SENIOR SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION CREDIT AGREEMENT Dated as of December 2, 2004 among APPLIED EXTRUSION TECHNOLOGIES, INC.

Exhibit 10.1

SENIOR SECURED, SUPER-PRIORITY

DEBTOR-IN-POSSESSION

CREDIT AGREEMENT

Dated as of December 2, 2004

among

APPLIED EXTRUSION TECHNOLOGIES, INC.

as Borrower,

THE OTHER CREDIT PARTIES SIGNATORY HERETO

FROM TIME TO TIME,

as Credit Parties,

THE LENDERS SIGNATORY HERETO

FROM TIME TO TIME,

as Lenders,

and

GENERAL ELECTRIC CAPITAL CORPORATION,

as Agent and Lender

GECC CAPITAL MARKETS GROUP, INC.
as Lead Arranger

TABLE OF CONTENTS

i

INDEX OF APPENDICES

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This SENIOR SECURED, SUPER-PRIORITY DEBTOR-IN-POSSESSION CREDIT AGREEMENT (this “Agreement”), dated as of December 2, 2004 among APPLIED EXTRUSION TECHNOLOGIES, INC., a Delaware corporation and a debtor and debtor-in-possession (the “Borrower”); the other Credit Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation (in its individual capacity, “GE Capital”), for itself, as Lender, and as Agent for Lenders, the other Lenders signatory hereto from time to time and GECC CAPITAL MARKETS GROUP, INC., as Lead Arranger (“GECMG”).

RECITALS

WHEREAS, on December 1, 2004 (the “Petition Date”), the Borrower commenced Chapter 11 Case No. 04-13388 and Applied Extrusion Technologies (Canada), Inc., a Delaware corporation (“AET Canada”) commenced Chapter 11 Case No. 04-13389 which together with Chapter 11 Case No. 04-13388 has been administratively consolidated as Chapter 11 Case No. 04-13388 (each a “Chapter 11 Case” and collectively, the “Chapter 11 Cases”) by filing voluntary petitions for reorganization under Chapter 11 of Title 11 of the United States Code, 11 U.S.C. §§101 et seq. (the “Bankruptcy Code”), with the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”), and each of the Borrower and AET Canada continues to operate its business and manage its properties as a debtor and debtor-in-possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code;

WHEREAS, prior to the Petition Date, pursuant to that certain Credit Agreement, dated as of October 3, 2003, among the Borrower, the other credit parties signatory thereto, GE Capital, as Agent and Lender, and the lenders from time to time signatory thereto (the “Prior Lenders”) (as amended, modified or supplemented prior to the Petition Date, the “Prepetition Loan Agreement”), the Prior Lenders provided financing to the Borrower;

WHEREAS, the Borrower has requested that the Lenders provide a senior secured, super-priority debtor-in-possession revolving and term credit facility to the Borrower of up to One Hundred and Twenty-Five Million Dollars ($125,000,000) in the aggregate to fund the working capital requirements of the Borrower and its Subsidiaries during the pendency of the Chapter 11 Cases and to repay in full all obligations under the Prepetition Loan Agreement;

WHEREAS, Lenders are willing to make certain loans and other extensions of credit to Borrower of up to such amount upon the terms and conditions set forth herein;

WHEREAS, Borrower has agreed to secure all of its obligations under the Loan Documents by granting to Agent, for the benefit of Agent and Lenders, a first priority security interest in and lien upon all of its existing and after-acquired personal and real property;

WHEREAS, AET Canada is willing to guarantee all of the obligations of Borrower to Agent and Lenders under the Loan Documents and to grant a first priority security interest in all of its assets in favor of Agent to secure such guarantee; and

WHEREAS, capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern.  All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, “Appendices”) hereto, or expressly identified to this

Agreement, are incorporated herein by reference, and taken together with this Agreement, shall constitute but a single agreement.  These recitals shall be construed as part of the Agreement.

NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows:

1.                                      AMOUNT AND TERMS OF CREDIT

1.1                                 Credit Facilities.

(a)                                  Revolving Credit Facility.

(i)                                     (A)  Subject to the terms and conditions hereof, each Revolving Lender agrees to make available to Borrower from time to time until the Commitment Termination Date its Pro Rata Share of advances (each, a “Revolving Credit Advance”).  The Pro Rata Share of the Revolving Loan of any Revolving Lender shall not at any time exceed its separate Revolving Loan Commitment (less its Pro Rata Share of the Export-Related Loan Participations).  The obligations of each Revolving Lender hereunder shall be several and not joint.  Until the Commitment Termination Date, Borrower may borrow, repay and reborrow under this Section 1.1(a)(i)(A); provided, that the amount of any Revolving Credit Advance to be made at any time shall not exceed Borrowing Availability at such time.  Borrowing Availability may be reduced by Reserves imposed by Agent in its reasonable credit judgment.

(B)                                Each Revolving Credit Advance shall be made on notice by Borrower to one of the representatives of Agent identified in Schedule 1.1 at the address specified therein.  Any such notice must be given no later than: (1) 11:00 a.m. (New York time) on the Business Day of the proposed Revolving Credit Advance, in the case of an Index Rate Loan; or (2) 11:00 a.m. (New York time) on the date which is three (3) Business Days prior to the proposed Revolving Credit Advance, in the case of a LIBOR Loan.  Each such notice (a ”Notice of Revolving Credit Advance”) must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(a)(i), and shall include the information required in such Exhibit and such other information as may be required by Agent.  If Borrower desires to have the Revolving Credit Advances bear interest by reference to a LIBOR Rate, Borrower must comply with Section 1.5(e).

(ii)                                  Except as provided in Section 1.12, Borrower shall execute and deliver to each Revolving Lender a note to evidence the Revolving Loan Commitment of that Revolving Lender.  Each note shall be in the principal amount of the Revolving Loan Commitment of the applicable Revolving Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(a)(ii) (each a “Revolving Note” and, collectively, the “Revolving Notes”). Each Revolving Note shall represent the obligation of Borrower to pay the amount of the applicable Revolving Lender’s Revolving Loan Commitment or, if less, such Revolving Lender’s Pro Rata Share of the aggregate unpaid principal amount of all Revolving Credit Advances to Borrower together with interest thereon as prescribed in Section 1.5.  The entire unpaid balance of the aggregate Revolving Loan and all other non-contingent Obligations shall

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be immediately due and payable in full in immediately available funds on the Commitment Termination Date.

(iii)                               Anything in this Agreement to the contrary notwithstanding, at the request of Borrower, Agent in its discretion may (but shall have absolutely no obligation to), make Revolving Credit Advances to Borrower on behalf of Revolving Lenders in amounts that cause the outstanding balance of the aggregate Revolving Loan to exceed the Borrowing Base (less the Swing Line Loan) (any such excess Revolving Credit Advances are herein referred to collectively, as “Overadvances”); provided, that, (A) no such event or occurrence shall cause or constitute a waiver of Agent’s, Swing Line Lender’s or Revolving Lenders’ right to refuse to make any further Overadvances, Swing Line Advances or Revolving Credit Advances, or incur any Letter of Credit Obligations, as the case may be, at any time that an Overadvance exists, and (B) no Overadvance shall result in a Default or Event of Default based on Borrower’s failure to comply with Section 1.3(b)(i) for so long as Agent permits such Overadvance to be outstanding, but solely with respect to the amount of such Overadvance.  In addition, Overadvances may be made even if the conditions to lending set forth in Section 2 have not been met.  All Overadvances shall constitute Index Rate Loans, shall bear interest at the Default Rate and shall be payable on demand.  Except as otherwise provided in Section 1.11(b), the authority of Agent to make Overadvances is limited to an aggregate amount not to exceed $2,500,000 at any time and shall not cause the aggregate Revolving Loan to exceed the Maximum Amount less the principal amount of the Swing Line Loan and the Export-Related Loan.

(b)                                 Term Loan.

(i)                                     Subject to the terms and conditions hereof, each Term Lender agrees to make a term loan (collectively, the “Term Loan”) on the Closing Date to Borrower in the amount of the applicable Term Lender’s Term Loan Commitment.  The obligations of each Term Lender hereunder shall be several and not joint.  Each such Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit 1.1(b) (each a “Term Note” and collectively, the “Term Notes”), and, except as provided in Section 1.12, Borrower shall execute and deliver the Term Note to the applicable Term Lender.  Each Term Note shall represent the obligation of Borrower to pay the applicable Term Lender’s Term Loan Commitment, together with interest thereon as prescribed in Section 1.5.

(ii)                                  Borrower shall repay the Term Loan in four consecutive quarterly installments of $875,000 each on the last day of March, June and September, with the remaining principal balance due and payable on the Commitment Termination Date.

(iii)                               Notwithstanding Section 1.1(b)(ii), the aggregate outstanding principal balance together with accrued interest on the Term Loan shall be due and payable in full in immediately available funds on the Commitment Termination Date, if not sooner paid in full.  No payment with respect to the Term Loan may be reborrowed.

(iv)                              Each payment of principal with respect to the Term Loan shall be paid to Agent for the ratable benefit of each Term Lender, ratably in proportion to each such Term Lender’s respective Term Loan Commitment.

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(c)                                  Last Out Term Loan.

(i)                                     Subject to the terms and conditions hereof, each Last Out Term Lender agrees to make a last out term loan (collectively, the “Last Out Term Loan”) on the Closing Date to Borrower in the amount of the applicable Last Out Term Lender’s Last Out Term Loan Commitment; provided that Borrower acknowledges and agrees that a portion of the aggregate Last Out Term Loan in an amount of $15,000,000 may not be funded until such time as the conditions set forth in Section 2.4 are satisfied.  The obligations of each Last Out Term Lender hereunder shall be several and not joint.  Each such Last Out Term Loan shall be evidenced by a promissory note substantially in the form of Exhibit 1.1(c) (each a “Last Out Term Note” and collectively, the “Last Out Term Notes”), and, except as provided in Section 1.12, Borrower shall execute and deliver the Last Out Term Note to the applicable Last Out Term Lender.  Each Last Out Term Note shall represent the obligation of Borrower to pay the applicable Last Out Term Lender’s Last Out Term Loan Commitment, together with interest thereon as prescribed in Section 1.5.

(ii)                                  Borrower shall repay the aggregate outstanding principal balance, together with accrued interest, on the Last Out Term Loan in one lump sum payment on the Commitment Termination Date, if not sooner paid in full.  No payment with respect to the Last Out Term Loan may be reborrowed.

(iii)                               Each payment of principal with respect to the Last Out Term Loan shall be paid to Agent for the ratable benefit of each Last Out Term Lender, ratably in proportion to each such Last Out Term Lender’s respective Last Out Term Loan Commitment.

(d)                                 Swing Line Facility.

(i)                                     Agent shall notify the Swing Line Lender upon Agent’s receipt of any Notice of Revolving Credit Advance.  Subject to the terms and conditions hereof, the Swing Line Lender may, in its discretion, make available from time to time until the Commitment Termination Date advances (each, a “Swing Line Advance”) in accordance with any such notice. The provisions of this Section 1.1(d) shall not relieve Revolving Lenders of their obligations to make Revolving Credit Advances under Section 1.1(a); provided, that if the Swing Line Lender makes a Swing Line Advance pursuant to any such notice, such Swing Line Advance shall be in lieu of any Revolving Credit Advance that otherwise may be made by Revolving Credit Lenders pursuant to such notice.  The aggregate amount of Swing Line Advances outstanding shall not exceed at any time the lesser (“Swing Line Availability”) of (A) the Swing Line Commitment, (B) the Maximum Amount less the sum of the outstanding balance of the Revolving Loan and the Export-Related Loan at such time and (C) the Aggregate Borrowing Base less the aggregate outstanding balance of the Revolving Loan and the Export-Related Loan (except for Overadvances) at such time.  Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(d).  Each Swing Line Advance shall be made pursuant to a Notice of Revolving Credit Advance delivered to Agent by Borrower in accordance with Section 1.1(a).  Any such notice must be given no later than 11:00 a.m. (New York time) on the Business Day of the proposed Swing Line Advance.  Unless the Swing Line Lender has received at least one Business Day’s prior written notice from Requisite Revolving Lenders instructing it not to make a Swing Line Advance, the Swing Line Lender shall,

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notwithstanding the failure of any condition precedent set forth in Sections 2.2, be entitled to fund that Swing Line Advance, and to have each Revolving Lender make Revolving Credit Advances in accordance with Section 1.1(d)(iii).  Notwithstanding any other provision of this Agreement or the other Loan Documents, the Swing Line Loan shall constitute an Index Rate Loan.  Swing Line Lender, subject to the terms hereof, shall make the requested Swing Line Advance to Borrower not later than 3:00 p.m. (New York time) on the requested funding date.  Borrower shall repay the aggregate outstanding principal amount of the Swing Line Loan upon demand therefor by Agent.

(ii)                                  Borrower shall execute and deliver to the Swing Line Lender a promissory note to evidence the Swing Line Commitment.  Such note shall be in the principal amount of the Swing Line Commitment of the Swing Line Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(d)(ii)  (the “Swing Line Note”).  The Swing Line Note shall represent the obligation of Borrower to pay the amount of the Swing Line Commitment or, if less, the aggregate unpaid principal amount of all Swing Line Advances made to Borrower together with interest thereon as prescribed in Section 1.5.  The entire unpaid balance of the Swing Line Loan and all other noncontingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full.

(iii)                               The Swing Line Lender, at any time and from time to time in its sole and absolute discretion, but not less frequently than weekly and upon any demand by Agent to Borrower to repay the Swing Line Loan, shall on behalf of Borrower (and Borrower hereby irrevocably authorizes the Swing Line Lender to so act on its behalf) request each Revolving Lender (including the Swing Line Lender) to make a Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in an amount equal to that Revolving Lender’s Pro Rata Share of the principal amount of Borrower’s Swing Line Loan (the “Refunded Swing Line Loan”) outstanding on the date such notice is given.  Regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, each Revolving Lender shall disburse directly to Agent, its Pro Rata Share of a Revolving Credit Advance on behalf of the Swing Line Lender prior to 3:00 p.m. (New York time) in immediately available funds on the Business Day next succeeding the date that notice is given.  The proceeds of those Revolving Credit Advances shall be immediately paid to the Swing Line Lender and applied to repay the Refunded Swing Line Loan of Borrower.

(iv)                              Intentionally Omitted

(v)                                 Each Revolving Lender’s obligation to make Revolving Credit Advances in accordance with Section 1.1(d)(iii) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Revolving Lender may have against the Swing Line Lender, Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement at any time or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.  If any Revolving Lender does not make available to Agent or the Swing Line Lender, as applicable, the amount required pursuant to Section 1.1(d)(iii), the Swing Line Lender shall be entitled to recover such amount on demand

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from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two (2) Business Days and at the Index Rate thereafter.

(e)                                  Export-Related Loan.

(i)                                     Subject to the terms and conditions hereof, the Export-Related Loan Lender agrees to make available to Borrower from time to time until the Commitment Termination Date export-related advances (each, an “Export-Related Advance”) in accordance with any such notice.  Until the Commitment Termination Date, Borrower may from time to time borrow, repay and reborrow under this Section 1.1(e)(i); provided, that (A) the amount of any Export-Related Advance to be made at any time shall not exceed Export-Related Borrowing Availability at such time, and (B) the aggregate amount of Export-Related Advances outstanding shall not exceed at any the Maximum Amount less the outstanding balances of the Revolving Loan (except for Overadvances) and the Swing Line Loan at such time.  Export-Related Borrowing Availability may be further reduced by Reserves imposed by Agent in its reasonable credit judgment.  Each Export-Related Advance shall be made on notice by Borrower to one of the representatives of Agent identified in Schedule 1.1 at the address specified therein.  Any such notice must be given no later than: (1) 11:00 a.m. (New York time) on the Business Day of the proposed Export-Related Advance, in the case of an Index Rate Loan; or (2) 11:00 a.m. (New York time) on the date which is three (3) Business Days prior to the proposed Export-Related Advance, in the case of a LIBOR Loan.  Each such notice (a ”Notice of Export-Related Advance”) must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(e)(i), and shall include the information required in such Exhibit and such other information as may be required by Agent.  If Borrower desires to have the Export-Related Advances bear interest by reference to a LIBOR Rate, Borrower must comply with Section 1.5(e).  Agent shall notify the Export-Related Loan Lender upon Agent’s receipt of any Notice of Export-Related Advance which requests an Export-Related Advance.  Unless the Export-Related Loan Lender has received at least one Business Day’s prior written notice from Requisite Revolving Lenders instructing it not to make a Export-Related Advance, the Export-Related Loan Lender shall, notwithstanding the failure of any condition precedent set forth in Sections 2.2, be entitled to fund that Export-Related Advance, and to have each Revolving Lender purchase participating interests in accordance with Section 1.1(e)(iii).  The Export-Related Loan Lender, subject to the terms hereof, shall make the requested Export-Related Advance to Borrower not later than 3:00 p.m. (New York time) on the requested funding date.

(ii)                                  Borrower shall execute and deliver to the Export-Related Loan Lender a promissory note to evidence the Export-Related Loan Commitment.  Such note shall be in the principal amount of the Export-Related Loan Commitment of the Export-Related Loan Lender, dated the Closing Date and substantially in the form of Exhibit 1.1(e)(ii)  (the “Export-Related Loan Note”).  The Export-Related Loan Note shall represent the obligation of Borrower to pay the amount of the Export-Related Loan Commitment or, if less, the aggregate unpaid principal amount of all Export-Related Advances made to Borrower together with interest thereon as prescribed in Section 1.5.  The entire unpaid balance of the Export-Related Loan and all other noncontingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date if not sooner paid in full.

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(iii)                               Immediately upon the making of any Export-Related Advance by the Export-Related Loan Lender, each Revolving Lender (including the Export-Related Loan Lender) shall be deemed to have irrevocably and unconditionally purchased from the Export-Related Loan Lender an undivided interest and participation in such Export-Related Advance in an amount equal to its Pro Rata Share of the principal amount of such Export-Related Advance (each an “Export-Related Loan Participation” and collectively, the “Export-Related Loan Participations”).  Each Revolving Lender shall fund its participation in such Export-Related Advance in the same manner as provided in the Agreement with respect to Revolving Credit Advances, regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied, and as set forth in this Section 1.3(d).  The Export-Related Loan Lender, at any time and from time to time in its sole and absolute discretion, but not less frequently than weekly, shall request each Revolving Lender (including the Export-Related Loan Lender) to fund its participation in outstanding Export-Related Advances which have not been previously funded in an amount equal to its Pro Rata Share of the principal amount of such Export-Related Advances (a “Funded Export-Related Loan Participation”), regardless of whether the conditions precedent set forth in this Agreement to the making of a Revolving Credit Advance are then satisfied.  Each Revolving Lender shall disburse directly to the Agent such amount prior to 3:00 p.m. (New York time) in immediately available funds on the Business Day next succeeding the date that notice is given, and the Agent shall be immediately pay such amount to the Export-Related Loan Lender.

(iv)                              Each Revolving Lender’s obligation to purchase participation interests in accordance with Section 1.1(e)(iii) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right that such Revolving Lender may have against the Export-Related Loan Lender, Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of any Default or Event of Default; (C) any inability of Borrower to satisfy the conditions precedent to borrowing set forth in this Agreement at any time or (D) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing.  If any Revolving Lender does not make available to Agent the amount required pursuant to Sections 1.1(e)(iii) the Export-Related Loan Lender shall be entitled to recover such amount on demand from such Revolving Lender, together with interest thereon for each day from the date of non-payment until such amount is paid in full at the Federal Funds Rate for the first two (2) Business Days and at the Index Rate thereafter.

(v)                                 Any principal or interest received by the Agent in respect of any Export-Related Advance shall be promptly paid by the Agent to the Revolving Lenders which have a Funded Export-Related Loan Participation in such Export-Related Advance in an amount equal to its Pro Rata Share of such principal or interest (and to the Export-Related Loan Lender with respect to any such Export-Related Advance as to which a Funded Export-Related Loan Participation does not exist).

(f)                                    Reliance on Notices.  Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Revolving Credit Advance, Notice of Export-Related Advance, Notice of Conversion/Continuation or similar notice believed by Agent to be genuine.  Agent may assume that each Person executing and delivering any notice in accordance

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herewith was duly authorized, unless the responsible individual acting thereon for Agent has actual knowledge to the contrary.

1.2                                 Letters of Credit.

(a)                                  Subject to and in accordance with the terms and conditions contained herein and in Annex B, Borrower shall have the right to request, and Revolving Lenders agree to incur, or purchase participations in, Letter of Credit Obligations in respect of Borrower.

(b)                                 On and as of the Closing Date, all letters of credit issued for the account of Borrower under the Prepetition Loan Agreement (the “Existing Letters of Credit”) shall continue in place as Letters of Credit under this Agreement and shall be subject to the terms and conditions of this Agreement, including, without limitation, Annex B.  All obligations under or in connection with the Existing Letters of Credit shall constitute Letter of Credit Obligations hereunder.

1.3                                 Prepayments.

(a)                                  Voluntary Prepayments; Reductions in Revolving Loan Commitments.  Borrower may at any time on at least ten (10) days’ prior written notice to Agent (i) voluntarily prepay all or part of the Term Loan and/or (ii) permanently reduce (but not terminate) the Revolving Loan Commitment; provided, that (A) any such prepayments or reductions of the Term Loan shall be in a minimum amount of $1,000,000 and integral multiples of $250,000 in excess of such amount and any such prepayments or reductions of the Revolver Loan Commitment shall be in a minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of such amount, (B) the Revolving Loan Commitment shall not be reduced to an amount less than the greater of (x) $30,000,000 and (y) the amount of the Revolving Loan then outstanding, and (C) after giving effect to such reductions, Borrower shall comply with Section 1.3(b)(i).  In addition, Borrower may at any time on at least ten (10) days’ prior written notice to Agent terminate the Revolving Loan Commitment; provided, that upon such termination, all Loans and other Obligations shall be immediately due and payable in full and all Letter of Credit Obligations shall be cash collateralized or otherwise satisfied in accordance with Annex B hereto.  Any voluntary prepayment and any reduction or termination of the Revolving Loan Commitment must be accompanied by payment of the Fee required by Section 1.9(c), if any, plus the payment of any LIBOR funding breakage costs in accordance with Section 1.13(b).  Upon any termination of the Revolving Loan Commitment, Borrower’s right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances or Export-Related Advances, shall simultaneously be permanently terminated, and upon any such reduction of the Revolving Loan Commitment, Borrower’s right to request Revolving Credit Advances, or request that Letter of Credit Obligations be incurred on its behalf, or request Swing Line Advances, shall simultaneously be permanently reduced; provided, that a permanent reduction of the Revolving Loan Commitment shall not require a corresponding pro rata reduction in the L/C Sublimit and/or the Export-Related Loan Commitment.  Each notice of partial prepayment shall designate the Loans or other Obligations to which such prepayment is to be applied; provided, that any partial prepayments of the Term Loan made by or on behalf of Borrower shall be applied to prepay the scheduled installments of Borrower’s Term Loan in inverse order of maturity.

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(b)                                 Mandatory Prepayments.

(i)                                     If on any day the aggregate outstanding balances of the Revolving Loan, the Swing Line Loan and the Export-Related Loan exceed the Maximum Amount, Borrower shall on such day repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess.  If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrower shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex B to the extent required to eliminate such excess.  If on any day the aggregate outstanding balances of the Revolving Loan and the Swing Line Loan exceed the Borrowing Base, Borrower shall on such day repay the aggregate outstanding Revolving Credit Advances to the extent required to eliminate such excess; provided, that solely for purposes of this sentence, any reduction in the Borrowing Base due to the establishment or modification of Reserves (other than pursuant to Section 5.4(a)), or the adjustment of any criteria in Section 1.6 or 1.7, or the establishment of any new criteria for, or adjustment of advance rates with respect to, Eligible Accounts or Eligible Inventory, shall be effective on the second Business Day after receipt by Borrower of notice from the Agent of such reduction.  If any such excess remains after repayment in full of the aggregate outstanding Revolving Credit Advances, Borrower shall provide cash collateral for the Letter of Credit Obligations in the manner set forth in Annex B to the extent required to eliminate such excess.  If on any day the outstanding balance of the Export-Related Loan exceeds the lesser of (A) the Export-Related Loan Commitment and (B) the Export-Related Borrowing Base, Borrower shall on such day repay the aggregate outstanding Export-Related Advances to the extent required to eliminate such excess.  Notwithstanding the foregoing, any Overadvance made pursuant to Section 1.1(a)(iii) shall be repaid only on demand.

(ii)                                  On the date of receipt by any Credit Party of proceeds of any asset disposition (excluding proceeds of asset dispositions permitted by Section 6.8 (a), (d) and (f), and proceeds of asset dispositions permitted by Section 6.8(c) in an aggregate amount not exceeding $300,000 in any Fiscal Year) or any sale of Stock of any Subsidiary of any Credit Party, Borrower shall prepay the Loans in an amount equal to all such proceeds, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Borrower in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior Liens (to the extent such Liens constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve for income taxes in accordance with GAAP in connection therewith.  Any such prepayment shall be applied in accordance with Section 1.3(c).

(iii)                               If any Credit Party issues Stock (other than proceeds in an aggregate amount not exceeding $1,000,000 received upon issuance or sale of Stock to directors, management or employees of any Credit Party under any employment or similar agreement or stock option, stock purchase or benefit plan) or any debt securities (other then Indebtedness permitted under Section 6.3), no later than the Business Day following the date of receipt of the proceeds thereof, Borrower shall prepay the Loans in an amount equal to the product of (x) 75% multiplied by (y) all such proceeds, net of underwriting discounts and commissions and other reasonable costs, fees and expenses paid to non-Affiliates in connection therewith.  Any such prepayment shall be applied in accordance with Section 1.3(c).

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(iv)                              Borrower shall prepay the Term Loan on the date that is 10 days after (a) the date on which the Borrower’s annual audited financial statements for the Fiscal Year ending September 30, 2005 are delivered pursuant to Annex E or (b) the date on which such annual audited financial statements were required to be delivered pursuant to Annex E in an amount equal to twenty-five percent (25%) of Excess Cash Flow for the immediately preceding Fiscal Year; provided, that the sum of any such prepayments pursuant to this Section 1.3(b)(iv) along with the aggregate amount of payment pursuant to Section 1.1(b)(ii) shall not exceed, in the aggregate, $6,250,000.  Any prepayments from Excess Cash Flow paid pursuant to this clause (iv) shall be applied in accordance with Section 1.3(c).  Each such prepayment shall be accompanied by a certificate signed by Borrower’s chief financial officer or treasurer certifying the manner in which Excess Cash Flow was calculated and the resulting prepayment, which certificate shall be in form and substance reasonably satisfactory to Agent.

(c)                                  Application of Certain Mandatory Prepayments.  Any prepayments made by Borrower pursuant to Sections 1.3(b)(ii), (b)(iii) or (b)(iv) above shall be applied as follows: first, to prepay the scheduled principal installments of the Term Loan in inverse order of maturity, until paid in full; second, to the principal balance of the Swing Line Loan outstanding until the same has been repaid in full; third, to the principal balance of Revolving Credit Advances outstanding until the same has been paid in full; fourth, to the principal balance of Export-Related Advances outstanding until the same has been paid in full; fifth, to any Letter of Credit Obligations to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth in Annex B; and sixth, to prepay the principal and any accrued interest on the Last Out Term Loan, until paid in full; provided, however, any Term Lender may elect by written notice to the Agent prior to the date of any prepayment made pursuant to Section 1.3(b)(iv) to decline any or all of such prepayment of its Term Loan, in which case the aggregate amount which would have been applied to prepay the Term Loan but was so declined shall be applied as follows: first, to the principal balance of the Swing Line Loan outstanding until the same has been repaid in full; second, to the principal balance of Revolving Credit Advances outstanding until the same has been paid in full; third, to the principal balance of Export-Related Advances outstanding until the same has been paid in full; fourth, to any Letter of Credit Obligations to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth in Annex B; and fifth, to prepay the principal and any accrued interest on the Last Out Term Loan, until paid in full.  None of the Revolving Loan Commitment, the Export-Related Loan Commitment or the Swing Line Commitment shall be permanently reduced by the amount of any such prepayments.

(d)                                 Application of Prepayments from Insurance and Condemnation Proceeds.  Prepayments from insurance or condemnation proceeds in accordance with Section 5.4(c) and the Mortgages, respectively, shall be applied as follows:  (i) insurance proceeds from casualties or losses to Inventory shall be applied, first, to the Swing Line Loan, second, to Revolving Credit Advances, third, to Export-Related Advances, fourth, to the Term Loan; and (ii) insurance or condemnation proceeds from casualties or losses to Equipment, Fixtures and Real Estate shall be applied, first, to prepay the scheduled principal installments of the Term Loan in inverse order of maturity, until paid in full; second, to the principal balance of the Swing Line Loan outstanding until the same has been repaid in full; third, to the principal balance of Revolving Credit Advances outstanding until the same has been paid in full; fourth, to the principal balance of

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Export-Related Advances outstanding until the same has been paid in full; fifth, to any Letter of Credit Obligations to provide cash collateral therefor in the manner set forth in Annex B, until all such Letter of Credit Obligations have been fully cash collateralized in the manner set forth in Annex B; and sixth to prepay the principal and any accrued interest on the Last Out Term Loan, until paid in full.  Neither the Revolving Loan Commitment, the Export-Related Loan Commitment or the Swing Line Loan Commitment shall be permanently reduced by the amount of any such prepayments.

(e)                                  To the extent consistent with Sections 1.3(c) and (d), amounts to be applied pursuant to Sections 1.3(b) and (d) to the prepayment of Loans shall be applied, as applicable, first to prepay outstanding Index Rate Loans, and then any amounts remaining after each such application shall, at the option of Borrower, be applied to prepay LIBOR Loans, and/or shall be deposited in the Prepayment Account (as defined below).  The Agent shall apply any cash deposited in the Prepayment Account (i) allocable to Term Loans to prepay Term Loans which are LIBOR Loans, (ii) allocable to Revolving Loans to prepay Revolving Loans which are LIBOR Loans and (iii) allocable to Last Out Term Loans to prepay Last Out Term Loans which are LIBOR Loans in each case on the last day of their respective LIBOR Periods (or, at the direction of Borrower, on any earlier date) until all outstanding Term Loans, Revolving Loans or Last Out Term Loans, as the case may be, have been prepaid or until all the allocable cash on deposit with respect to such Loans has been fully applied.  For purposes of this Agreement, the term “Prepayment Account” shall mean a cash collateral account maintained at a bank or financial institution acceptable to Agent.  The Prepayment Account shall be in the name of Borrower and shall be pledged to, and subject to the control of, Agent, for the benefit of Agent and Lenders, in manner satisfactory to Agent.  Borrower hereby pledges and grants to Agent, on behalf of itself and Lenders, a first priority security interest in all funds held in the Prepayment Account from time to time and all proceeds thereof, as security for the payment of all Obligations, whether or not then due.  The Agreement, including this Section 1.3(e), shall constitute a security agreement under applicable law.  After the occurrence of and during the continuance of an Event of Default, Agent will apply funds then held in the Prepayment Account to the payment of Term Loans, Last Out Term Loans and Revolving Loans (allocated to such Loans as provided above in this Section 1.3(e)), and any remaining funds shall, subject to Section 1.11(b), be applied, in such order as Agent may elect, to any other Obligations then due and payable.  Neither Borrower nor any Person claiming on behalf of or through Borrower shall have any right to withdraw any of the funds held in the Prepayment Account, except as provided above in this Section 1.3(e).  Interest earned on deposits in the Prepayment Account shall be for the account of Lenders ratably based upon their Pro Rata Shares of all of the Loans.

(f)                                    No Implied Consent.  Nothing in this Section 1.3 shall be construed to constitute Agent’s or any Lender’s consent to any transaction that is not permitted by other provisions of this Agreement or the other Loan Documents.

1.4                                 Use of Proceeds.  Borrower shall utilize the proceeds of the Loans (net of any amounts used on the Closing Date to pay Fees) (a) to the extent permitted by the Interim Order or the Final Order, as the case may be, to repay in full the outstanding principal, accrued interest, and accrued fees and expenses, if any, owing to Prior Lenders under the Prepetition Loan Agreement, (b) for working capital and general corporate purposes including certain fees and expenses of professionals retained by the Borrower and the Committee (within the meaning

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of clause (a) of the definition thereof), subject to the Carve-Out Amount and the procedures set forth in the Interim Order and Final Order, as applicable, but excluding in any event the making of any Restricted Payment not specifically permitted by Section 6.14) and (c) certain other Prepetition expenses that are approved by the Bankruptcy Court and consented to by the Agent.  Borrower shall not be permitted to use the proceeds of the Loans: (i) for the payment of interest and principal with respect to Subordinated Debt, (ii) to finance in any way any adversary action, suit, arbitration, proceeding, application, motion or other litigation of any type relating to or in connection with the Prepetition Loan Agreement or any of the loan documents or in instruments entered into in connection therewith, including, without limitation, any challenges to the obligations under the Prepetition Loan Agreement, or the validity, perfection, priority, or enforceability of any Lien securing such claims or any payment made thereunder, (iii) to finance in any way any action, suit, arbitration, proceeding, application, motion or other litigation of any type adverse to the interests of Agent and Lenders or their rights and remedies under this Agreement, the other Loan Documents, the Interim Order or the Final Order (it being understood that funds used to pay professionals retained by the Committee (within the meaning of clause (a) of the definition thereof) to investigate causes of action against the Agent and the Lenders pursuant to an order of the Bankruptcy Court and consistent with the terms of the Interim Order and the Final Order shall not constitute a violation of this clause (iii)), (iv) to make any distribution under a plan of reorganization in any Chapter 11 Case and (v) to make any payment in settlement of any claim, action or proceeding before any court, arbitrator or other governmental body without the prior written consent of Agent.  Disclosure Schedule (1.4) contains a description of Borrower’s sources and uses of funds as of the Closing Date, including Loans and Letter of Credit Obligations to be made or incurred on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses.

1.5                                 Interest and Applicable Margins.

(a)                                  Borrower shall pay interest to Agent, for the ratable benefit of Lenders in accordance with the various Loans being made by each Lender, in arrears on each applicable Interest Payment Date, at the following rates:  (i) with respect to the Revolving Credit Advances, the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the aggregate Revolving Credit Advances outstanding from time to time;  (ii) with respect to the Export-Related Advances, the Index Rate plus the Applicable Revolver Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based on the aggregate Export-Related Advances outstanding from time to time; (iii) with respect to the Term Loan, the Index Rate plus the Applicable Term Loan Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Term Loan LIBOR Margin per annum; (iv) with respect to the Last Out Term Loan, the Index Rate plus the Applicable Last Out Term Loan Index Margin per annum or, at the election of Borrower, the applicable LIBOR Rate plus the Applicable Last Out Term Loan LIBOR Margin per annum; and (v) with respect to the Swing Line Loan, the Index Rate plus the Applicable Revolver Index Margin per annum.

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As of the Closing Date, the Applicable Margins are as follows:

The Applicable Margins may be adjusted by reference to the following grids:

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Adjustments in the Applicable Margins commencing with the Fiscal Quarter ending December 31, 2004 shall be implemented quarterly on a prospective basis based on Borrower’s consolidated financial performance for the trailing four (4) Fiscal Quarters most recently ended, for each calendar month commencing at least five (5) days after the date of delivery to Lenders of the quarterly unaudited or annual audited (as applicable) Financial Statements evidencing the need for an adjustment.  Concurrently with the delivery of those Financial Statements, Borrower shall deliver to Agent and Lenders a certificate, signed by its chief financial officer, setting forth in reasonable detail the basis for the continuance of, or any change in, the Applicable Margins.  Failure to timely deliver such Financial Statements shall, in addition to any other remedy provided for in this Agreement (including the application of the Default Rate), result in an increase in the Applicable Margins to the highest level set forth in the foregoing grid, until the first day of the first calendar month following the delivery of those Financial Statements demonstrating that such an increase is not required.  If a Default or Event of Default has occurred and is continuing at the time any reduction in the Applicable Margins is to be implemented, that reduction shall be deferred until the first day of the first calendar month following the date on which such Default or Event of Default is waived or cured.

Notwithstanding the foregoing, (A) commencing on the Closing Date until the date on which the Last Out Term Lenders advance the unfunded portion of the Last Out Term Loan in an aggregate amount of $15,000,000 following satisfaction of the condition set forth in Section 2.4, the Applicable Term Loan Index Margin, the Applicable Term Loan LIBOR Margin, the Applicable Last Out Term Loan Index Margin and the Applicable Last Out Term Loan LIBOR Margin shall each be increased by an additional 100 basis points (it being understood that, in the event that the conditions set forth in Section 2.4 are not satisfied on or prior to the entry of the Final Order, such increases in the Applicable Term Loan Index Margin, the Applicable Term Loan LIBOR Margin, the Applicable Last Out Term Loan Index Margin and the Applicable Last Out Term Loan LIBOR Margin shall remain in effect), and (B) commencing on the ninety first (91^st) day after the earlier to occur of (i) the Closing Date and (ii) the tenth (10^th) day after the entry of the Interim Order, the Applicable Term Loan Index Margin, the Applicable Term Loan LIBOR Margin, the Applicable Last Out Term Loan Index Margin and the Applicable Last Out Term Loan LIBOR Margin shall each be increased by an additional 100 basis points.

(b)                                 If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity thereof will be extended to the next succeeding Business Day (except as set forth in the definition of LIBOR Period) and, with respect to payments of principal, interest thereon shall be payable at the then applicable rate during such extension.

(c)                                  All computations of Fees calculated on a per annum basis and interest shall be made by Agent on the basis of a 360-day year, in each case for the actual number of days occurring in the period for which such interest and Fees are payable.  The Index Rate is a

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floating rate determined for each day.  Each determination by Agent of an interest rate and Fees hereunder shall be final, binding and conclusive on Borrower, absent manifest error.

(d)                                 So long as an Event of Default has occurred and is continuing under Section 8.1(a) or so long as any other Event of Default has occurred and is continuing and at the election of Agent (or upon the written request of Requisite Lenders or any individual Lender holding at least 33% of either the Revolving Loan Commitment or the Term Loan Commitment) confirmed by written notice from Agent to Borrower, the interest rates applicable to the Loans and the Letter of Credit Fees shall be increased by two percentage points (2%) per annum above the rates of interest or the rate of such Fees otherwise applicable hereunder (“Default Rate”), and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. Interest and Letter of Credit Fees at the Default Rate shall accrue from the initial date of such Event of Default (or, with respect to any Event of Default under Section 8.1(d), from the earlier of (i) the initial date any Credit Party has knowledge of the occurrence of such Event of Default and (ii) the date the Borrower receives notice of such Event of Default from the Agent or any Lender) until that Event of Default is cured or waived and shall be payable upon demand.

(e)                                  Subject to the conditions precedent set forth in Section 2.2, Borrower shall have the option to (i) request that any Revolving Credit Advance be made as a LIBOR Loan, (ii) convert at any time all or any part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to payment of LIBOR breakage costs in accordance with Section 1.13(b) if such conversion is made prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue all or any portion of any Loan (other than the Swing Line Loan) as a LIBOR Loan upon the expiration of the applicable LIBOR Period and the succeeding LIBOR Period of that continued Loan shall commence on the first day after the last day of the LIBOR Period of the Loan to be continued.  Any Loan or group of Loans having the same proposed LIBOR Period to be made or continued as, or converted into, a LIBOR Loan must be in a minimum amount of $2,000,000 and integral multiples of $500,000 in excess of such amount.  Any such election must be made by 11:00 a.m. (New York time) on the 3rd Business Day prior to: (1) the date of any proposed Advance which is to bear interest at the LIBOR Rate; (2) the end of each LIBOR Period with respect to any LIBOR Loans to be continued as such; or (3) the date on which Borrower wishes to convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by Borrower in such election.  If no election is received with respect to a LIBOR Loan by 11:00 a.m. (New York time) on the 3rd Business Day prior to the end of the LIBOR Period with respect thereto (or if a Default or an Event of Default has occurred and is continuing or if the additional conditions precedent set forth in Section 2.2 shall not have been satisfied), that LIBOR Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period.  Borrower must make such election by notice to Agent in writing, by telecopy or overnight courier.  In the case of any conversion or continuation, such election must be made pursuant to a written notice (a “Notice of Conversion/Continuation”) in the form of Exhibit 1.5(e).

(f)                                    Notwithstanding anything to the contrary set forth in this Section 1.5, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (the “Maximum Lawful Rate”), then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate; provided, however, that if at any

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time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by Agent, on behalf of Lenders, is equal to the total interest that would have been received had the interest rate payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement. Thereafter, interest hereunder shall be paid at the rate(s) of interest and in the manner provided in Sections 1.5(a) through (e), unless and until the rate of interest again exceeds the Maximum Lawful Rate, and at that time this paragraph shall again apply.  In no event shall the total interest received by any Lender pursuant to the terms hereof exceed the amount that such Lender could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate.  If the Maximum Lawful Rate is calculated pursuant to this paragraph, such interest shall be calculated at a daily rate equal to the Maximum Lawful Rate divided by the number of days in the year in which such calculation is made.  If, notwithstanding the provisions of this Section 1.5(f), a court of competent jurisdiction shall finally determine that a Lender has received interest hereunder in excess of the Maximum Lawful Rate, Agent shall, to the extent permitted by applicable law, promptly apply such excess in the order specified in Section 1.11 and thereafter shall refund any excess to Borrower or as a court of competent jurisdiction may otherwise order.

(g)                                 If any provision of this Agreement or any of the other Loan Documents would obligate Borrower to make any payment of interest or other amount payable to the Agent or any Lender in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by the Agent or any Lender of interest at a criminal rate (as such terms are construed under the Criminal Code (Canada)) then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by law or so result in a receipt by the Agent or any Lender of interest at a criminal rate, such adjustment to be effected, to the extent necessary, as follows:  (1) firstly, by reducing the amount or rate of interest required to be paid to the Agent or any Lender under the Notes; and (2) thereafter, by reducing any fees, commissions, premiums and other amounts required to be paid to the Agent or any Lender which would constitute interest for purposes of Section 347 of the Criminal Code (Canada).  Notwithstanding the foregoing, and after giving effect to all adjustments contemplated thereby, if the Agent or any Lender shall have received an amount in excess of the maximum permitted by that section of the Criminal Code (Canada), then the Borrower shall be entitled, by notice in writing to the Agent or such Lender, as applicable, to obtain reimbursement from the Agent or such Lender, as applicable, in an amount equal to such excess, and pending such reimbursement, such amount shall be deemed to be an amount payable by the Agent or such Lender to the Borrower.  Any amount or rate of interest referred to in this Section 1.5 shall be determined in accordance with generally accepted actuarial practices and principles as an effective annual rate of interest over the term that any Loan remains outstanding on the assumption that any charges, fees or expenses that fall within the meaning of “interest” (as defined in the Criminal Code (Canada)) shall, if they relate to a specific period of time, be pro-rated over that period of time and otherwise be pro-rated over the period from the Closing Date to the Termination Date and, in the event of a dispute, a certificate of a Fellow of the Canadian Institute of Actuaries appointed by the Agent shall be conclusive for the purposes of such determination.

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For purposes of disclosure pursuant to the Interest Act (Canada), the annual rates of interest or fees to which the rates of interest or fees provided in this Agreement and the other Loan Documents (and stated herein or therein, as applicable, to be computed on the basis of a 360 day year or any other period of time less than a calendar year) are equivalent are the rates so determined multiplied by the actual number of days in the applicable calendar year and divided by 360 or such other period of time, respectively

1.6                                 Eligible Accounts.  All of the Accounts (other than Export-Related Accounts) owned by Borrower and AET Canada and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent shall be “Eligible Accounts” for purposes of this Agreement, except any Account to which any of the exclusionary criteria set forth below applies.  Agent shall have the right (upon prior or contemporaneous notice to Borrower) to establish, modify or eliminate Reserves against Eligible Accounts from time to time in its reasonable credit judgment.  In addition, Agent reserves the right (upon prior or contemporaneous notice to Borrower), at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Accounts, in its reasonable credit judgment.  Eligible Accounts shall not include any Account of Borrower or AET Canada:

(a)                                  that does not arise from the sale of goods or the performance of services by such Credit Party in the ordinary course of its business;

(b)                                 (i) upon which such Credit Party’s right to receive payment is not absolute or is contingent upon the fulfillment of any condition whatsoever or (ii) as to which such Credit Party is not able to bring suit or otherwise enforce its remedies against the Account Debtor through judicial process or (iii) if the Account represents a progress billing consisting of an invoice for goods sold or used or services rendered pursuant to a contract under which the Account Debtor’s obligation to pay that invoice is subject to such Credit Party’s completion of further performance under such contract or is subject to the equitable lien of a surety bond issuer;

(c)                                  in the event that any defense, counterclaim, setoff or dispute is asserted as to such Account other than as provided in clause (j);

(d)                                 that is not a true and correct statement of bona fide indebtedness incurred in the amount of the Account for merchandise sold to or services rendered and accepted by the applicable Account Debtor;

(e)                                  with respect to which an invoice, reasonably acceptable to Agent in form and substance, has not been sent to the applicable Account Debtor;

(f)                                    that (i) is not owned by such Credit Party or (ii) is subject to any Prior Claim, right, claim, security interest or other interest of any other Person, other than Liens in favor of Agent, on behalf of itself and Lenders;

(g)                                 that arises from a sale to any director, officer, other employee or Affiliate of any Credit Party;

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(h)                                 that is the obligation of an Account Debtor that is (i) the United States government or a political subdivision thereof, or any state, county or municipality or department, agency or instrumentality thereof or (ii) the Canadian government (Her Majesty the Queen in Right of Canada) or a political subdivision thereof, or any province, territory, municipality or department, agency or instrumentality thereof, unless Agent, in its sole discretion, has agreed to the contrary in writing and Borrower, if necessary or desirable, has complied with respect to such obligation with the Federal Assignment of Claims Act of 1940, the Financial Administration Act (Canada) or any applicable provincial or state, county or municipal law restricting assignment thereof;

(i)                                     that is the obligation of an Account Debtor located in a foreign country other than Canada (excluding the province of Newfoundland, the Northwest Territories and the Territory of Nunavit) unless payment thereof is assured by a letter of credit assigned and delivered to Agent, reasonably satisfactory to Agent as to form, amount and issuer;

(j)                                     to the extent Borrower or any Subsidiary thereof is liable for goods sold or services rendered by the applicable Account Debtor to Borrower or any Subsidiary thereof but only to the extent of the potential offset;

(k)                                  that arises with respect to goods that are delivered on a ▇▇▇▇-and-hold, cash-on-delivery basis or placed on consignment, guaranteed sale or other terms by reason of which the payment by the Account Debtor is or may be conditional;

(l)                                     that is not eligible for any of the following reasons:

(i)                                     the Account is not paid within the earlier of: sixty (60) days following its due date or ninety (90) days following its original invoice date;

(ii)                                  the Account Debtor obligated upon such Account suspends business, makes a general assignment for the benefit of creditors or fails to pay its debts generally as they come due; or

(iii)                               a petition is filed by or against any Account Debtor obligated upon such Account under any bankruptcy law or any other federal, state or foreign (including any provincial) receivership, insolvency relief or other law or laws for the relief of debtors;

(m)                               that is the obligation of an Account Debtor if 50% or more of the Dollar amount of all Accounts owing by that Account Debtor are ineligible under the other criteria set forth in this Section 1.6;

(n)                                 as to which Agent’s Lien thereon, on behalf of itself and Lenders, is not a first priority perfected Lien;

(o)                                 as to which any of the representations or warranties in Section 4(f) of the Security Agreement are untrue;

(p)                                 to the extent such Account is evidenced by a judgment, Instrument or Chattel Paper;

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(q)                                 to the extent such Account exceeds any credit limit established by Agent, in its reasonable credit judgment;

(r)                                    to the extent that such Account, together with all other Accounts owing by such Account Debtor and its Affiliates as of any date of determination, exceed 15% of all Eligible Accounts (unless otherwise agreed to by Agent), it being agreed that any such excess above 15% shall be excluded;

(s)                                  that is payable in any currency other than Dollars or Canadian Dollars; or

(t)                                    that is otherwise unacceptable to Agent in its reasonable credit judgment.

1.6A                       Eligible Export-Related Accounts.  All of the Export-Related Accounts of Borrower reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent shall be “Eligible Export-Related Accounts” for purposes of this Agreement, except any Account to which any of the exclusionary criteria set forth below apply. Agent shall have the right (upon prior or contemporaneous notice to Borrower) to establish, modify or eliminate Reserves against Eligible Export-Related Accounts from time to time in its reasonable credit judgment.  In addition, Agent reserves the right (upon prior or contemporaneous notice to Borrower), at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Export-Related Accounts, in its reasonable credit judgment.  Eligible Export-Related Accounts shall not include any Export-Related Account of Borrower that does not satisfy the criteria set forth in the definition of “Eligible Export-Related Account Receivable” contained in the Ex-Im Borrower Agreement.

1.7                                 Eligible Inventory.  All of the Inventory owned by the Borrower and AET Canada and reflected in the most recent Borrowing Base Certificate delivered by Borrower to Agent shall be “Eligible Inventory” for purposes of this Agreement, except any Inventory to which any of the exclusionary criteria set forth below applies.  Agent shall have the right (upon prior or contemporaneous notice to Borrower) to establish, modify or eliminate Reserves against Eligible Inventory from time to time in its reasonable credit judgment.  In addition, Agent reserves the right (upon prior or contemporaneous notice to Borrower), at any time and from time to time after the Closing Date, to adjust any of the criteria set forth below, to establish new criteria and to adjust advance rates with respect to Eligible Inventory, in its reasonable credit judgment.  Eligible Inventory shall not include any Inventory of Borrower or AET Canada that:

(a)                                  is not owned by such Credit Party free and clear of all Liens and rights of any other Person (including the rights of a purchaser that has made progress payments and the rights of a surety that has issued a bond to assure such Credit Party’s performance with respect to that Inventory), except the Liens in favor of Agent, on behalf of itself and Lenders, and Permitted Encumbrances in favor of landlords and bailees to the extent permitted in Section 5.9 hereof (subject to Reserves established by Agent in accordance with Section 5.9 hereof);

(b)                                 (i) is not located on premises owned, leased or rented by such Credit Party and set forth in Disclosure Schedule (3.2), or (ii) is stored at a leased location, unless either (x) a reasonably satisfactory landlord waiver has been delivered to Agent, or (y) Reserves reasonably

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satisfactory to Agent have been established with respect thereto or (iii) is stored with a processor, ▇▇▇▇▇▇ or toll converter, warehouseman or other bailee, unless either (x) a reasonably satisfactory, acknowledged bailee letter has been received by Agent, or (y) Reserves reasonably satisfactory to Agent have been established with respect thereto, or (iv) is located at an owned location subject to a mortgage in favor of a lender other than Agent unless a reasonably satisfactory mortgagee waiver has been delivered to Agent, or (v) is located at any site if the aggregate book value of Inventory at any such location is less than $50,000;

(c)                                  is placed on consignment, unless (i) a reasonably satisfactory consignment agreement among the Borrower, the Agent and the consignee has been delivered to Agent, (ii) the Borrower’s and Agent’s interest in the consigned inventory is fully perfected under the Code by the filing of appropriate financing statements or other action required by Agent, (iii) prior to delivery of such consigned Inventory to the consignee any Person holding a security interest in Goods of such consignee has been properly notified of the Borrower’s and Agent’s interest in the consigned Inventory in accordance with section 9-324(b) of the Code, and (iv) such Inventory is located in the United States at a location of the consignee satisfactory to the Agent and as to which the requirements of Section 1.7(b) have been satisfied;

(d)                                 is in transit (other than Inventory of Borrower or AET Canada which is in transit in the ordinary course of business within or between the United States and Canada between locations owned by the Borrower or AET Canada or with respect to which Agent has received a satisfactory landlord waiver or bailee letter, as applicable;

(e)                                  is covered by a negotiable document of title, unless such document has been delivered to Agent with all necessary endorsements, free and clear of all Liens except those in favor of Agent and Lenders;

(f)                                    is excess, obsolete, unsalable, shopworn, damaged or unfit for sale;

(g)                                 consists of display items or packing or shipping materials, manufacturing supplies, work-in-process Inventory or replacement parts;

(h)                                 consists of goods which have been returned by the buyer unless such Inventory is not excess, obsolete, unsalable, shopworn, damaged or unfit for sale;

(i)                                     is not of a type held for sale in the ordinary course of such Credit Party’s business;

(j)                                     is not subject to a first priority lien in favor of Agent on behalf of itself and Lenders, subject to Permitted Encumbrances;

(k)                                  as to which any of the representations or warranties in Section 4(g) of the Security Agreement are untrue;

(l)                                     consists of Hazardous Materials or goods that can be transported or sold only with licenses that are not readily available;

(m)                               is not covered by casualty insurance reasonably acceptable to Agent; or

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(n)                                 is otherwise unacceptable to Agent in its reasonable credit judgment.

1.8                                 Cash Management Systems.  On or prior to the Closing Date, Borrower and the other Credit Parties will establish and will maintain until the Termination Date, the cash management systems described in Annex C (the “Cash Management Systems”).

1.9                                 Fees.

(a)                                  Borrower shall pay to GE Capital, individually, the Fees specified in that certain amended and restated fee letter, dated as of October 20, 2004, by and between Borrower and GE Capital (as amended, restated, supplemented or otherwise modified from time to time, the “GE Capital Fee Letter”), at the times specified for payment therein.

(b)                                 As additional compensation for the Revolving Lenders, Borrower shall pay to Agent, for the ratable benefit of such Lenders, in arrears, on the first Business Day of each month prior to the Commitment Termination Date and on the Commitment Termination Date, a Fee for Borrower’s non-use of available funds in an amount equal to the Applicable Unused Facility Fee Margin multiplied by the difference between (x) the Maximum Amount (as it may be reduced from time to time) and (y) the average for the period of the daily closing balances of the aggregate Revolving Loan, the Export-Related Loan and the Swing Line Loan outstanding during the period for which such Fee is due.

(c)                                  If Borrower pays after acceleration or prepays all or any portion of the Term Loan or prepays the Revolving Loan and reduces or terminates the Revolving Loan Commitment, whether voluntarily or involuntarily and whether before or after acceleration of the Obligations, or if any of the Commitments are otherwise terminated, in either case prior to the first anniversary of the Closing Date, Borrower shall pay to Agent, for the benefit of Lenders as liquidated damages and compensation for the costs of being prepared to make funds available hereunder an amount equal to the Applicable Percentage multiplied by the sum of (i) the principal amount of the Term Loan paid after acceleration or prepaid, and (ii) the amount of the reduction of the Revolving Loan Commitment.  As used herein, the term “Applicable Percentage” shall mean one percent (1.0%).  The Credit Parties agree that the Applicable Percentage is a reasonable calculation of Lenders’ lost profits in view of the difficulties and impracticality of determining actual damages resulting from an early termination of the Commitments.  Notwithstanding the foregoing, (i) no prepayment fee shall be payable if the Obligations are repaid in full with the proceeds of an exit credit facility in which the Agent acts as agent for the lenders thereunder, and (ii) no prepayment fee shall be payable by Borrower upon a mandatory prepayment made pursuant to Sections 1.3(b)(ii), 1.3(d) or 1.16(c); provided that Borrower does not permanently reduce or terminate the Revolving Loan Commitment upon any such prepayment and, in the case of prepayments made pursuant to Section 1.3(b)(ii), the transaction giving rise to the applicable prepayment is expressly permitted under Section 6.

(d)                                 Borrower shall pay to Agent, for the ratable benefit of Revolving Lenders, the Letter of Credit Fee as provided in Annex B.

1.10                           Receipt of Payments.  Borrower shall make each payment under this Agreement not later than 2:00 p.m. (New York time) on the day when due in immediately

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available funds in Dollars to the Collection Account.  For purposes of computing interest and determining Borrowing Availability and Export-Related Borrowing Availability as of any date, all payments shall be deemed received on the first Business Day following the Business Day on which immediately available funds therefor are received in the Collection Account prior to 2:00 p.m. (New York time).  Payments received after 2:00 p.m. (New York time) on any Business Day or on a day that is not a Business Day shall be deemed to have been received on the following Business Day.

1.11                           Application and Allocation of Payments.

(a)                                  So long as no Default or Event of Default has occurred and is continuing, (i) payments consisting of proceeds of Accounts (other than Export-Related Accounts) received in the ordinary course of business shall be applied, first, to the Swing Line Loan, second, the Revolving Credit Advances, and third, to the Export-Related Advances, (ii) payments consisting of proceeds of Export-Related Accounts received in the ordinary course of business shall be applied, first, to the Export-Related Advances, second, to the Swing Line Loan, and third, to the Revolving Credit Advances; (iii) payments matching specific scheduled payments then due shall be applied to those scheduled payments; (iv) voluntary prepayments shall be applied as determined by Borrower, subject to the provisions of Section 1.3(a); and (v) mandatory prepayments shall be applied as set forth in Sections 1.3(c) and 1.3(d).  All payments and prepayments applied to a particular Loan shall be applied ratably to the portion thereof held by each Lender as determined by its Pro Rata Share. As to any other payment, and as to all payments made when a Default or Event of Default has occurred and is continuing or following the Commitment Termination Date, Borrower hereby irrevocably waives the right to direct the application of any and all payments received from or on behalf of Borrower, and Borrower hereby irrevocably agrees that Agent shall have the continuing exclusive right to apply any and all such payments against the Obligations of Borrower as Agent may deem advisable notwithstanding any previous entry by Agent in the Loan Account or any other books and records.  In the absence of a specific determination by Agent with respect thereto and except as provided in Section 1.11(b), payments shall be applied to amounts then due and payable in the following order: (1) to Fees and Agent’s expenses reimbursable hereunder; (2) to interest on the Swing Line Loan; (3) to principal payments on the Swing Line Loan; (4) to interest on the other Loans, ratably in proportion to the interest accrued as to each Loan; (5) to principal payments on the other Loans and to provide cash collateral for Letter of Credit Obligations in the manner described in Annex B, ratably to the aggregate, combined principal balance of the other Loans and outstanding Letter of Credit Obligations; and (6) to all other Obligations, including expenses of Lenders to the extent reimbursable under Section 11.3.

(b)                                 The Lenders hereby agree that so long as any of the Loans have been declared to be immediately due and payable, all proceeds of the Collateral shall be applied first to Fees and Agent’s expenses reimbursable hereunder; and (i) with respect to proceeds of Term Loan Priority Collateral, second to interest on the Term Loan, third to principal payments on the Term Loan, fourth to all other Obligations of the Term Lenders, including expenses of Term Lenders to the extent reimbursable under Section 11.3, fifth to interest on the Swing Line Loan, sixth to principal payments on the Swing Line Loan, seventh to interest on the other Loans (other than the Last Out Term Loan), ratably in proportion to the interest accrued as to each Loan, eighth to principal payments on the other Loans (other than the Last Out Term Loan) and to

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provide cash collateral for Letter of Credit Obligations in the manner described in Annex B, ratably to the aggregate, combined principal balance of the other Loans (other than the Last Out Term Loan) and outstanding Letter of Credit Obligations, ninth to all other Obligations of the Revolving Lenders, including expenses of Revolving Lenders to the extent reimbursable under Section 11.3,  tenth to interest on the Last Out Term Loan, eleventh to principal payments on the Last Out Term Loan, twelfth to all other Obligations of the Last Out Term Lenders, including expenses of Last Out Term Lenders to the extent reimbursable under Section 11.3, and (ii) (A) with respect to proceeds of Revolving Loan Priority Collateral which constitutes Export-Related Accounts, second to interest on the Export-Related Loan, third to principal payments on the Export-Related Loan, fourth to interest on the Swing Line Loan, fifth to principal payments on the Swing Line Loan, sixth to interest on the Revolving Loan, seventh to principal payments on the Revolving Loan and to provide cash collateral for Letter of Credit Obligations in the manner described in Annex B, eighth to all other Obligations of the Revolving Lenders, including expenses of Revolving Lenders to the extent reimbursable under Section 11.3, ninth to interest on the Term Loan, tenth to principal payments on the Term Loan, eleventh to all other Obligations of the Term Lenders, including expenses of Term Lenders to the extent reimbursable under Section 11.3, twelfth to interest on the Last Out Term Loan, thirteenth to principal payments on the Last Out Term Loan, fourteenth to all other Obligations of the Last Out Term Lenders, including expenses of the Last Out Term Lenders to the extent reimbursable under Section 11.3, and (B) with respect to proceeds of Revolving Loan Priority Collateral (other than Export-Related Accounts), second to interest on the Revolving Loan, third to principal payments on the Revolving Loan, fourth to interest on the Swing Line Loan, fifth to principal payments on the Swing Line Loan, sixth to interest on the Export-Related Loan, seventh to principal payments on the Export-Related Loan and to provide cash collateral for Letter of Credit Obligations in the manner described in Annex B, eighth to all other Obligations of the Revolving Lenders, including expenses of Revolving Lenders to the extent reimbursable under Section 11.3, ninth to interest on the Term Loan, tenth to principal payments on the Term Loan, eleventh to all other Obligations of the Term Lenders, including expenses of Term Lenders to the extent reimbursable under Section 11.3, twelfth to interest on the Last Out Term Loan, thirteenth to principal payments on the Last Out Term Loan, fourteenth to all other Obligations of the Last Out Term Lenders, including expenses of Last Out Term Lenders to the extent reimbursable under Section 11.3.  The provisions of this clause (b) is for the benefit of the Lenders and Borrower shall have no rights with respect hereto.  Agent shall use commercially reasonable efforts to apply, promptly upon receipt, as provided herein, all payments and proceeds of Collateral which are required to be paid to a Lender or applied to a Loan under this Agreement.

(c)                                  Agent is authorized to (and at its sole election may) charge to the Revolving Loan balance on behalf of Borrower and cause to be paid all Fees, expenses, Charges, costs (including insurance premiums in accordance with Section 5.4(a)), interest and other Obligations (but not principal on the Revolving Loan), owing by Borrower under this Agreement or any of the other Loan Documents if and to the extent Borrower fails to pay promptly any such amounts as and when due, even if the amount of such charges would exceed Borrowing Availability at such time.

1.12                           Loan Account and Accounting.  Agent shall maintain a loan account (the “Loan Account”) on its books to record: all Advances, the Term Loan and the Last Out Term Loan, all payments made by Borrower, and all other debits and credits as provided in this

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Agreement with respect to the Loans or any other Obligations.  All entries in the Loan Account shall be made in accordance with Agent’s customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Agent’s most recent printout or other written statement, shall, absent manifest error, be presumptive evidence of the amounts due and owing to Agent and Lenders by Borrower; provided, that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower’s duty to pay the Obligations.  Agent shall render to Borrower a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account as to Borrower for the immediately preceding month.  Unless Borrower notifies Agent in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) days after the date thereof, each and every such accounting shall (absent manifest error) be deemed final, binding and conclusive on Borrower in all respects as to all matters reflected therein.  Only those items expressly objected to in such notice shall be deemed to be disputed by Borrower.  Notwithstanding any provision herein contained to the contrary, any Lender may elect (which election may be revoked) to dispense with the issuance of Notes to that Lender and may rely on the Loan Account as evidence of the amount of Obligations from time to time owing to it.

1.13                           Indemnity.

(a)                                  Each Credit Party that is a signatory hereto shall jointly and severally indemnify and hold harmless each of Agent, Lenders and their respective Affiliates, and each such Person’s respective officers, directors, employees, attorneys, agents and representatives (each, an “Indemnified Person”), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys’ fees and disbursements and other out-of-pocket costs of investigation or defense, including those incurred upon any appeal) that may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities, and any and all reasonable out-of-pocket legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, “Indemnified Liabilities”); provided, that no such Credit Party shall be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from that  Indemnified Person’s gross negligence or willful misconduct.  NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.

(b)                                 To induce Lenders to provide the LIBOR Rate option on the terms provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to the last day of any applicable LIBOR Period (whether that repayment is made pursuant to any provision of this

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Agreement or any other Loan Document or occurs as a result of acceleration, by operation of law or otherwise); (ii) Borrower shall default in payment when due of the principal amount of or interest on any LIBOR Loan; (iii) Borrower shall refuse to accept any borrowing of, or shall request a termination of, any borrowing of, conversion into or continuation of, LIBOR Loans after Borrower has given notice requesting the same in accordance herewith; or (iv) Borrower shall fail to make any prepayment of a LIBOR Loan after Borrower has given a notice thereof in accordance herewith, then Borrower shall indemnify and hold harmless each Lender from and against all losses, costs and expenses resulting from or arising from any of the foregoing.  Such indemnification shall include any loss (including loss of margin) or expense arising from the reemployment of funds obtained by it or from fees payable to terminate deposits from which such funds were obtained.  For the purpose of calculating amounts payable to a Lender under this subsection, each Lender shall be deemed to have actually funded its relevant LIBOR Loan through the purchase of a deposit bearing interest at the LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a maturity comparable to the relevant LIBOR Period; provided, that each Lender may fund each of its LIBOR Loans in any manner it sees fit, and the foregoing assumption shall be utilized only for the calculation of amounts payable under this subsection.  This covenant shall survive the termination of this Agreement and the payment of the Notes and all other amounts payable hereunder.  As promptly as practicable under the circumstances, each Lender shall provide Borrower with its written calculation of all amounts payable pursuant to this Section 1.13(b), and such calculation shall be binding on the parties hereto unless Borrower shall object in writing within ten (10) Business Days of receipt thereof, specifying the basis for such objection in detail.

1.14                           Access.  Each Credit Party that is a party hereto shall, during normal business hours, from time to time upon one Business Day’s prior notice as frequently as Agent or any Lender reasonably determines to be appropriate: (a) provide Agent or such Lender (at such Lender’s own cost and expense), as applicable, and any of its officers, employees and agents access to its properties, facilities, advisors and employees (including officers) of each Credit Party and to the Collateral, (b) permit Agent or such Lender (at such Lender’s own cost and expense), as applicable, and any of its officers, employees and agents, to inspect, audit and make extracts from any Credit Party’s books and records, and (c) permit Agent, and its officers, employees and agents, to inspect, review, evaluate and make test verifications and counts of the Accounts, Inventory and other Collateral of any Credit Party.  If a Default or Event of Default has occurred and is continuing or if access is necessary to preserve or protect the Collateral as determined by Agent, each such Credit Party shall provide such access to Agent and to each Lender at all times and without advance notice.  Furthermore, so long as any Event of Default has occurred and is continuing, Borrower shall use commercially reasonable efforts to provide Agent and each Lender with access to their suppliers and customers.  Each Credit Party shall make available to Agent and its counsel, as quickly as is possible under the circumstances, originals or copies of all books and records that Agent may reasonably request.  Each Credit Party shall deliver any document or instrument necessary for Agent, as it may from time to time reasonably request, to obtain records from any service bureau or other Person that maintains records for such Credit Party, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Credit Party.  Agent will give Lenders at least 5 days’ prior written notice of regularly scheduled audits.  Representatives of other Lenders may (at their own cost and expense) accompany Agent’s representatives on regularly scheduled audits at no charge to Borrower.  Each Lender shall give Agent at least five

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(5) days’ prior written notice of its intention to exercise access rights under this Section 1.14 and Agent’s representatives may accompany Lender’s representatives in exercising such access rights.

1.15                           Taxes.

(a)                                  Any and all payments by Borrower or any other Credit Party hereunder or under the Notes or any other Loan Document shall be made, in accordance with this Section 1.15, free and clear of and without deduction for any and all present or future Taxes.  If Borrower or any other Credit Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the Notes or any other Loan Document, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.15) Agent or Lenders, as applicable, receive an amount equal to the sum they would have received had no such deductions been made, (ii) Borrower or such other Credit Party shall make such deductions, and (iii) Borrower or such other Credit Party shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law.  Within thirty (30) days after the date of any payment of Taxes, Borrower or such other Credit Party shall furnish to Agent the original or a certified copy of a receipt evidencing payment thereof. Except as set forth in Section 1.15(e), Agent and Lenders shall not be obligated to return or refund any amounts received pursuant to this Section.

(b)                                 Each Credit Party that is a signatory hereto shall jointly and severally indemnify and, within ten (10) days of demand therefor, pay Agent and each Lender for the full amount of Taxes (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.15) paid by Agent or such Lender, as appropriate, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted.

(c)                                  Each Lender organized under the laws of a jurisdiction outside the United States (a “Foreign Lender”) as to which payments to be made under this Agreement or under the Notes are exempt from United States withholding tax under an applicable statute or tax treaty shall provide to Borrower and Agent prior to becoming a party to this Agreement a properly completed and executed IRS Form W-8ECI or Form W-8BEN or other applicable form, certificate or document prescribed by the IRS or the United States certifying as to such Foreign Lender’s entitlement to a complete exemption from U.S. withholding taxes (a “Certificate of Exemption”).  Any foreign Person that seeks to become a Lender under this Agreement shall provide a Certificate of Exemption to Borrower and Agent prior to becoming a Lender hereunder.  No foreign Person may become a Lender hereunder if such Person fails to deliver a Certificate of Exemption in advance of becoming a Lender. In addition, each Foreign Lender shall deliver such forms upon the obsolescence or invalidity of any form previously delivered by such Foreign Lender.  Notwithstanding any other provision of this Section 1.15(c), a Foreign Lender shall not be required to deliver any form pursuant to this Section 1.15(c) (other than the form required to be delivered pursuant to the first sentence of this clause) that such Foreign Lender is not legally able to deliver.

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(d)                                 The Borrower shall not be required to indemnify any Foreign Lender, or to pay any additional amounts to any Foreign Lender, in respect of United States federal, state or local withholding Tax pursuant to paragraph (a) or (b) above to the extent that (i) the obligation to withhold amounts with respect to United States federal, state or local withholding Tax existed on the date such Foreign Lender became a party to this Agreement (or, in the case of a transferee, on the effective date of the Assignment Agreement pursuant to which such transferee becomes a Lender) or, with respect to payments to a new lending office, the date such Foreign Lender designated such new lending office; provided, however, that this clause (i) shall not apply to any Lender that becomes a Lender or new lending office that becomes a new lending office as a result of an assignment or designation made at the request of the Borrower; and provided, further, that this clause (i) shall not apply to the extent that the indemnity payment or additional amounts any Lender, the Agent or any Lender through a new lending office would be entitled to receive (without regard to this clause (i)) do not exceed the indemnity payment or additional amounts that the person making the assignment or transfer to such Lender, the Agent or such Lender making the designation of such new lending office would have been entitled to receive in the absence of such assignment, transfer or designation or (ii) the obligation to pay such additional amounts or such indemnity payments would not have arisen but for a failure by such Foreign Lender to comply with the provisions of 1.15(c) above.

(e)                                  If any of Agent or any Lender, as applicable, determines, in its sole discretion, that it has received a refund of any Taxes as to which it has been indemnified by the Borrower or a Credit Party or with respect to which the Borrower or a Credit Party has paid additional amounts pursuant to this Section 1.15, it shall pay over such refund to the Borrower (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower or Credit Party under this Section 1.15 with respect to the Taxes giving rise to such refund), net of all Charges imposed on such refund, out-of-pocket expenses of such Agent or Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund).

1.16                           Capital Adequacy; Increased Costs; Illegality.

(a)                                  If any Lender shall have determined that any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by any Lender with any request or directive regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Closing Date, from any central bank or other Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by such Lender and thereby reducing the rate of return on such Lender’s capital as a consequence of its obligations hereunder, then Borrower shall from time to time upon demand by such Lender (with a copy of such demand to Agent) pay to Agent, for the account of such Lender, additional amounts sufficient to compensate such Lender for such reduction.  A certificate in reasonable detail as to the amount of that reduction and showing the basis of the computation thereof submitted by such Lender to Borrower and to Agent shall, absent manifest error, be final, conclusive and binding for all purposes.

(b)                                 If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline

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or request from any central bank or other Governmental Authority (whether or not having the force of law), in each case adopted after the Closing Date, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining any Loan, then Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to Agent), pay to Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost.  A certificate in reasonable detail as to the amount of such increased cost, submitted to Borrower and to Agent by such Lender, shall be conclusive and binding on Borrower for all purposes, absent manifest error.  Each Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, the affected Lender shall, to the extent not inconsistent with such Lender’s internal policies of general application, use reasonable commercial efforts to change its lending office or otherwise minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 1.16(b).

(c)                                  Notwithstanding anything to the contrary contained herein, if the introduction of or any change in any law or regulation (or any change in the interpretation thereof) shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender to agree to make or to make or to continue to fund or maintain any LIBOR Loan, then, unless that Lender is able to make or to continue to fund or to maintain such LIBOR Loan at another branch or office of that Lender without, in that Lender’s opinion, adversely affecting it or its Loans or the income obtained therefrom, on notice thereof and demand therefor by such Lender to Borrower through Agent, (i) the obligation of such Lender to agree to make or to make or to continue to fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith prepay in full all outstanding LIBOR Loans owing by Borrower to such Lender, together with interest accrued thereon, unless Borrower, within five (5) Business Days after the delivery of such notice and demand, converts all LIBOR Loans into Index Rate Loans.

(d)                                 Within fifteen (15) days after receipt by Borrower of written notice and demand from any Lender (an “Affected Lender”) for payment of additional amounts or increased costs as provided in Sections 1.15(a), 1.16(a) or 1.16(b), or of its inability to fund as provided in Section 1.16(c), Borrower may, at its option, notify Agent and such Affected Lender of its intention to replace the Affected Lender.  So long as no Default or Event of Default has occurred and is continuing, Borrower, with the consent of Agent (which consent shall not be unreasonably withheld or delayed with respect to a Qualified Assignee), may obtain, at Borrower’s expense, a replacement Lender (“Replacement Lender”) for the Affected Lender.  If Borrower obtains a Replacement Lender within ninety (90) days following notice of its intention to do so, the Affected Lender must sell and assign its Loans and Commitments to such Replacement Lender for an amount equal to the principal balance of all Loans held by the Affected Lender and all accrued interest and Fees with respect thereto through the date of such sale; provided, that Borrower shall have reimbursed such Affected Lender for the additional amounts or increased costs that it is entitled to receive under this Agreement through the date of such sale and assignment.  Notwithstanding the foregoing, Borrower shall not have the right to obtain a Replacement Lender if the Affected Lender rescinds its demand for increased costs or additional amounts within fifteen (15) days following its receipt of Borrower’s notice of intention to replace such Affected Lender.  Furthermore, if Borrower gives a notice of intention to replace and does not so replace such Affected Lender within ninety (90) days thereafter, Borrower’s rights under

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this Section 1.16(d) shall terminate and Borrower shall promptly pay all increased costs or additional amounts demanded by such Affected Lender pursuant to Sections 1.15(a), 1.16(a) and 1.16(b).

1.17                           Single Loan.  All Loans to Borrower and all of the other Obligations of Borrower arising under this Agreement and the other Loan Documents shall constitute one general obligation of Borrower secured, until the Termination Date, by all of the Collateral.

1.18                           Super-Priority Nature of Obligations and Lenders’ Liens.

(a)                                  The priority of Lenders’ Liens on the Collateral owned by the Borrower and the Guarantor shall be set forth in the Interim Order, the Final Order, the Canadian Interim Order and the Canadian Final Order.

(b)                                 All Obligations shall constitute administrative expenses of Borrower and, where applicable, any Credit Party in their respective Chapter 11 Cases, with administrative priority and senior secured status under Sections 364(c) and 364(d) of the Bankruptcy Code.  Subject to the Carve-Out Expenses up to the Carve-Out Amount, such administrative claim shall have priority over all other costs and expenses of the kinds specified in, or ordered pursuant to, Sections 105, 326, 330, 331, 503(b), 507(a), 507(b) or 726 of the Bankruptcy Code and shall at all times be senior to the rights of Borrower or any Credit Party, Borrower’s or any Credit Parties’ estate, and any successor trustee or estate representative in their Chapter 11 Cases or any subsequent proceeding or case under the Bankruptcy Code.  The liens and security interests granted to Lenders on the Collateral owned by the Borrower and the other Credit Parties, and the priorities accorded to the Obligations shall have the priority and senior secured status afforded by Sections 364(c) and 364(d)(1) of the Bankruptcy Code (all as more fully set forth in the Interim Order, Final Order, Canadian Interim Order and Canadian Final Order) senior to all claims and interests other than Permitted Encumbrances and the Carve-Out Expenses up to the Carve-Out Amount.

(c)                                  Lenders’ Liens on the Collateral owned by the Borrower or the other Credit Parties filing a Chapter 11 Case and the Lenders’ administrative claim under Sections 364(c)(1) and 364(d) of the Bankruptcy Code afforded the Obligations shall also have priority over any claims arising under Section 506(c) of the Bankruptcy Code subject and subordinate only to the following (hereafter referred to as the “Carve-Out Expenses”): fees and disbursements incurred and allowed on and after the Petition Date by professionals retained by the Borrower or the other Credit Parties filing a Chapter 11 Case, the Committee (within the meaning of clause (a) of the definition thereof) and any statutorily mandated costs and fees of the U.S. Trustee with respect to the Chapter 11 Cases, up to a maximum unpaid aggregate amount not to exceed $2,000,000 (such dollar amount being referred to herein as the “Carve-Out Amount”) (determined without regard to fees and expenses which may be awarded and paid on an interim basis or paid pursuant to procedures for the payment of fees and expenses of professionals approved by the Bankruptcy Court after notice to the Agent and a hearing or any Prepetition retainer paid to Borrower’s counsel, any other Credit Party filing a Chapter 11 Case’s counsel or the Committees’ counsel (as “Committee” is defined in clause (a) of the definition thereof) in connection with a Chapter 11 Case), provided, that the Carve-Out Expenses shall not include any other claims that are or may be senior to or pari passu with any of the Carve-Out

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Expenses or any professional fees and expenses of a Chapter 7 trustee and, provided, further, that Carve-Out Expenses shall not include any fees or disbursements (A) arising after the conversion of any Chapter 11 Case to a case under Chapter 7 of the Bankruptcy Code or (B) related to the investigation of, preparation for, or commencement or prosecution of, any claims or proceedings against (i) the Agent or the Lenders or their claims or security interests in or Liens on, the Collateral whether under this Agreement or any other Loan Document. and (ii) any agent or lender under the Prepetition Loan Agreement or their claims or security interests in connection with the Prepetition Loan Agreement or any of the loan documents or instruments entered into in connection therewith. Except as set forth herein or in the Final Order, no other claim having a priority superior or pari passu to that granted to Lenders by the Final Order shall be granted or approved while any Obligations under this Agreement remain outstanding.

1.19                           Payment of Obligations.  Subject to the provisions of the Interim Order and the Final Order, upon the maturity (whether by acceleration or otherwise) of any of the Obligations under this Agreement or any of the other Loan Documents, Lenders shall be entitled to immediate payment of such Obligations without further application to or order of the Bankruptcy Court.

1.20                           No Discharge; Survival of Claims.  Borrower agrees that (a) the Obligations hereunder shall not be discharged by the entry of an order confirming a plan of reorganization in any Chapter 11 Case (and Borrower pursuant to Section 1141(d)(4) of the Bankruptcy Code, hereby waives any such discharge) and (b) the super-priority administrative claim granted to Agent and Lenders pursuant to the Interim Order and Final Order and described in Section 1.18, the Liens granted to Agent pursuant to the Interim Order and Final Order and described in Section 1.18 and the priority and the Liens set forth in the Canadian Interim Order and the Canadian Final Order shall not be affected in any manner by the entry of an order confirming a plan of reorganization in any Chapter 11 Case.

1.21                           Release.  Borrower hereby acknowledges effective upon entry of the Final Order, that neither Borrower nor any of its Subsidiaries have any defense, counterclaim, offset, recoupment, cross-complaint, claim or demand of any kind or nature whatsoever that can be asserted to reduce or eliminate all of any part of the Borrower’s or its Subsidiaries’ liability to repay Agent or any Lender as provided in this Agreement or to seek affirmative relief or damages of any kind or nature from Agent or any Lender.  Borrower and the other Credit Parties filing a Chapter 11 Case, in their own right and with respect to the Borrower and the other Credit Parties filing a Chapter 11 Case, on behalf of their bankruptcy estates, and on behalf of all such parties, successors, assigns, Subsidiaries and any Affiliates and any Person acting for and on behalf of, or claiming through them, (collectively, the “Releasing Parties”), hereby fully, finally and forever release and discharge Agent and Lenders and all of Agent’s and Lenders’ past and present officers, directors, servants, agents, attorneys, assigns, heirs, parents, subsidiaries, and each Person acting for or on behalf of any of them (collectively, the “Released Parties”) of and from any and all past, present and future actions, causes of action, demands, suits, claims, liabilities, Liens, lawsuits, adverse consequences, amounts paid in settlement, costs, damages, debts, deficiencies, diminution in value, disbursements, expenses, losses and other obligations of any kind or nature whatsoever, whether in law, equity or otherwise (including, without limitation, those arising under Sections 541 through 550 of the Bankruptcy Code and interest or other carrying costs, penalties, legal, accounting and other professional fees and expenses, and

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incidental, consequential and punitive damages payable to third parties, but excluding those caused by the Released Parties’ gross negligence, willful misconduct or criminal misconduct), whether known or unknown, fixed or contingent, direct, indirect, or derivative, asserted or unasserted, foreseen or unforeseen, suspected or unsuspected, now existing, heretofore existing or which may heretofore accrue against any of the Released Parties, whether held in a personal or representative capacity, and which are based on any act, fact, event or omission or other matter, cause or thing occurring at or from any time prior to and including the date hereof in any way, directly or indirectly arising out of, connected with or relating to this Agreement, the Interim Order, the Final Order, the Canadian Interim Order, the Canadian Final Order and the transactions contemplated hereby, and all other agreements, certificates, instruments and other documents and statements (whether written or oral) related to any of the foregoing.

1.22                           Waiver of any Primary Rights.  Upon the Closing Date, and on behalf of themselves and their estates, and for so long as any Obligation shall be outstanding, Borrower and each other Credit Party filing a Chapter 11 Case hereby irrevocably waives any right, pursuant to Sections 364(c) or 364(d) of the Bankruptcy Code or otherwise, to grant any Lien of equal or greater priority than the Lien securing the Obligations, or to approve a claim of equal or greater priority than the Obligations.

2.                                      CONDITIONS PRECEDENT

2.1                                 Conditions to the Initial Loans.  No Lender shall be obligated to make any Loan or incur any Letter of Credit Obligations on the Closing Date, or to take, fulfill, or perform any other action hereunder, until the following conditions have been satisfied or provided for in a manner satisfactory to Agent, or waived in writing by Agent and Lenders:

(a)                                  Credit Agreement; Loan Documents.  This Agreement or counterparts hereof shall have been duly executed by, and delivered to, Borrower, each other Credit Party, Agent and Lenders; and Agent shall have received such documents, instruments, agreements and legal opinions as Agent shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the Closing Checklist attached hereto as Annex D, each in form and substance reasonably satisfactory to Agent.

(b)                                 Approvals.  Agent shall have received (i) satisfactory evidence that the Credit Parties have obtained all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents and the consummation of the Related Transactions or (ii) an officer’s certificate in form and substance reasonably satisfactory to Agent affirming that no such consents or approvals are required.

(c)                                  Payment of Fees. Borrower shall have paid the Fees required to be paid on the Closing Date in the respective amounts specified in Section 1.9 (including the Fees specified in the GE Capital Fee Letter), and shall have reimbursed Agent for all out-of-pocket fees, costs and expenses of closing (including all reasonable attorneys’ fees) presented as of the Closing Date.

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(d)                                 Due Diligence.  Agent shall have completed its business and legal due diligence, including a roll forward of its previous Collateral audit, with results reasonably satisfactory to Agent.

(e)                                  Consummation of Related Transactions.  Agent shall have received fully executed copies of the Related Transactions Documents, each of which shall be in form and substance reasonably satisfactory to Agent and its counsel.  The Related Transactions shall have been consummated in accordance with the terms of the Related Transactions Documents.

(f)                                    Entry of Interim Order and Issuance of Canadian Interim Order. Entry by the Bankruptcy Court of the Interim Order and, by no later than two (2) days after the entry of the Interim Order, issuance of the Canadian Interim Order, approving the transactions contemplated hereby and granting a first priority perfected security interest in the Collateral subject only to Permitted Encumbrances and the Carve-Out Expenses up to the Carve-Out Amount (it being understood that the entry of the Canadian Interim Order shall not be a condition precedent to any Lender’s obligation to make any Loan or incur any Letter of Credit Obligations on the Closing Date).

(g)                                 Corporate Structure. Agent shall be reasonably satisfied with the corporate structure, capital structure, debt instruments, material contracts, and governing documents of Borrower and its Subsidiaries, and the tax effects resulting from the commencement of the Chapter 11 Cases and the credit facility evidenced by this Agreement.

(h)                                 Cash Management System. Borrower shall have established the Cash Management System described in Annex C and Borrower shall have obtained appropriate court orders approving such system, all as reasonably acceptable to Agent; and

(i)                                     First Day Orders.  The “first day” orders described on Disclosure Schedule (2.1) in form and substance reasonably satisfactory to Agent shall have been entered in the Chapter 11 Cases.

2.2                                 Further Conditions to Each Loan.  Except as otherwise expressly provided herein, no Lender shall be obligated to fund any Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if, as of the date thereof:

(a)                                  the Advance, Loan or Letter of Credit Obligation requested would cause the aggregate outstanding amount of the Loans and/or Letter of Credit Obligations to exceed the amount then authorized by the Interim Order or the Final Order, as the case may be, or any order modifying or vacating such order shall have been entered, or any appeal of such order shall have been timely filed;

(b)                                 any representation or warranty by any Credit Party contained herein or in any other Loan Document is untrue or incorrect as of such date, except to the extent that such representation or warranty expressly relates to an earlier date and except for changes therein expressly permitted or expressly contemplated by this Agreement, and Agent or Requisite Revolving Lenders (or (i) Requisite Term Lenders, with respect to the making of any Term Loan or the conversion or continuation of any Term Loan as a LIBOR Loan or (ii) Requisite Last Out Term Lenders, with respect to the making of any Last Out Term Loan or the conversion or

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continuation of any Last Out Term Loan as a LIBOR Loan)  have determined not to make such Advance, convert or continue any Loan as LIBOR Loan or incur such Letter of Credit Obligation as a result of the fact that such warranty or representation is untrue or incorrect;

(c)                                  any event or circumstance having a Material Adverse Effect has occurred since the date hereof as determined by the Requisite Revolving Lenders and Agent or Requisite Revolving Lenders (or (i) Requisite Term Lenders, with respect to the making of any Term Loan or the conversion or continuation of any Term Loan as a LIBOR Loan or (ii) Requisite Last Out Term Lenders, with respect to the making of any Last Out Term Loan or the conversion or continuation of any Last Out Term Loan as a LIBOR Loan) have determined not to make such Advance, convert or continue any Loan as a LIBOR Loan or incur such Letter of Credit Obligation as a result of the fact that such event or circumstance has occurred;

(d)                                 any Default or Event of Default has occurred and is continuing or would result after giving effect to any Advance (or the incurrence of any Letter of Credit Obligation), and Agent or Requisite Revolving Lenders (or (i) Requisite Term Lenders, with respect to the making of any Term Loan or the conversion or continuation of any Term Loan as a LIBOR Loan or (ii) Requisite Last Out Term Lenders, with respect to the making of any Last Out Term Loan or the conversion or continuation of any Last Out Term Loan as a LIBOR Loan) shall have determined not to make any Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation as a result of that Default or Event of Default;

(e)                                  after giving effect to any Advance (or the incurrence of any Letter of Credit Obligations), (i) the outstanding principal amount of the aggregate Revolving Loan would exceed the Maximum Amount less the then outstanding principal amount of the Swing Line Loan and the Export-Related Loan, (ii) the outstanding principal amount of the aggregate Revolving Credit Advances would exceed the Borrowing Base less the then outstanding principal amount of the Swing Line Loan, or (iii) the outstanding principal amount of the Export-Related Loan would exceed the lesser of the Export-Related Borrowing Availability and the Export-Related Loan Commitment; or

(f)                                    (i) (x) in the case of Advances, Loans or Letters of Credit made or issued prior to the date that is twenty-five (25) days after the Petition Date, the Interim Order or the Canadian Interim Order shall not be in full force and effect and, if the Interim Order or the Canadian Interim Order has expired prior to such date, the Final Order and the Canadian Final Order shall not have been entered prior to or immediately following such expiration, or (y) in the case of Advances, Loans or Letters of Credit made or issued from and after the date that is twenty-five (25) days after the Petition Date, the Bankruptcy Court shall not have entered the Final Order, (iii) the Interim Order, the Canadian Interim Order, the Final Order or the Canadian Final Order, as the case may be, shall have been vacated, reversed, modified or amended without Lenders’ consent, (iv) a motion for reconsideration of any such order shall have been timely filed or (v) an appeal of any such order shall have been timely filed and if such order is the subject of a pending appeal in any respect, either the making of any Loans, the granting of super-priority claim status with respect to the Obligations, the granting of the Liens described herein, or the performance by the Borrower or any Credit Party of any of their obligations under this Agreement or any other Loan Document or under any other instrument or agreement referred to in this Agreement shall be the subject of a presently effective stay pending appeal.

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Without limiting the foregoing, no Lender shall be obligated to fund any Advance, convert or continue any Loan as a LIBOR Loan or incur any Letter of Credit Obligation, if as of the date of entry of the Final Order, Borrower shall have Borrowing Availability of less than (i) $22,500,000 in the event that the unfunded portion of the Last Out Term Loan is advanced by such date following satisfaction of the conditions set forth in Section 2.4, or (ii) $7,500,000 in the event that the unfunded portion of the Last Out Term Loan is not advanced by such date.

The request and acceptance by Borrower of the proceeds of any Advance, the incurrence of any Letter of Credit Obligations or the conversion or continuation of any Loan into, or as, a LIBOR Loan shall be deemed to constitute, as of the date thereof, (i) a representation and warranty by Borrower that the conditions in this Section 2.2 have been satisfied and (ii) a reaffirmation by Borrower of the granting and continuance of Agent’s Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents.

2.3                                 Further Conditions to Each Export-Related Advance.  Except as otherwise expressly provided herein, no Lender shall be obligated to fund any Export-Related Advance, if, as of the date thereof:

(a)                                  Agent has not received satisfactory evidence that Borrower has obtained all consents and approvals from Ex-Im Bank;

(b)                                 Agent has not received duly executed copies of all Ex-Im Bank Documents, each in form and substance satisfactory to Agent and signed by each party thereto;

(c)                                  Borrower has not duly executed any necessary application forms required by Ex-Im Bank;

(d)                                 any Ex-Im Bank Document is not in full force and effect; or

(e)                                  with respect to any Export-Related Advance requested after the date of any scheduled termination of any Ex-Im Bank Guarantee, Agent has not received written notice at least ninety (90) days prior to such scheduled termination (or such lesser time as may be agreed to by Agent) that the Ex-Im Bank Guarantee has been renewed.

The request and acceptance by Borrower of the proceeds of any Export-Related Advance as of the date thereof, (i) a representation and warranty by Borrower that the conditions in this Section 2.3 have been satisfied and (ii) a reaffirmation by Borrower of the granting and continuance of Agent’s Liens, on behalf of itself and Lenders, pursuant to the Collateral Documents.

2.4                                 Further Conditions to Funding of Last Out Term Loan.  No Lender shall be obligated to advance any portion of the Last Out Term Loan in an aggregate amount equal to $15,000,000 unless and until Agent and GECMG shall have syndicated such portion of the Last Out Term Loan to the Agent’s satisfaction in its sole discretion.

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3.                                      REPRESENTATIONS AND WARRANTIES

To induce Lenders to make the Loans and to incur Letter of Credit Obligations, the Credit Parties executing this Agreement, jointly and severally, make the following representations and warranties to Agent and each Lender with respect to all Credit Parties, each and all of which shall survive the execution and delivery of this Agreement.

3.1                                 Corporate Existence; Compliance with Law.  Each Credit Party (a) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or organization set forth in Disclosure Schedule (3.1); (b) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses, damages or liabilities in excess of $250,000; (c) subject to the entry of the Interim Order (or the Final Order, when applicable) by the Bankruptcy Court, has the requisite power and authority and the legal right to own, pledge, mortgage or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now, heretofore and proposed to be conducted; (d) subject to specific representations regarding Environmental Laws, has all licenses, permits, consents or approvals from or by, and has made all filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct, except where the failure to have such licenses, permits, consents or approvals, make such filings or give such notices, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; (e) is in compliance with its charter and bylaws or partnership or operating agreement, as applicable; and (f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance with all applicable provisions of law, except where the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

3.2                                 Executive Offices, Collateral Locations, FEIN.  As of the Closing Date, the current location of each Credit Party’s chief executive office and the processor, ▇▇▇▇▇▇ or toll converter locations, warehouses, consignment, and other premises at which any Collateral is located are set forth in Disclosure Schedule (3.2).  In addition, Disclosure Schedule (3.2) lists the federal employer identification number of each Credit Party.

3.3                                 Corporate Power, Authorization, Enforceable Obligations.  Upon the entry by the Bankruptcy Court of the Interim Order (or the Final Order, when applicable) the execution, delivery and performance by each Credit Party of the Loan Documents to which it is a party and the creation of all Liens provided for therein: (a) are within such Person’s power; (b) have been duly authorized by all necessary corporate, limited liability company or limited partnership action; (c) do not contravene any provision of such Person’s charter, bylaws or partnership or operating agreement as applicable; (d) do not violate any applicable law or regulation, or any applicable order or decree of any court of competent jurisdiction or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Agent, on behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not

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require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(c), all of which will have been duly obtained, made or complied with prior to the Closing Date.  Each of the Loan Documents shall be duly executed and delivered by each Credit Party that is a party thereto and subject to the entry of the Interim Order and the Final Order, each such Loan Document shall constitute a legal, valid and binding obligation of such Credit Party enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other laws relative to or affecting the enforcement of creditors’ rights generally in effect from time to time.

3.4                                 Financial Statements, Projections and Net Cash Flow Forecast.  Except for the Projections and the Net Cash Flow Forecast, all Financial Statements concerning Borrower and its Subsidiaries that are referred to below have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial position of the Persons covered thereby as at the dates thereof and the results of their operations and cash flows for the periods then ended.

(a)                                  Financial Statements.  The following Financial Statements attached hereto as Disclosure Schedule (3.4(a)) have been delivered on the date hereof:

(i)                                     The audited consolidated balance sheets at September 30, 2002 and September 30, 2003 and the related statements of income and cash flows of Borrower and its Subsidiaries for the Fiscal Years then ended, certified by Deloitte and Touche, LLP.

(ii)                                  The unaudited balance sheet at October 31, 2004 and the related statement(s) of income and cash flows of Borrower and its Subsidiaries for the one-month period then ended.

(iii)                               The unaudited balance sheet at September 30, 2004 and the related statement(s) of income and cash flows of Borrower and its Subsidiaries for the Fiscal Year then ended.

(b)                                 Projections.  The Projections delivered on the date hereof have been prepared by Borrower in light of the past operations of its businesses, but including future payments of known contingent liabilities, and reflect projections for the three-year period beginning on October 1, 2004 on a month-by-month basis for the first year and on a year-by-year basis thereafter.  The Projections are based upon estimates and assumptions stated therein, all of which Borrower believes to be reasonable and fair in light of current conditions and current facts known to Borrower and, as of the Closing Date, reflect Borrower’s good faith and reasonable estimates of the future financial performance of Borrower and of the other information projected therein for the period set forth therein, it being understood by the Lenders that such Projections relate to future events and not to present facts, and that actual results during the period covered therein may differ from such Projections by a material amount.

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(c)                                  Net Cash Flow Forecast.  The Net Cash Flow Forecast delivered on the date hereof and attached hereto as Disclosure Schedule (3.4(c)) has been prepared by Borrower in light of the past operations of its businesses, but including future payments of known contingent liabilities, and reflects Borrower’s net cash flow forecast for the year period beginning on the Closing Date on a month-by-month basis and ending on the first anniversary of the Closing Date.  The Net Cash Flow Forecast is based upon estimates and assumptions which Borrower believes to be reasonable and fair in light of current conditions and current facts known to Borrower as of the Closing Date, and reflects Borrower’s good faith and reasonable estimates of the future financial performance of Borrower, it being understood by the Lenders that the Net Cash Flow Forecast relates to future events and not to present facts, and that actual results during the period covered therein may differ from the Net Cash Flow Forecast by a material amount.

3.5                                 Material Adverse Effect.  Between June 30, 2004 and the Closing Date: (a) no Credit Party has incurred any obligations, contingent or noncontingent liabilities, liabilities for Charges, long-term leases or unusual forward or long-term commitments that are not reflected in the Pro Forma and that, alone or in the aggregate, could reasonably be expected to have a Material Adverse Effect, (b) no contract, lease or other agreement or instrument has been entered into by any Credit Party or has become binding upon any Credit Party’s assets and no law or regulation applicable to any Credit Party has been adopted that has had or could reasonably be expected to have a Material Adverse Effect, and (c) other than in connection with the commencement of the Chapter 11 Cases or as set forth in Disclosure Schedule (3.5), no Credit Party is in default and to Borrower’s knowledge no third party is in default under any material contract, lease or other agreement or instrument, that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect.  Between June 30, 2004 and the Closing Date no event has occurred, that alone or together with other events, could reasonably be expected to have a Material Adverse Effect other in connection with the commencement of the Chapter 11 Cases or as set forth in Disclosure Schedule (3.5).

3.6                                 Ownership of Property; Liens.  As of the Closing Date, the real estate (“Real Estate”) listed in Disclosure Schedule (3.6) constitutes all of the real property owned, leased, subleased, or used by any Credit Party.  Each Credit Party owns good and marketable fee simple title to all of its owned Real Estate, and valid and marketable leasehold interests in all of its leased Real Estate, all as described on Disclosure Schedule (3.6), and copies of all such leases or a summary of terms thereof reasonably satisfactory to Agent have been delivered to Agent.  Disclosure Schedule (3.6) further describes any Real Estate with respect to which any Credit Party is a lessor, sublessor or assignor as of the Closing Date.  Each Credit Party also has good and marketable title to, or valid leasehold interests in, all of its personal property and assets.  As of the Closing Date, none of the properties and assets of any Credit Party are subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to any Credit Party that may result in any Liens (including Liens arising under Environmental Laws) other than Permitted Encumbrances.  Each Credit Party has received all deeds, assignments, waivers, consents, nondisturbance and attornment or similar agreements, bills of sale and other documents, and has duly effected all recordings, filings and other actions necessary to establish, protect and perfect such Credit Party’s right, title and interest in and to all such Real Estate and other properties and assets.  Disclosure Schedule (3.6) also describes any purchase options, rights of first refusal or other similar contractual rights pertaining to any Real

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Estate.  As of the Closing Date, no portion of any Credit Party’s Real Estate has suffered any material damage by fire or other casualty loss that has not heretofore been repaired and restored in all material respects to its original condition or otherwise remedied.  As of the Closing Date, all material permits required to have been issued or appropriate to enable the Real Estate to be lawfully occupied and used for all of the purposes for which it is currently occupied and used have been lawfully issued and are in full force and effect.

3.7                                 Labor Matters.  As of the Closing Date (a) no strikes or other material labor disputes against any Credit Party are pending or, to any Credit Party’s knowledge, threatened; (b) hours worked by and payment made to employees of each Credit Party comply in all material respects with the Fair Labor Standards Act and each other federal, state, local or foreign law applicable to such matters; (c) all payments due from any Credit Party for employee health and welfare insurance have been paid or accrued as a liability on the books of such Credit Party; (d) except as set forth in Disclosure Schedule (3.7), no Credit Party is a party to or bound by any collective bargaining agreement, management agreement, consulting agreement, employment agreement, bonus, restricted stock, stock option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement (and true and complete copies of any agreements described on Disclosure Schedule (3.7) have been delivered to Agent); (e) there is no organizing activity involving any Credit Party pending or, to any Credit Party’s knowledge, threatened by any labor union or group of employees; (f) there are no representation proceedings pending or, to any Credit Party’s knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Credit Party has made a pending demand for recognition; and (g) except as set forth in Disclosure Schedule (3.7), there are no material complaints or charges against any Credit Party pending or, to the knowledge of any Credit Party, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Credit Party of any individual.

3.8                                 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness.  Except as set forth in Disclosure Schedule (3.8), as of the Closing Date, no Credit Party has any Subsidiaries, is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person.  All of the issued and outstanding Stock of each Subsidiary of Borrower is owned by the Borrower in the amounts set forth in Disclosure Schedule (3.8).  Except as set forth in Disclosure Schedule (3.8), there are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which any Credit Party may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries.  All outstanding Indebtedness and Guaranteed Indebtedness of each Credit Party as of the Closing Date (except for the Obligations) is described in Section 6.3 (including Disclosure Schedule (6.3)).  As of the Closing Date, AET Limited is an inactive Subsidiary and does not have any assets (other than the bank account referred to in Annex C and cash on deposit therein in an amount not exceeding $50,000) or any Indebtedness or Guaranteed Indebtedness or other material liabilities and does not conduct any business or operations.  Except as set forth in Disclosure Schedule (3.8(a)), Applied Extrusion Technologies Holdings, Inc., Applied Extrusion Technologies Australia Holdings, Inc., Applied Extrusion Technologies Belgium, Inc., and Applied Extrusion Technologies, Scotland, Inc. (collectively, the “Former Subsidiaries”), each a corporation organized in Delaware and prior to the date hereof merged into Borrower, did not own any assets.  At the time of the applicable merger of

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each Foreign Subsidiary into Borrower, such Former Subsidiary did not have any liabilities or other obligations to any Person.

3.9                                 Government Regulation.  No Credit Party is an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940.  No Credit Party is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of the Loans by Lenders to Borrower, the incurrence of the Letter of Credit Obligations on behalf of Borrower, the application of the proceeds thereof and repayment thereof and the consummation of the Related Transactions will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission.

3.10                           Margin Regulations.  No Credit Party is engaged, nor will it 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 such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect (such securities being referred to herein as “Margin Stock”).  No Credit Party owns any Margin Stock, and none of the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any Margin Stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry any Margin Stock or for any other purpose that might cause any of the Loans or other extensions of credit under this Agreement to be considered a “purpose credit” within the meaning of Regulations T, U or X of the Federal Reserve Board.  No Credit Party will take or permit to be taken any action that might cause any Loan Document to violate any regulation of the Federal Reserve Board.

3.11                           Taxes.  All income tax returns and all other material property tax returns, reports and statements, including information returns, required by any Governmental Authority (“Tax Returns”) to be filed by any Credit Party have been filed with the appropriate Governmental Authority; all such Tax Returns are true, correct and complete in all material respects; and all Charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof (or any such fine, penalty, interest, late charge or loss has been paid),  excluding Charges or other amounts being contested in accordance with Section 5.2(b).  There are no Liens for Charges (other than for current Charges not yet due and payable or being contested in good faith in accordance with Section 5.2(b)) upon the assets of any Credit Party.  No adjustment relating to such Tax Returns has been proposed formally or informally by any Governmental Authority and, to the knowledge of each Credit Party, no basis exists for any such adjustment.   Proper and accurate amounts have been withheld by each Credit Party from its respective employees, independent contractors, creditors, members, partners and other third parties for all periods in full and complete compliance with all applicable federal, state, local and foreign laws and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the Closing Date those taxable years for which any Credit Party’s tax returns are currently being audited by the IRS or any other applicable Governmental Authority, and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as

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indicated on Disclosure Schedule (3.11), as of the Closing Date all, Charges that have been claimed, proposed, asserted or assessed against any Credit Party (or with respect to any of their assets) have been fully paid or finally settled or are being contested in good faith in accordance with Section 5.2(b).  Except as described in Disclosure Schedule (3.11), as of the Closing Date, no Credit Party has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges.  None of the Credit Parties and their respective predecessors are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Credit Party’s knowledge, as a transferee.  As of the Closing Date, no Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise, which would have a Material Adverse Effect.

3.12                           ERISA and Canadian Plans.

(a)                                  Disclosure Schedule (3.12) lists (i) all ERISA Affiliates and (ii) all Plans and separately identifies all Pension Plans, including Title IV Plans, Multiemployer Plans, ESOPs and Welfare Plans, including all Retiree Welfare Plans.  As of the Closing Date, copies of all such listed Plans, together with a copy of the latest IRS/DOL 5500-series form for each such Plan, have been delivered to Agent.  Except with respect to Multiemployer Plans, each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred that would cause the loss of such qualification or tax-exempt status.  Each Plan is in compliance with the applicable provisions of ERISA and the IRC, including the timely filing of all reports required under the IRC or ERISA, including the statement required by 29 C.F.R. Section 2520.104-23.  Neither any Credit Party nor ERISA Affiliate has failed to make any contribution or pay any amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan.  Neither any Credit Party nor ERISA Affiliate has engaged in a “prohibited transaction,” as defined in Section 406 of ERISA and Section 4975 of the IRC, in connection with any Plan, that would subject any Credit Party to a material tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the IRC.

(b)                                 Except as set forth in Disclosure Schedule (3.12): (i) no Title IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of any Credit Party, threatened claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party or ERISA Affiliate has incurred or reasonably expects to incur any liability as a result of a complete or partial withdrawal from a Multiemployer Plan; (v) within the last five years no Title IV Plan of any Credit Party or ERISA Affiliate has been terminated, whether or not in a “standard termination” as that term is used in Section 4041(b)(1) of ERISA, nor has any Title IV Plan of any Credit Party or any ERISA Affiliate (determined at any time within the last five years) with Unfunded Pension Liabilities been transferred outside of the “controlled group” (within the meaning of Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate (determined at such time); (vi) except in the case of any ESOP, Stock of all Credit Parties and their ERISA

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Affiliates makes up, in the aggregate, no more than 10% of fair market value of the assets of any Plan measured on the basis of fair market value as of the latest valuation date of any Plan; and (vii) no liability under any Title IV Plan has been satisfied with the purchase of a contract from an insurance company that is not rated AAA by the Standard & Poor’s Corporation or an equivalent rating by another nationally recognized rating agency

(c)                                  Disclosure Schedule 3.12(c) sets forth all Canadian Benefit Plans (other than, for greater certainty, universal plans created by and to which any Credit Party is obligated to contribute by statute) and Canadian Pension Plans adopted by each Credit Party.  The Canadian Pension Plans are duly registered under the ITA and all other applicable laws which require registration and no event has occurred which is reasonably likely to cause the loss of such registered status.  All material obligations of each Credit Party (including fiduciary, funding, investment and administration obligations) required to be performed in connection with the Canadian Pension Plans and the funding agreements therefor have been performed in a timely fashion.  There have been no improper withdrawals or applications of the assets of the Canadian Pension Plans or the Canadian Benefit Plans.  There are no outstanding disputes concerning the assets of the Canadian Pension Plans or the Canadian Benefit Plans.  Each of the Canadian Pension Plans is fully funded on a solvency basis (using actuarial methods and assumptions which are consistent with the valuations last filed with the applicable Governmental Bodies and which are consistent with generally accepted actuarial principles).

3.13                           No Litigation.  Other than the commencement of the Chapter 11 Cases, no action, claim, lawsuit, demand, investigation or proceeding is now pending or, to the knowledge of any Credit Party, threatened against any Credit Party, before any Governmental Authority or before any arbitrator or panel of arbitrators (collectively, “Litigation”), (a) that challenges any Credit Party’s right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) that has a reasonable risk of being determined adversely to any Credit Party and that , if so determined, could be reasonably be expected to have a Material Adverse Effect.  Except as set forth on Disclosure Schedule (3.13), as of the Closing Date there is no Litigation pending or, to any Credit Party’s knowledge, threatened, that seeks damages in excess of $100,000 or injunctive relief against, or alleges criminal misconduct of, any Credit Party.

3.14                           Brokers.  No broker or finder brought about the obtaining, making or closing of the Loans or the Related Transactions, and no Credit Party or Affiliate thereof has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

3.15                           Intellectual Property.  As of the Closing Date, each Credit Party owns or has rights to use all Intellectual Property necessary to continue to conduct its business as now or heretofore conducted by it or proposed to be conducted by it, and each Patent, Trademark, Copyright and License is listed, together with application or registration numbers, as applicable, in Disclosure Schedule (3.15).  Each Credit Party conducts its business and affairs without infringement of or interference with any Intellectual Property of any other Person in any material respect.  Except as set forth in Disclosure Schedule (3.15), as of the Closing Date, no Credit Party is aware of any infringement claim by any other Person with respect to any Intellectual Property.

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3.16                           Full Disclosure.  No information contained in this Agreement, any of the other Loan Documents, any Projections, Financial Statements or Collateral Reports or other written reports from time to time delivered hereunder or any written statement furnished by or on behalf of any Credit Party to Agent or any Lender pursuant to the terms of this Agreement contains or will contain when made any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.  The Liens granted to Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents will at all times be fully perfected first priority Liens in and to the Collateral described therein, subject, as to priority, only to Permitted Encumbrances and Carve-Out Expenses up to the Carve-Out Amount.

3.17                           Environmental Matters.

(a)                                  Except as set forth in Disclosure Schedule (3.17), as of the Closing Date: (i) the Real Estate is free of contamination from, or presence of, any Hazardous Material except for such contamination that would not adversely impact the value or marketability of such Real Estate and that would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000; (ii) no Credit Party has caused or suffered to occur any Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate and that could reasonably be expected to result in Environmental Liabilities in excess of  $100,000; (iii) the Credit Parties are and have been in compliance with all Environmental Laws, except for such noncompliance that would not result in Environmental Liabilities which could reasonably be expected to exceed $100,000; (iv) the Credit Parties have obtained, and are in compliance with, all Environmental Permits required by Environmental Laws for the operations of their respective businesses as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such Environmental Permits would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000, and all such Environmental Permits are valid, uncontested and in good standing; (v) no Credit Party is involved in operations or knows of any facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of such Credit Party which could reasonably be expected to exceed $100,000, and no Credit Party has permitted any current or former tenant or occupant of the Real Estate to engage in any such operations; (vi) there is no Litigation arising under or related to any Environmental Laws, Environmental Permits or Hazardous Material that seeks damages, penalties, fines, costs or expenses in excess of $100,000 or injunctive relief against, that orders characterization or rehabilitative work, or that alleges criminal misconduct by, any Credit Party; (vii) no notice has been received by any Credit Party identifying it as a “potentially responsible party” or requesting information under CERCLA or analogous state statutes or other Environmental Law, and to the knowledge of the Credit Parties, there are no facts, circumstances or conditions that may result in any Credit Party being identified as a “potentially responsible party” under CERCLA or analogous state statutes or other Environmental Laws; and (viii) as of the Closing Date, the Credit Parties have provided to Agent copies of all existing environmental reports, studies, reviews and audits and all written information pertaining to actual or potential Environmental Liabilities, in each case relating to any Credit Party.

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(b)                                 Each Credit Party hereby acknowledges and agrees that Agent is not now, and to Credit Party’s knowledge, has not ever been, in control of any of the Real Estate or any Credit Party’s affairs.

3.18                           Insurance.  Disclosure Schedule (3.18) lists all insurance policies of any nature maintained, as of the Closing Date, for current occurrences by each Credit Party, as well as a summary of the terms of each such policy.

3.19                           Deposit and Disbursement Accounts.  Disclosure Schedule (3.19) lists all banks and other financial institutions at which any Credit Party and AET Limited maintains deposit or other accounts as of the Closing Date, including any Disbursement Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor.  Borrower acknowledges and agrees that Annex C hereto is substantially the same as the Borrower’s Prepetition cash management system and that such system, including all accounts established thereto, shall continue to govern the rights of the respective parties thereto, and shall be applicable under this Agreement subject to the approval of the Bankruptcy Court.

3.20                           Government Contracts.  Except as set forth in Disclosure Schedule (3.20), as of the Closing Date, no Credit Party is a party to any contract or agreement with any Governmental Authority and no Credit Party’s Accounts are subject to the Federal Assignment of Claims Act (31 U.S.C. §3727) or any similar state or local law.

3.21                           Customer and Trade Relations.  Except as set forth in Disclosure Schedule (3.21), as of the Closing Date, there exists no actual or, to the knowledge of any Credit Party, threatened termination or cancellation of, or any material adverse modification or change in: the business relationship of any Credit Party with any customer or group of customers whose purchases during the preceding 12 months caused them to be ranked among the ten largest customers of such Credit Party; or the business relationship of any Credit Party with any supplier material to its operations.

3.22                           Agreements and Other Documents.

(a)                                  As of the Closing Date, each Credit Party has provided to Agent or its counsel, on behalf of Lenders, accurate and complete copies (or summaries) of all of the following agreements or documents to which it is subject and each of which is listed in Disclosure Schedule (3.22):  rebate agreements with end users who annually purchase $15,000,000 or more of products sold by any Credit Party or whose purchases account for 5% or more of the total annual sales volume of the Credit Parties; supply agreements and purchase agreements not terminable by such Credit Party within sixty (60) days following written notice issued by such Credit Party and involving transactions in excess of $1,000,000 per annum;  leases of Equipment having a remaining term of one year or longer and requiring aggregate rental and other payments in excess of $500,000 per annum;  licenses and permits held by the Credit Parties, the absence of which could be reasonably likely to have a Material Adverse Effect;  instruments and documents evidencing any Indebtedness or Guaranteed Indebtedness of such Credit Party and any Lien granted by such Credit Party with respect thereto; and

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instruments and agreements evidencing the issuance of any equity securities, warrants, rights or options to purchase equity securities of such Credit Party.

(b)                                 Set forth in Disclosure Schedule (3.22(b)) is a list, as of the Closing Date of the ten largest customers and clients of the Credit Parties, taken as a whole as measured by gross revenues of the Credit Parties generated by such customers and clients, for the two years ended as of September 30, 2003 and September 30, 2004.  Except as disclosed in Disclosure Schedule 3.22(b), as of the Closing Date, no significant customer or client (or group of related customers or clients which in the aggregate is significant) of the Credit Parties, taken as a whole, has given them notice or, to the knowledge of the Credit Parties, has taken any other action which has given any Credit Party any reason to believe that such customer or client (or group of related customers or clients) will materially reduce the amount of its purchases or materially adversely change the price or terms of such purchases.  For such purposes, a customer or client (or group of related customers or clients) shall be deemed “significant” if such customer or client (or group of related customers or clients) has accounted for more than 5% of the total gross revenues of the Credit Parties (taken as a whole) during the past Fiscal Year.

(c)                                  Set forth in Disclosure Schedule 3.22(c) is a list, as of the Closing Date, of the ten largest suppliers and vendors of the Credit Parties, taken as a whole, as measured by the cost of purchases made by the Credit Parties for the two years ended as of September 30, 2003 and September 30, 2004.  Except as disclosed in Disclosure Schedule 3.22(c), as of the Closing Date, no significant supplier or vendor (or group of related suppliers or vendors which in the aggregate is significant) of the Credit Parties, taken as a whole, has given them notice or, to the knowledge of the Credit Parties, has taken any other action which has given any Credit Party any reason to believe that such supplier or vendor (or group of related suppliers or vendors) will cease to supply or materially restrict the amount supplied or materially adversely change its price or terms to any Credit Party of any products or services.  For such purposes, a supplier or vendor (or group of related suppliers or vendors) shall be deemed “significant” if such supplier or vendor (or group of related suppliers or vendors) has accounted for more than 5% of such total cost of purchases of the Credit Parties (taken as a whole) during the past Fiscal Year.

(d)                                 Neither the Borrower nor any other Credit Party is subject to any derivative or forward contract that can be terminated based upon the bankruptcy filing of such Person.

3.23                           Intentionally Omitted.

3.24                           Senior Note Documents.  As of the Closing Date, Borrower has delivered to Agent a complete and correct copy of the Senior Note Documents (including all schedules and exhibits thereto and all amendments, supplements or modifications, as in effect on the Closing Date).

3.25                           Reorganization Matters.

(a)                                  The Chapter 11 Cases were commenced on the Petition Date in accordance with applicable law and proper notice thereof and the proper notice for the hearing

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for the approval of the Interim Order has been given and proper notice for the hearing for the approval of the Final Order will be given.

(b)                                 After the entry of the Interim Order, and pursuant to and to the extent permitted in the Interim Order and the Final Order, the Obligations will constitute allowed administrative expense claims in the Chapter 11 Cases having priority over all administrative expense claims, reclamation claims and unsecured claims against the Borrower or the Credit Parties filing a Chapter 11 Case now existing or hereafter arising, of any kind whatsoever, including, without limitation, all administrative expense claims of the kind specified in Sections 105, 326, 330, 331, 503(b), 506(c), 507(a), 507(b), 546(c) or 726 of the Bankruptcy Code, as provided under Section 364(c)(1) of the Bankruptcy Code, subject, as to priority only to the Carve-Out Expenses up to the Carve-Out Amount.

(c)                                  After the entry of the Interim Order and pursuant to and to the extent provided in the Interim Order and the Final Order, the Obligations will be secured by a valid and perfected first priority Lien on all of the Collateral.

(d)                                 The Interim Order and the Canadian Interim Order (with respect to the period prior to entry of the Final Order) or the Final Order and the Canadian Final Order (with respect to the period on and after entry of the Final Order), as the case may be, are in full force and effect and have not been reversed, stayed, modified or amended.

(e)                                  Notwithstanding the provisions of Section 362 of the Bankruptcy Code, subject to the provisions of the Interim Order and the Final Order, upon the maturity (whether by acceleration or otherwise) of any of the Obligations, Agent and Lenders shall be entitled to immediate payment of such Obligations and to enforce the remedies provided for hereunder, without further application to or order by the Bankruptcy Court.

4.                                      FINANCIAL STATEMENTS AND INFORMATION

4.1                                 Reports and Notices.

(a)                                  Each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Agent or to Agent and Lenders, as required, the Financial Statements, notices, Projections and other information at the times, to the Persons and in the manner set forth in Annex E.

(b)                                 Each Credit Party executing this Agreement hereby agrees that, from and after the Closing Date and until the Termination Date, it shall deliver to Agent or to Agent and Lenders, as required, the various Collateral Reports (including Borrowing Base Certificates in the form of Exhibit 4.1(b) at the times, to the Persons and in the manner set forth in Annex F.

4.2                                 Communication with Accountants.  Each Credit Party executing this Agreement authorizes Agent to communicate directly with its independent certified public accountants, including Deloitte and Touche, LLP (after such prior notice to Borrower and provided Borrower may participate in any such communications), and authorizes and, at Agent’s request, shall instruct those accountants and advisors to disclose and make available to Agent and each Lender any and all Financial Statements and other supporting financial documents,

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schedules and information relating to any Credit Party (including copies of any issued management letters) with respect to the business, financial condition and other affairs of any Credit Party.

5.                                      AFFIRMATIVE COVENANTS

Each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties that from and after the date hereof and until the Termination Date:

5.1                                 Maintenance of Existence and Conduct of Business.  Except as occasioned by the Chapter 11 Cases, each Credit Party shall: do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and its material rights and franchises; continue to conduct its business substantially as now conducted or as otherwise permitted hereunder; at all times, in the exercise of its reasonable business judgment, maintain, preserve and protect all of its assets and properties used or useful in the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices; and  transact business only in such corporate and trade names as are set forth in Disclosure Schedule (5.1).

5.2                                 Payment of Charges.

(a)                                  Subject to Section 5.2(b), each Credit Party shall pay and discharge or cause to be paid and discharged promptly all Charges payable by it, including (i) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to tax, social security and unemployment withholding with respect to its employees, (ii) lawful claims for labor, materials, supplies and services or otherwise, and (iii) all storage or rental charges payable to warehousemen or bailees, in each case, before any thereof shall become past due; provided, Borrower shall not be required to pay any Charges, Taxes or Claims the nonpayment of which is permitted by the Bankruptcy Code.

(b)                                 Each Credit Party may in good faith contest, by appropriate proceedings, the validity or amount of any Charges, Taxes or claims described in Section 5.2(a); provided, that (i) adequate reserves with respect to such contest are maintained on the books of such Credit Party, in accordance with GAAP; (ii) no Lien shall be imposed to secure payment of such Charges (other than payments to warehousemen and/or bailees) that is superior to any of the Liens securing the Obligations and such contest is maintained and prosecuted continuously and with diligence and operates to suspend collection or enforcement of such Charges; (iii) none of the Collateral becomes subject to forfeiture or loss as a result of such contest; (iv) such Credit Party shall promptly pay or discharge such contested Charges, Taxes or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Agent evidence reasonably acceptable to Agent of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Credit Party or the conditions set forth in this Section 5.2(b) are no longer met; and (v) Agent has not advised Borrower in writing that Agent reasonably believes that nonpayment or nondischarge thereof could have or result in a Material Adverse Effect.

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5.3                                 Books and Records.  Each Credit Party shall keep adequate books and records with respect to its business activities in which proper entries, reflecting in all material respects all financial transactions, are made in accordance with GAAP and on a basis consistent with the Financial Statements attached as Disclosure Schedule (3.4(a)).

5.4                                 Insurance; Damage to or Destruction of Collateral.

(a)                                  The Credit Parties shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule (3.18) as in effect on the date hereof or otherwise in form and amounts and with insurers reasonably acceptable to Agent.  Such policies of insurance (or the loss payable and additional insured endorsements delivered to Agent) shall contain provisions pursuant to which the insurer agrees to provide thirty (30) days prior written notice to Agent in the event of any non-renewal, cancellation or amendment of any such insurance policy.  If any Credit Party at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay all premiums relating thereto, Agent may at any time or times thereafter obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto that Agent deems advisable in its reasonable judgment.  Agent shall have no obligation to obtain insurance for any Credit Party or pay any premiums therefor.  By doing so, Agent shall not be deemed to have waived any Default or Event of Default arising from any Credit Party’s failure to maintain such insurance or pay any premiums therefor.  All sums so disbursed, including reasonable attorneys’ fees, court costs and other charges related thereto, shall be payable on demand by Borrower to Agent and shall be additional Obligations hereunder secured by the Collateral.

(b)                                 Agent reserves the right at any time upon any change in any Credit Party’s risk profile (including any change in the product mix maintained by any Credit Party or any laws affecting the potential liability of such Credit Party) to require additional forms and limits of insurance to, in Agent’s reasonable opinion, adequately protect both Agent’s and Lenders’ interests in all or any portion of the Collateral and to ensure that each Credit Party is protected by insurance in amounts and with coverage customary for its industry.  If reasonably requested by Agent, each Credit Party shall deliver to Agent from time to time a report of a reputable insurance broker, reasonably satisfactory to Agent, with respect to its insurance policies.

(c)                                  Each Credit Party (other than AET Limited) shall deliver to Agent, in form and substance reasonably satisfactory to Agent, endorsements to (i) all “All Risk” and business interruption insurance naming Agent, on behalf of itself and Lenders, as loss payee, and (ii) all general liability and other liability policies naming Agent, on behalf of itself and Lenders, as additional insured.  Each Credit Party irrevocably makes, constitutes and appoints Agent (and all officers, employees or agents designated by Agent), so long as any Event of Default has occurred and is continuing, as such Credit Party’s true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under such “All Risk” policies of insurance, endorsing the name of such Credit Party on any check or other item of payment for the proceeds of such “All Risk” policies of insurance and for making all determinations and decisions with respect to such “All Risk” policies of insurance.  Agent shall have no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of-attorney.  Borrower shall promptly notify Agent of any loss, damage, or destruction to the Collateral in the amount of $250,000 or more, whether or not covered by insurance.  After deducting from such proceeds the expenses, if

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any, incurred by Agent in the collection or handling thereof, Agent may, at its option, apply such proceeds to the reduction of the Obligations in accordance with Section 1.3(d), or permit or require the applicable Credit Party to use such money, or any part thereof, to replace, repair, restore or rebuild the Collateral in a diligent and expeditious manner with materials and workmanship of substantially the same quality as existed before the loss, damage or destruction. Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds could not reasonably be expected to have a Material Adverse Effect and such insurance proceeds do not exceed $2,000,000 in the aggregate, Agent shall permit the applicable Credit Party to replace, restore, repair or rebuild the property; provided that if such Credit Party shall not have completed such replacement, restoration, repair or rebuilding within three hundred and sixty (360) days of such casualty or entered into binding agreements within one hundred and eighty (180) days of such casualty to complete, such replacement, restoration, repair or rebuilding within three hundred and sixty (360) days of such casualty, Agent may apply such insurance proceeds to the Obligations in accordance with Section 1.3(d).  All insurance proceeds that are to be made available to any Credit Party to replace, repair, restore or rebuild the Collateral shall be applied by Agent to reduce the outstanding principal balance of the Revolving Loan (which application shall not result in a permanent reduction of the Revolving Loan Commitment) and upon such application, Agent shall establish a Reserve against the Borrowing Base in an amount equal to the amount of such proceeds so applied.  Thereafter, such funds shall be made available to Borrower to provide funds to replace, repair, restore or rebuild the Collateral as follows: (i) Borrower shall request a Revolving Credit Advance be made to Borrower in the amount requested to be released; (ii) so long as the conditions set forth in Section 2.2 have been met, Revolving Lenders shall make such Revolving Credit Advance; and (iii) in the case of insurance proceeds applied against the Revolving Loan, the Reserve established with respect to such insurance proceeds shall be reduced by the amount of such Revolving Credit Advance.  To the extent not used to replace, repair, restore or rebuild the Collateral, such insurance proceeds shall be applied in accordance with Section 1.3(d).

5.5                                 Compliance with Laws.  Each Credit Party shall comply with all federal, state, provincial, regional, municipal, local and foreign laws and regulations applicable to it, including those relating to ERISA and labor matters and Environmental Laws and Environmental Permits, except to the extent that the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

5.6                                 Intentionally Omitted.

5.7                                 Intellectual Property.  Each Credit Party will conduct its business and affairs without infringement of or interference with any Intellectual Property of any other Person in any material respect.

5.8                                 Environmental Matters.  Each Credit Party shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its Real Estate in compliance with all Environmental Laws and Environmental Permits other than noncompliance that could not reasonably be expected to have a Material Adverse Effect; (b) implement any and all investigation, remediation, removal and response actions that are appropriate or necessary to maintain the value and marketability of the Real Estate or to otherwise comply with Environmental Laws and Environmental Permits pertaining to the presence, generation,

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treatment, storage, use, recovery, recycling, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its Real Estate and shall at all times employ a qualified environmental manager to have primary responsibility for compliance with the provisions of this Section 5.8; (c) notify Agent promptly after such Credit Party becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any Real Estate that is reasonably likely to result in Environmental Liabilities in excess of $100,000; and (d) promptly forward to Agent a copy of any order, notice, request for information or any communication or report received by such Credit Party in connection with any such violation or Release or any other matter relating to any Environmental Laws or Environmental Permits that could reasonably be expected to result in Environmental Liabilities in excess of $100,000, in each case whether or not the Environmental Protection Agency or any Governmental Authority has taken or threatened any action in connection with any such violation, Release or other matter.  If Agent at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Credit Party or any Environmental Liability arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its Real Estate, that, in each case, could reasonably be expected to have a Material Adverse Effect, then each Credit Party shall, upon Agent’s written request (i) cause the performance of such environmental audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrower’s expense, as Agent may from time to time reasonably request, which shall be conducted by reputable environmental consulting firms reasonably acceptable to Agent and shall be in form and substance reasonably acceptable to Agent, and (ii) permit Agent or its representatives to have access to all Real Estate for the purpose of conducting such environmental audits and testing as Agent deems appropriate, including subsurface sampling of soil and groundwater.  Borrower shall reimburse Agent for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder.

5.9                                 Landlords’ Agreements, Mortgagee Agreements, Bailee Letters and Real Estate Purchases.  As reasonably requested by Agent and to the extent not otherwise addressed to Agent’s reasonable satisfaction in the Final Order and except for the locations set forth in Disclosure Schedule (5.9) as of the Closing Date, each Credit Party shall obtain a landlord’s agreement, mortgagee agreement or bailee letter, as applicable, from the lessor of each leased property, mortgagee of owned property or bailee with respect to any warehouse, processor, ▇▇▇▇▇▇ or toll converter facility or other location where Collateral is stored or located as of the Closing Date, which agreement or letter shall contain a waiver or subordination of all Liens or claims that the landlord, mortgagee or bailee may assert against the Collateral at that location, and shall otherwise be reasonably satisfactory in form and substance to Agent.  With respect to such locations set forth in Disclosure Schedule (5.9) as of the Closing Date, so long as Agent has not received a satisfactory landlord or mortgagee agreement or bailee letter, or entry of the Final Order providing for collateral access, Borrower’s Eligible Inventory at that location shall, unless otherwise determined by Agent in its discretion, be excluded from the Borrowing Base.  After the Closing Date, no real property shall be leased by any Credit Party (nor shall the Credit Parties conduct any business or activities or store any material property at its leased locations in Norcross, Georgia and Peabody, Massachusetts), without the prior written consent of Agent (which consent, in Agent’s reasonable credit judgment, may be conditioned upon the exclusion from the Borrowing Base of Eligible Inventory at that location or the establishment of Reserves acceptable to Agent) or, unless and until a reasonably satisfactory landlord agreement shall first

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have been obtained with respect to such location.  After the Closing Date, no Inventory shall be shipped to or located at any third party warehouse location for which reasonably satisfactory bailee letters have not been obtained if the aggregate amount of all such Inventory held at all such third party warehouse locations at any time would exceed $250,000, without the prior written consent of Agent (which consent, in Agent’s reasonable credit judgment, may be conditioned upon the exclusion from the Borrowing Base of Eligible Inventory at that location or the establishment of Reserves acceptable to Agent).  After the Closing Date, no Inventory shall be shipped to a processor, ▇▇▇▇▇▇ or toll converter if the aggregate amount of all such Inventory held by such processor, ▇▇▇▇▇▇ or toll converter at any time would exceed $500,000 without the prior written consent of Agent (which consent, in Agent’s reasonable credit judgment, may be conditioned upon the exclusion from the Borrowing Base of Eligible Inventory at that location or the establishment of Reserves acceptable to Agent) or, unless and until a reasonably satisfactory bailee letter shall first have been obtained with respect to such location.  Each Credit Party shall timely and fully pay and perform in all material respects its obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located.  To the extent otherwise permitted hereunder, if any Credit Party proposes to acquire after the Closing Date a fee ownership interest in Real Estate or any other material leasehold interest in Real Estate, it shall first provide to Agent a Mortgage granting Agent a first priority Lien on such Real Estate, together with environmental audits and studies, mortgage title insurance commitment, real property survey, local counsel opinion(s), and, if required by Agent, supplemental casualty insurance and flood insurance, and, with respect to all of Borrower’s leasehold interests, agreements from their landlords satisfactory to Agent and an acceptable non-disturbance agreement from the landlords’ fee mortgagees, and such other documents, instruments or agreements reasonably requested by Agent, in each case, in form and substance reasonably satisfactory to Agent.

5.10                           ERISA.

(a)                                  Each Credit Party shall comply in all material respects with the applicable provisions of ERISA and the IRC, except to the extent such failure to company, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Affect.  Each Credit Party shall furnish to the Agent written notice as soon as possible, and in any event within ten (10) Business Days after any Credit Party knows or has reason to know, of: (a) a material increase in the benefits of any existing Plan, the establishment of any new Plan, or the commencement of contributions to any Plan; or (b) an ERISA Event, together with a statement of an officer setting forth the details of such ERISA Event and action which the Credit Parties propose to take with respect thereto.  The Credit Parties shall furnish to the Agent, within thirty (30) Business Days after the filing thereof with the Department of Labor, IRS or PBGC, copies of each annual report (From 5500 series) filed for each Plan.  The Credit Parties shall furnish to the Agent, within thirty (30) days after receipt by any Credit Party or ERISA Affiliate, copies of each actuarial report for each Title IV Plan or Multiemployer Plan and each annual report for any Multiemployer Plan.

(b)                                 For each existing Canadian Pension Plan, each Credit Party shall ensure that such plan retains its registered status under and is administered in a timely manner in all respects in accordance with the applicable pension plan text, funding agreement, the ITA and all other applicable laws.

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(c)                                  For each Canadian Pension Plan hereafter adopted by any Credit Party which is required to be registered under the ITA or any other applicable laws, that Credit Party shall use its best efforts to seek and receive confirmation in writing from the applicable Governmental Authority to the effect that such plan is unconditionally registered under the ITA and such other applicable laws.

(d)                                 For each existing Canadian Pension Plan and Canadian Benefit Plan hereafter adopted, each Credit Party shall in a timely fashion perform in all material respects all obligations (including fiduciary, funding, investment and administration obligations) required to be performed in connection with such plan and the funding media therefor.

(e)                                  Each Credit Party shall deliver to the Agent if requested by the Agent promptly after the filing thereof by any Credit Party with any applicable Governmental Authority, copies of each annual and other return, report or valuation with respect to each Canadian Pension Plan; promptly after receipt thereof, a copy of any direction, order, notice, ruling or opinion that any Credit Party may receive from any applicable Governmental Authority with respect to any Canadian Pension Plan; and notification within thirty (30) days of any increases having a cost to such Credit Party in excess of $100,000 per annum, in the benefits of any existing Canadian Pension Plan or Canadian Benefit Plan, or the establishment of any new Canadian Pension Plan or Canadian benefit Plan, or the commencement of contributions to any such plan to which any Credit Party was not previously contributing.

5.11                           Further Assurances.  Each Credit Party executing this Agreement agrees that it shall and shall cause each other Credit Party to, at such Credit Party’s expense and upon request of Agent, duly execute and deliver, or cause to be duly executed and delivered, to Agent such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Agent to carry out more effectively the provisions and purposes of this Agreement or any other Loan Document.

6.                                      NEGATIVE COVENANTS

Each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties that from and after the date hereof until the Termination Date:

6.1                                 Mergers, Subsidiaries, Etc.  No Credit Party shall directly or indirectly, by operation of law or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate with, acquire all or substantially all of the assets or Stock of, or otherwise combine with or acquire, any Person.

6.2                                 Investments; Loans and Advances.  Except as otherwise expressly permitted by this Section 6, no Credit Party shall make or permit to exist any investment in, or make, accrue or permit to exist loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except that: (a) Borrower and AET Canada may hold investments comprised of notes payable, or stock or other securities issued by Account Debtors to Borrower or AET Canada, as applicable pursuant to negotiated agreements with respect to settlement of such Account Debtor’s Accounts (which are not Eligible Accounts) in the ordinary course of business, so long as the aggregate amount of such Accounts so settled

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by Borrower and AET Canada do not exceed $1,000,000 in any Fiscal Year; and (b) each Credit Party may maintain its existing investments in its Subsidiaries as of the Closing Date; and (c) so long as no Default or Event of Default has occurred and is continuing AET Canada may, with respect to any amounts permitted to remain on deposit in the AET Canada Account as set forth in Annex C, make investments, subject to Control Letters in favor of Agent for the benefit of Lenders or otherwise subject to a first priority perfected security interest in favor of Agent for the benefit of Lenders, in (i) marketable direct obligations issued or unconditionally guaranteed by the United States of America or any agency thereof maturing within one year from the date of acquisition thereof, (ii) commercial paper maturing no more than one year from the date of creation thereof and currently having the highest rating obtainable from either Standard & Poor’s Ratings Group or ▇▇▇▇▇’▇ Investors Service, Inc., (iii) certificates of deposit maturing no more than one year from the date of creation thereof issued by commercial banks incorporated under the laws of the United States of America, each having combined capital, surplus and undivided profits of not less than $300,000,000 and having a senior unsecured rating of “A” or better by a nationally recognized rating agency (an “A Rated Bank”), (iv) time deposits maturing no more than thirty (30) days from the date of creation thereof with A Rated Banks and (v) mutual funds that invest solely in one or more of the investments described in clauses (i) through (iv) above.

6.3                                 Indebtedness.

(a)                                  No Credit Party shall create, incur, assume or permit to exist any Indebtedness, except (without duplication) (i) Indebtedness secured by purchase money security interests and Capital Leases permitted in Section 6.7(c), (ii) the Loans and the other Obligations, (iii) unfunded pension fund and other employee benefit plan obligations and liabilities to the extent they are permitted to remain unfunded under applicable law, (iv) the Senior Notes, (v) existing Indebtedness described in Disclosure Schedule (6.3) and refinancings thereof or amendments or modifications thereto that do not have the effect of increasing the principal amount thereof or changing the amortization thereof (other than to extend the same) and that are otherwise on terms and conditions no less favorable (taken as a whole) to any Credit Party, Agent or any Lender, as reasonably determined by Agent, than the terms of the Indebtedness being refinanced, amended or modified, (vi) Indebtedness consisting of intercompany loans and advances made by Borrower to AET Canada and by AET Canada to Borrower; provided, that: (A) each such Credit Party shall have executed and delivered to each other such Credit Party, on the Closing Date, a demand note (the “Intercompany Note”) to evidence any such intercompany Indebtedness owing at any time by each such Credit Party to such other Credit Party which Intercompany Note shall be in form and substance reasonably satisfactory to Agent and shall be pledged and delivered to Agent pursuant to the applicable Pledge Agreement or Security Agreement as additional collateral security for the Obligations; (B) each such Credit Party shall record all intercompany transactions on its books and records in a manner reasonably satisfactory to Agent; (C) the obligations of each such Credit Party under the Intercompany Notes shall be subordinated to its Obligations hereunder in a manner reasonably satisfactory to Agent; (D) no Default or Event of Default would occur and be continuing after giving effect to any such proposed intercompany loan; and (E) with respect to intercompany loans and advances made by Borrower to AET Canada: (1) Borrower shall have Borrowing Availability of at least $5,000,000 after giving effect to any such loan or advance; and (2) the aggregate amount of all Indebtedness, together with all intercompany payables, owing by AET Canada to Borrower shall not exceed $80,000,000 at any one time outstanding; (vii) unsecured Indebtedness of AET Canada to

▇▇

▇▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in an aggregate principal amount not exceeding CDN$3,000,000 at any one time outstanding, provided that (x) such Indebtedness is unsecured and contains no covenant or event of default the effect of which is to impose a restriction, limitation or obligation in favor of the lender not imposed in favor of the Lenders hereunder and (y) payments with respect to the principal thereof or interest thereon are not required prior to the third anniversary of the date of incurrence thereof; and (viii) Indebtedness permitted under Section 6.17.

(b)                                 No Credit Party shall, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Indebtedness, other than (i) the Obligations; (ii) Indebtedness secured by a Permitted Encumbrance if the asset securing such Indebtedness has been sold or otherwise disposed of in accordance with Sections 6.8(b) or (c); (iii) Indebtedness permitted by Section 6.3(a)(v) upon any refinancing thereof in accordance with Section 6.3(a)(v); (iv) the Senior Notes to the extent permitted in Section 6.14; and (v) as otherwise permitted in Section 6.14.

6.4                                 Employee Loans and Affiliate Transactions.

(a)                                  Except as set forth on Disclosure Schedule 6.4(a) and except as expressly permitted in this Section 6 with respect to Affiliates, no Credit Party shall enter into or be a party to any transaction with any other Credit Party or any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of such Credit Party’s business and upon fair and reasonable terms that are no less favorable to such Credit Party than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of such Credit Party.  In addition, if any such transaction or series of related transactions involves payments in excess of $1,000,000 in the aggregate, the terms of these transactions must be disclosed in advance to Agent and Lenders.  All such transactions existing as of the date hereof are described in Disclosure Schedule (6.4(a)).

(b)                                 No Credit Party shall enter into any lending or borrowing transaction with any employees of any Credit Party, except loans to its respective employees in the ordinary course of business consistent with past practices for travel and entertainment expenses, relocation costs and similar purposes up to a maximum of $250,000 to any employee and up to a maximum of $1,000,000 in the aggregate at any one time outstanding.

6.5                                 Capital Structure and Business.  No Credit Party shall (a) make any changes in any of its business objectives, purposes or operations that could in any way adversely affect the repayment of the Loans or any of the other Obligations or could reasonably be expected to have or result in a Material Adverse Effect, (b) make any change in its capital structure as described in Disclosure Schedule (3.8), including the issuance or sale of any shares of Stock, warrants or other securities convertible into Stock or any revision of the terms of its outstanding Stock; provided, that Borrower may issue or sell shares of its Stock for cash so long as (i) the proceeds thereof are applied in prepayment of the Obligations as required by Section 1.3(b)(iii), and (ii) no Change of Control occurs after giving effect thereto, or (c) amend its charter or bylaws in a manner that would adversely affect Agent or Lenders or such Credit Party’s duty or ability to repay the Obligations.  No Credit Party shall engage in any business other than the businesses currently engaged in by it and those reasonably related thereto.

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6.6                                 Guaranteed Indebtedness.  No Credit Party shall create, incur, assume or permit to exist any Guaranteed Indebtedness except (a) by endorsement of instruments or items of payment for deposit to the general account of any Credit Party, and (b) for Guaranteed Indebtedness incurred for the benefit of any other Credit Party if the primary Indebtedness or other obligation (other than Indebtedness permitted under Sections 6.3(a)(vi) and (vii)) is expressly permitted by this Agreement.

6.7                                 Liens.  No Credit Party shall create, incur, assume or permit to exist any Lien on or with respect to its Accounts or any of its other properties or assets (whether now owned or hereafter acquired) except for (a) Permitted Encumbrances;  (b) Liens in existence on the date hereof and summarized on Disclosure Schedule (6.7) including those Liens securing the Indebtedness described on Disclosure Schedule (6.3), if any, and permitted refinancings, extensions and renewals thereof, including extensions or renewals of any such Liens; provided, that the principal amount of the Indebtedness so secured is not increased and the Lien does not attach to any other property; and (c) Liens created after the date hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to Equipment and Fixtures acquired by any Credit Party in the ordinary course of business, involving the incurrence of an aggregate amount of purchase money Indebtedness and Capital Lease Obligations of not more than $2,000,000 outstanding at any one time for all such Liens (provided, that such Liens attach only to the assets subject to such purchase money debt and such Indebtedness is incurred within twenty (20) days following such purchase and does not exceed 100% of the purchase price of the subject assets).  In addition, no Credit Party shall become a party to any agreement, note, indenture or instrument, or take any other action, that would prohibit the creation of a Lien on any of its properties or other assets in favor of Agent, on behalf of itself and Lenders, as additional collateral for the Obligations, except operating leases, purchase money Indebtedness, Capital Leases or Licenses which prohibit Liens upon the assets that are subject thereto.  The prohibition provided for in this Section 6.7 specifically includes, without limitation, any effort by Borrower or any other Credit Party (whether alone or by providing assistance or other support to any other party-in-interest in the Chapter 11 Cases) to prime or create pari passu to any claims or interests of Lenders any Lien (other than for the Carve-Out Expenses up to the Carve-Out Amount) irrespective of whether such claims or interest may be “ adequately protected.”

6.8                                 Sale of Stock and Assets.  No Credit Party shall sell, transfer, convey, assign or otherwise dispose of any of its properties or other assets, including the Stock of any of its Subsidiaries (whether in a public or a private offering or otherwise) or any of its Accounts, other than (a) the sale of Inventory in the ordinary course of business and the transfer of inventory in the ordinary course of business between Borrower and AET Canada; (b) the sale, transfer, conveyance or other disposition by a Credit Party of Equipment or Fixtures that are obsolete or no longer used or useful in such Credit Party’s business and having a book value not exceeding $1,000,000 in any single transaction or $2,000,000 in the aggregate in any Fiscal Year; (c) other Equipment and Fixtures having a value not exceeding $1,000,000 in any single transaction or $2,000,000 in the aggregate in any Fiscal Year; and (d) the making and repayment of intercompany loans and advances permitted under Section 6.3(a)(vi).  With respect to any disposition of assets or other properties permitted pursuant to clauses (b) and (c) above, subject to Section 1.3(b), Agent agrees on reasonable prior written notice to release its Lien on such assets or other properties in order to permit the applicable Credit Party to effect such disposition

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and shall execute and deliver to Borrower, at Borrower’s expense, appropriate UCC-3 termination statements and other releases as reasonably requested by Borrower.

6.9                                 ERISA.  No Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause or permit to occur an event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or cause or permit to occur an ERISA Event to the extent such ERISA Event could reasonably be expected to have a Material Adverse Effect.

6.10                           Financial Covenants.  Borrower shall not breach or fail to comply with any of the Financial Covenants.

6.11                           Hazardous Materials.  No Credit Party shall cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of the Real Estate where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any of the Real Estate or any of the Collateral, other than such violations or Environmental Liabilities that could not reasonably be expected to have a Material Adverse Effect.

6.12                           Sale-Leasebacks.  No Credit Party shall engage in any sale-leaseback, synthetic lease or similar transaction involving any of its assets.

6.13                           Cancellation of Indebtedness.  No Credit Party shall cancel any claim or debt owing to it, except for reasonable consideration negotiated on an arm’s length basis and in the ordinary course of its business consistent with past practices.

6.14                           Restricted Payments; Employee Benefit Plan Contributions.  No Credit Party shall make any Restricted Payment, except (a) intercompany loans and advances between Credit Parties to the extent permitted by Section 6.3 and any payments in respect thereof; (b) dividends and distributions by Subsidiaries of Borrower paid to Borrower, (c) employee loans permitted under Section 6.4(b); and (d) payments of principal and interest of Intercompany Notes issued in accordance with Section 6.3.  No Credit Party shall make any payments or other contributions to any grantor trusts (also known as rabbi trusts) associated with any Nonqualified Benefit Plans (or directly to participants in such Plans) to the extent the amount of such payment or other contribution would exceed the expense that such Credit Party recognizes with respect to a Nonqualified Benefit Plan or Plans and deducts as a current expense in determining net income of such Credit Party in accordance with GAAP for the period in which such payment or other contribution is made; provided, that nothing in this sentence shall prevent an existing grantor trust associated with one or more Nonqualified Plans from making benefit payments to beneficiaries in accordance with the terms of such trust, as in effect on the Closing Date.

6.15                           Change of Corporate Name or Location; Change of Fiscal Year.  No Credit Party shall (a) change its name as it appears in official filings in the state of its incorporation or other organization, (b) change its chief executive office, principal place of business, corporate offices or warehouses or locations (other than third party converter or processor locations) at which Collateral is held or stored, or the location of its records concerning

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the Collateral, (c) change the type of entity that it is, (d) change its organization identification number, if any, issued by its state of incorporation or other organization, or (e) change its state of incorporation or organization, in each case, without at least thirty (30) days prior written notice to Agent and after Agent’s written acknowledgment that any reasonable action requested by Agent in connection therewith, including to continue the perfection of any Liens in favor of Agent, on behalf of Lenders, in any Collateral, has been completed or taken, and provided, that any such new location shall be in the continental United States.  No Credit Party shall change its Fiscal Year.

6.16                           No Impairment of Intercompany Transfers.  No Credit Party shall directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) that could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions or the making or repayment of intercompany loans by a Subsidiary of Borrower to Borrower.

6.17                           No Speculative Transactions.  No Credit Party shall engage in any transaction involving commodity options, futures contracts or similar transactions, except solely to hedge against fluctuations in the prices of commodities owned or purchased by it and the values of foreign currencies receivable or payable by it and interest swaps, caps or collars.

6.18                           Changes Relating to Subordinated Debt, Material Contracts.  No Credit Party shall change or amend the terms of any Subordinated Debt or any Material Contract (other than immaterial amendments and waivers as consented in writing to by the Agent).  No Credit Party shall change or amend the terms of any early payment provisions of any Nonqualified Benefit Plans without the prior written consent of the Agent.

6.19                           AET Limited.  Borrower shall cause AET Limited to not engage in any trade or business, or own or hold any assets (other than, for a period of 60 days following the Closing Date, the bank account referenced in Annex C and cash on deposit therein in an amount not exceeding $50,000 at any time), or incur any Indebtedness or Guaranteed Indebtedness or other material liabilities.

6.20                           Repayment of Indebtedness.  Except pursuant to a confirmed reorganization plan and except as specifically permitted hereunder, Borrower shall not, without the express prior written consent of Lenders or pursuant to an order of the Bankruptcy Court after notice and hearing, make any payment or transfer with respect to any Lien or Indebtedness incurred or arising prior to the filing of the Chapter 11 Cases that is subject to the automatic stay provisions of the Bankruptcy Code whether by way of “adequate protection” under the Bankruptcy Code or otherwise.

6.21                           Reclamation Claims.  No Credit Party shall enter into any agreement to return any of its Inventory to any of its creditors for application against any Prepetition Indebtedness, Prepetition trade payables or other Prepetition claims under Section 546(g) of the Bankruptcy Code or allow any creditor to take any setoff or recoupment against any of its Prepetition Indebtedness, Prepetition trade payables or other Prepetition claims based upon any such return pursuant to Section 553(b)(1) of the Bankruptcy Code or otherwise if, after giving

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effect to any such agreement, setoff or recoupment, the aggregate amount of Prepetition Indebtedness, Prepetition trade payables and other Prepetition claims subject to all such agreements, setoffs and recoupments since the Petition Date would exceed $5,000,000. Subject to the foregoing limitation, the Borrower shall be permitted to make payments in respect of Prepetition trade payables that are in the ordinary course of business so long as such payments are approved by the Bankruptcy Court.

7.                                      TERM

7.1                                 Termination.  The financing arrangements contemplated hereby shall be in effect until the Commitment Termination Date, and the Loans and all other Obligations shall be automatically due and payable in full on such date.

7.2                                 Survival of Obligations Upon Termination of Financing Arrangements.  Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of the Credit Parties or the rights of Agent and Lenders relating to any unpaid portion of the Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated, or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Commitment Termination Date.  Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon the Credit Parties, and all rights of Agent and each Lender, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the provisions of Section 11, the payment obligations under Sections 1.15 and 1.16, and the indemnities contained in the Loan Documents shall survive the Termination Date.

8.                                      EVENTS OF DEFAULT; RIGHTS AND REMEDIES

8.1                                 Events of Default.  Notwithstanding the provisions of Section 362 of the Bankruptcy Code and without application or motion to the Bankruptcy Court or any notice to any Credit Party, and subject to Section 8.2(b), the occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an “Event of Default” hereunder: