9.1(e), the execution, delivery and performance of this Agreement and each of the other Loan Documents in accordance with their respective terms and the borrowings hereunder do not and will not, by the passage of time, the giving of notice or otherwise, 74 (i) require any Governmental Approval or violate any Applicable Law relating to Borrower or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute a default under the articles or certificate of incorporation or bylaws of Borrower or any of its Subsidiaries, (iii) conflict with, result in a breach of or constitute a default under any material provisions of any indenture, agreement or other instrument to which Borrower or any of its Subsidiaries is a party or by which Borrower, any of its Subsidiaries or any of Borrower's or such Subsidiaries' property may be bound or any Governmental Approval relating to Borrower or any of its Subsidiaries, or (iv) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by Borrower other than the Security Interest. (f) BUSINESS. Borrower is engaged principally in the business of manufacturing packaging products. (g) COMPLIANCE WITH LAW; GOVERNMENTAL APPROVALS. (i) Except as set forth in SCHEDULE 9.1(g), Borrower and each of its Subsidiaries (A) has all Governmental Approvals, including permits relating to federal, state and local Environmental Laws, ordinances and regulations, required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of any pending or, to the knowledge of Borrower, threatened attack by direct or collateral proceeding, and (B) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws relating to it, including, without being limited to, all Environmental Laws and all occupational health and safety laws applicable to Borrower, any of its Subsidiaries or their respective properties, except for instances of noncompliance which would not, singly or in the aggregate, cause a Default or Event of Default or have a Materially Adverse Effect on Borrower or any of its Subsidiaries and in respect of which reserves in respect of Borrower's or such Subsidiary's reasonably anticipated liability therefor have been established on the books of Borrower or such Subsidiary, as applicable. 75 (ii) Without limiting the generality of the above, except as set forth on SCHEDULE 9.1(g) or as disclosed on a report delivered pursuant to SECTION 8.1(f)(xviii) or (xix) or with respect to matters which could not reasonably be expected to have, singly or in the aggregate, a Materially Adverse Effect on Borrower or any of its Subsidiaries: (A) the operations of Borrower and each of its Subsidiaries comply in all material respects with all applicable environmental, health and safety requirements of Applicable Law; (B) Borrower and each of its Subsidiaries has obtained all environmental, health and safety permits necessary for its operation, and all such permits are in good standing and Borrower and each of its Subsidiaries is in compliance in all material respects with all terms and conditions of such permits; (C) neither Borrower nor any of its Subsidiaries nor any of their respective present or past property or operations are subject to any order from or agreement with any public authority or private party respecting (1) any environmental, health or safety requirements of Applicable Law, (2) any Remedial Action, or (3) any liabilities and costs arising from the Release or threatened Release of a Contaminant into the environment; (D) none of the operations of Borrower or of any of its Subsidiaries is subject to any judicial or administrative proceeding or investigation alleging a violation of any environmental, health or safety requirement of Applicable Law; (E) none of the present nor past operations of Borrower or any of its Subsidiaries is the subject of any investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to a Release or threatened Release of a Contaminant into the environment; (F) neither Borrower nor any of its Subsidiaries has filed any notice under any requirement of Environmental Law indicating past or present treatment, storage or disposal of a hazardous waste, as that term is defined under 40 CFR Part 261 or any state equivalent; (G) neither Borrower nor any of its Subsidiaries has filed any notice that remains pending or outstanding under any requirement of Applicable Law reporting a Release of a Contaminant into the environment; (H) Except in compliance in all material respects with applicable Environmental Laws, during the course of Borrower's or any of its Subsidiaries' ownership of or operations on the Real Estate, there have been 76 no generation, treatment, recycling, storage or disposal of hazardous waste, as that term is defined under 40 CFR Part 261 or any state equivalent, use of underground storage tanks or surface impoundments, use of asbestos containing materials, or use of polychlorinated biphenyls (PCB) used in hydraulic oils, electrical transformers or other equipment; (I) neither Borrower nor any of its Subsidiaries has entered into any negotiations or agreements with any Person (including, without limitation, any prior owner of any of the Real Estate or other property of Borrower or any of its Subsidiaries) relating to any Remedial Action or environmental related claim; (J) neither Borrower nor any of its Subsidiaries has received any notice or claim to the effect that it is or may be liable to any Person as a result of the Release or threatened Release of a Contaminant into the environment; (K) neither Borrower nor any of its Subsidiaries has any material contingent liability in connection with any Release or threatened Release of any Contaminant into the environment; (L) no Environmental Lien has attached to any of the Real Estate or other property of Borrower or of any of its Subsidiaries; (M) the presence and condition of all asbestos-containing material which is on or part of the Real Estate (excluding any raw materials used in the manufacture of products or products themselves) do not violate in any material respect any currently applicable requirement of Applicable Law; and (N) neither Borrower nor any of its Subsidiaries manufactures, distributes or sells, and has never manufactured, distributed or sold, products which contain asbestos containing material. (iii) Borrower has notified Agent of the receipt by it or by any of its Subsidiaries of any notice of a material violation of any Environmental Laws and occupational health and safety laws applicable to Borrower, any of its Subsidiaries or any of their respective properties. (h) TITLE TO PROPERTIES. Except as set forth in SCHEDULE 9.1(h), Borrower and each of its Subsidiaries has valid and legal title to or leasehold interest in all personal property, Real Estate owned and other assets used in its business. (i) LIENS. Except as set forth in SCHEDULE 9.1(i), none of the properties and assets of Borrower or the other Loan Parties is subject to any Lien, except Permitted Liens. Other than the Financing Statements, no financing statement under the UCC of any state or other instrument evidencing a Lien which names Borrower, or any other Loan Party, as debtor has 77 been filed (and has not been terminated) in any state or other jurisdiction, and neither Borrower, nor any other Loan Party, has signed any such financing statement or other instrument or any security agreement authorizing any secured party thereunder to file any such financing statement or instrument, except to perfect those Liens listed on SCHEDULE 9.1(i). (j) INDEBTEDNESS AND GUARANTIES. SCHEDULE 9.1(j) is a complete and correct listing of all (i) Indebtedness for Money Borrowed, and (ii) Guaranties of each of Borrower and the other Loan Parties. Each of Borrower and the other Loan Parties has performed and is in compliance with all of the terms of such Indebtedness and Guaranties and all instruments and agreements relating thereto, and no default or event of default, or event or condition which with notice or lapse of time or both would constitute such a default or event of default, exists with respect to any such Indebtedness or Guaranty. (k) LITIGATION. Except as set forth on SCHEDULE 9.1(K), there are no actions, suits or proceedings pending (nor, to the knowledge of Borrower, are there any actions, suits or proceedings threatened, or any reasonable basis therefor) against or in any other way relating to or affecting Borrower or any of the other Loan Parties, or any of Borrower's or any other Loan Parties' other properties in any court or before any arbitrator of any kind or before or by any Governmental Authority, except actions, suits or proceedings of the character normally incident to the kind of business conducted by Borrower or such Loan Parties which, if adversely determined, would not singly or in the aggregate have a Materially Adverse Effect on Borrower or any other Loan Party, and there are no strikes or walkouts in progress, pending or contemplated relating to any labor contracts to which Borrower or any other Loan Party is a party, relating to any labor contracts being negotiated, or otherwise. (l) TAX RETURNS AND PAYMENTS. Except as set forth on SCHEDULE 9.1(l), all U.S. federal, state and local as well as foreign national, provincial and local and other tax returns of Borrower and each of the other Loan Parties required by Applicable Law to be filed have been duly filed, and all U.S. federal, state and local and foreign national, provincial and local and other taxes, assessments and other governmental charges or levies upon Borrower and each of the other Loan Parties and their respective property, income, profits and assets which are due and payable have been paid, except any such nonpayment which is at the time permitted under SECTION 12.6. The charges, accruals and reserves on the books of Borrower and the other Loan Parties in respect of U.S. federal, state and local and foreign national, provincial and local taxes for all fiscal years and portions thereof since the organization of Borrower or any such Loan Party are in the judgment of Borrower adequate, and Borrower knows of no reason to anticipate any additional assessments for any of such years which, singly or in the aggregate, might have a Materially Adverse Effect on Borrower or any such Loan Party. (m) BURDENSOME PROVISIONS. Neither Borrower nor any of the other Loan Parties is a party to any indenture, agreement, lease or other instrument, or subject to any charter or corporate restriction, Governmental Approval or Applicable Law compliance with the terms 78 of which might have a Materially Adverse Effect on Borrower or any of the other Loan Parties. (n) FINANCIAL STATEMENTS. (i) Borrower has furnished to Agent and the Lenders copies of Borrower's balance sheet as at Borrower's fiscal years ended 1994, 1995 and 1996, and the related statements of income and cash flow for the twelve (12) month period then ended, which financial statements are complete and correct and present fairly and in all material respects in accordance with and copies of Borrower's unaudited balance sheet as at June 30, 1997, and the related statements of income and cash flow for the six (6) month period then ended, which financial statements are complete and correct and present fairly and in all material respects the financial position of Borrower as at such period end and the results of operations of Borrower for the six (6) month period then ended. (ii) Borrower has furnished to Agent and the Lenders copies of the Pro Forma. The Pro Forma is complete and correct and presents fairly, on a pro forma basis, the financial position of Borrower as at the Effective Date. (iii) Except as disclosed or reflected in the financial statements described in CLAUSES (i) and (ii) above, Borrower does not have any material liabilities, contingent or otherwise, and there were no material unrealized or anticipated losses of Borrower. (o) ADVERSE CHANGE. Since the date of the last financial statements of Borrower delivered to Agent pursuant to SECTION 9.1(n)(i), after giving effect to the transactions reflected in the Pro Forma, (i) no material adverse change has occurred in the business, assets, liabilities, financial condition, results of operations or business prospects of Borrower, and (ii) no event has occurred or failed to occur which has had, or may have, singly or in the aggregate, a Materially Adverse Effect on Borrower. (p) ERISA. Except as disclosed in SCHEDULE 9.1(p): (i) Neither Borrower nor any Related Company maintains or contributes to any Benefit Plan other than those listed on SCHEDULE 9.1(p). (ii) No Benefit Plan has been terminated or partially terminated, and no Multiemployer Plan is insolvent or in reorganization, nor have any proceedings been instituted to terminate any Benefit Plan or to reorganize any Multiemployer Plan. 79 (iii) Neither Borrower nor any Related Company has withdrawn from any Benefit Plan or Multiemployer Plan, nor has a condition occurred which if continued would result in a withdrawal. (iv) Neither Borrower nor any Related Company has incurred any withdrawal liability under any section of Title IV of ERISA, including, without limitation, any contingent withdrawal liability, to any Multiemployer Plan pursuant to Title IV of ERISA. (v) Neither Borrower nor any Related Company has incurred any liability to the PBGC other than for required insurance premiums which have been paid when due. (vi) No Reportable Event has occurred with respect to a Plan. (vii) No Benefit Plan has an "accumulated funding deficiency" (whether or not waived) as defined in Section 302 of ERISA or in Section 412 of the Internal Revenue Code. (viii) Each Plan is in substantial compliance with ERISA, and neither Borrower nor any Related Company has received any communication from a Governmental Authority asserting that a Plan is not in compliance with ERISA. (ix) Each Plan which is intended to be a qualified Plan has been determined by the IRS to be qualified under Section 401(a) of the Internal Revenue Code as currently in effect or will be submitted to the IRS for such determination prior to the end of the remedial amendment period under Section 401(b) of the Internal Revenue Code and the regulations promulgated thereunder and neither Borrower nor any Related Company knows or has reason to know why each such Plan should not continue to be so qualified, and each trust related to such Plan that has been submitted to the IRS for determination of exempt status has been determined to be exempt from federal income tax under Section 501(a) of the Internal Revenue Code or will be submitted to the IRS for a determination of exempt status. (x) Except as provided on SCHEDULE 9.1(p), neither Borrower nor any Related Company maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(l) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. (xi) Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan and furnished to the Lenders is complete and accurate. Since the date of each such Schedule B, there has been no adverse change in funding status or financial condition of the Benefit Plan relating to such Schedule B. 80 (xii) Neither Borrower nor any Related Company has failed to make a required installment under Subsection (m) of Section 412 of the Internal Revenue Code or any other payment required under Section 412 of the Internal Revenue Code on or before the due date for such installment or other payment. (xiii) Neither Borrower nor any Related Company is required to provide security to a Benefit Plan under Section 401(a)(29) of the Internal Revenue Code due to a Benefit Plan amendment that results in an increase in current liability for the plan year. (xiv) Neither Borrower, nor any Related Company, nor any other "party-in-interest" or "disqualified person" has engaged in a nonexempt "prohibited transaction," as such terms are defined in Section 4975 of the Internal Revenue Code and Section 406 of ERISA, in connection with any Plan or has taken or failed to take any action which would constitute or result in a Termination Event. (xv) Neither Borrower nor any Related Company has failed to comply with the health care continuation coverage requirements of Section 4980B of the Internal Revenue Code in respect of employees and former employees of such Borrower or such Related Company and their dependents and beneficiaries which alone or in the aggregate would subject Borrower or such Related Company to any material liability. (xvi) Neither Borrower nor any Related Company has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan. To the best knowledge of Borrower after due inquiry, neither Borrower nor any Related Company shall have any obligation to (A) make contributions to any Multiemployer Plan on or after the Effective Date, or (B) pay withdrawal liability to any Multiemployer Plan in an amount in excess of a "de minimis amount" as such term is defined in Section 4209 of ERISA. (q) ABSENCE OF DEFAULTS. Neither Borrower nor any of the other Loan Parties is in default under its articles or certificate of incorporation or bylaws (or other applicable constituent documents) and no event has occurred, which has not been remedied, cured or waived, (i) which constitutes a Default or an Event of Default, or (ii) which constitutes, or which with the passage of time or giving of notice or both would constitute, a default or event of default by Borrower or any of the Loan Parties under any material agreement (other than this Agreement) or judgment, decree or order to which Borrower or any of the Loan Parties is a party or by which Borrower, any of the Loan Parties or any of their respective properties may be bound or which would require Borrower or any of the Loan Parties to make any payment under any such agreement prior to the scheduled maturity date therefor, 81 except, in the case only of any such agreement, for alleged defaults which are being contested in good faith by appropriate proceedings and with respect to which reserves in respect of Borrower's or such Loan Party's reasonably anticipated liability have been established on the books of Borrower or such Loan Party. (r) ACCURACY AND COMPLETENESS OF INFORMATION. (i) All written information, reports and other papers and data produced by or on behalf of Borrower or any of the other Loan Parties and furnished to Agent, L/C Issuer or any Lender were, at the time the same were so furnished, complete and correct in all material respects, to the extent necessary to give the recipient a true and accurate knowledge of the subject matter. No fact is known to Borrower which has had, or may in the future have (so far as Borrower can foresee), a Materially Adverse Effect upon Borrower or any of the other Loan Parties which has not been set forth in the financial statements or disclosure delivered prior to the Effective Date, in each case referred to in SECTION 9.1(n), or in such written information, reports or other papers or data or otherwise disclosed in writing to Agent and the Lenders prior to the Agreement Date. No document furnished or written statement made to Agent, L/C Issuer or any Lender by Borrower in connection with the negotiation, preparation or execution of this Agreement or any of the Loan Documents contains or will contain any untrue statement of a fact material to the creditworthiness of Borrower or omits or will omit to state a material fact necessary in order to make the statements contained therein not misleading. (ii) Borrower has no reason to believe that any document furnished or written statement made to Agent, L/C Issuer or any Lender by any Person other than Borrower in connection with the negotiation, preparation or execution of this Agreement or any of the Loan Documents contained any incorrect statement of a material fact or omitted to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading. (s) SOLVENCY. In each case after giving effect to the Indebtedness represented by the Loans outstanding and to be incurred, the transactions contemplated by this Agreement, the Acquisition Agreement and the Acquisition Documents, Borrower and each of its Subsidiaries is Solvent. (t) RECEIVABLES. (i) STATUS. (A) Each Receivable reflected in the computations included in any Borrowing Base Certificate meets the criteria enumerated in CLAUSES (a) through (t) of the definition of Eligible Receivables, EXCEPT as disclosed in 82 such Borrowing Base Certificate or as disclosed in a timely manner in a subsequent Borrowing Base Certificate or otherwise in writing to Agent. (B) Borrower has no knowledge of any fact or circumstance not disclosed to Agent in a Borrowing Base Certificate or otherwise in writing which would impair the validity or collectibility of any Receivable of any Account Debtor whose Receivables aggregate $50,000 or more. (ii) CHIEF EXECUTIVE OFFICE; TAX IDENTIFICATION NUMBER. The chief executive office of Borrower and the books and records relating to its Receivables are located at the address or addresses set forth on SCHEDULE 9.1(t). Borrower has not maintained its chief executive office or books and records relating to any of its Receivables at any other address at any time during the five years immediately preceding the Agreement Date except as disclosed on SCHEDULE 9.1(t). The federal tax identification number for each of Borrower, Fremont and KAC is as specified for each such Person in ARTICLE 1. (u) INVENTORY. (i) SCHEDULE OF INVENTORY. All Inventory included in any Schedule of Inventory or Borrowing Base Certificate delivered to Agent pursuant to SECTION 11.12 meets the criteria enumerated in CLAUSES (A) through (H) of the definition of Eligible Inventory, EXCEPT as disclosed in such Schedule of Inventory or Borrowing Base Certificate or in a subsequent Schedule of Inventory or Borrowing Base Certificate, or as otherwise specifically disclosed in writing to Agent. (ii) CONDITION. All Inventory is in good condition, meets all standards imposed by any Governmental Authority having regulatory authority over such goods, their use or sale, and is currently either usable or salable in the normal course of Borrower's business, EXCEPT to the extent reserved against in the financial statements referred to in SECTION 9.1(n) or delivered pursuant to ARTICLE 13 or as disclosed on a Schedule of Inventory delivered to Agent pursuant to SECTION 11.13(b). (iii) LOCATION. All Inventory is located on the premises set forth on SCHEDULE 9.1(u) or is Inventory in transit to one of such locations, except as otherwise disclosed in writing to Agent. Borrower has not, in the previous twelve (12) months, located such Inventory at premises other than those set forth on SCHEDULE 9.1(u). (v) EQUIPMENT. All Equipment is in good order and repair in all material respects and is located at any one or more of the premises set forth on SCHEDULE 9.1(v) and has been so located at all times during the previous twelve (12) months (or, in the case of any newly acquired Equipment, from the date of such acquisition). 83 (w) REAL PROPERTY. Borrower owns no Real Estate and leases no Real Estate other than that described on SCHEDULE 9.1(w) and other than Real Estate acquired or leased after the Effective Date for which Borrower has complied with the requirements of SECTION 11.14. (x) CORPORATE AND FICTITIOUS NAMES. Except as otherwise disclosed on SCHEDULE 9.1(x), during the five (5) year period preceding the Agreement Date, neither Borrower nor any predecessor thereof has been known as or used any corporate or fictitious name other than the corporate name of Borrower on the Effective Date. (y) FEDERAL RESERVE REGULATIONS. Neither Borrower nor any of its Subsidiaries is engaged and none will engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each of the quoted terms is defined or used in Regulations G and U of the Board of Governors of the Federal Reserve System). No part of the proceeds of any of the Loans will be used for so purchasing or carrying margin stock or, in any event, for any purpose which violates, or which would be inconsistent with, the provisions of Regulation G, T, U or X of such Board of Governors. If requested by Agent or any Lender, Borrower will furnish to Agent and the Lenders a statement or statements in conformity with the requirements of said Regulation G, T, U or X to the foregoing effect. (z) INVESTMENT COMPANY ACT. Borrower is not an "investment company" or a company "controlled" by an "investment company" (as each of the quoted terms is defined or used in the Investment Company Act of 1940, as amended). (aa) EMPLOYEE RELATIONS. Borrower and each of its Subsidiaries has a stable work force in place and is not, except as set forth on SCHEDULE 9.1(aa), party to any collective bargaining agreement nor has any labor union been recognized as the representative of Borrower's or any of its Subsidiaries' employees, and Borrower knows of no pending, threatened or contemplated strikes, work stoppage or other labor disputes involving Borrower's or any of its Subsidiaries' employees. (bb) PROPRIETARY RIGHTS. SCHEDULE 9.1(bb) sets forth a correct and complete list of all of the Proprietary Rights. None of the Proprietary Rights is subject to any licensing agreement or similar arrangement except as set forth on SCHEDULE 9.1(bb) or as entered into in the sale or distribution of Borrower's Inventory in the ordinary course of business. To the best of Borrower's knowledge, none of the Proprietary Rights infringes on or conflicts with any other Person's property, and no other Person's property infringes on or conflicts with the Proprietary Rights. The Proprietary Rights described on SCHEDULE 9.1(bb) constitute all of the property of such type necessary to the current and anticipated future conduct of Borrower's business. (cc) TRADE NAMES. All trade names or styles under which Borrower sells Inventory or Equipment or creates Receivables, or to which instruments in payment of Receivables are made payable, are listed on SCHEDULE 9.1(cc). 84 (dd) ACQUISITION AGREEMENT. Borrower has heretofore furnished to Agent true, complete and correct copies of the Acquisition Agreement (including any schedules, exhibits and annexes thereto) and each other Acquisition Document. The Acquisition Agreement has not been amended, supplemented or modified except as previously disclosed in writing to Agent and, together with the other Acquisition Documents, copies of which have been delivered to Agent, constitute the complete understanding between the parties thereto in respect of the Acquisition and the Merger and the other matters and transactions covered thereby. To Borrower's knowledge, the Acquisition Documents have been duly executed and delivered by the parties thereto and constitute valid, legal and binding obligations of the parties thereto. The representations and warranties of each Person contained in the Acquisition Documents are (or will be) true and correct in all material respects on the Effective Date as if made on and as of such date, and the Credit Parties are entitled to rely on such representations and warranties with the same force and effect as though they were incorporated in this Agreement and made to the Credit Parties directly. On and as of the Effective Date, Borrower knows of no reason to believe that the representations and warranties of, and information concerning, any Person contained in the Acquisition Documents are not true and correct in all material respects. (ee) CONSUMMATION OF TRANSACTIONS. Upon the Effective Date, the transactions contemplated by the Acquisition Agreement and the other Acquisition Documents (other than the Merger) will have been consummated in accordance with Applicable Law and, except as previously disclosed in writing to Agent, in the manner provided therein in accordance with the terms thereof without any material waivers or amendments thereto, and each of the conditions to such consummation set forth in the Acquisition Agreement and the other Acquisition Documents shall have been fulfilled without any waiver of any thereof. (ff) INVESTMENT PROPERTY. All of Borrower's Investment Property is set forth on SCHEDULE 9.1(ff). Borrower is the legal and beneficial owner of all such Investment Property, free and clear of any Lien (other than the security interest created by this Agreement), and Borrower has not sold, granted any option with respect to, assigned, transferred or otherwise disposed of any of its rights or interest therein. Section 9.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All representations and warranties set forth in this ARTICLE 9 and all statements contained in any certificate, financial statement, or other instrument, delivered by or on behalf of Borrower pursuant to or in connection with this Agreement or any of the other Loan Documents (including, but not limited to, any such representation, warranty or statement made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Agreement Date, at and as of the Effective Date and at and as of the date of each Loan, except that representations and warranties which, by their terms are applicable only to one such date shall be deemed to be made only at and as of such date. All representations and warranties made or deemed to be made under this Agreement shall survive and not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Lender or any borrowing hereunder. 85 ARTICLE 10 SECURITY INTEREST Section 10.1 SECURITY INTEREST. (a) To secure the payment, observance and performance of the Secured Obligations, Borrower hereby mortgages, pledges and assigns all of the Collateral to Agent, for the benefit of itself as Agent and the other Credit Parties, and grants to Agent, for the benefit of itself as Agent and the other Credit Parties, a continuing security interest in, and a continuing Lien upon, all of the Collateral. (b) As additional security for all of the Secured Obligations, Borrower grants to Agent, for the benefit of itself as Agent and the other Credit Parties, a security interest in, and assigns to Agent, for the benefit of itself as Agent and the other Credit Parties, all of Borrower's right, title and interest in and to, any deposits or other sums at any time credited by or due from each Credit Party, and each Affiliate of any Credit Party, to Borrower, or credited by or due from any participant of any Credit Party to Borrower, with the same rights therein as if the deposits or other sums were credited by or due from such Credit Party. Borrower hereby authorizes each Credit Party, and each Affiliate of such Credit Party, and each participant to pay or deliver to Agent, for the account of the Credit Parties, without any necessity on any Credit Party's part to resort to other security or sources of reimbursement for the Secured Obligations, at any time during the continuation of any Event of Default or in the event that Agent, on behalf of the Credit Parties, should make demand for payment hereunder and without further notice to Borrower (such notice being expressly waived), any of the aforesaid deposits (general or special, time or demand, provisional or final) or other sums for application to any Secured Obligation, irrespective of whether any demand has been made or whether such Secured Obligation is mature, and the rights given the Credit Parties, their Affiliates and participants hereunder are cumulative with such Person's other rights and remedies, including other rights of set-off. Agent will promptly notify Borrower of its receipt of any such funds for application to the Secured Obligations, but failure to do so will not affect the validity or enforceability thereof. Agent may give notice of the above grant of a security interest in and assignment of the aforesaid deposits and other sums, and authorization, to, and make any suitable arrangements with, any Credit Party, any such Affiliate of any Credit Party or participant for effectuation thereof, and Borrower hereby irrevocably appoints Agent as its attorney to collect any and all such deposits or other sums to the extent any such payment is not made to Agent or any Credit Party by such Credit Party, Affiliate or participant. Section 10.2 CONTINUED PRIORITY OF SECURITY INTEREST. (a) The Security Interest granted by Borrower shall at all times be valid, perfected and enforceable against Borrower and all third parties in accordance with the terms of this Agreement, as security for the Secured Obligations, and the Collateral shall not at any time 86 be subject to any Liens that are prior to, on a parity with or junior to the Security Interest, other than Permitted Liens. (b) Borrower shall, at its sole cost and expense, take all action that may be necessary or desirable, or that Agent may reasonably request, so as at all times to maintain the validity, perfection, enforceability and rank of the Security Interest in the Collateral in conformity with the requirements of SECTION 10.2(a), or to enable Agent and the Credit Parties to exercise or enforce their rights hereunder, including, but not limited to: (i) paying all taxes, assessments and other claims lawfully levied or assessed on any of the Collateral, except to the extent that such taxes, assessments and other claims constitute Permitted Liens; (ii) obtaining, after the Agreement Date, landlords' and mortgagees' releases, subordinations or waivers, and using all reasonable efforts to obtain mechanics' releases, subordinations or waivers; (iii) delivering to Agent, for the benefit of the Credit Parties, endorsed or accompanied by such instruments of assignment as Agent may specify, and stamping or marking, in such manner as Agent may specify, any and all chattel paper, instruments, letters and advices of guaranty and documents evidencing or forming a part of the Collateral; (iv) executing and delivering such Copyright Security Agreements, Patent Security Agreements and Trademark Security Agreements as Agent may require in order to effectuate perfection and filing of the Security Interest against any of Borrower's present or future Proprietary Rights, as applicable; and (v) executing and delivering financing statements, pledges, designations, hypothecations, notices and assignments in each case in form and substance satisfactory to Agent relating to the creation, validity, perfection, maintenance or continuation of the Security Interest under the UCC or other Applicable Law. (c) Agent is hereby irrevocably authorized to file one or more financing or continuation statements or amendments thereto without the signature of or in the name of Borrower for any purpose described in SECTION 10.2(b). A carbon, photographic, xerographic or other reproduction of this Agreement or of any of the Security Documents or of any financing statement filed in connection with this Agreement is sufficient as a financing statement. (d) Borrower shall mark its books and records as directed by Agent and as may be necessary or appropriate to evidence, protect and perfect the Security Interest and shall cause its financial statements to reflect the Security Interest. 87 ARTICLE 11 COLLATERAL COVENANTS Until the Revolving Credit Facility has been terminated and all the Secured Obligations have been paid in full, unless the Required Lenders shall otherwise consent in the manner provided in SECTION 18.9: Section 11.1 COLLECTION OF RECEIVABLES. (a) At the request of Agent, Borrower will cause all monies, checks, notes, drafts and other payments relating to or constituting proceeds of trade accounts receivable to be forwarded to a Lockbox for deposit in an Agency Account in accordance with the procedures set out in the corresponding Agency Account Agreement. Borrower will promptly cause all monies, checks, notes, drafts and other payments relating to or constituting proceeds of other Receivables, of any other Collateral and of any trade accounts receivable that are not forwarded to a Lockbox, to be transferred to or deposited in an Agency Account. In particular, Borrower will: (i) advise each Account Debtor on trade accounts receivable to address all remittances with respect to amounts payable on account thereof to a specified Lockbox; (ii) advise each other Account Debtor that makes payment to Borrower by wire transfer, automated clearinghouse transfer or similar means to make payment directly to an Agency Account; and (iii) stamp all invoices relating to trade accounts receivable with a legend satisfactory to Agent indicating that payment is to be made to Borrower via a specified Lockbox. (b) Borrower and Agent shall cause all balances in each Agency Account to be transmitted daily by wire transfer, depository transfer check or other means in accordance with the procedures set forth in the corresponding Agency Account Agreement, to Agent at its Principal Office: (i) for application, on account of the Secured Obligations, as provided in SECTIONS 2.3(c), 15.2, and 15.3, such credits to be entered as of the Business Day they are received if they are received prior to 1:30 p.m. (Dallas, Texas time) and to be conditioned upon final payment in cash or solvent credits of the items giving rise to them; and (ii) with respect to the balance, so long as no Default or Event of Default has occurred and is continuing, for transfer by wire transfer or depository transfer check to a Disbursement Account; 88 PROVIDED, HOWEVER, all deposits to any Lockbox maintained by Agent (or any of its Affiliates) or any Lender pursuant to CLAUSE (a) and all receipts of funds under this CLAUSE (b) shall at all times be subject to Agent's right to assess interest for a deemed clearance period on such amount for one (1) Business Day thereafter, which shall accrue and be payable on each monthly Interest Payment Date. (c) Any monies, checks, notes, drafts or other payments referred to in SUBSECTION (a) of this SECTION 11.1 which, notwithstanding the terms of such subsection, are received by or on behalf of Borrower will be held in trust for Agent and will be delivered to Agent or a Clearing Bank, as promptly as possible, in the exact form received, together with any necessary endorsements for application by Agent directly to the Secured Obligations or, if applicable, for deposit in the Agency Account maintained with a Clearing Bank and processing in accordance with the terms of the corresponding Agency Account Agreement. Section 11.2 VERIFICATION AND NOTIFICATION. Agent shall have the right at any time and from time to time, (a) in the name of Agent, the Lenders or in the name of Borrower, to verify the validity, amount or any other matter relating to any Receivables by mail, telephone, telegraph or otherwise, (b) to review, audit and make extracts from all records and files related to any of the Receivables, and (c) to notify the Account Debtors or obligors under any Receivables of the assignment of such Receivables to Agent, for the benefit of the Credit Parties. Section 11.3 DISPUTES, RETURNS AND ADJUSTMENTS. (a) In the event any amounts due and owing under any Receivable for an amount in excess of $200,000 are in dispute between the Account Debtor and Borrower, Borrower shall provide Agent with prompt written notice thereof. (b) Borrower shall notify Agent promptly of all returns and credits in excess of $200,000 in respect of any Receivable, which notice shall specify the Receivable affected. (c) Borrower may, in the ordinary course of business and consistent with past practice, unless a Default or an Event of Default has occurred and is continuing, grant any extension of time for payment of any Receivable or compromise, compound or settle the same for less than the full amount thereof, or release wholly or partly any Person liable for the payment thereof, or allow any credit or discount whatsoever therein; PROVIDED that (i) no such action results in the reduction of more than $200,000 in the amount payable with respect to any Receivable or of more than $500,000 with respect to all Receivables in any fiscal year of Borrower (in each case, excluding the allowance of credits or discounts 89 generally available to Account Debtors in the ordinary course of Borrower's business and appropriate adjustments to the accounts of Account Debtors in the ordinary course of business), and (ii) Agent is promptly notified of the amount of such adjustments and the Receivable(s) affected thereby. Section 11.4 INVOICES. (a) Borrower will not use any invoices other than invoices in the form delivered to Agent prior to the Agreement Date without giving Agent thirty (30) days' prior written notice of the intended use of a different form of invoice together with a copy of such different form. (b) Upon the request of Agent, Borrower shall deliver to Agent, at Borrower's expense, copies of customers' invoices or the equivalent, original shipping and delivery receipts or other proof of delivery, customers' statements, customer address lists, the original copy of all documents, including, without limitation, repayment histories and present status reports, relating to Receivables and such other documents and information relating to the Receivables as Agent shall specify. Section 11.5 DELIVERY OF INSTRUMENTS. In the event any Receivable in excess of $10,000 is at any time evidenced by a promissory note, trade acceptance or any other instrument for the payment of money, Borrower will immediately thereafter deliver such instrument to Agent, appropriately endorsed to Agent, for the benefit of the Credit Parties; PROVIDED that, at any time that the aggregate of all such Receivables exceeds $50,000, Borrower shall deliver all such instruments to Agent, appropriately endorsed to Agent, for the benefit of the Credit Parties. Section 11.6 SALES OF INVENTORY. All sales of Inventory will be made in compliance with all requirements of Applicable Law. Section 11.7 OWNERSHIP AND DEFENSE OF TITLE. (a) Except for Permitted Liens, Borrower shall at all times be the sole owner or lessee of each and every item of Collateral and shall not create any Lien on, or sell, lease, exchange, assign, transfer, pledge, hypothecate, grant a security interest or security title in or otherwise dispose of, any of the Collateral or any interest therein, except for sales of Inventory in the ordinary course of business, for cash or on open account or on terms of payment ordinarily extended to its customers, and except for dispositions that are otherwise expressly permitted under this Agreement. The inclusion of "proceeds" of the Collateral under the Security Interest shall not be deemed a consent by Agent or the Lenders to any other sale or other disposition of any part or all of the Collateral. (b) Borrower shall defend its title or leasehold interest in and to, and the Security Interest in, the Collateral against the claims and demands of all Persons. Section 11.8 INSURANCE. 90 (a) Borrower shall at all times maintain insurance on the Inventory and Equipment against loss or damage by fire, theft, burglary, pilferage, loss in transit and such other hazards as Agent shall reasonably specify, in amounts not to exceed those obtainable at commercially reasonable rates and under policies issued by insurers acceptable to Agent in the exercise of its reasonable judgment. All premiums on such insurance shall be paid by Borrower and copies of the policies delivered to Agent. Borrower will not use or permit the Inventory or Equipment to be used in violation of Applicable Law or in any manner which might render inapplicable any insurance coverage. (b) All insurance policies required under SECTION 11.8(a) shall name Agent, for the benefit of the Credit Parties, as an additional insured and shall contain loss payable clauses in the form submitted to Borrower by Agent, or otherwise in form and substance satisfactory to Agent, Lenders, naming Agent, for the benefit of the Credit Parties, as loss payee, as its interests may appear, and providing that: (i) all proceeds thereunder shall be payable to Agent, for the ratable benefit of the Credit Parties; (ii) no such insurance shall be affected by any act or neglect of the insured or owner of the property described in such policy; and (iii) such policy and loss payable clauses may be canceled, amended or terminated only upon at least ten (10) days' prior written notice given to Agent. (c) Any proceeds of insurance referred to in this SECTION 11.8 which are paid to Agent, for the ratable benefit of the Credit Parties, shall be distributed as follows: (i) in the event the claim giving rise to such proceeds does not exceed $250,000, and Borrower intends to repair or replace the damaged property from which such proceeds arose, such proceeds shall, upon Borrower's written request to Agent, provided that no Default or Event of Default shall have occurred and be continuing, be disbursed by Agent to Borrower pursuant to such procedures as Agent shall reasonably establish; (ii) in the event the claim giving rise to such proceeds exceeds $250,000, and Borrower intends to repair or replace the damaged property from which such proceeds arose within six (6) months after the date of receipt of such proceeds, upon Borrower's written request to Agent, therein stating such intention, (provided that no Default or Event of Default shall have occurred and be continuing) (A) to the extent such proceeds do not exceed the unpaid balance of the Revolving Credit Loans, such proceeds shall be applied to the repayment of the outstanding balance of the Revolving Credit Loans and Agent shall, until such time as such repairs or replacement have been completed, establish a reserve against the Borrowing Base in the amount of the proceeds so applied and (B) to the extent such proceeds exceed the 91 balance of the Revolving Credit Loans, Borrower shall deposit such proceeds with Agent to be held as Cash Collateral in which Agent, for the ratable benefit of the Credit Parties, shall have a first priority security interest. Upon Borrower's completion of such repairs or replacement as described above, Agent shall release its security interest in such Cash Collateral in respect of such proceeds and shall eliminate the reserve against the Borrowing Base; PROVIDED that upon Borrower's written request to Agent, such request to include such information as Agent may require, Agent may, at any time (and from time to time) during the completion of such repairs or replacement, partially release its security interest in such Cash Collateral in respect of such proceeds and eliminate the reserve against the Borrowing Base by a corresponding amount. To the extent that Borrower fails to complete such repairs or replacement within six (6) months as provided above, Borrower authorizes and directs Agent to eliminate such reserve, to apply the amount of the Cash Collateral in respect of such proceeds to the prepayment of the Loans as provided in SECTION 6.11(d), to make Revolving Credit Loans in an Amount equal to the reserved amount that was not held as Cash Collateral and to apply the proceeds of such Revolving Credit Loans in prepayment of the Loans as provided in SECTION 6.11(d); and (iii) in the event Borrower does not provide Agent with a notice of its intent to repair or replace the damaged property as required by either CLAUSE (i) or CLAUSE (ii) above, such proceeds shall be applied by Agent in repayment of the Secured Obligations in the manner provided in SECTION 6.11(d). 92 Section 11.9 LOCATION OF OFFICES AND COLLATERAL. (a) Borrower will not change the location of its chief executive office or the place where it keeps its books and records relating to the Collateral or change its name, its identity or corporate structure without giving Agent sixty (60) days' prior written notice thereof. (b) All Inventory, other than Inventory in transit, will at all times be kept by Borrower at the locations set forth in SCHEDULE 9.1(u), and shall not, without the prior written consent of Agent, be removed therefrom except pursuant to sales of Inventory permitted under SECTION 11.7(a). (c) If any Inventory is in the possession or control of any of Borrower's agents or processors, Borrower shall notify such agents or processors of the Security Interest (and shall promptly provide copies of any such notice to Agent and the Lenders) and, upon the occurrence of an Event of Default, shall instruct them (and cause them to acknowledge such instruction) to hold all such Inventory for the account of the Lenders, subject to the instructions of Agent. Section 11.10 RECORDS RELATING TO COLLATERAL. (a) Borrower will at all times: (i) keep complete and accurate records of Inventory on a basis consistent with past practices of Borrower so as to permit comparison of Inventory records relating to different time periods, itemizing and describing the kind, type and quantity of Inventory and Borrower's cost therefor and a current price list for such Inventory, if such list exists, or otherwise a recent price record for such Inventory; and (ii) keep complete and accurate records of all other Collateral. (b) Borrower will prepare a physical listing of all Inventory, wherever located, at least annually. Section 11.11 INSPECTION. Agent and, with the consent of and accompanied by Agent, each Lender (by any of their officers, employees or agents) shall have the right, to the extent that the exercise of such right shall be within the control of Borrower, at any time or times to: (a) visit the properties of Borrower and its Subsidiaries, inspect the Collateral and the other assets of Borrower and its Subsidiaries and inspect and make extracts from the books and records of Borrower and its Subsidiaries, including, but not limited to, management letters prepared by independent accounts, all during customary business hours at such premises; 93 (b) discuss Borrower's and its Subsidiaries' business, assets, liabilities, financial condition, results of operations and business prospects, insofar as the same are reasonably related to the rights of any of the Credit Parties hereunder or under any of the other Loan Documents, with Borrower's and its Subsidiaries' principal officers, independent accountants and any other Person (except that any such discussion with any third parties shall be conducted only in accordance with Agent's or such Lender's standard operating procedures relating to the maintenance of the confidentiality of confidential information of borrowers); (c) verify the amount, quantity, value and condition of, or any other matter relating to, any of the Collateral (other than Receivables, EXCEPT to the extent permitted under SECTION 11.2(a)) and in this connection to review, audit and make extracts from all records and files related to any of the Collateral. Borrower will deliver to Agent, for the benefit of the Credit Parties, any instrument necessary for it to obtain records from any service bureau maintaining records on behalf of Borrower. Section 11.12 INFORMATION AND REPORTS. (a) SCHEDULE OF RECEIVABLES. Borrower shall deliver to Agent, on or before the Effective Date and not later than the 20th day of each calendar month thereafter, a Schedule of Receivables which (i) shall be as of the last Business Day of the immediately preceding month, (ii) shall be reconciled to the Borrowing Base Certificate as of such last Business Day, and (iii) shall set forth a detailed aged trial balance of all its then existing Receivables, specifying the names, addresses and balance due for each Account Debtor obligated on a Receivable so listed. (b) SCHEDULE OF INVENTORY. Borrower shall deliver to Agent, on or before the Effective Date and not later than the 20th day of each calendar month thereafter, a Schedule of Inventory as of the last Business Day of the immediately preceding month of Borrower, itemizing and describing the kind, type and quantity of Inventory, Borrower's cost thereof and the location thereof. (c) BORROWING BASE CERTIFICATE. After the Effective Date, Borrower shall deliver to Agent on the first Business Day of each week a Borrowing Base Certificate prepared as of the close of business on the last Business Day of the previous week. (d) NOTICE OF DIMINUTION OF VALUE. Borrower shall give prompt notice to Agent of any matter or event which may be reasonably expected to result in or has resulted in, the 94 diminution in excess of $200,000 in the value of any of the Collateral, except for any such diminution in the value of any assets generally in the ordinary course of business which has been appropriately reserved against, as reflected in financial statements previously delivered to Agent and the Lenders pursuant to ARTICLE 13. (e) ADDITIONAL INFORMATION. Agent may in its discretion from time to time request that Borrower deliver the schedules and certificates described in SECTIONS 11.12(a), (b) and (c) more or less often and on different schedules than specified in such Sections and Borrower will comply with such requests. Borrower will also furnish to Agent and each Lender such other information with respect to the Collateral as Agent or such Lender may from time to time reasonably request. Section 11.13 POWER OF ATTORNEY. Borrower hereby appoints Agent as its attorney, with power to: (a) endorse the name of Borrower on any checks, notes, acceptances, money orders, drafts or other forms of payment or security that may come into Agent's or any Lender's possession, and (b) sign the name of Borrower on any invoice or bill of lading relating to any Receivable, Inventory or other Collateral, on any drafts against customers related to letters of credit, on schedules and assignments of Receivables furnished to Agent or any Lender by Borrower, on notices of assignment, financing statements and other public records relating to the perfection or priority of the Security Interest, verifications of account and notices to or from customers. Section 11.14 ADDITIONAL REAL ESTATE AND LEASES. (a) Promptly upon Borrower's acquisition of any interest (including a leasehold interest) in any Real Estate, Borrower shall deliver to Agent, for the benefit of itself as Agent and the other Credit Parties, an executed Mortgage in form and substance satisfactory to Agent, conveying to Agent, for the benefit of itself and the other Credit Parties, a first priority Lien on such Real Estate, subject only to Permitted Liens and such other prior Liens as Agent shall consent to in writing. If requested by Agent, Borrower shall also deliver to Agent, or Agent shall otherwise receive, at Borrower's expense a mortgagee title insurance policy in favor of Agent and the other Credit Parties insuring such Mortgage to create and convey such Lien, subject only to such exceptions consented to by Agent and shall deliver to Agent the other items set forth in SECTION 8.1(f)(xiii), (xiv), (xv), (xviii), (xix), (xxii) and SECTION 13.10 with respect to such Real Estate together with an appraisal prepared by a credentialed appraiser acceptable to Agent and satisfying all requirements of applicable law, all in form and substance satisfactory to Agent. Borrower shall also deliver to Agent an executed landlord's waiver and consent, in form and substance satisfactory to Agent, with respect to each leasehold interest referred to in this Section. With respect to Borrower's Real Estate located in Dunkirk, Indiana, Millville, New Jersey and Sand Springs, Oklahoma, upon Agent's request, Borrower shall deliver each of the items referred to in this CLAUSE (a). 95 (b) Promptly upon Borrower's entry into any lease of Real Estate (other than a lease conveying an interest in Real Estate, which shall be subject to the provisions of CLAUSE (A) above), Borrower shall collaterally assign to Agent, for the benefit of itself and the Lenders, Borrower's interest in such lease, in form and substance satisfactory to Agent. Borrower shall also deliver to Agent an executed landlord's waiver and consent, in form and substance satisfactory to Agent, with respect to each such lease. Section 11.15 ASSIGNMENT OF CLAIMS ACT. Upon the request of Agent, Borrower shall execute any documents or instruments and shall take such steps or actions reasonably required by Agent so that all monies due or to become due under any contract with the U.S., the District of Columbia or any state, county, municipality or other domestic or foreign Governmental Authority, will be assigned to Agent, for the benefit of itself and the Lenders, and notice given thereof in accordance with the requirements of the Assignment of Claims Act of 1940, as amended, or any other laws, rules or regulations relating to the assignment of any such contract and monies due to or to become due. Section 11.16 VOTING RIGHTS, DISTRIBUTIONS, ETC., IN RESPECT OF INVESTMENT PROPERTY. (a) So long as no Event of Default shall have occurred and be continuing (i) Borrower shall be entitled to exercise any and all voting and other consensual rights (including, without limitation, the right to give consents, waivers and notifications in respect of any Security) pertaining to any Investment Property or any part thereof; PROVIDED, HOWEVER, that without the prior written consent of Agent and Required Lenders, no vote shall be cast or consent, waiver or ratification given or action taken which would (A) be inconsistent with or violate any provision of this Agreement or any other Loan Document or (B) amend, modify or waive any material term, provision or condition of the certificate of incorporation, bylaws, certificate of formation or other charter document or other agreement relating to, evidencing, providing for the issuance of or securing any such Investment Property, and (ii) Borrower shall be entitled to receive and retain any and all dividends and interest paid in respect of any of such Investment Property (unless otherwise required by this Agreement). (b) Upon the occurrence and during the continuance of a Default or an Event of Default, (i) Agent may, without notice to Borrower, transfer or register in the name of Agent or any of its nominees, for the ratable benefit of the Credit Parties, any or all of the Collateral consisting of Investment Property, the proceeds thereof (in cash or otherwise) and all liens, security, rights, remedies and claims of Borrower with respect thereto (as used in this Section collectively, the "PLEDGED COLLATERAL") held by Agent hereunder, and Agent or its nominee may thereafter, after delivery of notice to Borrower, exercise all voting and corporate rights at any meeting of any corporation, partnership or other business entity issuing any of the Pledged Collateral and any and all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to any of the Pledged Collateral as if it were the absolute owner thereof, including, without limitation, the right to exchange at its discretion any and all of the Pledged Collateral upon the merger, consolidation, reorganization, 96 recapitalization or other readjustment of any corporation, partnership or other business entity issuing any of such Pledged Collateral or upon the exercise by any such issuer or Agent of any right, privilege or option pertaining to any of the Pledged Collateral, and in connection therewith, to deposit and deliver any and all of the Pledged Collateral with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as it may determine, all without liability except to account for property actually received by it, but Agent shall have no duty to exercise any of the aforesaid rights, privileges or options, and Agent shall not be responsible for any failure to do so or delay in so doing, (ii) all rights of Borrower to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to SECTION 11.16(a)(i) and to receive the dividends, interest and other distributions which it would otherwise be authorized to receive and retain pursuant to SECTION 11.16(a)(ii) shall be suspended until such Event of Default shall no longer exist, and all such rights shall, until such Event of Default shall no longer exist, thereupon become vested in Agent which shall thereupon have the sole right to exercise such voting and other consensual rights and to receive and hold as Pledged Collateral such dividends, interest and other distributions, (iii) all dividends, interest and other distributions which are received by Borrower contrary to the provisions of this SECTION 11.16(b) shall be received in trust for the benefit of Agent, shall be segregated from other funds of Borrower and shall be forthwith paid over to Agent as Collateral in the same form as so received (with any necessary endorsement), and (iv) Borrower shall execute and deliver (or cause to be executed and delivered) to Agent all such proxies and other instruments as Agent may reasonably request for the purpose of enabling Agent to exercise the voting and other rights which it is entitled to exercise pursuant to this SECTION 11.16(b) and to receive the dividends, interest and other distributions which it is entitled to receive and retain pursuant to this SECTION 11.16(b). The foregoing shall not in any way limit Agent's power and authority granted pursuant to PARAGRAPH 10.13. ARTICLE 12 AFFIRMATIVE COVENANTS Until the Revolving Credit Facility has been terminated and all the Secured Obligations have been paid in full, unless the Required Lenders shall otherwise consent in the manner provided for in SECTION 18.9, Borrower will, and will cause each of its Subsidiaries to keep the following covenants. Section 12.1 PRESERVATION OF CORPORATE EXISTENCE AND SIMILAR MATTERS. Borrower will, and will cause each other Loan Party to, preserve and maintain its existence, rights, franchises, licenses and privileges in the jurisdiction of its incorporation or formation (as applicable) and qualify and remain qualified as a foreign business enterprise and authorized to do business in each jurisdiction in which the character of its properties or the nature of its business requires such qualification or authorization. Section 12.2 COMPLIANCE WITH APPLICABLE LAW. Except as referenced in SECTION 12.9, Borrower will, and will cause each other Loan Party to, comply with all Applicable Law relating to 97 each such Loan Party except to the extent being contested in good faith by appropriate proceedings and for which reserves in respect of each such Loan Party's reasonably anticipated liability therefor has been appropriately established. Section 12.3 MAINTENANCE OF PROPERTY. In addition to, and not in derogation of, the requirements of SECTION 11.7 and of the Security Documents, Borrower will, and will cause each other Loan Party to: (a) protect and preserve all properties material to its business, including, without limitation, copyrights, patents, trade names and trademarks, and maintain in good repair, working order and condition in all material respects, with reasonable allowance for wear and tear, all tangible properties material to its business, and (b) from time to time make or cause to be made all needed and appropriate repairs, renewals, replacements and additions to such properties necessary for the conduct of its business, so that the business carried on in connection therewith may be properly and advantageously conducted at all times. Section 12.4 CONDUCT OF BUSINESS. Borrower will, and will cause each other Loan Party to, at all times carry on only the business described in SECTION 9.1(f) and businesses related thereto. Section 12.5 INSURANCE. Borrower will, and will cause each other Loan Party to, maintain, in addition to the coverage required by SECTION 11.8 and the Security Documents, insurance with responsible insurance companies against such risks and in such amounts as is customarily maintained by similar businesses or as may be required by Applicable Law, and from time to time deliver to Agent or any Lender upon its request a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, the dates of the expiration thereof and the properties and risks covered thereby. Section 12.6 PAYMENT OF TAXES AND CLAIMS. Borrower will, and will cause each other Loan Party to, pay or discharge when due (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or upon any properties belonging to it, except that real property ad valorem taxes shall be deemed to have been so paid or discharged if the same are paid before they become delinquent, and (b) all lawful claims of materialmen, mechanics, carriers, warehousemen and landlords for labor, materials, supplies and rentals which, if unpaid, might become a Lien on any properties of Borrower; EXCEPT that this SECTION 12.6 shall not require the payment or discharge of any such tax, assessment, charge, levy or claim which is being contested in good faith by appropriate proceedings and for which reserves in respect of the reasonably anticipated liability therefor have been appropriately established. 98 Section 12.7 ACCOUNTING METHODS AND FINANCIAL RECORDS. Borrower will, and will cause each other Loan Party to, maintain a system of accounting, and keep such books, records and accounts (which shall be true and complete), as may be required or as may be necessary to permit the preparation of financial statements in accordance with GAAP. Section 12.8 USE OF PROCEEDS. (a) Borrower will use the proceeds of (i) the initial Revolving Credit Loan and the Term Loan to pay amounts indicated on SCHEDULE 12.8 to the Persons indicated thereon, (ii) all subsequent Revolving Credit Loans only for working capital and general business purposes, and (iii) the CAPEX Loan to finance or refinance Eligible Purchased Equipment, and (b) Borrower will not use any part of such proceeds (i) to purchase or, to carry or reduce or retire or refinance any credit incurred to purchase or carry, any "margin stock" (within the meaning of Regulation G or U of the Board of Governors of the Federal Reserve System) or, in any event, for any purpose which would involve a violation of such Regulation G or U or of Regulation T or X of such Board of Governors, (ii) in any manner of settlement or payment in respect of that certain lawsuit entitled DR. ALAN LATIES VS. KERR GROUP, INC., ET AL., Civil Action No. 15825-NC, against Borrower and its directors in the Court of Chancery of the State of Delaware in and for New Castle County, as set forth on SCHEDULE 9.1(k), or (iii) for any purpose prohibited by law or by the terms and conditions of this Agreement. Section 12.9 HAZARDOUS WASTE AND SUBSTANCES; ENVIRONMENTAL REQUIREMENTS. (a) Borrower will, and will cause each other Loan Party to, (i) comply with all Environmental Laws (except for (A) instances of noncompliance that are being contested in good faith by appropriate proceedings if reserves in respect of Borrower's or any such Loan Party's reasonably anticipated liability therefor have been appropriately established and for instances which could not reasonably be expected to result in a Materially Adverse Effect, and (B) subject to the last sentence of this SECTION 12.9(a) the items set forth in SCHEDULE 12.9), (ii) promptly notify Agent of its receipt of any notice of a violation of any such Environmental Laws or such other Applicable Laws received after the Agreement Date, and (iii) indemnify and hold Agent and the Lenders harmless from all loss, cost, damage, liability, claim and expense incurred by or imposed upon Agent or any Lender on account of Borrower's failure to perform its obligations under this SECTION 12.9. With respect to the matters set forth in SCHEDULE 12.9 affecting Borrower's Real Estate, Borrower will proceed diligently to comply with all Environmental Laws except for instances of noncompliance which could not reasonably be expected to result in a Materially Adverse Effect. 99 (b) Whenever Borrower gives notice to Agent pursuant to SECTION 12.9(a)(ii) with respect to any matter not set forth on SCHEDULE 12.9 that reasonably could be expected to result in liability to Borrower or any of its Subsidiaries in excess of $100,000 in the aggregate, Borrower shall, at Agent's request and Borrower's expense (i) cause an independent credentialed environmental engineer acceptable to Agent to conduct an assessment meeting all requirements of Agent and Applicable Law, including tests where necessary, feasible and appropriate, of the site where the noncompliance or alleged noncompliance with Environmental Law has occurred and prepare and deliver to Agent a report setting forth the results of such assessment, a proposed plan to bring Borrower into compliance with such Environmental Law (if such assessment indicates noncompliance) and an estimate of the costs thereof, and (ii) provide to Agent a supplemental report of such engineer whenever the scope of the noncompliance, or the response thereto or the estimated costs thereof, shall materially adversely change; PROVIDED that prior to Agent's request as set forth above, to the extent any Applicable Law, including, without limitation, any Environmental Law, requires that Borrower obtain any assessment or supplemental report otherwise required under this CLAUSE (b), any such assessment or supplemental report received or requested by Borrower prior to Agent's request shall satisfy the requirements of this CLAUSE (b), subject to Agent's review and approval of such assessment or supplemental report in Agent's discretion. Nothing herein, or as requested or required by Agent under this Section shall impose any obligations on Borrower that are in violation of any Applicable Law, including, without limitation, any Environmental Law, or Governmental Approval. Section 12.10 OBLIGATIONS TO AFFILIATES. With respect to any Indebtedness at any time owing by Borrower to any of its Affiliates, at Agent's request, Borrower will execute, and will cause such Affiliate to execute, a subordination agreement in form satisfactory to Agent such that such Indebtedness shall become Subordinated Indebtedness. ARTICLE 13 INFORMATION Until the Revolving Credit Facility has been terminated and all the Secured Obligations have been paid in full, unless the Required Lenders shall otherwise consent in the manner set forth in SECTION 18.9, Borrower will provide the following information to Agent and to each Lender at the offices then designated for such notices pursuant to SECTION 18.1 and keep the other covenants contained in this ARTICLE 13. Section 13.1 FINANCIAL STATEMENTS. (a) AUDITED YEAR-END STATEMENTS. As soon as available, but in any event within one hundred fifty (150) days after the end of each fiscal year of Borrower, Borrower will provide Agent and the Lenders with copies of the consolidating and consolidated balance sheets of Borrower and its Consolidated Subsidiaries and Fremont and its Consolidated Subsidiaries, respectively, as at the end of such fiscal year and the related statements of 100 earnings, shareholders' equity and statement of cash flows for such fiscal year, in each case setting forth in comparative form the figures for the previous fiscal year of such Person (as applicable), reported on, as to such consolidated statements, without qualification as to the scope of the audit or the status of such Person as a "going concern," by independent certified public accountants of nationally recognized standing. (b) MONTHLY FINANCIAL STATEMENTS OF BORROWER. As soon as available after the end of each month, but in any event within forty-five (45) days after the end of each month, Borrower will provide Agent and the Lenders with copies of the unaudited consolidated and consolidating balance sheet of Borrower and its Consolidated Subsidiaries as at the end of such month and the related unaudited consolidated and consolidating statements of earnings and cash flows for Borrower and its Consolidated Subsidiaries for such month and for the portion of the fiscal year of Borrower and its Consolidated Subsidiaries through such month, certified by a Financial Officer as presenting fairly the financial condition and results of operations of Borrower (subject to normal year-end audit adjustments). All of the financial statements referenced in this SECTION 13.1 are to be complete and correct in all material respects and prepared in accordance with GAAP (except, with respect to the monthly financial statements referred to in CLAUSE (C), for the omission of footnotes and for the effect of normal year-end audit adjustments) applied consistently throughout the periods reflected therein. Section 13.2 ACCOUNTANTS' CERTIFICATE. Together with the financial statements referred to in SECTION 13.1(a), Borrower shall deliver a certificate of such accountants addressed to Agent (a) stating that in making the examination necessary for the certification of such financial statements, nothing has come to their attention to lead them to believe that any Default or Event of Default exists and, in particular, they have no knowledge of any Default or Event of Default or, if such is not the case, specifying such Default or Event of Default and its nature, and (b) having attached the calculations, prepared by Borrower and reviewed by such accountants, required to establish whether or not Borrower is in compliance with the covenants contained in SECTIONS 14.1, 14.2, 14.9 and 14.10, as at the date of such financial statements. Section 13.3 OFFICER'S CERTIFICATE. At the time that Borrower provides the financial statements pursuant to SECTION 13.1(b) for any month that is the last month of a fiscal quarter of Borrower, Borrower shall also provide a Compliance Certificate which: (a) sets forth as at the end of such fiscal quarter or fiscal year, as the case may be, the calculations required to establish whether or not Borrower was in compliance with the requirements of SECTIONS 14.1, 14.2, 14.9 and 14.10, as at the end of each respective period; 101 (b) states that the information on the Schedules to this Agreement is complete and accurate as of the date of such certificate or, if such is not the case, attaches to such certificate updated Schedules, and (c) states that, based on a reasonably diligent examination, no Default or Event of Default has occurred or exists, or, if such is not the case, specifies such Default or Event of Default and its nature, when it occurred, whether it is continuing and the steps taken or being taken by Borrower with respect to such Default or Event of Default. Section 13.4 COPIES OF OTHER REPORTS. Borrower will provide Agent and the Lenders the following: (a) Promptly upon receipt thereof, copies of all reports, if any, submitted to Borrower or its Board of Directors by its independent public accountants, including, without limitation, any management report; (b) As soon as practicable, copies of all financial statements and reports that Borrower sends to its shareholders generally and of all registration statements and all regular or periodic reports, if any, which Borrower files with the Securities and Exchange Commission or any successor commission; (c) From time to time and as soon as reasonably practicable following each request, such forecasts, data, certificates, reports, statements, opinions of counsel, documents or further information regarding the business, assets, liabilities, financial condition, results of operations or business prospects of Borrower or any of its Subsidiaries as Agent may reasonably request and that Borrower has or (except in the case of legal opinions relating to the perfection or priority of the Security Interest) without unreasonable expense can obtain; PROVIDED, HOWEVER, that Agent and the Lenders shall, to the extent reasonably practicable, coordinate examinations of Borrower's records by their respective internal auditors; (d) If requested by Agent or any Lender, Borrower will provide to Agent and the Lenders statements in conformity with the requirements of Federal Reserve Form G-3 or U-1 referred to in Regulation G and U, respectively, of the Board of Governors of the Federal Reserve System. The rights of Agent and the Lenders under this SECTION 13.4 are in addition to and not in derogation of their rights under any other provision of this Agreement or of any other Loan Document. Section 13.5 NOTICE OF LITIGATION AND OTHER MATTERS. Borrower will provide Agent and the Lenders prompt notice of: (a) the commencement, to the extent Borrower is aware of the same, of all proceedings and investigations by or before any Governmental Authority or nongovernmental body and all actions and proceedings in any court or before any arbitrator against or in any other way relating to or affecting any Loan Party or any of such Loan 102 Party's properties, assets or businesses which would be treated as a contingent liability under GAAP and is an amount in excess of $500,000, or might, singly or in the aggregate, result in the occurrence of a Default or an Event of Default, or have a Materially Adverse Effect on any Loan Party; (b) any amendment of the articles of incorporation or bylaws of any Loan Party; (c) any change in the business, assets, liabilities, financial condition, results of operations or business prospects of any Loan Party which has had or may have, singly or in the aggregate, a Materially Adverse Effect on any Loan Party and any change in the executive officers of any Loan Party; (d) any Default or Event of Default, or any event which constitutes or which with the passage of time or giving of notice or both would constitute a default or event of default by any Loan Party under any material agreement (other than this Agreement) to which any Loan Party is a party or by which any Loan Party or any of any Loan Party's properties may be bound; (e) any authorization by Borrower's board of directors of the filing by Borrower of a petition in bankruptcy; and (f) Borrower entering into any agreement with any Person which would result in Borrower incurring any contingent liability under GAAP in an amount in excess of $500,000. Section 13.6 ERISA. As soon as possible and in any event within thirty (30) days after Borrower knows, or has reason to know, that (a) any Termination Event with respect to a Plan has occurred or will occur, or (b) the aggregate present value of the Unfunded Vested Accrued Benefits under all Plans is equal to an amount in excess of $0, or (c) Any Loan Party is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan required by reason of any Loan Party's complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such Multiemployer Plan, Borrower will provide Agent and the Lenders a certificate of its President or a Financial Officer setting forth the details of such event and the action which is proposed to be taken with respect thereto, together with any notice or filing which may be required by the PBGC or other Governmental Authority with respect to such event. 103 Section 13.7 ACCURACY OF INFORMATION. All written information, reports, statements and other papers and data provided to the Credit Parties, whether pursuant to this ARTICLE 13 or any other provision of this Agreement or of any other Loan Document, shall be, at the time the same is so provided, complete and correct in all material respects to the extent necessary to give the recipient thereof true and accurate knowledge of the subject matter. Section 13.8 REVISIONS OR UPDATES TO SCHEDULES. Should any of the information or disclosures provided on any of the Schedules originally attached hereto become outdated or incorrect in any material respect, Borrower shall deliver to the Credit Parties as part of the officer's certificate required pursuant to SECTION 13.3(b) such revisions or updates to such Schedule(s) as may be necessary or appropriate to update or correct such Schedule(s), PROVIDED that no such revisions or updates to any Schedule(s) shall be deemed to have amended, modified or superseded such Schedule(s) as originally attached hereto, or to have cured any breach of warranty or representation resulting from the inaccuracy or incompleteness of any such Schedule(s), unless and until the Required Lenders in their sole and absolute discretion, shall have accepted in writing such revisions or updates to such Schedule(s). Section 13.9 ANNUAL PROJECTIONS. Not sooner than ninety (90) days prior to the beginning of each of Borrower's fiscal years, but not less than thirty (30) days prior to the beginning of each such fiscal year, Borrower will deliver to the Credit Parties a budget and projection forecast of Borrower's anticipated operations and financial performance for such fiscal year, in form reasonably satisfactory to Agent and containing such information as Agent may reasonably request. Section 13.10 REAL ESTATE AND EQUIPMENT APPRAISALS. Within thirty (30) days after the Agreement Date, Borrower will cause to be delivered to Agent, or Agent shall otherwise receive, at Borrower's expense, for the benefit of the Credit Parties, an appraisal of Borrower's Real Estate (including improvements) located in Lancaster, Pennsylvania and Ahoskie, North Carolina, prepared by a credentialed appraiser acceptable to Agent and satisfying all requirements of applicable law. Within fifteen (15) days after the Agreement Date, Borrower WILL CAUSE TO BE DELIVERED TO AGENT, FOR THE BENEFIT OF THE CREDIT PARTIES, AN APPRAISAL OF ALL EQUIPMENT (INCLUDING WITHOUT LIMITATION MACHINERY, EQUIPMENT, MOLDS, DIES AND TOOLING), PREPARED BY A CREDENTIALED APPRAISER ACCEPTABLE TO AGENT. Section 13.11 PBGC AGREEMENTS. BORROWER WILL NOTIFY AGENT AT LEAST TEN (10) BUSINESS DAYS BEFORE ENTERING INTO THE PBGC AGREEMENT OR ENTERING INTO OR AMENDING ANY OTHER MATERIAL AGREEMENT WITH PBGC. ANY AND ALL SUCH AGREEMENTS OR AMENDMENTS SHALL BE SATISFACTORY TO AGENT IN ITS DISCRETION (AGENT SHALL BE DEEMED TO BE SATISFIED WITH THE PBGC AGREEMENT ONLY UPON EXECUTION BY AGENT OF THE PBGC INTERCREDITOR AGREEMENT). SECTION 13.12 ADDITIONAL CAPITAL CONTRIBUTION. WITHIN THIRTY (30) DAYS FOLLOWING THE AGREEMENT DATE, BORROWER SHALL HAVE RECEIVED FROM NEW CANAAN OR FREMONT ADDITIONAL CAPITAL CONTRIBUTION OF COMMON EQUITY OF NOT LESS THAN $900,000. 104 ARTICLE 14 NEGATIVE COVENANTS UNTIL THE REVOLVING CREDIT FACILITY HAS BEEN TERMINATED AND ALL THE SECURED OBLIGATIONS HAVE BEEN PAID IN FULL, UNLESS THE REQUIRED LENDERS SHALL OTHERWISE CONSENT IN THE MANNER SET FORTH IN SECTION 18.9: SECTION 14.1 FINANCIAL PERFORMANCE. (A) MINIMUM NET WORTH. BORROWER WILL NOT PERMIT ITS NET WORTH CALCULATED AS OF THE END OF EACH OF BORROWER'S FISCAL QUARTERS, IN EACH CASE DETERMINED AS OF SUCH DATE IN ACCORDANCE WITH GAAP (WITHOUT GIVING EFFECT TO ANY PRINCIPLES OF CONSOLIDATION AND WITHOUT GIVING EFFECT TO ANY INCREASE OR DECREASE IN STOCKHOLDER'S EQUITY ASSOCIATED WITH THE APPLICATION OF THE FINANCIAL ACCOUNTING STANDARDS BOARD'S STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 87, AS SUCH STATEMENT MAY BE AMENDED FROM TIME TO TIME) AND BASED ON THE FINANCIAL STATEMENTS DELIVERED PURSUANT TO SECTION 13.1(a) AND SECTION 13.1(b), AS APPLICABLE, TO BE LESS THAN THE FOLLOWING SPECIFIED AMOUNTS, AS APPLICABLE: 105 ------------------------------------- ------------------------------------- Period End Requirement ------------------------------------- ------------------------------------- September 30, 1997 42,000,000 December 31, 1997 42,000,000 March 31, 1998 42,000,000 June 30, 1998 42,300,000 September 30, 1998 43,100,000 December 31, 1998 44,000,000 March 31, 1999 44,500,000 June 30, 1999 45,100,000 September 30, 1999 46,000,000 December 31, 1999 46,900,000 March 31, 2000 47,700,000 June 30, 2000 48,700,000 September 30, 2000 50,100,000 December 31, 2000 51,500,000 March, 31, 2001 52,600,000 June 30, 2001 54,000,000 September 30, 2001 55,800,000 December 31, 2001 57,500,000 ------------------------------------- ------------------------------------- (b) MINIMUM FIXED CHARGE COVERAGE. Borrower will not permit its Fixed Charge Coverage Ratio calculated as of the end of each of Borrower's fiscal quarters and determined in accordance with GAAP (without giving effect to any principles of consolidation) and based on the financial statements delivered pursuant to SECTION 13.1(a) and SECTION 13.1(b), as applicable, measured (i) as of March 31, 1998, June 30, 1998 and September 30, 1998, in each case for the calender year-to-date period, and (ii) thereafter as of each fiscal quarter, in each case for the preceding twelve (12) calendar months then ending, to be less than the following specified amounts, as applicable: 106 --------------------------------------------------- --------------------------------------------------- Period End Requirement --------------------------------------------------- --------------------------------------------------- March 31, 1998 0.8 to 1.0 June 30, 1998 1.0 to 1.0 September 30, 1998 through and including September 30, 2000 1.1 to 1.0 December 31, 2000 and each quarter-end thereafter 1.2 to 1.0 --------------------------------------------------- --------------------------------------------------- Section 14.2 INDEBTEDNESS FOR MONEY BORROWED. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, assume or otherwise become or remain obligated in respect of, or permit or suffer to exist or to be created, assumed or incurred or to be outstanding any Indebtedness for Money Borrowed, except that this SECTION 14.2 shall not apply to: (a) Indebtedness of Borrower for Money Borrowed represented by the Loans and the Notes; (b) Indebtedness for Money Borrowed reflected on SCHEDULE 9.1(j), excluding any such Indebtedness that is to be paid in full on the Effective Date; and (c) Permitted Purchase Money Indebtedness. Section 14.3 GUARANTIES. Borrower will not, and, except in connection with Indebtedness permitted under SECTION 14.2(a) or SECTION 14.2(b), will not permit any of its Subsidiaries to, directly or indirectly, become or remain liable with respect to any Guaranty of any obligation of any other Person. Section 14.4 INVESTMENTS. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, acquire, after the Agreement Date, any Business Unit or Investment (including, without limitation, loans, advances and other Investments in any Affiliate) other than Permitted Investments or, after such date, maintain any Investment other than Permitted Investments. Section 14.5 RESTRICTED DIVIDEND PAYMENTS AND PURCHASES, ETC. Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, declare or make any Restricted Dividend Payment, Restricted Payment or Restricted Purchase, except (i) (without limiting SECTION 14.1) for payment of the "Option Price" and the "Merger Consideration" pursuant to (and as such terms are defined in) the Acquisition Agreement, and (ii) for repurchase of employee stock options granted in connection with any employee stock ownership plan in effect for Borrower's employees generally. 107 Section 14.6 MERGER, CONSOLIDATION AND SALE OF ASSETS. Borrower will not, and will not permit any of its Subsidiaries to, merge or consolidate with any other Person or sell, lease or transfer or otherwise dispose of all or a substantial portion (other than as allowed by SECTION 6.11(d)) of its assets to any Person other than sales of Inventory in the ordinary course of business; PROVIDED that Borrower may consummate the Merger in accordance with the Acquisition Documents. Section 14.7 TRANSACTIONS WITH AFFILIATES. Borrower will not, and will not permit any of its Subsidiaries to, effect any transaction with any Affiliate on a basis less favorable to Borrower or such Subsidiary than would be the case if such transaction had been effected with a Person not an Affiliate. Section 14.8 LIENS. Borrower will not, and will not permit any of its Subsidiaries to, create, assume or permit or suffer to exist or to be created or assumed any Lien on any of the Collateral or its other assets, other than Permitted Liens. Section 14.9 CAPITALIZED LEASE OBLIGATIONS. Borrower will not, and will not permit any of its Subsidiaries to incur or permit to exist any Capitalized Lease Obligations if such Capitalized Lease Obligation when added to existing Capitalized Lease Obligations and Permitted Purchase Money Indebtedness of Borrower and its Subsidiaries would exceed $4,000,000 in the aggregate. Section 14.10 OPERATING LEASES. Excluding renewals of preexisting Operating Leases for Real Estate permitted pursuant to SECTION 14.11, Borrower will not, and will not permit any of its Subsidiaries to enter into any Operating Lease if the aggregate annual rental payable under all Operating Leases of Borrower (excluding preexisting and renewed Operating Leases for Real Estate) and its Subsidiaries would exceed $1,000,000 in the aggregate at any time after the Effective Date. Section 14.11 REAL ESTATE LEASES. Borrower will not, and will not permit any of its Subsidiaries to, enter into any real property lease, including a lease relating to the Real Estate occupied by Borrower on the Effective Date (excluding renewals of such preexisting leases on terms substantially similar to the preexisting lease in the ordinary course of Borrower's business), without the prior written consent of Agent, on behalf of the Lenders, which consent shall not be unreasonably withheld. Section 14.12 PLANS. Except as disclosed on SCHEDULE 9.1(p), as of the Agreement Date, Borrower will not, and will not permit any of its Subsidiaries to, permit any condition to exist in connection with any Plan which might constitute grounds for the PBGC to institute proceedings to have such Plan terminated or a trustee appointed to administer such Plan, and any other condition, event or transaction with respect to any Plan which could result in the incurrence by Borrower or any of its Subsidiaries of any material liability, fine or penalty. Section 14.13 SALES AND LEASEBACKS. Except as may be otherwise specifically allowed by this Agreement, Borrower will not, and will not permit any of its Subsidiaries to, enter into any 108 arrangement with any Person providing for Borrower or any of its Subsidiaries to lease from such Person any real or personal property which has been or is to be sold or transferred, directly or indirectly, by Borrower or any of its Subsidiaries to such Person. Section 14.14 SUBORDINATED INDEBTEDNESS. Borrower will not, and will not permit any of its Subsidiaries to, make any payment of principal or interest in respect of any Subordinated Indebtedness if any such payment is prohibited by the terms thereof or by any subordination agreement applicable thereto. Section 14.15 BUSINESS ACTIVITIES OF FREMONT AND KAC. KAC will not engage in any business, activity or other operations other than owning and holding the Capital Stock of Borrower, acting as a Guarantor hereunder, entering into the Merger and other activities directly related to the foregoing. Fremont will not engage in any business, activity or other operations other than owning the Capital Stock of KAC, prior to the Merger, and the Borrower, following the Merger, acting as a Guarantor hereunder and other activities directly related to the foregoing. Neither Fremont nor KAC will merger with or into any other Person; PROVIDED, that KAC and Borrower may consummate the Merger in accordance with the Acquisition Documents. Section 14.16 ACQUISITION FEES AND EXPENSES. The aggregate fees and expenses of Fremont, KAC and Borrower incurred in connection with the Acquisition shall not exceed $11,400,000. ARTICLE 15 DEFAULT Section 15.1 EVENTS OF DEFAULT. Each of the following shall constitute an Event of Default, whatever the reason for such event and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment or order of any court or any order, rule or regulation of any Governmental Authority or nongovernmental body: (a) DEFAULT IN PAYMENT. Borrower shall default in any payment of principal of or interest on any Loan or any Note when and as due (whether at maturity, by reason of acceleration or otherwise); (b) OTHER PAYMENT DEFAULT. Borrower shall default in the payment, as and when due, of principal of or interest on, any other Secured Obligation, and such default shall continue for a period of ten (10) days after written notice thereof has been given to Borrower by Agent; (c) MISREPRESENTATION. Any representation or warranty made or deemed to be made by Borrower under this Agreement or any other Loan Document, or any amendment hereto or thereto, shall at any time prove to have been incorrect or misleading in any material respect when made; 109 (d) DEFAULT IN PERFORMANCE. Borrower shall default in the performance or observance of any term, covenant, condition or agreement to be performed by Borrower, contained in (i) ARTICLES 10, 11, 13 or 14, SECTION 12.1 (insofar as it requires the preservation of the corporate existence of Borrower), or SECTION 12.8, and Agent shall have delivered to Borrower written notice of such default, or (ii) this Agreement (other than as specifically provided for otherwise in this SECTION 15.1) and such default shall continue for a period of thirty (30) days after written notice thereof has been given to Borrower by Agent; (e) INDEBTEDNESS CROSS-DEFAULT. (i) Borrower or any Subsidiary of Borrower shall fail to pay when due and payable the principal of or interest on any Indebtedness for Money Borrowed (other than the Loans) in an amount in excess of 100,000, or (ii) the maturity of any such Indebtedness shall have (A) been accelerated in accordance with the provisions of any indenture, contract or instrument providing for the creation of or concerning such Indebtedness, or (B) been required to be prepaid prior to the stated maturity thereof, or (iii) any event shall have occurred and be continuing which would permit any holder or holders of such Indebtedness, any trustee or agent acting on behalf of such holder or holders or any other Person so to accelerate such maturity, and Borrower shall have failed to cure such default prior to the expiration of any applicable cure or grace period; (f) OTHER CROSS-DEFAULTS. Borrower or any of its Subsidiaries shall default in the payment when due, or in the performance or observance, of any obligation or condition of any agreement, contract or lease (other than this Agreement, the Security Documents or any such agreement, contract or lease relating to Indebtedness for Money Borrowed) if the existence of any such defaults, singly or in the aggregate, could in the reasonable judgment of Agent have a Materially Adverse Effect on Borrower or any of its Subsidiaries; PROVIDED, HOWEVER, that for the purposes of this provision where such a default could result only in a monetary loss, a Material Adverse Effect shall not be deemed to have occurred unless the aggregate of such losses would exceed $500,000; (g) VOLUNTARY BANKRUPTCY PROCEEDING. Borrower, any of its Subsidiaries or any other Loan Party shall (i) commence a voluntary case under the federal bankruptcy laws (as now or hereafter in effect), 110 (ii) file a petition seeking to take advantage of any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or composition for adjustment of debts, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under such bankruptcy laws or other laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing; (h) INVOLUNTARY BANKRUPTCY PROCEEDING. A case or other proceeding shall be commenced against Borrower, any of its Subsidiaries or any other Loan Party in any court of competent jurisdiction seeking (i) relief under the federal bankruptcy laws (as now or hereafter in effect) or under any other laws, domestic or foreign, relating to bankruptcy, insolvency, reorganization, winding up or adjustment of debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of Borrower, any of its Subsidiaries or of all or any substantial part of the assets, domestic or foreign, of Borrower or any of its Subsidiaries, and such case or proceeding shall continue undismissed or unstayed for a period of sixty (60) consecutive calendar days, or an order granting the relief requested in such case or proceeding against Borrower, any of its Subsidiaries or any other Loan Party (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered; (i) FAILURE OF AGREEMENTS. Borrower or any other Loan Party, shall challenge the validity and binding effect of any provision of any Loan Document after delivery thereof hereunder or shall state in writing its intention to make such a challenge, or any Loan Document, after delivery thereof hereunder, shall for any reason (except to the extent permitted by the terms thereof) cease to create a valid and perfected first priority Lien (except for Permitted Liens) on, or security interest in, any of the Collateral purported to be covered thereby; 111 (j) JUDGMENT. A final, unappealable judgment or order for the payment of money in an amount that exceeds the uncontested insurance available therefor by $500,000 or more shall be entered against Borrower by any court or other Governmental Authority and such judgment or order shall continue undischarged or unstayed for thirty (30) days; (k) ATTACHMENT. A warrant or writ of attachment or execution or similar process which exceeds $500,000 in value shall be issued against any property of Borrower or any of its Subsidiaries and such warrant or process shall continue undischarged or unstayed for thirty (30) days; (l) LOAN DOCUMENTS. Any event of default under any other Loan Document shall occur or Borrower, any of its Subsidiaries or any other Loan Party shall default in the performance or observance of any term, covenant, condition or agreement contained in, or the payment of any other sum covenanted to be paid by Borrower under, any such Loan Document; PROVIDED, HOWEVER that no event of default under any such Loan Document shall be deemed to have occurred until any notice required under such Loan Document has been given and any grace period granted under such Loan Document has expired; (m) ERISA. (i) Any Termination Event with respect to a Plan shall occur that, after taking into account the excess, if any, of (A) the fair market value of the assets of any other Plan with respect to which a Termination Event occurs on the same day (but only to the extent that such excess is the property of Borrower) over (B) the present value on such day of all vested nonforfeitable benefits under such other Plan, results in an Unfunded Vested Accrued Benefit in excess of $1,000,000, (ii) any Plan shall incur an "accumulated funding deficiency" (as defined in Section 412 of the Internal Revenue Code or Section 302 of ERISA) for which a waiver has not been obtained in accordance with the applicable provisions of the Internal Revenue Code and ERISA, (iii) Borrower is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's complete or partial withdrawal (as described in Section 4203 or 4205 of ERISA) from such Multiemployer Plan, or (iv) Any default under the PBGC Agreement; (n) CHANGE IN CONTROL. (i) KAC shall own, beneficially and of record, less than fifty-one percent (51.0%) of the outstanding Capital Stock of Borrower, 112 (ii) prior to the Merger, Fremont shall own, beneficially and of record, less than one hundred percent (100%) of the Capital Stock of KAC, (iii) after the Merger, Fremont and New Canaan, together with Persons who are officers, directors or employees of Borrower, shall own, beneficially and of record, less than one hundred percent (100%) of the outstanding Capital Stock of Borrower or Fremont shall own less than ninety percent (90.0%) of such Capital Stock, or (iv) Fremont Partners, L.P. shall own, beneficially and of record, (A) prior to any public offering of the Capital Stock of Fremont, less than eighty percent (80.0%) of the Voting Stock of Fremont, (B) after any public offering of the Capital Stock of Fremont, less than fifty-one percent (51.0%) of the Voting Stock of Fremont. (o) MATERIAL ADVERSE EFFECT. The occurrence of any event or condition which constitutes a Materially Adverse Effect and thirty (30) days have passed since written notification thereof to Borrower by Agent (therein reasonably identifying such event or condition) without such event or condition having been remedied, cured or waived. Section 15.2 REMEDIES. (a) AUTOMATIC ACCELERATION AND TERMINATION OF FACILITIES. Upon the occurrence of an Event of Default specified in SECTION 15.1(g) or (h), (i) the principal of and the interest on the Loans and any Note at the time outstanding, and all other amounts owed to any of the Credit Parties under this Agreement or any of the other Loan Documents and all other Secured Obligations, shall thereupon become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or any of the other Loan Documents to the contrary notwithstanding, and (ii) the Revolving Credit Facility and the CAPEX Facility and the right of Borrower to request borrowings and Letters of Credit under this Agreement shall immediately terminate. (b) OTHER REMEDIES. If any Event of Default shall have occurred, and during the continuance of any such Event of Default, Agent may, and at the direction of the Required Lenders in their sole and absolute discretion shall, do any of the following: (i) declare the principal of and interest on the Loans and any Note at the time outstanding, and all other amounts owed to any of the Credit Parties under this Agreement or any of the other Loan Documents and all other Secured Obligations, to be forthwith due and payable, whereupon the same shall immediately become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived, anything in this Agreement or the other Loan Documents to the contrary notwithstanding; 113 (ii) terminate the Revolving Credit Facility and the CAPEX Facility and any other right of Borrower to request borrowings or Letters of Credit thereunder; (iii) notify, or request Borrower to notify, in writing or otherwise, any Account Debtor or obligor with respect to any one or more of the Receivables to make payment to Agent, for the benefit of the Credit Parties, or any agent or designee of Agent, at such address as may be specified by Agent and if, notwithstanding the giving of any notice, any Account Debtor or other such obligor shall make payments to Borrower, Borrower shall hold all such payments it receives in trust for Agent, for the account of the Credit Parties, without commingling the same with other funds or property of, or held by, Borrower, and shall deliver the same to Agent or any such agent or designee of Agent immediately upon receipt by Borrower in the identical form received, together with any necessary endorsements; (iv) settle or adjust disputes and claims directly with Account Debtors and other obligors on Receivables for amounts and on terms which Agent considers advisable and in all such cases only the net amounts received by Agent, for the account of the Credit Parties, in payment of such amounts, after deductions of costs and attorneys' fees, shall constitute Collateral and Borrower shall have no further right to make any such settlements or adjustments or to accept any returns of merchandise; (v) enter upon any premises in which Inventory or Equipment may be located and, without resistance or interference by Borrower, take physical possession of any or all thereof and maintain such possession on such premises or move the same or any part thereof to such other place or places as Agent shall choose, without being liable to Borrower on account of any loss, damage or depreciation that may occur as a result thereof, so long as Agent shall act reasonably and in good faith; (vi) require Borrower to and Borrower shall, without charge to Agent or any other Credit Party, assemble the Inventory and Equipment and maintain or deliver it into the possession of Agent or any agent or representative of Agent at such place or places as Agent may designate and as are reasonably convenient to both Agent and Borrower; (vii) at the expense of Borrower, cause any of the Inventory and Equipment to be placed in a public or field warehouse, and Agent shall not be liable to Borrower on account of any loss, damage or depreciation that may occur as a result thereof, so long as Agent shall act reasonably and in good faith; (viii) without notice, demand or other process, and without payment of any rent or any other charge, enter any of Borrower's premises and, without 114 breach of the peace, until Agent, on behalf of the Credit Parties, completes the enforcement of its rights in the Collateral, take possession of such premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of Borrower's Equipment, for the purpose of (A) completing any work in process, preparing any Inventory for disposition and disposing thereof, and (B) collecting any Receivable, and Agent, for the benefit of the Credit Parties, is hereby granted a license or sublicense and all other rights as may be necessary, appropriate or desirable to use the Proprietary Rights in connection with the foregoing, and the rights of Borrower under all licenses, sublicenses and franchise agreements shall inure to Agent, for the benefit of the Credit Parties (PROVIDED, HOWEVER, that any use of any federally registered trademarks as to any goods shall be subject to the control as to the quality of such goods of the owner of such trademarks and the goodwill of the business symbolized thereby); (ix) exercise any and all of its rights under any and all of the Security Documents; (x) apply any Collateral consisting of cash to the payment of the Secured Obligations in any order in which Agent, on behalf of the Credit Parties, may elect or use such cash in connection with the exercise of any of its other rights hereunder or under any of the Security Documents; (xi) establish or cause to be established one or more Lockboxes or other arrangement for the deposit of proceeds of Receivables, and, in such case, Borrower shall cause to be forwarded to Agent at its Principal Office, on a daily basis, copies of all checks and other items of payment and deposit slips related thereto deposited in such Lockboxes, together with collection reports in form and substance satisfactory to Agent; and (xii) exercise all of the rights and remedies of a secured party under the UCC and under any other Applicable Law, including, without limitation, the right, without notice except as specified below and with or without taking the possession thereof, to sell the Collateral or any part thereof in one or more parcels at public or private sale, at any location chosen by Agent, for cash, on credit or for future delivery, and at such price or prices and upon such other terms as Agent may deem commercially reasonable. Borrower agrees that, to the extent notice of sale shall be required by law, at least ten (10) days' notice to Borrower of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification, but notice given in any other reasonable manner or at any other reasonable time shall constitute reasonable notification. Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. 115 (c) CASH COLLATERAL; INJUNCTIVE RELIEF. All cash proceeds of Collateral from time to time existing, including, without limitation, collections and payments of Receivables and cash receipts, if any, for other Collateral, whether consisting of cash, checks or other similar items, at all times shall be subject to an express trust for the benefit of Agent, for the benefit of the Credit Parties. All such proceeds shall be subject to Agent's continuing security interests under this Agreement. Borrower is expressly prohibited from using, spending, retaining or otherwise exercising any dominion over such proceeds in any manner in contravention of the requirements of this Agreement. Borrower acknowledges and agrees that an action for damages against Borrower for any breach of such prohibitions shall not be an adequate remedy at law. In the event of any such breach, Borrower agrees to the fullest extent allowed by law that Agent shall be entitled to injunctive relief to restrain such breach and require compliance with the requirements of this Agreement. Section 15.3 APPLICATION OF PROCEEDS. All proceeds from each sale of, or other realization upon, all or any part of the Collateral following an Event of Default shall be applied or paid over as follows: (a) FIRST: to the payment of all costs and expenses incurred in connection with such sale or other realization, including reasonable attorneys' fees; (b) SECOND: to the payment of the Secured Obligations (with Borrower remaining liable for any deficiency) as Agent may elect; and (c) THIRD: the balance (if any) of such proceeds shall be paid to Borrower, subject to any duty imposed by law, or otherwise to whomsoever shall be entitled thereto. BORROWER SHALL REMAIN LIABLE AND WILL PAY, ON DEMAND, ANY DEFICIENCY REMAINING IN RESPECT OF THE SECURED OBLIGATIONS, TOGETHER WITH INTEREST THEREON AT A RATE PER ANNUM EQUAL TO THE HIGHEST RATE THEN PAYABLE HEREUNDER ON SUCH SECURED OBLIGATIONS, WHICH INTEREST SHALL CONSTITUTE PART OF THE SECURED OBLIGATIONS. Section 15.4 POWER OF ATTORNEY. In addition to the authorizations granted to Agent under SECTION 11.13, SECTION 11.16 or under any other provision of this Agreement or of any other Loan Document, during the continuance of an Event of Default, Borrower hereby irrevocably designates, makes, constitutes and appoints Agent (and all Persons designated by Agent from time to time) as Borrower's true and lawful attorney, and agent in fact, and Agent, or any such Person, may, without notice to Borrower, and at such time or times as Agent, or any such Person in its sole discretion may determine, in the name of Borrower, Agent or the Lenders, (i) demand payment of the Receivables, (ii) enforce payment of the Receivables by legal proceedings or otherwise, 116 (iii) exercise all of Borrower's rights and remedies with respect to the collection of Receivables, (iv) settle, adjust, compromise, extend or renew any or all of the Receivables, (v) settle, adjust or compromise any legal proceedings brought to collect the Receivables, (vi) discharge and release the Receivables or any of them, (vii) prepare, file and sign the name of Borrower on any proof of claim in bankruptcy or any similar document against any Account Debtor, (viii) prepare, file and sign the name of Borrower on any notice of Lien, assignment or satisfaction of Lien, or similar document in connection with any of the Collateral, (ix) endorse the name of Borrower upon any chattel paper, document, instrument, notice, freight bill, bill of lading or similar document or agreement relating to the Receivables, the Inventory or any other Collateral, (x) use the stationery of Borrower and sign the name of Borrower to verifications of the Receivables and on any notice to the Account Debtors, (xi) open Borrower's mail, (xii) notify the post office authorities to change the address for delivery of Borrower's mail to an address designated by Agent, and (xiii) use the information recorded on or contained in any data processing equipment and computer hardware and software relating to the Receivables, Inventory or other Collateral to which Borrower has access. Section 15.5 MISCELLANEOUS PROVISIONS CONCERNING REMEDIES. (a) RIGHTS CUMULATIVE. The rights and remedies of Agent and the other Credit Parties under this Agreement, the Notes and each of the other Loan Documents shall be cumulative and not exclusive of any rights or remedies which it or they would otherwise have. In exercising such rights and remedies, Agent and the other Credit Parties may be selective, and no failure or delay by Agent or any Credit Party in exercising any right shall operate as a waiver of it, nor shall any single or partial exercise of any power or right preclude its other or further exercise or the exercise of any other power or right. 117 (b) WAIVER OF MARSHALING. Borrower hereby waives any right to require any marshaling of assets and any similar right. (c) LIMITATION OF LIABILITY. Nothing contained in this ARTICLE 15 or elsewhere in this Agreement or in any of the other Loan Documents shall be construed as requiring or obligating any Credit Party or any agent or designee of any Credit Party to make any demand or to make any inquiry as to the nature or sufficiency of any payment received by it, or to present or file any claim or notice or take any action, with respect to any Receivable or any other Collateral or the monies due or to become due thereunder or in connection therewith, or to take any steps necessary to preserve any rights against prior parties, and Agent, the other Credit Parties, and their agents or designees, shall have no liability to Borrower for actions taken pursuant to this ARTICLE 15, any other provision of this Agreement or any of the other Loan Documents so long as Agent or any such Credit Party shall act reasonably and in good faith. (d) APPOINTMENT OF RECEIVER. In any action under this ARTICLE 15, Agent shall be entitled during the continuance of an Event of Default to the appointment of a receiver, without notice of any kind whatsoever, to take possession of all or any portion of the Collateral and to exercise such power as the court shall confer upon such receiver in accordance with Applicable Law. Section 15.6 REGISTRATION RIGHTS; PRIVATE SALES; ETC. (a) If Agent shall determine to exercise its right to sell or otherwise dispose of all or any Investment Property owned by Borrower, pursuant to SECTION 15.2 or any other Loan Document, Borrower agrees that, upon the reasonable request of Agent (which request may be made by Agent in its sole discretion), Borrower will, at its own expense use its best efforts to: (i) execute and deliver, and cause each Issuer of any Collateral or other property contemplated to be sold and the directors and officers thereof to execute and deliver, all such agreements, documents and instruments, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Agent, advisable to register such Collateral or other property to be sold under the provisions of the Securities Act, and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (ii) to qualify such Collateral or other property to be sold under all applicable state securities or "Blue Sky" laws and to obtain all necessary Governmental Approvals for the sale of such Collateral or other property, as requested by Agent; (iii) cause each such Issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; and (iv) do or cause to be done all such other acts and things as may be reasonably necessary to make the sale of such Collateral or other property or any part thereof valid and binding and in compliance with applicable law. Borrower will bear all 118 reasonable costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this SECTION 15.6. (b) Borrower recognizes that Agent may be unable to effect a public sale of any or all of the Collateral or other property to be sold by reason of certain prohibitions contained in the laws of any jurisdiction outside the United States or in the Securities Act and applicable state securities laws but may be compelled to resort to one or more private sales thereof to a restricted group of purchasers who will be obliged to agree, among other things, to acquire such Collateral or other property to be sold for their own account for investment and not with a view to the distribution or resale thereof. Borrower acknowledges and agrees that any such private sale may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall, to the extent permitted by law, be deemed to have been made in a commercially reasonable manner. Agent shall not be under any obligation to delay a sale of any of the Collateral or other property to be sold for the period of time necessary to permit the Issuer of such securities to register such securities under the laws of any jurisdiction outside the United States, under the Securities Act or under any applicable state securities laws, even if such Issuer would agree to do so. (c) Borrower further agrees to do or cause to be done, to the extent that Borrower may do so under Applicable Law, all such other acts and things as may be necessary to make such sales or resales of any portion or all of the Collateral or other property to be sold valid and binding and in compliance with any and all Applicable Law of any and all Governmental Authorities having jurisdiction over any such sale or sales, all at Borrower's expense. Borrower further agrees that a breach of any of the covenants contained in this SECTION 15.6 will cause irreparable injury to the Credit Parties and that the Credit Parties have no adequate remedy at law in respect of such breach and, as a consequence, agrees that each and every covenant contained in this SECTION 15.6 shall be specifically enforceable against Borrower and Borrower hereby waives and agrees, to the fullest extent permitted by law, not to assert as a defense against an action for specific performance of such covenants that (i) Borrower's failure to perform such covenants will not cause irreparable injury to the Credit Parties or (ii) the Credit Parties have an adequate remedy at law in respect of such breach. Borrower further acknowledges the impossibility of ascertaining the amount of damages which would be suffered by the Credit Parties by reason of a breach of any of the covenants contained in this SECTION 15.6 and, consequently, agrees that, if Borrower shall breach any of such covenants and the Credit Parties shall sue for damages for such breach, Borrower shall pay to the Credit Parties, as liquidated damages and not as a penalty, an aggregate amount equal to the value of the Collateral or other property to be sold on the date Lender shall demand compliance with this SECTION 15.6. (d) BORROWER HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS THE CREDIT PARTIES AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS, COSTS AND 119 EXPENSES (INCLUDING COUNSEL FEES AND DISBURSEMENTS) ARISING UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY OTHER APPLICABLE LAW IN CONNECTION WITH THE ABOVE REFERENCED REGISTRATION, INSOFAR AS SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT CONTAINED IN ANY REGISTRATION STATEMENT RELATING TO ANY PART OF THE COLLATERAL OR OTHER PROPERTY TO BE SOLD, OR SUCH REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, OR ARISES OUT OF, OR IS BASED UPON, THE OMISSION OR ALLEGED OMISSION TO STATE THEREIN A MATERIAL FACT REQUIRED TO BE STATED THEREIN OR NECESSARY TO MAKE THE STATEMENTS THEREIN NOT MISLEADING; PROVIDED, THAT BORROWER SHALL NOT BE LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN SUCH REGISTRATION STATEMENT OR SUCH REGISTRATION STATEMENT AS AMENDED OR SUPPLEMENTED, IN RELIANCE UPON AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO BORROWER BY ANY CREDIT PARTY SPECIFICALLY FOR INCLUSION THEREIN. THE FOREGOING INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION THAT BORROWER MAY OTHERWISE HAVE TO ANY CREDIT PARTY OR ANY SUCH CONTROLLING PERSON. ARTICLE 16 ASSIGNMENTS Section 16.1 ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Notes and its Commitment); PROVIDED, HOWEVER, that: (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Lender or an assignment of all of a Lender's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $10,000,000 or an integral multiple of $10,000,000 in excess thereof; 120 (iii) each such assignment by a Lender shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Notes; (iv) the parties to such assignment shall execute and deliver to Agent for its acceptance an Assignment and Acceptance in the form of EXHIBIT "E" hereto, together with any Notes subject to such assignment and a processing fee of $3,500; and (v) the prior written consent of Borrower (such consent to not be unreasonably withheld) and Agent (such consent to not be unreasonably withheld) shall be required; PROVIDED that no consent of Borrower shall be necessary if any Default or Event of Default exists at the time of such assignment. Upon execution, delivery and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights and benefits of a Lender hereunder and the assigning Lender shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, Agent and Borrower shall make appropriate arrangements so that, if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the U.S., or a state thereof, it shall deliver to Borrower and Agent certification as to exemption from deduction or withholding of Taxes in accordance with SECTION 7.6. (b) Agent shall maintain at its address referred to in SECTION 18.1 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time (the "REGISTER"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and Borrower, Agent and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such Assignment and Acceptance and payment of the processing fee, Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of EXHIBIT "E" hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Lender may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); PROVIDED, HOWEVER, that (i) such Lender's obligations under 121 this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in ARTICLE 7 and the right of set-off contained in SECTION 18.4, and (iv) Borrower shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, and such Lender shall retain the sole right to enforce the obligations of Borrower relating to its Loans and its Notes and to approve any amendment, modification or waiver of any provision of this Agreement (other than amendments, modifications or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Notes, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Notes, or extending its Commitment). (e) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time assign and pledge all or any portion of its Loans and its Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Lender from its obligations hereunder. (f) Any Lender may furnish any information concerning Borrower or any of its Subsidiaries in the possession of such Lender from time to time to assignees and participants (including prospective assignees and participants). Section 16.2 REPRESENTATION OF LENDERS. Each Lender hereby represents that it will make each Loan hereunder as a commercial loan for its own account in the ordinary course of its business; PROVIDED, HOWEVER, that subject to SECTION 15.1 hereof, the disposition of the Notes or other evidence of the Secured Obligations held by any Lender shall at all times be within its exclusive control. ARTICLE 17 AGENT Section 17.1 APPOINTMENT, POWERS, AND IMMUNITIES. Each Lender and L/C Issuer hereby irrevocably appoints and authorizes Agent to act as its agent under this Agreement and the other Loan Documents with such powers and discretion as are specifically delegated to Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Agent (which term as used in this sentence and in SECTION 17.5 and the first sentence of SECTION 17.6 hereof shall include its Affiliates, and its own and its Affiliates', officers, directors, employees and agents): (a) shall not have any duties or responsibilities except those expressly set forth in this Agreement and shall not be a trustee or fiduciary for any Lender or L/C Issuer; 122 (b) shall not be responsible to the Lenders or L/C Issuer for any recital, statement, representation or warranty (whether written or oral) made in or in connection with any Loan Document or any certificate or other document referred to or provided for in, or received by any of them under, any Loan Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of any Loan Document, or any other document referred to or provided for therein or for any failure by any Loan Party or any other Person to perform any of its obligations thereunder; (c) shall not be responsible for or have any duty to ascertain, inquire into or verify the performance or observance of any covenants or agreements by any Loan Party or the satisfaction of any condition or to inspect the property (including the books and records) of any Loan Party or any of its Subsidiaries or Affiliates; (d) shall not be required to initiate or conduct any litigation or collection proceedings under any Loan Document; and (e) shall not be responsible for any action taken or omitted to be taken by it under or in connection with any Loan Document, except for its own gross negligence or willful misconduct. Agent may employ agents and attorneys-in-fact and shall not be responsible for the negligence or misconduct of any such agents or attorneys-in-fact selected by it with reasonable care. Section 17.2 RELIANCE BY AGENT. Agent shall be entitled to rely upon any certification, notice, instrument, writing or other communication (including, without limitation, any communication by telephone or telecopy) believed by it to be genuine and correct and to have been signed, sent or made by or on behalf of the proper Person or Persons, and upon advice and statements of legal counsel (including counsel for any Loan Party), independent accountants and other experts selected by Agent. Agent may deem and treat the payee of any Note as the holder thereof for all purposes hereof unless and until Agent receives and accepts an Assignment and Acceptance executed in accordance with SECTION 16.1 hereof. As to any matters not expressly provided for by this Agreement, Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding on all of the Lenders; PROVIDED, HOWEVER, that Agent shall not be required to take any action that exposes Agent to personal liability or that is contrary to any Loan Document or Applicable Law or unless it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking any such action. Section 17.3 DEFAULTS. Agent shall not be deemed to have knowledge or notice of the occurrence of a Default or Event of Default unless Agent has received written notice from a Lender or Borrower specifying such Default or Event of Default and stating that such notice is a "Notice of Default." In the event that Agent receives such a notice of the occurrence of a Default or Event of Default, Agent shall give prompt notice thereof to the Lenders. Agent shall 123 (subject to SECTION 17.2 hereof) take such action with respect to such Default or Event of Default as shall reasonably be directed by the Required Lenders, PROVIDED that, unless and until Agent shall have received such directions, Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interest of the Lenders. Section 17.4 RIGHTS AS LENDER. With respect to its Commitment and the Loans made by it, NationsBank (and any successor acting as Agent) in its capacity as a Lender hereunder shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the context otherwise indicates, include Agent in its individual capacity. NationsBank (and any successor acting as Agent) and its Affiliates may (without having to account therefor to any Lender) accept deposits from, lend money to, make investments in, provide services to and generally engage in any kind of lending, trust or other business with any Loan Party or any of its Subsidiaries or Affiliates as if it were not acting as Agent, and NationsBank (and any successor acting as Agent) and its Affiliates may accept fees and other consideration from any Loan Party or any of its Subsidiaries or Affiliates for services in connection with this Agreement or otherwise without having to account for the same to the other Lenders. Section 17.5 INDEMNIFICATION. THE LENDERS AGREE TO INDEMNIFY AGENT (TO THE EXTENT NOT REIMBURSED UNDER SECTION 18.2 HEREOF, BUT WITHOUT LIMITING THE OBLIGATIONS OF BORROWER UNDER SUCH SECTION) RATABLY IN ACCORDANCE WITH THEIR RESPECTIVE COMMITMENTS, FOR ANY AND ALL LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS' FEES) OR DISBURSEMENTS OF ANY KIND AND NATURE WHATSOEVER THAT MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST AGENT (INCLUDING BY ANY LENDER) IN ANY WAY RELATING TO OR ARISING OUT OF ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR ANY ACTION TAKEN OR OMITTED BY AGENT UNDER ANY LOAN DOCUMENT (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF AGENT); PROVIDED THAT NO LENDER SHALL BE LIABLE FOR ANY OF THE FOREGOING TO THE EXTENT THEY ARISE FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON TO BE INDEMNIFIED. WITHOUT LIMITATION OF THE FOREGOING, EACH LENDER AGREES TO REIMBURSE AGENT PROMPTLY UPON DEMAND FOR ITS RATABLE SHARE OF ANY COSTS OR EXPENSES PAYABLE BY BORROWER UNDER SECTION 18.2, TO THE EXTENT THAT AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH COSTS AND EXPENSES BY BORROWER. THE AGREEMENTS CONTAINED IN THIS SECTION SHALL SURVIVE PAYMENT IN FULL OF ALL SECURED OBLIGATIONS. Section 17.6 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Credit Party agrees that it has, independently and without reliance on any other Credit Party, and based on such documents and information as it has deemed appropriate, made its own credit analysis of the Loan Parties and their Subsidiaries and decision to enter into this Agreement and that it will, independently and 124 without reliance upon any other Credit Party, and based on such documents and information as it shall deem appropriate at the time, continue to make its own analysis and decisions in taking or not taking action under the Loan Documents. Except for notices, reports and other documents and information expressly required to be furnished to any Credit Party by Agent hereunder, Agent shall not have any duty or responsibility to provide any Credit Party with any credit or other information concerning the affairs, financial condition or business of any Loan Party or any of its Subsidiaries or Affiliates that may come into the possession of Agent or any of its Affiliates. Section 17.7 RESIGNATION OF AGENT. Agent may resign at any time by giving notice thereof to the Lenders and Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a commercial bank organized under the laws of the U.S. having combined capital and surplus of at least $100,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor, such successor shall thereupon succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this ARTICLE 17 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. ARTICLE 18 MISCELLANEOUS Section 18.1 NOTICES. (a) METHOD OF COMMUNICATION. Except as specifically provided in this Agreement or in any of the other Loan Documents, all notices and the communications hereunder and thereunder shall be in writing or by telephone, subsequently confirmed in writing. Notices in writing shall be delivered personally or sent by certified or registered mail, postage prepaid, or by overnight courier, telex or facsimile transmission and shall be deemed received in the case of personal delivery, when delivered, in the case of mailing, when receipted for, in the case of overnight delivery, on the next Business Day after delivery to the courier, and in the case of telex and facsimile transmission, upon transmittal, PROVIDED that in the case of notices to Agent, notice shall be deemed to have been given only when such notice is actually received by Agent. A telephonic notice to Agent, as understood by Agent, will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice. (b) ADDRESSES FOR NOTICES. Notices to any party shall be sent to it at the following addresses, or any other address of which all the other parties are notified in writing 125 IF TO BORROWER: DELIVERY ADDRESS: Kerr Group, Inc. Kerr Group, Inc. 500 New Holland Avenue 500 New Holland Avenue Lancaster, Pennsylvania 17602 Lancaster, Pennsylvania 17602 Attn: Geoffry A. Whynot Attn: Geoffry A. Whynot Facsimile No.: (717) 394-6398 WITH A COPY TO: DELIVERY ADDRESS: Fremont Acquisition Corporation Fremont Acquisition Corporation Fifty Fremont Street, Suite 3700 Fifty Fremont Street, Suite 3700 San Francisco, California 94105 San Francisco, California 94105 Attn: Gregory P. Spivy Attn: Gregory P. Spivy Facsimile No.: (415) 284-8191 IF TO AGENT: DELIVERY ADDRESS: NationsBank of Texas, N.A. NationsBank of Texas, N.A. P. O. Box 830732 901 Main Street, 6th Floor Dallas, Texas 75283-0732 Dallas, Texas 75202 Attn: Business Credit/Regional Attn: Business Credit/Regional Manager: URGENT Manager: URGENT Facsimile No.: (214) 508-3501 WITH A COPY TO: DELIVERY ADDRESS: Jenkens & Gilchrist, P.C. Jenkens & Gilchrist, P.C. 1445 Ross Avenue, Suite 3200 1445 Ross Avenue, Suite 3200 Dallas, Texas 75202 Dallas, Texas 75202 Attn: Daniel C. Garner, Esq. Attn: Daniel C. Garner, Esq. Facsimile No.: 214-855-4300 IF TO A LENDER: At the address of such Lender set forth on the signature pages hereof. (c) PRINCIPAL OFFICE. Agent hereby designates its office located at 901 Main Street, Dallas, Dallas County, Texas 75202, or any subsequent office which shall have been specified for such purpose by written notice to Borrower, as the office to which payments due are to be made and at which Loans will be disbursed. Section 18.2 EXPENSES. Borrower agrees to pay or reimburse on demand all costs and expenses incurred by Agent, NationsBank or its Affiliates, including, without limitation, the reasonable fees and disbursements of counsel, in connection with the following: 126 (a) the negotiation, preparation, execution, delivery, administration, enforcement and termination of this Agreement and each of the other Loan Documents, whenever the same shall be executed and delivered, including, without limitation, the following: (i) the out-of-pocket costs and expenses incurred in connection with the administration and interpretation of this Agreement and the other Loan Documents; (ii) the costs and expenses of appraisals of the Collateral; (iii) the costs and expenses of lien and title searches and title insurance; (iv) the costs and expenses of environmental reports with respect to the Real Estate; and (v) taxes, fees and other charges for recording the Mortgages, filing the Financing Statements and continuations and the costs and expenses of taking other actions to perfect, protect and continue the Security Interests; (b) the preparation, execution and delivery of any waiver, amendment, supplement or consent by Agent and the Lenders relating to this Agreement or any of the Loan Documents; (c) sums paid or incurred to pay any amount or take any action required of Borrower under the Loan Documents that Borrower fails to pay or take; (d) costs of inspections and verifications of the Collateral, including, without limitation, standard per diem fees charged by Agent, travel, lodging and meals for inspections of the Collateral and Borrower's operations and books and records by Agent's agents up to four (4) times per year and whenever an Event of Default exists; (e) costs and expenses of forwarding loan proceeds, collecting checks and other items of payment, and establishing and maintaining each Disbursement Account, Agency Account and Lockbox; (f) costs and expenses of preserving and protecting the Collateral; (g) consulting, after the occurrence of a Default, with one or more Persons, including appraisers, accountants and lawyers, concerning the value of any Collateral for the Secured Obligations or related to the nature, scope or value of any right or remedy of Agent or any Lender hereunder or under any of the Loan Documents, including any review of factual matters in connection therewith, which expenses shall include the fees and disbursements of such Persons; (h) reasonable costs and expenses paid or incurred to obtain payment of the Secured Obligations, enforce the Security Interests, sell or otherwise realize upon the 127 Collateral, and otherwise enforce the provisions of the Loan Documents, or to prosecute or defend any claim in any way arising out of, related to or connected with this Agreement or any of the other Loan Documents, which expenses shall include the reasonable fees and disbursements of counsel and of experts and other consultants retained by Agent or any Lender; and (i) all reasonable attorney's fees and expenses (including, without limitation, the cost of internal counsel) incurred in connection with any of the foregoing. The foregoing shall not be construed to limit any other provisions of the Loan Documents regarding costs and expenses to be paid by Borrower. Borrower hereby authorizes Agent to debit Borrower's Loan Accounts (by increasing the principal amount of the Revolving Credit Loan) in the amount of any such costs and expenses owed by Borrower when due. Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this SECTION 18.2 shall survive the payment in full of the Loans and all other amounts payable under this Agreement. Section 18.3 STAMP AND OTHER TAXES. Borrower will pay any and all stamp, registration, recordation and similar taxes, fees or charges and shall indemnify Agent and the Lenders against any and all liabilities with respect to or resulting from any delay in the payment or omission to pay any such taxes, fees or charges, which may be payable or determined to be payable in connection with the execution, delivery, performance or enforcement of this Agreement and any of the Loan Documents or the perfection of any rights or security interest thereunder, including, without limitation, the Security Interest. Section 18.4 RIGHT OF SET-OFF; ADJUSTMENTS. (a) Upon the occurrence and during the continuance of any Event of Default, each Lender (and each of its Affiliates) is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other Indebtedness at any time owing by such Lender (or any of its Affiliates) to or for the credit or the account of Borrower against any and all of the obligations of Borrower now or hereafter existing under this Agreement and the Notes held by such Lender, irrespective of whether such Lender shall have made any demand under this Agreement or such Notes and although such obligations may be unmatured. Each Lender agrees promptly to notify Borrower after any such set-off and application made by such Lender; PROVIDED, HOWEVER, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Lender may have. (b) If any Lender (a "BENEFITTED LENDER") shall at any time receive any payment of all or part of the Loans owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off or otherwise), in a greater 128 proportion than any such payment to or Collateral received by any other Lender, if any, in respect of such other Lender's Loans owing to it, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loans owing to it, or shall provide such other Lenders with the benefits of any such Collateral, or the proceeds thereof, as shall be necessary to cause such benefitted Lender to share the excess payment or benefits of such Collateral or proceeds ratably with each of the Lenders; PROVIDED, HOWEVER, that if all or any portion of such excess payment or benefit is thereafter recovered from such benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. Borrower agrees that any Lender so purchasing a participation from a Lender pursuant to this SECTION 18.4 may, to the fullest extent permitted by law, exercise all of its rights of payment (including the right of set-off) with respect to such participation as fully as if such Person were the direct creditor of Borrower in the amount of such participation. Section 18.5 LITIGATION; WAIVER OF TRIAL BY JURY. EACH OF BORROWER, AGENT AND THE LENDERS HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST BORROWER, AGENT OR ANY LENDER ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, THE COLLATERAL OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN BORROWER AND AGENT OR ANY LENDER OF ANY KIND OR NATURE. EACH SUCH PARTY ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING. BORROWER, AGENT AND THE LENDERS HEREBY AGREE THAT THE FEDERAL COURT OF THE NORTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF AGENT OR ANY LENDER, ANY COURT IN WHICH AGENT OR SUCH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN BORROWER AND AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. WITHOUT LIMITING THE APPLICABILITY OF ANY LAW PROVIDING FOR SERVICE OF PROCESS UPON A STATUTORY AGENT AND NOTIFICATION THEREOF BY MAIL, BORROWER HEREBY WAIVES (TO THE FULLEST EXTENT ALLOWED BY LAW) PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREES (TO THE FULLEST EXTENT ALLOWED BY LAW) THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO 129 BORROWER AT THE ADDRESS OF BORROWER SET FORTH IN SECTION 18.1. SHOULD BORROWER FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. Section 18.6 REVERSAL OF PAYMENTS. Agent and each Lender shall have the continuing and exclusive right to apply, reverse and re-apply any and all payments to any portion of the Secured Obligations in a manner consistent with the terms of this Agreement. To the extent Borrower makes a payment or payments to Agent, for the account of the Credit Parties, or any Credit Party receives any payment or proceeds of the Collateral for Borrower's benefit, which payment(s) or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a 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 proceeds received, the Secured Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect, as if such payment or proceeds had not been received by Agent or such other Credit Party. Section 18.7 INJUNCTIVE RELIEF. Borrower recognizes that, in the event Borrower fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy at law may prove to be inadequate relief to Agent and the other Credit Parties; therefore, Borrower agrees that if any Event of Default shall have occurred and be continuing, Agent and the other Credit Parties, if Agent or any other Credit Party so requests, shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damages. Section 18.8 ACCOUNTING MATTERS. All financial and accounting calculations, measurements and computations made for any purpose relating to this Agreement, including, without limitation, all computations utilized by Borrower to determine whether it is in compliance with any covenant contained herein, shall, unless this Agreement otherwise provides or unless Required Lenders shall otherwise consent in writing, be performed in accordance with GAAP. Section 18.9 AMENDMENTS. (a) Except as set forth in SUBSECTION (b) below, any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived, and any departure therefrom may be consented to by the Required Lenders, if, but only if, such amendment, waiver or consent is in writing signed by the Required Lenders and, in the case of an amendment (other than an amendment described in SECTION 18.9(d)), by Borrower, and in any such event, the failure to observe, perform or discharge any such term, covenant, agreement or condition (whether such amendment is executed or such 130 waiver or consent is given before or after such failure) shall not be construed as a breach of such term, covenant, agreement or condition or as a Default or an Event of Default. Unless otherwise specified in such waiver or consent, a waiver or consent given hereunder shall be effective only in the specific instance and for the specific purpose for which given. In the event that any such waiver or amendment is requested by Borrower, Agent and the Lenders may require and charge a fee in connection therewith and consideration thereof in such amount as shall be determined by Agent and the Required Lenders in their discretion. (b) Except as otherwise set forth in this Agreement, without the prior unanimous written consent of the Lenders, (i) no amendment, consent or waiver shall affect the amount or extend the time of the obligation of the Lenders to make Loans or extend the originally scheduled time or times of payment of the principal of any Loan or alter the time or times of payment of interest on any Loan or the amount of the principal thereof, whether scheduled or a mandatory prepayment, or the rate of interest thereon or the amount of any commitment fee payable hereunder, or other fees payable ratably to the Lenders hereunder, or permit any subordination of the principal or interest on such Loan, permit the subordination of the Security Interests in any material Collateral or amend the provisions of ARTICLE 15 or of this SECTION 18.9(b), (ii) no material Collateral shall be released by Agent other than as specifically permitted in this Agreement; (iii) except to the extent expressly provided herein, the definition of "Borrowing Base" shall not be amended; (iv) no Guarantor shall be released of its obligations under its Affiliate Guaranty; or (v) amend the Termination Date with respect to any Loan; PROVIDED, HOWEVER, that anything herein to the contrary notwithstanding, Required Lenders shall have the right to waive any Default or Event of Default and the consequences hereunder of such Default or Event of Default and shall have the right to enter into an agreement with Borrower or any Guarantor providing for the forbearance from the exercise of any remedies provided hereunder or under the other Loan Documents without waiving any Default or Event of Default. (c) The making of Loans hereunder by the Lenders, or the issuance of any Letter of Credit by L/C Issuer, during the existence of a Default or Event of Default shall not be deemed to constitute a waiver of such Default or Event of Default. 131 (d) Notwithstanding any provision of this Agreement or the other Loan Documents to the contrary, no consent, written or otherwise, of Borrower shall be necessary or required in connection with any amendment to ARTICLE 17 or SECTION 6.8, and any amendment to such provisions shall be effected solely by and among Agent and the lenders, PROVIDED that no such amendment shall impose any obligation on Borrower. (e) Notwithstanding any provision of this Agreement to the contrary, no consent of Borrower or any Lender, other than the affected Lenders, shall be necessary or required in connection with any amendment of the amount of a Lender's Commitment. SECTION 18.10 ASSIGNMENT. All the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights under this Agreement. SECTION 18.11 PERFORMANCE OF BORROWER'S DUTIES. (a) Borrower's obligations under this agreement and each of the Loan Documents shall be performed by Borrower at its sole cost and expense. (b) If Borrower shall fail to do any act or thing which it has covenanted to do under this Agreement or any of the other Loan Documents, Agent, on behalf of the Lenders, may (but shall not be obligated to) do the same or cause it to be done either in the name of Agent or the Lenders or in the name and on behalf of Borrower, and Borrower hereby irrevocably authorizes Agent so to act. SECTION 18.12 INDEMNIFICATION. (a) BORROWER AGREES TO INDEMNIFY AND HOLD HARMLESS AGENT AND EACH OTHER CREDIT PARTY AND EACH OF THEIR AFFILIATES AND THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND ADVISORS (EACH, AN "INDEMNIFIED PARTY") FROM AND AGAINST ANY AND ALL CLAIMS, DAMAGES, LOSSES, LIABILITIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES) THAT MAY BE INCURRED BY OR ASSERTED OR AWARDED AGAINST ANY INDEMNIFIED PARTY, IN EACH CASE ARISING OUT OF OR IN CONNECTION WITH OR BY REASON OF (INCLUDING, WITHOUT LIMITATION, IN CONNECTION WITH ANY INVESTIGATION, LITIGATION OR PROCEEDING OR PREPARATION OF DEFENSE IN CONNECTION THEREWITH) THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS (INCLUDING ANY OF THE FOREGOING ARISING FROM THE NEGLIGENCE OF THE INDEMNIFIED PARTY), EXCEPT TO THE EXTENT SUCH CLAIM, DAMAGE, LOSS, LIABILITY, COST OR EXPENSE IS FOUND IN A FINAL, NON-APPEALABLE JUDGMENT BY A COURT OF COMPETENT JURISDICTION TO HAVE 132 RESULTED FROM SUCH INDEMNIFIED PARTY'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IN THE CASE OF AN INVESTIGATION, LITIGATION OR OTHER PROCEEDING TO WHICH THE INDEMNITY IN THIS SECTION 18.12 APPLIES, SUCH INDEMNITY SHALL BE EFFECTIVE WHETHER OR NOT SUCH INVESTIGATION, LITIGATION OR PROCEEDING IS BROUGHT BY BORROWER, ITS DIRECTORS, SHAREHOLDERS OR CREDITORS OR AN INDEMNIFIED PARTY OR ANY OTHER PERSON OR ANY INDEMNIFIED PARTY IS OTHERWISE A PARTY THERETO AND WHETHER OR NOT THE TRANSACTIONS CONTEMPLATED HEREBY ARE CONSUMMATED. BORROWER AGREES NOT TO ASSERT ANY CLAIM AGAINST AGENT, ANY OTHER CREDIT PARTY, ANY OF THEIR AFFILIATES OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS, AGENTS AND ADVISERS, ON ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES ARISING OUT OF OR OTHERWISE RELATING TO THE LOAN DOCUMENTS, ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THE ACTUAL OR PROPOSED USE OF THE PROCEEDS OF THE LOANS. (B) WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER AGREEMENT OF BORROWER HEREUNDER, THE AGREEMENTS AND OBLIGATIONS OF BORROWER CONTAINED IN THIS SECTION 18.12 SHALL SURVIVE THE PAYMENT IN FULL OF THE LOANS AND ALL OTHER AMOUNTS PAYABLE UNDER THIS AGREEMENT. SECTION 18.13 ALL POWERS COUPLED WITH INTEREST. All powers of attorney and other authorizations granted to Agent and the other Credit Parties and any Persons designated by Agent or the other Credit Parties pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Secured Obligations remain unpaid or unsatisfied. SECTION 18.14 SURVIVAL. Notwithstanding any termination of this Agreement, (A) until all Secured Obligations have been irrevocably paid in full or otherwise satisfied, Agent, for the benefit of the Credit Parties, shall retain its Security Interest and shall retain all rights under this Agreement and each of the Security Documents with respect to such Collateral as fully as though this Agreement had not been terminated, (B) the indemnities to which Agent and the other Credit Parties are entitled under the provisions of this ARTICLE 18 and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect Agent and the other Credit Parties against events arising after such termination as well as before, and (C) in connection with the termination of this Agreement and the release and termination of the Security Interests, Agent, on behalf of itself as agent and the other Credit Parties, may require such assurances and indemnities as it shall reasonably deem 133 necessary or appropriate to protect agent and the other credit parties against loss on account of such release and termination, including, without limitation, with respect to credits previously applied to the secured obligations that may subsequently be reversed or revoked. SECTION 18.15 TITLES AND CAPTIONS. Titles and captions of Articles, Sections and subsections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement. SECTION 18.16 SEVERABILITY OF PROVISIONS. Any provision of this Agreement or any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 18.17 GOVERNING LAW. THIS AGREEMENT AND THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS, PROVIDED THAT TO THE EXTENT FEDERAL LAW WOULD ALLOW A HIGHER RATE OF INTEREST THAN WOULD BE ALLOWED BY THE LAWS OF THE STATE OF TEXAS, THEN WITH RESPECT TO THE PROVISIONS OF ANY LAWS WHICH PURPORT TO LIMIT THE AMOUNT OF INTEREST THAT MAY BE CONTRACTED FOR, CHARGED OR RECEIVED IN CONNECTION WITH ANY OF THE SECURED OBLIGATIONS, SUCH FEDERAL LAW SHALL APPLY. Section 18.18 COUNTERPARTS. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and shall be binding upon all parties, their successors and assigns, and all of which taken together shall constitute one and the same agreement. Section 18.19 REPRODUCTION OF DOCUMENTS. This Agreement, each of the Loan Documents and all documents relating thereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by Agent or any other Credit Party, and (c) financial statements, certificates and other information previously or hereafter furnished to agent or any other credit party, may be reproduced by Agent or such Credit Party by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and such Person may destroy any original document so produced. Each party hereto stipulates that, to the extent permitted by Applicable Law, any such reproduction shall be as admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original shall be in existence and whether or not such reproduction was made by Agent or such other Credit Party in the regular course of business), and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. Section 18.20 TERM OF AGREEMENT. This Agreement shall remain in effect from the Agreement Date through the Termination Date and thereafter until all Secured Obligations shall 134 have been irrevocably paid and satisfied in full. No termination of this agreement shall affect the rights and obligations of the parties hereto arising prior to such termination. SECTION 18.21 PRO-RATA PARTICIPATION. (a) Each Lender agrees that (i) if it or any of its Affiliates shall exercise any right of counterclaim, set-off, banker's lien or similar right, or if under any applicable bankruptcy, insolvency or other similar law it receives a secured claim the security for which is a debt owed by it to Borrower, it shall apportion the amount thereof, on a pro rata basis, between (A) amounts at the time owed to it by Borrower under this Agreement, and (B) amounts otherwise owed to it by Borrower, and (ii) if, as a result of the exercise of a right or the receipt of a secured claim and the apportionment thereof described in CLAUSE (i) of this SECTION 18.21(a) or otherwise, it shall receive payment of a proportion of the aggregate amount of principal and interest due with respect to the Secured Obligations owed to it under this Agreement greater than the proportion of such amounts then received by any other Lender, such Lender shall purchase a participation (which it shall be deemed to have purchased simultaneously upon the receipt of such payment) in the Secured Obligations then held by the other Lenders so that all such recoveries of principal and interest with respect to all Secured Obligations owed to each Lender shall be pro rata on the basis of its respective amount of the Secured Obligations owed to all Lenders, provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered by or on behalf of Borrower from such Lender, such purchase shall be rescinded and the purchase price paid for such participation shall be returned to such lender to the extent of such recovery, but without interest. (b) Each Lender which receives such a secured claim shall exercise its rights in respect of such secured claim in a manner consistent with the rights of the Lenders entitled under this SECTION 18.21 to share in the benefits of any recovery on such secured claim. (c) Borrower expressly consents to the foregoing arrangements and agrees that any holder of a participation in any Secured Obligation so purchased or otherwise acquired may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Borrower to such holder as fully as if such holder were a holder of such Secured Obligation in the amount of the participation held by such holder. Section 18.22 INTEREST LIMITATION. In no contingency or event whatsoever shall the amount of interest under the Loan Documents paid by Borrower, received by the Lenders, agreed to be paid by Borrower, or requested or demanded to be paid by the Lenders, exceed the maximum rate. In the event any such sums paid to Lender by Borrower would exceed the Maximum Rate, 135 Lender shall automatically apply such excess to any unpaid amount of the Secured Obligations or, if the amount of such excess exceeds said unpaid amount, such excess shall be paid to Borrower. All sums paid, or agreed to be paid, by Borrower which are or hereafter may be construed to be compensation for the use, forbearance or detention of money shall be amortized, prorated, spread and allocated in respect of the Secured Obligations throughout the full term of this agreement until the Secured Obligations are paid in full. Notwithstanding any provisions contained in the Loan Documents, or in any Notes or other related documents executed pursuant hereto, the Lenders shall never be entitled to receive, collect or apply as interest any amount in excess of the Maximum Rate and, in the event any Lender ever receives, collects or applies any amount in respect of Borrower that otherwise would be in excess of the Maximum Rate, such amount shall automatically be deemed to be applied in reduction of the unpaid principal balance of the Secured Obligations and, if such principal balance is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, Borrower and Lender shall, to the maximum extent permitted under Applicable Law, (i) characterize any non-principal payment as a standby fee, commitment fee, prepayment charge, delinquency charge or reimbursement for a third-party expense rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts throughout the entire period during which the Secured Obligations were outstanding the total amount of interest at any time contracted for, charged or received. Nothing herein contained shall be construed or so operate as to require Borrower to pay any interest, fees, costs or charges greater than is permitted by applicable law. Subject to the foregoing, Borrower hereby agrees that the actual effective rate of interest from time to time existing with respect to loans made by the Lenders to Borrower, including all amounts agreed to by Borrower or charged or received by the Lenders, which may be deemed to be interest under Applicable Law, shall be deemed to be a rate which is agreed to and stipulated by Borrower and the Lenders in accordance with applicable law. Section 18.23 CONFIDENTIALITY. Each Credit Party agrees to keep confidential any information furnished or made available to it by Borrower pursuant to this Agreement that is marked confidential; PROVIDED that nothing herein shall prevent any Credit Party from disclosing such information (a) to any other Credit Party or any Affiliate of any Credit Party, or any officer, director, employee, agent or advisor of any Credit Party or Affiliate of any Credit Party, (b) to any other person if reasonably incidental to the administration of the credit facilities provided herein, (c) as required by any Applicable Law, (d) upon the order, request or demand of any Governmental Authority, (e) that is or becomes available to the public or that is or becomes available to any Credit Party other than as a result of a disclosure by any Credit Party prohibited by this Agreement, (f) in connection with any litigation to which such Credit Party or any of its Affiliates may be a party, (g) to the extent necessary in connection with the exercise of any remedy under this Agreement or any other Loan Document, and (h) subject to provisions substantially similar to those contained in this Section, to any actual or proposed participant or assignee. 136 THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO ORAL AGREEMENTS BETWEEN THE PARTIES. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers in several counterparts all as of the day and year first written above. 137 BORROWER: KERR GROUP, INC. By: /s/ Geoffrey A. Whynot --------------------------------------- Name: Geoffrey A. Whynot -------------------------------- Title: Vice President and Chief Financial Officer -------------------------------- AGENT: NATIONSBANK OF TEXAS, N.A. By: /s/ Anne E. Carbone --------------------------------------- Anne E. Carbone Senior Vice President Address: 901 Main Street, 6th Floor Dallas, TexaS 75202 Attn: Business Credit/RegionaL Manager: URGENT Facsimile No.: (214) 508-0480 138 LENDERS: Commitment NATIONSBANK OF TEXAS, N.A., Amount: $62,000,000.00 as a Lender and as L/C Issuer By: /s/ Anne E. Carbone --------------------------------------- Anne E. Carbone Senior Vice President Address for Notices: : 901 Main Street, 6th Floor Dallas, Texas 75202 Attn: Business Credit/Regional Manager: URGENT Facsimile No.: (214) 508-0480 Applicable Lending Office for Base Rate Loans: 901 Main Street, 6th Floor Dallas, Texas 75202 Attn: Business Credit/Regional Manager: URGENT Facsimile No.: (214) 508-0480 Applicable Lending Office for Eurodollar Loans: 901 Main Street, 6th Floor Dallas, Texas 75202 Attn: Business Credit/Regional Manager: URGENT Facsimile No.: (214) 508-0480 139 Commitment _____________________________________ Amount: $_______________ By:__________________________________ Name:___________________________ Title:__________________________ Address for Notices: ________________ ________________ Attn:__________________ Facsimile No.:_________ Applicable Lending Office for Base Rate Loans: ________________________________ ________________________________ ________________________________ Applicable Lending Office for Eurodollar Loans: ________________________________ ________________________________ ________________________________ 140 Commitment _____________________________________ Amount: $_______________ By:__________________________________ Name:___________________________ Title:__________________________ Address for Notices: ________________ ________________ Attn:__________________ Facsimile No.:_________ Applicable Lending Office for Base Rate Loans: ________________________________ ________________________________ ________________________________ Applicable Lending Office for Eurodollar Loans: ________________________________ ________________________________ ________________________________ 141 EX-10.46 6 EXHIBIT 10.46 NATIONSBANK NATIONSBANK OF TEXAS, N.A. - -------------------------------------------------------------------------------- GUARANTY AGREEMENT (Kerr Acquisition Corporation) This Guaranty Agreement ("GUARANTY"), is executed effective and delivered as of August 26, 1997, by KERR ACQUISITION CORPORATION, a Delaware corporation whose principal place of business is located at 50 Fremont Street, Suite 3700, San Francisco, California 94105, to and for the benefit of NATIONSBANK OF TEXAS, N.A., a national banking association, in its capacity as Agent (as defined herein) for and on behalf of the Credit Parties (as defined herein), whose principal place of business is located in Dallas County, Texas, as follows: DEFINITIONS: "AGENT" means NationsBank of Texas, N.A., a national banking association, as agent pursuant to the Loan and Security Agreement, whose principal place of business is located at 901 Main Street, Dallas, Texas 75202, or such successor agent as may be appointed pursuant to the Loan and Security Agreement. "BORROWER" means Kerr Group, Inc., a Delaware corporation, with its principal place of business located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602-2104 and its successors and permitted assigns. "GUARANTEED OBLIGATIONS" means (i) all indebtedness, obligations and liabilities at any time, from time to time, included within the "Secured Obligations" (as defined in the Loan and Security Agreement, which definition is incorporated herein by reference), including, without limitation, all unpaid principal and accrued interest on the Loans as evidenced by each and all of the Notes and the Letter of Credit Obligations (all of such Notes and Letter of Credit Obligations whether now existing or hereafter arising), and all other fees, costs, expenses (including, without limitation, reasonable attorneys' fees and expenses and other legal costs) and other monetary obligations of Borrower under the Loan Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, and (ii) all renewals, extensions, modifications, rearrangements and increases of the indebtedness, liabilities and obligations described in clauses (i) and (ii) above. The "Guaranteed Obligations" include, without limitation, all indebtedness, obligations and liabilities of the type or nature described above in accordance with the Loan Documents, at any time owing by any predecessor or successor of Borrower, specifically including, without limitation, Borrower as survivor of the Merger. "GUARANTOR" means Kerr Acquisition Corporation, a Delaware corporation, with its principal place of business located at 50 Fremont Street, Suite 3700, San Francisco, California 94105. "LENDER" shall have the meaning prescribed for such term by the Loan and Security Agreement, which definition is incorporated herein by reference and, as of the effective date hereof, includes NationsBank and its successors and permitted assigns, and also includes any other Person who hereafter becomes a "Lender" as defined in and provided by the Loan and Security Agreement. "LOAN AND SECURITY AGREEMENT" means the certain Loan and Security Agreement of even date herewith among Agent, the Lenders from time to time party thereto, L/C Issuer (as defined therein) and Borrower, as such agreement may be renewed, extended, modified, amended or restated from time to time. "LOAN DOCUMENTS" means the "Loan Documents" as defined by the Loan and Security Agreement. "NATIONSBANK" means NationsBank of Texas, N.A., a national banking association, in its individual corporate capacity as a Lender, whose principal place of business is located at 901 Main Street, Dallas, Texas 75202. Unless otherwise defined above, terms defined in the Loan and Security Agreement, wherever used herein, shall have the same meanings in this Guaranty as are set forth in the Loan and Security Agreement. Guarantor expressly acknowledges that it has read and is familiar with all such incorporated definitions and that incorporation of same herein shall be deemed to have the same effect and enforceability as though each of such incorporated definitions is set forth herein at length. RECITALS: A. Borrower, Agent, L/C Issuer and NationsBank have executed and entered into the Loan and Security Agreement, which provides for Loans by the Lenders to Borrower and for the issuance of Letters of Credit by L/C Issuer on the terms and conditions prescribed therein. B. This Guaranty is required by the Loan and Security Agreement and Guarantor's execution and delivery hereof is a condition (among other conditions) to Loans and Letters of Credit under the Loan and Security Agreement. C. Guarantor has determined that (i) it will directly and indirectly benefit from the availability of financing to Borrower thereunder and under the other transactions evidenced by and contemplated in the Loan Documents, (ii) it will benefit, directly and indirectly, from executing and delivering this Guaranty, and (iii) it is in Guarantor's best interest, and within its corporate purpose, to execute and deliver and, if called upon, to perform this Guaranty. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows: 1. GUARANTY OF GUARANTEED OBLIGATIONS. This Guaranty is executed by Guarantor pursuant to the Loan and Security Agreement and is for the benefit of Agent and the other Credit Parties. As an inducement to the Lenders to make Loans and extend and continue to extend credit and other financial accommodations to Borrower under the Loan Documents, 2 and to L/C Issuer to provide Letters of Credit for the account of Borrower, Guarantor, for value received, does hereby unconditionally, irrevocably and absolutely guarantee the prompt and full payment and performance of the Guaranteed Obligations when due or declared to be due and at all times thereafter. 2. NATURE OF GUARANTY. This Guaranty is and shall be an absolute, unconditional, irrevocable and continuing unlimited guaranty of payment, and not solely of collection. Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan and Security Agreement, the Notes and the other Loan Documents, without setoff or counterclaim, and regardless of any Applicable Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Credit Parties with respect thereto. The Guaranteed Obligations may be increased, reduced or paid in full at any time and from time to time without affecting the liability or obligation of Guarantor under this Guaranty with respect to all Guaranteed Obligations, whenever incurred or arising. All Guaranteed Obligations now or hereafter arising shall be conclusively presumed to have been made or acquired in acceptance hereof. Guarantor shall be liable, jointly and severally, with Borrower and any other Person now or hereafter obligated in respect of the Guaranteed Obligations, or any portion thereof. It is the intention of Guarantor and Agent that Guarantor's liabilities and obligations hereunder shall not be discharged except by Guarantor's full and complete payment and performance of such liabilities and obligations and then only to the extent of such payment and performance (to the extent not otherwise satisfied by Borrower or any other Person now or hereafter obligated in respect of the Guaranteed Obligations). 3. REPRESENTATIONS AND WARRANTIES. In connection with this Guaranty, Guarantor hereby represents and warrants to Lender that: (a) Guarantor owns not less than 51.0% of Borrower's Capital Stock on an as converted and fully diluted basis; Guarantor has received and will receive a direct and indirect material benefit from the transactions evidenced by and contemplated in the Loan and Security Agreement and the other Loan Documents; this Guaranty is given by Guarantor in furtherance of the direct and indirect business interests and corporate purposes of Guarantor, and is necessary to the conduct, promotion and attainment of the businesses of Borrower and Guarantor; and, the value of the consideration received and to be received by Guarantor is reasonably worth at least as much as the liability and obligation of Guarantor hereunder. (b) Guarantor (i) is a corporation duly incorporated, validly existing and in good standing under the laws of the state of its incorporation, (ii) is duly qualified and in good standing under the laws of each jurisdiction in which the failure to so qualify has a reasonable likelihood of having a Materially Adverse Effect, (iii) has all requisite corporate power and authority to own its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted, (iv) is in compliance with its Certificate of Incorporation and bylaws, (v) is in compliance with all other requirements of Applicable Law except for such noncompliance as in the aggregate would not have a Materially Adverse Effect, and (vi) has all Governmental Approvals necessary for the ownership, operation and conduct of its business. 3 (c) The execution, delivery and performance by Guarantor of this Guaranty and any other Loan Document to which it is a party: (i) are within its corporate power; (ii) have been duly authorized by all necessary corporate action, including, without limitation, the consent of its board of directors or stockholders where required; and (iii) do not and will not (A) contravene its Certificate of Incorporation or bylaws or other comparable governing documents, (B) violate any Applicable Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority except to the extent that any such violation could not reasonably be expected to have a Materially Adverse Effect, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any material contract, agreement or instrument to which Guarantor is a party or which may be applicable to Guarantor or any of its assets, (D) result in the creation or imposition of any Lien upon any of its property other than those in favor of Agent for the benefit of the Credit Parties and Liens permitted by the Loan and Security Agreement, or (E) require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person, except to the extent that the failure to obtain such consent or approval could not reasonably be expected to have a Materially Adverse Effect. (d) All acts and conditions required to be performed and satisfied prior to the creation and issuance of this Guaranty, and to constitute this Guaranty as the legal, valid and binding obligation of Guarantor in accordance with its terms, have been performed and satisfied in due and strict compliance with Applicable Law. This Guaranty has been duly executed and delivered by Guarantor and is the legal, valid and binding obligation of Guarantor enforceable against it in accordance with its terms, subject to Applicable Law regarding insolvency (only insofar as any such Applicable Law relates to the bankruptcy, insolvency or similar event of Guarantor). (e) There are no pending or, to the knowledge of Guarantor, threatened actions, investigations or proceedings to which Guarantor or any of its Subsidiaries (excluding Borrower) is or could reasonably be expected to become a party or, to Guarantor's knowledge, affecting Guarantor or any of its Subsidiaries (excluding Borrower) before any Governmental Authority with respect to which there is a reasonable likelihood of an adverse determination and that, if adversely determined, is reasonably likely to have a Material Adverse Effect. The performance by Guarantor under this Guaranty and under any other Loan Document to which it is a party is not restrained or enjoined (either temporarily, preliminarily or permanently) and no material adverse conditions have been imposed by any Governmental Authority upon any of the foregoing transactions. (f) Guarantor is currently informed of the financial condition of Borrower and any and all other Persons obligated in respect of the Guaranteed Obligations and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Guaranteed Obligations. Guarantor has read and understands the terms and conditions of the Loan Documents. Guarantor is familiar with, and has independently reviewed the books and records regarding, the financial condition of Borrower and is familiar with the value of any and all property intended to be security 4 for the payment of all or any part of the Guaranteed Obligations; PROVIDED, HOWEVER, Guarantor is not relying on such financial condition or the existence or value of any such security as an inducement to enter into this Guaranty. Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower. Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any Person other than Guarantor will be liable to pay the Guaranteed Obligations. Neither Agent, nor any other Credit Party, has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty. 4. COVENANTS. Throughout the term of and in any event until payment and performance in full of the Guaranteed Obligations (unless otherwise allowed by prior written consent of Agent): (a) Guarantor will keep itself informed of the financial condition of Borrower and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Guaranteed Obligations, without reliance upon any Credit Party. (b) Guarantor will not engage in any business, activity or operations other than owning and holding the Capital Stock of Borrower and acting as Guarantor in respect of the Guaranteed Obligations, and activities directly related to the foregoing. (c) Guarantor will not merge or consolidate with or into any Person; PROVIDED, that Guarantor shall be permitted to merge with and into Borrower, with Borrower being the surviving corporation, pursuant to the terms of the Acquisition Documents. 5. OBLIGATIONS NOT IMPAIRED. Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events: (i) lack of corporate power of Borrower, Guarantor or any other Loan Party of all or any part of the Guaranteed Obligations, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other Loan Party of all or any part of the Guaranteed Obligations, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other Loan Party of all or any part of the Guaranteed Obligations, or any other Person from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Obligations, whether occurring by reason of law or otherwise; (iv) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all the Guaranteed Obligations, or any portion thereof, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, any of the Loan Documents; (v) the taking or accepting of any collateral security for all or any part of the Guaranteed Obligations or this Guaranty; (vi) the taking or accepting of any other guaranty for all or any part of the Guaranteed Obligations; (vii) any failure to acquire, perfect or continue any Lien on Collateral securing all or any part of the Guaranteed Obligations or this Guaranty; (viii) any exchange, release or subordination of any Lien on any Collateral, or any release, amendment, waiver or subordination of any term of any guaranty of the Guaranteed Obligations or any other impairment of any collateral security or guaranty now or hereafter securing all or any part of the Guaranteed Obligations; (ix) any failure to dispose of any collateral security at 5 any time securing all or any part of the Guaranteed Obligations or this Guaranty in a commercially reasonable manner or as otherwise may be required by Applicable Law; (x) any merger, reorganization, consolidation or dissolution of Borrower or Guarantor, any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any change in name, business, organization, location, composition, structure or organization of Borrower or any change in the shareholders of Borrower or Guarantor (whether by accession, secession, death, dissolution, transfer of assets or otherwise; (xi) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; (xii) avoidance or subordination of the Guaranteed Obligations, or any portion thereof, (xiii) the unenforceability of all or any part of the Guaranteed Obligations against Borrower by reason of the fact that the interest contracted for, charged or received in respect of the Guaranteed Obligations exceeds the amount permitted by Applicable Law; (xiv) any waiver, consent, extension, forbearance or granting of any indulgence by the Credit Parties with respect to the Guaranteed Obligations or any provision of any of the Loan Documents; (xv) any delay in or lack of enforcement of any remedies under the Loan Documents; (xvi) the act of creating all or any part of the Guaranteed Obligations is ULTRA VIRES, or the officers or other representatives creating all or any part of the Guaranteed Obligations acted in excess of their authority; (xvii) any election of remedies by any of the Credit Parties; (xviii) any of the Loan Documents were forged, (xix) the election by any of the Credit Parties in any proceeding under the United States Bankruptcy Code of the application of Section 1111(b)(2) thereof; (xx) any borrowing or grant of a security interest by Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code; (xxi) the disallowance in bankruptcy of all or any portion of the claims of any of the Credit Parties for payment of any of the Guaranteed Obligations; (xxii) withdrawal from, or termination of, any ownership interest in Guarantor or Borrower, or (xxiii) any other circumstance which might otherwise constitute a legal or equitable discharge or defense available to Borrower or Guarantor (other than that the Guaranteed Obligations shall have been indefeasibly paid and performed in full). 6. CONSENT AND WAIVER. (a) Guarantor hereby waives: (i) notice of acceptance of this Guaranty; (ii) notice of any Loans, Letters of Credit or other financial accommodations made or extended under the Loan Documents or the creation or existence of any Guaranteed Obligations; (iii) notice of the amount of the Guaranteed Obligations, SUBJECT, HOWEVER, to Guarantor's right to make inquiry of Agent to ascertain the amount thereof at any reasonable time; (iv) notice of any adverse change in the financial condition of Borrower or any other Person or of any other fact that might increase or otherwise change Guarantor's risk with respect to the Guaranteed Obligations, Borrower or any other Person under this Guaranty; (v) notice of presentment for payment, demand, protest and notice thereof, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence or promptness in enforcement and indulgences of every kind as to any promissory notes or other instruments among the Loan Documents; (vi) notice of any of the events or circumstances enumerated in PARAGRAPH 5 hereof, and all other notices and demands to which Guarantor might otherwise be entitled (except if such notice is specifically required to be given to Guarantor hereunder or under any of the Loan Documents to which Guarantor is a party), (vii) any requirement that any of the Credit Parties protect, secure, perfect or insure any Lien on any Collateral or other property subject thereto or exhaust any right or take any action against Borrower or any other 6 Person or any Collateral, (viii) the benefit of any statute of limitation applicable to enforcement of the Guaranteed Obligations, or any portion thereof, or of any Liens in the Collateral; (ix) all rights by which Guarantor might be entitled to require suit on an accrued right of action in respect of any of the Guaranteed Obligations or require suit against Borrower or any other guarantor, whether arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or otherwise or (x) any other defense of Borrower or any other guarantor (other than that the Guaranteed Obligations shall have been indefeasibly paid and performed in full). (b) Guarantor hereby waives and agrees not to assert against any Credit Party: (i) any defense, setoff, counterclaim or claim of any kind or nature available to Borrower or any other guarantor against any Credit Party, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity or enforceability of the Guaranteed Obligations or any security therefor; (ii) to the extent allowed by Applicable Law, any right or defense arising by reason of any claim or defense based upon an election of remedies by any Credit Party under any Applicable Law. (c) Agent shall have the right to seek recourse against Guarantor to the fullest extent provided for herein, and no election by Agent to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Agent's right to proceed in any other form of action or proceeding or against other parties unless Agent has expressly waived such right in writing. Without limiting the foregoing, no action or proceeding by any Credit Party under any document or instrument evidencing the Guaranteed Obligations shall serve to diminish the liability of Guarantor under this Guaranty except to the extent that the Credit Parties finally and unconditionally shall have realized indefeasible payment in full of the Guaranteed Obligations. (d) Guarantor waives, and agrees that its liability hereunder shall not be affected by, any neglect, delay, omission, failure or refusal of any Credit Party to (i) exercise or properly or diligently exercise any right or remedy with respect to any or all of the Guaranteed Obligations or the collection thereof or any Collateral or any other security for or guaranty of the Guaranteed Obligations, or any portion thereof, (ii) take or prosecute, or properly or diligently take or prosecute, any action for the collection of any or all of the Guaranteed Obligations against Borrower, Guarantor or any other guarantor or other Person of any or all of the Guaranteed Obligations, (iii) foreclose or prosecute, or properly or diligently foreclose or prosecute, any action in connection with any agreement, document or instrument or arrangement evidencing, securing or otherwise affecting all or any part of the Guaranteed Obligations, or (iv) mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations; (e) Agent may at any time, without the consent of or notice to Guarantor (but otherwise subject to any requirement for consent of any or all of the Lenders as prescribed by the Loan and Security Agreement), without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of 7 Guarantor hereunder: (i) change the manner, place or terms of payment of all or any part of the Guaranteed Obligations, or renew, extend, modify, rearrange, refinance, refund or alter all or any part of the Guaranteed Obligations; (ii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any Collateral and any Lien securing all or any part of the Guaranteed Obligations or this Guaranty or setoff against all or any part of the Guaranteed Obligations; (iii) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Obligations or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (iv) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (v) settle or compromise all or any part of the Guaranteed Obligations and subordinate the payment of all or any part of the Guaranteed Obligations to the payment of any obligations, indebtedness or liabilities which may be due or become due to the Credit Parties or others; (vi) apply any deposit balance, fund, payment, collections through process of law or otherwise or other property of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to the Credit Parties, if any, not guaranteed under this Guaranty; (vii) release all or any one or more parties to any one or more of the Loan Documents or grant other indulgences to Borrower or any other guarantor in respect thereof; (viii) amend or modify in any manner and at any time (or from time to time) any of the Loan Documents; or (ix) partially or fully release or substitute any guarantor, or enforce, exchange, release or waive any security for the Guaranteed Obligations, or any portion thereof, (x) bring suit against any and all Persons liable or obligated in respect of the Guaranteed Obligations, collectively together, jointly and severally or separately, and apply any amounts obtained by Agent in such manner as Agent may elect, subject to the Loan Documents, and (xi) apply any sums paid to the Credit Parties by Guarantor, Borrower or others to the Guaranteed Obligations as provided by the Loan Documents. (f) Should Agent or any other Credit Party seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) rights or remedies be enforced first against Borrower, any other guarantor or any other Person liable for all or any part of the Guaranteed Obligations, including, without limitation, that a judgment first be rendered against Borrower or any other Person, or that Borrower or any other Person should be joined in such cause, or (ii) enforcement shall first be made against any Collateral or other property which shall ever have been given to secure all or any part of the Guaranteed Obligations or this Guaranty. Such waiver shall be without prejudice to Agent's right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (g) If, in connection with the exercise of any of its rights and remedies, Agent or any other Credit Party shall forfeit any of its rights or remedies, including, without limitation, its right to enter a deficiency judgment against Borrower or any other Person, whether because of any Applicable Law pertaining to "election of remedies," disposition of collateral or the like, Guarantor hereby consents to such action by such Credit Party and waives any claim based upon such action. Any action which results in the denial or impairment of any such right to seek a deficiency judgment against Borrower shall not 8 impair the obligation of Guarantor to pay the full amount of the Guaranteed Obligations or any other obligation of Guarantor contained herein. (h) Guarantor agrees that if, after the occurrence and during the continuance of a Default or Event of Default, Agent, for the benefit of the Credit Parties, is prevented by Applicable Law from exercising its right to accelerate the maturity of all or any portion of the Guaranteed Obligations, to collect interest thereon or to enforce or exercise any other right or remedy with respect thereto, or Agent is prevented from taking any action to realize on the Collateral, Guarantor agrees to pay to Agent, for the account of the Credit Parties, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Credit Parties, as the case may be. (i) Guarantor hereby assumes sole responsibility for keeping itself informed of the financial condition of Borrower and of each other guarantor of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Obligations or any part thereof. Guarantor hereby agrees that neither Agent nor any other Credit Party shall have any obligation or duty to advise Guarantor of information known to any of them regarding such condition or any such circumstance. In the event that Agent or any other Credit Party in its sole discretion undertakes at any time or from time to time to provide any such information to Guarantor, such Person shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable banking or commercial finance practices, it wishes to maintain confidential, or (iii) to make any other or future disclosures of such information or any other information to such Guarantor. (j) Guarantor consents and agrees that neither Agent nor any of the other Credit Parties shall be under any obligation to marshal any assets in favor of Guarantor or otherwise in connection with obtaining payment of any or all of the Guaranteed Obligations from any Person or source. (k) In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Agent or any other Credit Party, respectively, and their respective directors, officers, employees, representatives or agents in connection with administration of the Guaranteed Obligations, except for willful misconduct and gross negligence. 7. RELEASE, SUBSTITUTION OF COLLATERAL. Guarantor agrees that Agent may, at any time and from time to time in its discretion and with or without valuable consideration, allow substitution or withdrawal of Collateral or other security and release Collateral or other security without impairing or diminishing the liabilities or obligations of Guarantor hereunder. Guarantor further agrees that, if Borrower or any other Person executes in favor of Agent or any other Credit Party any security agreement, collateral agreement, mortgage, deed of trust, collateral assignment or other security instrument, the exercise of any right or remedy thereby conferred shall be wholly discretionary with such Credit Party and that the exercise or failure to exercise 9 any such right or remedy shall in no way impair or diminish the obligation of Guarantor hereunder. Guarantor further agrees that the Credit Parties shall not be liable for any failure to use diligence or care in the collection of the Guaranteed Obligations, in the creation or perfection of any lien, security interest or assignment intended as security, or in preserving the liability of any Person liable or obligated on the Guaranteed Obligations. 8. DEFAULT. Upon the occurrence and during the continuation of a Default or Event of Default, Guarantor shall, on demand by Agent and without further notice of dishonor and without notice of any kind to Borrower, Guarantor or any other Person whether contemporaneously with, or previous or subsequent to, such demand, promptly pay to Agent, for the benefit of the Credit Parties, in immediately available funds, the full unpaid amount of the Guaranteed Obligations, or such lesser amount, if any, as may be specifically demanded by Agent from time to time, at Agent's office located in Dallas County, Texas or at such other place as Agent may specify to Guarantor in writing. If acceleration of the time for payment of any amount payable by Borrower under or with respect to any of the Guaranteed Obligations is stayed or otherwise delayed upon the insolvency, bankruptcy or reorganization of Borrower, all such amounts otherwise subject to acceleration under the terms of the Guaranteed Obligations shall nonetheless be payable by Guarantor hereunder promptly on demand by Agent, and Guarantor expressly and unconditionally agrees to make such payment in full. 9. NO WAIVER, REMEDIES. (a) No failure on the part of Agent 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. In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Agent, and then only in the specific instance and for the purpose given. The remedies herein provided are cumulative and not exclusive of any remedies provided by Applicable Law or any of the other Loan Documents. (b) Failure by Agent or any other Credit Party at any time or times hereafter to require strict performance by Borrower, Guarantor or any other Person of any of the requirements contained in any of the Loan Documents now or at any time, from time to time, hereafter executed and delivered by Borrower, Guarantor or any other Person shall not waive, affect or diminish the right to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of Agent or any other Credit Party, or any agent, officer or employee thereof, respectively. (c) No waiver of any Default or Event of Default or any other breach, default or requirement shall operate as a waiver of any other Default or Event of Default or the same Default or Event of Default on a future occasion, and no action permitted hereunder shall in way affect or impair any of the rights of Agent or the other Credit Parties or the obligations of Guarantor under this Guaranty or under any of the other Loan Documents. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Obligations shall 10 be conclusive and binding on Guarantor irrespective of whether Guarantor was a party to the suit or action in which such determination was made. 10. NOTICE OF SALE. In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any Collateral or other property securing all or any part of the Guaranteed Obligations or this Guaranty, it is agreed that at least ten (10) Business Days notice of the time and place of any public sale, or the time after which any private sale or other disposition may be made of any such Collateral or other property, shall be deemed to be reasonable notice in conformity with such requirements; PROVIDED, HOWEVER, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 11. PAYMENT BY GUARANTOR. Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Agent contemporaneously with such payment. Such notice shall be effective for purposes of this paragraph when contemporaneously with such payment Agent receives such notice in the manner otherwise prescribed for notices hereunder. In the absence of such notice in compliance with the provisions hereof, any sum received by Agent or any other Credit Party on account of the Guaranteed Obligations shall be conclusively deemed paid by Borrower. 12. AGENT. Agent shall have all of the rights, powers and benefits, for itself and on behalf of the other Credit Parties, as are prescribed by the Loan Documents. Guarantor's performance of this Guaranty is for the benefit of Agent and the other Credit Parties according to their respective interests as provided in the Loan and Security Agreement. 13. CUMULATIVE REMEDIES; NO ELECTION. If Guarantor is or becomes liable or obligated for the Guaranteed Obligations, by endorsement or otherwise, other than under this Guaranty, such liability or obligation shall not be in any manner impaired or affected hereby, and the rights and remedies of Agent hereunder shall be cumulative of any and all other rights and remedies that Agent or any other Credit Party may ever have against Guarantor. The exercise by Agent or any other Credit Party of any right or remedy hereunder or under any other agreement, document or instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. Without in any way limiting the generality of the foregoing, it is specifically understood and agreed that this Guaranty is given by Guarantor as an additional guaranty to any and all other guaranties or security heretofore, concurrently herewith or hereafter executed and/or delivered by Guarantor to or in favor of Agent or any other Credit Party relating to the Guaranteed Obligations, and nothing herein shall ever be deemed to in any way negate or replace any such other guaranties or security; PROVIDED, HOWEVER, that Agent shall have all of its rights and remedies under this Guaranty irrespective of anything to the contrary contained in any such other guaranties or security. This Guaranty may be enforced from time to time as often as occasion therefor may arise as may be determined by Agent, and it is agreed and understood that it shall not be necessary for Agent, in order to enforce payment by Guarantor, first to exercise any rights or remedies against Borrower, the Collateral or any other Person under the Loan Documents or Applicable Law, or to resort to any other sources or means of obtaining payment of the Guaranteed Obligations. 11 14. LIMITATION OF LIABILITY. Notwithstanding the other provisions of this Guaranty, Guarantor's liability under this Guaranty shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law in each case after giving effect to all other liabilities of Guarantor, contingent or otherwise, that are relevant under such laws, and after giving effect to the value, as assets (as determined under the applicable provisions of such laws) of any rights of Guarantor to subrogation or contribution from Borrower or any other Person pursuant to Applicable Law or any agreement providing for an equitable allocation among Guarantor, Borrower and any other Person of their respective obligations thereunder. 15. BINDING EFFECT. This Guaranty is for the benefit of Agent (for the benefit of the Credit Parties) and its successors and assigns, and in the event of an assignment by Agent or any other Credit Party, or their respective successors or assigns, of the Guaranteed Obligations, or any part thereof, the rights and benefits hereunder, to the extent applicable to the indebtedness, liabilities and obligations so assigned, shall be deemed transferred with such indebtedness, liabilities and obligations without necessity of further express action. This Guaranty is binding upon Guarantor, and its successors and assigns. 16. WAIVER OF SUBROGATION, CONTRIBUTION AND OTHER RIGHTS. UPON PAYMENT BY GUARANTOR OF ANY SUMS IN RESPECT OF THE GUARANTEED OBLIGATIONS HEREUNDER (INCLUDING, WITHOUT LIMITATION, ANY AMOUNTS ADVANCED TO BORROWER BY GUARANTOR), ALL RIGHTS OF GUARANTOR AGAINST BORROWER ARISING AS A RESULT THEREFROM BY WAY OF RIGHT OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR OTHERWISE SHALL IN ALL RESPECTS BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT AND ENFORCEMENT TO THE PRIOR INDEFEASIBLE PAYMENT AND ENFORCEMENT IN FULL OF THE GUARANTEED OBLIGATIONS. GUARANTOR SHALL NOT HAVE, AND HEREBY WAIVES, ANY RIGHTS OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR OTHERWISE AGAINST OR FROM BORROWER UNLESS AND UNTIL ALL OF THE GUARANTEED OBLIGATIONS HAVE BEEN PAID AND PERFORMED IN FULL. IN ADDITION TO THE FOREGOING, GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL CLAIMS OR OTHER RIGHTS IT MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST AGENT, ANY OTHER CREDIT PARTY, BORROWER OR ANY OTHER PERSON UNDER CHAPTER 34 OF THE TEXAS BUSINESS AND COMMERCE CODE, UNDER RULES 31 AND 163 OF THE TEXAS RULES OF CIVIL PROCEDURE, UNDER SECTION 17.001 OF THE TEXAS CIVIL PRACTICE AND REMEDIES CODE AND UNDER ANY OTHER STATUTE OF ANY STATE OR OTHER JURISDICTION REQUIRING RECOURSE AGAINST THE PRIMARY OBLIGOR OR IMPOSING OTHER REQUIREMENTS AS A CONDITION TO RECOURSE AGAINST A GUARANTOR IF AND TO THE EXTENT THAT THE SAME MAY BE APPLICABLE TO THIS GUARANTY. 17. SUBORDINATION OF INDEBTEDNESS AND LIENS. The payment of any and all principal of and interest on all indebtedness of Borrower, whether direct, indirect, fixed, contingent, 12 liquidated, unliquidated, joint, several, or joint and several, now or hereafter existing, due or to become due to Guarantor (herein called the "SUBORDINATED DEBT"), shall in all respects be subordinate and junior in right of payment and enforcement to the prior payment and enforcement in full of the Guaranteed Obligations as provided in this paragraph. Except as may be expressly permitted by the Loan and Security Agreement, no payment shall be made on or with respect to the Subordinated Debt (whether owed to Guarantor or any Affiliate of Guarantor) unless and until the Guaranteed Obligations shall have been paid and performed in full. In the event that Guarantor or any Affiliate of Guarantor shall receive any payment on account of the Subordinated Debt in violation of this paragraph, Guarantor will hold, or cause to be held (as the case may be), any amount so received in trust for the benefit of Agent, for the benefit of the Credit Parties, and will forthwith deliver, or cause to be delivered (as the case may be), such payment to Agent, in the form received, to be applied to the Guaranteed Obligations. All Liens, if any, at any time securing payment of all or any part of the Subordinated Debt (herein called the "SUBORDINATED LIENS") shall be and remain inferior and subordinate to the Liens securing payment of all or any part of the Obligations or the Guaranteed Obligations, regardless of whether such Subordinated Liens presently exist or are hereafter created or when such Subordinated Liens were created, perfected, filed or recorded (PROVIDED, that the foregoing shall not be interpreted or deemed to allow the existence of any such Liens to the extent otherwise prohibited by the Loan Documents). Guarantor shall not exercise or enforce any creditors' rights or remedies that it may have against Borrower or foreclose, repossess, sequester or otherwise institute any action or proceeding (whether judicial or otherwise, including, without limitation, the commencement of, or joinder in, any bankruptcy, insolvency, reorganization, liquidation, receivership or other debtor relief law) to enforce any Subordinated Lien on any assets of Borrower or any other Person unless and until the Guaranteed Obligations shall have been paid and performed in full. The terms and provisions of this paragraph are given by Guarantor as additional rights and benefits to any and all other subordination agreements heretofore, concurrently herewith or hereafter executed by Guarantor to or in favor of Agent or any other Credit Party, and nothing in this Guaranty shall ever be deemed to in any way negate or replace any other such previous, concurrent or subsequent subordination agreements. All promissory notes, ledgers and other evidences of the Subordinated Debt, and all mortgages, deed of trusts, security agreements, assignments and other security documents, if any, at any time evidencing the Subordinated Liens, shall contain a specific written notice that the indebtedness and Liens evidenced thereby are subordinated as provided in this paragraph. 18. RIGHT OF SETOFF. Guarantor hereby grants to Agent and each other Credit Party a right of setoff upon any and all monies, securities or other property of Guarantor, and the proceeds therefrom, now or hereafter held or received by or in transit to Agent or any such other Credit Party from or for the account of Guarantor, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of Guarantor, and any and all claims of Guarantor against Agent or any such other Credit Party at any time existing. The right of setoff granted pursuant to this paragraph shall be cumulative of and in addition to Agent's or any such other Credit Party's common law right of setoff. 19. FURTHER ASSURANCES. Upon the request of Agent, Guarantor will, at any time and from time to time, duly execute and deliver to Agent any and all such further agreements, 13 documents and instruments, and supply such additional information, as may be necessary or advisable, in the opinion of Agent, to obtain the full benefits of this Guaranty. 20. INVALID PROVISIONS. If any provision of this Guaranty is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable, this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Guaranty a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. No provision herein or in any other Loan Document evidencing the Guaranteed Obligations shall require the payment or permit the collection of interest in excess of the maximum permitted by Applicable Law. 21. MODIFICATION IN WRITING. No modification, consent, amendment or waiver of any provision of this Guaranty, and no consent to any departure by Guarantor herefrom, shall be effective unless the same shall be in writing and signed by a duly authorized officer of Agent and then shall be effective only in the specific instance and for the specific purpose for which given. 22. NO WAIVER, ETC. No notice to or demand on, or consent by, Guarantor in any case shall, of itself, entitle Guarantor to any other or further notice or demand, or right to grant or refuse consent, in similar or other circumstances. No delay or omission by Agent in exercising any right or remedy hereunder shall impair any such right or remedy or be construed as a waiver thereof or any acquiescence therein, and no single or partial exercise of any such right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy hereunder. 23. CUMULATIVE RIGHTS. All rights and remedies of Agent hereunder are cumulative of each other and of every other right or remedy which Agent or any other Credit Party may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 24. EXPENSES. Guarantor agrees to pay on demand by Agent all costs and expenses incurred by Agent in connection with the negotiation, preparation, execution and performance of the terms and provisions of this Guaranty and any and all amendments, modifications, renewals, restatements and/or supplements hereto from time to time, including, without limitation, the reasonable fees and expenses of legal counsel to Agent. If Guarantor should breach or fail to perform any provision of this Guaranty, Guarantor agrees to pay to Agent all costs and expenses incurred by Agent in the enforcement of this Guaranty from time to time, including, without limitation, the reasonable fees and expenses of all legal counsel to Agent. 25. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. 14 26. NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN GUARANTOR AND AGENT RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN GUARANTOR AND AGENT. THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) ORAL AGREEMENTS, ARRANGEMENTS OR UNDERSTANDINGS RELATING TO THE SUBJECT MATTER OF THIS GUARANTY. 27. NOTICES. Unless otherwise specifically provided in this Guaranty, all notices or other communications required or permitted to be given under this Guaranty shall be given, if to Agent, as specified in the Loan and Security Agreement, or if to Guarantor, as specified in the Loan and Security Agreement but otherwise to Guarantor's address specified in the introductory paragraph hereof. 28. CHOICE OF FORUM; SERVICE OF PROCESS AND JURISDICTION. Any suit, action or proceeding against Guarantor or Agent with respect to this Guaranty shall be brought, served and maintained in the state or federal courts located in the State of Texas or otherwise as specified in the Loan and Security Agreement. 29. SURVIVAL. All representations, warranties, covenants and agreements of Guarantor in this Guaranty shall survive the execution of this Guaranty. 30. COUNTERPARTS. This Guaranty may be executed in any number of counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one and the same Guaranty. 31. INTEREST LIMITATION. Notwithstanding anything to the contrary contained or referred to in this Guaranty, in no contingency or event whatsoever shall the amount of interest under the Loan Documents, including, without limitation, this Guaranty, paid by any Person, received by the Lenders, agreed to be paid by any Person, or requested or demanded to be paid by the Lenders, exceed the Maximum Rate. In the event any such sums paid to Lender would exceed the Maximum Rate, Lender shall automatically apply such excess to any unpaid amount of the Guaranteed Obligations or, if the amount of such excess exceeds said unpaid amount, such excess shall be paid to Borrower. All sums paid, or agreed to be paid, which are or hereafter may be construed to be compensation for the use, forbearance or detention of money shall be amortized, prorated, spread and allocated in respect of the Guaranteed Obligations throughout the full term of the Loan and Security Agreement until the Guaranteed Obligations are paid in full. Notwithstanding any provisions contained in the Loan Documents, or in any Notes or other related documents executed pursuant thereto, the Lenders shall never be entitled to receive, collect or apply as interest any amount in excess of the Maximum Rate and, in the event any Lender ever receives, collects or applies any amount in respect of Borrower that otherwise would be in excess of the Maximum Rate, such amount shall automatically be deemed to be applied in reduction of the unpaid principal balance of the Guaranteed Obligations and, if such principal balance is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, Borrower and Lender shall, to the maximum extent permitted under 15 Applicable Law, (i) characterize any non-principal payment as a standby fee, commitment fee, prepayment charge, delinquency charge or reimbursement for a third-party expense rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts throughout the entire period during which the Guaranteed Obligations were outstanding the total amount of interest at any time contracted for, charged or received. Nothing herein contained shall be construed or so operate as to require payment of any interest, fees, costs or charges greater than is permitted by Applicable Law. 32. LITIGATION; WAIVER OF TRIAL BY JURY. GUARANTOR HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST GUARANTOR ARISING OUT OF THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN GUARANTOR AND AGENT OR ANY LENDER OF ANY KIND OR NATURE. GUARANTOR ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING. GUARANTOR HEREBY AGREES THAT THE FEDERAL COURT OF THE NORTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF AGENT OR ANY LENDER, ANY COURT IN WHICH AGENT OR SUCH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GUARANTOR AND AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. WITHOUT LIMITING THE APPLICABILITY OF ANY LAW PROVIDING FOR SERVICE OF PROCESS UPON A STATUTORY AGENT AND NOTIFICATION THEREOF BY MAIL, GUARANTOR HEREBY WAIVES (TO THE FULLEST EXTENT ALLOWED BY LAW) PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREES (TO THE FULLEST EXTENT ALLOWED BY LAW) THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR AT THE ADDRESS OF GUARANTOR SET FORTH IN THE INTRODUCTORY PARAGRAPH OF THIS GUARANTY. SHOULD GUARANTOR FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. 16 33. IRREVOCABLE NATURE OF GUARANTY. This Guaranty may not be revoked by Guarantor; PROVIDED, HOWEVER, that in the event it shall be judicially determined that Guarantor shall have any right, by Applicable Law notwithstanding its express agreement herein to the contrary, to revoke this Guaranty, Guarantor may deliver to Agent written notice of Guarantor's intention not to be liable hereunder for any Guaranteed Obligations arising, created or incurred after Agent's receipt of such notice, whereupon such notice shall be effective to the extent (but only to the extent) provided hereinbelow as to Guarantor from and after (but not before) the time when such notice is actually delivered to and received by and receipted for in writing by Agent (the "EFFECTIVE REVOCATION TIME"); PROVIDED FURTHER, HOWEVER, that such notice shall not be effective as to, and shall not in any way restrict, limit, impair, release or otherwise affect the indebtedness, liabilities or obligations of Guarantor under this Guaranty with respect to (a) any Guaranteed Obligations consisting of indebtedness, liabilities or obligations under the Loan and Security Agreement, the Notes or any other Loan Document, whether incurred before or after the Effective Revocation Time (including, without limitation, any loans, advances or extensions of credit at any time made or created under the Loan and Security Agreement, whether or not agreed, committed or contemplated to be made by the Lenders and whether or not discretionary with the Lenders), (b) any Guaranteed Obligations arising, created or incurred prior to the Effective Revocation Time, (c) any renewals, extensions or modifications of the indebtedness, liabilities or obligations referred to in clauses (a) and (b) preceding, whether occurring before or after the Effective Revocation Time, or (d) any interest or costs of collection with respect to any of the indebtedness, liabilities or obligations referred to in clauses (a), (b) or (c) preceding. Guarantor acknowledges that any such revocation or attempted revocation by Guarantor, whether or not valid under Applicable Law, shall in any event constitute an Event of Default under the Loan Documents. 34. HEADINGS. Guarantor agrees that the paragraph headings in this Guaranty are for convenience of identification only and do not limit any of the provisions of this Guaranty. 17 IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the effective date specified in the introductory paragraph of this Guaranty. GUARANTOR: Kerr Acquisition Corporation, a Delaware corporation By: /s/ Gregory P. Spivy ---------------------------------------- Name: Gregory P. Spivy -------------------------------------- Title: Vice President ------------------------------------- 18 EX-10.47 7 EXHIBIT 10.47 NATIONSBANK NATIONSBANK OF TEXAS, N.A. - -------------------------------------------------------------------------------- GUARANTY AGREEMENT (Fremont Acquisition Company, LLC) This Guaranty Agreement ("GUARANTY"), is executed effective and delivered as of August 26, 1997, by FREMONT ACQUISITION COMPANY, LLC, a Delaware limited liability company whose principal place of business is located at 50 Fremont Street, Suite 3700, San Francisco, California 94105, to and for the benefit of NATIONSBANK OF TEXAS, N.A., a national banking association, in its capacity as Agent (as defined herein) for and on behalf of the Credit Parties (as defined herein), whose principal place of business is located in Dallas County, Texas, as follows: DEFINITIONS: "AGENT" means NationsBank of Texas, N.A., a national banking association, as agent pursuant to the Loan and Security Agreement, whose principal place of business is located at 901 Main Street, Dallas, Texas 75202, or such successor agent as may be appointed pursuant to the Loan and Security Agreement. "BORROWER" means Kerr Group, Inc., a Delaware corporation, with its principal place of business located at 500 New Holland Avenue, Lancaster, Pennsylvania 17602-2104 and its successors and permitted assigns. "GUARANTEED OBLIGATIONS" means (i) all indebtedness, obligations and liabilities at any time, from time to time, included within the "Secured Obligations" (as defined in the Loan and Security Agreement, which definition is incorporated herein by reference), including, without limitation, all unpaid principal and accrued interest on the Loans as evidenced by each and all of the Notes and the Letter of Credit Obligations (all of such Notes and Letter of Credit Obligations whether now existing or hereafter arising), and all other fees, costs, expenses (including, without limitation, reasonable attorneys' fees and expenses and other legal costs) and other monetary obligations of Borrower under the Loan Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint and several, and (ii) all renewals, extensions, modifications, rearrangements and increases of the indebtedness, liabilities and obligations described in CLAUSES (i) and (ii) above. The "Guaranteed Obligations" include, without limitation, all indebtedness, obligations and liabilities of the type or nature described above in accordance with the Loan Documents, at any time owing by any predecessor or successor of Borrower, specifically including, without limitation, Borrower as survivor of the Merger. "GUARANTOR" means Fremont Acquisition Company, LLC, a Delaware limited liability company, with its principal place of business located at 50 Fremont Street, Suite 3700, San Francisco, California 94105. "LENDER" shall have the meaning prescribed for such term by the Loan and Security Agreement, which definition is incorporated herein by reference and, as of the effective date hereof, includes NationsBank and its successors and permitted assigns, and also includes any other Person who hereafter becomes a "Lender" as defined in and provided by the Loan and Security Agreement. "LOAN AND SECURITY AGREEMENT" means the certain Loan and Security Agreement of even date herewith among Agent, the Lenders from time to time party thereto, L/C Issuer (as defined therein) and Borrower, as such agreement may be renewed, extended, modified, amended or restated from time to time. "LOAN DOCUMENTS" means the "Loan Documents" as defined by the Loan and Security Agreement. "NATIONSBANK" means NationsBank of Texas, N.A., a national banking association, in its individual corporate capacity as a Lender, whose principal place of business is located at 901 Main Street, Dallas, Texas 75202. Unless otherwise defined above, terms defined in the Loan and Security Agreement, wherever used herein, shall have the same meanings in this Guaranty as are set forth in the Loan and Security Agreement. Guarantor expressly acknowledges that it has read and is familiar with all such incorporated definitions and that incorporation of same herein shall be deemed to have the same effect and enforceability as though each of such incorporated definitions is set forth herein at length. RECITALS: A. Borrower, Agent, L/C Issuer and NationsBank have executed and entered into the Loan and Security Agreement, which provides for Loans by the Lenders to Borrower and for the issuance of Letters of Credit by L/C Issuer on the terms and conditions prescribed therein. B. This Guaranty is required by the Loan and Security Agreement and Guarantor's execution and delivery hereof is a condition (among other conditions) to Loans and Letters of Credit under the Loan and Security Agreement. C. Guarantor has determined that (i) it will directly and indirectly benefit from the availability of financing to Borrower thereunder and under the other transactions evidenced by and contemplated in the Loan Documents, (ii) it will benefit, directly and indirectly, from executing and delivering this Guaranty, and (iii) it is in Guarantor's best interest, and within its corporate purpose, to execute and deliver and, if called upon, to perform this Guaranty. NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows: AGREEMENT: GUARANTY OF GUARANTEED OBLIGATIONS. This Guaranty is executed by Guarantor pursuant to the Loan and Security Agreement and is for the benefit of Agent and the other Credit Parties. As an inducement to the Lenders to make Loans and extend and continue to extend credit and other financial accommodations to Borrower under the Loan Documents, and to L/C 2 Issuer to provide Letters of Credit for the account of Borrower, Guarantor, for value received, does hereby unconditionally, irrevocably and absolutely guarantee the prompt and full payment and performance of the Guaranteed Obligations when due or declared to be due and at all times thereafter. 2. NATURE OF GUARANTY. This Guaranty is and shall be an absolute, unconditional, irrevocable and continuing unlimited guaranty of payment, and not solely of collection. Guarantor guarantees that the Guaranteed Obligations will be paid strictly in accordance with the terms of the Loan and Security Agreement, the Notes and the other Loan Documents, without setoff or counterclaim, and regardless of any Applicable Law now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Credit Parties with respect thereto. The Guaranteed Obligations may be increased, reduced or paid in full at any time and from time to time without affecting the liability or obligation of Guarantor under this Guaranty with respect to all Guaranteed Obligations, whenever incurred or arising. All Guaranteed Obligations now or hereafter arising shall be conclusively presumed to have been made or acquired in acceptance hereof. Guarantor shall be liable, jointly and severally, with Borrower and any other Person now or hereafter obligated in respect of the Guaranteed Obligations, or any portion thereof. It is the intention of Guarantor and Agent that Guarantor's liabilities and obligations hereunder shall not be discharged except by Guarantor's full and complete payment and performance of such liabilities and obligations and then only to the extent of such payment and performance (to the extent not otherwise satisfied by Borrower or any other Person now or hereafter obligated in respect of the Guaranteed Obligations). 3. REPRESENTATIONS AND WARRANTIES. In connection with this Guaranty, Guarantor hereby represents and warrants to Lender that: (a) Guarantor owns 100% of the issued and outstanding Capital Stock of Kerr Acquisition Corporation, a Delaware corporation, which owns not less than 51.0% of Borrower's Capital Stock on an as converted and fully diluted basis; Guarantor has received and will receive a direct and indirect material benefit from the transactions evidenced by and contemplated in the Loan and Security Agreement and the other Loan Documents; this Guaranty is given by Guarantor in furtherance of the direct and indirect business interests and corporate purposes of Guarantor, and is necessary to the conduct, promotion and attainment of the businesses of Borrower and Guarantor; and, the value of the consideration received and to be received by Guarantor is reasonably worth at least as much as the liability and obligation of Guarantor hereunder. (b) Guarantor (i) is a limited liability company duly formed, validly existing and in good standing under the laws of the state of its formation, (ii) is duly qualified and in good standing under the laws of each jurisdiction in which the failure to so qualify has a reasonable likelihood of having a Materially Adverse Effect, (iii) has all requisite power and authority to own its properties, to lease the property it operates under lease and to conduct its business as now or currently proposed to be conducted, (iv) is in compliance with its Certificate of Formation and Operating Agreement, (v) is in compliance with all other requirements of Applicable Law except for such noncompliance as in the aggregate would not have a Materially Adverse Effect, and (vi) has all 3 Governmental Approvals necessary for the ownership, operation and conduct of its business. (c) The execution, delivery and performance by Guarantor of this Guaranty and any other Loan Document to which it is a party: (i) are within its power; (ii) have been duly authorized by all necessary action, including, without limitation, the consent of members where required; and (iii) do not and will not (A) contravene its Certificate of Formation or Operating Agreement or other comparable governing documents, (B) violate any Applicable Law (including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System), or any order or decree of any Governmental Authority except to the extent that any such violation could not reasonably be expected to have a Materially Adverse Effect, (C) conflict with or result in the breach of, or constitute a default under, or result in or permit the termination or acceleration of, any material contract, agreement or instrument to which Guarantor is a party or which may be applicable to Guarantor or any of its assets, (D) result in the creation or imposition of any Lien upon any of its property other than those in favor of Agent for the benefit of the Credit Parties and Liens permitted by the Loan and Security Agreement, or (E) require the consent of, authorization by, approval of, notice to, or filing or registration with, any Governmental Authority or any other Person, except to the extent that the failure to obtain such consent or approval could not reasonably be expected to have a Materially Adverse Effect. (d) All acts and conditions required to be performed and satisfied prior to the creation and issuance of this Guaranty, and to constitute this Guaranty as the legal, valid and binding obligation of Guarantor in accordance with its terms, have been performed and satisfied in due and strict compliance with Applicable Law. This Guaranty has been duly executed and delivered by Guarantor and is the legal, valid and binding obligation of Guarantor enforceable against it in accordance with its terms, subject to Applicable Law regarding insolvency (only insofar as any such Applicable Law relates to the bankruptcy, insolvency or similar event of Guarantor). (e) There are no pending or, to the knowledge of Guarantor, threatened actions, investigations or proceedings to which Guarantor or any of its Subsidiaries (excluding Borrower) is or could reasonably be expected to become a party or, to Guarantor's knowledge, affecting Guarantor or any of its Subsidiaries (excluding Borrower) before any Governmental Authority with respect to which there is a reasonable likelihood of an adverse determination and that, if adversely determined, is reasonably likely to have a Material Adverse Effect. The performance by Guarantor under this Guaranty and under any other Loan Document to which it is a party is not restrained or enjoined (either temporarily, preliminarily or permanently) and no material adverse conditions have been imposed by any Governmental Authority upon any of the foregoing transactions. (f) Guarantor is currently informed of the financial condition of Borrower and any and all other Persons obligated in respect of the Guaranteed Obligations and of all other circumstances which a diligent inquiry would reveal and which bear upon the risk of nonpayment of the Guaranteed Obligations. Guarantor has read and understands the 4 terms and conditions of the Loan Documents. Guarantor is familiar with, and has independently reviewed the books and records regarding, the financial condition of Borrower and is familiar with the value of any and all property intended to be security for the payment of all or any part of the Guaranteed Obligations; PROVIDED, HOWEVER, Guarantor is not relying on such financial condition or the existence or value of any such security as an inducement to enter into this Guaranty. Guarantor has adequate means to obtain from Borrower on a continuing basis information concerning the financial condition of Borrower. Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any Person other than Guarantor will be liable to pay the Guaranteed Obligations. Neither Agent, nor any other Credit Party, has made any representation, warranty or statement to Guarantor in order to induce Guarantor to execute this Guaranty. 4. COVENANTS. Throughout the term of and in any event until payment and performance in full of the Guaranteed Obligations (unless otherwise allowed by prior written consent of Agent): (a) Guarantor will keep itself informed of the financial condition of Borrower and of all other circumstances which bear upon the risk of nonpayment or nonperformance of the Guaranteed Obligations, without reliance upon any Credit Party. (b) Guarantor will not engage in any business, activity or operations other than owning and holding the Capital Stock of Kerr Acquisition Corporation or Borrower and acting as Guarantor in respect of the Guaranteed Obligations, and activities directly related to the foregoing. (c) Guarantor will not merge or consolidate with or into any Person. 5. OBLIGATIONS NOT IMPAIRED. Guarantor agrees that its obligations hereunder shall not be released, diminished, impaired, reduced or affected by the occurrence of any one or more of the following events: (i) lack of corporate power of Borrower, Guarantor or any other Loan Party of all or any part of the Guaranteed Obligations, (ii) any receivership, insolvency, bankruptcy or other proceedings affecting Borrower, Guarantor or any other Loan Party of all or any part of the Guaranteed Obligations, or any of their respective property; (iii) the partial or total release or discharge of Borrower or any other Loan Party of all or any part of the Guaranteed Obligations, or any other Person from the performance of any obligation contained in any instrument or agreement evidencing, governing or securing all or any part of the Guaranteed Obligations, whether occurring by reason of law or otherwise; (iv) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all the Guaranteed Obligations, or any portion thereof, or any other amendment or waiver of any term of, or any consent to departure from any requirement of, any of the Loan Documents; (v) the taking or accepting of any collateral security for all or any part of the Guaranteed Obligations or this Guaranty; (vi) the taking or accepting of any other guaranty for all or any part of the Guaranteed Obligations; (vii) any failure to acquire, perfect or continue any Lien on Collateral securing all or any part of the Guaranteed Obligations or this Guaranty; (viii) any exchange, release or subordination of any Lien on any Collateral, or any release, amendment, waiver or subordination of any term of any guaranty of the Guaranteed Obligations 5 or any other impairment of any collateral security or guaranty now or hereafter securing all or any part of the Guaranteed Obligations; (ix) any failure to dispose of any collateral security at any time securing all or any part of the Guaranteed Obligations or this Guaranty in a commercially reasonable manner or as otherwise may be required by Applicable Law; (x) any merger, reorganization, consolidation or dissolution of Borrower or Guarantor, any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any change in name, business, organization, location, composition, structure or organization of Borrower or any change in the shareholders of Borrower or Guarantor (whether by accession, secession, death, dissolution, transfer of assets or otherwise; (xi) any invalidity or unenforceability of or defect or deficiency in any of the Loan Documents; (xii) avoidance or subordination of the Guaranteed Obligations, or any portion thereof, (xiii) the unenforceability of all or any part of the Guaranteed Obligations against Borrower by reason of the fact that the interest contracted for, charged or received in respect of the Guaranteed Obligations exceeds the amount permitted by Applicable Law; (xiv) any waiver, consent, extension, forbearance or granting of any indulgence by the Credit Parties with respect to the Guaranteed Obligations or any provision of any of the Loan Documents; (xv) any delay in or lack of enforcement of any remedies under the Loan Documents; (xvi) the act of creating all or any part of the Guaranteed Obligations is ULTRA VIRES, or the officers or other representatives creating all or any part of the Guaranteed Obligations acted in excess of their authority; (xvii) any election of remedies by any of the Credit Parties; (xviii) any of the Loan Documents were forged, (xix) the election by any of the Credit Parties in any proceeding under the United States Bankruptcy Code of the application of Section 1111(b)(2) thereof; (xx) any borrowing or grant of a security interest by Borrower, as debtor-in-possession, under Section 364 of the Bankruptcy Code; (xxi) the disallowance in bankruptcy of all or any portion of the claims of any of the Credit Parties for payment of any of the Guaranteed Obligations; (xxii) withdrawal from, or termination of, any ownership interest in Guarantor or Borrower, or (xxiii) any other circumstance which might otherwise constitute a legal or equitable discharge or defense available to Borrower or Guarantor (other than that the Guaranteed Obligations shall have been indefeasibly paid and performed in full). 6. CONSENT AND WAIVER. (a) Guarantor hereby waives: (i) notice of acceptance of this Guaranty; (ii) notice of any Loans, Letters of Credit or other financial accommodations made or extended under the Loan Documents or the creation or existence of any Guaranteed Obligations; (iii) notice of the amount of the Guaranteed Obligations, SUBJECT, HOWEVER, to Guarantor's right to make inquiry of Agent to ascertain the amount thereof at any reasonable time; (iv) notice of any adverse change in the financial condition of Borrower or any other Person or of any other fact that might increase or otherwise change Guarantor's risk with respect to the Guaranteed Obligations, Borrower or any other Person under this Guaranty; (v) notice of presentment for payment, demand, protest and notice thereof, notice of intent to accelerate, notice of acceleration, notice of dishonor, diligence or promptness in enforcement and indulgences of every kind as to any promissory notes or other instruments among the Loan Documents; (vi) notice of any of the events or circumstances enumerated in PARAGRAPH 5 hereof, and all other notices and demands to which Guarantor might otherwise be entitled (except if such notice is specifically required to be given to Guarantor hereunder or under any of the Loan Documents to which Guarantor is a party), (vii) any requirement that any of the Credit 6 Parties protect, secure, perfect or insure any Lien on any Collateral or other property subject thereto or exhaust any right or take any action against Borrower or any other Person or any Collateral, (viii) the benefit of any statute of limitation applicable to enforcement of the Guaranteed Obligations, or any portion thereof, or of any Liens in the Collateral; (ix) all rights by which Guarantor might be entitled to require suit on an accrued right of action in respect of any of the Guaranteed Obligations or require suit against Borrower or any other guarantor, whether arising pursuant to Section 34.02 of the Texas Business and Commerce Code, as amended, Section 17.001 of the Texas Civil Practice and Remedies Code, as amended, Rule 31 of the Texas Rules of Civil Procedure, as amended, or otherwise or (x) any other defense of Borrower or any other guarantor (other than that the Guaranteed Obligations shall have been indefeasibly paid and performed in full). (b) Guarantor hereby waives and agrees not to assert against any Credit Party: (i) any defense, setoff, counterclaim or claim of any kind or nature available to Borrower or any other guarantor against any Credit Party, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity or enforceability of the Guaranteed Obligations or any security therefor; (ii) to the extent allowed by Applicable Law, any right or defense arising by reason of any claim or defense based upon an election of remedies by any Credit Party under any Applicable Law. (c) Agent shall have the right to seek recourse against Guarantor to the fullest extent provided for herein, and no election by Agent to proceed in one form of action or proceeding, or against any party, or on any obligation, shall constitute a waiver of Agent's right to proceed in any other form of action or proceeding or against other parties unless Agent has expressly waived such right in writing. Without limiting the foregoing, no action or proceeding by any Credit Party under any document or instrument evidencing the Guaranteed Obligations shall serve to diminish the liability of Guarantor under this Guaranty except to the extent that the Credit Parties finally and unconditionally shall have realized indefeasible payment in full of the Guaranteed Obligations. (d) Guarantor waives, and agrees that its liability hereunder shall not be affected by, any neglect, delay, omission, failure or refusal of any Credit Party to (i) exercise or properly or diligently exercise any right or remedy with respect to any or all of the Guaranteed Obligations or the collection thereof or any Collateral or any other security for or guaranty of the Guaranteed Obligations, or any portion thereof, (ii) take or prosecute, or properly or diligently take or prosecute, any action for the collection of any or all of the Guaranteed Obligations against Borrower, Guarantor or any other guarantor or other Person of any or all of the Guaranteed Obligations, (iii) foreclose or prosecute, or properly or diligently foreclose or prosecute, any action in connection with any agreement, document or instrument or arrangement evidencing, securing or otherwise affecting all or any part of the Guaranteed Obligations, or (iv) mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations; (e) Agent may at any time, without the consent of or notice to Guarantor (but otherwise subject to any requirement for consent of any or all of the Lenders as 7 prescribed by the Loan and Security Agreement), without incurring responsibility to Guarantor and without impairing, releasing, reducing or affecting the obligations of Guarantor hereunder: (i) change the manner, place or terms of payment of all or any part of the Guaranteed Obligations, or renew, extend, modify, rearrange, refinance, refund or alter all or any part of the Guaranteed Obligations; (ii) sell, exchange, release, surrender, subordinate, realize upon or otherwise deal with in any manner and in any order any Collateral and any Lien securing all or any part of the Guaranteed Obligations or this Guaranty or setoff against all or any part of the Guaranteed Obligations; (iii) neglect, delay, omit, fail or refuse to take or prosecute any action for the collection of all or any part of the Guaranteed Obligations or this Guaranty or to take or prosecute any action in connection with any of the Loan Documents; (iv) exercise or refrain from exercising any rights against Borrower or others, or otherwise act or refrain from acting; (v) settle or compromise all or any part of the Guaranteed Obligations and subordinate the payment of all or any part of the Guaranteed Obligations to the payment of any obligations, indebtedness or liabilities which may be due or become due to the Credit Parties or others; (vi) apply any deposit balance, fund, payment, collections through process of law or otherwise or other property of Borrower to the satisfaction and liquidation of the indebtedness or obligations of Borrower to the Credit Parties, if any, not guaranteed under this Guaranty; (vii) release all or any one or more parties to any one or more of the Loan Documents or grant other indulgences to Borrower or any other guarantor in respect thereof; (viii) amend or modify in any manner and at any time (or from time to time) any of the Loan Documents; or (ix) partially or fully release or substitute any guarantor, or enforce, exchange, release or waive any security for the Guaranteed Obligations, or any portion thereof, (x) bring suit against any and all Persons liable or obligated in respect of the Guaranteed Obligations, collectively together, jointly and severally or separately, and apply any amounts obtained by Agent in such manner as Agent may elect, subject to the Loan Documents, and (xi) apply any sums paid to the Credit Parties by Guarantor, Borrower or others to the Guaranteed Obligations as provided by the Loan Documents. (f) Should Agent or any other Credit Party seek to enforce the obligations of Guarantor hereunder by action in any court or otherwise, Guarantor waives any requirement, substantive or procedural, that (i) rights or remedies be enforced first against Borrower, any other guarantor or any other Person liable for all or any part of the Guaranteed Obligations, including, without limitation, that a judgment first be rendered against Borrower or any other Person, or that Borrower or any other Person should be joined in such cause, or (ii) enforcement shall first be made against any Collateral or other property which shall ever have been given to secure all or any part of the Guaranteed Obligations or this Guaranty. Such waiver shall be without prejudice to Agent's right, at its option, to proceed against Borrower or any other person or entity, whether by separate action or by joinder. (g) If, in connection with the exercise of any of its rights and remedies, Agent or any other Credit Party shall forfeit any of its rights or remedies, including, without limitation, its right to enter a deficiency judgment against Borrower or any other Person, whether because of any Applicable Law pertaining to "election of remedies," disposition of collateral or the like, Guarantor hereby consents to such action by such Credit Party 8 and waives any claim based upon such action. Any action which results in the denial or impairment of any such right to seek a deficiency judgment against Borrower shall not impair the obligation of Guarantor to pay the full amount of the Guaranteed Obligations or any other obligation of Guarantor contained herein. (h) Guarantor agrees that if, after the occurrence and during the continuance of a Default or Event of Default, Agent, for the benefit of the Credit Parties, is prevented by Applicable Law from exercising its right to accelerate the maturity of all or any portion of the Guaranteed Obligations, to collect interest thereon or to enforce or exercise any other right or remedy with respect thereto, or Agent is prevented from taking any action to realize on the Collateral, Guarantor agrees to pay to Agent, for the account of the Credit Parties, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Credit Parties, as the case may be. (i) Guarantor hereby assumes sole responsibility for keeping itself informed of the financial condition of Borrower and of each other guarantor of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Obligations or any part thereof. Guarantor hereby agrees that neither Agent nor any other Credit Party shall have any obligation or duty to advise Guarantor of information known to any of them regarding such condition or any such circumstance. In the event that Agent or any other Credit Party in its sole discretion undertakes at any time or from time to time to provide any such information to Guarantor, such Person shall be under no obligation (i) to undertake any investigation not a part of its regular business routine, (ii) to disclose any information which, pursuant to accepted or reasonable banking or commercial finance practices, it wishes to maintain confidential, or (iii) to make any other or future disclosures of such information or any other information to such Guarantor. (j) Guarantor consents and agrees that neither Agent nor any of the other Credit Parties shall be under any obligation to marshal any assets in favor of Guarantor or otherwise in connection with obtaining payment of any or all of the Guaranteed Obligations from any Person or source. (k) In addition to any other waivers, agreements and covenants of Guarantor set forth herein, Guarantor hereby further waives and releases all claims, causes of action, defenses and offsets for any act or omission of Agent or any other Credit Party, respectively, and their respective directors, officers, employees, representatives or agents in connection with administration of the Guaranteed Obligations, except for willful misconduct and gross negligence. 7. RELEASE, SUBSTITUTION OF COLLATERAL. Guarantor agrees that Agent may, at any time and from time to time in its discretion and with or without valuable consideration, allow substitution or withdrawal of Collateral or other security and release Collateral or other security without impairing or diminishing the liabilities or obligations of Guarantor hereunder. Guarantor further agrees that, if Borrower or any other Person executes in favor of Agent or any other Credit Party any security agreement, collateral agreement, mortgage, deed of trust, collateral 9 assignment or other security instrument, the exercise of any right or remedy thereby conferred shall be wholly discretionary with such Credit Party and that the exercise or failure to exercise any such right or remedy shall in no way impair or diminish the obligation of Guarantor hereunder. Guarantor further agrees that the Credit Parties shall not be liable for any failure to use diligence or care in the collection of the Guaranteed Obligations, in the creation or perfection of any lien, security interest or assignment intended as security, or in preserving the liability of any Person liable or obligated on the Guaranteed Obligations. 8. DEFAULT. Upon the occurrence and during the continuation of a Default or Event of Default, Guarantor shall, on demand by Agent and without further notice of dishonor and without notice of any kind to Borrower, Guarantor or any other Person whether contemporaneously with, or previous or subsequent to, such demand, promptly pay to Agent, for the benefit of the Credit Parties, in immediately available funds, the full unpaid amount of the Guaranteed Obligations, or such lesser amount, if any, as may be specifically demanded by Agent from time to time, at Agent's office located in Dallas County, Texas or at such other place as Agent may specify to Guarantor in writing. If acceleration of the time for payment of any amount payable by Borrower under or with respect to any of the Guaranteed Obligations is stayed or otherwise delayed upon the insolvency, bankruptcy or reorganization of Borrower, all such amounts otherwise subject to acceleration under the terms of the Guaranteed Obligations shall nonetheless be payable by Guarantor hereunder promptly on demand by Agent, and Guarantor expressly and unconditionally agrees to make such payment in full. 9. NO WAIVER, REMEDIES. (a) No failure on the part of Agent 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. In no event shall any waiver of the provisions of this Guaranty be effective unless the same be in writing and signed by an officer of Agent, and then only in the specific instance and for the purpose given. The remedies herein provided are cumulative and not exclusive of any remedies provided by Applicable Law or any of the other Loan Documents. (b) Failure by Agent or any other Credit Party at any time or times hereafter to require strict performance by Borrower, Guarantor or any other Person of any of the requirements contained in any of the Loan Documents now or at any time, from time to time, hereafter executed and delivered by Borrower, Guarantor or any other Person shall not waive, affect or diminish the right to demand strict performance thereof, and such right shall not be deemed to have been modified or waived by any course of conduct or knowledge of Agent or any other Credit Party, or any agent, officer or employee thereof, respectively. (c) No waiver of any Default or Event of Default or any other breach, default or requirement shall operate as a waiver of any other Default or Event of Default or the same Default or Event of Default on a future occasion, and no action permitted hereunder shall in way affect or impair any of the rights of Agent or the other Credit Parties or the obligations of Guarantor under this Guaranty or under any of the other 10 Loan Documents. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest or other amount constituting any of the Obligations shall be conclusive and binding on Guarantor irrespective of whether Guarantor was a party to the suit or action in which such determination was made. 10. NOTICE OF SALE. In the event that Guarantor is entitled to receive any notice under the Uniform Commercial Code, as it exists in the state governing any such notice, of the sale or other disposition of any Collateral or other property securing all or any part of the Guaranteed Obligations or this Guaranty, it is agreed that at least ten (10) Business Days notice of the time and place of any public sale, or the time after which any private sale or other disposition may be made of any such Collateral or other property, shall be deemed to be reasonable notice in conformity with such requirements; PROVIDED, HOWEVER, that notice given in any other reasonable manner or at any other reasonable time shall be sufficient. 11. PAYMENT BY GUARANTOR. Whenever Guarantor pays any sum which is or may become due under this Guaranty, written notice must be delivered to Agent contemporaneously with such payment. Such notice shall be effective for purposes of this paragraph when contemporaneously with such payment Agent receives such notice in the manner otherwise prescribed for notices hereunder. In the absence of such notice in compliance with the provisions hereof, any sum received by Agent or any other Credit Party on account of the Guaranteed Obligations shall be conclusively deemed paid by Borrower. 12. AGENT. Agent shall have all of the rights, powers and benefits, for itself and on behalf of the other Credit Parties, as are prescribed by the Loan Documents. Guarantor's performance of this Guaranty is for the benefit of Agent and the other Credit Parties according to their respective interests as provided in the Loan and Security Agreement. 13. CUMULATIVE REMEDIES; NO ELECTION. If Guarantor is or becomes liable or obligated for the Guaranteed Obligations, by endorsement or otherwise, other than under this Guaranty, such liability or obligation shall not be in any manner impaired or affected hereby, and the rights and remedies of Agent hereunder shall be cumulative of any and all other rights and remedies that Agent or any other Credit Party may ever have against Guarantor. The exercise by Agent or any other Credit Party of any right or remedy hereunder or under any other agreement, document or instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy. Without in any way limiting the generality of the foregoing, it is specifically understood and agreed that this Guaranty is given by Guarantor as an additional guaranty to any and all other guaranties or security heretofore, concurrently herewith or hereafter executed and/or delivered by Guarantor to or in favor of Agent or any other Credit Party relating to the Guaranteed Obligations, and nothing herein shall ever be deemed to in any way negate or replace any such other guaranties or security; PROVIDED, HOWEVER, that Agent shall have all of its rights and remedies under this Guaranty irrespective of anything to the contrary contained in any such other guaranties or security. This Guaranty may be enforced from time to time as often as occasion therefor may arise as may be determined by Agent, and it is agreed and understood that it shall not be necessary for Agent, in order to enforce payment by Guarantor, first to exercise any rights or remedies against Borrower, the Collateral or any other Person under the Loan Documents or Applicable Law, or to resort to any other sources or means of obtaining payment of the Guaranteed Obligations. 11 14. LIMITATION OF LIABILITY. Notwithstanding the other provisions of this Guaranty, Guarantor's liability under this Guaranty shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law in each case after giving effect to all other liabilities of Guarantor, contingent or otherwise, that are relevant under such laws, and after giving effect to the value, as assets (as determined under the applicable provisions of such laws) of any rights of Guarantor to subrogation or contribution from Borrower or any other Person pursuant to Applicable Law or any agreement providing for an equitable allocation among Guarantor, Borrower and any other Person of their respective obligations thereunder. 15. BINDING EFFECT. This Guaranty is for the benefit of Agent (for the benefit of the Credit Parties) and its successors and assigns, and in the event of an assignment by Agent or any other Credit Party, or their respective successors or assigns, of the Guaranteed Obligations, or any part thereof, the rights and benefits hereunder, to the extent applicable to the indebtedness, liabilities and obligations so assigned, shall be deemed transferred with such indebtedness, liabilities and obligations without necessity of further express action. This Guaranty is binding upon Guarantor, and its successors and assigns. 16. WAIVER OF SUBROGATION, CONTRIBUTION AND OTHER RIGHTS. UPON PAYMENT BY GUARANTOR OF ANY SUMS IN RESPECT OF THE GUARANTEED OBLIGATIONS HEREUNDER (INCLUDING, WITHOUT LIMITATION, ANY AMOUNTS ADVANCED TO BORROWER BY GUARANTOR), ALL RIGHTS OF GUARANTOR AGAINST BORROWER ARISING AS A RESULT THEREFROM BY WAY OF RIGHT OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR OTHERWISE SHALL IN ALL RESPECTS BE SUBORDINATE AND JUNIOR IN RIGHT OF PAYMENT AND ENFORCEMENT TO THE PRIOR INDEFEASIBLE PAYMENT AND ENFORCEMENT IN FULL OF THE GUARANTEED OBLIGATIONS. GUARANTOR SHALL NOT HAVE, AND HEREBY WAIVES, ANY RIGHTS OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR OTHERWISE AGAINST OR FROM BORROWER UNLESS AND UNTIL ALL OF THE GUARANTEED OBLIGATIONS HAVE BEEN PAID AND PERFORMED IN FULL. IN ADDITION TO THE FOREGOING, GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL CLAIMS OR OTHER RIGHTS IT MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST AGENT, ANY OTHER CREDIT PARTY, BORROWER OR ANY OTHER PERSON UNDER CHAPTER 34 OF THE TEXAS BUSINESS AND COMMERCE CODE, UNDER RULES 31 AND 163 OF THE TEXAS RULES OF CIVIL PROCEDURE, UNDER SECTION 17.001 OF THE TEXAS CIVIL PRACTICE AND REMEDIES CODE AND UNDER ANY OTHER STATUTE OF ANY STATE OR OTHER JURISDICTION REQUIRING RECOURSE AGAINST THE PRIMARY OBLIGOR OR IMPOSING OTHER REQUIREMENTS AS A CONDITION TO RECOURSE AGAINST A GUARANTOR IF AND TO THE EXTENT THAT THE SAME MAY BE APPLICABLE TO THIS GUARANTY. 17. SUBORDINATION OF INDEBTEDNESS AND LIENS. The payment of any and all principal of and interest on all indebtedness of Borrower, whether direct, indirect, fixed, contingent, 12 liquidated, unliquidated, joint, several, or joint and several, now or hereafter existing, due or to become due to Guarantor (herein called the "SUBORDINATED DEBT"), shall in all respects be subordinate and junior in right of payment and enforcement to the prior payment and enforcement in full of the Guaranteed Obligations as provided in this paragraph. Except as may be expressly permitted by the Loan and Security Agreement, no payment shall be made on or with respect to the Subordinated Debt (whether owed to Guarantor or any Affiliate of Guarantor) unless and until the Guaranteed Obligations shall have been paid and performed in full. In the event that Guarantor or any Affiliate of Guarantor shall receive any payment on account of the Subordinated Debt in violation of this paragraph, Guarantor will hold, or cause to be held (as the case may be), any amount so received in trust for the benefit of Agent, for the benefit of the Credit Parties, and will forthwith deliver, or cause to be delivered (as the case may be), such payment to Agent, in the form received, to be applied to the Guaranteed Obligations. All Liens, if any, at any time securing payment of all or any part of the Subordinated Debt (herein called the "SUBORDINATED LIENS") shall be and remain inferior and subordinate to the Liens securing payment of all or any part of the Obligations or the Guaranteed Obligations, regardless of whether such Subordinated Liens presently exist or are hereafter created or when such Subordinated Liens were created, perfected, filed or recorded (PROVIDED, that the foregoing shall not be interpreted or deemed to allow the existence of any such Liens to the extent otherwise prohibited by the Loan Documents). Guarantor shall not exercise or enforce any creditors' rights or remedies that it may have against Borrower or foreclose, repossess, sequester or otherwise institute any action or proceeding (whether judicial or otherwise, including, without limitation, the commencement of, or joinder in, any bankruptcy, insolvency, reorganization, liquidation, receivership or other debtor relief law) to enforce any Subordinated Lien on any assets of Borrower or any other Person unless and until the Guaranteed Obligations shall have been paid and performed in full. The terms and provisions of this paragraph are given by Guarantor as additional rights and benefits to any and all other subordination agreements heretofore, concurrently herewith or hereafter executed by Guarantor to or in favor of Agent or any other Credit Party, and nothing in this Guaranty shall ever be deemed to in any way negate or replace any other such previous, concurrent or subsequent subordination agreements. All promissory notes, ledgers and other evidences of the Subordinated Debt, and all mortgages, deed of trusts, security agreements, assignments and other security documents, if any, at any time evidencing the Subordinated Liens, shall contain a specific written notice that the indebtedness and Liens evidenced thereby are subordinated as provided in this paragraph. 18. RIGHT OF SETOFF. Guarantor hereby grants to Agent and each other Credit Party a right of setoff upon any and all monies, securities or other property of Guarantor, and the proceeds therefrom, now or hereafter held or received by or in transit to Agent or any such other Credit Party from or for the account of Guarantor, whether for safekeeping, custody, pledge, transmission, collection or otherwise, and also upon any and all deposits (general or special) and credits of Guarantor, and any and all claims of Guarantor against Agent or any such other Credit Party at any time existing. The right of setoff granted pursuant to this paragraph shall be cumulative of and in addition to Agent's or any such other Credit Party's common law right of setoff. 19. FURTHER ASSURANCES. Upon the request of Agent, Guarantor will, at any time and from time to time, duly execute and deliver to Agent any and all such further agreements, 13 documents and instruments, and supply such additional information, as may be necessary or advisable, in the opinion of Agent, to obtain the full benefits of this Guaranty. 20. INVALID PROVISIONS. If any provision of this Guaranty is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable, this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Guaranty a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable. No provision herein or in any other Loan Document evidencing the Guaranteed Obligations shall require the payment or permit the collection of interest in excess of the maximum permitted by Applicable Law. 21. MODIFICATION IN WRITING. No modification, consent, amendment or waiver of any provision of this Guaranty, and no consent to any departure by Guarantor herefrom, shall be effective unless the same shall be in writing and signed by a duly authorized officer of Agent and then shall be effective only in the specific instance and for the specific purpose for which given. 22. NO WAIVER, ETC. No notice to or demand on, or consent by, Guarantor in any case shall, of itself, entitle Guarantor to any other or further notice or demand, or right to grant or refuse consent, in similar or other circumstances. No delay or omission by Agent in exercising any right or remedy hereunder shall impair any such right or remedy or be construed as a waiver thereof or any acquiescence therein, and no single or partial exercise of any such right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy hereunder. 23. CUMULATIVE RIGHTS. All rights and remedies of Agent hereunder are cumulative of each other and of every other right or remedy which Agent or any other Credit Party may otherwise have at law or in equity or under any other contract or document, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 24. EXPENSES. Guarantor agrees to pay on demand by Agent all costs and expenses incurred by Agent in connection with the negotiation, preparation, execution and performance of the terms and provisions of this Guaranty and any and all amendments, modifications, renewals, restatements and/or supplements hereto from time to time, including, without limitation, the reasonable fees and expenses of legal counsel to Agent. If Guarantor should breach or fail to perform any provision of this Guaranty, Guarantor agrees to pay to Agent all costs and expenses incurred by Agent in the enforcement of this Guaranty from time to time, including, without limitation, the reasonable fees and expenses of all legal counsel to Agent. 25. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. 14 26. NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN GUARANTOR AND AGENT RELATING TO THE SUBJECT MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN GUARANTOR AND AGENT. THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) ORAL AGREEMENTS, ARRANGEMENTS OR UNDERSTANDINGS RELATING TO THE SUBJECT MATTER OF THIS GUARANTY. 27. NOTICES. Unless otherwise specifically provided in this Guaranty, all notices or other communications required or permitted to be given under this Guaranty shall be given, if to Agent, as specified in the Loan and Security Agreement, or if to Guarantor, as specified in the Loan and Security Agreement but otherwise to Guarantor's address specified in the introductory paragraph hereof. 28. CHOICE OF FORUM; SERVICE OF PROCESS AND JURISDICTION. Any suit, action or proceeding against Guarantor or Agent with respect to this Guaranty shall be brought, served and maintained in the state or federal courts located in the State of Texas or otherwise as specified in the Loan and Security Agreement. 29. SURVIVAL. All representations, warranties, covenants and agreements of Guarantor in this Guaranty shall survive the execution of this Guaranty. 30. COUNTERPARTS. This Guaranty may be executed in any number of counterparts, each of which shall constitute an original, but all of which when taken together shall constitute one and the same Guaranty. 31. INTEREST LIMITATION. Notwithstanding anything to the contrary contained or referred to in this Guaranty, in no contingency or event whatsoever shall the amount of interest under the Loan Documents, including, without limitation, this Guaranty, paid by any Person, received by the Lenders, agreed to be paid by any Person, or requested or demanded to be paid by the Lenders, exceed the Maximum Rate. In the event any such sums paid to Lender would exceed the Maximum Rate, Lender shall automatically apply such excess to any unpaid amount of the Guaranteed Obligations or, if the amount of such excess exceeds said unpaid amount, such excess shall be paid to Borrower. All sums paid, or agreed to be paid, which are or hereafter may be construed to be compensation for the use, forbearance or detention of money shall be amortized, prorated, spread and allocated in respect of the Guaranteed Obligations throughout the full term of the Loan and Security Agreement until the Guaranteed Obligations are paid in full. Notwithstanding any provisions contained in the Loan Documents, or in any Notes or other related documents executed pursuant thereto, the Lenders shall never be entitled to receive, collect or apply as interest any amount in excess of the Maximum Rate and, in the event any Lender ever receives, collects or applies any amount in respect of Borrower that otherwise would be in excess of the Maximum Rate, such amount shall automatically be deemed to be applied in reduction of the unpaid principal balance of the Guaranteed Obligations and, if such principal balance is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, Borrower and Lender shall, to the maximum extent permitted under 15 Applicable Law, (i) characterize any non-principal payment as a standby fee, commitment fee, prepayment charge, delinquency charge or reimbursement for a third-party expense rather than as interest, (ii) exclude voluntary prepayments and the effect thereof, and (iii) amortize, prorate, allocate and spread in equal parts throughout the entire period during which the Guaranteed Obligations were outstanding the total amount of interest at any time contracted for, charged or received. Nothing herein contained shall be construed or so operate as to require payment of any interest, fees, costs or charges greater than is permitted by Applicable Law. 32. LITIGATION; WAIVER OF TRIAL BY JURY. GUARANTOR HEREBY KNOWINGLY, INTENTIONALLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF ANY KIND OR NATURE IN ANY COURT IN WHICH AN ACTION MAY BE COMMENCED BY OR AGAINST GUARANTOR ARISING OUT OF THIS GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY ASSIGNMENT THEREOF OR BY REASON OF ANY OTHER CAUSE OR DISPUTE WHATSOEVER BETWEEN GUARANTOR AND AGENT OR ANY LENDER OF ANY KIND OR NATURE. GUARANTOR ACKNOWLEDGES THAT SUCH WAIVER IS MADE WITH FULL KNOWLEDGE AND UNDERSTANDING OF THE NATURE OF THE RIGHTS AND BENEFITS WAIVED HEREBY AND WITH THE BENEFIT OF ADVICE OF COUNSEL OF ITS CHOOSING. GUARANTOR HEREBY AGREES THAT THE FEDERAL COURT OF THE NORTHERN DISTRICT OF TEXAS OR, AT THE OPTION OF AGENT OR ANY LENDER, ANY COURT IN WHICH AGENT OR SUCH LENDER SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY, SHALL HAVE NONEXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN GUARANTOR AND AGENT OR SUCH LENDER, PERTAINING DIRECTLY OR INDIRECTLY TO THIS GUARANTY OR THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING THEREFROM. GUARANTOR EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN SUCH COURTS. WITHOUT LIMITING THE APPLICABILITY OF ANY LAW PROVIDING FOR SERVICE OF PROCESS UPON A STATUTORY AGENT AND NOTIFICATION THEREOF BY MAIL, GUARANTOR HEREBY WAIVES (TO THE FULLEST EXTENT ALLOWED BY LAW) PERSONAL SERVICE OF THE SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN AND AGREES (TO THE FULLEST EXTENT ALLOWED BY LAW) THAT SERVICE OF SUCH SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR AT THE ADDRESS OF GUARANTOR SET FORTH IN THE INTRODUCTORY PARAGRAPH OF THIS GUARANTY. SHOULD GUARANTOR FAIL TO APPEAR OR ANSWER ANY SUMMONS, COMPLAINT, PROCESS OR PAPERS SO SERVED WITHIN THIRTY (30) DAYS AFTER THE MAILING THEREOF, IT SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AGAINST IT AS DEMANDED OR PRAYED FOR IN SUCH SUMMONS, COMPLAINT, PROCESS OR PAPERS. THE NONEXCLUSIVE CHOICE OF FORUM SET FORTH IN THIS PARAGRAPH SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT OF ANY JUDGMENT OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER THIS AGREEMENT TO ENFORCE THE SAME IN ANY APPROPRIATE JURISDICTION. 16 33. IRREVOCABLE NATURE OF GUARANTY. This Guaranty may not be revoked by Guarantor; PROVIDED, HOWEVER, that in the event it shall be judicially determined that Guarantor shall have any right, by Applicable Law notwithstanding its express agreement herein to the contrary, to revoke this Guaranty, Guarantor may deliver to Agent written notice of Guarantor's intention not to be liable hereunder for any Guaranteed Obligations arising, created or incurred after Agent's receipt of such notice, whereupon such notice shall be effective to the extent (but only to the extent) provided hereinbelow as to Guarantor from and after (but not before) the time when such notice is actually delivered to and received by and receipted for in writing by Agent (the "EFFECTIVE REVOCATION TIME"); PROVIDED FURTHER, HOWEVER, that such notice shall not be effective as to, and shall not in any way restrict, limit, impair, release or otherwise affect the indebtedness, liabilities or obligations of Guarantor under this Guaranty with respect to (a) any Guaranteed Obligations consisting of indebtedness, liabilities or obligations under the Loan and Security Agreement, the Notes or any other Loan Document, whether incurred before or after the Effective Revocation Time (including, without limitation, any loans, advances or extensions of credit at any time made or created under the Loan and Security Agreement, whether or not agreed, committed or contemplated to be made by the Lenders and whether or not discretionary with the Lenders), (b) any Guaranteed Obligations arising, created or incurred prior to the Effective Revocation Time, (c) any renewals, extensions or modifications of the indebtedness, liabilities or obligations referred to in CLAUSES (a) and (b) preceding, whether occurring before or after the Effective Revocation Time, or (d) any interest or costs of collection with respect to any of the indebtedness, liabilities or obligations referred to in CLAUSES (a), (b) or (c) preceding. Guarantor acknowledges that any such revocation or attempted revocation by Guarantor, whether or not valid under Applicable Law, shall in any event constitute an Event of Default under the Loan Documents. 34. HEADINGS. Guarantor agrees that the paragraph headings in this Guaranty are for convenience of identification only and do not limit any of the provisions of this Guaranty. IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the effective date specified in the introductory paragraph of this Guaranty. GUARANTOR: FREMONT ACQUISITION COMPANY, LLC, a Delaware limited liability company By: /s/ Gregory P. Spivy ---------------------------------------- Name: Gregory P. Spivy -------------------------------------- Title: Vice President ------------------------------------- 17 -----END PRIVACY-ENHANCED MESSAGE-----