The Holmes Group, Inc. Form 10-K

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

All statements, other than statements of historical fact, included in this report, are or may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Without limiting the foregoing, the words believes, anticipates, plans, expects, intends and similar expressions are intended to identify forward-looking statements. Various economic and competitive factors could cause actual results or events to differ materially from those discussed in such forward-looking statements, including without limitation, our degree of leverage (including the need to comply with covenants in our various financing agreements), our dependence on major customers and key personnel, competition, risks associated with foreign manufacturing, risks of the retail industry, potential product liability claims, the cost of labor and raw materials and the other factors which are described in this report, in our most recent Registration Statement on Form S-4 (File No. 333-77905), and from time to time in our other periodic reports filed with the Securities and Exchange Commission. Accordingly, such forward-looking statements do not purport to be predictions of future events or circumstances and may not be realized.

The Holmes Group, Inc. is a leading developer, manufacturer and marketer of quality, branded home appliances, including home environment and small kitchen appliances. Our home environment products include fans, heaters, humidifiers and air purifiers. We believe that we have the leading U.S. market share in each of these product categories. Home environment products, in the aggregate, accounted for approximately 54% of our net sales for the fiscal year ended December 31, 2001. Our kitchen appliances include slow cookers, roaster ovens, skillets, deep fryers and other small kitchen electric appliances where we believe we hold the number one or two market share. Kitchen appliances accounted for approximately 42% of our net sales for fiscal 2001. We believe that our strong market position and success are attributable to our continuous product innovation, engineering and manufacturing expertise, close customer partnerships, breadth of product offerings, reputation for quality and manufacturing presence and experience in the Far East.

Our products are sold under the Holmes®, Rival®, Crock-Pot®, White Mountain®, Bionaire®, Patton®, Family Care® and Titan® brand names. These products are sold to consumers through major retail chains, including mass merchants, do-it-yourself home centers, warehouse clubs, hardware, department and specialty stores and national drugstore chains. Major customers in these channels include Wal-Mart, Kmart, Target, Lowes, Home Depot, Costco, BJ’s Wholesale Club, TruServ and Walgreens. We believe that the strength, scope and visibility of our retail account base provide a competitive advantage with respect to brand recognition, access to shelf space and penetration of the consumer market.

Holmes was founded in 1982 by our Chairman of the Board of Directors, Jordan A. Kahn, an innovator in the home environment market with over 30 years of industry experience. Holmes opened its first manufacturing facility in China in 1989, and currently operates three facilities in China where we manufacture many of our products and electric motors for use in our products. We also currently operate three manufacturing facilities in the United States. Our vertically integrated manufacturing facilities provide control over the production process and product quality. These facilities also enhance operational flexibility and allow us to quickly respond to changes in consumer demand and to specialized production needs. We maintain distribution facilities in the United States, Canada, China and Europe, as well as offices in Hong Kong and Taiwan that are responsible for sourcing raw materials, processing orders and shipping the Company’s products from the Chinese factories. We coordinate product development, marketing, sales and distribution from our Milford, Massachusetts headquarters.

Our principal executive offices are located at One Holmes Way, Milford, Massachusetts 01757. Our telephone number is (508) 634-8050 and our corporate web site is located at www.theholmesgroup.com.

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Kmart Corporation is one of Holmes’ top three customers. Kmart has indicated that it intends to reorganize on a fast-track basis and has targeted emergence from Chapter 11 in 2003. Holmes’ sales to Kmart were approximately 10% of total net sales in 2001. In the fourth quarter of 2001, the Company recorded a bad debt provision of approximately $14.1 million related to the Kmart bankruptcy.

Also in January 2002, we sold substantially all the assets of our Pollenex® division, including the brand name. The Pollenex® division, which was acquired by Holmes in 1999 as part of the Rival acquisition described below, included showerheads, massagers and air purification products. Holmes will retain the right to market air purifier related products under the Pollenex® brand name for six months after which the air purifier products will be marketed under one of the remaining Holmes brands. The proceeds of the sale exceeded the net book value of the assets sold, resulting in a gain of approximately $7.5 million, which will be recorded in the first quarter of 2002.

On February 5, 1999, we completed our acquisition of The Rival Company (Rival), a leading developer, manufacturer and marketer of a variety of products including small kitchen, home environment and personal care appliances. In connection with this acquisition, we issued $31.3 million of senior subordinated notes due in November 2007, bearing interest at 9 7/8% (the Notes), and amended and restated our existing $100.0 million credit facility to provide for a total availability of $325.0 million. We also sold $50.0 million of common stock in a private placement to investment funds affiliated with Berkshire Partners LLC (Holmes’ majority shareholder), and to members of management and certain other co-investors. The initial borrowings under the credit facility, together with the net proceeds of the equity investment and the offering of the Notes, were used to consummate the Rival acquisition, refinance Rival’s then existing indebtedness, and pay the fees and expenses of the transaction.

Prior to the Rival acquisition, in November 1997, Holmes and Berkshire Partners completed a recapitalization transaction in which we issued $105.0 million of Notes and entered into the $100.0 million line of credit facility. The proceeds of these borrowings were used to repay our then existing indebtedness and redeem a significant portion of the previous majority shareholder’s common stock.

Accordingly, commencing in November 1997, we had a significantly higher level of borrowing and a corresponding higher level of interest expense than in the past. The Rival acquisition and the related financing transactions consummated in February 1999 further increased our indebtedness and interest expense substantially.

Our results of operations and balance sheet included herein reflect the 1999 acquisition of Rival, in accordance with purchase accounting, from the consummation of the acquisition. Accordingly, Rival’s larger size relative to Holmes significantly influences comparisons between periods before and after the Rival acquisition.

Following the Rival acquisition, we divested two of Rival’s other non-core business units in late 1999. On October 8, 1999, the Company sold the assets of Rival’s sump and utility pump division for $11.4 million. On December 21, 1999, the Company sold the assets of Rival’s industrial and building supply products businesses for total proceeds of $11.9 million. As these transactions were contemplated as of the Rival acquisition date, the net loss on these transactions of $2.5 million was recorded as an increase to goodwill.

Since the Rival acquisition, we have closed and disposed of a number of underutilized or redundant facilities. During 2000, we sold the Fayetteville, North Carolina facility. During 2001, we sold the Warrensburg, Missouri manufacturing plant, and we announced the closure of our Sedalia, Missouri manufacturing plant. In February of 2002, we announced the closing of our Sedalia distribution facility. We expect this facility to be sold during 2002 after the distribution function is transferred to other facilities.

Our ability in continuing to capitalize on the Rival acquisition will depend on factors such as competition, labor and materials costs, and the general retail environment. To further our strategic objectives, we may from

Our strategy is to capitalize on our core strengths to achieve growth in net sales, profitability and cash flow by: (1) growing Rival’s core kitchen franchise, (2) further growth of our multibrand home environment product lines (Holmes®, Bionaire®, Patton®, Titan® and Family Care®) (3) penetrating new and existing distribution channels, (4) improving our overall cost structure and (5) expanding geographically.

We intend to continue our pursuit of the following initiatives as part of our strategy:


	Strengthen the Kitchen Franchise. Rival’s long-standing reputation as a leader in the small kitchen appliance market has added a strong, complementary business to our home environment product line. We are the leading manufacturer and marketer of slow cookers through Rival’s Crock-Pot® brand, and believe we hold the number one or two market share in other key categories including roaster ovens, skillets and deep fryers. We intend to leverage our expertise in product innovation, manufacturing, sourcing, marketing and distribution to further strengthen our kitchen franchise.

	Leverage and Grow Brands. The addition of Rival’s home environment brands has allowed us to increasingly differentiate our home comfort offerings among customers and consumers. Through these additional brands, such as Bionaire®, we can offer a step-up brand strategy for increased presence in high end distribution channels.

	Further Penetrate Existing Distribution Channels. We believe that we can further penetrate our existing distribution channels as a result of favorable industry dynamics and our strong relationships and execution with mass merchant retailers. Management believes that mass merchants will continue to consolidate their vendor base and focus on a smaller number of sophisticated suppliers that can (1) provide a broad array of differentiated, quality products, (2) efficiently and consistently fulfill logistical requirements and volume demands and (3) provide full product support from design to category management, point-of-sale and after-market service with the consumer. We work closely with key customers such as Wal-Mart, where we have been selected to design and produce home environment and selected kitchen products for the GE branded product program.

	Develop New Distribution Channels. We continue to develop new channels of distribution by providing customized product offerings that appeal to the specific needs of each channel. We are continuing to expand our internet sales through well known on-line retail sites such as Amazon.com.

	Develop Our Brand Portfolio. We believe our wide portfolio of brands allows us to increase market share by penetrating new segments of distribution as well as expand shelf share in existing channels. Our brand development focuses on both consumer brand awareness vehicles as well as the development of new technologies and feature enhancements unique to these brands.

	Improve the Overall Cost Structure. Through our manufacturing facilities in China and related Far East sourcing capabilities, we have the ability to be a low-cost, high quality, flexible producer of appliance products. By applying these capabilities to even more of Rival’s products, we believe we can further reduce our overall manufacturing costs.

	Expand into New Geographic Regions. We believe that the European, Latin American and Asian home comfort markets are underdeveloped and represent significant growth opportunities. We intend to leverage the greater international recognition of Rival’s brands in Europe and Latin America with our low cost flexible supply in Asia to increase sales in these regions.

Due to a number of factors, not all of which are under our control, as described in more detail below under Management’s Discussion and Analysis of Financial Condition and Results of Operations-Results of Operations, there can be no assurances that we will be able to successfully implement all of our strategic initiatives.

Holmes is a leading developer, manufacturer and marketer of quality, branded home appliances, including home environment and small kitchen appliances.

Home environment products allow consumers to better control the air quality, temperature and lighting of their home and office environments. These products accounted for approximately 54% of our net sales in 2001.

Fans. We currently manufacture and market approximately 100 different fan models under the Holmes® and Patton® brand names and selected private label brands, including table, stand, window, window-to-floor, box, high velocity and oscillating fans, typically for purchase and use by household consumers. Retail prices for our fans range from $5 to $200.

Heaters. Portable electric space heaters are used to heat areas of the house not adequately reached by central heat and to heat an individual room while that room is in use. We currently manufacture and market approximately 75 different heater models under the Holmes®, Patton®, Bionaire® and Titan® brand names, including plastic, ceramic, metal, radiant and baseboard styles. Retail prices for our heaters range from $20 to $100.

Humidifiers. Consumers use humidifiers to provide greater comfort by increasing moisture in the home environment. We currently manufacture and market approximately 50 different humidifiers under the Holmes®, Bionaire®, and Family Care® brand names, including cool mist, warm mist, ultrasonic and console models that range in moisture output from one to 12 gallons per day. Retail prices for our humidifiers range between $15 and $150. We also sell a variety of humidifier accessories, replacement parts and chemical treatments.

Air Purifiers. Air purifiers circulate a room’s air through filters that remove contaminants from the air. In recent years, high efficiency particulate arresting (HEPA) filters have come to dominate the industry. We currently manufacture and market approximately 30 different air purifier models under the Holmes®, Bionaire® and Family Care® brand names. Retail prices for our air purifiers range between $10 and $280.

Accessories. Many of our products require accessories, including replacement filters, chemical treatments and replacement parts. For example, air purifiers periodically need new replacement filter cartridges and humidifiers need new replacement wick filters. As the installed base of these products continues to expand, we expect that the market for these accessories will grow as well. In addition, we believe that sales of filters and accessories increase brand awareness and customer loyalty. Accessories represent one of the fastest growing categories in the home environment product line.

Lighting Products. We market over 150 different decorative and home office lighting products, including table, floor and wall-mounted models. These products complement our traditional home environment appliance line, provide an additional non-seasonal category, and are distributed through the same distribution channels as our other products. Holmes’ lighting products are manufactured by subcontractors in China. Retail prices for these products range between $4 and $90.

Small kitchen electric appliances, which constituted Rival’s primary product line for over sixty years, accounted for approximately 42% of our net sales in 2001. The kitchen electrics business unit sells products including slow cookers under the Crock-Pot® brand, ice cream freezers under the Rival® and White Mountain® brand and can openers, toasters, food slicers, mixers, indoor grills, deep fryers, roaster ovens and skillets under the Rival® brand to retailers and distributors throughout the United States. We are the dominant manufacturer and marketer of slow cookers, of which we market over 25 different models which retail for between $10 and $70. We also believe we maintain a leading market share in the skillet, roaster oven and deep fryer categories. In addition, Rival invented the electric can opener category and we believe the Company continues to maintain a leading market share. We believe that the combination of innovative

Our products are sold in Canada and Europe from our sales and distribution facilities in Toronto and the United Kingdom. We also ship products from the United States and our manufacturing facilities in China to customers in Latin America and Asia.

One of our Far East subsidiaries, Raider Motor Corporation, has proven strengths in the design and manufacture of a variety of electric motors for use in home and commercial appliances. In October, 1998, we entered into a joint venture with General Electric for motor manufacturing, sales and distribution to third parties. The joint venture entity is owned 49% by Holmes and 51% by GE. Capital expenditures necessary to support the growth of the GE joint venture are shared 50/50 with GE.

We have internal product development teams dedicated to new product development and product enhancements. We maintain our own engineering and product development department to research new product concepts as well as activities relating to improving existing products. The product design and research development team consists of employees located in Milford, Massachusetts and in the Far East. We also retain the services of outside consultants to assist our internal team.

We utilize state-of-the-art design technology including advanced CAD design software and a laser-based stereolithography technique to design and engineer new products. Management believes this technology allows us to design and develop new products quickly, enabling us to accurately assess the feasibility, cost and tooling requirements of new products before manufacturing the products. Management believes this technology gives us a competitive advantage in the design and development of new products and product line extensions.

Our expenditures, including amounts expensed as incurred and capitalized as property, plant and equipment, for new product development and tooling, totaled approximately $17.6 million, $18.0 million and $14.5 million for the years ended December 31, 1999, 2000 and 2001, respectively.

We manufacture over 70% of our products, utilizing a combination of our foreign and domestic manufacturing facilities. The management, coordination and control of all manufacturing operations is centralized at our principal offices in Milford, Massachusetts.

We manufacture most of our home environment products at our manufacturing facilities in China. These facilities are highly integrated and produce most of the electric motors, injection molded plastic components and other components used in the manufacturing and assembly process. The balance of our home environment products are produced through subcontracted manufacturers in China and the United States, generally under the supervision of Holmes employees.

Our domestic manufacturing plants specialize in the production of selected small kitchen appliances, particularly our slow cookers. These plants are highly integrated and produce electric elements, injection molded plastic components, stampings and stoneware. Two of these manufacturing and assembly facilities are located in rural Missouri (Clinton and Sweet Springs), near Kansas City. The third facility, in Flowood, Mississippi, produces the stoneware for our slow cookers and other products.

We believe that we have a cost advantage as a result of our degree of vertical integration, purchasing power and low labor costs at our Chinese manufacturing facilities. In addition, by operating our own manufacturing facilities, we have control over the quality and production timing of our products from design through final distribution.

Our products are sold in the United States, Canada, Latin America and Europe to the retail trade by an internal sales staff of sales managers, with assistance from an internal sales support staff, field sales associates and regional independent manufacturers representative organizations. We market our products through all major channels of distribution including mass merchants, do-it-yourself home centers, warehouse clubs, hardware stores, department stores, home and kitchen specialty stores, national drugstore chains and mail order and premium companies. The sales managers are actively involved in servicing all aspects of each retail account.

In order to respond most efficiently to the demands of its retail customers and ensure timely delivery, we balance direct shipments from our manufacturing facilities with shipments from our domestic and international warehouses. We employ an electronic data interchange system with selected retail customers to expedite order and invoice processing.

Our marketing department is responsible for market analysis, new product development, pricing strategy, promotions, key cooperative partnerships and overall category development. We believe that our packaging is one of our most powerful marketing tools because most consumers typically purchase small appliances without the benefit of knowledgeable retail sales staff. Holmes’ innovative packaging and point-of-purchase support provide written information and illustrations regarding product features, usage instructions, safety features and product operation. We have an in-house art department that develops much of our packaging and marketing materials on state-of-the-art desktop graphics systems.

Our three largest retail customers, Wal-Mart (including Sam’s Wholesale Club), Target and Kmart accounted for approximately 54% of our net sales during 2001. Individually, they each accounted for over 10% of our net sales during 2001. We do not have long-term agreements with our major customers, and purchases are generally made through the use of individual purchase orders. A significant reduction in purchases by any of these customers could have a material adverse effect on our business.

In January 2002, Kmart Corporation and certain of its U.S. subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Kmart has indicated that it intends to reorganize on a fast-track basis and has targeted emergence from Chapter 11 in 2003. Kmart has announced that it will close over 200 stores as part of the reorganization. We are currently evaluating what effect, if any, this may have on our 2002 revenues. Holmes’ sales to Kmart were approximately 10% of total net sales in 2001.

Sales of our products are highly seasonal, and counter-seasonal weather can adversely affect our results of operations. Within the home environment product line, sales of fans occur predominantly from January through June, and sales of heaters and humidifiers occur predominantly from July through December. Although kitchen appliances and certain home environment products such as air purifiers and lighting products are used year-round, the nature of these products tend to draw increased sales during the winter months when people are indoors and, as a result, sales of these products tend to be greatest in advance of the winter months from July through December. Additionally, because many of our kitchen products are given as gifts, we sell more of these products in anticipation of the holiday season. When holiday shipments are combined with seasonal products such as heaters and humidifiers, our sales during the months of August through November are generally at a higher level than during the other months of the year. In addition, due to the seasonal fluctuations in sales, we experience seasonality in gross profit, as margins realized on fan products tend to be lower than those realized on heater, humidifier, and air purifier products.

The markets for most of our products are developed and highly competitive. Management believes that competition is based on several factors, including price, access to retail shelf space, product features, product enhancements, brand names, new product introductions, and marketing support and distribution systems.

We compete with many well-established companies, some of which have substantially greater facilities, personnel, financial and other resources than us. Our major competitors include AdobeAir, Applica, Catalina Lighting, Cheyenne, Honeywell Consumer Products (maker of Duracraft and Enviracare brands), Hamilton Beach/ Proctor Silex, Lasko, Tensor, Salton/ Maxim (Toastmaster)and Sunbeam. We also compete with importers and foreign manufacturers of unbranded products.

We believe that our most important competitive strengths are the quality, design and competitive pricing of our products, our attention to retailer and consumer needs, our stable of recognized brands, our access to major channels of distribution, the development of new products and innovation in existing products, our ability to provide timely shipment through our manufacturing and distribution facilities and the capabilities of our management team.

We hold a number of patents and trademarks registered in the United States, Canada, and other countries for various products and technologies. Of particular importance are the Holmes®, Rival®, Patton®, Bionaire®, White Mountain®, Family Care®, Titan® and Crock-Pot® trademarks. We have additional patent applications pending in the United States, Canada and Mexico. We also register trademarks on product names and unique features in the United States and other countries. We believe that, other than with respect to the Crock-Pot® trademark, none of our product lines is dependent upon any single trademark, patent, group of patents or other intellectual property rights.

We are subject to federal, state and local regulations concerning the environment, occupational safety and health, trade-related issues and consumer products safety. Most of our products are listed by Underwriters Laboratories, Inc. (UL), the Canadian Underwriters Laboratories, Inc. (CUL), or similar organizations in other markets. UL and CUL are independent, not-for-profit corporations engaged in the testing of products for compliance with certain public safety standards. We are also regulated by, and hold ongoing discussions regarding specific products with, the United States Consumer Products Safety Commission, the Food and Drug Administration and the Canadian Standards Association. We believe that we are in material compliance with all of the regulations applicable to us. There can be no assurance, however, that such regulations will not negatively affect us in the future. Our operations could also be adversely affected by other regulations relating to our foreign operations, including changes in trade laws, increased import duties, import/export regulations and changes in foreign laws.

We had approximately 7,500 employees as of December 31, 2001, of which approximately 1,000 were located in the United States, Europe and Canada, approximately 6,370 were located at our manufacturing facilities in Dongguan, China, and approximately 130 were located in Hong Kong and Taiwan.

The following table sets forth our principal facilities, the primary activity at each of the facilities listed and the expiration date of the applicable lease, in the case of leased facilities.


(1)	The 67,000 square-foot portion of the Sedalia plant is occupied under a long-term lease which gives the Company the option to purchase the property at a nominal cost. In June 2001, we announced the closure of the Sedalia manufacturing plants. In January 2002, we announced the closure of the Sedalia warehousing and distribution center.

(2)	These facilities are located in Guangdong Province, China, approximately 70 miles from Hong Kong. These facilities include 20 buildings on two separate campuses that include manufacturing, assembly, warehousing, and employee dormitory operations. These facilities will be closed during 2002 and 2003 and replaced with the new facility as described in (3) below.

(3)	During 2000, we began construction of a new manufacturing facility on land that was purchased in Guangdong Province. In 2001, we began to move manufacturing to this facility and it should be fully operational during 2003. As of December 31, 2001, there were seven buildings completed out of a total of fifteen in the master plan. Five of the seven are owned and two are leased under a two year lease with a one year option that expires on December 31, 2005. The eight remaining buildings, which we expect to complete in 2002 and 2003, will be owned.

We are involved in various legal proceedings incident to our normal business operations, including product liability and patent and trademark litigation. Management believes that the outcome of such litigation will not have a material adverse effect on our business, financial condition or results of operations. We have product liability and general liability insurance policies in amounts management believes to be reasonable.

There can be no assurance, however, that such insurance will be adequate to cover all potential product or other liability claims against us. We also face exposure to voluntary or mandatory product recalls in the event that our products are alleged to have manufacturing or safety defects. We do not maintain product recall insurance.

Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters

Holmes is privately-owned and there is no public trading market for our equity securities.

The following selected financial data as of and for the years ended December 31, 1997 through December 31, 2001, set forth below, have been derived from our audited Consolidated Financial Statements. The following information should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and our Consolidated Financial Statements, including the notes thereto, included elsewhere herein.


(1)	Expenses in 1997 included approximately $6.9 million of incremental compensation expense, which was paid to certain executives in conjunction with Holmes’ November, 1997 recapitalization.

(2)	In May and June, 1997, Holmes repurchased the shares held by 30% minority stockholders in one of Holmes’ subsidiaries for a total of $900,000.

(3)	EBITDA represents income before interest expense, income tax expense (benefit), depreciation and amortization and the minority interest in net income of majority-owned subsidiaries. EBITDA is presented because it is a widely accepted measure to provide information regarding a company’s ability to service and/or incur debt. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operations or other income or cash flow data prepared in accordance with generally accepted accounting principles, or as a measure of a company’s profitability or liquidity. Additionally, Holmes’ calculation of EBITDA may differ from that performed by other companies, and thus the amounts disclosed may not be directly comparable to those disclosed by other companies.

(4)	EBITDA as presented for 1999 and 2000 does not reflect the addback of integration expenses, amortization of acquired profit in inventory, plant closing costs and reduction for a legal settlement. Adjusting for these items and excluding both the costs related to the purchase of a faulty heater component and the operating results of our divested businesses would result in EBITDA of $61.4 million for 1999. For 2000, adjusting for the addback of integration expenses, plant closing costs and the costs related to the purchase of the faulty heater component, as disclosed in our Form 10-Q for the quarterly period ended June 30, 2000 previously filed with the Securities and Exchange Commission, would result in EBITDA of $31.5 million which includes a fourth quarter charge for inventory and accounts receivable of approximately $25.6 million (total discounts and allowances, inventory write-downs, co-operative advertising expense and bad debt expense were approximately $58.4 million and $34.9 in 2000 and 1999, respectively).

(5)	EBITDA as presented for 2001 does not reflect the addback of plant closing costs, restructuring costs, the costs related to the execution of an amendment to our Credit Facility in May 2001, and a fourth quarter charge of $14.1 million taken in connection with the Kmart bankruptcy. Adjusting for these items, as permitted under the Credit Facility, would result in EBITDA of $59.8 million.

(6)	For purposes of determining the ratio of earnings to fixed charges, earnings represent income before income taxes and minority interest, plus fixed charges as presented, without adjustment for one-time items as discussed in (4) and (5) above. Fixed charges consist of interest expense on all indebtedness plus a portion of rental payments on operating leases that is considered representative of the interest factor.

(7)	Total stockholders’ equity (deficit) as of December 31, 1997 and 1998 reflects a reduction attributable to Holmes’ 1997 recapitalization. See Note 9 of Notes to Consolidated Financial Statements.

Sales of most of our products follow seasonal patterns that affect our results of operations. In general, sales of fans occur predominantly from January through June, and sales of heaters and humidifiers occur predominantly from July through December. Although kitchen electrics, air purifiers, lighting products and accessories generally are used year-round, these products tend to draw increased sales during the winter months when people are indoors and, as a result, sales of these products tend to be greatest in advance of the winter months from July through December. Additionally, many of our kitchen products are given as gifts and, as such, sell at larger volumes during the holiday season. When holiday shipments are combined with seasonal products, our sales during the months of August through November are generally at a higher level than during the other months of the year. In addition to the seasonal fluctuations in sales, we experience seasonality in gross profit, as margins realized on fan products tend to be lower than those realized on kitchen electrics and other home environment products.

On February 5, 1999, we completed the acquisition of The Rival Company, a leading developer, manufacturer and marketer of a variety of products including small kitchen, home environment and personal care appliances. In connection with this acquisition, we issued $31.3 million of senior subordinated notes due in November 2007, bearing interest at 9 7/8% (the Notes), amended and restated our existing $100.0 million credit facility (the Credit Facility) to provide for a total availability of $325.0 million, and sold $50.0 million of common stock in a private placement. As a result, we have a significantly higher level of borrowing and a corresponding higher level of interest expense than in the past.

Holmes’ discussion and analysis of its financial condition and results of operations are based upon Holmes’ financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires Holmes to make estimates and assumptions about future events that affect the reported amounts in the financial statements and accompanying notes. Future events cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgement. Actual results may differ from those estimates under different assumptions and conditions.

Holmes believes the most significant accounting estimates inherent in the preparation of the financial statements include estimates associated with management’s evaluation of the allowance for doubtful accounts, inventory valuation, product returns, the evaluation of the recoverability of goodwill, as well as those used in the determination of liabilities related to litigation, product liability and taxation. In addition, significant estimates are used for reserves associated with warranty obligations, restructuring actions, employee benefits and contingencies. Holmes bases its estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances including current and expected economic conditions, product mix and in some cases actuarial valuations. The results of these estimates form the basis for making judgements about the carrying values of assets and liabilities that are not readily apparent from other sources.

Net Sales. Net sales for fiscal 2001 were $628.0 million compared to $513.2 million for fiscal 2000, an increase of $114.8 million or 22.4%. Excluding the $4.6 million of sales in 2000 related to the residual sourcing agreements for the pump and industrial businesses, which were divested in the fourth quarter of 1999, net sales increased approximately 23.5% during 2001. The increase was primarily due to increased shipments of kitchen electric products, increased international shipments, primarily driven by shipments in Mexico and Europe, and increased shipments in the Far East due to sales growth by our motor joint venture with General Electric.

customers. Kmart has indicated that it intends to reorganize on a fast-track basis and has targeted emergence from Chapter 11 in 2003. Kmart has announced that it will close over 200 stores as part of the reorganization. We are currently evaluating what effect, if any, this may have on our 2002 revenues. Holmes’ sales to Kmart were approximately 10% of total net sales in 2001.

Net sales of our Pollenex division, which we divested in January 2002, were approximately $19.3 million during 2001 and approximately $13.9 million in 2000.

Gross Profit. Gross profit for fiscal 2001 was $165.7 million compared to $131.0 million for fiscal 2000, an increase of $34.7 million or 26.5%. As a percentage of net sales, gross profit was 26.4% in 2001 and 25.5% in 2000. The positive impact to our gross profit was primarily due to the above mentioned increases in sales volumes. The volume increases were partially offset by an increase in discounts and allowances from 2000. Additionally, there was carryover fan inventory from the cooler 2000 summer season that shipped in 2001 with higher 2000 season costs. Distribution and warehousing costs also increased due to the higher carryover fan inventory. We also had higher levels of low margin closeout sales in 2001 as compared to 2000.

Selling Expenses. Selling expenses for 2001 were $69.5 million compared to $73.5 million in 2000, a decrease of $4.0 million or 5.4%. As a percentage of net sales, selling expenses decreased to 11.1% for 2001 compared to 14.3% in 2000. The decrease was primarily due to a reduction in several sales and marketing expenses such as selling commissions, print and trade advertising and sales travel expenses as we continued our effort to lower spending throughout the Company.

General and Administrative Expenses. General and administrative expenses for 2001 were $57.1 million compared to $36.0 million in 2000, an increase of $21.1 million or 58.6%. As a percentage of net sales, general and administrative expenses increased to 9.1% for 2001 from 7.0% for 2000. Several of our larger customers filed for bankruptcy in 2001 due to the weak retail environment which caused bad debt costs in excess of our historical levels. Included in the 2001 expense was a $14.1 million bad debt charge recorded in the fourth quarter, related to outstanding receivables from Kmart. Total bad debt expenses were approximately $4.5 million and $15.2 million in 2000 and 2001, respectively. In addition, the higher costs in 2001 were also due to bank and consulting fees associated with the May 7, 2001 amended Credit Facility, insurance expense and MIS infrastructure costs. Excluding the impact of the additional consulting costs related to the amended Credit Facility, general and administrative expenses were approximately 8.7% of net sales in 2001.

Product Development Expenses. Product development expenses for 2001 and 2000 were $11.0 million for both 2000 and 2001. As a percentage of net sales, product development expenses decreased to 1.8% of net sales for 2001 from 2.1% in 2000.

Restructuring Costs. Restructuring costs for 2001 were $1.2 million. These costs related to the closing of the Sedalia, Missouri manufacturing plant announced in June 2001. The costs were made up of certain employee termination benefits and property, plant and equipment write-downs. The activities of this plant were moved to the other existing plants in Clinton, Missouri and Jackson, Mississippi. As a result, approximately 300 manufacturing, engineering and office positions were eliminated. As of December 31, 2001, substantially all these employees have left the Company.

Plant Closing Costs. We also recorded $0.6 million in plant closing costs, which are expensed as incurred, associated with the closing of the Sedalia, Missouri manufacturing facility.

Interest and Other Expense, Net. Interest and other expense, net for 2001 was $37.3 million compared to $37.8 million for 2000, a decrease of $0.5 million or 1.3%. Interest expense for 2001 included a non-cash charge of $1.0 million for the issuance of warrants and increased deferred financing fees of $0.5 million related to the amended Credit Facility. Interest expense includes $4.7 million and $4.1 million of non-cash amortization of debt issuance costs in 2001 and 2000, respectively.

Income Tax Expense (Benefit). The income tax expense for 2001 was $4.5 million compared to $2.6 million for 2000. The resulting effective tax rate for these periods is not meaningful primarily due to domestic losses for which a tax benefit was not recorded, as there was no assurance such benefit would be realized. (See Note 10 of Notes to Consolidated Financial Statements under Item 8 of this Report).

Equity in Earnings from Joint Venture. We recorded $2.4 million in equity in earnings from our joint venture with General Electric in 2001 versus $0.6 million in 2000 primarily due to the growth of the joint venture. Total sales directly to the joint venture were approximately $17.1 million in 2001 versus $11.9 million in 2000.

Net Income (Loss). As a result of the foregoing factors, net loss for 2001 was $15.6 million, compared to net loss of $32.2 million for 2000.

The financial statement amounts for fiscal 2000 set forth below include a full twelve months of Rival’s operations, while (as required by purchase accounting) the financial statement amounts for fiscal 1999 include approximately eleven months of Rival’s operations, from the acquisition on February 5, 1999 onward. We have also provided a number of proforma, twelve-month comparisons for 1999 that include Rival’s comparable results from January 1, 1999 onward, and exclude the impact of the divested Rival pump and industrial businesses, as applicable, which management believes to be a more meaningful comparison.

The financial results for fiscal 2000 were below what we had anticipated. We incurred a net loss of $32.2 million in 2000 compared to net income of $1.8 million in 1999, primarily as a result of over $20.0 million in charges for write-downs against accounts receivable and inventory during the fourth quarter of 2000 which were substantially greater than our historical levels. These charges were attributable to a number of factors, including a slowing economy in the fourth quarter of 2000, customer bankruptcies, information technology integration issues and inventory rationalization by the Company. The economic downturn and weaker retail environment during the fourth quarter led to an unusually high level of customer deductions against accounts receivable. In addition, several large customers filed for bankruptcy protection late in 2000, including Bradlees, Homeplace and Montgomery Wards. We also experienced difficulties in integrating the Rival information technology systems that prevented us from properly monitoring certain customer deductions for discounts and allowances, limiting our ability to request repayment from customers for these deductions on a timely basis. During the fourth quarter of 2000, a portion of these deductions was deemed uncollectible. We also performed a SKU rationalization of each product line during the fourth quarter resulting in revaluations of selected inventory. Management believes that a significant portion of these increased charges were a result of business and operational issues of the acquired Rival Company and its integration with Holmes. Management is actively addressing these issues.

Net Sales. Net sales for fiscal 2000 were $513.2 million compared to $507.5 million for fiscal 1999, an increase of $5.7 million or 1.1%. Comparing 2000 to the proforma twelve-month 1999 results, and excluding the impact of the divested pump and industrial businesses, net sales increased approximately $20.8 million or 4.3%. The increase was primarily due to increased shipments of home environment products, increased international shipments, primarily driven by shipments in Mexico, and increased shipments in the Far East due to sales growth by our motor joint venture with General Electric. Partially offsetting these increases was a decline in shipments of kitchen electric products. Also offsetting the increases was a charge in the fourth quarter for discounts and allowances of approximately $9.9 million. Total discounts and allowances were approximately $21.9 million and $11.5 million in 2000 and 1999, respectively. Shipments for the divested businesses in 2000 were $4.6 million pursuant to a supply agreement with the buyers, which represented a decrease of approximately $42.4 million from the prior year proforma.

Gross Profit. Gross profit for fiscal 2000 was $131.0 million compared to $143.2 million for fiscal 1999, a decrease of $12.2 million or 8.5%. As a percentage of net sales, gross profit was 25.5% in 2000 and 28.2% in 1999. Compared to the proforma full year ended December 31, 1999 gross profit decreased approximately $17.2 million to 25.5% of net sales in 2000 from 28.0% of net sales in 1999. The 2000 gross profit amount includes costs and related impact of approximately $3.1 million related to the purchase of a faulty heater component. Adjusting for the divested businesses, the impact of the faulty component and the amortization of acquired profit in inventory in 1999 would result in gross profit of approximately $134.4 million or 26.4% of net sales and $148.2 million or 30.3% of net sales for 2000 and 1999 respectively. The decrease in our gross profit was primarily due to a charge in the fourth quarter for write-downs of inventory of approximately $9.9 million

and the above mentioned charge for discounts and allowances. Total charges for inventory write-downs were approximately $17.3 million and $9.4 million in 2000 and 1999, respectively. We did show an increase in home environment sales volume, lower unfavorable domestic manufacturing variances and improved Far East performance that helped our gross profit versus 1999. These were partially offset by the lower kitchen electric sales volumes and gross margins, higher raw material costs and higher warehousing costs.

Selling Expenses. Selling expenses for 2000 were $73.5 million compared to $67.5 million in 1999, an increase of $6.0 million or 8.9%. As a percentage of net sales, selling expenses increased to 14.3% for 2000 compared to 13.3% in 1999. Comparing the full year 2000 selling expenses to the selling expenses of $71.1 million for the proforma full year 1999 would result in an increase of approximately $2.4 million, or 3.4%. The increase was primarily due to a $2.1 million charge in the fourth quarter for accounts receivable write-offs in connection with co-operative advertising deductions. Total co-operative advertising expenses were approximately $14.7 million and $12.7 million in 2000 and 1999, respectively. As noted above, we had integration issues related to adopting the Rival information technology system. In addition, loss of personnel at Rival contributed to prior deductions becoming uncollectible. The selling expense increase was also partially due to increased packaging and other related sales tools expenses associated with developing and marketing our new and existing products.

General and Administrative Expenses. General and administrative expenses for 2000 were $36.0 million compared to $28.3 million in 1999, an increase of $7.7 million or 27.2%. As a percentage of net sales, general and administrative expenses increased to 7.0% for 2000 from 5.6% for 1999. For the proforma full year 1999 general and administrative expenses were approximately $29.2 million, or 5.5% of proforma net sales. Several of our larger customers filed for bankruptcy in 2000 due to the worsening retail environment which caused write-offs in excess of our historical levels. The general and administrative expense increase was primarily due to a $3.6 million charge in the fourth quarter for customer bad debt related charges. Total bad debt expenses were approximately $4.5 million and $1.3 million in 2000 and 1999, respectively. Approximately $1.8 million of the general and administrative expense increase was directly attributable to the Far East operations to support the increased sales, production and support of the combined businesses, and support of the GE joint venture. Total integration related expenses in 2000 were approximately $3.7 million versus approximately $3.4 million in 1999.

Product Development Expenses. Product development expenses for 2000 were $11.0 million compared to $10.4 million for 1999, an increase of $0.6 million or 5.8%. As a percentage of net sales, product development expenses increased to 2.1% of net sales for 2000 from 2.0% in 1999. The increase in dollars relates to the expenditures on new products both in the home environment and kitchen product lines.

Plant Closing Costs. We recorded $0.3 million in plant closing costs, which are expensed as incurred, associated with the closing of the Warrensburg, Missouri manufacturing plant.

Interest and Other Expense, Net. Interest and other expense, net for 2000 was $37.8 million compared to $31.0 million for 1999, an increase of $6.8 million or 21.9%. Approximately $4.9 million of the increase in interest expense was primarily due to an additional month of borrowing in 2000 related to the Rival acquisition as well as higher interest rates and a higher debt level during 2000 versus 1999 on the outstanding debt. Finally, we recorded income from a legal settlement from a previous Rival acquisition in 1999 in the amount of $1.6 million.

Income Tax Expense (Benefit). The income tax expense for 2000 was $2.6 million compared to a benefit of $0.9 million for 1999. The income tax expense in 2000 is largely due to the establishment of a valuation reserve of $16.9 million primarily against losses experienced in the U.S. and a tax expense of $2.4 million on income taxed in foreign jurisdictions.

Equity in Earnings from Joint Venture. We recorded $0.6 million in equity in earnings from our joint venture with General Electric for the shipment of motors from our factory in the Far East in 2000 versus $0.9 million in 1999.

Net Income (Loss). As a result of the foregoing factors, net loss for 2000 was $32.2 million, compared to net income of $1.8 million for 1999.

Holmes’ cash and cash equivalents increased to $10.1 million at December 31, 2001, from $3.0 million at December 31, 2000. The increase resulted primarily from $36.3 million provided by operations offset by the cash used for investing and financing activities of $29.2 million.

Cash provided by (used for) operations for the years ended December 31, 2001 and 2000 was $36.3 million and $(5.5) million, respectively. Cash provided by operations for 2001 consisted primarily of $24.9 million from a net loss adjusted for non-cash items and increased by $11.4 million provided by working capital activities. Net cash provided by working capital activities resulted from a decline in inventory primarily due to management initiatives to reduce inventory levels and decreases in prepaid expenses and other current assets along with an increase in accounts payable and accrued expenses, offset in part by an increase in accounts receivable due to increased sales volume.

Cash used for investing activities for the year ended December 31, 2001 was $12.2 million compared to $20.3 million in 2000. Included in 2001 was $17.0 million invested in capital expenditures for property and equipment offset by the $2.2 million net proceeds from the sale of the Warrensburg, Missouri facility and manufacturing machinery. We also received additional cash contributions of approximately $0.7 million from our joint venture partner as part of their contribution towards joint venture capital equipment which partially offset our cash used for capital expenditures of $17.0 million above. Finally, we received $1.9 million in earnings distributions from the joint venture. The Company expects to spend approximately $15 million on capital expenditures in 2002, primarily related to the expansion of its China manufacturing facilities and on-going tooling costs to support product development needs.

Cash provided by (used for) financing activities for the years ended December 31, 2001 and 2000 was $(16.9) million and $22.2 million, respectively. Cash used for financing in 2001 reflected repayments on the revolving line of credit using cash flow from operations and also debt issuance costs associated with the May 2001 Credit Facility amendment. The cash provided by financing activities for the year 2000 reflected the borrowings under the Credit Facility to fund operations.

Cash provided by (used for) operations for the years ended December 31, 2000 and 1999 was $(5.5) million and $7.1 million, respectively. Cash used for operations in 2000 reflected an $18.4 million increase in inventory levels. Higher inventory levels at the end of the year reflected cooler summer weather and slower than anticipated retail sales in the fourth quarter of 2000. Partially offsetting the inventory increase was a reduction in accounts receivable of approximately $13.2 million mainly due to the fourth quarter charges as previously described.

Cash used for investing for the year ended December 31, 2000 included $28.3 million invested in capital expenditures for property and equipment offset by additional proceeds from the sale of the sump and utility pump division and additional contingent consideration from the sale of the commercial and industrial division. We also received additional cash contributions of approximately $1.9 million from our joint venture partner as part of their contribution towards joint venture capital equipment, which partially offsets our cash used for capital expenditures of $28.3 million above. Finally, we also received $1.6 million from the sale of the Fayetteville, North Carolina facility.

Cash provided by financing activities for the years ended December 31, 2000 and 1999 was $22.2 million and $265.2 million, respectively. Cash provided by financing for the year 2000 reflected borrowings on the revolving line of credit used to fund cash flows for operations. The cash provided by financing activities for the year 1999 reflected the borrowings under the Credit Facility, and proceeds from the issuance of the Notes and common stock associated with the Rival acquisition.

Following the recapitalization transaction in November 1997 and the Rival acquisition in February 1999, we have funded our liquidity requirements with cash flows from operations and borrowings under the Credit Facility. Our primary liquidity requirements have been for working capital, to service our indebtedness and to fund capital expenditures. While there can be no assurance, we believe that existing cash resources, cash flows from operations and borrowings under the Credit Facility as most recently amended will be sufficient to meet our liquidity needs for the next twelve months, during which time we will continue to carefully evaluate our financing requirements.

We issued $105.0 million of 9 7/8% Senior Subordinated Notes due November 2007 (the Notes) in November 1997, and an additional $31.3 million of Notes in February, 1999. While we may repurchase Notes from time to time in open market or privately negotiated transactions, the Notes are not redeemable at our option prior to November 15, 2002. Thereafter, the Notes are subject to redemption at any time at our option, in whole or in part, at stated redemption prices. Annual interest payments on the Notes are approximately $13.5 million. The payment of principal and interest on the Notes is subordinated to the prior payment in full of all of our senior debt, including borrowings under the Credit Facility. The notes are cross-defaulted to payment defaults under the Credit Facility.

We entered into the amended and restated Credit Facility agreement in February 1999 in connection with the Rival acquisition. This Credit Facility consisted of a tranche A term loan of $40.0 million that matures February 5, 2005, a tranche B term loan of $85.0 million that matures February 5, 2007 and a revolving credit facility that matures February 5, 2005. The Credit Facility bears interest at variable rates based on either the prime rate or eurodollar rate at our option, plus a margin which, in the case of the tranche A term loan and a portion of the revolving credit facility, varies depending upon certain financial ratios. The Credit Facility, and the guarantees thereof by our domestic subsidiaries, are secured by substantially all of our domestic and certain foreign assets. The Credit Facility is cross-defaulted to the Notes Indentures.

Our financial performance in the fourth quarter of 2000 resulted in a default, as of December 31, 2000, of certain financial ratio covenants in the Credit Facility as previously amended. On May 7, 2001, the Credit Facility was amended (the Fourth Amendment) to waive the defaults, revise certain of the financial ratio covenants and change the maximum availability. As partial consideration for the amendments, we issued warrants to the lenders to acquire up to 5% of Holmes’ common stock on a fully-diluted basis. The warrants are exercisable at a price of $5.04 per share, and expire May 7, 2006. Additionally, investment funds affiliated with Berkshire Partners, our majority stockholder, agreed to provide an aggregate $43.5 million guarantee in support of the increased revolving credit commitment.

On March 22, 2002, Holmes and the lending group under the Credit Facility agreed to a Fifth Amendment to the Credit Facility. The Fifth Amendment revised certain of the financial ratio covenants for the periods ending December 31, 2001 through June 30, 2004, in order to reflect our current business plan and to accommodate the $14.1 million bad debt charge in the fourth quarter of 2001 relating to outstanding receivables from Kmart. Under the Fifth Amendment, the lenders have committed to a revolving credit loan A of $131 million and a revolving credit loan B of $40 million. Revolving credit loan B continues to be supported by the Berkshire Partners’ guarantee entered into in connection with the Fourth Amendment. Actual availability under these revolving credit facilities is subject to a borrowing base formula based on inventory and accounts receivable. Under the Fifth Amendment, the maturity date of the revolving credit loan B was extended from July 1, 2002 through July 1, 2004. The maturity date of the revolving credit loan A and the tranche A term loan remain at February 5, 2005, although the availability under the revolving credit loan A commitment will terminate on July 1, 2004 unless otherwise approved by a majority in interest of the lenders. The maturity date of the tranche B term loan remains at February 5, 2007. As part of the Fifth Amendment, the applicable interest rate margins on the revolving credit loan B were reduced, while the margins on the revolving credit loan A and the tranche A and tranche B term loans were increased.

$12.8 million, which was funded with proceeds of the revolving credit loan B. The Notes repurchased were retired and cancelled. This will result in a gain in the first quarter of 2002. We may consider repurchases of additional Notes in the future, and we may utilize the proceeds of the Credit Facility for this purpose.

The following summarizes Holmes’ contractual obligations at December 31, 2001, and the effect such obligations are expected to have on its liquidity and cash flow in future periods.


(1)	Included in this amount was $36.2 million, which was retired as part of the Fifth Amendment on March 22, 2002 as noted above.

(2)	These include capital expenditures and other product related purchase commitments.

The Credit Facility, as amended, and the Notes Indentures include certain financial and operating covenants, which, among other things, restrict our ability to incur additional indebtedness, grant liens, make investments and take certain other actions. Our ability to meet our debt service obligations will be dependent upon our future performance, which will be impacted by general economic conditions and other factors. See — Results of Operations and Disclosure Regarding Forward-Looking Statements above.

In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the balance sheet, and the corresponding gains and losses be reported either in the statement of operations or as a component of comprehensive income (loss), depending on the type of hedging relationship that exists. We adopted SFAS 133 during 2001 and the impact was immaterial given our limited use of derivatives.

In June 2001, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 141, “Business Combinations” (FAS 141) and No. 142, “Goodwill and Other Intangible Assets” (FAS 142). FAS 141 supersedes Accounting Principles Board Opinion (APB) No. 16, “Business Combination.” The provisions of FAS 141 (i) require that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, (ii) provide specific criteria for the initial recognition and measurement of intangible assets apart from goodwill, and (iii) require that unamortized negative goodwill be written off immediately as an extraordinary gain instead of being deferred and amortized. FAS 141 also requires that upon adoption of FAS 142 the Company reclassify the carrying amounts of certain intangible assets into or out of goodwill, based on certain criteria.

FAS 142 supersedes APB 17, “Intangible Assets,” and is effective for fiscal years beginning after December 15, 2001. FAS 142 primarily addresses the accounting for goodwill and intangible assets subsequent to their initial recognition. The provisions of FAS 142 (i) prohibit the amortization of goodwill and indefinite-lived intangible assets, (ii) require that goodwill and indefinite-lived intangibles assets be tested annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill and/or indefinite-lived intangible assets may be impaired), (iii) require that reporting units be identified for the purpose of assessing potential future impairments of goodwill, and (iv) remove the forty-year limitation on the amortization period of intangible assets that have finite lives.

Application of the non-amortization provisions of FAS 142 will result in an increase in net earnings of approximately $2.5 million per year. In connection with the adoption of FAS 142, the Company does not expect to record any reclassifications to its goodwill balance. FAS 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. Under the implementation provisions of FAS 142, the Company has until June 30, 2002 to complete step one. The second step of the goodwill impairment test measures the amount of the impairment loss, if any, and must be completed as soon as possible but no later than the end of fiscal 2002. The Company expects to complete both steps of the goodwill impairment test during the second quarter of 2002. Any impairment loss resulting from the transitional impairment tests will be reflected as the cumulative effect of a change in accounting principle as of January 1, 2002. Any impairment loss recognized subsequent to the initial adoption of FAS 142 will be recorded as a charge to current period earnings.

As of December 31, 2001, the Company had goodwill of approximately $80 million which is subject to the transitional goodwill impairment test. The Company has identified its reporting units and is in the process of allocating goodwill, other assets and liabilities to those reporting units. Because of the level of effort needed to comply with adopting FAS 142, it is not practicable to reasonably estimate the impairment charge that the Company will record upon adoption, if any.

In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (FAS 143). FAS 143 requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity is required to capitalize the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. FAS 143 is effective for fiscal years beginning after June 15, 2002 and will be adopted by the Company effective fiscal 2003. The Company believes adoption of this standard will not have a material effect on its consolidated financial statements.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” (FAS 144), which supersedes Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of” (FAS 121), and the accounting and reporting provisions of APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” (APB 30), for the disposal of a segment of a business. Because FAS 121 did not address the accounting for a segment of a business accounted for as a discontinued operation under APB 30, two accounting models existed for long-lived assets to be disposed. FAS 144 establishes a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed. It also addresses certain significant implementation issues under FAS 121. The provisions of FAS 144 will be effective for the Company as of the beginning of fiscal year 2002. The Company believes adoption of this standard will not have a material effect on its consolidated financial statements.

In November 2001, the Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force (“EITF”) reached a consensus on Issue No. 01-9 (formerly EITF Issue 00-25), “Accounting for Consideration Given to a Customer or a Reseller of the Vendor’s Products.” This issue addresses the recognition, measurement and income statement classification of consideration from a vendor to a customer in connection with the customer’s purchase or promotion of the vendor’s products. This consensus only impacts revenue and expense classifications and does not change reported net income. In accordance with the consensus reached, the Company will adopt the required accounting as of January 1, 2002. The Company is currently evaluating the impact that this standard will have on its co-operative advertising expense classification in the Company’s Consolidated Statements of Operations.

Holmes’ management will hold a telephone conference call on April 9, 2002 at 2 p.m., Eastern time, in order for investors and other interested stakeholders to hear management’s views on our results of operations during the fourth quarter and year ended December 31, 2001. If you are interested in accessing the call, please fax the following information to Kay Ford, Executive Assistant, at 508-422-1676:


	•	Name of Participant(s)

	•	Company Affiliation

	•	Nature of Business

	•	Address

	•	Phone, Fax and E-mail

At December 31, 2001, the carrying value of our debt totaled $353.2 million. The fair value approximated $272.4 million. This debt includes amounts at both fixed and variable interest rates. For fixed rate debt, interest rate changes affect the fair market value but do not impact earnings or cash flows. Conversely, for variable rate debt, interest rate changes generally do not affect the fair market value but do impact earnings and cash flows, assuming other factors are held constant.

At December 31, 2001, the Company had fixed rate debt of $135.3 million and variable rate debt of $217.9 million. Assuming a constant debt level, a one percentage point decrease in interest rates would increase the unrealized fair market value of fixed rate debt by approximately $6.2 million. Based on the amounts of variable rate debt outstanding at December 31, 2001, the earnings and cash flows impact for the next year resulting from a one percentage point increase in interest rates would be approximately $2.2 million, holding other variables constant.

All other schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or the notes thereto.

In our opinion, the consolidated financial statements listed in the index appearing under Item 8 of this Form 10-K present fairly, in all material respects, the financial position of The Holmes Group, Inc. and its subsidiaries at December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 8 of this Form 10-K presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

The accompanying notes are an integral part of these consolidated financial statements.

The Company had a non-cash transaction in 1999 whereby the Company settled vendor invoices totaling $500,000 with 99,222 shares of common stock.

The accompanying notes are an integral part of these consolidated financial statements.

The Holmes Group, Inc. (THG), along with its wholly-owned subsidiary, The Rival Company (Rival) and its subsidiaries, acquired on February 5, 1999, designs, develops, manufactures, imports and sells consumer durable goods, including fans, heaters, humidifiers, air purifiers, small kitchen electric appliances and lighting products to retailers throughout the United States and Canada, and to a lesser extent, Europe, Latin America and Asia.

Holmes Products (Far East) Limited (HPFEL) and its subsidiaries manufacture, source and sell consumer durable goods, including fans, heaters, humidifiers and kitchen electrics, mainly to THG. HPFEL operates facilities in Hong Kong, Taiwan and The People’s Republic of China.

HPFEL is a wholly-owned subsidiary of THG. Prior to the recapitalization transaction described in Note 9, THG and HPFEL were both directly or indirectly 80% owned subsidiaries of Asco Investments Ltd., a subsidiary of Pentland Group plc (Pentland).

The accompanying financial statements include the accounts of THG and its wholly-owned subsidiaries, Rival, HPFEL, Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp. and Holmes Motor Corp. The accompanying financial statements also include the accounts of Rival’s direct and indirect wholly-owned subsidiaries, Bionaire International B.V., Patton Electric (Hong Kong) Limited, Rival Consumer Sales Corporation, The Holmes Group Canada, Ltd., Rival de Mexico S.A. de C.V. and HPFEL’s wholly-owned subsidiaries, Esteem Industries Ltd., Raider Motor Corp., Dongguan Huixin Electrical Products Company, Ltd., Holmes Products (Europe) Ltd., Dongguan Holmes Products Ltd. and Dongguan Raider Motor Corp. Ltd. All significant inter-company balances and transactions have been eliminated.

THG and its consolidated subsidiaries, including Rival, HPFEL and their respective subsidiaries, are referred to herein as the Company.

The functional currency for the Company’s foreign operations is either the U.S. dollar or the subsidiary’s local currency. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Income, expense and cash flow items are translated at average exchange rates for the period. Adjustments resulting from the translation of foreign functional currency financial statements into U.S. dollars are recorded in the accumulated other comprehensive income component of stockholders equity (deficit). Gains and losses resulting from remeasurement of balances denominated in other than the local currency totaling $792,000 in 2001 are included in other (income) expense, net. Gains and losses in 2000 and 1999 were immaterial.

All inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method on approximately 80% of the inventories and the last-in, first-out method (LIFO) for the remaining 20% of the inventory.

Property and equipment are recorded at cost. Depreciation is computed over the estimated useful lives of the assets using the straight-line method. Repairs and maintenance costs are expensed as incurred.

The Company reviews long-lived assets, including goodwill, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the undiscounted cash flows to the recorded value of the asset. If an impairment is indicated, the asset is written down to its estimated fair value on a discounted cash flow basis.

Sales are recorded net of returns from retail customers. The Company adopted Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” in 2000 with no material impact on the results of operations or financial position of the Company. Revenue is recognized upon transfer of title and risk of loss. Estimates for returned goods and warranty costs are accrued at the time of shipment. Revenues for shipping and handling are recorded as net sales, while the associated costs are recorded in selling, general and administrative expenses in the consolidated statements of operations. The shipping costs included in selling, general and administrative expenses were approximately $11.4 million, $9.6 million and $10.3 million in 1999, 2000 and 2001, respectively.

All highly liquid debt instruments with original maturities of three months or less are considered to be cash equivalents. Such investments consist of a money market account. Cash overdrafts are classified as accounts payable in the consolidated balance sheets.

Advertising costs are expensed as incurred. In conjunction with transfers of inventory in 1998, the Company received advertising credits totaling $2,352,000 to be used for the purchase of advertising media, merchandise or services, subject to certain limitations and cash co-payments. The credits expire in February 2003. The remaining balance of these credits approximated $2,346,000 and $2,322,000 at December 31, 2000 and December 31, 2001, respectively, which are reported as prepaid expenses and other current assets and deposits and other assets in the consolidated balance sheets. The Company is currently evaluating several alternatives to use the remaining barter credits before they expire. Additionally, the Company offers co-operative advertising credits to certain customers. These credits are expensed as earned. Total advertising expenses in 1999, 2000, and 2001 were approximately $12,716,000, $14,731,000 and $15,757,000, respectively, which are included in selling expenses in the accompanying statements of operations.

The Company utilizes the asset and liability method of accounting for income taxes, as set forth in Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes”. SFAS 109 requires recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.

In October 1998, the Company signed an agreement with General Electric creating a limited liability company for motor manufacturing, sales and distribution. The limited liability company, GE Holmes Industries, is owned 49% by a subsidiary of THG. The Company’s portion of the joint venture earnings were as follows (in thousands):

The Company’s sales directly to the Joint Venture were approximately $5.5 million, $11.9 million and $17.1 million during the years ended December 31, 1999, 2000 and 2001, respectively. The Company’s investment in the joint venture is accounted for in the consolidated financial statements using the equity method of accounting. Under this method, the Company’s share of the joint venture’s income or loss is included in the consolidated statement of operations.

The Company accounts for comprehensive income in accordance with Statement of Financial Accounting Standard No. 130, “Reporting Comprehensive Income” (FAS 130). As it relates to the Company, comprehensive income is defined as net income plus the change in currency translation adjustments and is presented in the consolidated statement of comprehensive income (loss).

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies at December 31, 2000 and 2001, and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from those estimates.

Application of the non-amortization provisions of FAS 142 will result in an increase in net earnings of approximately $2.5 million per year. In connection with the adoption of FAS 142, the Company does not expect to record reclassifications to its goodwill balance. FAS 142 requires that goodwill be tested annually for impairment using a two-step process. The first step is to identify a potential impairment and, in transition, this step must be measured as of the beginning of the fiscal year. Under the implementation provisions of FAS 142, the Company has until June 30, 2002 to complete step one. The second step of the goodwill impairment test measure the amount of the impairment loss, if any, and must be completed as soon as possible but no later than the end of fiscal 2002. The Company expects to complete both steps of the goodwill impairment test during the second quarter of 2002. Any impairment loss resulting from the transitional impairment tests will be reflected as the cumulative effect of a change in accounting principle as of January 1, 2002. Any impairment loss recognized subsequent to the initial adoption of FAS 142 will be recorded as a charge to current period earnings.

Certain amounts in the prior year’s financial statements have been reclassified to conform to the current period presentation.

On February 5, 1999, THG completed its acquisition of Rival for an aggregate of $279.6 million, including $129.4 million cash paid in connection with a tender offer for all of the outstanding shares of Common Stock of The Rival Company (including payments to optionees), $142.9 million to refinance Rival’s outstanding debt and $7.3 million in acquisition costs. The acquisition was made utilizing cash on hand, borrowings under an amended and restated Credit Facility entered into in connection with the acquisition, the issuance of $31.3 million of senior subordinated notes and proceeds of $50.0 million from the sale of THG’s common stock to investment funds affiliated with THG’s majority shareholder, certain members of THG’s management and to certain other co-investors. This acquisition has been accounted for as a purchase, and the results of operations of Rival have been included in the consolidated financial statements since the date of acquisition. The excess of purchase price over the fair value of net assets acquired was approximately $87.2 million and $88.7 million, before $7.4 million and $4.9 million of accumulated amortization at December 31, 2001 and 2000, respectively and is being amortized on a straight-line basis over 35 years.

In connection with the acquisition, THG recorded a restructuring reserve of $6.4 million as an assumed liability in accordance with EITF 95-3, “Recognition of Liabilities in Connection with a Purchase Business Combination”(EITF 95-3). Management determined that certain restructuring actions would be required to effectively integrate the Rival operations into THG. These restructuring actions were comprised primarily of the elimination of certain overlapping positions within the management and support staff layers of the combined company, relocation of key home environment personnel from Kansas City, Missouri to Milford, Massachusetts, consolidation of the Rival Hong Kong and Canadian offices into other existing local offices, and closure of the Warrensburg, Missouri manufacturing facility. These actions resulted in the elimination of 216 Rival employees. Severance for some of these employees was paid during fiscal 2001 and the remainder will be paid in 2002.

Exit costs related to these restructuring plans are comprised primarily of lease exit costs for Canada and Hong Kong and facility closure and exit costs related to the Warrensburg facility. At December 31, 1999, the Hong Kong consolidation was completed resulting in exit costs of $0.1 million. The Montreal, Canada and Warrensburg closures were completed during fiscal 2000. The Warrensburg facility was sold during the first quarter of 2001 which resulted in a gain of $559,000, classified as other income in the consolidated statement of operations due to the current period appreciation in the assets sold. Proceeds from the sale were $1,965,000. The assets sold were classified as assets held for sale in the consolidated balance sheet at December 31, 2000.

On June 28, 2001, the Company announced that the Sedalia, Missouri manufacturing plant would be closed. The activities of this plant will be moved to the other existing plants in Clinton, Missouri and Jackson, Mississippi. As a result, approximately 300 additional manufacturing, engineering and office positions were

eliminated. In connection with the foregoing, the Company recorded a $727,000 restructuring charge for the severance and other employee related costs in accordance with EITF 94-3 “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)”. Severance costs for these employees was paid during 2001 and will continue into 2002. Additionally, the Company recorded a $467,000 charge for restructuring associated with the Sedalia plant closure. Included in this charge are asset write-downs of redundant property, plant and equipment of $417,000 and facility exit costs of $50,000. The remaining net book value of the Sedalia plant has been shown as assets held for sale in the consolidated balance sheet at December 31, 2001. Additionally, wind down costs, which are expensed as incurred, of approximately $550,000 have been classified as plant closing costs in the consolidated statement of operations for the year ended December 31, 2001.

The adjustments made in fiscal 2000 and 2001 include a reduction of the original severance and relocation amount and a reduction of the facility exit costs amount as part of the closure of the Warrensburg, Missouri facility initially recorded in accordance with EITF 95-3. Accordingly, these adjustments were recorded as reductions of goodwill.

Prior to the acquisition by THG, Rival recorded an $8.4 million restructuring charge relating to the closing of three facilities. Each of these facilities was closed during fiscal 1999. One of the properties was sold during June 1999 resulting in no gain or loss. Proceeds from the sale were $1,519,000 net of selling expenses. A second property was sold during September 1999 which also resulted in no gain or loss. The proceeds from this sale were $1,165,000. The final property was sold in April, 2000. Proceeds from this sale were $1,595,000 net of selling expenses and also resulted in no gain or loss.

Following the Rival acquisition, the Company divested two of Rival’s non-core business units. On October 8, 1999, the Company sold the assets of Rival’s sump and utility pumps division for $11.4 million. On December 21, 1999, the Company sold the net assets of Rival’s industrial and building supply products businesses for proceeds of $11.9 million. As these transactions were contemplated as of the original Rival acquisition date, the net loss on these transactions of $2.5 million was recorded as an increase in goodwill.

During 2001, the Company finalized the Rival industrial and building supply products businesses divestiture. Additional consideration of $1.2 million was also recorded as a reduction of goodwill. Subsequent to December 31, 2001, the Company sold substantially all of the assets of its Pollenex® division, a marketer of personal care products, which was acquired as part of the Rival acquisition, for approximately $15.1 million. The transaction will be recorded during the first quarter of 2002 with the net proceeds from the sale exceeding the net book value of the assets sold by approximately $7.5 million. Additionally, in January 2002, the Company announced the closing of the Sedalia, Missouri distribution center. During the first quarter of 2002,

the Company will record nonrecurring charges of approximately $1.5 million related to the closure of this facility.

The following unaudited pro forma data summarizes the Company’s results of operations for the period indicated as if the acquisition had been completed as of the beginning of the period presented. These unaudited pro forma results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt and additional amortization expense as a result of the goodwill. They do not purport to be indicative of the results of operations that actually would have resulted had the acquisitions been in effect on January 1, 1999, or of future results of operations.

The Company has retained Jordan Kahn Co., Inc. (“JKC”), a corporation owned principally by a director and stockholder of the Company, to serve as a sales representative for the Company in the northeastern United States. Pursuant to a representation agreement between the Company and JKC, the Company has agreed to pay to JKC a commission on net sales to JKC’s customers in its territory, which fee is the same fee paid by the Company to other unaffiliated sales representative organizations representing the Company in other territories throughout the United States. Pursuant to this arrangement, the Company paid a total of $287,000, $337,000, $215,000 to JKC for the years ended December 31, 1999, 2000 and 2001, respectively.

In addition, the Company entered into a consulting agreement with its new majority stockholder, to provide management, financial, advisory and strategic support and analysis. The agreement expires in November 2002, or earlier if the stockholder’s ownership percentage declines to less than 40% or less than the percentage owned by management of the Company, taken as a group. Fees under this agreement were $400,000 per year and increased to $500,000 per year as of February 5, 1999, upon the Rival acquisition.

Effective May 7, 2001, Holmes agreed to pay the Company’s majority stockholder a guarantee fee of $1.1 million as consideration for Berkshire’s guarantee of up to $43.5 million of the obligations under the Credit Facility. Payment of these fees is subordinated to the Company’s obligations under the Credit Facility. As amended effective March 22, 2002, the guarantee fee arrangement provides for payment of a fee of 2.25% per annum, compounded annually, on the $40.0 million revolving credit loan B commitment, less the portion of this facility designated as subordinated debt funding loans (which portion is subordinated to the other obligations under the Credit Facility), on which portion such fee is 20% per annum, compounded annually.

During the fourth quarter 2001, the Company’s majority stockholder purchased $36.2 million aggregate principal amount of the Company’s Senior Subordinated Notes Due 2007 on the open market. The Company repurchased these notes from the majority stockholder at the majority stockholder’s cost plus accrued interest as part of the Amended Credit Facility as fully described in Note 8.

In connection with the recapitalization transactions described in Note 9 and the Rival acquisition described in Note 3, THG issued $105.0 million and $31.3 million, respectively, in senior subordinated notes, maturing on November 15, 2007 (the Notes). The Notes bear interest at 9 7/8%, payable semi-annually on May 15 and November 15. No principal is due until the maturity date.

The Notes are subordinated to the Company’s other debt, including the Credit Facility (as described below). The Notes are guaranteed by THG’s current and future domestic subsidiaries (see Note 17) on a full, unconditional and joint and several basis, but are otherwise unsecured.

THG can, at its option, redeem the Notes at any time after November 15, 2002, subject to a fixed schedule of redemption prices which declines from 104.9% to 100% of the face value. However, THG may redeem up to $43.3 million of the Notes prior to such date at a price of 109.875% of face value upon issuance of equity securities. Additionally, upon certain sales of stock or assets or a change of control of THG, THG must offer to repurchase all or a portion of the Notes at a redemption price of 101% of face value.

The Notes contain certain restrictions and covenants, including limitations (based on certain financial ratios) on THG’s ability to pay dividends, repurchase stock or incur additional debt (other than borrowings under the Credit Facility and other enumerated exceptions). The Notes are cross-defaulted to payment defaults under the Credit Facility.

The Company entered into an amended and restated Credit Facility agreement in February, 1999 in connection with the Rival acquisition. This Credit Facility consisted of a tranche A term loan of $40.0 million that matures February 5, 2005, a tranche B term loan of $85.0 million that matures February 5, 2007 and a revolving credit facility that matures February 5, 2005. Availability under the Credit Facility is reduced by outstanding letters of credit.

The Company’s financial performance in the fourth quarter of 2000 resulted in a default, as of December 31, 2000, of certain financial ratio covenants in the Credit Facility as previously amended. On May 7, 2001, the Credit Facility was amended to waive the defaults, revise certain of the financial ratio covenants and change the maximum availability. As partial consideration for the amendments, the Company issued warrants to the lenders to acquire up to 5% of THG’s common stock on a fully-diluted basis. The warrants are exercisable at a price of $5.04 per share, and expire May 7, 2006. The fair value of the warrants was $1.0 million and was recorded as a charge to interest expense during 2001. Additionally, investment funds associated with the majority stockholder agreed to provide, aggregate $43.5 million guarantee in support of the increased revolving credit commitment.

On March 22, 2002, Holmes and the lending group under the Credit Facility agreed to a Fifth Amendment to the Credit Facility. The Fifth Amendment revised certain of the financial ration covenants for the periods ending December 31, 2001 through June 30, 2004, in order to reflect the Company’s current business plan and to accommodate the $14.1 million bad debt charge in the fourth quarter of 2001 relating to outstanding receivables from Kmart. Under the Fifth Amendment, the lenders have committed to a revolving credit loan A of $131 million and a revolving credit loan B of $40 million. Revolving credit loan B continues to be supported by the Berkshire Partners’ guarantee entered into in connection with the Fourth Amendment. Actual availability under these revolving credit facilities is subject to a borrowing base formula based on inventory and accounts receivable. Under the Fifth Amendment, the maturity date of the revolving credit loan B was extended from July 1, 2002 through July 1, 2004. The maturity date of the revolving credit loan A and the tranche A term loan remain at February 5, 2005, although the availability under the revolving credit

loan A commitment will terminate on July 1, 2004 unless otherwise approved by a majority in interest of the lenders. The maturity date of the tranche B term loan remains at February 5, 2007. As part of the Fifth Amendment, the applicable interest rate margins on the revolving credit loan B were reduced, while the margins on the revolving credit loan A and the tranche B term loans were increased.

As of December 31, 2000 and 2001, the Company’s availability was $18.7 million and $63.7 million, respectively, net of outstanding letters of credit totalling $4.3 million and $4.8 million, respectively. The Credit Facility bears interest at variable rates based on either the prime rate or eurodollar rate at the Company’s option, plus a margin which, in the case of the tranche A term loan and a portion of the revolving credit facility, varies depending upon certain financial ratios. The Credit Facility, and the guarantees thereof by the Company’s domestic subsidiaries, are secured by substantially all of the Company’s domestic and certain foreign assets. The Credit Facility is cross-defaulted to the Notes Indentures.

In conjunction with the Fifth Amendment, Holmes repurchased from two Berkshire Partners’ investment funds an aggregate principal amount of approximately $36.2 million of the Notes. The purchase price of the Notes, representing Berkshire Partners’ cost plus accrued interest on the Notes, was approximately $12.8 million, which was funded with proceeds of the revolving credit loan B. The Notes repurchased were retired and cancelled. This will result in a gain in the first quarter of 2002. The Company may consider repurchases of additional Notes in the future, and we may utilize the proceeds of the Credit Facility for this purpose.

The Credit Facility as amended, and the Notes Indentures include certain financial and operating covenants, which, among other things, restricted the ability of the Company to incur additional indebtedness, grant liens, make investments and take certain other actions. The ability of the Company to meet its debt service obligations will be dependent upon the future performance of the Company, which will be impacted by general economic conditions and other factors.

Effective May 7, 1999 the Company entered into an interest rate collar transaction agreement with its primary lending bank. The interest rate collar consists of a cap rate of 6.5% and a floor rate of 4.62%. The one-time premium payment for the collar was $225,000 and the agreement terminates March 31, 2002. Quarterly on the last business day of March, June, September and December beginning September 30, 1999 if the LIBOR interest rate at the lending bank is greater than the cap rate, the lending bank agrees to pay the Company a notional amount as described in the agreement multiplied by the number of days in that quarter over 365 days times the difference between the LIBOR rate and the cap rate. If on the other hand the LIBOR rate is less than the floor rate, the Company would have to pay the lending bank based on the same calculation. If the LIBOR rate is between the cap and floor rate, no payments would be necessary by either party. The LIBOR interest rate at December 31, 2000 and 2001 was 6.66% and 1.91%, respectively, therefore the Company owed approximately $40,000 and $563,000 in the first quarter of 2001 and 2002, respectively, to the lending bank.

On November 26, 1997, the Company and its stockholders consummated an agreement to perform the following: (i) the stockholders of HPFEL contributed their shares of common stock, $1 par value, to THG in exchange for 2,750,741 shares of THG’s common stock, no par value, (ii) THG issued 4,718,579 shares of its common stock to outside investors and certain executive officers of the Company for approximately $15.5 million, net of related issuance costs, (iii) the Company repaid all amounts outstanding to Pentland affiliates and repaid all amounts outstanding on the Company’s trade acceptances, including accrued interest, and (iv) THG redeemed 18,620,450 shares of THG common stock held by Pentland for approximately $62.1 million. In connection with these transactions, THG issued $105.0 million of 9 7/8% Senior Subordinated Notes due in November 2007 and borrowed $27.5 million under a new Line of Credit facility, both described in Note 8.

The transactions described above have been accounted for as a leveraged recapitalization of the Company. The Company has retained its historical cost basis of accounting, due to the significant minority shareholders which remained. The shares redeemed from Pentland have been recorded as treasury stock, at cost.

In connection with the recapitalization transaction described above, THG’s Board of Directors adopted and the stockholders approved the 1997 Stock Option Plan (the Plan). The Plan provides for the grant of incentive stock options and non-qualified stock options to employees, officers, directors, and consultants of the Company’s, except that incentive stock options may not be issued to consultants or non-employee directors. A total of 1,563,020 shares of THG’s common stock were reserved for issuance under the Plan. In order to provide for the Company’s larger size and the addition of Rival’s employees following the acquisition, the Option Plan was amended to increase the number of shares available for grant to 4,260,978. In October of 2000, the Plan was further amended to increase the number of shares available for grant to 4,460,978. In October of 2001, the Plan was again amended to increase the number of shares available for grant to 5,960,978. The exercise price and period over which options become exercisable will be determined by the Board of Directors. However, the exercise price of incentive stock options will be equal to at least 100% of the fair market value of THG’s common stock on the date of grant (110% for individuals holding more than 10% of THG’s common stock). Options will expire no later than 10 years after date of grant (5 years for individuals holding more than 10% of THG’s common stock). The Plan will expire in November 2006.

As of December 31, 2001, options on 2,122,347 shares were exercisable at a weighted average price of $4.36 and 318,983 options were available for future grants. No options were exercised during the three year period ended December 31, 2001.

The following table summarizes information about the 1997 Plan stock options outstanding at December 31, 2001:

The Company accounts for stock-based compensation using the method prescribed in Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees”. All awards were granted with an exercise price equal to the fair value of the Company’s stock, accordingly, no compensation cost has been recognized for the Company’s stock option plan. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 Accounting for Stock-Based Compensation (FAS 123). Had compensation cost been determined based on fair value at the grant dates for awards in 1998, 1999 and 2000, consistent with the provisions of FAS 123, the Company’s net income would have been reduced to the pro forma amounts indicated below. The pro forma net income reflected below does not include a tax benefit for 2000 or 2001 as a full valuation allowance would have been provided against any such benefit.

The fair value of options granted at date of grant was estimated using the Black-Sholes model with the following assumptions:

The weighted average grant date fair value of options granted during 1999, 2000 and 2001 was $1.30, $1.54 and $.80 per share, respectively.

All of the holders of THG’s outstanding stock are subject to stockholders’ agreements. These agreements provide the Company with a right of first refusal on any proposed sales of stock to outside parties.

Additionally, THG has certain rights to repurchase shares of Common Stock and options from employees upon their termination of employment.

Deferred income taxes reflect the tax impact of temporary differences between the amount of assets and liabilities for financial reporting purposes and such amounts as measured by tax laws and regulations. Under SFAS 109, the benefit associated with future deductible temporary differences and operating loss or credit carryforwards is recognized if it is more likely than not that a benefit will be realized. Deferred tax expense (benefit) represents the change in the net deferred tax asset or liability balance.

The Company’s effective tax rate varies from the statutory U.S. federal tax rate as a result of the following:

Deferred tax assets and deferred tax liabilities are comprised of the following at December 31, 2000 and 2001:

As of December 31, 2001, the Company had gross net operating loss carryforwards for federal and state income tax purposes of approximately $65.9 million expiring between 2004 and 2021. The Company has increased its valuation allowance from $18,541,000 to $32,431,000 primarily related to the realizability of federal and state net operating loss carryforwards generated in the current year. The Company has recorded the balance of the deferred tax asset in the belief that it is more likely than not that it will be realized. The utilization of the net operating loss carryforwards may also be further limited in the event of a change of ownership as defined under Internal Revenue Code Section 382.

In general, no provision has been recorded for U.S. or additional foreign taxes on undistributed earnings of foreign subsidiaries, as it is management’s intention that these earnings will continue to be reinvested. Total undistributed earnings of foreign subsidiaries as of December 31, 2001 are approximately $76.2 million.

The Company has various noncancellable operating leases for facilities, vehicles and office equipment that expire at various dates through 2015. Certain of these leases contain options for renewal or purchase of the underlying asset. Rent expense was approximately $7,052,000, $7,575,000 and $9,300,000 in 1999, 2000 and 2001, respectively.

The Company signed a 15 year lease agreement for its new corporate headquarters facility and distribution center on January 7, 2000. Construction was completed and the Company moved in February 2001. The lease payments commenced September 1, 2000 for a portion of the facility and December 1, 2000 for the full facility. Yearly lease payments of $2,398,915 increase every three years by a factor of up to 6.75%.

At December 31, 2001, future minimum rental payments under noncancellable lease arrangements are as follow(in thousands):

THG provides its employees with two defined contribution retirement plans under section 401(k) of the Internal Revenue Code. The first plan is The Holmes Group 401K Plan — Plant Employees. This plan is for all U.S. plant employees (except Jackson, Mississippi). Plant employees are eligible to contribute up to 15% of their compensation, which is then invested in one or more investment funds. Holmes matches 50% of the contribution per year for employees who work 1000 hours in the year and are employed as of year end.

The second plan is The Holmes Group Savings and Investment Plan. This plan is for all salaried, hourly and clerical workers not working in the plants. Employees are eligible to contribute up to 25% of their compensation, which is then invested in one or more investment funds. The Company does not match in this plan.

HPFEL provides its Hong Kong based employees with a defined contribution retirement plan. All Hong Kong based employees of HPFEL and Esteem Industries Ltd. may contribute 5% of their compensation, with the Company contributing an additional 5% to 7 1/2% of an employee’s compensation.

The Company’s contributions to these plans approximated $542,000, $298,000 and $261,000 in 1999, 2000 and 2001, respectively.

As part of the acquisition as described in Note 3, THG acquired three Rival Company defined benefit pension plans: The Rival Company Jackson Plant Employees’ Retirement Plan, The Rival Manufacturing Company Clinton Plant Employees’ Retirement Plan, and The Rival Company Plan for Sales, Administrative and Clerical Employees (SAC plan). Benefits for plant employees are primarily based on years of service. Sales, administrative and clerical employees receive a retirement benefit based on final pay at retirement and years of service.

During the first quarter of fiscal 2000, the SAC plan was amended and restated to allow the vesting of benefits for certain plan participants under a cash balance plan formula. All employees who were aged 50 with 5 years of credited service on February 28, 2000 were grandfathered under the old plan formula. The new plan was renamed The Holmes Group Retirement Benefit Accumulation Plan. Effective December 30, 2000, The Rival Company Jackson Plant Employees’ Retirement Plan and The Rival Manufacturing Company Clinton Plant Employees’ Retirement Plan were merged into the Holmes Group Retirement Benefit Accumulation Plan, but retained their respective benefit formulas. All benefits under the Plan are noncontributory. The Company’s funding policy, is consistent with the funding requirements under ERISA and the Internal Revenue Code.

During 2001, the Company recognized $487,000 of expense in accordance with the provisions of Financial Accounting Standard Board Standard No. 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (FAS 88). Included in the 2001 FAS 88 expense is a charge for contractual termination benefits of $235,000 offset by a curtailment gain of $220,000 primarily due to Company’s restructuring actions (see Note 3). In addition, a FAS 88 charge for a partial plan settlement of $472,000 has been recognized due to the level of lump sum benefits paid to employees during 2001.

Information concerning the Company’s pension and other postretirement benefit plans is as follows (in thousands):

THG sells its products to retailers throughout the United States, Canada, Mexico and Europe. Two customers accounted for approximately 27% and 11%, respectively, of total sales in 1999 and approximately 26% and 10%, of total sales in 2000, respectively. Three customers accounted for approximately 32%, 12% and 10%, respectively, of total sales in 2001. Accounts receivable due from the three largest customers amounted to 33% and 53% of total accounts receivable at December 31, 2000 and 2001, respectively.

Certain of THG’s retail customers have filed for bankruptcy protection during 2000 and 2001. Management monitors and evaluates the credit status of its customers, and adjusts sales terms as appropriate. The Company maintains reserves for potential credit losses based on management’s estimates of the creditworthiness of its customers. Should conditions warrant, the Company may need to increase these reserves, which may have an adverse impact on the Company’s earnings. THG has also entered into an agreement with an insurance company to insure THG’s receivables from certain pre-determined customers, up to specified limits, if the customer defaults on payment. In exchange, THG pays a semi-annual fee.

Management does not believe that the Company is subject to any other unusual risks beyond the normal credit risk attendant to operating their business.

On January 22, 2002, Kmart Corporation, a significant customer of the Company, filed a petition for voluntary bankruptcy under Chapter 11 of the U.S. Bankruptcy Code. Management has estimated and recorded an allowance for doubtful accounts of approximately $14.1 million related to the accounts receivable balances due from Kmart Corporation at December 31, 2001, which were uninsured and remained uncollected at January 22, 2002.

The Company adopted SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information” (SFAS 131), during 1998. SFAS 131 established standards for reporting information about business segments in annual financial statements. It also established standards for related disclosures about products and services, major customers and geographic areas. Business segments are defined as components of a business about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The business segments are managed separately because each segment represents a strategic business unit whose main business is entirely different.

The Company currently manages its operations through three business segments: consumer durables, international and Far East. The consumer durables segment sells products including fans, heaters, humidifiers, air purifiers, Crock-Pot® slow cookers, toasters, ice cream freezers, can openers and lighting products to retailers throughout the U.S. The consumer durables segment is made up of home environment products and kitchen electric products and is considered one business segment due to the similar customer base and distribution channels. The international segment sells the Company’s products outside the U.S. The Far East segment is the manufacturing and sourcing operation located primarily at HPFEL.

The other category represents the divested industrial and building supply businesses that were considered a separate segment prior to 2000. The 2000 amounts represent the final shipments under supply agreements

with the purchasers of these businesses. Segment information (in thousands) is as follows for the three years ended December 31, 2001:

The accounting policies of the reportable segments are the same as those described in Note 2 of the Notes to Consolidated Financial Statements. The results are disaggregated using a management approach, which is consistent with the manner in which the Company’s management internally disaggregates financial information for the purposes of assisting in making internal operational decisions.

Other operating costs include: cost of sales, operating expenses, other (income) expense, net, equity in earnings from joint venture and income taxes.

Net sales are grouped based on the geographic origin of the transaction. Net sales in the United States include direct export sales to Europe.

The Company’s manufacturing entities in the Far East sell completed products to THG in the United States at intercompany transfer prices which reflect management’s estimate of amounts which would be charged by an unrelated third party. These sales are excluded from the above table and are eliminated in consolidation. The remaining Far East sales are to unrelated third parties.

THG is a party to several agreements to license certain technologies and products. These license agreements generally provide for royalties based on sales of the related products by THG. Such royalties have not been material to date.

In July 2001, THG entered into an exclusive license and supply agreement for certain chemical additives expiring December 31, 2002. The agreement stipulates that THG has an annual minimum purchase obligation under this agreement of $156,000 for the time period July 1, 2001 to June 30, 2002 and $50,000 for the six months ended December 31, 2002.

In June 2000, THG entered into a trademark agreement that provides for annual minimum royalties for use of a licensed mark expiring June 30, 2003. The annual minimum royalties are on selected products sold by THG. The minimum royalties for the agreement years ended June 30, 2001, 2002 and 2003 are $179,000, $282,000 and $401,000, respectively, and are payable on a quarterly basis.

At December 31, 2001, the Company had commitments outstanding for capital expenditures under purchase orders and contracts of approximately $13.5 million.

The Company is involved in litigation and is the subject of claims arising in the normal course of its business. HPFEL has a contingent liability related to potential withholding taxes (and the surcharges thereon) on rent paid to the spouse of one of the directors. Although the individual has accepted responsibility for the payment of these taxes, the Company would be accountable for these tax payments in the event that the individual did not fulfill this obligation. In the opinion of management, based upon discussions with legal counsel, no existing litigation or claims will have a materially adverse effect on the Company’s financial position or results of operations and cash flows.

The Company entered into employment and non-competition agreements with its senior executives in November 1997, the original terms of which expired on December 31, 2001, but which are automatically renewable for additional annual periods. These agreements provide that if employment is terminated without cause, the employees will receive severance payments of their respective salaries for 12 months.

Effective August 1, 2001, the Company entered into an employment and non-competition agreement with Peter J. Martin, for an initial term expiring on December 31, 2002, subject to additional annual renewal periods. This agreement provides that if Mr. Martin’s employment is terminated by Holmes without cause or by Mr. Martin for good reason (as defined therein), Mr. Martin will receive severance payments of up to 18 months’ salary, as well as a pro-rated bonus payment and certain other benefits.

On July 24, 2001, the Company agreed to modify Mr. Rosenzweig’s employment arrangements as then in effect, to provide for additional protection in the event of termination of employment without cause, waiver of the Company’s right to repurchase his shares of common stock and stock options, and continued service as a director, among other things. On September 19, 2001, the Company further agreed to accelerate the vesting of all of Mr. Rosenzweig’s stock options upon a termination of employment, and to extend the post-termination exercise period for the full duration of the option term.

Effective February 1, 2002, the Company entered into an amended employment and non-competition agreement with Jordan A. Kahn for a term expiring on January 31, 2003. Under this agreement Mr. Kahn’s stock and stock options will be treated substantially the same as those of Mr. Rosenzweig as described above. The agreement provides that upon termination without cause, non-renewal of the agreement, death or

disability, Mr. Kahn will receive a lump-sum severance of $375,000 plus 25% of his base salary, as well as a pro-rated bonus payment and certain other benefits. The lump-sum severance payment, but not the other benefits, would be payable in the event of termination for cause.

Amounts that can be distributed by HPFEL’s subsidiaries in China are based on the financial regulations of China, which differ from accounting principles generally accepted in the United States.

HPFEL’s two Chinese operating subsidiaries, Dongguan Huixin Electrical Products Company, Ltd. and Dongguan Raider Motor Corp. Ltd., are deemed to be wholly owned foreign enterprises and, as such, Chinese laws and regulations require these companies to transfer a certain portion of after-tax profit each year to a reserve fund and an employee bonus and welfare fund.

The amount transferred to the reserve fund must be at least 10% of the after-tax profit each year, determined in accordance with the financial regulations of China, up to a cumulative maximum of 50% of the entity’s registered capital stock. As the Company has contributed the statutory maximum to the reserve fund, no contributions were paid in 1999, 2000 or 2001. Transfers to the staff welfare fund is voluntary and are determined by the Company’s management. No transfers were made to the employee staff welfare fund in 2001, 2000 or 1999.

The retained earnings of these companies, including earnings attributable to the former minority stockholders, on the basis of accounting principles generally accepted in the United States, are as follows (in thousands):

The currency of China, the renminbi, is not freely convertible and the ability of these subsidiaries to remit retained earnings to the parent company is dependent on their ability to generate foreign currency denominated earnings or to obtain government approval for the purchase of foreign currency.

The Company enters into various types of financial instruments in the normal course of business. Fair values are estimated based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of perceived risk. Accordingly, the fair values may not represent actual values of the financial instruments that could have been realized as of year end or that will be realized in the future.

Fair values for cash and cash equivalents, accounts receivable, other receivables, income taxes receivable, accounts payable, accrued expenses, accrued income taxes and capital lease obligations approximate their carrying values at December 31, 2000 and 2001, due to their relatively short maturity. The fair values of the Company’s Credit Facility approximate its carrying values at December 31, 2001 because the interest rates on these borrowings approximate current market rates. The fair value of the Company’s Notes are approximately 40% of their carrying value, based on the repurchases of the Notes by the Company’s majority stockholder as described in Note 4.

The senior subordinated notes described in Note 8 were issued by THG and are guaranteed by Rival and its three domestic subsidiaries and Holmes Manufacturing Corp. (Manufacturing), Holmes Motor Corp.

(Motor) and Holmes Air (Taiwan) Corp. (Taiwan), but are not guaranteed by THG’s other subsidiaries, HPFEL and Holmes Air (Canada) Corp. (Canada), or Rival’s five foreign subsidiaries. The guarantor subsidiaries are directly or indirectly wholly-owned by THG, and the guarantees are full, unconditional and joint and several. The following condensed consolidating financial information presents the financial position, results of operations and cash flows of (i) THG, as parent, as if it accounted for its subsidiaries on the equity method, (ii) Rival (on a consolidated basis following its acquisition by THG), Manufacturing, Motor and Taiwan, the guarantor subsidiaries, and (iii) HPFEL, Canada, Bionaire International B.V., The Rival Company of Canada, Ltd., Waverly Products Company, Ltd., and Rival de Mexico S.A. de C.V. the non-guarantor subsidiaries. There were no transactions between Rival, Manufacturing, Motor and Taiwan, or between HPFEL and Canada, during any of the periods presented. Taiwan had no revenues or operations during the periods presented, and Manufacturing ceased operations in March 1997. As further described in Note 15, certain of HPFEL’s subsidiaries in China have restrictions on distributions to their parent companies.

The following table sets forth certain information with respect to our directors and executive officers. The directors are elected annually by the stockholders. Pursuant to the terms of a Stockholders’ Agreement entered into in connection with the 1997 recapitalization transactions, the stockholders have agreed to vote in favor of the election of the persons named as directors below.

Jordan A. Kahn, Holmes’ founder and Chairman of the Board of Directors, had served as President and Chief Executive Officer and a director since Holmes’ organization in 1982. Since 1968, Mr. Kahn has also been President of Jordan Kahn Co., Inc. a manufacturer’s representative representing small electric personal appliance manufacturers, including the Company, to retailers across the Northeast.

Peter J. Martin joined the Company in August 2001 as President and Chief Executive Officer. Prior thereto, he was Group President Home Décor business for Newell Rubbermaid, a NYSE-listed housewares company, since November 2000. From December 1997 through October 2000 he was President of Newell Window Fashions Europe. From May 1994 to November 1997 he was Vice President — Group Controller.

Gregory F. White has served as Executive Vice President, Sales and Marketing since 1995, and from 1993 to 1995 as Vice President Marketing. He became a director of Holmes in 1997. Mr. White served as Account Supervisor at Ammirati & Puris, an advertising agency, from 1992 to 1993 and as Account Manager at the advertising agency D’Arcy, Masius, Benton & Bowles from 1991 to 1992.

John M. Kelliher, Senior Vice President and Chief Financial Officer, joined Holmes in February 2002 from The Stride Rite Corporation, a NYSE-listed footwear marketer, where he spent twenty years in a number of financial management positions, including Chief Financial Officer and Treasurer from February 1998 to April 2001 and Vice President — Finance and Treasurer from February 1993 to January 1998.

(Tommy) Woon Fai Liu became Managing Director of Holmes’ Far East operations upon the closing of the 1997 recapitalization transactions. From 1993 to 1997, Mr. Liu served as Chief Financial Officer and Executive Director of Asco General Supplies Far East Limited, a subsidiary of Pentland Group plc, our former majority stockholder, as well as Executive Director of Holmes Far East since 1994. From 1989 to 1993, Mr. Liu was Finance Director for Johnson & Johnson Hong Kong. He became a director of Holmes during 1999.

Louis F. Cimini joined Holmes in December 1999 from CGU, an insurance company, where he was Vice President of Human Resources for two years. Prior to joining CGU, Mr. Cimini spent nine years with PHH (now Cendant Mobility), a Fortune 500 corporate services organization, as Senior Vice President of Human

Richard K. Lubin is a Managing Director of Berkshire Partners, which he co-founded in 1986. He became a director of Holmes in 1997, and has been a director of many of Berkshire’s manufacturing, retailing and transportation investments, including, among others, U.S. Can Corporation and English Welsh & Scottish Railway, Ltd.

Randy Peeler is a Managing Director of Berkshire Partners, where he has been employed since 1996. From 1994 to 1996, he was responsible for new business ventures at Health Advances, a healthcare industry consulting firm. From 1993 to 1994, he served as Chief of Staff to the Assistant Secretary for Economic Policy at the U.S. Department of the Treasury. Prior to that, he was a consultant with Cannon Associates. Mr. Peeler became a director of Holmes in 1997, and also serves as a director of Casella Waste Systems, Inc. and Weigh-Tronix, LLC.

Stanley Rosenzweig served with Holmes from 1991 until December 2001, initially as Vice President — Operations, and from 1993 until December 2001, as Chief Operating Officer and a director. Mr. Rosenzweig resigned from the Company in December 2001, but will continue to serve as a director of the Company.

Fred J. Musone has been nominated to join the Holmes Board of Directors upon the annual stockholders’ meeting to be held in April 2002. Mr. Musone is currently a consultant with several companies in the automotive industry. From 1995 to 1998 he was President of Morton Auto Safety Products, the world’s largest manufacturer of air bag modules and inflators. Prior to that, Mr. Musone spent over 25 years at Federal Mogul, a worldwide automotive parts supplier, in various executive and senior management positions.

The following Summary Compensation Table sets forth information concerning the compensation paid or accrued by Holmes to the Chief Executive Officer and certain other persons who served as executive officers during the fiscal year ended December 31, 2001.


(1)	Primarily represents automobile allowance, annual living expense allowance or annual lease payments on automobile provided by Holmes.

(2)	Represents Holmes’ matching contribution under its 401(k) plan.


(3)	Represents the payment of a signing bonus and related relocation expenses in connection with joining the Company in August 2001.

The following table describes stock options granted during 2001 to the executive officers set forth in the Summary Compensation Table above.


(1)	These options to purchase Holmes’ common stock were granted under Holmes’ 1997 Stock Option Plan. Approximately one-half of each option grant consists of “incentive stock options”, vesting over a five-year period. The remaining options are non-qualified options whose vesting is tied to a specific target price for Holmes’ common stock.

(2)	Net gains from potential stock option exercises are estimated based on assumed rates of stock price appreciation over the option term as set forth in rules promulgated by the Securities and Exchange Commission, and are not intended to forecast future appreciation of Holmes’ common stock. The actual net gains, if any, are dependent on the actual future performance of the common stock, for which there is currently no public market.

The following table sets forth certain information concerning the number and value of unexercised options to purchase Holmes’ common stock at December 31, 2001.


(1)	Includes non-qualified options whose vesting is tied to specific Holmes performance measures.

(2)	Represents the assumed value of shares of Holmes’ common stock covered by outstanding options, less the aggregate option exercise price. There is currently no public market for Holmes’ common stock. An independent valuation was made of the common stock during 2001 that valued the common stock at $3.50 per share. This value was used in setting all of the option grants during 2001.

The following table sets forth certain information regarding the beneficial ownership of Holmes’ common stock. Except as indicated in the footnotes to this table, the Company believes that the persons named in this table have sole voting and investment power with respect to all shares of common stock indicated.


*	Less than 1.0%

(1)	Unless otherwise specified, the address of each person is c/o The Holmes Group, Inc., One Holmes Way, Milford, MA 01757.

(2)	Beneficial ownership is determined in accordance with the rules of the Commission and reflects general voting power and/or investment power with respect to securities. In addition to the 20,331,567 shares of common stock outstanding as of the date hereof, shares of common stock subject to options or warrants exercisable within 60 days are deemed outstanding.

(3)	Includes shares held by various investment entities affiliated with Berkshire Partners LLC.

(4)	Includes shares which may be held by family members or affiliates. Includes the following shares subject to vested stock options: Mr. Kahn - 561,197 shares; Mr. Rosenzweig - 665,620 shares; Mr. White - 459,116 shares; and Mr. Liu - 78,000 shares. With respect to Mr. Kahn, includes 189,472 shares held in trust for employees of the Company as to which Mr. Kahn is voting trustee. Mr. Kahn disclaims beneficial ownership of such shares.

(5)	Includes shares held by affiliated investment entities.

(6)	This person is affiliated with Berkshire Partners LLC and may be deemed to have a beneficial interest in certain of the shares held by its affiliates. This person disclaims beneficial ownership of shares in which he has no pecuniary interest.

(7)	Includes stock options and voting trust shares referred to in Note 4 and the shares referred to in Note 6, as well as an additional 10,000 option shares.

Pursuant to a letter agreement dated December 10, 1998 with two investment funds affiliated with Berkshire Partners (the Letter Agreement), Berkshire Partners received a fee of $2.0 million from Holmes as of the closing of the Rival acquisition. Pursuant to a Management Agreement (the Management Agreement),

entered into in November 1997 in connection with the 1997 Transactions, Berkshire Partners received a $1.5 million fee from Holmes and an annual fee of $400,000 per year for the provision of management and advisory services. The Letter Agreement increased the annual management fee to $500,000 following the closing of the Rival acquisition. The Management Agreement will be in effect until November, 2002, provided that the Management Agreement will terminate on the later of the first date that (i) Berkshire Partners owns less than 40.0% of Holmes’ common stock on a fully diluted basis, and (ii) Berkshire Partners owns fewer common shares than the members of Holmes’ management, taken as a group, or fewer shares than any other single stockholder. Berkshire Partners is also entitled to designate two of Holmes’ directors and has the right, at its election, to increase the size of the Board of Directors and the number of directors designated by it by an additional two directors. From time to time, Holmes may pay additional consulting or other fees to Berkshire Partners.

Effective May 7, 2001, Holmes agreed to pay the two investment funds affiliated with Berkshire Partners a guarantee fee as consideration for Berkshire’s guarantee of up to $43.5 million of the obligations under the Credit Facility. Payment of these fees is subordinated to our obligations under the Credit Facility. As amended effective March 22, 2002, the guarantee fee arrangement provides for payment of a fee of 2.25% per annum, compounded annually, on the $40.0 million revolving credit loan B commitment, less the portion of this facility designated as subordinated debt funding loans (which portion is subordinated to the other obligations under the Credit Facility), on which portion such fee is 20% per annum, compounded annually.

During 2001, investment funds affiliated with Berkshire Partners purchased the Company’s Senior Subordinated Notes Due 2007 on the open market. They purchased approximately $36.2 million principal amount of bonds, which the Company purchased from the Berkshire Partners funds at cost plus accrued interest (approximately $12.8 million) as part of the Fifth Amendment to the Credit Facility as fully described in Note 8 of Notes to Consolidated Financial Statements under Item 8 of this Report.

Since its inception in 1982, Holmes has retained Jordan Kahn Co., Inc. (JKC), a corporation owned by Jordan A. Kahn, to serve as a sales representative for Holmes in the northeastern United States. Pursuant to a representation agreement between Holmes and JKC, Holmes has agreed to pay to JKC a commission on net sales to JKC’s customers in its territory, which fee is the same fee paid by Holmes to other unaffiliated sales representative organizations representing Holmes in other territories throughout the United States. Pursuant to this arrangement, Holmes paid a total of $287,000, $337,000 and $215,000 to JKC for the years ended December 31, 1999, 2000 and 2001, respectively.

In connection with the November 1997 recapitalization transactions, Holmes purchased a portion of the shares of common stock of Holmes beneficially owned by an affiliate of Pentland, its former majority stockholder. At this time, Holmes entered into new employment agreements with Messrs. Kahn, Rosenzweig, White and Liu, and made certain payments to Messrs. Kahn, Rosenzweig and White in connection with the 1997 transactions. The agreements with Messrs. Kahn and Rosenzweig were modified during fiscal 2001, and Holmes entered into an employment agreement with Peter Martin in connection with his joining Holmes in August 2001. The material terms of these employment agreements are described above in Note 14 of Notes to Consolidated Financial Statements under Item 8 of this Report.

In connection with the Rival acquisition, Holmes retained an affiliate of Bain Securities, Inc., a stockholder of Holmes, to perform acquisition consulting services, for which Holmes paid approximately $300,000 during 1998 and approximately $1,925,000 during 1999. Approximately $500,000 of the 1999 fees were paid in the form of 99,222 shares of Holmes’ common stock. The Company also paid $350,000 for professional fees related to the divestiture of Rival’s commercial and industrial and pump division business assets during 1999. The remaining fees were paid in connection with the acquisition and for other general consulting services.


	1. Financial Statements are listed in the Index to Consolidated Financial Statements contained in Item 8 of this Report.

	2. Financial Statement Schedules, to the extent required, are listed in the Index to Consolidated Financial Statements contained in Item 8 of this Report.

	3. Exhibits are listed in subsection (c) below.

We filed a Current Report on Form 8-K reporting the sale of the Pollenex division as of January 14, 2002.


	(1)	Incorporated by reference to the Registrant’s Registration Statement on Form S-4, as amended (Registration No. 333-44473).

	(2)	Incorporated by reference to the Registrant’s Tender Offer Statement on Schedule 14D-1 dated December 23, 1998, as amended.

	(3)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated February 5, 1999.

	(4)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998.

	(5)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated October 8, 1999.

	(6)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated December 21, 1999.


	(7)	Incorporated by reference to the Registrant’s Registration Statement on Form S-4, as amended (Registration No. 333-77905).

	(8)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.

	(9)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.


(10)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.

(11)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.

(12)	Incorporated by reference to the Registrant’s Current Report on Form 8-K dated January 14, 2002.

(13)	Filed herewith.

Pursuant to the requirements of Section 13 or 15(d) 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.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

67 EX-10.27 3 b42247hgex10-27.txt EX-10.27 EXEC EMPLOYMENT AND NON-COMPETITION AGMT. EXHIBIT 10.27 EXECUTIVE EMPLOYMENT AND NON-COMPETITION AGREEMENT AGREEMENT dated as of the 1st day of February, 2002, by and between The Holmes Group, Inc., a Massachusetts corporation (the "Company"), and Jordan A. Kahn, a resident of Wellesley, Massachusetts (the "Executive"). WHEREAS, the Company desires to continue to engage the services of the Executive and the Executive desires to continue be employed by the Company; WHEREAS, the Company desires to be assured that the unique and expert services of the Executive will be substantially available to the Company, and that the Executive is willing and able to render such services on the terms and conditions hereinafter set forth; and WHEREAS, the Company desires to be assured that the confidential information and good will of the Company will be preserved for the exclusive benefit of the Company; NOW, THEREFORE, in consideration of such employment and the mutual covenants and promises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows: Section 1. EMPLOYMENT. The Company hereby continues to employ the Executive as Chairman of the Board of Directors, and the Executive hereby accepts such employment under and subject to the terms and conditions hereinafter set forth. Section 2. TERM. Unless sooner terminated as provided in Section 9, the term of employment under this Agreement shall begin on the date hereof and shall conclude on January 31, 2003. As used herein, the "Term" shall mean the period commencing on the date hereof and ending on January 31, 2003, or, if this Agreement is extended, such later date to which the Term is so extended. The parties agree to meet to discuss an extension of the Term hereof and the terms thereof no later than November 30, 2002. Section 3. DUTIES. The Executive shall perform such specific duties as a working Chairman and senior executive of the Company, as may be mutually agreed upon by him and the CEO of the Company or the Board of Directors and shall preside over all meetings of the Board of Directors. The Executive shall use his best efforts to perform all services and duties necessary in connection therewith. The Executive hereby agrees to work on substantially a 50% working time basis, working at such specific times as may be mutually agreed upon by him, the CEO of the Company and the Board of Directors, and at all times to faithfully perform such duties and to promote the business and affairs of the Company for the Term or any Renewal Term; provided that the Executive shall be permitted to devote time to Jordan Kahn Company, Inc. and serve as a director on corporate or other boards, so long as such time does not adversely affect the Executive's performance of his duties to the Company hereunder. Section 4. SALARY COMPENSATION. In consideration of the services rendered by the Executive under this Agreement, the Company shall pay the Executive a base salary (the "Base Salary") at the rate of Five Hundred Thousand Dollars ($500,000) per calendar year. The Base Salary shall be paid in such installments and at such times as the Company pays its regularly salaried executive employees, and the Board may review the Base Salary in a manner consistent with the Company's policies and may increase the Base Salary from time to time in its sole discretion. Section 5. BONUS COMPENSATION. The Executive shall be entitled to receive an annual performance bonus ("Performance Bonus") equal to up to 50% the Bonus Base, as defined below, based on achievement of certain performance criteria as more fully set forth on Exhibit A hereto. In the sole discretion of the Board, the Executive may be granted a Performance Bonus in excess of 50% of the Bonus Base Salary if the targets set forth on Exhibit A are surpassed. The Performance Bonus shall be payable within ten (10) business days following the Company's receipt of its audited financial statements for the previous year (it being acknowledged that the Performance Bonus will be determined based on such audited financial statements). The Bonus Base shall be the greater of (i) $375,000 or (ii) the amount of the Base Salary (as in effect from time to time) less $125,000. Section 6. OPTION VESTING PERIOD; EXTENSION OF OPTION EXERCISE PERIOD. All of the Executive's existing Options listed on Exhibit B are hereby amended as follows: (i) to the extent not already vested, all such Options shall become one hundred (100%) percent vested upon termination of the employment of the Executive with the Company for any reason except for Cause (defined in Section 9.03), and (ii) the exercise periods of the Options is hereby extended to the earlier of (a) the remaining terms thereof (as set forth on Exhibit B), or (b) the occurrence of a Special Call Event (defined below). Notwithstanding anything to the contrary herein, the exercise provisions of the Executive's Performance Options (defined in the Stockholders Agreement) shall remain in effect and unmodified. For purposes herein, a "Special Call Event" shall mean a breach by the Executive of the obligations and restrictions set forth in Sections 11 and/or 12 below. Section 7. AMENDMENT OF STOCKHOLDERS AGREEMENT. That certain Stockholders Agreement between the Company, the Executive and certain other stockholders of the Company, dated as of November 26, 1997, as amended (the "Stockholders Agreement"), is hereby further amended, insofar as such amendment is applicable to the Executive, to provide that (i) the Company will not have, and hereby waives, its right to repurchase any Call Securities (as defined in the Stockholders Agreement) within ninety (90) days following the termination of the employment of the 2 Executive with the Company, and (ii) in lieu of such right, the Company will have a Call Option (defined in the Stockholders Agreement) with respect to any Call Securities owned by the Executive or his Permitted Transferees (defined therein), if, and only if, a Special Call Event occurs at any time after the date of this Agreement or within Twenty-Seven (27) months following the termination of the Executive's employment with the Company. Upon the occurrence of clause (ii) above, for purposes of Section 2.2 (c) of the Stockholders Agreement, the Call Price (defined therein) shall be: (i) in the case of Shares (defined in the Stockholders Agreement), their Fair Market Value (defined in the Stockholders Agreement) as of the date of the Special Call Event (the "Share Call Price"); (ii) in the case of vested and unexercised Time Options (defined in the Stockholders Agreement), the Share Call Price minus the exercise price of such options; and (iii) in the case of vested and earned Performance Options (defined in the Stockholders Agreement), the Share Call Price minus the exercise price of such options, except that if vested Performance Options are called prior to a Determination Date (defined in the Stockholders Agreement), the Share Call Price shall be equal to the lesser of (A) the Fair Market Value of the Shares acquirable upon exercise of such option as of the date of the Special Call Event and (B) the Fair Market Value of the Shares acquirable upon exercise of such option as of the Determination Date. Section 8. BENEFITS. In addition to the compensation detailed in Section 4 and 5 of this Agreement and those benefits listed on Exhibit C hereto, the Executive shall be entitled to the following additional benefits: Section 8.01. INSURANCE COVERAGE. During the Term, the Company shall provide the Executive with group health and life insurance protection to the same extent that it makes such protection available to its other executive employees. Section 8.02. AUTOMOBILE. In recognition of the necessity of the use of an automobile for the efficient and expeditious performance of the Executive's duties and obligations on behalf of the Company, the Company, at its cost, shall supply to the Executive for such use an automobile of such make and model suitable for the Executive and upon such terms and conditions as the Board shall determine from time to time. Section 8.03. REIMBURSEMENT OF EXPENSES. The Company shall reimburse the Executive for all reasonable expenses actually incurred by the Executive in connection with the business affairs of the Company and the performance of his duties hereunder. The Executive shall comply with such reasonable limitations and reporting requirements with respect to such expenses as the Board may establish from time to time. 3 Section 9. TERMINATION. This Agreement shall be terminated at the end of the Term or earlier as follows, except that the Executive shall be entitled to receive the Termination Payments and Benefits, as and to the extent provided in Section 10.01 below. Section 9.01. DEATH. This Agreement shall terminate upon the death of the Executive, except that the Base Salary provided in Section 4 shall continue through the end of the month in which the Executive's death occurs. Section 9.02. PERMANENT DISABILITY. In the event of any physical or mental disability of the Executive rendering the Executive unable to perform his duties hereunder for a period of at least one hundred twenty (120) consecutive days and the further determination that the disability is permanent with regard to the Executive's ability to return to work in his full capacity as required under this Agreement ("Permanent Disability"), this Agreement shall terminate automatically. Any determination of disability shall be made by the Board in consultation with a qualified physician or physicians selected by the Board and reasonably acceptable to the Executive. The failure of the Executive to submit to a reasonable examination by such physician or physicians shall act as an estoppel to any objection by the Executive to the determination of disability by the Board. Section 9.03. BY THE COMPANY FOR CAUSE. The employment of the Executive may be terminated by the Company for Cause (as defined below) at any time effective upon written notice to the Executive. For purposes hereof, the term "Cause" shall mean that the Board has determined that any one or more of the following has occurred: (a) The Executive shall have been convicted of, or shall have pleaded guilty or NOLO CONTENDERE to, any felony (other than a conviction arising solely under a statutory provision imposing criminal liability on Executive on a PER SE basis due to the position held by Executive, so long as any act or omission of Executive with respect to such matter was not taken or omitted in contravention of any applicable policy or directive of the Board); (b) The Executive shall have willfully failed or refused to perform his duties hereunder (other than as a result of illness or disability) and such failure or refusal shall have continued for a period of ten (10) days following written notice from the Board, it being understood that the Company's failure to achieve its business plan or projections shall not itself be considered a failure or refusal to perform duties; (c) the Executive shall have breached any provision of Section 11 or 12 hereof; or 4 (d) the Executive shall have committed any fraud, embezzlement, misappropriation of funds, breach of fiduciary duty or other act of dishonesty against the Company. Section 9.04. BY THE COMPANY WITHOUT CAUSE OR BY THE EXECUTIVE VOLUNTARILY. The Company may terminate the Executive's employment at any time without Cause and the Executive may terminate this Agreement for any reason at any time, effective upon at least sixty (60) days' prior written notice to the other. Section 10. Termination Payments and Benefits. Section 10.01. TERMINATION FOR ANY REASON OTHER THAN CAUSE. In the event that this Agreement is terminated by the Company without Cause, or due to the death or Permanent Disability of the Executive, by the Executive for any reason, or if this Agreement is not extended at the end of the Term, the Executive shall receive as a termination settlement the sum of (i) Three Hundred Seventy-Five Thousand Dollars ($375,000) plus (ii) 25% of the amount of his annual Base Salary as due for the remainder of the Term (the "Termination Payment") payable in a lump sum within seven (7) days after the effective date of termination. In addition to the Termination Payment, the Executive shall receive that portion of the Performance Bonus established by the Company for the Executive for the fiscal year in which termination of employment occurs (or, if at the end of a year, the full Performance Bonus due for such year) equal to (i) that percentage of such fiscal year during which the Executive was employed by the Company multiplied by (ii) the Performance Bonus due and earned for such full fiscal year (based upon the level of the target EBITDA achieved for such fiscal year or any other criteria established by the Board ("Target")), payable when that Performance Bonus would otherwise normally be paid by the Company; provided, however, that if the Company does not achieve the minimum Target for such fiscal year, but the Company pays a performance bonus to all other senior executives of the Company (i.e. executives entitled to receive a bonus of 50% of their base salaries for achievement of the target EBITDA) for such fiscal year, based on a specified percentage of their base salaries, for purposes of calculating the Executive's Performance Bonus for the such fiscal year, the same percentage of base salary shall apply to Executive. In addition to the Termination Payment and bonus payment, unless termination is due to the Executive's death, the Executive shall continue to be entitled to receive all of the benefits set forth in Section 8 for a period of (x) twelve (12) months following the effective date of termination or (y) if termination is by the Company without Cause, for the remainder of the Term and an additional period of twelve (12) months. The Executive shall have no obligation to mitigate the amount of the Termination Payment provided for herein by seeking other employment or otherwise. Section 10.02. TERMINATION FOR CAUSE. Upon any termination of this Agreement by the Company for Cause as provided in Section 9.03, all payments, salary and other benefits hereunder shall cease at the effective date of termination, except that the 5 Company shall pay the Executive the Termination Payment as and when provided in Section 10.01. Section 10.03. PUBLIC STATEMENT OF TERMINATION. In the event the Executive's employment terminates for any reason, the Company and the Executive shall agree upon a public statement pertaining to the Executive's termination of employment, and the terms of said statement shall not be subject to subsequent modification by either party unless required by law; provided, however, that in the event the Company and the Executive are unable in good faith to agree on such a statement, the Company may make public statements as are necessary to comply with the law. Section 10.04. NO OTHER BENEFITS. Except as specifically provided in this Section 8, the Executive shall not be entitled to any compensation, severance or other benefits from the Company or any of its subsidiaries or affiliates upon the termination of this Agreement for any reason whatsoever. Section 11. PROPRIETARY INFORMATION; INVENTIONS IN THE FIELD. Section 11.01. PROPRIETARY INFORMATION. In the course of his service to the Company, the Executive will have access to confidential specifications, know-how, strategic or technical data, marketing research data, product research and development data, manufacturing techniques, confidential customer lists, sources of supply and trade secrets, all of which are confidential and may be proprietary and are owned or used by the Company, or any of its subsidiaries or affiliates. Such information shall hereinafter be called "Proprietary Information" and shall include any and all items enumerated in the preceding sentence and coming within the scope of the business of the Company or any of its subsidiaries or affiliates as to which the Executive may have access, whether conceived or developed by others or by the Executive alone or with others during the period of his service to the Company, whether or not conceived or developed during regular working hours. Proprietary Information shall not include any records, data or information which are in the public domain during the period of service by the Executive provided the same are not in the public domain as a consequence of disclosure directly or indirectly by the Executive in violation of this Agreement. Section 11.02. FIDUCIARY OBLIGATIONS. The Executive agrees that Proprietary Information is of critical importance to the Company and a violation of this Section 11.02 and Section 11.03 would seriously and irreparably impair and damage the Company's business. The Executive agrees that he shall keep all Proprietary Information in a fiduciary capacity for the sole benefit of the Company. Section 11.03. NON-USE AND NON-DISCLOSURE. The Executive shall not during the Term, any Renewal Term or at any time thereafter (a) disclose, directly or indirectly, any Proprietary Information to any person other than the Company or authorized employees thereof at the time of such disclosure, or such other persons to whom the Executive has been specifically instructed to make disclosure by the Board and in all such cases only to 6 the extent required in the course of the Executive's service to the Company or (b) use any Proprietary Information, directly or indirectly, for his own benefit or for the benefit of any other person or entity. At the termination of his employment, the Executive shall deliver to the Company all notes, letters, documents and records which may contain Proprietary Information which are then in his possession or control and shall destroy any and all copies and summaries thereof. Section 11.04. ASSIGNMENT OF INVENTIONS. The Executive agrees to assign and transfer to the Company or its designee, without any separate remuneration or compensation, his entire right, title and interest in and to all Inventions in the Field (as defined below), together with all United States and foreign rights with respect thereto, and at the Company's expense to execute and deliver all appropriate patent and copyright applications for securing United States and foreign patents and copyrights on Inventions in the Field and to perform all lawful acts, including giving testimony, and to execute and deliver all such instruments that may be necessary or proper to vest all such Inventions in the Field and patents and copyrights with respect thereto in the Company, and to assist the Company in the prosecution or defense of any interference which may be declared involving any of said patent applications, patents, copyright applications or copyrights. For the purposes of this Agreement, the words "Inventions in the Field" shall include any discovery, process, design, development, improvement, application, technique, or invention, whether patentable or copyrightable or not and whether reduced to practice or not, conceived or made by the Executive, individually or jointly with others (whether on or off the Company's premises or during or after normal working hours) while in the employ of the Company, and which was or is directly or indirectly related to the business of the Company or any of its subsidiaries or affiliates, or which resulted or results from or was suggested by any work performed by any employee or agent thereof during the Term or any Renewal Term or for one year after termination of this Agreement for any reason. Section 12. Restrictions on Activities of the Executive Section 12.01. ACKNOWLEDGMENTS. The Executive agrees that he is being employed hereunder in a key presiding capacity with the Company and that the Company is engaged in a highly competitive business and that the success of the Company's business in the marketplace depends upon its goodwill and reputation for quality and dependability. The Executive further agrees that reasonable limits may be placed on his ability to compete against the Company as provided herein so as to protect and preserve the legitimate business interests and good will of the Company. Section 12.02. GENERAL RESTRICTIONS. (a) During the Term and for the Non-Competition Period (as defined below), the Executive will not (anywhere in the world where the Company or any of its subsidiaries or affiliates then conducts business) engage or participate in, directly or indirectly, as principal, agent, employee, employer, consultant, investor or partner, or assist in the management of, or own any stock or any other ownership interest in, any 7 business which is Competitive with the Company (as defined below). For purposes of this Agreement, a business shall be considered "Competitive with the Company" only if it designs, manufactures, markets or sells home comfort and lighting appliances, small or portable kitchen appliances and/or any other products manufactured, marketed, sold or distributed or under development by the Company or any of its subsidiaries or affiliates during the Term. Notwithstanding the foregoing, (i) the Executive may own, directly or indirectly, less than 1% of the capital stock of any public corporation; and (ii) nothing in this Section 12 shall prohibit the Executive from participating in the business operated by the Jordan Kahn Company, Inc. (the "JK Company") nor restrict the business activities of the JK Company during the Term and the Non-Competition Period, provided that, if, and so long as, the JK Company is a "Restricted Representative" (as defined below), the JK Company does not sell, distribute or act as a representative for or of any products which are manufactured or sold by a company which is Competitive with the Company. For purposes hereof the JK Company will be deemed to be a "Restricted Representative" during the Term and/or the Non-Competition Period (x) as long as it continues to act as a sales representative of the Company, or (y) if the JK Company ceases to act as a sales representative of the Company, such cessation was neither voluntary on the part of the JK Company, nor as a result of termination of the JK Company by the Company for breach of agreement which is not cured within a reasonable period after notice. (b) For purposes of this Agreement, the "Non-Competition Period" shall mean a period of twelve (12) consecutive months after the Executive's employment terminates. Section 12.03. EMPLOYEES, CUSTOMERS AND SUPPLIERS. (a) During the Term, any Renewal Term and the Non-Solicitation Period (as defined below), the Executive will not solicit, or attempt to solicit, any officer, director, consultant, executive or employee of the Company or any of its subsidiaries or affiliates to leave his or her engagement with the Company or such subsidiary or affiliate nor will he call upon, solicit, divert or attempt to solicit or divert from the Company or any of its affiliates or subsidiaries any of their customers or suppliers, or potential customers or suppliers, of whose names he was aware during the term of his employment with the Company; provided, however, that nothing in this Section 12.03 shall be deemed to prohibit the Executive from calling upon or soliciting a customer or supplier during the Non-Solicitation Period if such action relates solely to a business which is not Competitive with the Company; and provided, further, however, that nothing in this Section 12.03 shall be deemed to prohibit the Executive from soliciting or hiring any employee of the Company or any of its subsidiaries or affiliates, if such employee is a member of the Executive's immediate family. 8 (b) For purposes of this Agreement, the "Non-Solicitation Period" shall mean a period of twenty-four (24) consecutive months after the Executive's employment terminates. Section 12.04. THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES AT THE TIME OF COMMENCEMENT OF EMPLOYMENT HEREUNDER ARE SUFFICIENT TO PERMIT HIM, IN THE EVENT OF TERMINATION OF HIS EMPLOYMENT HEREUNDER, TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF WITHOUT VIOLATING ANY PROVISION OF SECTION 9 OR 10 HEREOF, FOR EXAMPLE, BY USING SUCH KNOWLEDGE, SKILLS AND ABILITIES, OR SOME OF THEM, IN THE SERVICE OF A NON-COMPETITOR. THE EXECUTIVE FURTHER REPRESENTS AND WARRANTS THAT HIS ABILITY SO TO EARN A LIVELIHOOD SATISFACTORY TO HIMSELF DOES NOT DEPEND UPON HIS ABILITY TO OBTAIN COMPENSATION FOR HIS SERVICES AT, OR IN EXCESS OF, THE LEVEL AT WHICH HE IS COMPENSATED BY THE COMPANY. Section 13. REMEDIES. It is specifically understood and agreed that any breach of the provisions of Section 11 or 12 of this Agreement is likely to result in irreparable injury to the Company and that the remedy at law alone will be an inadequate remedy for such breach, and that in addition to any other remedy it may have, the Company shall be entitled to enforce the specific performance of this Agreement by the Executive and to seek both temporary and permanent injunctive relief (to the extent permitted by law) without the necessity of proving actual damages. Section 14. SEVERABLE PROVISIONS. The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the application thereof is unenforceable in whole or in part because of the duration or scope thereof, the parties hereto agree that said court in making such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that the Agreement in its reduced form shall be valid and enforceable to the full extent permitted by law. Section 15. NOTICES. All notices hereunder, to be effective, shall be in writing and shall be delivered by hand or mailed by certified mail, postage and fees prepaid, as follows: If to the Company: The Holmes Group, Inc. 233 Fortune Boulevard Milford, MA 01757 Attn: Chief Executive Officer If to the Executive: 21 Pierce Road Wellesley, MA 02181 9 or to such other address as a party may notify the other pursuant to a notice given in accordance with this Section 15. Section 16. MISCELLANEOUS. Section 16.01. MODIFICATION. This Agreement constitutes the entire Agreement between the parties hereto with regard to the subject matter hereof, and supersedes and replaces all prior understandings and agreements, whether written or oral regarding Executive's employment with the Company, including an Executive Employment and Non-Competition Agreement dated November 26, 1997, as amended. This Agreement may not be amended or revised except by a writing signed by the parties. Section 16.02. ASSIGNMENT AND TRANSFER. This Agreement shall not be terminated by the merger or consolidation of the Company with any corporate or other entity or by the transfer of all or substantially all of the assets of the Company to any other person, corporation, firm or entity. The provisions of this Agreement shall be binding on and shall inure to the benefit of any such successor in interest to the Company. Neither this Agreement nor any of the rights, duties or obligations of the Executive shall be assignable by the Executive, nor shall any of the payments required or permitted to be made to the Executive by this Agreement be encumbered, transferred or in any way anticipated. Section 16.03. CAPTIONS. Captions herein have been inserted solely for convenience of reference and in no way define, limit or describe the scope or substance of any provision of this Agreement. Section 16.04. GOVERNING LAW. This Agreement shall be construed under and enforced in accordance with the laws of The Commonwealth of Massachusetts. [The remainder of this page intentionally left blank] 10 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a sealed instrument as of the day and year first above written. THE HOLMES GROUP, INC. By: /s/ Peter J. Martin ------------------------------- Name: Peter J. Martin Title: President and CEO /s/ Jordan A. Kahn -------------------------------- Jordan A. Kahn 11 EX-10.28 4 b42247hgex10-28.txt EX-10.28 5TH AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 10.28 [FORM] FIFTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN AGREEMENT Fifth Amendment dated as of March 22, 2002, to the Amended and Restated Revolving Credit and Term Loan Agreement (the "Fifth Amendment"), by and among THE HOLMES GROUP, INC. (FORMERLY KNOWN AS HOLMES PRODUCTS CORP.), a Massachusetts corporation (the "Company"), THE RIVAL COMPANY, a Delaware corporation ("Rival"), HOLMES PRODUCTS (FAR EAST) LIMITED, an entity organized under the laws of the Bahamas ("Far East"), ESTEEM INDUSTRIES LIMITED, an entity organized under the laws of Hong Kong ("Esteem"), RAIDER MOTOR CORPORATION, an entity organized under the laws of the Bahamas ("Raider"), HOLMES PRODUCTS (EUROPE) LIMITED, an entity organized under the laws of the United Kingdom ("Holmes UK"), BIONAIRE INTERNATIONAL B.V., a private company with limited liability incorporated under the laws of the Netherlands ("Bionaire BV"), PATTON ELECTRIC (HONG KONG) LTD. a corporation organized under the laws of Hong Kong ("Patton"), THE HOLMES GROUP CANADA LTD. (THE SURVIVOR OF THE AMALGAMATION OF THE RIVAL COMPANY OF CANADA AND HOLMES AIR (CANADA) CORP.), a corporation organized under the laws of Canada ("Holmes Canada" and, collectively with the Company, Rival, Far East, Esteem, Raider, Holmes UK, Bionaire BV and Patton, the "Borrowers", and each individually a "Borrower"), and FLEET NATIONAL BANK (FORMERLY KNOWN AS BANKBOSTON, N.A.) and the other lending institutions listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (the "Banks"), amending certain provisions of the Amended and Restated Revolving Credit and Term Loan Agreement dated as of February 5, 1999 (as amended by the First Amendment to Amended and Restated Revolving Credit and Term Loan Agreement dated as of August, 1999, the Second Amendment to Amended and Restated Revolving Credit and Term Loan Agreement dated as of June 30, 2000, the Forbearance Agreement and Third Amendment dated as of April 13, 2001, the Fourth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement and Limited Waiver dated as of May 7, 2001 and as further amended and in effect from time to time, the "Credit Agreement") by and among the Borrowers, the Banks, FLEET NATIONAL BANK (FORMERLY KNOWN AS BANKBOSTON, N.A.) in its capacity as administrative agent (the "Agent"), LEHMAN COMMERCIAL PAPER INC. in its capacity as documentation agent, FLEET NATIONAL BANK (FORMERLY KNOWN AS BANKBOSTON, N.A.) acting through its Hong Kong and London branches as fronting bank, FLEET SECURITIES, INC. (FORMERLY KNOWN AS BANCBOSTON ROBERTSON STEPHENS INC.) as syndication agent and arranger and LEHMAN BROTHERS INC. as co-arranger. Terms not otherwise defined herein which are defined in the Credit Agreement shall have the same respective meanings herein as therein. WHEREAS, the Borrowers and the Banks have agreed to amend and modify certain terms and conditions of the Credit Agreement as specifically set forth in this Fifth Amendment; NOW THEREFORE, in consideration of the premises and the mutual agreements contained herein and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto hereby agree as follows: -2- SS.1. AMENDMENTS TO THE CREDIT AGREEMENT. Sections 1-25 and 27-28 of the Credit Agreement are hereby amended, and ss.26 of the Credit Agreement is not amended but solely restated (without any change being made thereto) by deleting each section in its entirety and restating it as follows: 1. DEFINITIONS AND RULES OF INTERPRETATION. 1.1 DEFINITIONS. The following terms shall have the meanings set forth in this ss.1 or elsewhere in the provisions of this Credit Agreement referred to below: Accounts Receivable. All rights of the Borrowers or any of their Subsidiaries to payment for goods sold, leased or otherwise marketed in the ordinary course of business and all rights of the Borrowers or any of their Subsidiaries to payment for services rendered in the ordinary course of business and all sums of money or other proceeds due thereon pursuant to transactions with account debtors, except for that portion of the sum of money or other proceeds due thereon that relate to sales, use or property taxes in conjunction with such transactions, recorded on books of account in accordance with generally accepted accounting principles. Acquisition. See Recitals. Additional Investors. See ss.2.12.2. Additional Required Revolving A Reduction. See ss.8.27.4. Additional Required Revolving A Subdebt Funding Loan. See ss.8.27.4. Adjusted Consolidated Cash Flow. As of December 31, 2002, an amount equal to (a) the December 2001 Cash Position minus (b) the December 2002 Cash Position. Adjustment Date. The first day of the month immediately following the month in which a Compliance Certificate is to be delivered by the Company pursuant to ss.8.4(d) hereof. Affiliate. Any Person that would be considered to be an affiliate of the Company under Rule 144(a) of the Rules and Regulations of the Securities and Exchange Commission, as in effect on the date hereof, if the Company were issuing securities. Agency Account Agreement. See ss.8.24.1. Agent's Head Office. The Agent's head office located at 100 Federal Street, Boston, Massachusetts 02110, or at such other location as the Agent may designate from time to time. Agent. Fleet National Bank (f/k/a BankBoston, N.A.) acting as administrative agent for the Banks. -3- Agent's Special Counsel. Bingham Dana LLP or such other counsel as may be approved by the Agent. Agreement of Pledge of Assets and Receivables. The Agreement of Pledge of Assets and Receivables, dated prior to or as of the Closing Date, between Bionaire B.V. and the Agent. Amendment Effective Date. March 22, 2002. Applicable Margin. For each period commencing on an Adjustment Date through the date immediately preceding the next Adjustment Date (each a "Rate Adjustment Period"), the Applicable Margin shall be the Applicable Margin set forth below with respect to the Leverage Ratio, as determined for the period ending on the fiscal quarter ended immediately preceding the applicable Rate Adjustment Period.

Notwithstanding the foregoing, (a) on April 1, 2002, the Applicable Margin for each Revolving Credit A Loan and the Term Loans A outstanding shall increase by 0.25% at each and every level; (b) on January 1, 2004 the Applicable Margin for each Revolving Credit A Loan and the Term Loans A outstanding shall increase by an additional 0.25% at each and every level (which, for avoidance of doubt, means on January 1, 2004, such increase shall be in addition to the increase previously made on April 1, 2002); and (c) if the Company fails to deliver any Compliance Certificate pursuant to ss.8.4(d) hereof then, for the period commencing on the next Adjustment Date to occur subsequent to such failure through the date immediately following the date on which such Compliance Certificate is delivered, the Applicable Margin shall be the highest Applicable Margin set forth above. -4- Arranger. Fleet Securities, Inc. (f/k/a BancBoston Robertson Stephens Inc.) Asset Sale. Any one or series of related transactions in which any applicable Person conveys, sells, transfers or otherwise disposes of, directly or indirectly, any of its properties, businesses or assets (including the sale or issuance of capital stock of a Subsidiary), whether owned on the Closing Date or thereafter acquired. Assignment and Acceptance. See ss.19.1. Balance Sheet Date. September 30, 1998. Banks. Fleet and the other lending institutions listed on Schedule 1 hereto and any other Person who becomes an assignee of any rights and obligations of a Bank pursuant to ss.19. Base Rate. The higher of (a) the variable annual rate of interest so designated from time to time by Fleet at its office in Boston, Massachusetts, as its "base rate" or "prime rate", such rate being a reference rate and not necessarily representing the lowest or best rate being charged to any customer and (b) one-half of one percent (1/2%) above the Federal Funds Effective Rate. For the purposes of this definition, "Federal Funds Effective Rate" shall mean for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three (3) funds brokers of recognized standing selected by the Agent. Changes in the Base Rate resulting from any changes in Fleet's "prime rate" or "base rate" shall take place immediately without notice or demand of any kind. Base Rate Loans. The Loans bearing interest calculated by reference to the Base Rate. Berkshire Fund IV. Berkshire Fund IV, L.P., a Massachusetts limited partnership. Berkshire Fund V. Berkshire Fund V, L.P., a Massachusetts limited partnership. Berkshire Fund IV Investment Corp. Berkshire Fund IV Investment Corp., a Massachusetts corporation. Berkshire Fund V Investment Corp. Berkshire Fund V Investment Corp., a Massachusetts corporation. Berkshire Investors LLC. Berkshire Investors LLC, a Massachusetts limited liability company. -5- Berkshire Partners. Berkshire Partners LLC, a Massachusetts limited liability company. Bionaire B.V. As defined in the preamble hereto. Borrowers. As defined in the preamble hereto. Borrowing Base. At the relevant time of reference thereto, an amount determined by the Agent by reference to the most recent Borrowing Base Report delivered to the Banks and the Agent pursuant to ss.8.4(i), which is equal to the sum of: (a) 80% of Eligible Accounts Receivable; plus (b) 50% of Eligible Inventory. Borrowing Base Report. A Borrowing Base Report signed by the chief financial officer of the Company and in substantially the form of Exhibit I hereto. Budgeted Expenses. The aggregate amount of all budgeted cash expenses set forth in the Borrowers' budget for the 2002 fiscal year relating to (a) the closing of the Designated Property, (b) Project HQ, (c) Project Rum, (d) Project Marvel, (e) Project Wire and (f) the implementation of the Enterprise Resource and Planning system (each, an "EBITDA Project") and in the cash amounts for each EBITDA Project set forth in the Project Letter to the Banks from the Company dated as of the Amendment Effective Date, and which cash expenses have not been incurred in the 2002 fiscal year, as certified by the Borrowers pursuant to ss.8.4(n). Business Day. Any day other than a Saturday or Sunday on which banking institutions in Boston, Massachusetts are open for the transaction of banking business and, in addition, if Eurocurrency Rate Loans are involved, a day which is also a day in which commercial banks are open for international business (including dealings in Dollar deposits) in London or such other eurodollar interbank market as may be selected by the Agent in its sole discretion acting in good faith. Capital Assets. Fixed assets, both tangible (such as land, buildings, fixtures, machinery, equipment and all other assets which are treated as capital assets in accordance with generally accepted accounting principles) and intangible (such as patents, copyrights, trademarks, franchises and good will); provided that Capital Assets shall not include any item customarily charged directly to expense or depreciated over a useful life of twelve (12) months or less in accordance with generally accepted accounting principles. Capital Expenditures. Amounts paid or Indebtedness incurred by the Company or any of its Subsidiaries in connection with (a) the purchase or lease by the Company or any of its Subsidiaries of Capital Assets that would be required to be capitalized and shown on the balance sheet of such Person in accordance with generally accepted accounting principles or (b) the lease of any assets by the Company or any of its Subsidiaries as lessee under any synthetic lease referred to in clause (f) of the definition of the term "Indebtedness" to the extent that such assets would have been Capital Assets had the synthetic lease been treated for accounting purposes as a Capitalized Lease, provided, for purposes of this definition, to the extent the -6- Company makes a Capital Expenditure in connection with the purchase of the real property in Milford, Massachusetts, and subsequently sells such real property, the Company shall be entitled to a credit of such Capital Expenditure in the period so made in an amount which is the lesser of (a) the amount of such initial Capital Expenditure or (b) the cash sales price for such real property. Capitalization Documents. Collectively, the Stockholders Agreement and the articles of organization or comparable charter documents, as the case may be, of the Company and its Subsidiaries. Capitalized Leases. Leases under which the Company or any of its Subsidiaries is the lessee or obligor, the discounted future rental payment obligations under which are required to be capitalized on the balance sheet of the lessee or obligor in accordance with generally accepted accounting principles. Cash Equivalents. Collectively, (a) securities issued or directly and fully guaranteed or insured by the United States of America and having a maturity of not more than six (6) months from the date of acquisition; (b) certificates of deposit and eurodollar time deposits with maturities of six (6) months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six (6) months and overnight bank deposits, in each case, (i) with any of the Banks or (ii) with any domestic commercial bank organized under the laws of the United States of America or any state thereof and foreign subsidiaries of such bank, having a rating of not less than A or its equivalent by S&P or any successor and having capital and surplus in excess of $300,000,000; (c) repurchase obligations with a term of not more than seven (7) days for underlying securities of the types described in clauses (a) and (b) entered into with any financial institution meeting the qualifications in clause (b) above; and (d) any commercial paper or finance company paper issued by (i) any Bank or any holding company controlling any Bank or (ii) any other Person that is rated not less than prime-two or A2 or their equivalents by Moody's Investor Service, Inc. or S&P or their successors. CERCLA. See ss.7.18(a). Charges Over Shares. Collectively, the Charge Over Shares, dated as of December 15, 1997, and amended as of the Closing Date, between Holmes Far East, Raider and the Agent and amended as of the Closing Date, the several Charges Over Shares, dated as of the Closing Date between Holmes Far East, Holmes UK and the Agent, and each in form and substance satisfactory to the Banks and the Agent. Closing Date. February 5, 1999. Code. The Internal Revenue Code of 1986, as amended. Collateral. All of the property, rights and interests of the Company and its Subsidiaries that are or are intended to be subject to the security interests and mortgages created by the Security Documents. -7- Commitment. As to any Bank, its Revolving A Commitment, Revolving B Commitment, Term Loan A Commitment and Term Loan B Commitment, as the case may be. Commitment Fee Rate. The applicable rate per annum set forth in the chart contained in the definition of Applicable Margin under the heading "Commitment Fee Rate". Company. As defined in the preamble hereto. Compliance Certificate. See ss.8.4(d). Consolidated or consolidated. With reference to any term defined herein, shall mean that term as applied to the accounts of the Company and its Subsidiaries, consolidated in accordance with generally accepted accounting principles. Consolidated Excess Cash Flow. With respect to the Borrowers, on a consolidated basis, and for any fiscal year ending on or after December 31, 1999, an amount equal to Consolidated Operating Cash Flow for such fiscal year, less (a) the sum of (i) Consolidated Total Interest Expense for such fiscal year plus (ii) any mandatory permanent repayments (whether scheduled or otherwise) of principal on any Indebtedness of the Borrowers or any of their Subsidiaries paid or due and payable during such period (other than such payments in any year in respect of the Consolidated Excess Cash Flow for the prior year), plus (iii) cash Integration Expenses added to EBITDA in such fiscal year. Consolidated Net Income (or Deficit). The consolidated net income (or loss) of the Company and its Subsidiaries, determined in accordance with generally accepted accounting principles and before any reduction in respect of preferred stock dividends, excluding, however, (a) any gain (but not loss), together with any related provision for taxes on such gain (but not loss) realized in connection with (i) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions) or (ii) the disposition of any securities by the Company or any of its Subsidiaries or the extinguishment of any Indebtedness of the Company or any of its Subsidiaries and (b) any extraordinary or nonrecurring gain (but not loss), together with any related provision for taxes on such extraordinary or nonrecurring gain (but not loss); provided that (1) the Consolidated Net Income (but not loss) of any Subsidiary that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the Company or another Subsidiary thereof; (2) the net income of any Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by such 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, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Subsidiary or its stockholders; (3) the net income of any Person acquired in a pooling of interest transaction for any period prior to the date of such acquisition shall be excluded; and (4) the cumulative effect of a change in accounting principles shall be excluded; provided, however, solely for purposes of determining the Leverage Ratio for purposes of the Applicable Margin, Consolidated Net Income shall exclude any effect of the PRC Reserve up to an aggregate amount of $600,000 in any fiscal year. -8- Consolidated Operating Cash Flow. For any period, an amount equal to (a) the sum of (i) EBITDA plus (ii) if applicable, in-flows resulting from Net Working Capital Changes for such period, less (b) the sum of (i) cash payments for all taxes paid during such period, plus (ii) to the extent not already deducted in the determination of EBITDA, Capital Expenditures made during such period to the extent permitted by ss.10.4, plus (iii) if applicable, out-flows resulting from Net Working Capital Changes for such period. Consolidated Total Interest Expense. For any period, the aggregate amount of interest required to be paid or accrued by the Company and its Subsidiaries during such period on all Indebtedness of the Company and its Subsidiaries outstanding during all or any part of such period, whether such interest was or is required to be reflected as an item of expense or capitalized, including payments consisting of interest in respect of any Capitalized Lease, or any synthetic lease referred to in clause (f) of the definition of the term "Indebtedness," and including commitment fees, agency fees, facility fees, balance deficiency fees and similar fees or expenses in connection with the borrowing of money but excluding payments consisting of reasonable closing fees and expenses incurred by the Company and its Subsidiaries in connection with the Acquisition or incurred hereunder. Consultant. See ss.8.28 hereof. Continuing Directors. As of any date of determination, any member of the Board of Directors of the Company who (a) was a member of such Board of Directors on the Closing Date or (b) was nominated for election or elected to such Board of Directors with the approval of the majority of the Continuing Directors who were members of such Board at the time of such nomination or election. Conversion Request. A notice given by the applicable Borrower to the Agent of such Borrower's election to convert or continue a Loan in accordance with ss.2.7 (in the case of Revolving Credit Loans) or ss.3.5.2 (in the case of Term Loans). Conversion Shortfall. As defined in ss.8.27.5(a). Conversion Subdebt Funding Loan. As defined in ss.8.27.5(a). Credit Agreement. This Amended and Restated Revolving Credit and Term Loan Agreement, including the Schedules and Exhibits hereto. Debentures. Collectively, (a) the Debenture, dated as of December 15, 1997 and amended as of the Closing Date, between Esteem and the Agent, (b) the Debenture, dated as of the Closing Date between Patton HK and the Agent and (c) the Debenture, dated as of the Closing Date and between Holmes UK and the Agent, each in form and substance satisfactory to the Banks and the Agent. December 2001 Cash Position. An amount equal to (a) the aggregate amount of all outstanding Revolving Credit Loans and Unpaid Reimbursement Obligations on December 31, 2001 minus (b) Unencumbered Cash on December 31, 2001, all as such calculations are approved and verified by the Consultant as having been determined by the Company in a -9- manner consistent with its past practices and calculated pursuant to commercially sound business decisions. December 2002 Cash Position. An amount equal to (a) the sum of (i) the aggregate amount of all outstanding Revolving Credit Loans and Unpaid Reimbursement Obligations on December 31, 2002, plus (ii) the aggregate Maximum Drawing Amount of all Letters of Credit outstanding on December 31, 2002 and which were issued in lieu of, or in addition to, the funding by the Borrowers of a cash expenditure which the Borrowers would otherwise have made in the 2002 fiscal year and which Letters of Credit were not issued in the ordinary course of the Borrowers' business consistent with past practices plus (iii) the Included 2002 Expenses, minus (b) Unencumbered Cash on December 31, 2002, minus (c) that portion of the Revolving Credit B Loans outstanding on December 31, 2002 which (i) constitute Subdebt Funding Loans, and (ii) the proceeds of such Revolving Credit B Loans which were used to fund the principal amount of any Senior Subordinated Notes repurchased in a Required Repurchase or a Permitted Repurchase; as such calculations are approved and verified by the Consultant as having been determined by the Company in a manner consistent with its past practices and calculated pursuant to commercially sound business decisions. Default. See ss.13.1. Delinquent Bank. See ss.15.5.3. Delivered Pro Forma Results. As defined in the definition of "Historical Pro Forma Results". Designated Property. That certain property identified by the Company in writing to the Agent and the Banks prior to May 7, 2001. Distribution. The declaration or payment of any dividend on or in respect of any shares of any class of capital stock of the Company, other than dividends payable solely in shares of common stock of the Company; the purchase, redemption, or other retirement of any shares of any class of capital stock of the Company, directly or indirectly through a Subsidiary of the Company or otherwise; the return of capital by the Company to its shareholders as such; or any other distribution on or in respect of any shares of any class of capital stock of the Company. Documentation Agent. Lehman Commercial Paper Inc., in its capacity as documentation agent for the Banks. Dollar Equivalent. On any particular date, with respect to any amount denominated in Dollars, such amount of Dollars, and with respect to any amount denominated in a currency other than Dollars, the amount (as conclusively ascertained by the Agent absent manifest error) of Dollars which could be purchased by the Agent (in accordance with its normal banking practices) in the London foreign currency deposit markets with such amount of such currency at the spot rate of exchange prevailing at or about 11:00 a.m. (London time) on such date. Dollars or $. Dollars in lawful currency of the United States of America. -10- Domestic Borrowers. See preamble. Domestic Lending Office. Initially, the office of each Bank designated as such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, located within the United States that will be making or maintaining Base Rate Loans. Domestic Subsidiary. Any Subsidiary which is not a Foreign Subsidiary. Drawdown Date. The date on which any Revolving Credit Loan is made or is to be made, and the date on which any Revolving Credit Loan is converted or continued in accordance with ss.2.7. EBITDA. With respect to the Company and its Subsidiaries and any fiscal period, an amount equal to Consolidated Net Income for such period, plus, to the extent deducted in the calculation of Consolidated Net Income and without duplication, (a) depreciation and amortization for such period, plus, (b) solely for purposes of calculating compliance with the financial covenants set forth in ss.10 hereof and subject to the limitations set forth at the end of this definition, (i) one time restructuring fees and expenses (including, without limitation, legal fees and fees of consultants) actually incurred by the Company in the 2001 fiscal year or thereafter in connection with the restructuring of this facility; plus (ii) the charges (both cash and non-cash) taken and expenses actually incurred in the 2001 and 2002 fiscal years in connection with the closing of the Designated Property, all as more fully set forth in the Project Letter, in an aggregate amount not to exceed that amount set forth as "Item (b)(ii) - 2001" in the Project Letter in the 2001 fiscal year and that amount set forth as "Item (b)(ii) - 2002" in the Project Letter in the 2002 fiscal year plus (iii) the non-cash charge taken in the 2003 fiscal year in connection with Project Marvel, in an aggregate amount not to exceed that amount set forth as "Item (b)(iii)" in the Project Letter for that item described next the amount in "Item(b)(iii); plus (iv) cash expenses actually incurred by the Company in the 2002 and 2003 fiscal years in connection with Project Rum, in an aggregate amount not to exceed that amount set forth as "Item (b)(iv)-2002" in the Project Letter in the 2002 fiscal year and that amount set forth as "Item (b)(iv) - 2003" in the Project Letter in the 2003 fiscal year and, in addition, specific non-cash write-downs of assets and inventory reserves taken by the Company in the 2002 fiscal year associated with Project Rum, in an aggregate amount not to exceed that amount set forth as "Item (b)(iv)-asset/inventory reserve" in the Project Letter, plus (v) the cash charges taken and expenses actually incurred in the 2002 fiscal year in connection with Project HQ in an aggregate amount not to exceed that amount set forth as "Item (b)(v)" in the Project Letter, and the non-cash write-down taken by the Company in the 2002 fiscal year as more fully described in the Project Letter, not to exceed an aggregate amount set forth as "Item (b)(v) - Leasehold Writedown" in the Project Letter, plus (vi) one time expenses actually incurred by the Company in the 2002 and 2003 fiscal years in connection with Project ERP, in an aggregate amount not to exceed that amount set forth as "Item(b)(vi)-2002" for the 2002 fiscal year and in an aggregate amount not to exceed that amount set forth as "Item(b)(vi)-2003" in the 2003 fiscal year, plus (vii) cash expenses actually incurred by the Company in the 2002 fiscal year in connection with Project Marvel in an aggregate amount not to exceed the amount set forth as "Item (b)(vii) - Cash Expense" in the Project Letter and non-cash inventory reserves taken by the Company in the 2002 fiscal year in connection with Project Marvel in an aggregate amount not to exceed that amount set forth as "Item (b)(vii) - NonCash" in the Project Letter, plus (viii) cash expenses -11- actually incurred by the Company in the 2002 fiscal year in connection with Project Wire, in an aggregate amount not to exceed that amount set forth as "Item (b)(viii) - Cash Expense" in the Project Letter and non-cash expenses actually incurred by the Company in the 2002 fiscal year relating to Project Wire, as more fully described in the Project Letter, in an aggregate amount not to exceed that amount set forth as "Item (b)(viii)-NonCash" in the Project Letter, plus (ix) any charges taken by the Company in the 2001 and 2002 fiscal years for write-offs of certain Accounts Receivable pertaining to Project Retail in an aggregate amount of not more than that amount set forth as "Item (b)(ix)-AR" in the Project Letter and write-offs taken by the Company in the 2001 fiscal year and thereafter in connection with Project Retail and pertaining to inventories, as more fully set forth in the Project Letter, in an aggregate amount of not more than that amount set forth as "Item(b)(ix)-Inventory" in the Project Letter plus (c) other non-cash charges for such period (which charges are exclusive of the other non-cash charges set forth in (b) above), plus (d) income tax expense for such period, plus (e) Consolidated Total Interest Expense paid or accrued during such period and minus, to the extent included in Consolidated Net Income, the aggregate amount of all amounts received by the Borrowers from collections on any of the Accounts Receivables or inventories written off pursuant to (b)(ix) above. Notwithstanding anything to the contrary contained in this definition, (a) to the extent any additions to EBITDA set forth in paragraphs (b)(i) - (ix) hereof are to occur in the 2002 or 2003 fiscal year and actually occur after or, in the case of any additions to EBITDA permitted to be added for the 2003 fiscal year, prior to the time period permitted hereunder, the Company shall, solely for purposes of calculating compliance with the financial covenants contained in ss.10 hereof, be permitted to include such items in such later or prior period, as the case may be, but solely to the extent that the change in time for incurring such expenses was based on a commercially sound business decision; and (b) to the extent in connection with any EBITDA Project any Budgeted Expense was classified by the Borrowers as an Excluded 2002 Expense for purposes of computing the Borrowers' December 2002 Cash Position, the aggregate amount of cash expenses and charges permitted to be added back to EBITDA pursuant to (b) above for such EBITDA Project shall be limited to the sum of (x) the actual expenses incurred in the 2002 fiscal year, plus (y) the aggregate amount of the Included 2002 Expenses for such EBITDA Project. EBITDA Project. As such term is defined in "Budgeted Expenses". Eligible Accounts Receivable. The aggregate of the unpaid portions of Accounts Receivable which are classified as "accounts receivable" on the balance sheet of the Company and its Subsidiaries (other than any such Accounts Receivable which pertain to any letter of credit discounted and sold pursuant to ss.9.1(f)(iv)(2)) and which are net of any credits to such Accounts Receivable and net of applicable reserves in accordance with generally accepted accounting principles, applied in a manner consistent with past practices. Eligible Assignee. Any of (a)(i) a commercial bank, insurance company or commercial finance company or other financial institution organized under the laws of the United States, or any State thereof or the District of Columbia, and having total assets in excess of $1,000,000,000; (ii) a savings and loan association or savings bank organized under the laws of the United States, or any State thereof or the District of Columbia, and having a net worth of at least $100,000,000, calculated in accordance with generally accepted accounting principles; (iii) a commercial bank organized under the laws of any other country which is a member of the -12- Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having total assets in excess of $1,000,000,000, provided that such bank is acting through a branch or agency located in the country in which it is organized or another country which is also a member of the OECD; (iv) the central bank of any country which is a member of the OECD; (v) any investment company, investment fund, financial institution or other institutional lender (other than any financial institution which, but for the amount of its total assets, would have been an Eligible Assignee under clauses (a)(i) through (a)(iv) above) having total assets in excess of $100,000,000 (or with respect to a Bank that is a holder of Term Loan B, such lower amount as shall be reasonably approved by the Company and the Agent); and (vi) if, but only if, any Event of Default has occurred and is continuing, any other bank, insurance company, commercial finance company or other financial institution or other Person approved by the Agent, such approval not to be unreasonably withheld and (b) Berkshire Partners, Berkshire Fund IV, Berkshire Fund V, Berkshire Fund IV Investment Corp., Berkshire Fund V Investment Corp., Berkshire Investors LLC, any Bank and any Affiliate of any Bank and, with respect to any Bank that is a fund that invests in loans, any other fund that invests in loans and is managed by the same investment advisor of such Bank or by an Affiliate of such investment advisor (and treating all such funds so managed as a single Eligible Assignee). Eligible Inventory. With respect to the Company or any of its Subsidiaries, the net book value of finished goods, work in progress and raw materials and component parts inventory owned by the Company or any of its Subsidiaries and which is classified as "inventory" on the balance sheet of the Company and its Subsidiaries, which are net of the aggregate amount of all applicable inventory reserves in accordance with generally accepted accounting principles, applied in a manner consistent with past practices. Employee Benefit Plan. Any employee benefit plan within the meaning of ss.3(3) of ERISA maintained or contributed to by any Borrower or any Subsidiary of any Borrower, other than a Guaranteed Pension Plan or a Multiemployer Plan, and with respect to Holmes Canada, all employee benefit programs relating to employees of Holmes Canada other than pension plans, but including profit sharing, deferred compensation, incentive, severance, change of control, phantom stock, stock option, stock purchase, bonus, health or insurance plans and arrangements (in each case, oral or written). Environmental Laws. See ss.7.18(a). EPA. See ss.7.18(b). Equity Issuance. The sale or issuance by the Company or any of its Subsidiaries of any of its capital stock or equity interests or any warrants, rights or options to acquire its capital stock or equity interests. ERISA. The Employee Retirement Income Security Act of 1974. ERISA Affiliate. Subsidiaries of the Borrowers and, other than for purposes of ss.7.16, clause (i) of ss.8.11 and ss.9.9(e), any Person which is treated as a single employer with any Borrower under ss.414 of the Code. -13- ERISA Reportable Event. A reportable event with respect to a Guaranteed Pension Plan within the meaning of ss.4043 of ERISA and the regulations promulgated thereunder. Erroneous Reversal Amount. See ss.8.27.5(a) hereof. Erroneous Reversal Event. See ss.8.27.5(a) hereof. Esteem. As defined in the preamble hereto. Eurocurrency Lending Office. Initially, the office of each Bank designated as such in Schedule 1 hereto; thereafter, such other office of such Bank, if any, that shall be making or maintaining Eurocurrency Rate Loans. Eurocurrency Rate. For any Interest Period with respect to a Eurocurrency Rate Loan, the rate of interest equal to (a) the rate per annum (rounded upwards to the nearest 1/16 of one percent) at which the applicable Reference Bank's Eurocurrency Lending Office is offered Dollar deposits two (2) Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations of each Eurocurrency Lending Office are customarily conducted, for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of the Eurocurrency Rate Loan of the applicable Reference Bank to which such Interest Period applies, divided by (b) a number equal to 1.00 minus the Eurocurrency Reserve Rate, if applicable. Eurocurrency Rate Loans. Loans bearing interest calculated by reference to a Eurocurrency Rate. Eurocurrency Reserve Rate. For any day with respect to a Eurocurrency Rate Loan, the maximum rate (expressed as a decimal) at which any lender subject thereto would be required to maintain reserves under Regulation D of the Board of Governors of the Federal Reserve System (or any successor or similar regulations relating to such reserve requirements) against "Eurocurrency Liabilities" (as that term is used in Regulation D), if such liabilities were outstanding. The Eurocurrency Reserve Rate shall be adjusted automatically on and as of the effective date of any change in the Eurocurrency Reserve Rate. Event of Default. See ss.13.1. Exchange Offer. The offer by the Company and those certain Domestic Subsidiaries of the Company party to the Subordinated Guarantee to exchange the Subordinated Notes issued on or prior to the Closing Date for a new issue of Subordinated Notes (with terms substantially identical to those of the New Subordinated Notes issued on the Closing Date) pursuant to a registration statement to be filed with the Securities and Exchange Commission within ninety (90) days after the Closing Date (the "Registration Statement"). Excluded 2002 Expense. Those Budgeted Expenses which the Company has certified to the Agent and the Banks in the certificate required to be delivered pursuant to ss.8.4(n) hereof are not expected to be incurred after the 2002 fiscal year and which amount has not been added to item (a)(iii) of the calculation of December 2002 Cash Position. -14- Fee Letter. The fee letter, dated on or prior to the Closing Date, between the Company and the Agent, as the same may be amended, modified or supplemented from time to time. Fixed Charge Coverage Ratio. As at any date of determination, the ratio of (a) EBITDA for the Reference Period most recently ended on such date (or, if such date is not a fiscal quarter end date, the period of four consecutive fiscal quarters most recently ended) less the aggregate amount of Capital Expenditures made by the Company and its Subsidiaries in such period, less the aggregate amount of taxes paid in cash in such period to (b) the Fixed Charges of the Company and its Subsidiaries for such Reference Period. Fixed Charges. For any period, all scheduled mandatory payments of principal on Indebtedness of the Company and its Subsidiaries made or required to be made in such period, plus the Consolidated Total Interest Expense of the Company and its Subsidiaries for such period, less non-cash interest expense and amortization in such period or write-off of fees and expenses in such period relating to financing activities. Fleet. Fleet National Bank, a national banking association, in its individual capacity. Fleet Concentration Account. See ss.8.24.1. Foreign Guarantees. Those certain guarantee agreements, each dated either as of the Original Closing Date and amended as of the Closing Date or dated as of the Closing Date, from each of the Foreign Guarantors, each in form and substance satisfactory to the Banks and the Agent. Foreign Borrowers. As defined in the preamble hereto. Foreign Guarantors. Esteem, Holmes Far East, Raider, Holmes Canada, Bionaire B.V., Patton HK and Holmes UK. Foreign Security Documents. Collectively, each of the Foreign Guarantees the Debentures, the Share Security Deeds and the Charges Over Shares. Foreign Subsidiary. Any Subsidiary which conducts substantially all of its business in countries other than the United States of America and that is organized under the laws of a jurisdiction other than the United States of America and the States (or the District of Columbia) thereof. GE Joint Venture. Those certain joint venture arrangements between the Company and certain of its Subsidiaries and General Electric Company and certain of its subsidiaries (collectively, "GE"), pursuant to which (a) one or more of the Company's Foreign Subsidiaries and GE will co-own certain joint venture entities, with the Foreign Subsidiary holding not less than 49% ownership interest (the "HK JV") and (b) Holmes Motor Corporation owns not less than 49% of a joint venture entity (the "US JV" and, collectively with the HK JV, the "JV") and GE owns the balance of the US JV, with the JV purchasing, among other things, certain motors from certain Subsidiaries of the Company and GE providing, among other things, selling, -15- management and administrative support to the JV, all on such terms as disclosed in writing to the Agent and set forth in more detail in an Organization Agreement and related documentation. generally accepted accounting principles. (a) When used in ss.10, whether directly or indirectly through reference to a capitalized term used therein, means (i) principles that are consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and (ii) to the extent consistent with such principles, the accounting practice of the Company reflected in its financial statements for the year ended on the Balance Sheet Date, and (b) when used in general, other than as provided above, means principles that are (i) consistent with the principles promulgated or adopted by the Financial Accounting Standards Board and its predecessors, as in effect from time to time, and (ii) consistently applied with past financial statements of the Company adopting the same principles, provided that in each case referred to in this definition of "generally accepted accounting principles" a certified public accountant would (but for the absence of footnotes and year-end adjustments for interim financial statements), insofar as the use of such accounting principles is pertinent, be in a position to deliver an unqualified opinion (other than a qualification regarding changes in generally accepted accounting principles) as to financial statements in which such principles have been properly applied. Guaranteed Obligations. See ss.6.3.1 hereof. Guaranteed Pension Plan. Any employee pension benefit plan within the meaning of ss.3(2) of ERISA maintained or contributed to by any Borrower or any Subsidiary of any Borrower or (except for purposes of ss.7.16, clause (i) of ss.8.11 and ss.9.9(e)) any ERISA Affiliate, the benefits of which are guaranteed on termination in full or in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer Plan, and with respect to Holmes Canada, all pension and retirement plans relating to the current and former employees of Holmes Canada, whether registered or unregistered, funded or unfunded and written or oral. Guarantors. Each Domestic Subsidiary of the Company existing on the Closing Date and each other Person which is required to be or become a guarantor from time to time pursuant to ss.8.15 hereof. Guaranty. The Guaranty, dated as of the Original Closing Date and as amended as of the Closing Date, made jointly and severally by each Domestic Subsidiary of the Company in favor of the Banks and the Agent pursuant to which each Domestic Subsidiary of the Company guaranties to the Banks and the Agent the payment and performance of the Obligations, in form and substance satisfactory to the Banks and the Agent. Hazardous Substances. See ss.7.18(b). Historical Pro Forma Results. The pro forma historical financial results of the Company and its Subsidiaries (including Rival and its Subsidiaries as if the Acquisition had occurred at the beginning of such period) on a consolidated basis for the two consecutive fiscal quarters ended September 30, 1998 delivered to the Agent on or prior to the Closing Date (the "Delivered -16- Pro Forma Results") together with the pro forma historical financial results of the Company and its Subsidiaries (including Rival and its Subsidiaries) for the fiscal quarters ending December 31, 1998 and March 31, 1999, which are prepared in a manner consistent with the Delivered Pro Forma Results and which are otherwise reasonably satisfactory to the Agent. Holmes Canada. The Holmes Group Canada Ltd. (the survivor of the amalgamation of The Rival Company of Canada and Holmes Air (Canada) Corp), a corporation organized under the laws of Canada. Holmes Far East. As defined in the preamble hereto. Holmes UK. As defined in the preamble hereto. Included 2002 Expense. Those Budgeted Expenses which the Company has certified to the Agent and the Banks in the certificate required to be delivered pursuant to ss.8.4(n) hereof that the Borrowers either have incurred or may incur after December 31, 2002 and are included in subparagraph (a) (iii) of the calculation of (and definition of) "December 2002 Cash Position". Incurred Excluded 2002 Expenses. As to any EBITDA Project, those Excluded 2002 Expenses incurred by the Borrowers after December 31, 2002, whether such actual cash expense was for an all or any part of such EBITDA Project budgeted for the 2002 fiscal year or thereafter. Indebtedness. As to any Person and whether recourse is secured by or is otherwise available against, all or only a portion of the assets of such Person and whether or not contingent, but without duplication: (a) every obligation of such Person for money borrowed, (b) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses, (c) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person, (d) every obligation of such Person issued or assumed as the deferred purchase price of property or services (including securities repurchase agreements but excluding (i) trade accounts payable or accrued liabilities arising to third parties or the JV in the ordinary course of business and (ii) intercompany accounts payable of the Company or any of its Subsidiaries to the Company or any of its Subsidiaries, as the case may be, arising in the ordinary course of business, priced consistent with past practices and provided that (1) such Subsidiary agrees on terms acceptable to the Agent that, if any Default or Event of Default shall have occurred and be continuing, no payment shall be made or received on such account payable prior to performance and payment in full, in cash, of all Obligations to the Banks and the Agent; and (2) the transaction giving rise to such account payable was either conducted on an arms-length basis for fair market value or is on terms favorable to the Company or any Guarantor (the "Intercompany Accounts"), -17- (e) every obligation of such Person under any Capitalized Lease, (f) every obligation of such Person under any lease (a "synthetic lease") treated as an operating lease under generally accepted accounting principles and as a loan or financing for U.S. income tax purposes, (g) all sales by such Person of (i) accounts or general intangibles for money due or to become due, (ii) chattel paper, instruments or documents creating or evidencing a right to payment of money or (iii) other receivables (collectively "receivables"), whether pursuant to a purchase facility or otherwise, other than in connection with the disposition of the business operations of such Person relating thereto or a disposition of doubtful, bad, overdue or defaulted receivables for collection or sale and not as a financing arrangement, and together with any obligation of such Person to pay any discount, interest, fees, indemnities, penalties, recourse, expenses or other amounts in connection therewith, (h) every obligation of such Person (an "equity related purchase obligation") to purchase, redeem, retire or otherwise acquire for value any shares of capital stock of any class issued by such Person, any warrants, options or other rights to acquire any such shares, or any rights measured by the value of such shares, warrants, options or other rights other than equity related purchase obligations which by their terms are not payable until such time as all Obligations have been indefeasibly repaid in full in cash, (i) every obligation of such Person under any forward contract, futures contract, swap, option or other financing agreement or arrangement (including, without limitation, caps, floors, collars and similar agreements), the value of which is dependent upon interest rates, currency exchange rates, commodities or other indices, (j) every obligation in respect of Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent that such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent that the terms of such Indebtedness provide that such Person is not liable therefor and such terms are enforceable under applicable law, (k) every obligation, contingent or otherwise, of such Person guaranteeing, or having the economic effect of guarantying or otherwise acting as surety for, any obligation of a type described in any of clauses (a) through (j) (the "primary obligation") of another Person (the "primary obligor"), in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase of) any security for the payment of such primary obligation, (ii) to purchase property, securities or services for the purpose of assuring the payment of such primary obligation, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such primary obligation. The "amount" or "principal amount" of any Indebtedness at any time of determination represented by (u) any Indebtedness, issued at a price that is less than the principal amount at -18- maturity thereof, shall be the amount of the liability in respect thereof determined in accordance with generally accepted accounting principles, (v) any Capitalized Lease shall be the principal component of the aggregate of the rentals obligation under such Capitalized Lease payable over the term thereof that is not subject to termination by the lessee, (w) any interest rate or exchange rate protection arrangements shall be the net liability of such Person under such arrangement at such time, calculated on a basis satisfactory to the Agent in accordance with accepted practices, (x) any sale of receivables shall be the amount of unrecovered capital or principal investment of the purchaser (other than the Company or any of its wholly-owned Subsidiaries) thereof, excluding amounts representative of yield or interest earned on such investment, (y) any synthetic lease shall be the stipulated loss value, termination value or other equivalent amount and (z) any equity related purchase obligation shall be the maximum fixed redemption or purchase price thereof inclusive of any accrued and unpaid dividends to be comprised in such redemption or purchase price. Indenture Trustee. State Street Bank and Trust Company. Ineligible Securities. Securities which may not be underwritten or dealt in by member banks of the Federal Reserve System under Section 16 of the Banking Act of 1993 (12 U.S.C. ss.24, Seventh), as amended. Initial Public Offering. The initial underwritten public offering of the common stock of the Company registered under the Securities Act of 1933. Initial Required Revolving A Reduction. See ss.8.27.3. Initial Required Revolving A Subdebt Funding Loan. See ss.8.27.3. Instrument of Adherence. See ss.9.5.1. Intercompany Accounts. As defined in the definition of "Indebtedness". Integration Expenses. Collectively, those expenses incurred by the Company or any of its Subsidiaries in connection with systems costs, severance costs and expenses and similar arrangements, and consolidation and integration costs including without limitation related consulting fees and expenses incurred in connection with, or as a result of, the Acquisition, up to an aggregate amount of not more than $7,800,000; provided that not more than $5,800,000 shall be incurred from the Closing Date through and until the first anniversary of the Closing Date and provided further that $3,000,000 of such costs and expenses not incurred in such first year may be carried over and incurred in the next year. Interest Coverage Ratio. As at any date of determination, the ratio of (a) the EBITDA of the Company and its Subsidiaries for the Reference Period ending on such date (or, if such date is not a fiscal quarter end date, the period of four consecutive fiscal quarters most recently ended) to (b) Consolidated Total Interest Expense for the Reference Period then ended, less, to the extent included in such Consolidated Total Interest Expense, non-cash interest expense and amortization or write-off of fees and expenses relating to financing activities. -19- Interest Payment Date. (a) As to any Base Rate Loan, the last day of the calendar quarter with respect to interest accrued during such calendar quarter, including, without limitation, the calendar quarter which includes the Drawdown Date of such Base Rate Loan; and (b) as to any Eurocurrency Rate Loan in respect of which the Interest Period is (i) three (3) months or less, the last day of such Interest Period and (ii) more than three (3) months, the date that is three (3) months from the first day of such Interest Period and, in addition, the last day of such Interest Period. Interest Period. With respect to each Revolving Credit Loan or all or any relevant portion of the Term Loans, (a) initially, the period commencing on the Drawdown Date of such Loan and ending on the last day of one of the periods set forth below, as selected by the applicable Borrower in a Loan Request or as otherwise required by the terms of this Credit Agreement (i) for any Base Rate Loan, the last day of the calendar quarter; and (ii) for any Eurocurrency Rate Loan, 1, 2, 3, or 6 months; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Revolving Credit Loan or all or any relevant portion of the Term Loans and ending on the last day of one of the periods set forth above, as selected by the applicable Borrower in a Conversion Request; provided that all of the foregoing provisions relating to Interest Periods are subject to the following: (a) if any Interest Period with respect to a Eurocurrency Rate Loan would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the immediately preceding Business Day; (b) if any Interest Period with respect to a Base Rate Loan would end on a day that is not a Business Day, that Interest Period shall end on the next succeeding Business Day; (c) if the applicable Borrower shall fail to give notice as provided in ss.2.7, the applicable Borrower shall be deemed to have requested a conversion of the affected Eurocurrency Rate Loan to a Base Rate Loan and the continuation of all Base Rate Loans as Base Rate Loans on the last day of the then current Interest Period with respect thereto; (d) any Interest Period relating to any Eurocurrency Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (e) any Interest Period relating to any Eurocurrency Rate Loan that would otherwise extend beyond the Revolving Credit Loan A Maturity Date (if comprising a Revolving Credit A Loan), Revolving Credit Loan B Maturity Date (if comprising a Revolving Credit B Loan), the Term Loan A Maturity Date (if comprising a Term Loan A or a portion thereof) or the Term Loan B Maturity Date (if comprising a Term Loan B or a portion thereof) shall end on the Revolving Credit Loan Maturity Date, the Term Loan A Maturity Date or the Term Loan B Maturity Date, as the case may be. -20- Interim Concentration Account. See ss.8.24.1. Investments. All expenditures made and all liabilities incurred (contingently or otherwise) for the acquisition of stock or Indebtedness of, or for loans, advances, capital contributions or transfers of property to, or in respect of any guaranties (or other commitments as described under Indebtedness), or obligations of, any Person; provided, however, Intercompany Accounts shall not be considered Investments. In determining the aggregate amount of Investments outstanding at any particular time: (a) the amount of any Investment represented by a guaranty shall be taken at not less than the principal amount of the obligations guaranteed and still outstanding; (b) there shall be included as an Investment all interest accrued with respect to Indebtedness constituting an Investment unless and until such interest is paid; (c) there shall be deducted in respect of each such Investment any amount received as a return of capital (but only by repurchase, redemption, retirement, repayment, liquidating dividend or liquidating distribution); (d) there shall not be deducted in respect of any Investment any amounts received as earnings on such Investment, whether as dividends, interest or otherwise, except that accrued interest included as provided in the foregoing clause (b) may be deducted when paid; and (e) there shall not be deducted from the aggregate amount of Investments any decrease in the value thereof. Investor Guaranty. That certain Guaranty dated as of May 7, 2001 from certain of the Principals to the Agent and the Revolving Credit B Banks and in form and substance satisfactory to the Revolving Credit B Banks, as amended by the First Amendment to Guaranty dated as of the Amendment Effective Date. Investor Guaranty Reduction Event. The occurrence of either (a) any event pursuant to which the Revolving Credit B Banks consent to a reduction (in whole or in part) of the amounts to be guaranteed pursuant to the Investor Guaranty; or (b) the termination of such Investor Guaranty. Kahn Permitted Transferee. Each Person to whom Jordan A. Kahn had the right to transfer shares of the common stock of the Company pursuant to Section 4.1 of the Stock Purchase Agreement dated as of October 27, 1997 between Jordan A. Kahn and Holmes Acquisition LLC. Letter of Credit. See ss.4.1.1. Letter of Credit Application. See ss.4.1.1. Letter of Credit Fee. See ss.4.6. Letter of Credit Participation. See ss.4.1.4. Leverage Ratio. As at any date of determination, the ratio of (a) Total Funded Indebtedness of the Company and its Subsidiaries outstanding on such date to (b) EBITDA of the Company and its Subsidiaries for the Reference Period ended on such date (or, if such date -21- is not a fiscal quarter end date the period of four consecutive fiscal quarters most recently ended), to be calculated on a Pro Forma Basis. Lien. Any mortgage, deed of trust, security interest, pledge, hypothecation, assignment, attachment, deposit arrangement, encumbrance, lien (statutory, judgment or otherwise), or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any Capitalized Lease, any synthetic lease (as defined in paragraph (f) of the definition of "Indebtedness"), any financing lease involving substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction. Loans. The Revolving Credit Loans and Term Loans. Loan Account Record. See ss.2.4. Loan Documents. This Credit Agreement, the Notes, the Letter of Credit Applications, the Letters of Credit, the Investor Guaranty, the Fee Letter and the Security Documents. Loan Request. See ss.2.6. Local Account. See ss.8.24.1. Majority Banks. As of any date, the Banks having Total Percentages aggregating to at least fifty-one percent (51 %) on such date. Management Agreement. That Management Agreement dated as of November 26, 1997, as amended on or prior to the Closing Date between Berkshire Partners and the Company, in the form delivered to the Banks and the Agent on or prior to the Closing Date. Material Adverse Effect. A material adverse effect on (a) the business, condition (financial or otherwise), operations, performance or properties of the Domestic Borrowers and the Guarantors, taken as a whole, or the Domestic Borrowers and their Subsidiaries taken as a whole, or the Collateral, (b) the rights and remedies of the Agent or any Bank under any Loan Document or (c) the ability of the Borrowers or any of their Subsidiaries to perform their obligations under the Loan Documents. Maximum Drawing Amount. The maximum aggregate amount that the beneficiaries may at any time draw under outstanding Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of the Letters of Credit. Maximum Initial Amount. As of any date of determination, an amount which is equal to the following: (a) for the period commencing on the Amendment Effective Date through and including June 30, 2004, an amount equal to $106,474,303 less the amount of any proceeds received by the Company or any Subsidiary from any Indebtedness incurred, assumed or otherwise issued pursuant to ss.9.1(f)(iv)(1) and less the amount of any proceeds received by the Revolving Credit A Banks pursuant to ss.2.12.2.3 - ss.2.12.2.6, and (b) at any time thereafter, $0. -22- Merger. The merger of MAC with and into Rival as contemplated by the Merger Documents. Merger Agreement. The Agreement and Plan of Merger, dated December 17, 1998 among Rival, the Company, and MAC together with all schedules, exhibits and annexes thereto. Merger Documents. The Merger Agreement and all agreements and documents required to be entered into and delivered pursuant to the Merger Agreement or in connection with the Merger. Merger Effective Date. The Effective Date of the Merger, as such term is defined in the Merger Agreement. Moriarty Acquisition Corp. or MAC. As defined in the preamble hereto. Mortgaged Property. Any Real Estate which is subject to any Mortgage. Mortgages. The several mortgages and/or deeds of trust, dated or to be dated on or prior to the Closing Date, from the Domestic Borrowers and their Domestic Subsidiaries to the Agent with respect to the fee interests of the Domestic Borrowers and the Domestic Subsidiaries in the Real Estate and in form and substance satisfactory to the Banks and the Agent. Multiemployer Plan. Any multiemployer plan within the meaning of ss.3(37) of ERISA maintained or contributed to by any Borrower or any Subsidiary of any Borrower, or (except for ss.7.16) any ERISA Affiliate. Net Cash Proceeds. With respect to any Equity Issuance, the excess of the gross cash proceeds received by such Person from such Equity Issuance after deduction of reasonable and customary transaction expenses (including without limitation, underwriting discounts and commissions) actually incurred in connection with the Equity Issuance. Net Cash Debt Proceeds. See ss.2.12.6. Net Cash Sale Proceeds. The gross cash proceeds received by the Company and its Subsidiaries in respect of any Asset Sale, less the sum of (a) all reasonable out-of-pocket fees, commissions and other expenses incurred in connection with such Asset Sale, including the amount (estimated in good faith by such Person) of income, franchise, sales and other applicable taxes required to be paid by such Person in connection with such Asset Sale and (b) the aggregate amount of cash so received by such Person which is used to retire (in whole or in part) any Indebtedness (other than under the Loan Documents) of such Person permitted by this Credit Agreement that was secured by a lien or security interest (if any) permitted by this Credit Agreement having priority over the liens and security interests (if any) of the Agent (for the benefit of the Banks) with respect to such assets transferred, and which is required to be repaid in whole or in part (which repayment, in the case of any other revolving credit arrangements or multiple advance arrangements, reduces the commitment thereunder) in connection with such Asset Sale. -23- Net Working Capital Changes. For any fiscal period, the net change from the last day of the immediately preceding like fiscal period to the last day of such fiscal period in (a) both billed and unbilled Accounts Receivable, (b) current accounts payable of the Borrowers and their Subsidiaries, (c) current accruals and accretions (exclusive of interest accruals and accretions) of the Borrowers and their Subsidiaries and (d) inventory of the Borrowers and their Subsidiaries. New Subordinated Notes. The 9 7/8% Senior Subordinated Notes due 2007 issued by the Company in the aggregate principal amount of $31,250,000 issued pursuant to the Subordinated Indenture, and any such documents, instruments or agreements issued in exchange therefor pursuant to the Exchange Offer. Notarial Deed of Pledge of Shares. The Notarial Deed of Pledge of Shares dated prior to or as of the Closing Date, among Bionaire B.V., Rival and the Agent. Notes. The Revolving Credit Notes and Term Notes. Obligations. All indebtedness, obligations and liabilities of any of the Borrowers and their respective Subsidiaries to any of the Banks and the Agent, individually or collectively, existing on the date of this Credit Agreement or arising thereafter, direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, arising by contract, operation of law or otherwise, arising or incurred under this Credit Agreement or any of the other Loan Documents or in respect of any of the Loans made or Reimbursement Obligations incurred or any of the Notes, Letter of Credit Applications, or Letters of Credit, or arising or incurred in connection with any interest rate, foreign exchange and/or currency risk protection arrangements entered into with any of the Banks, or any documents, agreements or instruments executed in connection therewith, or other instruments at any time evidencing any thereof. Operating Account. See ss.2.6.2. Original Banks. See preamble. Original Closing Date. November 26, 1997. Original Credit Agreement. See preamble. outstanding. With respect to the Loans, the aggregate unpaid principal thereof as of any date of determination. Overnight Rate. For any day, the weighed average interest rate paid by the Agent for federal funds acquired by the Agent. Patent Assignments. The several Patent Assignments, dated as of the Closing Date or as of the Original Closing Date and amended as of the Closing Date, made by certain Borrowers in favor of the Agent and in form and substance satisfactory to the Banks and the Agent. Patton HK. As defined in the preamble hereto. -24- Patton HK Letters of Credit. Those certain letters of credit issued prior to the Original Closing Date for the account of Patton HK and Rival and more fully described on Schedule 1.1(b) hereto. PBGC. The Pension Benefit Guaranty Corporation created by ss.4002 of ERISA and any successor entity or entities having similar responsibilities. Perfection Certificates. The Perfection Certificates as defined in the Security Agreements. Periodic Required Revolving A Reduction. See ss. 8.27.5. Periodic Required Revolving A Subdebt Funding Loan. See ss. 8.27.5. Permitted Acquisition. As defined in ss.9.5.1 (b) hereto, and any other stock or asset acquisition consented to in writing by the Majority Banks. Permitted Liens. Liens, security interests and other encumbrances permitted by ss.9.2. Permitted Repurchases. The purchase by the Company after the Amendment Effective Date of all or any portion of the Subordinated Notes from the holders thereof so long as (a) the total, cumulative amount of the consideration paid for the principal amount of all such purchases (such consideration limitation to be exclusive of all accrued and unpaid interest on such Subordinated Notes, and which accrued and unpaid interest on such Subordinated Notes shall be permitted to be paid on the date of such purchase) does not exceed, in the aggregate, $5,000,000, (b) the Subordinated Notes so purchased in each case are immediately on the date of such purchase cancelled by the Company, (c) the purchase price paid by the Company to the holders of such Subordinated Notes is equal to or less than forty percent (40%) of the sum of the principal amount of the Subordinated Notes being purchased plus all other amounts being paid to the holders of such Subordinated Notes in connection with such purchase (such as any fee or commission), other than accrued and unpaid interest, (d) the Company finances one hundred percent (100%) of the purchase price for such purchases with proceeds of a Permitted Repurchase Subdebt Funding Loan and (e) if the seller of such Subordinated Notes is a Principal, the total, cumulative amount of the consideration paid for such Subordinated Notes (inclusive of all principal, interest, and all other amounts to be paid thereon) is equal to or less than the total, cumulative amount of consideration paid by such Principal for such Subordinated Notes at the time of purchase by such Principals, and shall not include accrued and unpaid interest on such Subordinated Notes from the date purchased by such Principals until the date sold to the Company. Permitted Repurchase Subdebt Funding Loan. See ss.8.27.2. Person. Any individual, corporation, partnership, trust, unincorporated association, business, or other legal entity, and any government or any governmental agency or political subdivision thereof. PRC Reserve. The amount of the reserve imposed by the appropriate governmental or other regulatory authority of the People's Republic of China which any Subsidiary organized -25- under the laws of the People's Republic of China is required to take to protect against repatriation of funds from the People's Republic of China. Principal Affiliate. Any Person directly or indirectly controlling or controlled by or under direct or indirect common control with a Principal. For 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, shall mean 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 ten percent (10%) or more of the Voting Stock of a Person shall be deemed to be control. Principals. Collectively, Berkshire Partners, Berkshire Fund IV, Berkshire Fund IV Investment Corp., Berkshire Fund V, Berkshire Fund V Investment Corp., Berkshire Investors LLC and any of their respective Principal Affiliates, Jordan A. Kahn and his Principal Affiliates, Stanley Rosenzweig and Gregory F. White, provided, however, for purposes of this Credit Agreement, any shares of the capital stock of the Company owned by a Kahn Permitted Transferee on the Closing Date will be deemed to be owned by Jordan A. Kahn. Pro Forma Basis. In connection with any proposed Permitted Acquisition after the Closing Date, the calculation of compliance with the financial covenants described in ss.ss.9.5.1 and 10 hereof by the Company and its Subsidiaries (including the Person to be acquired) with reference to either (a) the audited historical financial results of the Person so acquired together with any interim financial results of such Person prepared since the date of the last audited financial statements and prepared in a manner consistent with past practices or (b) to the extent such Person to be acquired has no audited historical financial results, the management prepared financial results of such Person, with such results to be in form and substance reasonably acceptable to the Agent, and the Company and its Subsidiaries for the applicable Test Period after giving effect on a pro forma basis to such Permitted Acquisition in the manner described in (i), (ii) and (iii) below; and, following a Permitted Acquisition, the calculation of compliance with the financial covenants contained in ss.10 for the fiscal quarter in which such Permitted Acquisition occurred and each of the three fiscal quarters immediately following such Permitted Acquisition with reference to either (a) the audited historical financial results of the Person so acquired together with any interim financial results of such Person prepared since the date of the last audited financial statements and prepared in a manner consistent with past practices or (b) to the extent such Person to be acquired has no audited historical financial results, the management prepared financial results of such Person, with such results to be in form and substance reasonably acceptable to the Agent (which may include, at the Agent's request, review by independent certified public accountants reasonably satisfactory to the Agent) and the Company and its Subsidiaries for the applicable Test Period after giving effect on a pro forma basis to such Permitted Acquisition in the manner described in (i), (ii) and (iii) below, provided, however, that, in each case, in the event that no historical financial results are available with respect to the Person or assets to be acquired, such calculations shall be made with reference to reasonable estimates of such past performance made by the Company based on existing data and other available information, such estimates to be acceptable to the Agent: -26- (i) all Total Funded Indebtedness (whether under this Credit Agreement or otherwise) and any other balance sheet adjustments incurred or made in connection with the Permitted Acquisition shall be deemed to have been incurred or made on the first day of the Test Period, and all Indebtedness of the Person acquired or to be acquired in such Permitted Acquisition which was or will have been repaid in connection with the consummation of the Permitted Acquisition shall be deemed to have been repaid concurrently with the deemed incurrence of the Indebtedness incurred in connection with the Permitted Acquisition; (ii) all Total Funded Indebtedness assumed to have been incurred pursuant to the preceding clause (i) shall be deemed to have borne interest at the sum of (a) the arithmetic mean of (x) the Eurocurrency Rate for Eurocurrency Rate Loans denominated in Dollars having an Interest Period of one month in effect on the first day of the Test Period and (y) the Eurocurrency Rate for Eurocurrency Rate Loans denominated in Dollars having an Interest Period of one month in effect on the last day of the Test Period plus (b) the Applicable Margin for the applicable Type of Loans then in effect (after giving effect to the Permitted Acquisition on a Pro Forma Basis); and (iii) other reasonable cost savings, expenses and other income statement or operating statement adjustments which are attributable to the change in ownership and/or management resulting from such Permitted Acquisition as may be approved by the Agent in writing (which approval shall not be unreasonably withheld) shall be deemed to have been realized on the first day of the Test Period; provided, however, adequately documented reductions in management compensation and rental expenses which will be effective upon the consummation of such Permitted Acquisition shall not require the approval of the Agent. Project ERP. That certain project identified as such by the Company in writing to the Agent and the Banks in the Project Letter prior to or on the Amendment Effective Date. Project HQ. That certain project identified as such by the Company in writing to the Agent and the Banks in the Project Letter prior to or on the Amendment Effective Date. Project Letter. That certain letter delivered by the Company to the Agent and the Banks on or prior to the Amendment Effective Date, which letter describes in sufficient detail each of the Designated Property, Project HQ, Project Marvel, Project Retail, Project Rum, Project ERP and Project Wire, together with a description of all proposed budgeted expenses, addbacks and charges relating thereto, such letter to be in form and substance satisfactory to the Agent. Project Marvel. That certain project identified as such by the Company in writing to the Agent and the Banks in the Project Letter prior to or on the Amendment Effective Date. Project Retail. That certain project identified as such by the Company in writing to the Agent and the Banks in the Project Letter prior to or on the Amendment Effective Date Project Rum. That certain project identified as such by the Company in writing to the Agent and the Banks in the Project Letter prior to or on the Amendment Effective Date. -27- Project Wire. That certain project identified as such by the Company in writing to the Agent and the Banks in the Project Letter prior to or on the Amendment Effective Date. Raider. As defined in the preamble hereto. Rate Adjustment Period. See the definition of Applicable Margin. RCRA. See ss.7.18(a). Real Estate. All real property at any time owned or leased (as lessee or sublessee) by the Company or any of its Subsidiaries. Record. The grid attached to a Note, or the continuation of such grid, or any other similar record, including computer records, maintained by any Bank with respect to any Loan referred to in such Note. Reference Bank. Fleet National Bank, and as to the Revolving Credit B Loans, such financial institution designated as such in writing to the Agent by the Revolving B Banks on or before May 7, 2001. Reference Period. The period of the four (4) consecutive fiscal quarters of the Company ending on the relevant date (or, if such date is not a fiscal quarter end date, the period of four (4) consecutive fiscal quarters most recently ended). Register. See ss.19.3. Registration Rights Agreement. That certain Registration Rights Agreement with respect to the New Subordinated Notes dated as of February 5, 1999, by and among the Company, certain Domestic Subsidiaries of the Company party to the Subordinated Guarantee, FleetBoston Robertson Stephens Inc. and Lehman Brothers Inc., as initial purchasers, and in the form delivered to the Agent and the Banks on or prior to the Closing Date, and as amended by that certain First Amendment to Registration Rights Agreement dated as of May 7, 2001. Reimbursement Obligation. The applicable Borrower's obligation to reimburse the Agent and the Banks on account of any drawing under any Letter of Credit as provided, in ss.4.2. Required Repurchase. The purchase by the Company on the Amendment Effective Date of a portion of the Subordinated Notes from the holders thereof so long as (a) the total cumulative amount of the consideration paid for such purchase (such consideration to be inclusive of all accrued and unpaid interest on such Subordinated Notes) does not exceed, in the aggregate, (i) $11,548,875 (which amount represents that portion of the purchase price attributable to the principal amount of the Subordinated Notes being repurchased) plus (ii) $872,702 plus (iii) the amount of accrued and unpaid interest on the Subordinated Notes so repurchased through the Amendment Effective Date, (which amount is equal to $1,260,221) minus (iv) $913,424, with the Company repurchasing Subordinated Notes having a principal face amount of not less than $36,175,000, (b) the Subordinated Notes so purchased are immediately on the date of such purchase cancelled by the Company, (c) the purchase price paid by the Company to the holders of such Subordinated Notes is equal to or less than thirty -28- six percent (36%) of the sum of the principal amount of the Subordinated Notes being purchased, plus accrued and unpaid interest on such Subordinated Notes and (d) the Company finances such purchase with the proceeds of a Required Repurchase Subdebt Funding Loan. Required Repurchase Subdebt Funding Loan. See ss.8.27.1. Required Revolving A Reduction. See ss. 8.27.3. Restricted Payment. In relation to the Company and its Subsidiaries, any (a) Distribution or (b) payment by the Company or any of its Subsidiaries to any Affiliate of the Company that is not a Borrower or Guarantor other than for goods and services in the ordinary course of business on terms equivalent to those obtainable in arms length transactions. Revolver A Exposure. As defined in ss.2.1.1. Revolving A Banks. Those Banks listed on Schedule 1 hereto as "Revolving A Banks" and which will make the Revolving Credit A Loans to the Borrowers pursuant to ss.2.1.1. Revolving A Commitment. With respect to each Revolving A Bank, the amount set forth on Schedule 1 hereto as the amount of such Revolving A Bank's commitment to make Revolving Credit A Loans to the Borrowers, and to participate in the issuance, extension and renewal of Letters of Credit for the account of, the Borrowers, as the same may be reduced from time to time; or if such commitment is terminated pursuant to the provisions hereof, zero. Revolving A Commitment Percentage. With respect to each Revolving A Bank, the percentage set forth on Schedule 1 hereto as such Revolving A Bank's percentage of the aggregate Revolving A Commitments of all the Revolving A Banks. Revolving B Banks. Those Banks listed on Schedule 1 hereto as "Revolving B Banks" and which will make the Revolving Credit B Loans to the Borrowers pursuant to ss.2.1.4. Revolving B Commitment. With respect to each Revolving B Bank, the amount set forth on Schedule 1 hereto as the amount of such Revolving B Bank's commitment to make Revolving Credit B Loans to the Borrowers. Revolving B Commitment Percentage. With respect to each Revolving B Bank, the percentage set forth on Schedule 1 hereto as such Revolving B Bank's percentage of the aggregate Revolving B Commitments of all the Revolving B Banks. Revolving Banks. Collectively, the Revolving A Banks and the Revolving B Banks. Revolving Credit A Loans. Revolving credit loans to be made by the Revolving A Banks pursuant to ss.ss.2.1.1 hereof. -29- Revolving Credit A Notes. See ss.2.4. Revolving Credit B Loans . Revolving credit loans to be made by the Revolving B Banks pursuant to ss.ss.2.1.2 hereof. Revolving Credit B Notes. See ss.2.4. Revolving Credit Loan A Maturity Date. February 5, 2005. Revolving Credit Loan B Maturity Date. July 1, 2004. Revolving Credit Loan Maturity Date. As to the Revolving Credit A Loans, the Revolving Credit Loan A Maturity Date, and as to the Revolving Credit B Loans, the Revolving Credit Loan B Maturity Date. Revolving Credit Loans. Collectively, the Revolving Credit A Loans and the Revolving Credit B Loans. Revolving Credit Notes. Collectively, the Revolving Credit A Notes and the Revolving Credit B Notes. Rival. The Rival Company, a Delaware corporation, and, from and after the Merger Effective Date, shall refer to the surviving entity in the Merger. Rival Letters of Credit. Those certain letters of credit issued prior to the Original Closing Date for the account of Rival and more fully described on Schedule 1.1(a) hereto. SARA. See ss.7.18(a). Same Day Funds. Immediately available funds. Section 20 Subsidiary. A Subsidiary of the bank holding company controlling any Bank, which Subsidiary has been granted authority by the Federal Reserve Board to underwrite and deal in certain Ineligible Securities. Security Agreements. The several Security Agreements, dated or to be dated on or prior to the Closing Date, and as may be amended as of the Closing Date and amended and restated as of the Amendment Effective Date, between the Company and certain of its Subsidiaries and the Agent, and in form and substance satisfactory to the Banks and the Agent. Security Documents. The Guaranty, the Security Agreements, the Debentures, the Agency Account Agreements, the Patent Assignments, the Trademark Assignments, the Share Security Deeds, the Charges Over Shares, the Foreign Guarantees, the Stock Pledge Agreement, the Agreement of Pledge of Assets and Receivables, the Notarial Deed of Pledge of Shares, the Mortgages, the Assignment of Interest by Esteem as assignor of its interest in Dongguan Huixum Electrical Products Company, Ltd., the Assignment of Interest by Raider as assignor of its interest in Dongguan Raider Motor Corporation, Ltd. and all other instruments and documents, including without limitation Uniform Commercial Code financing statements, required to be executed or delivered pursuant to any Security Document. Settlement. The making or receiving of payments in immediately available funds, by the Banks, to the extent necessary to cause each Bank's actual share of the outstanding amount of Revolving Credit A Loans and Revolving Credit B Loans (after giving effect to any Loan -30- Request) to be equal to such Bank's Revolving A Commitment Percentage of the outstanding amount of such Revolving Credit A Loans and Revolving B Commitment Percentage of the outstanding amount of such Revolving Credit B Loans, as the case may be (in each case, after giving effect to any Loan Request), in any case where, prior to such event or action, the actual share is not so equal. Settlement Amount. See ss.2.11.1. Settlement Date. (a) The Drawdown Date relating to any Loan Request, (b) Friday of each week, or if a Friday is not a Business Day, the Business Day immediately following such Friday, (c) at the option of the Agent, on any Business Day following a day on which the account officers of the Agent active upon the Borrower's account become aware of the existence of an Event of Default, (d) any Business Day on which the amount of the Revolving Credit Loans outstanding from the Swing Line Bank plus the Swing Line Bank's Revolving A Commitment Percentage of the sum of the Maximum Drawing Amount and any Unpaid Reimbursement Obligations is equal to or greater than the Swing Line Bank's Revolving A Commitment Percentage, (e) the Business Day immediately following any Business Day on which the amount of Revolving Credit Loans outstanding increases or decreases by more than $8,000,000 as compared to the previous Settlement Date, (f) any day on which any conversion of a Base Rate Loan to a Eurocurrency Rate Loan occurs, or (g) any Business Day on which (i) the amount of outstanding Revolving Credit Loans decreases and (ii) the amount of the Agent's Revolving Credit Loans outstanding equals zero Dollars ($0). Settling Bank. See ss.2.11.1. Share Security Deeds. Collectively, the Share Security Deed, dated as of December 15, 1997 and amended as of the Closing Date, among Far East, Esteem and the Agent and the Share Security Deed, dated prior to or as of the Closing Date, among Patton Electric Company, Inc., Patton HK and the Agent. Stockholders Agreement. The Stockholders Agreement dated as of November 26, 1997, and amended as of the Closing Date, among the Company and certain stockholders party thereto and in the form delivered to the Agent on the Closing Date. Stock Option Plan. The 1997 Stock Option Plan, as amended, a copy of which has been delivered to the Agent on or prior to the Closing Date. Stock Pledge Agreements. The several Stock Pledge Agreements, dated or to be dated on or prior to the Closing Date, and as may be amended as of the Closing Date between the Agent and each of the Company, Rival and Patton Electric Company, Inc., as the case may be, and in form and substance satisfactory to the Agent. Subdebt Funding Loans. See ss.8.27.5. Subdebt Funding Loan Reversal Event. See ss.8.27.4. Subordinated Debt. Unsecured Indebtedness of the Company or any of its Subsidiaries that is expressly subordinated and made junior to the payment and performance in full of the -31- Obligations on terms satisfactory to the Agent and the Banks and evidenced as such by the Subordinated Debt Documents. Subordinated Debt Documents. The Subordinated Note Purchase Agreement, the Subordinated Indenture, the Subordinated Guarantees, the Registration Rights Agreement and the Subordinated Notes, each in the form delivered to the Agent prior to the Closing Date. Subordinated Guarantees. The guarantees entered into or to be entered into by certain of the Company's Domestic Subsidiaries pursuant to the Subordinated Indenture, which shall be in form and substance satisfactory to the Agent and the Banks. Subordinated Indenture. The collective reference to the Indenture dated as of November 26, 1997 between the Company and the Indenture Trustee and the Indenture dated as of February 5, 1999 between the Company and the Indenture Trustee, and any such documents, instruments or agreements issued in exchange pursuant to the Exchange Offer. Subordinated Notes. (a) The 9 7/8% Senior Subordinated Notes due 2007 issued by the Company in the aggregate principal amount of $105,000,000 pursuant to the Subordinated Indenture, (b) the New Subordinated Notes and (c) any such documents, instruments or agreements issued in exchange therefor pursuant to the Exchange Offer. Subordinated Note Purchase Agreement. The Purchase Agreement, dated as of a date on or prior to the Closing Date, among the Company, FleetBoston Robertson Stephens Inc. (f/k/a/ BancBoston Robertson Stephens, Inc.) and Lehman Brothers Inc. Subsidiary. Any corporation, association, trust, limited liability company, partnership or other business entity of which the designated parent shall at any time own directly or indirectly through a Subsidiary or Subsidiaries at least a majority (by number of votes) of the outstanding Voting Stock. Subsidiary Borrowers. As defined in the preamble hereto. Survey. The most recent survey conducted on each Mortgaged Property existing at the time of the Closing Date, and in relation to each Mortgaged Property acquired after the Closing Date, an instrument survey of such Mortgaged Property which shall show the location of all buildings, structures, easements and utility lines on such Mortgaged Property, shall be sufficient to remove the survey exception from the Title Policy, shall show that all buildings and structures are within the lot lines of such Mortgaged Property, shall not show any encroachments by others, shall show the zoning district or districts in which such Mortgaged Property is located in a flood hazard district as established by the Federal Emergency Management Agency or any successor agency or is located in any flood plain, flood hazard or wetland protection district established under federal, state or local law. Surveyor Certificate. In relation to each Mortgaged Property for which a Survey has been conducted, a certificate executed by the surveyor who prepared such Survey dated as of a recent date and containing such information relating to such Mortgaged Property as the Agent -32- or the Title Insurance Company may require, such certificate to be satisfactory to the Agent in form and substance. Swing Line Bank. The Agent, or any other lending institution which replaces the Agent as the lending institution providing Swing Line Loans pursuant to ss.2.6.2. Swing Line Loans. Loans advanced by the Swing Line Bank under ss.2.6.2. Tender Offer. The Offer to Purchase for cash all outstanding shares of common stock of The Rival Company made by MAC on December 23, 1998, pursuant to the Tender Offer Documents. Tender Offer Documents. The Offer to Purchase for Cash All Outstanding Shares of Common Stock of The Rival Company at $13.75 Net Per Share, dated December 23, 1998, and the related Letter of Transmittal, Notice of Guaranteed Delivery, and Schedule 14D-9 Solicitation/Recommendation Statement, each in the form delivered to the Agent prior to the Closing Date. Term Loans. The Term Loan A and Term Loan B. Term Loan A. The term loan made or to be made by the Banks to the Borrowers on the Closing Date in the aggregate principal amount of $40,000,000 pursuant to ss.3.1.1 hereof. Term Loan A Commitment. With respect to each Bank, the amount set forth on Schedule 1 hereto as the amount of such Bank's commitment to make Term Loan A to the Borrowers. Term Loan A Commitment Percentage. With respect to each Bank, the percentage set forth on Schedule 1 hereto as such Bank's percentage of Term Loan A. Term Loan A Maturity Date. February 5, 2005. Term Loan B. The term loan made or to be made by the Banks to the Borrowers on the Closing Date in the aggregate principal amount of $85,000,000 pursuant to ss.3.1.2 hereof. Term Loan B Commitment. With respect to each Bank, the amount set forth on Schedule 1 hereto as the amount of such Bank's commitment to make Term Loan B to the Borrowers. Term Loan B Commitment Percentage. With respect to each Bank, the percentage set forth on Schedule 1 hereto as such Bank's percentage of Term Loan B. Term Loan B Maturity Date. February 5, 2007. Term Notes. See ss.3.2. Test Period. The period of all fiscal quarters (and any portion of a fiscal quarter) included in any covenant calculation and occurring prior to the date of such Permitted Acquisition as set forth in the definition of Pro Forma Basis. -33- Third Amendment. The Forbearance Agreement and Third Amendment dated as of April 13, 2001 by and among the Borrowers, the Agent and the Banks. Title Insurance Company. Lawyers Title Insurance Company. Title Policy. In relation to each Mortgaged Property, an ALTA standard form title insurance policy issued by the Title Insurance Company (with such reinsurance or co-insurance as the Agent may require, any such reinsurance to be with direct access endorsements) in such amount as may, be determined by the Agent insuring the priority of the Mortgage of such Mortgaged Property and that the Domestic Borrowers or one of their Domestic Subsidiaries holds marketable fee simple title to such Mortgaged Property, subject only to the encumbrances permitted by such Mortgage and which shall not contain exceptions for mechanics liens, persons in occupancy (except as may be permitted by such Mortgage), shall not insure over any matter except to the extent that any such affirmative insurance is acceptable to the Agent in its sole discretion, and shall contain such endorsements and affirmative insurance as the Agent in its discretion may reasonably require, including but not limited to (i) comprehensive endorsement, (ii) variable rate of interest endorsement, (iii) usury endorsement, (iv) revolving credit endorsement, (v) tie-in endorsement (vi) doing business endorsement, (vii) anti-taint endorsement and (viii) last dollar endorsement. Total Commitment. Collectively, the Total Revolving A Commitment and the Total Revolving B Commitment. Total Funded Indebtedness. All Indebtedness of the Company and its Subsidiaries for borrowed money (including, without limitation, all guarantees by such Person of Indebtedness of others for borrowed money), purchase money Indebtedness, with respect to Capitalized Leases and synthetic leases, determined on a consolidated basis in accordance with generally accepted accounting principles; provided, however, for purposes of calculating the Leverage Ratio, Total Funded Indebtedness shall not include (a) the Maximum Drawing Amount of any issued, outstanding but undrawn documentary Letters of Credit and (b) the maximum aggregate amount that the beneficiaries may at any time draw under the Rival Letters of Credit and Patton HK Letters of Credit, as such aggregate amount may be reduced from time to time pursuant to the terms of such Rival Letters of Credit or Patton HK Letters of Credit; and provided, further, that for purposes of calculating Indebtedness of the Borrowers under the Revolving Credit Loans for any period, the amount shall be the average amount of Revolving Credit Loans outstanding on the last day of any calendar month for the last twelve (12) calendar months (or such shorter period as has elapsed from the Closing Date) divided by twelve (or the applicable number of shorter months as has elapsed from the Closing Date). Total Percentage. With respect to each Bank, on any date of determination, the Revolving A Commitment (or, if the Revolving A Commitment is terminated, outstanding Revolving Credit A Loans, Letter of Credit Participations in Unpaid Reimbursement Obligations and participating interests in the risk relating to outstanding Letters of Credit) and outstanding Term Loans A and outstanding Term Loans B held by such Bank as a percentage of the sum of the Total Revolving A Commitment (or if the Revolving A Commitment is terminated, outstanding Revolving Credit A Loans, Letter of Credit Participations in Unpaid -34- Reimbursement Obligations and participating interests in the risk relating to outstanding Letters of Credit) plus the outstanding Term Loans A and outstanding Term Loans B. Total Revolving A Commitment. The sum of the Revolving A Commitments of the Revolving A Banks as in effect from time to time. Total Revolving B Commitment. The sum of the Revolving B Commitments of the Revolving B Banks as in effect from time to time. Trademark Assignment. The several Trademark Assignments, dated as of the Closing Date or as of the Original Closing Date and amended as of the Closing Date, made by certain Borrowers in favor of the Agent and in form and substance satisfactory to the Banks and the Agent. Type. As to any Loan, its nature as a Base Rate Loan or a Eurocurrency Rate Loan. Unencumbered Cash. The aggregate amount of cash and Cash Equivalents of the Company which is not subject to any Lien whatsoever, except for a Lien in favor of the Agent for the benefit of the Agent and the Banks to secure the Obligations under the Loan Documents. Uniform Customs. With respect to any Letter of Credit, the Uniform Customs and Practice for Documentary Credits (1993 Revision), International Chamber of Commerce Publication No. 500 or any successor version thereto adopted by the Agent in the ordinary course of its business as a letter of credit issuer and in effect at the time of issuance of such Letter of Credit. Unpaid Reimbursement Obligation. Any Reimbursement Obligation for which the applicable Borrower does not reimburse the Agent and the Banks on the date specified in, and in accordance with, ss.4.2. Voting Stock. Stock or similar interests, of any class or classes (however designated), the holders of which are at the time entitled, as such holders, to vote for the election of a majority of the directors (or persons performing similar functions) of the corporation, association, limited liability company, partnership, trust or other business entity involved, whether or not the right so to vote exists by reason of the happening of a contingency. Warrants. Those certain warrants from the Company to the Banks other than the Revolving B Banks, and in form and substance as set forth in Exhibit A to the Warrant Purchase Agreement. Warrant Purchase Agreement. That certain warrant purchase agreement, dated as of May 7, 2001, between the Company and the Banks, other than the Revolving B Banks, relating to the Warrants and the certain co-sale agreement dated as of May 7, 2001, between the Company and such Banks. 1.2. RULES OF INTERPRETATION. -35- (a) A reference to any document or agreement shall include such document or agreement as amended, modified or supplemented from time to time in accordance with its terms and the terms of this Credit Agreement. (b) The singular includes the plural and the plural includes the singular. (c) A reference to any law includes any amendment or modification to such law. (d) A reference to any Person includes its permitted successors and permitted assigns. (e) Accounting terms not otherwise defined herein have the meanings assigned to them by generally accepted accounting principles applied on a consistent basis by the accounting entity to which they refer. (f) The words "include", "includes" and "including" are not limiting. (g) All terms not specifically defined herein or by generally accepted accounting principles, which terms are defined in the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts, have the meanings assigned to them therein, with the term "instrument" being that defined under Article 9 of the Uniform Commercial Code. (h) Reference to a particular "ss." refers to that section of this Credit Agreement unless otherwise indicated. (i) The words "herein", "hereof", "hereunder" and words of like import shall refer to this Credit Agreement as a whole and not to any particular section or subdivision of this Credit Agreement. (j) Unless otherwise expressly indicated, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including," the words "to" and "until" each mean "to but excluding," and the word "through" means "to and including." (k) This Credit Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are, however, cumulative and are to be performed in accordance with the terms thereof. (l) This Credit Agreement and the other Loan Documents are the result of negotiation among, and have been reviewed by counsel to, among others, the Agent and the Borrowers and are the product of discussions and negotiations among all parties. Accordingly, this Credit Agreement and the other Loan Documents are not intended to be construed against the Agent or any of the Banks merely on account of the Agent's or any Bank's involvement in the preparation of such documents. -36- 2. THE REVOLVING CREDIT FACILITY. 2.1 COMMITMENT TO LEND. 2.1.1. REVOLVING CREDIT A LOANS TO BORROWERS. Subject to the terms and conditions set forth in this Credit Agreement, each of the Revolving A Banks severally agrees to lend to the Borrowers and the Borrowers may borrow, repay, and reborrow from time to time from the Closing Date up to but not including the Revolving Credit Loan A Maturity Date upon notice by the applicable Borrowers to the Agent given in accordance with ss.2.6, such sums in Dollars as are requested by the applicable Borrowers up to a maximum aggregate amount outstanding (after giving effect to all amounts requested by any Borrower) at any one time equal to such Revolving A Bank's Revolving A Commitment minus such Revolving A Bank's Revolving A Commitment Percentage of the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations, provided that (a) the sum of the outstanding amount of the Revolving Credit A Loans (after giving effect to all amounts requested), plus the Maximum Drawing Amount and all Unpaid Reimbursement Obligations (collectively, the "Revolver A Exposure") shall not at any time exceed the lesser of (i) the Total Revolving A Commitment and (ii) the Borrowing Base minus the aggregate outstanding amount of Revolving Credit B Loans, and (b) (1) the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to the Subsidiary Borrowers shall not at any time exceed $20,000,000, with the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to Holmes Far East, Esteem, Raider and Patton HK not to at any time exceed $10,000,000 and the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to Holmes UK and Bionaire B.V. not to at any time exceed $10,000,000, and (2) the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to the Subsidiary Borrowers plus the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time exceed $45,000,000. Notwithstanding anything to the contrary contained herein, the parties hereto hereby acknowledge and agree that (1) at any time in which the Revolver A Exposure is at the Maximum Initial Amount, the Revolving A Banks shall have no obligation to make any additional Revolving Credit A Loans or other extension of credit under this Credit Agreement until such time as the aggregate outstanding principal amount of Revolving Credit B Loans is equal to the Total Revolving B Commitment and (2) from and after the earlier to occur of (x) the Term Loan B Maturity Date and (y) July 1, 2004, the Borrowers shall not request any additional Revolving Credit A Loans or the issuance, extension or renewal of any Letter of Credit (and the Banks shall have no obligation to make any such Revolving Credit A Loans and the Agent shall have no obligation to issue, extend or renew any Letter of Credit) if, after giving effect to any amounts so requested, the Revolver A Exposure would exceed the Maximum Initial Amount. For the avoidance of doubt, the parties hereto hereby acknowledge that to the extent any Borrower is requesting the issuance of any Letter of Credit at a time -37- when the Revolving A Banks are not required to make any additional extensions of credit under this Credit Agreement until such time as the Total Revolving B Loan Commitment has been fully funded, the Borrowers shall be permitted, subject always to compliance with the terms and conditions contained herein, to borrow a Revolving Credit B Loan in the amount of the Maximum Drawing Amount of such requested Letters of Credit, and use the proceeds of such Revolving Credit B Loan to repay the Revolving Credit A Loans in such an amount such that the Revolver A Exposure is reduced (prior to such issuance of such Letter of Credit) to an amount below the Maximum Initial Amount so that such requested Letter of credit can then be issued. The Revolving Credit A Loans shall be made pro rata in accordance with each Revolving A Bank's Revolving A Commitment Percentage. Each request for a Revolving Credit A Loan hereunder shall constitute a representation and warranty by the Borrowers that the conditions set forth in ss.12 have been satisfied on the date of such request. All Revolving Credit A Loans shall be denominated in Dollars. 2.1.2. REVOLVING CREDIT B LOANS TO BORROWERS. Subject to the terms and conditions set forth in this Credit Agreement, to the extent the Revolver A Exposure equals the Maximum Initial Amount or if the Revolver A Exposure is less than the Maximum Initial Amount but the Company is requesting a Revolving Credit B Loan in order to make the Required Repurchase, a Permitted Repurchase, or any Required Revolving A Reduction, then each of the Revolving B Banks severally agrees to lend to the Borrowers and the Borrowers may borrow, repay, and reborrow from time to time from the Closing Date up to but not including the Revolving Credit Loan B Maturity Date upon notice by the applicable Borrowers to the Agent given in accordance with ss.2.6, such sums in Dollars as are requested by the applicable Borrowers up to a maximum aggregate amount outstanding (after giving effect to all amounts requested by any Borrower) at any one time equal to such Revolving B Bank's Revolving B Commitment, provided that (a) the sum of the outstanding amount of the Revolving Credit B Loans (after giving effect to all amounts requested) shall not at any time exceed the lesser of (i) the Total Revolving B Commitment and (ii) the Borrowing Base minus the Revolver A Exposure and (b) (1) the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to the Subsidiary Borrowers shall not at any time exceed $20,000,000, with the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to Holmes Far East, Esteem, Raider and Patton HK not to at any time exceed $10,000,000 and the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to Holmes UK and Bionaire B.V. not to at any time exceed $10,000,000, and (2) the sum of the outstanding amount of all Revolving Credit Loans (after giving effect to all amounts requested) advanced to the Subsidiary Borrowers plus the Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not at any time exceed $45,000,000. The Revolving Credit B Loans shall be made pro rata in accordance with each Revolving B Bank's Revolving B Commitment Percentage. Each request for a Revolving Credit Loan B hereunder shall constitute a representation -38- and warranty by the Borrowers that the conditions set forth in ss.12 have been satisfied on the date of such request. Each Revolving Credit B Loan to the Borrowers shall be denominated in Dollars. 2.2. COMMITMENT FEE. 2.2.1. REVOLVING CREDIT A LOANS COMMITMENT FEE. The Domestic Borrowers agree to pay to the Agent for the accounts of the Revolving A Banks based on the amount by which each such Revolving A Bank's Revolving A Commitment exceeds the sum of such Revolving A Bank's daily average outstanding Revolving Credit A Loans plus its Revolving A Commitment Percentage of the sum of the Maximum Drawing Amount and the Unpaid Reimbursement Obligations a commitment fee calculated at the rate of the Commitment Fee Rate per annum on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Revolving Credit Loan A Maturity Date by which the Total Revolving A Commitment minus the sum of the Maximum Drawing Amount and all Unpaid Reimbursement Obligations exceeds the outstanding amount of Revolving Credit A Loans during such calendar quarter. The commitment fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Loan A Maturity Date or any earlier date on which the Revolving A Commitments shall terminate. 2.2.2. REVOLVING CREDIT B LOANS COMMITMENT FEE. The Domestic Borrowers agree to pay to the Agent for the accounts of the Revolving B Banks based on the amount by which each such Revolving B Bank's Revolving B Commitment exceeds the sum of such Revolving B Bank's daily average outstanding Revolving Credit B Loans a commitment fee calculated at the rate of the Commitment Fee Rate per annum on the average daily amount during each calendar quarter or portion thereof from the Closing Date to the Revolving Credit Loan B Maturity Date by which the Total Revolving B Commitment exceeds the outstanding amount of Revolving Credit B Loans during such calendar quarter. The commitment fee shall be payable quarterly in arrears on the first day of each calendar quarter for the immediately preceding calendar quarter commencing on the first such date following the date hereof, with a final payment on the Revolving Credit Loan B Maturity Date or any earlier date on which the Revolving B Commitments shall terminate. 2.3. REDUCTION OF COMMITMENTS. 2.3.1. REDUCTION OF TOTAL REVOLVING A COMMITMENT. The Company shall have the right at any time and from time to time upon seven (7) Business Days prior written notice to the Agent to reduce by $5,000,000 or an integral multiple of $1,000,000 in excess thereof or terminate entirely the Total Revolver A Commitment, whereupon the Revolving A Commitments of the Banks shall be -39- reduced pro rata in accordance with their respective Revolving A Commitment Percentages of the amount specified in such notice or, as the case may be, terminated. Promptly after receiving any notice of the Company delivered pursuant to this ss.2.3.1, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Domestic Borrowers shall pay to the Agent for the respective accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. No reduction or termination of the Revolving A Commitments may be reinstated. 2.3.2. REDUCTION OF TOTAL REVOLVING B COMMITMENT. After such time as the Company has voluntarily and permanently reduced the Total Revolver A Commitment by an amount of not less than $25,000,000 and such Total Revolver A Commitment has been reduced and the Revolver A Exposure is equal to or less than the Maximum Initial Amount, the Company shall have the right at any time and from time to time upon seven (7) Business Days prior written notice to the Agent to reduce by $5,000,000 or an integral multiple of $1,000,000 in excess thereof or terminate entirely the Total Revolver B Commitment, whereupon the Revolving B Commitments of the Banks shall be reduced pro rata in accordance with their respective Revolving B Commitment Percentages of the amount specified in such notice or, as the case may be, terminated, provided, the Borrowers shall not be permitted to reduce the Total Revolver B Commitment to an amount which is less than $2,400,000 plus the amount by which any Initial Required Revolving A Subdebt Funding Loan has been converted into an ordinary Revolving Credit Loan pursuant to ss.8.27 hereof until any and all future funding requirements to be made pursuant to ss.8.27.3-8.27.5 have been satisfied. Promptly after receiving any notice of the Company delivered pursuant to this ss.2.3.2, the Agent will notify the Banks of the substance thereof. Upon the effective date of any such reduction or termination, the Domestic Borrowers shall pay to the Agent for the respective accounts of the Banks the full amount of any commitment fee then accrued on the amount of the reduction. No reduction or termination of the Revolving B Commitments may be reinstated. 2.4. THE REVOLVING CREDIT NOTES; LOAN ACCOUNTS. The Revolving Credit A Loans and Revolving Credit B Loans, as the case may be, shall be evidenced by separate promissory notes of the Domestic Borrowers in substantially the form of Exhibit A-1 (a "Revolving Credit A Note") and Exhibit A-2 hereto (a "Revolving Credit B Note"), each dated as of May 7, 2001, and completed with appropriate insertions. The obligations of each of the Foreign Borrowers to repay all amounts borrowed by it as Revolving Credit Loans, all interest thereon and all other amounts payable by it in respect thereof shall be evidenced by this Credit Agreement, it being the intention of the parties hereto that each Foreign Borrower's obligations with respect to the Revolving Credit Loans owed by it is evidenced only as stated herein and not by separate promissory notes or other instruments. One Revolving Credit Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Revolving A Commitment Percentage or Revolving B Commitment Percentage, as the case may be, or, if -40- less, the outstanding amount of all Revolving Credit Loans made by such Bank, plus interest accrued thereon, as set forth below. Each of the Borrowers irrevocably authorizes each Bank to make or cause to be made, at or about the time of the Drawdown Date of any Revolving Credit Loan or at the time of receipt of any payment of principal on such Bank's Revolving Credit Note or loan account, as the case may be, an appropriate notation on such Revolving Bank's Record or record pertaining to the loan account (the "Loan Account Record"), as the case may be, reflecting the making of such Revolving Credit Loan or (as the case may be) the receipt of such payment. The outstanding amount of the Revolving Credit Loans set forth on such Bank's Records and Loan Account Records shall be prima facie evidence of the principal amount thereof owing and unpaid to such Revolving Bank, but the failure to record, or any error in so recording, any such amount on such Revolving Bank's Records or Loan Account Records, as the case may be, shall not limit or otherwise affect the obligations of the Borrowers hereunder or under any Revolving Credit Note to make payments of principal of or interest on any Revolving Credit Note or loan account when due. 2.5. INTEREST ON REVOLVING CREDIT LOANS. Except as otherwise provided in ss.5.11, (a) Each Base Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the rate per annum equal to the Base Rate plus the Applicable Margin with respect to Base Rate Loans for such Revolving Credit Loan as in effect from time to time, provided, to the extent any Investor Guaranty Reduction Event shall have occurred, on the date of such occurrence, the Applicable Margin applicable to the Revolving Credit B Loans shall be increased to the same amount as the Applicable Margin for Revolving Credit A Loans which are Base Rate Loans. (b) Each Eurocurrency Rate Loan shall bear interest for the period commencing with the Drawdown Date thereof and ending on the last day of the Interest Period with respect thereto at the rate per annum equal to the Eurocurrency Rate determined for such Interest Period plus the Applicable Margin with respect to Eurocurrency Rate Loans for such Revolving Credit Loan as in effect from time to time, provided, to the extent any Investor Guaranty Reduction Event shall have occurred, on the date of such occurrence, the Applicable Margin applicable to the Revolving Credit B Loans shall be increased to the same amount as the Applicable Margin for Revolving Credit A Loans which are Eurocurrency Rate Loans. (c) Each Borrower promises to pay interest on each Revolving Credit Loan requested by such Borrower in arrears on each Interest Payment Date with respect thereto. (d) Each Borrower shall be permitted to pay, and each Revolving Credit B Bank shall be permitted to receive, any regularly scheduled payment of -41- interest on the Subdebt Funding Loans so long as at the time of such payment, or after giving effect thereto, no Event of Default has occurred and is continuing pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans or the Term Loans. To the extent any Revolving Credit B Bank receives any such payment of interest on the Subdebt Funding Loans while an Event of Default pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans or the Term Loans has occurred and is continuing, each such Revolving Credit B Bank will hold in trust and immediately pay over to the Agent, in the same form of payment received, for application to the Loans in the manner provided in ss.13.5, any amount that the Borrowers pay to the Revolving Credit B Banks on account of the Subdebt Funding Loans. 2.6. REQUESTS FOR REVOLVING CREDIT LOANS. 2.6.1. GENERAL. The applicable Borrower shall give to the Agent written notice in the form of Exhibit B hereto (or telephonic notice confirmed in a writing in the form of Exhibit B hereto) of each Revolving Credit Loan requested hereunder (a "Loan Request") no later than (a) one (1) Business Day prior to the proposed Drawdown Date of any Base Rate Loan and (b) three (3) Business Days prior to the proposed Drawdown Date of any Eurocurrency Rate Loan. Each such notice shall specify (i) the principal amount of the Revolving Credit Loan requested and whether such request is for a Revolving Credit A Loan or a Revolving Credit B Loan, (ii) the proposed Drawdown Date of such Revolving Credit Loan, (iii) the Interest Period for such Revolving Credit Loan, and (iv) the Type of such Revolving Credit Loan. Promptly upon receipt of any such notice (but in any event on the day the Agent receives a request for a Revolving Credit Loan by the Domestic Borrowers and by the day following the date the Agent receives a request for a Revolving Credit Loan by a Subsidiary Borrower), the Agent shall notify each of the applicable Banks thereof. Each Loan Request shall be irrevocable and binding on the Borrowers and shall obligate the requesting Borrower to accept the Revolving Credit Loan requested from the applicable Revolving Banks on the proposed Drawdown Date. Each Loan Request shall be in a minimum aggregate amount of $500,000 or an integral multiple of $100,000 in excess thereof. In addition, notwithstanding the notice and minimum amount requirements set forth above, if at any time the sum of the outstanding amount of Revolver A Exposure exceeds the Maximum Initial Amount and the sum of the outstanding amount of all Revolving Credit B Loans is less than the Total B Commitment Percentage, the Borrowers shall have been deemed to have made a Loan Request for a Revolving Credit B Loan in an amount sufficient to repay all Revolving Credit A Loans so that the Revolver A Exposure is equal to the Maximum Initial Amount. 2.6.2. SWING LINE. Notwithstanding the notice and minimum amount requirements set forth in ss.2.6.1 but otherwise in accordance with the terms and conditions of this Credit Agreement, the Swing Line Bank (a) shall, and without conferring with the Revolving Banks, make Revolving Credit Loans to the -42- Domestic Borrowers by entry of credits to the Domestic Borrowers' operating account (the "Operating Account") maintained with the Agent to cover checks or other charges which the Domestic Borrowers have drawn or made against such account, but in no event shall the Swing Line Bank be required to make any such Revolving Credit Loans if, after giving effect to making all such Revolving Credit Loans, the outstanding amount of all such Revolving Credit Loans owned to the Swing Line Bank exceeds such Swing Line Bank's Commitment and (b) may, in its sole discretion and without conferring with the Revolving Banks, make Revolving Credit Loans to the Domestic Borrowers in an amount as otherwise requested by any of the Domestic Borrowers (each Revolving Credit Loan referred to in the foregoing clauses (a) and (b) being referred to herein as a "Swing Line Loan"). Each Domestic Borrower hereby requests and authorizes the Swing Line Bank to make from time to time such Swing Line Loans by means of appropriate entries of such credits sufficient to cover checks and other charges then presented for payment from the Operating Account or as otherwise so requested. Each Domestic Borrower acknowledges and agrees that the making of such Swing Line Loans shall, in each case, be subject in all respects to the provisions of this Credit Agreement as if they were Revolving Credit Loans covered by a Loan Request including, without limitation, the limitations set forth in ss.2.1 and the requirements that the applicable provisions of ss.12 be satisfied. All actions taken by the Swing Line Bank pursuant to the provisions of this ss.2.6.2 shall be conclusive and binding on the Domestic Borrowers and the Revolving Banks absent the Swing Line Bank's gross negligence or willful misconduct. Swing Line Loans made pursuant to this ss.2.6.2 shall be Base Rate Loans denominated in Dollars until converted in accordance with the provisions of the Credit Agreement and, prior to a Settlement, such interest shall be for the account of the Swing Line Bank. 2.7. CONVERSION OPTIONS. 2.7.1. CONVERSION TO DIFFERENT TYPE OF REVOLVING CREDIT LOAN. The Borrowers may elect from time to time to convert any outstanding Revolving Credit Loan to a Revolving Credit Loan of another Type, provided that (a) with respect to any such conversion of a Revolving Credit Loan to a Base Rate Loan, the applicable Borrower shall give the Agent at least one (1) Business Day prior written notice of such election; (b) with respect to any such conversion of a Base Rate Loan to a Eurocurrency Rate Loan, the applicable Borrower shall give the Agent at least three (3) Business Days prior written notice of such election; (c) with respect to any such conversion of a Eurocurrency Rate Loan into a Revolving Credit Loan of another Type, such conversion shall only be made on the last day of the Interest Period with respect thereto and (d) no Revolving Credit Loan may be converted into a Eurocurrency Rate Loan when any Default or Event of Default has occurred and is continuing. The Agent shall promptly notify the applicable Banks of such election (but in any event on the day the Agent receives an election by the Domestic Borrowers and by the day following the date the Agent receives an election by any Foreign Borrower). On the date on which such conversion is being made each applicable Bank shall take such action -43- as is necessary to transfer its Revolving A Commitment Percentage or Revolving B Commitment Percentage, as the case may be, of such Revolving Credit Loans to its Domestic Lending Office or its Eurocurrency Lending Office, as the case may be. All or any part of outstanding Revolving Credit Loans of any Type may be converted into a Revolving Credit Loan of another Type as provided herein, provided that any partial conversion shall be in an aggregate principal amount of $500,000 or an integral multiple of $100,000 in excess thereof. Each Conversion Request relating to the conversion of a Revolving Credit Loan to a Eurocurrency Rate Loan shall be irrevocable by the applicable Borrower. 2.7.2. CONTINUATION OF TYPE OF REVOLVING CREDIT LOAN. Any Revolving Credit Loan of any Type may be continued as a Revolving Credit Loan of the same Type upon the expiration of an Interest Period with respect thereto by compliance by the applicable Borrower with the notice provisions contained in ss.2.7.1; provided that as to any Eurocurrency Rate Loans, no such Eurocurrency Rate Loan may be continued as such when any Default or Event of Default has occurred and is continuing, but shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto ending during the continuance of any Default or Event of Default of which officers of the Agent active upon the Company's account have actual knowledge. In the event that the applicable Borrower fails to provide any such notice with respect to the continuation of any Eurocurrency Rate Loan as such, then such Eurocurrency Rate Loan shall be automatically converted to a Base Rate Loan on the last day of the first Interest Period relating thereto. The Agent shall notify the applicable Banks promptly when any such automatic conversion contemplated by this ss.2.7 is scheduled to occur. 2.7.3. EUROCURRENCY RATE LOANS. Any conversion to or from Eurocurrency Rate Loans shall be in such amounts and be made pursuant to such elections so that, after giving effect thereto, the aggregate principal amount of all Eurocurrency Rate Loans having the same Interest Period shall not be less than $500,000 or a whole multiple of $100,000 in excess thereof. 2.8. FUNDS FOR REVOLVING CREDIT LOANS. 2.8.1. FUNDING PROCEDURES FOR REVOLVING CREDIT LOANS TO BORROWERS. Not later than (a) 1:00 p.m. (Boston time) on the proposed Drawdown Date of any Revolving Credit Loans to be made to the Domestic Borrowers and (b) 11:00 a.m. (local time with respect to the applicable Subsidiary Borrower) on the proposed Drawdown Date of any Revolving Credit Loans to be made to the Subsidiary Borrowers, each of the applicable Revolving Banks will make available to the Agent to credit to the applicable Borrower's account in Same Day Funds, the amount of such Revolving A Bank's Revolving A Commitment Percentage of the amount of the requested Revolving Credit A Loans or the amount of such Revolving B Bank's Revolving B Commitment Percentage of the amount of the requested Revolving Credit Loan B, as the case may be, at the Agent's Head Office (in the case of Revolving Credit Loans to a Domestic -44- Borrower) or at either the Agent's local branch located in Jardine House, Suites 801-809, One Connaught Place, Central Hong Kong or the Agent's local branch located at 39 Victoria Street, London SW1H OEE, England (in the case of Revolving Credit Loans to Foreign Borrowers). Upon receipt from each applicable Revolving Bank of such amount, and upon receipt of the documents required by ss.12 and the satisfaction of the other conditions set forth therein, to the extent applicable, the Agent will make available to the applicable Borrower the aggregate amount of such applicable Revolving Credit Loans made available to the Agent by the applicable Revolving Banks. The failure or refusal of any Revolving Bank to make available to the Agent at the aforesaid time and place on any Drawdown Date the amount of its Revolving A Commitment Percentage or Revolving B Commitment Percentage, as the case may be, of the requested Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, shall not relieve any other Revolving Bank from its several obligations hereunder to make available to the Agent the amount of such other Revolving Bank's Revolving A Commitment Percentage or Revolving Bank's Revolving B Commitment Percentage, as the case may be, of any requested Revolving Credit Loans. 2.8.2. ADVANCES BY AGENT FOR REVOLVING CREDIT LOANS TO BORROWERS. The Agent may, unless notified to the contrary by any applicable Revolving Bank prior to a Drawdown Date, assume that such Revolving Bank has made available to the Agent on such Drawdown Date the amount of such Revolving Bank's Revolving A Commitment Percentage or Revolving Bank's Revolving B Commitment Percentage, as the case may be, of the Revolving Credit A Loans or the Revolving Credit B Loans, as the case may be, to be made on such Drawdown Date, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the applicable Borrower a corresponding amount. If any applicable Revolving Bank makes available to the Agent such amount on a date after such Drawdown Date, such Revolving Bank shall pay to the Agent on demand an amount equal to the product of (a) the average computed for the period referred to in clause (c) below, of the Overnight Rate for each day included in such period, times (b) the amount of such Revolving Bank's Revolving A Commitment Percentage of such Revolving Credit A Loans or of such Revolving Bank's Revolving B Commitment Percentage of such Revolving Credit B Loans, as the case may be, times (c) a fraction, the numerator of which is the number of days that elapse from and including such Drawdown Date to the date on which the amount of such Revolving Bank's Revolving A Commitment Percentage of such Revolving Credit A Loans or of such Revolving Bank's Revolving B Commitment Percentage of such Revolving Credit B Loans, as the case may be, shall become immediately available to the Agent, and the denominator of which is 365. A statement of the Agent submitted to such Revolving Bank with respect to any amounts owing under this paragraph shall be prima facie evidence of the amount due and owing to the Agent by such Revolving Bank. If the amount of such Revolving Bank's Revolving A Commitment Percentage of such Revolving Credit A Loans or of such Revolving Bank's Revolving B Commitment -45- Percentage of such Revolving Credit B Loans, as the case may be, is not made available to the Agent by such Revolving Bank within three (3) Business Days following such Drawdown Date, the Agent shall be entitled to recover such amount from the applicable Borrowers on demand, with interest thereon at the rate per annum applicable to the Revolving Credit Loans made on such Drawdown Date. 2.9. INTENTIONALLY OMITTED. 2.10. INTENTIONALLY OMITTED. 2.11. SETTLEMENTS. 2.11.1. GENERAL. On each Settlement Date, the Agent shall, not later than 11:00 a.m. (Boston time), give telephonic or facsimile notice (a) to the applicable Revolving Banks and the Company of the respective outstanding amount of Swing Line Loans made by the Swing Line Bank on behalf of the Revolving Banks from the immediately preceding Settlement Date through the close of business on the prior day and the amount of any Eurocurrency Rate Loans to be made (following the giving of notice pursuant to ss.2.6.1(b)) on such date pursuant to a Loan Request and (b) to the applicable Revolving Banks of the amount (a "Settlement Amount") that each Revolving Bank (a "Settling Bank") shall pay to effect a Settlement of any Revolving Credit Loan. A statement of the Agent submitted to the Revolving Banks and the Company or to the Revolving Banks with respect to any amounts owing under this ss.2.11 shall be prima facie evidence of the amount due and owing. Each Settling Bank shall, not later than 3:00 p.m. (Boston time) on such Settlement Date, effect a wire transfer of immediately available funds to the Agent in the amount of the Settlement Amount for such Settling Bank. All funds advanced by any Revolving Bank as a Settling Bank pursuant to this ss.2.11 shall for all purposes be treated as a Revolving Credit A Loan or Revolving Credit B Loan, as the case may be, made by such Settling Bank to the Domestic Borrowers and all funds received by any Revolving Bank pursuant to this ss.2.11 shall for all purposes be treated as repayment of amounts owed with respect to Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, made by such Revolving Bank. In the event that any bankruptcy, reorganization, liquidation, receivership or similar cases or proceedings in which any Domestic Borrower is a debtor prevent a Settling Bank from making any Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, to effect a Settlement as contemplated hereby, such Settling Bank will make such dispositions and arrangements with the other Revolving Banks with respect to such Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, either by way of purchase of participations, distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Revolving Bank's share of the outstanding Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, being equal, as nearly as may be, to such Revolving Bank's Revolving A Commitment Percentage or Revolving Bank's Revolving B Commitment Percentage, as the case may be, of the -46- outstanding amount of the Revolving Credit A Loans or Revolving Credit B Loans, as the case may be. 2.11.2. FAILURE TO MAKE FUNDS AVAILABLE. The Agent may, unless notified to the contrary by any Settling Bank prior to a Settlement Date, assume that such Settling Bank has made or will make available to the Agent on such Settlement Date the amount of such Settling Bank's Settlement Amount, and the Agent may (but it shall not be required to), in reliance upon such assumption, make available to the Borrowers a corresponding amount. If any Settling Bank makes available to the Agent such amount on a date after such Settlement Date, such Settling Bank shall pay to the Agent on demand an amount equal to the product of (a) the average computed for the period referred to in clause (c) below, of the weighted average interest rate paid by the Agent for federal funds acquired by the Agent during each day included in such period, times (b) the amount of such Settlement Amount, times (c) a fraction, the numerator of which is the number of days that elapse from and including such Settlement Date to the date on which the amount of such Settlement Amount shall become immediately available to the Agent, and the denominator of which is 360. A statement of the Agent submitted to such Settling Bank with respect to any amounts owing under this ss.2.11.2 shall be prima facie evidence of the amount due and owing to the Agent by such Settling Bank. If such Settling Bank's Settlement Amount is not made available to the Agent by such Settling Bank within three (3) Business Days following such Settlement Date, the Agent shall be entitled to recover such amount from the applicable Borrower on demand, with interest thereon at the rate per annum applicable to the Revolving Credit A Loans of such Settlement Date. 2.11.3. NO EFFECT ON OTHER REVOLVING BANKS. The failure or refusal of any Settling Bank to make available to the Agent at the aforesaid time and place on any Settlement Date the amount of such Settling Bank's Settlement Amount shall not (a) relieve any other Settling Bank from its several obligations hereunder to make available to the Agent the amount of such other Settling Bank's Settlement Amount or (b) impose upon any Revolving Bank, other than the Settling Bank so failing or refusing, any liability with respect to such failure or refusal or otherwise increase the Revolving A Commitment Percentage or Revolving B Commitment Percentage, as the case may be, of such other Revolving Bank. 2.12. REPAYMENT OF REVOLVING CREDIT LOANS. 2.12.1. MATURITY. Each Domestic Borrower jointly and severally promises to pay on the Revolving Credit Loan A Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan A Maturity Date, all of the Revolving Credit A Loans outstanding on such date to the Borrowers, together with any and all accrued and unpaid interest thereon. Each Foreign Borrower jointly and severally promises to pay on the Revolving Credit Loan A Maturity Date, and there shall become absolutely due and payable on the -47- Revolving Credit Loan A Maturity Date, all Revolving Credit A Loans outstanding on such date to the Foreign Borrowers (but not the Domestic Borrowers), together with all accrued and unpaid interest thereon. Each Domestic Borrower jointly and severally promises to pay on the Revolving Credit Loan B Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan B Maturity Date, all of the Revolving Credit B Loans outstanding on such date to the Borrowers, together with any and all accrued and unpaid interest thereon. Each Foreign Borrower jointly and severally promises to pay on the Revolving Credit Loan B Maturity Date, and there shall become absolutely due and payable on the Revolving Credit Loan B Maturity Date, all Revolving Credit B Loans outstanding on such date to the Foreign Borrowers (but not the Domestic Borrowers), together with all accrued and unpaid interest thereon, provided, no payment shall be made on any Subdebt Funding Loans until such time as all amounts owing on the Revolving Credit A Loan and the Term Loans (whether principal, interest, fees or any other amounts) have been paid in full in cash. To the extent any Revolving Credit B Bank receives any such payments hereunder on the Subdebt Funding Loans prior to the repayment in full in cash of all amounts owing on the Revolving Credit A Loans and the Term Loans (whether such amounts are principal, interest, fees or any other amounts), each such Revolving Credit B Bank will hold in trust and immediately pay over to the Agent, in the same form of payment received, for application to the Loans any amount that the Borrowers pay to the Revolving Credit B Banks on account of the Subdebt Funding Loans. The Banks hereby agree that to the extent all or any portion of the Subdebt Funding Loans are not paid on the Revolving Credit Loan B Maturity Date as a result of the Borrower's agreement not to make such payments until the Revolving Credit A Loans and the Term Loans have been repaid in full in cash, the failure to make such a payment to the Revolving Credit B Banks of such Subdebt Funding Loans shall not be an Event of Default under this Credit Agreement until one (1) Business Day following the latest to occur of the Revolving Credit Loan A Maturity Date, the Term Loan A Maturity Date and the Term Loan B Maturity Date. 2.12.2. MANDATORY REPAYMENTS OF REVOLVING CREDIT LOANS. 2.12.2.1 GENERAL PROVISIONS AS TO REVOLVING CREDIT A LOANS. If at any time (a) the Revolver A Exposure exceeds the lesser of (i) the Total Revolving A Commitment and (ii) the Borrowing Base less the outstanding amount of Revolver Credit B Loans (other than the Revolving Credit B Loans which constitute Required Repurchase Subdebt Funding Loans and any Permitted Repurchase Subdebt Funding Loans), or (b) the Revolver A Exposure exceeds the Maximum Initial Amount and the outstanding Revolving B Loans are in an amount which is less than the Total Revolving B Commitment or (c) after the earlier to occur of the Revolving Credit Loan B Maturity Date and July 1, 2004 the Revolver A Exposure exceeds the Maximum Initial Amount in effect on June 30, 2004 and then as reduced by any required reduction pursuant to ss.2.12.2.3-2.12.2.6, then the Domestic Borrowers shall immediately pay the -48- amount of such excess to the Agent for the respective accounts of the Revolving A Banks for application: first, to any Swing Line Loans outstanding, second, to any Unpaid Reimbursement Obligations; third, to the Revolving Credit A Loans; and fourth, to provide to the Agent cash collateral for Reimbursement Obligations as contemplated by ss.4.2(b) and (c). Each payment of any Unpaid Reimbursement Obligations or prepayment of Revolving Credit A Loans shall be allocated among the Revolving A Banks, in proportion, as nearly as practicable, to each Reimbursement Obligation or (as the case may be) the respective unpaid principal amount of each Revolving A Bank's Revolving Credit A Note or loan account, as the case may be, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. 2.12.2.2 GENERAL PROVISIONS AS TO REVOLVING CREDIT B LOANS. If at any time (a) the sum of the outstanding amount of the Revolving Credit B Loans exceeds the Total Revolving B Commitment, or (b) the sum of the outstanding amount of the Revolving Credit B Loans (other than the Revolving Credit B Loans which constitute Required Repurchase Subdebt Funding Loans and any Permitted Repurchase Subdebt Funding Loans) exceeds the lesser of (i) the Total Revolving B Commitment and (ii) the Borrowing Base less the Revolver A Exposure, or (c) there are any outstanding Revolving B Loans (other than the Subdebt Funding Loans and other than as a result of the reduction in the Revolver A Exposure pursuant to a mandatory payment made pursuant to ss.2.12.2.3, ss.2.12.2.5 or ss.2.12.2.6 hereof) at a time when the Revolver A Exposure is less than the Maximum Initial Amount, then the Domestic Borrowers shall immediately pay the amount of such excess to the Agent for the respective accounts of the Revolving B Banks for application: first, to any Swing Line Loans outstanding for the accounts of the Revolving B Banks and second, to the Revolving Credit B Loans. Each prepayment of Revolving Credit B Loans shall be allocated among the Revolving B Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Revolving B Bank's Revolving Credit B Note or loan account, as the case may be, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. 2.12.2.3 REPAYMENTS WITH NET CASH SALE PROCEEDS FROM PERMITTED DISPOSITIONS AND NET CASH PROCEEDS FROM EQUITY ISSUANCE. In the event the Company or any of its Subsidiaries receives any (a) Net Cash Sale Proceeds from the sale or other disposition of assets permitted by ss.9.5.2., (b) proceeds of insurance claims which insurance claim proceeds (but not the Net Cash Sale Proceeds for the sale or other disposition of assets) have not been either (i) reinvested by the Company or such Subsidiary in assets which are normally used in the ordinary course of business of the Borrowers, including reinvestments in replacement assets or to repair the asset so damaged, as the case may be, within 360 days of receipt by such Person of such proceeds or (ii) subject to a commitment by the Company or such Subsidiary pursuant to any contract to be used to make such a reinvestment, subject only to customary conditions (other than obtaining financing), on or prior to the 270th day following the Company's -49- or such Subsidiary's receipt of the claimed amount and the claimed amounts contractually committed are so applied within 360 days following receipt of such amounts or (c) Net Cash Proceeds from any Equity Issuances by the Company or its Subsidiaries after the Closing Date (except for Net Cash Proceeds received by the Company from Equity Issuances by the Company (i) made in connection with its Stock Option Plan up to a maximum aggregate amount of not more than $4,000,000 or to members of the Company's management (other than in connection with the sale of Equity Issuances to such members of management in the Initial Public Offering), (ii) received from any Principal of the Company or other shareholders of the Company existing on the Closing Date (the "Additional Investors") so long as no Event of Default has occurred and is continuing and provided such Net Cash Proceeds are not received in connection with the sale of Equity Issuances to the Principals or such Additional Investors in the Initial Public Offering, or (iii) received from any other Person so long as no Event of Default has occurred and is continuing, such Net Cash Proceeds are not received in connection with the sale of Equity Issuances to such Persons in the Initial Public Offering and provided the aggregate amount of such Net Cash Proceeds are used to finance all or any portion of a Permitted Acquisition), the Company shall, within thirty (30) days of receipt thereof, after repayment in full of the Term Loans as provided in ss.3.3, repay the outstanding Revolving Credit Loans in an amount equal to 100% of such Net Cash Sale Proceeds, insurance proceeds or Net Cash Proceeds, as the case may be, with such proceeds being applied first to reduce the Revolver A Exposure to an amount equal to the Maximum Initial Amount (with a concurrent reduction of the Total Revolving A Commitment by such amount), second, to reduce the Revolving Credit B Loans other than the Subdebt Funding Loans (with a concurrent reduction of the Total Revolving B Commitment by such amount), third to repay the remaining Revolver A Exposure (with a concurrent reduction of the Maximum Initial Amount (to the extent the Maximum Initial Amount is greater than $0) and the Total Revolving A Commitment by the amount of any such repayment), and fourth to reduce the remaining Revolving Credit B Loans (including the Subdebt Funding Loans) (with a concurrent reduction of the Total Revolving B Commitment by such amount); provided, however, that notwithstanding the foregoing, in the event the Company receives any Net Cash Proceeds from its Initial Public Offering or any subsequent public offering of its capital stock, the Company shall only be required to repay an amount equal to 50% of the Net Cash Proceeds of such Equity Issuance. 2.12.2.4 REPAYMENTS WITH NET CASH SALE PROCEEDS FROM SALE OF DESIGNATED PROPERTY. Notwithstanding anything to the contrary contained in ss.2.12.2.3 above, in the event the Majority Banks consent to the sale by the Company of the Designated Property (provided nothing herein shall in any manner be construed as an agreement or consent by such Banks to such sale) and the Company receives any Net Cash Sale Proceeds from such sale of the Designated Property, -50- such Net Cash Sale Proceeds shall be applied first to the Term Loans in the manner provided for in ss.3.3 hereof and then to the Revolving Credit A Loans. 2.12.2.5 REPAYMENTS WITH NET CASH SALE PROCEEDS FROM OTHER ASSET DISPOSITIONS. In the event the Company or any of its Subsidiaries receives any Net Cash Sale Proceeds in connection with any Asset Sale not otherwise permitted by ss.9.5.2 but in which the Majority Banks have provided written consent (although nothing contained herein shall be in any manner construed as any willingness on the part of any of the banks to provide such consent), other than the sale of the Designated Property, such Net Cash Sale Proceeds shall be applied (a) first to reduce the Revolver A Exposure to an amount equal to the Maximum Initial Amount (with a concurrent reduction of the Total Revolving A Commitment by such amount), (b) second, to reduce the Revolving Credit B Loans other than the Subdebt Funding Loans (with a concurrent reduction of the Total Revolving B Commitment by such amount), (c) third to repay the remaining Revolver A Exposure, the Term Loan A and the Term Loan B on a pro rata basis (with a concurrent reduction of the Maximum Initial Amount (to the extent the Maximum Initial Amount is greater than $0) and the Total Revolving A Commitment by the amount of any such repayment to the Revolving Credit A Loans), with any amounts so being applied to the Term Loan A and Term Loan B being applied against remaining scheduled installments due thereon in the inverse order of maturity and (d) fourth to reduce the remaining Revolving Credit B Loans (including the Subdebt Funding Loans) (with a concurrent reduction of the Total Revolving B Commitment by such amount). 2.12.2.6 REPAYMENTS WITH NET CASH DEBT PROCEEDS FROM INDEBTEDNESS. In the event the Company or any of its Subsidiaries receives any cash proceeds in connection with any Foreign Subsidiary incurring Indebtedness pursuant to ss.ss.8.22 and 9.1(j) hereof (the "Net Cash Debt Proceeds"), such Net Cash Debt Proceeds shall be applied to the Revolver A Exposure, the Term Loan A and the Term Loan B on a pro rata basis (with a concurrent reduction of the Total Revolving A Commitment and Maximum Initial Amount (to the extent the Maximum Initial Amount is greater than $0) by the amount of any such repayment to the Revolving Credit A Loans), with any amounts so being applied to the Term Loan A and Term Loan B being applied against remaining scheduled installments due thereon in the inverse order of maturity. 2.12.3 CREDIT RECEIVED FOR FUNDS RECEIVED IN CONCENTRATION ACCOUNT. Prior to the occurrence of an Event of Default as to which the account officers of the Agent active upon the Borrower's account have actual knowledge, (a) all funds and cash proceeds in the form of money, checks and like items received in the Fleet Concentration Account as contemplated by ss.8.24 shall be credited, on the same Business Day on which the Agent determines that good collected funds -51- have been received, and, prior to the receipt of good collected funds, on a provisional basis until final receipt of good collected funds, and applied as contemplated by ss.2.12.4, (b) all funds and cash proceeds in the form of a wire transfer received in the Fleet Concentration Account as contemplated by ss.8.24 shall be credited on the same Business Day as the Agent's receipt of such amounts (or up to such later date as the Agent determines that good collected funds have been received), and applied as contemplated by ss.2.12.4, and (c) all funds and cash proceeds in the form of an automated clearing house transfer received in the Fleet Concentration Account as contemplated by ss.8.24 shall be credited, on the next Business Day following the Agent's receipt of such amounts (or up to such later date as the Agent determines that good collected funds have been received), and applied as contemplated by ss.2.12.4. For purposes of the foregoing provisions of this ss.2.12.3, the Agent shall not be deemed to have received any such funds or cash proceeds on any day unless received by the Agent before 2:30 p.m. (Boston time) on such day. The Domestic Borrowers further acknowledge and agree that any such provisional credits or credits in respect of wire or automatic clearing house funds transfers shall be subject to reversal if final collection in good funds of the related item is not received by, or final settlement of the funds transfer is not made in favor of, the Agent in accordance with the Agent's customary procedures and practices for collecting provisional items or receiving settlement of funds transfers. 2.12.4 APPLICATION OF PAYMENTS PRIOR TO EVENT OF DEFAULT. (a) Prior to the occurrence of an Event of Default of which the account officers of the Agent active on the Borrowers' account have knowledge, all funds transferred to the Fleet Concentration Account and for which the Domestic Borrowers have received credits shall be applied to the Obligations as follows: (i) first, to pay amounts of principal, interest, Unpaid Reimbursement Obligations, fees and all other amounts then due and payable under this Credit Agreement, the Notes and the other Loan Documents; (ii) second, to reduce Revolving Credit Loans made by the Swing Line Lender pursuant to ss.2.6.2 and for which Settlement has not then been made; (iii) third, if the Revolver A Exposure is greater than the Maximum Initial Amount, to the Revolving Credit A Loans in an amount of such excess, to be applied first to Base Rate Loans and then to Eurocurrency Rate Loans; (iv) fourth, to the outstanding amount of the Revolving Credit B Loans other than the Subdebt Funding Loans, to be applied first to Base Rate Loans and then to Eurocurrency Rate Loans; -52- (v) fifth, to reduce the remaining Revolving Credit A Loans which are Base Rate Loans; (vi) sixth, to reduce the remaining Revolving Credit A Loans which are Eurocurrency Rate Loans; and (vii) seventh, except as otherwise required by ss.4.2(b) and (c), to the Operating Account. (b) All prepayments of Eurocurrency Rate Loans prior to the end of an Interest Period shall obligate the applicable Domestic Borrower to pay any breakage costs associated with such Eurocurrency Rate Loans in accordance with ss.5.10. Prior to the occurrence of an Event of Default, the applicable Domestic Borrower may elect to avoid such breakage costs by providing to the Agent cash in an amount sufficient to cash collateralize such Eurocurrency Rate Loans, but in no event shall such Domestic Borrower be deemed to have paid such Eurocurrency Rate Loans until such cash has been paid to the Agent for application to such Eurocurrency Rate Loans. The Agent may elect to cause such cash collateral to be deposited into either (i) a cash collateral account pursuant to the terms of a cash collateral agreement executed by the applicable Domestic Borrower and the Agent and in form and substance satisfactory to the Agent or (ii) the applicable Domestic Borrower's Operating Account with appropriate instructions prohibiting such Domestic Borrower's withdrawal of such funds so long as they remain cash collateral. In each such case, the applicable Domestic Borrower agrees to execute and deliver to the Agent such instruments and documents, including Uniform Commercial Code financing statements and agreements with any third party depository banks, as the Agent may request. (c) All prepayments of the Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, pursuant to this ss.2.12.4 shall be allocated among the Revolving A Banks and the Revolving B Banks, as the case may be, making such Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, in proportion, as nearly as practicable, to the respective unpaid principal amount of such Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, outstanding, with adjustments to the extent practicable to equalize any prior payments or repayments not exactly in proportion. Prior to any Settlement Date, however, all prepayments of the Revolving Credit Loans shall be applied in accordance with this ss.2.12.4, first to outstanding Revolving Credit Loans of the Swing Line Bank. 2.12.5 REPAYMENTS OF REVOLVING CREDIT LOANS AFTER EVENT OF DEFAULT. Following the occurrence and during the continuance of an Event of Default of which the account officers of the Agent active on the -53- Borrowers' account have knowledge, all funds transferred to the Fleet Concentration Account and for which the applicable Domestic Borrower has received credits shall be applied to the Obligations in accordance with ss.13.5. 2.13. OPTIONAL REPAYMENTS OF REVOLVING CREDIT LOANS. Each of the Borrowers shall have the right, at its election, to repay the outstanding amount of the Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, as a whole or in part, at any time without penalty or premium (but subject to ss.5.10); provided, however, (a) no prepayment of the Revolving Credit B Loans shall be made if at the time of such prepayment the Revolver A Exposure exceeds the Maximum Initial Amount, (b) no prepayment of the Subdebt Funding Loans shall be made if at the time of such prepayment there are any outstanding Revolving Credit A Loans or Term Loans; and (c) no prepayment of the Revolving Credit A Loans shall be made if, at the time of making such prepayment, the Revolver A Exposure is less than or equal to the Maximum Initial Amount and there are any outstanding Revolving Credit B Loans other than the Subdebt Funding Loans. The applicable Borrower shall give the Agent, no later than 10:00 a.m., Boston time on the date of any prepayment written notice of any proposed prepayment pursuant to this ss.2.13 of Base Rate Loans, and two (2) Business Days notice of any proposed prepayment pursuant to this ss.2.13 of Eurocurrency Rate Loans, in each case specifying the proposed date of prepayment of Revolving Credit A Loans or Revolving Credit B Loans, as the case may be, and the principal amount to be prepaid. Each such partial prepayment of the Revolving Credit Loans shall be in an integral multiple of $500,000, shall be accompanied by the payment of accrued interest on the principal prepaid to the date of prepayment and shall be applied, in the absence of instruction by the applicable Borrower, in accordance with ss.2.12.4(a)(iii) hereof. Each partial prepayment shall be allocated among the applicable Revolving Banks, in proportion, as nearly as practicable, to the respective unpaid principal amount of each Revolving Bank's Revolving Credit A Note or loan account or Revolving Credit B Note or loan account, as the case may be, with adjustments to the extent practicable to equalize any prior repayments not exactly in proportion. All repayments of the Revolving Credit Loans shall be applied first, to such Loans borrowed in compliance with the second paragraph of ss.4.09 of the Subordinated Indenture, and second, to such Loans borrowed in compliance with the first paragraph of ss.4.09 of the Subordinated Indenture. 2.14. CHANGE IN BORROWING BASE. The Borrowing Base shall be determined monthly by the Agent by reference to the Borrowing Base Report delivered to the Revolving Banks and the Agent pursuant to ss.8.4(i). 3. THE TERM LOANS. 3.1. COMMITMENT TO LEND. -54- 3.1.1. TERM LOAN A. Subject to the terms and conditions set forth in this Credit Agreement, each Bank agrees to lend to the Domestic Borrowers, in Dollars, on the Closing Date its Term Loan A Commitment. Percentage of the principal amount of $40,000,000. 3.1.2. TERM LOAN B. Subject to the terms and conditions set forth in this Credit Agreement, each Bank agrees to lend to the Domestic Borrowers, in Dollars, on the Closing Date its Term Loan B Commitment Percentage of the principal amount of $85,000,000. 3.2. THE TERM NOTES. 3.2.1. TERM LOAN A AND TERM LOAN B. The Term Loan A and Term Loan B shall be evidenced by separate promissory notes of the Domestic Borrowers, as the case may be, in substantially the form of Exhibit C-1 and C-2 hereto (each a "Term Note"), dated the Closing Date and completed with appropriate insertions. One Term Note shall be payable to the order of each Bank in a principal amount equal to such Bank's Term Loan A Commitment Percentage of Term Loan A or such Bank's Term Loan B Commitment Percentage of Term Loan B, as the case may be, representing the obligation of the Domestic Borrowers to pay to such Bank such principal amount or, if less, the outstanding amount of such Bank's Term Loan A Commitment Percentage of Term Loan A or such Bank's Term Loan B Commitment Percentage of Term Loan B, as the case may be, plus interest accrued thereon, as set forth below. Each of the Borrowers irrevocably authorizes each Bank to make or cause to be made a notation on such Bank's Record reflecting the original principal amount of such Bank's Term Loan A or such Bank's Term Loan B, as the case may be, and, at or about the time of such Bank's receipt of any principal payment on such Term Note, an appropriate notation on such Bank's Record reflecting such payment. The aggregate unpaid amount set forth on such Bank's Record shall be prima facie evidence of the principal amount thereof owing and unpaid to such Bank, but the failure to record, or any error in so recording, any such amount on such Bank's Record shall not affect the joint and several obligations of the Domestic Borrowers hereunder or under any Term Note to make payments of principal of and interest on any Term Note when due. 3.3. MANDATORY PAYMENTS OF PRINCIPAL OF TERM LOANS. 3.3.1. TERM LOAN A. Each Domestic Borrower jointly and severally promises to pay to the Agent for the account of the Banks the principal amount of Term Loan A in twenty-two (22) consecutive quarterly payments, payable on last Business Day of each calendar quarter ending within any period set forth below in the amount set forth opposite such period, commencing on September 30, 1999 and with a final payment on the Term Loan A Maturity Date in an amount equal to the unpaid balance of Term Loan A. -55-

For the avoidance of doubt, the parties hereto acknowledge and agree that the amortization schedule set forth above is the amortization schedule as in effect on the Closing Date and does not reflect any changes thereto contemplated by the Credit Agreement resulting from any repayments made by the Borrowers to the Banks hereunder after the Closing Date and prior to the Amendment Effective Date (whether such repayments were regularly scheduled repayments, prepayments, or any payments made with Net Cash Sale Proceeds or otherwise pursuant to Sections 3.3.3, 3.3.4 or Section 2.12 hereof). 3.3.3. ANNUAL EXCESS CASH FLOW RECAPTURE. For each fiscal year ending on or after December 31, 1999 for which the Borrowers have positive Consolidated Excess Cash Flow, the Domestic Borrowers shall prepay the principal of the Term Loans in an amount equal to seventy-five percent (75%) of such Consolidated Excess Cash Flow, provided that in the event that the Leverage Ratio as at the end of the applicable fiscal year, and as at the end of the fiscal quarter immediately preceding the date such payment is due is less than 4.25:1, only fifty percent (50%) of such Consolidated Excess Cash Flow shall be required to be utilized to prepay the Term Loans. Each such mandatory prepayment shall be due one hundred (100) days after the end of each applicable fiscal year and shall be applied pro rata to repayment of each of the Term Loans -56- based on the then outstanding amounts of each of the Term Loans, provided, however, to the extent any holder of the Term Loan B elects not to accept such prepayments, such prepayments so declined shall be applied pro rata to the repayment of the Term Loan A. Such payments shall be applied against the remaining scheduled installments of principal due on the respective Term Loans pro rata. To the extent the Borrowers are required to make any payments pursuant to this ss.3.3.3 and such a payment would subject the Borrowers to certain costs under ss.5.10 associated with a prepayment of a Eurocurrency Rate Loan prior to the last day of an Interest Period with respect thereto, the Agent shall, if requested by the Company, hold such proceeds as cash collateral (and thereafter the Agent shall apply such cash collateral to the Obligations) until the earliest to occur of (a) the last day of the Interest Period with respect to such Eurocurrency Rate Loans, (b) the first date when such prepayment can be made without any costs being incurred pursuant to ss.5.10 and (c) the date when the Agent determines in its reasonable discretion that such amounts shall be used to repay all or any portion of the Term Loans. 3.3.4. NET CASH PROCEEDS; NET CASH SALE PROCEEDS. In the event the Company or any of its Subsidiaries receives Net Cash Proceeds, Net Cash Sale Proceeds or any other amounts which are required to be utilized to repay the Loans as provided in ss.2.12.2, the Domestic Borrowers shall first repay the Term Loans in such amount, and at the times provided in ss.2.12.2, with such payments to be applied pro rata to each of the Term Loans, based on the respective then outstanding amounts of each of the Term Loans provided, however, to the extent any holder of the Term Loan B elects not to accept such prepayments, such prepayments so declined shall be applied pro rata to the repayment of the Term Loan A, and against the remaining scheduled installments of principal due on the respective Term Loans pro rata. After repayment in full of the Term Loans, all such amounts shall be applied in repayment of the Revolving Credit Loans, as provided in ss.2.12.2. To the extent the Borrowers are required to make any payments pursuant to this ss.3.3.4 and such a payment would subject the Borrowers to certain costs under ss.5.10 associated with a prepayment of a Eurocurrency Rate Loan prior to the last day of an Interest Period with respect thereto, the Agent shall, if requested by the Company, hold such proceeds as cash collateral (and thereafter the Agent shall apply such cash collateral to the Obligations) until the earlier to occur of (a) the last day of the Interest Period with respect to such Eurocurrency Rate Loans, (b) the first date when such prepayment can be made without any costs being incurred pursuant to ss.5.10 and (c) the date when the Agent determines in its reasonable discretion that such amounts shall be used to repay all or any portion of the Revolving Credit Loans. 3.4. OPTIONAL PREPAYMENT OF TERM LOANS. The Domestic Borrowers shall have the right at any time to prepay the Term Notes on or before the Term Loan A Maturity Date or Term Loan B Maturity Date, as the case may be, as a whole, or in part, upon not less than three (3) Business Days prior written notice to the Agent, specifying whether such repayment should be applied to Term Loan A or Term Loan B, without premium or penalty, provided that (a) each partial prepayment shall be in the principal amount of -57- (i) $500,000 or an integral multiple of $100,000 in excess thereof in the case of Eurocurrency Rate Loans, or (ii) $100,000 or an integral multiple of $100,000 in excess thereof in the case of Base Rate Loans, (b) no portion of the Term Loans bearing interest at the Eurocurrency Rate may be prepaid pursuant to this ss.3.4 except on the last day of the Interest Period relating thereto unless the Borrowers indemnify each Bank pursuant to ss.5.10 against any expenses relating to any payments made prior to the last day of the Interest Period, (c) each partial prepayment shall be allocated among the Banks, in proportion, as nearly as practicable, to the respective outstanding amount of each such Person's Term Note A or Term Note B, as the case may be, with adjustments to the extent practicable to equalize any prior prepayments not exactly in proportion and (d) each such prepayment shall be applied within each Term Loan pro rata against the remaining principal installments thereof. Any prepayment of principal of the Term Loans shall include all interest accrued to the date of prepayment. No amount repaid with respect to the Term Loans may be reborrowed. 3.5. INTEREST ON TERM LOANS. 3.5.1. INTEREST RATES. Except as otherwise provided in ss.5.11, the Term Loans shall bear interest during each Interest Period relating to all or any portion of the Term Loans at the following rates: (a) to the extent that all or any portion of Term Loan A bears interest during such Interest Period at the Base Rate, Term Loan A or such portion shall bear interest during such Interest Period at the rate per annum equal to the Base Rate plus the Applicable Margin for Base Rate Loans. (b) to the extent that all or any portion of Term Loan A bears interest during such Interest Period at the Eurocurrency Rate, Term Loan A or such portion shall bear interest during such Interest Period at the rate per annum equal to the Eurocurrency Rate plus the Applicable Margin for Eurocurrency Rate Loans. (c) to the extent that all or any portion of Term Loan B bears interest during such Interest Period at the Base Rate, Term Loan B or such portion shall bear interest during such Interest Period at the rate per annum equal to (i) from the Closing Date up to and including August 14, 2000, the Base Rate plus one and three quarters percent (1.75%); (ii) from August 15, 2000 up to and including May 6, 2001, the Base Rate plus two percent (2.00%); (iii) from May 7, 2001 up to and including March 31, 2002, the Base Rate plus two and one-half of one percent (2.50%); (iv) from April 1, 2002 up to and including December 31, 2003, the Base Rate plus two and three quarters percent (2.75%) and (v) thereafter, the Base Rate plus three percent (3.00%). (d) to the extent that all or any portion of Term Loan B bears interest during such Interest Period at the Eurocurrency Rate, Term Loan B or such portion shall bear interest during such Interest Period at the rate per annum equal to (i) from the Closing Date up to and including August 14, 2000, the -58- Eurocurrency Rate plus three and one half percent (3.50%); (ii) from August 15, 2000 up to and including May 6, 2001, the Eurocurrency Rate plus three and three quarters percent (3.75%); (iii) from May 7, 2001 up to and including March 31, 2002, the Eurocurrency Rate plus four and one quarter percent (4.25%); (iv) from April 1, 2002 up to and including December 31, 2003, the Eurocurrency Rate plus four and one half percent (4.50%) and (v) thereafter, the Eurocurrency Rate plus four and three quarters percent (4.75%). Each of the Domestic Borrowers promises to pay interest on the Term Loans or any portion thereof outstanding during each Interest Period in arrears on each Interest Payment Date applicable to such Interest Period. 3.5.2. CONVERSION OPTIONS. (a) The Term Loans shall be drawn in full on the Closing Date, after which the provisions of ss.2.7 shall apply mutatis mutandis with respect to all or any portion of the Term Loans so that the Domestic Borrowers may have the same interest rate options with respect to all or any portion of the Term Loans to which the Domestic Borrowers would be entitled with respect to the Revolving Credit Loans, subject to the same limitations as applied to Revolving Credit Loans. (b) Term Loan A and Term Loan B shall at all times be denominated in Dollars. 3.5.3. AMOUNTS, ETC. Any portion of the Term Loans bearing interest at the Eurocurrency Rate relating to any Interest Period shall be in the amount of $500,000 or a larger integral multiple of $100,000 in excess thereof. No Interest Period relating to the Term Loans or any portion thereof bearing interest at the Eurocurrency Rate shall extend beyond the date on which a regularly scheduled installment payment of the principal of the Term Loans are to be made unless a portion of the Term Loans at least equal to such installment payment has an Interest Period ending on such date or is then bearing interest at the Base Rate. 3.6. FUNDS FOR TERM LOANS A AND B. Not later than 11:00 a.m. (Boston time) on the Closing Date, each of the Banks will make available to the Agent, at the Agent's Head Office, in immediately available funds, the amount of such Bank's Term Loan A Commitment Percentage of Term Loan A and such Bank's Term Loan B Commitment Percentage of Term Loan B. Upon receipt from each Bank of such amount, and upon receipt of the documents required by ss.ss.11 and ss.12 and the satisfaction of the other conditions set forth therein, the Agent will make available to the Borrowers the aggregate amount of Term Loan A and Term Loan B requested by such Person. 3.7. APPLICATION OF INTEREST PAYMENTS FOR TERM LOANS. As promptly as is practicable following each date upon which the Agent receives a payment of principal or interest under this Credit Agreement on account of any -59- portion of Term Loan A or Term Loan B made to any Borrower, the Agent shall distribute such amount to the Banks in accordance with their respective Term Loan Commitment Percentages. 4. LETTERS OF CREDIT. 4.1. LETTER OF CREDIT COMMITMENTS. 4.1.1. COMMITMENT TO ISSUE LETTERS OF CREDIT. Subject to the terms and conditions hereof and the execution and delivery by any Borrower of a letter of credit application on the Agent's customary form (a "Letter of Credit Application"), the Agent on behalf of the Revolving A Banks and in reliance upon the agreement of the Revolving A Banks set forth in ss.4.1.4 and upon the representations and warranties of such Borrower contained herein, agrees, in its individual capacity, to issue, extend and renew for the account of such Borrower one or more standby or documentary (on a sight or time basis) letters of credit (individually, a "Letter of Credit"), denominated in Dollars in such form as may be requested from time to time by such Borrower and agreed to by the Agent; provided, however, that, after giving effect to such request, (a) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations shall not exceed $35,000,000 (or the Dollar Equivalent) at any one time, (b) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations for Letters of Credit issued for the account of Far East, Esteem, Raider or Patton HK shall not exceed $30,000,000 (or the Dollar Equivalent), (c) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations for Letters of Credit issued for the account of Holmes UK and Bionaire B.V. shall not exceed $10,000,000 (or the Dollar Equivalent), (d) the sum of the aggregate Maximum Drawing Amount and all Unpaid Reimbursement Obligations for Letters of Credit issued for the account of Holmes Canada shall not exceed $10,000,000 (or the Dollar Equivalent) and (e) the Revolver A Exposure shall not exceed the lesser of (i) the Total Revolving A Commitment and (ii) the Borrowing Base less the outstanding amount of Revolving Credit B Loans. In addition, notwithstanding anything to the contrary contained herein, (1) if at any time the Revolver A Exposure is at the Maximum Initial Amount, the Agent shall have no obligation to issue any additional Letters of Credit until such time as the aggregate outstanding principal amount of the Revolving Credit B Loans is equal to the Total Revolving B Commitment and (2) from and after the earlier to occur of (x) the Revolving Credit Loan B Maturity Date and (y) July 1, 2004, the Borrowers shall not request any additional Letters of Credit if, after giving effect to such request and without giving effect to any repayment of the Revolving Credit A Loans, the Revolver A Exposure would exceed the Maximum Initial Amount. Notwithstanding the foregoing, the Agent shall have no obligation to issue any Letter of Credit to support or secure any Indebtedness of the Company or any of its Subsidiaries to the extent that such Indebtedness was incurred prior to the proposed issuance date of such Letter of Credit, unless in any such case the Company demonstrates to the satisfaction of the Agent that (x) such prior incurred Indebtedness was then fully secured by a -60- prior perfected and unavoidable security interest in collateral provided by the Company or such Subsidiary to the proposed beneficiary of such Letter of Credit or (y) such prior incurred Indebtedness was then secured or supported by a letter of credit issued for the account of the Company or such Subsidiary and the reimbursement obligation with respect to such letter of credit was fully secured by a prior perfected and unavoidable security interest in collateral provided to the issuer of such letter of credit by the Company or such Subsidiary. 4.1.2. LETTER OF CREDIT APPLICATIONS. Each Letter of Credit Application shall be completed to the satisfaction of the Agent. In the event that any provision of any Letter of Credit Application shall be inconsistent with any provision of this Credit Agreement, then the provisions of this Credit Agreement shall, to the extent of any such inconsistency, govern. 4.1.3. TERMS OF LETTERS OF CREDIT. Each Letter of Credit issued, extended or renewed hereunder shall, among other things, (a) provide for the payment of sight drafts for honor thereunder when presented in accordance with the terms thereof and when accompanied by the documents described therein, and (b) have an expiry date no later than the date which is fourteen (14) days (or, if the Letter of Credit is confirmed by a confirmer or otherwise provides for one or more nominated persons, forty-five (45) days) prior to the Revolving Credit Loan A Maturity Date. Each Letter of Credit so issued, extended or renewed shall be subject to the Uniform Customs. 4.1.4. REIMBURSEMENT OBLIGATIONS OF BANKS. Each Revolving A Bank severally agrees that it shall be absolutely liable, without regard to the occurrence of any Default or Event of Default or any other condition precedent whatsoever, to the extent of such Revolving A Bank's Revolving A Commitment Percentage, to reimburse the Agent on demand for the amount of each draft paid by the Agent (as calculated pursuant to ss.4.2) under each Letter of Credit to the extent that such amount is not reimbursed by the applicable Borrower pursuant to ss.4.2 (such agreement for a Revolving A Bank being called herein the "Letter of Credit Participation" of such Revolving A Bank). 4.1.5. PARTICIPATIONS OF BANKS. Each such payment made by a Revolving A Bank shall be treated as the purchase by such Revolving A Bank of a participating interest in the applicable Borrower's Reimbursement Obligation under ss.4.2 in an amount equal to such payment. Each Revolving A Bank shall share in accordance with its participating interest in any interest which accrues pursuant to ss.4.2. 4.2. REIMBURSEMENT OBLIGATION OF THE BORROWERS. In order to induce the Agent to issue, extend and renew each Letter of Credit and the Revolving A Banks to participate therein, each Borrower hereby agrees to reimburse or pay to the Agent, for the account of the Agent or (as the case may be) the Revolving A Banks, with respect to each Letter of Credit issued, extended or renewed by the Agent hereunder for the -61- account of such Borrower (and the Domestic Borrowers, jointly and severally agree to reimburse as provided herein all such payments on Letters of Credit), (a) except as otherwise expressly provided in ss.4.2(b) and (c), on each date that any draft presented under such Letter of Credit is honored by the Agent, or the Agent otherwise makes a payment with respect thereto, (i) the amount paid by the Agent under or with respect to such Letter of Credit, and (ii) the amount of any taxes (other than taxes based upon or measured by the income or profits of a Revolving A Bank or the Agent), fees, charges or other costs and expenses whatsoever incurred by the Agent or any Revolving A Bank in connection with any payment made by the Agent or any Revolving A Bank under, or with respect to, such Letter of Credit, (b) upon the reduction (but not termination) of the Total Revolving A Commitment to an amount less than the Maximum Drawing Amount, an amount equal to such difference, which amount shall be held by the Agent for the benefit of the Revolving A Banks and the Agent as cash collateral for all Reimbursement Obligations, and (c) upon the termination of the Total Revolving A Commitment, or the acceleration of the Reimbursement Obligations with respect to all Letters of Credit in accordance with ss.13, an amount equal to the then Maximum Drawing Amount of all Letters of Credit, which amount shall be held by the Agent for the benefit of the Revolving A Banks and the Agent as cash collateral for all Reimbursement Obligations. Each such payment shall be made to the Agent at the Agent's Head Office in Same Day Funds. Interest on any and all amounts remaining unpaid by the applicable Borrower under this ss.4.2 at any time from the date such amounts become due and payable (whether as stated in this ss.4.2, by acceleration or otherwise) until payment in full (whether before or after judgment) shall be payable to the Agent on demand at the rate specified in ss.5.11 for overdue principal on the Revolving Credit Loans. 4.3. LETTER OF CREDIT PAYMENTS. If any draft shall be presented or other demand for payment shall be made under any Letter of Credit, the Agent shall notify the applicable Borrower of the date and amount of the draft presented or demand for payment and of the date and time when it expects to pay such draft or honor such demand for payment. If the applicable Borrower fails to reimburse the Agent as provided in ss.4.2 on or before the date that such draft is paid or other payment is made by the Agent, the Agent may at any time thereafter notify the Revolving A Banks of the amount of any such Unpaid Reimbursement Obligation and shall specify such amount in Dollars required from each of the Revolving A Banks. No later than 3:00 p.m. (Boston time) on the Business Day next following the receipt of such notice, each Revolving A Bank shall make available to the Agent, at the Agent's Head Office, in Same Day Funds, such Revolving A Bank's Revolving A Commitment Percentage of such Unpaid Reimbursement Obligation, together with an amount equal to the product of (a) the average, computed for the period referred to in clause (c) below, of the Overnight Rate for each day included in such period, times (b) the amount equal to such Revolving A Bank's Revolving A Commitment Percentage of such Unpaid Reimbursement -62- Obligation, times (c) a fraction, the numerator of which is the number of days that elapse from and including the date the Agent paid the draft presented for honor or otherwise made payment to the date on which such Revolving A Bank's Revolving A Commitment Percentage of such Unpaid Reimbursement obligation shall become immediately available to the Agent, and the denominator of which is 365. The responsibility of the Agent to the Borrowers and the Revolving A Banks shall be only to determine that the documents (including each draft) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. From and after such purchase of the applicable Letter of Credit Participations, such Unpaid Reimbursement Obligations shall be deemed to have been converted into Base Rate Loans made by the Revolving A Banks, and all amounts from time to time accruing, and all amounts from time to time payable, on account of such Unpaid Reimbursement Obligations shall be payable in Dollars. 4.4. OBLIGATIONS ABSOLUTE. The Borrowers' obligations under this ss.4 shall be absolute and unconditional under any and all circumstances and irrespective of the occurrence of any Default or Event of Default or any condition precedent whatsoever or any setoff, counterclaim or defense to payment which any Borrower may have or have had against the Agent, any Bank or any beneficiary of a Letter of Credit. Each Borrower further agrees with the Agent and the Banks that the Agent and the Banks shall not be responsible for, and each Borrower's Reimbursement Obligations under ss.4.2 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even if such documents should in fact prove to be in any or all respects invalid, fraudulent or forged, or any dispute between or among any Borrower, the beneficiary of any Letter of Credit or any financing institution or other party to which any Letter of Credit may be transferred or any claims or defenses whatsoever of any Borrower against the beneficiary of any Letter of Credit or any such transferee. The Agent and the Banks shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit. Each Borrower agrees that any action taken or omitted by the Agent or any Bank under or in connection with each Letter of Credit and the related drafts and documents, if done in good faith, shall be binding upon such Borrower and shall not result in any liability on the part of the Agent or any Bank to any Borrower. 4.5. RELIANCE BY ISSUER. To the extent not inconsistent with ss.4.4, the Agent shall be entitled to rely, and shall be fully protected in relying upon, any Letter of Credit, draft, writing, resolution, notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype message, statement, order or other document believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel, independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Credit Agreement unless it shall first have received such advice or concurrence of the Majority Banks as it reasonably deems appropriate or it shall first be indemnified to its reasonable satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in -63- acting, or in refraining from acting, under this Credit Agreement in accordance with a request of the Majority Banks, and such request and any action taken or failure to act pursuant thereto shall be binding upon the Banks and all future holders of the Revolving Credit Notes, loan accounts or of a Letter of Credit Participation. 4.6. LETTER OF CREDIT FEE. Each Borrower requesting a Letter of Credit shall pay a fee (in each case, a "Letter of Credit Fee") to the Agent (a) in respect of each standby Letter of Credit issued pursuant to this Credit Agreement, calculated at the rate of the Applicable Margin for Eurocurrency Rate Loans which are Revolving Credit A Loans per annum on the face amount of each such Letter of Credit, which shall be for the accounts of the Revolving A Banks in accordance with their respective Revolving A Commitment Percentages, plus an amount equal to one eighth of one percent (1/8%) per annum of the face amount of such standby Letter of Credit shall be for the account of the Agent, as a fronting fee and (b) in respect of each documentary Letter of Credit issued pursuant to this Credit Agreement, calculated at the rate of the Applicable Margin for Eurocurrency Rate Loans minus one half of one percent (1/2%) per annum on the face amount of each such Letter of Credit, which shall be for the accounts of the Revolving A Banks in accordance with their respective Revolving A Commitment Percentages, plus an amount equal to one eighth of one percent (1/8%) per annum of the face amount of such documentary Letter of Credit shall be for the account of the Agent, as a fronting fee. The Letter of Credit Fees for each Letter of Credit shall be payable quarterly in arrears on the last day of each calendar quarter. In respect of each Letter of Credit, the applicable Borrower shall also pay to the Agent for the Agent's own account, on the date of any issuance, extension, renewal or amendment of any Letter of Credit, or at such other time or times as such charges are customarily made by the Agent, for the Agent's own account, the Agent's customary issuance, amendment, negotiation or document examination and other administrative fees as in effect from time to time. 4.7. ADDITIONAL LETTER OF CREDIT COMPENSATION. From and after April 1, 2002, each Borrower shall, in addition to all amounts owing pursuant to ss.4.6 above, pay a commission (in each case, the "Additional LC Compensation") to the Agent in respect of each issued and outstanding Letter of Credit equal to 0.25% per annum on the face amount of each such Letter of Credit, which shall be for the accounts of the Revolving A Banks in accordance with their respective Revolving A Commitment Percentages, and such Additional LC Compensation shall be payable quarterly in arrears on the last day of each calendar quarter. In adition, from and after January 1, 2004, the Additional LC Compensation for each issued and outstanding Letter of Credit shall be increased by another 0.25% (which, for the avoidance of doubt, means on January 1, 2004, the Additional LC Compensation shall be 0.50% on all issued and outstanding Letters of Credit). 5. CERTAIN GENERAL PROVISIONS. 5.1. CLOSING FEES. The Company agrees to pay to the Agent and Arranger on the Closing Date the closing fees as set forth in the Fee Letter. 5.2. AGENT'S FEE. -64- The Domestic Borrowers shall pay to the Agent an Agent's fee (the "Agent's Fee") at the times and in the amounts as provided in the Fee Letter. 5.3. FUNDS FOR PAYMENTS. 5.3.1. PAYMENTS TO AGENT. All payments of principal, interest, Acceptance Fees, Reimbursement Obligations, commitment fees, Letter of Credit Fees, the closing fee, the Additional LC Compensation, and the Agent's Fee and any other amounts due hereunder or under any of the other Loan Documents shall be made to the Agent, for the respective accounts of the Banks and the Agent, at the Agent's Head Office or at such other location in the Boston, Massachusetts area that the Agent may from time to time designate, in each case in Same Day Funds and in Dollars. 5.3.2. NO OFFSET, ETC. All payments by the Borrowers hereunder and under any of the other Loan Documents shall be made without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless such Borrower is compelled by law to make such deduction or withholding. If any such obligation is imposed upon any such Borrower with respect to any amount payable by it hereunder or under any of the other Loan Documents, such Borrower will pay to the Agent, for the account of the Banks or (as the case may be) the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Document, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had no such obligation been imposed upon such Borrower. Each such Borrower will deliver promptly to the Agent certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Borrower hereunder or under such other Loan Document. 5.4. COMPUTATIONS. All computations of interest on Base Rate Loans and of commitment fees, Letter of Credit Fees, the Additional LC Compensation or other fees shall, unless otherwise expressly provided herein, be based on a 365-day year and paid for the actual number of days elapsed. All computations of interest on the Eurocurrency Rate Loans shall be based on a 360-day year and paid for the actual number of days elapsed. Except as otherwise provided in the definition of the term "Interest Period" with respect to Eurocurrency Rate Loans, whenever a payment hereunder or under any of the other Loan Documents becomes due on a day that is not a Business Day, the due date for such payment shall be extended to the next succeeding Business Day, and interest shall accrue during such extension. The outstanding amount of the Loans as reflected on the Records and the Loan Account Records from time to time shall, absent manifest error, be considered correct and binding on the applicable Borrower unless within five (5) Business Days after receipt by the applicable Borrower of any notice from the Agent or -65- any of the Banks of such outstanding amount, the applicable Borrower shall notify the Agent or such Bank to the contrary. 5.5. INABILITY TO DETERMINE EUROCURRENCY RATE. In the event, prior to the commencement of any Interest Period relating to any Eurocurrency Rate Loan, the Agent shall determine or be notified by the Majority Banks that adequate and reasonable methods do not exist for ascertaining the Eurocurrency Rate that would otherwise determine the rate of interest to be applicable to any Eurocurrency Rate Loan during any Interest Period, the Agent shall forthwith give notice of such determination (which shall be conclusive and binding on the applicable Borrower and the Banks) to the Borrowers and the Banks. In such event (a) any Loan Request or Conversion Request with respect to Eurocurrency Rate Loans shall be automatically withdrawn and shall be deemed a request for Base Rate Loans, (b) each Eurocurrency Rate Loan will automatically, on the last day of the then current Interest Period relating thereto, become a Base Rate Loan, and (c) the obligations of the Banks to make Eurocurrency Rate Loans shall be suspended until the Agent or the Majority Banks determine that the circumstances giving rise to such suspension no longer exist, whereupon the Agent or, as the case may be, the Agent upon the instruction of the Majority Banks, shall so notify the Borrower and the Banks. 5.6. ILLEGALITY. Notwithstanding any other provisions herein, if any present or future law, regulation, treaty or directive or in the interpretation or application thereof shall make it unlawful for any Bank to make or maintain Eurocurrency Rate Loans, such Bank shall forthwith give notice of such circumstances to the Borrowers and the other Banks and thereupon (a) the commitment of such Bank to make Eurocurrency Rate Loans or convert Loans of another Type to Eurocurrency Rate Loans shall forthwith be suspended and (b) such Bank's Revolving Credit Loans then outstanding as Eurocurrency Rate Loans, if any, shall be converted automatically to Base Rate Loans on the last day of each Interest Period applicable to such Eurocurrency Rate Loans or within such earlier period as may be required by law. Each Borrower hereby severally and not jointly agrees promptly to pay the Agent for the account of such Bank, upon demand by such Bank, any additional amounts necessary to compensate such Bank for any costs incurred by such Bank in making any conversion in accordance with this ss.5.6, including any interest or fees payable by such Bank to lenders of funds obtained by it in order to make or maintain its Eurocurrency Rate Loans hereunder. 5.7. ADDITIONAL COSTS, ETC. If any present or future applicable law, which expression, as used herein, includes statutes, rules and regulations thereunder and interpretations thereof by any competent court or by any governmental or other regulatory body or official charged with the administration or the interpretation thereof and requests, directives, instructions and notices at any time or from time to time hereafter made upon or otherwise issued to any Bank or the Agent by any central bank or other fiscal, monetary or other authority (whether or not having the force of law), shall: (a) subject any Bank or the Agent to any tax, levy, impost, duty, charge, fee, deduction or withholding of any nature with respect to this Credit Agreement, the other -66- Loan Documents, any Letters of Credit, such Bank's Commitment or the Loans (other than taxes based upon or measured by the income or profits of such Bank or the Agent), or (b) materially change the basis of taxation (except for changes in taxes on income or profits) of payments to any Bank of the principal of or the interest on any Loans or any other amounts payable to any Bank or the Agent under this Credit Agreement or any of the other Loan Documents, or (c) impose or increase or render applicable (other than to the extent specifically provided for elsewhere in this Credit Agreement) any special deposit, reserve, assessment, liquidity, capital adequacy or other similar requirements (whether or not having the force of law) against assets held by, or deposits in or for the account of, or loans by, bankers' acceptances issued by, or letters of credit issued by, or commitments of an office of any Bank, or (d) impose on any Bank or the Agent any other conditions or requirements with respect to this Credit Agreement, the other Loan Documents, any Letters of Credit, the Loans, such Bank's Commitment, or any class of loans, letters of credit or commitments of which any of the Loans or such Bank's Commitment forms a part, and the result of any of the foregoing is (i) to increase the cost to any Bank of making, funding, issuing, renewing, extending or maintaining any of the Loans or such Bank's Commitment or Letter of Credit, or (ii) to reduce the amount of principal, interest, Reimbursement Obligation or other amount payable to such Bank or the Agent hereunder on account of such Bank's Commitment, any Letter of Credit, or any of the Loans, or (iii) to require such Bank or the Agent to make any payment or to forego any interest or Reimbursement Obligation or other sum payable hereunder, the amount of which payment or foregone interest or Reimbursement Obligation or other sum is calculated by reference to the gross amount of any sum receivable or deemed received by such Bank or the Agent from the Borrowers hereunder, then, and in each such case, each Borrower will, upon demand made by such Bank or (as the case may be) the Agent at any time and from time to time and as often as the occasion therefor may arise, pay to such Bank or the Agent such additional amounts as will be sufficient to compensate such Bank or the Agent for such additional cost, reduction, payment or foregone interest or Reimbursement Obligation or other sum applicable to such Borrower's Loans, Reimbursement Obligations and Unpaid Reimbursement Obligations hereunder. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. -67- 5.8. CAPITAL ADEQUACY. If after the date hereof any Bank or the Agent determines that (a) the adoption of or change in any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) regarding capital requirements for banks or bank holding companies or any change in the interpretation or application thereof by a court or governmental authority with appropriate jurisdiction, or (b) compliance by such Bank or the Agent or any corporation controlling such Bank or the Agent with any law, governmental rule, regulation, policy, guideline or directive (whether or not having the force of law) of any such entity regarding capital adequacy, has the effect of reducing the return on such Bank's or the Agent's commitment with respect to any Loans to a level below that which such Bank or the Agent could have achieved but for such adoption, change or compliance (taking into consideration such Bank's or the Agent's then existing policies with respect to capital adequacy and assuming full utilization of such entity's capital) by any amount deemed by such Bank or (as the case may be) the Agent to be material, then such Bank or the Agent may notify the Company of such fact. To the extent that the amount of such reduction in the return on capital is not reflected in the Base Rate, the Company and such Bank shall thereafter attempt to negotiate in good faith, within thirty (30) days of the day on which the Company receives such notice, an adjustment payable hereunder that will adequately compensate such Bank in light of these circumstances. If the Company and such Bank are unable to agree to such adjustment within thirty (30) days of the date on which the Company receives such notice, then commencing on the date of such notice (but not earlier than the effective date of any such increased capital requirement), the fees payable hereunder shall increase by an amount that will, in such Bank's reasonable determination, provide adequate compensation. Each Bank shall allocate such cost increases among its customers in good faith and on an equitable basis. 5.9. CERTIFICATE. A certificate setting forth any additional amounts payable pursuant to ss.ss.5.7 or 5.8 and a brief explanation of such amounts which are due, submitted by any Bank or the Agent to the Borrowers, shall be conclusive, absent manifest error, that such amounts are due and owing. 5.10. INDEMNITY. Each Borrower agrees to indemnify each Bank and to hold each Bank harmless from and against any loss, cost or expense that such Bank may sustain or incur as a consequence of (a) default by such Borrower in payment of the principal amount of or any interest on any Eurocurrency Rate Loans as and when due and payable, including any such loss or expense arising from interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain its Eurocurrency Rate Loans, (b) default by such Borrower in making a borrowing or conversion after such Borrower has given (or is deemed to have given) a Loan Request or a Conversion Request relating thereto in accordance with ss.2.6, ss.2.7 or 3.5.2 or (c) the making of any payment of a Eurocurrency Rate Loan or the making of any conversion of any such Loan to a Base Rate Loan on a day that is not the last day of the applicable Interest Period with respect thereto, including interest or fees payable by such Bank to lenders of funds obtained by it in order to maintain any such Loans. 5.11. INTEREST AFTER DEFAULT. -68- 5.11.1 OVERDUE AMOUNTS. Overdue principal and (to the extent permitted by applicable law) interest on the Loans and all other overdue amounts payable hereunder or under any of the other Loan Documents shall bear interest compounded monthly and payable on demand at a rate per annum equal to two percent (2%) above the highest rate of interest otherwise then applicable to such Loans pursuant to ss.2.5 or ss.3.5.1, as applicable, until such amount shall be paid in full (after as well as before judgment). 5.11.2. AMOUNTS NOT OVERDUE. During the continuance of an Event of Default under ss.13.1(c) as it relates to ss.10, the principal of the Loans not overdue shall, until such Default or Event of Default has been cured or remedied or such Default or Event of Default has been waived by the Majority Banks pursuant to ss.26, bear interest at a rate per annum equal to two percent (2%) above the highest rate of interest otherwise applicable to such Revolving Credit Loans pursuant to ss.2.5 and the Term Loans pursuant to ss.3.5.1. 5.12. INTENTIONALLY OMITTED. 5.13. CONCERNING JOINT AND SEVERAL LIABILITY OF THE DOMESTIC BORROWERS. (a) Each of the Domestic Borrowers is accepting joint and several liability hereunder in consideration of the financial accommodation to be provided by the Banks under this Agreement, for the mutual benefit, directly and indirectly, of each of the Domestic Borrowers and in consideration of the undertakings of each of the Domestic Borrowers to accept joint and several liability for the obligations of each of them. (b) Each of the Domestic Borrowers jointly and severally hereby irrevocably and unconditionally accepts, not merely as a surety but also as a co-debtor, joint and several liability with the other Domestic Borrowers with respect to the payment and performance of all of the Obligations arising under this Agreement, it being the intention of the parties hereto that all the Obligations shall be the joint and several obligations of each of the Domestic Borrowers without preferences or distinction among them. (c) If and to the extent that any of the Domestic Borrowers shall fail to make any payment with respect to any of the obligations hereunder as and when due or to perform any of such obligations in accordance with the terms thereof, then in each such event, the other Domestic Borrowers will make such payment with respect to, or perform, such obligation. (d) The obligations of each Domestic Borrower under the provisions of this ss.5.13 constitute full recourse obligations of such Domestic Borrower, enforceable against it to the full extent of its properties and assets, irrespective of the validity, regularity or enforceability of this Agreement or any other circumstances whatsoever. -69- (e) Except as otherwise expressly provided herein, each Domestic Borrower hereby waives notice of acceptance of its joint and several liability, notice of any and all Loans made under this Agreement, notice of occurrence of any Event of Default, or of any demand for any payment under this Agreement, notice of any action at any time taken or omitted by the Banks under or in respect of any of the Obligations hereunder, any requirement of diligence and, generally, all demands, notices and other formalities of every kind in connection with this Agreement. Each Domestic Borrower hereby assents to, and waives notice of, any extension or postponement of the time for the payment of any of the Obligations hereunder, the acceptance of any partial payment thereon, any waiver, consent or other action or acquiescence by the Banks at any time or times in respect of any default by any Domestic Borrower in the performance or satisfaction of any term, covenant, condition or provision of this Agreement, any and all other indulgences whatsoever by the Banks in respect of any of the Obligations hereunder, and the taking, addition, substitution or release, in whole or in part, at any time or times, of any security for any of such Obligations or the addition, substitution or release, in whole or in part, of any Borrower. Without limiting the generality of the foregoing, each Domestic Borrower assents to any other action or delay in acting or failure to act on the part of the Banks, including, without limitation, any failure strictly or diligently to assert any right or to pursue any remedy or to comply fully with applicable laws or regulations thereunder which might, but for the provisions of this ss.5.13, afford grounds for terminating, discharging or relieving such Domestic Borrower, in whole or in part, from any of its obligations under this ss.5.13, it being the intention of each Domestic Borrower that, so long as any of the Obligations hereunder remain unsatisfied, the obligations of such Domestic Borrower under this ss.5.13 shall not be discharged except by performance and then only to the extent of such performance. The obligations of each Domestic Borrower under this ss.5.13 shall not be diminished or rendered unenforceable by any winding up, reorganization, arrangement, liquidation, reconstruction or similar proceeding with respect to any reconstruction or similar proceeding with respect to any Domestic Borrower or any Bank. The joint and several liability of the Domestic Borrowers hereunder shall continue in full force and effect notwithstanding any absorption, merger, amalgamation or any other change whatsoever in the name, membership, constitution or place of formation of any Domestic Borrower or any Bank. (f) The provisions of this ss.5.13 are made for the benefit of the Banks and their successors and assigns, and may be enforced by them from time to time against any of the Domestic Borrowers as often as occasion therefor may arise and without requirement on the part of the Banks first to marshall any of their claims or to exercise any of their rights against any other Domestic Borrower or to exhaust any remedies available to them against the other Domestic Borrowers or to resort to any other source or means of obtaining payment of any of the Obligations hereunder or to elect any other remedy. The provisions of this ss.5.13 shall remain in effect until all the Obligations hereunder shall have been paid in full or otherwise fully satisfied. If at any time, any payment, or any part thereof, made in respect of any of the Obligations, is rescinded or must otherwise be -70- restored or returned by any of the Banks upon the insolvency, bankruptcy or reorganization of the Domestic Borrowers, or otherwise, the provisions of this ss.5.13 will forthwith be reinstated in effect, as though such payment had not been made. 6. COLLATERAL SECURITY AND GUARANTIES. 6.1. SECURITY OF BORROWERS. The Obligations shall be secured by a perfected first priority security interest (subject only to Permitted Liens entitled to priority under applicable law) in (a) all of the assets of the Domestic Borrowers, whether now owned or hereafter acquired, with certain exceptions as agreed to by the Agent, pursuant to the terms of the Security Documents to which such Domestic Borrowers are parties, including, without limitation, a pledge by each Domestic Borrower of 100% of the capital stock of each of its direct Domestic Subsidiaries and 66% of the capital stock of each of its direct Foreign Subsidiaries and (b) all of the assets of the Foreign Borrowers, with certain exceptions as agreed to by the Agent, whether now owned or hereafter acquired, pursuant to the terms of the Security Documents to which each such Foreign Borrower is a party, but only to secure (other than in the case of Holmes Canada) the joint and several Obligations of each Foreign Borrower. 6.2. GUARANTIES AND SECURITY OF SUBSIDIARIES. The Obligations shall also be guaranteed pursuant to the terms of the Guaranty, and the Obligations of each Foreign Borrower shall also be guaranteed by the Domestic Borrowers pursuant to ss.6.3, and by each other Foreign Borrower (other than Holmes Canada) pursuant to the terms of the Foreign Guarantees. The obligations of the Guarantors under the Guaranty and of the Foreign Borrowers (other than Holmes Canada) under the Foreign Guarantees shall be in turn secured by a perfected first priority security interest (subject only to Permitted Liens entitled to priority under applicable law) in all of the assets of each such Guarantor and Foreign Borrower (other than Holmes Canada), as the case may be, with certain exceptions as agreed to by the Agent, whether now owned or hereafter acquired, pursuant to the terms of the Security Documents to which such Guarantor and Foreign Borrower (other than Holmes Canada), as the case may be, is a party, including, without limitation, a pledge by such Guarantor of 100% of the capital stock or other equity interest of each Domestic Subsidiary of such Guarantor and 66% of the capital stock or other equity interest of each Foreign Subsidiary of such Guarantor; provided that each Foreign Borrower shall pledge 100% of the capital stock of its Subsidiaries to secure the Obligations solely of the Foreign Borrowers. 6.3. GUARANTY BY THE DOMESTIC BORROWERS OF THE OBLIGATIONS. 6.3.1. GUARANTY. For value received and hereby acknowledged and as an inducement to the Banks and the Agent to make the Loans and Letters of Credit available to the Borrowers, the Domestic Borrowers hereby unconditionally and irrevocably guarantee (a) the full punctual payment when due, whether at stated maturity, by acceleration or otherwise, of all Obligations of the Foreign Borrowers now or hereafter existing whether for principal, interest, fees, -71- expenses or otherwise, and (b) the strict performance and observance by the Foreign Borrowers of all agreements, warranties and covenants applicable to the Foreign Borrowers in the Loan Documents and (c) the obligations of the Foreign Borrowers under the Loan Documents (such Obligations collectively being hereafter referred to as the "Guaranteed Obligations"). 6.3.2. GUARANTY ABSOLUTE. The Domestic Borrowers guarantee that the Guaranteed Obligations will be paid strictly in accordance with the terms hereof, regardless of any law, regulation or order now or hereafter in effect in any jurisdiction affecting any of such terms or the rights of the Banks with respect thereto. The joint and several liability of the Domestic Borrowers under this guaranty with regard to the Guaranteed Obligations of the Foreign Borrowers shall be absolute and unconditional irrespective of: (a) the Foreign Borrowers' lack of authorization, execution, validity or enforceability of this Credit Agreement and any amendment hereof (with regard to such Guaranteed Obligations), or any other obligation, agreement or instrument relating thereto (it being agreed by the Domestic Borrowers that the Guaranteed Obligations shall not be discharged prior to the final and complete satisfaction of all of the Obligations of the Foreign Borrowers) or any failure to obtain any necessary governmental consent or approvals or necessary third party consents or approvals; (b) the Agent's or any Bank's exercise or enforcement of, or failure or delay in exercising or enforcing, legal proceedings to collect the Obligations or the Guaranteed Obligations or any power, right or remedy with respect to any of the Obligations or the Guaranteed Obligations, including (i) any suspension of the Agent or any Bank's right to enforce against the Foreign Borrowers of the Guaranteed Obligations, or (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Guaranteed Obligations of the Foreign Borrowers or any other amendment or waiver of or any consent to departure from this Credit Agreement or the other Loan Documents (with regard to such Guaranteed Obligations) or any other agreement or instrument governing or evidencing any of the Guaranteed Obligations; (c) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guaranty, for all or any of the Guaranteed Obligations of the Foreign Borrowers; (d) any change in ownership of the Foreign Borrowers; (e) any acceptance of any partial payment(s) from the Foreign Borrowers; (f) any insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment for the benefit of creditors, appointment of a receiver or trustee for all or any part of the Foreign Borrowers' assets; -72- (g) any assignment, participation or other transfer or reallocation, in whole or in part (whether or not subject to a conversion of a loan of one Type into a loan of another Type or a conversion from one currency to another), of the Agent's or any Bank's interest in and rights under this Credit Agreement or any other Loan Document, or of the Agent or any Bank's interest in the Obligations or the Guaranteed Obligations; (h) any cancellation, renunciation or surrender of any pledge, guaranty or any debt instrument evidencing the Obligations or the Guaranteed Obligations; (i) the Agent's or any Bank's vote, claim, distribution, election, acceptance, action or inaction in any bankruptcy or reorganization case related to the Obligations or the Guaranteed Obligations; or (j) any other action or circumstance, other than payment, which might otherwise constitute a defense available to, or a discharge of, the Foreign Borrowers or the Domestic Borrowers in respect of the Guaranteed Obligations (other than the defense of payment in full in cash). This guaranty shall continue to be effective or be reinstated, as the case may be, if at any time any payment of any Guaranteed Obligation is rescinded or must otherwise be returned by the Agent or any Bank upon the insolvency, bankruptcy or reorganization of the Foreign Borrowers or otherwise, all as though such payment had not been made. 6.3.3. EFFECTIVENESS; ENFORCEMENT. The guaranty hereunder shall be effective and shall be deemed to be made with respect to each Loan and each Letter of Credit, as of the time it is made or accepted, as applicable. No invalidity, irregularity or unenforceability by reason of any bankruptcy or similar law, or any law or order of any government or agency thereof purporting to reduce, amend or otherwise affect any liability of the Foreign Borrowers, and no defect in or insufficiency or want of powers of the Foreign Borrowers or irregular or improperly recorded exercise thereof, shall impair, affect, be a defense to or claim against such guaranty. The guaranty hereunder is a continuing guaranty and shall (a) survive any termination of this Credit Agreement, and (b) remain in full force and effect until payment in full of, and performance of, all Guaranteed Obligations and all other amounts payable under the guaranty hereunder, all the Commitments shall have expired and been terminated, all of the Letters of Credit shall have expired or been terminated and all lending and other credit commitments of the Banks in respect thereof have terminated. The guaranty under this Credit Agreement is made for the benefit of the Agent and the Banks and their successors and assigns, and may be enforced from time to time as often as occasion therefor may arise and without requirement on the part of the Agent or the Banks first to exercise any rights against the Foreign Borrowers, or to resort to any other source or means of obtaining payment of any of the said Obligations or to elect any other remedy. -73- 6.3.4. WAIVER. The Domestic Borrowers hereby waive promptness, diligence, protest, notice of protest, all suretyship defenses, notice of acceptance and any other notice with respect to any of the Guaranteed Obligations and this guaranty and any requirement that the Agent or any Bank secure, perfect or protect any security interest or lien on any property subject thereto or exhaust any right or take any action against the Foreign Borrowers or any other person or any collateral. The Domestic Borrowers also irrevocably waive, to the fullest extent permitted by law, all defenses which at any time may be available to them in respect of the Guaranteed Obligations by virtue of any statute of limitations, valuation, stay, moratorium law or similar law now or hereinafter in effect and all suretyship defenses generally. 6.3.5. SUBORDINATION; SUBROGATION. Until the payment and performance in full of all the Obligations, the Domestic Borrowers shall not exercise and hereby waive any rights against the Foreign Borrowers as a result of payment by the Domestic Borrowers hereunder, by way of subrogation, reimbursement, restitution, contribution or otherwise, and the Company will not prove any claim in competition with the Agent or any Bank in respect of any payment hereunder in bankruptcy, insolvency, or reorganization proceedings of any nature; the Domestic Borrowers will not claim any set-off, recoupment or counterclaim against the Foreign Borrowers in respect of any liability of the Domestic Borrowers to the Foreign Borrowers; and the Domestic Borrowers waive any benefit of and any right to participate in any collateral which may be held by any Bank or the Agent. The Domestic Borrowers agree that, after the occurrence and during the continuance of any Default or Event of Default, the Domestic Borrowers will not demand, sue for or otherwise attempt to collect any Indebtedness of the Foreign Borrowers to the Domestic Borrowers until all of the Obligations of the Foreign Borrowers shall have been paid in full. If, notwithstanding the foregoing sentence, the Domestic Borrowers shall collect, enforce or receive any amounts in respect of such indebtedness in violation of the foregoing sentence while any Obligations of the Foreign Borrowers are still outstanding, such amounts shall be collected, enforced and received by the Domestic Borrowers as trustee for the Banks and the Agent and be paid over to the Agent, for the benefit of the Banks and the Agent on account of the Obligations of the Foreign Borrowers without affecting in any manner the liability of the Domestic Borrowers under the other provisions hereof. The provisions of this section shall survive the expiration or termination of the Credit Agreement and the other Loan Documents. 6.3.6. PAYMENTS. The Domestic Borrowers shall pay the Guaranteed Obligations in the currency in which such Obligation is payable by the Foreign Borrowers and all payments by the Domestic Borrowers hereunder shall be made without setoff or counterclaim and shall be free and clear of and without deduction for any foreign or domestic taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Foreign -74- Borrowers are required by law to make such deduction or withholding. Except as otherwise expressly provided in this ss.6.3.6, if any such obligation is imposed upon the Domestic Borrowers or the Foreign Borrowers with respect to any amounts payable by them hereunder or under any of the Loan Documents, the Domestic Borrowers will pay to the Agent for the account of the Banks or, as the case may be the Agent, on the date on which such amount is due and payable hereunder or under such other Loan Documents, such additional amount in Dollars as shall be necessary to enable the Banks or the Agent to receive the same net amount which the Banks or the Agent would have received on such due date had not such obligation been imposed on the Domestic Borrowers or the Foreign Borrowers. 6.3.7. RECEIPT OF INFORMATION. The Domestic Borrowers acknowledge and confirm that the Domestic Borrowers themselves have established their own adequate means of obtaining from the Foreign Borrowers on a continuing basis all information desired by the Domestic Borrowers concerning the financial condition of the Foreign Borrowers and that the Domestic Borrowers will look to the Foreign Borrowers and not to the Agent or any Bank in order for the Domestic Borrowers to keep adequately informed of changes in the Foreign Borrowers' financial condition. 7. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and warrants to the Banks and the Agent as follows: 7.1 CORPORATE AUTHORITY. 7.1.1. INCORPORATION; GOOD STANDING. Each of the Borrowers and its Subsidiaries (a) is a corporation (or similar business entity) duly organized, validly existing and in good standing (or the equivalent status for each Foreign Subsidiary) under the laws of its state, province or country of incorporation or formation, (b) has all requisite corporate or similar power to own its property and conduct its business as now conducted and as presently contemplated, and (c) is in good standing as a foreign corporation (or similar business entity) and is duly authorized to do business in each jurisdiction where such qualification is necessary except where a failure to be so qualified would not have a Material Adverse Effect. 7.1.2. AUTHORIZATION. The execution, delivery and performance of this Credit Agreement and the other Loan Documents to which the Borrowers or any of their Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (a) are within the corporate (or similar) authority of such Person, (b) have been duly authorized by all necessary corporate (or similar organizational) proceedings, (c) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Borrowers or any of their Subsidiaries is subject or any judgment, order, writ, -75- injunction, license or permit applicable to the Borrowers or any of their Subsidiaries and (d) do not conflict with any provision of the corporate charter or bylaws of, or the Subordinated Debt Documents or any agreement or other instrument binding upon, the Borrowers or any of their Subsidiaries. 7.1.3. ENFORCEABILITY. The execution and delivery of this Credit Agreement and the other Loan Documents to which any of the Borrowers or any of their Subsidiaries is or is to become a party will result in valid and legally binding obligations of such Person enforceable against it in accordance with the respective terms and provisions hereof and thereof, except as enforceability is limited by bankruptcy, insolvency, reorganization, moratorium or other laws relating to or affecting generally the enforcement of creditors' rights and except to the extent that availability of the remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding therefor may be brought. 7.2. GOVERNMENTAL APPROVALS. The execution, delivery and performance by the Borrowers and any of their Subsidiaries of this Credit Agreement and the other Loan Documents to which such Borrower or any of its Subsidiaries is or is to become a party and the transactions contemplated hereby and thereby (including, but not limited to the making by the Borrowers of any borrowings contemplated by this Credit Agreement or the obtaining by the Borrowers of any Letters of Credit) do not require the approval, consent, order, authorization or license by, or giving of notice to, or taking of any other action with respect to, any governmental agency or authority of any jurisdiction, or other fiscal, monetary or other authority, under any provisions of any laws or governmental rules, regulations, orders, or decrees of any jurisdiction or the central bank of any jurisdiction or other fiscal, monetary or other authority, under any provision of any laws or governmental rules, regulations, orders or decrees of any jurisdiction applicable to or binding on any Borrower, other than those already obtained. 7.3. TITLE TO PROPERTIES; LEASES. Except as indicated on Schedule 7.3 hereto, the Borrowers and their Subsidiaries own all of the assets reflected in the Historical Pro Forma Results of the Borrowers and their Subsidiaries as at December 31, 1998 or acquired since that date (except property and assets sold or otherwise disposed of in the ordinary course of business since that date), subject to no rights of others, including any mortgages, leases, conditional sales agreements, title retention agreements, liens or other encumbrances except Permitted Liens. 7.4. FINANCIAL STATEMENTS AND PROJECTIONS. 7.4.1. FISCAL YEAR. The Borrowers and each of their Subsidiaries have a fiscal year which is the twelve months ending on December 31 of each calendar year. 7.4.2. FINANCIAL STATEMENTS. There has been furnished to each of the Banks the Historical Pro Forma Results of the Company and its Subsidiaries as at December 31, 1998, and a pro forma historical consolidated statement of income -76- of the Company and its Subsidiaries for the three, six and nine month periods ending March 31, 1999. Such balance sheet and statement of income have been prepared in accordance with generally accepted accounting principles, subject to annual year-end audit adjustments, and fairly present the financial condition of the Company and its Subsidiaries as at the close of business on the dates thereof and the results of operations for the fiscal periods then ended. There are no contingent liabilities of the Company or any of its Subsidiaries as of such date involving material amounts, known to the officers of the Company, which were not disclosed in such balance sheet and the notes related thereto. 7.4.3. PROJECTIONS. The projections of the annual operating budgets of the Company and its Subsidiaries on a consolidated basis, balance sheets and cash flow statements for the 1999 to 2004 fiscal years have been delivered to the Agent and the Banks on or prior to the Closing Date. The projections were based when made upon reasonable estimates and assumptions and as of the Closing Date reflect the reasonable estimates of the Company and its Subsidiaries of the results of operation and other information projected therein, it being understood that the projections are not guaranties of results and that the actual results may vary from the projections and such variations may be material. 7.4.4. SOLVENCY. The Company and its Subsidiaries, on a consolidated and consolidating basis, both before and after giving effect to the transactions contemplated by this Credit Agreement and the other Loan Documents (a) are solvent, (b) have assets having a fair value in excess of their liabilities, (c) have assets having a fair value in excess of the amount required to pay their liabilities on existing debts as such debts become absolute and matured, and (d) have, and expect to continue to have, access to adequate capital for the conduct of their business and the ability to pay their debts from time to time incurred in connection with the operation of their business as such debts mature. 7.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date, other than as disclosed on Schedule 1 to the Third Amendment, there has occurred no materially adverse change in the financial condition or business of the Company and its Subsidiaries as shown on or reflected in the pro forma historical consolidated balance sheet of the Company and its Subsidiaries as at the Balance Sheet Date, or the consolidated statement of income for the fiscal year then ended, other than changes in the ordinary course of business that have not had any Material Adverse Effect. Since the Balance Sheet Date, the Company has not made any Distributions, except as expressly permitted by this Credit Agreement and Rival has not made any Distributions except as disclosed or provided for in the Tender Offer Documents. There have been no "Material Adverse Effects" (as such term is defined in the Merger Agreement). 7.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. Each of the Borrowers and their Subsidiaries possesses all franchises, patents, copyrights, trademarks, trade names, licenses and permits, and rights in respect of the foregoing, adequate for the conduct of its business substantially as now conducted without known conflict with any rights of -77- others, except where such nonpossession or conflict, as the case may be, could not reasonably be expected to have a Material Adverse Effect. 7.7. LITIGATION. There is no restraining order, injunction or shareholder derivative suit contesting, or filed in connection with the Merger or the Tender Offer. Except as set forth in Schedule 7.7 hereto, there are no actions, suits, proceedings or investigations of any kind pending or threatened against any of the Borrowers or any of their Subsidiaries (including, prior to the Closing Date, Rival and its Subsidiaries) before any court, tribunal or administrative agency or board that, if adversely determined, might, either in any case or in the aggregate, have a Material Adverse Effect, or shall result in any substantial liability not adequately covered by insurance, or for which adequate reserves are not maintained on the consolidated balance sheet of the Company and its Subsidiaries, or which question the validity of this Credit Agreement or any of the other Loan Documents, or any action taken or to be taken pursuant hereto or thereto. 7.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. The Borrowers and their Subsidiaries are not subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation that has or is expected in the future to have a Material Adverse Effect. Neither the Borrowers nor any of their Subsidiaries is a party to any contract or agreement that has or is expected, in the judgment of the Company's officers, to have a Material Adverse Effect. 7.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither any Borrower nor any of its Subsidiaries is in violation of any provision of its charter documents, bylaws, or any agreement or instrument to which it may be subject or by which it or any of its properties may be bound or any decree, order, judgment, statute, license, rule or regulation, in any of the foregoing cases in a manner that could reasonably be expected to have a Material Adverse Effect. 7.10. TAX STATUS. Except as set forth on Schedule 7.10 hereto, each of the Borrowers and their Subsidiaries (a) have made or filed all federal, provincial, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which any of them is subject, (b) have paid all taxes and other governmental assessments and charges shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and by appropriate proceedings and (c) have set aside on their books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due from any of the Borrowers or their Subsidiaries by the taxing authority of any jurisdiction, and the officers of the Borrowers know of no basis for any such claim. 7.11. NO EVENT OF DEFAULT. No Default or Event of Default has occurred and is continuing. -78- 7.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the Borrowers nor any of their Subsidiaries is a "holding company", or a "subsidiary company" of a "holding company", or an "affiliate" of a "holding company", as such terms are defined in the Public Utility Holding Company Act of 1935; nor is it an "investment company", or an "affiliated company" or a "principal underwriter" of an "investment company", as such terms are defined in the Investment Company Act of 1940. 7.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except with respect to Permitted Liens, there is no financing statement, financing charge statement, security agreement, chattel mortgage, real estate mortgage or other document filed or recorded with any filing records, registry or other public office, that purports to cover, affect or give notice of any present or possible future lien on, or security interest in, any assets or property of any of the Borrowers or any of their Subsidiaries or any rights relating thereto. 7.14. PERFECTION OF SECURITY INTEREST. Except as otherwise provided in ss.11.9, all filings, assignments, pledges and deposits of documents or instruments have been made or provided for and all other actions have been taken that are necessary or advisable, under applicable law, to establish and perfect the Agent's security interest in the Collateral. The Collateral and the Agent's rights with respect to the Collateral are not subject to any setoff, claims, withholdings or other defenses. The Company or a Subsidiary of the Company party to one of the Security Agreements is the owner of the Collateral free from any lien, security interest, encumbrance and any other claim or demand, except for Permitted Liens. 7.15. CERTAIN TRANSACTIONS. Except as set forth on Schedule 7.15 hereto and except for arm's length transactions pursuant to which the Borrowers or any of their Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than such Borrower or such Subsidiary could obtain from third parties, none of the officers, directors, or employees of the Borrowers or any of their Subsidiaries is presently a party to any transaction with the Borrowers or any of their Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner. 7.16. EMPLOYEE BENEFIT PLANS. Except as otherwise expressly disclosed in Schedule 7.16 hereto: 7.16.1. IN GENERAL. Each Employee Benefit Plan and each Guaranteed Pension Plan has been maintained and operated in compliance in all material respects with applicable law including the provisions of ERISA and, to the extent applicable, the Code, including but not limited to the provisions thereunder respecting prohibited transactions and the bonding of fiduciaries and other persons handling plan funds as required by ss.412 of ERISA, except to the extent -79- that noncompliance would not have a Material Adverse Effect. The Company has heretofore delivered to the Agent the most recently completed annual report, Form 5500, with all required attachments, and actuarial statement required to be submitted under ss.103(d) of ERISA, with respect to each Guaranteed Pension Plan. 7.16.2. TERMINABILITY OF WELFARE PLANS. No Employee Benefit Plan, which is an employee welfare benefit plan within the meaning of ss.3(l) or ss.3(2)(B) of ERISA, provides benefit coverage subsequent to termination of employment, except as required by Title I, Part 6 of ERISA or the applicable state insurance laws. The Borrowers may terminate each such Plan at any time (or at any time subsequent to the expiration of any applicable bargaining agreement) in the discretion of the Borrowers without liability to any Person other than for claims arising prior to termination. 7.16.3. GUARANTEED PENSION PLANS. Each contribution required to be made to a Guaranteed Pension Plan, whether required to be made to avoid the incurrence of an accumulated funding deficiency, the notice or lien provisions of ss.302(f) of ERISA, or otherwise, has been timely made. No waiver of an accumulated funding deficiency or extension of amortization periods has been received with respect to any Guaranteed Pension Plan, and neither the Borrowers nor any ERISA Affiliate is obligated to or has posted security in connection with an amendment to a Guaranteed Pension Plan pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code. No liability to the PBGC (other than required insurance premiums, all of which have been paid) has been incurred by the Borrowers or any ERISA Affiliate with respect to any Guaranteed Pension Plan and there has not been any ERISA Reportable Event (other than an ERISA Reportable Event as to which the requirement of thirty (30) days notice has been waived), or any other event or condition which presents a material risk of termination of any Guaranteed Pension Plan by the PBGC. Based on the latest valuation of each Guaranteed Pension Plan (which in each case occurred within twelve months of the date of this representation), and on the actuarial methods and assumptions employed for that valuation, the aggregate benefit liabilities of all such Guaranteed Pension Plans within the meaning of ss.4001 of ERISA did not exceed the aggregate value of the assets of all such Guaranteed Pension Plans, disregarding for this purpose the benefit liabilities and assets of any Guaranteed Pension Plan with assets in excess of benefit liabilities. With respect to Holmes Canada, all pension plans are duly registered where required by, and are in good standing under, all applicable laws including the Income Tax Act (Canada) and there are no actions, claims or proceedings pending or threatened (other than routine claims for benefits) relating to any of the pension plans. All required employer and employee contributions and premiums under the pension plans have been made, the pension plans are fully funded on an ongoing and wind-up basis in accordance with applicable laws and with the actuarial methods and assumptions used in the most recent actuarial -80- reports therefor, and there have been no surplus withdrawals or contribution holidays except as permitted by law and the terms of the pension plans. 7.16.4. MULTIEMPLOYER PLANS. Neither the Borrowers nor any ERISA Affiliate has incurred any material liability (including secondary liability) to any Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan under ss.4201 of ERISA or as a result of a sale of assets described in ss.4204 of ERISA. Neither the Borrowers nor any ERISA Affiliate has been notified that any Multiemployer Plan is in reorganization or insolvent under and within the meaning of ss.4241 or ss.4245 of ERISA or is at risk of entering reorganization or becoming insolvent, or that any Multiemployer Plan intends to terminate or has been terminated under ss.4041A of ERISA. 7.17. USE OF PROCEEDS. 7.17.1. GENERAL. The proceeds of the Loans shall be used (a) to finance a portion of the Tender Offer and the Merger, including fees and expenses related thereto, (b) to refinance existing Indebtedness of the Company and Rival, (c) to finance the Required Repurchase, any Permitted Repurchase and any Required Revolving A Reduction, and (d) for working capital and general corporate purposes (including the financing of all or any portion of Permitted Acquisitions (including fees and expenses relating thereto)). The Borrowers will obtain Letters of Credit solely for working capital and general corporate purposes. 7.17.2. REGULATIONS U AND X. Except for the financing of a portion of the Tender Offer, which will be secured in compliance with Regulations U and X of the Board of Governors of the Federal Reserve, no portion of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of purchasing or carrying any "margin security" or "margin stock" as such terms are used in Regulations U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Parts 221 and 224. 7.17.3. INELIGIBLE SECURITIES. No portion of the proceeds of any Loan is to be used, and no portion of any Letter of Credit is to be obtained, for the purpose of (a) knowingly purchasing, or providing credit support for the purchase of, Ineligible Securities from a Section 20 Subsidiary during any period in which such Section 20 Subsidiary makes a market in such Ineligible Securities, (b) knowingly purchasing, or providing credit support for the purchase of, during the underwriting or placement period, any Ineligible Securities being underwritten or privately placed by a Section 20 Subsidiary, or (c) making, or providing credit support for the making of, payments of principal or interest on Ineligible Securities underwritten or privately placed by a Section 20 Subsidiary and issued by or for the benefit of the Borrowers or any Subsidiary or other Affiliate of the Borrowers. -81- 7.18. ENVIRONMENTAL COMPLIANCE. The Borrowers have taken all reasonably necessary steps to investigate the past and present condition and usage of the Real Estate and the operations conducted thereon and, based upon such diligent investigation, has determined that: (a) except as set forth on Schedule 7.18, Part 1, none of the Borrowers, their Subsidiaries or any operator of the Real Estate or any operations thereon is in violation, or alleged violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including without limitation, those arising under the Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation and Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state, provincial or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (hereinafter "Environmental Laws"), which violation would have a material adverse effect on the environment or a Material Adverse Effect; (b) except as set forth on Schedule 7.18, Part 2, neither the Borrowers nor any of their Subsidiaries has received notice from any third party including, without limitation, any federal, state, provincial or local governmental authority, (i) that any one of them has been identified by the United States Environmental Protection Agency ("EPA") as a potentially responsible party under CERCLA with respect to a site listed on the National Priorities List, 40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as defined by 42 U.S.C. ss.6903(5), any hazardous substances as defined by 42 U.S.C. ss.9601(14), any pollutant or contaminant as defined by 42 U.S.C. ss.9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws ("Hazardous Substances") which any one of them has generated, transported or disposed of has been found at any site at which a federal, state, provincial or local agency or other third party has conducted or has ordered that any Borrower or any of its respective Subsidiaries conduct a remedial investigation, removal or other response action pursuant to any Environmental Law; or (iii) that it is or shall be a named party to any claim, action, cause of action, complaint, or legal or administrative proceeding (in each case, contingent or otherwise) arising out of any third party's incurrence of costs, expenses, losses or damages of any kind whatsoever in connection with the release of Hazardous Substances; (c) except as set forth on Schedule 7.18, Part 1 and 2, attached hereto: (i) no portion of the Real Estate has been used by the Company or any of its Subsidiaries for the handling, processing, storage or disposal of Hazardous Substances except in accordance with applicable Environmental Laws; and, to the best of the Company's or its Subsidiaries' knowledge, no underground tank or other underground storage receptacle for Hazardous Substances is located on any portion of the Real Estate; (ii) in the course of any activities conducted by the Borrowers, their Subsidiaries or operators of its properties, no Hazardous Substances have been generated or are being used on the Real Estate except in accordance with applicable Environmental Laws; (iii) to the best of the Borrowers' knowledge, there have been no releases (i.e. any past or present -82- releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, disposing or dumping) or threatened releases of Hazardous Substances on, upon, into or from the properties of the Borrowers or their Subsidiaries, which releases would have a Material Adverse Effect; (iv) to the best of the Borrowers' knowledge, there have been no releases on, upon, from or into any real property in the vicinity of any of the Real Estate which, through soil or groundwater contamination, may have come to be located on, and which would have a material adverse effect on the value of, the Real Estate; and (v) in addition, any Hazardous Substances that have been generated on any of the Real Estate by the Company or any of its Subsidiaries have been transported offsite only by carriers having an identification number issued by the EPA, treated or disposed of only by treatment or disposal facilities maintaining valid permits as required under applicable Environmental Laws, which transporters and facilities have been and are, to the best of the Borrowers' knowledge, operating in compliance with such permits and applicable Environmental Laws; and (d) Except as set forth on Schedule 7.18 hereto, none of the Borrowers and their Subsidiaries or any of the Real Estate is subject to any applicable environmental law requiring the performance of Hazardous Substances site assessments, or the removal or remediation of Hazardous Substances, or the giving of notice to any governmental agency or the recording or delivery to other Persons of an environmental disclosure document or statement by virtue of the transactions set forth herein and contemplated hereby, or as a condition to the effectiveness of any other transactions contemplated hereby. 7.19. SUBSIDIARIES, ETC. Schedule 7.19(a), as supplemented by the information disclosed on Schedule 1 of the Third Amendment, sets forth the Subsidiaries of each of the Borrowers as of the Amendment Effective Date. Except as set forth on Schedule 7.19(b) hereto, neither the Borrowers nor any Subsidiary of any Borrower is engaged in any joint venture or partnership with any other Person other than the GE Joint Venture. 7.20. BANK ACCOUNTS. Schedule 7.20, as supplemented by the information disclosed on Schedule 1 of the Third Amendment, sets forth the account numbers and location of all bank accounts of the Borrowers or any of their Subsidiaries. 7.21. DISCLOSURE. Each of this Credit Agreement and the other Loan Documents, taken as a whole, do not contain any untrue statement of a material fact or omit to state a material fact (known to the Borrower or any of its Subsidiaries in the case of any document or information not furnished by it or any of its Subsidiaries) necessary in order to make the statements herein or therein not misleading. As of the Closing Date, there is no fact known to the Company's President, Chief Operating Officer, Chief Financial Officer or Manager of Far East Operations which has a Material Adverse Effect, or which is reasonably likely in the future to have a Material Adverse Effect, exclusive of effects resulting from changes in general economic conditions, legal standards or regulatory conditions. 7.22. STATUS OF LOANS AS SENIOR DEBT. All Indebtedness of each of the Borrowers and their Subsidiaries to the Banks and the Agent in respect of the Loans and the -83- Reimbursement Obligations constitute "Senior Debt" (or the analogous term used therein) under the terms of the Subordinated Debt Documents or of any other instrument evidencing or pursuant to which there is issued Indebtedness which purports to be Subordinated Debt of any Borrower or any Subsidiary. In addition, (a) this Credit Agreement, to the extent applicable, would constitute the "Credit Facility" under the terms of the Subordinated Indenture and (b) the Indebtedness of each of the Borrowers and their Subsidiaries to the Banks and the Agents in respect of the Loans and the Reimbursement Obligations constitutes "Senior Debt". In addition, without prejudice to the Credit Agreement's status as the "Credit Facility" referred to in the Subordinated Indenture, the Company expressly designates all Obligations hereunder, and under the other Loan Documents, as "Senior Debt" for purposes of the Subordinated Indenture. 7.23. SUBORDINATED DEBT DOCUMENTS; TENDER OFFER DOCUMENTS AND MERGER DOCUMENTS. Each of the representations and warranties made by the Company and its Subsidiaries in any of the Subordinated Debt Documents, the Tender Offer Documents, or the Merger Documents was true and correct in all material respects when made and continues to remain true and correct in all material respects on the Closing Date, except to the extent that any of such representations and warranties relate, by the express terms thereof, solely to a date falling prior to the Closing Date, and except to the extent that any of such representations and warranties may have been affected by the consummation of the transactions contemplated and permitted or required by the Loan Documents. 7.24. NO OTHER SENIOR DEBT. The Company (a) has not designated any Indebtedness of the Company or any of its Subsidiaries as, and has no, "Designated Senior Debt" for purposes of (and as defined in) the Subordinated Indenture, other than the Obligations, and (b) has no "Senior Debt" as such term is defined in the Subordinated Indenture other than the Obligations and that set forth on Schedule 7.24 hereto. 7.25. NO WITHHOLDING. None of the Borrowers are required by the laws of any jurisdiction to make any deduction or withholding of any nature whatsoever from any payment to be made by way of the Borrowers hereunder unless disclosed to the Agent in writing prior to the Closing Date (which may be in the form of legal opinions) and unless the amount and likelihood such deductions or withholdings are not, in the Agent's reasonable discretion, material. Neither this Credit Agreement nor any of the other Loan Documents is subject to any registration or stamp tax or any other similar or like taxes payable in any jurisdiction. 7.26. NO FILINGS REQUIRED. No filing, recording or enrolling of this Credit Agreement or any other Loan Document is required to ensure the legality, validity, enforceability or admissibility in evidence of this Credit Agreement or any other Loan Document. 7.27. CHIEF EXECUTIVE OFFICE. The Company's and its Domestic Subsidiaries' chief executive office is at One Holmes Way, Milford, Massachusetts 01757, at which -84- location its books and records are kept. Each of the Guarantors' chief executive office is as set forth in the Security Agreement to which it is a party 7.28. INSURANCE. The Company and each of its Subsidiaries maintains with financially sound and reputable insurers insurance with respect to its properties and businesses against such casualties and contingencies as are in accordance with sound business practices and with the details of such coverage being more fully described on Schedule 7.28 hereto. 8. AFFIRMATIVE COVENANTS OF THE BORROWERS. Each of the Borrowers covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit, Note or loan account is outstanding or any Bank has any obligation to make any Loans or the Agent has any obligation to issue, extend or renew any Letters of Credit: 8.1. PUNCTUAL PAYMENT. Each Borrower will duly and punctually pay or cause to be paid the principal and interest on the Loans, all Reimbursement Obligations, the Letter of Credit Fees, the commitment fees, the Additional LC Compensation, the Agent's Fee and all other amounts to be paid by it provided for in this Credit Agreement and the other Loan Documents to which the Borrowers or any of their Subsidiaries is a party, all in accordance with the terms of this Credit Agreement and such other Loan Documents. 8.2. MAINTENANCE OF OFFICE. The Company will maintain its chief executive office in Milford, Massachusetts, or at such other place in the United States of America as the Company shall designate upon written notice to the Agent where notices, presentations and demands to or upon the Borrowers in respect of the Loan Documents to which the Borrowers are a party may be given or made. Each of the other Domestic Borrowers will maintain its chief executive office in Milford, Massachusetts, or at such other place in the United States as it shall specify to the Agent by written notice. 8.3. RECORDS AND ACCOUNTS. The Borrowers will (a) keep, and cause each of its Subsidiaries to keep, true and accurate records and books of account in which full, true and correct entries will be made in accordance with generally accepted accounting principles, (b) maintain adequate accounts and reserves for all taxes (including income taxes), depreciation, depletion, obsolescence and amortization of its properties and the properties of its Subsidiaries, contingencies, and other reserves, and (c) at all times engage PricewaterhouseCoopers LLP or other independent certified public accountants reasonably satisfactory to the Agent as the independent certified public accountants of the Company and its Subsidiaries and will not permit more than thirty (30) days to elapse between the cessation of such firm's (or any successor firm's) engagement as the independent certified public accountants of the Company and its Subsidiaries and the appointment in such capacity of a successor firm as shall be reasonably satisfactory to the Agent. -85- 8.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The Company will deliver to each of the Banks: (a) as soon as practicable, but in any event not later than ninety (90) days after the end of each fiscal year of the Company, the consolidated balance sheet of the Company and its Subsidiaries and the consolidating balance sheet of the Company and its Subsidiaries (with any reference to consolidating statements of Subsidiaries in this ss.8.4 to mean that term as applied to the accounts and financial statements, as applicable, of business lines, which is presented in a format approved by the Agent), each as at the end of such year, and the related consolidated statement of income and consolidated statement of cash flow and consolidating statement of income for such year, each setting forth in comparative form the figures for the previous fiscal year and all such consolidated and consolidating statements to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and certified without qualification by PricewaterhouseCoopers LLP or by other independent certified public accountants reasonably satisfactory to the Agent, together with a written statement from such accountants to the effect that they have read a copy of this Credit Agreement, and that, in making the examination necessary to said certification, they have obtained no knowledge of any Default or Event of Default as it relates to any financial covenant, or, if such accountants shall have obtained knowledge of any then existing Default or Event of Default they shall disclose in such statement any such Default or Event of Default; provided that such accountants shall not be liable to the Banks for failure to obtain knowledge of any Default or Event of Default, and, together with such financial statements and accountant's certification, a management prepared analysis of such statements, to be in reasonable detail and prepared in accordance with past practices; (b) as soon as practicable, but in any event not later than (i) forty-five (45) days after the end of each of the first three fiscal quarters of the Company commencing with the fiscal quarter ending March 31, 1999 and (ii) sixty (60) days after the end of the last fiscal quarter of the Company, copies of the unaudited consolidated balance sheet of the Company and each of its Subsidiaries and, commencing with the fiscal quarter ending June 30, 1999, the unaudited consolidating balance sheet of the Company and each of its Subsidiaries, each as at the end of such quarter, and the related consolidated statement of income and consolidated statement of cash flow and, commencing with the fiscal quarter ending June 30, 1999, consolidating statement of income for the portion of the Company's fiscal year then elapsed, each setting forth in comparative form the figures for the previous fiscal year and a comparison setting forth the corresponding figures from the budgeted or projected figures for such period, all in reasonable detail and prepared in accordance with generally accepted accounting principles, together with (i) a certification by the principal financial or accounting officer of the Company that the information contained in such financial statements fairly presents the financial position of the Company and its Subsidiaries on the date thereof (subject to year-end adjustments) and (ii) a management prepared analysis of such statements, to be in reasonable detail and prepared in accordance with past practices; (c) commencing March 31, 1999, as soon as practicable, but in any event within (i) forty-five (45) days after the end of the first month to occur after the Closing -86- Date, (ii) thereafter, thirty (30) days after the end of each of the first two (2) months in each fiscal quarter of the Company, (iii) forty-five (45) days after the end of the last month in each fiscal quarter, other than the last month of any year, and (iv) sixty (60) days after the end of the last month in each fiscal year of the Company, unaudited monthly consolidated financial statements of the Company and its Subsidiaries for such month and unaudited monthly consolidating financial statements of the Company and its Subsidiaries for such month, each setting forth in comparative form the figures for the previous fiscal year and a comparison setting forth the corresponding figures from the budgeted or projected figures for such period and prepared in accordance with generally accepted accounting principles, together with a certification by the principal financial or accounting officer of the Company that the information contained in such financial statements fairly presents the financial condition of the Company and its Subsidiaries on the date thereof (subject to year-end adjustments); (d) simultaneously with the delivery of the financial statements referred to in subsections (a), (b) and (c) above, a statement certified by the principal financial or accounting officer of the Company in substantially the form of Exhibit D hereto (the "Compliance Certificate") and setting forth (i) in reasonable detail computations evidencing compliance with the covenants contained in ss.10 and (if applicable) reconciliations to reflect changes in generally accepted accounting principles since the Balance Sheet Date and (ii) for any fiscal quarter occurring after December 31, 2002, any Excluded 2002 Expense made in such fiscal quarter; (e) contemporaneously with the filing or mailing thereof, copies of all material of a financial nature filed with the Securities and Exchange Commission or sent to the stockholders of the Company; (f) from time to time upon request of the Agent, annual projections of the Company and its Subsidiaries updating for a one year period those projections delivered to the Banks and referred to in ss.7.4.3 or, if applicable, updating any later such projections delivered in response to a request pursuant to this ss.8.4(f); (g) from time to time such other financial data and information (including accountants, management letters) as the Agent or any Bank may reasonably request; and (h) not later than the beginning of each fiscal year of the Borrowers and their Subsidiaries, the annual budget of the Borrowers and their Subsidiaries for such fiscal year (prepared on a monthly basis); (i) within twenty (20) days at the end of each calendar month or at such earlier time as the Agent may reasonably request, a Borrowing Base Report setting forth the Borrowing Base as at the end of such calendar month or other date so requested by the Agent; (j) within twenty (20) days after the end of each calendar month, an Accounts Receivable Aging report; -87- (k) by not later than the 15th and 30th day of each calendar month, the Company's cash flow forecast for each such week in which such date occurs and the immediately succeeding next 12-week period; (l) as soon as practicable, but in any event not later than thirty (30) days after the end of each of the March 31, 2002 and September 30, 2002 fiscal quarters, a certificate from the principal financial or accounting officer certifying that the Borrowers are in compliance with the covenants contained in ss.10 hereof for such fiscal quarter; (m) within five (5) days after the last day of each calendar month, commencing with the first such date to occur after December 31, 2002, a statement certified by the principal financial or accounting officer of the Company setting forth any Incurred Excluded 2002 Expenses incurred in such month; and (n) on February 15, 2003, a statement certified by the principal financial or accounting officer of the Company setting forth the Borrowers' Adjusted Consolidated Cash Flow (including all Budgeted Expenses and those Budgeted Expenses which constitute Included 2002 Expenses and Excluded 2002 Expenses), together with reasonably detailed computations evidencing such results. 8.5. NOTICES. 8.5.1. DEFAULTS. The Borrowers will promptly notify the Agent and each of the Banks in writing of the occurrence of any Default or Event of Default. If any Person shall give any notice or take any other action in respect of a claimed default (whether or not constituting an Event of Default) under this Credit Agreement or any other note, evidence of indebtedness, indenture or other obligation to which or with respect to which the Borrowers or any of their Subsidiaries is a party or obligor, whether as principal, guarantor, surety or otherwise, the Borrowers shall forthwith give written notice thereof to the Agent and each of the Banks, describing the notice or action and the nature of the claimed default. 8.5.2. ENVIRONMENTAL EVENTS. The Borrower will promptly give notice to the Agent and each of the Banks (a) of any violation of any Environmental Law that such Borrower or any of its Subsidiaries reports in writing or is reportable by such Person in writing (or for which any written report supplemental to any oral report is made) to any federal, state or local environmental agency and (b) upon becoming aware thereof, of any inquiry, proceeding, investigation, or other action, including a notice from any agency of potential environmental liability, of any federal, state or local environmental agency or board, that has the potential to have a Material Adverse Effect on the Company and its Subsidiaries, or the Agent's security interests pursuant to the Security Documents. 8.5.3. NOTIFICATION OF CLAIM AGAINST COLLATERAL. The Borrowers will, immediately upon becoming aware thereof, notify the Agent and each of the Banks in writing of any setoff, claims (including, with respect to the Real Estate, -88- environmental claims), withholdings or other defenses to which any of the Collateral, or the Agent's rights with respect to the Collateral, are subject. 8.5.4. NOTICE OF LITIGATION AND JUDGMENTS. The Borrowers will, and will cause each of their Subsidiaries to, give notice to the Agent and each of the Banks in writing within fifteen (15) days of becoming aware of any litigation or proceedings threatened in writing or any pending litigation and proceedings affecting the Borrowers or any of their Subsidiaries or to which the Borrowers or any of their Subsidiaries is or becomes a party which seeks to enjoin the Merger, involves dissenting shareholders of Rival in connection with the Merger or otherwise could result in liability arising out of the Tender Offer or Merger, or which involves an uninsured claim against the Borrowers or any of their Subsidiaries that could reasonably be expected to have a Material Adverse Effect and stating the nature and status of such litigation or proceedings. The Borrowers will, and will cause each of their Subsidiaries to, give notice to the Agent and each of the Banks, in writing, in form and detail satisfactory to the Agent, within ten (10) days of any judgment not covered by insurance, final or otherwise, against the Borrowers or any of their Subsidiaries in an amount in excess of $500,000. 8.5.5. NOTIFICATION OF SUBORDINATED DEBT REPURCHASE AND CERTIFICATION. The Borrowers will, as soon as practicable but in any event not less than one (1) Business Day prior to consummating any Permitted Repurchase, provide the Agent with written notice of such Permitted Repurchase and the details of such purchase (including, without limitation, details as to the principal amount of the Subordinated Notes being repurchased, the amount of accrued and unpaid interest being paid thereon, the closing date of such Permitted Repurchase, if the seller of such Subordinated Notes is a Principal or other Affiliate, the identity of the seller of such Subordinated Notes and, if the seller of such Subordinated Notes is a Principal or other Affiliate the date at which such Principal or other Affiliate purchased such Subordinated Notes). In addition, simultaneously with the consummation of the Required Repurchase and any subsequent Permitted Repurchase, the Company shall deliver to the Agent, in form and substance satisfactory to the Agent, a certificate, certified by a duly authorized officer of each of the Company and, in the event any Principal is the seller of such Subordinated Notes, such Principal(s), stating that neither the Company, such Principal(s) nor any Affiliate has received any profit or fee as a result of purchasing and reselling the Subordinated Notes to the Company under the Required Repurchase (with the parties hereto acknowledging that the accrued and unpaid interest to be paid to any Principal or other Affiliate on the Amendment Effective Date on the Subordinated Notes purchased in the Required Repurchase shall not constitute a profit) or Permitted Repurchase or otherwise arranging the Required Repurchase or Permitted Repurchase, as the case may be. 8.6. CORPORATE EXISTENCE; MAINTENANCE OF PROPERTIES. Except for the transactions contemplated by the Merger, each of the Borrowers will do or cause to be done all things -89- necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and those of its Subsidiaries and will not, and will not cause or permit any of their Subsidiaries to, convert to a limited liability company. It (a) will cause all of its properties and those of its Subsidiaries used or useful in the conduct of its business or the business of its Subsidiaries to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment, (b) will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times, and (c) will, and will cause each of its Subsidiaries to, continue to engage primarily in the businesses conducted by them and in related businesses and those business acquired in any Permitted Acquisition; provided that nothing in this ss.8.6 shall prevent any Borrower from discontinuing the operation and maintenance of any of its properties (including, without limitation, the Restructuring) or any of those of its Subsidiaries if such discontinuance is, in the judgment of such Borrower, desirable in the conduct of its or their business and that do not in the aggregate materially adversely affect the business of such Borrower and its Subsidiaries on a consolidated basis. 8.7. INSURANCE. The Borrowers will, and will cause each of their Subsidiaries to, maintain with financially sound and reputable insurers insurance with respect to their properties and business against such casualties and contingencies as shall be in accordance with the general practices of businesses engaged in similar activities in similar geographic areas and in amounts, containing such terms, in such forms and for such periods as may be reasonable and prudent and in accordance with the terms of the Security Agreements. 8.8. TAXES. The Borrowers will, and will cause each of their Subsidiaries to, duly pay and discharge, or cause to be paid and discharged, before the same shall become overdue, all taxes, assessments and other governmental charges imposed upon it and its real properties, sales and activities, or any part thereof, or upon the income or profits therefrom, as well as all claims for labor, materials, or supplies that if unpaid might by law become a lien or charge upon any of its property; provided that any such tax, assessment, charge, levy or claim need not be paid if the validity or amount thereof shall currently be contested in good faith by appropriate proceedings and if the applicable Borrower or such Subsidiary shall have set aside on its books adequate reserves with respect thereto; and provided further that the Borrowers and each Subsidiary of the Borrowers will pay all such taxes, assessments, charges, levies or claims forthwith upon the commencement of proceedings to foreclose any lien that may have attached as security therefor. 8.9. INSPECTION OF PROPERTIES AND BOOKS, ETC. 8.9.1. GENERAL. The Borrowers shall permit the Banks, individually or through the Agent or any of the Banks' other designated representatives, to visit and inspect any of the properties of the Borrowers or any of their Subsidiaries, to examine the books of account of the Borrowers and their Subsidiaries (and to make copies thereof and extracts therefrom), and to discuss the affairs, finances -90- and accounts of the Borrowers and their Subsidiaries with, and to be advised as to the same by, its and their officers, all at such reasonable times and intervals and, so long as no Default or Event of Default has occurred and is continuing, subject to reasonable notice, as the Agent or any Bank may reasonably request. 8.9.2. APPRAISALS. If an Event of Default shall have occurred and be continuing, upon the request of the Agent, the Borrowers will obtain and deliver to the Agent appraisal reports in form and substance and from appraisers satisfactory to the Agent, stating (a) the then current fair market, orderly liquidation and forced liquidation values of all or any portion of the equipment or real estate owned by any Borrower or any of its Subsidiaries and (b) the then current business value of each of the Borrowers and their Subsidiaries. All such appraisals shall be conducted and made at the expense of the Borrower. 8.9.3. COLLATERAL REPORTS. By not later than September 30, 2000, the Borrowers will obtain and deliver to the Agent, or, if the Agent so elects, will cooperate with the Agent in the Agent's obtaining, a report of an independent collateral auditor and/or commercial finance examiner satisfactory to the Agent (which may be affiliated with one of the Banks), which report shall be in form and substance satisfactory to the Agent. All such collateral value reports and/or commercial finance examinations shall be conducted and made at the expense of the Borrowers. 8.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES, AND PERMITS. The Borrowers will, and will cause each of their Subsidiaries to, comply with (a) the applicable laws and regulations wherever its business is conducted, including all Environmental Laws and the Foreign Corrupt Practices Act, (b) the provisions of its charter documents and by-laws, (c) all agreements and instruments by which it or any of its properties may be bound and (d) all applicable decrees, orders, and judgments, except where any such noncompliance could not reasonably be expected to have a Material Adverse Effect. If any authorization, consent, approval, permit or license from any officer, agency or instrumentality of any government shall become necessary or required in order that the Borrowers or any of their Subsidiaries may fulfill any of its obligations hereunder or any of the other Loan Documents to which the Borrowers or such Subsidiary is a party, the Borrowers will, or (as the case may be) will cause such Subsidiary to, promptly take or cause to be taken all reasonable steps within the power of the Borrowers or such Subsidiary to obtain such authorization, consent, approval, permit or license and furnish the Agent and the Banks with evidence thereof. 8.11. EMPLOYEE BENEFIT PLANS. The Borrowers will (a) promptly upon filing the same with the Department of Labor or Internal Revenue Service, furnish to the Agent a copy of the most recent actuarial statement required to be submitted under ss.103(d) of ERISA and Annual Report, Form 5500, with all required attachments, in respect of each Guaranteed Pension Plan and (b) promptly upon receipt or dispatch, furnish to the Agent any notice, report or demand sent (other than as part of a Guaranteed Pension Plan's annual report) or received in respect of a Guaranteed Pension Plan under ss.ss.302, -91- 4041, 4042, 4043, 4063, 4066 and 4068 of ERISA, or in respect of a Multiemployer Plan, under ss.ss.4041A, 4202, 4219, 4242, or 4245 of ERISA. 8.12. USE OF PROCEEDS. The Borrowers will use the proceeds of the Loans solely (a) to finance a portion of the Tender Offer and the Merger and related costs and expenses, (b) to refinance certain Indebtedness of the Borrowers, (c) to finance the Required Repurchase, any Permitted Repurchase and any Required Revolving A Reduction and (d) for working capital and general corporate purposes (including to finance all or any portion of Permitted Acquisitions (including fees and expense relating thereto)). The Borrowers will obtain Letters of Credit solely for working capital and general corporate purposes. 8.13. ADDITIONAL MORTGAGED PROPERTY. If, after the Closing Date, any of the Borrowers or any of their Subsidiaries acquires real estate located in the United States, such Borrower shall, or shall cause such Subsidiary to, forthwith deliver to the Agent a fully executed mortgage or deed of trust over such real estate, in form and substance satisfactory to the Agent, together with title insurance policies, surveys, evidences of insurance with the Agent named as loss payee and additional insured, legal opinions and other documents and certificates with respect to such real estate as is required by the Agent. The Borrowers further agree that, following the taking of such actions with respect to such real estate, the Agent shall have for the benefit of the Banks and the Agent a valid and enforceable first priority mortgage or deed of trust over such real estate, free and clear of all defects and encumbrances except for Permitted Liens. 8.14. FAIR LABOR STANDARDS ACT. The Domestic Borrowers shall, and shall require each Subsidiary to, at all times operate their respective businesses in compliance with all material applicable provisions of the Fair Labor Standards Act of 1938, as amended. None of the inventory of the Domestic Borrowers or any of their Subsidiaries is or will be produced by employees of (a) the Domestic Borrowers or any of their Subsidiaries, or (b) to the best knowledge of the Domestic Borrowers, by employees of suppliers, who are, in each case, employed in violation of any applicable minimum wage or maximum hour provisions of the Fair Labor Standards Act (29 U.S.C. ss.ss.206 and 207) or any applicable regulations promulgated thereunder, in each case, as in effect from time to time. 8.15. GUARANTORS. The Company will cause each Domestic Subsidiary created, acquired or existing on or after the Closing Date or any other Subsidiary which is otherwise required to become a guarantor under the Subordinated Indenture to become a Guarantor within thirty (30) days of such Domestic Subsidiary having been created, acquired or existing, and shall cause such Subsidiary to execute and deliver to the Agent for the benefit of the Agent and the Banks (a) a Guaranty (or an Instrument of Adherence to the Guaranty executed on the Closing Date), and (b) further Security Documents or other instruments and documents as the Agent may reasonably require in order to grant to the Agent a first priority perfected security interest in such Subsidiary's assets, with certain exceptions as may be approved by the Agent, together with legal opinions in form and substance reasonably satisfactory to the Agent to be delivered to the Agent and the Banks opining as to the authorization, validity and enforceability of -92- such Guaranty or Instrument of Adherence and Security Documents and (as to the applicable Security Documents) the perfection of such security interests. 8.16. SUBORDINATED GUARANTEES. The Company will promptly advise the Agent of any Subordinated Guarantee entered into in connection with the Subordinated Indenture, identifying the guarantor thereunder. 8.17. STATUS OF LOANS AS SENIOR DEBT. The Company shall, on the Closing Date and at such other times as may reasonably be requested by the Agent, deliver to the Agent certificates and, if requested, legal opinions, evidencing that the Indebtedness of each of the Borrowers and their Subsidiaries to the Agent and the Banks in respect of the Loans and Reimbursement Obligations constitutes "Senior Debt" (or the analogous term used therein) under the terms of the Subordinated Debt Documents or of any other instrument evidencing or pursuant to which there is issued indebtedness which purports to be Subordinated Debt of the Company or any of its Subsidiaries and that (a) this Credit Agreement would constitute the "Credit Facility" under the terms of the Subordinated Indenture, and (b) the Indebtedness of each of the Borrowers and their Subsidiaries to the Banks and the Agents in respect of the Loans and Reimbursement Obligations constitutes "Designated Senior Debt" as defined by the Subordinated Indenture. 8.18. ADDITIONAL SUBSIDIARIES. If, after the Closing Date, the Company or any of its Subsidiaries creates or acquires, either directly or indirectly, any Subsidiary, it will immediately notify the Agent and the Banks if such creation or acquisition, as the case may be, and provide the Agent and the Banks with an updated Schedule 7.19(a) hereof and take all other actions required by ss.8.15 and ss.9.5.1 hereof. 8.19. LANDLORD CONSENTS. The Company will use its best efforts to deliver to the Agent within thirty (30) days from the Closing Date landlord consents from the landlords of the leased Real Estate set forth on Schedule 8.19 hereto, which landlord consents shall be in form and substance reasonably satisfactory to the Agent. 8.20. INTEREST RATE PROTECTION. Not later than ninety (90) days after the Closing Date, the Borrowers will obtain interest rate protection on notional amount and at a rate and tenor satisfactory to the Agent. 8.21. CANCELLED SUBORDINATED NOTES. The Company shall, immediately upon its purchase of any Subordinated Notes permitted to be made pursuant to either the Required Repurchase or a Permitted Repurchase, cancel such Subordinated Notes so purchased. 8.22. FOREIGN BORROWINGS. The Company shall use reasonable best efforts to cause its Foreign Subsidiaries which are neither Borrowers nor Foreign Guarantors hereunder to obtain from any Person other than the Company, any Borrower, any Guarantor or any Foreign Guarantor hereunder, Indebtedness consisting of cash loans or advances to such Foreign Subsidiary, the proceeds of which shall be immediately applied in the manner set forth in ss.2.12.2.6 hereof. -93- 8.23. FURTHER ASSURANCES. Each of the Borrowers will, and will cause each of its Subsidiaries to, cooperate with the Banks and the Agent and execute such further instruments and documents as the Banks or the Agent shall reasonably request to carry out to their satisfaction the transactions contemplated by this Credit Agreement and the other Loan Documents. 8.24. BANK ACCOUNTS. 8.24.1. GENERAL. On or prior to May 31, 2001, the Company will, and will cause each other Domestic Borrower and each Guarantor to, (a) establish a depository account (the "Fleet Concentration Account") under the control of the Agent for the benefit of the Banks and the Agent, in the name of the applicable Domestic Borrower or Guarantor (provided, to the extent any Domestic Borrower or Guarantor currently does not have any bank accounts, such Borrower or Guarantor, as the case may be, shall only be required to establish a Fleet Concentration Account if and when such Domestic Borrower or Guarantor, as the case may be, needs to establish a bank account), (b) instruct all account debtors and other obligors, pursuant to notices of assignment and instruction letters in form and substance satisfactory to the Agent, to remit all cash proceeds of Accounts Receivable to local depository accounts ("Local Accounts") or concentration depository accounts ("Interim Concentration Accounts") with financial institutions which have entered into agency account agreements and, if applicable, lock box agreements (collectively, the "Agency Account Agreements") in form and substance satisfactory to the Agent, or the "Fleet Concentration Account Agreements"), (c) direct all depository institutions with Local Accounts to cause all funds held in each such Local Account to be transferred no less frequently than once each day to, and only to, an Interim Concentration Account or the Fleet Concentration Account, (d) direct all depository institutions with Interim Concentration Accounts to cause all funds of the Domestic Borrowers and Domestic Guarantors held in such Interim Concentration Accounts to be transferred daily to, and only to, the Fleet Concentration Account, and (e) at all times ensure that immediately upon any Domestic Borrowers' or any Guarantors' receipt of any funds constituting or cash proceeds of any Collateral, all such amounts shall have been deposited in a Local Account, an Interim Concentration Account or the Fleet Concentration Account. 8.24.2. ACKNOWLEDGEMENT OF APPLICATION. The Domestic Borrowers and Guarantors hereby agrees that all amounts received by the Agent in the Fleet Concentration Account will be the sole and exclusive property of the Agent, for the accounts of the Banks and the Agent, to be applied in accordance ss.2.12.3 and 2.12.4. as applicable. 8.25. DELIVERY OF DECEMBER 2001 CASH POSITION. The Company shall deliver to the Agent and the Banks, by not later than the Amendment Effective Date, evidence of the Company's December 2001 Cash Position and such evidence shall be in form and substance satisfactory to the Agent. -94- 8.26. PERIODIC MEETINGS. The Company shall cause to occur (a) if requested by the Agent or those Banks designated as a steering committee (the "Steering Committee"), one meeting in each calendar month (which may be by a telephonic conference call) among the Company, Berkshire Partners, the Agent, the Agent's Special Counsel (if requested), the Steering Committee and counsel to the Steering Committee (if requested) to review the monthly financial updates and projections of the Company and its Subsidiaries; and (b) if requested by the Agent or the Steering Committee, one meeting per fiscal quarter (which may be by a telephonic conference call) among the Company, Berkshire Partners, the Agent and the Banks (and, to the extent so requested by the Agent or the Steering Committee, as the case may be, the Agent's Special Counsel and counsel to the Steering Committee, as the case may be) to provide the Agent and Banks with quarterly financial updates and projections of the Company and its Subsidiaries. 8.27. SUBDEBT FUNDING LOANS. 8.27.1. REQUIRED REPURCHASE OF SUBORDINATED NOTES. The Company shall, on the Amendment Effective Date, consummate the Required Repurchase, subject to the terms and conditions of this Credit Agreement (including, without limitation, this ss.8.27.1 and the definition of "Required Repurchase"). In connection with such Required Repurchase, the Company shall make a request for a Revolving Credit B Loan in an amount equal to the aggregate consideration to be paid to the holders of the Subordinated Notes being repurchased and use the proceeds thereof to fund 100% of the purchase price of such Required Repurchase, and the Revolving Credit B Banks agree, subject to compliance with the conditions of this Credit Agreement, to make such Revolving Credit B Loans to the Company (such Revolving Credit B Loans being hereinafter referred to as a "Required Repurchase Subdebt Funding Loan"). In the event that, at time of making any Loan Request pursuant to this ss.8.27.1, there is no availability under the Total Revolving B Commitment but there remains availability under the Total Revolving A Commitment, the Company shall be permitted, subject to compliance at all times with the terms and conditions of this Credit Agreement, to borrow Revolving Credit A Loans in the amount of the Required Repurchase Subdebt Funding Loan in order to repay existing Revolving Credit B Loans by such amount so as to create availability for the borrowing of such Required Repurchase Subdebt Funding Loans under the Total Revolving B Commitment. The Revolving Credit B Banks further agree that any such Required Repurchase Subdebt Funding Loan (and, during an Event of Default which has occurred and is continuing pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans and the Term Loans, any interest thereon) shall be junior in right of payment to the Revolving Credit A Loans and the Term Loans, all as more fully set forth in this Credit Agreement. 8.27.2. PERMITTED REPURCHASE OF SUBORDINATED NOTES. The Company shall be permitted, so long as no Default or Event of Default has occurred and is continuing or would exist as a result thereof, to consummate at any time from -95- and after the Amendment Effective Date and from time to time any Permitted Repurchase, subject to the terms and conditions of this Credit Agreement (including, without limitation, this ss.8.27.2 and the definition of "Permitted Repurchase"). In connection with such Permitted Repurchase, the Company shall make a request for a Revolving Credit B Loan in an amount equal to the aggregate consideration to be paid to the holders of the Subordinated Notes being repurchased in any such Permitted Repurchase and use the proceeds thereof to fund 100% of the purchase price of each such Permitted Repurchase, and the Revolving Credit B Banks agree, subject to compliance with the conditions of this Credit Agreement, to make such Revolving Credit B Loans to the Company (each such Revolving Credit B Loans being hereinafter referred to as a "Permitted Repurchase Subdebt Funding Loan"). In the event that, at time of making any Loan Request pursuant to this ss.8.27.2, there is no availability under the Total Revolving B Commitment but there remains availability under the Total Revolving A Commitment, the Company shall be permitted, subject to compliance at all times with the terms and conditions of this Credit Agreement, to borrow Revolving Credit A Loans in the amount of the Permitted Repurchase Subdebt Funding Loan in order to repay existing Revolving Credit B Loans by such amount so as to create availability for the borrowing of such Permitted Repurchase Subdebt Funding Loans under the Total Revolving B Commitment. The Revolving Credit B Banks further agree that each such Permitted Repurchase Subdebt Funding Loan (and, during an Event of Default which has occurred and is continuing pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans and the Term Loans, any interest thereon) shall be junior in right of payment to the Revolving Credit A Loans and the Term Loans, all as more fully set forth in this Credit Agreement. 8.27.3. REQUIRED REDUCTION OF REVOLVING CREDIT A LOANS ON AMENDMENT EFFECTIVE DATE. The Company shall, on the Amendment Effective Date, make a request for a Revolving Credit B Loan in an amount equal to $6,000,000 and use the proceeds thereof to repay outstanding Revolving Credit A Loans by such amount (the "Initial Required Revolving A Reduction"), and the Revolving Credit B Banks agree, subject to compliance with the conditions of this Credit Agreement, to make such Revolving Credit B Loans to the Company (such Revolving Credit B Loans being hereinafter referred to as the "Initial Required Revolving A Subdebt Funding Loan"). In the event that, at time of making any Loan Request pursuant to this ss.8.27.3, there is no availability under the Total Revolving B Commitment but there remains availability under the Total Revolving A Commitment, the Company shall be permitted, subject to compliance at all times with the terms and conditions of this Credit Agreement, to borrow Revolving Credit A Loans in the amount of the Initial Required Revolving A Subdebt Funding Loan in order to repay existing Revolving Credit B Loans by such amount so as to create availability for the borrowing of such Initial Required Revolving A Subdebt Funding Loans under the Total Revolving B Commitment. The Revolving Credit B Banks further agree that such Initial Required Revolving A Subdebt Funding Loan (and, during an Event of Default -96- which has occurred and is continuing pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans and the Term Loans, any interest thereon) shall be junior in right of payment to the Revolving Credit A Loans and the Term Loans, all as more fully set forth in this Credit Agreement. 8.27.4. FEBRUARY 2003 ADJUSTMENT BASED ON ACTUAL CASH FLOW. In the event the Borrowers' Adjusted Consolidated Cash Flow is negative by an amount greater than $6,000,000, as evidenced on the certification delivered to the Agent and the Banks pursuant to ss.8.4(n) hereof, the Company shall, by not later than February 15, 2003, make an additional request for a Revolving Credit B Loan in an amount equal to the lesser of (a) $2,400,000 and (b) the amount by which the Borrowers' Adjusted Consolidated Cash Flow is negative by more than $6,000,000 and use the proceeds thereof to repay outstanding Revolving Credit A Loans by such amount (the "Additional Required Revolving A Reduction"), and the Revolving Credit B Banks agree, whether or not a Default or Event of Default has occurred and is continuing hereunder or any other condition to funding has been satisfied, to make such Revolving Credit B Loans to the Company (such Revolving Credit B Loans being hereinafter referred to as an "Additional Required Revolving A Subdebt Funding Loan"). In the event that, at time of making any Loan Request pursuant to this ss.8.27.4, there is no availability under the Total Revolving B Commitment but there remains availability under the Total Revolving A Commitment, the Company shall be permitted, subject to compliance at all times with the terms and conditions of this Credit Agreement, to borrow Revolving Credit A Loans in the amount of the Additional Required Revolving A Subdebt Funding Loan in order to repay existing Revolving Credit B Loans by such amount so as to create availability for the borrowing of such Additional Required Revolving A Subdebt Funding Loans under the Total Revolving B Commitment. In the event that at the time of making a Loan Request pursuant to this ss.8.27.4 there is no availability under either the Total Revolving B Commitment or the Total Revolving A Commitment, or in the event that any bankruptcy, reorganization, liquidation, receivership or similar cases or proceedings in which any Borrower is a debtor prevents the Revolving Credit B Banks from funding such Additional Required Revolving A Subdebt Funding Loan on the date required hereunder, such Revolving Credit B Banks shall make such dispositions and arrangements with the Revolving Credit A Banks with respect to such Additional Required Revolving A Reduction, either by way of purchase of participations, distribution, pro tanto assignment of claims or otherwise as shall result in the Revolving Credit B Banks purchasing from the Revolving Credit A Banks, on a pro rata basis, such Revolving Credit A Loans in an amount equal to the Additional Required Revolving A Reduction, and the parties hereto hereby acknowledge and agree that such Revolving Credit A Loans so purchased by the Revolving Credit B Banks pursuant to this ss.8.27.4 shall no longer be considered Revolving Credit A Loans for purposes of this Credit Agreement and the other Loan Documents, but shall instead be considered Revolving Credit B Loans and shall also be considered Additional Required A Revolving Subdebt Funding Loans for all purposes, including -97- subordination of payment rights. The Revolving Credit B Banks further agree that all Additional Required Revolving A Subdebt Funding Loans (and, during an Event of Default which has occurred and is continuing pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans and the Term Loans, any interest thereon) shall be junior in right of payment to the Revolving Credit A Loans and the Term Loans, all as more fully set forth in this Credit Agreement. The parties hereto agree that to the extent, after the Initial Required Revolving A Subdebt Funding Loan is made, the Company delivers to the Agent and the Banks on or prior to February 15, 2003 evidence of its Adjusted Consolidated Cash Flow as required pursuant to ss.8.4(n), which calculations evidence that the Borrowers' Adjusted Consolidated Cash Flow was either a positive number, $0 or was negative by less than $6,000,000 and no other Event of Default has occurred and is continuing as of February 28, 2003, then on February 28, 2003, subject to the provisions of ss.8.27.5, (x) if the Adjusted Consolidated Cash Flow is either $0 or a positive number, then the entire Initial Required Revolving A Subdebt Funding Loan shall no longer be considered as such, and shall be considered an ordinary Revolving Credit B Loan and shall no longer be junior in right of payment as set forth above in this Credit Agreement; or (y) if the Adjusted Consolidated Cash Flow is a negative number, and is negative by less than $6,000,000 (such difference between such amount and $6,000,000, for purposes of this paragraph (y), to be expressed as a positive number and being hereinafter referred to as the "Positive Cash Flow Amount"), then that portion of the Initial Required Revolving A Subdebt Funding Loan (and only the Initial Required Revolving A Subdebt Funding Loan) in an amount equal to the Positive Cash Flow Amount (but in no event greater than $6,000,000) shall no longer be considered as such, shall be considered ordinary Revolving Credit B Loans and shall no longer be junior in right of payment as set forth above in this Credit Agreement (any such adjustments being made pursuant to these subparagraphs (x) and (y) being hereinafter referred to as a "Subdebt Funding Loan Reversal Event"). 8.27.5. SETTLEMENTS FROM INCURRED EXCLUDED 2002 EXPENSES. (a) To the extent, pursuant to ss.8.27.4, a Subdebt Funding Loan Reversal Event occurred and, subsequent to such Subdebt Funding Loan Reversal Event the Borrowers make any Incurred Excluded 2002 Expenses, then the Company shall, by not later than the day which is five (5) days following the last day of each calendar month in which any such Incurred Excluded 2002 Expense was incurred, recalculate its Adjusted Consolidated Cash Flow to include each such Incurred Excluded 2002 Expense in its December 2002 Cash Position as an "Included 2002 Expense". To the extent such recalculated amount evidences that the Subdebt Funding Loan Reversal Event either should not have occurred, or should have been a smaller amount, then that portion of the ordinary Revolving Credit B Loans which should have remained an Initial Required Revolving A Subdebt Funding Loan shall no longer be considered an ordinary Revolving Credit B Loan and shall instead be considered an Initial Required Revolving A -98- Subdebt Funding Loan and shall be converted back into an Initial Required Revolving A Subdebt Funding Loan. To the extent such recalculated amount evidences that not only should the Subdebt Funding Loan Reversal Event not have occurred at all, but that an Additional Required Revolving A Reduction should have occurred under ss.8.27.4 (such an event being hereinafter referred to as an "Erroneous Reversal Event" and the amount of each such Additional Required Revolving A Reduction being hereinafter referred to as such "Erroneous Reversal Amount"), then the provisions of ss.8.27.5(b) shall apply as to the Erroneous Reversal Amount. To the extent there does not remain outstanding an ordinary Revolving Credit B Loan in an amount sufficient for such conversion back into an Initial Required Revolving A Subdebt Funding Loan (the "Conversion Shortfall"), the Company shall immediately make an additional request for a Revolving Credit B Loan in an amount equal to such Conversion Shortfall and use the proceeds thereof to repay outstanding Revolving Credit A Loans by such amount and the Revolving Credit B Banks agree, whether or not a Default or Event of Default has occurred and is continuing hereunder or any other condition to funding has been satisfied, to make such Revolving Credit B Loans to the Company (with such Revolving Credit B Loans also being considered a "Conversion Subdebt Funding Loan"). In the event that, at time of making any Loan Request pursuant to this ss.8.27.5(a), there is no availability under the Total Revolving B Commitment but there remains availability under the Total Revolving A Commitment, the Company shall be permitted, subject to compliance at all times with the terms and conditions of this Credit Agreement, to borrow Revolving Credit A Loans in the amount of the Conversion Subdebt Funding Loan in order to repay existing Revolving Credit B Loans by such amount so as to create availability for the borrowing of such Conversion Subdebt Funding Loans under the Total Revolving B Commitment. In the event that at the time of making a Loan Request pursuant to this ss.8.27.5(a) there is no availability under either the Total Revolving B Commitment or the Total Revolving A Commitment, or in the event that any bankruptcy, reorganization, liquidation, receivership or similar cases or proceedings in which any Borrower is a debtor prevents the Revolving Credit B Banks from funding such Conversion Subdebt Funding Loan on the date required hereunder, such Revolving Credit B Banks shall make such dispositions and arrangements with the Revolving Credit A Banks with respect to such Conversion Shortfall, either by way of purchase of participations, distribution, pro tanto assignment of claims or otherwise as shall result in the Revolving Credit B Banks purchasing from the Revolving Credit A Banks, on a pro rata basis, such Revolving Credit A Loans in an amount equal to such Conversion Shortfall, and the parties hereto hereby acknowledge and agree that such Revolving Credit A Loans so purchased by the Revolving Credit B Banks pursuant to this ss.8.27.5(a) shall no longer be considered Revolving Credit A Loans for purposes of this Credit Agreement and the other Loan Documents, but shall instead be considered Revolving Credit B Loans and shall also be considered Conversion Subdebt Funding Loans for all purposes, including -99- subordination of payment rights. (b) To the extent (i) an Additional Required Revolving A Reduction was required pursuant to ss.8.27.4 above, or (ii) no such Additional Required Revolving A Reduction was required to be made as a result of the Borrowers' Adjusted Consolidated Cash Flow as evidenced on the certification delivered to the Agent and the Banks pursuant to ss.8.4(n) hereof being negative $6,000,000 (and therefore no Subdebt Funding Loan Reversal Event occurred on February 28, 2003), or (iii) an Erroneous Reversal Event occurred pursuant to ss.8.27.5(a) above, then if after December 31, 2002 the Borrowers incur any Incurred Excluded 2002 Expense, the Company shall, by not later than the day which is five (5) days following the last day of the calendar month in which each such Incurred Excluded 2002 Expense was incurred, make an additional request for a Revolving Credit B Loan in an amount equal to the lesser of (a) $2,400,000 minus the principal amount of any Additional Required A Subdebt Funding Loan outstanding on such date minus the aggregate principal amount of any Periodic Required Revolving A Subdebt Funding Loans (as hereinafter defined) made prior to such date and outstanding on such date and (b) the amount of each such Incurred Excluded 2002 Expense, and use the proceeds thereof to repay outstanding Revolving Credit A Loans by such amount (the "Periodic Required Revolving A Reduction" and, collectively with the Initial Required Revolving A Reduction and the Additional Required Revolving A Reduction, the "Required Revolving A Reduction"), and the Revolving Credit B Banks agree, whether or not a Default or Event of Default has occurred and is continuing hereunder or any other condition to funding has been satisfied, to make such Revolving Credit B Loans to the Company (such Revolving Credit B Loans being hereinafter referred to as an "Periodic Required Revolving A Subdebt Funding Loan" and, collectively with the Initial Required Revolving A Subdebt Funding Loan, the Required Repurchase Subdebt Funding Loan, the Additional Required Revolving A Subdebt Funding Loan, the Permitted Repurchase Subdebt Funding Loan and the Conversion Subdebt Funding Loan, the "Subdebt Funding Loans"). In the event that, at time of making any Loan Request pursuant to this ss.8.27.5(b), there is no availability under the Total Revolving B Commitment but there remains availability under the Total Revolving A Commitment, the Company shall be permitted, subject to compliance at all times with the terms and conditions of this Credit Agreement, to borrow Revolving Credit A Loans in the amount of the Periodic Required Revolving A Subdebt Funding Loan in order to repay existing Revolving Credit B Loans by such amount so as to create availability for the borrowing of such Periodic Required Revolving A Subdebt Funding Loans under the Total Revolving B Commitment. In the event that at the time of making a Loan Request pursuant to this ss.8.27.5(b) there is no availability under either the Total Revolving B Commitment or the Total Revolving A Commitment, or in the event that any bankruptcy, reorganization, liquidation, receivership or similar cases or proceedings in which any Borrower is a debtor prevents the Revolving Credit B Banks from funding such Periodic Required Revolving A Subdebt Funding Loan on the date required hereunder, -100- such Revolving Credit B Banks shall make such dispositions and arrangements with the Revolving Credit A Banks with respect to such Periodic Required Revolving A Reduction, either by way of purchase of participations, distribution, pro tanto assignment of claims or otherwise as shall result in the Revolving Credit B Banks purchasing from the Revolving Credit A Banks, on a pro rata basis, such Revolving Credit A Loans in an amount equal to the Periodic Required Revolving A Reduction, and the parties hereto hereby acknowledge and agree that such Revolving Credit A Loans so purchased by the Revolving Credit B Banks pursuant to this ss.8.27.5(b) shall no longer be considered Revolving Credit A Loans for purposes of this Credit Agreement and the other Loan Documents, but shall instead be considered Revolving Credit B Loans and shall also be considered Periodic Required Revolving Subdebt Funding Loans for all purposes, including subordination of payment rights. The Revolving Credit B Banks further agree that all Periodic Required Revolving A Subdebt Funding Loan (and, during an Event of Default which has occurred and is continuing pursuant to ss.13.1(a) or (b) of the Credit Agreement as it relates to the Revolving Credit A Loans and the Term Loans, any interest thereon) shall be junior in right of payment to the Revolving Credit A Loans and the Term Loans, all as more fully set forth in this Credit Agreement. 8.28. CONSULTING SERVICE. The Borrowers continue to acknowledge and agree that, in connection with the Agent's Special Counsel representation of the Agent on matters relating to the Credit Agreement and the other Loan Documents, the Agent's Special Counsel may continue to retain the Carl Marks Consulting Group or any other professional consultant (the "Consultant") to, among other things, visit the Borrowers' and any Subsidiary's corporate or other offices at such times and with such frequency as the Consultant deems appropriate (with the Consultant not being in any manner limited in the frequency of visits to the facilities of the Company and its Subsidiaries, provided, however, so long as no Default or Event of Default has occurred and is continuing, subject to reasonable notice), discuss the Borrowers' financial matters with its officers, examine any of the Borrowers' or any Subsidiary's books or other financial records and advise the Agent and the Banks as to the business, operations and financial condition of the Borrowers and their Subsidiaries and the viability of the business plan. The Borrowers and Guarantors shall, and shall cause each Subsidiary to, continue to cooperate with the Consultant and provide the Consultant with all information reasonably requested by the Consultant in connection with its engagement by the Agent's Special Counsel. The Borrowers and Guarantors acknowledge that the fees and expenses of the Consultant are for the account of the Borrowers and Guarantors. The Borrowers and Guarantors hereby covenant and agree to promptly pay all the fees and expenses of the Consultant upon receipt of invoices from the Consultant and all such fees and expenses shall be included as an Obligation. In addition, each of the Banks authorizes the Agent's Special Counsel to engage the Consultant as special advisor to the Agent's Special Counsel in connection with the Agent's Special Counsel representation of the Agent on matters relating to the Credit Agreement and the other Loan Documents. -101- 9. CERTAIN NEGATIVE COVENANTS OF THE BORROWERS. Each of the Borrowers covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit, Note or loan account is outstanding or any Bank has any obligation to make any Loans or the Agent has any obligations to issue, extend or renew any Letters of Credit: 9.1. RESTRICTIONS ON INDEBTEDNESS. The Borrowers will not, and will not permit any of their Subsidiaries to, create, incur, assume, guarantee or be or remain liable, contingently or otherwise, with respect to any Indebtedness other than: (a) Indebtedness to the Banks and the Agent arising under any of the Loan Documents; (b) endorsements for collection, deposit or negotiation and warranties of products or services, in each case incurred in the ordinary course of business; (c) Subordinated Debt (including Indebtedness of a Domestic Subsidiary of the Company pursuant to the Subordinated Guarantee provided for in the Subordinated Indenture); (d) Indebtedness incurred in connection with the acquisition after the date hereof of any real or personal property by the Borrowers or such Subsidiary or under any Capitalized Lease, provided that the aggregate principal amount of such Indebtedness of the Borrowers and their Subsidiaries shall not exceed the aggregate amount of $500,000 at any one time; (e) Indebtedness existing on the date hereof and listed and described on Schedule 9.1 hereto; (f) (i) Indebtedness of a Subsidiary of a Borrower to a Borrower so long as such Subsidiary is a Domestic Borrower or Guarantor hereunder, (ii) Indebtedness of a Foreign Borrower or a Foreign Guarantor to a Domestic Borrower or Guarantor so long as such Indebtedness is evidenced by an intercompany note which is pledged to the Agent; (iii) Indebtedness of a Foreign Borrower or a Foreign Guarantor to another Foreign Borrower or Foreign Guarantor, so long as such Indebtedness is evidenced by an intercompany note which is pledged to the Agent; and (iv) Indebtedness (1) of a Subsidiary of the Company which is neither a Borrower or a Guarantor hereunder; and (2) incurred in connection with the factoring or other discounting of certain letters of credit in the ordinary course of business issued in favor of any Subsidiary of the Company, provided that the aggregate principal amount of all such Indebtedness permitted under this ss.9.1(f)(iv) shall not exceed an amount equal to $20,000,000, and provided, further, that the proceeds of such Indebtedness shall be used to fund the Company's operations and working capital needs in the People's Republic of China; (g) (i) unsecured Indebtedness incurred in connection with any Permitted Acquisitions, including Indebtedness of Persons acquired pursuant to ss.9.5.1 hereof, so -102- long as the terms of such Indebtedness comply with the provisions of ss.9.5.1(b) (iii) hereof; and (ii) secured Indebtedness assumed in connection with any Permitted Acquisitions so long as the aggregate principal amount of all such Indebtedness does not exceed $500,000 at any one time, the terms of such Indebtedness comply with the provisions of ss.9.5.1(b)(iii) hereof, and, if such Indebtedness is secured, such security interest covers only the real or personal property acquired in such Permitted Acquisition; (h) Indebtedness of the Company in respect of any promissory notes issued by the Company to certain members of its management as permitted by ss.9.4(e) hereof as payment for the redemption by the Company of certain shares of its capital stock issued to such member; (i) unsecured Indebtedness of the Company to any of the Principals or Additional Investors in an aggregate amount not to exceed (1) $1,100,000 in the 2001 calendar year and (2) in any calendar year thereafter, an amount equal to the sum of two and one quarter of one percent (2-1/4%) of the outstanding amount of the Revolving Credit B Loans other than the Subdebt Funding Loans, compounded annually, plus twenty percent (20%) of the outstanding amount of the Subdebt Funding Loans, compounded annually, and in each case incurred in connection with the Company's obtaining the Revolving Credit B Loans, provided (i) no Default or Event of Default has occurred and is continuing or would exist as a result thereof; (ii) the amount of such Indebtedness and the terms and conditions (including, without limitation, a prohibition on any cash payments to be made to the holders thereof during the term of this Credit Agreement and a limitation of use of proceeds) of such Indebtedness are acceptable to the Agent and the Majority Banks; and (iii) such Indebtedness shall contain subordination provisions acceptable to the Agent and the Majority Banks; (j) Indebtedness of any Foreign Subsidiary to any Person other than a Borrower, Guarantor or Foreign Guarantor, as set forth in ss.8.22; (k) Unsecured Indebtedness of the Company to any Foreign Subsidiary incurred in connection with an intercompany loan made by such Foreign Subsidiary to the Company with the proceeds of any Indebtedness incurred by such Foreign Subsidiary pursuant to ss.8.22, provided (i) no Default or Event of Default has occurred and is continuing or would exist as a result thereof; (ii) such intercompany loan is evidenced by a written promissory note; (iii) the amount of such Indebtedness and the terms and conditions (including, without limitation, a prohibition on any cash payments to be made to the holders thereof during the term of this Credit Agreement, other than cash payments for accrued interest which is due and payable thereunder so long as no Default or Event of Default has occurred and is continuing hereunder, and a limitation of use of proceeds) of such Indebtedness are acceptable to the Agent and the Majority Banks; and (iv) such Indebtedness shall contain subordination provisions acceptable to the Agent. provided however notwithstanding the foregoing provisions of this ss.9.1, all such Indebtedness must in any event qualify at all times as "Indebtedness" (as such term is -103- defined in the Subordinated Indenture) permitted to be incurred pursuant to ss.4.09 of the Subordinated Indenture; and provided, further, that the aggregate amount of all Indebtedness incurred under ss.ss.9.1(d), (g) and (h) shall not exceed, in the aggregate, $500,000 in any fiscal year. 9.2. RESTRICTIONS ON LIENS. The Borrowers will not, and will not permit any of their Subsidiaries to, (a) create or incur or suffer to be created or incurred or to exist any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest of any kind upon any of its property or assets of any character whether now owned or hereafter acquired, or upon the income or profits therefrom; (b) transfer any of such property or assets or the income or profits therefrom for the purpose of subjecting the same to the payment of Indebtedness or performance of any other obligation in priority to payment of its general creditors; (c) acquire, or agree or have an option to acquire, any property or assets upon conditional sale or other title retention or purchase money security agreement, device or arrangement; (d) suffer to exist for a period of more than thirty (30) days after the same shall have been incurred any Indebtedness or claim or demand against it that if unpaid might by law or upon bankruptcy or insolvency, or otherwise, be given any priority whatsoever over its general creditors; (e) sell, assign, pledge or otherwise transfer any "receivables" as defined in clause (g) of the definition of the term "Indebtedness," with or without recourse (other than the sale of doubtful, bad, overdue or defaulted receivables after notice to the Agent in an aggregate amount not to exceed $2,000,000 in any one year without the written consent of the Agent); or (f) enter into or permit to exist any arrangement or agreement, enforceable under applicable law, which directly or indirectly prohibits the Borrowers or any of their Subsidiaries from creating or incurring any lien, encumbrance, mortgage, pledge, charge, restriction or other security interest other than in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents and other than customary anti-assignment provisions in leases and licensing agreements entered into by the Borrowers or such Subsidiary in the ordinary course of its business, provided that the Borrowers or any of their Subsidiaries may create or incur or suffer to be created or incurred or to exist: (a) liens in favor of the Borrowers on all or part of the assets of Subsidiaries of the Borrowers securing Indebtedness owing by Subsidiaries of the Borrowers to such Borrower; (b) liens to secure taxes, assessments and other government charges in respect of obligations not overdue or liens on properties to secure claims for labor, material or supplies in respect of obligations not overdue; (c) deposits or pledges made in connection with, or to secure payment of, workmen's compensation, unemployment insurance, old age pensions or other social security obligations; (d) liens on properties in respect of judgments or awards that have been in force for less than the applicable period for taking an appeal so long as execution is not levied thereunder or in respect of which such Borrowers or such Subsidiary shall at the -104- time in good faith be prosecuting an appeal or proceedings for review and in respect of which a stay of execution shall have been obtained pending such appeal or review; (e) liens of carriers, warehousemen, mechanics and materialmen, and other like liens on properties, in existence less than 120 days from the date of creation thereof in respect of obligations not overdue; (f) encumbrances on Real Estate consisting of easements, rights of way, zoning restrictions, restrictions on the use of real property and defects and irregularities in the title thereto, landlord's or lessor's liens under leases to which the Borrowers or a Subsidiary of any Borrower is a party, and other minor liens or encumbrances none of which in the opinion of the applicable Borrower interferes materially with the use of the property affected in the ordinary conduct of the business of such Borrower and its Subsidiaries, which defects do not individually or in the aggregate have a materially adverse effect on the business of such Borrower individually or of such Borrower and its Subsidiaries on a consolidated basis; (g) liens existing on the date hereof and listed on Schedule 9.2 hereto; (h) purchase money security interests in or purchase money mortgages on real or personal property acquired after the date hereof to secure purchase money Indebtedness of the type and amount permitted by ss.9.1(d) and ss.9.1(g)(ii), incurred in connection with the acquisition of such property, which security interests or mortgages cover only the real or personal property so acquired and liens and assets of the Subsidiary of the Company which is neither a Borrower nor a Guarantor hereunder to secure the Indebtedness permitted by ss.9.1(f)(iv)(1) hereof; (i) liens in favor of the Agent for the benefit of the Banks and the Agent under the Loan Documents; and (j) liens incurred in the ordinary course of business consistent with past practices in favor of a Person providing insurance of collection of certain of the Company's accounts receivable, provided such liens cover only those receivables so insured and provided that the Agent has a first priority perfected security interest in any insurance or other proceeds. 9.3. RESTRICTIONS ON INVESTMENTS. The Borrowers will not, and will not permit any of their Subsidiaries to, make or permit to exist or to remain outstanding any Investment except Investments in: (a) marketable direct or guaranteed obligations of the United States of America that mature within one (1) year from the date of purchase by the Borrowers; (b) demand deposits, certificates of deposit, bankers acceptances and time deposits of United States banks having total assets in excess of $1,000,000,000; (c) securities commonly known as "commercial paper" issued by a corporation organized and existing under the laws of the United States of America or -105- any state thereof that at the time of purchase have been rated and the ratings for which are not less than "P 1" if rated by Moody's Investors Service, Inc., and not less than "A 1" if rated by Standard and Poor's Rating Group; (d) Investments existing on the date hereof and listed on Schedule 9.3 hereto, Investments made by any Borrower or its Subsidiaries in the JV pursuant to the GE Joint Venture so long as the time of the making of such Investments, no Default or Event of Default has occurred and is continuing or would exist as a result thereof; provided, the aggregate amount of all Investments made in the JV shall not exceed $3,500,000 from the Closing Date to the first anniversary of the Closing Date and $7,000,000 in the aggregate during the term of the Credit Agreement; (e) Investments with respect to Indebtedness permitted by ss.9.1(f)(i) -- (iii) so long as such entities remain a Subsidiary of any Borrower and a Borrower, a Guarantor or Foreign Guarantor hereunder and Investments with respect to Indebtedness permitted by ss.9.1(f)(iv) so long as such entities remain a Subsidiary of any Borrower hereunder; (f) Investments with respect to Indebtedness permitted by ss.9.1(g) hereof so long as the Person incurring such Indebtedness remains a Subsidiary of any Borrower hereunder and Investments consisting of Permitted Acquisitions under ss.9.5.1 hereof, of assets or Persons that become, at the time of such Permitted Acquisitions, a Subsidiary of the Company; (g) Investments consisting of the Guaranty or the Foreign Guarantees or Investments by the Borrowers in Guarantors; (h) Investments consisting of promissory notes or other obligations or securities received as proceeds of asset dispositions permitted by ss.9.5.2; (i) Investments consisting of the acquisition of new Subsidiaries permitted pursuant to ss.9.5.1; and (j) Investments by the Company consisting of the Required Repurchase and any Permitted Repurchase; provided, however, that (a) with the exception of demand deposits referred to in ss.9.3(b), such Investments will be considered Investments permitted by this ss.9.3 only if all actions have been taken to the satisfaction of the Agent to provide to the Agent, for the benefit of the Banks and the Agent, a first priority perfected security interest in all of such Investments free of all encumbrances other than Permitted Liens or such other exceptions as the Agent may make in its sole discretion and (b) all Investments made pursuant to this ss.9.3 must be permitted to be made pursuant to the Subordinated Indenture. -106- 9.4. DISTRIBUTIONS AND RESTRICTED PAYMENTS. The Company and its Subsidiaries will not make any Distributions or Restricted Payments, other than dividends or payments: (a) so long as no Event of Default under ss.13.1(c) as it relates to ss.10 or under ss.13.1(a) or (b) has occurred and is continuing or would result therefrom, by the Company to Berkshire Partners consisting of quarterly management services fees pursuant to the Management Agreement in an aggregate amount not to exceed (i) $125,000 in any fiscal quarter plus (ii) the amount of management services fees, if any, which are in arrears under the Management Agreement plus (iii) the sum of $2,000,000 which is due and payable on the Closing Date in conjunction with the Acquisition, and provided, however, that such payments shall not be made earlier than ten (10) days prior to the date such payments are due and payable pursuant to the terms of the Management Agreement; (b) by any Subsidiary of the Company to such Subsidiary's parent; (c) so long as no Event of Default under ss.13.1(c) as it relates to ss.10 or under ss.13.1(a) or (b) has occurred and is continuing or would result therefrom, by the Company in the form of redemptions of Equity Interests of the Company held by any member of the Company's or any Subsidiary's management or Board of Directors, provided that the aggregate sum paid therefor shall not exceed the sum of (i) $500,000 in any twelve (12) month period, plus (ii) the aggregate Net Cash Proceeds received by the Company from the issuance after November 26, 1997 of Equity Interests to members of management or the Company's Board of Directors; (d) by the Company as a Distribution in the form of promissory notes issued by the Company to repurchase or redeem shares of its capital stock pursuant to certain buy-back arrangements with certain members of the Company's management, provided that (i) no Event of Default then exists or would result after the making of such Distribution; (ii) the terms of such notes are acceptable to the Agent in all respects; and (iii) such notes contain subordination provisions acceptable to the Agent; and (e) so long as no Default or Event of Default has occurred and is continuing or would exist as a result thereof, to the extent any of the Subordinated Notes to be purchased by the Company in any Required Repurchase or Permitted Repurchase is owned by a Principal, to such Principals in order to consummate the Required Repurchase or Permitted Repurchase, as the case may be, as permitted hereunder. 9.5. MERGER, CONSOLIDATION AND DISPOSITION OF ASSETS. 9.5.1. MERGERS AND ACQUISITIONS. The Borrowers will not, and will not permit any of their Subsidiaries to, become a party to any merger or consolidation, or agree to or effect any asset acquisition or stock acquisition except, so long as no Default or Event of Default has occurred and is continuing, or would exist after giving effect thereto: -107- (a) the merger of one or more of the Subsidiaries of the Company with and into the Company, any other Domestic Borrower hereunder or a Guarantor hereunder, and provided the Company, the other Domestic Borrower or the Guarantor, as the case may be, has taken or caused to be taken all action necessary to grant to the Agent a first priority perfected security interest in all of the Company's or such other Domestic Borrower's or Guarantor's assets after such merger; (b) the acquisition of the assets or stock of Persons in the same or a similar line of business as the Company and its Subsidiaries (including home electrical and other consumer appliances, industrial electrical products and other similar products) (each, a "Permitted Acquisition") where (i) the Company has provided the Agent with thirty (30) days prior written notice of such, Permitted Acquisition, which notice shall include a reasonably detailed description of such Permitted Acquisition and copies of all acquisition documents in connection therewith; (ii) the business to be acquired would not subject the Agent or the Banks to regulatory or third party approvals in connection with the exercise of their rights and remedies under this Credit Agreement or any other Loan Document; (iii) no contingent liabilities or liabilities will be incurred or assumed in connection with such Permitted Acquisition which could be expected to have a Material Adverse Effect, and any Indebtedness incurred or assumed in connection with such Permitted Acquisition (1) shall have been permitted to be incurred or assumed pursuant to ss.9.1 hereof; (2) shall not bear cash interest at a rate in excess of 600 basis points over the applicable treasury rate per annum and shall not bear interest at a rate in excess of 900 basis points over the applicable treasury rate per annum; (3) shall not have a maturity prior to the Term Loan B Maturity Date; (4) shall not contain any financial covenants; (5) shall be unsecured; (6) shall contain an amortization schedule acceptable to the Agent and (7) shall contain subordination provisions acceptable to the Agent and the Banks; provided that any such Indebtedness permitted by ss.9.1(g)(ii) shall not have to comply with clauses (2)-(7) hereof; (iv) the Company has provided the Agent with such other information as was reasonably requested by the Agent; (v) after the consummation of the Permitted Acquisition, the Company shall own a majority of the capital stock of the Person to be acquired or shall otherwise control such Person (including, without limitation, controlling the ability of such Person to make loans, advances and Distributions in cash to the Company); (vi) the Company shall take, or shall cause to be taken, all necessary action to grant to the Agent a first priority perfected lien in all assets and stock acquired in connection with such Permitted Acquisition, with such exceptions as the Agent may approve; provided, however, the Company or any Guarantor, as the case may be, shall only be required to pledge 66% of the capital stock of any Foreign Subsidiary or any other Person not incorporated or otherwise organized in the United States of America (a "Foreign Entity"), and such Foreign Entity shall not be required to grant a lien on its assets to secure the Obligations of the Company or any Guarantor; (vii) the Company has demonstrated to the reasonable satisfaction of the Agent, based on a pro forma Compliance Certificate, compliance with ss.10 immediately prior to and on a Pro Forma Basis immediately -108- after giving effect to such Permitted Acquisition and the Leverage Ratio (calculated on a Pro Forma Basis) after giving effect to such Permitted Acquisition shall not exceed 5.50:1.00; (viii) the maximum purchase price for any single Permitted Acquisition or series of Permitted Acquisitions relating to the same business organization or group of related companies does not exceed the sum of $40,000,000, plus the aggregate cash equity investment made by the Additional Investors in the Company for the purpose of consummating such acquisition, plus the aggregate amount of secured Indebtedness assumed in connection with such Permitted Acquisition; (ix) board of directors and the shareholders (if required by applicable law), or the equivalent, of each of the Company and the Person to be acquired has approved such merger, consolidation or acquisition and such Permitted Acquisition is otherwise considered "friendly"; (x) to the extent the Company or any Subsidiary is acquiring any Real Estate in connection with such Permitted Acquisition, the Company shall have delivered to the Agent all appraisals and environmental site assessments which the Agent shall reasonably require, with all such appraisals and site assessments to be in form and substance reasonably satisfactory to the Agent; and (xi) the Company has delivered to the Agent a certificate of the chief financial officer of the Company to the effect that (1) the Company will be solvent upon the consummation of the Permitted Acquisition; (2) the pro forma Compliance Certificate fairly presents the financial condition of the Company and its Subsidiaries as of the date thereof and after giving effect to such Permitted Acquisition; and (3) no Default or Event of Default then exists or would result after giving effect to the Permitted Acquisition; and (c) The Merger as contemplated by the Merger Documents. In the event any new Domestic Subsidiary is formed or acquired as a result of or in connection with any acquisition, such new Domestic Subsidiary shall, immediately upon its creation or acquisition, execute and deliver to the Agent for the benefit of the Agent and the Banks, an Instrument of Adherence in substantially the form of Exhibit E hereto (an "Instrument of Adherence") and the Loan Documents shall be amended and/or supplemented as necessary to make the terms and conditions of the Loan Documents applicable to such Domestic Subsidiary. Such Domestic Subsidiary shall become a Guarantor hereunder and shall become party to the Guaranty and the Security Agreement and shall execute and deliver to the Agent any and all other agreements, documents, instruments and financing statements necessary to grant to the Agent a first priority perfected lien in such Domestic Subsidiary's assets. The Company and its Subsidiaries shall, immediately upon the creation or acquisition of such Domestic Subsidiary, pledge all of such Domestic Subsidiary's capital stock to the Agent for the benefit of the Agent and the Banks. In the event any new Foreign Subsidiary is formed or acquired as a result of or in connection with any acquisition, such new Foreign Subsidiary shall, immediately upon its creation or acquisition, and to the extent legally possible in its jurisdiction of organization and to the extent that to do so would not result in the recognition of a deemed dividend from such Foreign Subsidiary, execute and deliver to the Agent for the -109- benefit of the Agent and the Banks such guarantees and security documents as the Agent deems necessary to make the terms and conditions of the Loan Documents applicable to such Foreign Subsidiary. To the extent legally permissible, and to the extent that to do so would not result in the recognition of a deemed dividend from such Foreign Subsidiary, such Foreign Subsidiary shall guarantee the Obligations of the Subsidiary Borrowers hereunder and shall execute and deliver to the Agent any and all other agreements, documents, instruments and financing statements necessary to grant to the Agent a first priority perfected lien in such Foreign Subsidiary's assets to secure its guarantee obligations. In addition, the Company and its Subsidiaries shall (unless otherwise previously agreed to in writing by the Agent), immediately upon the creation or acquisition of such Foreign Subsidiary, pledge 66% of such Foreign Subsidiary's capital stock to the Agent for the benefit of the Agent and the Banks. 9.5.2. DISPOSITION OF ASSETS. The Borrowers will not, and will not permit any of their Subsidiaries to, become a party to or agree to or effect any Asset Sale or other disposition of assets, other than (a) the sale of inventory, the sale or other disposition of doubtful, bad, overdue or defaulted receivables (that does not constitute a financing arrangement), the licensing of intellectual property, the disposition of obsolete assets, and the sale or transfer of assets between Subsidiary Borrowers, in each case in the ordinary course of business, (b) the sale of assets (which may include the assets of Borrowers' commercial, industrial or pump business lines) in arms-length transactions for fair and reasonable value, provided that, with respect to this clause (b) (i) no Default or Event of Default shall have occurred and be continuing at the time of such sale and no Default or Event of Default will exist after giving effect to such Asset Sale; (ii) at least seventy five percent (75%) of the purchase price for such assets is received in cash and the Net Cash Sale Proceeds from such sales are applied as provided in ss.ss.2.12.2 and 3.3.3 hereof, (iii) any promissory note or other instrument received by the Company or any of its Subsidiaries in connection with such sale is an Investment permitted by ss.9.3 hereof, and the Company or such Subsidiary, as applicable, has delivered such promissory note or other instrument to the Agent to be held in pledge for the benefit of itself and the Banks in accordance with the terms of the Loan Documents; (iv) the aggregate value of all assets sold in any Asset Sale is not more than $10,000,000 in any fiscal year and (v) the Company shall have delivered to the Agent on the date of such sale a certificate signed by an authorized officer of the Company and evidence satisfactory to the Agent showing compliance with the provisions of clauses (i) through (iv) of this ss.9.5.2 and (c) the sale by the Company of certain real property located in Milford, Massachusetts which is subsequently leased by the Company or any Subsidiary, provided, no Default or Event of Default has occurred and is continuing or would exist as a result thereof and the aggregate sale price does not exceed $1,500,000. Notwithstanding anything to the contrary contained in this ss.9.5, neither the Company nor any of its Subsidiaries shall be permitted to dispose of any assets or take (or omit to take) any action in connection with any Asset Sale or -110- other asset disposition or engage in any other transaction which action (or omission) would require or result in any repayment, repurchase or redemption (or any mandatory offer to repay, repurchase or redeem) by the Company or any of its Subsidiaries of the Subordinated Notes pursuant to the Subordinated Indenture. 9.6. SALE AND LEASEBACK. Except as permitted by ss.9.5.2, the Borrowers will not, and will not permit any of their Subsidiaries to, enter into any arrangement, directly or indirectly, whereby such Borrower or any Subsidiary of such Borrower shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that such Borrower or any Subsidiary of such Borrower intends to use for substantially the same purpose as the property being sold or transferred. 9.7. COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrowers will not, and will not permit any of their Subsidiaries to, (a) use any of the Real Estate or any portion thereof for the handling, processing, storage or disposal of Hazardous Substances, (b) cause or permit to be located on any of the Real Estate any underground tank or other underground storage receptacle for Hazardous Substances, (c) generate any Hazardous Substances on any of the Real Estate, (d) conduct any activity at any Real Estate or use any Real Estate in any manner so as to cause a release (i.e. releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing or dumping) or threatened release of Hazardous Substances on, upon or into the Real Estate or (e) otherwise conduct any activity at any Real Estate or use any Real Estate, each in any manner that would violate any Environmental Law or bring such Real Estate in violation of any Environmental Law, except where such noncompliance would not have a Material Adverse Effect. 9.8. SUBORDINATED DEBT. The Company will not, and will not permit any of its Subsidiaries to, amend, supplement or otherwise modify the terms of any of the Subordinated Debt Documents or prepay, redeem or repurchase (or offer to prepay, redeem or repurchase) any of the Subordinated Debt; provided, however, so long as no Default or Event of Default has occurred and is continuing or would exist as result thereof, the Company shall be permitted to (a) use any Net Cash Proceeds received from its Initial Public Offering and subsequent public offerings of its capital stock which it is not otherwise required pursuant to the terms of the Credit Agreement to apply to the repayment of the Loans and the reduction of the Total Commitment pursuant to ss.ss. 2.12.2 and 3.3.3 hereof to prepay, redeem and repurchase the Subordinated Debt and (b) consummate the Required Repurchase and any Permitted Repurchase. 9.9. EMPLOYEE BENEFIT PLANS. Neither the Borrowers nor any ERISA Affiliate will (a) engage in any "prohibited transaction" within the meaning of ss.406 of ERISA or ss.4975 of the Code which could reasonably be expected to result in a material liability for the Borrower or any of its Subsidiaries; or -111- (b) permit any Guaranteed Pension Plan to incur an "accumulated funding deficiency", as such term is defined in ss.302 of ERISA, whether or not such deficiency is or may be waived; or (c) fail to contribute to any Guaranteed Pension Plan to an extent which, or terminate any Guaranteed Pension Plan in a manner which, could reasonably be expected to result in the imposition of a lien or encumbrance on the assets of the Borrower or any of its Subsidiaries pursuant to ss.302(f) or ss.4068 of ERISA; or (d) amend any Guaranteed Pension Plan in circumstances requiring the posting of security pursuant to ss.307 of ERISA or ss.401(a)(29) of the Code; or (e) permit or take any action which would result in the aggregate benefit liabilities (with the meaning of ss.4001 of ERISA) of all Guaranteed Pension Plans exceeding the value of the aggregate assets of such Plans, disregarding for this purpose the benefit liabilities and assets of any such Plan with assets in excess of benefit liabilities. 9.10. BUSINESS ACTIVITIES. The Borrowers will not, and will not permit any of their Subsidiaries to, engage directly or indirectly (whether through Subsidiaries or otherwise) in any type of business other than the businesses conducted by them on the Closing Date or businesses conducted by subjects of Permitted Acquisitions and in related businesses. 9.11. FISCAL YEAR. The Borrowers will not, and will not permit any of their Subsidiaries to, change the date of the end of its fiscal year from that set forth in ss.7.4.1. 9.12. TRANSACTIONS WITH AFFILIATES. Except for the GE Joint Venture and Indebtedness owed pursuant to ss.9.1(i), the Borrowers will not, and will not permit any of their Subsidiaries to, engage in any transaction with any Affiliate (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any such Affiliate or, to the knowledge of the Borrowers, any corporation, partnership, trust or other entity in which any such Affiliate has a substantial interest or is an officer, director, trustee or partner, on terms more favorable to such Person than would have been obtainable on an arm's-length basis in the ordinary course of business. 9.13. MODIFICATION OF DOCUMENTS AND CHARTER. Neither the Borrowers nor any of their Subsidiaries will consent to or agree to any amendment, supplement or other modification to the Tender Offer Documents, the Merger Documents, the Stockholders Agreement, the Management Agreement or Subordinated Debt Documents, or other than as disclosed on Schedule 1 to the Third Amendment, amend or permit to be amended its certificate of incorporation or bylaws, or similar organizational documents without the Agent's prior written consent unless such change or amendment would not have any material adverse effect on the Agent's or the Banks' rights under the Loan -112- Documents or the Borrowers' or any of their Subsidiaries' obligations under the Loan Documents. 9.14. UPSTREAM LIMITATIONS. Neither the Borrowers nor any of their Subsidiaries will enter into, or permit any of their Subsidiaries to enter into, any agreement, contract or arrangement (other than the Credit Agreement and the other Loan Documents) restricting the ability of any Subsidiary to pay or make dividends or distributions in cash or kind, to make loans, advances or other payments of whatsoever nature or to make transfers or distributions of all or any part of its assets to any Borrower or any Guarantor. 9.15. INCONSISTENT AGREEMENTS. Neither the Borrowers nor any of their Subsidiaries will, nor will they permit their Subsidiaries to, enter into any agreement containing any provision which would be violated or breached by the performance by such Borrower or such Subsidiary of its obligations hereunder or under any of the Loan Documents. 9.16. SENIOR DEBT. The Company and its Subsidiaries will not (a) in any manner designate or permit to exist any other Indebtedness of the Company or any of its Subsidiaries as "Designated Senior Debt" for purposes (and as defined in) of the Subordinated Indenture, other than the Indebtedness arising under this Credit Agreement and the Guaranty, or (b) incur or permit to exist any "Senior Debt" as such term is defined in the Subordinated Indenture, other than the Indebtedness arising or permitted under this Credit Agreement and the Guaranty and the other Obligations. 9.17. LIMITATIONS ON FOREIGN EXCHANGE ARRANGEMENTS. The Company will not and will not permit any of its Subsidiaries to enter into any interest rate hedging or risk protection arrangements, foreign exchange risk protection arrangements, or currency risk protection arrangements which are not in the ordinary course of business or are for speculative purposes. 9.18. BANK ACCOUNTS. The Company will not, and will not permit any of the other Borrowers or Guarantors to, (a) establish any bank accounts other than those Local Accounts, Interim Concentration Accounts and other accounts, all listed on Schedule 7.20, without the Agent's prior written consent, (b) violate directly or indirectly any Agency Account Agreement or other bank agency or lock box agreement in favor of the Agent for the benefit of the Banks and the Agent with respect to such account, or (c) deposit into any of the payroll accounts listed on Schedule 7.20 any amounts in excess of amounts necessary to pay current payroll obligations from such accounts or deposit into the account designated as the "rebate account" on Schedule 7.20 hereto any amounts in excess of $15,000. 10. FINANCIAL COVENANTS OF THE BORROWERS. Each of the Borrowers covenants and agrees that, so long as any Loan, Unpaid Reimbursement Obligation, Letter of Credit or Note or loan account is -113- outstanding or any Bank has any obligation to make any Loans or the Agent has any obligation to issue, extend or renew any Letters of Credit: 10.1. LEVERAGE RATIO. The Borrowers will not as of the end of any fiscal quarter ending on any date described in the table set forth below, permit the Leverage Ratio to exceed the ratio set forth opposite such period in such table:

10.2. INTEREST COVERAGE RATIO. The Borrowers will not, as of the end of any fiscal quarter ending on any date described in the table set forth below, permit the Interest Coverage Ratio to be less than the ratio set forth opposite such period in such table:

-114- 10.3. FIXED CHARGE COVERAGE RATIO. The Borrowers will not, as of the end of any fiscal quarter ending on any date described in the table set forth below, permit the Fixed Charge Coverage Ratio to be less than the ratio set forth opposite such period in such table:

10.4. CAPITAL EXPENDITURES. The Borrowers will not make, or permit any Subsidiary of such Borrower to make, Capital Expenditures (including, without limitation, any Capital Expenditures made by the Company or any Subsidiary in connection with any joint venture entities) that exceed, in the aggregate (a) $19,000,000 (of which not more than $13,000,000 shall be attributable to Capital Expenditures made in connection with the Company's operations in China) during the 2001 fiscal year and (b) $17,000,000 (of which not more than $13,000,000 shall be attributable to Capital Expenditures made in connection with the Company's operations in China) during any subsequent fiscal year. However, except for the 2001 fiscal year, $1,000,000 of Capital Expenditures not spent in a given year may be carried over and added to the Capital Expenditures permitted only for the immediately following year (after first utilizing the amount of Capital Expenditures permitted for such fiscal year), each such carry over not to exceed one year. 11. CLOSING CONDITIONS. The obligations to make the initial Loans to the Borrowers and of the Agent to issue any initial Letters of Credit for the account of the Borrowers shall be subject to the satisfaction of the following conditions precedent on or prior to Closing Date, which conditions were satisfied or waived on the Closing Date: 11.1. LOAN DOCUMENTS, ETC. 11.1.1. Loan Documents. Each of the Loan Documents [other than certain of the Foreign Security Documents] shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks. Each Bank shall have received a fully executed copy of each such document. -115- 11.1.2. TENDER OFFER DOCUMENTS. The Agent shall have received evidence satisfactory to it that the Tender Offer has been consummated in accordance with the terms of the Tender Offer Documents, and that at least 70% of the outstanding shares of Rival have been validly tendered and not withdrawn. Each Bank shall have received final copies of each of the Tender Offer Documents. 11.1.3. MERGER DOCUMENTS. The Agent shall have received evidence that each of the Merger Documents shall have been duly executed and delivered by the respective parties thereto, and shall be in full force and effect. Each Bank shall have received a fully executed copy of each such document. 11.1.4. SUBORDINATED DEBT DOCUMENTS. Each of the Subordinated Debt Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect, and shall be in form and substance satisfactory to the Agent. Each Bank shall have received a fully executed copy of each such document. 11.2. CERTIFIED COPIES OF CHARTER DOCUMENTS. Each of the Banks shall have received from the Company and each of its Subsidiaries a copy, certified by a duly authorized officer of such Person to be true and complete on the Closing Date, of each of (a) its charter or other incorporation documents as in effect on such date of certification, and (b) its by-laws as in effect on such date. 11.3. CORPORATE ACTION. All corporate action necessary for the valid execution, delivery and performance by the Borrowers and each of their Subsidiaries of this Credit Agreement and the other Loan Documents to which it is or is to become a party shall have been duly and effectively taken, and evidence thereof satisfactory to the Banks shall have been provided to each of the Banks. 11.4. INCUMBENCY CERTIFICATE. Each of the Banks shall have received from each of the Borrowers and each of the Guarantors an incumbency certificate, dated as of the Closing Date, signed by a duly authorized officer of such Borrower or such Guarantor, and giving the name and bearing a specimen signature of each individual who shall be authorized: (a) to sign, in the name and on behalf of each of such Borrower or such Guarantor, each of the Loan Documents to which such Borrower or such Guarantor is or is to become a party; (b) in the case of the Borrowers, to make Loan Requests and Conversion Requests and, in the case of the Company, to apply for Letters of Credit; and (c) to give notices and to take other action on its behalf under the Loan Documents. 11.5. VALIDITY OF LIENS. The Security Documents other than certain of the Foreign Security Documents shall be effective to create in favor of the Agent a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in and lien upon the Collateral. All filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected. The -116- Agent shall have received evidence thereof in form and substance satisfactory to the Agent. 11.6. PERFECTION CERTIFICATES AND UCC SEARCH RESULTS. The Agent shall have received from each of the Borrowers and the Guarantors a completed and fully executed Perfection Certificate and the results of UCC searches with respect to the Collateral, indicating no liens other than Permitted Liens and otherwise in form and substance satisfactory to the Agent. 11.7. CERTIFICATES OF INSURANCE. The Agent shall have received (a) a certificate of insurance from an independent insurance broker dated as of the Closing Date, identifying insurers, types of insurance, insurance limits, and policy terms, and otherwise describing the insurance obtained in accordance with the provisions of the Security Agreements and (b) certified copies of all policies evidencing such insurance (or certificates therefore signed by the insurer or an agent authorized to bind the insurer). 11.8. HAZARDOUS WASTE ASSESSMENTS. The Agent shall have received hazardous waste site assessments from environmental engineers and in form and substance reasonably satisfactory to the Agent, covering substantially all Real Estate and all other real property in respect of which any Borrower or any of its Subsidiaries may have ,material liability, whether contingent or otherwise, for dumping or disposal of Hazardous Substances. 11.9. SOLVENCY OPINION. Each of the Banks shall have received a copy of an opinion from Valuation Research dated not less than three (3) days prior to the Closing Date, describing in detail the solvency of the Company and its Subsidiaries after the consummation of the transactions contemplated herein (including an opinion of regarding the Company and its Subsidiaries both before and after giving effect to the Merger) and in form and substances satisfactory to the Banks. 11.10. OPINIONS OF COUNSEL. Each of the Banks and the Agent shall have received favorable legal opinions addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent, from Posternak, Blankstein & Lund, L.L.P., counsel to the Company and its Subsidiaries and such other counsel as the Agent and the Banks may reasonably request. 11.11. PAYMENT OF FEES. The Company shall have paid to the Banks or the Agent, as appropriate, the closing fees and the Agent's Fee as contemplated by the Fee Letter. 11.12. PAYOFF LETTER. The Agent shall have received appropriate payoff letters, termination letters and collateral discharges in form and substance satisfactory to the Agent from holders of existing Indebtedness of the Borrowers and their Subsidiaries not otherwise permitted hereunder. 11.13. DISBURSEMENT INSTRUCTIONS. The Agent shall have received disbursement instructions from the Company with respect to the proceeds of the initial Loans. -117- 11.14. CAPITALIZATION. The Agent and the Banks shall have received evidence satisfactory to the Agent and the Banks that (a) the Company shall have received an equity investment of not less than $50,000,000 in cash from Berkshire Fund IV, Berkshire Fund V, their affiliates and certain other investors, in each case on terms and conditions which are satisfactory to the Agent in all respects and (b) the Company shall have received the gross proceeds from the New Subordinated Notes in an aggregate amount of not less than $30,000,000. 11.15. CONSENTS AND APPROVALS. The Agent shall have received evidence that all consents and approvals necessary to complete the Tender Offer and all transactions contemplated hereby have been obtained. 11.16. CLOSING DATE LEVERAGE RATIO. The Company shall provide the Agent with evidence satisfactory to the Agent that the Leverage Ratio on the Closing Date (after giving effect to all amounts to be borrowed on the Closing Date) is not greater than 5.75:1.00. 11.17. AVAILABILITY. The Agent shall have received evidence that on the Closing Date, after giving effect to the transactions contemplated hereby (including, without limitation, after giving effect to all borrowings under the Credit Agreement), the Borrowers will have unused availability under the Credit Agreement of not less than $50,000,000. 11.18. TENDER OFFER/MERGER. The Company and Moriarty Acquisition Corp. shall cause the Merger to be consummated on the Closing Date and the Agent shall have received evidence satisfactory to it of the consummation of the Merger. 11.19. CONDITIONS TO FUNDING TO FOREIGN BORROWERS. Each of the following shall have been satisfied: (a) each of the Foreign Security Documents shall have been duly executed and delivered by the respective parties thereto, shall be in full force and effect and shall be in form and substance satisfactory to each of the Banks, and each Bank shall have received a fully executed copy of each such document; (b) the Foreign Security Documents shall be effective to create in favor of the Agent a legal, valid and enforceable first (except for Permitted Liens entitled to priority under applicable law) security interest in and lien upon the Collateral, and all filings, recordings, deliveries of instruments and other actions necessary or desirable in the opinion of the Agent to protect and preserve such security interests shall have been duly effected, with the Agent having received evidence thereof in form and substance satisfactory to the Agent; and (c) each of the Banks and the Agent shall have received favorable legal opinions addressed to the Banks and the Agent, dated as of the Closing Date, in form and substance satisfactory to the Banks and the Agent from each of the local counsel to the Subsidiary Borrowers. 11.20. SURVEY AND TAXES. The Agent shall have received (i) a Survey of each Mortgaged Property together with a Surveyor Certificate relating thereto (to the extent such Surveys and Surveyor Certificates exist at the Closing Date) and (ii) evidence of -118- payment of real estate taxes and municipal charges on all Real Estate not delinquent on or before the Closing Date. 11.21. TITLE INSURANCE. The Agent shall have received a Title Policy covering each Mortgaged Property (or commitments to issue such policies, with all conditions to issuance of the Title Policy deleted by an authorized agent of the Title Insurance Company) together with proof of payment of all fees and premiums for such policies, from the Title Insurance Company and in amounts reasonably satisfactory to the Agent, insuring the interest of the Agent and each of the Banks as mortgagee under the Mortgages. 12. CONDITIONS TO ALL BORROWINGS. The obligations of the Banks to make Loans and of the Agent to issue, extend or renew any Letter of Credit, in each case whether on or after the Closing Date, shall also be subject to the satisfaction of the following conditions precedent: 12.1. REPRESENTATIONS TRUE; NO EVENT OF DEFAULT. Each of the representations and warranties of any of the Borrowers and their Subsidiaries contained in this Credit Agreement, the other Loan Documents and in the Merger Documents, or in any document or instrument delivered pursuant to or in connection with this Credit Agreement shall be true as of the date as of which they were made and shall also be true at and as of the time of the making of any Loan, or the issuance, extension or renewal of such Letter of Credit, with the same effect as if made at and as of that time (except to the extent of changes resulting from transactions contemplated or permitted by this Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse to the Company and its Subsidiaries taken as a whole, and to the extent that such representations and warranties relate expressly to an earlier date) and no Default or Event of Default shall have occurred and be continuing. 12.2. NO LEGAL IMPEDIMENT. No change shall have occurred in any law or regulations thereunder or interpretations thereof that in the reasonable opinion of any Bank would make it illegal for such Bank to make Loans, or to participate in the issuance, extension or renewal of such Letter of Credit or in the reasonable opinion of the Agent would make it illegal for the Agent to issue, extend or renew such Letter of Credit. 12.3. GOVERNMENTAL REGULATION. Each Bank shall have received such statements in substance and form reasonably satisfactory to such Bank as such Bank shall require for the purpose of compliance with any applicable regulations of the Comptroller of the Currency or the Board of Governors of the Federal Reserve System. 12.4. PROCEEDINGS AND DOCUMENTS. All proceedings in connection with the transactions contemplated by this Credit Agreement, the other Loan Documents and all other documents incident thereto shall be satisfactory in substance and in form to the Banks and to the Agent and the Agent's Special Counsel, and the Banks, the Agent and -119- such counsel shall have received all information and such counterpart originals or certified or other copies of such documents as the Agent may reasonably request. 12.5. EXCHANGE LIMITATIONS. There exists no reason whatsoever, including without limitation, by reason of the application of any so-called "currency exchange" laws or regulations (as in effect at the time of any proposed borrowing hereunder) which could reasonably be expected to interfere with any Borrower satisfying any of its Obligations hereunder in full at such time as such Obligations become due and payable pursuant to the terms hereof. 12.6. INDENTURE COMPLIANCE. The Agent shall have received a certificate from the Company certifying that the Loan being requested may be incurred in compliance with the covenant set forth in ss.4.09 of the Subordinated Indenture, together with such evidence and calculations demonstrating the satisfaction of such covenant as the Agent may reasonably request. 13. EVENTS OF DEFAULT; ACCELERATION; ETC. 13.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the following events ("Events of Default" or, if the giving of notice or the lapse of time or both is required, then, prior to such notice or lapse of time, "Defaults") shall occur: (a) any Borrower shall fail to pay any principal of the Loans or any Reimbursement Obligation when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment; (b) any Borrower shall fail to pay any interest on the Loans, the commitment fee, any Letter of Credit Fee, the Agent's Fee, or other sums due hereunder or under any of the other Loan Documents, when the same shall become due and payable, whether at the stated date of maturity or any accelerated date of maturity or at any other date fixed for payment, and such failure shall continue for three (3) days; (c) any Borrower shall fail to comply with any of its covenants contained in ss.ss.8.1 (but subject to ss.13.1(b) above)-8.4, 8.5.1, 8.5.5, 8.7, 8.9, 8.10-8.12, 8.15-8.17, 8.21, 8.24-8.27, 9.1-9.6, 9.8, 9.10-9.18 or 10; (d) any Borrower or any of its Subsidiaries shall fail to perform any term, covenant or agreement contained herein or in any of the other Loan Documents (other than those specified elsewhere in this ss.13.1) for thirty (30) days after written notice of such failure has been given to the Borrower by the Agent; (e) any representation or warranty of any Borrower or any of its Subsidiaries in this Credit Agreement or any of the other Loan Documents, or in any of the Subordinated Debt Documents or in any other document or instrument delivered pursuant to or in connection with this Credit Agreement or any of the other Loan Documents or of Holmes or MAC in the Tender Offer Documents or Merger Documents -120- shall prove to have been false in any material respect upon the date when made or deemed to have been made or repeated; (f) any Borrower or any of its Subsidiaries shall fail to pay at maturity, or within any applicable period of grace, any obligation for borrowed money or credit received or in respect of any Capitalized Leases in an aggregate amount in excess of $2,000,000, or fail to observe or perform any material term, covenant or agreement contained in any agreement by which it is bound, evidencing or securing borrowed money or credit received or in respect of any Capitalized Leases in an aggregate amount in excess of $2,000,000 for such period of time as would permit (assuming the giving of appropriate notice if required) the holder or holders thereof or of any obligations issued thereunder to accelerate the maturity thereof; (g) any Borrower or any of its Subsidiaries shall make an assignment for the benefit of creditors, or admit in writing its inability to pay or generally fail to pay its debts as they mature or become due, or shall petition or apply for the appointment of a trustee or other custodian, liquidator or receiver of any Borrower or any of its Subsidiaries or of any substantial part of the assets of any Borrower or any of its Subsidiaries or shall commence any case or other proceeding relating to any Borrower or any of its Subsidiaries under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law of any jurisdiction, now or hereafter in effect, or shall take any action to authorize or in furtherance of any of the foregoing, or if any such petition or application shall be filed or any such case or other proceeding shall be commenced against any Borrower or any of its Subsidiaries and such Borrower or any of its Subsidiaries shall indicate its approval thereof, consent thereto or acquiescence therein or such petition or application shall not have been dismissed within forty-five (45) days following the filing thereof; (h) a decree or order is entered appointing any such trustee, custodian, liquidator or receiver or adjudicating any Borrower or any of its Subsidiaries bankrupt or insolvent, or approving a petition in any such case or other proceeding, or a decree or order for relief is entered in respect of any Borrower or any Subsidiary of such Borrower in an involuntary case under federal bankruptcy laws as now or hereafter constituted; (i) there shall remain in force, undischarged, unsatisfied and unstayed, for more than thirty days, whether or not consecutive, any final judgment against any Borrower or any of its Subsidiaries that, with other outstanding final judgments, undischarged, against such Borrower or any of its Subsidiaries exceeds in the aggregate $1,000,000; (j) the holders of all or any part of the Subordinated Debt shall accelerate the maturity of all or any part of the Subordinated Debt or, except as expressly permitted by ss.9.8, the Subordinated Debt shall be (or shall be required at such time to be) prepaid, redeemed or repurchased in whole or in part; or the Company or any of its Subsidiaries shall be or become required under the Subordinated Indenture to prepay, redeem or repurchase (or shall be or become required thereunder to offer to prepay, redeem or repurchase) all or any part of the Subordinated Debt; -121- (k) if any of the Loan Documents shall be cancelled, terminated, revoked or rescinded or the Agent's security interests, mortgages or liens in a substantial portion of the Collateral shall cease to be perfected, or shall cease to have the priority contemplated by the Security Documents, in each case otherwise than in accordance with the terms thereof or with the express prior written agreement, consent or approval of the Banks, or any action at law, suit or in equity or other legal proceeding to cancel, revoke or rescind any of the Loan Documents shall be commenced by or on behalf of any Borrower or any of its Subsidiaries party thereto or any of their respective stockholders, or any court or any other governmental or regulatory authority or agency of competent jurisdiction shall make a determination that, or issue a judgment, order, decree or ruling to the effect that, any one or more of the Loan Documents is illegal, invalid or unenforceable in accordance with the terms thereof; (l) any Borrower or any of its Subsidiaries incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA in an aggregate amount exceeding $1,000,000, or any Borrower or any of its Subsidiaries is assessed withdrawal liability pursuant to Title IV of ERISA by a Multiemployer Plan requiring aggregate annual payments exceeding $1,000,000, or any of the following occurs with respect to a Guaranteed Pension Plan: (i) an ERISA Reportable Event, a failure to make a required installment or other payment (within the meaning of ss.302(f)(1) of ERISA), an ERISA Affiliate incurs any liability to the PBGC or a Guaranteed Pension Plan pursuant to Title IV of ERISA or is assessed withdrawal liability pursuant to Title IV of ERISA, provided that the Agent determines in its reasonable discretion that such event (A) could reasonably be expected to result in liability of the Borrowers or any of their Subsidiaries to the PBGC or such Guaranteed Pension Plan in an aggregate amount exceeding $1,000,000 and (B) could constitute grounds for the termination of such Guaranteed Pension Plan by the PBGC, for the appointment by the appropriate United States District Court of a trustee to administer such Guaranteed Pension Plan or for the imposition of a lien in favor of such Guaranteed Pension Plan; or (ii) the appointment by a United States District Court of a trustee to administer such Guaranteed Pension Plan; or (iii) the institution by the PBGC of proceedings to terminate such Guaranteed Pension Plan; (m) any Borrower or any of its Subsidiaries shall be enjoined, restrained or in any way prevented by the order of any court or any administrative or regulatory agency from conducting any material part of its business, such order shall continue in effect for more than thirty (30) days and the result of which could reasonably be expected to have a Material Adverse Effect; (n) there shall occur any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, act of God or public enemy, or other casualty, which in any such case causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of any Borrower or any of its Subsidiaries if, such event or circumstance is not covered by business interruption insurance and would have a Material Adverse Effect, -122- (o) there shall occur the loss, suspension or revocation of, or failure to renew, any license or permit now held or hereafter acquired by any Borrower or any of its Subsidiaries if such loss, suspension, revocation or failure to renew would have a Material Adverse Effect; (p) the Company shall at any time, legally or beneficially own less than (i) 100% of the capital stock of each of its Subsidiaries existing on the Closing Date (except that, prior to the Merger Effective Date, the Company shall own not less than 70% of the capital stock of Rival), or (ii) 80% of the capital stock of any Subsidiary acquired or formed after the Closing Date; (q) a Change of Control (as such term is defined in the Subordinated Indenture) occurs; or (r) prior to the Initial Public Offering, the Principals shall at any time, legally or beneficially own less than 51% of the capital stock of the Company, as adjusted pursuant to any stock split, stock dividend or recapitalization or reclassification of the capital of the Company and after the Initial Public Offering, any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) other than the Principals shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of twenty five percent (25%) or more of the outstanding shares of common stock of the Company or, at any time, more than a majority of the members of the Board of Directors of the Company are not Continuing Directors. then, and in any such event, so long as the same may be continuing, the Agent, upon the request of the Majority Banks shall, by notice in writing to the Company declare all amounts owing with respect to this Credit Agreement, the Notes and the other Loan Documents and all Reimbursement Obligations to be, and they shall thereupon forthwith become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; provided that in the event of any Event of Default specified in ss.ss.13.1(g), 13.1(h) or 13.1(j)), all such amounts shall become immediately due and payable automatically and without any requirement of notice from the Agent or any Bank. 13.2. TERMINATION OF COMMITMENTS. If any one or more of the Events of Default specified in ss.13.1(g), ss.13.1(h) or ss.13.1(j)) shall occur, any unused portion of the credit hereunder shall forthwith terminate and each of the Banks shall be relieved of all further obligations to make Revolving Credit Loans to the Borrowers and the Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit. If any other Event of Default shall have occurred and be continuing, or if on any Drawdown Date or other date for issuing, extending or renewing any Letter of Credit the conditions precedent to the making of the Revolving Credit Loans to be made on such Drawdown Date or (as the case may be) to issuing, extending or renewing such Letter of Credit on such other date are not satisfied, the Agent, upon the request of the Majority Banks, shall, by notice to the Company, terminate the unused portion of the credit hereunder, and upon such notice being given such unused portion of the credit hereunder shall -123- terminate immediately and each of the Banks shall be relieved of all further obligations to make Revolving Credit Loans and the Agent shall be relieved of all further obligations to issue, extend or renew Letters of Credit. No termination of the credit hereunder shall relieve the Borrowers or any of their Subsidiaries of any of the Obligations. 13.3. REMEDIES. In case any one or more of the Events of Default shall have occurred and be continuing, and whether or not the Banks shall have accelerated the maturity of the Loans pursuant to ss.13.1, each Bank, if owed any amount with respect to the Loans or the Reimbursement Obligations, may, with the consent of the Majority Banks but not otherwise, proceed to protect and enforce its rights by suit in equity, action at law or other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Credit Agreement and the other Loan Documents or any instrument pursuant to which the Obligations to such Bank are evidenced, including as permitted by applicable law the obtaining of the ex parte appointment of a receiver, and, if such amount shall have become due, by declaration or otherwise, proceed to enforce the payment thereof or any other legal or equitable right of such Bank. No remedy herein conferred upon any Bank or the Agent or the holder of any Note or loan account or purchaser of any Letter of Credit Participation is intended to be exclusive of any other remedy and each and every remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or any other provision of law. 13.4. EXCHANGE RATE. If, for the purpose of obtaining judgment in any court or obtaining an order enforcing a judgment, it becomes necessary for any Bank to convert any amount due to such Bank under this Credit Agreement in Dollars or in any other currency (hereinafter in this ss.13.4 called the "first currency") into any other currency (hereinafter in this ss.13.4 called the "second currency"), then the conversion shall be made at such Bank's spot rate of exchange for buying the first currency with the second currency prevailing at such Bank's close of business on the Business Day next preceding the day on which the judgment is given or (as the case may be) the order is made. Any payment made to any Bank pursuant to this Credit Agreement in the second currency shall constitute a discharge of the obligations of the respective Borrower to pay to such Bank any amount originally due to such Bank in the first currency under this Credit Agreement only to the extent of the amount of the first currency which such Bank is able, on the date of the actual receipt by it of such payment in any second currency, to purchase, in accordance with such Bank's normal banking procedures, with the amount of such second currency so received. If the amount of the first currency falls short of the amount originally due to such Bank in the first currency under this Credit Agreement, the Borrowers hereby agree that they will indemnify such Bank against and save such Bank harmless from any shortfall so arising. This indemnity shall constitute an obligation of such Borrower separate and independent from the other obligations contained in this Credit Agreement, shall give rise to a separate and independent cause of action and shall continue in full force and effect notwithstanding any judgment or order for a liquidated sum or sums in respect of amounts due to such Bank under this Credit Agreement or under any such judgment or order. Any such shortfall shall be deemed to constitute a loss suffered by such Bank and the Borrowers shall not be -124- entitled to require any proof or evidence of any actual loss. The covenant contained in this ss.13.4 shall survive the payment in full of all of the other obligations of the Borrowers under this Credit Agreement. 13.5. DISTRIBUTION OF COLLATERAL PROCEEDS. In the event that, following the occurrence or during the continuance of any Default or Event of Default, the Agent or any Bank, as the case may be, receives any monies in connection with the enforcement of any the Security Documents, or otherwise with respect to the realization upon any of the Collateral, such monies shall be distributed for application as follows: (a) First, to the payment of, or (as the case may be) the reimbursement of the Agent for or in respect of all reasonable costs, expenses, disbursements and losses which shall have been incurred or sustained by the Agent in connection with the collection of such monies by the Agent, for the exercise, protection or enforcement by the Agent of all or any of the rights, remedies, powers and privileges of the Agent under this Credit Agreement or any of the other Loan Documents or in respect of the Collateral or in support of any provision of adequate indemnity to the Agent against any taxes or liens which by law shall have, or may have, priority over the rights of the Agent to such monies; (b) Second, to all other Obligations other than the Subdebt Funding Loans in such order or preference as to type of Obligations (such as interest, principal, fees and expenses) as the Majority Banks may determine; provided, however, that (i) distributions shall be made (A) pari passu among Obligations with respect to the Agent's fee payable pursuant to ss.5.2 and all other Obligations and (B) with respect to each type of Obligation owing to the Banks, such as interest, principal, fees and expenses, among the Banks pro rata in accordance with the principal amount of each Bank's outstanding Notes, provided, however, the Revolving Banks hereby agree that as to the application of any amounts to the Revolving Credit Loans, such amounts shall be applied first to repay any Revolver A Exposure in an amount in excess of the Maximum Initial Amount, second to repay the outstanding amount of the Revolving Credit B Loans other than the Subdebt Funding Loans, third to repay the remaining Revolver A Exposure; (c) Third, to the Subdebt Funding Loans and all other Obligations arising thereunder; (d) Fourth, upon payment and satisfaction in full or other provisions for payment in full satisfactory to the Banks and the Agent of all of the Obligations, to the payment of any obligations required to be paid pursuant to ss.9-504(l)(c) of the Uniform Commercial Code of the Commonwealth of Massachusetts; and (e) Fifth, the excess, if any, shall be returned to the Borrowers or to such other Persons as are entitled thereto. SS.13.6. TRUE UP. -125- (a) The provisions of this ss.13.6 apply in the event that the Company or Rival becomes a debtor under the federal Bankruptcy Code. (b) If, on any True Up Date, the Base Percentage of any Bank varies from the True Up Date Risk Percentage of such Bank, the Banks, on such True Up Date, will make such acquisitions, dispositions and other arrangements with one another, whether by way of purchase, sale, participation, contribution, distribution, pro tanto assumption or assignment of claims, subrogation or otherwise, as shall result in each Bank's True Up Date Risk Percentage being equal (as nearly as may be) to such Bank's Base Percentage. (c) In the event that any Specified Obligations owed to any Bank on any True Up Date are contingent and, pursuant to ss.13.6(b), another Bank (an "Assuming Bank") assumes all or a portion of the liability of such Bank giving rise to such contingent Specified Obligation, the Assuming Bank agrees to indemnify and hold the other Bank harmless from any against any loss, cost or expense sustained or incurred by the other Bank as a result of the failure of the Assuming Bank to satisfy that liability. (d) No assignment by any Bank made pursuant to ss.19 of any of the Specified Obligations owed to such Bank shall release such Bank from its obligations to the other Banks under this ss.13.6. (e) For the purposes of this ss.13.6, the following terms have the following meanings: (i) "Base Percentage" means, with respect to any Bank, the percentage which the Specified Obligations owed to such Bank on March 22, 2002, bears to the Specified Obligations owed to all of the Banks on March 22, 2002. (ii) "Specified Obligations" means Obligations other than Obligations comprising principal of and interest on the Revolving Credit B Loans and that portion of the Revolving Credit A Loans which exceed the Maximum Initial Amount. The term includes Specified Obligations which, at the time of reference, are contingent obligations, such as Letter of Credit Participations in Reimbursement Obligations in respect of undrawn Letters of Credit. (iii) "True Up Date" means (A) 180 days following the date on which a petition is filed by or against the Borrower or Rival under the federal Bankruptcy Code or, if earlier, the date on which any plan of reorganization of the Borrower or Rival under Chapter 11 of the federal Bankruptcy Code becomes effective or (B) any later date specified by a Bank in a written notice provided to the other Banks and the Agent not less than 30 days prior to the date specified in such notice and falling not less than 180 days after the immediately preceding True Up Date. -126- (iv) "True Up Date Risk Percentage" means, with respect to any Bank, the percentage which the Specified Obligations owed to such Bank on any True Up Date bears to the Specified Obligations owed to all of the Banks on such True Up Date. (f) The provisions of this ss.13.6 shall not be amended or modified without obtaining the prior written consent of each Bank affected thereby. 14. SETOFF. Regardless of the adequacy of any collateral, during the continuance of any Event of Default, any deposits or other sums credited by or due from any of the Banks to any Borrower and any securities or other property of any Borrower in the possession of such Bank may be applied to or set off by such Bank against the payment of Obligations and any and all other liabilities, direct, or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, of any Borrower to such Bank. Each of the Banks agrees with each other Bank that (a) if an amount to be set off is to be applied to Indebtedness of any Borrower to such Bank, other than Indebtedness evidenced by the Notes or loan accounts held by such Bank or constituting Reimbursement Obligations owed to such Bank, such amount shall be applied ratably to such other Indebtedness and to the Indebtedness evidenced by all such Notes and loan accounts held by such Bank or constituting Reimbursement Obligations owed to such Bank, and (b) if such Bank shall receive from any Borrower, whether by voluntary payment, exercise of the right of setoff, counterclaim, cross action, enforcement of the claim evidenced by the Notes or loan accounts held by, or constituting Reimbursement Obligations owed to, such Bank by proceedings against such Borrower at law or in equity or by proof thereof in bankruptcy, reorganization, liquidation, receivership or similar proceedings, or otherwise, and shall retain and apply to the payment of the Note or Notes or loan accounts held by, or Reimbursement Obligations owed to, such Bank any amount in excess of its ratable portion of the payments received by all of the Banks with respect to the Notes or loan accounts held by, and Reimbursement Obligations owed to, all of the Banks, such Bank will make such disposition and arrangements with the other Banks with respect to such excess, either by way of distribution, pro tanto assignment of claims, subrogation or otherwise as shall result in each Bank receiving in respect of the Notes and loan accounts held by it or Reimbursement obligations owed it, its proportionate payment as contemplated by this Credit Agreement; provided that if all or any part of such excess payment is thereafter recovered from such Bank, such disposition and arrangements shall be rescinded and the amount restored to the extent of such recovery, but without interest. 15. THE AGENT. 4.1. AUTHORIZATION. (a) The Agent is authorized to take such action on behalf of each of the Banks and to exercise all such powers as are hereunder and under any of the other Loan Documents and any related documents delegated to the Agent, together with such powers as are reasonably incident thereto, provided that no duties or responsibilities not -127- expressly assumed herein or therein shall be implied to have been assumed by the Agent. (b) The relationship between the Agent and each of the Banks is that of an independent contractor. The use of the term "Agent" is for convenience only and is used to describe, as a form of convention, the independent contractual relationship between the Agent and each of the Banks. Nothing contained in this Credit Agreement nor the other Loan Documents shall be construed to create an agency, trust or other fiduciary relationship between the Agent and any of the Banks, except as otherwise provided in the Debenture from Holmes UK to the Agent, the Charge Over Shares between Holmes Far East, Holmes UK and the Agent and the Guarantee from Holmes UK (collectively, the "UK Security Documents") for purposes of the Agent acting as collateral trustee thereunder for the Banks. For purposes of this ss.15, the term "Agent" shall include the Agent acting in its capacity as collateral trustee under the UK Security Documents. (c) As an independent contractor empowered by the Banks to exercise certain rights and perform certain duties and responsibilities hereunder and under the other Loan Documents, the Agent is nevertheless a "representative" of the Banks, as that term is defined in Article 1 of the Uniform Commercial Code, for purposes of actions for the benefit of the Banks and the Agent with respect to all collateral security and guaranties contemplated by the Loan Documents. Such actions include the designation of the Agent as "secured party", "mortgagee" or the like on all financing statements and other documents and instruments, whether recorded or otherwise, relating to the attachment, perfection, priority or enforcement of any security interests, mortgages or deeds of trust in collateral security intended to secure the payment or performance of any of the Obligations, all for the benefit of the Banks and the Agent. 15.2. EMPLOYEES AND AGENTS. The Agent may exercise its powers and execute its duties by or through employees or agents and shall be entitled to take, and to rely on, advice of counsel concerning all matters pertaining to its rights and duties under this Credit Agreement and the other Loan Documents. The Agent may utilize the services of such Persons as the Agent in its sole discretion may reasonably determine, and all reasonable fees and expenses of any such Persons shall be paid by the Borrowers. 15.3. NO LIABILITY. Neither the Agent nor any of its shareholders, directors, officers or employees nor any other Person assisting them in their duties nor any agent or employee thereof, shall be liable for any waiver, consent or approval given or any action taken, or omitted to be taken, in good faith by it or them hereunder or under any of the other Loan Documents, or in connection herewith or therewith, or be responsible for the consequences of any oversight or error of judgment whatsoever, except that the Agent or such other Person, as the case may be, may be liable for losses due to its willful misconduct or gross negligence. 15.4. NO REPRESENTATIONS. 15.4.1. GENERAL. The Agent shall not be responsible for the execution or validity or enforceability of this Credit Agreement, the Notes, the loan accounts, -128- the Letters of Credit, any of the other Loan Documents or any instrument at any time constituting, or intended to constitute, collateral security for the Notes and loan accounts, or for the value of any such collateral security or for the validity, enforceability or collectability of any such amounts owing with respect to the Notes and loan accounts or for any recitals or statements, warranties or representations made herein or in any of the other Loan Documents or in any certificate or instrument hereafter furnished to it by or on behalf of any Borrower or any of its Subsidiaries, or be bound to ascertain or inquire as to the performance or observance of any of the terms, conditions, covenants or agreements herein or in any instrument at any time constituting, or intended to constitute, collateral security for the Notes and loan accounts or to inspect any of the properties, books or records of the Borrower or any of its Subsidiaries. The Agent shall not be bound to ascertain whether any notice, consent, waiver or request delivered to it by any Borrower or any holder of any of the Notes or loan accounts shall have been duly authorized or is true, accurate and complete. The Agent has not made nor does it now make any representations or warranties, express or implied, nor does it assume any liability to the Banks, with respect to the credit worthiness or financial conditions of the Borrowers or any of their Subsidiaries. Each Bank acknowledges that it has, independently and without reliance upon the Agent or any other Bank, and based upon such information and documents as it has deemed appropriate, made its own credit analysis and decision to enter into this Credit Agreement. 15.4.2. CLOSING DOCUMENTATION, ETC. For purposes of determining compliance with the conditions set forth in ss.11, each Bank that has executed this Credit Agreement shall be deemed to have consented to, approved or accepted, or to be satisfied with, each document and matter either sent, or reasonably made available, by the Agent or the Arranger for consent, approval, acceptance or satisfaction, or required thereunder to be to be consent to or approved by or acceptable or satisfactory to such Bank, unless an officer of the Agent or the Arranger active upon the Borrowers' account shall have received notice from such Bank prior to the Closing Date specifying such Bank's objection thereto and such objection shall not have been withdrawn by notice to the Agent or the Arranger to such effect on or prior to the Closing Date. 15.5. PAYMENTS. 15.5.1. PAYMENTS TO AGENT. A payment by any Borrower to the Agent hereunder or any of the other Loan Documents for the account of any Bank shall constitute a payment to such Bank. The Agent agrees promptly to distribute to each Bank such Bank's pro rata share (in accordance with such Bank's Commitment Percentage) of payments received by the Agent for the account of the Banks except as otherwise expressly provided herein or in any of the other Loan Documents. 15.5.2. DISTRIBUTION BY AGENT. If in the opinion of the Agent the distribution of any amount received by it in such capacity hereunder, under the -129- Notes, loan accounts or under any of the other Loan Documents might involve it in liability, it may refrain from making distribution until its right to make distribution shall have been adjudicated by a court of competent jurisdiction. If a court of competent jurisdiction shall adjudge that any amount received and distributed by the Agent is to be repaid, each Person to whom any such distribution shall have been made shall either repay to the Agent its proportionate share of the amount so adjudged to be repaid or shall pay over the same in such manner and to such Persons as shall be determined by such court. 15.5.3. DELINQUENT BANKS. Notwithstanding anything to the contrary contained in this Credit Agreement or any of the other Loan Documents, any Bank that fails (a) to make available to the Agent its pro rata share of any Loan or to purchase any Letter of Credit Participation or (b) to comply with the provisions of ss.14 with respect to making dispositions and arrangements with the other Banks, where such Bank's share of any payment received, whether by setoff or otherwise, is in excess of its pro rata share of such payments due and payable to all of the Banks, in each case as, when and to the full extent required by the provisions of this Credit Agreement, shall be deemed delinquent (a "Delinquent Bank") and shall be deemed a Delinquent Bank until such time as such delinquency is satisfied. A Delinquent Bank shall be deemed to have assigned any and all payments due to it from the Borrowers, whether on account of outstanding Loans, Unpaid Reimbursement Obligations, interest, fees or otherwise to the remaining nondelinquent Banks for application to, and reduction of, their respective pro rata shares of all outstanding Loans and Unpaid Reimbursement Obligations. The Delinquent Bank hereby authorizes the Agent to distribute such payments to the nondelinquent Banks in proportion to their respective pro rata shares of all outstanding Loans and Unpaid Reimbursement Obligations. A Delinquent Bank shall be deemed to have satisfied in full a delinquency when and if, as a result of application of the assigned payments to all outstanding Loans and Unpaid Reimbursement Obligations of the nondelinquent Banks, the Banks' respective pro rata shares of all outstanding Loans and Unpaid Reimbursement Obligations have returned to those in effect immediately prior to such delinquency and without giving effect to the nonpayment causing such delinquency. 15.6. HOLDERS OF NOTES. The Agent may deem and treat the payee of any Note or the purchaser of any Letter of Credit Participation as the absolute owner or purchaser thereof for all purposes hereof until it shall have been furnished in writing with a different name by such payee or by a subsequent holder, assignee or transferee. 15.7. INDEMNITY. The Banks ratably agree hereby to indemnify and hold harmless the Agent and its affiliates from and against any and all claims, actions and suits (whether groundless or otherwise), losses, damages, costs, expenses (including any expenses for which the Agent or such affiliate has not been reimbursed by the Borrowers as required by ss.16), and liabilities of every nature and character arising out of or related to this Credit Agreement, the Notes, the loan accounts or any of the other Loan Documents or the transactions contemplated or evidenced hereby or thereby, or the -130- Agent's actions taken hereunder or thereunder, except to the extent that any of the same shall be directly caused by the Agent's willful misconduct or gross negligence. 15.8. AGENT AS BANK. In its individual capacity, Fleet shall have the same obligations and the same rights, powers and privileges in respect to its Commitment and the Loans made by it, and as the holder of any of the Notes, loan accounts and as the purchaser of any Letter of Credit Participations, as it would have were it not also the Agent. 15.9. RESIGNATION. The Agent may resign at any time by giving sixty (60) days prior written notice thereof to the Banks and the Company. Upon any such resignation, the Majority Banks shall have the right to appoint a successor Agent. Unless a Default or Event of Default shall have occurred and be continuing, such successor Agent shall be reasonably acceptable to the Company. If no successor Agent shall have been so appointed by the Majority Banks and shall have accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a financial institution having a rating of not less than A or its equivalent by Standard & Poor's Ratings Group. Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation, the provisions of this Credit Agreement and the other Loan Documents shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. 15.10. NOTIFICATION OF DEFAULTS AND EVENTS OF DEFAULT. Each Bank hereby agrees that, upon learning of the existence of a Default or an Event of Default, it shall promptly notify the Agent thereof. The Agent hereby agrees that upon receipt of any notice under this ss.15.10 it shall promptly notify the other Banks of the existence of such Default or Event of Default. 15.11. DUTIES IN THE CASE OF ENFORCEMENT. In case one of more Events of Default have occurred and shall be continuing, and whether or not acceleration of the Obligations shall have occurred, the Agent shall, if (a) so requested by the Majority Banks and (b) the Banks have provided to the Agent such additional indemnities and assurances against expenses and liabilities as the Agent may reasonably request, proceed to enforce the provisions of the Security Documents authorizing the sale or other disposition of all or any part of the Collateral and exercise all or any such other legal and equitable and other rights or remedies as it may have in respect of such Collateral. The Majority Banks may direct the Agent in writing as to the method and the extent of any such sale or other disposition, the Banks hereby agreeing to indemnify and hold the Agent, harmless from all liabilities incurred in respect of all actions taken or omitted in accordance with such directions, provided that the Agent need not comply with any such direction to the extent that the Agent reasonably believes the Agent's compliance with such direction to be unlawful or commercially unreasonable in any applicable jurisdiction. -131- 15.12. SPECIAL COVENANT TO PAY. For purposes of the laws of the Netherlands and any other non-United States jurisdiction where the following shall be necessary to the enforcement of the rights of the Agent and the Banks hereunder and under the Loan Documents, the Borrowers covenant in favor of the Agent, with the agreement of the Banks, to pay all Obligations to the Agent when and to the extent due from such Borrower under the terms of the Loan Documents. The Agent shall be deemed with each Bank to have the benefit of each and every Obligation of each Borrower towards each Bank under any Loan Document, so that accordingly the Agent in its individual capacity will have its own independent right to demand performance by the relevant Borrower of those Obligations, and such Obligations will be discharged by, and to the extent of, any discharge thereof either to the Agent in is capacity referred to above or to the Agent for itself or to the relevant Bank, as the case may be. 15.13. DUTIES OF DOCUMENTATION AGENT AND ARRANGER. The parties hereto hereby acknowledge and agree that the Documentation Agent and Arranger shall have no duties or obligations under this Credit Agreement. 16. EXPENSES AND INDEMNIFICATION. 16.1. EXPENSES. The Borrowers agree to pay (a) the reasonable costs of producing and reproducing this Credit Agreement, the other Loan Documents and the other agreements and instruments mentioned herein, (b) any taxes (including any interest and penalties in respect thereto) payable by the Agent or any of the Banks (other than taxes based upon the Agent's or any Bank's net income) on or with respect to the transactions contemplated by this Credit Agreement (the Borrowers hereby agreeing to indemnify the Agent and each Bank with respect thereto), (c) the reasonable fees, expenses and disbursements of the Agent's Special Counsel, any local or special counsel to the Agent incurred in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, each closing hereunder, any amendments, modifications, approvals, consents or waivers hereto or hereunder, or the cancellation of any Loan Document upon payment in full in cash of all of the Obligations or pursuant to any terms of such Loan Document for providing for such cancellation, (d) the fees, expenses and disbursements of the Agent or any of its affiliates incurred by the Agent or such affiliate in connection with the preparation, syndication, administration or interpretation of the Loan Documents and other instruments mentioned herein, including all title insurance premiums and surveyor, engineering and appraisal charges, (e) all reasonable out-of-pocket expenses (including without limitation reasonable attorneys' fees and costs, which attorneys may be employees of any Bank or the Agent, and reasonable consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred by any Bank or the Agent in connection with (A) the enforcement of or preservation of rights under any of the Loan Documents against any Borrower or any of its Subsidiaries or the administration thereof after the occurrence of a Default or Event of Default and (B) any litigation, proceeding or dispute whether arising hereunder or otherwise, in any way related to any Bank's or the Agent's relationship with the Borrowers or any of their Subsidiaries or related to the Merger and (f) all reasonable fees, expenses and -132- disbursements of any Bank or the Agent incurred in connection with UCC searches, UCC filings or mortgage (including intellectual property mortgage) recordings. 16.2. INDEMNIFICATION. Each of the Borrowers agrees to indemnify and hold harmless the Agent, its affiliates and the Banks from and against any and all claims, actions and suits whether groundless or otherwise, and from and against any and all liabilities, losses, damages and expenses of every nature and character arising out of this Credit Agreement or any of the other Loan Documents or the transactions contemplated hereby including, without limitation, (i) any actual or proposed use by any Borrower or any of its Subsidiaries of the proceeds of any of the Loans or Letters of Credit, (ii) any actual or alleged infringement of any patent, copyright, trademark, service mark or similar right of the Company or any of its Subsidiaries comprised in the Collateral, (iii) the Borrowers or any of their Subsidiaries entering into or performing this Credit Agreement or any of the other Loan Documents and (iv) with respect to the Borrowers and their Subsidiaries and their respective properties and assets, the violation of any Environmental Law, the presence, disposal, escape, seepage, leakage, spillage, discharge, emission, release or threatened release of any Hazardous Substances or any action, suit, proceeding or investigation brought or threatened with respect to any Hazardous Substances (including, but not limited to, claims with respect to wrongful death, personal injury or damage to property), in each case including, without limitation, the reasonable fees and disbursements of counsel and allocated costs of internal counsel incurred in connection with any such investigation, litigation or other proceeding. In litigation, or the preparation therefor, the Banks and the Agent and its affiliates shall each be entitled to select their own counsel and, in addition to the foregoing indemnity, each of the Borrowers agrees to pay promptly the reasonable fees and expenses of such counsel. If, and to the extent that the obligations of the Borrowers under this ss.16.2 are unenforceable for any reason, then each of the Borrowers hereby agrees to make the maximum contribution to the payment in satisfaction of such obligations which is permissible under applicable law. Notwithstanding the foregoing, no indemnification or contribution shall be provided to any indemnitee under this Section 16.2 in the event of the bad faith, gross negligence or willful misconduct of such indemnitee. In addition to the foregoing, each of the Domestic Borrowers and Guarantors hereby agree to indemnify the Agent and its affiliates and to hold the Agent and its affiliates harmless from and against any loss, cost or expense incurred or sustained by the Agent or such affiliate in providing payroll and other cash management services to the Company and its Subsidiaries. The parties hereto further hereby agree that such indemnification obligations shall be Obligations under the Credit Agreement and the other Loan Documents. 16.3. SURVIVAL. The covenants contained in this ss.16 shall survive payment or satisfaction in full of all other Obligations. 17. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION. 17.1. SHARING OF INFORMATION WITH SECTION 20 SUBSIDIARY. The Company acknowledges that from time to time financial advisory, investment banking and other services may be offered or provided to the Company or one or more of its Subsidiaries, -133- in connection with this Credit Agreement or otherwise, by a Section 20 Subsidiary. The Company, for itself and each of its Subsidiaries, hereby authorizes (a) such Section 20 Subsidiary to share with the Agent and each Bank any information delivered to such Section 20 Subsidiary by the Borrower or any of its Subsidiaries, and (b) the Agent and each Bank to share with such Section 20 Subsidiary any information delivered to the Agent or such Bank by the Company or any of its Subsidiaries pursuant to this Credit Agreement, or in connection with the decision of such Bank to enter into this Credit Agreement; it being understood, in each case, that any such Section 20 Subsidiary receiving such information shall be bound by the confidentiality provisions of this Credit Agreement. Such authorization shall survive the payment and satisfaction in full of all of Obligations. 17.2. CONFIDENTIALITY. Each of the Banks and the Agent agrees, on behalf of itself and each of its affiliates, directors, officers, employees and representatives, to use reasonable precautions to keep confidential, in accordance with their customary procedures for handling confidential information of the same nature and in accordance with safe and sound practices, any non-public information supplied to it by the Company or any of its Subsidiaries pursuant to this Credit Agreement that is identified by such Person as being confidential at the time the same is delivered to the Banks or the Agent, provided that nothing herein shall limit the disclosure of any such information (a) after such information shall have become public other than through a violation of this ss.17, (b) to the extent required by statute, rule, regulation or judicial process, (c) to counsel for any of the Banks or the Agent, (d) to bank examiners, the National Association of Insurance Commissioners or any other regulatory authority having jurisdiction over any Bank or the Agent, or to auditors or accountants, (e) to the Agent, any Bank or any Section 20 Subsidiary, (f) in connection with any litigation to which any one or more of the Banks, the Agent or any Section 20 Subsidiary is a party, or in connection with the enforcement of rights or remedies hereunder or under any other Loan Document, (g) to a Subsidiary or affiliate of such Bank as provided in ss.17.1 or (h) to any assignee or participant (or prospective assignee or participant) so long as such assignee or participant agrees to be bound by the provisions of ss.19.6. Moreover, each of the Agent and the Banks is hereby expressly permitted by the Borrowers to refer to any of the Borrowers and their Subsidiaries in connection with any advertising, promotion or marketing undertaken by the Agent or such Bank and, for such purpose, the Agent or such Bank may utilize any logo or other distinctive symbol associated with the Borrowers or any of their Subsidiaries or any of their businesses provided that any symbols designated registered trademarks or service marks or claims of trademark or service mark protection are used in the manner used by any Borrower. 17.3. PRIOR NOTIFICATION. Unless specifically prohibited by applicable law or court order, each of the Banks and the Agent shall, prior to disclosure thereof, notify the Company of any request for disclosure of any such non-public information by any governmental agency or representative thereof (other than any such request in connection with a routine examination of such Bank by such governmental agency) or pursuant to legal process. -134- 17.4. OTHER. In no event shall any Bank or the Agent be obligated or required to return any materials furnished to it or any Section 20 Subsidiary by the Company or any of its Subsidiaries. The obligations of each Bank under this ss.17 shall supersede and replace the obligations of such Bank under any confidentiality letter in respect of this financing signed and delivered by such Bank to the Company prior to the date hereof and shall be binding upon any assignee of, or purchaser of any participation in, any interest in any of the Loans or Reimbursement Obligations from any Bank. 18. SURVIVAL OF COVENANTS, ETC. All covenants, agreements, representations and warranties made herein, in the Notes, in any of the other Loan Documents or in any certificates or financial statements expressly required by the terms of the Credit Agreement to be delivered by or on behalf of the Borrowers or any of their Subsidiaries pursuant hereto shall be deemed to have been relied upon by the Banks and the Agent, notwithstanding any investigation heretofore or hereafter made by any of them, and shall survive the making by the Banks of any of the Loans and the issuance, extension or renewal of any Letters of Credit, as herein contemplated, and shall continue in full force and effect so long as any Letter of Credit or any amount due under this Credit Agreement or the Notes or the loan accounts or any of the other Loan Documents remains outstanding or any Bank has any obligation to make any Loans or the Agent has any obligation to issue, extend or renew any Letter of Credit, and for such further time as may be otherwise expressly specified in this Credit Agreement. 19. ASSIGNMENT AND PARTICIPATION. 19.1. CONDITIONS TO ASSIGNMENT BY BANKS. Except as provided herein and subject to ss.13.6 hereof, each Bank may assign to one or, more Eligible Assignees all or a portion of its interests, rights and obligations under this Credit Agreement (including all or a portion of its Revolving Credit A Commitment Percentage, Revolving Credit B Commitment Percentage, Revolving Credit A Commitment, Revolving Credit B Commitment, Term Loan A Commitment and Term Loan B Commitment and the same portion of the Loans at the time owing to it, the Notes held by it and its participating interest in the risk relating to any Letters of Credit ); provided that (a) each of the Agent and, unless a Default or Event of Default shall have occurred and be continuing, the Company shall have given its prior written consent to such assignment, which consents will not be unreasonably withheld (which consents shall not be required in the case of an assignment to a Bank, Affiliate of any Bank, or with respect to any Bank that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment adviser of such Bank), (b) each such assignment shall be of a constant, and not a varying, percentage of all the assigning Bank's rights and obligations under this Credit Agreement, (c) each assignment made after the initial syndication of the Loans and Commitments shall be in an amount that is a minimum of $5,000,000 (or if less, such assignor's entire Commitment), and (d) the parties to such assignment shall execute and deliver to the Agent, for recording in the Register (as hereinafter defined), an Assignment and Acceptance, substantially in the form of Exhibit F hereto (an "Assignment and Acceptance"), together with any Notes subject to such assignment. Upon such execution, delivery, acceptance and recording, from and after the effective -135- date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution thereof unless a shorter period is otherwise agreed to by the Agent and the Company, (i) the assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Bank hereunder, and (ii) the assigning Bank shall, to the extent provided in such assignment and upon payment to the Agent of the registration fee referred to in ss.19.3, be released from its obligations under this Credit Agreement. 19.2. CERTAIN REPRESENTATIONS AND WARRANTIES; LIMITATIONS, COVENANTS. By executing and delivering an Assignment and Acceptance, the parties to the assignment thereunder confirm to and agree with each other and the other parties hereto as follows: (a) other than the representation and warranty that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, the assigning Bank makes no representation or warranty, express or implied, and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Credit Agreement, the other Loan Documents or any other instrument or document furnished pursuant hereto or the attachment, perfection or priority of any security interest or mortgage, (b) the assigning Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Company and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations, or the performance or observance by the Company and its Subsidiaries or any other Person primarily or secondarily liable in respect of any of the Obligations of any of their obligations under this Credit Agreement or any of the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; (c) such assignee confirms that it has received a copy of this Credit Agreement, together with copies of the most recent financial statements referred to in ss.7.4 and ss.8.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (d) such assignee will, independently and without reliance upon the assigning Bank, the Agent or any other Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Credit Agreement; (e) such assignee represents and warrants that it is an Eligible Assignee; (f) such assignee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers under this Credit Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof or thereof, together with such powers as are reasonably incidental thereto; -136- (g) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Credit Agreement are required to be performed by it as a Bank; (h) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; and (i) such assignee acknowledges that it has made arrangements with the assigning Bank satisfactory to such assignee with respect to its pro rata share of Letter of Credit Fees and the Additional LC Compensation in respect of outstanding Letters of Credit. 19.3. REGISTER. The Agent shall maintain a copy of each Assignment and Acceptance delivered to it and a register or similar list (the "Register") for the recordation of the names and addresses of the Banks and the Commitment Percentage of, and principal amount of the Loans owing to and Letter of Credit Participations purchased by, the Banks from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Credit Agreement. The Register shall be available for inspection by the Company and the Banks at any reasonable time and from time to time upon reasonable prior notice. Upon each such recordation, the assigning Bank agrees to pay to the Agent a registration fee in the sum of $2,500. 19.4. NEW NOTES. Upon its receipt of an Assignment and Acceptance executed by the parties to such assignment, together with each Note subject to such assignment, the Agent shall (a) record the information contained therein in the Register, and (b) give prompt notice thereof to the Company and the Banks (other than the assigning Bank). Within five (5) Business Days after receipt of such notice, the Company, at its own expense, shall execute and deliver to the Agent, in exchange for each surrendered Note, a new Note to the order of such Eligible Assignee in an amount equal to the amount assumed by such Eligible Assignee pursuant to such Assignment and Acceptance and, if the assigning Bank has retained some portion of its obligations hereunder, a new Note to the order of the assigning Bank in an amount equal to the amount retained by it hereunder. Such new Notes shall provide that they are replacements for the surrendered Notes, shall be in an aggregate principal amount equal to the aggregate principal amount of the surrendered Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be substantially the form of the assigned Notes. Within five (5) days of issuance of any new Notes pursuant to this ss.19.4, the Company shall deliver an opinion of counsel, addressed to the Banks and the Agent, relating to the due authorization, execution and delivery of such new Notes and the legality, validity and binding effect thereof, in form and substance satisfactory to the Banks. The surrendered Notes shall be cancelled and returned to the Company. 19.5. PARTICIPATIONS. Each Bank may sell participations to one or more banks or other entities in all or a portion of such Bank's rights and obligations under this Credit Agreement and the other Loan Documents; provided that (a) each such participation shall be in an amount of not less -137- than $2,500,000, (b) any such sale or participation shall not affect the rights and duties of the selling Bank hereunder to the Borrowers and (c) the only rights granted to the participant pursuant to such participation arrangements with respect to waivers, amendments or modifications of the Loan Documents shall be the rights to approve waivers, amendments or modifications that would reduce the principal of or the interest rate on any Loans, extend the term or increase the amount of the Commitment of such Bank as it relates to such participant, reduce the amount of any commitment fees, Additional LC Compensation or Letter of Credit Fees to which such participant is entitled or extend any regularly scheduled payment date for principal or interest. 19.6. DISCLOSURE. Each of the Borrowers agrees that in addition to disclosures made in accordance with standard and customary banking practices any Bank may disclose information obtained by such Bank pursuant to this Credit Agreement to assignees or participants and potential assignees or participants hereunder; provided that such assignees or participants or potential assignees or participants shall agree (a) to treat in confidence such information unless such information otherwise becomes public knowledge, (b) not to disclose such information to a third party, except as required by law or legal process and (c) not to make use of such information for purposes of transactions unrelated to such contemplated assignment or participation. 19.7. ASSIGNEE OR PARTICIPANT AFFILIATED WITH ANY BORROWER. If any assignee Bank is an Affiliate of any Borrower, then any such assignee Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2, and the determination of the Majority Banks shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to such assignee Bank's interest in any of the Loans or Reimbursement Obligations. If any Bank sells a participating interest in any of the Loans or Reimbursement Obligations to a participant, and such participant is any Borrower or an Affiliate of any Borrower, then such transferor Bank shall promptly notify the Agent of the sale of such participation. A transferor Bank shall have no right to vote as a Bank hereunder or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2 to the extent that such participation is beneficially owned by any Borrower or any Affiliate of any Borrower, and the determination of the Majority Banks shall for all purposes of this Credit Agreement and the other Loan Documents be made without regard to the interest of such transferor Bank in the Loans or Reimbursement Obligations to the extent of such participation. 19.8. MISCELLANEOUS ASSIGNMENT PROVISIONS. Any assigning Bank shall retain its rights to be indemnified pursuant to ss.16 or any other express provision of this Credit Agreement with respect to any claims or actions arising prior to the date of such assignment. If any assignee Bank is not incorporated under the laws of the United States of America or any state -138- thereof, it shall, prior to the date on which any interest or fees are payable hereunder or under any of the other Loan Documents for its account, deliver to the Borrowers and the Agent certification as to its exemption from deduction or withholding of any United States federal income taxes (such as Form 1001, 4224, W-8 or W-9, as applicable). If any Reference Bank transfers all of its interest, rights and obligations under this Credit Agreement, the Agent shall, in consultation with the Borrowers and with the consent of the Borrowers and the Majority Banks, appoint another Bank to act as a Reference Bank hereunder. Anything contained in this ss.19 to the contrary notwithstanding, any Bank may at any time pledge all or any portion of its interest and rights under this Credit Agreement (including all or any portion of its Notes) to (a) any of the twelve Federal Reserve Banks organized under ss.4 of the Federal Reserve Act, 12 U.S.C. ss.341, or (b) to a lender to such Bank (or trustee therefor) in connection with a bona fide financing transaction. No such pledge or the enforcement thereof shall release the pledgor Bank from its obligations hereunder or under any of the other Loan Documents. 19.9. ASSIGNMENT BY BORROWERS. The Borrowers shall not assign or transfer any of its rights or obligations under any of the Loan Documents without the prior written consent of each of the Banks. 20. NOTICES, ETC. Except as otherwise expressly provided in this Credit Agreement, all notices and other communications made or required to be given pursuant to this Credit Agreement or the Notes or any Letter of Credit Applications shall be in writing and shall be delivered in hand, mailed by United States registered or certified first class mail, postage prepaid, sent by overnight courier, or sent by telegraph, telecopy, facsimile or telex and confirmed by delivery via courier or postal service, addressed as follows: (a) if to any Borrower, at 1 Holmes Way, Milford, Massachusetts 01757, Attention: President, or at such other address for notice as the Borrower shall last have furnished in writing to the Person giving the notice with copies of such documents delivered to Donald H. Siegel, P.C., at Posternak, Blankstein & Lund, L.L.P., 100 Charles River Plaza, Boston ,Massachusetts 02114-2723; (b) if to the Agent, at 777 Main Street, Hartford, CT 06115, CT EH 40221A Attention: Donald Nicholson, Senior Vice President, or such other address for notice as the Agent shall last have furnished in writing to the Person giving the notice; and (c) if to any Bank, at such Bank's address set forth on Schedule 1 hereto, or such other address for notice as such Bank shall, have last furnished in writing to the Person giving the notice. Any such notice or demand shall be deemed to have been duly given or made and to have become effective (a) if delivered by hand, overnight courier or facsimile to a responsible officer of the party to which it is directed, at the time of the receipt thereof by such officer or the sending -139- of such facsimile and (b) if sent by registered or certified first-class mail, postage prepaid, on the third Business Day following the mailing thereof. 21. GOVERNING LAW. THIS CREDIT AGREEMENT AND, EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED THEREIN, EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF SAID COMMONWEALTH OF MASSACHUSETTS (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW). EACH OF THE BORROWERS AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS CREDIT AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS OR ANY FEDERAL COURT SITTING THEREIN AND CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS IN ANY SUCH SUIT BEING MADE UPON SUCH BORROWER BY MAIL AT THE ADDRESS SPECIFIED IN SS.20. EACH OF THE BORROWERS HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT. 22. HEADINGS. The captions in this Credit Agreement are for convenience of reference only and shall not define or limit the provisions hereof. 23. COUNTERPARTS. This Credit Agreement and any amendment hereof may be executed in several counterparts and by each party on a separate counterpart, each of which when executed and delivered shall be an original, and all of which together shall constitute one instrument. In proving this Credit Agreement it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom enforcement is sought. 24. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents executed in connection herewith or therewith express the entire understanding of the parties with respect to the transactions contemplated hereby. Neither this Credit Agreement nor any term hereof may be changed, waived, discharged or terminated, except as provided in ss.26. 25. WAIVER OF JURY TRIAL. Each of the Borrowers hereby waives its right to a jury trial with respect to any action or claim arising out of any dispute in connection with this Credit Agreement, the Notes or any of the other Loan Documents, any rights or obligations hereunder or thereunder or the performance of which rights and obligations. Except as prohibited by law, each of the Borrowers hereby waives any right it may have to claim or recover in any litigation referred to in the -140- preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each of the Borrowers (a) certifies that no representative, agent or attorney of any Bank or the Agent has represented, expressly or otherwise, that such Bank or the Agent would not, in the event of litigation, seek to enforce the foregoing waivers and (b) acknowledges that the Agent and the Banks have been induced to enter into this Credit Agreement, the other Loan Documents to which it is a party by, among other things, the waivers and certifications contained herein. 26. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval required or permitted by this Credit Agreement to be given by the Banks (including, without limitation, an increase in the sublimit of Revolving Credit Loans, Bankers' Acceptances and Letters of Credit available to the Foreign Borrowers) may be given, and any term of this Credit Agreement, the other Loan Documents or any other instrument related hereto or mentioned herein may be amended, and the performance or observance by the Borrowers or any of their Subsidiaries of any terms of this Credit Agreement, the other Loan Documents or such other instrument or the continuance of any Default or Event of Default may be waived (either generally or in a particular instance and either retroactively or prospectively) with, but only with, the written consent of the Borrowers and the written consent of the Majority Banks. Notwithstanding the foregoing, a decrease in the rate of interest on the Notes and loan accounts (other than interest accruing pursuant to ss.5.11.2 following the effective date of any waiver by the Majority Banks of the Default or Event of Default relating thereto), any change in the regularly scheduled or otherwise required payment dates for any amounts owing under the Loan Documents to the Banks, any forgiveness of any of the Obligations, the waiver of an Event of Default under ss.13.1(a) or (b) hereof, the release of any security interest or lien as to Collateral constituting all or substantially all of the Collateral (except if the release or disposition of such Collateral is permitted or provided for in the provisions of ss.9.5.2. hereof or elsewhere in the Loan Documents), the release of any Guarantor (except if the release or disposition of such Collateral is permitted or provided for in the provisions of ss.9.5.2 hereof or elsewhere in the Loan Documents), the amount of the Commitments, Term Loan A Commitments and Term Loan B Commitments of the Banks, and the amount of commitment fee or Letter of Credit Fees hereunder may not be changed without the written consent of the Company and the written consent of each Bank affected thereby; the Revolving Credit Loan Maturity Date, the Term Loan A Maturity Date and the Term Loan B Maturity Date may not be postponed without the written consent of each Bank affected thereby; this ss.26 and the definition of Majority Banks may not be amended without the written consent of all of the Banks; the order of application of mandatory repayments to the Term Loans and the right of holders of Term Loan B to decline mandatory prepayments shall not be changed without the written consent of the holders of a majority of the outstanding Term Notes, voting as a single class in addition to the written consent of the Majority Banks, and the amount of the Agent's Fee or any Letter of Credit Fees payable for the Agent's account and ss.15 may not be amended without the written consent of the Agent. No waiver shall extend to or affect any obligation not expressly waived or impair any right consequent thereon. No course of dealing or delay or omission on the part of the Agent or any Bank in exercising any right shall operate as a waiver thereof or otherwise be prejudicial thereto. No notice to or demand upon the Borrowers shall entitle the Borrowers to other or further notice or demand in similar or other circumstances. -141- 26A. WAIVER OF REVOLVING B BANKS. The Revolving B Banks hereby agree to waive, from and after May 7, 2001, their right to vote as Banks under the Credit Agreement or under any of the other Loan Documents for purposes of granting consents or waivers or for purposes of agreeing to amendments or other modifications to any of the Loan Documents or for purposes of making requests to the Agent pursuant to ss.13.1 or ss.13.2, and the determination of Majority Banks shall for all purposes be made without regard to such Revolving B Bank's interest in any of the Revolving Credit B Loans. Notwithstanding anything to the contrary contained in the immediately preceding proviso, (a) a decrease in the rate of interest on the Revolving Credit B Notes and loan accounts (other than interest accruing pursuant to ss.5.11.2 following the effective date of any waiver by the Majority Banks of the Default or Event of Default relating thereto), any change in the regularly scheduled or otherwise required payment dates for any amounts owing under the Loan Documents to the Revolving B Banks, any forgiveness of any of the Obligations owing to the Revolving B Banks, the waiver of an Event of Default under ss.13.1(a) or (b) hereof solely as it relates to any payment owing to the Revolving B Banks, the release of any security interest or lien as to Collateral constituting all or substantially all of the Collateral (except if the release or disposition of such Collateral is permitted or provided for in the provisions of ss.9.5.2. of the Credit Agreement or elsewhere in the Loan Documents), the release of any Guarantor (except if the release or disposition of such Guarantor is permitted or provided for in the provisions of ss.9.5.2 of the Credit Agreement or elsewhere in the Loan Documents), the amount of the Revolving B Commitment and the amount of the commitment fee on the Revolving Credit B Loans may not be changed without the written consent of the Revolving B Bank affected thereby, (b) any change in the order of application of payments to be made to the Revolving B Banks pursuant to ss.2.12 and ss.13 of the Credit Agreement may not be made without the written consent of the Revolving B Bank affected thereby and (c) the Revolving Credit Loan B Maturity Date may not be postponed without the written consent of the Revolving B Banks affected thereby. In addition, the parties hereto hereby agree that in the event the Borrowers and the Revolving Credit B Banks agree to any reduction in the Applicable Margin for Revolving Credit B Loans (provided nothing contained herein shall in any manner be construed as any consent by the Revolving Credit B Banks to any such decrease in the Applicable Margin for such Revolving Credit B Loans), such a reduction shall be deemed to be consented to by the Majority Banks and shall only need the further written consent of the Borrowers and the Revolving Credit B Banks affected thereby. 27. SEVERABILITY. The provisions of this Credit Agreement are severable and if any one clause or provision hereof shall be held invalid or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect only such clause or provision, or part thereof, in such jurisdiction, and shall not in any manner affect such clause or provision in any other jurisdiction, or any other clause or provision of this Credit Agreement in any jurisdiction. SS.2. PAYMENT OF FEES. The Company hereby promises to pay to each Bank (other than the Revolving B Banks) which consents to this Fifth Amendment on or -142- before 5:00 p.m. (Boston time) on March 22, 2002 (the "Effective Date"), in consideration of each such Bank entering into this Fifth Amendment, an amendment fee consisting of the following: (a) a cash amount equal to 50 basis points on such consenting Bank's Revolving A Commitment plus the outstanding amount of such Bank's Term Loans as of such date, which fee shall be earned as of and paid on the Effective Date (or if such Fifth Amendment does not become effective until 5:00 p.m. on such day, the next Business Day); and (b) an amount equal to 150 basis points on such consenting Bank's Revolving A Commitment plus the outstanding amount of such consenting Bank's Term Loans as of such date, which fee shall be earned as of the Effective Date and shall be due and payable on the earlier to occur of (1) July 1, 2004 or (2) an acceleration of the Obligations (whether automatic or otherwise) pursuant to ss.13.1 of the Credit Agreement. If, on or prior to July 1, 2004, all of the Obligations have been paid in full and the Total Commitments under or in respect of the Credit Agreement have been paid to zero and, in addition, on or prior to such date the Obligations had not been accelerated (whether automatic or otherwise) pursuant to ss.13.1, the amendment fee set forth in this paragraph (b) shall be forgiven on such date. SS.3. CONDITIONS TO EFFECTIVENESS. This Fifth Amendment shall become effective upon satisfaction of the following conditions on or prior to the Effective Date: (a) receipt by the Agent of a counterpart of this Fifth Amendment, executed by the Borrowers, each Guarantor and the required Banks; (b) receipt by the Agent of the Amended and Restated Security Agreement, executed by the Agent, the Company and each Domestic Subsidiary, and in form and substance satisfactory to the Agent; (c) receipt by the Agent, in form and substance satisfactory to the Agent, of a certificate, certified by a duly authorized officer of each of the Company and Berkshire Partners, stating that neither the Company, Berkshire Partners nor any Affiliate (including any fund managed by Berkshire Partners) has received any profit or fee as a result of purchasing and reselling the Subordinated Notes to the Company under the Required Repurchase or otherwise arranging the Required Repurchase; (d) receipt by the Agent, in a form satisfactory to the Agent, of a certificate, certified by a duly authorized officer of the Company, stating that there has been no material adverse change in the business or operations of any of the Borrowers since December 31, 2000; (e) evidence satisfactory to the Agent that all necessary corporate or other similar action has been taken by the Company and its Subsidiaries to authorize the transaction contemplated hereby; -143- (f) the Company shall have, at the time of the Effective Date, made concurrent drawdowns of Revolving Credit B Loans for the purposes of funding the Required Repurchase in the amount of $12,768,374 and the Required Revolving A Reduction in the amount of $6,000,000; (g) receipt by the Agent of evidence that all consents and approvals necessary to complete the transactions contemplated herein have been obtained; (h) receipt by the Agent of payment in cash of the amendment fee required by ss.2 above; (i) the Borrowers shall have paid to the Agent for the account of the Agent's Special Counsel all outstanding bills for legal fees and expenses through March 22, 2002 and, in addition, shall have paid to the Agent, for the account of Kaye Scholer LLP, as counsel to the Banks, all outstanding bills for legal fees and expenses though March 22, 2002; and (j) evidence satisfactory to the Agent that all bills received for fees and expenses of the TRG, Carl Marks Consulting Group and any other consultants and/or examiners through March 22, 2001 shall have been paid by the Company. SS.4. REPRESENTATIONS AND WARRANTIES. Except as set forth on Schedule 4 hereto, each of the Borrowers hereby repeats, on and as of the date hereof, each of the representations and warranties made by it in ss.7 of the Credit Agreement (except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and the other Loan Documents and changes occurring in the ordinary course of business that singly or in the aggregate are not materially adverse to the Company and its Subsidiaries taken as a whole, and to the extent that such representations and warranties relate expressly to an earlier date), provided, that all references therein to the Credit Agreement shall refer to such Credit Agreement as amended hereby. From and after the Amendment Effective Date, the Schedules to the Credit Agreement identified in Schedule 4 hereto shall be amended to reflect such modifications as set forth in Schedule 4 hereto. In addition, each of the Borrowers hereby represents and warrants that the execution and delivery by each Borrower of this Fifth Amendment and the performance by each Borrower of all of their agreements and obligations under the Credit Agreement as amended hereby are within the corporate authority of each Borrower and have been duly authorized by all necessary corporate action on the part of each Borrower. SS.5. RATIFICATION, ETC. Except as expressly amended hereby, the Credit Agreement and all documents, instruments and agreements related thereto or delivered thereunder, including, but not limited to the Security Documents, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement and this Fifth Amendment shall be read and construed as a single agreement. All references to the Credit Agreement in the Credit Agreement or any Loan Document shall hereafter refer to the Credit Agreement as amended hereby. -144- SS.6. NO WAIVER. Nothing contained herein shall constitute a waiver of, impair or otherwise affect any Obligations, any other obligation of the Borrowers or any rights of the Agent, the Documentation Agent or the Banks consequent thereon. SS.7. COUNTERPARTS. This Fifth Amendment may be executed in one or more counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument. SS.8. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT REFERENCE TO CONFLICT OF LAWS). SS.9. EXPENSES. The Borrowers agree to pay to the Agent (a) on demand by the Agent, an amount equal to any and all reasonable out-of-pocket costs or expenses (including reasonable legal fees and disbursements of Bingham Dana LLP and other counsel to the Agent, reasonable fees and expenses of in-house counsel to the Agent, reasonable legal fees and disbursements of Kaye Scholer LLP as counsel to the Banks, consulting, accounting, appraisal, investment banking and similar professional fees and charges) incurred or sustained by the Agent and the Banks in connection with the negotiation and preparation of this Fifth Amendment and all related matters and (b) from time to time any and all reasonable out-of-pocket costs, expenses (including legal fees and disbursements, consulting, accounting, appraisal, investment banking and similar professional fees and charges) hereafter incurred or sustained by the Agent in connection with the administration of credit extended by the Agent and the Banks to the Borrowers or the preservation of or enforcement of the Agent's and the Banks' rights under the Loan Documents or in respect of the Borrowers' or any of their Subsidiaries' other obligations to the Agent and the Banks. SS.10. NO CLAIMS. Each of the Borrowers and the Guarantors hereby acknowledge and agree that (a) neither the Borrowers nor any of their Subsidiaries has any claim or cause of action against any of the Banks or the Agent (or any of their directors, officers, employees, agents or Affiliates) arising on or prior to the date hereof from any transactions under this Fifth Amendment, under the Credit Agreement or any of the other Loan Documents; (b) neither the Borrowers nor any of their Subsidiaries has offset rights, counterclaims or defenses of any kind against any of their Obligations, indebtedness or liabilities to the Agent or the Banks; and (c) each of the Banks and the Agent has heretofore properly performed and satisfied in a timely manner all of its obligations to the Borrowers and their Subsidiaries. The Agent and the Banks wish (and each Borrower and Guarantor agrees) to eliminate any possibility that any past conditions, acts, omissions, events, circumstances or matters would impair or otherwise adversely affect any of the rights, interests, contracts, collateral security or remedies of the Agent and the Banks. Therefore, the Borrowers and each of their Subsidiaries unconditionally releases, waives and forever discharges (i) any and all liabilities, obligations, duties, promises or indebtedness of any kind of any of the Banks and the Agent to the Borrowers and each of their Subsidiaries, except the obligations to be performed by the Banks or the Agent for the Borrowers hereafter as expressly stated in this Fifth Amendment and the other Loan Documents, and (ii) all claims, offsets, causes of action, suits or defenses of any kind whatsoever (if any), whether known or unknown, which the Borrowers or -145- any Subsidiary might otherwise have against any of the Banks or the Agent or any of their directors, officers, employees, agents or Affiliates with respect to the obligations performed or to be performed by the Agent or any Bank for the Borrowers as set forth in the Loan Documents, in either case (i) or (ii) above, on account of any condition, act, omission, event, contract, liability, obligation, indebtedness, claim, cause of action, defense, circumstance or matter of any kind whatsoever which existed, arose or occurred at any time prior to the date hereof. SS.11. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS AND THEIR SUBSIDIARIES HEREBY WAIVES ANY RIGHTS THAT IT MAY HAVE TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS FIFTH AMENDMENT OR ANY OF THE LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. Except as prohibited by law, each of the Borrowers and their Subsidiaries hereby waives any right that it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. Each of the Borrowers and their Subsidiaries hereby (a) certifies that no representative, agent or attorney of the Agent or any Bank has represented, expressly or otherwise, that the Agent or any Bank would not, in the event of litigation, seek to enforce the foregoing waivers and (ii) acknowledges that it has been induced to enter into this Fifth Amendment by, among other things, the waivers and certifications herein. -146- IN WITNESS WHEREOF, the parties hereto have executed this Fifth Amendment as a document under seal as of the date first above written. THE HOLMES GROUP, INC. By: /s/ ----------------------------------------------- Title: THE RIVAL COMPANY By: /s/ ----------------------------------------------- Title: HOLMES PRODUCTS (FAR EAST) LIMITED By: /s/ ----------------------------------------------- Title: ESTEEM INDUSTRIES LIMITED By: /s/ ----------------------------------------------- Title: RAIDER MOTOR CORPORATION By: /s/ ----------------------------------------------- Title: BIONAIRE INTERNATIONAL B.V. By: /s/ ----------------------------------------------- Title: HOLMES PRODUCTS (EUROPE) LIMITED By: /s/ ----------------------------------------------- Title: -147- PATTON ELECTRIC (HONG KONG) LTD. By: /s/ ----------------------------------------------- Title: THE HOLMES GROUP OF CANADA LTD. By: /s/ ----------------------------------------------- Title: THE BANKS FLEET NATIONAL BANK (F/K/A BANKBOSTON, N.A.) By: /s/ ----------------------------------------------- Title: SYNDICATED LOAN FUNDING TRUST By: LEHMAN COMMERCIAL PAPER INC., NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS ASSET MANAGER By: /s/ ----------------------------------------------- Title: HELLER FINANCIAL, INC. By: HELLER FINANCIAL ASSET MANAGEMENT LLC AUTHORIZED AGENT By: /s/ ----------------------------------------------- Title: LASALLE BANK NATIONAL ASSOCIATION By: /s/ ----------------------------------------------- Title: -148- COMERICA BANK By: /s/ ----------------------------------------------- Title: KEY CORPORATE CAPITAL INC. By: /s/ ----------------------------------------------- Title: CITIZENS BANK OF MASSACHUSETTS, A MASSACHUSETTS BANK By: /s/ ----------------------------------------------- Title: STAR BANK, NATIONAL ASSOCIATION By: /s/ ----------------------------------------------- Title: ANTARES CAPITAL CORPORATION By: /s/ ----------------------------------------------- Title: NATIONAL CITY BANK By: /s/ ----------------------------------------------- Title: THE PROVIDENT BANK By: /s/ ----------------------------------------------- Title: -149- FRANKLIN FLOATING RATE TRUST By: /s/ ----------------------------------------------- Title: THE TRAVELERS INSURANCE COMPANY By: /s/ ----------------------------------------------- Title: TRAVELERS CORPORATE LOAN FUND INC. By: TRAVELERS ASSET MANAGEMENT INTERNATIONAL COMPANY LLC By: /s/ ----------------------------------------------- Title: MERRILL LYNCH SENIOR FLOATING RATE FUND, INC. By: /s/ ----------------------------------------------- Title: MAGNETITE ASSET INVESTORS LLC By: /s/ ----------------------------------------------- Title: MERRILL LYNCH PRIME RATE PORTFOLIO By: /s/ ----------------------------------------------- Title: -150- PILGRIM PRIME RATE TRUST By: /s/ ----------------------------------------------- Title: PILGRIM AMERICA HIGH INCOME INVESTMENTS LTD. By: /s/ ----------------------------------------------- Title: SEQUILS-PILGRIM I, LTD. By: /s/ ----------------------------------------------- Title: CAPTIVA IV FINANCE LTD. AS ADVISED BY PACIFIC INVESTMENT MANAGEMENT COMPANY LLC By: /s/ ----------------------------------------------- Title: PILGRIM CLO 1999 - 1 LTD. By: /s/ ----------------------------------------------- Title: GREAT POINT CLO 1999 - 1 LTD. By: /s/ ----------------------------------------------- Title: FIRST MASSACHUSETTS BANK By: /s/ ----------------------------------------------- Title: -151- TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ ----------------------------------------------- Title: JP MORGAN CHASE BANK NOT IN ITS INDIVIDUAL CAPACITY, BUT SOLELY AS TRUSTEE OF ANTARES FUNDING TRUST UNDER THE TRUST AGREEMENT DATED AS OF NOVEMBER 30, 1999 (THE "TRUST AGREEMENT") BETWEEN ANTARES FUNDING, L.P. (THE "DEPOSITOR") AND JP MORGAN CHASE BANK AS TRUSTEE (THE "TRUSTEE") By: /s/ ----------------------------------------------- Title: VAN KAMPEN SENIOR INCOME TRUST By: /s/ ----------------------------------------------- Title: VAN KAMPEN PRIME RATE INCOME TRUST By: /s/ ----------------------------------------------- Title: -152- RATIFICATION OF GUARANTY Each of the undersigned guarantors hereby acknowledges and consents to the foregoing Fifth Amendment as of March 22, 2002, and agrees that the Amended and Restated Guaranty dated as of February 5, 1999 from each of Holmes Manufacturing Corp., Holmes Air (Taiwan) Corp., Holmes Motor Corporation, Patton Electric Company, Inc., Patton Building Products Inc. and Rival Consumer Sales Corporation (collectively, the "Holmes Guarantors") in favor of the Agent for the benefit of the Agent and the Revolving Banks and the Guaranty dated as of May 7, 2001 from Berkshire Fund IV, Limited Partnership and Berkshire Fund V, Limited Partnership (collectively, the Berkshire Guarantors" and collectively with the Holmes Guarantors, the "Guarantors") in favor of the Agent and each of the Revolving Credit B Banks (the "Berkshire Guaranty") and all other Loan Documents to which each of the Guarantors are a party remain in full force and effect, and each of the Guarantors confirms and ratifies all of its obligations thereunder. In addition, the Berkshire Guarantors hereby acknowledge and agree that this ratification of the Berkshire Guaranty shall also be considered, for purposes of ss.10 of the Berkshire Guaranty, as the Berkshire Guarantors providing the Revolving Credit B Banks with the Berkshire Guarantors' prior written consent to the extension of the Revolving Credit Loan B Maturity Date. HOLMES MANUFACTURING CORP. By: /s/ ----------------------------------------------- Title: HOLMES AIR (TAIWAN) CORP. By: /s/ ----------------------------------------------- Title: HOLMES MOTOR CORPORATION By: /s/ ----------------------------------------------- Title: RIVAL CONSUMER SALES CORPORATION By: /s/ ----------------------------------------------- Title: -153- BERKSHIRE FUND IV, LIMITED PARTNERSHIP By: FOURTH BERKSHIRE ASSOCIATES LLC, ITS GENERAL PARTNER By: /s/ ----------------------------------------------- Title: BERKSHIRE FUND V, LIMITED PARTNERSHIP By: FIFTH BERKSHIRE ASSOCIATES LLC, ITS GENERAL PARTNER By: /s/ ----------------------------------------------- Title: EX-10.29 5 b42247hgex10-29.txt EX-10.29 LETTER AGREEMENT EXHIBIT 10.29 BERKSHIRE FUND IV, LIMITED PARTNERSHIP BERKSHIRE FUND V, LIMITED PARTNERSHIP ONE BOSTON PLACE, SUITE 3300 BOSTON, MA 02108 March 22, 2002 The Holmes Group, Inc. 233 Fortune Boulevard Milford, MA 01757 Attn: Peter Martin, President Re: Fees for Berkshire Guaranty Dear Mr. Martin: As you know, The Holmes Group, Inc. (the "Company") and certain of its subsidiaries (collectively, the "Borrowers") are today preparing to enter into a Fifth Amendment to Amended and Restated Revolving Credit and Term Loan Agreement and Limited Waiver (the "Fifth Amendment"), for the purpose of amending certain provisions of the Amended and Restated Revolving Credit and Term Loan Agreement, dated as of February 5, 1999 (as previously amended, including by a Fourth Amendment and Limited Waiver dated as of May 7, 2001 (the "Fourth Amendment"), and as further amended by the Fifth Amendment, the "Credit Agreement"), by and among the Borrowers and certain Banks and Agents specified therein. Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Credit Agreement. The Fourth Amendment, INTER ALIA, established a new Total Revolving B Commitment of $40,000,000 for the benefit of the Borrowers, and, as a condition precedent to the effectiveness of the Total Revolving B Commitment, the Revolving B Banks required that Berkshire Fund IV, Limited Partnership ("Berkshire IV") and Berkshire Fund V, Limited Partnership ("Berkshire V", and together with Berkshire IV, "Berkshire") execute and deliver a Guaranty dated May 7, 2001 (the "Guaranty") for the ratable benefit of the Revolving B Banks, which provides that each of Berkshire IV and Berkshire V, under certain specified circumstances, will guaranty the payment by the Borrowers when due (whether at maturity, by acceleration or otherwise) of a maximum of $21,750,000 of principal and interest indebtedness owing under outstanding Revolving Credit B Loans made to the Borrowers. The Fifth Amendment, inter alia, extends the Revolving Credit Loan B Maturity Date from July 1, 2002 to July 1, 2004 and provides that a portion of the Revolving Credit B Loans shall become Subdebt Funding Loans. The Revolving B Banks have requested, in conjunction with the Fifth Amendment, that Berkshire amend the Guaranty (the "Guaranty Amendment") to, among other things, agree to the extension of the Revolving Credit Loan B Maturity Date. In order to preserve and enhance its existing investment as the majority stockholder in the Company, Berkshire is prepared to execute and deliver the Guaranty Amendment and consent to the extension of the Revolving Credit Loan B Maturity Date and thereby continue the Guaranty in effect, subject to reaching an understanding with the Company and each of the subsidiaries of the Company which is a Domestic Subsidiary (together, the "Holmes Obligors") regarding the fees to be received by Berkshire in consideration of its willingness to continue the Guaranty, as amended by the Guaranty Amendment, as well as the reimbursement to Berkshire of all amounts which may be required to be paid pursuant to the Guaranty, as so amended. The purpose of this letter is to set forth our mutual agreement with respect to those understandings. Specifically, Berkshire requests that each of the Holmes Obligors expresses its agreement with Berkshire as follows: 1. Upon the execution of the Fifth Amendment by the Holmes Obligors and the Guaranty Amendment by Berkshire, the Holmes Obligors will become obligated to pay to Berkshire, so long as both (x) the Guaranty, as amended, is in effect and (y) the Revolving B Commitment is in effect or any Revolving Credit B Loans are outstanding, a "Guaranty Fee" equal (i) to an amount calculated at the rate of 2.25% per annum of (A) the amount of the Revolving B Commitment as in effect from time to time (or if the Revolving B Commitment is terminated, the average daily amount of the Revolving B Loans as are outstanding from time to time) minus (B) the average daily amount of the Subdebt Funding Loans as are outstanding from time to time, such amount to be compounded annually on each anniversary date of this Letter Agreement until paid, plus (ii) an amount calculated at the rate of 20% per annum on the average daily amount of the Subdebt Funding Loans outstanding from time to time during each one year period from the date of this Letter Agreement, such amount to be compounded annually on each anniversary date of this Letter Agreement until paid. 2. Pursuant to a letter agreement dated May 7, 2001, the Holmes Obligors and Berkshire entered into a fee agreement with respect to the issuance of the Guaranty pursuant to the Fourth Amendment (the "Original Fee Agreement"). Berkshire and the Holmes' Obligors hereby agree that the provisions of Sections 2 and 3 of the Original Fee Agreement are hereby terminated and are of no further force and effect. Except as so amended, the Original Fee Agreement remains in full force and effect. 3. The parties hereto acknowledge that no cash payment of any Guaranty Fee provided for hereunder will be permitted to be made by the Holmes Obligors while any Obligations of the Borrowers or Commitments of the Banks remain outstanding under the Credit Agreement, without the prior written consent of the requisite Banks. The Holmes Obligors acknowledge that Berkshire shall be entitled to request at any future time that the Banks grant such requisite consent to the cash payment of the Guaranty Fees, or any portion thereof, and if such consent is granted, the Holmes Obligors agree to remit all such earned fee payments to Berkshire within twenty (20) days of Berkshire's demand therefor. 2 4. In the event that Berkshire is required to make any payment under the Guaranty, as amended by the Guaranty Amendment (each a "Guaranty Payment"), the Holmes Obligors hereby acknowledge and agree that, in collecting upon any Guaranty Payment made by Berkshire, including accrued interest thereon, Berkshire shall be subrogated (or alternatively may succeed by assignment) to the rights of the Revolving B Banks or any Agent on behalf thereof (including without limitation with respect to all rights of the Revolving B Banks and any Agent relating to the Collateral) to the fullest extent permitted or provided for under the Guaranty, the Credit Agreement or any other agreement with the Banks and/or any Agent, or under applicable law. 5. The Holmes Obligors shall be responsible and obligated to promptly reimburse Berkshire for all out-of-pocket costs and expenses (including without limitation all reasonable legal fees and expenses) incurred by Berkshire in connection with its negotiation, execution and delivery of the Guaranty Amendment and its performance thereunder, as well as in connection with the assistance provided by Berkshire to the Borrowers with respect to the negotiation, execution and delivery of the Fifth Amendment and related documents. If the Holmes Obligors are in agreement with the foregoing terms and conditions, please so indicate by executing and returning to Berkshire the enclosed counterpart of this letter. Upon such execution, this letter will become a binding agreement between the parties hereto, enforceable under the laws of The Commonwealth of Massachusetts as a document under seal. Very truly yours, BERKSHIRE FUND IV, LIMITED PARTNERSHIP By: Fourth Berkshire Associates LLC, its General Partner By: /s/ Randy Peeler ------------------------------------ Managing Member BERKSHIRE FUND V, LIMITED PARTNERSHIP By: Fifth Berkshire Associates LLC, its General Partner By: /s/ Randy Peeler ------------------------------------ Managing Member HOLMES OBLIGORS: 3 The foregoing terms and conditions are accepted and agreed to as of the date of this letter. THE HOLMES GROUP, INC. By: /s/ Peter J. Martin ------------------------------- THE RIVAL COMPANY By: /s/ Peter J. Martin ------------------------------- HOLMES MANUFACTURING CORP. By: /s/ Peter J. Martin ------------------------------- HOLMES AIR (TAIWAN) CORP. By: /s/ Peter J. Martin ------------------------------- HOLMES MOTOR CORPORATION By: /s/ Peter J. Martin ------------------------------- RIVAL CONSUMER SALES CORPORATION By: /s/ Peter J. Martin ------------------------------- ACKNOWLEDGEMENT AND CONSENT: The undersigned, being Foreign Subsidiaries and Borrowers under the Credit Agreement more particularly referred to in this letter agreement by and among Berkshire and the Holmes Obligors, hereby join in this letter agreement for the limited purpose of acknowledging and agreeing to the terms of paragraph 5 set forth 4 above with respect to the rights of Berkshire following any Guaranty Payment. HOLMES PRODUCTS (FAR EAST) LIMITED By: /s/ Peter J. Martin ------------------------------- ESTEEM INDUSTRIES LIMITED By: /s/ Peter J. Martin ------------------------------- RAIDER MOTOR CORPORATION By: /s/ Peter J. Martin ------------------------------- BIONAIRE INTERNATIONAL B.V. By: /s/ Peter J. Martin ------------------------------- HOLMES PRODUCTS (EUROPE) LIMITED By: /s/ Peter J. Martin ------------------------------- PATTON ELECTRIC (HONG KONG) LTD. By: /s/ Peter J. Martin ------------------------------- THE HOLMES GROUP OF CANADA LTD. By: /s/ Peter J. Martin ------------------------------- 5 EX-23.1 6 b42247hgex23-1.txt EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-94709) of The Holmes Group, Inc. of our report dated March 22, 2002 relating to the financial statements and financial statement schedule, which appears in this Form 10-K. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts March 29, 2002 10-K405 7 b42247hge10-k405_pdf.pdf THE HOLMES GROUP, INC. 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Massachusetts		04-2768914
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

One Holmes Way, Milford, Massachusetts		01757
(Address of principal executive offices)		(Zip Code)


PART I
	Item 1. Business
	Item 2. Properties
	Item 3. Legal Proceedings
	Item 4. Submission of Matters to a Vote of Security Holders
PART II
	Item 5. Market for the Registrant’s Common Equity and Related Stockholder Matters
	Item 6. Selected Financial Data
	Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 7A. Quantitative and Qualitative Disclosures About Market Risk
	Item 8. Financial Statements and Supplementary Data
	Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
	Item 10. Directors and Executive Officers of the Registrant
	Item 11. Executive Compensation
	Item 12. Security Ownership of Certain Beneficial Owners and Management
	Item 13. Certain Relationships and Related Transactions
PART IV
	Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
EX-10.27 Exec Employment and Non-Competition Agmt.
EX-10.28 5th Amended and Restated Credit Agreement
EX-10.29 Letter Agreement
EX-23.1 Consent of PricewaterhouseCoopers LLP


		Page

PART I
Item 1	Business		2
Item 2	Properties		9
Item 3	Legal Proceedings		9
Item 4	Submission of Matters to a Vote of Security Holders		10
PART II
Item 5	Market for Registrant’s Common Equity and Related Stockholder Matters		10
Item 6	Selected Financial Data		10
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A	Quantitative and Qualitative Disclosures About Market Risk		20
Item 8	Financial Statements and Supplementary Data		21
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		57
PART III
Item 10	Directors and Executive Officers of the Registrant		58
Item 11	Executive Compensation		59
Item 12	Security Ownership of Certain Beneficial Owners and Management		61
Item 13	Certain Relationships and Related Transactions		61
PART IV
Item 14	Exhibits, Financial Statement Schedules, and Reports on Form 8-K		63


				Lease
Location	Size		Primary Use	Expiration

Milford, MA		415,000 square feet	Headquarters and Distribution		2015
City of Industry, CA		Varies	Distribution		At will
Worcester, MA		156,000 square feet	Distribution/ Return processing		2003
Clinton, MO	164,000 square feet 279,000 square feet		Manufacturing and Assembly Warehousing and Distribution		Owned Owned
Kansas City, MO		32,000 square feet	General Offices		2005
Sedalia, MO(1)	157,000 square feet 67,000 square feet 466,000 square feet		Manufacturing and Assembly Manufacturing and Assembly Warehousing and Distribution	Owned Owned Owned
Sweet Springs, MO		125,000 square feet	Manufacturing/ Return Processing		Owned
Flowood, MS		154,000 square feet	Manufacturing		Owned
El Paso, TX		161,000 square feet	Distribution		2005
Dongguan, China(2)		466,000 square feet	Manufacturing and Assembly		2003
Dongguan, China(2)		269,000 square feet	Motor Manufacturing		2003
Dongguan, China(3)		1,865,000 square feet	Motor Manufacturing Distribution/ Assembly		Owned/ 2005
Hong Kong		21,000 square feet	Office		2003
London, England		2,700 square feet	Office		2008
Mississaugua, Ontario		Varies	Distribution		At will
Mississaugua, Ontario		55,000 square feet	General Office, Warehousing and Distribution		2002
Taipei, Taiwan		1,700 square feet	Office		2002



		Year Ended December 31,

		1997		1998			1999			2000			2001


		(Dollars in thousands)
Statement of Operations Data:
Net sales		$	191,555	$	212,248		$	507,487		$	513,249		$	627,999
Cost of goods sold			136,142		144,278			364,308			382,205			462,271

	Gross profit		55,413		67,970			143,179			131,044			165,728
Selling, general and administrative and amortization of goodwill and other intangible assets(1)			36,530		37,095			98,486			112,102			129,052
Product development costs			5,463		6,295			10,448			11,000			11,022
Restructuring costs			—		—			—			—			1,194
Plant closing costs			—		—			2,439			340			550

	Operating profit		13,420		24,580			31,806			7,602			23,910
Interest expense			7,096		13,833			33,472			38,550			37,900
Other (income) expense, net			56		(436	)		(2,489	)		(758	)		(608	)

	Income (loss) before income taxes, equity in earnings from joint venture and minority interest		6,268		11,183			823			(30,190	)		(13,382	)
Income tax expense (benefit)			2,196		2,222			(87	)		2,591			4,527
Equity in earnings from joint venture			—		—			(902	)		(611	)		(2,354	)

	Income (loss) before minority interest		4,072		8,961			1,812			(32,170	)		(15,555	)
Minority interest in net income of majority-owned subsidiaries(2)			225		—			—			—			—

	Net income (loss)	$	3,847	$	8,961		$	1,812		$	(32,170	)	$	(15,555	)


Item 7.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


	*Comparison of Years Ended December 31, 2000 and December 31, 1999*


				Less Than				After
		Total		1 Year		1 – 3 Years		3 Years


		(in thousands)
Contractual Obligations:
	Long-term debt — variable rate	$	217,882	$	8,476	$	57,831	$	151,575
	Long-term debt — fixed rate	$	136,250		—		—	$	136,250	(1)
	Non-cancelable operating lease obligations	$	53,805	$	6,702	$	16,067	$	31,036
	Purchase commitments(2)	$	13,459	$	10,055	$	3,404		—
	Minimum royalty obligations	$	615	$	357	$	258		—


Item 7A.	*Quantitative and Qualitative Disclosures About Market Risk*


		Page

Report of PricewaterhouseCoopers LLP, Independent Accountants			22
Consolidated Balance Sheet at December 31, 2000 and 2001			23
Consolidated Statement of Operations for the years ended December 31, 1999, 2000 and 2001			24
Consolidated Statement of Stockholders’ Equity (Deficit) for the years ended December 31, 1999, 2000 and 2001			25
Consolidated Statement of Comprehensive Income (Loss) for the years ended December 31, 1999, 2000 and 2001			26
Consolidated Statement of Cash Flows for the years ended December 31, 1999, 2000 and 2001			27
Notes to Consolidated Financial Statements			28
Financial Statement Schedule:
	For each of the three years in the period ended December 31, 2001:
	II — Valuation and Qualifying Accounts		57


				December 31,			December 31,
				2000			2001


				(In thousands, except share
				and per share amounts)
ASSETS
Current assets:
	Cash and cash equivalents			$	3,017		$	10,115
	Accounts receivable, net of allowances of $9,622 in 2000 and $18,202 in 2001				124,499			144,249
	Inventories				131,050			103,195
	Prepaid expenses and other current assets				6,457			5,317
	Deferred income taxes				14,725			13,643

		Total current assets			279,748			276,519
	Assets held for sale				1,624			86
	Property and equipment, net				67,582			69,096
	Goodwill, net				83,779			79,838
	Deposits and other assets				5,850			4,985
	Debt issuance costs, net				15,286			13,071

				$	453,869		$	443,595

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable			$	30,179		$	36,743
	Current portion of credit facility				7,250			8,476
	Accrued expenses				33,345			42,328
	Accrued income taxes				4,717			6,457
	Other current liabilities				784			831

		Total current liabilities			76,275			94,835
Credit facility					225,175			209,406
Long-term debt					135,186			135,298
Other long-term liabilities					7,055			7,485
Deferred income taxes					4,704			5,954
Commitments and contingencies
Stockholders’ Equity:
	Common stock, $.001 par value. Authorized 25,000,000 shares; issued and outstanding 20,307,995 shares in 2000 and 20,302,995 in 2001				20			20
	Additional paid in capital				67,915			68,874
	Accumulated other comprehensive income				241			(2	)
	Treasury stock, at cost (18,625,450 and 18,627,450 shares) in 2000 and 2001				(62,058	)		(62,076	)
	Retained earnings (deficit)				(644	)		(16,199	)

			Total stockholders’ equity (deficit)		5,474			(9,383	)

				$	453,869		$	443,595



			For the Years Ended December 31,

			1999			2000			2001


			(In thousands)
Net sales			$	507,487		$	513,249		$	627,999
Cost of goods sold				364,308			382,205			462,271

Gross profit				143,179			131,044			165,728

Operating expenses:
	Selling			67,452			73,521			69,476
	General and administrative			28,334			35,984			57,082
	Product development			10,448			11,000			11,022
	Restructuring costs			—			—			1,194
	Plant closing costs			2,439			340			550
	Amortization of goodwill and other intangible assets			2,700			2,597			2,494

		Total operating expenses		111,373			123,442			141,818

Operating profit				31,806			7,602			23,910

Other income and expense:
	Interest expense			33,472			38,550			37,900
	Other income, net			(2,489	)		(758	)		(608	)

				30,983			37,792			37,292

Income (loss) before income taxes and equity in earnings from joint venture				823			(30,190	)		(13,382	)
Income tax expense (benefit)				(87	)		2,591			4,527
Equity in earnings from joint venture				(902	)		(611	)		(2,354	)

Net income (loss)			$	1,812		$	(32,170	)	$	(15,555	)



	Common Stock,							Accumulated									Total
	$.001 Par Value					Additional		Other						Retained			Stockholders’
						Paid In		Comprehensive			Treasury			Earnings			Equity
	Shares			Par		Capital		Income			Stock			(Deficit)			(Deficit)


	(In thousands, except par value)
Balance at December 31, 1998		10,201			10		16,985		(40	)		(62,058	)		29,714			(15,389	)
Issuance of common stock		10,107			10		50,930		—			—			—			50,940
Foreign currency translation adjustments		—			—		—		437			—			—			437
Net income		—			—		—		—			—			1,812			1,812

Balance at December 31, 1999		20,308			20		67,915		397			(62,058	)		31,526			37,800
Foreign currency translation adjustments		—			—		—		(156	)		—			—			(156	)
Net loss		—			—		—		—			—			(32,170	)		(32,170	)

Balance at December 31, 2000		20,308		$	20	$	67,915	$	241		$	(62,058	)	$	(644	)	$	5,474

Issuance of stock warrants and repurchase of treasury stock		(5	)		—		959		—			(18	)		—			941
Foreign currency translation adjustments		—			—		—		(243	)		—			—			(243	)
Net loss		—			—		—		—			—			(15,555	)		(15,555	)

Balance at December 31, 2001		20,303		$	20	$	68,874	$	(2	)	$	(62,076	)	$	(16,199	)	$	(9,383	)


			Recorded as
	Recorded as		Equity in Earnings
	Gross Profit		From Joint Venture		Total

2001	$	2,058	$	2,354	$	4,412
2000		995		611		1,606
1999		573		902		1,475


	Employee			Facility			Total
	Severance and			Exit and			Accrued
	Relocation Costs			Other Costs			Restructuring

Balance at December 31, 1999	$	4,217		$	427		$	4,644
Cash payments made fiscal 2000		(2,451	)		—			(2,451	)
Adjustments made fiscal 2000		(1,054	)		(194	)		(1,248	)

Balance at December 31, 2000	$	712		$	233		$	945
Restructuring charges fiscal 2001		727			467			1,194
Cash payments made fiscal 2001		(1,043	)		(417	)		(1,460	)
Adjustments made fiscal 2001		—			(233	)		(233	)

Balance at December 31, 2001	$	396		$	50		$	446


þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


4.	Related Party Transactions


5.	Inventories



	December 31,

	2000		2001


	(In thousands)
Finished goods	$	97,375	$	80,212
Raw materials		25,322		17,142
Work-in-process		7,977		6,041

		130,674		103,395
LIFO allowance		376		(200	)

	$	131,050	$	103,195


	Year Ended
	December 31, 1999


	(Unaudited)
	(In thousands)
Net sales	$	529,890
Net income (loss)		(6,465	)



			December 31,

	Depreciable Lives		2000		2001


			(In thousands)
Mold costs and tooling		1 1/2 – 5 years	$	33,527	$	37,011
Plant and machinery		7 – 10 years		38,155		39,662
Buildings and leasehold improvements		life of lease – 40 years		27,059		31,671
Equipment and computer equipment		5 – 7 years		6,862		6,049
Furniture and fixtures		5 – 10 years		6,223		5,880
Land		N/A		712		712
Motor vehicles		4 – 5 years		508		492

				113,046		121,477
Less — accumulated depreciation and amortization				45,464		52,381

			$	67,582	$	69,096


							Weighted
							Average
					Exercise Price		Exercise
		Shares			Range		Price

Outstanding as of December 31, 1998.			1,448,352			$3.50	$	3.50
	Granted during 1999.		2,380,404			$5.04	$	5.04
	Forfeited during 1999.		(161,670	)	$	3.50 – $5.04	$	4.48

Outstanding as of December 31, 1999.			3,667,086		$	3.50 – $5.04	$	4.46
	Granted during 2000.		843,550			$5.04	$	5.04
	Forfeited during 2000.		(243,730	)	$	3.50 – $5.04	$	4.78

Outstanding as of December 31, 2000.			4,266,906		$	3.50 – $5.04	$	4.55
	Granted during 2001.		1,544,840			$3.50	$	3.50
	Forfeited during 2001.		(169,750	)	$	3.50 – $5.04	$	4.70

Outstanding as of December 31, 2001.			5,641,996		$	3.50 – $5.04	$	4.26



		Options Outstanding
								Options Exercisable
				Weighted
		Number		Average		Weighted		Number		Weighted
Range of		Outstanding at		Remaining		Average		Exercisable at		Average
Exercises		December 31,		Contractual		Exercise		December 31,		Exercise
Prices		2001		Life (Years)		Price		2001		Price

$	3.50		2,855,392		8.2	$	3.50		934,284	$	3.50
$	5.04		2,786,604		7.5	$	5.04		1,188,063	$	5.04

			5,641,996			$	4.26		2,122,347	$	4.36


	Operating
	Leases

2002	$	6,702
2003		5,750
2004		5,479
2005		4,838
2006 and thereafter		31,036

	$	53,805



	Fiscal Year Ended

	December 31,			December 31,
	2000			2001


	(In thousands)
Change in Benefit Obligation
Benefit obligation at beginning of year	$	15,421		$	13,567
Service cost		563			991
Interest cost		932			1,062
Amendments		(1,190	)		74
Actuarial (gain)loss		(821	)		2,042
Curtailment		(195	)		—
Special Termination Benefit		—			235
Settlements		—			(2,113	)
Benefits paid		(1,143	)		(675	)

Benefit obligation at end of year	$	13,567		$	15,183


		Consumer															Consolidated
		Durables			Far East			International			Other			Eliminations			Totals

Net sales to customers	2001	$	552,297		$	21,862		$	53,840			—			—		$	627,999
	2000		449,378			14,427			45,717		$	3,727			—			513,249
	1999		437,297			6,566			38,953			24,671			—			507,487
Intersegment net sales	2001		—			290,162			—			—		$	(290,162	)		—
	2000		—			219,558			—			—			(219,558	)		—
	1999		—			154,501			—			—			(154,501	)		—
Depreciation and amortization	2001		8,728			7,292			160			—			—			16,180
	2000		8,660			6,818			259			—			—			15,737
	1999		8,432			4,764			170			1,767			—			15,133
Net interest expense (income)	2001		37,940			(40	)		—			—			—			37,900
	2000		38,650			(100	)		—			—			—			38,550
	1999		33,489			(25	)		—			8			—			33,472
Other operating costs	2001		540,872			286,211			52,893			—			(290,502	)		589,474
	2000		443,964			211,918			47,288			6,541			(218,579	)		491,132
	1999		402,541			144,678			36,240			27,802			(154,191	)		457,070
Segment income (loss)	2001		(35,243	)		18,561			787			—			340			(15,555	)
	2000		(41,896	)		15,349			(1,830	)		(2,814	)		(979	)		(32,170	)
	1999		(7,165	)		11,650			2,543			(4,906	)		(310	)		1,812
Segment assets	2001		615,759			126,130			38,148			—			(336,442	)		443,595
	2000		635,566			87,861			33,786			—			(303,344	)		453,869
	1999		656,448			63,828			29,620			5,624			(299,024	)		456,496
Segment capital expenditures	2001		6,769			10,203			48			—			—			17,020
	2000		10,571			17,263			507			—			—			28,341
	1999		4,212			12,534			240			628			—			17,614


						Canada		Consolidated
		United States		Far East		and Europe		Total

Net sales:
	Year ended December 31, 1999.	$	461,968	$	6,566	$	38,953	$	507,487
	Year ended December 31, 2000.		453,105		14,427		45,717		513,249
	Year ended December 31, 2001.		552,297		21,862		53,840		627,999
Long-lived assets:
	December 31, 2000.		43,627		30,654		775		75,056
	December 31, 2001.		41,159		32,443		565		74,167


	2000		2001

Dongguan Raider Motor Corp. Ltd.	$	10,449	$	11,261
Dongguan Huixin Electrical Products Company, Ltd.		8,872		13,386



				December 31, 2000

							Guarantor			Non-Guarantor
				Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated


				(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents			$	175		$	959		$	1,883			—		$	3,017
	Accounts receivable, net				51,725			49,459			23,315			—			124,499
	Inventories				51,181			52,637			32,396		$	(5,164	)		131,050
	Prepaid expenses and other current assets				2,922			74			3,461			—			6,457
	Deferred income taxes				5,300			9,911			(486	)		—			14,725
	Income taxes receivable				—			—			—			—			—
	Due from affiliates				223,445			89			29,138			(252,672	)		—

		Total current assets			334,748			113,129			89,707			(257,836	)		279,748

Assets held for sale					—			1,624			—			—			1,624
Property and equipment, net					5,482			30,671			31,429			—			67,582
Goodwill, net					—			83,779			—			—			83,779
Deferred income taxes					—			—			—			—			—
Deposits and other assets					21,806			3,110			511			(4,291	)		21,136
Investments in consolidated subsidiaries					41,217			—			—			(41,217	)		—

				$	403,253		$	232,313		$	121,647		$	(303,344	)	$	453,869

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable				7,367			(2,261	)		29,264			(4,191	)		30,179
	Current portion of credit facility				7,250			—			—			—			7,250
	Accrued expenses				15,835			12,298			5,212			—			33,345
	Accrued income taxes				(10	)		2,521			2,206			—			4,717
	Other current liabilities				—			—			784			—			784
	Due to affiliates				6,976			221,939			23,757		$	(252,672	)		—

		Total current liabilities			37,418			234,497			61,223			(256,863	)		76,275

Credit facility					225,175			—			—			—			225,175

Long-term debt					135,186			—			—			—			135,186

Other long-term liabilities					—			—			7,055			—			7,055

Deferred income taxes					—			4,704			—			—			4,704

STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock, $.001 par value					20			2			—			(2	)		20
Common stock, $1 par value					—			—			100			(100	)		—
Additional paid in capital					67,915			—			—			—			67,915
Accumulated other comprehensive income					241			—			241			(241	)		241
Treasury stock					(62,058	)		—			—			—			(62,058	)
Retained earnings (deficit)					(644	)		(6,890	)		53,028			(46,138	)		(644	)

			Total stockholders’ equity (deficit)		5,474			(6,888	)		53,369			(46,481	)		5,474

				$	403,253		$	232,313		$	121,647		$	(303,344	)	$	453,869



				December 31, 2001

							Guarantor			Non-Guarantor
				Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated


				(In thousands)
ASSETS
Current assets:
	Cash and cash equivalents			$	4,083		$	1,312		$	4,720			—		$	10,115
	Accounts receivable, net				39,173			82,725			22,351			—			144,249
	Inventories				34,042			49,055			24,922		$	(4,824	)		103,195
	Prepaid expenses and other current assets				2,136			42			3,139			—			5,317
	Deferred income taxes				8,578			5,065			—			—			13,643
	Due from affiliates				191,656			89			71,859			(263,604	)		—

		Total current assets			279,668			138,288			126,991			(268,428	)		276,519

Assets held for sale					—			86			—			—			86
Property and equipment, net					7,585			28,503			33,008			—			69,096
Goodwill, net					—			79,838			—			—			79,838
Deferred income taxes					—			—			—			—			—
Deposits and other assets					20,139			2,229			579			(4,891	)		18,056
Investments in consolidated subsidiaries					59,423			—			3,700			(63,123	)		—

				$	366,815		$	248,944		$	164,278		$	(336,442	)	$	443,595

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
	Accounts payable			$	3,906		$	6,945		$	30,783		$	(4,891	)	$	36,743
	Current portion of credit facility				8,476			—			—			—			8,476
	Accrued expenses				19,112			16,672			6,544			—			42,328
	Accrued income taxes				—			2,600			3,857			—			6,457
	Other current liabilities				—			—			831			—			831
	Due to affiliates				—			230,535			36,669			(267,204	)		—

		Total current liabilities			31,494			256,752			78,684			(272,095	)		94,835

Credit facility					209,406			—			—			—			209,406

Long-term debt					135,298			—			—			—			135,298

Other long-term liabilities					—			—			7,485			—			7,485

Deferred income taxes					—			3,861			2,093			—			5,954

STOCKHOLDERS’ EQUITY (DEFICIT):
Common stock, $.001 par value					20			2			—			(2	)		20
Common stock, $1 par value					—			—			3,800			(3,800	)		—
Additional paid in capital					68,874			—			—			—			68,874
Accumulated other comprehensive income					(2	)		—			(160	)		160			(2	)
Treasury stock					(62,076	)		—			—			—			(62,076	)
Retained earnings (deficit)					(16,199	)		(11,671	)		72,376			(60,705	)		(16,199	)

			Total stockholders’ equity (deficit)		(9,383	)		(11,669	)		76,016			(64,347	)		(9,383	)

				$	366,815		$	248,944		$	164,278		$	(336,442	)	$	443,595



			Year Ended December 31, 1999

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated


			(In thousands)
Net sales			$	216,457		$	245,512		$	200,019		$	(154,501	)	$	507,487
Cost of goods sold				160,272			191,448			166,778			(154,190	)		364,308

	Gross profit (loss)			56,185			54,064			33,241			(311	)		143,179

Operating expenses:
	Selling			27,621			33,226			6,605			—			67,452
	General and administrative			9,146			9,645			9,543			—			28,334
	Product development			7,448			3,000			—			—			10,448
	Plant closing costs			—			2,439			—			—			2,439
	Amortization of goodwill and other intangible assets			—			2,634			66			—			2,700

		Total operating expenses		44,215			50,944			16,214			—			111,373

		Operating profit (loss)		11,970			3,120			17,027			(311	)		31,806

Other income and expense:
	Interest and other expense, net			33,423			74			(25	)		—			33,472
	Other (income) expense, net			—			(1,041	)		(1,448	)		—			(2,489	)

		Total other (income) expense		33,423			(967	)		(1,473	)		—			30,983

Income (loss) before income taxes and equity in income of and equity in earnings from joint venture				(21,453	)		4,087			18,500			(311	)		823
Income tax expense (benefit)				(3,357	)		(1,037	)		4,307			—			(87	)

Equity in earnings from joint venture				(902	)		—			—			—			(902	)
Income (loss) before equity in income of consolidated subsidiaries				(17,194	)		5,124			14,193			(311	)		1,812
Equity in income of consolidated subsidiaries				19,006			—			—			(19,006	)		—

Net income (loss)			$	1,812		$	5,124		$	14,193		$	(19,317	)	$	1,812



			Year Ended December 31, 2000

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated


			(In thousands)
Net sales			$	231,340		$	221,765		$	279,702		$	(219,558	)	$	513,249
Cost of goods sold				181,075			176,398			243,996			(219,264	)		382,205

	Gross profit (loss)			50,265			45,367			35,706			(294	)		131,044

Operating expenses:
	Selling			32,322			30,362			10,837			—			73,521
	General and administrative			14,426			10,451			11,107			—			35,984
	Product development			8,829			2,171			—			—			11,000
	Plant closing costs			—			340			—			—			340
	Amortization of goodwill and other intangible assets			—			2,597			—			—			2,597

		Total operating expenses		55,577			45,921			21,944			—			123,442

		Operating profit (loss)		(5,312	)		(554	)		13,762			(294	)		7,602

Other income and expense:
	Interest and other expense, net			27,905			10,745			(100	)		—			38,550
	Other (income) expense, net			23			891			(1,672	)		—			(758	)

		Total other (income) expense		27,928			11,636			(1,772	)		—			37,792

Income (loss) before income taxes and equity in income of and equity in earnings from joint venture				(33,240	)		(12,190	)		15,534			(294	)		(30,190	)

Income tax expense (benefit)				226			350			2,015			—			2,591
Equity in earnings from joint venture				(611	)		—			—			—			(611	)

Income (loss) before equity in income of consolidated subsidiaries				(32,855	)		(12,540	)		13,519			(294	)		(32,170	)
Equity in income of consolidated subsidiaries				685			—			—			(685	)		—

Net income (loss)			$	(32,170	)	$	(12,540	)	$	13,519		$	(979	)	$	(32,170	)



			Year Ended December 31, 2001

						Guarantor			Non-Guarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Consolidated


			(In thousands)
Net sales			$	228,573		$	323,724		$	365,864		$	(290,162	)	$	627,999
Cost of goods sold				184,433			244,918			323,421			(290,502	)		462,270

	Gross profit (loss)			44,140			78,806			42,443			340			165,729

Operating expenses:
	Selling			28,473			30,011			10,992			—			69,476
	General and administrative			14,587			32,228			10,267			—			57,082
	Product development			5,179			5,843			—			—			11,022
	Plant closing costs			—			550			—			—			550
	Restructuring costs			—			1,194			—			—			1,194
	Amortization of goodwill and other intangible assets			—			2,494			—			—			2,494

		Total operating expenses		48,239			72,320			21,259			—			141,818

		Operating profit (loss)		(4,099	)		6,486			21,184			340			23,911

Other income and expense:
	Interest and other expense, net			27,698			10,242			(40	)		—			37,900
	Other (income) expense, net			945			259			(1,812	)		—			(608	)

		Total other (income) expense		28,643			10,501			(1,852	)		—			37,292

Income (loss) before income taxes and equity in income of and equity in earnings from joint venture				(32,742	)		(4,015	)		23,036			340			(13,381	)

Income tax expense (benefit)				74			766			3,688			—			4,528
Equity in earnings from joint venture				(2,354	)		—			—			—			(2,354	)

Income (loss) before equity in income of consolidated subsidiaries				(30,462	)		(4,781	)		19,348			340			(15,555	)
Equity in income of consolidated subsidiaries				14,907			—			—			(14,907	)		—

Net income (loss)			$	(15,555	)	$	(4,781	)	$	19,348		$	(14,567	)	$	(15,555	)



				Additions						Deductions

		Balance at		Charged to		Charged				Write-off of		Balance
		Beginning		Costs and		to Other				Uncollectible		at End
		of Period		Expenses		Accounts		Acquisition		Accounts		of Period

Allowance for doubtful accounts:
	Year ended December 31, 1999	$	719	$	1,297		—	$	7,740	$	710	$	9,046
	Year ended December 31, 2000		9,046		4,543		—		—		3,967		9,622
	Year ended December 31, 2001		9,622		15,219		—		—		6,639		18,202



				Additions

						Net		Deductions
						Operating
				Charged to		Losses		Net
		Balance at		Income		Without		Operating		Charged		Balance
		Beginning		Tax		Tax		Losses		to Other		at End
		of Period		Expense		Benefit		Utilized		Accounts		of Period

Deferred tax valuation allowance:
	Year ended December 31, 1999	$	1,367	$	283		—		—		—	$	1,650
	Year ended December 31, 2000		1,650		16,891		—		—		—		18,541
	Year ended December 31, 2001		18,541		13,890		—		—		—		32,431


Item 9.	*Changes in and Disagreements with Accountants on Accounting and Financial Disclosure*


Name	Age		Position

Jordan A. Kahn		60	Chairman of the Board of Directors
Peter J. Martin		46	President, Chief Executive Officer and Director
Gregory F. White		38	Executive Vice President, Sales and Marketing and Director
John M. Kelliher		50	Senior Vice President and Chief Financial Officer
(Tommy) Woon Fai Liu		49	Managing Director of Holmes’ Far East Operations and Director
Louis F. Cimini		47	Senior Vice President — Human Resources and Organization Performance
Richard K. Lubin		55	Director
Randy Peeler		37	Director
Stanley Rosenzweig		37	Director
Fred J. Musone		57	Director (Nominee)



			Annual Compensation							Long-Term Compensation

Name and							Other Annual			Stock Option		All Other
Principal Position			Salary		Bonus		Compensation(1)			Shares		Compensation(2)

Jordan A. Kahn		2001	$	501,430	$	115,000	$	15,600			—	$	—
	Chairman of the	2000		501,986		—		15,600			—		—
	Board of Directors	1999		488,804		112,500		15,600			490,538		—
Peter J. Martin		2001		178,200		89,100		60,765	(3)		1,000,000		—
	President and Chief Executive Officer
Stanley Rosenzweig		2001		376,678		86,250		15,600			—		—
	Chief Operating Officer	2000		377,250		—		15,600			—		—
		1999		353,441		112,500		15,600			367,903		4,800
Gregory F. White		2001		317,217		71,760		11,400			—		—
	Executive Vice President	2000		321,006		—		10,200			—		—
	Sales and Marketing	1999		277,638		112,500		10,200			367,903		4,800
(Tommy) Woon Fai Liu		2001		260,000		59,800		44,701			—		—
	Managing Director of	2000		260,000		—		44,701			—		—
	Holmes Far East	1999		250,000		112,500		43,701			50,000		—



					Number of Shares Underlying				Value of Unexercised
					Unexercised Options at				In-the-Money
	Shares				Year-End (#)				Options ($)(2)
	Acquired on		Value
Name	Exercise (#)		Realized ($)		Exercisable(1)		Unexercisable		Exercisable		Unexercisable

Jordan A. Kahn		—		—		403,545		384,710		—		—
Peter J. Martin		—		—		—		1,000,000		—		—
Stanley Rosenzweig		—		—		665,620		—		—		—
Gregory F. White		—		—		325,991		339,629		—		—
(Tommy) Woon Fai Liu		—		—		56,000		54,000		—		—