-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A4YZt7pV63cVXcIICz+VdAA0T/wTC5yodtbt0rCDsgJIBw5f5zY8K0oSvKYNHhj4 TxCoNgk6HyN/jiPNmD8ArQ== 0000950135-04-004035.txt : 20040816 0000950135-04-004035.hdr.sgml : 20040816 20040816133206 ACCESSION NUMBER: 0000950135-04-004035 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 24 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSCAN HOLDINGS INC CENTRAL INDEX KEY: 0001024729 STANDARD INDUSTRIAL CLASSIFICATION: PAPERBOARD CONTAINERS & BOXES [2650] IRS NUMBER: 133911462 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-14107 FILM NUMBER: 04977501 BUSINESS ADDRESS: STREET 1: 80 GRASSLANDS ROAD CITY: ELMSFORD STATE: NY ZIP: 10523 BUSINESS PHONE: 9143452020 MAIL ADDRESS: STREET 1: 80 GRASSLANDS ROAD CITY: ELMSFORD STATE: NY ZIP: 10523 10-Q 1 b51510ase10vq.txt AMSCAN HOLDINGS, INC. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 F O R M 10 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2004 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________________ to ____________________ Commission File Number 000-21827 AMSCAN HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 13-3911462 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 80 Grasslands Road Elmsford, New York 10523 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (914) 345-2020 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X As of August 12, 2004, 1,000.00 shares of Registrant's common stock, par value $0.10, were outstanding. AMSCAN HOLDINGS, INC. FORM 10-Q JUNE 30, 2004 TABLE OF CONTENTS
PART I PAGE ---- ITEM 1 FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheets at June 30, 2004 and December 31, 2003.......................... 3 Consolidated Statements of Operations for the One Month Ended April 30, 2004 (Predecessor), Two Months Ended June 30, 2004 (Successor), Three Months Ended June 30, 2003(Predecessor), Four Months Ended April 30, 2004 (Predecessor) and Six Months Ended June 30, 2003 (Predecessor)..................... 4 Consolidated Statements of Stockholders' (Deficit) Equity for the Four Months Ended April 30, 2004 (Predecessor) and Two Months Ended June 30, 2004 (Successor) ......................................................................... 6 Consolidated Statements of Cash Flows for the Four Months Ended April 30, 2004 (Predecessor), Two Months Ended June 30, 2004 (Successor) and Six Months Ended June 30, 2003 (Predecessor)............................................. 7 Notes to Consolidated Financial Statements.................................................. 9 ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................ 29 ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................................. 35 ITEM 4 CONTROLS AND PROCEDURES..................................................................... 36 PART II ITEM 2 CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES............................................................................... 37 ITEM 4 SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................ 37 ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K............................................................ 37 SIGNATURE ............................................................................................... 40
2 AMSCAN HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
JUNE 30, DECEMBER 31, 2004 2003 --------- --------- (Successor) (Predecessor) (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents .................................................... $ 1,306 $ 31,462 Accounts receivable, net of allowances ....................................... 81,633 75,682 Inventories, net of allowances ............................................... 82,333 85,137 Prepaid expenses and other current assets .................................... 17,103 9,730 --------- --------- Total current assets .................................................... 182,375 202,011 Property, plant and equipment, net ............................................... 100,352 96,494 Goodwill, net .................................................................... 313,097 71,986 Other assets, net ................................................................ 19,167 11,611 --------- --------- Total assets ............................................................ $ 614,991 $ 382,102 ========= ========= LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON SECURITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Loans and notes payable ...................................................... $ 11,590 $ -- Accounts payable ............................................................. 26,274 34,916 Accrued expenses ............................................................. 21,697 20,121 Income taxes payable ......................................................... 339 3,178 Current portion of long-term obligations ..................................... 2,909 23,237 --------- --------- Total current liabilities ............................................... 62,809 81,452 Long-term obligations, excluding current portion ................................. 386,283 272,272 Deferred income tax liabilities .................................................. 21,782 18,040 Other ............................................................................ 2,423 2,414 --------- --------- Total liabilities ....................................................... 473,297 374,178 Redeemable convertible preferred stock ($0.10 par value; 100.00 shares authorized; 44.94 shares issued and outstanding at December 31, 2003) ............................................ 7,045 Redeemable common securities ..................................................... 3,660 9,498 Commitments and Contingencies Stockholders' equity (deficit): Preferred Stock ($0.01 par value; 10,000.00 shares authorized; none issued and outstanding at June 30, 2004) .............................................. -- Common Stock ($0.01 par value; 40,000.00 shares authorized; 13,957.88 shares issued and outstanding at June 30, 2004) ................................... -- Common Stock ($0.10 par value; 3,000.00 shares authorized; 1,217.92 shares issued and outstanding at December 31, 2003) ...................... -- Additional paid-in capital ................................................... 136,819 26,682 Unamortized restricted Common Stock award .................................... (155) Notes receivable from stockholders ........................................... (680) Retained earnings (deficit) .................................................. 702 (34,020) Accumulated other comprehensive income (loss) ................................ 513 (446) --------- --------- Total stockholders' equity (deficit) .................................... 138,034 (8,619) --------- --------- Total liabilities, redeemable convertible preferred stock and common securities and stockholders' equity (deficit) ........................ $ 614,991 $ 382,102 ========= =========
Note: The balance sheet at December 31, 2003 has been derived from the audited consolidated financial statements of the Predecessor at that date (See Note 2). See accompanying notes to consolidated financial statements. 3 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS IN THOUSANDS) (UNAUDITED)
ONE MONTH TWO MONTHS THREE MONTHS ENDED ENDED ENDED APRIL 30, 2004 JUNE 30, 2004 JUNE 30, 2003 --------- --------- --------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) Net sales .................................. $ 33,135 $ 63,181 $ 100,996 Cost of sales .............................. 22,166 43,424 68,950 --------- --------- --------- Gross profit ......................... 10,969 19,757 32,046 Operating expenses: Selling expenses ........................ 3,128 5,948 8,974 General and administrative expenses ..... 2,557 5,452 7,927 Art and development costs ............... 899 1,769 2,286 Provision for doubtful accounts ......... 188 326 1,385 Non-recurring expenses related to the Transactions (see Note 2) ............ 11,757 Restructuring charges ................... 458 --------- --------- --------- Total operating expenses ............. 18,529 13,495 21,030 --------- --------- --------- (Loss) income from operations ........ (7,560) 6,262 11,016 Interest expense, net ...................... 2,023 4,760 6,552 Undistributed loss in unconsolidated joint venture ................................ 56 312 Other income, net .......................... (10) (11) (39) --------- --------- --------- (Loss) income before income taxes and minority interests ................. (9,629) 1,201 4,503 Income tax (benefit) expense ............... (3,803) 474 1,778 Minority interests ......................... 3 25 19 --------- --------- --------- Net (loss) income .................... (5,829) 702 2,706 Dividend on redeemable convertible preferred stock .................. 34 101 --------- --------- --------- Net (loss) income applicable to common stock ...................... $ (5,863) $ 702 $ 2,605 ========= ========= =========
See accompanying notes to consolidated financial statements. 4 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED)
FOUR MONTHS ENDED TWO MONTHS ENDED SIX MONTHS ENDED APRIL 30, 2004 JUNE 30, 2004 JUNE 30, 2003 --------- --------- --------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) Net sales ........................................ $ 133,660 $ 63,181 $ 200,840 Cost of sales .................................... 88,247 43,424 135,919 --------- --------- --------- Gross profit ............................... 45,413 19,757 64,921 Operating expenses: Selling expenses .............................. 12,430 5,948 18,116 General and administrative expenses ........... 10,145 5,452 15,829 Art and development costs ..................... 3,332 1,769 4,823 Provision for doubtful accounts ............... 729 326 1,989 Non-recurring expenses related to the Transactions (see Note 2) .................... 11,757 Restructuring charges ......................... 774 --------- --------- --------- Total operating expenses ................... 38,393 13,495 41,531 --------- --------- --------- (Loss) income from operations .............. 7,020 6,262 23,390 Interest expense, net ............................ 8,384 4,760 13,196 Undistributed loss in unconsolidated joint venture 89 312 Other income, net ................................ (58) (11) (57) --------- --------- --------- (Loss) income before income taxes and minority interests ....................... (1,395) 1,201 10,251 Income tax (benefit) expense ..................... (551) 474 4,049 Minority interests ............................... 46 25 34 --------- --------- --------- Net (loss) income .......................... (890) 702 6,168 Dividend on redeemable convertible preferred stock ........................ 136 197 --------- --------- --------- Net (loss) income applicable to common stock .................................... $ (1,026) $ 702 $ 5,971 ========= ========= =========
See accompanying notes to consolidated financial statements. 5 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY FOUR MONTHS ENDED APRIL 30, 2004 AND TWO MONTHS ENDED JUNE 30, 2004 (DOLLARS IN THOUSANDS) (UNAUDITED)
ACCUMULATED OTHER UNAMORTIZED NOTES COMPRE- ADDITIONAL RESTRICTED RECEIVABLE RETAINED HENSIVE COMMON COMMON PAID-IN COMMON STOCK FROM EARNINGS (LOSS) SHARES STOCK CAPITAL AWARD STOCKHOLDERS (DEFICIT) INCOME TOTAL -------- --------- --------- --------- --------- --------- --------- --------- PREDECESSOR Balance at December 31, 2003 ......... 1,217.92 $ - $ 26,682 $ (155) $ (680) $ (34,020) $ (446) $ (8,619) Net loss ........................... (890) (890) Net change in cumulative translation adjustment ............ (673) (673) Change in fair value of available-for-sale securities, net of income taxes ............... (22) (22) Reclassification adjustment for available-for-sale securities sold during the period, net of income taxes .............................. (28) (28) Reclassification adjustment for interest rate swap contract terminated in connection with the Transactions, net of income taxes .. 408 408 Change in fair value of interest rate swap and foreign exchange contracts, net of income taxes ..... 306 306 --------- Comprehensive loss ......... (899) Amortization of restricted Common Stock award ........................ 52 52 Redeemable convertible preferred stock dividend ..................... (136) (136) Repayment of note receivable from stockholder ........................ 25 25 Accretion of interest income ......... (14) (14) -------- --------- --------- --------- --------- --------- --------- --------- Balance at April 30, 2004 ............. 1,217.92 $ - $ 26,546 $ (103) $ (669) $ (34,910) $ (455) $ (9,591) ======== ========= ========= ========= ========= ========= ========= ========= SUCCESSOR Net income .......................... $ 702 $ 702 Net change in cumulative translation adjustment ............. $ 521 521 Change in fair value of interest rate swap and foreign exchange contracts, net of income taxes ..... (8) (8) --------- Comprehensive income ....... 1,215 Issuance of shares of Common Stock in connection with the Transactions ....................... 13,957.88 $ 140,479 140,479 Reclassification of common securities to Redeemable common securities .... (3,660) (3,660) -------- --------- --------- --------- --------- --------- --------- --------- Balance at June 30, 2004 .............. 13,957.88 $ - $ 136,819 $ - $ - $ 702 $ 513 $ 138,034 ======== ========= ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. 6 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS) (UNAUDITED)
FOUR MONTHS ENDED TWO MONTHS ENDED SIX MONTHS ENDED APRIL 30, 2004 JUNE 30, 2004 JUNE 30, 2003 --------- --------- --------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) Cash flows provided by operating activities: Net (loss) income .......................................... $ (890) $ 702 $ 6,168 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization expense ................... 5,296 2,767 8,156 Amortization of deferred financing costs ................ 709 262 1,011 Amortization of restricted Common Stock awards .......... 52 90 Provision for doubtful accounts ......................... 729 326 1,989 Deferred income tax (benefit) expense ................... (58) (484) 1,757 Gain on sale of available-for-sale securities ........ (47) (Gain) loss on disposal of equipment .................. (35) 109 Write-off of deferred financing costs in connection with the Transactions ........................................ 5,548 Debt retirement costs incurred in connection with the Transactions .......................................... 6,209 Non-cash restructuring charges .......................... 104 Undistributed loss in unconsolidated joint venture ...... 89 312 Changes in operating assets and liabilities: (Increase) decrease in accounts receivable ............ (15,247) 8,746 (6,456) Decrease (increase) in inventories .................... 6,229 (768) 4,530 Increase in prepaid expenses and other current assets . (3,593) (437) (704) Increase (decrease) in accounts payable, accrued expenses and income taxes payable .................... 3,991 (6,397) (7,597) Other, net ............................................... 430 (13) (374) --------- --------- --------- Net cash provided by operating activities ............ 9,412 5,016 8,783 Cash flows used in investing activities: Cash paid to consummate the Transactions ................... (529,982) Capital expenditures ....................................... (3,726) (1,056) (7,560) Proceeds from sale of available-for-sale securities ....... 65 Proceeds from disposal of property and equipment ........... 53 1 86 --------- --------- --------- Net cash used in investing activities ................... (3,608) (531,037) (7,474) Cash flows (used in) provided by financing activities: Proceeds from loans, notes payable and long-term obligations, net of debt issuance costs of $12,668 ...... 378,922 Repayment of loans, notes payable and long-term obligations (21,251) (224) (1,862) Capital contributions in connection with the Transactions . 138,979 Debt retirement costs paid in connection with the Transactions ............................................ (6,209) Proceeds from exercise of stock options .................... 831 Purchase of Common Stock from officer ...................... (2,115) Repayment of note receivable from stockholder and officer .. 25 1,588 --------- --------- --------- Net cash (used in) provided by financing activities ..... (27,435) 517,677 (1,558) Effect of exchange rate changes on cash and cash equivalents .. (594) 413 956 --------- --------- --------- Net (decrease) increase in cash and cash equivalents .... (22,225) (7,931) 707 Cash and cash equivalents at beginning of period .............. 31,462 9,237 2,400 --------- --------- --------- Cash and cash equivalents at end of period .................... $ 9,237 $ 1,306 $ 3,107 ========= ========= ========= Supplemental Disclosures: Interest paid ........................................... $ 6,531 $ 4,695 $ 11,145 Income taxes paid ..................................... $ 1,002 $ 635 $ 3,364
See accompanying notes to consolidated financial statements. 7 AMSCAN HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (DOLLARS IN THOUSANDS) (UNAUDITED) Supplemental information on noncash activities: In connection with the Transactions (see Note 2), certain officers of the Company exchanged 8.2417 of their shares of common stock of the Predecessor Company for 150 shares of common stock of the Successor Company with an equivalent value of $1,500. In addition, the aforementioned officers exchanged their vested options to purchase 8.411 shares of Predecessor (as defined hereafter) Company common stock, which had an intrinsic value of $900, for vested options under the Successor (as defined hereafter) Company equity incentive plan with an intrinsic value of $737 and a fair value of $880. 8 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - DESCRIPTION OF BUSINESS Amscan Holdings, Inc. ("Amscan Holdings" and, together with its subsidiaries, "Amscan," "AHI" or the "Company") designs, manufactures, contracts for manufacture and distributes party goods, including metallic balloons, gifts and stationery, principally in North America, South America, Europe, Asia and Australia. NOTE 2 - THE TRANSACTIONS On March 26, 2004, Amscan signed an agreement providing for a merger of Amscan with AAH Acquisition Corporation, or AAH Acquisition, a wholly-owned subsidiary of AAH Holdings Corporation, or AAH Holdings, an entity jointly controlled by funds affiliated with Berkshire Partners LLC and Weston Presidio (together the "Principal Investors"). On April 30, 2004, the merger with AAH Acquisition was consummated, with Amscan continuing as the surviving entity and as a wholly owned subsidiary of AAH Holdings. Under the terms of the agreement, the equity interests in Amscan of GS Capital Partners II, L.P. and certain other private investment funds managed by Goldman, Sachs & Co., which are collectively referred to as GSCP, and all other stockholders, other than certain management investors, were cancelled in exchange for the right to receive cash. Cash paid to consummate the acquisition totaled $529,982,000 and was financed with initial borrowings (before deducting deferred financing costs of $12,668,000) consisting of a $205,000,000 term loan under a new senior secured credit facility which includes a $50,000,000 revolving loan facility, the proceeds from the issuance of $175,000,000 of 8.75% senior subordinated notes due 2014, the equity contribution, including the Principal Investors and employee stockholders, of $140,479,000, borrowings under the revolver of $23,551,000 and available cash on hand. Certain existing management shareholders participated in the Transactions (as defined hereafter) by purchasing approximately 292.41 shares of common stock. The capital structure disclosed in the Successor financial statements is the equity structure of AAH Holdings in order to reflect the ultimate beneficial ownership of the Successor. The Chief Executive Officer and the President of the Company exchanged 5.4945 and 2.7472 of their shares of common stock of the Predecessor Company for 100 and 50 shares of common stock of the Successor Company with an equivalent value of $1,000,000 and $500,000, respectively. In addition, the Chief Executive Officer and President of the Company exchanged vested options to purchase 5.607 and 2.804 shares of Predecessor Company common stock, which had intrinsic values of $600,000 and $300,000, respectively, for vested options under the Successor Company's equity incentive plan with intrinsic values of $492,000 and $245,000 and fair values of $590,000 and $290,000, respectively. The acquisition has been accounted for under the purchase method of accounting, and required that the Company adjust its assets and liabilities to their relative fair values. The purchase price has been allocated based upon preliminary estimates of the fair value of net assets acquired at the date of acquisition. The final allocations will be based on studies and valuations that have not yet been completed and will be subject to change in future periods. The excess of the purchase price over tangible net assets acquired has been allocated to intangible assets consisting of licensing agreements in the amount of $3,000,000, which are being amortized using the straight-line method over the lives of the contracts (two to three years with an average life of 2.5 years), and goodwill in the amount of $313,097,000, which is not being amortized. The acquisition was structured as a purchase of common stock and, accordingly, the amortization of intangible assets is not deductible for income tax purposes. Concurrent with the acquisition, the following financing transactions were also consummated: the repayment of $147,724,000 under our then existing senior secured credit facility and the termination of all commitments under that facility; the consummation of our tender offer and consent solicitation for $87,200,000 of the $110,000,000 aggregate principal amount outstanding of our 9.875% senior subordinated notes due 2007 for $93,500,000 or 103.542% of the principal amount of such notes plus accrued and unpaid interest and the redemption of the remaining senior subordinated notes for $23,551,000 or 103.292% of the principal amount of such notes plus accrued and unpaid interest; and repayment of an $8,500,000 mortgage obligation with a financial institution (the acquisition together with the foregoing financing transactions are referred to herein collectively as the "Transactions"). 9 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) On May 31, 2004, the remaining outstanding 9.875% senior subordinated notes due 2007 were redeemed pursuant to the redemption notice. The Company financed the redemption with borrowings under its new revolving credit facility. The Company's new term loan provides for amortization (in quarterly installments) of 1.0% per annum through June 30, 2010, and will then amortize in equal quarterly payments through June 30, 2012. The new term loan bears interest, at the option of the Company, at the index rate plus 1.75% per annum or at LIBOR plus 2.75% per annum. At June 30, 2004, the new term loan was $205,000,000 and the floating interest rate on the new term loan was 3.96%. The Company entered into an interest rate swap transaction on June 25, 2004 with a financial institution initially covering $10,500,000 of its outstanding borrowings under the new term loan. The notional amount, ranging from $10,500,000 to $37,000,000, will vary over time and is covered by an interest rate swap contract. Revolving loans under the new senior credit facility expire on April 30, 2010 and bear interest, at the option of the Company, at the index rate plus, based on performance, a margin ranging from 0.75% to 1.50% per annum, or at LIBOR plus, based on performance, a margin ranging from 1.75% to 2.50% per annum. At June 30, 2004, the Company had borrowings under the Revolver totaling $11,590,000 and the floating interest rate on the Revolver was 4.51% at June 30, 2004. Our new senior secured credit facility contains financial covenants and maintenance tests, including a minimum interest coverage test and a maximum total leverage test, and restrictive covenants, including restrictions on our ability to make capital expenditures or pay dividends. Our new senior secured credit facility is secured by substantially all of our assets and the assets of some of our subsidiaries, and by a pledge of all of our domestic subsidiaries' capital stock and a portion of our wholly owned foreign subsidiaries' capital stock. In connection with the Transactions, the Company has recorded non-recurring expenses of $11,757,000 comprised of $6,209,000 of debt retirement costs and the write-off of $5,548,000 of deferred financing costs associated with the repayment of debt in connection with the Transactions. The following unaudited pro forma information assumes the Transactions had occurred on January 1, 2004 and 2003, respectively. The pro forma information, as presented below, is not necessarily indicative of the results that would have been obtained had the Transactions occurred on January 1, 2004 and 2003, nor is it necessarily indicative of the Company's future results (dollars in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 2004 2003 2004 2003 -------- -------- -------- -------- Net sales $ 96,316 $100,996 $196,841 $200,840 Net income 2,534 2,240 7,070 5,238
The pro forma net income amounts reflect the following items: (i) adjustments for interest expense from new borrowings related to the Transactions and the elimination of historical interest on debt repaid in the Transactions, (ii) management fees to be paid to our Principal Investors, (iii) the elimination of non-recurring expenses related to the Transactions, (iv) the elimination of the increase in cost of sales in 2004 as a result of the increased valuation of inventories as a result of a purchase price allocation, (v) additional depreciation expense as a result of the write-up of property, plant and equipment and amortization of other intangible assets, as a result of a preliminary purchase price allocation , and (vi) the related income tax effects of the above items based upon a pro forma effective income tax rate of 39.5%. 10 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) NOTE 3 - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements for the periods prior to May 1, 2004 (the "Predecessor") and for the period subsequent to April 30, 2004 (the "Successor") include the accounts of Amscan Holdings and its majority-owned and controlled entities. All material intercompany balances and transactions have been eliminated in consolidation. The unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the two months ended June 30, 2004 and four months ended April 30, 2004 are not necessarily indicative of the results to be expected for the twelve months ending December 31, 2004. The results of operations may be affected by seasonal factors such as the timing of holidays or industry factors that may be specific to a particular period, such as movement in and the general level of raw material costs. For further information, see the consolidated financial statements and notes thereto included in Amscan Holdings' Annual Report on Form 10-K for the year ended December 31, 2003 as filed with the Securities and Exchange Commission. NOTE 4 - INVENTORIES Inventories consisted of the following (dollars in thousands):
JUNE 30, DECEMBER 31, 2004 2003 -------- -------- (Successor) (Predecessor) Finished goods ..................................... $ 66,791 $ 74,258 Raw materials ...................................... 9,717 8,842 Work-in-process .................................... 5,971 4,762 -------- -------- 82,479 87,862 Less: reserve for slow moving and obsolete inventory (146) (2,725) -------- -------- $ 82,333 $ 85,137 ======== ========
Inventories are valued at the lower of cost, determined on a first-in, first-out basis, or market. NOTE 5 - INCOME TAXES The consolidated income tax expense for the one and four months ended April 30, 2004, the two months ended June 30, 2004, and three and six months ended June 30, 2003 was determined based upon estimates of the Company's consolidated effective income tax rates for the four months ended April 30, 2004, the eight months ending December 31, 2004 and the year ended December 31, 2003, respectively. The differences between the consolidated effective income tax rates and the U.S. federal statutory rate are primarily attributable to state income taxes and the effects of foreign operations. 11 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) NOTE 6 - COMPREHENSIVE (LOSS) INCOME Comprehensive (loss) income consisted of the following (dollars in thousands):
ONE MONTH TWO MONTHS THREE MONTHS FOUR MONTHS SIX MONTHS ENDED ENDED ENDED ENDED ENDED APRIL 30 2004 JUNE 30, 2004 JUNE 30, 2003 APRIL 30, 2004 JUNE 30, 2003 ------------- ------------- ------------- -------------- ------------- (PREDECESSOR) (SUCCESSOR) (PREDECESSOR) (PREDECESSOR) (PREDECESSOR) Net (loss) income ........................ $(5,829) $ 702 $ 2,706 $ (890) $ 6,168 Net change in cumulative translation adjustment ............................ (1,029) 521 1,399 (673) 1,276 Change in fair value of available-for-sale securities, net of income taxes of $1, $91, $(14) and $38, respectively ...... 1 139 (22) 58 Reclassification adjustment for available-for-sale securities sold during the period, net of income taxes of $19 ................................ (28) (28) Change in fair value of the interest rate swap contract, net of income taxes of $109, $(20), $(60), $54 and $(54), respectively .......................... 167 (30) (92) 82 (83) Reclassification adjustment for the interest rate swap contract terminated in connection with the Transactions, net of income taxes of $266 ........... 408 408 Change in fair value of the foreign exchange contracts, net of income taxes of $151, $14, $(137), $146 and $(133), respectively .......................... 231 22 (210) 224 (203) ------- ------- ------- ------- ------- $(6,079) $ 1,215 $ 3,942 $ (899) $ 7,216 ======= ======= ======= ======= =======
Accumulated other comprehensive income (loss) consisted of the following (dollars in thousands):
JUNE 30, DECEMBER 31, 2004 2003 ----- ----- (Successor) (Predecessor) Cumulative translation adjustment ............................................. $ 521 $ 686 Unrealized gain on available-for-sale securities, net of income taxes of $33 .. 50 Interest rate swap contract, net of income taxes of $20 and $320, respectively (30) (490) Foreign exchange contracts, net of income taxes of $14 and $(305), respectively 22 (692) ----- ----- $ 513 $(446) ===== =====
NOTE 7 - CAPITAL STOCK At June 30, 2004, the Successor Company's authorized capital stock consisted of 10,000.00 shares of preferred stock, $0.01 par value, of which no shares were issued or outstanding and 40,000.00 shares of common stock, $0.01 par value, of which 13,957.88 shares were issued and outstanding at June 30, 2004. In connection with the Transactions (see Note 2), certain existing management stockholders purchased 292.41 shares of Successor Common Stock based on the same price and terms per share as paid by the other equity investors. Under the terms of both our amended and restated stockholders' agreement, dated February 20, 2002 and effective through April 30, 2004, and the new AAH Holdings Corporation stockholders' agreement dated April 30, 2004, the Company has an option to purchase all of the shares of common stock held by a former employee and, under certain circumstances, a former employee stockholder can require the Company to purchase all of the shares held by the 12 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) former employee. The purchase price as prescribed in the stockholders' agreements is to be determined through a market valuation of the minority-held shares or, under certain circumstances, based on cost, as defined therein. The aggregate amount that may be payable by us to all employee stockholders based on fully paid and vested shares is classified as redeemable common securities on the consolidated balance sheet at the estimated fair market value of the stock, with a corresponding adjustment to stockholders' equity. At June 30, 2004, the aggregate amount that may be payable by the Company to employee stockholders, based on the estimated market value, was approximately $2,924,000. As there is no active market for the Company's Common Stock, the Company estimated the fair value of its Common Stock based on the valuation of Company Common Stock issued in connection with the Transactions. The Company's Chief Executive Officer and President exchanged 5.4945 and 2.7472 of their shares of Predecessor Common Stock for 100 and 50 shares of Successor Common Stock with an equivalent value of $1,000,000 and $500,000, respectively. In addition, the Chief Executive Officer and President exchanged their 5.607 and 2.804 vested options to purchase shares of Predecessor Common Stock, which had intrinsic values of $600,000 and $300,000, respectively, for vested options to purchase 65.455 and 32.727 shares of Successor Common Stock under the new equity incentive plan with intrinsic values of $492,000 and $245,000 and estimated fair values of $590,000 and $290,000, respectively. The fair value of the Successor options was included in the equity contribution related to the Transactions, however as the Successor options are options to purchase redeemable common stock their estimated redemption value is classified as redeemable common securities on the consolidated balance sheet. At December 31, 2003, an officer of the Company held 3.00 shares of Common Stock (the "Restricted Stock"), which were to vest in December 2004 under the terms of his employment agreement. In connection with the Transactions, the 3.00 shares of Restricted Stock vested immediately on April 30, 2004 (see Note 2). During the one and four months ended April 30, 2004, and the three and six months ended June 30, 2003, the Company recorded the amortization of Restricted Stock of $13,000, $52,000 and $45,000 and $90,000, respectively, as compensation expense, which is included in general and administrative expenses in the company's consolidated statements of operations. At December 31, 2003, the Company held a note receivable from a former officer for $655,000, which bore interest at 6.65% and was to mature in March 2009. In connection with the Transactions, the note receivable from the former officer was repaid on April 30, 2004. In addition, at December 31, 2003, the Company held a note receivable from a former employee for $25,000, which bore interest at Libor plus 2% and matured and was repaid in January 2004. These notes arose in connection with the issuance of shares of Predecessor Common Stock and were reported on the consolidated balance sheet at December 31, 2003, as an increase in stockholders' deficit. On March 30, 2001, the Company issued 40 shares of Series A Redeemable Convertible Preferred Stock to GS Capital Partners II, L.P. and certain other private investment funds managed by Goldman, Sachs & Co. (collectively, "GSCP") for proceeds of $6,000,000. On March 30, 2004, the annual dividend was distributed in additional shares of Series A Redeemable Convertible Preferred Stock. In connection with the Transactions on April 30, 2004, the Company redeemed all outstanding shares of Series A Redeemable Convertible Preferred Stock at a redemption price per share equal to $182,000 in cash, together with accrued and unpaid dividends. NOTE 8 - SEGMENT INFORMATION Industry Segment The Company manages its operations as one industry segment which involves the design, manufacture, contract for manufacture and distribution of party goods, including decorative party goods, metallic balloons, stationery, and gift items. Geographic Segments The Company's export sales, other than those intercompany sales reported below as sales between geographic areas, are not material. Sales between geographic areas primarily consist of sales of finished goods for distribution in 13 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) foreign markets. No single foreign operation is significant to the Company's consolidated operations. Sales between geographic areas are made at cost plus a share of operating profit. The Company's geographic area data are as follows (dollars in thousands):
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- ONE MONTH ENDED APRIL 30, 2004 Sales to unaffiliated customers .................. $ 28,657 $ 4,478 $ 33,135 Sales between geographic areas ................... 1,623 $ (1,623) -- --------- --------- --------- --------- Net sales ........................................ $ 30,280 $ 4,478 $ (1,623) $ 33,135 ========= ========= ========= ========= (Loss) income from operations .................... $ (7,963) $ 327 $ 76 $ (7,560) ========= ========= ========= Interest expense, net ............................ 2,023 Undistributed loss in unconsolidated joint venture 56 Other income, net ................................ (10) --------- Loss before income taxes and minority interests .. $ (9,629) ========= Long-lived assets, net at April 30, 2004 ......... $ 187,796 $ 8,473 $ (25,224) $ 171,045 ========= ========= ========= =========
SUCCESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- TWO MONTHS ENDED JUNE 30, 2004 Sales to unaffiliated customers .................. $ 54,058 $ 9,123 $ 63,181 Sales between geographic areas ................... 3,793 $ (3,793) -- --------- --------- --------- --------- Net sales ........................................ $ 57,851 $ 9,123 $ (3,793) $ 63,181 ========= ========= ========= ========= Income from operations ........................... $ 5,528 $ 540 $ 194 $ 6,262 ========= ========= ========= Interest expense, net ............................ 4,760 Undistributed loss in unconsolidated joint venture 312 Other income, net ................................ (11) --------- Income before income taxes and minority interests $ 1,201 ========= Long-lived assets, net at June 30, 2004 .......... $ 449,702 $ 8,867 $ (25,953) $ 432,616 ========= ========= ========= =========
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- THREE MONTHS ENDED JUNE 30, 2003 Sales to unaffiliated customers ................. $ 87,570 $ 13,426 $ 100,996 Sales between geographic areas .................. 5,090 $ (5,090) -- --------- --------- --------- --------- Net sales ....................................... $ 92,660 $ 13,426 $ (5,090) $ 100,996 ========= ========= ========= ========= Income from operations .......................... $ 9,976 $ 656 $ 384 $ 11,016 ========= ========= ========= Interest expense, net ........................... 6,552 Other income, net ............................... (39) --------- Income before income taxes and minority interests $ 4,503 ========= Long-lived assets, net at June 30, 2003 ......... $ 202,096 $ 9,083 $ (28,080) $ 183,099 ========= ========= ========= =========
14 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED)
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- FOUR MONTHS ENDED APRIL 30, 2004 Sales to unaffiliated customers .................. $ 115,939 $ 17,721 $ 133,660 Sales between geographic areas ................... 5,487 $ (5,487) -- --------- --------- --------- --------- Net sales ........................................ $ 121,426 $ 17,721 $ (5,487) $ 133,660 ========= ========= ========= ========= Income from operations ........................... $ 5,517 $ 1,156 $ 347 $ 7,020 ========= ========= ========= Interest expense, net ............................ 8,384 Undistributed loss in unconsolidated joint venture 89 Other income, net ................................ (58) --------- Loss before income taxes and minority interests .. $ (1,395) =========
PREDECESSOR: DOMESTIC FOREIGN ELIMINATIONS CONSOLIDATED --------- --------- --------- --------- SIX MONTHS ENDED JUNE 30, 2003 Sales to unaffiliated customers ................. $ 174,600 $ 26,240 $ 200,840 Sales between geographic areas .................. 9,613 $ (9,613) -- --------- --------- --------- --------- Net sales ....................................... $ 184,213 $ 26,240 $ (9,613) $ 200,840 ========= ========= ========= ========= Income from operations .......................... $ 21,959 $ 780 $ 651 $ 23,390 ========= ========= ========= Interest expense, net ........................... 13,196 Other income, net ............................... (57) --------- Income before income taxes and minority interests $ 10,251 =========
NOTE 9 - LEGAL PROCEEDINGS The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations. NOTE 10 - RELATED PARTY TRANSACTIONS GSCP received fees totaling $8,123,000 for services provided in connection with the Transactions. In connection with the Transactions, the Company executed a management agreement with Berkshire Partners LLC and Weston Presidio. Pursuant to the management agreement, Berkshire Partners LLC and Weston Presidio will be paid annual management fees of $833,333 and $416,667, respectively. At June 30, 2004, accrued management fees payable to Berkshire Partners LLC and Weston Presidio totaled $138,889 and $69,445, respectively. Although the indenture governing the 8.75% senior subordinated notes will permit the payments under the management agreement, such payments will be restricted during an event of default under the notes and will be subordinated in right of payment to all obligations due with respect to the notes in the event of a bankruptcy or similar proceeding of Amscan. During the one and four months ended April 30, 2004, and three and six months ended June 30, 2003, the Company sold $235,000, $836,000, $1,634,000, and $2,249,000 respectively, of metallic balloons and other party goods to American Greetings Corporation, a minority stockholder from February 2002 through the date of the Transactions. Trade accounts receivable from American Greetings at December 31, 2003 was $1,937,000. In June 2003, the Company purchased 16 shares of Predecessor Common Stock from its Chief Executive 15 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) Officer at a price of $150,000 per share, or for an aggregate cash purchase price of $2,400,000, of which $2,115,000 was paid in June 2003 and $285,000 was paid in July 2003. The Chief Executive Officer used a portion of the proceeds to repay an outstanding loan balance of $1,588,000. The Company retired the 16 shares of Predecessor Common Stock. In July 2003, the Company purchased 6 shares of Predecessor Common Stock from its President at a price of $150,000 per share, or for an aggregate cash purchase price of $900,000. The President used a portion of the proceeds to repay an outstanding loan balance of $402,000. The Company retired the 6 shares of Predecessor Common Stock. NOTE 11 - RESTRUCTURING CHARGES During the three and six months ended June 30, 2003, the Company incurred charges of $458,000 and $774,000, respectively, resulting from the consolidation of certain domestic and foreign distribution operations, and the integration of M&D Industries, Inc. into its balloon operations. NOTE 12 - STOCK OPTION PLAN Effective May 1, 2004, the Successor Company has elected to apply the fair value method of SFAS No. 123 as amended by Financial Accounting Standards No. 148 ("SFAS 148"), Accounting for Stock-Based Compensation -- Transition and Disclosure which amends Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"). SFAS No. 123 permits entities to recognize as expense, over the vesting period, the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 allows entities to apply the provisions of Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to Employees," which requires the recognition of compensation expense at the date of grant only if the current market price of the underlying stock exceeds the exercise price, and to provide pro forma net income disclosures for employee stock option grants as if the fair value based method defined in SFAS No. 123 had been applied. SFAS No. 148 provides alternative methods of transition to FAS 123's fair value method of accounting for stock-based employee compensation and amends the disclosure provisions of FAS 123. Effective with the consummation of the Transactions (see Note 2), effective May 1, 2004, the Successor Company adopted SFAS No. 123 and will expense stock options issued after such date using the fair value method as provided for in SFAS No. 148. No additional options have been granted by the Successor Company. Prior to the Transactions, the Predecessor Company elected to apply the intrinsic value method of APB No. 25 for awards granted under its stock-based compensation plans and to provide the pro forma disclosures required by SFAS No. 123. Accordingly, no compensation cost has been recognized in connection with the issuance of options under the Amscan Holdings, Inc. 1997 Stock Incentive Plan, the Predecessor's prior plan, through April 30, 2004 as all options were granted with exercise prices equal to the estimated fair market value of the Common Stock on the date of grant. Had the Company determined stock-based compensation based on the fair value of the options granted at the grant date, consistent with the method prescribed under SFAS No. 123, the Company's net income would have been 16 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) reduced to amounts indicated below (dollars in thousands):
ONE MONTH ENDED THREE MONTHS ENDED FOUR MONTHS ENDED SIX MONTHS ENDED APRIL 30, 2004 JUNE 30, 2003 APRIL 30, 2004 JUNE 30, 2003 -------------- ------------- -------------- ------------- (Predecessor) (Predecessor) (Predecessor) (Predecessor) Net (loss) income: As reported ....................... $(5,829) $ 2,706 $ (890) $ 6,168 Less: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of income taxes of $31, $40, $125 and $70, respectively ...................... 47 62 192 107 ------- ------- ------- ------- SFAS No. 123 pro forma net (loss) income ............................ $(5,876) $ 2,644 $(1,082) $ 6,061 ======= ======= ======= =======
In connection with the Transactions, all options granted vested immediately on April 30, 2004 and, except for those held by the Chief Executive Officer and the President (see Note 7), all were exercised. The Chief Executive Officer and President exchanged 5.607 and 2.804 vested options to purchase shares of Predecessor Common Stock, which had intrinsic values of $600,000 and $300,000, respectively, for vested options to purchase 65.455 and 32.727 shares of Successor Common Stock under the new equity incentive plan with intrinsic values of $492,000 and $245,000 and estimated fair values of $590,000 and $290,000, respectively. Such options were recorded as part of the purchase price allocations and have been classified as redeemable common securities on the Company's consolidated balance sheet. No additional options have been granted by the Predecessor Company. NOTE 13 - CONDENSED CONSOLIDATING FINANCIAL INFORMATION On April 30, 2004, in connection with the consummation of the Transactions, all borrowings under the then existing credit agreement were repaid and the facility was terminated. In addition, $87,200,000 in aggregate principal amount of the 9.875% senior subordinated notes due 2007 were accepted in a tender offer and a redemption notice was issued for the remaining senior subordinated notes (see Note 2). The aggregate cost to purchase the 9.875% senior subordinated notes due 2007 tendered pursuant to the tender offer was approximately $93,500,000, or 103.542% of the principal amount of such 9.875% senior subordinated notes plus accrued and unpaid interest. On May 31, 2004, the remaining $22,800,000 in aggregate principal amount of the outstanding 9.875% senior subordinated notes were redeemed pursuant to the redemption notice at a price of 103.292% of the principal amount of such notes plus accrued and unpaid interest. The acquisition was financed with initial borrowings consisting of a $205,000,000 term loan under a new senior secured credit facility, which includes a $50,000,000 revolving loan facility, the proceeds from the issuance of $175,000,000 of 8.75% senior subordinated notes due 2014, the equity contribution by our Principal Investors and employee stockholders of $140,479,000, borrowings under the revolver of $23,551,000 and approximately $2,900,000 of cash on hand. Borrowings under the new senior secured credit facility, the revolving loan facility and the $175,000,000 of 8.75% senior subordinated notes due 2014 are guaranteed jointly and severally, fully and unconditionally, by the following wholly-owned domestic subsidiaries of the Company (the "Guarantors"): 17 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) - Amscan Inc. - Am-Source, LLC - Anagram International, Inc. - Anagram International Holdings, Inc. - Anagram International, LLC - M&D Industries, Inc. - SSY Realty Corp. - JCS Realty Corp. - Anagram Eden Prairie Property Holdings LLC - Trisar, Inc. Non-guarantor subsidiaries ("Non-guarantors") include the following: - Amscan Distributors (Canada) Ltd. - Amscan Holdings Limited - Amscan (Asia-Pacific) Pty. Ltd. - Amscan Partyartikel GmbH - Amscan de Mexico, S.A. de C.V. - Anagram International (Japan) Co., Ltd. - Anagram Espana, S.A. - Anagram France S.C.S. - JCS Hong Kong Ltd. The following information presents consolidating balance sheets as of June 30, 2004 and December 31, 2003, and the related consolidating statements of income for the one month ended April 30, 2004, two months ended June 30, 2004, three months ended June 30, 2003, four months ended April 30, 2004 and six months ended June 30, 2003 and consolidating statements of cash flows for the four months ended April 30, 2004, two months ended June 30, 2004 and six months ended June 30, 2003, for the combined Guarantors and the combined Non-guarantors and elimination entries necessary to consolidate the entities comprising the combined companies. 18 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING BALANCE SHEET JUNE 30, 2004 (SUCCESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents ......................... $ 777 $ 529 $ 1,306 Accounts receivable, net of allowances ............ 68,185 13,448 81,633 Inventories, net of allowances .................... 71,989 10,674 $ (330) 82,333 Prepaid expenses and other current assets ......... 15,436 1,857 (190) 17,103 --------- --------- --------- --------- Total current assets ........................... 156,387 26,508 (520) 182,375 Property, plant and equipment, net ................... 98,348 2,004 100,352 Goodwill, net ........................................ 307,528 5,569 313,097 Other assets, net .................................... 43,826 1,294 (25,953) 19,167 --------- --------- --------- --------- Total assets ................................... $ 606,089 $ 35,375 $ (26,473) $ 614,991 ========= ========= ========= ========= LIABILITIES, REDEEMABLE COMMON SECURITIES AND STOCKHOLDERS' EQUITY Current liabilities: Loans and notes payable ........................... $ 11,590 $ 11,590 Accounts payable .................................. 24,306 $ 1,968 26,274 Accrued expenses .................................. 15,537 6,160 21,697 Income taxes payable .............................. 576 $ (237) 339 Current portion of long-term obligations .......... 2,779 130 2,909 --------- --------- --------- --------- Total current liabilities ...................... 54,788 8,258 (237) 62,809 Long-term obligations, excluding current portion ..... 386,106 177 386,283 Deferred income tax liabilities ...................... 21,782 21,782 Other ................................................ 1,436 14,206 (13,219) 2,423 --------- --------- --------- --------- Total liabilities .............................. 464,112 22,641 (13,456) 473,297 Redeemable common securities ......................... 3,660 3,660 Commitments and Contingencies Stockholders' equity: Preferred Stock ................................... -- Common Stock ...................................... 339 (339) -- Additional paid-in capital ........................ 136,819 658 (658) 136,819 Retained earnings ................................. 985 11,823 (12,106) 702 Accumulated other comprehensive income (loss) ..... 513 (86) 86 513 --------- --------- --------- --------- Total stockholders' equity ................ 138,317 12,734 (13,017) 138,034 --------- --------- --------- --------- Total liabilities, redeemable common securities and stockholders' equity $ 606,089 $ 35,375 $ (26,473) $ 614,991 ========= ========= ========= =========
19 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING BALANCE SHEET DECEMBER 31, 2003 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents ........................ $ 30,740 $ 722 $ 31,462 Accounts receivable, net of allowances ........... 63,553 12,129 75,682 Inventories, net of allowances ................... 75,991 9,357 $ (211) 85,137 Prepaid expenses and other current assets ........ 8,611 1,248 (129) 9,730 --------- --------- --------- --------- Total current assets ............................. 178,895 23,456 (340) 202,011 Property, plant and equipment, net ..................... 94,789 1,705 96,494 Goodwill, net .......................................... 66,453 5,533 71,986 Other assets, net ...................................... 33,019 1,491 (22,899) 11,611 ....................................................... --------- --------- --------- --------- Total assets ..................................... $ 373,156 $ 32,185 $ (23,239) $ 382,102 ========= ========= ========= ========= LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND COMMON SECURITIES AND STOCKHOLDERS' (DEFICIT) EQUITY Current liabilities: Accounts payable ................................. $ 33,221 $ 1,695 $ 34,916 Accrued expenses ................................. 14,156 5,965 20,121 Income taxes payable ............................. 3,307 $ (129) 3,178 Current portion of long-term obligations ......... 23,110 127 23,237 --------- --------- --------- --------- Total current liabilities ........................ 73,794 7,787 (129) 81,452 Long-term obligations, excluding current portion ....... 272,104 168 272,272 Deferred income tax liabilities ........................ 18,040 18,040 Other .................................................. 1,083 13,133 (11,802) 2,414 --------- --------- --------- --------- Total liabilities ................................ 365,021 21,088 (11,931) 374,178 Redeemable convertible preferred stock ................. 7,045 7,045 Redeemable common securities ........................... 9,498 9,498 Commitments and Contingencies Stockholders' (deficit) equity: Common Stock ..................................... 339 (339) -- Additional paid-in capital ....................... 26,682 658 (658) 26,682 Unamortized restricted Common Stock award ......................................... (155) (155) Notes receivable from stockholders ............... (680) (680) (Deficit) retained earnings ...................... (33,809) 10,292 (10,503) (34,020) Accumulated other comprehensive loss ............. (446) (192) 192 (446) --------- --------- --------- --------- Total stockholders' (deficit) equity ........ (8,408) 11,097 (11,308) (8,619) --------- --------- --------- --------- Total liabilities, redeemable convertible preferred Stock and common securities and stockholders' (deficit) equity ............ $ 373,156 $ 32,185 $ (23,239) $ 382,102 ========= ========= ========= =========
20 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE ONE MONTH ENDED APRIL 30, 2004 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Net sales .............................................. $ 30,280 $ 4,478 $ (1,623) $ 33,135 Cost of sales .......................................... 20,761 2,994 (1,589) 22,166 -------- -------- -------- -------- Gross profit ................................ 9,519 1,484 (34) 10,969 Operating expenses: Selling expenses ................................... 2,567 561 3,128 General and administrative expenses ................ 2,107 560 (110) 2,557 Art and development costs .......................... 899 899 Provision for doubtful accounts .................... 152 36 188 Non-recurring expenses related to the Transactions . 11,757 11,757 -------- -------- -------- -------- Total operating expenses .................... 17,482 1,157 (110) 18,529 -------- -------- -------- -------- (Loss) income from operations ............... (7,963) 327 76 (7,560) Interest expense, net .................................. 2,007 16 2,023 Undistributed loss in unconsolidated joint venture ..... 56 56 Other (income) expense, net ............................ (320) 3 307 (10) -------- -------- -------- -------- (Loss) income before income taxes and minority interests ........................ (9,706) 308 (231) (9,629) Income tax (benefit) expense ........................... (3,897) 108 (14) (3,803) Minority interests ..................................... 3 3 -------- -------- -------- -------- Net (loss) income ........................... (5,809) 197 (217) (5,829) Dividend on redeemable convertible preferred stock .......................... 34 34 -------- -------- -------- -------- Net (loss) income applicable to common shares $ (5,843) $ 197 $ (217) $ (5,863) ======== ======== ======== ========
21 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE TWO MONTHS ENDED JUNE 30, 2004 (SUCCESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Net sales ........................................ $ 57,851 $ 9,123 $ (3,793) $ 63,181 Cost of sales .................................... 40,954 6,237 (3,767) 43,424 -------- -------- -------- -------- Gross profit .......................... 16,897 2,886 (26) 19,757 Operating expenses: Selling expenses ............................. 4,829 1,119 5,948 General and administrative expenses .......... 4,530 1,142 (220) 5,452 Art and development costs .................... 1,769 1,769 Provision for doubtful accounts ............ 241 85 326 -------- -------- -------- -------- Total operating expenses .............. 11,369 2,346 (220) 13,495 -------- -------- -------- -------- Income from operations ................ 5,528 540 194 6,262 Interest expense, net ............................ 4,734 26 4,760 Undistributed loss in unconsolidated joint venture 312 312 Other income, net ................................ (574) 563 (11) -------- -------- -------- -------- Income before income taxes and minority interests .................. 1,056 514 (369) 1,201 Income tax expense ............................... 338 146 (10) 474 Minority interests ............................... 25 25 -------- -------- -------- -------- Net income ............................ $ 718 $ 343 $ (359) $ 702 ======== ======== ======== ========
22 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2003 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Net sales ....................................... $ 92,660 $ 13,426 $ (5,090) $ 100,996 Cost of sales ................................... 64,757 9,367 (5,174) 68,950 --------- --------- --------- --------- Gross profit ......................... 27,903 4,059 84 32,046 Operating expenses: Selling expenses ............................ 7,481 1,493 8,974 General and administrative expenses ......... 6,498 1,729 (300) 7,927 Art and development costs ................... 2,286 2,286 Provision for doubtful accounts ............. 1,231 154 1,385 Restructuring charges ....................... 431 27 458 --------- --------- --------- --------- Total operating expenses ............. 17,927 3,403 (300) 21,030 --------- --------- --------- --------- Income from operations ............... 9,976 656 384 11,016 Interest expense, net ........................... 6,398 154 6,552 Other (income) expense, net ..................... (605) 23 543 (39) --------- --------- --------- --------- Income before income taxes and minority interests ................. 4,183 479 (159) 4,503 Income tax expense .............................. 1,528 217 33 1,778 Minority interests .............................. 19 19 --------- --------- --------- --------- Net income ........................... 2,655 243 (192) 2,706 Dividend on redeemable convertible preferred stock ................... 101 101 --------- --------- --------- --------- Net income applicable to common shares $ 2,554 $ 243 $ (192) $ 2,605 ========= ========= ========= =========
23 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE FOUR MONTHS ENDED APRIL 30, 2004 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Net sales .............................................. $ 121,426 $ 17,721 $ (5,487) $ 133,660 Cost of sales .......................................... 81,845 11,796 (5,394) 88,247 --------- --------- --------- --------- Gross profit ................................ 39,581 5,925 (93) 45,413 Operating expenses: Selling expenses ................................... 10,095 2,335 12,430 General and administrative expenses ................ 8,280 2,305 (440) 10,145 Art and development costs .......................... 3,332 3,332 Provision for doubtful accounts .................... 600 129 729 Non-recurring expenses related to the Transactions . 11,757 11,757 --------- --------- --------- --------- Total operating expenses .................... 34,064 4,769 (440) 38,393 --------- --------- --------- --------- Income from operations ...................... 5,517 1,156 347 7,020 Interest expense, net .................................. 8,320 64 8,384 Undistributed loss in unconsolidated joint venture ..... 89 89 Other income, net ...................................... (1,194) (39) 1,175 (58) --------- --------- --------- --------- (Loss) income before income taxes and minority interests ........................ (1,698) 1,131 (828) (1,395) Income tax (benefit) expense ........................... (864) 350 (37) (551) Minority interests ..................................... 46 46 --------- --------- --------- --------- Net (loss) income ........................... (834) 735 (791) (890) Dividend on redeemable convertible preferred stock .......................... 136 136 --------- --------- --------- --------- Net (loss) income applicable to common shares $ (970) $ 735 $ (791) $ (1,026) ========= ========= ========= =========
24 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS AND COMBINED COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Net sales ................................... $ 184,213 $ 26,240 $ (9,613) $ 200,840 Cost of sales ............................... 126,944 18,639 (9,664) 135,919 --------- --------- --------- --------- Gross profit ..................... 57,269 7,601 51 64,921 Operating expenses: Selling expenses ........................ 15,071 3,045 18,116 General and administrative expenses ..... 12,981 3,448 (600) 15,829 Art and development costs ............... 4,823 4,823 Provision for doubtful accounts ......... 1,688 301 1,989 Restructuring charges ................... 747 27 774 --------- --------- --------- --------- Total operating expenses ......... 35,310 6,821 (600) 41,531 --------- --------- --------- --------- Income from operations ........... 21,959 780 651 23,390 Interest expense, net ....................... 12,881 315 13,196 Other (income) expense, net ................. (830) 27 746 (57) --------- --------- --------- --------- Income before income taxes and minority interests ......... 9,908 438 (95) 10,251 Income tax expense .......................... 3,771 258 20 4,049 Minority interests .......................... 34 34 --------- --------- --------- --------- Net income ....................... 6,137 146 (115) 6,168 Dividend on redeemable convertible preferred stock ............... 197 197 --------- --------- --------- --------- Net income applicable to common shares .. $ 5,940 $ 146 $ (115) $ 5,971 ========= ========= ========= =========
25 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE FOUR MONTHS ENDED APRIL 30, 2004 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS COMBINED AND COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Cash flows provided by operating activities: Net (loss) income................................................. $ (834) $ 735 $(791) $ (890) Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation and amortization expense.......................... 5,076 220 5,296 Amortization of deferred financing costs....................... 709 709 Amortization of restricted Common Stock award.................. 52 52 Provision for doubtful accounts................................ 600 129 729 Deferred income tax benefit.................................... (58) (58) Gain on sale of available-for-sale securities.................. (47) (47) Gain on disposal of equipment.................................. (35) (35) Write-off of deferred financing costs in connection with the Transactions.................................. 5,548 5,548 Debt retirement costs incurred in connection with the Transactions.......................................... 6,209 6,209 Undistributed loss in unconsolidated joint venture............. 89 89 Changes in operating assets and liabilities: Increase in accounts receivable......................... (13,843) (1,404) (15,247) Decrease in inventories................................. 5,833 303 93 6,229 Increase in prepaid expenses and other current assets....................................... (3,017) (576) (3,593) Increase in accounts payable, accrued expenses and income taxes payable............................. 3,663 365 (37) 3,991 Other, net.................................................... (1,545) 1,240 735 430 --------- ------- ----- -------- Net cash provided by operating activities............... 8,435 977 -- 9,412 Cash flows used in investing activities: Capital expenditures.............................................. (3,205) (521) (3,726) Proceeds from sale of available-for-sale securities............... 65 65 Proceeds from disposal of property and equipment.................. 53 53 --------- ------- ----- -------- Net cash used in investing activities................... (3,140) (468) -- (3,608) Cash flows used in financing activities: Repayment of loans, notes payable and long-term obligations.................................................. (21,184) (67) (21,251) Debt retirement costs paid in connection with the Transactions.................................................. (6,209) (6,209) Repayment of note receivable from stockholder..................... 25 25 --------- ------- ----- -------- Net cash used in financing activities................... (27,368) (67) -- (27,435) Effect of exchange rate changes on cash and cash equivalents.......... (21) (573) (594) --------- ------- ----- -------- Net decrease in cash and cash equivalents............... (22,094) (131) (22,225) Cash and cash equivalents at beginning of period...................... 30,740 722 31,462 --------- ------- ----- -------- Cash and cash equivalents at end of period............................ $ 8,646 $ 591 $ -- $ 9,237 ========= ======= ===== ========
26 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE TWO MONTHS ENDED JUNE 30, 2004 (SUCCESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS COMBINED AND COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Cash flows provided by (used in) operating activities: Net income .................................................. $ 718 $ 343 $ (359) $ 702 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization expense .................... 2,654 113 2,767 Amortization of deferred financing costs ................. 262 262 Provision for doubtful accounts .......................... 241 85 326 Deferred income tax benefit .............................. (484) (484) Undistributed loss in unconsolidated joint venture ....... 312 312 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable ........ 8,875 (129) 8,746 Decrease (increase) in inventories ................ 826 (1,620) 26 (768) Decrease in prepaid expenses and other current assets ......................................... (465) 28 (437) (Decrease) increase in accounts payable, accrued expenses and income taxes payable .............. (6,675) 288 (10) (6,397) Other, net .............................................. (860) 504 343 (13) --------- --------- --------- --------- Net cash provided by (used in) operating activities 5,404 (388) -- 5,016 Cash flows used in investing activities: Cash paid to consummate the Transactions .................... (529,982) (529,982) Capital expenditures ........................................ (1,006) (50) (1,056) Proceeds from disposal of property and equipment ............ 1 1 --------- --------- --------- --------- Net cash used in investing activities ............. (530,988) (49) -- (531,037) Cash flows provided by (used in) financing activities: Proceeds from loans, notes payable and long-term obligations, net of debt issuance costs of $12,668 ....... 378,922 378,922 Repayment of loans, notes payable and long-term obligations ............................................ (195) (29) (224) Capital contributions in connection with the Transactions ....... 138,979 138,979 --------- --------- --------- --------- Net cash provided by (used in) financing activities 517,706 (29) -- 517,677 Effect of exchange rate changes on cash and cash equivalents .... 9 404 413 --------- --------- --------- --------- Net decrease in cash and cash equivalents ......... (7,869) (62) (7,931) Cash and cash equivalents at beginning of period ................ 8,646 591 9,237 --------- --------- --------- --------- Cash and cash equivalents at end of period ...................... $ 777 $ 529 $ -- $ 1,306 ========= ========= ========= =========
27 AMSCAN HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (UNAUDITED) CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 (PREDECESSOR) (DOLLARS IN THOUSANDS)
AMSCAN HOLDINGS COMBINED AND COMBINED NON- GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED ---------- ---------- ------------ ------------ Cash flows from operating activities: Net income .................................................. $ 6,137 $ 146 $ (115) $ 6,168 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ............................ 7,885 271 8,156 Amortization of deferred financing costs ................. 1,011 1,011 Amortization of restricted Common Stock awards ........... 90 90 Provision for doubtful accounts .......................... 1,688 301 1,989 Deferred income tax expense .............................. 1,757 1,757 Loss on disposal of property and equipment ............... 80 29 109 Non-cash restructuring charges ........................... 104 104 Changes in operating assets and liabilities: Increase in accounts receivable ................... (4,781) (1,675) (6,456) Decrease (increase) in inventories ................ 5,839 (1,258) (51) 4,530 Increase in prepaid expenses and other current assets ......................................... (238) (466) (704) (Decrease) increase in accounts payable, accrued expenses and income taxes payable .............. (8,859) 1,242 20 (7,597) Other, net .............................................. (969) 449 146 (374) ------- ------- ------- ------- Net cash provided by (used in) operating activities 9,744 (961) -- 8,783 Cash flows from investing activities: Capital expenditures ........................................ (7,049) (511) (7,560) Proceeds from disposal of property and equipment ............ 63 23 86 ------- ------- ------- ------- Net cash used in investing activities ............. (6,986) (488) -- (7,474) Cash flows from financing activities: Repayment of loans, notes payable and long-term obligations ............................................ (1,773) (89) (1,862) Proceeds from exercise of stock options ..................... 831 831 Purchase of Common Stock from officer ....................... (2,115) (2,115) Repayment of note receivable from officer ................... 1,588 1,588 ------- ------- ------- ------- Net cash used in financing activities ............. (1,469) (89) -- (1,558) Effect of exchange rate changes on cash and cash equivalents .... 35 921 956 ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents .............................. 1,324 (617) 707 Cash and cash equivalents at beginning of period ................ 1,483 917 2,400 ------- ------- ------- ------- Cash and cash equivalents at end of period ...................... $ 2,807 $ 300 $ -- $ 3,107 ======= ======= ======= =======
28 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE TRANSACTIONS On March 26, 2004, Amscan signed an agreement providing for a merger of Amscan with AAH Acquisition Corporation, or AAH Acquisition, a wholly-owned subsidiary of AAH Holdings Corporation, or AAH Holdings, an entity jointly controlled by funds affiliated with Berkshire Partners LLC and Weston Presidio (together the "Principal Investors"). On April 30, 2004, the merger with AAH Acquisition was consummated, with Amscan continuing as the surviving entity and as a wholly owned subsidiary of AAH Holdings. Under the terms of the agreement, the equity interests in Amscan of GS Capital Partners II, L.P. and certain other private investment funds managed by Goldman, Sachs & Co., which are collectively referred to as GSCP, and all other stockholders, other than certain management investors, were cancelled in exchange for the right to receive cash. Cash paid to consummate the acquisition totaled $530.0 million and was financed with initial borrowings (before deducting deferred financing costs of $12.7 million) consisting of a $205.0 million term loan under a new senior secured credit facility which includes a $50.0 million revolving loan facility, the proceeds from the issuance of $175.0 million of 8.75% senior subordinated notes due 2014, the equity contribution, including the Principal Investors and employee stockholders, of $140.5 million, borrowings under the revolver of $23.6 million and available cash on hand. Certain existing management shareholders participated in the Transactions (as defined hereafter) by purchasing approximately 292.41 shares of common stock. The capital structure disclosed in the Successor financial statements reflect the equity structure of AAH Holdings. The Chief Executive Officer and the President of the Company exchanged 5.4945 and 2.7472 of their shares of common stock of the Predecessor Company for 100 and 50 shares of common stock of the Successor Company with an equivalent value of $1.0 million and $0.5 million, respectively. In addition, the Chief Executive Officer and the President of the Company exchanged vested options to purchase 5.607 and 2.804 shares of Predecessor Company common stock, which had intrinsic values of $0.6 million and $0.3 million, respectively, for vested options under the Successor Company's equity incentive plan with intrinsic values of $0.5 million and $0.2 million and fair values of $0.6 million and $0.3 million, respectively. The acquisition has been accounted for under the purchase method of accounting, and required that the Company adjust its assets and liabilities to their relative fair values. The purchase price has been allocated based upon preliminary estimates of the fair value of net assets acquired at the date of acquisition. The final allocations will be based on studies and valuations that have not yet been completed and will be subject to change in future periods. The excess of the purchase price over tangible net assets acquired has been allocated to intangible assets consisting of licensing agreements in the amount of $3.0 million, which are being amortized using the straight-line method over the lives of the contracts (two to three years with an average life of 2.5 years), and goodwill in the amount of $313.0 million, which is not being amortized. The acquisition was structured as a purchase of common stock and, accordingly, the amortization of intangible assets is not deductible for income tax purposes. Concurrent with the acquisition, the following financing transactions were also consummated: the repayment of $147.7 million under our then existing senior secured credit facility and the termination of all commitments under that facility; the consummation of our tender offer and consent solicitation for $87.2 million of the $110.0 million aggregate principal amount outstanding of our 9.875% senior subordinated notes due 2007 for $93.5 million or 103.542% of the principal amount of such notes plus accrued and unpaid interest and the redemption of the remaining senior subordinated notes for $23.6 million or 103.292% of the principal amount of such notes plus accrued and unpaid interest; and repayment of a $8.5 million mortgage obligation with a financial institution (the acquisition together with the foregoing financing transactions are referred to herein collectively as the "Transactions"). On May 31, 2004, the remaining outstanding 9.875% senior subordinated notes due 2007 were redeemed pursuant to the redemption notice. The Company financed the redemption with borrowings under its new revolving credit facility. The accompanying unaudited consolidated financial statements for the periods prior to May 1, 2004 (the "Predecessor") and for the period subsequent to April 30, 2004 (the "Successor") include the accounts of Amscan Holdings and its majority-owned and controlled entities. For the purposes of management's discussion and analysis of financial condition and results of operations, financial information for the Predecessor and the Successor have been 29 combined to compare quarterly and year to date information and therefore the term "Company" refers to Amscan Holdings, Inc. and its subsidiaries for all periods presented. THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003 PERCENTAGE OF NET SALES
THREE MONTHS ENDED JUNE 30, 2004 2003 ------ ------ Net sales ............................................ 100.0% 100.0% Cost of sales ........................................ 68.1 68.3 ------ ------ Gross profit .................................... 31.9 31.7 Operating expenses: Selling expenses ................................... 9.4 8.9 General and administrative expenses ................ 8.3 7.8 Art and development costs .......................... 2.8 2.3 Provision for doubtful accounts .................... 0.5 1.4 Non-recurring expenses related to the Transactions . 12.2 Restructuring charges .............................. 0.4 ------ ------ Total operating expenses ......................... 33.2 20.8 ------ ------ (Loss) income from operations .................... (1.3) 10.9 Interest expense, net ................................ 7.0 6.5 Undistributed loss in unconsolidated joint venture ... 0.4 Other income, net .................................... (0.1) ------ ------ (Loss) income before income tax expense and minority interests .......................................... (8.8) 4.5 Income tax (benefit) expense ......................... (3.5) 1.8 Minority interests ................................... ------ ------ Net (loss) income ............................... (5.3)% 2.7% ====== ======
NET SALES. Net sales of $96.3 million for the quarter ended June 30, 2004 were $4.7 million or 4.6% lower than net sales for the quarter ended June 30, 2003 principally due to a general softness in retail markets as well as lower net sales to party superstores, as certain national chains rationalized inventories during the first half of 2004 and certain seasonal shipments shifted from the second quarter into the latter half of 2004. In addition, during the second quarter of 2004, we experienced inventory shortages on certain products related to a production disruption at one of the Company's foreign vendors. The decrease in sales was partially offset by higher net international sales, principally as a result of foreign currency exchange fluctuations as well as increases in sales volume. GROSS PROFIT. Gross profit margin for the second quarter of 2004 was 31.9%, or 20 basis points higher as compared to the second quarter of 2003. The improvement in gross profit margin principally reflects the rationalization of our metallic balloon operations and the elimination of redundant facilities costs incurred through April 2003 arising from the Company's transition from four to three east coast distribution facilities, which were partially offset by an increase in cost of sales as a result of the write-up of inventories based on purchase accounting. OPERATING EXPENSES. Selling expenses of $9.1 million for the quarter ended June 30, 2004 were $0.1 million higher than for the second quarter of 2003 principally due to increased showroom expenses. As a percent of net sales, selling expenses were 9.4%, or 0.5% higher than in 2003 as the decrease in sales during second quarter of 2004 occurred principally in non-commissioned sales. General and administrative expenses of $8.0 million for the quarter ended June 30, 2004 were $0.1 million higher than for the second quarter of 2003. As a percentage of net sales, general and administrative expenses were 8.3% for the second quarter of 2004, or 0.5% higher than in 2003. The net increase in general and administrative expenses principally reflects management fees to our Principal Investors and higher amortization of other intangible assets, based on our preliminary purchase price allocation, partially offset by the elimination of certain general and 30 administrative expenses, as a result of the Company having contributed its metallic balloon distribution operations located in Mexico to a newly created joint venture in December 2003. The new joint venture distributes certain metallic balloons principally in Mexico and Latin America. Provision for doubtful accounts for the quarter ended June 30, 2004 was $0.5 million or 0.5% of net sales, as compared to $1.4 million or 1.4% of net sales for the quarter ended June 30, 2003. During the second quarter of 2003, a customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and as a result, the Company charged $1.6 million to the provision for doubtful accounts during the second quarter of 2003. This customer accounted for approximately 2.6% of the Company's consolidated net sales for the three months ended June 30, 2003. Art and development costs of $2.7 million for the quarter ended June 30, 2004 were $0.4 million higher as compared to the second quarter of 2003 principally due to increased development of custom product lines. As a percentage of net sales, art and development costs were 2.8% for the second quarter of 2004 or 0.5% higher than the second quarter of 2003. During the three months ended June 30, 2003, the Company incurred restructuring charges of $0.5 million, resulting from the consolidation of certain domestic and foreign distribution operations and the integration of M&D Industries into its balloon operations. In connection with the merger in April 2004, the Company has recorded non-recurring expenses of $11.8 million comprised of $6.2 million of debt retirement costs and the write-off of $5.5 million of deferred financing costs associated with the repayment of debt in connection with the Transactions. INTEREST EXPENSE. Interest expense, net, of $6.8 million for the three months ended June 30, 2004 was $0.2 million higher than for the three months ended June 30, 2003, principally due to the impact of higher average borrowings partially offset by lower interest rates. UNDISTRIBUTED LOSS IN UNCONSOLIDATED JOINT VENTURE. Undistributed loss in unconsolidated joint venture represents our share of the venture's losses, including the elimination of intercompany profit in the joint venture's inventory at June 30, 2004. INCOME TAXES. Income taxes for the second quarter of 2004 and 2003 were based upon estimated consolidated effective income tax rates of 39.5% for the years ending December 31, 2004 and 2003. 31 SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003 PERCENTAGE OF NET SALES
SIX MONTHS ENDED JUNE 30, 2004 2003 ------ ------ Net sales ............................................. 100.0% 100.0% Cost of sales ......................................... 66.9 67.7 ------ ------ Gross profit ..................................... 33.1 32.3 Operating expenses: Selling expenses ................................... 9.3 9.0 General and administrative expenses ................ 7.9 7.9 Art and development costs .......................... 2.6 2.4 Provision for doubtful accounts .................... 0.5 1.0 Non-recurring expenses related to the Transactions . 6.0 Restructuring charges .............................. 0.4 ------ ------ Total operating expenses ......................... 26.3 20.7 ------ ------ Income from operations ........................... 6.8 11.6 Interest expense, net ................................. 6.7 6.5 Undistributed loss in unconsolidated joint venture .... 0.2 Other income, net ..................................... ------ ------ (Loss) income before income tax expense and minority interests .................................. (0.1) 5.1 Income tax (benefit) expense .......................... 2.0 Minority interests .................................... ------ ------ Net (loss) income ................................ (0.1)% 3.1% ====== ======
NET SALES. Net sales of $196.8 million for the six months ended June 30, 2004 were $4.0 million or 2.0% lower than net sales for the six months ended June 30, 2003 principally due to a general softness in retail markets as well as lower net sales to party superstores, as certain national chains rationalized inventories during the first half of 2004 and certain seasonal shipments shifted from the second quarter into the latter half of 2004. In addition, during the second quarter of 2004, we experienced inventory shortages on certain products related to a production disruption at one of our foreign vendors. The decrease in sales was partially offset by higher net international sales, principally as a result of foreign currency exchange fluctuations as well as increases in sales volume. GROSS PROFIT. Gross profit margin for the six months ended June 30, 2004 was 33.1% or 80 basis points higher than for the comparable period in 2003. The improvement in gross profit margin principally reflects manufacturing, distribution and other synergies arising from the completion of integration of M&D Industries, Inc., our 2002 balloon business acquisition, the rationalization of our metallic balloon operations and the elimination of redundant distribution costs incurred in the first quarter of 2003 arising from the transition from four to three east coast distribution facilities. These improvements were partially offset by the increase in cost of sales as a result of the write-up of inventories in purchase accounting. OPERATING EXPENSES. Selling expenses of $18.4 million for the six months ended June 30, 2004 were $0.3 million higher than for the six months ended June 30, 2003, primarily due to increased showroom expenses. As a percentage of net sales, selling expenses were 9.3%, or 0.3% higher than in 2003, as the decrease in sales during the first half of 2004 occurred principally in non-commissioned sales. General and administrative expenses of $15.6 million for the six months ended June 30, 2004 were $0.2 million lower than for the six months ended June 30, 2004. As a percentage of net sales, general and administrative expenses were 7.9% for each the six months ended June 30, 2004 and 2003, respectively. The net decrease in general and administrative expenses principally reflects lower consulting and professional fees and the elimination of general and administrative expenses as a result of the closure, in 2003, of certain international facilities and the contribution, in December 2003, of our metallic balloon distribution operations located in Mexico to a newly created joint venture. The 32 joint venture distributes certain metallic balloons principally in Mexico and Latin America. These decreases in general and administrative expenses were partially offset by management fees to our Principal Investors and higher amortization of other intangible assets, based on a preliminary purchase price allocation. Art and development costs of $5.1 million for the six months ended June 30, 2004 were $0.3 million higher as compared to 2003 principally due to increased development of custom product lines. As a percentage of net sales, art and development costs were 2.6% for the six months ended June 30, 2004 or 0.2% higher than in 2003. Provision for doubtful accounts for the six months ended June 30, 2004 was $1.1 million or 0.5% of net sales, as compared to $2.0 million or 1.0% of net sales for six months ended June 30, 2003. During the second quarter of 2003, a customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code and, as a result, the Company charged $1.6 million to the provision for doubtful accounts during the second quarter of 2003. This customer accounted for approximately 1.7% of the Company's consolidated net sales for the six months ended June 30, 2003. In connection with the merger in April 2004, the Company has recorded non-recurring expenses of $11.8 million comprised of $6.2 million of debt retirement costs and the write-off of $5.5 million of deferred financing costs associated with the repayment of debt in connection with the Transactions. During the six months ended June 30, 2003, the Company incurred restructuring charges of $0.8 million, resulting from the consolidation of certain domestic and foreign distribution operations, and the integration of M&D Industries, Inc. into our balloon operations. INTEREST EXPENSE. Interest expense, net, of $13.1 million for the six months ended June 30, 2004 was $0.1 million lower than for the six months ended June 30, 2003, principally due to the impact of lower interest rates partially offset by higher average borrowings. UNDISTRIBUTED LOSS IN UNCONSOLIDATED JOINT VENTURE. Undistributed loss in unconsolidated joint venture represents our share of the venture's start-up losses, including the elimination of intercompany profit in the joint venture's inventory on hand at June 30, 2004. INCOME TAXES. Income taxes for the six months ended June 30, 2004 and 2003 were based upon estimated consolidated effective income tax rates of 39.5% for the years ending December 31, 2004 and 2003. LIQUIDITY AND CAPITAL RESOURCES Our new senior secured credit facility contains financial covenants and maintenance tests, including a minimum interest coverage test and a maximum total leverage test, and restrictive covenants, including restrictions on our ability to make capital expenditures or pay dividends. Our new senior secured credit facility is secured by substantially all of our assets and the assets of some of our subsidiaries, and by a pledge of all of our domestic subsidiaries' capital stock and a portion of our wholly owned foreign subsidiaries' capital stock. The Company's new term loan provides for amortization (in quarterly installments) of 1.0% per annum through June 30, 2010, and will then amortize in equal quarterly payments through June 30, 2012. The new term loan bears interest, at the option of the Company, at the index rate plus 1.75% per annum or at LIBOR plus 2.75% per annum. At June 30, 2004, the new term loan was $205.0 million and the floating interest rate on the new term loan was 3.96%. The Company entered into an interest rate swap transaction on June 25, 2004 with a financial institution initially covering $10.5 million of its outstanding borrowings under the new term loan. The notional amount, ranging from $10.5 million to $37.0 million, will vary over time and is covered by an interest rate swap contract. Revolving loans under the new senior credit facility expire on April 30, 2010 and bear interest, at the option of the Company, at the index rate plus, based on performance, a margin ranging from 0.75% to 1.50% per annum, or at LIBOR plus, based on performance, a margin ranging from 1.75% to 2.50% per annum. At June 30, 2004, the Company 33 had borrowings under the new revolver totaling $11.6 million and the floating interest rate on the revolver was 4.51% at June 30, 2004. Standby letters of credit totaling $7.1 million were outstanding and the Company had borrowing capacity of approximately $31.3 million under the terms of the revolver at June 30, 2004. On April 30, 2004, in connection with the merger, the then existing senior secured credit facility of $147.7 million was repaid in addition to the termination of all commitments under that facility. At June 30, 2004 we have a 400,000 Canadian dollar denominated revolving credit facility which bears interest at the Canadian prime rate plus 0.6% and expires on June 30, 2005, a 1.0 million British Pound Sterling denominated revolving credit facility which bears interest at the U.K. base rate plus 1.75% and expires on May 31, 2005, and a $1.0 million revolving credit facility which bears interest at LIBOR plus 1.0% and expires on December 31, 2004. We expect to renew these revolving credit facilities upon expiration. No borrowings were outstanding under these revolving credit facilities at June 30, 2004. Long-term borrowings at June 30, 2004 include a mortgage note with the New York State Job Development Authority of $8.7 million which requires monthly payments based on a 180-month amortization period with a balloon payment upon maturity in January 2010. The mortgage note bears interest at the rate of 3.03%, and is subject to review and adjustment semi-annually based on the New York State Job Development Authority's confidential internal protocols. The mortgage note relates to a distribution facility and is collateralized by the related real estate asset located in Chester, New York. On April 30, 2004, in connection with the Transactions, the first lien mortgage note of $8.5 million was paid in full. The first lien mortgage note bore interest at LIBOR plus 2.75%. However, we utilized an interest rate swap agreement to effectively fix the loan rate at 8.40% for the term of the loan and the related interest rate swap agreement was terminated at a cost of $0.7 million on April 30, 2004 in connection with the Transactions. In connection with the Transactions on April 30, 2004, the Company redeemed all outstanding shares of Series A Redeemable Convertible Preferred Stock at a redemption price per share equal to $182,000 in cash, together with accrued and unpaid dividends. The Company has several non-cancelable operating leases principally for office, distribution and manufacturing facilities, showrooms and warehouse equipment. These leases expire on various dates through 2017 and generally contain renewal options and require the Company to pay real estate taxes, utilities and related insurance costs. Rent expense for the six months ended June 30, 2004 and 2003, totaled $5.9 million and $6.5 million, respectively. The minimum lease payments currently required under non-cancelable operating leases for the year ending December 31, 2004 approximate $12.5 million. In connection with the Transactions, we executed a management agreement with our Principal Investors, Berkshire Partners LLC and Weston Presidio. Pursuant to the management agreement, Berkshire Partners LLC and Weston Presidio will be paid annual management fees of $0.8 million and $0.4 million, respectively. Although the indenture governing the 8.75% senior subordinated notes will permit the payments under the management agreement, such payments will be restricted during an event of default under the notes and will be subordinated in right of payment to all obligations due with respect to the notes in the event of a bankruptcy or similar proceeding of Amscan. We expect that cash generated from operating activities and availability under our new senior secured credit facility will be our principal sources of liquidity. Based on our current level of operations, we believe our cash flow from operations and available cash and available borrowings under our new senior secured credit facility will be adequate to meet out liquidity needs for at least the next twelve months. We cannot assure you, however, that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our new senior secured credit facility in an amount sufficient to enable us to repay our indebtedness, including the notes, or to fund our other liquidity needs. CASH FLOW DATA - SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003 Net cash provided by operating activities during the six months ended June 30, 2004 and 2003, totaled $14.4 million and $8.8 million, respectively. Net cash flow provided by operating activities before changes in operating 34 assets and liabilities for the six months ended June 30, 2004 and 2003, was $21.5 million and $19.4 million, respectively. Changes in operating assets and liabilities for the six months ended June 30, 2004 and 2003, resulted in the use of cash of $7.1 million and $10.6 million, respectively. During the six months ended June 30, 2004, net cash used in investing activities of $534.6 million consisted of cash paid of $530.0 million to consummate the Transactions in connection with the merger on April 30, 2004 and $4.8 million additional investments in distribution and manufacturing equipment, partially offset by proceeds from the sales of equipment and available-for-sale securities. Net cash used in investing activities during the six months ended June 30, 2003 of $7.5 million primarily consisted of additional investments in distribution and manufacturing equipment. During the six months ended June 30, 2004, net cash provided by financing activities of $490.2 million included proceeds totaling $378.9 million from short-term borrowings under the revolver and debt issued in connection with the Transactions, net of deferred financing costs of $12.7 million. Net cash provided by financing activities for the six months ended June 30, 2004, also included capital contributions in connection with the merger and the repayment of a note receivable by an employee partially offset by scheduled payments on the then existing term loan and other long-term obligations, a required prepayment of the then existing term loan of $20.2 million based on our excess cash flows for the year ended December 31, 2003 and debt retirement costs totaling $6.2 million paid in connection with the Transactions. During the six months ended June 30, 2003, net cash used in financing activities of $1.6 million consisted of the scheduled payment on the then existing term loan and other long-term obligations, the purchase of common stock from the Chief Executive Officer, partially offset by proceeds from the exercise of stock options and the repayment of the note from the Chief Executive Officer. LEGAL PROCEEDINGS The Company is a party to certain claims and litigation in the ordinary course of business. The Company does not believe any of these proceedings will result, individually or in the aggregate, in a material adverse effect on its financial condition or future results of operations. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This quarterly report on Form 10-Q contains "forward-looking statements." Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "project" or "continue" or the negative thereof and similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this quarterly report and in any public statements we make may turn out to be wrong. They can be affected by inaccurate assumptions we might make or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. Actual results may vary materially. Investors are cautioned not to place undue reliance on any forward-looking statements. Important factors that could cause actual results to differ materially from the forward-looking statements, include, but are not limited to: our inability to satisfy our debt obligations, the reduction of volume of purchases by one or more of our large customers, our inability to collect receivables from our customers, the termination of our licenses, our inability to identify and capitalize on changing design trends and customer preferences, changes in the competitive environment, increases in the costs of raw materials and the possible risks and uncertainties that have been noted in reports filed by us with the Securities and Exchange Commission, including our annual report on Form 10-K for the year ended December 31, 2003. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our earnings are affected by changes in interest rates as a result of our variable rate indebtedness. However, we have utilized interest rate swap agreements to manage the market risk associated with fluctuations in interest rates. If market interest rates for our variable rate indebtedness averaged 2% more than the interest rate actually paid for the 35 three months ended June 30, 2004 and 2003, our interest expense, after considering the effects of our interest rate swap agreements, would have increased, and income before income taxes and minority interest would have decreased, by $1.3 million and $0.6 million, respectively. If market interest rates for our variable rate indebtedness averaged 2% more than the interest rate actually paid for the six months ended June 30, 2004 and 2003, our interest expense, after considering the effects of our interest rate swap agreements, would have increased, and income before income taxes and minority interest would have decreased, by $1.7 million and $1.3 million, respectively. These amounts are determined by considering the impact of the hypothetical interest rates on our borrowings and interest rate swap agreements. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a change of such magnitude, management would likely take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that we would take and their possible effects, the sensitivity analysis assumes no changes in our financial structure. Our earnings are also affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies, predominately in European countries, as a result of the sales of our products in foreign markets. Although we periodically enter into foreign currency forward contracts to hedge against the earnings effects of such fluctuations, we may not be able to hedge such risks completely or permanently. A uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which our foreign sales are denominated would have resulted in a decrease in gross profit of $0.4 million for the three months ended June 30, 2004 and 2003. A uniform 10% strengthening in the value of the U.S. dollar relative to the currencies in which our foreign sales are denominated would have resulted in a decrease in gross profit of $0.9 million and $0.8 million for the six months ended June 30, 2004 and 2003, respectively. These calculations assume that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, which could change the U.S. dollar value of the resulting sales, changes in exchange rates may also affect the volume of sales or the foreign currency sales price as competitors' products become more or less attractive. Our sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency prices. ITEM 4. CONTROLS AND PROCEDURES Based on an evaluation of the effectiveness of the Company's disclosure controls and procedures performed by the Company's management, with the participation of the Company's Chief Executive Officer and its Chief Financial Officer, as of the end of the period covered by this report, the Company's Chief Executive Officer and its Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective. As used herein, "disclosure controls and procedures" means controls and other procedures of the Company that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no changes in the Company's internal control over financial reporting identified in connection with the evaluation described in the preceding paragraph that occurred during the Company's fiscal quarter ended June 30, 2004 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 36 PART II ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES OF EQUITY SECURITIES a) Not applicable. b) Not applicable. c) On April 30, 2004, the Company issued 1,000 shares of its Common Stock, par value $0.10, upon consummation of the merger included in the Transactions. These shares were not publicly offered and were issued to AAH Holdings Corporation for an aggregate purchase price of $551 million. The Company's offering of these shares was exempt from registration under the Securities Act of 1933 pursuant to Rule 506 of Regulation D thereunder. d) Not applicable. e) Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 21, 2004, the Company held an annual meeting of stockholders whereby the stockholders of the Company approved the agreement and plan of merger, dated as of March 26, 2004, between the Company, AAH Holdings Corporation and AAH Acquisition Corporation, and re-elected Messrs. O'Toole, DiSabato, Harrison, Mehra and Rittenberg as directors of Amscan. The agreement and plan of merger dated as of March 26, 2004 was approved by the following number of votes: For Against Abstain --- ------- ------- 1,258.709 -- -- The re-election of Messrs. O'Toole, DiSabato, Harrison, Mehra and Rittenberg as directors of Amscan was was approved by the following number of votes: For Against Abstain --- ------- ------- 1,258.709 -- -- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 3(1) Amended Articles of Incorporation of Anagram International, Inc. 3(2) By-Laws of Anagram International, Inc. 3(3) Articles of Incorporation of Anagram International Holdings, Inc. 3(4) By-Laws of Anagram International Holdings, Inc. 3(5) Articles of Organization of Anagram International, LLC. 3(6) Operating Agreement of Anagram International, LLC. 37 3(7) Certificate of Formation of Anagram Eden Prairie Property Holdings LLC. 3(8) Plan of Merger of Am-Source, Inc. into Am-Source, LLC dated February 28, 2000 and Articles of Organization of Am-Source, LLC. 3(9) Operating Agreement of Am-Source, LLC. 3(10) Certificate of Incorporation of M&D Industries, Inc. 3(11) By-Laws of M&D Industries, Inc. 4(1) Indenture, dated as of April 30, 2004, by and among the Company, the Guarantors named therein and The Bank of New York with respect to the 8.75% Senior Subordinated Notes due 2014. 4(2) First Supplemental Indenture, dated as of June 21, 2004 by and among the Company, the Guarantors named therein and The Bank of New York with respect to the 8.75% Senior Subordinated Notes due 2014. 4(3) Exchange and Registration Rights Agreement dated April 30, 2004 by and among the Company, the Guarantors named therein and Goldman, Sachs & Co. and Credit Suisse First Boston LLC. 10(1) Credit and Guaranty Agreement, dated as of April 30, 2004, by and among AAH Holdings Corporation, Amscan Holdings, Inc., certain subsidiaries of Amscan Holdings, Inc., Goldman Sachs Credit Partners, L.P., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent, General Electric Capital Corporation, as Administrative Agent and Collateral Agent, and J.P. Morgan Securities Inc., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent. 10(2) Counterpart Agreement, dated as of July 16, 2004, of Anagram International, LLC to the Credit and Guaranty Agreement. 10(3) Purchase Agreement dated April 27, 2004 by and among AAH Holdings Corporation, Amscan Holdings, Inc., the Guarantors named therein and Goldman, Sachs & Co. and Credit Suisse First Boston LLC. 10(4) Stockholders Agreement of AAH Holdings Corporation dated as of April 30, 2004. 10(5) Amendment No. 1 to the Stockholders Agreement of AAH Holdings Corporation dated as of May 24, 2004. 10(6) 2004 Equity Incentive Plan of AAH Holdings Corporation. 31(1) Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31(2) Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32 Certification of Chief Executive and Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 38 b) Reports on Form 8-K On April 2, 2004, the Company filed a Current Report on Form 8-K dated April 2, 2004 (File No. 000-21827) responding to Item 5 and reporting that the Company commenced a cash tender offer and consent solicitation for any and all of its outstanding $110 million aggregate principal amount of 9.875% Senior Subordinated Notes due 2007. On April 14, 2004, the Company filed a Current Report on Form 8-K dated April 14, 2004 (File No. 000-21827) responding to Item 5 and reporting the announcement of the Company's expected offering of debt under Rule 144A and Regulation S of $175 million principal amount of senior subordinated notes due 2014. On April 16, 2004, the Company filed a Current Report on Form 8-K dated April 16, 2004 (File No. 000-21827) responding to Item 5 and reporting the satisfaction of the conditions contained in its cash tender offer and consent solicitation for its outstanding $110 million aggregate principal amount of 9.875% Senior Subordinated Notes due 2007. On April 29, 2004, the Company filed a Current Report on Form 8-K dated April 23, 2004 (File No. 000-21827) responding to Item 12 and reporting the results for the quarter ended March 31, 2004. On May 6, 2004, the Company filed a Current Report on Form 8-K dated April 30, 2004 (File No. 000-21827) responding to Item 5 and reporting the acceptance of $87.2 million of notes in its tender offer for its outstanding $110 million aggregate principal amount of 9.875% Senior Subordinated Notes due 2007. 39 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMSCAN HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------ Michael A. Correale Chief Financial Officer (on behalf of the registrant and as principal Date: August 13, 2004 financial and accounting officer) 40 EX-3.1 2 b51510asexv3w1.txt AMENDED ARTICLES OF INCORPORATION - ANAGRAM INTERNATIONAL, INC. EXHIBIT 3(1) ARTICLES OF INCORPORATION OF ANAGRAM INC. The undersigned, being a natural person of full age, for the purpose of forming a corporation under and pursuant to the provisions of the Minnesota Business Corporation Act, being Chapter 301, Minnesota Statutes Annotated, does hereby adopt the following Articles of Incorporation. ARTICLE I. The name of this corporation shall be: Anagram Inc. ARTICLE II. The purposes and powers of this corporation shall be: (a) General business purposes. (b) Marketing products and services of all types. (c) To acquire, hold, mortgage, pledge or dispose of the shares, bond, securities and other evidences of indebtedness of any domestic or foreign corporation. (d) To take, lease, purchase or otherwise acquire, and to own, use, hold, sell, convey, exchange, lease, mortgage, work, improve, develop, divide and otherwise handle, deal in, and dispose of real estate, real property, and any interest or right therein. To erect, construct, maintain, improve, rebuild, enlarge, alter, manage and control, directly or through ownership of stock in any corporation, any and all kinds of buildings, houses, stores, offices, shops, warehouses, factories, mills, machinery and plants, and any and all other structures and erections which may at any time be necessary, useful or advantageous, for the purposes of the corporation, and which lawfully may be done under the laws of the State of Minnesota. (e) To make, enter into, perform and carry out contracts for constructing, building, altering, improving, repairing, decorating, maintaining, furnishing and fitting up buildings, tenements and structures of every description, and to advance money to and enter into agreements of all kinds with builders, contractors, property owners and others for said purpose. (f) To purchase or otherwise acquire, own, mortgage, pledge, sell, assign and transfer, or otherwise dispose of, to invest, trade, deal in and deal with goods, wares, and merchandise and personal property of every class and description; to acquire and pay for in cash, stocks or bonds of this corporation, or otherwise, the good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of any person, firm, association or corporation; to acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage or otherwise dispose of letters patent of the United States or any foreign country, patent rights, licenses and privileges, inventions, improvements and processes, copyrights, trademarks and trade names, relating to or useful in connection with any business of this corporation. (g) To enter into, make and perform contracts of every kind and description with any person, firm, association, corporation, municipality, county, state, body politic or government or colony or dependency thereof, to borrow money for any of the purposes of the corporation, from time to time, to draw, make, accept, endorse, execute and issue promissory notes, drafts, bills of exchange, warrants, bonds, debentures and other negotiable or non-negotiable instruments and evidences of indebtedness, and to secure the payment of any thereof and of the interest thereon by mortgage upon or pledge, conveyance or assignment in trust or the whole or any part of the property of the corporation, whether at the time owned or thereafter acquired, and to sell, pledge, or otherwise dispose of such bonds or other obligations of the corporation, for its corporate purposes. (h) To purchase, hold, sell and transfer the shares of its own capital stock. (i) To have one or more offices, within or without the State of Minnesota, to carry on all or any of its operations and business and, without restriction or limit as to amount, to purchase or otherwise acquire, hold, own, mortgage, sell, convey or otherwise dispose of real property of every class and description in any of the states, districts, territories or colonies of the United States, and in any and all foreign countries, subject to the laws of such state, district, territory, colony or country; and, in general, to exercise and to have such other powers and purposes as may be reasonably incidental to or necessary for the exercise of any of the powers hereinabove specified. (j) To do each and all of the things aforesaid for itself, or as agent, nominee, broker, factor, consignee, associate, joint venturer, or partner of or with other persons, firms, partnerships, general or limited, associations, or corporations; and to do the same as fully and to the same extent as natural persons might or could do, including the formation or entering into joint ventures or general or limited partnerships or associations to do any of the things aforesaid and becoming and acting as a joint venturer, general or limited partners, or associate or member therein. (k) The objects and purposes specified in the foregoing paragraphs shall, except where otherwise expressed, be in nowise limited or restricted by reference to, or inference from the terms of any other clause in these Articles of Incorporation, but the objects and purposes specified in each of the foregoing clauses of this Article shall be regarded as independent objects and purposes and shall be in addition to any other powers of corporations having general business purposes under the Minnesota Business Corporation Act. -2- ARTICLE III. The location and post office address of its registered office within the State of Minnesota shall be 1800 Midwest Plaza Building, Minneapolis, Minnesota, 55402. ARTICLE IV. The time for the commencement of this corporation shall be the date upon which these Articles of Incorporation are filed in the office of the Secretary of State of Minnesota, and its duration shall be perpetual. ARTICLE V (a) The capital stock of this corporation shall consist of Twenty-five Thousand (25,000) shares of common stock at One Dollar ($1.00) par value. (b) No holder of stock of this corporation shall be entitled to any cumulative voting rights. (c) The capital stock of this corporation shall be issued in the manner, at the times, in such amounts, and for such consideration in money or property or both, as the Board of Directors may, from time to time, determine. The Board of Directors shall have the authority to fix the terms, provisions and conditions of, and authorize the issuance of options, warrants, or rights to purchase or subscribe for shares of its common stock, including the price or prices at which shares may be purchased or subscribed for. (d) No holder of stock of this corporation shall have any preferential, pre-emptive, or other rights of subscription to any shares of any class of stock of this corporation allotted or sold or to be allotted or sold and now or hereafter authorized, or to any obligations or securities convertible into any class of stock of this corporation, nor any right of subscription to any part thereof. ARTICLE VI. The corporation shall indemnify its officers, directors, employees and agents to the full extent permitted by the laws of the State of Minnesota, as now in effect or as the same may hereafter be amended. ARTICLE VII. The amount of stated capital with which this corporation shall begin business shall be the sum of One Thousand Dollars ($1,000.00). ARTICLE VIII. The name and post office address of the incorporator forming this corporation is: Ralph Strangis 1800 Midwest Plaza Minneapolis, Minnesota 55402 -3- ARTICLE IX (a) The management of the corporation shall be vested in a Board of Directors whose number shall be determined in accordance with the Bylaws of this corporation. The first Board of Directors of the corporation, who shall hold office until the next annual meeting of shareholders and until their successors are elected shall consist of: Ralph Strangis 1800 Midwest Plaza Minneapolis, Minnesota 55402 Michael D. Goldner 1800 Midwest Plaza Minneapolis, Minnesota 55402 Andris A. Baltins 1800 Midwest Plaza Minneapolis, Minnesota 55402 (b) The Board of Directors shall have the authority to make and alter Bylaws, subject to the power of the stockholders to change or repeal such Bylaws. IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 17th day of June, 1977. In the Presence Of: /s/ Illegible --------------------------------------- /s/ Victoria A. Nuget - ------------------------------------- /s/ Marcia L. Olson - -------------------------------------- State of Minnesota ) ) ss.: County of Hennepin ) On this 17th day of June, 1977, before me a notary public within and for said county, personally appeared Ralph Strangis to me known to be the person named in and who executed the foregoing Articles of Incorporation, and he acknowledged that he executed the same as his free act and deed and for the uses and purposes therein expressed. /s/ Marcia L. Olson [SEAL] -4- CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ANAGRAM INC. We, the undersigned, Garry Kieves and Rick Keives, President and Vice President and Secretary, respectively, of ANAGRAM INC., a Minnesota corporation, do hereby certify that resolutions as hereinafter set forth were adopted by a unanimous action in writing signed by all of the stockholders of Anagram Inc., for the purpose of amending the Articles of Incorporation of the corporation. WHEREAS, the Board of Directors has deemed it advisable to change the corporate name of the corporation and has proposed an amendment to the Articles of Incorporation of the corporation; NOW THEREFORE, BE IT HEREBY RESOLVED, that Article I of the Articles of Incorporation be and the same is hereby amended by deleting the present Article I and inserting in lieu thereof the following Article I: "ARTICLE I. The name of this corporation shall be: Anagram International, Inc." RESOLVED, FURTHER, that the President or any Vice President, acting alone or with the Secretary or an Assistant Secretary, be and they each are hereby authorized and empowered to take any and all action necessary or required in order to file for record with the Secretary of State of Minnesota and in any other jurisdiction the foregoing amendment to the Articles of Incorporation and to take all other action necessary with respect to the change of name of the corporation. IN WITNESS WHEREOF, we have subscribed our names hereto this 25th day of February, 1982. In the Presence of: /s/ Illegible /s/ Garry Kieves - ------------------------------ ---------------------------------- Garry Kieves, President /s/ Marcia L. Olson /s/ R. Keives - ------------------------------ ---------------------------------- Rick Keives, Vice President and Secretary CERTIFICATE OF AMENDMENT ARTICLES OF INCORPORATION OF ANAGRAM INTERNATIONAL, INC. The undersigned, the Secretary of Anagram International, Inc., a Minnesota corporation (the "Corporation"), does hereby certify that pursuant to the provisions of Minnesota Statutes, Section 302A.135, the following resolutions were adopted by the unanimous action in writing by all of the Shareholder and all of the Directors of the Corporation on December 29, 1992. NOW, THEREFORE BE IT RESOLVED that the following amendment to the Articles of Incorporation is hereby adopted: ARTICLE V (a) The capital stock of this corporation shall consist of Twenty-five Thousand (25,000) shares of stock at One Dollar ($1.00) par value. (b) No holder of stock of this corporation shall be entitled to any cumulative voting rights. (c) The capital stock of this corporation shall be issued in the manner, at the times, in such amounts, and for such consideration in money or property or both, as the Board of Directors may, from time to time, determine. The Board of Directors shall have the authority to establish more than one class or series of stock, to designate the rights and preferences thereof and to fix the terms, provisions and conditions of, and authorize the issuance of options, warrants, or rights to purchase or subscribe for shares of its common stock, including the price or prices at which shares may be purchased or subscribed for. (d) No holder of stock of this corporation shall have any preferential, pre-emptive, or other rights of subscription to any shares of any class of stock of this corporation allotted or sold or to be allotted or sold and how or hereafter authorized, or to any obligations or securities convertible into any class of stock of this corporation, nor any right of subscription to any part thereof. IN WITNESS HEREOF, the undersigned has hereunto set his hand this 30th day of December, 1992. /s/ James Plutt ----------------------------------- Secretary EX-3.2 3 b51510asexv3w2.txt BY-LAWS OF ANAGRAM INTERNATIONAL, INC. EXHIBIT 3(2) BY-LAWS OF ANAGRAM INC. ARTICLE I. CORPORATE OFFICES AND SEAL Section 1.01. Offices. The corporation may have offices within the State of Minnesota or at such other places as the Board of Directors may from time to time appoint or the business of the corporation may require. Section 1.02. Seal. The corporate seal shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Minnesota." ARTICLE II. MEETING OF STOCKHOLDERS Section 2.01. Place and Time of Meetings. Meetings of the stockholders may be held at any place, within or without the State of Minnesota, designated by the Directors, and in the absence of such designation, it shall be held at the office of the corporation in the State of Minnesota. The Directors shall designate the time of day for each meeting and, in the absence of such designation, every meeting of the stockholders shall be held at 10:00 a.m. Section 2.02. Annual Meetings. Annual meetings of the stockholders shall be held at such time and place as shall be specified by the Board of Directors. At the annual meeting of stockholders, the stockholders shall elect, by a plurality vote, a Board of Directors, and shall transact such other business as may properly be brought before the meeting. Section 2.03. Notice of Annual Meetings. Written notice of the annual meeting of stockholders shall be mailed to each stockholder entitled to vote thereat, at such address as appears on the stock book of the corporation, at least ten (10) days prior to the meeting. Section 2.04. Special Meetings. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board, the President, any two or more Directors, or by one or more shareholders holding 10% or more of the shares entitled to vote on the matters to be presented to the meeting. Business transacted at all special meetings shall be confined to the objects stated in the call. Section 2.05. Notice of Special Meetings. Unless otherwise prescribed by statute, written notice of special meetings of stockholders, stating the time, place and object thereof, shall be sent to each stockholder entitled to vote thereat, at such address as appears on the books of the corporation, at least five (5) days before such meeting. Section 2.06. Quorum; Adjourned Meetings. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum, and the presence of such majority stockholders shall be required at all meetings of the stockholders for the transaction of business, except as otherwise provided by law, by the Articles of Incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented, any business may be transacted which might have been transacted at the meeting as originally notified. Section 2.07. Voting. At each meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person or by proxy appointed by an instrument in writing subscribed by such stockholder. Each stockholder shall, unless the Articles of Incorporation provide otherwise, have one vote for each share of stock having voting power, registered in his name on the books of the corporation. All elections shall be had and all questions decided by plurality vote. Section 2.08. Voting Record. The officer or agent having charge of the stock transfer books for shares of the corporation shall make a complete record -2- of the stockholders entitled to vote at each meeting of stockholders or any adjournment thereof, arranged in alphabetical order, with the address of and the number of shares held by each. Such records shall be produced and be kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. ARTICLE III. DIRECTORS Section 3.01. Powers. The property, affairs and business of the corporation shall be managed by the Board of Directors. In addition to the powers and authorities by these Bylaws expressly conferred upon it, the Board may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. Section 3.02. Number; Term of Office. Until the first meeting of stockholders, the number of directors shall be the number named in the Articles of Incorporation. Thereafter, the number of Directors shall be established by resolution of the stockholders, subject to the authority of the Board of Directors to increase the number of Directors as permitted by law. In the absence of such resolution, the number of Directors shall be the number last fixed by the stockholders or the Board of Directors, or the Articles of Incorporation. Directors need not be stockholders. Each of the Directors shall bold office until the annual meeting of stockholders next held after his election and until his successor shall have been elected and shall qualify, or until he shall resign, or shall have been removed. Section 3.03. Vacancies; Newly Created Directorships. Vacancies in the Board of Directors shall be filled for the unexpired term, by a majority of the remaining Directors of the Board. Newly created directorships resulting from an increase in the authorized number of Directors by action of the Board of Directors as permitted by Section 3.02 of these Bylaws may be filled by a two-thirds vote of the Directors serving at the time of such increase; and each person so elected shall be a Director until his successor is -3- elected by the stockholders, who may make such election at their next annual meeting or at any meeting duly called for that purpose. Section 3.04. Annual Meeting. As soon as practicable after each annual election of Directors, the Board of Directors shall meet at the office of the corporation, or at such other place within or without the State of Minnesota as designated by the Board of Directors, for the purpose of electing the officers of the corporation and for the transaction of such other business as may come before the meeting. Section 3.05. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time arid place as shall from time to time be determined by the Board of Directors. Section 3.06. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, or the Secretary upon 24 hours' notice to each Director, either personally, by telephone, or by mail or by telegram. A special meeting shall be called by the President or Secretary in like manner and on like notice upon the written request of a majority of the Board of Directors. Section 3.07. Participation by Telephone. Members of the Board of Directors or any committee designated by the Board, may participate in a meeting of the Board or of any such committee by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in such a manner shall constitute presence in person at such meeting. Section 3.08. Quorum. At all meetings of the Board of Directors, one-third of the Directors, but in no event fewer than two Directors other than where a Board of Directors consists of only one Director, shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of the majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute, by the Articles of Incorporation, or by these Bylaws. -4- Section 3.09. Executive Committee. The Board of Directors may, by unanimous affirmative action of the Board, designate two or more of their number to constitute an Executive Committee, which, to the extent determined by unanimous affirmative action of the Board, shall have and exercise the authority of the Board in the management of the corporation. The Executive Committee shall act only in the interval between meetings of the Board and shall be subject at all times to the control and direction of the Board. Section 3.10. Other Committees. The Board of Directors may designate one or more committees, each committee to consist of two or more of the Directors of the corporation, which, to the extent provided by the Board of Directors, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the corporation. Such committee or committees shall have such name or names as may be determined from time to time by the Board of Directors. Section 3.11. Compensation. Directors and members of committees of the Board of Directors, as such, shall not receive any stated salary for their services, but by resolution of the Board of Directors a fixed sum and expenses of attendance, if any, may be allowed for attendance at each meeting of the Board of Directors or any committee thereof. Nothing herein contained shall be construed to preclude any Director from serving the corporation in any other capacity and receiving compensation therefor. ARTICLE IV. OFFICERS Section 4.01. Number. The officers of the corporation shall be chosen by the Directors, and shall consist of a Chairman of the Board, (if one is elected by the Board), a President, one or more Vice Presidents, a Secretary, a Treasurer and such Assistant Secretaries and Assistant Treasurers and such other officers and agents as the Board of Directors from time to time shall elect or appoint. Any two offices, except those of President and Vice President, may be held by one person. -5- Section 4.02. Election; Term of Office; and Removal. At each annual meeting of the Board of Directors or at any special meeting of the Board of Directors called for such purpose, the Board shall elect, from within or without its number, a President, Vice President, Secretary, Treasurer, and such other officers as it may deem advisable. Such officers shall hold office until the next annual meeting of the Directors or until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time with or without cause by the Board of Directors. Section 4.03. Chairman of the Board. The Chairman of the Board, if one is elected, shall preside at all meetings of the stockholders and directors and shall have such other duties as may be prescribed from time to time, by the Board of Directors. Section 4.04. President. The President shall be the chief executive officer of the corporation. In the absence of the Chairman of the Board, he shall preside at all meetings of stockholders and directors; he shall be responsible for general and active management of the business of the corporation; and he shall see that all orders and resolutions of the Board are carried into effect. He may execute and deliver, in the name of the corporation, any deeds, mortgages, bonds, contracts or other instruments pertaining to the business of the corporation. He shall be an ex officio member of all standing committees and shall have powers and duties of supervision and management usually vested in the office of the President of a corporation. Section 4.05. Vice President. Any Vice President may, in the absence or disability of the President, perform the duties and exercise the powers of the President and shall perform such other duties as the Board of Directors shall prescribe. Section 4.06. Secretary. The Secretary shall attend all sessions of the Board of Directors and all meetings of stockholders and record all votes and minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for the standing committees when required. The Secretary shall perform such other duties and execute such other documents as may be prescribed by the Board of Directors -6- or the President under whose supervision he shall be. Any Assistant Secretary may, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as the Board of Directors shall prescribe. Section 4.07. Treasurer. The Treasurer shall have the custody of the corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. He may disburse the funds of the corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the President and directors at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the corporation. Any Assistant Treasurer, in the absence or disability of the Treasurer, may perform the duties and exercise the powers of the Treasurer and shall perform such other duties as the Board of Directors shall prescribe. Section 4.08. Vacancies. If the office of any officer or an agent becomes vacant by reason of his death, resignation, retirement, disqualification, removal from office or otherwise, the directors then in office may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred. Section 4.09. Delegation of Duties. In case of the absence of any officer of the corporation, or for any other reason that the Board may deem sufficient, the Board may delegate for the time being the powers and duties, or any of them of such officer to any other officer or to any directors. ARTICLE V. CERTIFICATES OF STOCK Section 5.01. Certificates. Certificates of stock of the corporation shall be numbered and shall be entered into the books of the corporation as they are -7- issued. Each such certificate shall exhibit the holder's name and number of shares, and shall be signed by the President or any Vice President and the Treasurer or the Assistant Treasurer, or the Secretary or Assistant Secretary. Section 5.02. Loss of Certificates. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit in such manner as the Board of Directors may require, and shall, if the Directors so require, give the corporation a bond of indemnity in form and amount and with one or more sureties satisfactory to the Board, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. ARTICLE VI. NOTICES Section 6.01. General. Whenever under the provisions of these Bylaws, notice is required to be given to any director, officer, or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing by telegram or by mail, and if by mail by depositing the same in the post office or letter box in a postpaid envelope, addressed to such stockholder, officer, or director at such address as appears on the books of the corporation, or in default of other address, to such officer, director, or stockholder at the general post office in Minneapolis, Minnesota, and such notice shall be deemed to be given at the time when the same shall be delivered to the telegraph company for transmission or thus mailed, as the case may be. Section 6.02. Waiver of Notice. Whenever any notice is required to be given to any stockholder, director or officer of the corporation under the provisions of these Bylaws or under the provisions of the Articles of Incorporation or by statute, a waiver thereof in writing signed by the person or persons entitled to such notice, shall be deemed equivalent to the giving of such notice. ARTICLE VII. INDEMNIFICATION Section 7.01. The corporation may indemnify such persons for such expenses and liabilities in such -8- manner, under such circumstances and to the extent as permitted by the laws of the State of Minnesota as now enacted or hereafter amended. ARTICLE VIII. AMENDMENTS Section 8.01. These Bylaws may be amended or altered by the Board of Directors at any meeting provided that notice of such proposed amendments shall have been given in the notice given to the directors of such meeting. Such authority in the Board of Directors is subject to the power of the stockholders to change or repeal such bylaws and the Board of Directors shall not make or alter any bylaws fixing their qualifications, classifications, term of office, or number, except that the Board of Directors may make or alter any bylaw to increase their number. -9- EX-3.3 4 b51510asexv3w3.txt ARTICLES OF INCORPORATION - ANAGRAM INTERNATIONAL HOLDINGS, INC. Exhibit 3(3) ARTICLES OF INCORPORATION OF ANAGRAM INTERNATIONAL HOLDINGS, INC. -O0O- The undersigned incorporator, being a natural person of full age, for the purpose of forming a corporation under Minnesota Statutes, Chapter 302A, hereby adopts the following Articles of Incorporation: ARTICLE I NAME The name of the corporation is Anagram International Holdings, Inc. ARTICLE II REGISTERED OFFICE The registered office of this corporation is located at 7700 Anagram Drive, Minneapolis, Minnesota 55344-7307. ARTICLE III INCORPORATOR The name and address of the incorporator are: Name Mailing Address ---- --------------- James Plutt 7700 Anagram Drive Minneapolis, Minnesota 55344-7307 ARTICLE IV CAPITAL The aggregate number of shares of stock which this corporation shall have the authority to issue is One Hundred Thousand (100,000) shares, par value $.0l per share. 1 ARTICLE V CLASSES AND SERIES In addition to, and not by way of limitation of, the powers granted to the Board of Directors by Minnesota Statutes, Chapter 302A, the Board of Directors of this corporation shall have the power and authority to fix by resolution any designation, class, series, voting power, preference, right, qualification, limitation, restriction, dividend, time and price of redemption, and conversion right with respect to any stock of this corporation. ARTICLE VI WRITTEN ACTION WITHOUT MEETING Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting by written action signed by a majority of the Board of Directors then in office, except as to those matters which require shareholder approval, in which case the written action shall be signed by all members of the Board of Directors then in office. ARTICLE VII CUMULATIVE VOTING DENIED No holder of stock of this corporation shall be entitled to any cumulative voting rights. ARTICLE VIII PRE-EMPTIVE RIGHTS DENIED No holder of stock of this corporation shall have any preferential, pre-emptive, or other rights of subscription to any shares of any class or series of stock of this corporation allotted or sold or to be allotted or sold and now or hereafter authorized, or to any obligations or securities convertible into any class or series of stock of this corporation, nor any right of subscription to any part thereof. 2 ARTICLE IX LIMITATION ON LIABILITY OF DIRECTORS No director of the corporation shall be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, provided that this Article shall not eliminate or limit the liability of a director to the extent provided by applicable law (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 302A.559 or 80A.23, Minnesota Statutes, (iv) for any transaction from which the director derived an improper personal benefit, or (v) for any act or omission occurring prior to the effective date of this Article. No amendment to or repeal of this Article shall apply to or have any effect on the liability or alleged liability of any director of the corporation for or with respect to any acts or omissions of such director occurring prior to such amendment or repeal. IN WITNESS WHEREOF, the incorporator has executed these Articles of Incorporation this 3rd day of March, 1993. INCORPORATOR: /s/ James Plutt ---------------------------------------------- James Plutt STATE OF MINNESOTA ) ) ss. COUNTY OF SCOTT ) The foregoing instrument was acknowledged before me this 3rd day of March, 1993. /s/ Patricia A. Morris ------------------------------------ Notary Public [SEAL] EX-3.4 5 b51510asexv3w4.txt BY-LAWS OF ANAGRAM INTERNATIONAL HOLDINGS, INC. EXHIBIT 3(4) BYLAWS OF ANAGRAM INTERNATIONAL HOLDINGS, INC. SHAREHOLDERS Section 1.01 Place of Meetings. Each meeting of the shareholders shall be held at the principal executive office of the Corporation or at such other place as may be designated by the Board of Directors or the Chief Executive Officer; provided, however, that any meeting called by or at the demand of a shareholder or shareholders shall be held in the county where the principal executive office of the Corporation is located. Section 1.02 Regular Meetings. Regular meetings of the shareholders may be held on an annual or other less frequent basis as determined by the Board of Directors; provided, however, that if a regular meeting has not been held during the immediately preceding 15 months, a shareholder or shareholders holding three percent or more of the voting power of all shares entitled to vote may demand a regular meeting of shareholders by written demand given to the Chief Executive Officer or Chief Financial Officer of the Corporation. At each regular meeting the shareholders shall elect qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting and may transact any other business, provided, however, that no business with respect to which special notice is required by law shall be transacted unless such notice shall have been given. Section 1.03 Special Meetings. A special meeting of the shareholders may be called for any purpose or purposes at any time by the Chief Executive Officer; by the Chief Financial Officer; by the Board of Directors or any two or more members thereof; or by one or more shareholders holding not less than ten percent of the voting power of all shares of the Corporation entitled to vote, who shall demand such special meeting by written notice given to the Chief Executive Officer or the Chief Financial Officer of the Corporation specifying the purposes of such meeting. Section 1.04 Meetings Held Upon Shareholder Demand. Within 30 days after receipt of a demand by the Chief Executive Officer or the Chief Financial Officer from any shareholder or shareholders entitled to call a meeting of the shareholders, it shall be the duty of the Board of Directors of the Corporation to cause a special or regular meeting of shareholders, as the case may be, to be duly called and held on notice no later than 90 days after receipt of such demand. If the Board fails to cause such a meeting to be called and held as required by this Section, the shareholder or shareholders making the demand may call the meeting by giving 1 notice as provided in Section 1.06 hereof at the expense of the Corporation. Section 1.05 Adjournments. Any meeting of the shareholders may be adjourned from time to time to another date, time and place. If any meeting of the shareholders is so adjourned, no notice as to such adjourned meeting need be given if the date, time and place at which the meeting will be reconvened are announced at the time of adjournment. Section 1.06 Notice of Meetings. Unless otherwise required by law, written notice of each meeting of the shareholders, stating the date, time and place and, in the case of a special meeting, the purpose or purposes, shall be given at least ten days and not more than 60 days prior to the meeting to every holder of shares entitled to vote at such meeting except as specified in Section 1.05 or as otherwise permitted by law. The business transacted at a special meeting of shareholders is limited to the purposes stated in the notice of the meeting. Section 1.07 Waiver of Notice. A shareholder may waive notice of the date, time, place and purpose or purposes of a meeting of shareholders. A waiver of notice by a shareholder entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a shareholder at a meeting is a waiver of notice of that meeting, unless the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting. Section 1.08 Voting Rights.Subdivision 1. A shareholder shall have one vote for each share held which is entitled to vote. Except as otherwise required by law, a holder of shares entitled to vote may vote any portion of the shares in any way the shareholder chooses. If a shareholder votes without designating the proportion or number of shares voted in a particular way, the shareholder is deemed to have voted all of the shares in that way. Subdivision 2. The Board of Directors may fix a date not more than 60 days before the date of a meeting of shareholders as the date for the determination of the holders of shares entitled to notice of and entitled to vote at the meeting. When a date is so fixed, only shareholders on that date are entitled to notice of and permitted to vote at that meeting of shareholders. Section 1.09 Proxies. A shareholder may cast or authorize the casting of a vote by filing a written appointment of a proxy with an officer of the Corporation at or before the meeting at which the appointment is to be effective. The shareholder may sign 2 or authorize the written appointment by telegram, cablegram or other means of electronic transmission setting forth or submitted with information sufficient to determine that the shareholder authorized such transmission. Any copy, facsimile, telecommunication or other reproduction of the original of either the writing or transmission may be used in lieu of the original, provided that it is a complete and legible reproduction of the entire original. Section 1.10 Quorum. The holders of a majority of the voting power of the shares entitled to vote at a shareholders meeting are a quorum for the transaction of business. If a quorum is present when a duly called or held meeting is convened, the shareholders present may continue to transact business until adjournment, even though the withdrawal of a number of the shareholders originally present leaves less than the proportion or number otherwise required for a quorum. Section 1.11 Acts of Shareholders. Subdivision 1. Except as otherwise required by law or specified in the Articles of Incorporation of the Corporation, the shareholders shall take action by the affirmative vote of the holders of the greater of (a) a majority of the voting power of the shares present and entitled to vote on that item of business or (b) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at a duly held meeting of shareholders. Subdivision 2. A shareholder voting by proxy authorized to vote on less than all items of business considered at the meeting shall be considered to be present and entitled to vote only with respect to those items of business for which the proxy has authority to vote. A proxy who is given authority by a shareholder who abstains with respect to an item of business shall be considered to have authority to vote on that item of business. Section 1.12 Action Without a Meeting. Any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by written action signed by all of the shareholders entitled to vote on that action. The written action is effective when it has been signed by all of those shareholders, unless a different effective time is provided in the written action. DIRECTORS Section 2.01 Number; Qualifications. Except as authorized by the shareholders pursuant to a shareholder control agreement or unanimous affirmative vote, the business and affairs of the Corporation shall be managed by or under the direction of a Board of one or more directors. Directors shall be natural persons. The shareholders at each regular meeting shall determine the number of 3 directors to constitute the Board, provided that thereafter the authorized number of directors may be increased by the shareholders or the Board and decreased by the shareholders. Directors need not be shareholders. Section 2.02 Term. Each director shall serve for an indefinite term that expires at the next regular meeting of the shareholders. A director shall hold office until a successor is elected and has qualified or until the earlier death, resignation, removal or disqualification of the director. Section 2.03 Vacancies. Vacancies on the Board of Directors resulting from the death, resignation, removal or disqualification of a director may be filled by the affirmative vote of a majority of the remaining members of the Board, though less than a quorum. Vacancies on the Board resulting from newly created directorships may be filled by the affirmative vote of a majority of the directors serving at the time such directorships are created. Each person elected to fill a vacancy shall hold office until a qualified successor is elected by the shareholders at the next regular meeting or at any special meeting duly called for that purpose. Section 2.04 Place of Meetings. Each meeting of the Board of Directors shall be held at the principal executive office of the Corporation or at such other place as may be designated from time to time by a majority of the members of the Board or by the Chief Executive Officer. A meeting may be held by conference among the directors using any means of communication through which the directors may simultaneously hear each other during the conference. Section 2.05 Regular Meetings. Regular meetings of the Board of Directors for the election of officers and the transaction of any other business shall be held without notice at the place of and immediately after each regular meeting of the shareholders. Section 2.06 Special Meetings. A special meeting of the Board of Directors may be called for any purpose or purposes at any time by any member of the Board by giving not less than two days' notice to all directors of the date, time and place of the meeting, provided that when notice is mailed, at least four days' notice shall be given. The notice need not state the purpose of the meeting. Section 2.07 Waiver of Notice; Previously Scheduled Meetings. Subdivision 1. A director of the Corporation may waive notice of the date, time and place of a meeting of the Board. A waiver of notice by a director entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a director at a meeting is a waiver of notice of that meeting, unless the director objects at the beginning of the meeting to the transaction 4 of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting. Subdivision 2. If the day or date, time and place of a Board meeting have been provided herein or announced at a previous meeting of the Board, no notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken of the date, time and place at which the meeting will be reconvened. Section 2.08 Quorum. The presence in person of a majority of the directors currently holding office shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time without further notice until a quorum is present. If a quorum is present when a duly called or held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of the directors originally present leaves less than the proportion or number otherwise required for a quorum. Section 2.09 Acts of Board. Except as otherwise required by law or specified in the Articles of Incorporation of the Corporation, the Board shall take action by the affirmative vote of a majority of the directors present at a duly held meeting. Section 2.10 Participation by Electronic Communications. A director may participate in a Board meeting by any means of communication through which the director, other directors so participating and all directors physically present at the meeting may simultaneously hear each other during the meeting. A director so participating shall be deemed present in person at the meeting. Section 2.11 Absent Directors. A director of the Corporation may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as a vote in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected. Section 2.12 Action Without a Meeting. An action required or permitted to be taken at a Board meeting may be taken without a meeting by written action signed by all of the directors. Any action, other than an action requiring shareholder approval, if the Articles of Incorporation so provide, may be taken by written action signed by the number of directors that would be required to take the same action at a meeting of the Board at which all 5 directors were present. The written action is effective when signed by the required number of directors, unless a different effective time is provided in the written action. When written action is permitted to be taken by less than all directors, all directors shall be notified immediately of its text and effective date. Section 2.13 Committees. Subdivision 1. A resolution approved by the affirmative vote of a majority of the Board may establish committees having the authority of the Board in the management of the business of the Corporation only to the extent provided in the resolution. Committees shall be subject at all times to the direction and control of the Board, except as provided in Section 2.14. Subdivision 2. A committee shall consist of one or more natural persons, who need not be directors, appointed by affirmative vote of a majority of the directors present at a duly held Board meeting. Subdivision 3. Section 2.04 and Sections 2.06 and 2.12 hereof shall apply to committees and members of committees to the same extent as those sections apply to the Board and directors. Subdivision 4. Minutes, if any, of committee meetings shall be made available upon request to members of the committee and to any director. Section 2.14 Special Litigation Committee. Pursuant to the procedure set forth in Section 2.13, the Board may establish a committee composed of one or more independent directors or other independent persons to determine whether it is in the best interests of the Corporation to pursue a particular legal right or remedy of the Corporation and whether to cause, to the extent permitted by law, the dismissal or discontinuance of a particular proceeding that seeks to assert a right or remedy on behalf of the Corporation. The committee, once established, is not subject to the direction or control of, or termination by, the Board. A vacancy on the committee may be filled by a majority vote of the remaining committee members. The good faith determinations of the committee are binding upon the Corporation and its directors, officers and shareholders to the extent permitted by law. The committee terminates when it issues a written report of its determinations to the Board. Section 2.15 Compensation. The Board may fix the compensation, if any, of directors. OFFICERS Section 3.01 Number and Designation. The Corporation shall have one or more natural persons exercising the functions of the 6 offices of Chief Executive Officer and Chief Financial Officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the Corporation, with such powers, rights, duties and responsibilities as may be determined by the Board, including, without limitation, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall have the powers, rights, duties and responsibilities set forth in these Bylaws unless otherwise determined by the Board. Any of the offices or functions of those offices may be held by the same person. Section 3.02 Chief Executive Officer. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Executive Officer (a) shall have the general active management of the business of the Corporation; (b) shall, when present, preside at all meetings of the shareholders and Board; (c) shall see that all orders and resolutions of the Board are carried into effect; (d) may maintain records of and certify proceedings of the Board and shareholders; and (e) shall perform such other duties as may from time be assigned by the Board. Section 3.03 Chief Financial Officer. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Financial Officer (a) shall keep accurate financial records for the Corporation; (b) shall deposit all monies, drafts and checks in the name of and to the credit of the Corporation in such banks and depositories as the Board shall designate from time to time; (c) shall endorse for deposit all notes, checks and drafts received by the Corporation as ordered by the Board, making proper vouchers therefor; (d) shall disburse corporate funds and issue checks and drafts in the name of the Corporation, as ordered by the Board; (e) shall render to the Chief Executive Officer and the Board, whenever requested, an account of all of such officer's transactions as Chief Financial Officer and of the financial condition of the Corporation; and (f) shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer from time to time. Section 3.04 President. Unless otherwise determined by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation. If an officer other than the President is designated Chief Executive Officer, the President shall perform such duties as may from time to time be assigned by the Board. Section 3.05 Vice Presidents. Any one or more Vice Presidents, if any, may be designated by the Board of Directors as Executive Vice Presidents or Senior Vice Presidents. During the absence or disability of the President, it shall be the duty of the highest ranking Executive Vice President, and, in the absence of any such Vice President, it shall be the duty of the highest ranking Senior Vice President or other Vice President, who shall be present at the time and able to act, to perform the duties of 7 the President. The determination of who is the highest ranking of two or more persons holding the same office shall, in the absence of specific designation of order of rank by the Board, be made on the basis of the earliest date of appointment or election, or in the event of simultaneous appointment or election, on the basis of the longest continuous employment by the Corporation. Section 3.06 Secretary. The Secretary, unless otherwise determined by the Board of Directors, shall attend all meetings of the shareholders and all meetings of the Board, shall record or cause to be recorded all proceedings thereof in a book to be kept for that purpose, and may certify such proceedings. Except as otherwise required or permitted by these Bylaws, the Secretary shall give or cause to be given notice of all meetings of the shareholders and all meetings of the Board. Section 3.07 Treasurer. Unless otherwise determined by the Board of Directors, the Treasurer shall be the Chief Financial Officer of the Corporation. If an officer other than the Treasurer is designated Chief Financial Officer, the Treasurer shall perform such duties as may from time to time be assigned by the Board. Section 3.08 Authority and Duties. In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors. Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present, an officer elected or appointed by the Board may, without the approval of the Board, delegate some or all of the duties and powers of an office to other persons. Section 3.09 Term.Subdivision 1. All officers of the Corporation shall hold office until their respective successors are chosen and have qualified or until their earlier death, resignation or removal. Subdivision 2. An officer may resign at any time by giving written notice to the Corporation. The resignation is effective without acceptance when the notice is given to the Corporation, unless a later effective date is specified in the notice. Subdivision 3. An officer may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present at a duly held Board meeting. Subdivision 4. A vacancy in an office because of death, resignation, removal, disqualification or other cause may, or in the case of a vacancy in the office of Chief Executive Officer or Chief Financial Officer shall, be filled for the unexpired portion of the term by the Board. 8 Section 3.10 Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors or by the Chief Executive Officer if authorized by the Board. INDEMNIFICATION Section 4.01 Indemnification. The Corporation shall indemnify its officers and directors for such expenses and liabilities, in such manner, under such circumstances, and to such extent, as required or permitted by Minnesota Statutes, Section 302A.521, as amended from time to time, or as required or permitted by other provisions of law. Section 4.02 Insurance. The Corporation may purchase and maintain insurance on behalf of any person in such person's official capacity against any liability asserted against and incurred by such person in or arising from that capacity, whether or not the Corporation would otherwise be required to indemnify the person against the liability. SHARES Section 5.01 Certificated and Uncertificated Shares.Subdivision 1. The shares of the Corporation shall be either certificated shares or uncertificated shares. Each holder of duly issued certificated shares is entitled to a certificate of shares. Subdivision 2. Each certificate of shares of the Corporation shall bear the corporate seal, if any, and shall be signed by the Chief Executive Officer, or the President or any Vice President, and the Chief Financial Officer, or the Secretary or any Assistant Secretary, but when a certificate is signed by a transfer agent or a registrar, the signature of any such officer and the corporate seal upon such certificate may be facsimiles, engraved or printed. If a person signs or has a facsimile signature placed upon a certificate while an officer, transfer agent or registrar of the Corporation, the certificate may be issued by the Corporation, even if the person has ceased to serve in that capacity before the certificate is issued, with the same effect as if the person had that capacity at the date of its issue. Subdivision 3. A certificate representing shares issued by the Corporation shall, if the Corporation is authorized to issue shares of more than one class or series, set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full statement of the designations, preferences, limitations and relative rights of the shares of each class or series authorized to be issued, so far as they have been determined, and the authority of the Board to determine the relative rights and preferences of subsequent classes or series. 9 Subdivision 4. A resolution approved by the affirmative vote of a majority of the directors present at a duly held meeting of the Board may provide that some or all of any or all classes and series of the shares of the Corporation will be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation. Section 5.02 Declaration of Dividends and Other Distributions. The Board of Directors shall have the authority to declare dividends and other distributions upon the shares of the Corporation to the extent permitted by law. Section 5.03 Transfer of Shares. Shares of the Corporation may be transferred only on the books of the Corporation by the holder thereof, in person or by such person's attorney. In the case of certificated shares, shares shall be transferred only upon surrender and cancellation of certificates for a like number of shares. The Board of Directors, however, may appoint one or more transfer agents and registrars to maintain the share records of the Corporation and to effect transfers of shares. Section 5.04 Record Date. The Board of Directors may fix a time, not exceeding 60 days preceding the date fixed for the payment of any dividend or other distribution, as a record date for the determination of the shareholders entitled to receive payment of such dividend or other distribution, and in such case only shareholders of record on the date so fixed shall be entitled to receive payment of such dividend or other distribution, notwithstanding any transfer of any shares on the books of the Corporation after any record date so fixed. MISCELLANEOUS Section 6.01 Execution of Instruments. Subdivision 1. All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Corporation shall be signed on behalf of the Corporation by the Chief Executive Officer, or the President, or any Vice President, or by such other person or persons as may be designated from time to time by the Board of Directors. Subdivision 2. If a document must be executed by persons holding different offices or functions and one person holds such offices or exercises such functions, that person may execute the document in more than one capacity if the document indicates each such capacity. Section 6.02 Advances. The Corporation may, without a vote of the directors, advance money to its directors, officers or employees to cover expenses that can reasonably be anticipated to 10 be incurred by them in the performance of their duties and for which they would be entitled to reimbursement in the absence of an advance. Section 6.03 Corporate Seal.The seal of the Corporation, if any, shall be a circular embossed seal having inscribed thereon the following words: "Corporate Seal Minnesota". Section 6.04 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors. Section 6.05 Amendments.The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation, subject to the power of the shareholders to change or repeal the same, provided, however, that the Board shall not adopt, amend or repeal any Bylaw fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board, or fixing the number of directors or their classifications, qualifications or terms of office, but may adopt or amend a Bylaw that increases the number of directors. 11 EX-3.5 6 b51510asexv3w5.txt ARTICLES OF ORGANIZATION OF ANAGRAM INERNATIONAL, LLC EXHIBIT 3(5) ARTICLES OF ORGANIZATION OF ANAGRAM INTERNATIONAL, LLC A Nevada Limited Liability Company We, the undersigned, pursuant to the Nevada Revised Statutes governing limited liability companies, hereby adopt the following Articles of Organization for a limited liability company: ARTICLE I NAME The name of the limited liability company is Anagram International, LLC (the "Company"). ARTICLE II DURATION The period of duration of this Company shall be thirty (30) years. ARTICLE III PURPOSE This Company is organized to carry on any lawful business permitted by Nevada law and to perform all acts in furtherance thereof. ARTICLE IV PLACE OF BUSINESS The address of the office where its records will be maintained as required by NRS 86.241 is: c/o Kummer Kaempfer Bonner & Renshaw 3800 Howard Hughes Parkway Seventh Floor Las Vegas, Nevada 89109 ARTICLE V RESIDENT AGENT The name and business address of the resident agent of this Company is: Kummer Kaempfer Bonner & Renshaw Seventh Floor 3800 Howard Hughes Parkway Las Vegas, Nevada 89109 ARTICLE VI ADDITIONAL MEMBERS Additional members may be admitted by the Members as provided in the Operating Agreement. ARTICLE VII CONTINUATION Upon the death, retirement, resignation, expulsion, bankruptcy or dissolution of a member or the occurrence of any other event which terminates the continued membership of a member in this Company, the remaining members may unanimously agree to continue the business of this Company as provided in the Operating Agreement. ARTICLE VIII MANAGEMENT This Company shall be managed by a manager or managers. The following managers shall serve until the first annual meeting of members or until their successors are elected and qualified:
Name Address ---- ------- Jim Plutt 7700 Anagram Drive Minneapolis, Minnesota 55344 Garry Kieves 7700 Anagram Drive Minneapolis, Minnesota 55344 Michaela Kieves 7700 Anagram Drive Minneapolis, Minnesota 55344
2 ARTICLE IX INDEMNITY Section 9.01 Right to Indemnity. Every person who was or is a party, or is threatened to be made party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or a person of whom he is the legal representative is or was a manager or member of this Company, or is or was serving at the request of this Company as a manager of another limited liability company, or as a director, officer or representative in a corporation, partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless to the fullest extent legally permissible under the laws of the State of Nevada from time to time against all expenses, liability and loss (including attorneys' fees, judgments, fines and amounts paid or to be paid in settlement) reasonably incurred or suffered by him in connection therewith. Such right of indemnification shall be a contract right which may be enforced in any manner desired by such person. Such right of indemnification shall not be exclusive of any other right which such managers, members or representatives may have or hereafter acquire, and, without limiting the generality of such statement, they shall be entitled to their respective rights of indemnification under any operating agreement or other agreement, vote of members, provision of law, or otherwise, as well as their rights under this Article. Section 9.02 Expenses Advanced. Expenses of managers and members incurred in defending a civil or criminal action, suit or proceeding by reason of any act or omission of such managers or members acting as a manager or member shall be paid by the Company as they are incurred and in advance of the final disposition of the action, suit or proceeding, upon receipt of any undertaking by or on behalf of the manager or member to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by the Company. Section 9.03 Operating Agreement; Insurance. Without limiting the application of the foregoing, the members may adopt a provision in the Operating Agreement from time to time with respect to indemnification, to provide at all times the fullest indemnification permitted by the laws of the State of Nevada, and may cause this Company to purchase and maintain insurance or make other financial arrangements on behalf of any person who is or was a manager or member of this Company as a member or manager of another limited liability company, or as its representative in a corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred in any such capacity or arising out of such status, to the fullest extent permitted by the laws of the State of Nevada, whether or not this Company would have the power to indemnify such person. 3 The indemnification and advancement of expenses provided in this Article shall continue for a person who has ceased to be a member, manager, employee or agent, and inures to the benefit of the heirs, executors and administrators of such a person. ARTICLE X RETURN OF CONTRIBUTIONS A member may only demand cash in return for his or its contribution to capital, but the Company may require a member to accept cash, property, promissory notes or any combination thereof in return for the member's contribution to capital. IN WITNESS WHEREOF, we have hereunto set our hands this 20th day of October 1994. Members: ANAGRAM INTERNATIONAL, INC. A Minnesota corporation By: /s/Jim Plutt ---------------------------------- Jim Plutt, Secretary ANAGRAM INTERNATIONAL HOLDINGS, INC. A Minnesota corporation By: /s/Jim Plutt ---------------------------------- Jim Plutt, Secretary 4 STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) On this 20th day of October, 1994, there personally appeared before me, a notary public, JIM PLUTT, personally known (or proved) to me to be the person whose name is subscribed to the above instrument, who acknowledged to me that he executed the foregoing Articles of Organization. /s/ Patricia A. Morris --------------------------------------- [SEAL] Notary Public EX-3.6 7 b51510asexv3w6.txt OPERATING AGREEMENT OF ANAGRAM INTERNATIONAL, LLC EXHIBIT 3(6) OPERATING AGREEMENT OF ANAGRAM INTERNATIONAL, LLC A Nevada Limited Liability Company OPERATING AGREEMENT OF ANAGRAM INTERNATIONAL, LLC A Nevada Limited Liability Company Table of Contents
Page ARTICLE I OFFICES..................................................... 1 1.1 Principal Office........................................... 1 ARTICLE II PURPOSE..................................................... 1 2.1 Purpose.................................................... 1 ARTICLE III CAPITAL..................................................... 1 3.1 Initial Capital............................................ 1 3.2 Capital Accounts........................................... 2 3.3 Federal Income Tax Elections............................... 3 3.4 Invested Capital........................................... 3 3.5 Interest................................................... 3 3.6 Additional Capital Contribution............................ 3 3.7 Membership Interest........................................ 4 ARTICLE IV MEMBERS..................................................... 4 4.1 Powers..................................................... 4 4.2 Salaries to Members........................................ 4 4.3 Other Ventures............................................. 5 4.4 General Restrictions....................................... 5 4.5 Action by the Members; Meetings; Quorum; Majority.......... 5 4.6 Action By Written Consent.................................. 5 4.7 Place of Meetings of Members............................... 6 4.8 Annual Meetings............................................ 6 4.9 Annual Meetings; Notice.................................... 6 4.10 Special Meetings........................................... 6 4.11 Waiver of Notice........................................... 6 4.12 Adjourned Meetings And Notice Thereof...................... 7 4.13 Delegation of Authority To Members and Managers............ 7 4.14 Admission of New Members................................... 7 4.15 Member Loans............................................... 7
i 4.16 Deadlock................................................... 7 ARTICLE V TRANSFER OF MEMBERS' INTERESTS.............................. 8 5.1 Transfer of Members' Interests............................. 8 5.2 No Transfer Permitted Under Certain Circumstances.......... 9 5.3 Right of First Refusal..................................... 9 5.4 Authority of the Company to Purchase Interest.............. 12 5.5 Representations and Warranties of the Members.............. 12 5.6 Transferee's Invested Capital.............................. 13 ARTICLE VI MANAGERS.................................................... 13 6.1 Election................................................... 13 6.2 Removal, Resignation and Vacancies......................... 13 6.3 Managers' Powers........................................... 14 6.4 Bank Accounts.............................................. 14 ARTICLE VII PROFITS AND LOSSES.......................................... 14 7.1 Net Profits and Losses..................................... 14 7.2 Allocations of Deductions.................................. 15 7.3 Special Allocations........................................ 15 7.4 Curative Allocations....................................... 16 7.5 Federal Income Tax......................................... 17 ARTICLE VIII DISTRIBUTIONS............................................... 17 8.1 Operating Distributions.................................... 17 8.2 Payment of Member Loans.................................... 17 8.3 Distribution on Dissolution and Liquidation................ 17 ARTICLE IX ACCOUNTING AND RECORDS...................................... 17 9.1 Records and Accounting..................................... 17 9.2 Access to Accounting Records............................... 18 9.3 Annual Tax Information..................................... 18 9.4 Reports to Members......................................... 18 ARTICLE X TERM........................................................ 18 ARTICLE XI DISSOLUTION OF THE COMPANY AND TERMINATION OF A MEMBER'S INTEREST........................................... 18 11.1 Dissolution................................................ 18 11.2 Death of a Member; Continuation............................ 19 11.3 Option To Purchase Deceased Member's Interest.............. 19 11.4 Bankruptcy................................................. 19
ii ARTICLE XII TRUST MEMBERS............................................... 20 12.1 Trustee Liability.......................................... 20 12.2 Status of Successor Trustees as Members.................... 20 ARTICLE XIII INDEMNIFICATION............................................. 20 13.1 Indemnity.................................................. 20 13.2 Indemnity for Actions By or In the Right of the Company.... 21 13.3 Indemnity If Successful.................................... 21 13.4 Expenses................................................... 21 13.5 Advance Payment of Expenses................................ 21 13.6 Other Arrangements Not Excluded............................ 22 ARTICLE XIV MISCELLANEOUS PROVISIONS.................................... 22 14.1 Complete Agreement......................................... 22 14.2 Amendments................................................. 22 14.3 Applicable Law............................................. 23 14.4 Headings................................................... 23 14.5 Severability............................................... 23 14.6 Expenses................................................... 23 14.7 Heirs, Successors and Assigns.............................. 23 14.8 Execution.................................................. 23 14.9 Power of Attorney.......................................... 23
iii OPERATING AGREEMENT OF ANAGRAM INTERNATIONAL, LLC A Nevada Limited Liability Company This Operating Agreement is made and entered into as of the 24th day of October 1994 by and between the undersigned Members of Anagram International, LLC. ARTICLE I OFFICES 1.1 Principal Office The principal office of Anagram International, LLC (the "Company") shall be 7700 Anagram Drive, Minneapolis, Minnesota 55344. The Members may change said principal office at any time from one location to another. ARTICLE II PURPOSE 2.1 Purpose The purpose of the Company shall be to serve as a holding company for companies that distribute products. Any business beyond the business described herein shall require the unanimous written consent of the Members. ARTICLE III CAPITAL 3.1 Initial Capital The initial capital of the Company shall be the sums of cash or the agreed fair market value of the property or services (or combination of cash, property and services) contributed to the Company by the Members in such amounts or value as are set out opposite the name of each of the Members on Schedule A attached hereto and incorporated herein by this reference which shall be amended from time to time by the Managers to reflect a current list of the names and addresses of each current member. A transfer of any Membership Interest (as defined herein) shall not be effective until it has been recorded in the records of the Company. 3.2 Capital Accounts Capital Accounts shall be established on the Company's books representing the Members' respective capital contributions to the Company. The term "Capital Account" shall mean the capital account maintained for such Member in accordance with the following provisions: (a) Each Member's Capital Account shall be increased by: (1) The amount of the Member's cash or in-kind capital contributions to the Company pursuant to Section 3.1 above; (2) The fair market value of any property contributed by the Member to the Company (net of liabilities secured by any such contributed property that the Company is considered to assume or take subject to for purposes of Section 752 of the Internal Revenue Code of 1986, as amended from time to time [the "Code"]); (3) The amount of Net Profits (or items thereof) allocated to the Member pursuant to Article VII below; and (4) Any other increases required by the regulations promulgated by the U.S. Department of the Treasury under the Code, and as may be amended from time to time ("Regulations"). If Section 704(c) of the Code applies to property contributed by a Member to the Company, then the Members' Capital Accounts shall be adjusted in accordance with Regulations Section 1.704-1(b)(2)(iv)(g). (b) Each Member's Capital Account shall be decreased by: (1) The amount of Net Losses allocated to the Member pursuant to Article VII below; (2) All amounts paid or distributed to the Member pursuant to Article VIII hereof; other than amounts required to be treated as a payment for property or services under the Code; (3) The fair market value of any property distributed in kind to the Member (net of any liabilities secured by such distributed property that such Member is considered to assume or take subject to for purposes of Section 752 of the Code); and (4) Any other decreases required by the Regulations. Before decreasing a Member's Capital Account (as described above) with respect to the distribution of any property to such Member, all Members' accounts shall be adjusted to reflect the manner in which the unrealized income, gain, loss, and deduction inherent in such property (that has not been previously reflected in the Members' Capital Accounts) would be allocated among the Members if there were a taxable disposition of such property by the Company on the date of distribution, in accordance with Regulations Section 1.704-1(b)(2)(iv)(e). 2 (c) In determining the amount of any liability for purposes of Sections 3.2(a) and 3.2(b) hereof, there shall be taken into account Code Section 752(c) and any other applicable provisions of the Code and any Regulations promulgated thereunder. (d) Members' Capital Accounts shall be adjusted in accordance with, and upon the occurrence of an event described in Regulations Section 1.704-1(b)(2)(iv)(f), including the addition of new Members pursuant to Section 4.14 hereof or the receipt of additional capital contributions pursuant to Section 3.6 hereof, to reflect a revaluation of the Company's assets on the Company's books. Such adjustments to the Members' Capital Accounts shall be made in accordance with Regulations Section 1.704-1(b)(2)(iv)(g) for allocations of depreciation, depletion, amortization and gain or loss with respect to such revalued property. (e) All provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Regulations Section 1.704-1(b), and shall be interpreted and applied in a manner consistent with such Regulations. The Members shall make any appropriate modifications in the event unanticipated events might otherwise cause this Agreement not to comply with Regulations Section 1.704-1(b). 3.3 Federal Income Tax Elections The Company may make all elections for federal income tax purposes, including but not limited to an election, pursuant to Code Section 754, to adjust the basis of the Company's assets under Code Sections 734 or 743. In the event an election pursuant to Code Section 754 is made by the Company, upon the adjustment to the basis of the Company's assets, the Members' Capital Accounts shall be adjusted in accordance with the requirements of Regulation Section 1.704-1(b)(2)(iv)(m). 3.4 Invested Capital The "Invested Capital" of a Member shall be the sum of any cash contributed by said Member to the Company, and the fair market value of any property contributed by said Member to the Company, less the amount of any liabilities of such Member assumed by the Company or which are secured by property contributed by such Member to the Company. In the event the Company's assets are revalued pursuant to Section 3.2(d) hereof resulting in an adjustment to the Members' Capital Accounts, the Members' "Invested Capital" shall, for purposes of this Agreement, be deemed to be each Member's respective Capital Account balance immediately after such revaluation. 3.5 Interest No interest shall be paid or credited to the Members on their Capital Accounts or upon any undistributed profits left on deposit with the Company. 3.6 Additional Capital Contribution In no event shall any Member be required to make an additional contribution to the Company. However, the Members authorize the Company to receive additional capital contributions and the Company may solicit such contributions from the Members in an amount authorized by the Members (the "Amount Solicited"). The Company shall send a notice of solicitation to all the Members, and 3 each Member wishing to make an additional capital contribution (a "Contributing Member") shall so notify the Company in writing within three (3) days after delivery of the notice, indicating the amount such Member offers to contribute (the "Offer to Contribute"). Unless the Members otherwise agree, if Contributing Members' Offers to Contribute exceed the Amount Solicited, each Contributing Member shall be entitled to contribute the proportion of the Amount Solicited that such Contributing Member's Invested Capital, determined immediately before the solicitation for capital contributions, bears to the Invested Capital of all the Contributing Members. If the Contributing Members do not make Offers to Contribute the entire Amount Solicited, the Company may, at its option, elect to accept the Offers to Contribute it has received or reject such Offers to Contribute and cancel the solicitation. 3.7 Membership Interest The "Membership Interest" of a Member shall be such Member's right in the profits and losses of the Company and the right to receive distributions of the Company's assets. Membership Interest is equivalent to a Member's Invested Capital. ARTICLE IV MEMBERS 4.1 Powers Subject to the provisions of the Articles of Organization, this Operating Agreement and the provisions of the Nevada Revised Statutes ("NRS"), all powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be controlled by, the Managers. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Members shall have the following powers: (a) To select and remove all Managers of the Company, prescribe such powers and duties for them as may be consistent with law, with the Articles of Organization or this Operating Agreement, fix their compensation, and require from them security for faithful service. (b) To change the principal office of this Company from one location to another; to fix and locate from time to time one or more subsidiary offices of the Company; and to designate any place for the holding of any Members' meeting or meetings. 4.2 Salaries to Members The Company shall have authority to pay to any Member a reasonable salary for said Member's services to the Company. It is understood that the salary paid to any Member under the provisions of this Section shall be determined without regard to the income of the Company and shall be considered as an operating expense of the Company and shall be deducted as an expense item in determining the net profits and losses of the Company. 4.3 Other Ventures It is expressly agreed that the Members, or any of them, may engage in other business ventures of every nature and description, whether or not in competition with the Company, independently or 4 with others, and neither the Company nor the Members shall have any rights in and to any independent venture or activity or the income or profits derived therefrom. 4.4 General Restrictions No Member or Manager, as described in Article VI hereof, shall have the right, power or authority to do any of the following acts without the prior written consent of all the Members: (a) expend or use any Company money or property except upon the account of and for the benefit of the Company; (b) mortgage, lease, pledge, or otherwise dispose of all, or substantially all, of the assets of the Company, other than in the ordinary course of business; (c) pledge any of the Company's credit or property for other than Company purposes; (d) compromise, settle, or release any debt due the Company except upon full payment thereof or except in the ordinary course of business; (e) assign the Company's property in trust for creditors or on the assignee's promise to pay the debts of the Company; (f) confess a judgment against the Company, the Company's property, or any of the Members; (g) dispose of any of the goodwill of the Company business; or (h) do any other act which would make it impossible to carry on the ordinary business of the Company. 4.5 Action by the Members; Meetings; Quorum; Majority Management of the Company is vested in, and all actions of the Members are taken by the Members in proportion to their Membership Interests at the time of the action taken. Except as specifically otherwise provided herein, the Members vote, approve a matter or take any action by the vote of Members at a meeting, in person or by proxy, or without a meeting by written consent. For any meeting of Members, the presence in person or by proxy of Members owning more than 50% of the outstanding Membership Interests at the time of the action taken (a "Majority") constitutes a quorum for the transaction of business. Members vote in proportion to their Membership Interests and an action approved at a meeting by Members owning more than 50% of the Membership Interests of that quorum shall be the action of the Members. 4.6 Action By Written Consent Except as otherwise provided herein, any action may be taken by the Members without a meeting if authorized by the written consent of Members holding at least a Majority. In no instance 5 where action is authorized by written consent need a meeting of Members be called or noticed. However, a copy of the action taken by written consent must be immediately sent to all Members. 4.7 Place of Meetings of Members The first meeting of the Members shall be held at the principal office of the Company set forth in the Articles of Organization. All annual meetings and special meetings of the Members shall be held at any place designated by the Members, or, if no such place is designated, then at the principal office of the Company. 4.8 Annual Meetings The annual meeting of the Members shall be held on such date and time as determined by the Managers. 4.9 Annual Meetings; Notice Written notice of each annual meeting signed by a Manager or by such other person or persons as the Members shall designate, shall be given to each Member entitled to vote at the meeting, either personally or by mall or other means of written communication, charges prepaid, addressed to such Member at his address appearing on the books of the Company or given by him to the Company for the purpose of notice. If a Member gives no address, notice shall be deemed to have been given him if sent by mail or other means of written communication addressed to the place where the principal office of the Company is situated. All such notices shall be sent to each Member entitled thereto not less than ten (10) nor more than sixty (60) calendar days before each annual meeting, and shall specify the place, the day and the hour of such meeting. 4.10 Special Meetings Special meetings of the Members, for any purpose or purposes whatsoever, may be called at any time by a Manager or by Members holding in excess of twenty percent (20%) of the outstanding Membership Interests. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner as for annual meetings of Members. Notices of any special meeting shall specify, in addition to the place, day and hour of such meetings the purpose or purposes for which the meeting is called. 4.11 Waiver of Notice The transactions of any meeting of the Members, however called and noticed or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present, and if, either before or after the meeting, each of the Members not present signs a written waiver of notice or a consent to holding such meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the records or made a part of the minutes of the meeting. 6 4.12 Adjourned Meetings And Notice Thereof Any Members' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of a Majority, present in person or represented by proxy, but in the absence of a quorum no other business may be transacted at any such meeting. Other than by announcement at the meeting at which such adjournment is taken, it shall not be necessary to give any notice of an adjournment or of the business to be transacted at an adjourned meeting. However, when any Members' meeting, either annual or special, is adjourned for thirty (30) days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. 4.13 Delegation of Authority To Members and Managers Any one or more of the Managers or Members may at any time or times, and for such period as the Members shall determine, be delegated the authority to determine questions relating to specific areas of the conduct, operation, and management of the Company. Until such direction or delegation of authority is made, however, the Members and Managers shall have the authority set forth in this Article IV and Article VI below and that given them by the Members. 4.14 Admission of New Members New Members may be admitted to membership in the Company with the consent of a Majority (as defined in Section 4.5) of the existing Members. A new Member must agree to be bound by the terms and provisions of the Articles of Organization and this Operating Agreement, as amended, and upon admission the new Member shall have all rights and duties of a Member of this Company. 4.15 Member Loans The Members may from time to time approve of a loan by a Member to the Company. Such loans ("Member Loans") shall be repaid to the lending Member in accordance with the terms of the instrument or agreement executed in connection with such Member Loan. Unless by its terms such Member Loan is expressly subordinated, the Member Loan shall be equal in priority to, and rank pari passu with, all other secured or unsecured liabilities of the Company, as appropriate. 4.16 Deadlock (a) For purposes of this Agreement, the term "Major Decision" shall mean any action (or election not to act) by or on behalf of the Company which may have, or which may be anticipated to have, a material effect on the business and operation of the Company, including, without limitation, any matters materially affecting the ownership, operation, development, construction, financing, marketing and sale of any real property owned by the Company. Major Decisions shall include, without limitation, any contract or related series of contracts having a value in excess of Twenty Thousand Dollars ($20,000) and any Member Loans or other loans to be obtained by or on behalf of the Company, whether secured or unsecured. (b) All Major Decisions shall be subject to the prior approval of a majority of the Managers. In the event the Managers are evenly divided with respect to a Major Decision and a majority of the Managers are unable to agree with respect to a proposed 7 course of action concerning such Major Decision, the Managers shall immediately call a special meeting ("Election Meeting") pursuant to Section 4.10 hereof at which the Managers shall resign and new Managers shall be elected. (c) In the event the Members, pursuant to a Majority thereof, are unable to elect Managers at the Election Meeting, or any other meeting, or elect Managers who continue to be evenly divided with respect to a Major Decision, a deadlock (the "Deadlock") shall be deemed to exist. (d) For a period of thirty (30) days after a Deadlock occurs, a Majority of the Members (the "Offering Members") may, upon written notice to the remaining Members (the "Offering Notice"), propose a price per each one percent (1%) of outstanding Membership Interests (the "Offering Price") at which the Offering Members are willing to either (i) sell to the other Members all of the Offering Members' Membership Interests or (ii) purchase from the other Members all of their Membership Interests, subject to the terms of this Operating Agreement. The other Members shall have a period of three (3) days after delivery of the Offering Notice in which to elect, by written notice to the Offering Members (the "Response Notice") to either (i) purchase all of the Membership Interests of the Offering Members at the Offering Price or (ii) sell all of their Membership Interests to the Offering Members at the Offering Price. Such transaction shall be consummated within five (5) days after delivery of the Response Notice and the purchase price for the Membership Interests sold or purchased shall be payable pursuant to the terms set forth in Section 5.3(c)(ii) below. (e) Should a transaction not be consummated pursuant to a Response Notice as set forth in Section 4.16(d) above within thirty (30) days after a Deadlock occurs, the Deadlock shall then become an event of dissolution under Section 11.1 below and the Company shall be dissolved pursuant to Article XI of this Operating Agreement. ARTICLE V TRANSFER OF MEMBERS' INTERESTS 5.1 Transfer of Members' Interests The Membership Interest of each Member of this Company is personal property. Except as otherwise provided in this Operating Agreement, the transfer of a Member's Membership Interest is restricted. The transfer of a Member's Membership Interest shall include a gift, sale, transfer, assignment, hypothecation, pledge, encumbrance or any other disposition, whether voluntary or involuntary, by operation of law or otherwise, including, without limitation, any transfer occurring upon or by virtue of the bankruptcy or insolvency of a Member; the appointment of a receiver, trustee or conservator or guardian for a Member or his property; or pursuant to the will of a Member or the laws of descent and distribution in the event of a Member's death; pursuant to court order in the event of divorce, marital dissolution, legal separation or similar proceedings; or pursuant to any loan or security agreement under which any of the Member's Membership Interests are pledged or otherwise serve as collateral, as well as the transfer of any such Membership Interest in the event recourse is made to such collateral. 8 If a Majority of the other Members, other than the Member proposing to dispose of his Membership Interest ("Transferring Member") and without considering the Transferring Member's Membership Interest as outstanding in determining such a Majority, do not approve of a proposed transfer or assignment by written consent, the transferee of the Member's Membership Interest has no right to participate in the management of the business and affairs of the Company or to become a Member. The transferee is only entitled to receive the share of profits or other compensation by way of income and the return of contributions, to which the Transferring Member would otherwise be entitled. If the transfer is approved by a Majority of the other Members of the Company by written consent, the transferee has all the rights and powers and is subject to all the restrictions and liabilities of his assignor, has the right to participate in the management of the business and affairs of the Company and becomes a substituted Member. 5.2 No Transfer Permitted Under Certain Circumstances Notwithstanding any other provision of this Agreement, a Member shall not transfer all or any part of his Membership Interest if such transfer would cause the termination of the Company for federal income tax purposes or would violate any applicable federal or state securities laws. 5.3 Right of First Refusal Except as otherwise provided in this Operating Agreement or the laws of the State of Nevada, no Member shall during the term of this Operating Agreement transfer all or any portion of his Membership Interest, or any interest therein, whether now owned or hereafter acquired without first complying with the requirements of this Operating Agreement, unless such Member shall first give the Company and, if appropriate hereunder, the other Member(s) the opportunity to purchase or acquire all or a portion of such Member's interest proposed to be disposed of in accordance with the following provisions: (a) In the event that any Member shall receive a bona fide offer for the transfer of all or part of his Membership Interest (the "Proposed Transfer") (the Transferring Member shall have the obligation to prove that an offer is bona fide) and desires to accept such offer, or in the event that any Member shall otherwise desire to transfer all or part of such Member's Membership Interest, the Member shall, prior to accepting such offer, give the Managers of the Company written notice of intention to make a transfer. Such notice shall set forth the name of the proposed transferee(s), the interest proposed to be disposed of (the "Offered Interest"), the price, the terms of payment, all other material terms of the proposed transaction and shall specify a mailing address for purposes of any return notice hereunder. The Company shall have the option for a period of ten (10) days from the actual receipt of such notice to agree to purchase or acquire all or any portion of the Offered Interest, on the same terms as those offered to the proposed transferee, subject to Section 5.3(c) hereof. The Company may exercise this option to purchase only by giving written notice to the Transferring Member. (b) If the Company declines or fails to exercise its option to purchase or acquire all or any portion of the Offered Interest pursuant to Section 5.3(a) above, or is legally unable to do so, the Transferring Member shall give written notice to the other Members containing the same information as set forth in the notice given pursuant to Section 5.3(a) 9 above and further setting forth the Offered Interest that the Company has not agreed to purchase or acquire. The Members receiving the notice shall in turn have ten (10) days from the actual receipt of such notice to agree to purchase or acquire all or any portion of the Offered Interest that the Company has not agreed to purchase or acquire, on the same terms and conditions as those offered to the proposed transferee, subject to Section 5.3(c) hereof. The other Members may exercise this option to purchase only by giving written notice to the Transferring Member. In the event that more than one person has an option to purchase hereunder, such persons may exercise such option pro rata in accordance with their respective Membership Interests, and if any such person declines or fails to purchase his pro rata portion of the Offered Interest, or any portion thereof, the other persons having such option shall have the right to purchase that portion pro rata in accordance with their respective Membership Interests (or otherwise by agreement). (c) The terms of any acquisition pursuant to Section 5.3 hereof shall be as follows: (1) In the event that a proposed transferee of any Offered Interest has offered to acquire such Offered Interest for a consideration consisting in whole or in part of assets other than cash, cash equivalents or unsecured (other than by the Offered Interest) promissory notes, any persons having options to purchase or acquire such Offered Interest pursuant to Sections 5.3(a) and 5.3(b) above shall be deemed to have agreed to purchase or acquire such Offered Interest "on the same terms as those offered to the proposed transferee" if such persons agree to pay in a lump sum (or in cash installments as permitted by Section 5.3(c)(ii)) an amount equal to the fair market value of such other form of consideration. The fair market value of such other consideration shall be as follows: (A) If such other consideration is a security publicly traded in the United States in the over-the-counter market and not on the Nasdaq National Market nor on any national securities exchange, the closing per share bid price for such security on the trading day immediately preceding the day of the closing on the purchase or acquisition of the Offered Interests, as reported by Nasdaq or an equivalent generally accepted reporting service; (B) If such other consideration is a security publicly traded in the United States on the Nasdaq National Market or on a national securities exchange, the per share closing price for such security on the Nasdaq National Market or on the principal stock exchange on which it is listed on the trading day immediately preceding the day of the closing on the purchase or acquisition of the Offered Interests; such closing price being the last reported sale price, or in the case no such reported sale takes place on such day, the average of the reported closing bid and asked prices, in either case in the Nasdaq National Market or on the principal national securities exchange on which the security is then listed; (C) If such other consideration is an asset (other than a security specified in clause (A) or (B) above) having a readily determinable value by 10 reference to a generally accepted published reporting source or service, the last sale price for such asset reported by such source or service during the trading day immediately preceding the day of the closing on the purchase or acquisition of the Offered Interests; or (D) In all other cases, the appraised value of such other consideration will be determined by a qualified independent appraiser selected by the mutual agreement of the Transferring Member on the one hand and a Majority of the other Member(s) on the other hand. In such event, a copy of the notice of intent to make a disposition shall be sent to each other Member at the same time as such notice is sent to the Company. In the event that the Members cannot mutually agree on an appraiser within fifteen (15) days after the notice of intent to make a disposition is actually received by the Company, a qualified appraiser shall be appointed by the American Arbitration Association in Las Vegas, Nevada. The appraised value of such other consideration shall be final and binding on all parties hereto. All costs associated with such an appraisal, including without limitation appraisal fees and the fees of the American Arbitration Association, if any, shall be paid by the Transferring Member. The time period set forth herein shall be tolled until the Company actually receives a copy of the appraiser's report, in accordance with the notice provisions hereof, a copy of which report shall accompany all notices given by the Transferring Member. (2) The Company and each of the other Members shall be permitted, at its or their option, to purchase all or any portion of the Offered Interest in exchange for a promissory note in the principal amount of the purchase price payable in not more than sixty (60) equal monthly installments of principal and interest with interest at the prime rate of interest charged by Bank of America Nevada on the closing of the acquisition or purchase plus two percent (2%) per annum (or any lower rate offered by the proposed transferee) but in any event not in excess of the maximum rate of interest then permitted by applicable law. Any such note or notes shall be secured by the Offered Interest purchased in exchange therefor and shall be prepayable without penalty in whole or in part at any time. Prior to the payment in full of any such note or notes, no distributions or other payments shall be made directly or indirectly by the Company to the remaining Members or any person or entities relating to the remaining Members (other than payments incurred in the ordinary course of the Company's business) unless and to the extent such distributions or other payments are applied toward prepayment of such note or notes. (d) The purchase of the Offered Interest shall be closed at the time specified in the notice from the Transferring Member as the time set for the closing of the proposed transfer, but in no event earlier than thirty (30) days following the exercise or expiration, as the case may be, of the last available option to purchase. 11 (e) If all of the Offered Interests are not purchased by the Company or the Members, or both, pursuant to the options provided for above, then such unpurchased portion of the Offered Interest may, subject to this Operating Agreement and applicable laws, be transferred within ten (10) days from the date on which the last available option to purchase above expires to the person and on the terms specified in the notice of intention to make a disposition. Such transferee shall receive and hold such Membership Interest subject to all provisions and restrictions of this Operating Agreement, except that neither the Company nor any other Member shall be required to purchase any of such Membership Interest from such transferee or any subsequent transferee pursuant to Section 5.3 hereof, and except that no such transferee or subsequent transferee shall have any rights to purchase any Offered Interest pursuant to this Operating Agreement. Any transfer of the Offered Interest after the end of such ten (10) day period or any material change in the terms of the Proposed Transfer from the terms set forth in the original notice shall require a new notice of intention to make a transfer. Any transfer in violation of any provision of this Agreement shall be void and ineffectual and shall not operate to transfer any interest or title to the purported transferee. (f) Notwithstanding any other provision hereof to the contrary, neither the Company nor any Member will be required to close on the purchase or acquisition of any Membership Interest in accordance therewith unless the representations and warranties of the Transferring Member shall be true and correct in all material respects as of the date of such closing, and the Transferring Member shall deliver a certificate to such effect to the purchasing parties dated as of the closing date. Any such Membership Interest not purchased or acquired as a result of such a breach may not be disposed of to the otherwise proposed transferee(s). (g) Any notice required to be given in accordance with this section shall be hand delivered to the Manager of the Company by hand or via overnight courier at the principal office of the Company. 5.4 Authority of the Company to Purchase Interest All rights and obligations of the Company to purchase any Membership Interest of a Member are subject to the restrictions set forth in the statutes of the State of Nevada, if any, and to such other applicable restrictions as are now or may hereafter become effective. Any redemption of such Membership Interest by the Company shall be made only out of funds legally available therefor. 5.5 Representations and Warranties of the Members Each of the Members represents and warrants to the Company and the other Members with respect to himself as follows: (a) Such Member is the lawful owner of and has the full right, power and authority to sell, transfer and deliver the Membership Interest of the Company set forth next to his name on Schedule A hereto and the sale, transfer and delivery of such Membership Interests of the Company in accordance therewith will transfer good and marketable title thereto free and clear of all liens, encumbrances, claims or rights of third 12 parties of every kind and nature whatsoever, subject only to the provisions of this Operating Agreement. (b) The Membership Interests of the Company owned by such Member as set forth on Schedule A hereto have been duly authorized and are fully paid and non assessable. There are no existing options, warrants, calls or commitments on the part of any Member relating to such Membership Interests of the Company which will not be terminated concurrently with the execution of this Operating Agreement. No voting agreements or restrictions of any kind other than those set forth in this Operating Agreement affect the rights of any such Membership Interests of the Company or such Member. (c) Such Member has the right and power to enter into this Operating Agreement, and this Operating Agreement has been fully executed and delivered and constitutes the valid and binding obligation of such Member. No consent of any person not a party to this Operating Agreement and no consent of any governmental authority is required to be obtained on the part of such Member in connection with or resulting from the execution or performance of this Operating Agreement. 5.6 Transferee's Invested Capital In the event a transferee acquires all or part of the Membership Interest of an existing Member or Members, the transferee's Invested Capital and Capital Account, for purposes of this Operating Agreement, shall be the Invested Capital and Capital Account of the transferring Member or Members, with respect to the Membership Interest acquired by the transferee. ARTICLE VI MANAGERS 6.1 Election The Members agree that the business of the Company shall be managed by three (3) Managers. Each Manager of this Company shall be chosen annually by the Members and each shall hold office until such Manager shall resign or shall be removed or otherwise disqualified to serve, or the Manager's successor shall be elected and qualified. 6.2 Removal, Resignation and Vacancies The Members may remove any Manager, either with or without cause in accordance with the terms of this Operating Agreement. Any Manager may resign at any time by giving written notice to the Members. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. The Members may replace any vacancy in the office of any Manager. 13 6.3 Managers' Powers The Managers shall be the chief executives of the Company and each, individually, shall have the following powers: (a) Select and remove all employees, agents and representatives of the Company, prescribe such powers and duties for them as may be consistent with law, with the Articles of Organization or this Operating Agreement, fix their compensation, and require from them security for faithful service. (b) Conduct, manage and control the affairs and business of the Company, and to make such rules and regulations therefor consistent with the law, with the Articles of Organization or this Operating Agreement. (c) Change the principal office of this Company from one location to another; to fix and locate from time to time one or more subsidiary offices of the Company; and to designate any place for the holding of any Members' meeting or meetings. (d) Borrow money and incur indebtedness for the purpose of the Company, and to cause to be executed and delivered therefor, in the Company name, promissory notes, bonds, and debentures. (e) Appoint an executive committee and other committees, and delegate to the executive committee any of the powers and authority of the Manager in the management of the business and affairs of the Company. The Manager, in his discretion, may or may not be a member of an executive committee. 6.4 Bank Accounts From time to time, the Manager may designate a person or persons, whether such persons be the Manager or not, to open and maintain one or more bank accounts; rent safety deposit boxes or vaults; sign checks, written directions, or other instruments to withdraw all or any part of the funds belonging to the Company and on deposit in any savings account or checking account; negotiate and purchase certificates of deposit, obtain access to the Company's safety deposit box or boxes, and, generally, sign such forms on behalf of the Company as may be required to conduct the banking activities of the Company. ARTICLE VII PROFITS AND LOSSES 7.1 Net Profits and Losses Subject to the provisions of Section 7.4 hereof the "Net Profits and Losses" of the Company for any Company taxable year shall be allocated and credited to the Members' Capital Accounts in proportion to the Invested Capital of each respective Member as defined in Section 3.4 hereof. The term "Net Profits and Losses" of the Company shall mean the net income or loss of the Company, as determined by auditors or accountants employed by the Company, in accordance with Section 703 of the Code, applied consistently with prior periods. 14 7.2 Allocations of Deductions (a) Company Nonrecourse Deductions. Except as otherwise required by Sections 7.3 and 7.4 below, all Nonrecourse Deductions of the Company for any taxable year shall be shared by the Members in proportion to their Invested Capital on the last day of such taxable year. The amount of Nonrecourse Deductions of the Company shall be determined in accordance with Regulations Section 1.704-2(c). (b) Member Nonrecourse Deductions. Except as otherwise required by Sections 7.3 and 7.4 below, all Member Nonrecourse Deductions of the Company for any taxable year shall be allocated in accordance with Regulations Section 1.704-2(i)(1). The amount of Member Nonrecourse Deductions shall be determined in accordance with Regulations Section 1.704-2(i)(2). 7.3 Special Allocations (a) Qualified Income Offset. Except as provided in Section 7.3(b) below, in the event any Member unexpectedly receives any adjustments, allocations or distributions described in Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6) of the Regulations, items of Company income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the adjusted capital account deficit of such Member as quickly as possible. (b) Minimum Gain Chargeback. Notwithstanding any other provision of this Section 7.3, if there is a net decrease in Company Minimum Gain during any Company fiscal year, each Member who would otherwise have an adjusted capital account deficit at the end of such year shall be specially allocated items of Company income and gain for such year (and, if necessary, subsequent years) in an amount and manner sufficient to eliminate such Member's adjusted capital account deficits as quickly as possible. The items to be so allocated shall be determined in accordance with Section 1.704-1(b)(4)(iv)(e) of the Regulations. Notwithstanding any other provision of this Section 7.3(b), if there is a net decrease in Minimum Gain attributable to Member Nonrecourse Debt during a Company Taxable Year, each Member with a share of the Minimum Gain attributable to such member Nonrecourse Debt shall be allocated items of income and gain for such year (and, if necessary, subsequent years) in accordance with Regulations Section 1.704-(i)(4). The items to be so allocated shall be determined in accordance with Regulations Section 1.704-2(i). This Section 7.3(b) is intended to comply with the minimum gain chargeback requirement in such sections of the Regulations and shall be interpreted consistently therewith. (c) Allocation of Remaining Income and Gains on Sale or Other Disposition. Except as otherwise required by this Section 7.3., income and gains arising from the sale, exchange, transfer or disposition or condemnation of all or substantially all of the Company's property shall be allocated, for federal income tax purposes, among those who shall be Members on the date of such transaction or transactions as follows: (1) If one or more Members has a negative Capital Account after such Member's Capital Account is adjusted to reflect any allocation of gains under 15 Section 7.2(b) above, but before such Member's Capital Account is adjusted to reflect any distribution under Section 8.3 below, with respect to the disposition to which this Section 7.3 is being applied, such income and gains shall be allocated to such Members in proportion to their negative Capital Accounts until each such Member's Capital Account equals zero. (2) To the extent one or more Member's Capital Account balance is less than (i) the total of all Members' Capital Account balances times (ii) such Member's Invested Capital in the Company (a "Capital Disparity"), such income and gains shall be allocated among such Members in proportion to Capital Disparities until all of the Members' Capital Accounts are, as nearly as possible, in proportion to their Invested Capital. (3) The balance of such income and gains shall be allocated to the Members in proportion to their Invested Capital. (d) Assignments. In the event of an assignment of a Membership Interest (other than an assignment by reason of the death of a Member), the assignor's distributive share of Company income, gains, loss, deductions and credits and expenditures not deductible in computing its taxable income (in respect of the interest so assigned) shall be the share of such items attributable to such Membership Interest accruing prior to such assignment (based on an interim closing of the books of the Company), and the assignee's share shall be the share of such items attributable to such Membership Interest after such assignment (based on such interim closing). (e) Mandatory Section 704(c) Allocations. Notwithstanding the foregoing, to the extent that Code Section 704(c), Regulations Sections 1.704-3 or 1.704-1(b)(2)(iv), or any other regulations which may be proposed or promulgated under Code Section 704(c); require allocations of Company income, gains, losses or deductions in a manner which is different than that set forth above, the provisions of Section 704(c) and the regulations thereunder shall control such allocations among the Members. In the absence of a contrary agreement among the Members, such items shall be allocated in accordance with the "Traditional method with curative allocations" set forth in Regulations Section 1.704-3(c) or any successor regulation. 7.4 Curative Allocations The allocations set forth in Section 7.3(a) and 7.3(b) (the "Regulatory Allocations") are intended to comply with certain requirements of Regulations Sections 1.704-l(b), 1.704-2 and 1.704-3, and shall be interpreted and applied in a manner consistent therewith. Notwithstanding any other provisions of this Article VII (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating other profits, losses and items of income, gain, loss and deduction among the Members so that, to the extent possible, the net amount of such allocations of other profits, losses and other items in the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to each such Member if the Regulatory Allocations had not occurred. 16 7.5 Federal Income Tax It is the intent of this Company and its Members that this Company will be governed by the applicable provisions of Subchapter K, of Chapter 1, of the Code. ARTICLE VIII DISTRIBUTIONS 8.1 Operating Distributions The Company's Cash Available For Distribution shall, at such times as the Managers of the Company deem advisable, be distributed among the Members in proportion to their respective Membership Interests, as of the date of any such distribution. The term "Cash Available For Distribution" shall mean the total cash revenues generated by the Company's operations (including proceeds from the sale or refinancing of Company assets), less all cash expenditures of the Company for debt service and operating expenses, and less a reasonable amount determined by the Company to be set aside for reserves. 8.2 Payment of Member Loans Under all circumstances, Member Loans shall be repaid first out of any Cash Available for Distribution. If a difference exists between the Members in the amount of Member Loans made to the Company, any Member with more Member Loans outstanding (in value) than another Member shall receive the first distributions of any available cash until that Member's Loan is in parity with the other Member Loans, if any. Thereafter, the Member Loans will be repaid ratably to the Members with Loans. It is the intention of the Members that Member Loans will be repaid as cash is available for distribution and may result in revolving payments to the Members as additional Member Loans are advanced to the Company. 8.3 Distribution on Dissolution and Liquidation In the event of the dissolution and liquidation of the Company for any reason, after the payment of or provision for creditors pursuant to NRS Section 86.521 and other applicable law, the Company's assets shall be distributed among the Members in accordance with their respective positive Capital Account balances, in accordance with Regulations Section 1.704-1(b)(2)(ii)(b)(2). ARTICLE IX ACCOUNTING AND RECORDS 9.1 Records and Accounting The books and records of the Company shall be kept, and the financial position and the results of its operations recorded, in accordance with the accounting methods elected to be followed by the Company for federal income tax purposes. The books and records of the Company shall reflect all Company transactions and shall be appropriate and adequate for the Company's business. The fiscal year of the Company for financial reporting and for federal income tax purposes shall be the calendar year. 17 9.2 Access to Accounting Records All books and records of the Company shall be maintained at any office of the Company or at the Company's principal place of business, or as determined from time to time by the Company, and each Member, and his duly authorized representative, shall have access to them at such office of the Company and the right to inspect and copy them at reasonable times. The Company shall keep all records required to be kept at the registered office of the Company by Chapter 86 of the NRS at such registered office of the Company. 9.3 Annual Tax Information The Managers shall use their best efforts to cause the Company to deliver to each Member within ninety (90) days after the end of each fiscal year all information necessary for the preparation of such Member's federal income tax return. 9.4 Reports to Members The Managers shall prepare and deliver to the Members monthly financial statements. The Company's independent certified public accountant shall prepare and deliver to the Members, within sixty (60) days after the end of the applicable period, quarterly and annual financial statements. ARTICLE X TERM 10.1 Term The term of this Company shall begin on the date the Articles of Organization are filed with the Nevada Secretary of State and shall continue until October 23, 2024, unless terminated prior thereto in accordance with the provisions hereof, by unanimous agreement of the Members or pursuant to Chapter 86 of the NRS. ARTICLE XI DISSOLUTION OF THE COMPANY AND TERMINATION OF A MEMBER'S INTEREST 11.1 Dissolution The Company must be dissolved on the death, insanity, retirement, resignation, expulsion, bankruptcy or dissolution of a Member or occurrence of any other event which terminates a Member's continued membership in the Company, unless the business of the Company is continued by the consent of a Majority of the remaining Members of the Company. In determining a Majority for purposes of this Article XI, only Membership Interests of remaining Members shall be considered to be outstanding. 18 11.2 Death of a Member; Continuation After the death of a Member, if a Majority of the remaining Members consent to the continuation of the business of the Company, the personal representative ("Representative") of the deceased Member and, after the distribution of the deceased Member's estate, the deceased Member's heirs or legatees, shall immediately succeed to the Membership Interest of the deceased Member in the Company, subject to the provisions of this Operating Agreement. During administration of the estate of the deceased Member, such Representative (and after distribution of the deceased Member's estate, such heirs or legatees) shall have the same rights and obligations in the Company for the remainder of the Company's term as the deceased Member would have had, if the deceased Member had survived. Such rights and obligations shall include, but shall not be limited to, the conduct of the Company's business and the share in the profits and losses of the Company. 11.3 Option To Purchase Deceased Member's Interest Upon the death of a Member, the Company shall have the option, within 120 days of the Member's date of death, to purchase the deceased Member's Membership Interest in the Company for an agreed upon price, or if no price can be agreed upon, the fair market value of such Membership Interest as determined by an independent qualified appraiser appointed by the Members and the deceased Member's Representative. If they cannot agree on an appraiser, the Members and such Representative shall agree on three (3) possible appraisers, place their names on pieces of paper placed into a hat, and one person chosen by the Members and such Representative shall, without looking, reach into a hat and pick out one name who shall be the appraiser. If the Company elects to purchase the Membership Interest of the deceased Member, it shall pay the agreed price or the fair market value of such Membership Interest to the deceased Member's Representative, in cash, within such 120 day period. If the Company does not purchase the Membership Interest of the deceased Member within such 120 day period, then all rights to purchase the deceased Member's Membership Interest pursuant to this Section shall terminate. 11.4 Bankruptcy Upon the bankruptcy of a Member (the "Bankrupt Member"), if a Majority of the remaining Members consent to the continuation of the business of the Company, the remaining Members shall have the right to purchase the entire Membership Interest of the Bankrupt Member at a price equal to the fair market value of such Membership Interest at the time of such bankruptcy, as determined by an independent qualified appraiser appointed by the Members, including the Bankrupt Member. If they cannot agree on an appraiser, the Members, including the Bankrupt Member, shall agree on three (3) possible appraisers, place their names on pieces of paper placed into a hat, and one person chosen by the Members shall, without looking, reach into the hat and pick out one name who shall be the appraiser. A purchase of a Bankrupt Member's Membership Interest shall be an all cash transaction completed within 120 days after the date the bankruptcy petition is filed by or against the Bankrupt Member. The Company shall send a notice of the bankruptcy to all the Members and each Member wishing to purchase all or part of the Bankrupt Members Membership Interest (a "Purchasing Member") must so notify all the other Members in writing within twenty (20) days after delivery of the notice. Unless they agree otherwise, if there is more than one Purchasing Member, each Purchasing Member may purchase the same proportion of the Bankrupt Member's Membership Interest as the Membership Interest of that Purchasing Member bears to the total Membership Interests of all the 19 Purchasing Members. If no remaining Member wishes to purchase the Bankrupt Member's Membership Interest, or the Purchasing Members do not actually purchase the Bankrupt Member's Membership Interest within the time set forth in this Section 11.4, then all rights to purchase the Bankrupt Member's Membership Interest pursuant to this Section shall terminate. ARTICLE XII TRUST MEMBERS 12.1 Trustee Liability When any trustee becomes a Member of this Company, he shall be a Member not individually but solely as a trustee, in the exercise and under the power and authority conferred upon and vested in such trustee. Nothing contained in this Operating Agreement shall be construed as creating any liability on any such trustee personally to pay any amounts required to be paid hereunder, or to perform any covenant, either express or implied, contained herein; all such liability, if any, is hereby expressly waived by the other Members of this Company. Any liability of any Member which is a trust (whether to the Company or to any third person) shall be a liability to the full extent of the trust estate and shall not be a personal liability of any Trustee, grantor or beneficiary of any trust. 12.2 Status of Successor Trustees as Members Any successor trustee or co-trustee of any trust which is a Member shall be entitled to exercise the same rights and privileges and be subject to the same duties and obligations as the predecessor trustee. As used in this Article XII, the term "trustee" shall include any and all such successor trustees. ARTICLE XIII INDEMNIFICATION 13.1 Indemnity This Company does hereby indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the Company, by reason of the fact that he is or was a Manager, Member, employee or agent of this Company, or is or was serving at the request of this Company as manager, director, officer, employee or agent of another limited liability company or corporation, against expenses, subject to the provisions of Section 13.4 below, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this Company, and, with respect to a criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of this Company, and that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful. 20 13.2 Indemnity for Actions By or In the Right of the Company This Company does hereby indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of this Company to procure a judgment in its favor by reason of the fact that he is or was a Member, Manager, employee or agent of this Company, or is or was serving at the request of this Company as a Member, Manager, director, officer, employee or agent of another limited liability company, corporation, partnership, joint venture, trust or other enterprise against expenses, subject to the provisions of Section 13.4 hereof, including amounts paid in settlement and attorneys' fees actually and reasonably incurred by him in connection with the defense or settlement of the actions or suit if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of this Company. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to this Company or for amounts paid in settlement to this Company, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. 13.3 Indemnity If Successful To the extent that a Member, Manager, employee or agent of this Company has been .successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 13.1 and 13.2, or in defense of any claim, issue or matter therein, this Company does hereby indemnify such person or entity against expenses, subject to the provisions of Section 13.4 hereof, including attorneys' fees, actually and reasonably incurred by him in connection with the defense. 13.4 Expenses Any indemnification under Sections 13.1 and 13.2, unless ordered by a court or advanced pursuant to Section 13.5 below, must be made by this Company only as authorized in the specific case upon a determination that indemnification of the Member, Manager, employee or agent is proper in the circumstances. The determination must be made: (a) By a majority vote of Managers who were not parties to the act, suit or proceeding; (b) If, pursuant to majority vote, Managers who were not parties to the act, suit or proceeding so order, by independent legal counsel in a written opinion; or (c) If a vote of Managers who were not parties to the act, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion. For purposes of this Section 13.4, each Manager shall have one vote. 13.5 Advance Payment of Expenses The expenses of Members and Managers incurred in defending a civil or criminal action, suit or proceeding shall be paid by this Company as they are incurred and in advance of the final disposition of 21 the action, suit or proceeding, upon receipt of an undertaking by or on behalf of the Member or Manager to repay the amount if it is ultimately determined by a court of competent jurisdiction that he is not entitled to be indemnified by this Company. The provisions of this subsection do not affect any rights to advancement of expenses to which personnel other than Members or Managers may be entitled under any contract or otherwise by law. 13.6 Other Arrangements Not Excluded The indemnification and advancement of expenses authorized in or ordered by a court pursuant to this Article XIII: (a) Does not exclude any other rights to which a person seeking indemnification or advancement of expenses may be entitled under the Articles of Organization or any agreement, vote of Members or otherwise, for either an action in his official capacity or an action in another capacity while holding his office, except that indemnification, unless ordered by a court pursuant to Section 13.2 above or for the advancement of expenses made pursuant to Section 13.5 above, may not be made to or on behalf of any Member or Manager if a final adjudication establishes that his acts or omissions involved intentional misconduct, fraud or a knowing violation of the law and was material to the cause of action. (b) Continues for a person who has ceased to be a Member, Manager, employee or agent and inures to the benefit of the heirs, executors and administrators of such a person. ARTICLE XIV MISCELLANEOUS PROVISIONS 14.1 Complete Agreement This Operating Agreement, and the Articles of Organization, constitute the complete and exclusive statement of the agreement among the Members with respect to the subject matter contained therein. This Operating Agreement and the Articles of Organization replace and supersede all prior agreements by and among the Members or any of them. This Operating Agreement and the Articles of Organization supersede all prior written and oral statements and no representation, statement, or condition or warranty not contained in this Operating Agreement or the Articles of Organization will be binding on the Members or be of any force and effect whatsoever. 14.2 Amendments This Operating Agreement may be amended by the Members but only at a special or annual meeting of the Members, not by written consent, and only if the notice of the intention to amend the Operating Agreement was contained in the notice of the meeting, or such notice of a meeting is waived by all Members. 22 14.3 Applicable Law This Operating Agreement, and its application, shall be governed exclusively by its terms and by the laws of the State of Nevada. 14.4 Headings The headings in this Operating Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Operating Agreement or any provisions contained herein. 14.5 Severability If any provision of this Operating Agreement or the application thereof to any person or circumstance shall be deemed invalid, illegal or unenforceable to any extent, the remainder of this Operating Agreement and the application thereof shall not be affected and shall be enforceable to the fullest extent permitted by law. 14.6 Expenses If any litigation or other proceeding is commenced in connection with or related to this Operating Agreement, the prevailing party shall be entitled to recover from the losing party all of the incidental costs and reasonable attorneys' fees, whether or not a final judgment is rendered. 14.7 Heirs, Successors and Assigns Each and all of the covenants, terms, provisions and agreements contained in this Operating Agreement shall be binding upon and inure to the benefit of the existing Members all new and substituted Members, and their respective assignees (whether permitted by this Agreement or not), heirs, legal representatives, successors and assigns. 14.8 Execution This Operating Agreement may be executed in counterparts, and when so executed each counterpart shall be deemed to be an original, and said counterparts together shall constitute one and the same instrument. 14.9 Power of Attorney Each Member, in accepting this Operating Agreement, makes, constitutes and appoints the Managers and each of them, with full power of substitution, as his, her, or its attorney-in-fact and personal representative to sign, execute, certify, acknowledge, file and record the Articles of Organization, and to sign, execute, certify, acknowledge, file and record all appropriate instruments amending the Articles of Organization and this Operating Agreement on behalf of each such Member. In particular, the Manager as attorney-in-fact may sign, acknowledge, certify, file and record on behalf of each Member such instruments, agreements and documents which: (1) reflect any amendments to the Articles of Organization or Operating Agreement; (2) reflect the admission or withdrawal of a Member; and (3) may otherwise be required of the Company, a Member or by law. The Power of 23 Attorney herein given by each Member is a durable power and will survive the disability or incapacity of the principal. IN WITNESS WHEREOF, this Operating Agreement was adopted by a unanimous action of the Members of this Company pursuant to a Written Consent dated October 24, 1994. MEMBERS: ANAGRAM INTERNATIONAL, INC. A Minnesota corporation By/s/ Jim Plutt ------------------------------------ Jim Plutt, Secretary ANAGRAM INTERNATIONAL HOLDINGS, INC. a Minnesota corporation By/s/ Jim Plutt ------------------------------------ Jim Plutt, Secretary EX-3.7 8 b51510asexv3w7.txt CERTIFICATE OF FORMATION OF ANAGRAM EDEN PRARIE HOLDINGS LLC EXHIBIT 3(7) CERTIFICATE OF FORMATION OF ANAGRAM EDEN PRAIRIE PROPERTY HOLDINGS LLC (UNDER THE DELAWARE LIMITED LIABILITY COMPANY ACT) This Certificate of Formation of Anagram Eden Prairie Property Holdings LLC (the "Company"), dated as of September 9, 1998, is being duly executed and filed by the undersigned as an authorized person and the sole initial member, to form a limited liability company under the Delaware Limited Liability Company Act (6 Del.C. [Section] 18-101, et seq.) (the "Act"). FIRST: The name of the limited liability company formed hereby is Anagram Eden Prairie Property Holdings LLC. SECOND: The address of the registered office of the Company in the State of Delaware is c/o The Corporation Trust Company, The Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. THIRD: The name and address of the registered agent for service of process on the Company in the State of Delaware is The Corporation Trust Company, The Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. FOURTH: The overall management and control of the business and affairs of the Company shall be vested in the member, or if more than one member, the members. If the Company shall have more than one member at any time or from time to time, all decisions with respect to the business and affairs of the Company shall require the unanimous consent of the members. The sole initial member of the Company shall be Amscan Holdings, Inc., a Delaware corporation ("Amscan"). Members of the Company shall also be any one or more persons who become a successor or additional member by the unanimous consent of the then existing members. FIFTH: The business purposes for which the Company is formed (collectively, the "Purposes") are as follows: (a) To own, occupy, manage, improve, lease, restructure and operate the parcels of land and the improvements thereon known as 7700 Anagram Drive, Eden Prairie, Minnesota and the easements appurtenant thereto (collectively, the "Property") and to conduct activities incidental thereto; (b) To guarantee (any such guarantee, a "Permitted Guarantee") the indebtedness of Amscan (the "Indebtedness") to be evidenced by a certain Amended and Restated Revolving Loan Credit Agreement and a certain Amended and Restated Axel Credit Agreement, each to be entered into among Amscan, as Borrower, Goldman Sachs Credit Partners, L.P., as Arranger and Syndication Agent (together with its successors, the "Collateral Agent"), Fleet National Bank, as Administrative Agent, and the Lenders to be listed therein (collectively and as may be amended, modified or supplemented from time to time, the "Credit Agreements"); and (c) Subject to any limitations expressly set forth herein, to do all things necessary, suitable or proper under the Act for the accomplishment of, or in furtherance of, any of the Purposes set forth herein and to do every other act or acts incidental to, or arising from, or connected with, any of such Purposes; PROVIDED, HOWEVER, that except as may be permitted by the Credit Agreements and the other documents and instruments evidencing or securing the Indebtedness, the Company shall be prohibited from (i) incurring indebtedness for borrowed money, (ii) guaranteeing or otherwise obligating itself with respect to the indebtedness of any other person, (iii) holding out its credit as being available to satisfy the obligations of any other person, or (iv) otherwise entering into any loan or credit agreement, pledge or security agreement, mortgage or deed of trust, or other written agreement or instrument which evidences or secures indebtedness for borrowed money, except for a Permitted Guarantee, and neither the foregoing enumeration of the Purposes for which the Company is formed nor any other provision in this Certificate of Formation shall be construed to authorize the Company to do any such prohibited act or thing or enter into any such prohibited agreement. SIXTH: The personal liability of the members of the Company is eliminated or limited to the fullest extent permitted by the provisions of Section 18-108 of the Act, as the same may hereafter be amended and supplemented, and none of such members are to be liable in their capacity as members for any of the debts, obligations or liabilities of the Company. SEVENTH: (a) For as long as a Permitted Guarantee remains outstanding and upon the written request of the Collateral Agent, the members shall appoint an Independent Manager designated by the Collateral Agent (the "Independent Manager"). To the fullest extent permitted by Section 18-1101(c) of the Act, the Independent Manager shall have no duty (fiduciary or otherwise) to consent or vote in favor of the institution of any proceedings, the filing of any petition, or the taking of any action, in each case concerning the matters more fully described in Paragraphs Eighth, Ninth and Tenth of this Certificate of Formation, or to take or omit to take any other action under this Certificate of Formation or to take any action that would result in an event of default under the Credit Agreements. (b) No resignation or removal of the Independent Manager, and no appointment of a successor Independent Manager, shall be effective until the successor Independent Manager shall have accepted his, her or its appointment by a written instrument. All rights, power and authority of the Independent Manager shall be limited to the extent necessary to exercise those rights and perform those duties specifically set forth in this Certificate of Formation. -2- (c) The Independent Manager may resign and be discharged of this Certificate of Formation effective upon the appointment of a successor Independent Manager, upon not less than thirty (30) days' prior written notice to the members, and, if a Permitted Guarantee remains outstanding, the Collateral Agent. Upon receiving such notice of resignation, the members shall promptly appoint a successor Independent Manager acceptable to the Collateral Agent by written instrument or instruments delivered to such resigning Independent Manager and the successor Independent Manager. If no successor Independent Manager shall have been appointed within thirty (30) days after notice of such resignation has been delivered, the Independent Manager may apply to a court of competent jurisdiction for the appointment of a successor Independent Manager. Such court may thereupon, after such notice, if any, as it may deem proper, prescribe and appoint a successor Independent Manager. (d) Any person into which the Independent Manager may be merged or with which it may be consolidated, or any person resulting from any merger or consolidation to which the Independent Manager shall be a party, or any person which succeeds to all or substantially all of the corporate trust business of the Independent Manager, shall be the successor Independent Manager under this Certificate of Formation without the execution, delivery or filing of any paper or instrument or further act to be done on the part of the parties hereto, notwithstanding anything to the contrary herein. EIGHTH: (a) The Company shall be dissolved, and its affairs shall be wound up upon the first to occur of the following: (i) the written consent of each member, and for as long as a Permitted Guarantee remains outstanding, the written consent of the Independent Manager; or (ii) the entry of a decree of judicial dissolution under Section 18-802 of the Act. (b) The bankruptcy (as defined in Section 18-101(l) of the Act) of a member shall not cause such member to cease to be a member of the Company, and upon the occurrence of such an event, the business of the Company shall continue without dissolution. (c) With the exception of any event set forth in this Paragraph Eighth, the Company shall not be dissolved by any other event or vote set forth in Section 18-801 of the Act. (d) In the event of dissolution, the Company shall conduct only such activities as are necessary to wind up its affairs (including the sale of the assets of the Company in an orderly manner), and the assets of the Company shall be applied in the manner, and in the order of priority, set forth in Section 18-804 of the Act. NINTH: The unanimous vote of the members shall be required, and for so long as a Permitted Guarantee remains outstanding, the consent of the Independent Manager shall be required, in order to take any of the following actions: (a) cause the Company to become insolvent; (b) commence any case, proceeding or other action on behalf of the Company under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors; -3- (c) institute proceedings to have the Company adjudicated as bankrupt or insolvent; (d) consent to the institution of bankruptcy or insolvency proceedings against the Company; (e) file a petition or consent to a petition seeking reorganization, arrangement, adjustment, winding-up, dissolution, composition, liquidation or other relief on behalf of the Company of its debts under any federal or state law relating to bankruptcy; (f) seek or consent to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for the Company or a substantial portion of the properties of the Company; (g) make any assignment for the benefit of the Company's creditors; or (h) take any action or cause the Company to take any action in furtherance of any of the foregoing. TENTH: For so long as a Permitted Guarantee remains outstanding, the Company shall not be authorized to: (a) amend this Certificate of Formation, except with the prior written consent of the Independent Manager; (b) engage in any business activity not contemplated by the Purposes; (c) dissolve, liquidate, consolidate, merge, or sell all or substantially all of its assets; or (d) transfer its interest in the Property, or any portion thereof. ELEVENTH: The Company shall: (a) not commingle its assets with those of any other entity and shall hold its assets in its own name; (b) conduct its own business in its own name; (c) maintain bank accounts, books, records, accounts and financial statements separate from any other entity; (d) maintain its books, records, resolutions and agreements as official records and separate from any other entity; (e) pay its own liabilities out of its own funds; (f) maintain adequate capital in light of contemplated business operations; -4- (g) observe all formalities of a limited liability company organized under the Act; (h) maintain an arm's length relationship with its affiliates; (i) pay the salaries of its own employees, if any; (j) not acquire obligations or securities of its partners, members or shareholders; (k) allocate fairly and reasonably any overhead for shared office space; (l) use separate stationary, invoices, and checks; (m) hold itself out as a separate entity and correct any known misunderstanding regarding its separate identity; and (n) not identify itself or any of its affiliates as a division or part of the other. TWELFTH: (a) Except as limited by Subparagraph (a) of the Tenth Paragraph of this Certificate of Formation, the Company reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Formation, in the manner now or hereafter prescribed by statute, and all rights conferred upon members herein are granted subject to this reservation. (b) If any of the provisions of this Certificate of Formation, or the application thereof to any person, party or circumstances, shall, to any extent, be invalid, the remainder of this Certificate of Formation, or the application of such provision or provisions to persons, parties or circumstances other than those as to whom or which it is held invalid, shall not be affected thereby, and every provision of this Certificate of Formation, shall be valid to the fullest extent permitted by law. -5- THIRTEENTH: This Certificate of Formation contains the entire understanding between and among the members of the Company respecting the subject matter hereof, and shall further constitute the limited liability company agreement as contemplated by the provisions of Section 18-201 of the Delaware Limited Liability Company Act. Signed on September 9, 1998, and affirmed, under penalties of perjury. AMSCAN HOLDINGS, INC., in its capacity as sole initial member of the Company By: /s/James M. Harrison Name: James M. Harrison Title: President -6- EX-3.8 9 b51510asexv3w8.txt PLAN OF MERGER OF AM-SOURCE, INC. INTO AM-SOURCE, LLC DATED FEBRUARY 28,2000 Exhibit 3(8) PLAN OF MERGER OF AM-SOURCE, INC. INTO AM-SOURCE, LLC 1. The name of the corporation to be merged is AM-SOURCE, INC. (the "MERGING COMPANY"), a Rhode Island corporation. The name of the surviving company is AM-SOURCE, LLC, a Rhode Island limited liability company (the "SURVIVING COMPANY"). 2. The Merging Company has outstanding 120 shares of common stock, all of which are owned by Amscan Holdings, Inc. (the "PARENT COMPANY"). The Parent Company is also the sole member of the Surviving Company, owning 100% of the membership interests thereof. 3. The terms and conditions of the merger are as follows: All of the shares of common stock of Merging Company outstanding on the effective date of the merger shall be canceled and the separate existence of the Merging Company shall cease and all the property, real and personal, rights, privileges, immunities, powers, purposes, franchises and every other asset of the Merging Company shall be transferred to, vest in and devolve upon the Surviving Company, without further act or deed and all the interests of the Merging Company shall be as effectively the property of the Surviving Company as they were of the Merging Company and all debts, liabilities and duties of the Merging Company shall attach to the Surviving Company and may be enforced against it to the same extent as if such debts, liabilities and duties have been incurred or contracted by it. Dated: FEBRUARY 28, 2000 AM-SOURCE, INC. By: AMSCAN HOLDINGS, INC. Sole Shareholder By: /s/ James M. Harrison ------------------------- Name: James M. Harrison Title: President AM-SOURCE, LLC By: /s/ James M. Harrison ----------------------------- Name: James M. Harrison Title: Authorized Person STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS Office of the Secretary of State Corporation Division 100 North Main Street Providence, Rhode Island 02903-1335 LIMITED LIABILITY COMPANY ---------------------- ARTICLES OF ORGANIZATION (To Be Filed In Duplicate) Pursuant to the provisions of Chapter 7-16 of the General Laws, 1956, as amended, the following Articles of Organization are adopted for the limited liability company to be organized hereby: 1. The name of the limited liability company is: AM-SOURCE, LLC 2. The address of the limited liability company's resident agent in Rhode Island is: 261 Narragansett Park Drive East Providence 02916 ------------------------------------------------------------------------ (Street Address, not P.O. Box) (City/Town) (Zip Code) and the name of the resident agent at such address is Arthur Kaufman --------------- (Name of Agent) 3. Under the terms of these Articles of Organization and any written operating agreement made or intended to be made, the limited liability company is intended to be treated for purposes of federal income taxation as: (Check one box only) [X] a partnership or [ ] a corporation or [ ] disregarded as an entity separate from its member 4. The address of the principal office of the limited liability company if it is determined at the time of organization: 261 Narragansett Park Drive, East Providence, RI 02916 5. The limited liability company has the purpose of engaging in any business which a limited partnership may carry on except the provision of professional services as defined in Section 7-5.1-2, and shall have perpetual existence until dissolved or terminated in accordance with Chapter 7-16, unless a more limited purpose or duration is set forth in paragraph 6 of these Articles of Organization. 6. Additional provisions, if any, not inconsistent with law, which the members elect to have set forth in these Articles of Organization, including, but not limited to, any limitation of the purposes or duration for which the limited liability company is formed, and any other provision which may be included in an operating agreement: _________________________________________________________________________ _________________________________________________________________________ 7. The limited liability company is to be managed by: (Check one box only) [X] its members or [ ] by one (1) or more managers 8. If the limited liability company has managers at the time of filing these Articles of Organization, state the name and address of each manager:
Manager Address ------- ------- ________________________________________ _______________________________________________________ ________________________________________ _______________________________________________________ ________________________________________ _______________________________________________________ ________________________________________ _______________________________________________________ ________________________________________ _______________________________________________________
9. The date these Articles of Organization are to become effective, if later than the date of filing is: ___________________________________________________________________________ (not prior to, nor more than 30 days after, the filing of these Articles of Organization) Under penalty of perjury, I declare and affirm that I have examined these Articles of Organization, including any accompanying attachments, and that all statements contained herein are true and correct. Date: May 31, 2001 /s/ James M. Harrison _______________________________________________ Signature of Authorized Person James M. Harrison -4- EX-3.9 10 b51510asexv3w9.txt OPERATING AGREEMENT OF AM-SOURCE, LLC Exhibit 3(9) Am-Source, LLC Operating Agreement This OPERATING AGREEMENT (the "Agreement") is entered into as of this 29th day of June 2001 by and among AM-SOURCE, LLC (the "Company") and the Persons whose signatures are set forth on Exhibit "A" hereto (each such Person is referred to herein individually as a "Member", and collectively, as the "Members"). EXPLANATORY STATEMENT The parties have agreed to organize and operate a limited liability company in accordance with the terms and conditions set forth in this Agreement. NOW, THEREFORE, for good and valuable consideration, the parties, intending to be legally bound, agree as follows: ARTICLE 1 DEFINITIONS 1.1. Definitions. Each of the following capitalized terms shall have the meaning specified in this Article 1. Other terms are defined in the text of this Agreement and those terms shall have the meanings respectively ascribed to them throughout this Agreement. (a) "Adjusted Capital Account Deficit" means, with respect to any Member, the deficit balance, if any, in the Member's Capital Account as of the end of the relevant taxable year, after giving effect to the following adjustments: (i) the deficit shall be decreased by the amounts which the Member is obligated to restore pursuant to any provision of this Agreement or is deemed obligated to restore pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(c); and (ii) the deficit shall be increased by the items described in Treasury Regulation Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). (b) "Agreement" means this Operating Agreement, and the Exhibits and Schedules annexed hereto, all as amended from time to time in accordance with the provisions hereof. (c) "Articles of Organization" means the Articles of Organization of the Company, as filed or to be filed with the Rhode Island Secretary of State, as the same may be amended from time to time. (d) "Capital Account" means the account to be maintained in the Company for each Member as described in Section 6.3. (e) "Capital Contribution" means the total amount of cash and the fair market value of any other asset contributed or deemed contributed under Regulation Section 1.704-1(b)(2)(iv)(d) to the Company by a Member net of liabilities assumed or to which the assets are subject as determined by the Members. (f) "Code" means the Internal Revenue Code of 1986, as amended from time to time or any corresponding provision or provisions of any succeeding law. (g) "Company" means the limited liability company formed in accordance with this Agreement. (h) "Distribution" means any cash and other property paid to a Member by the Company from the operations of the Company. (i) "Fiscal Year" means the fiscal year of the Company, which shall be the year ending December 31. (j) "Member" means each person signing this Agreement and any Person who subsequently is admitted as a member of the Company and any reference herein to the Members of the Company shall be to the then Members of the Company. (k) "Membership Interests" means all of the rights of a Member in the Company, including such Member's: (a) right to share in the Net Profits and Net Losses of the Company; (b) right to inspect the Company's books and records; (c) right to participate in the management of and vote on matters coming before the Members, as provided in this Agreement; and (d) unless this Agreement or the Articles of Organization provide to the contrary, the right to act as an agent of the Company and shall be calculated by dividing the number one by the total number of Membership Interests then held by all Members. (l) "Net Losses" means the losses of the Company, if any, determined in accordance with generally accepted accounting principles employed under the cash method of accounting. (m) "Net Profits" means the income of the Company, if any, determined in accordance with generally accepted accounting principles employed under the cash method of accounting. (n) "Rhode Island Act" means the Rhode Island Limited Liability Company Act. (o) "Person" means any corporation governmental authority, limited liability company, partnership trust, unincorporated association or other entity. (p) "Treasury Regulation" means the treasury regulations, including any temporary regulations, promulgated under the Code from time to time may be amended from time to time. -2- ARTICLE 2 ORGANIZATION 2.1. Formation. One or more Persons has acted or will act as an organizer or organizers to form a limited liability company by preparing, executing and filing with the Rhode Island Secretary of State the Articles of Organization pursuant to the Rhode Island Act. 2.2. Name. The name of the Company is AM-SOURCE, LLC. 2.3. Principal Place of Business. The principal place of business of the Company within the State of Rhode Island shall be 261 Narragansett Park Drive, East Providence, Rhode Island 02916. The Company may establish any other places of business as the Members may from time to time deem advisable. 2.4. Registered Agent. The Company's registered agent shall be Arthur Kaufman, c/o 261 Narragansett Park Drive, East Providence, Rhode Island 02916. The registered agent may be changed from time to time by amending the Articles of Organization pursuant to the Rhode Island Act. 2.5. Term. The term of the Company shall begin upon the filing of the Articles of Organization and shall terminate as provided in the Rhode Island Act, unless the Company is dissolved sooner pursuant to this Agreement or the Rhode Island Act. 2.6. Purposes. The Company is formed for any lawful business purpose or purposes. ARTICLE 3 MEMBERS 3.1. Names and Addresses. The names and addresses of the Members are as set forth in "Exhibit A" to this Agreement. 3.2. Additional Members. A Person may be admitted as a Member after the date of this Agreement upon the vote or written consent of a majority of Membership Interests. 3.3. Books and Records. The Company shall keep books and records of accounts and minutes of all meetings of the Members. Such books and records shall be maintained on a cash basis in accordance with this Agreement. 3.4. Information. Each Member may inspect during ordinary business hours and at the principal place of business of the Company the Articles of Organization, the Operating Agreement, the minutes of any meeting of the Members and any tax returns of the Company for the immediately preceding three Fiscal Years. 3.5. Limitation of Liability. Each Member's liability shall be limited as set forth in this Agreement, the Rhode Island Act and other applicable law. A Member shall not be personally liable for any indebtedness, liability or obligation of the Company, except that such Member shall remain personally liable for the payment of the Capital Contribution of such Member and as otherwise set forth in this Agreement, the Rhode Island Act and any other applicable law. -3- 3.6. Sale of All Assets. The Members shall have the right, by the vote or written consent of at least two-thirds of all Membership Interests, to approve the sale, lease, exchange or other disposition of all or substantially all of the assets of the Company. 3.7. Priority and Return of Capital. No Member shall have priority over any other Member, whether for the return of a Capital Contribution or for Net Profits, Net Losses or a Distribution; provided, however, that this Section shall not apply to loans or other indebtedness (as distinguished from a Capital Contribution) made by a Member to the Company. 3.8. Liability of a Member to the Company. A Member who or which rightfully receives the return of any portion of a Capital Contribution is liable to the Company only to the extent now or hereafter provided by the Rhode Island Act. A Member who or which receives a Distribution made by the Company in violation of this Agreement or made when the Company's liabilities exceed its assets (after giving effect to such Distribution) shall be liable to the Company for the amount of such Distribution. 3.9. Financial Adjustments. No Members admitted after the date of this Agreement shall be entitled to any retroactive allocation of losses, income or expense deductions incurred by the Company. ARTICLE 4 MANAGEMENT 4.1. Management. The property, business and affairs of the Company shall be managed by its Members, who shall have full authority, power and discretion to make all decisions with respect to the Company's business, perform any and all other acts customary or incident to such management, and perform such other services and activities set forth in this Agreement in accordance herewith and with the Act. 4.2. Officers and Agents. The Members may from time to time designate such officers and agents as they may deem necessary to carry out the day-to-day operations of the Company. Such officers and agents shall have such duties, powers, responsibilities and authority as may from time to time be prescribed by the Members and may be removed at any time, with or without cause by the Members. 4.3. Indemnification. The Company shall indemnify and hold harmless any such officer or agent from and against all claims and demands to the maximum extent permitted under the Rhode Island Act. 4.4. Salaries. The salaries and other compensation of the officers or agents, if any, shall be fixed from time to time by the vote or written consent of at least a majority of the Membership Interests. No officer or agent shall be prevented from receiving such a salary or other compensation because such officer or agent is also a Member. -4- ARTICLE 5 MEETINGS OF MEMBERS 5.1. Annual Meeting. The annual meeting of the Members shall be held on each third Tuesday in June or at such other time as shall be determined by the vote or written consent of the Membership Interests for the purpose of the transaction of any business as may come before such meeting. 5.2. Special Meetings. Special meetings of the Members, for any purpose or purposes, may be called by any Member holding not less than 25% of the Membership Interests. 5.3. Place of Meetings. Meetings of the Members may be held at any place, within or outside the State of Rhode Island, for any meeting of the Members designated in any notice of such meeting. If no such designation is made, the place of any such meeting shall be the chief executive office of the Company. 5.4. Notice of Meetings. Written notice stating the place, day and hour of the meeting indicating that it is being issued by or at the discretion of the person or persons calling the meeting, stating the purpose or purposes for which the meeting is called shall be delivered no fewer than ten nor more than sixty days before the date of the meeting. 5.5. Record Date. For the purpose of determining the Members entitled to notice of or to vote at any meeting of Members or any adjournment of such meeting, or Members entitled to receive payment of any Distribution, or to make a determination of Members for any other purpose, the date on which notice of the meeting is mailed or the date on which the resolution declaring Distribution is adopted, as the case may be, shall be the record date for making such a determination. When a determination of Members entitled to vote at any meeting of Members has been made pursuant to this Section, the determination shall apply to any adjournment of the meeting. 5.6. Quorum. Members holding not less than a majority of all Membership Interests shall constitute a quorum at any meeting of Members. In the absence of a quorum at any meeting of Members, a majority of the Membership Interests so represented may adjourn the meeting from time to time for a period not to exceed sixty days without further notice. However, if the adjournment is for more than sixty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Member of record entitled to vote at such meeting. At an adjourned meeting at which a quorum shall be present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed. The Members present at a meeting may continue to transact business until adjournment, notwithstanding the withdrawal during the meeting of Membership Interests whose absence results in less than a quorum being present. 5.7. Manner of Acting. If a quorum is present at any meeting, the vote or written consent of Members holding not less than a majority of Membership Interests shall be the act of the Members unless the vote of a greater or lesser proportion or number is otherwise required by the Rhode Island Act, the Articles of Organization or this Agreement. 5.8. Action by Members Without a Meeting. -5- (a) Whenever the Members of the Company are required or permitted to take any action by vote, such action may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken shall be signed by the Members who hold the voting interests having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all of the Members entitled to vote therein were present and voted and shall be delivered to the office of the Company, its principal place of business or an employee or agent of the Company. Delivery made to the office of the Company shall be by hand or by certified or registered mail, return receipt requested. (b) Every written consent shall bear the date of signature of each Member who signs the consent, and no written consent shall be effective to take the action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this Section to the Company, written consents signed by a sufficient number of Members to take the action are delivered to the office the Company, its principal place of business or an employee or agent of the Company having custody of the records of the Company. Delivery made to such office, principal place of business or employee or agent shall be by hand or by certified or registered mail, return receipt requested. (c) Prompt notice of the taking of the action without a meeting by less than unanimous written consent shall be given to each Member who has not consented in writing but who would have been entitled to vote thereon had such action been taken at a meeting. 5.9. Waiver of Notice. Notice of a meeting need not be given to any Member who submits a signed waiver of notice, in person or by proxy, whether before or after the meeting. The attendance of any Member at a meeting, in person or by proxy, without protesting prior to the conclusion of the meeting the lack of notice of such meeting, shall constitute a waiver of notice by such Member. 5.10. Voting Agreements. An agreement between two or more Members, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the Membership Interest held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. ARTICLE 6 CAPITAL CONTRIBUTIONS 6.1. Capital Contributions. Each Member has contributed or shall contribute the amount set forth in "Exhibit A" to this Agreement as the Capital Contribution to be made by such Member. 6.2. Additional Contributions. Except as set forth in Section 6.1 of this Agreement, no Member shall be required to make any Capital Contribution. 6.3. Capital Accounts. A Capital Account shall be maintained for each Member. Each Member's Capital Account shall be increased by the value of each Capital Contribution made -6- by the Member, the amount of any Company liabilities assumed by the Member (or which are secured by Company property distributed to such Member), allocations to such Member of the Net Profits and any other allocations to such Member of income pursuant to the Code. Each Member's Capital Account will be decreased by the value of each Distribution made to the Member by the Company, the amount of any liabilities assumed by the Company (or which are secured by property contributed to the Company by such Member), allocations to such Member of Net Losses and other allocations to such Member pursuant to the Code. 6.4. Transfers. Upon a permitted sale or other transfer of a Membership Interest in the Company, the Capital Account of the Member transferring such Member's Membership Interest shall become the Capital Account of the Person to which or whom such Membership Interest is sold or transferred in accordance with Section 1.704-1(b)(2)(iv) of the Treasury Regulations. 6.5. Modifications. The manner in which Capital Accounts are to be maintained pursuant to this Section is intended to comply with the requirements of Code Section 704(b) and the Treasury Regulations promulgated thereunder. If in the opinion of the Members the manner in which Capital Accounts are to be maintained pursuant to this Agreement should be modified to comply with Code Section 704(b) or the Treasury Regulations, then the method in which Capital Accounts are maintained shall be so modified; provided, however, that any change in the manner of maintaining Capital Accounts shall not materially alter the economic agreement between or among the Members. 6.6. Deficit Capital Account. Except as otherwise required in the Rhode Island Act or this Agreement, no Member shall have any liability to restore all or any portion of a deficit balance in a Capital Account. 6.7. Withdrawal or Reduction of Capital Contributions. A Member shall not receive from the Company any portion of a Capital Contribution until all indebtedness, liabilities of the Company, except any indebtedness, liabilities and obligations to Members on account of their Capital Contributions, have been paid or there remains property of the Company, in the sole discretion of a majority in interest of the Members sufficient to pay them. A Member, irrespective of the nature of the Capital Contribution of such Member, has only the right to demand and receive cash in return for such Capital Contribution. ARTICLE 7 ALLOCATIONS AND DISTRIBUTIONS 7.1. Allocations of Profits and Losses. The Net Profits and the Net Losses for each Fiscal Year shall be allocated among the Members in accordance with their respective Membership Interests. 7.2. Distributions. The Members may from time to time, in the discretion of a majority of Membership Interests, make Distributions to the Members. All Distributions shall be made to the Members pro rata in proportion to their respective Membership Interests as of the record date set for such Distribution. 7.3. Qualified Income Offset. No Member shall be allocated Net Losses or deductions if the allocation causes the Member to have an Adjusted Capital Account Deficit. If a Member -7- receives (i) an allocation of Net Loss or deduction (or any item thereof) or (ii) any distribution which causes the Member to have an Adjusted Capital Account Deficit at the end of any taxable year, then all items of income and gain of the Company (consisting of a pro rata portion of each item of Company income, including gross income and gain) for that taxable year, shall be specially allocated to that Member, before any other allocation is made of Company items for that taxable year in the amount and in such proportion as may be required to eliminate the Adjusted Capital Account deficit as quickly as possible. This Section 7.3 is intended to comply with, and shall be interpreted consistently with the "qualified income offset" provisions of the Treasury Regulations promulgated under Code Section 704(b). 7.4. Offset. The Company may offset all amounts owing to the Company by a Member against any Distribution to be made to such Member. 7.5. Limitation Upon Distributions. No Distribution shall be declared and paid unless, after such Distribution is made, the assets of the Company are in excess of all liabilities of the Company. 7.6. Interest on and Return of Capital Contributions. No Member shall be entitled to interest on such Member's Capital Account or to a return of such Member's Capital Contribution, except as specifically set forth in this Agreement. 7.7. Accounting Period. The accounting period of the Company shall be the Fiscal Year. ARTICLE 8 TAXES 8.1. Tax Returns. The Members shall cause to be prepared and filed all necessary federal and state income tax returns for the Company. Each Member shall furnish to the Company all pertinent information in its possession relating to Company operations that is necessary to enable the Company's income tax returns to be prepared and filed. 8.2. Tax Elections. The Company shall make the following elections on the appropriate tax returns: (a) To adopt the calendar year as the Fiscal Year; (b) To adopt the cash method of accounting; (c) If a Distribution as described in Code Section 734 occurs or if a transfer of a Membership Interest described in Code Section 743 occurs, upon the written request of any Member, to elect to adjust the basis of the property of the Company pursuant to Code Section 754; (d) To elect to amortize the organizational expenses of the Company and the start-up expenditures of the Company under Code Section 195 ratably over a period of sixty months as permitted by Code Section 709(b); and -8- (e) Any other election that the Company may deem appropriate and in the best interests of the Members. Neither the Company nor any Member may make an election for the Company to be excluded from the application of Subchapter K of Chapter 1 of Subtitle A of the Code or any similar provisions of applicable state law, and no provisions of this Agreement shall be interpreted to authorize any such election. 8.3. Tax Matters Partner. The Members shall designate one Member to be the "tax matters partner" of the Company pursuant to Code Section 6231(a)(7). Any Member who is designated "tax matters partner" shall take any action as may be necessary to cause each other Member to become a "notice partner" within the meaning of Code Section 6223. ARTICLE 9 TRANSFERABILITY 9.1. General. No Member shall gift, sell, assign, pledge, hypothecate, exchange or otherwise transfer ("Transfer") to another Person any portion of a Membership Interest, without the consent of a majority of Membership Interests; provided that any Member may Transfer such Member's Membership Interest, or any portion thereof to a spouse, child, grandchild, or spouse of a child or grandchild of such Members, in each case without the consent of the other Members. 9.2. Transferee Not a Member. No Person acquiring a Membership Interest pursuant to this Article 9 shall become a Member unless such Person is approved by the vote or written consent of a majority of Membership Interests. If no such approval is obtained, such Person's Membership Interest shall only entitle such Person to receive the Distributions and allocations of Net Profits and Net Losses to which the Member from whom or which such Person received such Membership Interest would be entitled. Any such approval may be subject to any terms and conditions imposed by the Members. 9.3. Effective Date. Any Transfer of a Membership Interest or admission of a Member pursuant to this Article shall be deemed effective as of the last day of the calendar month in which such Transfer or admission occurs. ARTICLE 10 DISSOLUTION 10.1. Dissolution. The Company shall be dissolved and its affairs shall be wound up upon the first to occur of the following: (a) The latest date on which the Company is to dissolve, if any, as set forth in the Articles of Organization; (b) The vote or written consent of at least two-thirds in interest of all Members, or (c) The bankruptcy, death, dissolution, expulsion, incapacity or withdrawal of any Member or the occurrence of any other event that terminates the continued -9- membership of any Member, unless within 180 days after such event the Company is continued by the vote or written consent of a majority in interest of all of the remaining Members. 10.2. Winding Up. Upon the dissolution of the Company the Members may, in the in the name of and for and on behalf of the Company, prosecute and defend suits, whether civil, criminal or administrative, sell and close the Company's business, dispose of and convey the Company's property, discharge the Company's liabilities and distribute to the Members any remaining assets of the Company, all without affecting the liability of Members. Upon winding up of the Company, the assets shall be distributed as follows: (a) To creditors, including any Member who is a creditor, to the extent permitted by law, in satisfaction of liabilities of the Company, whether by payment or by establishment of adequate reserves, other than liabilities for distributions to Members under the Rhode Island Act. (b) To Members and former Members in satisfaction of liabilities assumed under the Rhode Island Act; and (c) To Members first for the return of their Capital Contributions, to the extent not previously returned, and second respecting their Membership Interests, in the proportions in which the Members share in Distributions in accordance with this Agreement. 10.3. Articles of Dissolution. Within 90 days following the dissolution and the commencement of winding up of the Company, or at any other time there are no Members. Articles of Dissolution shall be filed with the Rhode Island Secretary of State pursuant to the Rhode Island Act. 10.4. Deficit Capital Account. Upon a liquidation of the Company within the meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations, if any Member has a Deficit Capital Account (after giving effect to all contributions, distributions, allocations and other adjustments for all Fiscal Years, including the Fiscal Year in which such liquidation occurs), the Members shall have no obligation to make any Capital Contribution, and the negative balance of any Capital Account shall not be considered a debt owed by the Member to the Company or to any other Person for any purpose. 10.5. Nonrecourse to Other Members. Except as provided by applicable law or as expressly provided in this Agreement, upon dissolution, each Member shall receive a return of such Member's Capital Contribution solely from the assets of the Company. If the assets of the Company remaining after the payment or discharge of the debts and liabilities of the Company are insufficient to return any Capital Contribution of any Member, such Member shall have no recourse against any other Member. 10.6. Termination. Upon completion of the dissolution, winding up, liquidation, and distribution of the assets of the Company, the Company shall be deemed terminated. -10- ARTICLE 11 GENERAL PROVISIONS 11.1. Notices. Any notice, demand or other communication required or permitted to be given pursuant to this Agreement shall have been sufficiently given for all purposes if (a) delivered personally to the party or to an executive officer of the party to whom such notice, demand or other communication is directed or (b) sent by registered or certified mail, postage prepaid, addressed to the Member or the Company at his, her or its address set forth in this Agreement. Except as otherwise provided in this Agreement, any such notice shall be deemed to be given three business days after the date on which it was deposited in a regularly maintained receptacle for the deposit of United States mail, addressed and sent as set forth in this Section. 11.2. Amendment. This Agreement contains the entire agreement among the Members with respect to the subject matter of this Agreement and supersedes each course of conduct previously pursued or acquiesced in, and each oral agreement and representation previously made by the Members with respect thereto, whether or not relied or acted upon. No course of performance or other conduct subsequently pursued or acquiesced in, and no oral agreement or representation subsequently made, by the Members whether or not relied or action upon, and no usage of trade whether or not relied or acted upon shall amend this Agreement or impair or otherwise affect any Member's obligations pursuant to this Agreement or any rights and remedies of a Member pursuant to this Agreement. No amendment to this Agreement shall be effective unless made in a writing duly executed by all Members. 11.3. Construction. Whenever the singular number is used in this Agreement and when required by the context, the same shall include the plural and vice versa, and the masculine gender shall include the feminine and neuter genders and vice versa. 11.4. Headings. The headings in this Agreement are for convenience only and shall not be used to interpret or construe any provision of this Agreement. 11.5. Waiver. No failure of a Member to exercise, and no delay by a Member in exercising any right or remedy under this Agreement shall constitute a waiver of such right or remedy. No waiver by a Member of any such right or remedy under this Agreement shall be effective unless made in a writing duly executed by all Member and specifically referring to each such right or remedy being waived. 11.6. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law. However, if any provision of this Agreement shall be prohibited by or invalid under such law, it shall be deemed modified to conform to the minimum requirements of such law or, if for any reason it is not deemed so modified, it shall be prohibited or invalid only to the extent of such prohibition or invalidity without the remainder thereof or any other such provision being prohibited or invalid. 11.7. Binding. This Agreement shall be binding upon and inure to the benefit of all members and each of the successors and assigns of the Members, except such right or obligation of a Member under this Agreement that may not be assigned by such Member to another Person without first obtaining the written consent of a majority in interest of all other Members. -11- 11.8. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. 11.9. Governing Law. This Agreement shall be governed by, and interpreted and construed in accordance with the laws of the State of Rhode Island, without regard to principles of conflict of laws. IN WITNESS WHEREOF, the parties have signed or caused this Agreement to be duly signed as of the date first above written. AM-SOURCE, LLC By: AMSCAN HOLDINGS INC. Member By: /s/ Michael A. Correale ------------------------------ Name: Michael A. Correale Title: Vice President MEMBER: AMSCAN HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------ Name: Michael A. Correale Title: Vice President -12- EXHIBIT "A" MEMBERS
Capital Membership Name Address Contribution Interest ---- ------- ------------ -------- Amscan Holdings, Inc. 80 Grasslands Road By merger of 100% Elmsford, New York 10523 Am-Source, Inc.
EX-3.10 11 b51510asexv3w10.txt CERTIFICATE OF INCORPORATION OF M&D INDUSTRIES, INC. Exhibit 3(10) CERTIFICATE OF INCORPORATION OF Balloon Zone Wholesale, Inc. * * * * * 1. The name of the corporation is Balloon Zone Wholesale, Inc. 2. The address of its registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. 3. The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. In general, to possess and exercise all the powers and privileges granted by the General Corporation Law of Delaware or by any other law of Delaware or by this Certificate of Incorporation together with any powers incidental thereto, so far as such powers and privileges are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the corporation. 4. The total number of shares of stock which the corporation shall have authority to issue is One Hundred (100) common shares; all of which shares shall be without par value. The holders of common stock shall, upon the issuance or sale of shares of stock of any class (whether now or hereafter authorized) or any securities convertible into such stock, have the right, during such period of time and on such conditions as the board of directors shall prescribe, to subscribe to and purchase such shares or securities in proportion to their respective holdings of common stock, at such price or prices as the board of directors may from time to time fix and as may be permitted by law. 5. The name and mailing address of each incorporator is as follows:
NAME MAILING ADDRESS ---- --------------- E. L. Kinsler Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 M. A. Humphrey Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 A. K. Wright Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801
6. In furtherance and not in limitation of the powers conferred by statute, the board of directors is expressly authorized: To make, alter or repeal the by-laws of the corporation. To authorize and cause to be executed mortgages and liens upon the real and personal property of the corporation. To set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and to abolish any such reserve in the manner in which it was created. By a majority of the whole board, to designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. The by-laws may provide that in the absence or disqualification of a member of a committee, the member or members thereof present at any meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, or in the by-laws of the corporation, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the -2- by-laws of the corporation; and, unless the resolution or by-laws expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. When and as authorized by the stockholders in accordance with law, to sell, lease or exchange all or substantially all of the property and assets of the corporation, including its good will and its corporate franchises, upon such terms and conditions and for such consideration, which may consist in whole or in part of money or property including shares of stock in, and/or other securities of, any other corporation or corporations, as its board of directors shall deem expedient and for the best interests of the corporation. 7. Elections of directors need not be by written ballot unless the by-laws of the corporation shall so provide. Meetings of stockholders may be held within or without the State of Delaware, as the by-laws may provide. The books of the corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the board of directors or in the by-laws of the corporation. 8. The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. 9. A director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. WE, THE UNDERSIGNED, being each of the incorporators hereinbefore named, for the purpose of forming a corporation pursuant to the General Corporation Law of the State of Delaware, do make this certificate, hereby declaring and certifying that this is our act and deed and the facts herein stated are true, and accordingly have hereunto set our hands this 20th day of April, 1995. -3- /s/ E. L. Kinsler ---------------------------------- E. L. Kinsler /s/ M. A. Humphrey ---------------------------------- M. A. Humphrey /s/ A. K. Wright ---------------------------------- A. K. Wright -4- CERTIFICATE OF CHANGE OF LOCATION OF REGISTERED OFFICE AND REGISTERED AGENT OF BALLOON ZONE WHOLESALE, INC. ------------------------------------------------------- The Board of Directors of: BALLOON ZONE WHOLESALE, INC., a corporation of the State of Delaware, on this 25th day of March, A.D. 1996, do hereby resolve and order that the location of the Registered Office of this Corporation within this State be, and the same hereby is: 1013 Centre Road, in the City of Wilmington, in the County of New Castle, Delaware, 19805. The name of the Registered Agent therein and in charge thereof upon whom process against the Corporation may be served, is: CORPORATION SERVICE COMPANY. BALLOON ZONE WHOLESALE, INC., a Corporation of the State of Delaware, does hereby certify that the foregoing is a true copy of a resolution adopted by the Board of Directors at a meeting held as herein stated. IN WITNESS WHEREOF, said corporation has caused this Certificate to be signed by James K. Roosa, Assistant Secretary, this 25th day of March A.D. 1996. /s/ James K. Roosa ---------------------------------- Authorized Officer CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF BALLOON ZONE WHOLESALE, INC. Balloon Zone Wholesale, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY: FIRST: That the Directors of Balloon Zone Wholesale, Inc., by written consent, filed with the minutes of the Board of Directors, adopted a resolution proposing and declaring advisable the following amendment to the Certificate of Incorporation of Balloon Zone Wholesale, Inc.: RESOLVED, that paragraph FIRST of the Certificate of Incorporation shall be amended to read as follows: "FIRST" The name of this corporation is: "M&D Balloons, Inc." SECOND: That in lieu of a meeting and vote of stockholders, the sole stockholder has given written consent to said amendment in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Balloon Zone Wholesale, Inc. has caused this certificate to be signed by Edward Fruchtenbaum, its President, and attested by Phyllis Alden, its Assistant Secretary, effective this 11th day of April, 2000. BALLOON ZONE WHOLESALE, INC. By: /s/ Edward Fruchtenbaum ------------------------------ Edward Fruchtenbaum, President ATTEST: /s/ Phyllis Alden - ----------------------------------- Phyllis Alden, Assistant Secretary -7- CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF M & D BALLOONS, INC. It is hereby certified that: 1. The name of the corporation (hereinafter called the "Corporation") is M & D BALLOONS, INC." 2. The certificate of incorporation of the corporation is hereby amended by striking out paragraph FIRST thereof and by substituting in lieu of said paragraph the following new paragraph: "FIRST, the name of this corporation is "M&D Industries, Inc." 3. The amendment of the certificate of incorporation herein certified has been approved by the written consent of the Board of Directors and thereafter has been duly adopted and written consent given by the sole stockholder of the Corporation in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this certificate of amendment to be signed and filed as of this 25th day of March, 2003. /s/ Michael A. Correale ---------------------------------- Michael A Correale Vice President EX-3.11 12 b51510asexv3w11.txt BY-LAWS OF M&D INDUSTRIES, INC. Exhibit 3(11) M&D BALLOONS, INC. FORMERLY Balloon Zone Wholesale, Inc. * * * * * B Y - L A W S * * * * * ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Cleveland, State of Ohio, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1996, shall be held on the first day of May if not a legal holiday, and if a legal holiday, then on the next secular day following, at 2 P.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. -2- Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than sixty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified, at the please where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose of purposes of the proposed meeting. Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the date of the meeting, to each stockholder entitled to vote at such meeting. -3- Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business expect as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjournment meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no -4- proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporation action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The number of directors which shall constitute the whole board shall be not less than one nor more than five. The first board shall consist of two directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and -5- shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter -6- provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president without notice to each director; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director; in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these by-laws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Unless otherwise restricted by the certificate of incorporation or these by-laws, members of the board of directors, or any committee designated by the board of -7- directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares -8- for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation) adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefore. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS -9- Section 14. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. -10- Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporations all hold office until their successors are chosen and qualify. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice- -11- presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. -12- THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. -13- ARTICLE VI CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president, and by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) or a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of -14- that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instructions from the registered owner of uncertified shares such uncertificated shares shall be cancelled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful -15- action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for -16- such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. The corporation shall indemnify its officers, directors, employees agents to the extent permitted by the General Corporation Law of Delaware. -17- ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if such notice of such alternation, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. -18- EX-4.1 13 b51510asexv4w1.txt INDENTURE, DATED AS OF APRIL 30,2004 WITH THE BANK OF NEW YORK RE: 8.75% NOTES DUE 2014 Exhibit 4(1) EXECUTION COPY AMSCAN HOLDINGS, INC. AND EACH OF THE GUARANTORS PARTY HERETO 8.75% SENIOR SUBORDINATED NOTES DUE 2014 INDENTURE Dated as of April 30, 2004 The Bank of New York Trustee CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section 310(a)(1)................................................................... 7.10 (a)(2)................................................................... 7.10 (a)(3)................................................................... N.A. (a)(4)................................................................... N.A. (a)(5)................................................................... 7.10 (b)...................................................................... 7.10 (c)...................................................................... N.A. 311(a)...................................................................... 7.11 (b)...................................................................... 7.11 (c)...................................................................... N.A. 312(a)...................................................................... 2.05 (b)...................................................................... 12.03 (c)...................................................................... 12.03 313(a)...................................................................... 7.06 (b)(1)................................................................... N.A. (b)(2)................................................................... 7.06; 7.07 (c)...................................................................... 7.06; 12.02 (d)...................................................................... 7.06 314(a)...................................................................... 4.03; 12.02; 12.05 (b)...................................................................... N.A. (c)(1)................................................................... 12.04 (c)(2)................................................................... 12.04 (c)(3)................................................................... N.A. (d)...................................................................... N.A. (e)...................................................................... 12.05 (f)...................................................................... N.A. 315(a)...................................................................... 7.01 (b)...................................................................... 7.05; 12.02 (c)...................................................................... 7.01 (d)...................................................................... 7.01 (e)...................................................................... 6.11 316(a) (last sentence)...................................................... 2.09 (a)(1)(A)................................................................ 6.05 (a)(1)(B)................................................................ 6.04 (a)(2)................................................................... N.A. (b)...................................................................... 6.07 (c)...................................................................... 2.12 317(a)(1)................................................................... 6.08 (a)(2)................................................................... 6.09 (b)...................................................................... 2.04 318(a)...................................................................... 12.01 (b)...................................................................... N.A. (c)...................................................................... 12.01
N.A. means not applicable. * This Cross Reference Table is not part of the Indenture. TABLE OF CONTENTS
Page ---- ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions............................................................... 1 Section 1.02 Other Definitions......................................................... 21 Section 1.03 Incorporation by Reference of TIA......................................... 22 Section 1.04 Rules of Construction..................................................... 22 ARTICLE 2 THE NOTES Section 2.01 Form and Dating........................................................... 23 Section 2.02 Execution and Authentication.............................................. 24 Section 2.03 Registrar and Paying Agent................................................ 24 Section 2.04 Paying Agent to Hold Money in Trust....................................... 25 Section 2.05 Holder Lists.............................................................. 25 Section 2.06 Transfer and Exchange..................................................... 25 Section 2.07 Replacement Notes......................................................... 37 Section 2.08 Outstanding Notes......................................................... 37 Section 2.09 Treasury Notes............................................................ 37 Section 2.10 Temporary Notes........................................................... 38 Section 2.11 Cancellation.............................................................. 38 Section 2.12 Defaulted Interest........................................................ 38 Section 2.13 Issuance of Additional Notes.............................................. 38 Section 2.14 CUSIP Numbers............................................................. 39 ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee........................................................ 39 Section 3.02 Selection of Notes to Be Redeemed or Purchased............................ 39 Section 3.03 Notice of Redemption...................................................... 40 Section 3.04 Effect of Notice of Redemption............................................ 40 Section 3.05 Deposit of Redemption or Purchase Price................................... 41 Section 3.06 Notes Redeemed or Purchased in Part....................................... 41 Section 3.07 Optional Redemption....................................................... 41 Section 3.08 Mandatory Redemption...................................................... 42 Section 3.09 Offer to Purchase by Application of Excess Proceeds....................... 42 ARTICLE 4 COVENANTS Section 4.01 Payment of Notes.......................................................... 44 Section 4.02 Maintenance of Office or Agency........................................... 44 Section 4.03 Reports................................................................... 44 Section 4.04 Compliance Certificate.................................................... 45 Section 4.05 Taxes..................................................................... 46 Section 4.06 Stay, Extension and Usury Laws............................................ 46 Section 4.07 Restricted Payments....................................................... 46 Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries............ 49
i Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock................ 51 Section 4.10 Asset Sales............................................................... 54 Section 4.11 Transactions with Affiliates.............................................. 55 Section 4.12 Liens..................................................................... 57 Section 4.13 Business Activities....................................................... 57 Section 4.14 Corporate Existence....................................................... 57 Section 4.15 Offer to Repurchase Upon Change of Control................................ 57 Section 4.16 No Layering of Debt....................................................... 59 Section 4.17 Limitation on Sale and Leaseback Transactions............................. 59 Section 4.18 Payments for Consent...................................................... 59 Section 4.19 Additional Note Guarantees................................................ 60 Section 4.20 Designation of Restricted and Unrestricted Subsidiaries................... 60 ARTICLE 5 SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets.................................. 61 Section 5.02 Successor Corporation Substituted......................................... 62 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01 Events of Default......................................................... 62 Section 6.02 Acceleration.............................................................. 64 Section 6.03 Other Remedies............................................................ 64 Section 6.04 Waiver of Past Defaults................................................... 64 Section 6.05 Control by Majority....................................................... 64 Section 6.06 Limitation on Suits....................................................... 65 Section 6.07 Rights of Holders of Notes to Receive Payment............................. 65 Section 6.08 Collection Suit by Trustee................................................ 65 Section 6.09 Trustee May File Proofs of Claim.......................................... 65 Section 6.10 Priorities................................................................ 66 Section 6.11 Undertaking for Costs..................................................... 66 ARTICLE 7 TRUSTEE Section 7.01 Duties of Trustee......................................................... 66 Section 7.02 Rights of Trustee......................................................... 67 Section 7.03 Individual Rights of Trustee.............................................. 68 Section 7.04 Trustee's Disclaimer...................................................... 68 Section 7.05 Notice of Defaults........................................................ 69 Section 7.06 Reports by Trustee to Holders of the Notes................................ 69 Section 7.07 Compensation and Indemnity................................................ 69 Section 7.08 Replacement of Trustee.................................................... 70 Section 7.09 Successor Trustee by Merger, etc.......................................... 71 Section 7.10 Eligibility; Disqualification............................................. 71 Section 7.11 Preferential Collection of Claims Against Company......................... 71 ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.................. 71 Section 8.02 Legal Defeasance and Discharge............................................ 71 Section 8.03 Covenant Defeasance....................................................... 72
ii Section 8.04 Conditions to Legal or Covenant Defeasance................................ 72 Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions........................................................... 73 Section 8.06 Repayment to Company...................................................... 74 Section 8.07 Reinstatement............................................................. 74 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes....................................... 75 Section 9.02 With Consent of Holders of Notes.......................................... 75 Section 9.03 Compliance with TIA....................................................... 77 Section 9.04 Revocation and Effect of Consents......................................... 77 Section 9.05 Notation on or Exchange of Notes.......................................... 77 Section 9.06 Trustee to Sign Amendments, etc........................................... 77 ARTICLE 10 SUBORDINATION Section 10.01 Agreement to Subordinate.................................................. 78 Section 10.02 Liquidation; Dissolution; Bankruptcy...................................... 78 Section 10.03 Default on Designated Senior Debt......................................... 78 Section 10.04 Acceleration of Notes..................................................... 79 Section 10.05 When Distribution Must Be Paid Over....................................... 79 Section 10.06 Notice by Company......................................................... 79 Section 10.07 Subrogation............................................................... 80 Section 10.08 Relative Rights........................................................... 80 Section 10.09 Subordination May Not Be Impaired by Company.............................. 80 Section 10.10 Distribution or Notice to Representative.................................. 80 Section 10.11 Rights of Trustee and Paying Agent........................................ 81 Section 10.12 Authorization to Effect Subordination..................................... 81 Section 10.13 Amendments................................................................ 81 ARTICLE 11 NOTE GUARANTEES Section 11.01 Guarantee................................................................. 81 Section 11.02 Subordination of Note Guarantee........................................... 82 Section 11.03 Limitation on Guarantor Liability......................................... 82 Section 11.04 Execution and Delivery of Note Guarantee.................................. 83 Section 11.05 Guarantors May Consolidate, etc., on Certain Terms........................ 83 Section 11.06 Releases.................................................................. 84 ARTICLE 12 SATISFACTION AND DISCHARGE Section 12.01 Satisfaction and Discharge................................................ 85 Section 12.02 Application of Trust Money................................................ 85 ARTICLE 13 MISCELLANEOUS Section 13.01 TIA Controls.............................................................. 86 Section 13.02 Notices................................................................... 86 Section 13.03 Communication by Holders of Notes with Other Holders of Notes............. 87 Section 13.04 Certificate and Opinion as to Conditions Precedent........................ 87
iii Section 13.05 Statements Required in Certificate or Opinion............................. 87 Section 13.06 Rules by Trustee and Agents............................................... 88 Section 13.07 No Personal Liability of Directors, Officers, Employees and Stockholders.. 88 Section 13.08 Governing Law............................................................. 88 Section 13.09 No Adverse Interpretation of Other Agreements............................. 88 Section 13.10 Successors................................................................ 88 Section 13.11 Severability.............................................................. 88 Section 13.12 Counterpart Originals..................................................... 89 Section 13.13 Table of Contents, Headings, etc.......................................... 89
EXHIBITS Exhibit A1 FORM OF NOTE Exhibit A2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF CERTIFICATE OF ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Exhibit E FORM OF NOTATION OF GUARANTEE Exhibit F FORM OF SUPPLEMENTAL INDENTURE iv INDENTURE dated as of April 30, 2004 among Amscan Holdings, Inc., a Delaware corporation, the Guarantors (as defined) and The Bank of New York, a New York banking corporation, as trustee. The Company, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 8.75% Senior Subordinated Notes due 2014 (the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01 Definitions. "144A Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Restricted Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Additional Notes" means additional Notes (other than the Initial Notes) issued from time to time under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange. "Asset Sale" means: (1) the sale, lease, conveyance or other disposition of any assets or rights; provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of 1 Section 4.15 hereof and/or the provisions of Section 5.01 hereof, and not by the provisions of Section 4.10 hereof; and (2) the issuance of Equity Interests in any of the Company's Restricted Subsidiaries or the sale of Equity Interests in any of its Subsidiaries (other than directors' qualifying shares). Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale: (1) any single transaction or series of related transactions that involves assets having a Fair Market Value of less than $2.5 million; (2) a transfer of assets between or among the Company and its Restricted Subsidiaries; (3) an issuance of Equity Interests by a Restricted Subsidiary of the Company to the Company or to a Restricted Subsidiary of the Company; (4) the sale, licensing or lease of inventory, products, intellectual property services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete assets in the ordinary course of business; (5) the sale or other disposition of cash or Cash Equivalents; and (6) a Restricted Payment that does not violate Section 4.07 hereof or a Permitted Investment. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of "Capital Lease Obligation." "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular "person" (as that term is used in Section 13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial ownership of all securities that such "person" has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms "Beneficially Owns" and "Beneficially Owned" have a corresponding meaning. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; (2) with respect to a partnership, the Board of Directors of the general partner of the partnership; 2 (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and (4) with respect to any other Person, the board or committee of such Person serving a similar function. "Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be prepaid by the lessee without payment of a penalty. "Capital Stock" means: (1) in the case of a corporation, corporate stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than twelve months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of one year or less from the date of acquisition, bankers' acceptances with maturities not exceeding twelve months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; 3 (5) commercial paper having one of the two highest ratings obtainable from Moody's or S&P, in each case, maturing within twelve months after the date of acquisition; and (6) money market funds, substantially all of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Subsidiaries taken as a whole to any "person" (as that term is used in Section 13(d) of the Exchange Act) other than a Principal or a Related Party of a Principal; (2) the adoption of a plan relating to the liquidation or dissolution of the Company; (3) the consummation of any transaction (including, without limitation, any merger or consolidation), the result of which is that any "person" (as defined in clause (1) above), other than the Principals and their Related Parties or a Permitted Group, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the Company, measured by voting power rather than number of shares; or (4) after an initial public offering of the Company, the first day on which a majority of the members of the Board of Directors of the Company are not Continuing Directors. "Clearstream" means Clearstream Banking, S.A. "Company" means Amscan Holdings, Inc., and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication: (1) taxes paid and provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such taxes or provision for taxes was deducted in computing such Consolidated Net Income; plus (2) the Fixed Charges of such Person and its Restricted Subsidiaries for such period, to the extent that such Fixed Charges were deducted in computing such Consolidated Net Income; plus (3) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash charges and expenses (excluding any such non-cash charge and expense to the extent that it represents an accrual of or reserve for cash charges or expenses in any future period or amortization of a prepaid cash charge or expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus (4) any non-recurring fees, charges or other expenses made or incurred in connection with the acquisition and the financing thereof as described in the Offering Circular under the 4 heading "The Transactions" within 90 days of the date of this Indenture that were deducted in computing Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue or the reversal of reserves in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income of any Person (other than Amscan de Mexico, S.A. de C.V. for so long as it is treated as a consolidated subsidiary of the Company pursuant to GAAP) that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person (and if such Net Income is a loss it will be included only to the extent that such loss has been funded with cash by the specified Person or a Restricted Subsidiary of the specified Person); (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement (other than Credit Facilities whose sole restriction on such declaration or payment occurs only upon the occurrence of or during the existence or continuance of a default or event of default), instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; (3) the cumulative effect of a change in accounting principles will be excluded; and (4) notwithstanding clause (1) above, the Net Income of any Unrestricted Subsidiary will be excluded, whether or not distributed to the specified Person or one of its Subsidiaries. "Consolidated Net Tangible Assets" means total assets after deducting: (1) all current liabilities; (2) any item representing investments in Unrestricted Subsidiaries; and (3) all goodwill, trade names, trademarks, patents, unamortized debt discount, organization expenses and other like intangibles, all as set forth on the most recent internal balance sheet of the Company and its consolidated Restricted Subsidiaries and computed in accordance with GAAP. "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of the Company who: (1) was a member of such Board of Directors on the date of this Indenture; or 5 (2) was nominated for election or elected to such Board of Directors by the Principals or a Related Party of the Principals or with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election. "Corporate Trust Office of the Trustee" means the principal office of the Trustee at which at any time its corporate trust business shall be administered, which office at the date hereof is located at 101 Barclay Street, Floor 8 West, New York, New York 10286, Attention: Corporate Trust Administration, or such other address as the Trustee may designate from time to time by notice to the Holders and the Company, or the principal corporate trust office of any successor Trustee (or such other address as such successor Trustee may designate from time to time by notice to the Holders and the Company). "Credit Agreement" means that certain credit agreement, dated as of April 30, 2004, by and among the Company, AAH Holdings Corporation and certain of the Company's subsidiaries, as guarantors, Goldman Sachs Credit Partners L.P., as joint lead arranger, joint bookrunner and co-syndication agent, J.P. Morgan Securities, as joint lead arranger, joint bookrunner and co-syndication agent, General Electric Capital Corporation, as administrative agent and collateral agent, and the lenders party thereto, providing for up to $255.0 million of revolving credit and term loan borrowings, including any related notes, guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, supplemented, restated, modified, renewed, refunded, restructured, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time whether with one agreement or indenture or one or more agreements or indentures. "Credit Facilities" means, one or more debt facilities (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other institutional lenders providing for revolving credit loans, term loans, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, supplemented, restated, modified, renewed, refunded, restructured, replaced (whether upon or after termination or otherwise) or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means: (1) any Indebtedness outstanding under the Credit Agreement; and 6 (2) after payment in full of all Obligations under the Credit Agreement, any other Senior Debt permitted under this Indenture the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof. The amount of Disqualified Stock deemed to be outstanding at any time for purposes of this Indenture will be the maximum amount that the Company and its Restricted Subsidiaries may become obligated to pay upon the maturity of, or pursuant to any mandatory redemption provisions of, such Disqualified Stock, exclusive of accrued dividends. "Domestic Subsidiary" means any Restricted Subsidiary of the Company that was formed under the laws of the United States or any state of the United States or the District of Columbia or that guarantees or otherwise provides direct credit support for any Indebtedness of the Company. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Equity Offering" means an offering or sale of Equity Interests (other than Disqualified Stock) of the Company. "Euroclear" means Euroclear Bank, S.A./N.V., as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Fair Market Value" means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, and, in the case of any transaction involving aggregate consideration in excess of $10.0 million, as determined in good faith by the Board of Directors of the Company (unless otherwise provided in this Indenture). 7 "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person for such period to the Fixed Charges of such Person for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations, or any Person or any of its Restricted Subsidiaries acquired by the specified Person or any of its Restricted Subsidiaries, and including any related financing transactions and including increases in ownership of Restricted Subsidiaries, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect (in accordance with Regulation S-X under the Securities Act) as if they had occurred on the first day of the four-quarter reference period; (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded; (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date; (4) any Person that is a Restricted Subsidiary on the Calculation Date will be deemed to have been a Restricted Subsidiary at all times during such four-quarter period; (5) any Person that is not a Restricted Subsidiary on the Calculation Date will be deemed not to have been a Restricted Subsidiary at any time during such four-quarter period; and (6) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the rate in effect on the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness). "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any 8 deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates; plus (2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) or to the Company or a Restricted Subsidiary of the Company, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, determined on a consolidated basis in accordance with GAAP. "Foreign Subsidiary" means any Restricted Subsidiary of the Company that is not a Domestic Subsidiary. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, as of the date of this Indenture. "Global Note Legend" means the legend set forth in Section 2.06(g)(2) hereof, which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes deposited with or on behalf of and registered in the name of the Depository or its nominee, substantially in the form of Exhibit A1 hereto and that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f) hereof. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness (whether arising by virtue of partnership arrangements, or by agreements to keep-well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise). "Guarantors" means: 9 (1) each Domestic Subsidiary of the Company on the date of this Indenture; and (2) any other Domestic Subsidiary of the Company that executes a Note Guarantee in accordance with the provisions of this Indenture, and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of this Indenture. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to manage interest rates or interest rate risk; and (3) other agreements or arrangements designed to protect such Person against fluctuations in currency exchange rates or commodity prices. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a Global Note substantially in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors. "Immaterial Subsidiary" means, as of any date, any Restricted Subsidiary whose total assets, as of that date, are less than $100,000 and whose total revenues for the most recent 12-month period do not exceed $100,000; provided that a Restricted Subsidiary will not be considered an Immaterial Subsidiary if it, as of any date, together with all other Immaterial Subsidiaries, has net assets as of such date in excess of $500,000 or has total revenues for the most recent 12-month period in excess of $500,000; provided further that a Restricted Subsidiary will not be considered to be an Immaterial Subsidiary if it, directly or indirectly, guarantees or otherwise provides direct credit support for any Indebtedness of the Company. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person (excluding accrued expenses and trade payables), whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of bankers' acceptances; (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions; (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed, except any such balance that constitutes an accrued expense or trade payable; or 10 (6) representing any Hedging Obligations, if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the guarantee by the specified Person of any Indebtedness of any other Person. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means the first $175,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Initial Purchasers" means Goldman, Sachs & Co. and Credit Suisse First Boston LLC. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who are not also QIBs. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any Subsidiary of the Company sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of the Company's Investments in such Subsidiary that were not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.07 hereof. The acquisition by the Company or any Subsidiary of the Company of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the Fair Market Value of the Investments held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of Section 4.07 hereof. Except as otherwise provided in this Indenture, the amount of an Investment will be determined at the time the Investment is made and without giving effect to subsequent changes in value. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. 11 "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Moody's" means Moody's Investors Service, Inc. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain or loss, together with any related provision for taxes on such gain or loss, realized in connection with: (a) any Asset Sale; or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain or loss, together with any related provision for taxes on such extraordinary gain or loss. "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and 12 (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. "Non-U.S. Person" means a Person who is not a U.S. Person. "Note Guarantee" means the Guarantee by each Guarantor of the Company's obligations under this Indenture and the Notes, executed pursuant to the provisions of this Indenture. "Notes" has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Offering Circular" means the final Offering Circular of the Company, dated April 27, 2004 with respect to the Notes. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by two Officers of the Company, one of whom must be the principal executive officer, the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 13.05 hereof. "Opinion of Counsel" means an opinion from legal counsel that meets the requirements of Section 13.05 hereof. The counsel may be an employee of or counsel to the Company or any Subsidiary of the Company. "Parent" means AAH Holdings Corporation. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively (and, with respect to DTC, shall include Euroclear and Clearstream). "Permitted Business" means any business conducted by the Company and its Restricted Subsidiaries on the date of this Indenture and any business reasonably related, ancillary or complimentary to, or reasonable extensions of, the business of the Company or any of its Restricted Subsidiaries on the date of this Indenture. "Permitted Group" means any group of investors that is deemed to be a "person" (as that term is used in Section 13(d)(3) of the Exchange Act), by virtue of the Stockholders Agreement, as the same may be amended, modified or supplemented from time to time; provided that no single Person (other than the Principals and their Related Parties) Beneficially Owns (together with its Affiliates) more of the Voting Stock of the Company that is Beneficially Owned by such group of investors than is then collectively Beneficially Owned by the Principals and their Related Parties in the aggregate. "Permitted Investments" means: 13 (1) any Investment in the Company or in a Restricted Subsidiary of the Company; (2) any Investment in Cash Equivalents; (3) any Investment by the Company or any Restricted Subsidiary of the Company in a Person, if as a result of such Investment: (a) such Person becomes a Restricted Subsidiary of the Company; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary of the Company; (4) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with Sections 3.09 and 4.10 hereof; (5) any acquisition of assets or Capital Stock solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (6) any Investments received in compromise or resolution of (a) obligations of trade creditors or customers that were incurred in the ordinary course of business of the Company or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; or (b) litigation, arbitration or other disputes with Persons who are not Affiliates; (7) Investments represented by Hedging Obligations; (8) loans or advances to directors, officers and employees of the Company and its Restricted Subsidiaries made in the ordinary course of business of the Company or any Restricted Subsidiary of the Company in an aggregate principal amount not to exceed $500,000 at any one time outstanding; (9) receivables owing to the Company or any Restricted Subsidiary, if created or acquired in the ordinary course of business; (10) advances to officers, directors and employees for travel, moving and similar expenses that are made in the ordinary course of business; (11) guarantees otherwise permitted by the terms of this Indenture; (12) Investments existing on the date of this Indenture; (13) repurchases of the Notes; and (14) other Investments in any Person other than an Affiliate (other than such Persons that are Affiliates of the Company solely by virtue of the Company's Investments in such Persons) of the Company having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (14) that are at the time outstanding not to exceed $20.0 million. "Permitted Junior Securities" means: 14 (1) Equity Interests in the Company or any Guarantor or any direct or indirect parent of the Company; or (2) debt securities that are subordinated to all Senior Debt and any debt securities issued in exchange for Senior Debt to substantially the same extent as, or to a greater extent than, the Notes and the Note Guarantees are subordinated to Senior Debt under this Indenture; provided that the term "Permitted Junior Securities" shall not include any securities distributed pursuant to a plan of reorganization if the Indebtedness under the Credit Agreement is treated as part of the same class as the Notes for purposes of such plan of reorganization. "Permitted Liens" means: (1) Liens on assets of the Company or any Guarantor securing Senior Debt that was permitted by the terms of this Indenture to be incurred; (2) Liens in favor of the Company or the Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or the Subsidiary; (4) Liens on property (including Capital Stock) existing at the time of acquisition of the property by the Company or any Subsidiary of the Company; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by Section 4.09(b)(4) hereof covering only the assets acquired with or financed by such Indebtedness; (7) Liens existing on the date of this Indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) Liens imposed by law, such as carriers', warehousemen's, landlord's and mechanics' Liens, in each case, incurred in the ordinary course of business; (10) survey exceptions, easements or reservations of, or rights of others for, licenses, rights-of-way, sewers, electric lines, telegraph and telephone lines and other similar purposes, or zoning or other restrictions as to the use of real property that were not incurred in connection with Indebtedness and that do not in the aggregate materially adversely affect the value of said properties or materially impair their use in the operation of the business of such Person; 15 (11) Liens created for the benefit of (or to secure) the Notes or the Note Guarantees; (12) Liens arising by reward of any judgment, decree or order of any court but not giving rise to an Event of Default so long as such Liens are adequately bonded and any appropriate legal proceedings which may have been duly initiated for the review of such judgment, decree or order shall not have been finally terminated or the period within which such proceedings may be initiated shall not have expired; (13) Liens upon specific items of inventory or other goods and proceeds of the Company or any of its Restricted Subsidiaries securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory or other goods; (14) Liens securing Hedging Obligations incurred pursuant to Section 4.09(b)(8) hereof; (15) Liens on the assets of Foreign Subsidiaries securing Indebtedness permitted to be incurred under this Indenture; (16) any provision for the retention of title to an asset by the vendor or transferor of such asset which asset is acquired by the Company or any Restricted Subsidiary of the Company in a transaction entered into in the ordinary course of business of the Company or such Restricted Subsidiary; (17) any extension, renewal or replacement, in whole or in part, of any Lien described in clauses (3), (4), (6) or (7) of this definition; provided that any such extension, renewal or replacement is no more restrictive in any material respect that the Lien so extended, renewed or replaced and does not extend to any additional property or assets; (18) Liens to secure any Permitted Refinancing Indebtedness permitted to be incurred under this Indenture; provided, however, that: (a) the new Lien shall be limited to all or part of the same property and assets that secured or, under the written agreements pursuant to which the original Lien arose, could secure the original Lien (plus improvements and accessions to, such property or proceeds or distributions thereof); and (b) the Indebtedness secured by the new Lien is not increased to any amount greater than the sum of (x) the outstanding principal amount, or, if greater, committed amount, of the Permitted Refinancing Indebtedness and (y) an amount necessary to pay any fees and expenses, including premiums, related to such renewal, refunding, refinancing, replacement, defeasance or discharge; (19) Liens encumbering deposits made in the ordinary course of business to secure obligations arising from statutory, regulatory, contractual or warranty requirements, including rights of offset and set-off; and (20) Liens incurred in the ordinary course of business of the Company or any Subsidiary of the Company with respect to obligations that do not exceed $5.0 million at any one time outstanding. "Permitted Payments to Parent" means, without duplication as to amounts: 16 (1) payments to the Parent to permit the Parent to pay reasonable accounting, legal and administrative expenses of the Parent when due, in an aggregate amount not to exceed $250,000 per annum; and (2) for so long as the Company is a member of a group filing a consolidated, combined or unitary tax return with the Parent, payments to the Parent in respect of an allocable portion of the tax liabilities of such group that is attributable to the Company and its Subsidiaries ("Tax Payments"). The Tax Payments shall not exceed the lesser of (i) the amount of the relevant tax (including any penalties and interest) that the Company would owe if the Company were filing a separate tax return (or a separate consolidated or combined return with its Subsidiaries that are members of the consolidated or combined group), taking into account any carryovers and carrybacks of tax attributes (such as net operating losses) of the Company and such Subsidiaries from other taxable years and (ii) the net amount of the relevant tax that the Parent actually owes to the appropriate taxing authority. Any Tax Payments received from the Company shall be paid over to the appropriate taxing authority within 60 days of the Parent's receipt of such Tax Payments or refunded to the Company. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; (3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and (4) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary who is the obligor on the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Principals" means Berkshire Partners LLC and Weston Presidio. "Private Placement Legend" means the legend set forth in Section 2.06(g)(1) hereof to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. 17 "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of April 30, 2004, among the Company, the Guarantors and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements among the Company, the Guarantors and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes under the Securities Act. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or Regulation S Permanent Global Note, as appropriate. "Regulation S Permanent Global Note" means a permanent Global Note in the form of Exhibit A1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary Global Note in the form of Exhibit A2 hereto deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Related Party" means: (1) any controlling stockholder, 80% (or more) owned Subsidiary, or immediate family member (in the case of an individual) of any Principal; or (2) any trust, corporation, partnership, limited liability company or other entity, the beneficiaries, stockholders, partners, members, owners or Persons beneficially holding an 80% or more controlling interest of which consist of any one or more Principals and/or such other Persons referred to in the immediately preceding clause (1). "Representative" means this Indenture trustee or other trustee, agent or representative for any Senior Debt. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) including any vice president, assistant vice president, assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and who shall have direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. 18 "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Period" means the 40-day distribution compliance period as defined in Regulation S. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "S&P" means Standard & Poor's Ratings Group. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Debt" means: (1) all Indebtedness of the Company or any Guarantor outstanding under Credit Facilities (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization of the Company or any Guarantor, regardless of whether or not a claim for post-filing interest is allowed in such proceedings) (2) all Hedging Obligations (and guarantees thereof) permitted to be incurred under the terms of this Indenture; (3) any other Indebtedness of the Company or any Guarantor permitted to be incurred under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or any Note Guarantee, and (4) all Obligations with respect to the items listed in the preceding clauses (1), (2) and (3). Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by the Company; (2) any intercompany Indebtedness of the Company or any of its Subsidiaries to the Company or any of its Affiliates; (3) any trade payables; (4) any management fees or other fees payable to Berkshire Partners LLC or Weston Presidio or any of their respective affiliates; (5) the portion of any Indebtedness that is incurred in violation of this Indenture; or 19 (6) Indebtedness which is classified as non-recourse in accordance with GAAP or any unsecured claim arising in respect thereof by reason of the application of Section 1111(b)(1) of the Bankruptcy Code. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture. "Special Interest" means all special interest then owing pursuant to the Registration Rights Agreement. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the documentation governing such Indebtedness as of the date of this Indenture, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Stockholders Agreement" means that certain stockholders agreement, dated as of April 30, 2004, by and among Parent and certain of Parent's stockholders, as the same may be amended, modified or supplemented from time to time. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency and after giving effect to any voting agreement or stockholders' agreement that effectively transfers voting power) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "TIA" means the Trust Indenture Act of 1939, as amended (15 U.S.C. Sections 77aaa-77bbbb). "Trustee" means the party named as such in the preamble to this Indenture until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder. "Unrestricted Definitive Note" means a Definitive Note that does not bear and is not required to bear the Private Placement Legend. "Unrestricted Global Note" means a Global Note that does not bear and is not required to bear the Private Placement Legend. 20 "Unrestricted Subsidiary" means any Subsidiary of the Company that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) except as permitted by Section 4.11 hereof, is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. "U.S. Person" means a U.S. Person as defined in Rule 902(k) promulgated under the Securities Act. "Voting Stock" of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. Section 1.02 Other Definitions.
Defined in Term Section - ------------------------------------------ ---------- "Affiliate Transaction"................... 4.11 "Asset Sale Offer"........................ 3.09 "Authentication Order".................... 2.02 "Change of Control Offer"................. 4.15 "Change of Control Payment"............... 4.15 "Change of Control Payment Date".......... 4.15 "Covenant Defeasance"..................... 8.03 "DTC"..................................... 2.03 "Event of Default"........................ 6.01 "Excess Proceeds"......................... 4.10
21
Defined in Term Section - ------------------------------------------ ---------- "incur"................................... 4.09 "Legal Defeasance"........................ 8.02 "Offer Amount"............................ 3.09 "Offer Period"............................ 3.09 "Paying Agent"............................ 2.03 "Permitted Debt".......................... 4.09 "Payment Default" ........................ 6.01 "Purchase Date"........................... 3.09 "Registrar"............................... 2.03 "Restricted Payments"..................... 4.07
Section 1.03 Incorporation by Reference of TIA. Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes and the Note Guarantees means the Company and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04 Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) "will" shall be interpreted to express a command; (6) provisions apply to successive events and transactions; and 22 (7) references to sections of or rules under the Securities Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2 THE NOTES Section 2.01 Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication will be substantially in the form of Exhibits A1 and A2 hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule, agreements to which the Company is subject, if any, or usage provided that any such notation, legend or endorsement is in a form acceptable to the Company or as provided herein. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Company, the Guarantors and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form will be substantially in the form of Exhibits A1 or A2 hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A1 hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S will be issued initially in the form of the Regulation S Temporary Global Note, which will be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Clearstream, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period will be terminated upon the receipt by the Trustee of: (1) a written certificate from the Depositary, together with copies of certificates from Euroclear and Clearstream certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note or an IAI Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(b) hereof); and 23 (2) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note will be exchanged for beneficial interests in the Regulation S Permanent Global Note pursuant to the Applicable Procedures. Simultaneously with the authentication of the Regulation S Permanent Global Note, the Trustee will cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Note may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (3) Euroclear and Clearstream Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Clearstream Banking" and "Customer Handbook" of Clearstream will be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Permanent Global Note that are held by Participants through Euroclear or Clearstream. Section 2.02 Execution and Authentication. At least one Officer must sign the Notes for the Company by manual or facsimile signature. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid. A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee will, upon receipt of a written order of the Company signed by two Officers (an "Authentication Order"), authenticate Notes without the need to comply with Sections 13.04 and 13.05 hereof for original issue that may be validly issued under this Indenture, including any Additional Notes and Exchange Notes. The aggregate principal amount of Notes outstanding at any time may not exceed the aggregate principal amount of Notes authorized for issuance by the Company pursuant to one or more Authentication Orders, except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. Section 2.03 Registrar and Paying Agent. The Company will maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar will keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. 24 The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04 Paying Agent to Hold Money in Trust. The Company will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Special Interest, if any, or interest on the Notes, and will notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) will have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee will serve as Paying Agent for the Notes. Section 2.05 Holder Lists. The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee is not the Registrar, the Company will furnish to the Trustee at least five Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). Section 2.06 Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred except as a whole by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if: (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; (2) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act; or (3) there has occurred and is continuing a Default or Event of Default with respect to the Notes. 25 Upon the occurrence of any of the preceding events in (1), (2) or (3) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Sections 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Regulation S Temporary Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1). (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either: (A) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and (ii) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase; or (B) both: (i) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and 26 (ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Permanent Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(2) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; 27 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; 28 (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (2) Beneficial Interests in Regulation S Temporary Global Note to Definitive Notes. Notwithstanding Sections 2.06(c)(1)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (A) the expiration of the Restricted Period and (B) the receipt by the Registrar of any certificates required pursuant to Rule 903(b)(3)(ii)(B) under the Securities Act, except in the case of a transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (3) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial 29 interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (4) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(4) will not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (1) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in 30 a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable; (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee will cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (2) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution 31 of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (ii) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(2), the Trustee will cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (3) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee will cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (2)(B), (2)(D) or (3) above at a time when an Unrestricted Global Note has not yet been issued, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly 32 endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (i) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (ii) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; 33 and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate: (1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company; and (2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company. Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company will execute and the Trustee will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (1) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE 34 SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(3), (c)(4), (d)(2), (d)(3), (e)(2), (e)(3) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend. (2) Global Note Legend. Each Global Note will bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." (3) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note will bear a Legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." 35 (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (1) To permit registrations of transfers and exchanges, the Company will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of an Authentication Order in accordance with Section 2.02 hereof or at the Registrar's request. (2) No service charge will be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (3) The Registrar will not be required to register the transfer of or exchange of any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (5) Neither the Registrar nor the Company will be required: (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection; (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date. (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest 36 on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (7) The Trustee will authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. Section 2.07 Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company will issue and the Trustee, upon receipt of an Authentication Order, will authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08 Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(a) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest. Section 2.09 Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company or any Guarantor, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any Guarantor, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that a Responsible Officer of the Trustee actually knows are so owned will be so disregarded. 37 Section 2.10 Temporary Notes. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Company will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes. Holders of temporary Notes will be entitled to all of the benefits of this Indenture. Section 2.11 Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will dispose of canceled Notes in its customary manner (subject to the record retention requirement of the Exchange Act). The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12 Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company will fix or cause to be fixed each such special record date and payment date; provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13 Issuance of Additional Notes. The Company shall be entitled, subject to its compliance with the conditions and covenants provided for in this Indenture, to issue Additional Notes under this Indenture which shall have identical terms as the Initial Notes issued on the Issue Date, other than with respect to the date of issuance and issue price. The Initial Notes issued on the Issue Date, any Additional Notes and all Exchange Notes issued in exchange therefor shall be treated as a single class for all purposes under this Indenture, including without limitation, waiver, amendments, redemptions and offers to purchase. With respect to any Additional Notes, the Company shall set forth in a resolution of the Board of Directors and an Officers' Certificate, a copy of each which shall be delivered to the Trustee, the following information: (a) the aggregate principal amount of such Additional Notes to be authenticated and delivered pursuant to this Indenture; (b) the issue price, the issue date and the CUSIP number of such Additional Notes; and 38 (c) whether such Additional Notes shall be transfer restricted notes and issued in the form of Initial Notes as set forth in Section 2.02 this Indenture or shall be issued in the form of Exchange Notes. Section 2.14 CUSIP Numbers. The Company, in issuing the Notes, shall use "CUSIP" numbers, and the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company shall promptly notify the Trustee of any change in the "CUSIP" numbers. ARTICLE 3 REDEMPTION AND PREPAYMENT Section 3.01 Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it must furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth: (1) the clause of this Indenture pursuant to which the redemption shall occur; (2) the redemption date; (3) the principal amount of Notes to be redeemed; and (4) the redemption price. Any redemption referenced in such Officers' Certificate may be cancelled by the Company at any time prior to notice of redemption being mailed to any Holder and thereafter shall be null and void. Section 3.02 Selection of Notes to Be Redeemed or Purchased. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee will select Notes for redemption or purchase on a pro rata basis except: (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or (2) if otherwise required by law. No Notes of $1,000 or less can be redeemed in part. In the event of partial redemption, the particular Notes to be redeemed or purchased will be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption or purchase date by the Trustee from the outstanding Notes not previously called for redemption or purchase. The Trustee will promptly notify the Company in writing of the Notes selected for redemption or purchase and, in the case of any Note selected for partial redemption or purchase, the principal amount thereof to be redeemed or purchased. Notes and portions of Notes selected will be in amounts of $1,000 39 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed or purchased, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed or purchased. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption or purchase also apply to portions of Notes called for redemption or purchase. Section 3.03 Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 11 hereof. The notice will identify the Notes (including the CUSIP number) to be redeemed and will state: (1) the redemption date; (2) the redemption price; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee will give the notice of redemption in the Company's name and at its expense; provided, however, that the Company has delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04 Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. 40 Section 3.05 Deposit of Redemption or Purchase Price. Prior to 11:00 a.m. Eastern Time on the redemption or purchase date, the Company will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Special Interest, if any, on, all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Special Interest, if any, on, all Notes to be redeemed or purchased. If the Company complies with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest will cease to accrue on the Notes or the portions of Notes called for redemption or purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or purchase is not so paid upon surrender for redemption or purchase because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06 Notes Redeemed or Purchased in Part. Upon surrender of a Note that is redeemed or purchased in part, the Company will issue and, upon receipt of an Authentication Order, the Trustee will authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered. Section 3.07 Optional Redemption. (a) At any time prior to May 1, 2007, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under this Indenture at a redemption price of 108.750% of the principal amount thereof, plus accrued and unpaid interest and Special Interest, if any, to the redemption date, with the net cash proceeds of one or more Equity Offerings or a contribution to the Company's common equity capital made with the net cash proceeds of a concurrent offering of common stock of the Company's direct parent (whether offered or sold independently or as a part of an offering or sale of units); provided that: (1) at least 65% of the aggregate principal amount of Notes originally issued under this Indenture (excluding Notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and (2) the redemption occurs within 90 days of the date of the closing of such Equity Offering or contribution. (b) Except pursuant to the preceding paragraph, the Notes will not be redeemable at the Company's option prior to May 1, 2009. (c) On or after May 1, 2009, the Company may redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes 41 redeemed to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below, subject to the rights of Holders of such Notes on the relevant record date to receive interest on the relevant interest payment date:
Year Percentage - ------------------------------------ ---------- 2009................................ 104.375% 2010................................ 102.917% 2011................................ 101.458% 2012 and thereafter................. 100.000%
Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date. (d) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.08 Mandatory Redemption. The Company is not required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09 Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company is required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it will follow the procedures specified below. The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets. The Asset Sale Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company will apply all Excess Proceeds (the "Offer Amount") to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Special Interest, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest will be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company will send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. At the Company's request, the Trustee shall give notice of the Asset Sale Offer in the Company's name and at the Company's expense. The notice, which will govern the terms of the Asset Sale Offer, will state: (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer will remain open; 42 (2) the Offer Amount, the purchase price and the Purchase Date; (3) that any Note not tendered or accepted for payment will continue to accrue interest; (4) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest after the Purchase Date; (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (6) that Holders electing to have Notes purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" attached to the Notes completed, or transfer by book-entry transfer, to the Company, a Depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (7) that Holders will be entitled to withdraw their election if the Company, the Depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the Offer Amount, the Company will select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased); and (9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company will promptly issue a new Note, and the Trustee, upon written request from the Company, will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company will publicly announce the results of the Asset Sale Offer on the Purchase Date if required to do so by law. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. 43 ARTICLE 4 COVENANTS Section 4.01 Payment of Notes. The Company will pay or cause to be paid the principal of, premium, if any, and interest and Special Interest, if any, on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Special Interest, if any will be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest then due. The Company will pay all Special Interest, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02 Maintenance of Office or Agency. The Company will maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company fails to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03 Reports. (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, the Company will furnish to the Holders of Notes or cause the Trustee to furnish to the Holders of Notes, within the time periods specified in the SEC's rules and regulations: (1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file reports on such forms, including a "Management's Discussion and Analysis of Financial Condition and 44 Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (2) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. In addition, whether or not required by the SEC, the Company will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing) and, upon the effectiveness of the Exchange Offer Registration Statement or the Shelf Registration Statement, if any, will post the reports on its website within those time periods. The Company will not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC will not accept the Company's filings for any reason, the Company will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if the Company were required to file those reports with the SEC. The Company will at all times comply with TIA Section 314(a). (b) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by paragraph (a) of this Section 4.03 will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in Management's Discussion and Analysis of Financial Condition and Results of Operations, of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Unrestricted Subsidiaries of the Company. (c) The Company and the Guarantors agree that, for so long as any Notes remain outstanding, if at any time they are not required to file with the SEC the reports required by paragraphs (a) and (b) of this Section 4.03, they will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). Section 4.04 Compliance Certificate. (a) The Company and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 120 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such 45 event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as any of the Notes are outstanding, the Company will deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05 Taxes. The Company will pay, and will cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06 Stay, Extension and Usury Laws. The Company and each of the Guarantors covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Company and each of the Guarantors (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07 Restricted Payments. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly: (1) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company and other than dividends or distributions payable to the Company or a Restricted Subsidiary of the Company); (2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any Equity Interests of the Company or any direct or indirect parent of the Company (other than such Equity Interest owned by the Company or any Restricted Subsidiary of the Company); (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of the Company or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee (excluding any intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries), except a payment of interest or principal at the Stated Maturity thereof; or 46 (4) make any Restricted Investment (all such payments and other actions set forth in clauses (1) through (4) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (1) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; (2) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof; and (3) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries since the date of this Indenture (excluding Restricted Payments permitted by clauses (2), (3), (4), (5), (6), (7), (9), (10) and (11) of paragraph (b) of this Section 4.07), is less than the sum, without duplication of: (A) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter commencing after the date of this Indenture to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit); plus (B) 100% of the aggregate net cash proceeds, and the Fair Market Value of any property other than cash, received by the Company since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company); plus (C) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or otherwise liquidated or repaid for cash, the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any); plus (D) to the extent that any Unrestricted Subsidiary of the Company designated as such after the date of this Indenture is redesignated as a Restricted Subsidiary after the date of this Indenture, the Fair Market Value of the Company's Investment in such Subsidiary as of the date of such redesignation; plus (E) 50% of any dividends received by the Company or a Restricted Subsidiary of the Company that is a Guarantor after the date of this Indenture from an Unrestricted Subsidiary of the Company, to the extent that such dividends were not otherwise included in the Consolidated Net Income of the Company for such period. (b) The provisions of Section 4.07(a) hereof will not prohibit: 47 (1) the payment of any dividend or the consummation of any irrevocable redemption within 60 days after the date of declaration of the dividend or giving of the redemption notice, as the case may be, if at the date of declaration or notice, the dividend or redemption payment would have complied with the provisions of this Indenture; (2) the making of any Restricted Payment in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, Equity Interests of the Company (other than Disqualified Stock) or from the substantially concurrent contribution of common equity capital to the Company; provided that the amount of any such net cash proceeds that are utilized for any such Restricted Payment will be excluded from clause (3)(B) of Section 4.07(a) hereof; (3) the repurchase, redemption, defeasance or other acquisition or retirement for value of Indebtedness of the Company or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee with the net cash proceeds from a substantially concurrent incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend (or, in the case of any partnership or limited liability company, any similar distribution) by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company or any distribution, loan or advance to Parent for the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Parent, in each case held by any current or former officer, director or employee of the Company or any of its Restricted Subsidiaries pursuant to any equity subscription agreement, stock option agreement, shareholders' agreement or other agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $5.0 million in any twelve-month period plus the aggregate cash proceeds received by the Company during such twelve-month period from any issuance of Equity Interests by the Company to members of management of the Company and its Subsidiaries; provided further that the amount of any such net cash proceeds that are utilized for any such repurchase, redemption or other acquisition or retirement for value shall be excluded from clause (3)(B) of Section 4.07(a) hereof; (6) the repurchase of Equity Interests deemed to occur upon the exercise of stock options, warrants, convertible securities or other similar Equity Interests to the extent such Equity Interests represent a portion of the exercise price of those options, warrants, convertible securities or other similar Equity Interests; (7) the declaration and payment of regularly scheduled or accrued dividends to holders of any class or series of Disqualified Stock of the Company or any Restricted Subsidiary of the Company issued on or after the date of this Indenture in accordance with the Fixed Charge Coverage test described in Section 4.09(a) hereof; (8) any payments made, or the performance of any of the transactions contemplated, in connection with the acquisition and the financing thereof as described in the Offering Circular under the heading "Transactions;" (9) Permitted Payments to Parent; 48 (10) the repayment or repurchase of Indebtedness that is subordinated in right of payment to the Notes or the Note Guarantees upon an asset sale if and to the extent that such repayment or repurchase was required by the provisions of such Indebtedness; provided that, prior to such repayment or repurchase, the Company shall have made an Asset Sale Offer with respect to the Notes as required by this Indenture, and the Company shall have repurchased all Notes validly tendered for payment and not withdrawn in connection with such Asset Sale Offer; and (11) other Restricted Payments in an aggregate amount not to exceed $20.0 million since the date of this Indenture, provided, that in the case of Restricted Payments pursuant to clauses (5), (7), (10) and (11) above, no Default has occurred and is continuing or would be caused as a consequence of such payment. The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this Section 4.07 will be determined by the Board of Directors of the Company, whose resolution with respect thereto shall be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the Fair Market Value exceeds $10.0 million. Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (1) pay dividends or make any other distributions on its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any indebtedness owed to the Company or any of its Restricted Subsidiaries; (2) make loans or advances to the Company or any of its Restricted Subsidiaries; or (3) sell, lease or transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries. (b) The restrictions in Section 4.08(a) hereof will not apply to encumbrances or restrictions existing under or by reason of: (1) agreements as in effect on the date of this Indenture and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of this Indenture; (2) this Indenture, the Notes and the Note Guarantees; (3) applicable law, rule, regulation or order; 49 (4) any instrument governing Indebtedness or Capital Stock or property of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred; (5) customary non-assignment provisions in contracts, leases or licenses entered into in the ordinary course of business; (6) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a) hereof; (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending the sale or other disposition; (8) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (9) Liens permitted to be incurred under the provisions of Section 4.12 hereof and restrictions in the agreements relating thereto that limit the right of the debtor to dispose of the assets subject to such Liens; (10) provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements and other similar agreements entered into with the approval of the Company's Board of Directors, which limitation is applicable only to the assets that are the subject of such agreements; (11) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; (12) provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any class of Capital Stock of a Person other than on a pro rata basis; (13) restrictions on the transfer of assets subject to any Lien permitted under this Indenture imposed by the holder of such Lien; (14) restrictions on the transfer of assets imposed under any agreement to sell such assets permitted under this Indenture to any Person pending the closing of such sale; (15) customary provisions in partnership agreements, limited liability company organizational governance documents, joint venture agreements and other similar agreements that restrict the transfer of ownership interests in such partnership, limited liability company, joint venture or similar Person; 50 (16) restrictions on the ability of any Foreign Subsidiary to make dividends or other distributions contained in documentation governing Indebtedness of such Foreign Subsidiary permitted to be incurred pursuant to clause (12) of Section 4.09(b) hereof; and (17) any encumbrances or restrictions imposed by any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of the contracts, instruments or obligations referred to in clauses (1) through (16) above; provided that the encumbrances or restrictions in such amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are not materially more restrictive, in the good faith judgment of the Board of Directors of the Company, taken as a whole, than the encumbrances or restrictions prior to such amendment, modification, restatement, renewal, increase, supplement, refunding, replacement or refinancing. Section 4.09 Incurrence of Indebtedness and Issuance of Preferred Stock. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt), and the Company will not issue any Disqualified Stock and will not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and the Guarantors may incur Indebtedness (including Acquired Debt) or issue preferred stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock or preferred stock is issued, as the case may be, would have been at least 2.0 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Stock or preferred stock had been issued, as the case may be, and the proceeds thereof applied at the beginning of such four-quarter period. (b) The provisions of Section 4.09(a) hereof will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (1) the incurrence by the Company and any Guarantor of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1)(with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed $255.0 million less the aggregate amount of all Net Proceeds of Asset Sales applied by the Company or any of its Restricted Subsidiaries since the date of this Indenture to repay any term Indebtedness under a Credit Facility and to repay any revolving credit Indebtedness under a Credit Facility or effect a corresponding commitment reduction thereunder pursuant to Section 4.10 hereof; provided that the amount of Indebtedness permitted to be incurred pursuant to Credit Facilities in accordance with this clause (1) shall be in addition to any Indebtedness permitted to be incurred pursuant to the Credit Facilities in reliance on, and in accordance with, clauses (4) and (16) below; (2) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (3) the incurrence by the Company and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the date of this Indenture and the Exchange 51 Notes and the related Note Guarantees to be issued pursuant to the Registration Rights Agreement; (4) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred within 360 days of the acquisition or completion of construction or installation for the purpose of financing all or any part of the purchase price or cost of design, construction, installation or improvement of property, plant or equipment used in the business of the Company or any of its Restricted Subsidiaries, or Attributable Debt relating to a sale and leaseback transaction, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (4), not to exceed the greater of (a) $20.0 million or (b) 5.0% of the Consolidated Net Tangible Assets of the Company and its Restricted Subsidiaries; (5) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) or clauses (2), (3), (4), (5) or (16) of this Section 4.09(b); (6) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that: (A) if the Company or any Guarantor is the obligor on such Indebtedness and the payee is not the Company or a Guarantor, such Indebtedness must be expressly subordinated in right of payment to all Obligations then due with respect to the Notes, in the case of the Company, or the Note Guarantee, in the case of a Guarantor; and (B) (1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary of the Company, will be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6); (7) the issuance by any of the Company's Restricted Subsidiaries to the Company or to any of its Restricted Subsidiaries of shares of preferred stock; provided, however, that: (A) any subsequent issuance or transfer of Equity Interests that results in any such preferred stock being held by a Person other than the Company or a Restricted Subsidiary of the Company; and (B) any sale or other transfer of any such preferred stock to a Person that is not either the Company or a Restricted Subsidiary of the Company, will be deemed, in each case, to constitute an issuance of such preferred stock by such Restricted Subsidiary that was not permitted by this clause (7); 52 (8) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations in the ordinary course of business; (9) the guarantee by the Company or any of the Guarantors of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this Section 4.09; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes, then the guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed; (10) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness in respect of workers' compensation claims, self-insurance obligations, bankers' acceptances, performance and surety bonds in the ordinary course of business; (11) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn-out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, other than guarantees of Indebtedness incurred by any Person acquiring all or any portion of such business, assets or Restricted Subsidiary for the purpose of financing such acquisition; provided that the maximum assumable liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restated Subsidiaries in connection with such disposition; (12) Indebtedness of the Company's Foreign Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any time outstanding; (13) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently drawn against insufficient funds, so long as such Indebtedness is covered within five business days; (14) Attributable Debt incurred in connection with a sale and leaseback transaction with respect to the distribution facility located at 32 Leone Lane, Chester Industrial Park, Chester, New York; (15) Indebtedness of the Company or any Guarantor supported by a letter of credit issued under a Credit Facility pursuant to clause (1) of Section 4.09(b) hereof in an aggregate principal amount not in excess of the stated amount of such letter of credit; and (16) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness (which additional Indebtedness may be incurred under the Credit Agreement) in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defease or discharge any Indebtedness incurred pursuant to this clause (16), not to exceed $25.0 million. For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (16) above, or is entitled to be incurred pursuant to Section 4.09(a) hereof, the Company will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and 53 authenticated under this Indenture will initially be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of Section 4.09(b) hereof. The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Stock in the form of additional shares of the same class of Disqualified Stock will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Stock for purposes of this Section 4.09; provided, in each such case, that the amount of any such accrual, accretion or payment is included in Fixed Charges of the Company as accrued. Notwithstanding any other provision of this Section 4.09, the maximum amount of Indebtedness that the Company or any Restricted Subsidiary may incur pursuant to this Section 4.09 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; (2) the principal amount of the Indebtedness, in the case of any other Indebtedness; and (3) in respect of Indebtedness of another Person secured by a Lien on the assets of the specified Person, the lesser of: (A) the Fair Market Value of such assets at the date of determination; and (B) the amount of the Indebtedness of the other Person. Section 4.10 Asset Sales. The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: (1) the Company (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of; and (2) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash. For purposes of this provision, each of the following shall be deemed to be cash: (A) Cash Equivalents; (B) any liabilities, as shown on the Company's most recent consolidated balance sheet, of the Company or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; (C) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are, within 90 days of the Asset Sale, 54 converted by the Company or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or Cash Equivalents received in that conversion; and (D) any stock or assets of the kind referred to in clauses (2) or (4) of the next paragraph of this Section 4.10. Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds at its option: (1) to repay Senior Debt (and, if such Senior Debt constitutes revolving credit Indebtedness, to correspondingly reduce commitments with respect thereto); (2) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of the Company; (3) to make a capital expenditure; or (4) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business. Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this Section 4.10 will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million, within 15 days thereof, the Company will make an Asset Sale Offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets in accordance with Section 3.09 hereof to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Special Interest, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Section 3.09 hereof or this Section 4.10, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under Section 3.09 hereof or this Section 4.10 by virtue of such compliance. Section 4.11 Transactions with Affiliates. 55 (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of the Company (each an "Affiliate Transaction"), unless: (1) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person; and (2) the Company delivers to the Trustee: (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of the Board of Directors of the Company set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (1) of this Section 4.11(a) and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company; and (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Company or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of national standing. (b) The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of Section 4.11(a) hereof: (1) any employment agreement, employee benefit plan, officer or director indemnification agreement or any similar arrangement entered into by the Company or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto; (2) transactions between or among the Company and/or its Restricted Subsidiaries; (3) transactions with a Person (other than an Unrestricted Subsidiary of the Company) that is an Affiliate of the Company solely because the Company owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person; (4) payment of reasonable directors' fees to Persons who are not otherwise Affiliates of the Company; (5) any issuance of Equity Interests (other than Disqualified Stock) of the Company to Affiliates of the Company and the granting of registration rights in connection therewith; (6) Restricted Payments that do not violate Section 4.07 hereof; (7) Permitted Investments; (8) any transaction pursuant to any agreement in existence on the date of this Indenture or any amendment or replacement thereof that, taken in its entirety, is no less favorable to the Company than the agreement as in effect on the date of this Indenture; 56 (9) the payment of indemnities provided for by the Company's charter, by-laws and written agreements and reasonable fees to directors of the Company and the Restricted Subsidiaries who are not employees of the Company or the Restricted Subsidiaries; and (10) loans or advances to employees of the Company and its Restricted Subsidiaries in the ordinary course of business not to exceed $500,000 in the aggregate at any one time outstanding. Section 4.12 Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) securing Indebtedness, Attributable Debt or trade payables upon any of their property or assets, now owned or hereafter acquired, unless all payments due under this Indenture and the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligations are no longer secured by a Lien; provided that if such Indebtedness is by its terms expressly subordinated to the Notes or any Note Guarantee, the Lien securing such Indebtedness shall be subordinate and junior to the Lien securing the Notes and the Note Guarantees with the same relative priority as such subordinate or junior Indebtedness has with respect to the Notes and the Note Guarantees. Section 4.13 Business Activities. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Section 4.14 Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect: (1) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Subsidiary; and (2) the rights (charter and statutory), licenses and franchises of the Company and its Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Subsidiaries, if the Board of Directors shall determine that (a) the preservation thereof is no longer desirable in the conduct of the business of the Company and its Subsidiaries, taken as a whole, and (b) the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15 Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, the Company will make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount of Notes repurchased plus accrued and unpaid interest and Special Interest, if any, on the Notes repurchased to the date of purchase, subject to the rights of Holders on the relevant record date to receive 57 interest due on the relevant interest payment date (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating: (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment; (2) the purchase price and the purchase date, which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest after the Change of Control Payment Date; (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" attached to the Notes completed, or transfer by book-entry transfer, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date; (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof. The Company will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change in Control. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.15, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.15 by virtue of such compliance. (b) On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer; (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and (3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. 58 The Paying Agent will promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any. The Company will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. Prior to complying with any of the provisions of this Section 4.15, but in any event within 90 days following a Change of Control, the Company will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07 hereof, unless and until there is a default in payment of the applicable redemption price. Section 4.16 No Layering of Debt The Company will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is contractually subordinate or junior in right of payment to any Senior Debt of the Company and senior in right of payment to the Notes. No Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is contractually subordinate or junior in right of payment to the Senior Debt of such Guarantor and senior in right of payment to such Guarantor's Note Guarantee. No such Indebtedness will be considered to be senior by virtue of being unsecured or secured on a first or junior priority basis. Section 4.17 Limitation on Sale and Leaseback Transactions The Company will not, and will not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company or any Restricted Subsidiary of the Company may enter into a sale and leaseback transaction if: (1) the Company or that Restricted Subsidiary, as applicable, could have (a) incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction under (i) the Fixed Charge Coverage Ratio test in Section 4.09(a) hereof or (ii) clauses (4), (14) or (16) of Section 4.09(b) hereof and (b) incurred a Lien to secure such Indebtedness pursuant to the provisions of Section 4.12 hereof; (2) the gross cash proceeds of that sale and leaseback transaction are at least equal to the Fair Market Value and set forth in an Officers' Certificate delivered to the Trustee, of the property that is the subject of that sale and leaseback transaction; and (3) (a) the transfer of assets in that sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, Section 4.10 hereof or (b) the proceeds are applied to refinance debt incurred to acquire the asset subject to such sale and leaseback transaction. Section 4.18 Payments for Consent. 59 The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.19 Additional Note Guarantees. If the Company or any of its Restricted Subsidiaries acquires or creates another Domestic Subsidiary after the date of this Indenture and such Domestic Subsidiary guarantees or otherwise provides direct credit support for any Indebtedness of the Company or any Restricted Subsidiary, then that newly acquired or created Domestic Subsidiary will become a Guarantor and execute a supplemental indenture and deliver an Officers' Certificate and an opinion of counsel satisfactory to the Trustee within 10 business days of the date on which it was acquired, created or provided such direct credit support; provided that any Domestic Subsidiary that constitutes an Immaterial Subsidiary need not become a Guarantor until such time as it ceases to be an Immaterial Subsidiary. The form of such Note Guarantee is attached as Exhibit E hereto. Section 4.20 Designation of Restricted and Unrestricted Subsidiaries. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be an Investment made as of the time of the designation and will be treated as a Restricted Payment under Section 4.07 hereof or a Permitted Investment under one or more clauses of the definition of Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if that redesignation would not cause a Default. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of the Company; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation. 60 ARTICLE 5 SUCCESSORS Section 5.01 Merger, Consolidation, or Sale of Assets. The Company shall not, directly or indirectly: (i) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person, unless: (1) either: (A) the Company is the surviving corporation; or (B) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation, limited liability company, limited partnership or other entity organized or existing under the laws of the United States, any state of the United States or the District of Columbia; provided that if such Person is not a corporation, such Person shall be required to cause a subsidiary of such Person that is a corporation to be a co-obligor under the Notes; (2) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all the obligations of the Company under the Notes, this Indenture and the Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee; (3) immediately after such transaction, no Default or Event of Default exists; and (4) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, either: (A) would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof; or (B) would have a Fixed Charge Coverage Ratio greater than the Fixed Charge Coverage Ratio of the Company prior to such transaction. In addition, the Company will not, directly or indirectly, lease all or substantially all of the properties and assets of it and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to any other Person. This Section 5.01 will not apply to: (1) a merger of the Company with an Affiliate solely for the purpose of reincorporating the Company in another jurisdiction; or 61 (2) any consolidation or merger, or any sale, assignment, transfer, conveyance, lease or other disposition of assets between or among the Company and its Restricted Subsidiaries. Section 5.02 Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties or assets of the Company in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor Person formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor Person and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale, assignment, transfer, conveyance or other disposition of all of the Company's assets in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01 Events of Default. Each of the following is an "Event of Default": (1) default for 30 days in the payment when due of interest on, or Special Interest, if any, with respect to, the Notes, whether or not prohibited by the subordination provisions of this Indenture; (2) default in the payment when due (at maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes, whether or not prohibited by the subordination provisions of this Indenture; (3) failure by the Company or any of its Restricted Subsidiaries to comply with the provisions of Sections 4.10, 4.15 or 5.01 hereof; (4) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the other agreements in this Indenture; (5) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries), whether such Indebtedness or Guarantee now exists, or is created after the date of this Indenture, if that default: (A) is caused by a failure to pay any such Indebtedness at its stated final maturity (a "Payment Default"); or 62 (B) results in the acceleration of such Indebtedness prior to its stated final maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $15.0 million or more; (6) failure by the Company or any of its Restricted Subsidiaries to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $15.0 million, which judgments are not paid, discharged or stayed for a period of 60 days; (7) the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; (8) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary in an involuntary case; (B) appoints a custodian of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary; or (C) orders the liquidation of the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days; and (9) except as permitted by this Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its obligations under its Note Guarantee. 63 Section 6.02 Acceleration. In the case of an Event of Default specified in clause (7) or (8) of Section 6.01 hereof, with respect to the Company, any Restricted Subsidiary of the Company that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Company that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided that so long as any Indebtedness permitted to be incurred pursuant to the Credit Agreement is outstanding, such acceleration will not be effective until the earlier of (1) the acceleration of such Indebtedness under the Credit Agreement or (2) five Business Days after receipt by the Company of written notice of such acceleration. Upon any such declaration, the Notes shall become due and payable immediately. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may, on behalf of all of the Holders, rescind an acceleration and its consequences, if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium or Special Interest, if any, that has become due solely because of the acceleration) have been cured or waived. Section 6.03 Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium and Special Interest, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law; provided that there shall be no duplication of any recovery provided by such remedies. Section 6.04 Waiver of Past Defaults. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Special Interest, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05 Control by Majority. Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction 64 that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06 Limitation on Suits. A Holder may pursue a remedy with respect to this Indenture or the Notes only if: (1) such Holder gives to the Trustee written notice that an Event of Default is continuing; (2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer the Trustee security or indemnity reasonably satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and (5) during such 60-day period, Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with such request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07 Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Special Interest, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08 Collection Suit by Trustee. If an Event of Default specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Special Interest, if any, and interest remaining unpaid on, the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09 Trustee May File Proofs of Claim. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to 65 pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10 Priorities. Subject to Article 10 hereof, if the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Special Interest, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Special Interest, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. Section 6.11 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees and expenses, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Notes. ARTICLE 7 TRUSTEE Section 7.01 Duties of Trustee. (a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, 66 as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, in the case of certificates or opinions specifically required by any provision of this Indenture to be furnished to the Trustee, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01; (2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01. (e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holder of Notes, unless such Holder has offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02 Rights of Trustee. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the advice of such counsel or any Opinion of Counsel will be full and 67 complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company will be sufficient if signed by an Officer of the Company. (f) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security satisfactory to it against the losses, liabilities and expenses that might be incurred by it in compliance with such request or direction. (g) In no event shall the Trustee be responsible or liable for special, indirect, or consequential loss or damage of any kind whatsoever (including, but not limited to, loss of profit) irrespective of whether the Trustee has been advised of the likelihood of such loss or damage and regardless of the form of action. (h) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. (i) The rights, privileges, protections, immunities and benefits given to the Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Trustee in each of its capacities hereunder, and each agent, custodian and other Person employed to act hereunder. (j) The Trustee may request that the Company deliver an Officers' Certificate setting forth the names of individuals and/or titles of officers authorized at such time to take specified actions pursuant to this Indenture, which Officers' Certificate may be signed by any person authorized to sign an Officers' Certificate, including any person specified as so authorized in any such certificate previously delivered and not superseded. Section 7.03 Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee (if this Indenture has been qualified under the TIA) or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04 Trustee's Disclaimer. The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this 68 Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05 Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium or Special Interest, if any, or interest on, any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06 Reports by Trustee to Holders of the Notes. (a) Within 60 days after each May 15 beginning with May 15, 2005, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA Section 313(b)(2). The Trustee will also transmit by mail all reports as required by TIA Section 313(c). (b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Company and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company will promptly notify the Trustee when the Notes are listed on or delisted from any stock exchange. Section 7.07 Compensation and Indemnity. (a) The Company will pay to the Trustee from time to time such compensation for its acceptance of this Indenture and services hereunder as shall be agreed to in writing between the Company and the Trustee. The Trustee's compensation will not be limited by any law on compensation of a trustee of an express trust. The Company will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. (b) Each of the Company and the Guarantors, jointly and severally, will indemnify the Trustee against any and all losses, liabilities, damages, claims or expenses, including taxes (other than those based upon, measured by or determined by the income of the Trustee), incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Company, the Guarantors, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense shall be determined to have been caused by its own negligence or willful misconduct. The Trustee will notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company will not relieve the Company or any of the Guarantors of their obligations hereunder. The Company or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Company will pay the reasonable fees and expenses of such counsel. 69 Neither the Company nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld. (c) The obligations of the Company and the Guarantors under this Section 7.07 will survive the satisfaction and discharge of this Indenture and the resignation or removal of the Trustee. (d) To secure the Company's and the Guarantors' payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture. (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(7) or (8) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. (f) The Trustee will comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.08 Replacement of Trustee. (a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 7.08. (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a custodian or public officer takes charge of the Trustee or its property; or (4) the Trustee becomes incapable of acting. (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction at the expense of the Company in the case of the Trustee for the appointment of a successor Trustee. (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. 70 (f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee; provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof will continue for the benefit of the retiring Trustee. Section 7.09 Successor Trustee by Merger, etc. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation or banking association, the successor corporation or banking association without any further act will be the successor Trustee. Section 7.10 Eligibility; Disqualification. There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50.0 million as set forth in its most recent published annual report of condition. This Indenture will always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11 Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8 LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance. The Company may at any time, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes and Note Guarantees upon compliance with the conditions set forth below in this Article 8. Section 8.02 Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Note Guarantees) on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Note Guarantees), which will thereafter be deemed to be "outstanding" 71 only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all of their other obligations under such Notes, the Note Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder: (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Special Interest, if any, on, such Notes when such payments are due from the trust referred to in Section 8.04 hereof; (2) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof; (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's and the Guarantors' obligations in connection therewith; and (4) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03 Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19 and 4.20 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, "Covenant Defeasance"), and the Notes will thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes will not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Note Guarantees, the Company and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and Note Guarantees will be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(6) and 6.01(9) hereof will not constitute Events of Default. Section 8.04 Conditions to Legal or Covenant Defeasance. In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof: (1) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in 72 such amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm, or firm of independent public accountants, to pay the principal of, premium and Special Interest, if any, and interest on, the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to such stated date for payment or to a particular redemption date; (2) in the case of an election under Section 8.02 hereof, the Company must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that: (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling; or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (3) in the case of an election under Section 8.03 hereof, the Company must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any Credit Facility or other material instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; (6) the Company must deliver to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; and (7) the Company must deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. 73 Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and Special Interest, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06 Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium or Special Interest, if any, or interest on, any Note and remaining unclaimed for two years after such principal, premium or Special Interest, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, will thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07 Reinstatement. If the Trustee or Paying Agent is unable to apply any U.S. dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's and the Guarantors' obligations under this Indenture and the Notes and the Note Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium or Special Interest, if any, or interest on, any Note following the reinstatement of its obligations, the Company will be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. 74 ARTICLE 9 AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01 Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company, the Guarantors and the Trustee may amend or supplement this Indenture, the Notes or the Note Guarantees without the consent of any Holder of Note: (1) to cure any ambiguity, defect or inconsistency; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to provide for the assumption of the Company's or a Guarantor's obligations to the Holders of the Notes and Note Guarantees by a successor to the Company or such Guarantor pursuant to Article 5 or Article 11 hereof; (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder; (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA; (6) to conform the text of this Indenture, the Notes or the Note Guarantees to any provision of the "Description of Notes" section of the Offering Circular, to the extent that such provision in that "Description of Notes" section was intended to be a verbatim recitation of a provision of this Indenture, the Notes or the Note Guarantees; (7) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof; or (8) to allow any Guarantor to execute a supplemental indenture and/or a Note Guarantee with respect to the Notes. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Company and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02 With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including, without limitation, Sections 3.09, 4.10 and 4.15 hereof), the Notes and the Note Guarantees with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, Additional Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, 75 premium or Special Interest, if any, or interest on, the Notes, except a payment default resulting from an acceleration that has been rescinded) or compliance with any provision of this Indenture, the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, Additional Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee will join with the Company and the Guarantors in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental Indenture. It is not be necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it is sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Company will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes including Additional Notes, if any, then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes or the Note Guarantees. However, without the consent of each Holder affected, an amendment, supplement or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (2) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes (except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof); (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (4) waive a Default or Event of Default in the payment of principal of, or premium or Special Interest, if any, or interest on, the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); (5) make any Note payable in money other than that stated in the Notes; (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Special Interest, if any, on, the Notes; 76 (7) waive a redemption payment with respect to any Note (other than a payment required by Sections 3.09, 4.10 or 4.15 hereof); (8) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture; or (9) make any change in the preceding amendment and waiver provisions. Section 9.03 Compliance with TIA. Every amendment or supplement to this Indenture or the Notes will be set forth in a amended or supplemental indenture that complies with the TIA as then in effect. Section 9.04 Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to give their consent or take any other action described above or required or permitted to be taken pursuant to this Indenture. If a record date is fixed, then notwithstanding the immediately preceding paragraph, those Persons, who were Holders at such record date (or their duly designated proxies), and only those Persons, shall be entitled to give such consent or to revoke any consent previously given or to take any such action, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 120 days after such record date. Section 9.05 Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver. Section 9.06 Trustee to Sign Amendments, etc. The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amended or supplemental indenture until the Board of Directors of the Company approves it. In executing any amended or supplemental indenture, the Trustee will be provided with and (subject to Section 7.01 hereof) will be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. 77 ARTICLE 10 SUBORDINATION Section 10.01 Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full in cash or Cash Equivalents of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of and enforceable by the holders of Senior Debt. Section 10.02 Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities Holders of Senior Debt will be entitled to receive payment in full in cash or Cash Equivalents of all Obligations due in respect of such Senior Debt (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt whether or not such interest is an allowed claim in any such proceeding) before the Holders of Notes will be entitled to receive any payment with respect to the Notes (except that Holders of Notes may receive and retain Permitted Junior Securities and payments made from either of the trusts described in Article 8 or Article 12 hereof). Section 10.03 Default on Designated Senior Debt. (a) The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than Permitted Junior Securities and payments made from either of the trusts described in Article 8 or Article 12 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full in cash or Cash Equivalents if: (1) payment default on Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (2) any other default occurs and is continuing on any series of Designated Senior Debt that permits holders of that series of Designated Senior Debt to accelerate its maturity and the Trustee receives a notice of such default (a "Payment Blockage Notice") from the Company or the holders of any Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice will be effective for purposes of this Section 10.03 unless and until (A) at least 360 days have elapsed since the effectiveness of the immediately prior Payment Blockage Notice and (B) all scheduled payments of principal, premium and Special Interest, if any, and interest on the Notes that have come due have been paid in full in cash. Notwithstanding the foregoing, the Company may make payment on the Notes if the Company and the Trustee receive written notice approving such payment from the holders of any Designated Senior Debt with respect to which either of the events set forth in clauses (1) and (2) of this Section 10.03(a) has occurred and is continuing. 78 Not more than one Payment Blockage Notice may be given in any consecutive 360-day period. In no event may the total number of days during which any payment blockage period or periods on the Notes is in effect exceed 179 days in the aggregate during any consecutive 365-day period, and there must be at least 186 days during any consecutive 365-day period during which no payment blockage period is in effect. (b) The Company may and will resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) in the case of a payment default on Designated Senior Debt, upon the date upon which such default is cured or waived, or (2) in the case of a nonpayment default on Designated Senior Debt, upon the earliest of (a) the date on which such nonpayment default is cured or waived, (b) 179 days after the date on which the applicable Payment Blockage Notice is received or (c) the date on which the Trustee receives notice from the Representative for such Designated Senior Debt rescinding the Payment Blockage Notice unless, in the case of clauses (b) and (c), the maturity of any Designated Senior Debt has been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.04 Acceleration of Notes. If payment of the Notes is accelerated because of an Event of Default, the Company will promptly notify holders of Senior Debt of the acceleration. Section 10.05 When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes (other than Permitted Junior Securities and payments made from either of the trusts described in Article 8 or Article 12 hereof) at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.03 hereof, such payment will be held by the Trustee or such Holder, in trust for the benefit of, and will be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the agreement, indenture or other document (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only those obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt will be read into this Indenture against the Trustee. The Trustee will not be deemed to owe any fiduciary duty to the holders of Senior Debt, and will not be liable to any such holders if the Trustee pays over or distributes to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt are then entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.06 Notice by Company. 79 The Company will promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice will not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. Section 10.07 Subrogation. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes will be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 10.08 Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture will: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of, premium and interest and Special Interest, if any, on, the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of, premium or interest or Special Interest, if any, on, a Note on the due date, the failure is still a Default or Event of Default. Section 10.09 Subordination May Not Be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes may be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 10.10 Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes will be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. 80 Section 10.11 Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee will not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee has received at its Corporate Trust Office at least two Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to the Notes to violate this Article 10. Only the Company or a Representative or the holder of a majority of the outstanding Designated Senior Debt (or agent thereof) may give the notice. Nothing in this Article 10 will impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.12 Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.13 Amendments. The provisions of this Article 10 may not be amended or modified without the written consent of the holders of all Senior Debt. In addition, any amendment to, or waiver of, the provisions of this Article 10 that adversely affects the rights of the Holders of the Notes will require the consent of the Holders of at least 75% in aggregate principal amount of Notes then outstanding. ARTICLE 11 NOTE GUARANTEES Section 11.01 Guarantee. (a) Subject to this Article 11, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (1) the principal of, premium and Special Interest, if any, and interest on, the Notes will be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance 81 with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. (b) The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Company, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest, notice and all demands whatsoever and covenant that this Note Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture. (c) If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect. (d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee. Section 11.02 Subordination of Note Guarantee. The Obligations of each Guarantor under its Note Guarantee pursuant to this Article 11 will be junior and subordinated to the Senior Debt of such Guarantor on the same basis as the Notes are junior and subordinated to Senior Debt of the Company. For the purposes of the foregoing sentence, the Trustee and the Holders will have the right to receive and/or retain payments by any of the Guarantors only at such times as they may receive and/or retain payments in respect of the Notes pursuant to this Indenture, including Article 10 hereof. Section 11.03 Limitation on Guarantor Liability. Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably 82 agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 11, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance. Section 11.04 Execution and Delivery of Note Guarantee. To evidence its Note Guarantee set forth in Section 11.01 hereof, each Guarantor hereby agrees that a notation of such Note Guarantee substantially in the form attached as Exhibit E hereto will be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers. Each Guarantor hereby agrees that its Note Guarantee set forth in Section 11.01 hereof will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee. If an Officer whose signature is on this Indenture or on the Note Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Note Guarantee is endorsed, the Note Guarantee will be valid nevertheless. The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors. In the event that the Company or any of its Restricted Subsidiaries creates or acquires any Domestic Subsidiary after the date of this Indenture, if required by Section 4.19 hereof, the Company will cause such Domestic Subsidiary to comply with the provisions of Section 4.19 hereof and this Article 11, to the extent applicable. Section 11.05 Guarantors May Consolidate, etc., on Certain Terms. Except as otherwise provided in Section 11.06 hereof, no Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than the Company or another Guarantor, unless: (1) immediately after giving effect to such transaction, no Default or Event of Default exists; and (2) either: (A) subject to Section 11.06 hereof, the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger unconditionally assumes all the obligations of that Guarantor under this Indenture, its Note Guarantee and the Registration Rights Agreement on the terms set forth herein or therein, pursuant to a supplemental indenture in form and substance reasonably satisfactory to the Trustee; or (B) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture. 83 In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Note Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Guarantor, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the Note Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Note Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses 2(A) and (B) above, nothing contained in this Indenture or in any of the Notes will prevent any consolidation or merger of a Guarantor with or into the Company or another Guarantor, or will prevent any sale or conveyance of the property of a Guarantor as an entirety or substantially as an entirety to the Company or another Guarantor. Section 11.06 Releases. (a) In the event of any sale or other disposition of all or substantially all of the assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) the Company or a Restricted Subsidiary of the Company, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation the first paragraph of Section 4.10 hereof; provided further that the failure to apply the Net Proceeds of such sale or other disposition in accordance with the applicable provisions of this Indenture will constitute an Event of Default, but will not result in the reinstatement of any Guarantee released in accordance with the provisions of this Section 11.06. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Company in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee. (b) Upon designation of any Guarantor as an Unrestricted Subsidiary in accordance with the terms of this Indenture, such Guarantor will be released and relieved of any obligations under its Note Guarantee. (c) Upon Legal Defeasance in accordance with Article 8 hereof or satisfaction and discharge of this Indenture in accordance with Article 12 hereof, each Guarantor will be released and relieved of any obligations under its Note Guarantee. Any Guarantor not released from its obligations under its Note Guarantee as provided in this Section 11.06 will remain liable for the full amount of principal of and interest and premium and Special Interest, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 11. 84 ARTICLE 12 SATISFACTION AND DISCHARGE Section 12.01 Satisfaction and Discharge. This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when: (1) either: (A) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company, have been delivered to the Trustee for cancellation; or (B) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year and the Company or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Special Interest, if any, and accrued interest to the date of maturity or redemption; (2) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Guarantor is a party or by which the Company or any Guarantor is bound; (3) the Company or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and (4) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at maturity or on the redemption date, as the case may be. In addition, the Company must deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to clause (1)(B) of this Section 12.01, the provisions of Sections 12.02 and 8.06 hereof will survive. In addition, nothing in this Section 12.01 will be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture. Section 12.02 Application of Trust Money. 85 Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee pursuant to Section 12.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and Special Interest, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law. If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 12.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's and any Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 12.01 hereof; provided that if the Company has made any payment of principal of, premium or Special Interest, if any, or interest on, any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent. ARTICLE 13 MISCELLANEOUS Section 13.01 TIA Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties will control. Section 13.02 Notices. Any notice or communication by the Company, any Guarantor or the Trustee to the others is duly given if in writing and delivered in Person or by first class mail (registered or certified, return receipt requested), facsimile transmission or overnight air courier guaranteeing next day delivery, to the others' address: If to the Company and/or any Guarantor: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Facsimile No.: (914) 345-2056 Attention: Chief Financial Officer With a copy to: Ropes & Gray LLP One International Place Boston, Massachusetts 02110 Facsimile No.: (617) 951-7050 Attention: David Chapin, Esq. If to the Trustee: The Bank of New York 101 Barclay Street, Floor 8W 86 New York, New York 10286 Facsimile No.: (212) 815-5707 Attention: Corporate Trust Administration The Company, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it will mail a copy to the Trustee and each Agent at the same time. Section 13.03 Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 13.04 Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied. Section 13.05 Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) must comply with the provisions of TIA Section 314(e) and must include: 87 (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 13.06 Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 13.07 No Personal Liability of Directors, Officers, Employees and Stockholders. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Guarantor, as such, will have any liability for any obligations of the Company or the Guarantors under the Notes, this Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. The waiver may not be effective to waive liabilities under the federal securities laws. Section 13.08 Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 13.09 No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10 Successors. All agreements of the Company in this Indenture and the Notes will bind its successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 11.05 hereof. Section 13.11 Severability. 88 In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby. Section 13.12 Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement. Section 13.13 Table of Contents, Headings, etc. The Table of Contents, Cross-Reference Table and Headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 89 SIGNATURES Dated as of April 30, 2004 AMSCAN HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President AMSCAN INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President and Treasurer SSY REALTY CORP. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer JCS REALTY CORP. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer AM-SOURCE, LLC By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer TRISAR, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer ANAGRAM INTERNATIONAL, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM INTERNATIONAL HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM EDEN PRAIRIE PROPERTY HOLDINGS, LLC By: Amscan Holdings, Inc., its Sole Member By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Chief Financial Officer Secretary and Vice President M&D INDUSTRIES, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary THE BANK OF NEW YORK, as Trustee By: /s/ Julie Salovitch-Miller ------------------------------------ Name: Julie Salovitch-Miller Title: Vice President [Face of Note] CUSIP/CINS ____________ 8.75% Senior Subordinated Notes due 2014 No. ___ $____________ AMSCAN HOLDINGS, INC. promises to pay to ____________ or registered assigns, the principal sum of ___________________________________________________ DOLLARS on May 1, 2014. Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 Dated: _______________, ____ AMSCAN HOLDINGS, INC. By:____________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By:_____________________________ Authorized Signatory A1-1 [Back of Note] 8.75% Senior Subordinated Notes due 2014 [Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture] [Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture] Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) INTEREST. Amscan Holdings, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8.75% per annum from April 30, 2004 until maturity and shall pay the Special Interest, if any, payable pursuant to Section 2(c) of the Registration Rights Agreement referred to below. The Company will pay interest and Special Interest, if any, semi-annually in arrears on May 1 and November 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be November 1, 2004. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest, if any, (without regard to any applicable grace period) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. (2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the April 15 or October 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Special Interest, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. A1-2 (4) INDENTURE. The Company issued the Notes under an Indenture dated as of April 30, 2004 (the "Indenture") among the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company will not have the option to redeem the Notes prior to May 1, 2009. On or after May 1, 2009, the Company will have the option to redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below, subject to the rights of Holders of such Notes on the relevant record date to receive interest on the relevant interest payment date:
Year Percentage - ----------------------------------------- ---------- 2009..................................... 104.375% 2010..................................... 102.917% 2011..................................... 101.458% 2012 and thereafter...................... 100.000%
Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date. (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to May 1, 2007, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture with the net cash proceeds of one or more Equity Offerings or a contribution to the Company's common equity capital made with the net cash proceeds of a concurrent offering of common stock of the Company's direct Parent (whether offered or sold independently or as a part of an offering or sale of units) at a redemption price equal to 108.750% of the aggregate principal amount thereof, plus accrued and unpaid interest and Special Interest, if any to the redemption date; provided that at least 65% in aggregate principal amount of the Notes originally issued under the Indenture (excluding Notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption and that such redemption occurs within 90 days of the date of the closing of such Equity Offering or contribution. (6) MANDATORY REDEMPTION. The Company is not be required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) REPURCHASE AT THE OPTION OF HOLDER. (a) If there is a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, thereon to the date of purchase, subject to the rights of Holders on the relevant record date to A1-3 receive interest due on the relevant interest payment date (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Restricted Subsidiary of the Company consummates any Asset Sales, within 15 days of each date on which the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Special Interest, if any, thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" attached to the Notes. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. (10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class (including, without limitation, A1-4 consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and any existing Default or Event or Default or compliance with any provision of the Indenture, the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Without the consent of any Holder of a Note, the Indenture, the Notes or the Note Guarantees may be amended or supplemented to (i) cure any ambiguity, defect or inconsistency, (ii) provide for uncertificated Notes in addition to or in place of certificated Notes, (iii) provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes and Note Guarantees by a successor to the Company or such Guarantor pursuant to Article 5 or Article 11 of the Indenture, (iv) make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, (v) comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, (vi) conform the text of the Indenture, the Notes or the Note Guarantees to any provision of the "Description of Notes" section of the Company's Offering Circular dated April 27, 2004, relating to the Initial Notes, to the extent that such provision in that "Description of Notes" section was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Note Guarantees, (vii) provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture or (viii) allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes. (12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Special Interest, if any, with respect to, the Notes, whether or not prohibited by the subordination provisions of the Indenture; (ii) default in the payment when due of the principal of, or premium, if any, on, the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, whether or not prohibited by the subordination provisions of the Indenture, (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Sections 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the other agreements in the Indenture; (v) default under certain other agreements relating to Indebtedness of the Company at its stated final maturity or which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (viii) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or A1-5 premium or Special Interest, if any,) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Special Interest, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) SUBORDINATION. Payment of principal, interest and premium and Special Interest, if any, on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. (14) TRUSTEE DEALINGS WITH COMPANY. Subject to certain limitations in the Indenture, the Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (15) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any of the Guarantors, as such, will not have any liability for any obligations of the Company or the Guarantors under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (16) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (17) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (18) ADDITIONAL RIGHTS OF HOLDERS OF RESTRICTED GLOBAL NOTES AND RESTRICTED DEFINITIVE NOTES. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of April 30, 2004, among the Company, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Company, the Guarantors and the other parties thereto, relating to rights given by the Company and the Guarantors to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). (19) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon. A1-6 (20) GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Attention: Chief Financial Officer A1-7 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to: __________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature:__________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-8 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $___________________ Date: _______________ Your Signature:__________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:__________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A1-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE * The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:
Principal Amount of this Global Note Signature of Amount of decrease in Amount of increase in following such authorized officer Principal Amount of Principal Amount of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- --------------------- --------------------- ------------------- -------------------
* This schedule should be included only if the Note is issued in global form. A1-10 Face of Regulation S Temporary Global Note CUSIP/CINS __________ 8.75% Senior Subordinated Notes due 2014 No. ___ $__________ AMSCAN HOLDINGS, INC. promises to pay to CEDE & CO. or registered assigns, the principal sum of ___________________________________________________ DOLLARS on May 1, 2014. Interest Payment Dates: May 1 and November 1 Record Dates: April 15 and October 15 Dated: _______________, ____ AMSCAN HOLDINGS, INC. By:_____________________________________ Name: Title: This is one of the Notes referred to in the within-mentioned Indenture: THE BANK OF NEW YORK, as Trustee By:_____________________________ Authorized Signatory A2-1 Back of Regulation S Temporary Global Note 8.75% Senior Subordinated Notes due 2014 THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON. THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT F A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE), (4) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (5) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (B) IN A2-2 ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES AND OTHER JURISDICTIONS. Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. (1) INTEREST. Amscan Holdings, Inc., a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Note at 8.75% per annum from April 30, 2004 until maturity and shall pay the Special Interest, if any, payable pursuant to Section 2(c) of the Registration Rights Agreement referred to below. The Company will pay interest and Special Interest, if any, semi-annually in arrears on May 1 and November 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an "Interest Payment Date"). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be November 1, 2004. The Company will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect to the extent lawful; it will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Special Interest, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Until this Regulation S Temporary Global Note is exchanged for one or more Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to receive payments of interest hereon; until so exchanged in full, this Regulation S Temporary Global Note shall in all other respects be entitled to the same benefits as other Notes under the Indenture. (2) METHOD OF PAYMENT. The Company will pay interest on the Notes (except defaulted interest) and Special Interest, if any, to the Persons who are registered Holders of Notes at the close of business on the April 15 or October 15 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes will be payable as to principal, premium and Special Interest, if any, and interest at the office or agency of the Company maintained for such purpose within or without the City and State of New York, or, at the option of the Company, payment of interest and Special Interest, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Special Interest, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Company or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. (3) PAYING AGENT AND REGISTRAR. Initially, The Bank of New York, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company or any of its Subsidiaries may act in any such capacity. A2-3 (4) INDENTURE. The Company issued the Notes under an Indenture dated as of April 30, 2004 (the "Indenture") among the Company, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Company. (5) OPTIONAL REDEMPTION. (a) Except as set forth in subparagraph (b) of this Paragraph 5, the Company will not have the option to redeem the Notes prior to May 1, 2009. On or after May 1, 2009, the Company will have the option to redeem all or a part of the Notes upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Special Interest, if any, on the Notes redeemed to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below, subject to the rights of Holders of such Notes on the relevant record date to receive interest on the relevant interest payment date:
Year Percentage - ------------------------------------------------- ---------- 2009............................................. 104.375% 2010............................................. 102.917% 2011............................................. 101.458% 2012 and thereafter.............................. 100.000%
Unless the Company defaults in the payment of the redemption price, interest will cease to accrue on the Notes or portions thereof called for redemption on the applicable redemption date. (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to May 1, 2007, the Company may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes issued under the Indenture with the net cash proceeds of one or more Equity Offerings or a contribution to the Company's common equity capital made with the net cash proceeds of a concurrent offering of common stock of the Company's direct Parent (whether offered or sold independently or as a part of an offering or sale of units) at a redemption price equal to 108.750% of the aggregate principal amount thereof, plus accrued and unpaid interest and Special Interest, if any to the redemption date; provided that at least 65% in aggregate principal amount of the Notes originally issued under the Indenture (excluding Notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption and that such redemption occurs within 90 days of the date of the closing of such Equity Offering or contribution. (6) MANDATORY REDEMPTION. The Company is not be required to make mandatory redemption or sinking fund payments with respect to the Notes. (7) REPURCHASE AT THE OPTION OF HOLDER. (a) If there is a Change of Control, the Company will be required to make an offer (a "Change of Control Offer") to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder's Notes at a purchase price in cash equal to 101% A2-4 of the aggregate principal amount thereof plus accrued and unpaid interest and Special Interest, if any, thereon to the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant interest payment date (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture. (b) If the Company or a Restricted Subsidiary of the Company consummates any Asset Sales, within 15 days of each date on which the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "Asset Sale Offer") pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Special Interest, if any, thereon to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Company (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the Trustee shall select the Notes and such other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Company prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" attached to the Notes. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero. (8) NOTICE OF REDEMPTION. Notice of redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. (9) DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Company may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Company need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Company need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. This Regulation S Temporary Global Note is exchangeable in whole or in part for one or more Global Notes only (i) on or after the termination of the 40-day distribution compliance period (as defined in Regulation S) and (ii) upon presentation of certificates (accompanied by an Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon exchange of this Regulation S Temporary A2-5 Global Note for one or more Global Notes, the Trustee shall cancel this Regulation S Temporary Global Note. (10) PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated as its owner for all purposes. (11) AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture, the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender offer of, the Notes), and any existing Default or Event or Default or compliance with any provision of the Indenture, the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender offer of, the Notes). Without the consent of any Holder of a Note, the Indenture, the Notes or the Note Guarantees may be amended or supplemented to (i) cure any ambiguity, defect or inconsistency, (ii) provide for uncertificated Notes in addition to or in place of certificated Notes, (iii) provide for the assumption of the Company's or a Guarantor's obligations to Holders of the Notes and Note Guarantees by a successor to the Company or such Guarantor pursuant to Article 5 or Article 11 of the Indenture, (iv) make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, (v) comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, (vi) conform the text of the Indenture, the Notes or the Note Guarantees to any provision of the "Description of Notes" section of the Company's Offering Circular dated April 27, 2004, relating to the Initial Notes, to the extent that such provision in that "Description of Notes" section was intended to be a verbatim recitation of a provision of the Indenture, the Notes or the Note Guarantees, (vii) provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture or (viii) allow any Guarantor to execute a supplemental indenture to the Indenture and/or a Note Guarantee with respect to the Notes. (12) DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Special Interest, if any, with respect to, the Notes, whether or not prohibited by the subordination provisions of the Indenture; (ii) default in the payment when due of the principal of, or premium, if any, on, the Notes when the same becomes due and payable at maturity, upon redemption (including in connection with an offer to purchase) or otherwise, whether or not prohibited by the subordination provisions of the Indenture, (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Sections 4.10, 4.15 or 5.01 of the Indenture; (iv) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding voting as a single class to comply with any of the other agreements in the Indenture; (v) default under certain other agreements relating to Indebtedness of the Company at its stated final maturity or which default results in the acceleration of such Indebtedness prior to its express maturity; (vi) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (vii) certain events of bankruptcy or insolvency with respect to the Company or any of its Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (viii) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf denies or disaffirms its obligations A2-6 under such Guarantor's Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or premium or Special Interest, if any,) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Special Interest, if any, on, or the principal of, the Notes. The Company is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. (13) SUBORDINATION. Payment of principal, interest and premium and Special Interest, if any, on the Notes is subordinated to the prior payment of Senior Debt on the terms provided in the Indenture. (14) TRUSTEE DEALINGS WITH COMPANY. Subject to certain limitations in the Indenture, the Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its Affiliates, and may otherwise deal with the Company or its Affiliates, as if it were not the Trustee. (15) NO RECOURSE AGAINST OTHERS. A director, officer, employee, incorporator or stockholder of the Company or any of the Guarantors, as such, will not have any liability for any obligations of the Company or the Guarantors under the Notes, the Note Guarantees or the Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes. (16) AUTHENTICATION. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. (17) ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). (18) ADDITIONAL RIGHTS OF HOLDERS. In addition to the rights provided to Holders of Notes under the Indenture, Holders of this Regulation S Temporary Global Note will have all the rights set forth in the Registration Rights Agreement dated as of April 30, 2004, among the Company, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders thereof will have the rights set forth in one or more registration rights agreements, if any, among the Company, the Guarantors and the other parties thereto, A2-7 relating to rights given by the Company and the Guarantors to the purchasers of any Additional Notes (collectively, the "Registration Rights Agreement"). (19) CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Company has caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon. (20) GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. The Company will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 Attention: Chief Financial Officer A2-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to:___________________________________ (Insert assignee's legal name) ________________________________________________________________________________ (Insert assignee's soc. sec. or tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ to transfer this Note on the books of the Company. The agent may substitute another to act for him. Date: _______________ Your Signature:__________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A2-9 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below: [ ] Section 4.10 [ ] Section 4.15 If you want to elect to have only part of the Note purchased by the Company pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased: $____________ Date: _______________ Your Signature:__________________________ (Sign exactly as your name appears on the face of this Note) Tax Identification No.:__________________ Signature Guarantee*: _________________________ * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee). A2-10 SCHEDULE OF EXCHANGES OF INTERESTS IN THE REGULATION S TEMPORARY GLOBAL NOTE The following exchanges of a part of this Regulation S Temporary Global Note for an interest in another Global Note, or exchanges of a part of another other Restricted Global Note for an interest in this Regulation S Temporary Global Note, have been made:
Principal Amount of this Global Note Signature of Amount of decrease in Amount of increase in following such authorized officer Principal Amount of Principal Amount of decrease of Trustee or Date of Exchange this Global Note this Global Note (or increase) Custodian - ---------------- --------------------- --------------------- ------------------- ------------------
A2-11 EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 The Bank of New York 101 Barclay Street New York, New York 10286 Re: 8.75% Senior Subordinated Notes due 2014 Reference is hereby made to the Indenture, dated as of April 30, 2004 (the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the Guarantors party thereto and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S TEMPORARY GLOBAL NOTE, THE REGULATION S PERMANENT GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the B-1 proposed transfer is being made prior to the expiration of the Restricted Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumerated in the Private Placement Legend printed on the Regulation S Temporary Global Note, the Regulation S Permanent Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A RESTRICTED DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Company or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144, Rule 903 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Restricted Definitive Notes and in the Indenture and the Securities Act. 4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement B-2 Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ] CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _________________________________ [Insert Name of Transferor] By:______________________________ Name: Title: Dated: _______________________ B-3 ANNEX A TO CERTIFICATE OF TRANSFER 1. The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP ______), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note. 2. After the Transfer the Transferee will hold: [CHECK ONE] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP ______), or (iii) [ ] IAI Global Note (CUSIP _________); or (iv) [ ] Unrestricted Global Note (CUSIP ______); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 The Bank of New York 101 Barclay Street New York, New York 10286 Re: 8.75% Senior Subordinated Notes due 2014 (CUSIP ____________) Reference is hereby made to the Indenture, dated as of April 30, 2004 (the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the Guarantors party thereto and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for C-1 a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CHECK ONE] |_|144A Global Note, |_|Regulation S Global Note, |_|IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company. _______________________________ [Insert Name of Transferor] By:_______________________________ C-2 Name: Title: Dated: ______________________ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York 10523 The Bank of New York 101 Barclay Street New York, New York 10286 Re: 8.75% Senior Subordinated Notes due 2014 Reference is hereby made to the Indenture, dated as of April 30, 2004 (the "Indenture"), among Amscan Holdings, Inc., as issuer (the "Company"), the guarantors party thereto and The Bank of New York, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a)[ ] a beneficial interest in a Global Note, or (b)[ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Company or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Company a signed letter substantially in the form of this letter and an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. D-1 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Company such certifications, legal opinions and other information as you and the Company may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Company are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. ___________________________________________ [Insert Name of Accredited Investor] By:________________________________________ Name: Title: Dated: _______________________ D-2 EXHIBIT E [FORM OF NOTATION OF GUARANTEE] For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture dated as of April 30, 2004 (the "Indenture") among Amscan Holdings, Inc., (the "Company"), the Guarantors party thereto and The Bank of New York, as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium and Special Interest, if any, and interest on, the Notes, whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of and interest on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Company to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 11 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Note Guarantee shall cease to be so subordinated and subject in right of payment upon any defeasance of this Note in accordance with the provisions of the Indenture. Capitalized terms used but not defined herein have the meanings given to them in the Indenture. [GUARANTORS] By:___________________________________ Name: Title: E-1 EXHIBIT F [FORM OF SUPPLEMENTAL INDENTURE TO BE DELIVERED BY SUBSEQUENT GUARANTORS] SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of ______________, among __________________ (the "Guaranteeing Subsidiary"), a subsidiary of Amscan Holdings, Inc. (or its permitted successor), a Delaware corporation (the "Company"), the Company, the other Guarantors (as defined in the Indenture referred to herein) and The Bank of New York, as trustee under the Indenture referred to below (the "Trustee"). W I T N E S S E T H WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture"), dated as of April 30, 2004 providing for the issuance of 8.75% Senior Subordinated Notes due 2014 (the "Notes"); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee"); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. AGREEMENT TO GUARANTEE. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 11 thereof. 3. NO RECOURSE AGAINST OTHERS. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 4. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. F-1 5. COUNTERPARTS. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof. 7. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. F-2 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. Dated: __________, 20___ [GUARANTEEING SUBSIDIARY] By: _______________________________ Name: Title: AMSCAN HOLDINGS, INC. By: _______________________________ Name: Title: [EXISTING GUARANTORS] By: _______________________________ Name: Title: THE BANK OF NEW YORK, as Trustee By: _______________________________ Authorized Signatory F-3 EX-4.2 14 b51510asexv4w2.txt FIRST SUPPLEMENTAL INDENTURE, DATED AS OF JUNE 21, 2004 WITH THE BANK OF NEW YORK RE: 8.75% NOTES DUE 2014 Exhibit 4(2) FIRST SUPPLEMENTAL INDENTURE THIS FIRST SUPPLEMENTAL INDENTURE dated as of June 21, 2004 among Amscan Holdings, Inc., a Delaware corporation (the "Company"), the Guarantors, as such term is defined in the Indenture (as defined below), and The Bank of New York, a New York banking corporation, as trustee (the "Trustee"). WHEREAS, the Company and the Guarantors have heretofore executed and delivered to the Trustee an indenture dated as of April 30, 2004 (the "Indenture"), providing for the issuance of $175 million aggregate principal amount of the Company's 8.75% Senior Subordinated Notes due 2014 (the "Notes"); WHEREAS, the Company and Guarantors propose to amend and supplement the Indenture to join Anagram International, LLC, a Nevada limited liability company ("Anagram") and an indirect subsidiary of the Company, as a party to the Indenture as a Guarantor thereunder; WHEREAS, pursuant to Section 9.01 of the Indenture, the Company, the Guarantors and the Trustee may amend or supplement the Indenture, the Notes or the Note Guarantees without the consent of any Holder of Notes to make any change that would provide additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights under the Indenture of any Holder; WHEREAS, the Company, each Guarantor and Anagram have been authorized by a resolution of its respective board of directors or managing member to enter into this First Supplemental Indenture; WHEREAS, all other acts and proceedings required by law, by the Indenture and by the respective certificates of incorporation, by-laws and limited liability company agreements of the Company, each Guarantor and Anagram to make this First Supplemental Indenture a valid and binding agreement for the purposes expressed herein, in accordance with its terms, have been duly performed; WHEREAS, pursuant to Section 9.06 of the Indenture, the Trustee is authorized to execute and deliver this First Supplemental Indenture; NOW, THEREFORE, for in consideration of the premises herein contained and in order to effect the proposed amendment to join Anagram as a party to the Indenture pursuant to Section 9.01 of the Indenture, the Company and the Guarantors agree with the Trustee as follows: ARTICLE I Amendment of Indenture 1.1. Amendment of Indenture. As of the date hereof, this First Supplemental Indenture amends the Indenture by joining Anagram as a party to the Indenture. 1.2. Execution and Delivery of Note Guarantee. Upon the effectiveness of this First Supplemental Indenture, Anagram agrees that a notation of its Note Guarantee substantially in the form attached as Exhibit E to the Indenture, will be endorsed by an Officer of Anagram on each Note authenticated and delivered by the Trustee under the Indenture. ARTICLE II Miscellaneous Provisions 2.1. Instruments to be Read Together. This First Supplemental Indenture is an indenture supplemental to and in implementation of the Indenture, and said Indenture and this First Supplemental Indenture shall henceforth be read together. 2.2. Confirmation. The Indenture as amended and supplemented by this First Supplemental Indenture is in all respects confirmed and preserved. 2.3. Terms Defined. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2.4. Counterparts. This First Supplemental Indenture may be signed in any number of counterparts each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 2.5. Effect of Headings. The section headings herein are for convenience only and shall not affect the construction hereof. 2.6. Effectiveness. The provisions of this First Supplemental Indenture will take effect immediately upon execution thereof by the parties hereto. 2.7. Trust Indenture Act Controls. If any provision of this First Supplemental Indenture limits, qualifies or conflicts with another provision that is required by or deemed to be included in this First Supplemental Indenture by the Trust Indenture Act, the required or incorporated provision shall control. 2.8. Governing Law. The internal law of the State of New York shall govern and be used to construe this First Supplemental Indenture without giving effect to applicable principles of conflicts of law to the extent that the application of the laws of another jurisdiction would be required thereby. This First Supplemental Indenture is subject to the provisions of the Trust Indenture Act that are required to be part of the Indenture and shall, to the extent applicable, be governed by such provisions. -2- 2.9. Trustee. The Trustee makes no representations as to the validity or sufficiency of this First Supplemental Indenture. The recitals and statements herein are deemed to be those of the Company and the Guarantors and not of the Trustee. -3- Dated as of June 21, 2004 AMSCAN HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President AMSCAN INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President and Treasurer SSY REALTY CORP. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer JCS REALTY CORP. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer AM-SOURCE, LLC By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer and Secretary TRISAR, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Assistant Treasurer ANAGRAM INTERNATIONAL, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM INTERNATIONAL HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM EDEN PRAIRIE PROPERTY HOLDINGS, LLC By: Amscan Holdings, Inc., its Sole Member By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President M&D INDUSTRIES, INC. By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM INTERNATIONAL, LLC By: /s/ Michael A. Correale ------------------------------------ Name: Michael A. Correale Title: Manager THE BANK OF NEW YORK, as Trustee By: /s/ Remo J. Reale ------------------------------------- Name: Remo J. Reale Title: Vice President EX-4.3 15 b51510asexv4w3.txt EXCHANGE AND REGISTRATION RIGHTS AGREEMENT DATED APRIL 30, 2004 EXHIBIT 4(3) EXECUTION COPY AMSCAN HOLDINGS, INC. 8.75% SENIOR SUBORDINATED NOTES DUE 2014 UNCONDITIONALLY GUARANTEED AS TO THE PAYMENT OF PRINCIPAL, PREMIUM, IF ANY, AND INTEREST BY THE GUARANTORS NAMED ON SCHEDULE I HERETO EXCHANGE AND REGISTRATION RIGHTS AGREEMENT April 30, 2004 Goldman, Sachs & Co. Credit Suisse First Boston LLC, As representatives of the several Purchasers named in Schedule I to the Purchase Agreement c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: Amscan Holdings, Inc., a Delaware corporation (the "Company"), proposes to issue and sell to the Purchasers (as defined herein) upon the terms set forth in the Purchase Agreement (as defined herein) an aggregate of $175,000,000 principal amount of its 8.75% Senior Subordinated Notes due 2014, which are unconditionally guaranteed by the Guarantors named in Schedule I hereto. As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company and the Guarantors agree with the Purchasers for the benefit of holders (as defined herein) from time to time of the Registrable Securities (as defined herein) as follows: 1. Certain Definitions. For purposes of this Exchange and Registration Rights Agreement, the following terms shall have the following respective meanings: "Base Interest" shall mean the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement. "Blackout Period" shall have the meaning set forth in Section 2(c) hereof. The term "broker-dealer" shall mean any broker or dealer registered with the Commission under the Exchange Act. "Closing Date" shall mean the date on which the Securities are initially issued. "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. "Effective Time," in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective and (ii) a Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective. "Effectiveness Target Date" shall have the meaning assigned thereto in Section 2(d) hereof. "Electing Holder" shall mean any holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or 3(d)(iii) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. "Exchange Offer" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Registration" shall have the meaning assigned thereto in Section 3(c) hereof. "Exchange Registration Statement" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Securities" shall have the meaning assigned thereto in Section 2(a) hereof. "Guarantors" shall have the meaning assigned thereto in the Indenture. The term "holder" shall mean each of the Purchasers and other persons who acquire Registrable Securities from time to time (including any successors or assigns), in each case for so long as such person owns any Registrable Securities. "Indenture" shall mean the Indenture, dated as of April 30, 2004, among the Company, the Guarantors and The Bank of New York, as Trustee, as the same shall be amended from time to time. "Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto. The term "person" shall mean a corporation, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency. "Purchase Agreement" shall mean the Purchase Agreement, dated as of April 27, 2004, among the Purchasers, the Guarantors, AAH Holdings Corporation, a Delaware corporation, and the Company relating to the Securities. "Purchasers" shall mean the Purchasers named in Schedule I to the Purchase Agreement. "Registrable Securities" shall mean each Security until the earlier to occur of: (a) the date on which such Security has been exchanged by a person other than a broker-dealer for an Exchange Security in the Exchange Offer; (b) following the exchange by a broker-dealer in the Exchange Offer of a Security for an Exchange Security, the date on which such 2 Exchange Security is sold to a purchaser who receives from such broker-dealer on or prior to the date of such sale a copy of the prospectus contained in the Exchange Registration Statement; (c) the date on which such Security has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement; or (d) the date on which such Security is distributed to the public pursuant to Rule 144 under the Securities Act, or is saleable pursuant to clause (k) of such Rule 144. "Registration Default" shall have the meaning assigned thereto in Section 2(d) hereof. "Registration Expenses" shall have the meaning assigned thereto in Section 4 hereof. "Resale Period" shall have the meaning assigned thereto in Section 2(a) hereof. "Restricted Holder" shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary course of such holder's business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Securities and (iv) a holder that is a broker-dealer, but only with respect to Exchange Securities received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired by the broker-dealer directly from the Company. "Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time. "Securities" shall mean, collectively, the 8.75% Senior Subordinated Notes due 2014 of the Company to be issued and sold to the Purchasers, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. Each Security is entitled to the benefit of the guarantees provided for in the Indenture (the "Guarantees") and, unless the context otherwise requires, any reference herein to a "Security," an "Exchange Security" or a "Registrable Security" shall include a reference to the related Guarantees. "Securities Act" shall mean the Securities Act of 1933, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. "Shelf Registration" shall have the meaning assigned thereto in Section 2(b) hereof. "Shelf Registration Statement" shall have the meaning assigned thereto in Section 2(b) hereof. "Special Interest" shall have the meaning assigned thereto in Section 2(d) hereof. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Exchange and Registration Rights Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Exchange and Registration Rights Agreement as a whole and not to any particular Section or other subdivision. 2. Registration Under the Securities Act. 3 (a) Except as set forth in Section 2(b) below, the Company and the Guarantors agree to file under the Securities Act, as soon as practicable, but no later than 120 days after the Closing Date, a registration statement relating to an offer to exchange (such registration statement, the "Exchange Registration Statement," and such offer, the "Exchange Offer") any and all of the Securities for a like aggregate principal amount of debt securities issued by the Company and guaranteed by the Guarantors, which debt securities and guarantees are substantially identical to the Securities and the related Guarantees, respectively (and are entitled to the benefits of a trust indenture which is substantially identical to the Indenture or is the Indenture and which has been qualified under the Trust Indenture Act), except that they have been registered pursuant to an effective registration statement under the Securities Act and do not contain provisions for the additional interest contemplated in Section 2(d) below (such new debt securities hereinafter called "Exchange Securities"). The Company and the Guarantors agree to use commercially reasonable efforts to cause the Exchange Registration Statement to become effective under the Securities Act as soon as practicable, but no later than 210 days after the Closing Date. The Exchange Offer will be registered under the Securities Act on the appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. The Company and the Guarantors further agree to use commercially reasonable efforts to (A) complete the Exchange Offer promptly, but no later than 40 business days after such Exchange Registration Statement has become effective, and (B) exchange Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to have been "completed" only if the debt securities and the related guarantees received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America. The Exchange Offer shall be deemed to have been completed upon the earlier to occur of (i) the Company having exchanged the Exchange Securities for all outstanding Registrable Securities pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to the Exchange Offer, Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn before the expiration of the Exchange Offer. The Company agrees (x) to include in the Exchange Registration Statement a prospectus for use in any resales by any holder of Exchange Securities that is a broker-dealer and (y) to keep such Exchange Registration Statement effective for a period (the "Resale Period") beginning when Exchange Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 180th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Registrable Securities. With respect to such Exchange Registration Statement, such holders shall have the benefit of the rights of indemnification and contribution set forth in Sections 6(a), (c), (d) and (e) hereof. (b) If (i) on or prior to the time the Exchange Offer is completed existing laws or Commission interpretations are changed such that the debt securities or the related guarantees received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, (ii) the Exchange Offer has not been completed within 210 days following the Closing Date or (iii) a holder notifies the Company prior to the 20th business day following the consummation of the Exchange Offer that the Exchange Offer is not available to such holder of the Securities, the Company and the Guarantors shall, in lieu of (or, in the case of clause (iii), in addition to) conducting the Exchange Offer contemplated by Section 2(a), file under the Securities Act as soon as practicable, but no later than the later of 60 days after the time such obligation to file arises 4 or 150 days following the Closing Date, a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (such filing, the "Shelf Registration" and such registration statement, the "Shelf Registration Statement"). The Company and the Guarantors agree to use commercially reasonable efforts (x) to cause the Shelf Registration Statement to become or be declared effective no later than 90 days after such Shelf Registration Statement is filed and to keep such Shelf Registration Statement continuously effective for a period ending on the earlier of the second anniversary of the Effective Time or such time as there are no longer any Registrable Securities outstanding, provided, however, that no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Registrable Securities unless such holder is an Electing Holder who agrees to be bound by all of the provisions of this Agreement applicable to such holder, and (y) after the Effective Time of the Shelf Registration Statement, promptly upon the request of any holder of Registrable Securities that is not then an Electing Holder, to take any action reasonably necessary to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities, including, without limitation, any action necessary to identify such holder as a selling securityholder in the Shelf Registration Statement, provided, however, that nothing in this clause (y) shall relieve any such holder of the obligation to return a completed and signed Notice and Questionnaire to the Company and the Guarantors in accordance with Section 3(d)(iii) hereof. The Company and the Guarantors further agree to supplement or make amendments to the Shelf Registration Statement, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company and the Guarantors for such Shelf Registration Statement or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to each Electing Holder copies of any such supplement or amendment prior to its being used or promptly following its filing with the Commission. (c) Notwithstanding the foregoing, the Company, upon advising the Purchasers in writing, may, pursuant to the advice of outside counsel to the Company, delay the filing or effectiveness of any Exchange Registration Statement or Shelf Registration Statement (if not filed or effective, as applicable) or suspend, or otherwise fail to maintain, the effectiveness thereof, for a period (the "Blackout Period") not to exceed an aggregate of 60 days in any twelve consecutive month period in the event that (1) the Board of Directors of the Company reasonably and in good faith determines that the premature disclosure of a material event at such time would have a material adverse effect on the Company's business, operations or prospects or (2) the disclosure otherwise relates to a material business transaction which has not been publicly disclosed and the Board of Directors of the Company reasonably and in good faith determines that any such disclosure would jeopardize the success of such transaction; provided, that upon the termination of such Blackout Period, the Company promptly shall advise the Purchasers that such Blackout Period has been terminated. (d) In the event that (i) the Company has not filed the Exchange Registration Statement or Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to Section 2(a) or 2(b), respectively, or (ii) such Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective pursuant to Section 2(a) or 2(b), respectively (each, an "Effectiveness Target Date"), or (iii) the Exchange Offer has not been consummated within 40 business days after the Effectiveness Target Date relating to the Exchange Offer (if the Exchange Offer is then required to be made) or (iv) any Exchange 5 Registration Statement or Shelf Registration Statement required by Section 2(a) or 2(b) hereof is filed and declared effective but shall thereafter, if on or after the date on which such registration statement is required to become or declared effective pursuant to Section 2(a) or 2(b) hereof, either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration statement (except as specifically permitted herein) without the Company proceeding promptly, with commercially reasonable efforts to file, and have declared effective an additional registration statement (each such event referred to in clauses (i) through (iv), a "Registration Default" and each period during which a Registration Default has occurred and is continuing, a "Registration Default Period"), then, as liquidated damages for such Registration Default, subject to the provisions of Section 9(b), special interest ("Special Interest"), in addition to the Base Interest, shall accrue at a rate of $.05 per week per $1,000 principal amount of Notes for the first 90 days of the Registration Default Period, and the amount of Special Interest shall increase by an additional $.05 per week per $1,000 principal amount of Notes with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of Special Interest of $.25 per week per $1,000 principal amount of Notes for the remaining portion of the Registration Default Period. Notwithstanding the foregoing, (1) the amount of Special Interest payable shall not increase because more than one Registration Default has occurred and is pending and (2) a Holder of Registrable Securities that is not entitled to the benefits of the Shelf Registration Statement (e.g., such Holder has not elected to include information) shall not be entitled to Special Interest with respect to a Registration Default that pertains to the Shelf Registration Statement. (e) The Company shall take, and shall cause the Guarantors to take, all actions necessary or advisable to be taken by it to ensure that the transactions contemplated herein are effected as so contemplated, including all actions necessary or desirable to register the Guarantees under the registration statement contemplated in Section 2(a) or 2(b) hereof, as applicable. (f) Any reference herein to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time and any reference herein to any post-effective amendment to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time. 3. Registration Procedures. If the Company and the Guarantors file a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: (a) At or before the Effective Time of the Exchange Offer or the Shelf Registration, as the case may be, the Company shall qualify the Indenture under the Trust Indenture Act. (b) In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (c) In connection with the Company's and the Guarantors' obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the "Exchange Registration"), if applicable, the Company and the Guarantors shall, as soon as practicable (or as otherwise specified): 6 (i) prepare and file with the Commission, no later than 120 days after the Closing Date, an Exchange Registration Statement on any form which may be utilized by the Company and the Guarantors and which shall permit the Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use commercially reasonable efforts to cause such Exchange Registration Statement to become effective as soon as practicable thereafter, but no later than 210 days after the Closing Date; (ii) as soon as practicable prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Securities; (iii) promptly notify each broker-dealer that has requested or received copies of the prospectus included in such registration statement, and confirm such advice in writing, (A) when such Exchange Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) once such Exchange Registration Statement has become effective, of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (iv) in the event that the Company and the Guarantors would be required, pursuant to Section 3(c)(iii)(F) above, to notify any broker-dealers holding Exchange Securities, without delay prepare and furnish to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of 7 the Securities Act and the Trust Indenture Act and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (v) use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date; (vi) use commercially reasonable efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period and (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions; provided, however, that neither the Company nor any of the Guarantors shall be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (vii) use commercially reasonable efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Securities by broker-dealers during the Resale Period; (viii)provide a CUSIP number for all Exchange Securities, not later than the applicable Effective Time; and (ix) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but no later than eighteen months after the effective date of such Exchange Registration Statement, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (d) In connection with the Company's and the Guarantors' obligations with respect to the Shelf Registration, if applicable, the Company and the Guarantors shall, as soon as practicable (or as otherwise specified): (i) prepare and file with the Commission, within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Registrable Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by such of the holders as, from time to time, may be Electing Holders and use commercially reasonable efforts to cause such Shelf Registration Statement to become effective as soon as practicable but in any case within the time periods specified in Section 2(b); 8 (ii) not less than 30 calendar days prior to the Effective Time of the Shelf Registration Statement, mail the Notice and Questionnaire to the holders of Registrable Securities; no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement as of the Effective Time, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Securities at any time, unless such holder has returned a completed and signed Notice and Questionnaire to the Company by the deadline for response set forth therein; provided, however, holders of Registrable Securities shall have at least 28 calendar days from the date on which the Notice and Questionnaire is first mailed to such holders to return a completed and signed Notice and Questionnaire to the Company; (iii) after the Effective Time of the Shelf Registration Statement, upon the request of any holder of Registrable Securities that is not then an Electing Holder, promptly send a Notice and Questionnaire to such holder; provided that the Company shall not be required to take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities until such holder has returned a completed and signed Notice and Questionnaire to the Company; (iv) as soon as practicable prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement, and furnish to the Electing Holders copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission; (v) comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement; (vi) provide (A) the Electing Holders, (B) the underwriters (which term, for purposes of this Exchange and Registration Rights Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) counsel for any such underwriter or agent and (E) not more than one counsel for all the Electing Holders the opportunity to participate in the preparation of such Shelf Registration Statement, each prospectus included therein or filed with the Commission and each amendment or supplement thereto; (vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at reasonable times at the Company's principal place of business or such other reasonable place for inspection by the persons referred to in Section 3(d)(vi) who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such 9 inquiries, as shall be reasonably necessary (and, in the case of counsel, not violate an attorney-client privilege, in such counsel's good faith belief), in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such Shelf Registration Statement or the prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (viii) promptly notify each of the Electing Holders, any sales or placement agent therefor and any underwriter thereof (which notification may be made through any managing underwriter that is a representative of such underwriter for such purpose) and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) once such Shelf Registration Statement has become effective, of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 3(d)(xvii) or Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) if at any time when a prospectus is required to be delivered under the Securities Act, that such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (ix) use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; 10 (x) if requested by any managing underwriter or underwriters, any placement or sales agent or any Electing Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Electing Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount of Registrable Securities being sold by such Electing Holder or agent or to any underwriters, the name and description of such Electing Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Electing Holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (xi) furnish to each Electing Holder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(d)(vi) an executed copy (or, in the case of an Electing Holder, a conformed copy) of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder of Registrable Securities, upon request) and documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder, agent or underwriter, as the case may be) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act, and such other documents, as such Electing Holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by such Electing Holder, offered or sold by such agent or underwritten by such underwriter and to permit such Electing Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder and by any such agent and underwriter, in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (xii) use commercially reasonable efforts to (A) register or qualify the Registrable Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any such Electing Holder, agent or underwriter to complete its distribution of Securities pursuant to such Shelf Registration Statement and (C) take any and all 11 other actions as may be reasonably necessary or advisable to enable each such Electing Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that neither the Company nor any of the Guarantors shall be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (xiii)use commercially reasonable efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Registrable Securities; (xiv) unless any Registrable Securities shall be in book-entry only form, cooperate with the Electing Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates, if so required by any securities exchange upon which any Registrable Securities are listed, shall be penned, lithographed or engraved, or produced by any combination of such methods, on steel engraved borders, and which certificates shall not bear any restrictive legends; and, in the case of an underwritten offering, enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Registrable Securities; (xv) provide a CUSIP number for all Registrable Securities, not later than the applicable Effective Time; (xvi) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, including customary provisions relating to indemnification and contribution, and take such other actions in connection therewith as any Electing Holders aggregating at least 20% in aggregate principal amount of the Registrable Securities at the time outstanding shall request in order to expedite or facilitate the disposition of such Registrable Securities; provided that the Company and the Guarantors shall not be required to enter into any such agreement more than two times with respect to all Registrable Securities; (xvii) whether or not an agreement of the type referred to in Section 3(d)(xvi) hereof is entered into and whether or not any portion of the offering contemplated by the Shelf Registration is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with an offering of debt securities pursuant to any appropriate agreement or to a registration statement filed on the form applicable to the Shelf Registration; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, or as any Electing Holders of at least 20% in aggregate principal amount of the Registrable Securities at the time outstanding may reasonably request, addressed to such Electing Holder or Electing Holders and the placement or 12 sales agent, if any, therefor and the underwriters, if any, thereof and dated the effective date of such Shelf Registration Statement (and if such Shelf Registration Statement contemplates an underwritten offering of a part or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto); (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the selling Electing Holders, the placement or sales agent, if any, therefor or the underwriters, if any, thereof, dated (i) the effective date of such Shelf Registration Statement and (ii) the effective date of any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such Shelf Registration Statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by any Electing Holders of at least 20% in aggregate principal amount of the Registrable Securities at the time outstanding or the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company or the Guarantors; and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 6 hereof; (xviii) notify in writing each holder of Registrable Securities of any proposal by the Company to amend or waive any provision of this Exchange and Registration Rights Agreement pursuant to Section 9(h) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xix) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Conduct Rules) of the National Association of Securities Dealers, Inc. ("NASD") or any successor thereto, as amended from time to time) thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Conduct Rules, including by (A) if such Conduct Rules shall so require, engaging a "qualified independent underwriter" (as defined in such Conduct Rules) to participate in the preparation of the Shelf Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Shelf Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Registrable Securities, (B) indemnifying any such qualified 13 independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof (or to such other customary extent as may be requested by such underwriter), and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the Conduct Rules; and (xx) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but in any event not later than eighteen months after the effective date of such Shelf Registration Statement, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (e) In the event that the Company would be required, pursuant to Section 3(d)(viii)(F) above, to notify the Electing Holders, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall promptly prepare and furnish to each of the Electing Holders, to each placement or sales agent, if any, and to each such underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder agrees that upon receipt of any notice from the Company pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the Shelf Registration Statement applicable to such Registrable Securities until such Electing Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Electing Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Electing Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. (f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice Questionnaire, the Company may require such Electing Holder to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder's intended method of distribution of Registrable Securities as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Securities or omits to state any material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. 14 (g) Until the expiration of two years after the Closing Date, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144) to, resell any of the Securities that have been reacquired by any of them except pursuant to an effective registration statement under the Securities Act. (h) As a condition to its participation in the Exchange Offer, each holder of Registrable Securities shall furnish, upon the request of the Company, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Registration Statement) to the effect that (A) it is not an affiliate of the Company, as defined in Rule 405 of the Securities Act, or if it is an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable; (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the Exchange Securities to be issued in the Exchange Offer; (C) it is acquiring the Exchange Securities in its ordinary course of business; (D) if it is a broker-dealer that holds Securities that were acquired for its own account as a result of market-making activities or other trading activities (other than Securities acquired directly from the Company or any of its affiliates), it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resales of the Exchange Securities received by it in the Exchange Offer; (E) if it is a broker-dealer, that it did not purchase the Securities to be exchanged in the Exchange Offer from the Company or any of its affiliates; and (F) it is not acting on behalf of any Person who could not truthfully and completely make the representations contained in the foregoing clauses (A) through (E). 4. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly all expenses incident to the Company's performance of or compliance with this Exchange and Registration Rights Agreement, including (a) all Commission and any NASD registration, filing and review fees and expenses including fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) hereof and determination of their eligibility for investment under the laws of such jurisdictions as any managing underwriters or the Electing Holders may designate, including any fees and disbursements of counsel for the Electing Holders or underwriters in connection with such qualification and determination, (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities for delivery and the expenses of printing or producing any underwriting agreements, agreements among underwriters, selling agreements and blue sky or legal investment memoranda and all other documents in connection with the offering, sale or delivery of Securities to be disposed of (including certificates representing the Securities), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of Securities and the preparation of documents referred in clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any agent of the Trustee and any counsel for the Trustee and of any collateral agent or custodian, (f) internal expenses (including all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (g) fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (h) reasonable fees, disbursements and expenses of any "qualified independent underwriter" engaged pursuant to Section 3(d)(xix) hereof, (i) reasonable fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of 15 at least a majority in aggregate principal amount of the Registrable Securities held by Electing Holders (which counsel shall be reasonably satisfactory to the Company), (j) any fees charged by securities rating services for rating the Securities, and (k) fees, expenses and disbursements of any other persons, including special experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Securities being registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registrable Securities and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above. 5. Representations and Warranties. Each of the Company and the Guarantors represent and warrant to, and agree with, each Purchaser and each of the holders from time to time of Registrable Securities that: (a) Each registration statement covering Registrable Securities and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Registrable Securities, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to holders of Registrable Securities pursuant to Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(e) or Section 3(c)(iv) hereof, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. 16 (c) The compliance by the Company with all of the provisions of this Exchange and Registration Rights Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is bound or to which any of the property or assets of the Company or any subsidiary of the Company is subject, nor will such action result in any violation of the provisions of the certificate of incorporation or certificate of formation, as amended, or the by-laws or the respective governing documents of the Company or any Guarantor or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company and the Guarantors of the transactions contemplated by this Exchange and Registration Rights Agreement, except the registration under the Securities Act of the Securities, qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Securities. (d) This Exchange and Registration Rights Agreement has been duly authorized, executed and delivered by the Company. 6. Indemnification. (a) Indemnification by the Company and the Guarantors. The Company and the Guarantors, jointly and severally, will indemnify and hold harmless each of the holders of Registrable Securities included in an Exchange Registration Statement, each of the Electing Holders of Registrable Securities included in a Shelf Registration Statement and each person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Registrable Securities against any losses, claims, damages or liabilities, joint or several, to which such holder, agent or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Exchange Registration Statement or Shelf Registration Statement, as the case may be, under which such Registrable Securities were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such holder, Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such holder, such Electing Holder, such agent and such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that neither the Company nor any of the Guarantors shall be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein. (b) Indemnification by the Holders and any Agents and Underwriters. The Company may require, as a condition to including any Registrable Securities in any registration 17 statement filed pursuant to Section 2(b) hereof and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the Electing Holder of such Registrable Securities and from each underwriter named in any such underwriting agreement, severally and not jointly, to (i) indemnify and hold harmless the Company, the Guarantors and all other holders of Registrable Securities, against any losses, claims, damages or liabilities to which the Company, the Guarantors or such other holders of Registrable Securities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder or underwriter expressly for use therein, and (ii) reimburse the Company and the Guarantors for any legal or other expenses reasonably incurred by the Company and the Guarantors in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder's Registrable Securities pursuant to such registration. The holders' and the underwriters' obligations in this Section 6(b) to indemnify the Company, the Guarantors and all other holders of Registrable Securities shall be several and not joint. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. 18 (d) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such underwriter with respect to the offering of Registrable Securities underwritten by it exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders' and any underwriters' obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) The obligations of the Company and the Guarantors under this Section 6 shall be in addition to any liability which the Company or the Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, agent and underwriter and each person, if any, who controls any holder, agent or underwriter within the meaning of the Securities Act; and the obligations of the holders and any agents or underwriters contemplated by this Section 6 shall be in addition to any liability which the respective holder, agent or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company or the Guarantors (including any person who, with his consent, is named in any registration statement as about to become a director of the Company or the Guarantors) and to each person, if any, who controls the Company within the meaning of the Securities Act. 7. Underwritten Offerings. 19 (a) Selection of Underwriters. If any of the Registrable Securities covered by the Shelf Registration are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by Electing Holders holding at least a majority in aggregate principal amount of the Registrable Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (b) Participation by Holders. Each holder of Registrable Securities hereby agrees with each other such holder that no such holder may participate in any underwritten offering hereunder unless such holder (i) agrees to sell such holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. Rule 144. The Company covenants to the holders of Registrable Securities that to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities in connection with that holder's sale pursuant to Rule 144, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Registrable Securities or any other securities which would be inconsistent with the terms contained in this Exchange and Registration Rights Agreement. (b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations hereunder and that the Purchasers and the holders from time to time of the Registrable Securities may be irreparably harmed by any such failure, and accordingly agree that the Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Company under this Exchange and Registration Rights Agreement in accordance with the terms and conditions of this Exchange and Registration Rights Agreement, in any court of the United States or any State thereof having jurisdiction. (c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at Amscan Holdings, Inc., 80 Grasslands Road, Elmsford, New York 10523, 20 with a copy to Ropes & Gray LLP, One International Place, Boston, Massachusetts 02110-2624, Attention: David Chapin, Esq., and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) Parties in Interest. All the terms and provisions of this Exchange and Registration Rights Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and the holders from time to time of the Registrable Securities and the respective successors and assigns of the parties hereto and such holders. In the event that any transferee of any holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Registrable Securities shall be held subject to all of the terms of this Exchange and Registration Rights Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Exchange and Registration Rights Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Registrable Securities subject to all of the applicable terms hereof. (e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Exchange and Registration Rights Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Securities, any director, officer or partner of such holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Purchase Agreement and the transfer and registration of Registrable Securities by such holder and the consummation of an Exchange Offer. (f) GOVERNING LAW. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (g) Headings. The descriptive headings of the several Sections and paragraphs of this Exchange and Registration Rights Agreement are inserted for convenience only, do not constitute a part of this Exchange and Registration Rights Agreement and shall not affect in any way the meaning or interpretation of this Exchange and Registration Rights Agreement. (h) Entire Agreement; Amendments. This Exchange and Registration Rights Agreement and the other writings referred to herein (including the Indenture and the form of Securities) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Exchange and Registration Rights Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Exchange and Registration Rights Agreement may be amended and the observance of any term of this Exchange and Registration Rights Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the holders of at least a majority in aggregate principal amount of the Registrable Securities at the time outstanding. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such holder. 21 (i) Inspection. For so long as this Exchange and Registration Rights Agreement shall be in effect, this Exchange and Registration Rights Agreement and a complete list of the names and addresses of all the holders of Registrable Securities shall be made available for inspection and copying on any business day by any holder of Registrable Securities for proper purposes only (which shall include any purpose related to the rights of the holders of Registrable Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) above and at the office of the Trustee under the Indenture. (j) Counterparts. This agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 22 If the foregoing is in accordance with your understanding, please sign and return to us six counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement among the Purchasers, the Guarantors and the Company. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, Amscan Holdings, Inc. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President Amscan Inc. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Vice President and Treasurer SSY Realty Corp. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Assistant Treasurer JCS Realty Corp. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Assistant Treasurer Am-Source, LLC By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Assistant Treasurer 23 Trisar, Inc. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Assistant Treasurer Anagram International, Inc. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary Anagram International Holdings, Inc. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary Anagram Eden Prairie Property Holdings LLC By: Amscan Holdings, Inc., its Sole Member By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President M&D Industries, Inc. By: /s/ Michael A. Correale ----------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary 24 Accepted as of the date hereof: Goldman, Sachs & Co. Credit Suisse First Boston LLC By: /s/ Goldman, Sachs & Co. --------------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Purchasers 25 SCHEDULE I Amscan Inc. SSY Realty Corp. JCS Realty Corp. Am-Source, LLC Trisar, Inc. Anagram International, Inc. Anagram International Holdings, Inc. Anagram Eden Prairie Property Holdings, LLC M&D Industries, Inc. EXHIBIT A AMSCAN HOLDINGS, INC. INSTRUCTION TO DTC PARTICIPANTS (Date of Mailing) URGENT - IMMEDIATE ATTENTION REQUESTED DEADLINE FOR RESPONSE: [DATE] * The Depository Trust Company ("DTC") has identified you as a DTC Participant through which beneficial interests in the Amscan Holdings, Inc. (the "Company") 8.75% Senior Subordinated Notes due 2014 (the "Securities") are held. The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire. It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [Deadline For Response]. Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact Amscan Holdings, Inc., 80 Grasslands Road, Elmsford, New York 10523, Tel: (914) 345-2020. - ---------------------- *Not less than 28 calendar days from date of mailing. A-1 AMSCAN HOLDINGS, INC. Notice of Registration Statement and Selling Securityholder Questionnaire (Date) Reference is hereby made to the Exchange and Registration Rights Agreement (the "Exchange and Registration Rights Agreement") among Amscan Holdings, Inc. (the "Company"), the Guarantors and the Purchasers named therein. Pursuant to the Exchange and Registration Rights Agreement, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement on Form __ (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 8.75% Senior Subordinated Notes due 2014 (the "Securities"). A copy of the Exchange and Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement. Each beneficial owner of Registrable Securities (as defined below) is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE [Deadline for Response]. Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. The term "Registrable Securities" is defined in the Exchange and Registration Rights Agreement. A-2 ELECTION The undersigned holder (the "Selling Securityholder") of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: A-3 QUESTIONNAIRE (1) (a)Full Legal Name of Selling Securityholder: (b)Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Securities Listed in Item (3) below: (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Securities Listed in Item (3) below are Held: (2) Address for Notices to Selling Securityholder: __________________ __________________ __________________ Telephone: __________________________________ Fax: __________________________________ Contact Person: __________________________________ (3) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. (a) Principal amount of Registrable Securities beneficially owned:______ ________________________CUSIP No(s). of such Registrable Securities: ______________________________ (b)Principal amount of Securities other than Registrable Securities beneficially owned:_________________________________________________ CUSIP No(s). of such other Securities:______________________________ (c) Principal amount of Registrable Securities which the undersigned wishes to be included in the Shelf Registration Statement:__________ ______________________ CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement:_________________ ______________________________ (4) Beneficial Ownership of Other Securities of the Company: Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3). State any exceptions here: (5) Relationships with the Company: A-4 Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (6) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M. In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration Rights Agreement. By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Section 3(d) of the Exchange and Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which A-5 may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows: (i) To the Company: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York Attn: Chief Financial Officer (ii) With a copy to: Ropes & Gray LLP One International Place Boston, Massachusetts 02110-2624 Attn: David Chapin, Esq. Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above. This Agreement shall be governed in all respects by the laws of the State of New York. A-6 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated:_______________________ ____________________________________________________________________ Selling Securityholder (Print/type full legal name of beneficial owner of Registrable Securities) By: ________________________________________________________________ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT: Amscan Holdings, Inc. 80 Grasslands Road Elmsford, New York Attn: Chief Financial Officer With a copy to: Ropes & Gray LLP One International Place Boston, Massachusetts 02110-2624 Attn: David Chapin, Esq. A-7 EXHIBIT B NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT The Bank of New York Amscan Holdings, Inc. c/o The Bank of New York 101 Barclay Street New York, New York 10286 Attention: Trust Officer Re: Amscan Holdings, Inc. (the "Company") 8.75% Senior Subordinated Notes due 2014 Dear Sirs: Please be advised that _________________________has transferred $_______________aggregate principal amount of the above-referenced Notes pursuant to an effective Registration Statement on Form______(File No. 333-________) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the Notes is named as a "Selling Holder" in the Prospectus dated [date] or in supplements thereto, and that the aggregate principal amount of the Notes transferred are the Notes listed in such Prospectus opposite such owner's name. Dated: Very truly yours, ______________________ (Name) By: ______________________ (Authorized Signature) B-1 EX-10.1 16 b51510asexv10w1.txt CREDIT AND GUARANTY AGREEMENT DATED AS OF APRIL 30, 2004 EXHIBIT 10(1) EXECUTION CREDIT AND GUARANTY AGREEMENT DATED AS OF APRIL 30, 2004 AMONG AAH HOLDINGS CORPORATION, AMSCAN HOLDINGS, INC., CERTAIN SUBSIDIARIES OF AMSCAN HOLDINGS, INC., AS GUARANTORS, VARIOUS LENDERS, GOLDMAN SACHS CREDIT PARTNERS L.P., AS JOINT LEAD ARRANGER, JOINT BOOKRUNNER AND CO-SYNDICATION AGENT, GENERAL ELECTRIC CAPITAL CORPORATION, AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT AND J.P. MORGAN SECURITIES INC., AS JOINT LEAD ARRANGER AND JOINT BOOKRUNNER AND CO-SYNDICATION AGENT -------------------------------------------------------- $255,000,000 SENIOR SECURED CREDIT FACILITIES -------------------------------------------------------- TABLE OF CONTENTS
Page SECTION 1. DEFINITIONS AND INTERPRETATION............................................ 2 1.1. DEFINITIONS.............................................................. 2 1.2. ACCOUNTING TERMS......................................................... 33 1.3. INTERPRETATION, ETC...................................................... 33 SECTION 2. LOANS AND LETTERS OF CREDIT............................................... 33 2.1. TERM LOANS............................................................... 33 2.2. REVOLVING LOANS.......................................................... 34 2.3. SWING LINE LOANS......................................................... 35 2.4. ISSUANCE OF LETTERS OF CREDIT AND PURCHASE OF PARTICIPATIONS THEREIN..... 37 2.5. PRO RATA SHARES; AVAILABILITY OF FUNDS................................... 41 2.6. USE OF PROCEEDS.......................................................... 42 2.7. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES............ 42 2.8. INTEREST ON LOANS........................................................ 43 2.9. CONVERSION/CONTINUATION.................................................. 45 2.10. DEFAULT INTEREST......................................................... 46 2.11. FEES..................................................................... 46 2.12. SCHEDULED PAYMENTS/COMMITMENT REDUCTIONS................................. 47 2.13. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS.............................. 48 2.14. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS.............................. 51 2.15. APPLICATION OF PREPAYMENTS/REDUCTIONS.................................... 54 2.16. GENERAL PROVISIONS REGARDING PAYMENTS.................................... 55 2.17. RATABLE SHARING.......................................................... 56 2.18. MAKING OR MAINTAINING LIBOR LOANS........................................ 56 2.19. INCREASED COSTS; CAPITAL ADEQUACY........................................ 58 2.20. TAXES; WITHHOLDING, ETC.................................................. 60 2.21. OBLIGATION TO MITIGATE................................................... 62 2.22. DEFAULTING LENDERS....................................................... 62 2.23. REMOVAL OR REPLACEMENT OF A LENDER....................................... 63 SECTION 3. CONDITIONS PRECEDENT...................................................... 64 3.1. CLOSING DATE............................................................. 64 3.2. CONDITIONS TO EACH CREDIT EXTENSION...................................... 69 SECTION 4. REPRESENTATIONS AND WARRANTIES............................................ 70 4.1. ORGANIZATION; REQUISITE POWER AND AUTHORITY; QUALIFICATION............... 70 4.2. CAPITAL STOCK AND OWNERSHIP.............................................. 71 4.3. DUE AUTHORIZATION........................................................ 71 4.4. NO CONFLICT.............................................................. 71 4.5. GOVERNMENTAL CONSENTS.................................................... 71 4.6. BINDING OBLIGATION....................................................... 72 4.7. HISTORICAL FINANCIAL STATEMENTS.......................................... 72 4.8. PROJECTIONS.............................................................. 72 4.9. NO MATERIAL ADVERSE CHANGE............................................... 72
i 4.10. NO RESTRICTED JUNIOR PAYMENTS............................................ 72 4.11. ADVERSE PROCEEDINGS, ETC................................................. 72 4.12. PAYMENT OF TAXES......................................................... 73 4.13. PROPERTIES............................................................... 73 4.14. ENVIRONMENTAL MATTERS.................................................... 73 4.15. NO DEFAULTS.............................................................. 74 4.16. MATERIAL CONTRACTS....................................................... 74 4.17. GOVERNMENTAL REGULATION.................................................. 74 4.18. MARGIN STOCK............................................................. 74 4.19. EMPLOYEE MATTERS......................................................... 75 4.20. EMPLOYEE BENEFIT PLANS................................................... 75 4.21. CERTAIN FEES............................................................. 75 4.22. SOLVENCY................................................................. 76 4.23. COMPLIANCE WITH STATUTES, ETC............................................ 76 4.24. DISCLOSURE............................................................... 76 SECTION 5. AFFIRMATIVE COVENANTS..................................................... 76 5.1. FINANCIAL STATEMENTS AND OTHER REPORTS................................... 76 5.2. EXISTENCE................................................................ 80 5.3. PAYMENT OF TAXES AND CLAIMS.............................................. 80 5.4. MAINTENANCE OF PROPERTIES................................................ 81 5.5. INSURANCE................................................................ 81 5.6. INSPECTIONS.............................................................. 81 5.7. LENDERS MEETINGS......................................................... 82 5.8. COMPLIANCE WITH LAWS..................................................... 82 5.9. ENVIRONMENTAL............................................................ 82 5.10. SUBSIDIARIES............................................................. 83 5.11. ADDITIONAL MATERIAL REAL ESTATE ASSETS................................... 84 5.12. FURTHER ASSURANCES....................................................... 84 5.13. INTEREST RATE PROTECTION................................................. 84 5.14. POST-CLOSING COVENANT.................................................... 84 SECTION 6. NEGATIVE COVENANTS........................................................ 85 6.1. INDEBTEDNESS............................................................. 85 6.2. LIENS.................................................................... 87 6.3. EQUITABLE LIEN........................................................... 89 6.4. NO FURTHER NEGATIVE PLEDGES.............................................. 89 6.5. RESTRICTED JUNIOR PAYMENTS............................................... 90 6.6. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS................................. 90 6.7. INVESTMENTS.............................................................. 91 6.8. FINANCIAL COVENANTS...................................................... 92 6.9. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS................. 93 6.10. DISPOSAL OF SUBSIDIARY INTERESTS......................................... 95 6.11. SALES AND LEASE-BACKS.................................................... 95 6.12. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES............................ 95 6.13. CONDUCT OF BUSINESS...................................................... 95 6.14. AMENDMENTS OR WAIVERS OF WITH RESPECT TO SUBORDINATED INDEBTEDNESS....... 96
ii 6.15. FISCAL YEAR.............................................................. 96 6.16. PERMITTED ACTIVITIES OF HOLDINGS......................................... 96 SECTION 7. GUARANTY.................................................................. 96 7.1. GUARANTY OF THE OBLIGATIONS.............................................. 96 7.2. CONTRIBUTION BY GUARANTORS............................................... 97 7.3. PAYMENT BY GUARANTORS.................................................... 97 7.4. LIABILITY OF GUARANTORS ABSOLUTE......................................... 98 7.5. WAIVERS BY GUARANTORS.................................................... 100 7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC..................... 100 7.7. SUBORDINATION OF OTHER OBLIGATIONS....................................... 101 7.8. CONTINUING GUARANTY...................................................... 101 7.9. AUTHORITY OF GUARANTORS OR COMPANY....................................... 101 7.10. FINANCIAL CONDITION OF COMPANY........................................... 101 7.11. BANKRUPTCY, ETC.......................................................... 102 7.12. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR............................. 102 SECTION 8. EVENTS OF DEFAULT......................................................... 103 8.1. EVENTS OF DEFAULT......................................................... 103 SECTION 9. AGENTS.................................................................... 105 9.1. APPOINTMENT OF AGENTS.................................................... 106 9.2. POWERS AND DUTIES........................................................ 106 9.3. GENERAL IMMUNITY......................................................... 106 9.4. AGENTS ENTITLED TO ACT AS LENDER......................................... 107 9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT.................. 107 9.6. RIGHT TO INDEMNITY....................................................... 108 9.7. SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER..................... 108 9.8. COLLATERAL DOCUMENTS AND GUARANTY........................................ 109 SECTION 10. MISCELLANEOUS............................................................ 110 10.1. NOTICES.................................................................. 110 10.2. EXPENSES................................................................. 110 10.3. INDEMNITY................................................................ 111 10.4. SET-OFF.................................................................. 111 10.5. AMENDMENTS AND WAIVERS................................................... 112 10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS................................... 114 10.7. INDEPENDENCE OF COVENANTS................................................ 117 10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS................... 117 10.9. NO WAIVER; REMEDIES CUMULATIVE........................................... 117 10.10. MARSHALLING; PAYMENTS SET ASIDE.......................................... 118 10.11. SEVERABILITY............................................................. 118 10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS............... 118 10.13. HEADINGS................................................................. 118 10.14. APPLICABLE LAW........................................................... 118 10.15. CONSENT TO JURISDICTION.................................................. 119 10.16. WAIVER OF JURY TRIAL..................................................... 119
iii 10.17. CONFIDENTIALITY.......................................................... 120 10.18. USURY SAVINGS CLAUSE..................................................... 120 10.19. COUNTERPARTS............................................................. 121 10.20. EFFECTIVENESS............................................................ 121 10.21. USA PATRIOT ACT.......................................................... 121
iv APPENDICES: A-1 Term Loan Commitments A-2 Revolving Commitments B Notice Addresses SCHEDULES: 1.1(a) Consolidated Adjusted EBITDA 1.1(b) Existing Letters of Credit 1.1(c) Management Investors 1.1(d) Phase 1 Reports 3.1(c) Management Structure 3.1(f) Closing Date Mortgaged Properties 4.1 Jurisdictions of Organization and Qualification 4.2 Capital Stock and Ownership 4.13 Real Estate Assets 4.16 Material Contracts 5.14 Post-Closing Covenants 6.1 Certain Indebtedness 6.2 Certain Liens 6.7 Certain Investments 6.12 Certain Affiliate Transactions EXHIBITS: A-1 Funding Notice A-2 Conversion/Continuation Notice A-3 Issuance Notice B-1 Term Loan Note B-2 Revolving Loan Note B-3 Swing Line Note C Compliance Certificate D Opinions of Counsel E Assignment Agreement F Certificate Re Non-bank Status G-1 Closing Date Certificate G-2 Solvency Certificate H Counterpart Agreement I Pledge and Security Agreement J Mortgage K Landlord Waiver and Consent Agreement v CREDIT AND GUARANTY AGREEMENT This CREDIT AND GUARANTY AGREEMENT, dated as of April 30, 2004, is entered into by and among AMSCAN HOLDINGS, INC., a Delaware corporation ("COMPANY"), AAH HOLDINGS CORPORATION, a Delaware corporation ("HOLDINGS") CERTAIN SUBSIDIARIES OF COMPANY, as Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent, GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent (together with its permitted successors in such capacity, "ADMINISTRATIVE AGENT") and Collateral Agent (in such capacity, "COLLATERAL AGENT"), and J.P. MORGAN SECURITIES INC. ("JPMSI"), as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent (together with GSCP in such capacities, the "CO-SYNDICATION AGENTS"). RECITALS: WHEREAS, capitalized terms used in these Recitals and not otherwise defined herein shall have the respective meanings set forth for such terms in Section 1.1 hereof; WHEREAS, Holdings, a corporation newly formed by Sponsor was formed to own all of the Capital Stock of Company; WHEREAS, (i) Holdings and AAH Acquisition Corporation, a Delaware corporation ("MERGER CO.") have entered into the Merger Agreement with the Sellers pursuant to which Holdings has agreed to acquire Company through a merger in which Merger Co., a wholly-owned subsidiary of Holdings, will merge with and into Company with Company being the surviving corporation and a wholly-owned subsidiary of Holdings (the "MERGER"); (ii) in connection with the transactions contemplated by the Merger Agreement, Management Investors intend to exchange certain of their outstanding common stock of Company (or options to acquire common stock) representing the remaining amount of common stock of Company for common stock of Holdings; and (iii) Company will make cash payments to Sellers in consideration of (i) above; WHEREAS, Company has requested that Lenders extend certain credit facilities in an aggregate principal amount of $255,000,000 consisting of $205,000,000 aggregate principal amount of Term Loans and up to $50,000,000 aggregate principal amount of Revolving Loans, the proceeds of which will be used, together with (i) not less than $175,000,000 in cash proceeds of the Senior Subordinated Notes and (ii) the proceeds of the Equity Financing, to satisfy the Merger Financing Requirements and to provide financing for the working capital and general corporate requirements of Company and its Subsidiaries; WHEREAS, Holdings and Company have agreed to secure all of their Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on substantially all of its assets, including a pledge of all of the Capital Stock of Company and of each of Company's Domestic Subsidiaries and 65% of all the Capital Stock of each of Company's first-tier Foreign Subsidiaries and all intercompany debt of Domestic Subsidiaries; and WHEREAS, Guarantors have agreed to guarantee the obligations of Company hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on substantially all of their respective assets, including a pledge of all of the Capital Stock of each of their respective Domestic Subsidiaries (including Company) and 65% of all the Capital Stock of each of their respective first-tier Foreign Subsidiaries and all intercompany debt. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. DEFINITIONS AND INTERPRETATION 1.1. DEFINITIONS. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings: "ADMINISTRATIVE AGENT" as defined in the preamble hereto. "ADVERSE PROCEEDING" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Company or any of its Subsidiaries, threatened against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries. "AFFECTED LENDER" as defined in Section 2.18(b). "AFFECTED LOANS" as defined in Section 2.18(b). "AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 10% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise. "AGENT" means each of the Co-Syndication Agents, Administrative Agent and Collateral Agent. "AGGREGATE AMOUNTS DUE" as defined in Section 2.17. 2 "AGGREGATE PAYMENTS" as defined in Section 7.2. "AGREEMENT" means this Credit and Guaranty Agreement, dated as of April 30, 2004, as it may be amended, supplemented or otherwise modified from time to time. "APPLICABLE MARGIN" shall mean (i) with respect to Term Loans that are LIBOR Loans, 2.75% per annum; provided that if the Leverage Ratio in effect from time to time is less than 4.50:1.00 the Applicable Margin with respect to Term Loans that are LIBOR Loans shall be 2.50% per annum; (ii) with respect to Revolving Loans that are LIBOR Loans, (a) from the Closing Date until the date of delivery of the Compliance Certificate and the financial statements for the period ending December 31, 2004, a percentage, per annum, determined by reference to the following table as if the Leverage Ratio then in effect were 4.50:1.00; and (b) thereafter, a percentage, per annum, determined by reference to the Leverage Ratio in effect from time to time as set forth below:
APPLICABLE MARGIN FOR LEVERAGE RATIO REVOLVING LOANS > or = 4.50:1.00 2.50% < 4.50:1.00 2.25% > 4.00:1.00 < 4.00:1.00 2.00% > or = 3.50:1.00 < 3.50:1.00 1.75%
and (iii) with respect to Swing Line Loans and Term Loans and Revolving Loans that are Index Rate Loans, an amount equal to (a) the Applicable Margin for LIBOR Loans as set forth in clause (i), (ii)(a) or (ii)(b) above, as applicable, minus (b) 1.00% per annum. No change in the Applicable Margin shall be effective until three Business Days after the date on which Administrative Agent shall have received the applicable financial statements and a Compliance Certificate pursuant to Section 5.1(d) calculating the Leverage Ratio. At any time Company has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(d), the Applicable Margin shall be determined as if the Leverage Ratio were in excess of 4.50:1.00 until the date Company shall deliver such Compliance Certificate. Within one Business Day of receipt of the applicable information under Section 5.1(d), Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Applicable Margin in effect from such date. "ASSET SALE" means the sale by Company or any of its Subsidiaries to any Person other than Company or any of its wholly-owned Subsidiaries of (i) any of the Capital Stock of any of Company's Subsidiaries, (ii) substantially all of the assets of any division or line of business of Company or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Company or any of its Subsidiaries (other than (a) inventory sold in the ordinary course of business (b) sales of Cash Equivalents for the fair market value thereof, and (c) any 3 such other assets to the extent that the aggregate value of such assets sold in any single transaction or related series of transactions is equal to $750,000 or less). "ASSIGNMENT AGREEMENT" means an Assignment and Assumption Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent. "AUTHORIZED OFFICER" means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person's chief financial officer or treasurer. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute. "BENEFICIARY" means each Agent, Issuing Bank, Lender and Lender Counterparty. "BERKSHIRE" means Berkshire Partners LLC and shall include any fund affiliated with Berkshire Partners LLC. "BUSINESS DAY" means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the LIBOR Rate or any LIBOR Loans, the term "BUSINESS DAY" shall mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market. "CAPITAL LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person. "CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing. "CASH" means money, currency or a credit balance in any demand or Deposit Account. "CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within 4 one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that has Tier 1 capital (as defined in such regulations) of not less than $100,000,000 (each Lender and each commercial bank referred to herein as a "CASH EQUIVALENT BANK"); (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's; and (vi) with respect to Foreign Subsidiaries, investments of the types described in clause (iv) above issued by a Cash Equivalent Bank or any commercial bank of recognized international standing chartered in the country where such Foreign Subsidiary is domiciled having unimpaired capital and surplus of at least $500,000,000. "CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of Exhibit F. "CHANGE OF CONTROL" means, at any time, (i) if the Sponsor shall cease to beneficially own and control 51% or more of the combined voting power of all of the Capital Stock of Holdings, (ii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than the Sponsor shall have after the Closing Date obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of Holdings, (iii) the majority of the seats (other than vacant seats) on the board of directors (or similar governing body) of Holdings cease to be occupied by Persons who either (a) were members of the board of directors of Holdings on the Closing Date or (b) were nominated for election by a majority of the board of directors of Holdings, who were either (I) directors on the Closing Date or (II) whose election or nomination for election was previously approved by a majority of such directors or by the Sponsor, (iv) Holdings shall cease to own 100% of the Capital Stock of Company or (v) any "change of control" or similar event under the Senior Subordinated Notes Indenture shall occur. "CHESTER DISTRIBUTION CENTER" means the distribution center located at 47 Elizabeth Drive, Chester, New York. "CHESTER DISTRIBUTION CENTER COLLATERAL" means the land and improvements comprising the Chester Distribution Center. "CHESTER DISTRIBUTION CENTER PERMANENT FINANCING" means Indebtedness of Company pursuant to that certain mortgage dated December 20, 2001 with the New York Job Development Authority in an individual principal amount, as of the Closing Date, of $8,839,500, 5 the proceeds of which have been used by Company to finance a portion of the construction and development of the Chester Distribution Center. "CLASS" means (i) with respect to Lenders, each of the following classes of Lenders: (a) Lenders having Term Loan Exposure and (b) Lenders having Revolving Exposure (including Swing Line Lender); and (ii) with respect to Loans, each of the following classes of Loans: (a) Term Loans and (b) Revolving Loans (including Swing Line Loans). "CLOSING DATE" means the date on which the Term Loans are made. "CLOSING DATE CERTIFICATE" means a Closing Date Certificate substantially in the form of Exhibit G-1. "CLOSING DATE MORTGAGED PROPERTY" as defined in Section 3.1(f). "COLLATERAL" means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations. "COLLATERAL AGENT" as defined in the preamble hereto. "COLLATERAL DOCUMENTS" means the Pledge and Security Agreement, the Mortgages, if any, the Landlord Personal Property Collateral Access Agreements, if any, and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Lenders, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations as provided for in such documents. "COLLATERAL QUESTIONNAIRE" means a certificate in form satisfactory to the Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party. "COMPANY" as defined in the preamble hereto. "COMMITMENT" means any Revolving Commitment or Term Loan Commitment. "COMPLIANCE CERTIFICATE" means a Compliance Certificate substantially in the form of Exhibit C. "CONSOLIDATED ADJUSTED EBITDA" means, for any period, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Net Income, (b) Consolidated Interest Expense, (c) taxes paid and provisions for taxes based on income or profits, (d) total depreciation expense, (e) total amortization expense, (f) other non-Cash items reducing Consolidated Net Income including provisions for minority interests, items resulting from purchase accounting and from compensation charges due to stock awards or stock options 6 (excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that was paid in a prior period), (g) to the extent deducted in calculating Consolidated Net Income, Transaction Costs and any non-recurring or unusual Cash costs incurred in the relevant period; provided that the aggregate amount of such non-recurring or unusual Cash costs included in this clause (g) incurred during the term of this Agreement shall not exceed $5,000,000, (h) Management Fees accrued or paid in such period (excluding any Management Fees paid in such period to the extent they represent an accrual in a prior period), (i) to the extent excluded from Consolidated Interest Expense, any amounts referred to in Section 2.11(d) and (j) to the extent not included in Consolidated Interest Expense, any gains or losses with respect to hedging obligations, minus (ii) other non-Cash items increasing Consolidated Net Income for such period (excluding any such non-Cash item to the extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period); provided that the foregoing shall be subject to the adjustments described in Schedule 1.1(a). "CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures of Holdings and its Subsidiaries during such period determined on a consolidated basis that, in accordance with GAAP, are or should be included in "purchase of property and equipment" or similar items reflected in the consolidated statement of cash flows of Holdings and its Subsidiaries. Notwithstanding the foregoing, Consolidated Capital Expenditures shall not include any amounts reinvested from Net Asset Sale Proceeds, Net Insurance/Condemnation Proceeds or any amounts spent in connection with Investments permitted pursuant to Section 6.7 and Permitted Acquisitions permitted pursuant to Section 6.9(f). "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense for such period, excluding any amount not payable currently in Cash. "CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the total assets of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP, excluding Cash and Cash Equivalents. "CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination, the total liabilities of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, excluding all Revolving Loans and the current portion of long term debt. "CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if positive) equal to: (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, plus (b) the Consolidated Working Capital Adjustment, minus (ii) the sum, without duplication, of the amounts for such period of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding (i) repayments of Revolving Loans or Swing Line Loans except to the extent the Revolving Commitments are permanently reduced in connection with such repayments and (ii) repurchases of Term Loans made pursuant to Section 2.13(c)), (b) Consolidated Capital Expenditures (net of any proceeds of (y) any related financings with respect to such expenditures and (z) any sales of assets used to finance such 7 expenditures), (c) Consolidated Cash Interest Expense, (d) any expenditures during such period relating to Permitted Acquisitions (net of any proceeds of any related financings with respect to such expenditures), (e) any non-recurring restructuring or unusual charges and charges related to cost savings paid in Cash during such period, (f) taxes based on income or profits of Holdings and its Subsidiaries payable in Cash with respect to such period, (g) Management Fees paid in Cash, (h) distributions to Holdings pursuant to Section 6.5(b)(i), (i) Cash contributions to Pension Plans which were not deducted in computing Consolidated Net Income for such period in an amount not in excess of $2,000,000 in any Fiscal Year and (j) any amounts referred to in Section 2.11(d) paid in Cash during such period. "CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Holdings and its Subsidiaries, including all (i) commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in Section 2.11(d) payable on or before the Closing Date and (ii) commitment fees on the unused portion of the Revolving Commitments as set forth in Section 2.11(a). "CONSOLIDATED NET INCOME" means, for any period, (i) the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, provided, that there shall be excluded (ii) (a) the income (or loss) of any Person (other than a Subsidiary of Company and other than Amscan de Mexico, S.A. de C.V. for so long as it is treated as a consolidated subsidiary of Company in accordance with GAAP) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Holdings or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person's assets are acquired by Holdings or any of its Subsidiaries, (c) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and (e) (to the extent not included in clauses (a) through (d) above) any (i) net extraordinary gains or net extraordinary losses and (ii) any non-recurring non-Cash gains or non-recurring non-Cash losses; provided, further that, notwithstanding GAAP and the provisions of clause (b) above, Consolidated Net Income shall include for all purposes of this Agreement other than the calculation of Consolidated Excess Cash Flow, the income (or loss) of any Person that is acquired by Holdings or any of its Subsidiaries in a Permitted Acquisition for any portion of such period prior to the consummation of the applicable Permitted Acquisition. "CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Holdings and its Subsidiaries determined on a consolidated basis in accordance with GAAP. 8 "CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities. "CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a consolidated basis, the amount (which may be a negative number) equal to Consolidated Working Capital as of the beginning of such period minus Consolidated Working Capital as of the end of such period. "CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "CONTRIBUTING GUARANTORS" as defined in Section 7.2. "CONVERSION/CONTINUATION DATE" means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice. "CONVERSION/CONTINUATION NOTICE" means a Conversion/Continuation Notice substantially in the form of Exhibit A-2. "CO-SYNDICATION AGENTS" as defined in the preamble hereto. "COUNTERPART AGREEMENT" means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10. "CREDIT DATE" means the date of a Credit Extension. "CREDIT DOCUMENT" means any of this Agreement, the Notes, if any, the Collateral Documents, any documents or certificates executed by Company in favor of Issuing Bank relating to Letters of Credit, and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent, Issuing Bank or any Lender in connection herewith. "CREDIT EXTENSION" means the making of a Loan or the issuing of a Letter of Credit. "CREDIT PARTY" means each Person (other than any Agent, Issuing Bank or any Lender or any other representative thereof) from time to time party to a Credit Document. "CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party, each of which is for the purpose of hedging the foreign currency risk associated with Company's and its Subsidiaries' operations and not for speculative purposes. 9 "DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "DEFAULT EXCESS" means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Lender. "DEFAULT PERIOD" means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non-pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms of Section 2.13 or Section 2.14 or by a combination thereof) and (b) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Commitments, and (iii) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing. "DEFAULTING LENDER" as defined in Section 2.22. "DEFAULTED LOAN" as defined in Section 2.22. "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit. "DOLLARS" and the sign "$" mean the lawful money of the United States of America. "DOMESTIC SUBSIDIARY" means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia. "EDEN PRAIRIE FACILITY" means that certain facility located at 7700 Anagram Drive, Eden Prairie, Minnesota 55344. "ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; provided, no Affiliate of Holdings shall be an Eligible Assignee. 10 "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Company, any of its Subsidiaries or any of their respective ERISA Affiliates. "ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or (iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "ENVIRONMENTAL LAWS" means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any Facility. "EQUITY FINANCING" means the issuance of Securities by Amscan Holdings to Holdings and rollovers of existing equity investments in Amscan Holdings by the Management Investors on the Closing Date in connection with the Merger in an aggregate amount equal to no less than $140,400,000; provided that up to $500,000 of Equity Financing provided by Management Investors may be deferred for a period of two weeks following the Closing Date. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; and (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member. Any former ERISA Affiliate of Company or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Company or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Company or such Subsidiary to the extent that the Company or such Subsidiary would reasonably be expected to have any liability with respect to obligations of such former ERISA Affiliate which arose during such period under the Internal Revenue Code or ERISA. "ERISA EVENT" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal 11 Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to Company, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefore, or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the occurrence of an act or omission which could reasonably be expected to give rise to the imposition on Company, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section 502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan with a material likelihood of success; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "EVENT OF DEFAULT" means each of the conditions or events set forth in Section 8.1. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXCHANGE RATE" means, on any date when an amount expressed in a currency other than Dollars is to be determined with respect to any Letter of Credit, the nominal rate of exchange of the applicable Issuing Bank in the New York foreign exchange market for the purchase by such Issuing Lender (by cable transfer) of such currency in exchange for Dollars at 12 12:00 noon (New York time) one Business Day prior to such date, expressed as a number of units of such currency per one Dollar. "EXISTING CREDIT AGREEMENT" means the Second Amended and Restated Credit and Guaranty Agreement, dated as of December 20, 2002, among Amscan Holdings, certain subsidiaries of Amscan Holdings, as guarantors, Goldman Sachs Credit Partners L.P., as sole lead arranger and syndication agent, General Electric Capital Corporation, as administrative agent and as collateral agent, and Fleet National Bank, as documentation agent. "EXISTING LETTERS OF CREDIT" means the Letters of Credit made pursuant to the Existing Credit Agreement and listed on Schedule 1.1(b). "EXISTING NOTES" means the $110,000,000 in the aggregate principal amount of 9.875% Senior Subordinated Notes of Amscan Holdings due 2007. "FACILITY" means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or, except with respect to Sections 5 and 6, heretofore owned, leased, operated or used by Company or any of its Subsidiaries or any of their respective predecessors or Affiliates. "FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2. "FAIR SHARE" as defined in Section 7.2. "FAIR SHARE SHORTFALL" as defined in Section 7.2. "FEDERAL FUNDS RATE" means, for any day, a floating rate equal to the weighted average of the rates on overnight federal funds transactions among members of the Federal Reserve System, as determined by Administrative Agent in its sole discretion, which determination shall be final, binding and conclusive (absent manifest error). "FEDERAL RESERVE BOARD" means the Board of Governors of the Federal Reserve System. "FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Company that such financial statements fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments. "FINANCIAL PLAN" as defined in Section 5.1(i). "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than any Permitted Lien. 13 "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. "FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending on December 31 of each calendar year. "FLOOD HAZARD PROPERTY" means any Real Estate Asset subject to a mortgage in favor of Collateral Agent, for the benefit of Lenders, and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary. "FUNDING DEFAULT" as defined in Section 2.22. "FUNDING GUARANTORS" as defined in Section 7.2. "FUNDING NOTICE" means a notice substantially in the form of Exhibit A-1. "GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof. "GECC" as defined in the preamble hereto. "GOVERNMENTAL ACTS" means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority. "GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government. "GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority. "GRANTOR" as defined in the Pledge and Security Agreement. "GSCP" as defined in the preamble hereto. "GUARANTEED OBLIGATIONS" as defined in Section 7.1. "GUARANTOR" means Holdings and each Domestic Subsidiary of Company. "GUARANTOR SUBSIDIARY" means each Guarantor other than Holdings. 14 "GUARANTY" means the guaranty of each Guarantor set forth in Section 7. "HAZARDOUS MATERIALS" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "HAZARDOUS MATERIALS ACTIVITY" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement entered into with a Lender Counterparty in the ordinary course of Company's or any of its Subsidiaries' businesses. "HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow. "HISTORICAL FINANCIAL STATEMENTS" means as of the Closing Date, (i) the audited financial statements of Company and its Subsidiaries, for the immediately preceding three year period ending December 31, 2003, consisting of balance sheets and the related consolidated statements of income, stockholders' equity and cash flows for such period and (ii) the unaudited financial statements of Company its Subsidiaries for the three month period ended March 31, 2004, consisting of a balance sheet and the related consolidated statements of income, stockholders' equity and cash flows for such period and, in the case of clauses (i) and (ii), certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments and in the case of interim financial statements, the absence of footnotes. "IMMATERIAL SUBSIDIARY" means, as of any date, any Subsidiary whose total assets, as of that date, are less than $100,000 and whose total revenues for the most recent twelve-month period do not exceed $100,000; provided that the total asset value and total revenues of all Subsidiaries designated as such shall not exceed $500,000 in the aggregate. "INCREASED-COST LENDERS" as defined in Section 2.23. "INDEBTEDNESS", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases 15 that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or twelve months in the case of a bona fide trade payable or (b) evidenced by a note or similar written instrument; (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the obligation of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof; and (ix) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, including, without limitation, any Interest Rate Agreement and Currency Agreement, whether entered into for hedging or speculative purposes; provided, in no event shall obligations under any Interest Rate Agreement and any Currency Agreement be deemed "Indebtedness" for any purpose under Section 6.8. Any contingent earnout obligations incurred pursuant to any acquisition agreements shall not constitute Indebtedness until actually earned and thereafter shall constitute Indebtedness until paid but shall not be treated as Indebtedness for Section 6.8 unless such earned obligations remain unpaid for more than 30 days. "INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the reasonable costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any reasonable fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may 16 be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including Lenders' agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); (ii) the statements contained in the commitment letter delivered by any Lender to Company with respect to the transactions contemplated by this Agreement; or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Company or any of its Subsidiaries. "INDEMNITEE" as defined in Section 10.3. "INDEX RATE" means, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "Index Rate on corporate loans posted by at least 75% of the nation's 30 largest banks" (or, if The Wall Street Journal ceases quoting a Index Rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and (ii) the Federal Funds Rate plus 50 basis points per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate. "INDEX RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Index Rate. "INSTALLMENT" as defined in Section 2.12(a). "INSTALLMENT DATE" as defined in Section 2.12(a). "INTEREST COVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBITDA for the four-Fiscal Quarter Period then ended, to (ii) Consolidated Cash Interest Expense for such four-Fiscal Quarter Period. "INTEREST PAYMENT DATE" means with respect to (i) any Index Rate Loan, each March 31, June 30, September 30 and December 31 of each year, commencing on the first such date to occur after the Closing Date, and the final maturity date of such Loan; and (ii) any LIBOR Loan, the last day of each LIBOR Period applicable to such Loan; provided, in the case of each LIBOR Period of longer than three months "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such LIBOR Period. "INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party, each of which is for the purpose of hedging the interest rate exposure associated with Company's and its Subsidiaries' operations and not for speculative purposes. 17 "INTEREST RATE DETERMINATION DATE" means, with respect to any LIBOR Period, the date that is two Business Days prior to the first day of such LIBOR Period. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than the Company or a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person (other than Holdings, the Company or any Guarantor Subsidiary), of any Capital Stock of such Subsidiary; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Holdings or any of its Subsidiaries to any other Person (other than Holdings, the Company or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "ISSUANCE NOTICE" means an Issuance Notice substantially in the form of Exhibit A-3. "ISSUING BANK" means (i) for any Existing Letters of Credit outstanding and issued prior to the Closing Date, GECC and (ii) for any Letters of Credit issued on or after the Closing Date, GECC, as Issuing Bank hereunder, together with its permitted successors and assigns in such capacity. "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided, in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party. "JPMSI" as defined in the preamble hereto. "LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, pursuant to which, among other things, the landlord consents to the granting of a Mortgage on such Leasehold Property by the Credit Party tenant, such Landlord Consent and Estoppel to be in form and substance acceptable to the Collateral Agent in its reasonable discretion, but in any event sufficient for the Collateral Agent to obtain a Title Policy with respect to such Mortgage. "LANDLORD PERSONAL PROPERTY COLLATERAL ACCESS AGREEMENT" means a Landlord Waiver and Consent Agreement substantially in the form of Exhibit K with such amendments or modifications as may be approved by Collateral Agent. 18 "LEASEHOLD PROPERTY" means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral. "LENDER" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement. "LENDER COUNTERPARTY" means each Lender or any Affiliate of a Lender counterparty to a Hedge Agreement (including any Person who is a Lender as of the Closing Date but subsequently, whether before or after entering into a Hedge Agreement, ceases to be a Lender) including, without limitation, each such Affiliate that enters into a joinder agreement with the Collateral Agent. "LETTER OF CREDIT" means a commercial or standby letter of credit issued or to be issued by Issuing Bank pursuant to this Agreement. "LETTER OF CREDIT SUBLIMIT" means the lesser of (i) $15,000,000 and (ii) the aggregate unused amount of the Revolving Commitments then in effect. "LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Bank and not theretofore reimbursed by Company (including any such reimbursement out of the proceeds of Revolving Loans pursuant to subsection 2.4(d)). For purposes of this definition, any amount described in clause (i) or (ii) of the preceding sentence which is denominated in a currency other than Dollars shall be valued based on the applicable Exchange Rate for such currency as of the applicable date of determination. "LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter or other date of determination of (i) Consolidated Total Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date (or if such date of determination is not the last day of a Fiscal Quarter, for the four-Fiscal Quarters period ending as of the most recently concluded Fiscal Quarter). "LIBOR BUSINESS DAY" means a Business Day on which banks in the City of London are generally open for interbank or foreign exchange transactions. "LIBOR LOANS" means a Loan or any portion thereof bearing interest by reference to the LIBOR Rate. "LIBOR PERIOD" means, with respect to any LIBOR Loan, each period commencing on a LIBOR Business Day and ending one, two, three or six months thereafter, as 19 selected by Company in the applicable Funding Notice or Conversion/Continuation Notice; provided, that the foregoing provision relating to LIBOR Periods is subject to the following: (a) if any LIBOR Period would otherwise end on a day that is not a LIBOR Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such LIBOR Period into another calendar month in which event such LIBOR Period shall end on the immediately preceding LIBOR Business Day; (b) any LIBOR Period that would otherwise extend beyond the date set forth in clause (i) of the definition of "Revolving Commitment Termination Date" shall end two (2) LIBOR Business Days prior to such date; (c) any LIBOR Period that begins on the last LIBOR Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such LIBOR Period) shall end on the last LIBOR Business Day of a calendar month; (d) Company shall select LIBOR Periods so that there shall be no more than 5 separate LIBOR Loans in existence at any one time; and (e) no LIBOR Period with respect to any portion of the Term Loans shall extend beyond the Term Loan Maturity Date. "LIBOR RATE" means for each LIBOR Period, a rate of interest determined by Agent equal to: (a) the offered rate for deposits in Dollars for the applicable LIBOR Period that appears on Telerate Page 3750 as of 11:00 a.m. (London time), on the second full LIBOR Business Day next preceding the first day of such LIBOR Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by (b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is two (2) LIBOR Business Days prior to the beginning of such LIBOR Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board) that are required to be maintained by a member bank of the Federal Reserve System. If such interest rates shall cease to be available from Telerate News Service, the LIBOR Rate shall be determined from such financial reporting service or other information as shall be available to Administrative Agent. "LIEN" means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any 20 option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities. "LOAN" means each of a Term Loan, a Revolving Loan and a Swing Line Loan. "MANAGEMENT AGREEMENT" means the management agreement by and among Berkshire Partners LLC, Weston Presidio Service Company LLC and Company dated April 30, 2004. "MANAGEMENT FEES" means the fees paid by Company to Berkshire Partners LLC and Weston Presidio Service Company LLC under the Management Agreement in exchange for services provided to Company under the Management Agreement. "MANAGEMENT INVESTORS" means the management officers and employees of Company and its Subsidiaries identified as "Management Investors" on Schedule 1.1(c) annexed hereto. "MARGIN STOCK" as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "MATERIAL ADVERSE EFFECT" means (i) a material adverse change in the condition (business, financial or otherwise), assets or results of operations of Holdings or any of its Subsidiaries, taken as a whole, or (ii) the impairment (other than as a result of circumstances of the type described in clause (i) above) in any material respect of the ability of the Credit Parties, taken as a whole, to perform, or of Administrative Agent, Collateral Agent or Lenders to enforce, the Obligations. "MATERIAL CONTRACT" means any contract or other arrangement to which Company or any of its Subsidiaries is a party (other than the Credit Documents or other agreements evidencing or relating to Indebtedness) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect. "MATERIAL REAL ESTATE ASSET" means (i) any fee-owned Real Estate Asset (other than the Old Chester Facility and the Eden Prairie Facility) or (ii) any Real Estate Asset (other than the Old Chester Facility and the Eden Prairie Facility) not included in clause (i) above that the Requisite Lenders have determined is material to the condition (business, financial or otherwise), assets or results of operations of Holdings and its Subsidiaries taken as a whole thereof; provided, however, that (i) no Leasehold Property with respect to which the aggregate payments under the lease are during any one Fiscal Year less than $500,000 and (ii) no fee-owned Real Estate Asset having a fair market value of less than $1,000,000 as of the date of acquisition thereof shall be a "Material Real Estate Asset". "MERGER" as defined in the recitals hereto. 21 "MERGER AGREEMENT" means that certain Agreement and Plan of Merger dated as of March 26, 2004, by and among Holdings, Company and Amscan Holdings. "MERGER CO." as defined in the recitals hereto. "MERGER FINANCING REQUIREMENTS" means the amounts necessary (I) to pay the cash portion of the purchase price to be paid in connection with the Merger, (II) to repay in full all Indebtedness outstanding under the Existing Credit Agreement, (III) to redeem all the issued and outstanding preferred stock of Amscan Holdings, (IV) to purchase and discharge the Existing Notes tendered pursuant to the Tender Offer or called for redemption on or about the Closing Date; (V) to pay all other amounts payable as of the Closing Date pursuant to the Merger Agreement and (VI) to pay Transaction Costs. "MOODY'S" means Moody's Investor Services, Inc. "MORTGAGE" means a Mortgage substantially in the form of Exhibit J, as it may be amended, supplemented or otherwise modified from time to time or in such other form as may be approved by Collateral Agent in its sole discretion, in each case with such changes thereto as may be recommended by Collateral Agent's local counsel based on local laws or customary local mortgage or deed of trust practice. "MORTGAGES" means all such instruments collectively. "MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA. "NAIC" means The National Association of Insurance Commissioners, and any successor thereto. "NARRATIVE REPORT" means, with respect to the financial statements for which such narrative report is required, a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management thereof for the applicable Fiscal Quarter or Fiscal Year and for the period from the beginning of the then current Fiscal Year to the end of such period to which such financial statements relate. "NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Holdings or any of its Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs (including, without limitation, transaction costs) incurred in connection with such Asset Sale, including (a) all income or gains taxes payable at any time by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller's indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Holdings or any of its Subsidiaries in connection with such Asset Sale. 22 "NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any Cash payments or proceeds received by Holdings or any of its Subsidiaries (a) under any casualty insurance policy in respect of a covered loss thereunder or (b) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (a) any actual and reasonable costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including income taxes payable as a result of any gain recognized in connection therewith and (c) any amounts required to be applied to the repayment of any Indebtedness secured by a Lien which is prior to any Liens of the Lenders on the asset or assets that are subject to the taking, condemnation or casualty but excluding, however, in each case any payments or proceeds relating to assets having a value of $750,000 or less in any single transaction or related series of transactions. "NON-CONSENTING LENDER" as defined in Section 2.23. "NON-US LENDER" as defined in Section 2.20(c). "NOTE" means each of a Term Loan Note, a Revolving Loan Note or a Swing Line Note. "NOTICE" means each of a Funding Notice, an Issuance Notice, or a Conversion/Continuation Notice. "OBLIGATIONS" means all obligations of every nature of each Credit Party from time to time owed to the Agents, the Lenders or any of them and Lender Counterparties, under any Credit Document or Hedge Agreement (including, without limitation, with respect to a Hedge Agreement, obligations owed thereunder to any person who was a Lender or an Affiliate of a Lender at the time such Hedge Agreement was entered into), whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Hedge Agreements, fees, expenses, indemnification or otherwise. "OBLIGEE GUARANTOR" as defined in Section 7.7. "OFFER" as defined in Section 2.13(c)(ii). "OFFER LOANS" as defined in Section 2.13(c)(ii). "OFFICERS' CERTIFICATE" means, as applied to any corporation, a certificate executed on behalf of such corporation by its chairman of the board (if an officer) or its president or one of its vice presidents and by its chief financial officer or its treasurer; provided that every 23 Officers' Certificate with respect to the compliance with a condition precedent to the making of any Revolving Loans hereunder shall include (i) a statement that the officer or officers making or giving such Officers' Certificate have read such condition and any definitions or other provisions contained in this Agreement relating thereto, (ii) a statement that, in the opinion of the signers, they have made or have caused to be made such examination or investigation as is necessary to enable them to express an informed opinion as to whether or not such condition has been complied with, and (iii) a statement as to whether, in the opinion of the signers, such condition has been complied with. "OLD CHESTER FACILITY" means that certain facility located at 32 Leone Lane, Chester, New York 10918. "OLD CHESTER SALE AND LEASEBACK" means a sale and leaseback of the Old Chester Facility. "ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such "Organizational Document" shall only be to a document of a type customarily certified by such governmental official. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "PERMITTED ACQUISITION" means any acquisition by Company or any of its Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all or substantially all of the Capital Stock of, or a business line or unit or a division of, any Person; provided, (i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom; (ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations; (iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors' qualifying shares required 24 pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of Company in connection with such acquisition shall be owned substantially all by Company or a Subsidiary thereof, and Company shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Company, each of the actions set forth in Sections 5.10 and/or 5.11, as applicable; (iv) Holdings and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a Pro Forma Basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended; (v) Company shall have delivered to Administrative Agent at least ten (10) Business Days prior to such acquisition, a Compliance Certificate evidencing compliance with Section 6.8 as required under clause (iv) above, together with (A) all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with clause (iv) above and (B) an Officers' Certificate stating that any related incurrence of Indebtedness is permitted pursuant to this Agreement; and (vi) any Person or assets or division as acquired in accordance herewith shall be in same business or lines of business in which Holdings and/or its Subsidiaries are engaged as of the Closing Date or similar or related businesses. "PERMITTED LIENS" means each of the Liens permitted pursuant to Section 6.2. "PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities. "PHASE I REPORT" means, with respect to any Facility, the reports listed on Schedule 1.1(d) hereto and a report that (i) conforms to the ASTM Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, E 1527, (ii) was conducted no more than six months prior to the date such report is required to be delivered hereunder, by one or more environmental consulting firms reasonably satisfactory to Administrative Agent, (iii) includes an assessment of asbestos-containing materials at such Facility, (iv) is accompanied by (a) an estimate of the reasonable worst-case cost of investigating and remediating any Hazardous Materials Activity identified in the Phase I Report as giving rise to an actual or potential material violation of any Environmental Law or as presenting a material risk of giving rise to a material Environmental Claim, and (b) a current compliance audit setting forth an assessment of Company's, its Subsidiaries' and such Facility's current and past compliance with Environmental Laws and an estimate of the cost of rectifying any non-compliance with current Environmental Laws identified therein and the cost of compliance with reasonably anticipated future Environmental Laws identified therein. 25 "PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement to be executed by Company and each Guarantor substantially in the form of Exhibit I, as it may be amended, supplemented or otherwise modified from time to time. "PRINCIPAL OFFICE" means, for each of Administrative Agent, Swing Line Lender and Issuing Bank, such Person's "Principal Office" as set forth on Appendix B, or such other office as such Person may from time to time designate in writing to Company, Administrative Agent and each Lender. "PROJECTIONS" as defined in Section 4.8. "PRO FORMA BASIS" means with respect to determining compliance with the financial covenants set forth in Section 6.8 after giving effect to Permitted Acquisitions and incurrence or assumption of any Indebtedness and Asset Sales (each, a "SUBJECT TRANSACTION") in connection therewith, Consolidated Adjusted EBITDA shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to such Subject Transactions or which are to be implemented by the business subject to the Subject Transaction or by the Company and its Subsidiaries as a result of the Subject Transaction, are factually supportable and are expected to have a continuing impact, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges and raw material and other cost savings expected to be realized in connection with the Subject Transaction, which pro forma adjustments are certified by an Officers' Certificate and which are determined (i) on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission or (ii) solely in the case of additional pro forma adjustments to Consolidated Adjusted EBITDA not determined in a manner consistent with clause (i) above (for all Subject Transactions during the period of determination) not to exceed 5.0% of pro forma Consolidated Adjusted EBITDA (as reformulated) for the period of determination, on such other basis as may be certified by Officers' Certificate to be in compliance with the requirements of this definition) using the historical financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of Company and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period). In addition, in calculating compliance with Section 6.8, discontinued operations will be given pro forma effect as follows: (1) Consolidated Adjusted EBITDA attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of or discontinued on or prior to the calculation date, shall be excluded, and (2) Consolidated Interest Expense attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of on or prior to the calculation date, shall be excluded, but only to the extent that the obligations giving rise to such Consolidated Interest Expense will not be obligations of the Company or any of its Subsidiaries following the calculation date. 26 For purposes of such calculations any Indebtedness incurred under Section 6.1(n) or otherwise incurred or assumed in connection with a Permitted Acquisitions subsequent to the beginning of the four quarter calculation period, but on or prior to the date of calculation of the Leverage Ratio or the Senior Leverage Ratio, as the case may be, shall be deemed to have been incurred or assumed at the beginning of such four quarter calculation period. In addition, Permitted Acquisitions that have been made or are being made by the Company or any of its Subsidiaries during the four-quarter reference period or subsequent to such reference period and on or prior to the calculation date (including through mergers or consolidations and including any related financing transactions) shall be deemed to have occurred on the first day of the four-quarter reference period. "PRO RATA SHARE" means (i) with respect to all payments, computations and other matters relating to the Term Loan of any Lender, the percentage obtained by dividing (a) the Term Loan Exposure of that Lender by (b) the aggregate Term Loan Exposure of all Lenders; and (ii) with respect to all payments, computations and other matters relating to the Revolving Commitment or Revolving Loans of any Lender or any Letters of Credit issued or participations purchased therein by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (a) the Revolving Exposure of that Lender by (b) the aggregate Revolving Exposure of all Lenders. For all other purposes with respect to each Lender, "Pro Rata Share" means the percentage obtained by dividing (A) an amount equal to the sum of the Term Loan Exposure and the Revolving Exposure of that Lender, by (B) an amount equal to the sum of the aggregate Term Loan Exposure and the aggregate Revolving Exposure of all Lenders. "REAL ESTATE ASSET" means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property. "RECORD DOCUMENT" means, with respect to any Leasehold Property, (i) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (ii) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give constructive notice upon recordation and otherwise in form reasonably satisfactory to Collateral Agent. "RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. "REFINANCED TERM LOAN" as defined in Section 10.5(e). "REFUNDED SWING LINE LOANS" as defined in Section 2.3(b)(iv). "REGISTER" as defined in Section 2.7(b). 27 "REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REIMBURSEMENT DATE" as defined in Section 2.4(d). "RELATED AGREEMENTS" means the Merger Agreement, the Management Agreement, the Senior Subordinated Note Indenture, the Stockholders Agreement and the Tender Offer Documents. "RELATED FUND" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material), including the movement of any Hazardous Material through the air, soil, surface water or groundwater. "REPLACEMENT LENDER" as defined in Section 2.23. "REPLACEMENT TERM LOANS" as defined in Section 10.5(e). "REQUISITE CLASS LENDERS" means, at any time of determination, (i) for the Class of Lenders having Term Loan Exposure, Lenders holding more than 50% of the aggregate Term Loan Exposure of all Lenders; and (ii) for the Class of Lenders having Revolving Exposure, Lenders holding more than 50% of the aggregate Revolving Exposure of all Lenders. "REQUISITE LENDERS" means one or more Lenders having or holding Term Loan Exposure and/or Revolving Exposure and representing more than 50% of the sum of (i) the aggregate Term Loan Exposure of all Lenders and (ii) the aggregate Revolving Exposure of all Lenders. "RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Holdings or Company now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Holdings or Company now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Holdings or Company now or hereafter outstanding; and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to the Senior Subordinated Notes. 28 "REVOLVING COMMITMENT" means the commitment of a Lender to make or otherwise fund any Revolving Loan and to acquire participations in Letters of Credit and Swing Line Loans hereunder and "REVOLVING COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Revolving Commitment, if any, is set forth on Appendix A-2 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Commitments as of the Closing Date is $50,000,000. "REVOLVING COMMITMENT PERIOD" means the period from the Closing Date to but excluding the Revolving Commitment Termination Date. "REVOLVING COMMITMENT TERMINATION DATE" means the earliest to occur of (i) July 25, 2004, if the full amount of the Term Loans are not made on or before that date; (ii) April 30, 2010, (iii) the date the Revolving Commitments are permanently reduced to zero pursuant to Section 2.13(b) or 2.14, and (iv) the date of the termination of the Revolving Commitments pursuant to Section 8.1. "REVOLVING EXPOSURE" means, with respect to any Lender as of any date of determination, (i) prior to the termination of the Revolving Commitments, that Lender's Revolving Commitment; and (ii) after the termination of the Revolving Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender, (b) in the event such Lender is the Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (net of any participations by Lenders in such Letters of Credit or any unreimbursed drawings thereunder), (c) the aggregate amount of all participations by that Lender in any outstanding Letters of Credit or any unreimbursed drawing under any Letter of Credit, (d) in the event such Lender is the Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein by other Lenders), and (e) the aggregate amount of all participations therein by that Lender in any outstanding Swing Line Loans. "REVOLVING LOAN" means a Loan made by a Lender to Company pursuant to Section 2.2(b). "REVOLVING LOAN NOTE" means a promissory note in the form of Exhibit B-2, as it may be amended, supplemented or otherwise modified from time to time. "S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation. "SECURED PARTIES" has the meaning assigned to that term in the Pledge and Security Agreement. "SECURITIES" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments 29 commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing; provided that "Securities" shall not include any earnout agreement or obligation or any employee bonus or other incentive compensation plan or agreement. "SELLERS" means GS Capital Partners II, L.P., GS Capital Partners II Offshore, L.P., Goldman, Sachs & Co. Verwaltungs Gmbit, Stone Street Fund 1997, L.P., Bridge Street Fund 1997, L.P. and certain other shareholders of Amscan Holdings. "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SENIOR SUBORDINATED NOTE INDENTURE" means the indenture pursuant to which the Senior Subordinated Notes are issued, as such indenture may hereafter be amended from time to time to the extent permitted under subsection 6.15. "SENIOR SUBORDINATED NOTES" means the $175,000,000 in the aggregate principal amount of 8.75% Senior Subordinated Notes due 2014 of Company issued pursuant to the Senior Subordinated Note Indenture. "SOLVENCY CERTIFICATE" means a Solvency Certificate of the chief financial officer of Company substantially in the form of Exhibit G-2. "SOLVENT" means, with respect to any Credit Party, that as of the date of determination both (i) (a) the sum of such Credit Party's debt (including contingent liabilities) does not exceed the present fair saleable value of such Credit Party's present assets; (b) such Credit Party's capital is not unreasonably small in relation to its business as contemplated on the Closing Date and reflected in the Projections or with respect to any transaction contemplated or undertaken after the Closing Date; and (c) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No. 5). "SPONSOR" means collectively Berkshire and Weston. "SPONSOR EQUITY CONTRIBUTIONS" means equity contributions made by Sponsor or its Affiliates and any other stockholder of Holdings on the Closing Date to Holdings. "STOCKHOLDERS AGREEMENT" means the stockholders agreement dated April 30, 2004 by and among Holdings and the Stockholders (as defined therein). 30 "SUBORDINATED INDEBTEDNESS" means (i) Indebtedness of Company evidenced by the Senior Subordinated Notes and (ii) any other Indebtedness of Company subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Administrative Agent and Requisite Lenders. "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a "qualifying share" of the former Person shall be deemed to be outstanding. "SWING LINE LENDER" means GECC in its capacity as Swing Line Lender hereunder, together with its permitted successors and assigns in such capacity. "SWING LINE LOAN" means a Loan made by Swing Line Lender to Company pursuant to Section 2.3. "SWING LINE NOTE" means a promissory note in the form of Exhibit B-3, as it may be amended, supplemented or otherwise modified from time to time. "SWING LINE SUBLIMIT" means the lesser of (i) $2,000,000, and (ii) the aggregate unused amount of Revolving Commitments then in effect. "TAX" means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided, "Tax on the overall net income" of a Person shall be (i) construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or any political subdivision thereof or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business (a "RELEVANT TAX JURISDICTION") on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income (or franchise or other taxes imposed in lieu thereof), profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office) and (ii) include all franchise taxes, branch taxes, taxes on doing business or taxes on the overall capital or net worth of any such Person (and/or in the case of a Lender, its Principal Office), in each case imposed by any Relevant Tax Jurisdiction in lieu of income, profits or gains taxes. 31 "TENDER OFFER" means the offer by Amscan Holdings to purchase 100% of the outstanding Existing Notes pursuant to the Tender Offer Documents. "TENDER OFFER DOCUMENTS" means the Offer to Purchase and Consent Solicitation Statement, dated April 2, 2004. "TERM LOAN" means a Loan made by a Lender to Company pursuant to Section 2.1(b). "TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is $205,000,000. "TERM LOAN EXPOSURE" means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Term Loans of such Lender; provided, at any time prior to the making of the Term Loans, the Term Loan Exposure of any Lender shall be equal to such Lender's Term Loan Commitment. "TERM LOAN MATURITY DATE" means the earlier of (i) April 30, 2012, and (ii) the date that all Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise. "TERM LOAN NOTE" means a promissory note in the form of Exhibit B-1, as it may be amended, supplemented or otherwise modified from time to time. "TERMINATED LENDER" as defined in Section 2.23. "TITLE POLICY" shall have the meaning set forth in Section 3.1(f)(iv). "TOTAL UTILIZATION OF REVOLVING COMMITMENTS" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans or reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but not yet so applied), (ii) the aggregate principal amount of all outstanding Swing Line Loans, and (iii) the Letter of Credit Usage. "TRANSACTION COSTS" means the fees, costs and expenses payable by Company on or before November 30, 2004 in connection with the transactions contemplated by the Credit Documents and the Related Agreements. "TYPE OF LOAN" means (i) with respect to either Term Loans or Revolving Loans, a Index Rate Loan or a LIBOR Loan, and (ii) with respect to Swing Line Loans, a Index Rate Loan. 32 "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UNREINVESTED NET ASSET SALE PROCEEDS" shall have the meaning set forth in Section 2.14(a). "WESTON" means Weston Presidio Service Company LLC and shall include any fund affiliated with Weston Presidio Service Company LLC. 1.2. ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to Section 5.1(a), 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in Section 5.1(e), if applicable). Subject to the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the Historical Financial Statements for the period ending December 31, 2003. 1.3. INTERPRETATION, ETC. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. SECTION 2. LOANS AND LETTERS OF CREDIT 2.1. TERM LOANS. (a) Term Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a Term Loan to Company in an amount equal to such Lender's Term Loan Commitment. Company may make only one borrowing under the Term Loan Commitments which shall be on the Closing Date. Any amount borrowed under this Section 2.1(b) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.13(a) and 2.14, all amounts owed hereunder with respect to the Term Loans shall be paid in full no later than the Term Loan Maturity Date. Each Lender's Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender's Term Loan Commitment on such date. (b) Borrowing Mechanics for Term Loans. 33 (i) Company shall deliver to Administrative Agent a fully executed Closing Date Certificate (which shall be deemed to be a Funding Notice with respect to the Term Loans for all purposes hereof) no later than one (1) day prior to the Closing Date. Promptly upon receipt by Administrative Agent of the Closing Date Certificate, Administrative Agent shall notify each Lender of the proposed borrowing. (ii) Each Lender shall make its Term Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at Administrative Agent's Principal Office. Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Term Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent's Principal Office or to such other account as may be designated in writing to Administrative Agent by Company. 2.2. REVOLVING LOANS. (a) Revolving Commitments. During the Revolving Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make Revolving Loans to Company in the aggregate amount up to but not exceeding such Lender's Revolving Commitment; provided, after giving effect to the making of any Revolving Loans in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.2(a) may be repaid and reborrowed during the Revolving Commitment Period. Each Lender's Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Commitments shall be paid in full no later than such date. (b) Borrowing Mechanics for Revolving Loans. (i) Except pursuant to 2.4(d), Revolving Loans that are Index Rate Loans shall be made in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount, and Revolving Loans that are LIBOR Loans shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount. (ii) Whenever Company desires that Lenders make Revolving Loans, Company shall deliver to Administrative Agent a fully executed and delivered Funding Notice no later than 10:00 a.m. (New York City time) at least three Business Days in advance of the proposed Credit Date in the case of a LIBOR Loan, and at least one Business Day in advance of the proposed Credit Date in the case of a Revolving Loan that is a Index Rate Loan. Except as otherwise provided herein, a Funding Notice for a Revolving Loan that is a LIBOR Loan shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith. 34 (iii) Notice of receipt of each Funding Notice in respect of Revolving Loans, together with the amount of each Lender's Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Lender by telefacsimile with reasonable promptness, but (provided Administrative Agent shall have received such notice by 10:00 a.m. (New York City time)) not later than 2:00 p.m. (New York City time) on the same day as Administrative Agent's receipt of such Notice from Company. (iv) Each Lender shall make the amount of its Revolving Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Revolving Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Revolving Loans received by Administrative Agent from Lenders to be credited to the account of Company at the Administrative Agent's Principal Office or such other account as may be designated in writing to Administrative Agent by Company. 2.3. SWING LINE LOANS. (a) Swing Line Loans Commitments. During the Revolving Commitment Period, subject to the terms and conditions hereof, Swing Line Lender hereby agrees to make Swing Line Loans to Company in the aggregate amount up to but not exceeding the Swing Line Sublimit; provided, after giving effect to the making of any Swing Line Loan, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.3 may be repaid and reborrowed during the Revolving Commitment Period. Swing Line Lender's Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans and the Revolving Commitments shall be paid in full no later than such date. (b) Borrowing Mechanics for Swing Line Loans. (i) Swing Line Loans shall be made in an aggregate minimum amount of $100,000 and integral multiples of $100,000 in excess of that amount. (ii) Whenever Company desires that Swing Line Lender make a Swing Line Loan, Company shall deliver to Administrative Agent a Funding Notice no later than 12:00 p.m. (New York City time) on the proposed Credit Date. (iii) Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 2:00 p.m.(New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at the Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or 35 waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Swing Line Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Swing Line Loans received by Administrative Agent from Swing Line Lender to be credited to the account of Company at the Administrative Agent's Principal Office, or to such other account as may be designated in writing to Administrative Agent by Company. (iv) With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to Section 2.13, Swing Line Lender may at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 11:00 a.m. (New York City time) at least one (1) Business Day in advance of the proposed Credit Date, a notice (which shall be deemed to be a Funding Notice given by Company) requesting that each Lender holding a Revolving Commitment make Revolving Loans that are Index Rate Loans to Company on such Credit Date in an amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given which the Swing Line Lender requests Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (1) the proceeds of such Revolving Loans made by the Lenders other than Swing Line Lender shall be immediately delivered by the Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (2) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender to Company, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans to Company and shall be due under the Revolving Loan Note issued by Company to Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent the proceeds of such Revolving Loans made by Lenders, including the Revolving Loan deemed to be made by the Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by Section 2.17. (v) If for any reason Revolving Loans are not made pursuant to Section 2.3(b)(iv) in an amount sufficient to repay any amounts owed to Swing Line Lender in respect of any outstanding Swing Line Loans on or before the third Business Day after demand for payment thereof by Swing Line Lender, each Lender holding a Revolving Commitment shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans, and in an amount equal to its Pro Rata Share of the 36 applicable unpaid amount together with accrued interest thereon. Upon one (1) Business Day's notice from Swing Line Lender, each Lender holding a Revolving Commitment shall deliver to Swing Line Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the Principal Office of Swing Line Lender. In order to evidence such participation each Lender holding a Revolving Commitment agrees to enter into a participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to Swing Line Lender. In the event any Lender holding a Revolving Commitment fails to make available to Swing Line Lender the amount of such Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Swing Line Lender for the correction of errors among banks and thereafter at the Index Rate, as applicable. (vi) Notwithstanding anything contained herein to the contrary, (1) each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, any Credit Party or any other Person for any reason whatsoever; (B) the occurrence or continuation of a Default or Event of Default; (C) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Credit Party; (D) any breach of this Agreement or any other Credit Document by any party thereto; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Lender are subject to the condition that Swing Line Lender believed in good faith that all conditions under Section 3.2 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of any such condition not satisfied had been waived by Requisite Lenders prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and (2) Swing Line Lender shall not be obligated to make any Swing Line Loans (A) if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default or (B) at a time when a Funding Default exists unless Swing Line Lender has entered into arrangements satisfactory to it and Company to eliminate Swing Line Lender's risk with respect to the Defaulting Lender's participation in such Swing Ling Loan, including by cash collateralizing such Defaulting Lender's Pro Rata Share of the outstanding Swing Line Loans. 2.4. ISSUANCE OF LETTERS OF CREDIT AND PURCHASE OF PARTICIPATIONS THEREIN. (a) Letters of Credit. During the Revolving Commitment Period, subject to the terms and conditions hereof, Issuing Bank agrees to issue Letters of Credit for the account of Company in the aggregate amount up to but not exceeding the Letter of Credit Sublimit; 37 provided, (i) the stated amount of each Letter of Credit shall not be less than $10,000 or such lesser amount as is acceptable to Issuing Bank; (ii) after giving effect to such issuance, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect; (iii) after giving effect to such issuance, in no event shall the Letter of Credit Usage exceed the Letter of Credit Sublimit then in effect; (iv) in no event shall any standby Letter of Credit have an expiration date later than the earlier of (1) the Revolving Commitment Termination Date and (2) the date which is one year from the date of issuance of such standby Letter of Credit; and (v) in no event shall any commercial Letter of Credit (x) have an expiration date later than the earlier of (1) the Revolving Loan Commitment Termination Date and (2) the date which is 180 days from the date of issuance of such commercial Letter of Credit or (y) be issued if such commercial Letter of Credit is otherwise unacceptable to the Issuing Bank in its reasonable discretion. Subject to the foregoing, Issuing Bank may agree that a standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each, unless Issuing Bank elects not to extend for any such additional period; provided, Issuing Bank shall not extend any such Letter of Credit if it has received written notice that an Event of Default has occurred and is continuing at the time Issuing Bank must elect to allow such extension; provided, further, in the event a Funding Default exists, Issuing Bank shall not be required to issue any Letter of Credit unless Issuing Bank has entered into arrangements satisfactory to it and Company to eliminate Issuing Bank's risk with respect to the participation in Letters of Credit of the Defaulting Lender, including by cash collateralizing such Defaulting Lender's Pro Rata Share of the Letter of Credit Usage. Company acknowledges and confirms that Issuing Bank has issued Existing Letters of Credit in the respective principal amounts outstanding as of the Closing Date set forth opposite its name on Schedule 1.1(b) annexed hereto. Company hereby represents, warrants, agrees, covenants and (1) reaffirms that it is not aware of any defense, set off, claim or counterclaim against any Agent or Issuing Bank in regard to its Obligations in respect of such Existing Letters of Credit and (2) reaffirms its obligation to pay such Existing Letters of Credit in accordance with the terms and conditions of this Agreement and the other Credit Documents. Based on the foregoing, Company and each Lender agree that, other than any amounts owed (whether or not presently due and payable, and including all interest and fees accrued to the Closing Date) by Company to Issuing Bank or in respect of the Existing Letters of Credit as of the Closing Date, all Existing Letters of Credit as of the Closing Date shall, as of the Closing Date, be converted to, maintained as, and owed by Company under or in respect of Letters of Credit hereunder and shall constitute Letter of Credit Usage hereunder for purposes of the Letter of Credit Sublimit. (b) Notice of Issuance. Whenever Company desires the issuance of a Letter of Credit, it shall deliver to Administrative Agent an Issuance Notice no later than 12:00 p.m. (New York City time) at least three Business Days (in the case of standby letters of credit) or five Business Days (in the case of commercial letters of credit), or in each case such shorter period as may be agreed to by Issuing Bank in any particular instance, in advance of the proposed date of issuance. Upon satisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bank shall issue the requested Letter of Credit only in accordance with Issuing Bank's standard operating procedures. Upon the issuance of any Letter of Credit or amendment or modification to a Letter of Credit, Issuing Bank shall promptly notify each Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit or amendment or modification to 38 a Letter of Credit and the amount of such Lender's respective participation in such Letter of Credit pursuant to Section 2.4(e). In the event of any conflict between the terms of a Letter of Credit application and this Agreement, the terms of this Agreement shall govern and control. (c) Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. As between Company and Issuing Bank, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Issuing Bank, by the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of Issuing Bank, including any Governmental Acts; and none of the above shall affect or impair, or prevent the vesting of, any of Issuing Bank's rights or powers hereunder. Without limiting the foregoing and in furtherance thereof, any action taken or omitted by Issuing Bank under or in connection with the Letters of Credit or any documents and certificates delivered by it thereunder, if taken or omitted in good faith, shall not give rise to any liability on the part of Issuing Bank to Company. Notwithstanding anything to the contrary contained in this Section 2.4(c), Company shall retain any and all rights it may have against Issuing Bank for any liability arising solely out of the gross negligence or willful misconduct of Issuing Bank. (d) Reimbursement by Company of Amounts Drawn or Paid Under Letters of Credit. In the event Issuing Bank has determined to honor a drawing under a Letter of Credit, it shall immediately notify Company and Administrative Agent, and Company shall reimburse Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored (the "REIMBURSEMENT DATE") in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) and in same day funds equal to the amount of such honored drawing; provided, anything contained herein to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and Issuing Bank prior to 10:00 a.m. (New York City time) on the date such drawing is honored that Company intends to reimburse Issuing Bank for the amount of such honored drawing with funds 39 other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely Funding Notice to Administrative Agent requesting Lenders to make Revolving Loans that are Index Rate Loans on the Reimbursement Date in an amount in Dollars (which amount, in the case of a drawing under a Letter of Credit which is denominated in a currency other than Dollars, shall be calculated by reference to the applicable Exchange Rate) equal to the amount of such honored drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 3.2, Lenders shall, on the Reimbursement Date, make Revolving Loans that are Index Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse Issuing Bank for the amount of such honored drawing; and provided further, if for any reason proceeds of Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an amount equal to the amount of such honored drawing, Company shall reimburse Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this Section 2.4(d) shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth herein, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this Section 2.4(d). (e) Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender having a Revolving Commitment shall be deemed to have purchased, and hereby agrees to irrevocably purchase, from Issuing Bank a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Lender's Pro Rata Share (with respect to the Revolving Commitments) of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that Company shall fail for any reason to reimburse Issuing Bank as provided in Section 2.4(d), Issuing Bank shall promptly notify each Lender of the unreimbursed amount of such honored drawing and of such Lender's respective participation therein based on such Lender's Pro Rata Share of the Revolving Commitments. Each Lender shall make available to Issuing Bank an amount equal to its respective participation, in Dollars (calculated in the case of a drawing of a Letter of Credit denominated in a currency other than Dollars, by reference to the applicable Exchange Rate) and in same day funds, at the office of Issuing Bank specified in such notice, not later than 12:00 p.m. (New York City time) on the first Business Day (under the laws of the jurisdiction in which such office of Issuing Bank is located) after the date notified by Issuing Bank. In the event that any Lender fails to make available to Issuing Bank on such Business Day the amount of such Lender's participation in such Letter of Credit as provided in this Section 2.4(e), Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Issuing Bank for the correction of errors among banks and thereafter at the Index Rate. Nothing in this Section 2.4(e) shall be deemed to prejudice the right of any Lender to recover from Issuing Bank any amounts made available by such Lender to Issuing Bank pursuant to this Section in the event that it is determined that the payment with respect to a Letter of Credit in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of Issuing Bank. In the event Issuing Bank shall have been reimbursed by other Lenders pursuant to this Section 2.4(e) for all or any portion of any drawing honored by Issuing Bank under a Letter of Credit, such Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under this Section 2.4(e) with respect to such honored drawing such 40 Lender's Pro Rata Share of all payments subsequently received by Issuing Bank from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on Appendix B or at such other address as such Lender may request. (f) Obligations Absolute. The obligation of Company to reimburse Issuing Bank for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Lenders pursuant to Section 2.4(d) and the obligations of Lenders under Section 2.4(e) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms hereof under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), Issuing Bank, Lender or any other Person or, in the case of a Lender, against Company, whether in connection herewith, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Issuing Bank under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (vi) any breach hereof or any other Credit Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Default shall have occurred and be continuing; provided, in each case, that payment by Issuing Bank under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of Issuing Bank under the circumstances in question. (g) Indemnification. Without duplication of any obligation of Company under Section 10.2 or 10.3, in addition to amounts payable as provided herein, Company hereby agrees to protect, indemnify, pay and save harmless Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Issuing Bank, other than as a result of the gross negligence or willful misconduct of Issuing Bank, (ii) the wrongful dishonor by Issuing Bank of a proper demand for payment under any Letter of Credit issued by it or (iii) the failure of Issuing Bank to honor a drawing under any such Letter of Credit as a result of any Governmental Act. 2.5. PRO RATA SHARES; AVAILABILITY OF FUNDS. (a) Pro Rata Shares. All Loans shall be made, and all participations purchased, by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Loan requested hereunder or purchase a participation required 41 hereby nor shall any Term Loan Commitment or any Revolving Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Loan requested hereunder or purchase a participation required hereby. (b) Availability of Funds. Unless Administrative Agent shall have been notified by any Lender prior to the applicable Credit Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Credit Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Credit Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Credit Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Index Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for Index Rate Loans for such Class of Loans. Nothing in this Section 2.5(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments and Revolving Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder. 2.6. USE OF PROCEEDS. The proceeds of the Term Loans and up to $27,000,000 of the Revolving Loans, if any, made on the Closing Date shall be applied by Company to pay a portion of the Merger Financing Requirements. Revolving Loans, Swing Line Loans and Letters of Credit made after the Closing Date shall be applied by Company for working capital and general corporate purposes of Company which may include Permitted Acquisitions and the making of intercompany loans to any of Company's wholly-owned Subsidiaries, in accordance with Section 6.1(b), for their own working capital and general corporate purposes; provided, however, that in no event will the proceeds of Revolving Loans be used for the purposes of repurchasing Term Loans as permitted under Section 2.13(c) hereof. No portion of the proceeds of any Credit Extension shall be used in any manner that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act. 2.7. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES. (a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Indebtedness of Company to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent manifest error; provided, failure to make any such recordation, or any error in such recordation, shall not 42 affect any Lender's Revolving Commitments or Company's Obligations in respect of any applicable Loans; and provided further, in the event of any inconsistency between the Register and any Lender's records, the recordations in the Register shall govern. (b) Register. Administrative Agent shall maintain at its Principal Office a register for the recordation of the names and addresses of Lenders and the Revolving Commitments and Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Administrative Agent shall record in the Register the Revolving Commitments and the Loans, and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be conclusive and binding on Company and each Lender, absent manifest error; provided, failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Revolving Commitments or Company's Obligations in respect of any Loan. Company hereby designates GSCP to serve as Company's agent solely for purposes of maintaining the Register as provided in this Section 2.7, and Company hereby agrees that, to the extent GSCP serves in such capacity, GSCP and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees." (c) Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date, or at any time after the Closing Date, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company's receipt of such notice) a Note or Notes to evidence such Lender's Term Loan, Revolving Loan or Swing Line Loan, as the case may be. 2.8. INTEREST ON LOANS. (a) Except as otherwise set forth herein, each Class of Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows: (i) in the case of Term Loans and Revolving Loans: (1) if a Index Rate Loan, at the Index Rate plus the Applicable Margin; or (2) if a LIBOR Loan, at the LIBOR Rate plus the Applicable Margin; and (ii) in the case of Swing Line Loans, at the Index Rate plus the Applicable Margin. (b) The basis for determining the rate of interest with respect to any Loan (except a Swing Line Loan which can be made and maintained as Index Rate Loans only), and the LIBOR Period with respect to any LIBOR Loan, shall be selected by Company and notified to Administrative Agent and Lenders pursuant to the applicable Funding Notice or 43 Conversion/Continuation Notice, as the case may be; provided, the Term Loans initially shall be made as Index Rate Loans and until the earlier of (i) the date which is twenty-one (21) days following the Closing Date and (ii) the date that Co-Syndication Agents notify Company that the primary syndication of the Loans and Revolving Commitments has been completed, as determined by Syndication Agent, the Term Loans shall be maintained as either (1) LIBOR Loans having an LIBOR Period of no longer than one month or (2) Index Rate Loans. If on any day a Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Index Rate Loan. (c) In connection with LIBOR Loans there shall be no more than five (5) LIBOR Periods outstanding at any time. In the event Company fails to specify between a Index Rate Loan or a LIBOR Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a LIBOR Loan) will be automatically converted into a Index Rate Loan on the last day of the then-current LIBOR Period for such Loan (or if outstanding as a Index Rate Loan will remain as, or (if not then outstanding) will be made as, a Index Rate Loan). In the event Company fails to specify an LIBOR Period for any LIBOR Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an LIBOR Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the LIBOR Loans for which an interest rate is then being determined for the applicable LIBOR Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender. (d) Interest payable pursuant to Section 2.8(a) shall be computed (i) in the case of Index Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of LIBOR Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an LIBOR Period applicable to such Loan or, with respect to a Index Rate Loan being converted from a LIBOR Loan, the date of conversion of such LIBOR Loan to such Index Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an LIBOR Period applicable to such Loan or, with respect to a Index Rate Loan being converted to a LIBOR Loan, the date of conversion of such Index Rate Loan to such LIBOR Loan, as the case may be, shall be excluded; provided, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. (e) Except as otherwise set forth herein, interest on each Loan shall be payable (i) in arrears on and to each Interest Payment Date applicable to that Loan; (ii) upon any prepayment of that Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity; provided, however, with respect to any voluntary prepayment of a Index Rate Loan, accrued interest on such Loan through the date of such prepayment shall instead be payable on the next succeeding Interest Payment Date. 44 (f) Company agrees to pay to Issuing Bank, with respect to drawings honored under any Letter of Credit, interest on the amount paid by Issuing Bank in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by or on behalf of Company at a rate equal to (i) for the period from the date such drawing is honored to but excluding the applicable Reimbursement Date, the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Index Rate Loans, and (ii) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Index Rate Loans. (g) Interest payable pursuant to Section 2.8(f) shall be computed on the basis of a 365/366-day year for the actual number of days elapsed in the period during which it accrues, and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. Promptly upon receipt by Issuing Bank of any payment of interest pursuant to Section 2.8(f), Issuing Bank shall distribute to each Lender, out of the interest received by Issuing Bank in respect of the period from the date such drawing is honored to but excluding the date on which Issuing Bank is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of any Revolving Loans), the amount that such Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period if no drawing had been honored under such Letter of Credit. In the event Issuing Bank shall have been reimbursed by Lenders for all or any portion of such honored drawing, Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under Section 2.4(e) with respect to such honored drawing such Lender's Pro Rata Share of any interest received by Issuing Bank in respect of that portion of such honored drawing so reimbursed by Lenders for the period from the date on which Issuing Bank was so reimbursed by Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company. 2.9. CONVERSION/CONTINUATION. (a) Subject to Section 2.18 and so long as no Default or Event of Default shall have occurred and then be continuing (which the Requisite Lenders have notified Company will prevent the following), Company shall have the option: (i) to convert at any time all or any part of any Term Loan or Revolving Loan equal to (y) $1,000,000 and integral multiples of $100,000 in excess of that amount from a Index Rate Loan to a LIBOR Loan and (z) $100,000 and integral multiples of $100,000 in excess of that amount from a LIBOR Loan to a Index Rate Loan; provided, a LIBOR Loan may only be converted on the expiration of the LIBOR Period applicable to such LIBOR Loan unless Company shall pay all amounts due under Section 2.18 in connection with any such conversion; or (ii) upon the expiration of any LIBOR Period applicable to any LIBOR Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $100,000 in excess of that amount as a LIBOR Loan. 45 (b) The Company shall deliver a Conversion/Continuation Notice to Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Index Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a LIBOR Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any LIBOR Loans shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith. 2.10. DEFAULT INTEREST. The principal amount of all Loans and, to the extent permitted by applicable law, any interest payments on the Loans not paid when due or any fees or other amounts not paid when due, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Index Rate Loans); provided, in the case of LIBOR Loans, upon the expiration of the LIBOR Period in effect at the time any such increase in interest rate is effective such LIBOR Loans shall thereupon become Index Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Index Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.10 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. 2.11. FEES. (a) Company agrees to pay to Lenders having Revolving Exposure: (i) commitment fees equal to (1) the average of the daily difference between the Revolving Commitments and (b) the sum of (x) the aggregate principal amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans) plus (y) the Letter of Credit Usage), times (2) 0.50% per annum; and (ii) letter of credit fees equal to (1) the Applicable Margin for Revolving Loans that are LIBOR Loans, times (2) the average aggregate daily maximum amount available to be drawn under all such Letters of Credit (regardless of whether any conditions for drawing could then be met and determined as of the close of business on any date of determination). All fees referred to in this Section 2.11(a) shall be paid to Administrative Agent at its Principal Office and upon receipt, Administrative Agent shall promptly distribute to each Lender its Pro Rata Share thereof. (b) Company agrees to pay directly to Issuing Bank, for its own account, the following fees: 46 (i) a fronting fee equal to 0.250%, per annum, times the average aggregate daily maximum amount available to be drawn under all Letters of Credit (determined as of the close of business on any date of determination); and (ii) such documentary and processing charges for any issuance, amendment, transfer or payment of a Letter of Credit as are in accordance with Issuing Bank's standard schedule for such charges and as in effect at the time of such issuance, amendment, transfer or payment, as the case may be. (c) All fees referred to in Section 2.11(a) and 2.11(b)(i) shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year during the Revolving Commitment Period, commencing on the first such date to occur after the Closing Date, and on the Revolving Commitment Termination Date. (d) In addition to any of the foregoing fees, Company agrees to pay to Agents such other fees in the amounts and at the times separately agreed upon. 2.12. SCHEDULED PAYMENTS/COMMITMENT REDUCTIONS. Scheduled Installments. The principal amounts of the Term Loans shall be repaid in consecutive quarterly installments (each, an "INSTALLMENT") in the aggregate amounts set forth below on the last day of each Fiscal Quarter (each, an "INSTALLMENT DATE"), commencing September 30, 2004:
FISCAL QUARTER TERM LOAN INSTALLMENTS -------------- ---------------------- September 30, 2004 $ 512,500 December 31, 2004 $ 512,500 March 31, 2005 $ 512,500 June 30, 2005 $ 512,500 September 30, 2005 $ 512,500 December 31, 2005 $ 512,500 March 31, 2006 $ 512,500 June 30, 2006 $ 512,500 September 30, 2006 $ 512,500 December 31, 2006 $ 512,500 March 31, 2007 $ 512,500 June 30, 2007 $ 512,500 September 30, 2007 $ 512,500 December 31, 2007 $ 512,500
47
FISCAL QUARTER TERM LOAN INSTALLMENTS -------------- ---------------------- March 31, 2008 $ 512,500 June 30, 2008 $ 512,500 September 30, 2008 $ 512,500 December 31, 2008 $ 512,500 March 31, 2009 $ 512,500 June 30, 2009 $ 512,500 September 30, 2009 $ 512,500 December 31, 2009 $ 512,500 March 31, 2010 $ 512,500 June 30, 2010 $ 512,500 September 30, 2010 $24,087,500 December 31, 2010 $24,087,500 March 31, 2011 $24,087,500 June 30, 2011 $24,087,500 September 30, 2011 $24,087,500 December 31, 2011 $24,087,500 March 31, 2012 $24,087,500 Term Loan Maturity Date $24,087,500
Notwithstanding the foregoing, (x) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans in accordance with Sections 2.13, 2.14 and 2.15, as applicable; and (y) the Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Term Loan Maturity Date. 2.13. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS. (a) Voluntary Prepayments. (i) Any time and from time to time: (1) with respect to Index Rate Loans, Company may prepay any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount; (2) with respect to LIBOR Loans, Company may prepay any such Loans on any Business Day in 48 whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $100,000 in excess of that amount; and (3) with respect to Swing Line Loans, Company may prepay any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $100,000, and in integral multiples of $100,000 in excess of that amount. (ii) All such prepayments shall be made: (1) upon not less than one Business Day's prior written or telephonic notice in the case of Index Rate Loans; (2) upon not less than three Business Days' prior written or telephonic notice in the case of LIBOR Loans; and (3) upon written or telephonic notice on the date of prepayment, in the case of Swing Line Loans; in each case given to Administrative Agent or Swing Line Lender, as the case may be, by 12:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (and Administrative Agent will promptly transmit such telephonic or original notice for Term Loans or Revolving Loans, as the case may be, by telefacsimile or telephone to each Lender) or Swing Line Lender, as the case may be. Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in Section 2.15(a). (b) Voluntary Commitment Reductions. (i) Company may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Commitments in an amount up to the amount by which the Revolving Commitments exceed the Total Utilization of Revolving Commitments at the time of such proposed termination or reduction; provided, any such partial reduction of the Revolving Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $500,000 in excess of that amount. (ii) Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any 49 partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Commitment of each Lender proportionately to its Pro Rata Share thereof. Any such voluntary reduction of the Revolving Commitments shall be applied as specified in Section 2.15(a). (c) Certain Permitted Term Loan Repurchases. Notwithstanding anything to the contrary contained in this Section 2.13 or any other provision of this Agreement, so long as (i) there is no Default, (ii) there is no Event of Default and (iii) no Default or Event of Default would result therefrom, Company may repurchase outstanding Term Loans on the following basis: (i) Company may repurchase all or any portion of the Term Loans of one or more Lenders pursuant to an Assignment Agreement, between Company and such Lender or Lenders in an aggregate principal amount not to exceed 35% of the initial aggregate principal amount of Term Loans with respect to all such repurchases pursuant to this clause (i); provided that, with respect to such repurchases, Company shall simultaneously provide a copy of such Assignment Agreement and any other agreements between Company and such Lender with respect to such repurchase to the Administrative Agent and Syndication Agent; (ii) In addition, Company may make one or more offers (each, an "OFFER") to repurchase all or any portion of the Term Loans (such Term Loans, the "OFFER LOANS") of the Lenders, provided, (A) Company delivers a notice of such Offer to the Administrative Agent and all Lenders no later than noon (New York City time) at least five (5) Business Days in advance of a proposed consummation date of such Offer indicating (1) the last date on which such Offer may be accepted, (2) the maximum dollar amount of the Offer, (3) the repurchase price per dollar of principal amount of such Offer Loans at which Company is willing to repurchase the Offer Loans and (4) the instructions, consistent with this Section 2.13(c) with respect to the Offer (which shall be reasonably acceptable to Company, the Administrative Agent and the Syndication Agent), that a Lender must follow in order to have its Offer Loans repurchased; (B) the maximum dollar amount of the Offer shall be no less than an aggregate of $1,000,000; (C) Company shall hold the Offer open for a minimum period of two (2) Business Days; (D) a Lender who elects to participate in the Offer may choose to tender all or part of such Lender's Offer Loans; and (E) the Offer shall be made to Lenders holding the Offer Loans on a pro rata basis in accordance with their Pro Rata Shares; provided, further that, if any Lender elects not to participate in the Offer, either in whole or in part, the amount of such Lender's Offer Loans not being tendered shall be excluded in calculating the pro rata amount applicable to the balance of such Offer Loans; (iii) With respect to all repurchases made by Company pursuant to this Section 2.13(c), (A) Company shall pay all accrued and unpaid interest, if any, on the repurchased Term Loans to the date of repurchase of such Term Loans, (B) the repurchase of such Term Loans by Company shall not be taken into account in the calculation of Consolidated Excess Cash Flow, (C) Company shall only make such 50 repurchases during the time period which is within thirty (30) days following the date on which Company files a 10K, 10Q or any other material filing with the SEC, (D) such repurchases shall not be deemed to be voluntary prepayments pursuant to this Section 2.13, Section 2.15 or 2.16 hereunder except that the amount of the Loans so repurchased pursuant to Section 2.13(c)(ii) shall be applied on a pro rata basis to reduce the scheduled remaining Installments of principal on such Term Loan and (E) such repurchase of Term Loans pursuant to Section 2.13(c)(ii) shall be applied on a pro rata basis to Lenders selling Offer Loans in accordance with the Offer Loans being sold or offered for sale by such Lenders; and (iv) Following repurchase by Company pursuant to this Section 2.13(c), the Term Loans so repurchased shall be deemed cancelled for all purposes and no longer outstanding (and may not be resold by Company), for all purposes of this Agreement and all other Credit Documents, including, but not limited to (A) the making of, or the application of, any payments to the Lenders under this Agreement or any other Credit Document, (B) the making of any request, demand, authorization, direction, notice, consent or waiver under this Agreement or any other Credit Document or (C) the determination of Requisite Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document. Any payment made by Company in connection with a repurchase permitted by this Section 2.13(c) shall not be subject to the provisions of either Section 2.16(a) or Section 2.17. Failure by Company to make any payment to a Lender required by an agreement permitted by this Section 2.13(c) shall not constitute an Event of Default under Section 8.1(a). Notwithstanding any of the provisions set forth in this Agreement to the contrary, the Company, the Lenders and Agents hereby agree that nothing in this Agreement shall be understood to mean or suggest that the Term Loans constitute "securities" for purposes of either the Securities Act or the Exchange Act. 2.14. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS. (a) Asset Sales. No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries of any Net Asset Sale Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to such Net Asset Sale Proceeds; provided, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Asset Sale Proceeds from the Closing Date through the applicable date of determination do not exceed $10,000,000 in the aggregate (excluding any proceeds from the Old Chester Sale and Leaseback), Company shall have the option, directly or through one or more of its Subsidiaries, to invest or commit to invest Net Asset Sale Proceeds within three hundred sixty (360) days of receipt thereof (or, four hundred fifty (450) days with respect to the receipt of proceeds from the Old Chester Sale and Leaseback) in long-term productive assets of the general type used in the business of Company and its Subsidiaries; provided further, pending any such investment all such Net Asset Sale Proceeds shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments); provided, further that, with respect to an Asset Sale of any asset owned by a Foreign Subsidiary, any Net 51 Asset Sale Proceeds in respect thereof which have not been reinvested or committed to be reinvested (the "UNREINVESTED NET ASSET SALE PROCEEDS") shall be applied (i) first, to the extent such Unreinvested Net Asset Sale Proceeds may be repatriated to the United States without in the reasonable judgment of the Company resulting in a material tax liability to Company in relation to the amount of proceeds to be repatriated, to prepay the Loans and/or permanently reduce the Revolving Commitments as set forth in Section 2.15(b), (ii) second, to the extent of any remaining portion of such Unreinvested Net Asset Sale Proceeds, to finance the general corporate purposes of such Foreign Subsidiary so long as the aggregate of all such amounts so applied by all Foreign Subsidiaries with respect to Asset Sales consummated after the Closing Date does not exceed $5,000,000, and (iii) third, to the extent of any remaining portion of such Unreinvested Net Asset Sale Proceeds, to prepay the Loans and/or reduce the Revolving Commitments as set forth in Section 2.15(b). Concurrently with any determination by Company that any portion of any Unreinvested Net Asset Sale Proceeds of any Foreign Subsidiary will be applied as described in clause (ii) of the immediately preceding proviso, Company shall deliver to Agent an Officers' Certificate (w) certifying that such Unreinvested Net Asset Sale Proceeds cannot be repatriated to the United States without resulting in a material tax liability to Company and the reasons therefore, (y) specifying the amount of Unreinvested Net Asset Sale Proceeds to be retained by such Foreign Subsidiary as described in said clause (ii) and the cumulative aggregate amount of all such Unreinvested Net Asset Sale Proceeds so retained by all Foreign Subsidiaries since the date of this Agreement and (z) demonstrating the derivation of the Unreinvested Net Asset Sale Proceeds of the correlative Asset Sale from the gross sales price thereof. (b) Insurance/Condemnation Proceeds. No later than the first Business Day following the date of receipt by Holdings or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to such Net Insurance/Condemnation Proceeds; provided, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Insurance/Condemnation Proceeds from the Closing Date through the applicable date of determination do not exceed $10,000,000 in the aggregate, Company shall have the option, directly or through one or more of its Subsidiaries to invest or commit to invest such Net Insurance/Condemnation Proceeds within three hundred sixty (360) days of receipt thereof in long term productive assets of the general type used in the business of Company and its Subsidiaries, which investment may include the repair, restoration or replacement of the applicable assets thereof; provided further, pending any such investment all such Net Insurance/Condemnation Proceeds, as the case may be, shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments). (c) Issuance of Equity Securities. On the date of receipt by Holdings or any of its Subsidiaries of any Cash proceeds from a capital contribution to, or the issuance of any Capital Stock of, Holdings or any of its Subsidiaries to any Person other than Holdings or any of its Subsidiaries (other than with respect to the receipt of any such proceeds pursuant to (i) any employee stock or stock option compensation plan, (ii) any Sponsor Equity Contributions or (iii) any equity issued by Holdings or a Foreign Subsidiary in connection with Permitted Acquisitions including, without limitation, any equity issued in connection with Section 6.9(f)), Company 52 shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to 75% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses; provided, during any period in which the Leverage Ratio (determined for any such period by reference to the most recent Compliance Certificate delivered pursuant to Section 5.1(d) calculating the Leverage Ratio) shall be 4.00:1.00 or less, Company shall only be required to make the prepayments and/or reductions otherwise required hereby in an amount equal to 50% of such Cash proceeds. (d) Issuance of Debt. No later than the first Business Day following receipt by Holdings or any of its Subsidiaries of any Cash proceeds from the incurrence of any Indebtedness of Holdings or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses. (e) Consolidated Excess Cash Flow. In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with Fiscal Year 2004), Company shall, no later than one hundred and five (105) days after the end of such Fiscal Year, prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to 75% of such Consolidated Excess Cash Flow; provided, during any period in which the Leverage Ratio (determined for any such period by reference to the most recent Compliance Certificate delivered pursuant to Section 5.1(d) calculating the Leverage Ratio) shall be 4.00:1.00 or less, Company shall only be required to make the prepayments and/or reductions otherwise required hereby in an amount equal to 50% of such Consolidated Excess Cash Flow. (f) Revolving Loans and Swing Loans. Company shall from time to time prepay first, the Swing Line Loans, and second, the Revolving Loans to the extent necessary so that the Total Utilization of Revolving Commitments shall not at any time exceed the Revolving Commitments then in effect. (g) Prepayment Certificate. Concurrently with any prepayment of the Loans and/or reduction of the Revolving Commitments pursuant to Sections 2.14(a) through 2.14(e), Company shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds or Consolidated Excess Cash Flow, as the case may be. In the event that Company shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Company shall promptly make an additional prepayment of the Loans and/or the Revolving Commitments shall be permanently reduced in an amount equal to such excess, and Company shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess. 53 2.15. APPLICATION OF PREPAYMENTS/REDUCTIONS. (a) Application of Voluntary Prepayments by Type of Loans. Any prepayment of any Loan pursuant to Section 2.13(a) shall be applied as specified by Company in the applicable notice of prepayment; provided, in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied as follows: first, to repay outstanding Swing Line Loans to the full extent thereof; second, to repay outstanding Revolving Loans to the full extent thereof; and third, to prepay the remaining installments due on Term Loans on a pro rata basis in accordance with the amounts thereof. (b) Application of Mandatory Prepayments by Type of Loans. Any amount required to be paid pursuant to Sections 2.14(a) through 2.14(e) shall be applied as follows: first, to prepay the remaining installments due on Term Loans on a pro rata basis in accordance with the amounts thereof; second, to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Commitments by the amount of such prepayment; third, to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Commitments by the amount of such prepayment; fourth, to prepay outstanding reimbursement obligations then due and payable with respect to Letters of Credit and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayment; fifth, to cash collateralize Letters of Credit and to further permanently reduce the Revolving Loan Commitments by the amount of such cash collateralization; and sixth, to further permanently reduce the Revolving Commitments to the full extent thereof. (c) Application of Prepayments of Loans to Index Rate Loans and LIBOR Loans. Considering each Class of Loans being prepaid separately, any prepayment thereof shall be applied first to Index Rate Loans to the full extent thereof before application to LIBOR Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to Section 2.18(c). 54 2.16. GENERAL PROVISIONS REGARDING PAYMENTS. (a) All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 12:00 p.m. (New York City time) on the date due at the Administrative Agent's Principal Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day. (b) All payments in respect of the principal amount of any Loan (other than voluntary prepayments of Revolving Loans) shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (c) Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Administrative Agent. (d) Notwithstanding the foregoing provisions hereof, if pursuant to this Agreement any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Index Rate Loans in lieu of its Pro Rata Share of any LIBOR Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (e) Subject to the provisos set forth in the definition of "LIBOR Period", whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the Revolving Commitment fees hereunder. (f) Company hereby authorizes Administrative Agent to charge Company's accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). (g) Administrative Agent shall deem any payment by or on behalf of Company hereunder that is not made in same day funds prior to 12:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Administrative Agent shall give prompt telephonic notice to Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 8.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no 55 event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.10 from the date such amount was due and payable until the date such amount is paid in full. (h) If an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, all payments or proceeds received by Agents hereunder in respect of any of the Obligations, shall be applied in accordance with the application arrangements described in Section 7.2 of the Pledge and Security Agreement. 2.17. RATABLE SHARING. Lenders hereby agree among themselves that, except as otherwise provided in the Collateral Documents with respect to amounts realized from the exercise of rights with respect to Liens on the Collateral, if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder. 2.18. MAKING OR MAINTAINING LIBOR LOANS. (a) Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any LIBOR Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of LIBOR Rate, Administrative Agent shall on such date give 56 notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, LIBOR Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company. (b) Illegality or Impracticability of LIBOR Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its LIBOR Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, LIBOR Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a LIBOR Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Index Rate Loan, (3) the Affected Lender's obligation to maintain its outstanding LIBOR Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the LIBOR Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Index Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a LIBOR Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, Company shall have the option, subject to the provisions of Section 2.18(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.18(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, LIBOR Loans in accordance with the terms hereof. (c) Compensation for Breakage or Non-Commencement of LIBOR Periods. Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to lenders of funds borrowed by it to make or carry its LIBOR Loans and any loss, expense or liability sustained by such Lender in 57 connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits, including, without limitation, the Applicable Margin) which such Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any LIBOR Loan does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any LIBOR Loan does not occur on a date specified therefor in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment or any conversion of any of its LIBOR Loans occurs on a date prior to the last day of an LIBOR Period applicable to that Loan (including, without limitation, pursuant to Section 2.13(c) hereof); or (iii) if any prepayment of any of its LIBOR Loans is not made on any date specified in a notice of prepayment given by Company. (d) Booking of LIBOR Loans. Any Lender may make, carry or transfer LIBOR Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender. (e) Assumptions Concerning Funding of LIBOR Loans. Calculation of all amounts payable to a Lender under this Section 2.18 and under Section 2.19(a) shall be made as though such Lender had actually funded each of its relevant LIBOR Loans through the purchase of a LIBOR deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of LIBOR Rate in an amount equal to the amount of such LIBOR Loan and having a maturity comparable to the relevant LIBOR Period and through the transfer of such LIBOR deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its LIBOR Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.18 and under Section 2.19(a). 2.19. INCREASED COSTS; CAPITAL ADEQUACY. (a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.20 (which shall be controlling with respect to the matters covered thereby and to the extent a Lender is not entitled to payment under the terms of Section 2.20, it shall not be entitled to such payment pursuant to this Section 2.19(a)), in the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.19(a)) shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or Governmental Authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-Governmental Authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, 58 FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to LIBOR Loans that are reflected in the definition of LIBOR Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto by an amount considered by the Lender to be material; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.19(a), which statement shall be conclusive and binding upon all parties hereto absent manifest error. (b) Capital Adequacy Adjustment. In the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.19(b)) shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Revolving Commitments or Letters of Credit, or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy) by an amount considered by the Lender to be material, then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.19(b), which statement shall be conclusive and binding upon all parties hereto absent manifest error. (c) Notification. Notwithstanding the foregoing, the Company shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or 59 the Issuing Bank, as the case may be, notifies the Company of the change giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor (except that, if the change giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof). 2.20. TAXES; WITHHOLDING, ETC. (a) Payments to Be Free and Clear. All sums payable by any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (b) Withholding of Taxes. If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender (which term shall include Issuing Bank for purposes of this Section 2.20(b)) under any of the Credit Documents: (i) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty (30) days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty (30) days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided, no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender. 60 (c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a "NON-US LENDER") shall deliver to Administrative Agent for transmission to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (ii) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause (i) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.20(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent for transmission to Company two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.20(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.20(c), or (2) to notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.20(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.20(c) shall relieve Company of its obligation to pay any additional amounts pursuant to Section 2.20(b)(iii) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to 61 deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein. 2.21. OBLIGATION TO MITIGATE. Each Lender (which term shall include Issuing Bank for purposes of this Section 2.21) agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Loans or Letters of Credit, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.18, 2.19 or 2.20, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.18, 2.19 or 2.20 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Revolving Commitments, Loans or Letters of Credit through such other office or in accordance with such other measures, as the case may be, would not otherwise materially adversely affect such Revolving Commitments, Loans or Letters of Credit or the interests of such Lender; provided, such Lender will not be obligated to utilize such other office pursuant to this Section 2.21 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described in clause (a) above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.21 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be conclusive absent manifest error. 2.22. DEFAULTING LENDERS. Anything contained herein to the contrary notwithstanding, in the event that any Lender, at the direction or request of any regulatory agency or authority, defaults (a "DEFAULTING LENDER") in its obligation to fund (a "FUNDING DEFAULT") any Revolving Loan or its portion of any unreimbursed payment under Section 2.3(b)(iv), 2.3(b)(v) or 2.4(e) (in each case, a "DEFAULTED LOAN"), then (a) during any Default Period with respect to such Defaulting Lender, such Defaulting Lender shall be deemed not to be a "Lender" for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Credit Documents; (b) to the extent permitted by applicable law, until such time as the Default Excess with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment of the Revolving Loans shall, if Company so directs at the time of making such voluntary prepayment, be applied to the Revolving Loans of other Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Exposure of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Revolving Loans shall, if Company so directs at the time of making such mandatory prepayment, be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (ii); (c) such Defaulting Lender's Revolving Commitment and outstanding Revolving Loans and such Defaulting Lender's Pro Rata Share of 62 the Letter of Credit Usage shall be excluded for purposes of calculating the Revolving Commitment fee payable to Lenders in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Revolving Commitment fee pursuant to Section 2.11 with respect to such Defaulting Lender's Revolving Commitment in respect of any Default Period with respect to such Defaulting Lender; and (d) the Total Utilization of Revolving Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.22, performance by Company of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 2.22. The rights and remedies against a Defaulting Lender under this Section 2.22 are in addition to other rights and remedies which Company may have against such Defaulting Lender with respect to any Funding Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default. 2.23. REMOVAL OR REPLACEMENT OF A LENDER. Anything contained herein to the contrary notwithstanding, in the event that: (a)(i) any Lender (an "INCREASED-COST LENDER") shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under Section 2.18, 2.19 or 2.20, (ii) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after Company's request for such withdrawal; or (b) (i) any Lender shall become a Defaulting Lender, (ii) the Default Period for such Defaulting Lender shall remain in effect, and (iii) such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five Business Days after Company's request that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5(b), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "NON-CONSENTING LENDER") whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the "TERMINATED LENDER"), Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and its Revolving Commitments, if any, in full to one or more Eligible Assignees (each a "REPLACEMENT LENDER") in accordance with the provisions of Section 10.6 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment; provided, (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Terminated Lender, (B) an amount equal to all unreimbursed drawings that have been funded by such Terminated Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.11; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.18(c), 2.19 or 2.20 or otherwise as if it were a prepayment; and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall 63 consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender; provided, Company may not make such election with respect to any Terminated Lender that is also an Issuing Bank unless, prior to the effectiveness of such election, Company shall have caused each outstanding Letter of Credit issued thereby to be cancelled. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender's Revolving Commitments, if any, such Terminated Lender shall no longer constitute a "Lender" for purposes hereof; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender. SECTION 3. CONDITIONS PRECEDENT 3.1. CLOSING DATE. The obligation of any Lender to make a Credit Extension on the Closing Date is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions on or before the Closing Date: (a) Credit Documents. Administrative Agent shall have received sufficient copies of each Credit Document originally executed and delivered by each applicable Credit Party for each Lender. (b) Organizational Documents; Incumbency. Administrative Agent shall have received (i) sufficient copies of each Organizational Document executed and delivered by each Credit Party, as applicable, and, to the extent applicable, certified as of a recent date by the appropriate governmental official, for each Lender, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of such Person executing the Credit Documents to which it is a party; (iii) resolutions of the Board of Directors or similar governing body of each Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party's jurisdiction of incorporation, organization or formation and in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date; and (v) such other documents as Administrative Agent may reasonably request. (c) Organizational and Capital Structure; Management. The organizational structure and capital structure of Company and its Subsidiaries shall be as set forth on Schedule 4.1. The management structure of Company shall be as set forth on Schedule 3.1(c) annexed hereto. (d) Transaction Costs. On or prior to the Closing Date, Company shall have delivered to Administrative Agent Company's reasonable best estimate of the Transactions Costs (other than fees payable to any Agent). (e) Governmental Authorizations and Consents. All Governmental Authorizations and all consents of other Persons, in each case that are required by the Merger 64 Agreement as a condition to closing shall have been obtained by each Credit Party, or with the approval of the Co-Syndication Agents, waived. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Merger Agreement or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired. (f) Real Estate Assets. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in certain Real Estate Assets, Collateral Agent shall have received from Company and each applicable Guarantor: (i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Estate Asset listed in Schedule 3.1(f) (each, a "CLOSING DATE MORTGAGED PROPERTY"); (ii) an opinion of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Mortgages to be recorded in such state and such other matters as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; (iii) in the case of each Leasehold Property that is a Closing Date Mortgaged Property, (1) use its best efforts to obtain a Landlord Consent and Estoppel and (2) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) (a) ALTA mortgagee title insurance policies or unconditional commitments therefor issued by one or more title companies reasonably satisfactory to Collateral Agent with respect to each Closing Date Mortgaged Property (each, a "TITLE POLICY"), in amounts not less than the fair market value of each Closing Date Mortgaged Property, together with a title report issued by a title company with respect thereto, dated not more than thirty (30) days prior to the Closing Date and copies of all recorded documents listed as exceptions to title or otherwise referred to therein, each in form and substance reasonably satisfactory to Collateral Agent and (B) evidence satisfactory to Collateral Agent that such Credit Party has paid to the title company or to the appropriate Governmental Authorities all expenses and premiums of the title company and all other sums required in connection with the issuance of each Title Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Mortgages for each Closing Date Mortgaged Property in the appropriate real estate records; (v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of 65 Governors of the Federal Reserve System, in form and substance reasonably satisfactory to Collateral Agent; and (vi) ALTA surveys of all Closing Date Mortgaged Properties which are not Leasehold Properties, certified to Collateral Agent and dated not more than thirty (30) days prior to the Closing Date. (g) Personal Property Collateral. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid, perfected First Priority security interest in the personal property Collateral, Collateral Agent shall have received: (i) evidence satisfactory to the Collateral Agent of the compliance by each Credit Party of their obligations under the Pledge and Security Agreement and the other Collateral Documents (including, without limitation, their obligations to execute and deliver UCC financing statements, originals of securities, instruments and chattel paper and any agreements governing deposit and/or securities accounts as provided therein). (ii) A completed Collateral Questionnaire dated the Closing Date and executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby, including (A) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements (or equivalent filings) made with respect to any personal or mixed property of any Credit Party in the jurisdictions specified in the Collateral Questionnaire, together with copies of all such filings disclosed by such search, and (B) UCC termination statements (or similar documents) duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such search (other than any such financing statements or equivalent filing in respect of Permitted Liens); (iii) opinions of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) with respect to the creation and perfection of the security interests in favor of Collateral Agent in any Collateral with an aggregate value in excess of $500,000 and such other matters governed by the laws of each jurisdiction in which any Credit Party or any personal property Collateral is located as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; and (iv) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument (including without limitation a Landlord Personal Property Collateral Access Agreement executed by the landlord of any Leasehold Property and by the applicable Credit Party) and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by Collateral Agent. 66 (h) Environmental Reports. The Agents shall have received reports and other information, in form, scope and substance satisfactory to the Agents, as each may reasonably require regarding environmental matters relating to the Facilities, which reports shall include to the extent available a Phase I Report for each of the Facilities specified by the Agents confirming the advice orally provided to the Agents by Company's environmental consultants. (i) Financial Statements; Projections. Lenders shall have received from Company (i) the Historical Financial Statements, and (ii) the Projections. (j) Evidence of Insurance. Collateral Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 5.5 is in full force and effect and that Collateral Agent, for the benefit of Lenders has been named as additional insured and loss payee thereunder to the extent required under Section 5.5. (k) Equity Financing. On or before the Closing Date, the proceeds of the Equity Financing shall have been irrevocably committed, simultaneously with the application of the proceeds of the portion of the Term Loans, the Revolving Loans and the Senior Subordinated Notes to be made on the Closing Date, to the payment of a portion of the Merger Financing Requirements. The terms of the Equity Financing and agreements relating thereto shall be satisfactory in all respects to the Agents. (l) Consummation of the Merger. (i) With respect to the consummation of the Merger, concurrently with the initial Credit Extension made hereunder, all conditions to the Merger set forth in Articles VI, VII and VIII of the Merger Agreement and related documents shall have been satisfied or the fulfillment of any such conditions shall have been waived with the consent of the Agents. (ii) The Agents shall have received evidence reasonably satisfactory to the Agents that all conditions to the Merger shall have been satisfied or the fulfillment of any such conditions shall have been waived with the consent of the Agents such that the Merger is effective immediately upon filing of a Certificate of Merger in Delaware. (m) Existing Indebtedness and Related Liens. (i) On the Closing Date, Company and its Subsidiaries shall have (X) repaid (or satisfied and discharged as described in clause (ii) below) in full all Indebtedness of Company and its Subsidiaries other than the Indebtedness set forth on Schedule 6.1 annexed hereto or otherwise permitted pursuant to Section 6.1, (Y) terminated any commitments to lend or make other extensions of credit thereunder and (Z) delivered to Administrative Agent all documents or instruments necessary to release all Liens securing such repaid Indebtedness or other obligations of Company and its Subsidiaries thereunder. (ii) On or before the Closing Date, (X) all conditions to payment with respect to the Existing Notes tendered pursuant to the Tender Offer set forth in the Tender Offer Documents shall have been satisfied or the fulfillment of any such conditions shall have been 67 waived with the consent of the Co-Syndication Agents; (Y) any amounts under the Existing Notes not tendered as of the Closing Date shall be called by Amscan Holdings; (Z) the Tender Offer shall have become effective in accordance with the terms of the Tender Offer Documents and related documents. Company shall deliver to the Agents copies of all documents, agreements, opinions and certificates executed in connection with the Tender Offer. (n) [Intentionally Omitted]. (o) Maximum Leverage Ratio. The Agents shall have received satisfactory evidence that as of the Closing Date and after giving effect to the Merger and the borrowings made on the Closing Date, the Leverage Ratio determined on a Pro-Forma Basis for the latest twelve-month period ended prior to the Closing Date (for which financial statements are then available) is not greater than 5.75:1.00. (p) Related Agreements. Administrative Agent shall each have received a fully executed or conformed copy of each Related Agreement and each Related Agreement shall be in full force and effect and no provision thereof shall have been modified or waived in any respect reasonably determined by the Administrative Agent to be material, in each case without the consent of the Administrative Agent. (q) Opinions of Counsel to Credit Parties. Lenders and their respective counsel shall have received originally executed copies of the favorable written opinions of (i) Ropes & Gray LLP and (ii) Gray, Plant, Mooty, Mooty & Bennett, P.A., counsel for Credit Parties, in the form of Exhibit D and as to such other matters as the Agents may reasonably request, dated as of the Closing Date and otherwise in form and substance reasonably satisfactory to the Administrative Agent (and each Credit Party hereby instructs such counsel to deliver such opinions to the Agents and Lenders). (r) Fees. Company shall have paid to Agents, the fees payable on the Closing Date referred to in Section 2.11(d). (s) Solvency. On the Closing Date, Agents shall have received (i) a Solvency Certificate from Company dated the Closing Date and addressed to Agents and Lenders, and in form, scope and substance satisfactory to the Co-Syndication Agents and Administrative Agent, and (ii) a copy of the opinion of a third party issued in connection with the Merger, in each case with appropriate attachments and demonstrating that Company and its Subsidiaries when taken as a whole are Solvent. (t) Closing Date Certificate. Company shall have delivered to Administrative Agent an originally executed Closing Date Certificate, together with all attachments thereto. (u) Credit Rating. The credit facilities provided for under this Agreement shall have been assigned a credit rating by S&P and Moody's. (v) Closing Date. Lenders shall have made the Term Loans to Company on or before July 25, 2004. 68 (w) No Litigation. There shall be no statute, regulation, injunction, restraining order or decree of any nature of any court or governmental authority or body of competent jurisdiction that is in effect that restrains or prohibits the consummation of the Merger or the financing thereof. (x) Regulatory Proceedings. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable opinion of the Agents, singly or in the aggregate, materially impairs the transactions contemplated by the Credit Documents, or that could have a Material Adverse Effect. (y) No New Information. The Agent shall not have become aware of any new or inconsistent information or other matter not previously disclosed to the Agents relating to the Company or the Merger which, the Agents, in their reasonable judgment, believes has had or is reasonably likely to have a Material Adverse Effect. (z) Completion of Proceedings. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agents and their counsel shall be satisfactory in form and substance to Agents and such counsel, and Agents and such counsel shall have received all such counterpart originals or certified copies of such documents as Agents may reasonably request. (aa) Funds Flow Memo. Administrative Agent shall have received a funds flow memorandum which contains a description of Company's sources and uses of funds as of the Closing Date, including Loans and Obligations representing Letters of Credit to be made or incurred on that date, and detailing how funds from each source are to be transferred for particular uses. Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. 3.2. CONDITIONS TO EACH CREDIT EXTENSION. (a) Conditions Precedent. The obligation of each Lender to make any Loan, or Issuing Bank to issue any Letter of Credit, on any Credit Date, including the Closing Date, are subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions precedent: (i) Administrative Agent shall have received a fully executed and delivered Funding Notice or Issuance Notice, as the case may be; (ii) after making the Credit Extensions requested on such Credit Date, the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect; 69 (iii) as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date; (iv) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default; (v) on or before the date of issuance of any Letter of Credit, Administrative Agent shall have received all other information required by the applicable Issuance Notice, and such other documents or information as Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit; and (vi) after giving effect to such Credit Extension and the application of the proceeds thereof, the aggregate Cash and Cash Equivalents of Company and its Subsidiaries will not exceed $20,000,000. Any Agent or Requisite Lenders shall be entitled, but not obligated to, request and receive, prior to the making of any Credit Extension, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the good faith judgment of such Agent or Requisite Lender such request is warranted under the circumstances. (b) Notices. Any Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent. In lieu of delivering a Notice, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing, conversion/continuation or issuance of a Letter of Credit, as the case may be; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to Administrative Agent on or before the applicable date of borrowing, continuation/conversion or issuance. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized on behalf of Company or for otherwise acting in good faith. SECTION 4. REPRESENTATIONS AND WARRANTIES In order to induce Lenders and Issuing Bank to enter into this Agreement and to make each Credit Extension to be made thereby, each Credit Party represents and warrants to each Lender and Issuing Bank, on the Closing Date and on each Credit Date, that the following statements are true and correct: 4.1. ORGANIZATION; REQUISITE POWER AND AUTHORITY; QUALIFICATION. Each of Holdings and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 4.1, (b) has all requisite power and 70 authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case, except where the failure to be so qualified or in good standing or a lack of such power and authority has not had, and could not be reasonably expected to have, a Material Adverse Effect. 4.2. CAPITAL STOCK AND OWNERSHIP. The Capital Stock of each of Holdings and its Subsidiaries has been duly authorized and validly issued and is fully paid and non-assessable. Except as set forth on Schedule 4.2, as of the date hereof, there is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no membership interest or other Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or exchange would require, the issuance by Company or any of its Subsidiaries of any additional membership interests or other Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, a membership interest or other Capital Stock of Holdings or any of its Subsidiaries. Schedule 4.2 correctly sets forth the ownership interest of Holdings and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date. 4.3. DUE AUTHORIZATION. The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto. 4.4. NO CONFLICT. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, any of the Organizational Documents of Holdings or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries except for any breach or default which could not reasonably be expected to have a Material Adverse Effect; (c) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders and such consents the failure of which to receive could not reasonably be expected to have a Material Adverse Effect. 4.5. GOVERNMENTAL CONSENTS. Except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Closing Date, the execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by 71 the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except where the failure of which to receive could not reasonably be expected to cause a Material Adverse Effect. 4.6. BINDING OBLIGATION. Each Credit Document has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 4.7. HISTORICAL FINANCIAL STATEMENTS. The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments and in the case of interim statements the absence of footnotes. As of the Closing Date, neither Holdings nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and any of its Subsidiaries taken as a whole. 4.8. PROJECTIONS. On and as of the Closing Date, the Projections of Company and its Subsidiaries for the period Fiscal Year 2004 through and including Fiscal Year 2012 (the "PROJECTIONS") are based on good faith estimates and assumptions made by the management of Holdings; provided, the Projections are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from such Projections and that the differences may be material; provided further, as of the Closing Date, management of Holdings believed that the Projections were reasonable and attainable. 4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 2003, no event or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect. 4.10. NO RESTRICTED JUNIOR PAYMENTS. Since December 31, 2003, neither Holdings nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted pursuant to Section 6.5. 4.11. ADVERSE PROCEEDINGS, ETC. There are no Adverse Proceedings, individually or in the aggregate, that could reasonably be expected to result in a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (a) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect, or (b) is subject to or in default with respect to any final 72 judgments, writs, injunctions, decrees, rules or regulations of any Government Authority, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 4.12. PAYMENT OF TAXES. Except as otherwise permitted under Section 5.3, all material tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings knows of no proposed material tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided, such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 4.13. PROPERTIES. (a) Title. Each of Holdings and its Subsidiaries has (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in their respective Historical Financial Statements referred to in Section 4.5 or in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.9. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. (b) Real Estate. As of the Closing Date, Schedule 4.13 contains a true, accurate and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Credit Party, regardless of whether such Credit Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. As of the Closing Date, each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Holdings does not have knowledge of any material default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 4.14. ENVIRONMENTAL MATTERS. Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries has received any letter or request for information under Section 104 of the 73 Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state law. There are and, to each of Holdings' and its Subsidiaries' knowledge, have been, no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries nor, to any Credit Party's knowledge, any predecessor of Holdings or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Holdings' nor any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent except in material compliance with Environmental Laws. Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws will not, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect. No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect. 4.15. NO DEFAULTS. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, would constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, would not have a Material Adverse Effect. 4.16. MATERIAL CONTRACTS. Schedule 4.16 contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date, and except as described thereon, all such Material Contracts are in full force and effect and no defaults currently exist thereunder, other than any such defaults or failure to be in force and effect which could not reasonably be expected to result in a Material Adverse Effect. 4.17. GOVERNMENTAL REGULATION. Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Holdings nor any of its Subsidiaries is a "registered investment company" or a company "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company" as such terms are defined in the Investment Company Act of 1940. 4.18. MARGIN STOCK. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to such Credit Party will be used to purchase or carry any such Margin Stock or to extend credit to others for the purpose of purchasing or carrying any such Margin Stock or for any purpose 74 that violates, or is inconsistent with, the provisions of Regulation T, U or X of said Board of Governors. 4.19. EMPLOYEE MATTERS. Neither Holdings nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries, or to the best knowledge of Holdings, threatened against any of them before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against Holdings or any of its Subsidiaries or to the best knowledge of Holdings, threatened against any of them, (b) no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect, and (c) to the best knowledge of Holdings, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries and, to the best knowledge of Holdings, no union organization activity that is taking place, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect. 4.20. EMPLOYEE BENEFIT PLANS. Holdings and each of its Subsidiaries are in compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all of their obligations under each Employee Benefit Plan, other than any noncompliance that is not reasonably expected to have a Material Adverse Effect. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service indicating that such Employee Benefit Plan is so qualified and to the knowledge of Holdings, nothing has occurred subsequent to the issuance of such determination letter which would reasonably be expected to cause such Employee Benefit Plan to lose its qualified status. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA has been or is expected to be incurred by Holdings, any of its Subsidiaries or any of their ERISA Affiliates except as would not reasonably be expected to cause a Material Adverse Effect. No ERISA Event has occurred or is reasonably expected to occur which would reasonably be expected to result in liability of Holdings and its Subsidiaries in excess of $5,000,000 during the term hereof. Except to the extent required under Section 4980B of the Internal Revenue Code or similar state laws, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. Holdings, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan. 4.21. CERTAIN FEES. No broker's or finder's fee or commission will be payable with respect hereto or any of the transactions contemplated hereby. 75 4.22. SOLVENCY. Each Credit Party is and, upon the incurrence of any Obligation by such Credit Party on any date on which this representation and warranty is made, will be, Solvent. 4.23. COMPLIANCE WITH STATUTES, ETC. Each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Estate Asset or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Estate Asset or the operations of Holdings or any of its Subsidiaries), except such non-compliance that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. 4.24. DISCLOSURE. No representation or warranty of any Credit Party contained in any Credit Document or in any other documents, certificates or written statements furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact (known to Holdings, in the case of any document not furnished by either of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. SECTION 5. AFFIRMATIVE COVENANTS Each Credit Party covenants and agrees that so long as any Commitment is in effect and until payment in full of all Obligations and cancellation or expiration of all Letters of Credit, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5. 5.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Company will deliver to Administrative Agent: (a) Monthly Reports. As soon as available, and in any event within thirty (30) days after the end of each month ending after the Closing Date (or within forty-five (45) days after the end of each month which ends a Fiscal Quarter), the consolidated balance sheet of Company and its Subsidiaries as at the end of such month and the related consolidated statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of 76 such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, to the extent prepared on a monthly basis, all in reasonable detail, together with a Financial Officer Certification with respect thereto; (b) Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated (and with respect to statements of income, consolidating) statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; (c) Annual Financial Statements. As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated (and with respect to statements of income, consolidating) statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; and (ii) with respect such consolidated financial statements a report thereon of Ernst & Young LLP or other independent certified public accountants of recognized national standing selected by Company, and reasonably satisfactory to Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with accounting principles generally accepted in the United States and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards) together with a written statement by the independent certified public accountants giving the report thereon (a) stating that their audit examination has included a review of the terms of this Agreement and the other Credit Documents as they relate to accounting matters, (b) stating whether, in connection with their audit examination, any condition or event that constitutes an Event of Default or Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof; provided that such accountants shall not be liable by reason of any failure to obtain knowledge of any such Event of Default or Default that would not be disclosed in the course of their audit examination, and (c) stating that based on their audit examination nothing has come to their attention that causes them to believe either or both that the information contained in the certificates delivered therewith pursuant to this Section 5.1(c) above is not correct or that the matters set forth in the Compliance Certificates delivered therewith 77 pursuant to Section 5.1(d) for the applicable Fiscal Year are not stated in accordance with the terms of this Agreement; (d) Compliance Certificate. Together with each delivery of financial statements of Company and its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and completed Compliance Certificate demonstrating in reasonable detail (1) compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 6, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period and (2) with respect to any Net Asset Sale Proceeds received by Company or any of its Subsidiaries during the second Fiscal Quarter immediately preceding the Fiscal Quarter in which the applicable accounting period ends, whether or not all or any portion of such Net Asset Sale Proceeds have been re-invested or committed to be re-invested pursuant to Section 2.14(a); (e) Statements of Reconciliation after Change in Accounting Principles. If, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements for the period ended December 31, 2003, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to Section 5.1(b) or 5.1(c) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, together with the first delivery of such financial statements after such change, one or more a statements of reconciliation in form and substance satisfactory to Administrative Agent; (f) Notice of Default. Promptly upon any officer of Company obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Company with respect thereto; (ii) that any Person has given any notice to Company or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(b); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; (g) Notice of Litigation. Promptly upon any officer of Company obtaining knowledge of (i) the institution of, or non-frivolous threat of, any Adverse Proceeding not previously disclosed in writing by Company to Lenders, or (ii) any material development in any Adverse Proceeding that, in the case of either (i) or (ii) if adversely determined, could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their counsel to evaluate such matters; (h) ERISA. (i) Promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what 78 action Company, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and (ii) with reasonable promptness, copies of (1) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Company, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (2) all notices received by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (i) Financial Plan. As soon as practicable and in any event no later than thirty (30) days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and each Fiscal Year (or portion thereof) through the final maturity date of the Loans (a "FINANCIAL PLAN"), including (i) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Company and its Subsidiaries for each such Fiscal Year, together with pro forma Compliance Certificates for each such Fiscal Year and an explanation of the assumptions on which such forecasts are based, (ii) forecasted consolidated statements of income and cash flows of Company and its Subsidiaries for each month of the first such Fiscal Year, and (iii) forecasts demonstrating projected compliance with the requirements of Section 6.8 through the final maturity date of the Loans; (j) Insurance Report. Together with the financial statements required by Section 5.1(c) for each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Company and its Subsidiaries and all material insurance coverage planned to be maintained by Company and its Subsidiaries in the immediately succeeding Fiscal Year; (k) Notice of Change in Board of Directors. With reasonable promptness, written notice of any change in the board of directors (or similar governing body) of Company; (l) Notice Regarding Material Contracts. Promptly, and in any event within ten (10) Business Days (i) after any Material Contract of Company or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Company or such Subsidiary, as the case may be, or (ii) any new Material Contract is entered into, a written statement describing such event, with copies of such material amendments or new contracts, to be delivered only to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided, no such prohibition on delivery shall be effective if it were bargained for by Company or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1(l)), and an explanation of any actions being taken with respect thereto to be delivered to Administrative Agent and Lenders; (m) [Intentionally Omitted]; (n) Information Regarding Collateral. (a) Company will furnish to the Collateral Agent prompt written notice of any change (i) in any Credit Party's corporate name, (ii) in any Credit Party's identity or corporate structure, (iii) in any Credit Party's jurisdiction of 79 organization (to the extent permitted by the Pledge and Security Agreement) or (iv) in any Credit Party's Federal Taxpayer Identification Number or organizational identification number. Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for the Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral as contemplated in the Collateral Documents. Company also agrees promptly to notify the Collateral Agent if any material portion of the Collateral is damaged or destroyed; (o) Annual Collateral Verification. Each year, at the time of delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to Section 5.1(c), Company shall deliver to the Collateral Agent an Officer's Certificate either confirming that there has been no change in such information since the date of the Collateral Questionnaire delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and/or identifying such changes; and (p) Other Information. (A) Promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders acting in such capacity or by any Subsidiary of Company to its security holders other than Company or another Subsidiary of Company, (ii) all regular and periodic reports and all registration statements (other than on Form S-8 or similar form) and prospectuses, if any, filed by Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, (iii) all press releases and other statements made available generally by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries, and (B) such other information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent or any Lender. 5.2. EXISTENCE. Except as otherwise permitted under Section 6.9, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; provided, no Credit Party or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, licenses and permits if such Person's board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof is not disadvantageous in any material respect to such Person or to Lenders. 5.3. PAYMENT OF TAXES AND CLAIMS. Each Credit Party will, and will cause each of its Subsidiaries to, pay all material Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or 80 other appropriate provision, as shall be required in conformity with GAAP shall have been made therefore, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Company or any of its Subsidiaries). 5.4. MAINTENANCE OF PROPERTIES. Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Company and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof except where the failure to maintain such properties could not reasonably be expected in any individual case or in the aggregate to have a Material Adverse Effect. 5.5. INSURANCE. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (a) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (b) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance shall (i) name Collateral Agent, on behalf of Lenders as an additional insured thereunder as its interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Collateral Agent, that names Collateral Agent, on behalf of Lenders as the loss payee thereunder for any covered loss in excess of $1,500,000 and provides for at least thirty (30) days' prior written notice to Collateral Agent of any modification or cancellation of such policy. 5.6. INSPECTIONS. Each Credit Party will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of any Credit Party and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, (provided that Company may, if it so chooses, be present at or participate in any such discussion) all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; provided, however that each Lender shall at all times coordinate with 81 the Administrative Agent regarding the frequency and timing of such visits and inspections so as to reasonably minimize the burden imposed on the Credit Parties. 5.7. LENDERS MEETINGS. Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 5.8. COMPLIANCE WITH LAWS. Each Credit Party will comply, and shall cause each of its Subsidiaries and all other Persons, if any, on or occupying any Facilities to comply, with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 5.9. ENVIRONMENTAL. (a) Environmental Disclosure. Company will deliver to Administrative Agent and Lenders: (i) as soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Company or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to significant environmental matters at any Facility or with respect to any Environmental Claims that might reasonably be expected to have a Material Adverse Effect; (ii) promptly upon the occurrence thereof, written notice describing in reasonable detail (1) any Release required to be reported by Company or any of its Subsidiaries to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (2) any remedial action taken by Company or any of its Subsidiaries or any other Persons of which Company has knowledge in response to (A) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (B) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect, and (3) Company's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that reasonably could be expected to cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws; (iii) as soon as practicable following the sending or receipt thereof by Company or any of its Subsidiaries, a copy of any and all written communications with respect to (1) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (2) any Release required to be reported by Company or any of its Subsidiaries to any federal, state or 82 local governmental or regulatory agency, and (3) any request made to Company or any of its Subsidiaries for information from any governmental agency that suggests such agency is investigating whether Company or any of its Subsidiaries may be potentially responsible for any Hazardous Materials Activity which is reasonably expected to have a Material Adverse Effect; (iv) prompt written notice describing in reasonable detail (1) any proposed acquisition of stock, assets, or property by Company or any of its Subsidiaries that could reasonably be expected to (A) expose Company or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (B) result in Company or any of its Subsidiaries failing to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (2) any proposed action to be taken by Company or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Company or any of its Subsidiaries to any additional material obligations or requirements under any Environmental Laws; and (v) with reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this Section 5.9(a). (b) Hazardous Materials Activities, Etc. Each Credit Party shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by such Credit Party or its Subsidiaries that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) make an appropriate response to any Environmental Claim against such Credit Party or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. 5.10. SUBSIDIARIES. In the event that any Person becomes a Domestic Subsidiary of Company, Company shall (a) promptly cause such Domestic Subsidiary (other than an Immaterial Subsidiary) to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement by executing and delivering to Administrative Agent and Collateral Agent a Counterpart Agreement, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), 3.1(h) and 3.1(q). In the event that any Person becomes a Foreign Subsidiary of Company, and the ownership interests of such Foreign Subsidiary are owned by Company or by any Domestic Subsidiary thereof, Company shall, or shall cause such Domestic Subsidiary to, deliver, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), and Company shall take, or shall cause such Domestic Subsidiary to take, all of the actions referred to in Section 3.1(g)(i) necessary to grant and to perfect a First Priority Lien in favor of Collateral Agent, for the benefit of Secured Parties, under the Pledge and Security Agreement in sixty-five percent (65%) of such ownership interests (or such lesser amount if Company owns less than 65%). With respect to 83 each such Subsidiary, Company shall promptly send to Administrative Agent written notice setting forth with respect to such Person (i) the date on which such Person became a Subsidiary of Company, and (ii) all of the data required to be set forth in Schedules 4.1 and 4.2 with respect to all Subsidiaries of Company; provided, such written notice shall be deemed to supplement Schedule 4.1 and 4.2 for all purposes hereof. 5.11. ADDITIONAL MATERIAL REAL ESTATE ASSETS. In the event that any Credit Party acquires a Material Real Estate Asset or a Real Estate Asset owned or leased on the Closing Date becomes a Material Real Estate Asset and such interest has not otherwise been made subject to the Lien of the Collateral Documents in favor of Collateral Agent, for the benefit of Secured Parties, then such Credit Party, as soon as practicable but in no event later than thirty (30) days after acquiring such Material Real Estate Asset, shall take all such actions and execute and deliver, or cause to be executed and delivered, all such mortgages, documents, instruments, agreements, opinions and certificates similar to those described in Sections 3.1(f), 3.1(g) and 3.1(h) with respect to each such Material Real Estate Asset that Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in such Material Real Estate Assets. In addition to the foregoing, Company shall, at the request of Requisite Lenders, deliver, from time to time, to Administrative Agent such appraisals as are required by law or regulation of Real Estate Assets with respect to which Collateral Agent has been granted a Lien. 5.12. FURTHER ASSURANCES. At any time or from time to time upon the reasonable request of Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as Administrative Agent or Collateral Agent may reasonably request in order to effect fully the purposes of the Credit Documents. In furtherance and not in limitation of the foregoing, each Credit Party shall take such actions as Administrative Agent or Collateral Agent may reasonably request from time to time to ensure that the Obligations are guarantied by the Guarantors and are secured by substantially all of the assets of Company, and its Subsidiaries and all of the outstanding Capital Stock of Company and its Subsidiaries (subject to limitations contained in the Credit Documents with respect to Foreign Subsidiaries and certain other specified assets). 5.13. INTEREST RATE PROTECTION. Within sixty (60) days following the Closing Date, Company shall obtain protection against fluctuations in interest rates pursuant to one or more Interest Rate Agreements and otherwise in form and substance reasonably satisfactory to Administrative Agent, in order to ensure that not less than 50% of the aggregate principal amount of Consolidated Total Debt outstanding as of Closing Date is either (i) subject to such Interest Rate Agreements or (ii) fixed rate Indebtedness, in each case for a period of not less than three years. 5.14. POST-CLOSING COVENANT. Company shall take all such actions to deliver and/or execute the certificates or documents set forth on Schedule 5.14 within the time frames specified on Schedule 5.14. 84 SECTION 6. NEGATIVE COVENANTS Each Credit Party covenants and agrees that, so long as any Commitment is in effect and until payment in full of all Obligations and cancellation or expiration of all Letters of Credit, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6. 6.1. INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (a) the Obligations; (b) Indebtedness of any Subsidiary to Company or to any other Subsidiary, or of Company to any Subsidiary; provided, (i) all such Indebtedness shall be evidenced by promissory notes and all such notes shall be subject to a First Priority Lien pursuant to the Pledge and Security Agreement, (ii) all such Indebtedness shall be unsecured and subordinated in right of payment to the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case, is reasonably satisfactory to Administrative Agent, and (iii) any payment by any such wholly-owned Subsidiary under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; (c) the Senior Subordinated Notes; (d) Indebtedness incurred by Company or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, contingent earnout obligations incurred in connection with Asset Sales or other sales or purchases of assets, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of the Company or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or permitted dispositions of any business, assets or Subsidiary of Company or any of its Subsidiaries; (e) Indebtedness which may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business; (f) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with Deposit Accounts; (g) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Company and its Subsidiaries; (h) guaranties by Company of Indebtedness or other obligations of a Guarantor Subsidiary or guaranties by a Subsidiary of Company of Indebtedness or other obligations of 85 Company or a Guarantor Subsidiary with respect, in each case, to Indebtedness otherwise permitted to be incurred pursuant to this Section 6.1 or obligations not prohibited by this Agreement; (i) Indebtedness described in Schedule 6.1; (j) Company's Foreign Subsidiaries may become and remain liable with respect to Indebtedness in an aggregate amount not to exceed $10,000,000 outstanding at any time; (k) Indebtedness of Company and its Subsidiaries with respect to the Chester Distribution Center Permanent Financing; (l) Indebtedness with respect to the Old Chester Sale and Leaseback; (m) Indebtedness with respect to Capital Leases and purchase money Indebtedness, in each case incurred within 180 days of the acquisition or completion of construction or installation of the assets acquired in connection with the incurrence of such Indebtedness in an aggregate amount not to exceed at any time $15,000,000 (including any Indebtedness acquired in connection with a Permitted Acquisition); provided, any such Indebtedness (i) shall be secured only to the asset acquired in connection with the incurrence of such Indebtedness, and (ii) shall constitute not less than 50% of the aggregate consideration paid with respect to such asset; (n) Subsidiaries of the Company may become and remain liable with respect to Indebtedness in aggregate amount not to exceed $10,000,000 at any time outstanding in respect of Indebtedness of a Person which becomes a Subsidiary, provided such Indebtedness is recourse only to such Subsidiary, and neither Company nor any of its other Subsidiaries have any obligation in respect thereof; (o) Indebtedness incurred by Holdings to stockholders to repurchase stock or options from any stockholders; provided that (i) such Indebtedness shall be subordinated in right of payment to the Obligations and (ii) the aggregate amount of such Indebtedness shall not exceed $5,000,000 in any Fiscal Year and $20,000,000 in the aggregate from the Closing Date to the date of determination; (p) Company and its Subsidiaries may become and remain liable for any Indebtedness replacing or refinancing any Indebtedness permitted under clauses (i), (j), (k), (m), (n) and (t) of this Section 6.1; provided, that (i) the principal amount of such Indebtedness does not exceed the principal amount of the Indebtedness being refinanced or replaced, (ii) such Indebtedness has a final maturity on or later than the final maturity of the Indebtedness being refinanced or replaced and a weighted average life to maturity equal to or greater than the weighted average life to maturity of the Indebtedness being refinanced or replaced, (iii) the interest rate (or, where applicable, interest rate margin) and fees applicable to such Indebtedness is not higher than those applicable to the Indebtedness being refinanced or replaced, (iv) the covenants, defaults and prepayment provisions, taken as a whole, are not more burdensome or restrictive on Company and its Subsidiaries than those applicable to the Indebtedness being 86 refinanced or replaced, (v) such Indebtedness is secured only by Liens permitted under Section 6.2 for the Indebtedness being refinanced or replaced, (vi) such Indebtedness is incurred by Company or the Subsidiary who is the obligor on the Indebtedness being refinanced or replaced and (vii) if the Indebtedness being refinanced or replaced is subordinated to the Obligations, such Indebtedness is subordinated to the Obligations on terms not less favorable to the Lenders than those applicable to the Indebtedness being refinanced or replaced; (q) Company and its Domestic Subsidiaries may become and remain liable with respect to Indebtedness in respect of other commercial letters of credit in an aggregate amount not to exceed at any time $3,000,000 and Indebtedness in respect of other standby letters of credit in an aggregate amount not to exceed at any time $2,000,000; and Foreign Subsidiaries may become and remain liable with respect to Indebtedness in respect of other commercial letters of credit obtained in the ordinary course of business in an aggregate amount not to exceed at any time $2,000,000; (r) guaranties by Company of Indebtedness of a Foreign Subsidiary that is permitted to be incurred pursuant to this Section 6.1; (s) Indebtedness under any hedge agreements entered into for the purpose of hedging risks associated with Holdings' and its Subsidiaries' operations and not for speculative purposes; and (t) other Indebtedness of Company and its Subsidiaries in an aggregate amount not to exceed at any time $20,000,000. 6.2. LIENS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Company or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except: (a) Liens in favor of Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document; (b) Liens for Taxes not then due or if due obligations with respect to such Taxes that are not at such time required to be paid pursuant to Section 5.3 or which are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted; (c) statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401 (a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each case incurred in the ordinary course of business (i) for amounts not yet overdue or (ii) for amounts that are overdue and that (in the case of any such 87 amounts overdue for a period in excess of fifteen days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts; (d) Liens incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (e) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries; (f) any (i) interest or title of a lessor or sublessor under any lease of real estate permitted hereunder, (ii) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (iii) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (ii), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (g) Liens solely on any cash earnest money deposits made by Company or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder; (h) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating leases of personal property entered into in the ordinary course of business; (i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (j) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (k) (i) licenses of patents, trademarks and other intellectual property rights granted by Company or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Company or such Subsidiary and (ii) leases or subleases granted by Holdings or any of its Subsidiaries to third parties in respect of surplus property which is not fundamental to the operation of the business in the ordinary course of business; provided that such leases and subleases are on arms-length commercial terms and are otherwise satisfactory to the Administrative Agent; 88 (l) Liens described in Schedule 6.2 or on a title report delivered pursuant to Section 3.1(g)(iv); (m) Liens on the Chester Distribution Center Collateral securing the Chester Distribution Center Permanent Financing; provided that (i) such Liens attach only to the Chester Distribution Center Collateral and (ii) such Liens shall be on a second priority basis to any Liens granted to the Collateral Agent on the Chester Distribution Center Collateral; (n) Liens securing Indebtedness permitted pursuant to 6.1(k), (l), (m) or (p) (solely with respect to the permitted refinancing of Indebtedness permitted pursuant to 6.1(k), (l) and (m)); provided, any such Lien shall encumber only the asset acquired with the proceeds of such Indebtedness; (o) Indebtedness incurred pursuant to Section 6.1(n) or (p) (solely with respect to the permitted refinancing of Indebtedness permitted pursuant to 6.1(n)) may be secured by Liens on assets acquired or financed through the incurrence of such Indebtedness or on the assets of the newly acquired Subsidiary, provided that such Indebtedness was not created in contemplation of the acquisition of such Subsidiary by Company or one of its Subsidiaries; (p) Liens that are contractual rights of setoff relating to the establishment of depositary relations with banks not given in connection with the issuance of Indebtedness; (q) Liens on foreign assets securing Indebtedness permitted pursuant to Section 6.1(j); (r) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; and (s) other Liens on assets securing Indebtedness in an aggregate amount not to exceed $5,000,000 at any time outstanding. 6.3. EQUITABLE LIEN. If any Credit Party or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Permitted Liens, it shall make or cause to be made effective provisions whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not otherwise permitted hereby. 6.4. NO FURTHER NEGATIVE PLEDGES. Except with respect to (a) specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to a permitted Asset Sale; (b) restrictions contained in agreements with respect to Indebtedness incurred by Foreign Subsidiaries in accordance with this Agreement (provided that such restrictions are limited to the property or assets of such Foreign Subsidiary and its Subsidiaries); (c) restrictions contained in the Senior Subordinated Notes Indenture; (d) 89 restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business (provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be); (e) Liens permitted to be incurred under Section 6.2 and restrictions in the agreements relating thereto that limit the right of the Company to dispose of or transfer the assets subject to such Liens; (f) provisions limiting the disposition or distribution of assets or property in joint venture agreements, sale-leaseback agreements, stock sale agreements and other similar agreements, which limitation is applicable only to the assets that are the subject of such agreements; (g) any encumbrance or restriction in connection with an acquisition of property, so long as such encumbrance or restriction relates solely to the property so acquired and was not created in connection with or in anticipation of such acquisition; and (h) restrictions imposed by customary provisions in partnership agreements, limited liability company organizational governance documents, joint venture agreements and other similar agreements that restrict the transfer of ownership interests in such partnership, limited liability company, joint venture or similar Person, no Credit Party nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired. 6.5. RESTRICTED JUNIOR PAYMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries or Affiliates through any manner or means or through any other Person to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Junior Payment except that (a) Company may make regularly scheduled payments of interest in respect of any Subordinated Indebtedness in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the indenture or other agreement pursuant to which such Subordinated Indebtedness was issued as such indenture or other agreement may be amended from time to time to the extent permitted under Section 6.14; (b) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, the Company may make Restricted Junior Payments (i) in an aggregate amount not to exceed $500,000 in any Fiscal Year, to the extent necessary to permit Holdings to pay general administrative costs and expenses and (ii) to the extent necessary to permit Holdings to discharge the consolidated tax liabilities of Holdings and its Subsidiaries, in each case so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; and (c) so long as no Default or Event of Default shall have occurred and be continuing or be caused thereby, Holdings may repurchase stock and options from any stockholder (x) in exchange for notes issued pursuant to Section 6.1(o), (y) in exchange for Capital Stock of Holdings or (z) in exchange for Cash and Cash Equivalents (and Company may make Restricted Junior Payments to Holdings) in an amount not to exceed $5,000,000 in any Fiscal Year and $20,000,000 in the aggregate from the Closing Date to the date of determination. 6.6. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except as provided herein, in the Senior Subordinated Notes Indenture or (with respect to encumbrances or restrictions on the ability of any Foreign Subsidiary of Holdings only) in any documentation evidencing the local lines of credit of Foreign Subsidiaries expressly permitted by Section 6.1(j) or (f), no Credit Party shall, nor shall it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of 90 any Subsidiary of Company to (a) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by Company or any other Subsidiary of Company, (b) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (c) make loans or advances to Company or any other Subsidiary of Company, or (d) transfer any of its property or assets to Company or any other Subsidiary of Company other than restrictions (i) in agreements evidencing Indebtedness permitted by Section 6.1(k), (l), (m), (n) or (p) solely with respect to the permitted refinancing of Indebtedness permitted pursuant to 6.1(k), (l), (m) or (n)) that impose restrictions on the property so acquired and (ii) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business, (iii) that are or were created by virtue of any transfer of, agreement to transfer or option or right with respect to any property, assets or Capital Stock not otherwise prohibited under this Agreement; (iv) in any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Capital Stock was incurred in connection with or in contemplation of such acquisition),which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by Section 6.1 to be incurred; (v) in any agreement for the sale or other disposition of a Subsidiary that restricts distributions by that Subsidiary pending the sale or other disposition; and (vi) in provisions in agreements or instruments which prohibit the payment of dividends or the making of other distributions with respect to any class of Capital Stock of a Person other than on a pro rata basis. 6.7. INVESTMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except: (a) Cash Equivalents; (b) equity Investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in wholly-owned Subsidiaries of Company; (c) Investments (i) in any Securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of Company and its Subsidiaries; (d) intercompany loans to the extent permitted under Section 6.1(b) and intercompany guaranties to the extent permitted under Sections 6.1(h) and (r); (e) Consolidated Capital Expenditures permitted by Section 6.8(c); (f) Investments made in connection with Permitted Acquisitions permitted pursuant to Section 6.9; 91 (g) Company and its wholly owned Domestic Subsidiaries may make additional Investments in their respective Foreign Subsidiaries; provided that the amount of all such Investments does not exceed $7,000,000 in the aggregate for all such Investments since the Closing Date; (h) Investments described in Schedule 6.7; (i) Investments received in lieu of Cash in connection with Asset Sales expressly permitted by Section 6.9; and (j) other Investments in an aggregate amount not to exceed at any time $15,000,000. Notwithstanding the foregoing, in no event shall any Credit Party make any Investment which results in or facilitates in any manner any Restricted Junior payment not otherwise permitted under the terms of Section 6.5. 6.8. FINANCIAL COVENANTS. (a) Interest Coverage Ratio. Company shall not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending September 30, 2004, to be less than the correlative ratio indicated:
FISCAL QUARTER INTEREST COVERAGE RATIO - ------------------ ----------------------- September 30, 2004 2.25:1.00 December 31, 2004 2.25:1.00 March 31, 2005 2.25:1.00 June 30, 2005 2.25:1.00 September 30, 2005 2.50:1.00 December 31, 2005 2.50:1.00 March 31, 2006 2.50:1.00 June 30, 2006 2.50:1.00 September 30, 2006 2.50:1.00 December 31, 2006 2.50:1.00 March 31, 2007 2.50:1.00 June 30, 2007 2.75:1.00 September 30, 2007 2.75:1.00 December 31, 2007 2.75:1.00 March 31, 2008 2.75:1.00 June 30, 2008 2.75:1.00 September 30, 2008 2.75:1.00 December 31, 2008 2.75:1.00 March 31, 2009 2.75:1.00 June 30, 2009 and each Fiscal Quarter 3.00:1.00 ending thereafter
92 (b) Leverage Ratio. Company shall not permit the Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending September 30, 2004, to exceed the correlative ratio indicated:
FISCAL QUARTER LEVERAGE RATIO September 30, 2004 6.50:1.00 December 31, 2004 6.50:1.00 March 31, 2005 6.50:1.00 June 30, 2005 6.50:1.00 September 30, 2005 6.25:1.00 December 31, 2005 6.25:1.00 March 31, 2006 6.25:1.00 June 30, 2006 5.75:1.00 September 30, 2006 5.75:1.00 December 31, 2006 5.75:1.00 March 31, 2007 5.75:1.00 June 30, 2007 5.25:1.00 September 30, 2007 5.25:1.00 December 31, 2007 5.25:1.00 March 31, 2008 5.25:1.00 June 30, 2008 4.75:1.00 September 30, 2008 4.75:1.00 December 31, 2008 4.75:1.00 March 31, 2009 4.75:1.00 June 30, 2009 and each Fiscal Quarter 4.25:1.00 ending thereafter
(c) Maximum Consolidated Capital Expenditures. Company shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year (commencing in Fiscal Year 2004) in an aggregate amount for Company and its Subsidiaries in excess of $18,000,000; provided, such amount for any Fiscal Year shall be increased by an amount equal to the excess, if any, (but in no event more than $5,000,000) of such amount for the previous Fiscal Year (as adjusted in accordance with this proviso) over the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year. (d) Certain Calculations. With respect to any period during which a Subject Transaction (as defined in the definition of Pro Forma Basis) has occurred, for purposes of determining compliance with the financial covenants set forth in this Section 6.8 (but not for purposes of determining the Applicable Margin), Consolidated Adjusted EBITDA shall be calculated with respect to such period on a Pro Forma Basis after giving effect to such Subject Transaction. 6.9. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any transaction of merger or 93 consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials, supplies and equipment in the ordinary course of business) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except: (a) any Subsidiary of Holdings may be merged with or into Company or any Guarantor Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any Guarantor Subsidiary; provided, in the case of such a merger, Company or such Guarantor Subsidiary, as applicable shall be the continuing or surviving Person; (b) any Foreign Subsidiary of Company may be merged with or into any other Foreign Subsidiary of Company, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions to Company or any wholly-owned Subsidiary; provided, in the case of such a merger, a wholly-owned Subsidiary shall be the continuing or surviving Person; provided, further, in the case of a merger of a Foreign Subsidiary with or into a Domestic Subsidiary, a Domestic Subsidiary shall be the continuing or surviving Person; (c) sales or other dispositions of assets that do not constitute Asset Sales; (d) Asset Sales, the proceeds of which (valued at the principal amount thereof in the case of non-Cash proceeds consisting of notes or other debt Securities and valued at fair market value in the case of other non-Cash proceeds) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $5,000,000; provided (1) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of Company (or similar governing body)), (2) no less than 75% thereof shall be paid in Cash or Cash Equivalents, and (3) the Net Asset Sale Proceeds thereof shall be applied as required by Section 2.14(a); (e) disposals of obsolete, worn out or surplus property and any assets acquired in connection with the acquisition of another person or a division or line of business of such Person which the Company reasonably determines are surplus assets; (f) Permitted Acquisitions; provided that such Permitted Acquisitions shall be financed in whole or in part with (i) Cash, Cash Equivalents and Indebtedness in an amount not to exceed $15,000,000 in the aggregate in any Fiscal Year, (ii) Capital Stock of Holdings (or in the case of a Foreign Subsidiary who acquires all or any part of another foreign entity, the Capital Stock of such Foreign Subsidiary) issued or transferred to the seller, and/or (iii) proceeds of additional cash Sponsor Equity Contributions to Holdings; provided, that immediately 94 following any Permitted Acquisition, Company shall have unutilized Revolving Commitments of no less than $5,000,000; (g) Other acquisitions or expenditures that constitute (i) Capital Expenditures that are permitted to be incurred pursuant to Section 6.8(c) or (ii) Investments that are permitted to be made pursuant to Section 6.7; and (h) Consolidated Capital Expenditures made in accordance with Section 6.8(c). 6.10. DISPOSAL OF SUBSIDIARY INTERESTS. Except for any sale of all of its interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.9 and except for issuances of Capital Stock by Foreign Subsidiaries to make Permitted Acquisitions, no Credit Party shall, nor shall it permit any of its Subsidiaries to, (a) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to qualify directors if required by applicable law; or (b) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to another Credit Party (subject to the restrictions on such disposition otherwise imposed hereunder), or to qualify directors if required by applicable law. 6.11. SALES AND LEASE-BACKS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which such Credit Party (a) has sold or transferred or is to sell or to transfer to any other Person (other than Company or any of its Subsidiaries), or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by such Credit Party to any Person (other than Company or any of its Subsidiaries) in connection with such lease; provided that notwithstanding the foregoing to the contrary, the Credit Parties may enter into the Old Chester Sale and Leaseback. 6.12. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 10% or more of any class of Capital Stock of Company or any of its Subsidiaries or with any Affiliate of Company or of any such holder, on terms that are less favorable to Company or that Subsidiary, as the case may be, than those that might be obtained at the time from a Person who is not such a holder or Affiliate; provided, the foregoing restriction shall not apply to (a) any transaction between Company and any Subsidiary or between Subsidiaries; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of Company and its Subsidiaries; (c) compensation arrangements for officers and other employees of Company and its Subsidiaries entered into in the ordinary course of business; (d) transactions permitted in Section 6.1(o) and Section 6.5(c); and (e) transactions described in Schedule 6.12. 6.13. CONDUCT OF BUSINESS. From and after the Closing Date, no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in any business other than (i) the businesses 95 engaged in by any Credit Party on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders. 6.14. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. Except as set forth in Section 6.15, no Credit Party shall nor shall it permit any of its Subsidiaries to, agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its material rights under (i) any Related Agreement (other than the Stockholders Agreement); and (ii) under the Stockholders Agreement in a manner that is materially adverse to the Lenders, in each case after the Closing Date without in each case obtaining the prior written consent of Requisite Lenders to such amendment, restatement, supplement or other modification or waiver. 6.15. AMENDMENTS OR WAIVERS OF WITH RESPECT TO SUBORDINATED INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness, or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate on such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions of such Subordinated Indebtedness (or of any guaranty thereof), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to any Credit Party or Lenders. 6.16. FISCAL YEAR. No Credit Party shall, nor shall it permit any of its Subsidiaries to change its Fiscal Year-end from December 31. 6.17. PERMITTED ACTIVITIES OF HOLDINGS. Holdings shall not (a) incur, directly or indirectly, any Indebtedness or any other obligation or liability whatsoever other than the Indebtedness and obligations under the Related Agreements and as may be permitted under Section 6.1; (b) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the Liens created under the Collateral Documents to which it is a party or permitted to it pursuant to Section 6.2; (c) engage in any business or activity or own any assets other than (i) holding 100% of the Capital Stock of Company, (ii) performing its obligations and activities incidental thereto under the Credit Documents, and to the extent not inconsistent therewith, the Related Agreements; and (iii) making Restricted Junior Payments and Investments to the extent permitted to it by this Agreement; (d) consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person; (e) sell or otherwise dispose of any Capital Stock of any of its Subsidiaries; (f) create or acquire any Subsidiary or make or own any Investment in any Person other than Company; or (g) fail to hold itself out to the public as a legal entity separate and distinct from all other Persons. SECTION 7. GUARANTY 7.1. GUARANTY OF THE OBLIGATIONS. Subject to the provisions of Section 7.2, Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Administrative Agent 96 for the ratable benefit of the Beneficiaries the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)) (collectively, the "GUARANTEED OBLIGATIONS"). 7.2. CONTRIBUTION BY GUARANTORS. All Guarantors desire to allocate among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a "FUNDING GUARANTOR") under this Guaranty that exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in the amount of such other Contributing Guarantor's Fair Share Shortfall as of such date, with the result that all such contributions will cause each Contributing Guarantor's Aggregate Payments to equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed. "FAIR SHARE SHORTFALL" means, with respect to a Contributing Guarantor as of any date of determination, the excess, if any, of the Fair Share of such Contributing Guarantor over the Aggregate Payments of such Contributing Guarantor. "FAIR SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder or thereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any comparable applicable provisions of state law; provided, solely for purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any Contributing Guarantor for purposes of this Section 7.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (1) the aggregate amount of all payments and distributions made on or before such date by such Contributing Guarantor in respect of this Guaranty (including, without limitation, in respect of this Section 7.2), minus (2) the aggregate amount of all payments received on or before such date by such Contributing Guarantor from the other Contributing Guarantors as contributions under this Section 7.2. The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. The allocation among Contributing Guarantors of their obligations as set forth in this Section 7.2 shall not be construed in any way to limit the liability of any Contributing Guarantor hereunder. Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 7.2. 7.3. PAYMENT BY GUARANTORS. Subject to Section 7.2, Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the 97 failure of Company to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), Guarantors will upon demand pay, or cause to be paid, in Cash, to Administrative Agent for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Company's becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to Beneficiaries as aforesaid. 7.4. LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and to the extent permitted by applicable law shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows: (a) this Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety; (b) the obligations of each Guarantor hereunder are independent of the obligations of Company and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions; (c) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guaranteed Obligations; (d) any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request 98 and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guaranteed Obligations provided that no Credit Document to which such Guarantor is a party may be amended without its written consent; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent herewith or the applicable Hedge Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Credit Documents or the Hedge Agreements; and (e) this Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and to the extent permitted by applicable law shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Credit Documents or the Hedge Agreements, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Credit Documents, any of the Hedge Agreements or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms hereof or such Credit Document, such Hedge Agreement or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Credit Documents or any of the Hedge Agreements or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of Company or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert 99 against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations. 7.5. WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit of Beneficiaries: to the extent permitted by applicable law (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, the Hedge Agreements or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in Section 7.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof. 7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled or collateralized with cash, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter 100 have against Company with respect to the Guaranteed Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled or collateralized with cash, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including, without limitation, any such right of contribution as contemplated by Section 7.2. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof. 7.7. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Company or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is hereby subordinated in right of payment to the Guaranteed Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof. 7.8. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations. 7.9. AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Company or the officers, directors or any agents acting or purporting to act on behalf of any of them. 7.10. FINANCIAL CONDITION OF COMPANY. Any Credit Extension may be made to Company or continued from time to time, and any Hedge Agreements may be entered into from time to time, in each case without notice to or authorization from any Guarantor regardless of the 101 financial or other condition of Company at the time of any such grant or continuation or at the time such Hedge Agreement is entered into, as the case may be. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Company. Each Guarantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Credit Documents and the Hedge Agreements, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by any Beneficiary. 7.11. BANKRUPTCY, ETC. (a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of Administrative Agent acting pursuant to the instructions of Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Company or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or any other Guarantor or by any defense which Company or any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding. (b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of Guarantors and Beneficiaries that the Guaranteed Obligations which are guaranteed by Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Administrative Agent, or allow the claim of Administrative Agent in respect of, any such interest accruing after the date on which such case or proceeding is commenced. (c) In the event that all or any portion of the Guaranteed Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder. 7.12. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the Capital Stock of any Guarantor or any of its successors in interest hereunder shall be sold or otherwise disposed 102 of (including by merger or consolidation) in accordance with the terms and conditions hereof, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale. SECTION 8. EVENTS OF DEFAULT 8.1. EVENTS OF DEFAULT. If any one or more of the following conditions or events shall occur: (a) Failure to Make Payments When Due. Failure by Company to pay (i) when due any installment of principal of any Loan, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; (ii) when due any amount payable to Issuing Bank in reimbursement of any drawing under a Letter of Credit; or (iii) any interest on any Loan or any fee or any other amount due hereunder within five (5) days after the date due; or (b) Default in Other Agreements. (i) Failure of any Credit Party or any of their respective Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in Section 8.1(a)) with an aggregate principal amount of $7,500,000 or more, in each case beyond the grace period, if any, provided therefor; or (ii) breach or default by any Credit Party with respect to any other material term of (1) one or more items of Indebtedness in the individual or aggregate principal amounts referred to in clause (i) above or (2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness, in each case beyond the grace period, if any, provided therefor, if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; or (c) Breach of Certain Covenants. Failure of any Credit Party to perform or comply with any term or condition contained in Section 2.6, Section 5.2 or Section 6; or (d) Breach of Representations, etc. Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect as of the date made or deemed made; or (e) Other Defaults Under Credit Documents. Any Credit Party shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents, other than any such term referred to in any other Section of this Section 8.1, and such default shall not have been remedied or waived within thirty (30) days after the earlier of (i) an executive officer of such Credit Party becoming aware of such default or (ii) receipt by Company of notice from Administrative Agent or any Lender of such default; or 103 (f) Involuntary Bankruptcy; Appointment of Receiver, etc.. (i) A court of competent jurisdiction shall enter a decree or order for relief in respect of Holdings or any of its Subsidiaries other than an Immaterial Subsidiary in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries other than its Immaterial Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers Holdings or any of its Subsidiaries other than its Immaterial Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its Subsidiaries other than its Immaterial Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries other than its Immaterial Subsidiaries, and any such event described in this clause (ii) shall continue for sixty (60) days without having been dismissed, bonded or discharged; or (g) Voluntary Bankruptcy; Appointment of Receiver, etc.. (i) Holdings or any of its Subsidiaries shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of Holdings or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 8.1(f); or (h) Judgments and Attachments. Any money judgment, writ or warrant of attachment or similar process involving in the aggregate at any time an amount in excess of $7,500,000 (in either case to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Company or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days (or in any event later than five days prior to the date of any proposed sale thereunder); or (i) Dissolution. Any order, judgment or decree shall be entered against any Credit Party decreeing the dissolution or split up of such Credit Party and such order shall remain undischarged or unstayed for a period in excess of thirty (30) days; or 104 (j) Employee Benefit Plans. (i) There shall occur one or more ERISA Events which individually or in the aggregate results in or would reasonably be expected to result in liability of Holdings or any of its Subsidiaries in excess of $5,000,000 during the term hereof; or (ii) there shall occur the imposition of a Lien or security interest under Section 412(n) of the Internal Revenue Code or under ERISA; or (k) Change of Control. A Change of Control shall occur; or (l) Guaranties, Collateral Documents and other Credit Documents. At any time after the execution and delivery thereof, (i) the Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or any Guarantor shall repudiate its obligations thereunder, (ii) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof or any other termination of such Collateral Document in accordance with the terms thereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of Collateral Agent or any Secured Party to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party; THEN, (1) upon the occurrence of any Event of Default described in Section 8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or with the consent of) Requisite Lenders, upon notice to Company by Administrative Agent, (A) the Revolving Commitments, if any, of each Lender having such Revolving Commitments and the obligation of Issuing Bank to issue any Letter of Credit shall immediately terminate; (B) each of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the unpaid principal amount of and accrued interest on the Loans, (II) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (regardless of whether any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letters of Credit), and (III) all other Obligations; provided, the foregoing shall not affect in any way the obligations of Lenders under Section 2.3(b)(iv) or Section 2.4(e); (C) the Administrative Agent may cause the Collateral Agent to enforce any and all Liens and security interests created pursuant to Collateral Documents; and (D) Administrative Agent shall direct Company to pay (and Company hereby agrees upon receipt of such notice, or upon the occurrence of any Event of Default specified in Section 8.1(f) and (g) to pay) to Administrative Agent such additional amounts of cash, to be held as security for Company's reimbursement Obligations in respect of Letters of Credit then outstanding, equal to the Letter of Credit Usage at such time. SECTION 9. AGENTS 105 9.1. APPOINTMENT OF AGENTS. GSCP and JPMSI are hereby appointed Co-Syndication Agents hereunder, and each Lender hereby authorizes the Co-Syndication Agents to act as its agent in accordance with the terms hereof and the other Credit Documents. GECC is hereby appointed Administrative Agent hereunder, and each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. GECC is hereby appointed Collateral Agent hereunder, and each Lender hereby authorizes Collateral Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Credit Party shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Company or any of its Subsidiaries. Co-Syndication Agents, without consent of or notice to any party hereto, may assign any and all of their rights or obligations hereunder to any of their Affiliates. As of the Closing Date, neither GSCP, in its capacity as a Co-Syndication Agent, Joint Lead Arranger and Joint Bookrunner, nor JPMSI, in its capacity as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent, shall have any obligations but shall be entitled to all benefits of this Section 9. 9.2. POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Credit Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein. 9.3. GENERAL IMMUNITY. (a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit Party to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Credit Party or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans or as to 106 the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof. (b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection herewith or any of the other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 10.5) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting hereunder or any of the other Credit Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under Section 10.5). 9.4. AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection herewith and otherwise without having to account for the same to Lenders. 9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT. (a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Company and its Subsidiaries in connection with Credit Extensions hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Company and its Subsidiaries. No Agent shall have any duty 107 or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. (b) Each Lender, by delivering its signature page to this Agreement and funding its Term Loan, and/or a Revolving Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. 9.6. RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Credit Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Credit Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence. 9.7. SUCCESSOR ADMINISTRATIVE AGENT AND SWING LINE LENDER. Administrative Agent may resign at any time by giving thirty (30) days' prior written notice thereof to Lenders and Company, and Administrative Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Administrative Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company, to appoint a successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and the retiring or removed Administrative Agent shall promptly (i) transfer to such successor Administrative Agent all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent under the Credit Documents, and (ii) execute and deliver to such successor 108 Administrative Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent of the security interests created under the Collateral Documents, whereupon such retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent hereunder. Any resignation or removal of Administrative Agent pursuant to this Section shall also constitute the resignation or removal of GECC or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to this Section shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (a) Company shall prepay any outstanding Swing Line Loans made by the retiring or removed Administrative Agent in its capacity as Swing Line Lender, (b) upon such prepayment, the retiring or removed Administrative Agent and Swing Line Lender shall surrender any Swing Line Note held by it to Company for cancellation, and (c) Company shall issue, if so requested by successor Administrative Agent and Swing Line Loan Lender, a new Swing Line Note to the successor Administrative Agent and Swing Line Lender, in the principal amount of the Swing Line Loan Sublimit then in effect and with other appropriate insertions. 9.8. COLLATERAL DOCUMENTS AND GUARANTY. (a) Agents under Collateral Documents and Guaranty. Each Lender hereby further authorizes Administrative Agent or Collateral Agent, as applicable, on behalf of and for the benefit of Lenders, to be the agent for and representative of Lenders with respect to the Guaranty, the Collateral and the Collateral Documents. Subject to Section 10.5, without further written consent or authorization from Lenders, Administrative Agent or Collateral Agent, as applicable may execute any documents or instruments necessary to (i) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted hereby or to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented or (ii) release any Guarantor from the Guaranty pursuant to Section 7.12 or with respect to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented. (b) Right to Realize on Collateral and Enforce Guaranty. Anything contained in any of the Credit Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (i) no Lender shall have any right individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Administrative Agent, on behalf of Lenders in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent, and (ii) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding 109 and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale. SECTION 10. MISCELLANEOUS 10.1. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to a Credit Party, Syndication Agent, Collateral Agent, Administrative Agent, Swing Line Lender, Issuing Bank or Documentation Agent, shall be sent to such Person's address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to any Agent shall be effective until received by such Agent. 10.2. EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (a) all the actual and reasonable costs and expenses of preparation of the Credit Documents and any consents, amendments, waivers or other modifications thereto; (b) all the costs of furnishing all opinions by counsel for Company and the other Credit Parties; (c) the reasonable fees, expenses and disbursements of counsel to Agents (in each case including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (d) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of Lenders pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Collateral Documents; (e) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers retained by any Agent with the prior consent of Company (not to be unreasonably withheld); (f) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (g) all other actual and reasonable costs and expenses incurred by each Agent in connection with the syndication of the Loans and Commitments and the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (h) after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by any Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization 110 upon any of the Collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings. 10.3. INDEMNITY. (a) In addition to the payment of expenses pursuant to Section 10.2, whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless, each Agent and Lender and the officers, partners, directors, trustees, employees, agents and Affiliates of each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all Indemnified Liabilities; provided, no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this Section 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. (b) To the extent permitted by applicable law, neither Company nor any of its Subsidiaries or Affiliates shall assert, and hereby waives, any claim against any Lender or any of their Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefor is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, arising out of, as a result of, or in any way related to, this Agreement or any Credit Document or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Company hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 10.4. SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by each Credit Party at any time or from time to time subject to the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Credit Party against and on account of the obligations and liabilities of any Credit Party to such Lender hereunder, the Letters of Credit and participations therein and under the other Credit Documents, including all claims of any nature or description arising out of or connected hereto, the Letters of Credit and participations therein or with any other Credit Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Loans 111 or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured. Each Credit Party hereby further grants to Administrative Agent and each Lender a security interest in all Deposit Accounts maintained with Administrative Agent or such Lender as security for the Obligations. 10.5. AMENDMENTS AND WAIVERS. (a) Requisite Lenders' Consent. Subject to Section 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders. (b) Affected Lenders' Consent. Without the written consent of each Lender (other than a Defaulting Lender) that would be affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would: (i) extend the scheduled final maturity of any Loan or Note; (ii) waive, reduce or postpone any scheduled repayment (but not prepayment); (iii) extend the stated expiration date of any Letter of Credit beyond the Revolving Commitment Termination Date; (iv) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10) or any fee payable under Section 2.11(a); (v) extend the time for payment of any such interest or fees; (vi) reduce the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit; (vii) amend, modify, terminate or waive any provision of this Section 10.5; (viii) amend the definition of "REQUISITE LENDERS" or "PRO RATA SHARE"; provided, with the consent of Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of "REQUISITE LENDERS" or "PRO RATA SHARE" on substantially the same basis as the Term Loan Commitments, the Term Loans, the Revolving Commitments and the Revolving Loans are included on the Closing Date; (ix) release all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty except as expressly provided in the Credit Documents; or 112 (x) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document. (c) Other Consents. No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall: (i) increase any Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided, no amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Commitment of any Lender; (ii) amend, modify, terminate or waive any provision hereof relating to the Swing Line Sublimit or the Swing Line Loans without the consent of Swing Line Lender; (iii) amend the definition of "REQUISITE CLASS LENDERS" without the consent of Requisite Class Lenders of each Class; provided, with the consent of the Requisite Lenders, additional extensions of credit pursuant hereto may be included in the determination of such "REQUISITE CLASS LENDERS" on substantially the same basis as the Term Loan Commitments, the Term Loans, the Revolving Commitments and the Revolving Loans are included on the Closing Date; (iv) alter the required application of any repayments or prepayments as between Classes pursuant to Section 2.15 without the consent of Requisite Class Lenders of each Class which is being allocated a lesser repayment or prepayment as a result thereof; provided, Requisite Lenders may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment which is still required to be made is not altered; (v) amend, modify, terminate or waive any obligation of Lenders relating to the purchase of participations in Letters of Credit as provided in Section 2.4(e) without the written consent of Administrative Agent and of Issuing Bank; (vi) extend the length of any LIBOR Period or provide for nine month or twelve month LIBOR Periods without the consent of each Lender affected thereby; or (vii) amend, modify, terminate or waive any provision of Section 9 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent. (d) Execution of Amendments, etc. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or 113 demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Credit Party, on such Credit Party. (e) Notwithstanding anything to the contrary contained herein, this Agreement may be amended with the written consent of the Administrative Agent, Company, the holders of not less than 50.0% of the Revolving Exposure and the Lenders providing the relevant Replacement Term Loans to permit the refinancing of all outstanding Term Loans (the "REFINANCED TERM LOAN") with a replacement term loan tranche hereunder (the "REPLACEMENT TERM LOANS"), provided that (a) the aggregate principal amount of such Replacement Term Loans shall not exceed the aggregate principal amount of such Refinanced Term Loan, (b) the interest rate for such Replacement Term Loans shall not be higher than the interest rate for such Refinanced Term Loan, (c) the weighted average life to maturity of such Replacement Term Loans shall not be shorter than the weighted average life to maturity of such Refinanced Term Loan at the time of such refinancing and (d) all other terms applicable to such Replacement Term Loans shall be substantially identical to, or less favorable to the Lenders providing such Replacement Term Loans than those applicable to such Refinanced Term Loan, except to the extent necessary to provide for covenants and other terms applicable to any period after the latest final maturity of the Term Loans in effect immediately prior to such refinancing. 10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS. (a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. No Credit Party's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. (b) Register. Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by Administrative Agent and recorded in the Register as provided in Section 10.6(e). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. (c) Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment or Loans owing to it or other Obligation (provided, 114 however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan and any related Commitments): (i) to any Person meeting the criteria of clause (i) of the definition of the term of "Eligible Assignee" upon the giving of notice to Company and Administrative Agent; and (ii) to any Person meeting the criteria of clause (ii) of the definition of the term of "Eligible Assignee" and, in the case of assignments of Revolving Loans or Revolving Commitments to any such Person (except in the case of assignments made by or to GSCP), consented to by each of Company and Administrative Agent (such consent not to be (x) unreasonably withheld or delayed or, (y) in the case of Company, required at any time an Event of Default shall have occurred and then be continuing); provided, further each such assignment pursuant to this Section 10.6(c)(ii) shall be in an aggregate amount of not less than (A) $5,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Revolving Commitments and Revolving Loans of the assigning Lender) with respect to the assignment of the Revolving Commitments and Revolving Loans and (B) $1,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Term Loan of the assigning Lender) with respect to the assignment of Term Loans. (d) Mechanics. The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent an Assignment Agreement two (2) Business Days prior to the effective date thereof, together with such (i) a processing and recordation fee of $3500 (except that (x) no such fee shall be payable in connection with the primary syndication by the Co-Syndication Agents and (y) only one fee shall be payable in the case of contemporaneous assignments to Related Funds), and (ii) forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to Section 2.20(c). (e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this Agreement in connection therewith), Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to Company and shall maintain a copy of such Assignment Agreement. (f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Commitments or Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Commitments or Loans for its own account in the ordinary course of its business and without a view to distribution of such Commitments or Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, 115 subject to the provisions of this Section 10.6, the disposition of such Commitments or Loans or any interests therein shall at all times remain within its exclusive control). (g) Effect of Assignment. Subject to the terms and conditions of this Section 10.6, as of the "Effective Date" specified in the applicable Assignment Agreement (which shall be no sooner than two (2) Business Days after delivery to the Administrative Agent of the Assignment Agreement and related documents required by subsection (d) above): (i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 10.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Credit Documents to the contrary notwithstanding, (y) Issuing Bank shall continue to have all rights and obligations thereof with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder and (z) such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); (iii) the Commitments shall be modified to reflect the Commitment of such assignee and any Revolving Commitment of such assigning Lender, if any; and (iv) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon Company shall issue and deliver new Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Revolving Commitments and/or outstanding Loans of the assignee and/or the assigning Lender. (h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than Company, any of its Subsidiaries or any of its Affiliates) in all or any part of its Commitments, Loans or in any other Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Commitment Termination Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations 116 under this Agreement or (iii) release all or substantially all of the Collateral under the Collateral Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. The Company agrees that each participant shall be entitled to the benefits of Sections 2.18(c), 2.19 and 2.20 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.19 or 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with the Company's prior written consent and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.20 unless the Company is notified of the participation sold to such participant and such participant agrees, for the benefit of the Company, to comply with Section 2.20 as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 10.4 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17 as though it were a Lender. (i) Certain Other Assignments. In addition to any other assignment permitted pursuant to this Section 10.6, (i) any Lender may assign and/or pledge all or any portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, no Lender, as between Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 10.7. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. 10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Sections 2.18(c), 2.19, 2.20, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in Sections 2.17, 9.3(b) and 9.6 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination hereof. 10.9. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or 117 privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents or any of the Hedge Agreements. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. 10.10. MARSHALLING; PAYMENTS SET ASIDE. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent, on behalf of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.11. SEVERABILITY. In case any provision in or obligation hereunder or any Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Credit Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. 10.13. HEADINGS. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect. 10.14. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. 118 10.15. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (A) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (B) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (C) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (D) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (C) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (E) AGREES AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION. 10.16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 10.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO 119 ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT. 10.17. CONFIDENTIALITY. Each Lender shall hold all non-public information regarding Company and its business and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature, it being understood and agreed by Company that, in any event, a Lender may make (i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 10.17), (ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Loans or any participations therein (so long as such Persons agree in advance in writing to keep such information confidential) or by any direct or indirect contractual counterparties (or the professional advisors thereto) in Hedge Agreements (provided, such counterparties and advisors are advised of and agree to be bound by the provisions of this Section 10.17), (iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Credit Parties received by it from any of the Agents or any Lender, and (iv) disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information. 10.18. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Company shall pay to Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, 120 charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to Company. 10.19. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 10.20. EFFECTIVENESS. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. 10.21. USA PATRIOT ACT. Each Lender hereby notifies Company that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), it is required to obtain, verify and record information that identifies Company, which information includes the name and address of Company and other information that will allow such Lender to identify Company in accordance with the Act. [Remainder of page intentionally left blank] 121 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. AAH HOLDINGS CORPORATION By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President AMSCAN HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President AMSCAN INC. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President and Treasurer SSY REALTY CORP. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer JCS REALTY CORP. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer AM SOURCE LLC By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer TRISAR, INC. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer S-1 ANAGRAM INTERNATIONAL HOLDINGS, INC. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM INTERNATIONAL, INC. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary ANAGRAM EDEN PRAIRIE PROPERTY HOLDINGS, LLC By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President of Amscan Holdings, Inc., its sole member M&D INDUSTRIES, INC. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary S-2 GOLDMAN SACHS CREDIT PARTNERS L.P., as Joint Lead Arranger, Joint Bookrunner, Co-Syndication Agent and a Lender By: /s/ William W. Archer ------------------------------------- Name: William W. Archer Title: Managing Director S-3 GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent, Collateral Agent and a Lender By: /s/ Gina Provenzale ------------------------------------- Name: Gina Provenzale Title: Vice President S-4 J.P. MORGAN SECURITIES INC., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent By: /s/ John C. Riordan ------------------------------------- Name: John C. Riordan Title: Vice President S-5 JPMORGAN CHASE BANK, as a Lender By: /s/ Kathryn A. Duncan ------------------------------------- Name: Kathryn A. Duncan Title: Vice President S-6 CREDIT SUISSE FIRST BOSTON, acting through its Cayman Islands Branch, as a Lender By: /s/ Robert Hetu ------------------------------------- Name: Robert Hetu Title: Director By: /s/ Doreen Welch ------------------------------------- Name: Doreen Welch Title: Associate S-7 APPENDIX A-1 TO CREDIT AND GUARANTY AGREEMENT TERM LOAN COMMITMENTS
PRO LENDER TERM LOAN COMMITMENT RATA SHARE Goldman Sachs Credit Partners L.P. $ 185,000,000.00 90.24% General Electric Capital Corporation $ 20,000,000.00 9.76% TOTAL $ 205,000,000.00 100.00%
APPENDIX A-1-1 APPENDIX A-2 TO CREDIT AND GUARANTY AGREEMENT REVOLVING COMMITMENTS
LENDER REVOLVING COMMITMENT PRO RATA SHARE Goldman Sachs Credit Partners L.P. $10,000,000.00 20.00% General Electric Capital Corporation $20,000,000.00 40.00% JPMorgan Chase Bank $10,000,000.00 20.00% Credit Suisse First Boston, acting through its $10,000,000.00 20.00% Cayman Islands Branch TOTAL $50,000,000.00 100.00%
APPENDIX A-2-1 APPENDIX B TO CREDIT AND GUARANTY AGREEMENT NOTICE ADDRESSES AMSCAN HOLDINGS, INC. 80 Grasslands Road Elmsford, New York 10523 Attention: Jim Harrison Telecopier: 914-345-2056 AMSCAN INC. JCS REALTY CORP. SSY REALTY CORP. TRISAR, INC. AM-SOURCE LLC ANAGRAM INTERNATIONAL HOLDINGS, INC. ANAGRAM INTERNATIONAL, INC. ANAGRAM INTERNATIONAL LLC ANAGRAM EDEN PRAIRIE PROPERTY HOLDINGS LLC M & D INDUSTRIES, INC. 80 Grasslands Road Elmsford, New York 10523 Attention: Jim Harrison Telecopier: 914-345-2056 in each case, with a copy to: Ropes & Gray One International Place Boston, MA 02110-2624 Attention: David C. Chapin Telecopier: 617-951-7050 APPENDIX B-1 GOLDMAN SACHS CREDIT PARTNERS L.P., as Joint Lead Arranger, Joint Bookrunner, Co-Syndication Agent and a Lender Goldman Sachs Credit Partners L.P. 85 Broad Street New York, New York 10004 Attention: Elizabeth Fischer Telecopier: (212) 902-1021 with a copy to: Goldman Sachs Credit Partners L.P. 85 Broad Street New York, New York 10004 Attention: John Makrinos Telecopier: (212) 357-4597 APPENDIX B-2 GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent, Collateral Agent, Swing Line Lender, Issuing Bank and a Lender Administrative Agent's Principal Office: 335 Madison Avenue, 12th Floor New York, NY 10017 Attention: Gina Provenzale Telecopier: 212-309-8783 Swing Line Lender's Principal Office: 335 Madison Avenue, 12th Floor New York, NY 10017 Attention: Gina Provenzale Telecopier: 212-309-8783 Issuing Bank's Principal Office: 335 Madison Avenue, 12th Floor New York, NY 10017 Attention: Gina Provenzale Telecopier: 212-309-8783 in each case, with a copy to: Winston & Strawn 35 W. Wacker Drive Attention: Marie Oldham Telecopier: 312-558-5700 APPENDIX B-3 J.P. MORGAN SECURITIES INC., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent 277 Park Avenue 2nd Floor New York, New York 10172 Attention; John T. Whelan Telecopier: (646) 534-0349 JPMORGAN CHASE BANK, as a Lender 270 Park Avenue 4th Floor New York, New York Attention: Kathryn Duncan Telecopier: (212) 270-6637 APPENDIX B-4 EX-10.2 17 b51510asexv10w2.txt COUNTERPART AGREEMENT, DATED AS OF JULY 16, 2004, OF ANAGRAM INTERNATIONAL, LLC TO THE CREDIT AND GUARANTY AGREEMENT Exhibit 10(2) COUNTERPART AGREEMENT This COUNTERPART AGREEMENT, dated July 16, 2004 (this "COUNTERPART AGREEMENT") is delivered pursuant to that certain Credit and Guaranty Agreement, dated as of April 30, 2004 (as it may be amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among AMSCAN HOLDINGS, INC., ("COMPANY"), AAH HOLDINGS CORPORATION, certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent, J.P. MORGAN SECURITIES INC., as Joint Lead Arranger, Joint Bookrunner and Co-Syndication Agent, and GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent and Collateral Agent. SECTION 1. Pursuant to Section 5.10 of the Credit Agreement, the undersigned hereby: (a) agrees that this Counterpart Agreement may be attached to the Credit Agreement and that by the execution and delivery hereof, the undersigned becomes a Guarantor under the Credit Agreement and agrees to be bound by all of the terms thereof; (b) represents and warrants that each of the representations and warranties set forth in the Credit Agreement and each other Credit Document and applicable to the undersigned is true and correct both before and after giving effect to this Counterpart Agreement, except to the extent that any such representation and warranty relates solely to any earlier date, in which case such representation and warranty is true and correct as of such earlier date; (c) represents and warrants that no event has occurred or is continuing as of the date hereof, or will result from the transactions contemplated hereby on the date hereof, that would constitute an Event of Default or a Default; (d) agrees to irrevocably and unconditionally guaranty the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)) and in accordance with Section 7 of the Credit Agreement; and (e) (i) agrees that this counterpart may be attached to the Pledge and Security Agreement, (ii) agrees that the undersigned will comply with all the terms and conditions of the Security Agreement as if it were an original signatory thereto, (iii) grants to Secured Party (as such term is defined in the Pledge and Security Agreement) a security interest in all of the undersigned's right, title and interest in and to all "Collateral" (as such term is defined in the Pledge and Security Agreement) of the undersigned, in each case whether now or hereafter existing or in which the undersigned now has or hereafter acquires an interest and wherever the same may be located and (iv) delivers to Collateral Agent supplements to all schedules attached to the Pledge and Security Agreement. All such Collateral shall be deemed to be part of the "Collateral" and hereafter subject to each of the terms and conditions of the Pledge and Security Agreement. SECTION 2. The undersigned agrees from time to time, upon request of Administrative Agent, to take such additional actions and to execute and deliver such additional documents and instruments as Administrative Agent may request to effect the transactions contemplated by, and to carry out the intent of, this Agreement. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated, except by an instrument in writing signed by the party (including, if applicable, any party required to evidence its consent to or acceptance of this Agreement) against whom enforcement of such change, waiver, discharge or termination is sought. Any notice or other communication herein required or permitted to be given shall be given pursuant to Section 10.1 of the Credit Agreement, and all for purposes thereof, the notice address of the undersigned shall be the address as set forth on the signature page hereof. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF. IN WITNESS WHEREOF, the undersigned has caused this Counterpart Agreement to be duly executed and delivered by its duly authorized officer as of the date above first written. ANAGRAM INTERNATIONAL, LLC By: /s/ Michael A. Correale ------------------------------ Name: Michael A. Correale Title: Manager Address for Notices: 80 Grasslands Road Elmsford, New York 10523 Attention: Jim Harrison Telecopier: 914-345-2056 with a copy to: Ropes & Gray One International Place Boston, MA 02110-2624 Attention: David C. Chapin Telecopier: 617-951-7050 ACKNOWLEDGED AND ACCEPTED, as of the date above first written: GENERAL ELECTRIC CAPITAL CORPORATION, as Administrative Agent and Collateral Agent By: /s/ Gina Provenzale ------------------------- Name: Gina Provenzale Title: Vice President Duly Authorized Signatory EX-10.3 18 b51510asexv10w3.txt PURCHASE AGREEMENT DATED APRIL 27, 2004 EXHIBIT 10(3) EXECUTION COPY AMSCAN HOLDINGS, INC. 8.75% SENIOR SUBORDINATED NOTES DUE 2014 PURCHASE AGREEMENT April 27, 2004 Goldman, Sachs & Co. Credit Suisse First Boston LLC, As representatives of the several Purchasers named in Schedule I hereto, c/o Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 Ladies and Gentlemen: Amscan Holdings, Inc., a Delaware corporation (the "Company"), proposes, subject to the terms and conditions stated herein, to issue and sell to the Purchasers named in Schedule I hereto (the "Purchasers"), in the respective amounts set forth in Schedule I hereto, an aggregate of $175,000,000 principal amount of the 8.75% Senior Subordinated Notes due 2014, specified above (the "Securities"). The Securities will be unconditionally guaranteed as to the payment of principal, premium and interest (including special interest), if any, (the "Guarantees") by each of the Company's existing domestic subsidiaries (each a "Guarantor" and collectively, the "Guarantors"). Capitalized terms used but not defined herein shall have the meanings assigned to them in the Offering Circular (as defined below) under the heading "Description of Notes." The Securities are being issued and sold in connection with the acquisition of the Company (the "Acquisition") by AAH Holdings Corporation ("AAH Holdings"), pursuant to the Agreement and Plan of Merger by and among AAH Holdings, AAH Acquisition Corporation ("AAH Acquisition") and the Company, dated March 26, 2004 (the "Acquisition Agreement"). The Acquisition is structured as a merger of AAH Acquisition with and into the Company, with the Company surviving as a wholly-owned subsidiary of AAH Holdings, all as provided in "The Transactions" sections of the Offering Circular. The gross proceeds from the sale of the Securities pursuant to this Agreement, together with the proceeds of other financings described in the Offering Circular, will be used to consummate the Acquisition, consummate a debt tender offer to acquire at least a majority of the Company's existing 9.875% Senior Subordinated Notes due 2007 (the "Tender Offer") and pay related fees and expenses. The Acquisition, together with (A) a cash common equity investment by certain investors (the "Equity Investment"), (B) the borrowing by the Company under a new senior secured credit facility to be dated as of or before April 30, 2004, by and among the Company, AAH Holdings and certain of the Company's subsidiaries, as guarantors, Goldman Sachs Credit Partners L.P., J.P. Morgan Securities Inc., General Electric Capital Corporation and certain other lenders (the "Credit Agreement"), (C) the sale of $175,000,000 of the Securities pursuant to this Agreement, and (D) the consummation of the Tender Offer shall collectively be referred to as the "Transactions." The sale of the Securities hereby is conditioned on the contemporaneous consummation of the Acquisition, the Tender Offer and the provision of funds pursuant to the Equity Investment and the Credit Agreement. 1. As of the date hereof, AAH Holdings (excluding the representations and warranties set forth in subsections (f), (g) and (n) (with respect to the Company and the Guarantors) and (e), (h), (i), (j), (k), (l), and (m); provided that the representations and warranties made in subsections (o), (r), (w), (x) and (z) are made only to the best of AAH Holdings' knowledge) and, at the Time of Delivery (as defined below), each of the Company and the Guarantors, jointly and severally, represents and warrants to, and agrees with, each of the Purchasers that: (a) A preliminary offering circular, dated April 16, 2004 (the "Preliminary Offering Circular"), and an offering circular, dated April 27, 2004 (the "Offering Circular"), have been prepared in connection with the offering of the Securities. Any reference to the Preliminary Offering Circular or the Offering Circular, as the case may be, as amended or supplemented, as of any specified date, shall be deemed to include (i) any documents filed with the United States Securities and Exchange Commission (the "Commission") pursuant to Section 13(a), 13(c) or 15(d) of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act") after the date of the Preliminary Offering Circular or the Offering Circular, as the case may be, and prior to such specified date and (ii) any Additional Issuer Information (as defined in Section 5(f) hereof) furnished by the Company prior to the completion of the distribution of the Securities; and all documents filed under the Exchange Act and so deemed to be included in the Preliminary Offering Circular or the Offering Circular, as the case may be, or any amendment or supplement thereto are hereinafter called the "Exchange Act Reports." The Exchange Act Reports, when they were or are filed with the Commission, conformed or will conform in all material respects to the applicable requirements of the Exchange Act and the applicable rules and regulations of the Commission thereunder. The Preliminary Offering Circular or the Offering Circular and any amendments or supplements thereto and the Exchange Act Reports, if any, did not and will not, as of their respective dates, contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a Purchaser through Goldman, Sachs & Co. expressly for use therein; (b) Neither the Company, the Guarantors nor any of their respective subsidiaries has sustained since the date of the latest audited financial statements included in the Offering Circular any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Circular; and, since the respective dates as of which information is given in the Offering Circular, there has not been any change in the capital stock or increase in the long-term debt of the Company, the Guarantors or any of their respective subsidiaries or any material adverse change, or any development involving a prospective material adverse change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company and its subsidiaries, otherwise than as set forth or contemplated in the Offering Circular; 2 (c) The Company, the Guarantors and their respective subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case free and clear of all liens, encumbrances and defects except such as are described in the Offering Circular or such as do not materially adversely affect the value of such property and do not materially interfere with the use made and proposed in the Offering Circular to be made of such property by the Company, the Guarantors and their respective subsidiaries; and any real property and buildings held under lease by the Company, the Guarantors and their respective subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as are not material and do not materially interfere with the use made and proposed in the Offering Circular to be made of such property and buildings by the Company, the Guarantors and their respective subsidiaries; (d) The Company and the Guarantors have each been duly incorporated and are validly existing as corporations, or other entities, in good standing under the laws of their respective jurisdictions of incorporation or organization, with corporate power and authority or power and authority under its organizational documents and the applicable limited liability company statute, as applicable, to own or lease their properties and conduct their business as described in the Offering Circular, and have been duly qualified as foreign corporations for the transaction of business and are in good standing under the laws of each other jurisdiction in which they own or lease properties or conduct any business so as to require such qualification, or are subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each subsidiary of the Company and the Guarantors that is not a Guarantor has been duly incorporated and is validly existing as a corporation, or other entity, in good standing under the laws of its jurisdiction of incorporation or organization, except as would not, individually or in the aggregate, result in a material adverse effect on the current or future business, management, financial position, stockholders' equity or results of operations of the Company, the Guarantors and their respective subsidiaries, taken as a whole (a "Material Adverse Effect"); (e) At the Time of Delivery, the Company will have a capitalization as set forth in the Offering Circular under the caption "Capitalization." All of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and all of the issued shares of capital stock of each subsidiary of the Company and the Guarantors have been duly and validly authorized and issued, are fully paid and non-assessable and (except for directors' qualifying shares and except as otherwise set forth in the Offering Circular) are owned directly or indirectly by the Company or the Guarantors, free and clear of all liens, encumbrances, equities or claims; (f) The offering of the Securities has been duly authorized by AAH Holdings. At the Time of Delivery, the Securities will have been duly authorized by the Company and, when issued and delivered pursuant to this Agreement and the Indenture (as defined below), will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company entitled to the benefits provided by the indenture to be dated as of April 30, 2004 (the "Indenture") among the Company, the Guarantors and The Bank of New York, as Trustee (the "Trustee"), under which they are to be issued, enforceable against the Company in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or 3 affecting creditors' rights and to general equity principles; and the Securities will be in substantially the form previously delivered to you; (g) This Agreement has been duly authorized by AAH Holdings, the Company and each of the Guarantors; (h) The Indenture has been duly authorized by the Company and each of the Guarantors and, when duly executed and delivered by the Company and each of the Guarantors (assuming due authorization, execution and delivery by each of the other parties thereto), the Indenture will constitute a valid and legally binding obligation of the Company and each of the Guarantors, enforceable against the Company and each of the Guarantors in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (i) The Guarantees have been duly authorized by each of the Guarantors and, when issued and delivered pursuant to this Agreement and the Indenture, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of each of the Guarantors, entitled to the benefits provided by the Indenture and enforceable against each of the Guarantors in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (j) The exchange and registration rights agreement to be dated as of April 30, 2004, among the Company, the Guarantors and the Purchasers (the "Registration Rights Agreement") has been duly authorized by the Company and each of the Guarantors and, when duly executed and delivered by the Company and each of the Guarantors (assuming due authorization, execution and delivery by each of the other parties thereto), will constitute a valid and legally binding obligation of the Company and each of the Guarantors, enforceable against the Company and each of the Guarantors in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; provided that no representation is made as to the enforceability of the indemnification and contribution provisions thereof; (k) The series of debt securities of the Company, with terms identical to the Securities, that are registered on a registration statement on Form S-4 (the "Exchange Securities") have been duly authorized for issuance by the Company and, when issued and delivered pursuant to the Indenture, will have been duly executed, authenticated, issued and delivered and will constitute valid and legally binding obligations of the Company, entitled to the benefits provided by the Indenture and enforceable against the Company in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (l) The guarantees of the Company's obligations under the Exchange Securities (the "Exchange Guarantees") to be offered in exchange for the Guarantees in the Exchange Offer have been duly authorized by each of the Guarantors and, when issued and delivered pursuant to the Indenture, will have been duly executed, issued and delivered and will constitute valid and legally binding obligations of each of the Guarantors, entitled to the benefits provided by the Indenture and enforceable against each of the Guarantors in accordance with their terms, subject, as to enforcement, to bankruptcy, insolvency, 4 reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (m) The Credit Agreement has been duly authorized by the Company and each of the Guarantors and, when duly executed and delivered by the Company and each of the Guarantors (assuming due authorization, execution and delivery by each of the other parties thereto), will constitute a valid and legally binding obligation of the Company and each of the Guarantors, enforceable against the Company and each of the Guarantors in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (n) The Acquisition Agreement has been duly authorized, executed and delivered by the Company, AAH Holdings and AAH Acquisition and constitutes a valid and legally binding obligation of the Company, AAH Holdings and AAH Acquisition, enforceable against the Company, AAH Holdings and AAH Acquisition in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; (o) None of the transactions contemplated by this Agreement (including, without limitation, the use of the proceeds from the sale of the Securities) will violate or result in a violation of Section 7 of the Exchange Act, or any regulation promulgated thereunder, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System; (p) Prior to the date hereof, neither the Company, the Guarantors nor any of the affiliates of AAH Holdings has taken any action which is designed to or which has constituted or which might have been expected to cause or result in stabilization or manipulation of the price of any security of the Company or any Guarantor in connection with the offering of the Securities and the Guarantees; (q) The issue and sale of the Securities and the Guarantees, compliance by the Company and the Guarantors with all of the provisions of the Securities, the Guarantees, the Indenture, the Registration Rights Agreement, the Credit Agreement, the equity subscription agreement, to be dated as of or before April 30, 2004 (the "Equity Subscription Agreement"), the Acquisition Agreement and this Agreement and the consummation of the transactions herein and therein contemplated will not (i) conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, (ii) result in any violation of the provisions of the Certificate of Incorporation or By-laws of the Company or any of its subsidiaries, (iii) assuming the accuracy of the representations made by the Purchasers in Section 3 hereof, result in any violation of the provisions of any law or statute or any order, rule or regulation, judgment or decree of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their respective properties or assets, except in the case of (i) and (iii) above, for such conflicts, breaches, violations and defaults as would not reasonably be expected to have a Material Adverse Effect; no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities and the Guarantees or the consummation by the Company and the Guarantors of the transactions contemplated by this Agreement, the Securities, the Guarantees, the Indenture or 5 the Registration Rights Agreement, except for (i) the filing of a registration statement by the Company with the Commission pursuant to the United States Securities Act of 1933, as amended (the "Act") and (ii) such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Purchasers; (r) Neither the Company, the Guarantors nor any of their respective subsidiaries is (i) in violation of its Certificate of Incorporation, By-laws, Certificate of Formation or Limited Liability Company Agreement, as applicable, or (ii) in default in the performance or observance of any obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound, except in the case of (ii) above, for such defaults as would not reasonably be expected to have a Material Adverse Effect ; (s) The statements set forth in the Offering Circular under the caption "Description of Notes," insofar as they purport to constitute a summary of the terms of the Securities, the Guarantees and the Indenture, and under the captions "Material Federal Income Tax Consequences" and "Underwriting," insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair in all material respects; (t) Other than as set forth in the Offering Circular, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property or assets of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate be reasonably expected to have a Material Adverse Effect; and, to the best of the Company's and each Guarantor's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (u) When the Securities and the Guarantees are issued and delivered pursuant to this Agreement, neither the Securities nor the Guarantees will be of the same class (within the meaning of Rule 144A under the Act) as securities which are listed on a national securities exchange registered under Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer quotation system; (v) Neither the Company, the Guarantors nor any of their respective subsidiaries is or after giving effect to the offering and sale of the Securities, will be an "investment company," or an entity "controlled by an investment company," as such terms are defined in the United States Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the "Investment Company Act"); (w) Neither the Company, the Guarantors nor any person acting on its or their behalf (provided that no representation or warranty is made as to actions of the Purchasers) has offered or sold the Securities by means of any general solicitation or general advertising within the meaning of Rule 502(c) under the Act or, with respect to Securities sold outside the United States to non-U.S. persons (as defined in Rule 902 under the Act), by means of any directed selling efforts within the meaning of Rule 902 under the Securities Act and the Company, any affiliate of AAH Holdings and any person acting on its or their behalf has complied with and will implement the "offering restriction" within the meaning of such Rule 902; (x) Within the preceding six months, neither the Company, the Guarantors nor any other person acting on behalf of the Company or any Guarantor has offered or sold to any 6 person any Securities or Guarantees, or any securities of the same or a similar class as the Securities or Guarantees, other than Securities offered or sold to the Purchasers hereunder. The Company will take reasonable precautions designed to insure that any offer or sale, direct or indirect, in the United States or to any U.S. person (as defined in Rule 902 under the Act) of any Securities or any substantially similar security issued by the Company, within six months subsequent to the date on which the distribution of the Securities and the Guarantees has been completed (as notified to the Company by Goldman, Sachs & Co.), is made under restrictions and other circumstances reasonably designed not to affect the status of the offer and sale of the Securities and the Guarantees in the United States and to U.S. persons contemplated by this Agreement as transactions exempt from the registration provisions of the Securities Act; (y) Neither the Company, the Guarantors nor any of their respective affiliates does business with the government of Cuba or with any person or affiliate located in Cuba within the meaning of Section 517.075, Florida Statutes; (z) Ernst & Young LLP who have audited certain financial statements of the Company and its subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder; (aa) The Company maintains and will maintain disclosure controls and procedures (as defined in Rule 13a-14 of the Exchange Act) designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported in accordance with the Exchange Act and the rules and regulations thereunder; and the Company has carried out and will carry out evaluations, under the supervision and with the participation of the Company's management, of the effectiveness of the design and operation of the Company's disclosure controls and procedures in accordance with Rule 13a-15 of the Exchange Act; (bb) Except as described in the Offering Circular, (i) neither the Company, the Guarantors nor any of their respective subsidiaries is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative order, consent, decree or judgment thereof, including any judicial or administrative order, consent, decree or judgment relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (ii) the Company, the Guarantors and each of their respective subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (iii) there are no pending or, to the knowledge of the Company, the Guarantors or any of their respective subsidiaries, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company, the Guarantors or any of their respective subsidiaries and (iv) there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company, the Guarantors or any of 7 their respective subsidiaries relating to Hazardous Materials or Environmental Laws, except, in each case, as would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect; (cc) The Company, the Guarantors and each of their respective subsidiaries own or possess adequate rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses, and have no reason to believe that the conduct of their respective businesses will conflict with, and, except as disclosed in the Preliminary Offering Circular and the Offering Circular, have not received any notice of any claim of conflict with, any such rights of others, except, in each case, as would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect;; (dd) The financial statements, including the notes thereto, included in the Offering Circular comply as to form in all material respects with the applicable accounting requirements of the Act, the Exchange Act, and the rules and regulations of the Commission thereunder, and present fairly in all material respects the financial position of the Company and its consolidated subsidiaries for which financial statements are included in the Offering Circular as of the dates indicated and condition and results of operations for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved except as noted therein; and the other financial and statistical information and data included in the Offering Circular present fairly in all material respects the information included therein and have been prepared on a basis consistent with that of the financial statements included in the Offering Circular and the books and records of the respective entities presented therein except as otherwise provided in the Offering Circular; (ee) No labor disturbance by the employees of the Company, the Guarantors or any of their respective subsidiaries exists or, to the best of AAH Holdings', the Company's or the Guarantors' knowledge, is imminent; except as disclosed in the Offering Circular, neither the Company, the Guarantors, nor any of their respective subsidiaries is party to a collective bargaining agreement; and there are no unfair labor practice complaints pending against the Company, the Guarantors or any of their respective subsidiaries or, to the best of AAH Holdings', the Company's or the Guarantors' knowledge, threatened against any of them, except, in each case, as would not individually or in the aggregate reasonably be expected to have a Material Adverse Effect; (ff) No "prohibited transaction" (as defined in Section 406 of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"), or Section 4975 of the Internal Revenue Code of 1986, as amended from time to time (the "Code")), or "accumulated funding deficiency" (as defined in Section 302 of ERISA) or any of the events set forth in Section 4043(b) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) has occurred with respect to any "employee benefit plan," (as defined in Section 3(3) of ERISA), or any "employee benefit plan" of any entity which is considered one employer with the Company under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate"); each such "employee benefit plan" is in compliance in all material respects with its terms and applicable law, including ERISA and the Code; and the Company or any ERISA Affiliate has not participated in any multiemployer plan (as defined in Section 3(37) of ERISA); the Company or any ERISA Affiliate has not incurred and does not expect to incur any material 8 liability under Title IV of ERISA with respect to the termination of, or withdrawal from any "pension plan" (as defined in Section 3(2) of ERISA) and each "pension plan" for which the Company would have any material liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which could cause the loss of such qualification; and (gg) The Securities, the Guarantees, the Indenture, the Registration Rights Agreement, the Equity Subscription Agreement, the Credit Agreement and the Acquisition Agreement will conform in all material respects to the descriptions thereof in the Offering Circular. 2. Subject to the terms and conditions herein set forth, the Company and the Guarantors agree to issue and the Company agrees to sell to each of the Purchasers, and each of the Purchasers agrees, severally and not jointly, to purchase from the Company, at a purchase price of 97.25% of the principal amount thereof, plus accrued interest, if any, from April 27, 2004 to the Time of Delivery hereunder, the principal amount of Securities (and the Guarantees thereof) set forth opposite the name of such Purchaser in Schedule I hereto. 3. Upon the authorization by you of the release of the Securities and the Guarantees, the several Purchasers propose to offer the Securities and the Guarantees for sale upon the terms and conditions set forth in this Agreement and the Offering Circular and each Purchaser hereby represents and warrants to, and agrees with the Company that: (a) It will offer and sell the Securities only to: (i) persons who it reasonably believes are "qualified institutional buyers" ("QIBs") within the meaning of Rule 144A under the Act in transactions meeting the requirements of Rule 144A or (ii) through its selling agents, outside the United States, to non-U.S. persons in reliance on Regulation S under the Act; (b) It is an Institutional Accredited Investor within the meaning of Rule 501 under the Act; and (c) It will not offer or sell the Securities by any form of general solicitation or general advertising, including but not limited to the methods described in Rule 502(c) under the Act. 4. (a) The Securities to be purchased by each Purchaser hereunder will be represented by one or more definitive global Securities in book-entry form that will be deposited by or on behalf of the Company with The Depository Trust Company ("DTC") or its designated custodian. The Company will deliver the Securities and the Guarantees to Goldman, Sachs & Co., for the account of each Purchaser, against payment by or on behalf of such Purchaser of the purchase price therefor by wire transfer, payable to the order of the Company in Federal (same day) funds, by causing DTC to credit the Securities and the Guarantees to the account of Goldman, Sachs & Co. at DTC. The Company will cause the certificates representing the Securities and the Guarantees to be made available to Goldman, Sachs & Co. for checking at least twenty-four hours prior to the Time of Delivery (as defined below) at the office of DTC or its designated custodian (the "Designated Office"). The time and date of such delivery and payment shall be 9:30 a.m., New York City time, on April 30, 2004 or such other time and date as Goldman, Sachs & Co. and the Company may agree upon in writing. Such time and date are herein called the "Time of Delivery." (b) The documents to be delivered at the Time of Delivery by or on behalf of the parties hereto pursuant to Section 7 hereof, including the cross-receipt for the Securities and any additional documents requested by the Purchasers pursuant to Section 7(h) hereof, will be delivered at such time and date at the offices of Ropes & Gray LLP, 45 Rockefeller Plaza, New York, New York 10111-0087 (the "Closing Location"), and the Securities will be delivered at the Designated Office, all at the 9 Time of Delivery. A meeting will be held at the Closing Location at 3:00 p.m., New York City time, on the New York Business Day next preceding the Time of Delivery, at which meeting the final drafts of the documents to be delivered pursuant to the preceding sentence will be available for review by the parties hereto. For the purposes of this Section 4, "New York Business Day" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. 5. As of the date hereof, AAH Holdings and, at the Time of Delivery, each of the Company and the Guarantors, jointly and severally, agrees with each of the Purchasers: (a) To prepare the Offering Circular in a form approved by you; to make no amendment or any supplement to the Offering Circular which shall be disapproved by you promptly after reasonable notice thereof; and to furnish you with copies thereof; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Securities and the Guarantees for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities and the Guarantees, provided that in connection therewith neither the Company nor any of the Guarantors shall be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Purchasers with three copies of the Offering Circular and each amendment or supplement thereto with the independent accountants' report(s) in the Offering Circular, and any amendment or supplement containing amendments to the financial statements covered by such report(s), signed by the accountants, and additional written and electronic copies thereof in such quantities as you may from time to time reasonably request, and if, at any time prior to the earlier to occur of (i) the completion of the distribution of the Securities by the Purchasers and (ii) the expiration of nine months after the date of the Offering Circular, any event shall have occurred as a result of which the Offering Circular as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such Offering Circular is delivered, not misleading, or, if for any other reason it shall be necessary or desirable during such same period to amend or supplement the Offering Circular, to notify you and upon your request to prepare and furnish without charge to each Purchaser and to any dealer in securities as many written and electronic copies as you may from time to time reasonably request of an amended Offering Circular or a supplement to the Offering Circular which will correct such statement or omission or effect such compliance; (d) For a period of 90 days from the date of the Offering Circular, not to offer, sell, contract to sell, grant any option to purchase, issue any instrument convertible into or exchangeable for, or otherwise transfer or dispose of (or enter into any transaction or device which is designed to, or could be expected to, result in the disposition in the future of), any securities of the Company or any of its subsidiaries that are substantially similar to the Securities or the Guarantees, except (i) in exchange for the Exchange Securities in connection with the Exchange Offer or (ii) with the prior consent of Goldman, Sachs & Co.; (e) Not to be or become, at any time prior to the expiration of two years after the Time of Delivery, an open-end investment company, unit investment trust, closed-end investment 10 company or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act; (f) For so long as any Securities are outstanding, at any time when the Company is not subject to Section 13 or 15(d) of the Exchange Act, for the benefit of holders from time to time of Securities, to furnish at its expense, upon request, to holders of Securities and prospective purchasers of securities information (the "Additional Issuer Information") satisfying the requirements of subsection (d)(4)(i) of Rule 144A under the Act; (g) If requested by you, to use commercially reasonable efforts to cause such Designated Securities to be eligible for the PORTAL trading system of the National Association of Securities Dealers, Inc.; (h) During a period of three years from the date of the Offering Circular, to furnish to you copies of all reports or other communications (financial or other) furnished to holders of the Securities; (i) During the period of two years after the Time of Delivery, the Company will not, and will not permit any of its "affiliates" (as defined in Rule 144 under the Securities Act) to, resell any of the Securities which constitute "restricted securities" under Rule 144 that have been reacquired by any of them; (j) To do and perform all things required to be done and performed under this Agreement, the Securities, the Guarantees, the Indenture and the Registration Rights Agreement prior to and after the Time of Delivery; (k) To comply with all agreements set forth in the representation letters of the Company to DTC relating to the approval of the Securities by DTC for "book entry" transfer; and (l) To use the net proceeds received by it from the sale of the Securities pursuant to this Agreement in the manner specified in the Offering Circular under the caption "Use of Proceeds." 6. Each of the Company and the Guarantors, jointly and severally, covenants and agrees with the several Purchasers that the Company and the Guarantors will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the issue of the Securities and the Guarantees and all other expenses in connection with the preparation, printing and filing of the Preliminary Offering Circular and the Offering Circular and any amendments and supplements thereto and the mailing and delivering of copies thereof to the Purchasers and dealers; (ii) the cost of printing or producing any Agreement among Purchasers, this Agreement, the Indenture, the Registration Rights Agreement, the Blue Sky and legal investment surveys, closing documents (including any compilations thereof) and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (iii) all expenses in connection with the qualification of the Securities, the Exchange Securities, the Guarantees and the Exchange Guarantees for offering and sale under state securities laws as provided in Section 5(b) hereof, including the reasonable fees and disbursements of counsel for the Purchasers in connection with such qualification and in connection with the Blue Sky and legal investment surveys; (iv) any fees charged by securities rating services for rating the Securities and the Exchange Securities; (v) the cost of preparing the Securities and the Guarantees; (vi) the fees and expenses of the Trustee and any agent of the Trustee and the fees and disbursements of counsel for the Trustee in connection with the Indenture and the Securities; (vii) any cost incurred in connection with the designation of the 11 Securities for trading in PORTAL; and (viii) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, and Sections 8 and 11 hereof, the Purchasers will pay all of their own costs and expenses, including the fees of their counsel, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Purchasers hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of AAH Holdings, the Company and the Guarantors herein are, on the date hereof and at the Time of Delivery, true and correct, the condition that AAH Holdings, the Company and the Guarantors shall have performed all of their respective obligations hereunder theretofore to be performed, and the following additional conditions: (a) Latham & Watkins LLP, counsel for the Purchasers, shall have furnished to you such opinion or opinions, dated the Time of Delivery, with respect to such matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (b) Ropes & Gray LLP, counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in the form set forth on Annex I hereto and Gray, Plant, Mooty, Mooty & Bennett, P.A., counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in the form set forth on Annex II hereto (c) On the date of the Offering Circular prior to the execution of this Agreement and also at the Time of Delivery, Ernst & Young LLP shall have furnished to you a letter or letters, dated the respective dates of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex III hereto; (d) (i) Neither the Company, the Guarantors nor any of their respective subsidiaries shall have sustained since the date of the latest audited financial statements included in the Offering Circular any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Circular, and (ii) since the respective dates as of which information is given in the Offering Circular there shall not have been any change in the capital stock or an increase in the long-term debt of the Company, the Guarantors or any of their respective subsidiaries or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, stockholders' equity or results of operations of the Company, the Guarantors and their respective subsidiaries, otherwise than as set forth or contemplated in the Offering Circular, the effect of which, in any such case described in clause (i) or (ii), is in the judgment of the Representatives so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in this Agreement and in the Offering Circular; (e) On or after the date hereof (i) no downgrading shall have occurred in the rating accorded the Company's or the Guarantors' debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act, and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's or the Guarantors' debt securities; (f) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange or 12 the Nasdaq National Market; (ii) a general moratorium on commercial banking activities declared by either Federal or New York State authorities or a material disruption in commercial banking or securities settlement or clearance services in the United States; (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war or (iv) the occurrence of any other calamity or crisis or any change in financial, political or economic conditions in the United States or elsewhere, if the effect of any such event specified in clause (iii) or (iv) in the judgment of the Representatives makes it impracticable or inadvisable to proceed with the offering or the delivery of the Securities on the terms and in the manner contemplated in the Offering Circular; (g) The Securities have been designated for trading on PORTAL; (h) The Company shall have furnished or caused to be furnished to you at the Time of Delivery certificates of officers of the Company and the Guarantors satisfactory to you as to the accuracy of the representations and warranties of the Company and the Guarantors herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsection (d) of this Section and as to such other matters as you may reasonably request; (i) The Company and the Guarantors shall have entered into this Agreement; (j) The Company and the Guarantors shall have executed the Registration Rights Agreement, and the Purchasers shall have received counterparts, conformed as executed, thereof; (k) The Company, the Guarantors and the Trustee shall have executed the Indenture, and the Purchasers shall have received counterparts, conformed as executed, thereof; and (l) The Company and the Guarantors shall have consummated the Transactions on substantially the terms described in the Offering Circular and the Purchasers shall have received a certificate, dated the Time of Delivery, signed on behalf of the Company, in form and substance satisfactory to the Purchasers, confirming that the Transactions were so consummated. 8. (a) As of the date hereof, AAH Holdings and, at the Time of Delivery, each of the Company and the Guarantors, jointly and severally, indemnify and hold harmless each Purchaser against any losses, claims, damages or liabilities, joint or several, to which such Purchaser may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Circular or the Offering Circular, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and will reimburse each Purchaser for any legal or other expenses reasonably incurred by such Purchaser in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that neither the Company nor any of the Guarantors shall be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Circular or the Offering Circular or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by any Purchaser through Goldman, Sachs & Co. expressly for use therein. (b) Each Purchaser will indemnify and hold harmless the Company and the Guarantors against any losses, claims, damages or liabilities to which the Company and the Guarantors may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or 13 actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Circular or the Offering Circular, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Offering Circular or the Offering Circular or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Purchaser through Goldman, Sachs & Co. expressly for use therein; and will reimburse the Company and the Guarantors for any legal or other expenses reasonably incurred by the Company and such Guarantors in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to, or an admission of, fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by AAH Holdings, the Company and the Guarantors on the one hand and the Purchasers on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of AAH Holdings, the Company and the Guarantors on the one hand and the Purchasers on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The 14 relative benefits received by AAH Holdings, the Company and the Guarantors on the one hand and the Purchasers on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by AAH Holdings, the Company and the Guarantors bear to the total underwriting discounts and commissions received by the Purchasers, in each case as set forth in the Offering Circular. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by AAH Holdings, the Company and the Guarantors on the one hand or the Purchasers on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. AAH Holdings, the Company, the Guarantors and the Purchasers agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Purchaser shall be required to contribute any amount in excess of the amount by which the total discounts and commissions received by such Purchaser with respect to the offering of the Securities underwritten by it exceeds the amount of any damages which such Purchaser has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. The Purchasers' obligations in this subsection (d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) The obligations of AAH Holdings, the Company and the Guarantors under this Section 8 shall be in addition to any liability which AAH Holdings, the Company and the Guarantors may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Purchaser within the meaning of the Act; and the obligations of the Purchasers under this Section 8 shall be in addition to any liability which the respective Purchasers may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of AAH Holdings, the Company or any Guarantor and to each person, if any, who controls AAH Holdings, the Company or any Guarantor within the meaning of the Act. 9. (a) If any Purchaser shall default in its obligation to purchase the Securities which it has agreed to purchase hereunder, you may in your discretion arrange for you or another party or other parties to purchase such Securities on the terms contained herein. If within thirty-six hours after such default by any Purchaser you do not arrange for the purchase of such Securities, then the Company shall be entitled to a further period of thirty-six hours within which to procure another party or other parties satisfactory to you to purchase such Securities on such terms. In the event that, within the respective prescribed periods, you notify the Company that you have so arranged for the purchase of such Securities, or the Company notifies you that it has so arranged for the purchase of such Securities, you or the Company shall have the right to postpone the Time of Delivery for a period of not more than seven days, in order to effect whatever changes may thereby be made necessary in the Offering Circular, or in any other documents or arrangements, and the Company agrees to prepare promptly any amendments to the Offering Circular which in your opinion may thereby be made necessary. The term "Purchaser" as used in this Agreement shall include any person substituted under this Section with like effect as if such person had originally been a party to this Agreement with respect to such Securities. 15 (b) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Purchaser or Purchasers by you and the Company as provided in subsection (a) above, the aggregate principal amount of such Securities which remains unpurchased does not exceed one-eleventh of the aggregate principal amount of all the Securities, then the Company shall have the right to require each non-defaulting Purchaser to purchase the principal amount of Securities which such Purchaser agreed to purchase hereunder and, in addition, to require each non-defaulting Purchaser to purchase its pro rata share (based on the principal amount of Securities which such Purchaser agreed to purchase hereunder) of the Securities of such defaulting Purchaser or Purchasers for which such arrangements have not been made; but nothing herein shall relieve a defaulting Purchaser from liability for its default. (c) If, after giving effect to any arrangements for the purchase of the Securities of a defaulting Purchaser or Purchasers by you and the Company as provided in subsection (a) above, the aggregate principal amount of Securities which remains unpurchased exceeds one-eleventh of the aggregate principal amount of all the Securities, or if the Company shall not exercise the right described in subsection (b) above to require non-defaulting Purchasers to purchase Securities of a defaulting Purchaser or Purchasers, then this Agreement shall thereupon terminate, without liability on the part of any non-defaulting Purchaser or the Company, except for the expenses to be borne by the Company and the Purchasers as provided in Section 6 hereof and the indemnity and contribution agreements in Section 8 hereof; but nothing herein shall relieve a defaulting Purchaser from liability for its default. 10. The respective indemnities, agreements, representations, warranties and other statements of the Company, the Guarantors and the several Purchasers, as set forth in this Agreement or made by or on behalf of them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by or on behalf of any Purchaser or any controlling person of any Purchaser, the Company or any Guarantor, or any officer or director or controlling person of the Company or a Guarantor, and shall survive delivery of and payment for the Securities. 11. If this Agreement shall be terminated pursuant to Section 9 hereof, none of AAH Holdings, the Company or any Guarantor shall then be under any liability to any Purchaser except as provided in Sections 6 and 8 hereof; but, if for any other reason, the Securities and the Guarantees are not delivered by or on behalf of the Company as provided herein, the Company and the Guarantors, jointly and severally, will reimburse the Purchasers through you for all out-of-pocket expenses approved in writing by you, including fees and disbursements of counsel, reasonably incurred by the Purchasers in making preparations for the purchase, sale and delivery of the Securities and the Guarantees, but none of AAH Holdings, the Company or the Guarantors shall then be under any further liability to any Purchaser except as provided in Sections 6 and 8 hereof. 12. In all dealings hereunder, you shall act on behalf of each of the Purchasers, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Purchaser made or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the Representatives. All statements, requests, notices and agreements hereunder shall be in writing, and if to the Purchasers shall be delivered or sent by mail, telex or facsimile transmission to you as the Representatives in care of Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention: Registration Department; and if to the Company or any Guarantor shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Offering Circular, Attention: Secretary; provided, however, that any notice to a Purchaser pursuant to Section 16 8(c) hereof shall be delivered or sent by mail, telex or facsimile transmission to such Purchaser at its address set forth in its Purchasers' Questionnaire, or telex constituting such Questionnaire, which address will be supplied to the Company by you upon request. Any such statements, requests, notices or agreements shall take effect upon receipt thereof. 13. This Agreement shall be binding upon, and inure solely to the benefit of, the Purchasers, AAH Holdings, the Company, the Guarantors and, to the extent provided in Sections 8 and 10 hereof, the officers and directors of AAH Holdings, the Company and the Guarantors and each person who controls AAH Holdings, the Company, any Guarantor or any Purchaser, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from any Purchaser shall be deemed a successor or assign by reason merely of such purchase. 14. Time shall be of the essence of this Agreement. 15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 16. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 17. The Company and the Guarantors are authorized, subject to applicable law, to disclose any and all aspects of this potential transaction that are necessary to support any U.S. federal income tax benefits expected to be claimed with respect to such transaction, and all materials of any kind (including tax opinions and other tax analyses) related to those benefits, without the Purchasers imposing any limitation of any kind. 18. AAH Holdings agrees to cause each of the Company and the Guarantors to become a party to this Agreement at the time of the consummation of the Acquisition. All obligations and liabilities of AAH Holdings under this Agreement shall terminate when each of the Company and the Guarantors become party to this Agreement. 17 If the foregoing is in accordance with your understanding, please sign and return to us six counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers, AAH Holdings, the Company and the Guarantors. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, AAH Holdings Corporation By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: President The foregoing Agreement is hereby agreed to and accepted as of the Time of Delivery. Amscan Holdings, Inc. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President Amscan Inc. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President and Treasurer SSY Realty Corp. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer 18 JCS Realty Corp. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer Am-Source, LLC By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer Trisar, Inc. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Assistant Treasurer Anagram International, Inc. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary Anagram International Holdings, Inc. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Vice President, Assistant Treasurer and Secretary Anagram Eden Prairie Property Holdings LLC By: Amscan Holdings, Inc., its Sole Member By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Chief Financial Officer, Secretary and Vice President 19 M&D Industries, Inc. By: /s/ Michael A. Correale ------------------------------------- Name: Michael A. Correale Title: Senior Vice President, Treasurer and Chief Financial Officer Accepted as of the date hereof: Goldman, Sachs & Co. Credit Suisse First Boston LLC By: /s/ Goldman, Sachs & Co. ------------------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Purchasers 20 SCHEDULE I
PRINCIPAL AMOUNT OF SECURITIES TO BE PURCHASER PURCHASED --------- --------- Goldman, Sachs & Co. ....................................................................... $ 87,500,000 Credit Suisse First Boston LLC.............................................................. 87,500,000 Total..................................................................... $175,000,000
21 EX-10.4 19 b51510asexv10w4.txt STOCKHOLDERS AGREEMENT OF AAH HOLDINGS CORPORATION DATED AS OF APRIL 30, 2004 EXHIBIT 10(4) EXECUTION COPY AAH HOLDINGS CORPORATION STOCKHOLDERS AGREEMENT Dated as of April 30, 2004 AAH HOLDINGS CORPORATION STOCKHOLDERS AGREEMENT TABLE OF CONTENTS
Page ARTICLE I. DEFINITIONS............................................................................................... 1 1.1. Certain Matters of Construction................................................................ 1 1.2. Definitions.................................................................................... 1 ARTICLE II. COVENANTS AND CONDITIONS.................................................................................. 11 2.1. Restrictions on Transfers; Involuntary Transfers............................................... 11 2.2. Call by the Company of Management Stockholders' Equity Interests............................... 13 2.3. Management Stockholder Put..................................................................... 15 2.4. Take Along..................................................................................... 17 2.5. Come Along..................................................................................... 19 2.6. Corporate Governance........................................................................... 21 2.7. Rights of Participation........................................................................ 23 2.8. Financial and Business Information............................................................. 24 2.9. Confidentiality................................................................................ 24 2.10. Approval Rights................................................................................ 25 ARTICLE III. REGISTRATION RIGHTS....................................................................................... 25 3.1. General........................................................................................ 25 3.2. Demand Registration Initiated by the Berkshire Stockholders or the WP Stockholders............. 25 3.3. Piggyback Registration; Reduction in Registration.............................................. 26 3.4. Obligations of the Company..................................................................... 27 3.5. Furnish Information............................................................................ 29 3.6. Expenses of Registration....................................................................... 29 3.7. Underwriting Requirements...................................................................... 29 3.8. Indemnification................................................................................ 30 3.9. Registration on Form S-3....................................................................... 33 3.10. Reports Under Securities Exchange Act of 1934.................................................. 33 3.11. No Inconsistent Agreements..................................................................... 33 3.12. Stock Split.................................................................................... 33 3.13. Timing and Other Limitations................................................................... 34 3.14. Lock-up........................................................................................ 34
-i- ARTICLE IV. MISCELLANEOUS............................................................................................. 35 4.1. Appointment of the Management Proxy............................................................ 35 4.2. Remedies....................................................................................... 35 4.3. Entire Agreement; Amendment; Waiver............................................................ 36 4.4. Severability................................................................................... 36 4.5. Notices........................................................................................ 37 4.6. Binding Effect; Assignment..................................................................... 38 4.7. Governing Law.................................................................................. 38 4.8. Termination.................................................................................... 38 4.9. Recapitalizations, Exchanges, Etc.............................................................. 38 4.10. Action Necessary to Effectuate the Agreement................................................... 39 4.11. Purchase for Investment; Legend on Certificate................................................. 39 4.12. Effectiveness of Transfers..................................................................... 39 4.13. Other Stockholders............................................................................. 40 4.14. No Waiver...................................................................................... 40 4.15. Costs and Expenses............................................................................. 40 4.16. Counterpart.................................................................................... 40 4.17. Headings....................................................................................... 40 4.18. Third Party Beneficiaries...................................................................... 40 4.19. Consent to Jurisdiction........................................................................ 40 4.20. WAIVER OF JURY TRIAL........................................................................... 41
-ii- STOCKHOLDERS AGREEMENT This Stockholders Agreement (this "Agreement") is entered into as of the 30th day of April, 2004 by and among (i) AAH Holdings Corporation, a Delaware corporation (together with its successors and permitted assigns, the "Company") and (ii) the Stockholders (as defined below) party hereto. WHEREAS, upon consummation of the transactions contemplated by that certain Agreement and Plan of Merger dated as of March 26, 2004 (the "Merger Agreement") by and among the Company, AAH Acquisition Corporation and Amscan Holdings, Inc., the Berkshire Stockholders (as defined below), the WP Stockholders (as defined below), the Management Stockholders (as defined below) and the Other Stockholders (as defined below) as of the date of such consummation will own the number of shares of Common Stock (as defined below) and options to purchase shares of Common Stock, each as set forth in the books and records of the Company; and WHEREAS, each of the Stockholders desires to enter into this Agreement for the purpose of regulating certain relationships of the Stockholders with regard to the Company and certain restrictions on the Common Stock and other equity securities owned by the Stockholders. NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: DEFINITIONS Certain Matters of Construction. In addition to the definitions referred to or set forth below in this Section 1: The words "hereof," "herein," "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular Section or provision of this Agreement, and reference to a particular Section of this Agreement shall include all subsections thereof; References to Sections and Articles refer to Sections and Articles of this Agreement; Definitions shall be equally applicable to both nouns and verbs and the singular and plural forms of the terms defined; and The masculine, feminine and neuter genders shall each include the other. Definitions. For the purposes of this Agreement, the following terms shall have the following meanings: 1 "1933 Act" shall mean the Securities Act of 1933, as amended, or any successor act. "1934 Act" shall mean the Securities Exchange Act of 1934, as amended, or any successor act. "Acquired Shares" shall have the meaning as set forth in Section 2.2(b)(i). "Adverse Claim" shall have the meaning set forth in Section 8.102 of the applicable Uniform Commercial Code. "Affiliate" shall mean, with respect to any specified Person, any other Person which, directly or indirectly, through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person (for the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise). "Agreement" shall have the meaning set forth in the first paragraph of this Agreement. "Approved Company Sale" shall mean a sale of the Company (by sale of securities, merger, consolidation, sale of substantially all of the assets, or any similar transaction) if (a) it is consummated after the third anniversary date of this Agreement, or (b) it results in the receipt by the WP Stockholders of cash or Marketable Securities (valued at Fair Market Value) having a value of at least equal to 200% of the Investment Price of the Shares held by the WP Stockholders. "Associate" (i) when used to indicate a relationship with any Person shall mean, (a) any corporation or organization of which such Person is an officer or partner or is, directly or indirectly, the beneficial owner of ten percent (10%) or more of any class of equity securities, (b) any trust or other estate in which such Person has a substantial beneficial interest or as to which such Person serves as a trustee or in a similar fiduciary capacity, and (c) any relative of such Person who has the same home as such Person, is a parent, sibling, spouse, in-law, child or grandchild of such Person, or the spouse of any of them, or (ii) when used to indicate a relationship with the Company, shall also mean a director or officer of the Company or any Subsidiary. Neither the Company nor any of its Subsidiaries shall be deemed an Associate of any Stockholder. "Berkshire Representatives" shall have the meaning as set forth in Section 2.6(a). "Berkshire Stockholders" shall mean (i) those Persons listed as the Berkshire Stockholders on the signature pages hereof, and (ii) their Permitted Transferees (other than the Company or the WP Stockholders), as evidenced by an executed counterpart to this Agreement or a joinder to this Agreement, in either case, indicating that such Permitted Transferee will be a Berkshire Stockholder. "Board" or "Board of Directors" shall mean the Board of Directors of the Company as the same shall be constituted from time to time. 2 "Board Determination Procedures" shall mean the procedures by which the Board calculates the Board Participation Determination. Such procedures shall include, but not be limited to, a good faith estimate by the Board of any acceleration of vesting of any Time Options and/or Performance Options upon consummation of the proposed Transfer, the Applicable Percentage (as defined in the Performance Options), the IRR (as defined in the Performance Options) and the number of Shares the prospective transferee will ultimately purchase in the proposed Transfer. "Board Participation Determination" shall mean for each Management Stockholder a good faith estimate of the number of Time Options which will vest upon the consummation of the proposed Transfer and the number of Performance Options which will vest and be earned upon consummation of the proposed Transfer, determined in accordance with the Board Determination Procedures. "Call Event" shall have the meaning as set forth in Section 2.2(a). "Call Group" shall have the meaning as set forth in Section 2.2(a). "Call Notice" shall have the meaning as set forth in Section 2.2(a). "Call Option" shall have the meaning as set forth in Section 2.2(a). "Call Price" shall have the meaning as set forth in Section 2.2(b). "Call Securities" shall mean all of (i) the Shares, (ii) vested Time Options, (iii) Rollover Options, (iv) vested and earned Performance Options and (v) if the Determination Date has not yet occurred, vested and unearned Performance Options, in each case which are owned by the members of the Call Group on the date of a Call Event. "Cause" shall have the meaning as set forth below, except with respect to any Management Stockholder who is employed by the Company or one of its Subsidiaries pursuant to an effective written employment agreement, if any, between the Company and/or one of its Subsidiaries and such Management Stockholder in which there is a definition of "Cause," in which event the definition of "Cause" as set forth in such employment agreement shall be deemed to be the definition of "Cause" herein solely for such Management Stockholder and only for so long as such employment agreement remains effective. In all other events, the term "Cause" shall mean that the Board of Directors has determined in its reasonable judgment, that any one or more of the following has occurred: the Management Stockholder shall have been convicted of, or shall have pleaded guilty or nolo contendere to, any felony or any crime involving dishonesty or moral turpitude; the Management Stockholder shall have breached, any non-competition agreements with the Company and/or its Affiliates; or 3 the Management Stockholder shall have openly disregarded his or her responsibilities to the Company and/or its Affiliates and shall have refused to devote substantial time and energy to the business and affairs of the Company and/or its Affiliates (other than due to Disability or temporary disability which, in the reasonable judgment of the Board of Directors, causes the Management Stockholder to be incapable of devoting such time and energy) within 30 days after written notification by the Board of Directors that, in their good faith judgment, the Management Stockholder has consistently failed to do so. "Change in Control" shall mean (i) any transaction or series of related transactions in which any Person other than the Berkshire Stockholders or the WP Stockholders, shall (A) acquire, whether by purchase, exchange, tender offer, merger, consolidation, recapitalization or otherwise, or (B) otherwise be the owner of (as a result of a redemption of Shares or otherwise), Shares (or shares in a successor corporation by merger, consolidation or otherwise) such that following such transaction or transactions, such Person or group and their respective Affiliates beneficially own fifty percent (50%) or more of the voting power at elections for the board of directors of the Company or any successor corporation, or (ii) the sale or transfer of all or substantially all of the Company's assets and following such sale or transfer, there is a liquidation of the Company. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Come Along Percentage" shall have the meaning set forth in Section 2.5(a). "Common Stock" shall mean the Company's common stock, par value $.01 per share, that the Company may be authorized to issue from time to time, any other securities of the Company into which such Common Stock may hereafter be changed or for which such Common Stock may be exchanged after giving effect to the terms of such change or exchange (by way of reorganization, recapitalization, merger, consolidation or otherwise) and shall also include any common stock of the Company hereafter authorized and any capital stock of the Company of any other class hereafter authorized which is not preferred as to dividends or distribution of assets in liquidation over any other class of capital stock of the Company and which has ordinary voting power for the election of directors of the Company. "Common Stock Equivalents" shall mean all shares of Common Stock (i) owned by, or (ii) issuable upon exercise of Performance Options (solely to the extent such Performance Options, on or prior to the time the determination of Common Stock Equivalents is made, are vested and earned), Time Options (solely to the extent such Time Options, on or prior to the time the determination of Common Stock Equivalents is made, are vested) and Rollover Options, held by, each Stockholder. "Company" shall have the meaning set forth in the first paragraph of this Agreement. "Company Note" shall have the meaning as set forth in Section 2.2(c). "Company Option Period" shall have the meaning as set forth in Section 2.1(c)(ii). 4 "Company Sale" shall mean any transaction or a series of related transactions through which the holders of Common Stock Equivalents and their Affiliates immediately prior to the transaction or series of related transactions shall own less than fifty percent (50%) of all Common Stock Equivalents (including without limitation, all shares issued in respect of any such Common Stock Equivalents by way of stock dividend, stock split or combination of shares) immediately following the transaction or series of related transactions. "Default" shall have the meaning as set forth in Section 2.2(c). "Determination Date" shall have the meaning ascribed it in the relevant Performance Option certificate. "Disability" shall mean permanent disability within the meaning of Section 22(e)(3) of the Code, unless otherwise defined in a separate written employment agreement between the Company and/or one of its Subsidiaries and the person whose disability is in question in which event the definition of "Disability" as set forth in such employment agreement shall be deemed to be the definition of "Disability" herein solely for such person and only for so long as such employment agreement remains effective. "earned" shall mean, when used in connection with Performance Options that such Performance Options have been earned in accordance with the relevant Incentive Plan and the certificates issued pursuant thereto. "Executive Put Event" shall have the meaning as set forth in Section 2.3(c). "Executive Put Notice" shall have the meaning as set forth in Section 2.3(c). "Executive Put Option" shall have the meaning as set forth in Section 2.3(c). "Executive Put Price" shall have the meaning as set forth in Section 2.3(c). "Executive Put Securities" shall mean the number of Rollover Shares and Rollover Options held by the Executive Stockholder (or the Permitted Transferee of the Executive Stockholder) exercising the Executive Stockholder Put pursuant to Section 2.3(c) such that on the date of the Executive Put Event, the value of the Executive Put Securities (valued at Fair Market Value) does not exceed the Put Investment Price for such Executive Stockholder. "Executive Stockholder" shall mean Gerald Rittenberg and/or James Harrison. "Fair Market Value" shall mean: (a) with respect to Shares (other than Marketable Securities), the fair value per share of the applicable Shares as of the applicable date on the basis of a sale of such Shares in an arms length private sale between a willing buyer and a willing seller, neither acting under compulsion. In determining such Fair Market Value, no discount shall be taken for constituting a minority interest or for the illiquidity of such Shares and no upward adjustment or discount shall be taken relating to the fact that the Shares in question are subject to the restrictions and entitled to the 5 rights provided hereunder. Such Fair Market Value shall be determined in good faith by the Board of Directors. (b) with respect to Marketable Securities, the average of the daily average of the high and low sales price of such Marketable Securities for the 10 days preceding the applicable date. "Federal Bankruptcy Code" means Title 11 of the United States Code. "Holder" or "Holders" have the meaning as set forth in Section 3.1. "Incentive Plan" shall mean AAH Holdings Corporation 2004 Equity Incentive Plan. "Investment Price" shall mean with respect to Shares, an amount per Share equal to the price per Share paid (whether through cash or exchange of existing securities, or otherwise) for such Share at the time of initial purchase thereof (subject to appropriate adjustments for stock splits, recapitalizations and the like). "Involuntary Transfer" shall have the meaning as set forth in Section 2.1(c)(vi). "Management Proxy" shall have the meaning as set forth in Section 4.1. "Management Representatives" shall have the meaning as set forth in Section 2.6(a). "Management Stockholders" shall mean (i) those Persons listed as the Management Stockholders on the signature pages hereof and (ii) their Permitted Transferees (other than the Company), as evidenced by an executed counterpart to the Agreement or a joinder to this Agreement, in either case, indicating that such Permitted Transferee will be a Management Stockholder. "Marketable Securities" shall mean stocks and bonds of companies that are immediately and freely tradable on stock exchanges or in over the counter markets or that can otherwise readily be sold for cash. "Merger" shall mean the merger contemplated by the Merger Agreement. "Merger Agreement" shall have the meaning as set forth in the recitals. "Mid-term Applicable Federal Rate" shall mean the mid-term applicable federal rate as defined in Section 1274 of the Code. "New Securities" shall have the meaning as set forth in Section 2.7(b). "Options" shall mean Performance Options, Time Options and Rollover Options. "Other Stockholders" shall mean (i) those Persons listed as the Other Stockholders on the signature pages hereof, (ii) their Permitted Transferees (other than the Company) as evidenced by an executed counterpart to the Agreement or a joinder to this Agreement, in either case, 6 indicating that such Permitted Transferee will be an Other Stockholder and (iii) those Persons described in Section 4.13(iii). "Participating Offeree" shall have the meaning as set forth in Section 2.5(a). "Participation Notice" shall have the meaning as set forth in Section 2.5(a). "Participation Securities" shall have the meaning as set forth in Section 2.5(a). "Performance Options" shall mean, collectively, the options granted to certain Management Stockholders under the Incentive Plan to purchase shares of Common Stock, the number of vested and earned options of which is subject to the attainment of certain targets set forth in the Incentive Plan and the option certificates issued pursuant thereto. "Performance Option Note" shall mean, for purposes of Sections 2.2(b)(iii) and 2.3(a)(iv), a note with a face amount equal to the difference between (i) the Fair Market Value as of the date of such call or put, as the case may be, of the Shares underlying Performance Options which have been called or put, and (ii) the exercise price of such Performance Options. To the extent that the Shares underlying such Performance Options vest and are earned in accordance with their terms, the Performance Option Note will be payable by the Company at the lesser of (x) its face amount, or (y) the difference between (A) the Fair Market Value of the underlying Shares as of the Determination Date and (B) the exercise price of such Performance Options. "Permitted Transfer" shall mean: a Transfer of Shares by any Stockholder who is a natural person to (a) such Stockholder's spouse, children (including legally adopted children and stepchildren), spouses of children, grandchildren, spouses of grandchildren, parents or siblings; (b) a trust for the benefit of the Stockholder and/or any of the Persons described in clause (a); or (c) a corporation, limited partnership or limited liability company whose sole shareholders, partners or members, as the case may be, are the Stockholder and/or any of the Persons described in clause (a) or clause (b); provided, that in any of clauses (a), (b) or (c), the Stockholder transferring such Shares retains exclusive power to exercise all rights under this Agreement. a Transfer of Shares by any Stockholder to the Company (including, without limitation, any pledge of Shares or Options to the Company); a Transfer of Shares by a Stockholder upon death or incapacity to such Stockholder's estate, executors, administrators and personal representatives, and then to such Stockholder's legal representatives, heirs or legatees (whether or not such recipients are a spouse, children, spouses of children, grandchildren, spouses of grandchildren, parents or siblings of such Stockholder); provided, that, in the case of a Management Stockholder whose Shares were subject to the provisions of Section 2.2 immediately prior to such Management Stockholder's death, the Company has not exercised its Call Option with respect to such Shares under Section 2.2; 7 a Transfer of Shares (a) by the Berkshire Stockholders to any Affiliate of Berkshire Partners LLC or any of the employees, partners, members or Affiliates of such Berkshire Stockholder or any such Affiliate, (b) between any Berkshire Stockholders; (c) by the WP Stockholders to any Affiliate of Weston Presidio Service Company LLC or any of the employees, partners, members or Affiliates of such WP Stockholder or any such Affiliate, (d) between any WP Stockholders or (e) between any WP Stockholders and any Berkshire Stockholders; a Transfer of Shares by any Other Stockholder who is not a natural person to any Affiliate of such Other Stockholder; provided, however, that Performance Options, Time Options and Rollover Options may only be transferred in accordance with the terms of the Incentive Plan; and provided, further, that a Permitted Transfer from a Management Stockholder (other than an Executive Stockholder) to any Permitted Transferee must be approved by the Management Proxy; and provided, further, that no Permitted Transfer shall be effective unless and until the transferee of the Shares, Performance Options, Time Options or Rollover Options so transferred complies with Section 4.13 including without limitation, executing and delivering to the Company a counterpart of this Agreement and agreeing to be bound hereunder in the same manner and to the same extent as the Stockholder from whom the Shares, Performance Options, Time Options or Rollover Options were transferred. Except in the case of a Permitted Transfer pursuant to clause (ii) above, from and after the date on which a Permitted Transfer becomes effective, the Permitted Transferee of the Shares, Performance Options, Time Options or Rollover Options so transferred shall have the same rights, and shall be bound by the same obligations, under this Agreement as the transferor of such Shares, Performance Options, Time Options or Rollover Options and shall be deemed for all purposes hereunder (i) a "Berkshire Stockholder" in the case of a Permitted Transfer from a Berkshire Stockholder (other than pursuant to clause (iv)(e) in which case such Permitted Transferee shall be a WP Stockholder), (ii) a "WP Stockholder" in the case of a Permitted Transfer from a WP Stockholder (other than pursuant to clause (iv)(e) in which case such Permitted Transferee shall be a Berkshire Stockholder), (iii) a "Management Stockholder" in the case of a Permitted Transfer from a Management Stockholder or (iv) an "Other Stockholder" in the case of a Permitted Transfer from an Other Stockholder. No Permitted Transfer shall conflict with or result in any violation of a judgment, order, decree, statute, law, ordinance, rule or regulation. "Permitted Transferee" shall mean any Person who shall have acquired and who shall hold Shares, Performance Options, Time Options or Rollover Options pursuant to a Permitted Transfer. "Person" shall mean any individual, partnership, corporation, association, limited liability company, trust, joint venture, unincorporated organization or entity, or any government, governmental department or agency or political subdivision thereof. "Proportionate Share" shall have the meaning as set forth in Section 2.1(c)(iii) "Proprietary Information" shall have the meaning as set forth in Section 2.9. 8 "Public Offering" shall mean the completion of a sale of Common Stock pursuant to a registration statement which has become effective under the 1933 Act (excluding registration statements on Form S-4, S-8 or similar limited purpose forms), in which the Common Stock shall be listed and traded on a national exchange or on the NASDAQ National Market System. "Put Event" shall have the meaning as set forth in Section 2.3(a). "Put Investment Price" shall mean, for each Executive Stockholder, the amount set forth opposite the name of such Executive Stockholder on Exhibit A hereof. "Put Notice" shall have the meaning as set forth in Section 2.3(a). "Put Option" shall have the meaning as set forth in Section 2.3(a). "Put Price" shall have the meaning as set forth in Section 2.3(b). "Put Securities" shall mean all of (i) the Shares, (ii) vested Time Options, (iii) Rollover Options, (iv) vested and earned Performance Options and (v) if the Determination Date has not yet occurred, vested and unearned Performance Options, in each case which are owned by the Management Stockholder on the date of a Put Event. "Qualified Initial Public Offering" shall mean an underwritten initial pubic offering of shares (i) resulting in proceeds to the Company and, if applicable, to any selling Stockholders, of not less than $25 million, (ii) unless otherwise waived by the WP Stockholders, at an offering price which, when multiplied by the number of Shares then held by the WP Stockholders (and their Permitted Transferees) and adding the amount of all cash and/or Marketable Securities therefore received by the WP Stockholders (and their Permitted Transferees), is at least equal to the Investment Price initially paid by the WP Stockholders for their Shares at closing; and (iii) following which the Shares are listed for trading on the New York Stock Exchange or the NASDAQ National Market. "register," "registered" and "registration" shall have the meaning as set forth in Section 3.1. "Registrable Securities" shall mean (i) all shares of Common Stock held by any Stockholder, (ii) all shares of Common Stock issuable upon the exercise of Performance Options, Time Options and Rollover Options, in each case, to the extent exercisable, held by any Stockholder, and (iii) any other common equity securities of the Company issued in exchange for, upon a reclassification of, or in a distribution with respect to, such Common Stock. As to any particular Registrable Securities, such securities shall cease to be Registrable Securities when (a) a registration statement (other than a registration statement on Form S-8) with respect to the sale of such securities shall have become effective under the 1933 Act and such securities shall have been disposed of in accordance with such registration statement, (b) a registration statement on Form S-8 with respect to such securities shall have become effective under the 1933 Act, or (c) such securities shall have been sold under Rule 144 (or any successor provision) under the 1933 Act and such securities may be resold by the Holder thereof without registration under the 1933 Act. 9 "Rollover Options" shall mean, collectively, the vested options retained by certain Management Stockholders under the Incentive Plan, to purchase shares of Common Stock on the terms set forth therein and in the Stock Option Agreements issued pursuant thereto. "Rollover Shares" shall mean, collectively, the Shares received by the Executive Stockholders immediately prior to the consummation of the Merger in exchange for shares of common stock of Amscan Holdings, Inc. "Sale Request" shall have the meaning as set forth in Section 2.4(a). "Schedule" shall refer to the Schedule of Stockholders attached hereto as Exhibit B, as amended from time to time. "SEC" shall mean the United States Securities and Exchange Commission. "Seller" shall have the meaning as set forth in Section 2.4(a). "Shares" shall mean (i) shares of Common Stock held by Stockholders from time to time, or (ii) securities of the Company issued in exchange for, upon reclassification of, or as a distribution in respect of, the foregoing. "Stockholders" shall mean, collectively, the Berkshire Stockholders, the WP Stockholders, the Management Stockholders and the Other Stockholders. "Subsidiary" with respect to any entity (the "parent") shall mean any corporation, company, firm, association or trust of which such parent, at the time in respect of which such term is used, (i) owns directly or indirectly more than fifty percent (50%) of the equity or beneficial interest, on a consolidated basis, or (ii) owns directly or controls with power to vote, directly or indirectly through one or more Subsidiaries, shares of the equity or beneficial interest having the power to elect more than fifty percent (50%) of the directors, trustees, managers or other officials having powers analogous to that of directors of a corporation. Unless otherwise specifically indicated, when used herein the term Subsidiary shall refer to a direct or indirect Subsidiary of the Company. "Take Along Group" shall have the meaning as set forth in Section 2.4(a). "Third Party" shall mean any Person other than the Company. "Time Options" shall mean, collectively, the time vested options, granted to certain Management Stockholders under the Incentive Plan, to purchase shares of Common Stock on the terms set forth therein and in the certificates and agreements issued pursuant thereto. "Transfer" shall mean to transfer, sell, assign, pledge, hypothecate, give, create a security interest in or lien on, place in trust (voting or otherwise), assign or in any other way encumber or dispose of, directly or indirectly and whether or not by operation of law or for value, any Shares, Performance Options, Time Options or Rollover Options. "Transfer Date" shall have the meaning as set forth in Section 2.1(c)(i). 10 "Transferor" shall have the meaning as set forth in Section 2.5(a). "Transferring Stockholder" shall have the meaning as set forth in Section 2.1(c)(i). "Voluntary Termination" shall mean any voluntary termination of employment with the Company or a Subsidiary of the Company by a Management Stockholder, except as otherwise specified in an effective written agreement, if any, between the Company and/or one of its Subsidiaries and such Management Stockholder. The term Voluntary Termination shall not include termination of employment due to death, Disability or retirement in accordance with Company policy. "WP Representatives" shall have the meaning as set forth in Section 2.6(a). "WP Stockholders" shall mean (i) those Persons listed as the WP Stockholders on the signature pages hereof, and (ii) their Permitted Transferees (other than the Company or the Berkshire Stockholders), as evidenced by an executed counterpart to this Agreement or a joinder to this Agreement, in either case, indicating that such Permitted Transferee will be a WP Stockholder. COVENANTS AND CONDITIONS Subject to the provisions of Section 4.8 hereof relating to the termination of certain provisions of this Agreement, the following covenants and conditions shall apply. Restrictions on Transfers; Involuntary Transfers. No Management Stockholder or Other Stockholder may Transfer all or any of the Shares owned by such Management Stockholder or Other Stockholder to any Person other than (i) a Permitted Transferee, (ii) pursuant to Section 2.2, (iii) pursuant to the exercise of the Put Option set forth in Section 2.3, (iv) pursuant to Section 2.4 in accordance with a Sales Request, or (v) pursuant to Section 2.5 as a Participating Offeree. Any attempted Transfer of Shares not permitted by this Section 2.1 shall be null and void, and the Company shall not in any way give effect to such nonpermissible Transfer. Any attempted Transfer of Performance Options, Time Options or Rollover Options not permitted by the Incentive Plan shall be null and void, and the Company shall not in any way give effect to such nonpermissible Transfer. Transferred Shares Subject to Transfer Restrictions. Except for transfers to the Company, any Shares Transferred pursuant to this Section 2.1 shall remain subject to the Transfer restrictions of this Agreement and each intended transferee pursuant to this Section shall execute and deliver to the Company a counterpart of this Agreement, which shall evidence such transferee's agreement that the Shares intended to be transferred shall continue to be subject to this Agreement and that as to such Shares the transferee shall be bound by the restrictions of this Agreement as a Stockholder hereunder. 11 Involuntary Transfers. Any Stockholder who is the subject of an Involuntary Transfer (as defined below) (the "Transferring Stockholder"), shall notify the Company and the other Stockholders in writing within ten (10) days of such Involuntary Transfer (but the failure to give such notice shall not affect the rights of the parties hereunder). For purposes of this Section 2.1(c), the later of receipt of such notice by the Company and the other Stockholders and the date of such Involuntary Transfer shall be the "Transfer Date". For a period of twenty (20) days after the Transfer Date (the "Company Option Period"), the Company may, by notice in writing to the Transferring Stockholder, elect in writing to purchase any or all of the Shares subject to the Involuntary Transfer at the Fair Market Value of such Shares. If the Company does not elect to purchase any of the Shares subject to the Involuntary Transfer, or exercises such right only with respect to a portion of such Shares, then for a period of twenty (20) days commencing on the earlier of (a) the date, if any, that the Transferring Stockholder notifies the other Stockholders in writing that the Company has determined either not to exercise such right of purchase or to exercise such right only with respect to a portion of the Shares subject to the Involuntary Transfer, and (b) the expiration of the Company Option Period, the other Stockholders shall have the right to purchase all or any portion of such Shares subject to the Involuntary Transfer not so elected to be purchased by the Company, at the Fair Market Value of such Shares. The specific number of such Shares subject to the Involuntary Transfer remaining after the Company has exercised its right pursuant to clause (ii) to which each other Stockholder shall be entitled to purchase shall be determined on a pro rata basis in proportion to the respective number of shares of Common Stock owned beneficially by each such Stockholder as of the Transfer Date in relation to the total number of shares of Common Stock owned beneficially by all such Stockholder (for each such Stockholder, its "Proportionate Share"). Each such Stockholder shall also be entitled to indicate a desire to purchase all or a portion of any Shares subject to the Involuntary Transfer remaining after such pro rata allocation. Each such Stockholder shall be allocated the maximum amount of Shares subject to the Involuntary Transfer set forth in such Stockholder's offer to purchase, unless such allocation would result in the allocation of more securities in the aggregate than are available for purchase by the other Stockholders, in which case such Shares subject to the Involuntary Transfer shall be allocated among the Stockholders pro rata in accordance with each such Stockholder's Proportionate Share; provided, however, that if the foregoing results in any Stockholder being allocated more than the maximum amount of Shares subject to the Involuntary Transfer specified in such Stockholder's offer to purchase, such Stockholder will be allocated such maximum amount and the excess will be allocated as provided in this sentence (including this proviso). 12 Any Shares subject to the Involuntary Transfer not accepted pursuant to clauses (ii) and (iii) above shall be Transferred in accordance with the terms and conditions of the Involuntary Transfer. The closing of the purchase and sale of any Shares subject to the Involuntary Transfer hereunder shall be held at the offices of the Company on such dates and times as the parties may agree but in all events within twenty (20) days following termination of the offer period granted to the other Stockholders. For purposes of this Agreement, the term "Involuntary Transfer" shall mean any involuntary sale, transfer, encumbrance or other disposition (other than as a result of the death of the Stockholder) by or in which any Stockholder shall be deprived or divested of any right, title or interest in or to any Shares, including without limitation (I) any levy of execution, transfer in connection with bankruptcy, reorganization, insolvency or similar proceedings, (II) any transfer to a public officer or agency pursuant to any abandoned property or escheat law, or (III) any transfer to the spouse of an individual or change in the record holder made pursuant to divorce proceedings. A Transfer pursuant to Section 2.2 shall not be deemed to be an Involuntary Transfer. Call by the Company of Management Stockholders' Equity Interests. Upon the termination of the employment of any Management Stockholder by the Company or any of its Subsidiaries (a "Call Event") for any reason, the Company or its designee shall have the right to purchase (the "Call Option"), by delivery of a written notice (the "Call Notice") to such terminated Management Stockholder no later than ninety (90) days after the date of such Call Event, and such Management Stockholder and such Management Stockholder's Permitted Transferees (collectively, the "Call Group") shall be required to sell all (but not less than all) of the Call Securities at a price per share (or per option) equal to the Call Price (as defined below) of such Call Securities determined as of the date of repurchase pursuant to the Call Notice. For purposes of this Section 2.2, the term "Call Price" shall mean: With respect to Rollover Shares and other Shares acquired on or after the date hereof (whether by purchase, upon exercise of Options or otherwise (the "Acquired Shares")): in the event of a termination of a Management Stockholder's employment (A) by the Company without Cause, (B) by virtue of death or Disability, (C) upon retirement in accordance with Company policy, or (D) by Voluntary Termination on or after the third anniversary of the date hereof, the Fair Market Value of such Management Stockholder's Rollover Shares and Acquired Shares; in the event of a termination of a Management Stockholder's employment by Voluntary Termination prior to the third anniversary of the date hereof (A) the Fair Market Value of any Rollover 13 Shares and Acquired Shares (including Shares acquired upon the exercise of Rollover Options, but not including Shares acquired upon the exercise of Time Options or Performance Options), or (B) the lower of (x) the Investment Price or (y) the Fair Market Value of any Acquired Shares acquired upon the exercise of Time Options or Performance Options; in the event of a termination of a Management Stockholder's employment by the Company for Cause, the lower of (x) the Investment Price or (y) the Fair Market Value of such Management Stockholder's Rollover Shares and Acquired Shares; With respect to any vested Time Options, vested and earned Performance Options or Rollover Options, the difference between (x) the Call Price for the Shares underlying such Time Options, Performance Options or Rollover Options, as the case may be (calculated as if the Shares underlying such Time Options, Performance Options or Rollover Options, as the case may be, were outstanding and had been called pursuant to this Section 2.2 and therefore calculated in accordance with the procedures set forth in clauses 2.2(b)(i) above) minus (y) the exercise price of such vested Time Options, vested and earned Performance Options or Rollover Options, as the case may be; provided, that such difference shall not be less than zero; with respect to vested Performance Options which have been called pursuant to this Section prior to a Determination Date (so it is not then known how many, if any, of such Performance Options will be earned), the Company will issue, in exchange for such securities, a Performance Option Note to the Management Stockholder. with respect to any unvested Time Options or unvested or unearned Performance Options, such Options shall automatically expire as set forth in the Option Certificates pursuant to which they were granted. The closing of any purchase of Call Securities by the Company pursuant to Section 2.2(a) shall take place at the principal office of the Company no later than 185 days after the Call Event. At such closing, the Company shall deliver to the Call Group consideration in an amount equal to the aggregate Call Price payable in respect of such Call Securities against delivery of (i) original stock certificates and stock powers duly endorsed in favor of the Company representing the Call Securities, and (ii) an executed agreement, in form reasonably satisfactory to the Company, evidencing the cancellation of any Time Options, Rollover Options and Performance Options purchased at such closing. The Company shall pay the Call Price by paying the Call Group in cash and, if applicable, a Performance Option Note, as described in clause (b)(iii) above); provided, however, that in the event that any such cash payment could, in the reasonable judgment of the Board, cause the Company or any Subsidiary to be in violation of applicable law or in default under or otherwise in violation of the terms of any senior secured or other material loan or credit agreement to which the Company or any of its Subsidiaries is a party (a "Default"), the Company shall pay such cash portion of the Call Price by issuing 14 a subordinated promissory note in a principal amount equal to the cash portion of the purchase price (the "Company Note"). The principal of such note will be due and payable in five equal annual installments, the first such installment becoming due and payable on the first anniversary of the issuance of such note, and interest will accrue thereon at a rate equal to the Mid-term Applicable Federal Rate plus three percent (3%) from the date of issuance of the Company Note and will be payable quarterly in arrears. Such Company Note may be prepaid by the Company in whole at any time or in part from time to time without premium or penalty and shall otherwise be in the form acceptable to the Board; provided, however, that if at any time after a Company Note has been issued, the Board determines that prepaying such Company Note in whole would not reasonably be likely to cause a Default, the Company Note shall then be prepaid in full at such time. Notwithstanding anything to the contrary in this Agreement, the Company shall not be obligated to make any cash payment pursuant to this Section 2.2(c) or any cash payment of principal or interest due under a Company Note if such payment would cause a Default. In the event the Company cannot make any cash payment under this Section 2.2(c) or the cash payments of principal and interest due under a Company Note because it is in Default or would be in Default by virtue of such payments, the Company will undertake to make such payments at such time as the Company is no longer in, or would no longer be by virtue of such payments in, Default. Management Stockholder Put. Upon the termination of the employment of any Management Stockholder with the Company or any of its Subsidiaries (a "Put Event") by virtue of death or Disability, then such Management Stockholder (and each Permitted Transferee of such Management Stockholder who has been transferred Shares pursuant to this Agreement from such Management Stockholder) shall have the right to sell (the "Put Option"), by delivery of a written notice (the "Put Notice") to the Company no later than sixty (60) days after the date of such Put Event, and the Company shall be required to purchase all (but not less than all) of the Put Securities at a price per share equal to the Put Price (as defined below) of such Put Securities as of the date the Put Notice is delivered. For purposes of this Section 2.3(a), the term "Put Price" shall mean: with respect to any Shares held by a Management Stockholder or his Permitted Transferees, the Fair Market Value of such Shares; with respect to any vested Time Options, the difference between (x) the Put Price for the Shares underlying such Time Options (calculated as if the Shares underlying such Time Options were outstanding and had been put pursuant to this Section 2.3(a) and therefore calculated in accordance with the procedures set forth in clause (i) above) minus (y) the exercise price of such vested Time Options; provided, that such difference shall not be less than zero; with respect to any vested and earned Performance Options, the difference between (x) the Put Price for the Shares underlying such Performance Options (calculated as if the Shares underlying such Performance Options were outstanding and had been put pursuant to this Section 2.3(a) and therefore 15 calculated in accordance with the procedures set forth in clause (i) above) minus (y) the exercise price of such vested and earned Performance Options; provided, that such difference shall not be less than zero; and with respect to any vested Performance Options which have been put pursuant to this section prior to a Determination Date (so it is not known how many, if any, of such Performance Options will be earned), a Performance Option Note. The closing of any purchase of Put Securities by the Company pursuant to Section 2.3(a) shall take place at the principal office of the Company no later than the 60th day after the Put Event. At such closing, the Company shall deliver to the Management Stockholder (and his Permitted Transferees, as the case may be) exercising the Put Option consideration in an amount equal to the aggregate Put Price payable in respect of such Put Securities against delivery of (i) original stock certificates and stock powers duly endorsed in favor of the Company representing the Put Securities, and (ii) an executed agreement, in form reasonably satisfactory to the Company, evidencing the cancellation of any Options purchased at such Closing. The Company shall pay the Put Price by paying the Management Stockholder (and his or her Permitted Transferees, as the case may be) in cash; provided, however, that in the event that any such cash payment would cause the Company or any Subsidiary to be in Default, the Company shall pay such cash portion of the Put Price by issuing a Company Note. The principal of such Company Note will be due and payable in five equal annual installments, the first such installment becoming due and payable on the first anniversary of the issuance of such note, and interest will accrue thereon at a rate equal to the Mid-term Applicable Federal Rate plus three percent (3%) from the date of issuance of the Company Note and will be payable in quarterly arrears. Such Company Note may be prepaid by the Company in whole at any time or in part from time to time without premium or penalty and shall otherwise be in the form acceptable to the Board; provided, however, that if at any time after a Company Note has been issued, the Board determines that prepaying such Company Note in whole would not reasonably be likely to cause a Default, the Company Note shall then be prepaid in full at such time. Notwithstanding anything to the contrary in this Agreement, the Company shall not be obligated to make any cash payment pursuant to this Section 2.3(b) or any cash payment of principal or interest due under a Company Note if such cash payment would cause a Default. In the event the Company cannot make any cash payment under this Section 2.3(b) or the cash payments of principal and interest due under a Company Note because it is in Default or would be in Default by virtue of such payments, the Company will undertake to make such payment at such time as the Company is not longer in, or would no longer be by virtue of such payments in, Default. Without duplication of clause (a), upon the termination of the employment of either Executive Stockholder with the Company (a "Executive Put Event") by virtue of (i) death or Disability, (ii) by the Company without Cause, or (iii) by virtue of retirement in accordance with Company policy at or after age 62, then such Executive Stockholder (and each Permitted Transferee of such Executive Stockholder who has been transferred Shares pursuant to this Agreement from such Executive Stockholder) shall have the right 16 to sell (the "Executive Put Option"), by delivery of a written notice (the "Executive Put Notice") to the Company no later than sixty (60) days after the date of such Executive Put Event, and the Company shall be required to purchase the Executive Put Securities at a price per share equal to the Executive Put Price (as defined below) of such Executive Put Securities as of the date the Executive Put Notice is delivered. For purposes of this Section 2.3(c), the term "Executive Put Price" shall mean with respect to Rollover Options held by such Executive Stockholder, the difference between (x) the Fair Market Value of the Shares underlying such Rollover Option and (y) the exercise price of such Rollover Option; and with respect to Rollover Shares held by such Executive Stockholder, the Fair Market Value of such Rollover Shares. The closing of any purchase of Executive Put Securities by the Company pursuant to Section 2.3(c) shall take place at the principal office of the Company no later than the 60th day after the Executive Put Event. At such closing, the Company shall deliver to the Executive Stockholder (and his Permitted Transferees, as the case may be) exercising the Executive Put Option consideration in an amount equal to the aggregate Executive Put Price payable in respect of such Executive Put Securities against delivery of (i) original stock certificates and stock powers duly endorsed in favor of the Company representing the Executive Put Securities, and (ii) an executed agreement, in form reasonably satisfactory to the Company, evidencing the cancellation of any Rollover Options purchased at such Closing. The Company shall pay the Executive Put Price by paying the Executive Stockholder (and his or her Permitted Transferees, as the case may be) in cash; provided, however, that in the event that any such cash payment would cause the Company or any Subsidiary to be in Default, the Company shall pay such cash portion of the Executive Put Price by issuing a Company Note. The principal of such Company Note will be due and payable in five equal annual installment, the first such installment becoming due and payable on the first anniversary of the issuance of such note, and interest will accrue thereon at a rate equal to the Mid-term Applicable Federal Rate plus three percent (3%) from the date of issuance of the Company Note and will be payable in quarterly arrears. Such Company Note may be prepaid by the Company in whole at any time or in part from time to time without premium or penalty and shall otherwise be in the form acceptable to the Board; provided, however, that if at any time after a Company Note has been issued, the Board determines that prepaying such Company Note in whole would not reasonably be likely to cause a Default, the Company Note shall then be prepaid in full at such time. Notwithstanding anything to the contrary in this Agreement, the Company shall not be obligated to make any cash payment pursuant to this Section 2.3(d) or any cash payment of principal or interest due under a Company Note if such cash payment would cause a Default. In the event the Company cannot make any cash payment under this Section 2.3(d) or the cash payments of principal and interest due under a Company Note because it is in Default or would be in Default by virtue of such payments, the Company will undertake to make such payment at such time as the Company is not longer in, or would no longer be by virtue of such payments in, Default. Take Along. 17 If at any time, any of the Stockholders constituting more than fifty (50%) of the Common Stock Equivalents, individually or acting as a group (such Stockholders, as applicable, being referred to herein as the "Take Along Group") elect to consummate, or cause the Company to consummate, a Company Sale to a Third Party which is not an Affiliate of any Stockholder included in the Take Along Group, then upon twenty (20) days' written notice by the Take Along Group to each other Stockholder, which notice shall set forth the terms and conditions of such proposed Company Sale, including the name of the prospective transferee, the number of shares of Common Stock and Common Stock Equivalents proposed to be sold by the Take Along Group in the Company Sale, the consideration to be received by the Take Along Group and the proposed time and place of closing (such notice being referred to as the "Sale Request"), each other Stockholder (each, a "Seller"), in the event the Company Sale is consummated, shall be obligated to consummate, consent to and raise no objection to the proposed Company Sale and take all other actions reasonably necessary or desirable to consummate the proposed Company Sale on the terms proposed by the Take Along Group as set forth in the Sale Request. Without limiting the generality of the foregoing, (i) if the Company Sale is structured as a merger, consolidation or similar business transaction, each Seller will vote or cause to be voted all Shares that he holds or with respect to which he has the power to direct the voting and which he is entitled to vote on such proposed Company Sale in favor of such proposed Company Sale and will waive all appraisal and dissenters rights and hereby grants a proxy in favor of the Take Along Group to vote the Seller's Shares in accordance with this Section 2.4(a) and (ii) if the Company Sale is structured as a sale or redemption of Common Stock, each Seller will agree to sell his pro rata portion of Common Stock Equivalents (including his pro rata portion of Time Options, Rollover Options and Performance Options which would become Common Stock Equivalents by reason of the Company Sale) being sold in the Company Sale on the same terms and conditions as the Take Along Group. A Stockholder's pro rata portion, for purposes of this Section 2.4(a), is the product of (i) a fraction, the numerator of which is the number of outstanding Common Stock Equivalents which such Stockholder then owns and the denominator of which is the total number of such Common Stock Equivalents then actually outstanding and (ii) the total number of Common Stock Equivalents being sold in the Company Sale. Each proxy granted above in this Section 2.4(a) is irrevocable, coupled with an interest and shall survive until the expiration of the provisions of this Section 2.4(a). If required, each Seller shall (i) deliver certificates for all of its Shares being Transferred pursuant to this Section 2.4(a) at the closing of the proposed Transfer, free and clear of all claims, liens and encumbrances. The terms and conditions of any sale pursuant to this Section 2.4(a) shall be the same as set forth in the Sale Request; provided, however, that in the case of Performance Options, Time Options and Rollover Options, the holders of such securities shall have the opportunity to either (i) exercise such Performance Options, Time Options and Rollover Options (if such Performance Options, Time Options or Rollover Options are exercisable or would be exercisable upon consummation of the Company Sale) and participate in such sale as holders of Common Stock issuable upon such exercise, or (ii) upon the consummation of the sale, receive in exchange for such Performance Options, Time Options and Rollover Options the amount determined by multiplying (1) the same amount of consideration per share received by the Stockholders for which the Performance Option, Time Option or Rollover Option is exercisable less the exercise price or conversion price per share of such Performance 18 Option, Time Option or Rollover Option by (2) the number of shares of Common Stock represented by such Performance Options, Time Options and Rollover Options. Each Stockholder, whether in his capacity as a Seller, Stockholder, officer or director of the Company, or otherwise, shall take or cause to be taken all commercially reasonable actions in order expeditiously to consummate any Company Sale and any related transactions, including, without limitation, executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments as may be reasonably requested and otherwise cooperating with the Take Along Group and any prospective buyer; provided, however, that Stockholders shall be obligated to become liable in respect of any representations, warranties, covenants, indemnities or otherwise to the Third Party solely to the extent provided in the immediately following sentence. Without limiting the generality of the foregoing, each Stockholder agrees to execute and deliver such agreements as may be reasonably specified by the Take Along Group to which such Take Along Group will also be party, including, without limitation, agreements to (i) (1) make individual representations, warranties, covenants and other agreements as to the unencumbered title to its Shares and the power, authority and legal right to Transfer such Shares and the absence of any Adverse Claim with respect to such Shares and (2) be liable without limitation as to such representations, warranties, covenants (including without limitation, covenants not to compete, as appropriate) and other agreements and (ii) be liable (whether by purchase price adjustment, indemnity payments or otherwise) in respect of representations, warranties, covenants and agreements in respect of the Company and its subsidiaries; provided, however, that the aggregate amount of liability described in this clause (ii) in connection with any Company Sale shall not exceed the lesser of (I) such Stockholder's pro rata portion of any such liability, to be determined in accordance with such Stockholder's portion of the total value for his, her or its Shares included in such Company Sale or (II) the proceeds to such Stockholder in connection with such Company Sale. The provisions of this Section 2.4 shall only apply to the WP Stockholders in the event that either the Company Sale is an Approved Company Sale or the WP Stockholders otherwise consent to such Company Sale. Come Along. No Stockholder may Transfer Shares to a Third Party who is not a Permitted Transferee without complying with the terms and conditions set forth in this Section 2.5. Any Stockholder or group of Stockholders when desiring to Transfer Shares (the "Transferor") shall give not less than fifteen (15) days prior written notice of such intended Transfer to each other Stockholder and the Company. Such notice (the "Participation Notice") shall set forth the terms and conditions of such proposed Transfer, including the name of the prospective transferee, the number of Shares proposed to be transferred (the "Participation Securities") by the Transferor, the percentage of the total number of shares of Common Stock held by the Transferor that the Participation Securities constitutes of such class (the "Come Along Percentage"), the purchase price per share of Common Stock proposed to be paid therefor, the payment terms and type of transfer to be effectuated and the proposed time and place of closing. Within fifteen (15) 19 days following the delivery of the Participation Notice by the Transferor to each other Stockholder and to the Company, each other Stockholder desiring to participate in such proposed Transfer (each, a "Participating Offeree") shall, by notice in writing to the Transferor and to the Company, have the opportunity and right to sell to the purchasers in such proposed Transfer (upon the same terms and conditions as the Transferor) up to that number of shares of Common Stock, as the case may be, subject to the last sentence of Section 2.5(c) below, as shall equal the product of (i) the Come Along Percentage for the Common Stock, as the case may be, and (ii) the number of shares of Common Stock which will be owned by such Participating Offeree as of the proposed date of closing set forth in the Participation Notice without giving effect to the transfer contemplated hereby; provided, however, that for purposes of determining whether Options owned by a Management Stockholder will be vested (in the case of Time Options) or vested and earned (in the case of Performance Options), such determination will be made after giving effect to the transfer contemplated hereby and the Board, in its reasonable judgment, within five (5) business days after the Participation Notice is delivered to the Company, will make a Board Participation Determination for each Management Stockholder and notify such Management Stockholder of such Board Participation Determination. No Management Stockholder may participate in the proposed Transfer with respect to any Options which may vest in the case of Time Options or vest and be earned in the case of Performance Options upon consummation of the Transfer in excess of the Board Participation Determination and notwithstanding the Board Participation Determination, no Management Stockholder may sell or transfer in the proposed Transfer any unvested Time Options or any unvested or unearned Performance Options if such options do not become vested (in the case of Time Options) or vested and earned (in the case of Performance Options) upon consummation of the proposed Transfer. The Transferor shall attempt to obtain inclusion in the proposed Transfer of the entire number of Shares which the Transferor and the Participating Offerees desire to have included in the proposed Transfer. In the event the Transferor shall be unable to obtain the inclusion of such entire number of shares of Common Stock in the proposed Transfer, the number of shares of Common Stock to be sold in the Proposed Transfer by each Participating Offeree and the Transferor shall be determined in accordance with Section 2.5(c) below. The terms and conditions of any sale pursuant to this Section 2.5(a) shall be the same as set forth in the Participation Notice, except as is provided in Section 2.5(c) below and except that the actual date of the closing of any proposed Transfer may change. At the closing of any proposed Transfer in respect of which a Participation Notice has been delivered, the Transferor, together with all Participating Offerees, shall deliver to the proposed transferee certificates evidencing the Shares to be sold thereto duly endorsed with stock powers and shall receive in exchange therefor the consideration to be paid or delivered by the proposed transferee in respect of such Shares as described in the Participation Notice. The acceptance of each Participating Offeree shall be irrevocable except as hereinafter provided, and each such Participating Offeree shall be bound and obligated to sell, on the same terms and conditions specified in the Participation Notice as the Transferor (subject to all of the provisions of this Agreement), such number of Shares as specified in such Participating Offeree's written commitment; provided, however, that in 20 the case of Performance Options, Time Options and Rollover Options (for which the exercise price is less than the price per share of Common Stock being paid in the Transfer), the holders of such securities shall have the opportunity to either (i) exercise such Performance Options, Time Options and Rollover Options (if then exercisable) and participate in such sale as holders of Common Stock issuable upon such exercise or conversion, or (ii) upon the consummation of the sale, receive in exchange for such Options the amount determined by multiplying (1) the same amount of consideration per share of Common Stock received by the other Stockholders less the exercise price per share of such Performance Option, Time Option and Rollover Option by (2) the number of shares of Common Stock of such class represented by such Performance Option, Time Option or Rollover Option. In the event the Transferor shall be unable to obtain the inclusion in the sale of all Shares which the Transferor and each Participating Offeree desires to have included in the sale, the number of Shares to be sold in the sale by the Transferor and each Participating Offeree shall be reduced on a pro rata basis according to the proportion which the number of Shares which each such party desires to have included in the sale bears to the total number of Shares desired by all such parties to have included in the sale. The provisions of this Section 2.5 shall not in any way limit or affect the restrictions placed on the Stockholders by Section 2.1 and shall not apply to (i) any Transfer to the Company or other Stockholders pursuant to Section 2.1, (ii) any Transfer pursuant to Section 2.2, (iii) any Transfer pursuant to Section 2.3, (iv) any Transfer pursuant to Section 2.4 or (v) any Permitted Transfer. Corporate Governance. Board of Directors. At each annual meeting of the Stockholders and at each special meeting of the Stockholders called for the purpose of electing directors of the Company, and at any time at which stockholders of the Company shall have the right to, or shall, vote for directors of the Company, then, and in each event, the Stockholders hereby agree to attend each meeting in person or by proxy and hereby agree to vote stock of the Company and shares of the Company now owned or hereafter acquired by him, her or it (whether at a meeting or by written consent in lieu thereof) (i) to fix the number of members of the Board at up to nine (9) (unless the Board is expanded pursuant to Section 2.6(b) hereto, in which case to fix the number of members of the Board in accordance with Section 2.6(b) hereto), and (ii) to elect and thereafter to continue in office as a director of the Company the following: (a) two (2) directors nominated by the Berkshire Stockholders (who shall initially be Richard Lubin and Robert Small) (collectively the "Berkshire Representatives"); (b) two (2) directors nominated by the WP Stockholders (who shall initially be Michael Cronin and Kevin Hayes) (collectively, the "WP Representatives"); (c) two (2) directors nominated by the Management Stockholders (who shall initially be Gerald Rittenberg and James Harrison) (collectively, the "Management Representatives"), and (d) up to three (3) directors who are not officers or employees of the Company, who shall be nominated by mutual consent of the Berkshire Stockholders (as a group), the WP Stockholders (as a group) and the Management Stockholders (as a group) (the "Outside Representatives"). As to the directors elected to the Board pursuant to this Section 2.6(a) or Section 2.6(b), the following provisions shall 21 apply: (i) no Berkshire Representative may be removed without the consent of a majority in interest of the Berkshire Stockholders, except for cause as determined in good faith by unanimous decision of all directors other than the Berkshire Representatives, (ii) no WP Representative may be removed without the consent of a majority in interest of the WP Stockholders, except for cause as determined in good faith by unanimous decision of all directors other than the WP Representatives, (iii) no Management Representative may be removed without the consent of a majority in interest of the Management Stockholders, except for cause as determined in good faith by unanimous decision of all directors other than the Management Representatives, provided, that in the event of a determination by the Board pursuant to clause (i), (ii) or (iii) of this sentence to remove a director, each Stockholder shall take all action as may be necessary or appropriate, including without limitation, the voting of all Shares owned by such Stockholder, to effect the removal of such director. Any vacancy on the Board shall be filled by the designee of the Stockholders who would be entitled to designate such director pursuant to this Section 2.6(a), Section 2.6(b) or Section 2.6(c), as the case may be, and if there shall be no such designation right, such vacancy may be filled by the remaining directors. Each Stockholder shall, upon receipt of notice identifying such designee, take all action as may be necessary or appropriate, including without limitation, the voting of all Shares owned by such Stockholder, to elect the director so designated. Proportional Representation. Upon a majority vote of the holders of Common Stock, the composition of the directors constituting the Board of Directors shall be changed so that after designating directors in accordance with this Section 2.6(b), each of the Berkshire Stockholders, the WP Stockholders and the Management Stockholders shall have represented on the Board that number of directors (rounded up to the nearest whole number) represented by the percentage equal to (x) the number of shares of Common Stock held by such stockholder group over (y) the total number of shares of Common Stock held by all Stockholders. In the event that the size of the Board of Directors needs to be increased in order to establish the foregoing representation, each Stockholder shall take all action as may be necessary or appropriate, including without limitation, the voting of all Shares owned by such Stockholder, to effect the increase in the size of the Board. Each Stockholder agrees that such Stockholder shall take all action as may be necessary or appropriate, including without limitation, the voting of all Shares owned by them, to elect the directors so designated by the Stockholders as set forth in this Section 2.6(b). Subsidiaries; Committees. Unless the Board unanimously determines otherwise, the board of directors of each Subsidiary of the Company and the audit committee, the compensation committee and all other authorized committees of the Board and of each Subsidiary's board of directors shall be composed so that the representation thereon shall be in the same proportion, as nearly as may be possible (subject to any foreign law requirements, where applicable), as the representation of such directors on the Board; provided, however, that no Management Representative shall sit on the audit committee or the compensation committee. Expenses. In the discretion of the Board, each director may be paid such fees for his services as director and be reimbursed for his reasonable expenses incurred in the 22 performance of his duties as director as the Board from time to time may determine. Nothing contained in this section shall be construed to preclude any director from serving the corporation in any other capacity and receiving reasonable compensation therefor. Rights of Participation. Rights of Participation. The Company hereby grants to each Stockholder so long as it shall own any Shares, the right to purchase up to a pro rata portion of New Securities (as defined in paragraph (b) below) which the Company, from time to time, proposes to sell or issue following the date hereof. A Stockholder's pro rata portion, for purposes of this Section 2.7, is the product of (i) a fraction, the numerator of which is the number of outstanding Shares which such Stockholder then owns (on a fully diluted basis after giving effect to the exercise of all Rollover Options, if any and the conversion of all securities convertible into or exchangeable for Common Stock) and the denominator of which is the total number of such Shares then actually outstanding (on a fully diluted basis after giving effect to the exercise of all Rollover Options, if any and the conversion of all securities convertible into or exchangeable for Common Stock), multiplied by (ii) the number of New Securities the Company proposes to sell or issue. Definition of New Securities. "New Securities" shall mean any Common Stock or other equity securities of the Company whether now authorized or not, any rights, options or warrants to purchase Common Stock or other equity securities and any indebtedness or preferred stock of the Company which is convertible into Common Stock or other equity securities (or which is convertible into a security which is, in turn, convertible into Common Stock or other equity securities); provided, that the term "New Securities" does not include (i) indebtedness of the Company which is not by its terms convertible into Common Stock; (ii) Common Stock issued as a stock dividend to all holders of Common Stock pro rata or upon any subdivision or combination of shares of Common Stock; (iii) Common Stock issued to any employee or director and approved by the Board of Directors and any employee or director stock options approved by the Board of Directors; (iv) Common Stock issued in exchange for the cancellation or retirement of any debt securities of the Company or in connection with any restructuring or other financial workout of the Company; (v) Common Stock or warrants to purchase Common Stock issued to non-Affiliates of the Company as part of a bona fide debt offering of units comprised of such Common Stock or warrants and a debt security of the Company; (vi) Common Stock issued in connection with the acquisition of another corporation or other entity by the Company by merger, purchase of substantially all assets or other reorganization; (vii) the issuance of Common Stock upon the exercise or conversion of any rights, options or warrants to purchase Common Stock; (viii) Common Stock issuable in a Public Offering; or (ix) Common Stock issued in respect of services provided (other than as an employee) to the Company or its subsidiaries and approved by the Board of Directors; and provided, further, that if any "New Securities" include Common Stock and other equity securities coupled as a package, "New Securities" shall mean the package of securities and not each class of securities individually. If and to the extent that either the Berkshire Stockholders or the WP Stockholders have the right to receive New Securities in any transaction contemplated by clauses (iv) or (vi) above, the 23 Company will grant each Stockholder the right to purchase a pro rata portion of such New Securities determined as set forth in Section 2.7(a). Notice from the Company. In the event the Company proposes to issue New Securities, the Company shall give each Stockholder who has a right of participation under this Section 2.7 written notice of such proposal, describing the type of New Securities and the price and the terms upon which the Company proposes to issue the same. For a period of ten (10) business days following the delivery of such notice by the Company, the Company shall be deemed to have irrevocably offered to sell to each Stockholder its pro rata share of such New Securities for the price and upon the terms specified in the notice. Each Stockholder may exercise its rights of participation hereunder by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. Each Stockholder shall also be entitled to indicate a desire to purchase all or a portion of any New Securities remaining after such pro rata allocation. If, as a result of such oversubscription right, such oversubscriptions exceed the total number of New Securities available in respect of such oversubscription right, the oversubscribing Stockholders shall be cut back with respect to their oversubscriptions on a pro rata basis or as they may otherwise agree among themselves. Sale by the Company. In the event that the Stockholders who have a right of participation under this Section 2.7 fail to commit to purchase all of such New Securities within said ten (10) business day period, the Company shall have ninety (90) days thereafter to sell the New Securities with respect to which the right of participation was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice given pursuant to Section 2.7(c). Closing. The closing for any such issuance shall take place as proposed by the Company with respect to the New Securities to be issued, at which closing the Company shall deliver certificates for the New Securities in the respective names of the purchasing Stockholders against receipt of payment therefor. Financial and Business Information. From and after the date hereof, each Stockholder holding more than five percent (5%) of the outstanding Shares shall be entitled to receive from the Company, upon reasonable request, the following information (i) as soon as practicable following the end of each fiscal quarter of the Company, unaudited quarterly financial reports; (ii) as soon as practicable following the end of each fiscal year of the Company, audited annual financial reports; and (iii) when and as approved by the Board of Directors, budgets and business plans of the Company. In addition, the Berkshire Stockholders and the WP Stockholders shall be entitled to receive from the Company, as soon as practicable following the end of each month, unaudited financial results. Confidentiality. Each Stockholder shall maintain the confidentiality of any confidential and proprietary information of the Company ("Proprietary Information") using the same standard of care, but in no event less than reasonable care, as it applies to its own confidential information, except for any Proprietary Information which is publicly available or a matter of public knowledge generally. Nothing herein shall prevent any Stockholder from using Proprietary Information to enforce its rights under this Agreement or from disclosing a 24 summary of Proprietary Information to the partners of such Stockholder as to the performance of the Company. Approval Rights. For so long as (i) the WP Stockholders (and their Permitted Transferees) continue to hold, in the aggregate, at least 20% of the Shares initially acquired by the WP Stockholders upon the closing of the Merger, the Company shall not, without the prior consent of the WP Stockholders (and their Permitted Transferees), or (ii) the Berkshire Stockholders (and their Permitted Transferees) continue to hold, in the aggregate, at least 20% of the Shares initially acquired by the Berkshire Stockholders upon the closing of the Merger, the Company shall not, without the prior consent of the Berkshire Stockholders (and their Permitted Transferees), effect any: public offering other than a Qualified Initial Public Offering; sale of the Company (by sale of securities, merger, consolidation, sale of substantially all of the assets, or any similar transaction) other than an Approved Company Sale; or transaction in which the WP Stockholders and the Berkshire Stockholder are not entitled to be treated on a pro rata basis. REGISTRATION RIGHTS General. For purposes of Article III: (a) the terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the 1933 Act and the declaration or ordering of effectiveness of such registration statement; (b) the term "Holder" means any Stockholder holding Registrable Securities; and (c) the shares of Common Stock issuable upon the exercise of vested Time Options, Rollover Options and vested and earned Performance Options shall be deemed to be outstanding and held by the holders of such vested Time Options, Rollover Options and vested and earned Performance Options. Demand Registration Initiated by the Berkshire Stockholders or the WP Stockholders. Subject to paragraph (b) hereof, on or after the date on which the Company has effected a Public Offering, if the Company shall receive a written request (specifying that it is being made pursuant to this Section 3.2) by or on behalf of either Berkshire Stockholders or the WP Stockholders, holding an aggregate of fifty percent (50%) or more of the Registrable Securities held by the Berkshire Stockholders or the WP Stockholders, that the Company file a registration statement under the 1933 Act, or a similar document pursuant to any other statute then in effect corresponding to the 1933 Act, covering the registration of at least the lesser of (i) $20 million of Registrable Securities (determined based upon the Fair Market Value of such Registrable Securities on the date of request), or (ii) eighty-five percent (85%) of the Registrable Securities then held by the Berkshire Stockholders or the WP Stockholders, as the case may be, then the Company shall promptly notify all other Holders of such request and shall use its best 25 efforts to cause all Registrable Securities that the Holders have requested (within thirty (30) days after such Company notice) be registered, to be registered under the 1933 Act. If the total amount of Registrable Securities that the Holders request to be included in such offering exceeds the amount of securities that the underwriters reasonably believe compatible with the success of the offering, then the Company will include in such registration only the number of securities which, in the opinion of such underwriters, can be sold in accordance with the procedures set forth in Section 3.3(b); The Company shall be obligated to effect for each of the Berkshire Stockholders three (3) registrations of Registrable Securities pursuant to this Section 3.2, and the WP Stockholders two (2) registrations of Registrable Securities pursuant to this Section 3.2; provided, that in the event that, at the request of the underwriters, the amount of Registrable Securities that the Berkshire Stockholders or the WP Stockholders requested to be included in any offering is reduced by more than thirty percent (30%), such offering shall be deemed not to be a registration demanded by the Berkshire Stockholders or the WP Stockholders for purposes of this Section 3.2. Piggyback Registration; Reduction in Registration. If, at any time, the Company determines to register any of its equity securities for its own account under the 1933 Act in connection with a Public Offering of such securities, other than the first Public Offering of its Common Stock, solely for cash on a form that would also permit the registration of any of the Registrable Securities, the Company shall, at each such time, promptly give each Holder written notice of such determination. Upon the written request of any Holder received by the Company within thirty (30) days after the giving of any such notice by the Company, the Company shall use its best efforts to cause to be registered under the 1933 Act all of the Registrable Securities of such Holder that each Holder has requested be registered. If the total amount of Registrable Securities that are to be included by the Company for its own account and at the request of Holders exceeds the amount of securities that the underwriters reasonably believe compatible with the success of the offering, then the Company will include in such registration only the number of securities which in the opinion of such underwriters can be sold, in the following order: first, the equity securities to be registered on behalf of the Company; and then the Registrable Securities requested to be included by the Holders, pro rata, based on the number of Registrable Securities owned by each of them which each of them request be included in such registration; provided, however, that if an underwriter who is not an Affiliate or Associate of any Holder, in good faith requests for the success of the offering, that the number of Registrable Securities to be sold by any Holder be apportioned or excluded, such number of Registrable Securities of such Holder shall be reduced or not included to the extent so requested by said underwriter; 26 provided, however, that if in the first Public Offering of its Common Stock, solely for cash on a form that would also permit the registration of any of the Registrable Securities the Company shall permit any Holder to register its Registrable Securities, then the provisions of this clause (a) shall apply to such Public Offering as if it were not the first Public Offering. If the Company at any time proposes to register any of its equity securities for the account of any Holder pursuant to Section 3.2 or Section 3.9 of this Agreement, under the 1933 Act in connection with the public offering of such securities solely for cash on a form that would also permit the registration of any of the Registrable Securities, the Company shall, at each such time, promptly give each Holder written notice of such determination. Upon the written request of any Holder received by the Company within thirty (30) days after the giving of any such notice by the Company, the Company shall use its best efforts to cause to be registered under the 1933 Act all of the Registrable Securities of such Holder that such Holder has requested be registered. If the total amount of Registrable Securities requested to be included by the requesting Holders under Section 3.2 or 3.9, and at the request of the Company and the other Holders, exceeds the amount of securities that the underwriters reasonably believe compatible with the success of the offering, then the Company will include in such registration only the number of securities which in the opinion of such underwriters can be sold, in the following order: first, the equity securities to be registered on behalf of Stockholders initiating the demand, pro rata, based on the number of Registrable Securities owned by each of them which each of them request be included in such registration; second, the equity securities to be registered on behalf of the Company; and third, the Registrable Securities requested to be included by the other Holders, pro rata, based on the number of Registrable Securities owned by each of them which each of them request be included in such registration; provided, however, that if an underwriter who is not an Affiliate or Associate of any Holder or the Company, in good faith, requests for the success of the underwritten offering that the number of Registrable Securities to be sold by any Holder or the Company be apportioned or excluded, such number of Registrable Securities of such Holder or the Company shall be reduced or not included to the extent so requested by said underwriter. Obligations of the Company. Whenever required under Sections 3.2, 3.3 or 3.9 to use its best efforts to effect the registration of any Registrable Securities, the Company shall: prepare and file with the SEC a registration statement with respect to such Registrable Securities, and use its best efforts to cause such registration statement to become and remain effective; 27 as expeditiously as reasonably possible, prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all securities covered by such registration statement; as expeditiously as reasonably possible, furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with requirements of the 1933 Act, and such other documents they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them; as expeditiously as reasonably possible, use its best efforts to register and qualify the securities covered by such registration statement under the securities or Blue Sky laws of such jurisdictions as shall be reasonably appropriate for the distribution of the securities covered by the registration statement, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such jurisdiction, and further provided that (anything in this Agreement to the contrary notwithstanding with respect to the bearing of expenses) if any jurisdiction in which the securities shall be qualified shall require that expenses incurred in connection with the qualification of the securities in that jurisdiction be borne by selling stockholders, then such expenses shall be payable by selling stockholders pro rata, to the extent required by such jurisdiction; use its best efforts to cause all Registrable Securities covered by such registration statement to be registered with, or approved by, such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Registrable Securities; notify each seller of Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and at the request of any such seller or Holder, promptly prepare and file with the SEC and furnish to such seller or Holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; provided, that, each Holder agrees that it shall not sell any Registrable Securities covered by such a registration statement upon notice from the Company until receipt of notice that such statement or omission has been corrected. otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, an 28 earnings statement covering the period of at least twelve (12) months, but not more than eighteen (18) months, beginning with the first full calendar month after the effective date of such registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the 1933 Act, and will furnish to each seller at least two (2) business days prior to the filing thereof a copy of any amendment or supplement to such registration statement or prospectus and shall not file any amendment or supplement thereof to which any such seller shall have reasonably objected, except to the extent required by law, on the grounds that such amendment or supplement does not comply in all material respects with the requirements of the 1933 Act or of the rules or regulations thereunder; provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such registration statement from and after a date not later than the effective date of such registration statement; and use its best efforts to list all Registrable Securities covered by such registration statement on a securities exchange or the NASDAQ National Market on which any class of Registrable Securities is then listed. Furnish Information. It shall be a condition precedent to the obligations of the Company to take any act pursuant to this Article III that the Holders selling Registrable Securities shall furnish to the Company such information regarding them, the Registrable Securities held by them and the intended method of disposition of such securities as the Company shall reasonably request and as shall be required in connection with the action to be taken by the Company. Expenses of Registration. All expenses incurred in connection with a registration pursuant to Sections 3.2, 3.3 or 3.9 (excluding underwriters' discounts and commissions, which shall be borne by the sellers), including without limitation all registration and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company (which counsel shall be reasonably satisfactory to the holders of a majority of the Registrable Securities then being registered), and the reasonable fees and disbursements of one counsel for the selling Holders (which counsel shall be selected by the Holders which own a majority of the Registrable Securities being sold under the applicable registration) shall be borne by the Company; provided, however, that all such expenses in connection with any amendment or supplement to a registration statement or prospectus filed more than nine (9) months after the effective date of such registration statement because any Holder of Registrable Securities has not effected the disposition of the securities requested to be registered shall be paid by such Holder; provided, further, however, that Holders initiating a demand may withdraw any request made pursuant to Section 3.2, in which event such first withdrawn request shall be deemed for all purposes herein not to have been made. Underwriting Requirements. The Berkshire Stockholders and WP Stockholders will have the right to approve the selection of the lead underwriter for the first Public Offering, which approval will not be unreasonably withheld. 29 Each Holder selling Registrable Securities in any registration pursuant to Sections 3.2 or 3.3 shall, as a condition for inclusion of such Registrable Securities in such underwritten registration, execute and deliver an underwriting agreement acceptable to the Company and consented to by the Berkshire Stockholders or the WP Stockholders, as the case may be, in the case of a registration pursuant to Section 3.2, or acceptable to Holders who own a majority of the Registrable Securities to be included in such registration, in the case of a registration pursuant to Section 3.3, and the underwriters with respect to such registration. Such underwriters shall be selected (i) by the Company and consented to by the Berkshire Stockholders or the WP Stockholders, as the case may be, in the case of a registration pursuant to Section 3.2, or (ii) by a majority in interest of the Registrable Securities to be included in such registration in all other cases and shall be reasonably acceptable to the Company, in the case of a registration pursuant to Section 3.3. Notwithstanding the foregoing, each Holder shall take all action reasonably necessary with respect to executing such underwriting agreement, including being liable in respect of (i) any representations and warranties being made by each selling Holder, and (ii) any indemnification agreements and "lock-up" agreements made by each selling Holder for the benefit of the underwriters in such underwriting agreement; provided, however, that except with respect to individual representations and warranties regarding such matters as legal capacity or due organization of such participating Holder, authority to participate in the Public Offering, compliance by such Holder with laws and agreements applicable to it, ownership (free and clear of liens, charges, encumbrances and adverse claims) of Registrable Securities to be sold by such Holder and accuracy of information with respect to such Holder furnished for inclusion in any disclosure document relating to each Public Offering, the aggregate amount of the liabilities of such participating Holder pursuant to such underwriting agreement shall not exceed either (a) such participating Holder's pro rata portion of any such liability, in accordance with such participating Holder's portion of the total number of Registrable Securities included in the public offering, or (b) the net proceeds received by such participating Holder from the public offering. Indemnification. In the event any Registrable Securities are included in a registration statement under this Article III: To the fullest extent permitted by law, the Company will indemnify and hold harmless each Holder (which term, for purposes of this Section 3.8, shall include each Stockholder, including the Berkshire Stockholders, the WP Stockholders, the Management Stockholders and the Other Stockholders holding Registrable Securities, and shall also include the directors, officers and employees of the Stockholders and their Affiliates) requesting or joining in a registration, any underwriter (as defined in the 1933 Act) for a registration, and each Person, if any, who controls such Holder or such underwriter within the meaning of the 1933 Act, against any and all losses, claims, damages or liabilities, joint or several, to which any such Holder, underwriter or Person may become subject under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based on any untrue or alleged untrue statement of any material fact contained in a registration statement relating to a registration pursuant to this Article III, including any preliminary prospectus or final prospectus contained therein 30 or any amendments or supplements thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or arise out of any violation by the Company of the 1933 Act or any rule or regulation promulgated under the 1933 Act applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, and will reimburse each such Holder, underwriter or control Person for any and all legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that the indemnity agreement contained in this Section 3.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable to anyone for any such loss, claim, damage, liability, action or proceeding to the extent that it arises out of or is based upon an untrue statement or omission made in connection with such registration statement, preliminary prospectus, final prospectus or amendments or supplements thereto in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, underwriter or control Person. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Holder, underwriter or control Person and shall survive the transfer of such securities by such Holder. To the fullest extent permitted by law, each Holder requesting or joining in a registration will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each Person, if any, who controls the Company within the meaning of the 1933 Act, and each agent and any underwriter for the Company and any Person who controls any such agent or underwriter and each other Holder and any Person who controls such Holder (within the meaning of the 1933 Act) against any and all losses, claims, damages or liabilities, joint or several, to which the Company or any such director, officer, control Person, agent, underwriter or other Holder may become subject, under the 1933 Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings, whether commenced or threatened in respect thereto) arise out of or are based upon an untrue statement of any material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, or arise out of or are based upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in such registration statement, preliminary or final prospectus, or amendments or supplements thereto, in reliance upon and in conformity with written information furnished by such Holder (other than information furnished by such Holder on behalf of the Company in his or her capacity as an officer or director of the Company) expressly for use in connection with such registration; and such Holder will reimburse the Company and each such director, officer, control Person, agent, underwriter or other Holder for any and all legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, the indemnity obligation of each such Holder hereunder shall be limited to and shall not 31 exceed the proceeds actually received by such Holder upon a sale of Registrable Securities pursuant to a registration statement hereunder; and provided, further that the indemnity agreement contained in this Section 3.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, action or proceeding if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld). Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Company or any such director, officer, Holder, underwriter or control Person and shall survive the transfer of such securities by such Holder. Any Person seeking indemnification under this Section 3.8 will (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification (but the failure to give such notice will not affect the right to indemnification hereunder, unless and to the extent the indemnifying party is materially prejudiced by such failure) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified and indemnifying parties with respect to such claim, permit such indemnifying party, and other indemnifying parties similarly situated, jointly to assume the defense of such claim with counsel reasonably satisfactory to the parties. In the event that the indemnifying parties cannot mutually agree as to the selection of counsel, each indemnifying party may retain separate counsel to act on its behalf and at its expense. The indemnified party shall in all events be entitled to participate in such defense at its expense through its own counsel. If such defense is not assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the reasonable fees and expenses of such additional counsel. If for any reason the foregoing indemnification is unavailable to any party or insufficient to hold it harmless as and to the extent contemplated by the preceding paragraphs of this Section 3.8, then each indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative benefits received by the applicable indemnifying party, on the one hand, and the applicable indemnified party, as the case may be, on the other hand, and also the relative fault of the applicable indemnifying party and the applicable indemnified party, as the case may be, as well as any other relevant equitable considerations. 32 Registration on Form S-3. After the date on which the Company has effected a Public Offering, if (i) a Holder or Holders request in writing (specifying that such request is being made pursuant to this Section 3.9) that the Company file a registration statement on Form S-3 (or any successor form to Form S-3 regardless of its designation) for a public offering of securities having an aggregate value of not less than $1,000,000 and (ii) the Company is entitled to use such form to register such securities, then the Company shall file a Form S-3 with respect to such securities within ninety (90) days from the date of such request, and shall use its best efforts to cause such registration statement to become effective; provided, that the Company shall not be required to effect such registration more frequently than once every six (6) months. Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders and their Permitted Transferees the benefits of Rule 144 promulgated under the 1933 Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration, the Company agrees to use its best efforts to: make and keep public information available, as those terms are understood and defined in Rule 144, at all times subsequent to ninety (90) days after the effective date of the first registration statement covering a Public Offering filed by the Company; file with the SEC in a timely manner all reports and other documents required of the Company under the 1933 Act and the 1934 Act; and furnish to any Holder forthwith upon request a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of said first registration statement filed by the Company), and of the 1933 Act and the 1934 Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed by the Company as may be reasonably requested in availing any Holder of any rule or regulation of the SEC permitting the selling of any such securities without registration. No Inconsistent Agreements. The Company represents and warrants that it has not entered into, and covenants that it will not hereafter enter into, any agreement with respect to the registration of its securities that is inconsistent with the rights granted to the Holders of Registrable Securities in this Agreement without the prior written consent of a majority in interest of the Holders. Stock Split. If, on or after the receipt by the Company of a request for registration of a public offering pursuant to Section 3.2, the proposed managing underwriter or underwriters of such offering reasonably believes that the number of shares to be registered is less than the minimum number necessary for the success of such offering, the Company will promptly prepare and submit to its Board of Directors, use its best efforts to cause to be adopted by its Board of Directors and stockholders, and, if so adopted, file and cause to become effective, an amendment to its certificate of incorporation so as to cause each share of its outstanding Common Stock to be converted into such number of shares of such Common Stock so that the 33 number of shares of Registrable Securities to be registered is equal to the minimum number which such managing underwriter or underwriters reasonably believes is necessary for the success of such offering. Each Stockholder, together with his or its Permitted Transferees, hereby agrees to vote the shares of the Company's Common Stock held by him or it in favor of adopting such amendment. Timing and Other Limitations. No request shall be made with respect to any registration pursuant to Section 3.2 within one hundred twenty (120) days immediately following the effective date of any registration statement filed pursuant to this Article III. If the Company shall furnish to the Holders of Registrable Securities requesting a registration pursuant to Section 3.2 a certificate signed by a majority of the Board of Directors stating that in the good faith judgment of the Board of Directors, it would be seriously detrimental to the Company or its stockholders for such registration statement to be filed on or before the date filing would be required and it is therefore advisable to defer the filing of such registration statement, then the Company shall have the right to defer the filing of the registration statement for a period of not more than one hundred twenty (120) days and the request pursuant to Section 3.2 then made shall not be counted for purposes of determining the number of registrations pursuant to Section 3.2; provided, however, that the Company may not utilize such right more than once in any twelve-month period. Lock-up. In connection with the first Public Offering of Shares, no holder of Shares shall Transfer any Shares for a period beginning seven (7) days immediately preceding the date upon which the Company in good faith believes that the relevant registration statement shall become effective, and ending on the one hundred eightieth (180th) day (or, at the discretion of the underwriter, such lesser period) following the effectiveness of such registration statement with respect to such Public Offering without the prior written consent of the underwriters managing the offering, and at the request of the underwriter, each holder of Shares shall enter into an agreement to such effect with the underwriter; provided, however, that the provisions of this Section 3.14 shall not prohibit any Permitted Transfers, provided that the Permitted Transferee agrees to be bound by the terms of this Agreement, including this Section 3.14. In connection with a Public Offering initiated pursuant to Section 3.2 hereof, at the request of the initiating Stockholder, no holder of Shares shall Transfer any Shares without the prior written consent of the underwriters managing the offering. The request made by the initiating Stockholder pursuant to this clause (b) shall not be made within sixty (60) days of the expiration of any other contractual lock-up period (which 60 day period shall be increased by the number of days the Company's insider trading window has been closed during such 60-day period) and shall expire ninety (90) days (or such shorter period to which the underwriter shall agree) following the effectiveness of the registration statement with respect to such public offering. At the request of the 34 underwriter, such holder of Shares shall enter into an agreement with the underwriter to the effect of the foregoing. The provisions of this Section 3.14(b) shall not be applicable to Permitted Transferees of any Holder who are shareholders, partners or members, respectively, of such Holder, who in each case, received Shares after the initial Public Offering and not otherwise during any lock-up period, (ii) any Holder more than once during any calendar year, (iii) any Holder (other than the Company's directors and officers ) that is not provided the opportunity to include Shares in such Public Offering on a pro rata basis with all holders according to the total amount of Registrable Securities then owned by such holder, and (iv) any Holder who holds less than 5% of the Company's outstanding common stock, other than the Company's directors and officers. MISCELLANEOUS Appointment of the Management Proxy. Each of the Management Stockholders (other than any Executive Stockholder) hereby appoints James Harrison (the "Management Proxy") as the agent, proxy, and attorney-in-fact for the Management Stockholders (including, without limitation, full power and authority to act on the Management Stockholders' behalf) to take any action, should the Management Proxy elect to do so in his sole discretion: (i) to vote on all matters to be voted on under this Agreement, (ii) to receive all notices on behalf of each Management Stockholder, (iii) to execute and deliver on behalf of the Management Stockholders any amendment to this Agreement so long as such amendments shall apply to all Management Stockholders and (iv) to take all other actions to be taken by or on behalf of the Management Stockholders as a group and exercise any and all rights which the Management Stockholders are permitted or required to do or exercise under this Agreement other than exercise any rights with respect to investment decisions set forth in Sections 2.1(c), 2.3, 2.5, 2.7 or 3.3 hereof. Each of the Management Stockholders hereby agrees not to assert any claim against, and agrees to indemnify and hold harmless, the Management Proxy from and against any and all losses incurred by the Management Proxy or any of his Affiliates, partners, employees, agents, investment bankers or representatives, or any Affiliate of any of the foregoing, relating to the Management Proxy's capacity as the Management Proxy other than such claims or losses resulting from the Management Proxy's gross negligence or willful misconduct. By execution hereof, James Harrison hereby agrees to act as Management Proxy until such time as a new Management Proxy is elected by the majority in interest of the Management Stockholders. Remedies. The parties to this Agreement acknowledge and agree that the covenants of the Company and the Stockholders set forth in this Agreement may be enforced in equity by a decree requiring specific performance. In the event of a breach of any material provision of this Agreement, the aggrieved party will be entitled to institute and prosecute a proceeding to enforce specific performance of such provision, as well as to obtain damages for breach of this Agreement. Without limiting the foregoing, if any dispute arises concerning the Transfer of any of the Shares subject to this Agreement or concerning any other provisions hereof or the obligations of the parties hereunder, the parties to this Agreement agree that an injunction may be issued in connection therewith (including, without limitation, restraining the Transfer of 35 such Shares or rescinding any such Transfer). Such remedies shall be cumulative and non-exclusive and shall be in addition to any other rights and remedies the parties may have under this Agreement or otherwise. Entire Agreement; Amendment; Waiver. This Agreement, together with the Schedule hereto, sets forth the entire understanding of the parties, and as of the closing contemplated by the Merger Agreement supersedes all prior agreements and all other arrangements and communications, whether oral or written, with respect to the subject matter hereof. The Schedule may be amended to reflect changes in the composition of the Stockholders as a result of Permitted Transfers or Transfers permitted under Article II. Amendments to the Schedule reflecting Permitted Transfers or Transfers permitted under Article II shall become effective when a copy of the Agreement as executed by any new transferee is filed with the Company, except as otherwise provided in Section 4.13. Any other amendments to, or the termination of, this Agreement shall require the prior written consent of a majority of the Stockholders; provided, that (a) any such amendment which would have an adverse effect on the Berkshire Stockholders, if such adverse effect would be borne solely by the Berkshire Stockholders or would be borne disproportionately by the Berkshire Stockholders relative to the other Stockholders, shall require the written consent of the Berkshire Stockholders holding a majority of the Shares held by the Berkshire Stockholders, (b) any such amendment which would have an adverse effect on the WP Stockholders, if such adverse effect would be borne solely by the WP Stockholders or would be borne disproportionately by the WP Stockholders relative to the Berkshire Stockholders, shall require the written consent of WP Stockholders holding a majority of the Shares held by the WP Stockholders, (c) any such amendment which would have an adverse effect on the Management Stockholders, if such adverse effect would be borne solely by the Management Stockholders or would be borne disproportionately by the Management Stockholders relative to the Berkshire Stockholders, shall require the written consent of Management Stockholders holding a majority of the Shares held by the Management Stockholders, and (d) any such amendment which would have an adverse effect on the Other Stockholders, if such adverse effect would be borne solely by the Other Stockholders or would be borne disproportionately by the Other Stockholders relative to the Berkshire Stockholders, shall require the written consent of Other Stockholders holding a majority of the Shares held by the Other Stockholders. Without the consent of the Management Stockholders holding a majority of the Shares held by the Management Stockholders, no amendment may be made to Section 2.2. Without the consent of each Executive Stockholder, no amendment may be made to Section 2.3. Without the consent of the Berkshire Stockholders and the WP Stockholders, no amendment may be made to Section 2.10 and 3.2. Notwithstanding any provisions to the contrary contained herein, any party may waive any rights with respect to which such party is entitled to benefits under this Agreement. No waiver of or consent to any departure from any provision of this Agreement shall be effective unless signed in writing by the party entitled to the benefit thereof. Severability. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, the invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if the invalid or unenforceable provision were omitted. Notwithstanding the foregoing, if such provision could 36 be more narrowly drawn so as not to be invalid or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so more narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered in the manner specified herein or, in the absence of such specification, shall be deemed to have been duly given seven (7) days after mailing by certified mail, when delivered by hand, upon confirmation of receipt by telecopy, or one (1) business day after sending by overnight delivery service, to the respective addresses of the parties set forth below: For notices and communications to the Company to: AAH Holdings Corporation c/o Berkshire Partners LLC One Boston Place Boston, MA 02108 Attention: Mr. Robert J. Small Facsimile: (617) 227-6105 with a copy to: Ropes & Gray One International Place Boston, MA 02110 Attention: David C. Chapin, Esq. Facsimile: (617) 951-7050 for notices and communications to the Berkshire Stockholders, to their respective addresses set forth in the Schedule, with a copy to: Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: David C. Chapin, Esq. Facsimile: (617) 951-7050 for notices and communications to the WP Stockholders, to their respective address set forth in the Schedule, with a copy to: Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: David C. Chapin, Esq. Facsimile: (617) 951-7050 37 for notices and communications to any Management Stockholders, to their respective addresses set forth in the Schedule, with a copy to: AAH Holdings Corporation c/o Berkshire Partners LLC One Boston Place Boston, MA 02108 Attention: Mr. Robert J. Small Facsimile: (617) 227-6105 for notices and communications to any Other Stockholders, to their respective addresses set forth in the Schedule. By notice complying with the foregoing provisions of this Section 4.5, each party shall have the right to change the mailing address for future notices and communications to such party. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective transferees, successors and assigns; provided, however, that no right or obligation under this Agreement may be assigned except as expressly provided herein, it being understood that the Company's rights hereunder may be assigned by the Company to any corporation which is the surviving entity in a merger, consolidation or like event involving the Company. No such assignment shall relieve an assignor of its obligations hereunder. Governing Law. This Agreement shall be governed by the law of the State of New York (regardless of the laws that might otherwise govern under applicable New York principles of conflicts of law) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. Termination. Without affecting any other provision of this Agreement requiring termination of any rights in favor of any Stockholder or any transferee of Shares, the provisions of Article II shall terminate as to such Stockholder or transferee, when, pursuant to and in accordance with this Agreement, such Stockholder or transferee, as the case may be, no longer owns any Shares (including Rollover Shares or Acquired Shares), Performance Options, Rollover Options or Time Options; provided, that termination pursuant to this Section 4.8. shall only occur in respect of a Stockholder after all Permitted Transferees in respect thereof also no longer own any Shares. Notwithstanding the foregoing, Article II shall terminate upon the earlier of a Change in Control or the consummation of a Public Offering; provided, that the Company shall be obligated to consummate the purchase of any vested Time Options, Rollover Options and vested and earned Performance Options which have been called pursuant to Section 2.2, or put pursuant to Section 2.3, prior to such termination, but have not otherwise been paid for as of such date. Recapitalizations, Exchanges, Etc. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to Shares, to any and all shares of capital stock of the Company or any successor or assign of the Company (whether by merger, consolidation, sale 38 of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution of the Shares, by reason of a stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Action Necessary to Effectuate the Agreement. The parties hereto agree to take or cause to be taken all such corporate and other action as may be necessary to effect the intent and purposes of this Agreement. Purchase for Investment; Legend on Certificate. Each of the parties acknowledges that all of the Shares held by such party are being (or have been) acquired for investment and not with a view to the distribution thereof and that no transfer, hypothecation or assignment of Shares may be made except in compliance with applicable federal and state securities laws. All the certificates of Shares which are now or hereafter owned by the Stockholders and which are subject to the terms of this Agreement shall have endorsed in writing, stamped or printed, thereon the following legend: "The securities represented by this Certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, pledged or hypothecated in the absence of an effective registration statement as to the securities under said Act or an opinion of counsel satisfactory to the Company and its counsel that such registration is not required." "The securities represented by this Certificate are subject to the terms and conditions, including certain restrictions on transfer, of a Stockholders Agreement dated as of April 30, 2004, as amended from time to time, and none of such securities, or any interest therein, shall be transferred, pledged, encumbered or otherwise disposed of except as provided in that Agreement. A copy of the Stockholders Agreement is on file with the Clerk of the Company and will be mailed to any properly interested person without charge within five (5) business days after receipt of a written request." All shares shall also bear all legends required by federal and state securities laws. Effectiveness of Transfers. All Shares transferred by a Stockholder (other than pursuant to an effective registration statement under the 1933 Act or pursuant to a Rule 144 transaction) shall, except as otherwise expressly stated herein, be held by the transferee thereof subject to this Agreement. Such transferee shall, except as otherwise expressly stated herein, have all the rights and be subject to all of the obligations of a Stockholder under this Agreement (as though such party had so agreed pursuant to Section 4.13) automatically and without requiring any further act by such transferee or by any parties to this Agreement. Without affecting the preceding sentence, if such transferee is not a Stockholder on the date of such transfer, then such transferee, as a condition to such transfer, shall confirm such transferee's obligations hereunder in accordance with Section 4.13. No Shares shall be transferred on the Company's books and records, and no transfer of Shares shall be otherwise 39 effective, unless any such transfer is made in accordance with the terms and conditions of this Agreement, and the Company is hereby authorized by all of the Stockholders to enter appropriate stop transfer notations on its transfer records to give effect to this Agreement. Other Stockholders. Subject to the restrictions on transfers of Shares contained herein, any Person who is not already a Stockholder acquiring Shares, shall, on or before the transfer or issuance to it of Shares, sign a counterpart or joinder to this Agreement in form reasonably satisfactory to the Company and shall thereby become a party to this Agreement to be bound hereunder as (i) a Berkshire Stockholder if a transferee (other than the Company or a WP Stockholder) of a Berkshire Stockholder, (ii) a WP Stockholder if a transferee (other than the Company or a Berkshire Stockholder) of a WP Stockholder, (iii) a Management Stockholder if a transferee (other than the Company) of a Management Stockholder or (iv) an Other Stockholder if such transferee (other than the Company, a Berkshire Stockholder or a WP Stockholder) does not fall within clause (i), (ii) or (iii) above. Each such additional Stockholder shall be listed on the Schedule, as amended from time to time. No Waiver. No course of dealing and no delay on the part of any party hereto in exercising any right, power or remedy conferred by this Agreement shall operate as waiver thereof or otherwise prejudice such party's rights, powers and remedies. No single or partial exercise of any rights, powers or remedies conferred by this Agreement shall preclude any other or further exercise thereof or the exercise of any other right, power or remedy. Costs and Expenses. Each party shall pay its own costs and expenses incurred in connection with this Agreement, and any and all other documents furnished pursuant hereto or in connection herewith. Counterpart. This Agreement may be executed in two or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. Headings. All headings and captions in this Agreement are for purposes of reference only and shall not be construed to limit or affect the substance of this Agreement. Third Party Beneficiaries. Nothing in this Agreement is intended or shall be construed to entitle any Person other than the Company and the Stockholders to any claim, cause of action, right or remedy of any kind. Consent to Jurisdiction. The Company and each of the Stockholders, by its, his or her execution hereof, (i) hereby irrevocably submit to the exclusive jurisdiction of the federal courts in the State of New York for the purposes of any claim or action arising out of or based upon this Agreement or relating to the subject matter hereof, (ii) hereby waive, to the extent not prohibited by applicable law, and agree not to assert by way of motion, as a defense or otherwise, in any such claim or action, any claim that it or he is not subject personally to the jurisdiction of the above-named courts, that its, his or her property is exempt or immune from attachment or execution, that any such proceeding brought in the above-named court is improper or that this Agreement or the subject matter hereof may not be enforced in or by such court and (iii) hereby agree not to commence any claim or action arising out of or based upon 40 this Agreement or relating to the subject matter hereof other than before the above-named courts nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such claim or action to any court other than the above-named courts whether on the grounds of inconvenient forum or otherwise. The Company and each of the Stockholders hereby consent to service of process in any such proceeding, and agree that service of process by registered or certified mail, return receipt requested, at its address specified pursuant to Section 4.5 is reasonably calculated to give actual notice. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING. EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES HERETO THAT THIS SECTION 4.20 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 4.20 WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. [The rest of this page has intentionally been left blank] 41 IN WITNESS WHEREOF, each of the stockholders of AAH Holdings Corporation has duly executed this Stockholders Agreement (or caused this Stockholders Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) as of the date first above written. THE COMPANY: AAH HOLDINGS CORPORATION By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: President BERKSHIRE STOCKHOLDERS: BERKSHIRE FUND V INVESTMENT CORP. By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: Vice President BERKSHIRE FUND VI INVESTMENT CORP. By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: Vice President Berkshire Investors LLC By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: Managing Director WP STOCKHOLDERS: WESTON PRESIDIO CAPITAL IV, L.P. By: Weston Presidio Capital Management IV, LLC, its general partner By: /s/ Kevin M. Hayes ------------------------------------- Name: Kevin M. Hayes Title: Member WPC ENTREPRENEUR FUND II, L.P. By: Weston Presidio Capital Management IV, LLC, its general partner By: /s/ Kevin M. Hayes ------------------------------------- Name: Kevin M. Hayes Title: Member OTHER STOCKHOLDERS: SPECIALTY INVESTMENT I, LLC By: /s/ Alan R. Goldstein ------------------------------------- Name: Alan R. Goldstein Title: CFO and Manager SQUAM LAKE INVESTORS VI, LP By: /s/ Bill Doherty ------------------------------------- Name: Bill Doherty Title: Vice President SUNAPEE SECURITIES, INC. By: /s/ Mary Welch ------------------------------------- Name: Mary Welch Title: Assistant Treasurer WABAN INVESTORS II, LP By: /s/ Gordon A. Bean ------------------------------------- Name: Gordon A. Bean Title: Assistant Clerk RGIP, LLC By: /s/ R. Bradford Malt ------------------------------------- Name: R. Bradford Malt Title: Managing Member MANAGEMENT STOCKHOLDERS: /s/ Gerald Rittenberg --------------------------------------- Gerald Rittenberg /s/ James Harrison --------------------------------------- James Harrison /s/ James Dotti --------------------------------------- James Dotti /s/ Katherine A. Kurtz --------------------------------------- Katherine A. Kurtz /s/ Diane D. Spaar --------------------------------------- Diane D. Spaar /s/ Paul Ansolabehere ---------------------------------------- Paul Ansolabehere /s/ Sheldon Babyatsky ---------------------------------------- Sheldon Babyatsky /s/ Fred Berg ---------------------------------------- Fred Berg /s/ Laura Bucci ---------------------------------------- Laura Bucci /s/ John Conlon ---------------------------------------- John Conlon /s/ Michael Correale ---------------------------------------- Michael Correale /s/ Kerry Cusato ---------------------------------------- Kerry Cusato /s/ Ken Danforth ---------------------------------------- Ken Danforth /s/ Margaret Davis ----------------------------------------- Margaret Davis /s/ Barbara Devos ----------------------------------------- Barbara Devos /s/ Dawn Dodge ----------------------------------------- Dawn Dodge /s/ James Dotti ----------------------------------------- James Dotti /s/ Dorothy Dyer ----------------------------------------- Dorothy Dyer /s/ Willard Finch ----------------------------------------- Willard Finch /s/ James Flanagan ----------------------------------------- James Flanagan /s/ Rose Giagrande ----------------------------------------- Rose Giagrande /s/ Marie Gransbury ----------------------------------------- Marie Gransbury /s/ Randy Harris ----------------------------------------- Randy Harris /s/ Deborah Hatley ----------------------------------------- Deborah Hatley /s/ Sean Hersey ----------------------------------------- Sean Hersey /s/ Derek Itzla ----------------------------------------- Derek Itzla /s/ Paula Kochon ----------------------------------------- Paula Kochon /s/ Scott Lametto ----------------------------------------- Scott Lametto /s/ Craig Leaf ----------------------------------------- Craig Leaf /s/ William Mark ----------------------------------------- William Mark /s/ Jackie Mather ----------------------------------------- Jackie Mather /s/ Karen McKenzie ----------------------------------------- Karen McKenzie /s/ Michael Mostrom ----------------------------------------- Michael Mostrom /s/ Cindi Olsen ----------------------------------------- Cindi Olsen /s/ James Plutt ----------------------------------------- James Plutt /s/ George Reichel ----------------------------------------- George Reichel /s/ Paul Rosenbaum ----------------------------------------- Paul Rosenbaum /s/ Maria Rubeo ----------------------------------------- Maria Rubeo /s/ Christine Sacramone ----------------------------------------- Christine Sacramone /s/ David Sherman ----------------------------------------- David Sherman /s/ Mark Sifferlin ----------------------------------------- Mark Sifferlin /s/ MaryLynn Slusher ----------------------------------------- MaryLynn Slusher /s/ Keith Spaar ----------------------------------------- Keith Spaar /s/ Greg Stack ----------------------------------------- Greg Stack /s/ Eric Stollman ----------------------------------------- Eric Stollman /s/ Angela Stroh ----------------------------------------- Angela Stroh /s/ Walter Thompson ----------------------------------------- Walter Thompson /s/ Scott Van Reeth ----------------------------------------- Scott Van Reeth /s/ Patrick Venuti ----------------------------------------- Patrick Venuti /s/ Deborah Warren ----------------------------------------- Deborah Warren /s/ Craig Wiechman ----------------------------------------- Craig Wiechman /s/ Robert Yedowitz ----------------------------------------- Robert Yedowitz EX-10.5 20 b51510asexv10w5.txt AMENDMENT NO. 1 TO THE STOCKHOLDERS AGREEMENT OF AAH HOLDINGS CORPORATION DATED AS OF MAY 24, 2004 Exhibit 10(5) Amendment No. 1 to the AAH Holdings Corporation Stockholders Agreement This Amendment No. 1, dated as of May 24, 2004, amends the AAH Holdings Corporation Stockholders Agreement dated as of April 30, 2004 (the "Stockholders Agreement") by and among (i) AAH Holdings Corporation, a Delaware corporation (the "Company"), and (ii) the stockholders listed on the signature pages thereto (the "Stockholders"). Terms defined in the Stockholders Agreement and not otherwise defined herein are used herein as so defined. WHEREAS, on April 30, 2004 the Stockholders and the Company entered into the Stockholders Agreement for the purpose of regulating certain relationships of the Stockholders with regard to the Company and certain restrictions on the Common Stock and other equity securities owned by the Stockholders; WHEREAS, the parties desire to permit certain transfers among Stockholders of the Company within ninety (90) days of the date of the Stockholders Agreement; and WHEREAS, pursuant to Section 4.3 of the Stockholders Agreement, the Stockholders Agreement may be amended in certain respects by a majority of the Berkshire Stockholders, the WP Stockholders, the Management Stockholders and the Other Stockholders. NOW, THEREFORE, the Stockholders Agreement is hereby amended as follows: 1. Definitions. In Section 1.2, the following language is added after clause (v) in the definition of "Permitted Transfer" and before the proviso in such definition: "and (vi) within ninety (90) days of the date of the Stockholders Agreement, a Transfer of Shares by any Stockholder to any of the Berkshire Stockholders and/or the WP Stockholders, with the consent of the Berkshire Stockholders and the WP Stockholders." 2. Miscellaneous. Except to the extent specifically amended by this Amendment No. 1, the Stockholders Agreement as currently in effect shall remain unmodified, and the Stockholders Agreement, as amended hereby is confirmed as being in full force and effect. This Amendment shall be governed by the laws of the State of New York (regardless of the laws that might otherwise govern under applicable New York principles of conflicts of law) as to all matters, including but not limited to matters of validity, construction, effect, performance and remedies. This Amendment may be executed in two or more counterparts each of which shall be deemed an original but all of which together shall constitute one and the same instrument, and all signatures need not appear on any one counterpart. This Amendment shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. IN WITNESS WHEREOF, the undersigned, representing the Company and a majority of each of the Berkshire Stockholders, the WP Stockholders, the Management Stockholders and the Other Stockholders have caused this Amendment No. 1 to the Stockholders Agreement to be duly executed as of the day and year first above written. THE COMPANY: AAH HOLDINGS CORPORATION By: /s/ Robert J. Small --------------------------------- Name: Robert J. Small Title: President BERKSHIRE STOCKHOLDERS: BERKSHIRE FUND V INVESTMENT CORP. By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: Vice President BERKSHIRE FUND VI INVESTMENT CORP. By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: Vice President BERKSHIRE INVESTORS LLC By: /s/ Robert J. Small ------------------------------------- Name: Robert J. Small Title: Managing Director WP STOCKHOLDERS: WESTON PRESIDIO CAPITAL IV, L.P. By: Weston Presidio Capital Management IV, LLC, its general partner By: /s/ Kevin M. Hayes ------------------------------------- Name: Kevin M. Hayes Title: Member WPC ENTREPRENEUR FUND II, L.P. By: Weston Presidio Capital Management IV, LLC, its general partner By: /s/ Kevin M. Hayes ------------------------------------- Name: Kevin M. Hayes Title: Member OTHER STOCKHOLDERS: SPECIALTY INVESTMENT I, LLC By: /s/ Alan Goldstein ------------------------------------- Name: Alan Goldstein Title: CFO & Manager SQUAM LAKE INVESTORS VI, LP By: /s/ Bill Doherty ------------------------------------- Name: Bill Doherty Title: Vice President SUNAPEE SECURITIES, INC. By: /s/ Mary Welch ------------------------------------- Name: Mary Welch Title: Assistant Treasurer WABAN INVESTORS II, LP By: /s/ Gordon A. Bean ------------------------------------ Name: Gordon A. Bean Title: Assistant Clerk RGIP, LLC By: /s/ R. Bradford Malt ------------------------------------ Name: R. Bradford Malt Title: Managing Member MANAGEMENT STOCKHOLDERS: /s/ Gerald Rittenberg ----------------------------------------- Gerald Rittenberg /s/ James Harrison ----------------------------------------- James Harrison Paul Ansolabehere Sheldon Babyatsky Fred Berg Laura Bucci John Conlon Michael Correale Kerry Cusato Ken Danforth Margaret Davis Barbara Devos Dawn Dodge James Dotti Dorothy Dyer Willard Finch James Flanagan Rose Giagrande Marie Gransbury Randy Harris Deborah Hatley Sean Hersey Derek Itzla Paula Kochon Katherine A. Kurtz Scott Lametto Craig Leaf William Mark Jackie Mather Karen McKenzie Michael Mostrom Cindi Olsen James Plutt George Reichel Paul Rosenbaum Maria Rubeo Christine Sacramone David Sherman Mark Sifferlin MaryLynn Slusher Diane D. Spaar Keith Spaar Greg Stack Eric Stollman Angela Stroh Walter Thompson Scott Van Reeth Patrick Venuti Deborah Warren Craig Wiechman Robert Yedowitz /s/ James Harrison ----------------------------------------- By: James Harrison, the attorney-in-fact for each of the Stockholders listed above, in his capacity as Management Proxy pursuant to Section 4.1 of the Stockholders Agreement. EX-10.6 21 b51510asexv10w6.txt 2004 EQUITY INCENTIVE PLAN OF AAH HOLDINGS CORPORATION EXHIBIT 10(6) AAH HOLDINGS CORPORATION 2004 EQUITY INCENTIVE PLAN 1. Purpose. The purpose of this Equity Incentive Plan (the "Plan") is to advance the interests of AAH Holdings Corporation, a Delaware corporation (the "Company"), by enhancing the ability of the Company and its subsidiaries to attract and retain able employees, consultants or advisers; to reward such individuals for their contributions; and to encourage such individuals to take into account the long-term interests of the Company and its subsidiaries through interests in shares of the Company's Common Stock, $.01 par value per share (the "Stock"). Any employee, consultant, or adviser selected to receive an award under the Plan is referred to as a "participant". The Plan is intended to accomplish these goals by enabling the Company to grant awards in the forms of Options, Restricted Stock Awards, Unrestricted Stock, or combinations thereof, all as more fully described below. Options granted pursuant to the Plan may be incentive stock options as defined in section 422 of the Internal Revenue Code of 1986 (as from time to time amended, the "Code") (any Option that is intended so to qualify as an incentive stock option being referred to herein as an "incentive option"), or Options that are not incentive options, or both. Except as otherwise expressly provided with respect to an Option grant, no Option granted pursuant to the Plan shall be an incentive option. 2. Administration. The Plan shall be administered by the Board of Directors (the "Board") of the Company. The Board shall have discretionary authority, not inconsistent with the express provisions of the Plan, (a) to grant awards to such eligible persons as the Board may select; (b) to determine the time or times when awards shall be granted and the number of shares of Stock subject to each award; (c) to determine which Options are, and which Options are not, intended to be incentive options; (d) to determine the terms and conditions of each award; (e) to prescribe the form or forms of any instruments evidencing awards and any other instruments required under the Plan and to change such forms from time to time; (f) to adopt, amend, and rescind rules and regulations for the administration of the Plan; and (g) to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan. Such determinations of the Board shall be conclusive and shall bind all parties. Subject to Section 12, the Board shall also have the authority, both generally and in particular instances, to waive compliance by a participant with any obligation to be performed by him or her under an award, to waive any condition or provision of an award, and to amend or cancel any award (and if an award is canceled, to grant a new award on such terms as the Board shall specify), except that the Board may not take any action with respect to an outstanding award that would adversely affect the rights of the participant under such award without such participant's consent. Nothing in the preceding sentence shall be construed as limiting the power of the Board to make adjustments required by Section 4(c) and Section 6(g). The Board may, in its discretion, delegate some or all of its powers with respect to the Plan to a committee (the "Committee"), in which event all references (as appropriate) to the Board hereunder shall be deemed to refer to the Committee. The Committee, if one is appointed, shall consist of at least two directors. A majority of the members of the Committee shall constitute a quorum, and all determinations of the Committee shall be made by a majority of its members. Any determination of the Committee under the Plan may be made without notice or meeting of the Committee by a writing signed by all of the Committee members. On and after registration of the Stock under the Securities Exchange Act of 1934 (the "1934 Act"), the Board shall delegate the power to select directors and officers to receive awards under the Plan and the timing, pricing, and amount of such awards to a Committee, all members of which shall be disinterested persons within the meaning of Rule 16b-3 under the 1934 Act and "outside directors" within the meaning of section 162(m)(4)(c)(i) of the Code. 3. Effective Date and Term of Plan. The Plan shall become effective on the date on which it is approved by the shareholders of the Company. Grants of awards under the Plan may be made prior to that date (but after Board adoption of the Plan), subject to approval of the Plan by the shareholders. No awards shall be granted under the Plan after the completion of ten years from the date on which the Plan was adopted by the Board, but awards previously granted may extend beyond that date. 4. Shares Subject to the Plan. (a) Number of Shares. Subject to adjustment as provided in Section 4(c), the aggregate number of shares of Stock that may be the subject of awards granted under the Plan shall be 1,702.9316, of which 739.7927 Shares shall be allocated to Options or Restricted Stock which shall be time-vested, 778.7292 Shares shall be allocated to Options or Restricted Stock which shall be time-vested and shall also vest based on the attainment of performance goals determined by the Board and 184.4097 Shares shall be allocated to Options or Unrestricted Stock which shall be fully vested, in each case as specified in the certificate evidencing the grant of such award. If any award granted under the Plan terminates without having been exercised in full, is forfeited, or upon exercise is satisfied other than by delivery of Stock, the number of shares of Stock as to which such award was not exercised shall be available for future grants. (b) Shares to be Delivered. Shares delivered under the Plan shall be authorized but unissued Stock, or if the Board so decides in its sole discretion, previously issued Stock acquired by the Company and held in its treasury. No fractional shares of Stock shall be delivered under the Plan. (c) Changes in Stock. In the event of a stock dividend, stock split or combination of shares, recapitalization, or other change in the Company's capital stock, the number and kind of shares of Stock or securities of the Company subject to awards then outstanding or subsequently granted under the Plan, the exercise price of such awards, the maximum number of shares or -2- securities that may be delivered under the Plan, and other relevant provisions shall be appropriately adjusted by the Board, whose determination shall be binding on all persons. The Board may also adjust the number of shares subject to outstanding awards, the exercise price of outstanding awards, and the terms of outstanding awards, to take into consideration material changes in accounting practices or principles, extraordinary dividends, consolidations or mergers (except those described in Section 10), acquisitions or dispositions of stock or property, or any other event if it is determined by the Board that such adjustment is appropriate to avoid distortion in the operation of the Plan, provided, that no such adjustment shall be made in the case of an incentive option, without the consent of the participant, if it would constitute a modification, extension, or renewal of the Option within the meaning of section 424(h) of the Code. 5. Awards; Etc. Persons eligible to receive awards under the Plan shall be those persons who, in the opinion of the Board, are in a position to make a significant contribution to the success of the Company and its subsidiaries. A subsidiary for purposes of the Plan shall be a corporation in which the Company owns, directly or indirectly, stock possessing 50% or more of the total combined voting power of all classes of stock. Incentive options shall be granted only to "employees" as defined in the provisions of the Code or regulations thereunder applicable to incentive stock options. 6. Terms and Conditions of Options. (a) Exercise Price of Options. The exercise price of each option to acquire Stock (an "Option") shall be determined by the Board, but in the case of an incentive option shall not be less than 100% (110%, in the case of an incentive option granted to a ten-percent shareholder) of the fair market value of the Stock at the time the Option is granted; nor shall the exercise price be less, in the case of an original issue of authorized stock, than par value. For this purpose, "fair market value" in the case of incentive options shall have the same meaning as it does in the provisions of the Code and the regulations thereunder applicable to incentive options; and "ten-percent shareholder" shall mean any participant who at the time of grant owns directly, or by reason of the attribution rules set forth in section 424(d) of the Code is deemed to own, stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of any of its parent or subsidiary corporations. (b) Duration of Options. An Option shall be exercisable during such period or periods as the Board may specify. In the case of an Option not immediately exercisable in full, the Board may at any time accelerate the time at which all or any part of the Option may be exercised. The latest date on which an Option may be exercised (the "Expiration Date") shall be the date which is ten years (five years in the case of an incentive Option granted to anyone other than a "ten percent shareholder" as defined in (a) above) from the date the Option was granted or such earlier date as may be specified by the Board at the time the Option is granted, or in the case of any performance Options issued by the Company under the Plan, 30 days following the -3- date it is determined whether such performance Options have been earned solely if such date occurs after such 10 year period. (c) Exercise of Options. (i) An Option shall become exercisable at such time or times and upon such conditions as the Board shall specify. In the case of an Option not immediately exercisable in full, the Board may at any time accelerate the time at which all or any part of the Option may be exercised. (ii) Any exercise of an Option shall be in writing, signed by the proper person and furnished to the Company, accompanied by (A) such documents as may be required by the Board and (B) payment in full as specified below in Section 6(d) for the number of shares of Stock for which the Option is exercised. (iii) If an Option is exercised by the executor or administrator of a deceased participant, or by the person or persons to whom the Option has been transferred by the participant's will or the applicable laws of descent and distribution, the Company shall be under no obligation to deliver Stock pursuant to such exercise until the Company is satisfied as to the authority of the person or persons exercising the Option. (d) Payment for and Delivery of Stock. Stock purchased upon exercise of an Option under the Plan shall be paid for as follows: (i) in cash, check acceptable to the Company (determined in accordance with such guidelines as the Board may prescribe), or money order payable to the order of the Company, or (ii) if so permitted by the Board (which, in the case of an incentive option, shall specify such method of payment at the time of grant), (A) through the delivery of shares of Stock (which, in the case of Stock acquired from the Company, shall have been held for at least six months unless the Board specifies a shorter period) having a fair market value on the last business day preceding the date of exercise equal to the purchase price, (B) by delivery of an unconditional and irrevocable undertaking by a broker to deliver promptly to the Company sufficient funds to pay the exercise price, (C) by delivery to the Company of a promissory note of the participant with a reasonable commercial rate of interest, such note to be payable on such terms as are specified by the Board, or (D) by any combination of the permissible forms of payment; provided, that if the Stock delivered upon exercise of the Option is an original issue of authorized Stock, at least so much of the exercise price as represents the par value of such Stock shall be paid other than with a personal check or promissory note of the person exercising the Option. 7. Restricted Stock. (a) Grant of Restricted Stock. Subject to the terms and provisions of the Plan, the Board may grant shares of Stock in such amounts and upon such terms and conditions as the Board shall determine in accordance with this Section 7 ("Restricted Stock"). (b) Restricted Stock Agreement. The Board may require, as a condition to an Award, that a recipient of a Restricted Stock Award enter into a Restricted Stock Award Agreement, setting forth the terms and conditions of the Award. In lieu of a Restricted Stock Award -4- Agreement, the Board may provide the terms and conditions of an Award in a notice to the Participant of the Award, on the Stock certificate representing the Restricted Stock, in the resolution approving the Award, or in such other manner as it deems appropriate. (c) Transferability and Other Restrictions. Except as otherwise provided in this Section 7, the shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated until the end of the applicable period or periods established by the Board and the satisfaction of any other conditions or restrictions established by the Committee (such period during which a share of Restricted Stock is subject to such restrictions and conditions is referred to as the "Restricted Period"). Except as the Board may otherwise determine under Section 9, if a Participant suffers a Termination of Service (as defined at Section 9) for any reason during the Restricted Period, the Company may purchase the shares of Restricted Stock subject to such restrictions and conditions for the amount of cash paid by the Participant for such shares; provided, that if no cash was paid by the Participant any such shares of Restricted Stock that would otherwise be subject to repurchase by the Company in accordance with the foregoing shall be automatically forfeited to the Company. During the Restricted Period with respect to any shares of Restricted Stock, the Company shall have the right to retain in the Company's possession the certificate or certificates representing such shares. (d) Removal of Restrictions. Except as otherwise provided in this Section 7, a share of Restricted Stock covered by a Restricted Stock grant shall become freely transferable by the Participant upon completion of the Restricted Period, including the passage of any applicable period of time and satisfaction of any conditions to vesting. The Board, in its sole discretion, shall have the right at any time immediately to waive all or any part of the restrictions and conditions with regard to all or any part of the shares held by any Participant. (e) Voting Rights, Dividends and Other Distributions. During the Restricted Period, Participants holding shares of Restricted Stock granted hereunder may exercise full voting rights and shall receive all regular cash dividends paid with respect to such shares. Except as the Board shall otherwise determine, any other cash dividends and other distributions paid to Participants with respect to shares of Restricted Stock including any dividends and distributions paid in shares shall be subject to the same restrictions and conditions as the shares of Restricted Stock with respect to which they were paid. (f) Other Awards Settled with Restricted Stock. The Board may, at the time any Award described in this Section 7 is granted, provide that any or all the Stock delivered pursuant to the Award will be Restricted Stock. (g) Notice of Section 83(b) Election. Any Participant making an election under Section 83(b) of the Code with respect to Restricted Stock must provide a copy thereof to the Company within 10 days of filing such election with the Internal Revenue Service. 8. Unrestricted Stock. -5- Subject to the terms and provisions of the Plan, the Board may grant or sell shares of fully vested and unrestricted Stock in such amounts and for such consideration, if any, as the Committee shall determine ("Unrestricted Stock"); provided, that the aggregate number of shares of Unrestricted Stock that may be granted or sold for a purchase price that is less than their fair market value, unless granted in lieu of cash compensation equal to such fair market value, shall not exceed 100,000 shares. 9. Termination of Employment. In the case of any award, the Board may, through agreement with the participant (including without limitation, any Stockholders Agreement of the Company to which the participant is a party), resolution, or otherwise, provide for post-termination exercise provisions different from those expressly set forth in this Section 9, including without limitation the vesting immediately prior to termination of all or any portion of an award not otherwise vested prior to termination, and, in the case of an Option, terms allowing a later exercise by a former employee, consultant or advisor (or, in the case of a former employee, consultant or advisor who is deceased, the person or persons to whom the award is transferred by will or the laws of descent and distribution) as to all or any portion of the award not exercisable immediately prior to termination of employment or other service, but in no case may an award be exercised after the Expiration Date. If the Board does not otherwise provide for such provisions and if a participant's employment or other service relationship with the Company and its subsidiaries terminates prior to the Expiration Date (including by reason of death) the following shall apply: (a) Options. (i) Options that are not vested immediately prior to the termination shall automatically terminate upon termination. To the extent vested immediately prior to termination of employment or other service, the Option shall continue to be vested and shall be exercisable thereafter during the period prior to the Expiration Date and (i) in the case of time-vested Options, within 60 days following such termination (90 days in the event that a participant's service terminates by reason of death), and (ii) in the case of performance Options, within 30 days following the date value is determined as specified by the Board in the Option certificate evidencing the grant of such Options; provided, however, that if the participant's employment or other service is terminated "for cause" as defined in (ii) below, all unvested or unexercised awards shall terminate immediately. Except as otherwise provided in an award, after completion of such exercise period, such awards shall terminate to the extent not previously exercised, expired, or terminated. (ii) For purposes of the foregoing, termination for "cause" shall mean that the Board of Directors of the Company has determined, in its reasonable judgment, that any one or more of the following has occurred: a) the participant shall have been convicted of, or shall have pleaded guilty or nolo contendere to, any felony or any crime involving dishonesty or moral turpitude; -6- b) the participant shall have committed any fraud, theft, embezzlement, misappropriation of funds, breach of fiduciary duty or act of dishonesty; c) the participant shall have breached in any material respect any of the provisions of any agreement between the participant and the Company, including, without limitation, the Company's Stockholders Agreement; d) the participant shall have engaged in conduct likely to make the Company or any of its Affiliates subject to criminal liabilities other than those arising from the Company's normal business activities; or e) the participant shall have willfully engaged in any other conduct that involves a breach of fiduciary obligation on the part of the participant or otherwise could reasonably be expected to have a material adverse effect upon the business, interests or reputation of the Company or any of its Affiliates. No Option shall be exercised or surrendered in exchange for a cash payment after the Expiration Date. (b) Restricted Stock. Restricted Stock held by the Participant must be transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted Stock will be so transferred without any further action by the Participant) in accordance with Section 7. 10. Mergers, etc. Except as otherwise provided at the time of grant, in the event of a consolidation or merger of the Company in which the Company is not the surviving corporation or which results in the acquisition of substantially all the Company's outstanding voting stock by a single person or entity or by a group of persons and/or entities acting in concert, or in the event of the sale or transfer of all or substantially all the Company's assets (a "Covered Transaction"), the following rules shall apply: (i) Subject to paragraph (ii) below, all outstanding awards requiring exercise will cease to be exercisable (after any payment or other consideration deemed equitable by the Board for the termination of any vested portion of any award is made), and all other awards to the extent not fully vested (including awards subject to conditions not yet satisfied or determined) will be forfeited, as of the effective time of the Covered Transaction, provided that the Board may in its sole discretion on or prior to the effective date of the Covered Transaction, (1) make any outstanding Options exercisable in part or in full, (2) remove any performance or other conditions or restrictions on any awards, and/or (3) in the event of a Covered Transaction under the terms of which holders of the Stock of the Company will receive upon consummation thereof a payment (whether cash, non-cash or a combination of the foregoing) for each such share surrendered in the Covered Transaction, make or provide for a payment (whether cash, non-cash or a combination of the foregoing) to the participant equal to the difference between (A) the fair market value of the Stock times the number of shares of Stock subject to outstanding awards (to the extent then exercisable at prices not in excess of -7- the fair market value) and (B) the aggregate exercise price of all such outstanding awards in exchange for the termination of such award by action of the Board which may be reflected in a resolution or in an Option certificate or similar instrument or agreement; or (ii) With respect to an outstanding award held by a participant who, following the Covered Transaction, will be employed by or otherwise providing services to an entity which is a surviving or acquiring entity in the covered transaction or an affiliate of such an entity, the Board may at or prior to the effective time of the Covered Transaction, in its sole discretion and in lieu of the action described in paragraph (i) above, arrange to have such surviving or acquiring entity or affiliate assume any award held by such participant outstanding hereunder or grant a replacement award which, in the judgment of the Board, is substantially equivalent to any award being replaced. The Board may grant awards under the Plan in substitution for awards held by directors, employees, consultants or advisers of another corporation who concurrently become directors, employees, consultants or advisers of the Company or a subsidiary of the Company as the result of a merger or consolidation of that corporation with the Company or a subsidiary of the Company, or as the result of the acquisition by the Company or a subsidiary of the Company of property or stock of that corporation. The Company may direct that substitute awards be granted on such terms and conditions as the Board considers appropriate in the circumstances. 11. General Provisions (a) Documentation of Awards. Awards will be evidenced by such written instruments, if any, as may be prescribed by the Board from time to time. Such instruments may be in the form of agreements to be executed by both the participant and the Company, or certificates, letters or similar instruments, which need not be executed by the participant but acceptance of which will evidence agreement to the terms thereof. (b) Rights as a Stockholder, Dividend Equivalents. Except as specifically provided by the Plan, the receipt of an award will not give a participant rights as a stockholder; the participant will obtain such rights, subject to any limitations imposed by the Plan or the instrument evidencing the award, only upon the issuance of Stock. However, the Board may, on such conditions as it deems appropriate, provide that a Participant will receive a benefit in lieu of cash dividends that would have been outstanding. Without limitation, the Board may provide for payment to the Participant of amounts representing such dividends, either currently or in the future, or for the investment of such amounts on behalf of the participant. (c) Delivery of Stock. A participant shall not have the rights of a shareholder with regard to awards under the Plan except as to Stock actually received by him or her under the Plan. The Company shall not be obligated to deliver any shares of Stock (i) until, in the opinion of the Company's counsel, all applicable federal and state laws and regulations have been complied with, (ii) if the outstanding Stock is at the time listed on any stock exchange, until the shares to be delivered have been listed or authorized to be listed on such exchange upon official -8- notice of issuance, and (iii) until all other legal matters in connection with the issuance and delivery of such shares have been approved by the Company's counsel. Without limiting the generality of the foregoing, if the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act and may require that the certificates evidencing such Stock bear an appropriate legend restricting transfer. (d) Nontransferability of Awards. No award may be transferred other than by will or by the laws of descent and distribution, and during a participant's lifetime an award may be exercised only by him or her; provided, however, that the foregoing provisions shall not prohibit any pledge of an award to the Company. (e) Employment Rights. Neither the adoption of the Plan nor the grant of awards shall confer upon any participant any right to continue as an employee of, or consultant or adviser to, the Company or any subsidiary or affect in any way the right of the Company or a subsidiary to terminate the participant's relationship at any time. Except as specifically provided by the Board in any particular case, the loss of existing or potential profit in awards granted under this Plan shall not constitute an element of damages in the event of termination of the relationship of a participant even if the termination is in violation of an obligation of the Company to the participant by contract or otherwise. (f) Deferral of Payments. The Board may agree at any time, upon request of the participant, to defer the date on which any payment under an award will be made. (g) Past Services as Consideration. Where a participant purchases Stock under an award (other than an Option), the Board may accept in satisfaction of the purchase price such lawful consideration, including past services, as it determines appropriate. (h) Tax Withholding. The Company will withhold from any cash payment made pursuant to an award an amount sufficient to satisfy all federal, state and local withholding tax requirements (the "withholding requirements"). In the case of an award pursuant to which Stock may be delivered, the Board will have the right to require that the Participant or other appropriate person remit to the Company an amount sufficient to satisfy the withholding requirements, or make other arrangements satisfactory to the Board with regard to such requirements, prior to the delivery of any Stock or removal of restrictions thereon. If and to the extent that such withholding is required, the Board may permit the participant or such other person to elect at such time and in such manner as the Board provides to have the Company hold back from the shares to be delivered, or to deliver to the Company, Stock having a value calculated to satisfy the withholding requirement. The Board may make such share withholding mandatory with respect to any award at the time such award is made to a participant. If at the time an incentive option is exercised the Board determines that the Company could be liable for withholding requirements with respect to the exercise or with respect to a disposition of the Stock received upon exercise, the Board may require as a condition of exercise -9- that the person exercising the incentive option agree (i) to provide for withholding under the preceding paragraph of this Section 11(h), if the Board determines that a withholding responsibility may arise in connection with tax exercise, (ii) to inform the Company promptly of any disposition (within the meaning of Section 424(c) of the Code) of Stock received upon exercise, and (iii) to give such security as the Board deems adequate to meet the potential liability of the Company for the withholding requirements and to augment such security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such security. 12. Effect, Discontinuance, Cancellation, Amendment, and Termination. Neither adoption of the Plan nor the grant of awards to a participant shall affect the Company's right to make awards to such participant that are not subject to the Plan, to issue to such participant Stock as a bonus or otherwise, or to adopt other plans or arrangements under which Stock may be issued. The Board may at any time discontinue granting awards under the Plan. With the consent of the participant, the Board may at any time cancel an existing award in whole or in part and grant another award for such number of shares as the Board specifies. The Board may at any time or times amend the Plan or any outstanding award for the purpose of satisfying the requirements of section 422 of the Code or of any changes in applicable laws or regulations or for any other purpose that may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of awards; provided, that except to the extent expressly required by the Plan, no such amendment shall adversely affect the rights of any participant (without his or her consent) under any award previously granted, nor shall such amendment, without the approval of the stockholders of the Company, effectuate a change for which stockholder approval is required in order for the Plan to continue to qualify for the award of incentive stock options under Section 422 of the Code and to continue to qualify under Rule 16b-3 promulgated under Section 16 of the 1934 Act. -10- EX-31.1 22 b51510asexv31w1.txt SEC 302 CERTIFICATION OF CEO Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a-14(a) Or Rule 15d-14(a) under the Securities Exchange Act, as amended I, Gerald C. Rittenberg, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Amscan Holdings, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Omitted as permitted; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Gerald C. Rittenberg ----------------------------- Gerald C. Rittenberg Chief Executive Officer (Principal executive officer) EX-31.2 23 b51510asexv31w2.txt SEC 302 CERTIFICATION OF CFO Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULE 13a-14(a) Or Rule 15d-14(a) under the Securities Exchange Act, as amended I, Michael A. Correale, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Amscan Holdings, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a - 15(e) and 15d - 15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Omitted as permitted; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 13, 2004 /s/ Michael A. Correale ----------------------- Michael A. Correale Chief Financial Officer EX-32 24 b51510asexv32.txt SEC 906 CERTIFICATION OF CEO & CFO Exhibit 32 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Amscan Holdings, Inc. (the "Company") on Form 10-Q for the period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), we, Gerald C. Rittenberg, Chief Executive Officer and Michael A. Correale, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.Section. 1350, as adopted pursuant to Section. 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Gerald C. Rittenberg ---------------------------------- Gerald C. Rittenberg Chief Executive Officer /s/ Michael A. Correale ---------------------------------- Michael A. Correale Chief Financial Officer August 13, 2004 -----END PRIVACY-ENHANCED MESSAGE-----