-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, W0WXJOZ64leEKclTu6vlyVmUrCJ/MwqOp6ooToIE2fYo+a0ix2HrGamPWCovFGlT 5xE0Uw0WI0EdwjXths11ww== 0001029869-99-000418.txt : 19990413 0001029869-99-000418.hdr.sgml : 19990413 ACCESSION NUMBER: 0001029869-99-000418 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 24 FILED AS OF DATE: 19990409 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNITED INDUSTRIES CORP CENTRAL INDEX KEY: 0001083200 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 431025604 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-76055 FILM NUMBER: 99591248 BUSINESS ADDRESS: STREET 1: 8825 PAGE BOULEVARD CITY: ST LOUIS STATE: MO ZIP: 63114 BUSINESS PHONE: 3144270780 MAIL ADDRESS: STREET 1: 8825 PAGE BOULEVARD CITY: ST LOUIS STATE: MO ZIP: 63114 S-4 1 FORM S-4 As filed with the Securities and Exchange Commission on April 9, 1999. Registration No. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------------ FORM S-4 REGISTRATION STATEMENT Under the Securities Act of 1933 ------------------------------------------ UNITED INDUSTRIES CORPORATION (Exact name of registrant as specified in its charter) Delaware 2879 43-1025604 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.) ----------------------------------------- 8825 Page Boulevard St. Louis, Missouri 63114 Telephone: (314) 427-0780 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------------------ Daniel J. Johnston Senior Vice President 8825 Page Boulevard St. Louis, Missouri 63114 Telephone: (314) 427-0780 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copy to: Carter W. Emerson, P.C. Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Telephone: (312) 861-2000 ------------------------------------------ Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. |_| CALCULATION OF REGISTRATION FEE
==================================================================================================================================== Proposed Maximum Proposed Maximum Title of each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of Registered Registered Unit(1) Price(1) Registration Fee - ------------------------------------------------------------------------------------------------------------------------------------ 9-7/8% Series B Senior Subordinated Notes due 2009................ $150,000,000 100% $150,000,000 $41,700 ====================================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457(f). The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. SUBJECT TO COMPLETION, DATED APRIL 9, 1999 PRELIMINARY PROSPECTUS CONFIDENTIAL , 1999 United Industries Corporation Offer to Exchange All Outstanding 9-7/8% Series B Registered Senior Subordinated Notes Due 2009 For All Outstanding 9-7/8% Series A Unregistered Senior Subordinated Notes Due 2009 ------------------------------------------ Terms of the Exchange Offer o This exchange offer expires at 5:00 p.m., New York City time, on , 1999, unless extended. o All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. o Tenders of the outstanding notes may be withdrawn any time prior to the expiration of the exchange offer. o This exchange offer is subject to certain customary conditions, which we may waive. o We will not receive any proceeds from this exchange offer. o The terms of the notes we will issue in this exchange offer are substantially identical to the outstanding notes, except for certain transfer restrictions and registration rights that apply to the outstanding notes. o Interest on the notes accrues at the rate of 9-7/8% per annum, payable semi-annually on each April 1 and October 1. o There is no existing market for the notes we are offering in this exchange offer and we do not intend to apply for their listing on any securities exchange. Notice to Investors-- o Before you tender your notes, you should consider carefully the "Risk Factors" beginning on page 11 of this prospectus. Neither the Securities and Exchange Commission (the "SEC") nor any state securities commission has approved or disapproved of these notes or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense. ------------------------------------------ The date of this Prospectus is , 1999. TABLE OF CONTENTS
Page ---- Prospectus Summary ............................................................................ 1 Risk Factors .................................................................................. 11 The Transactions .............................................................................. 16 Use of Proceeds ............................................................................... 17 Capitalization ................................................................................ 18 Unaudited Pro Forma Financial Statements ...................................................... 19 Selected Historical Financial Data ............................................................ 26 Management's Discussion and Analysis of Financial Condition and Results of Operations ......... 28 Business ...................................................................................... 32 Management .................................................................................... 43 Certain Transactions .......................................................................... 47 Principal Stockholders ........................................................................ 48 Description of Capital Stock .................................................................. 49 Description of Our Senior Credit Facility ..................................................... 50 Description of the New Notes .................................................................. 52 Exchange Offer ................................................................................ 93 Certain United States Federal Income Tax Considerations ....................................... 103 Plan of Distribution .......................................................................... 108 Legal Matters ................................................................................. 108 Independent Auditors .......................................................................... 108 Available Information ......................................................................... 108 Forward-looking Statements .................................................................... 109 Index to Financial Statements ................................................................. F-1
----------------------------- We are a Delaware corporation. Our principal office is located at 8825 Page Boulevard, St. Louis, Missouri 63114. Our telephone number is (314) 427-0780. ----------------------------- Spectracide(R), Spectracide Terminate(TM), Spectracide Pro(TM), Hot Shot(R), Real-Kill(R), No-Pest(R), Rid-a-Bug(R), Bag-a-Bug(R), Shootout(R) and Gro Best(R) are trademarks of United Industries Corporation. United Industries Corporation has, in effect, perpetual licenses to use the Cutter(R), Peters(R) and Peters Professional(R) trademarks. KGro(R) and KRid(R) are trademarks of Kmart Corporation. ----------------------------- The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the SEC is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. PROSPECTUS SUMMARY This summary highlights information contained elsewhere in this prospectus. You should read the entire prospectus carefully, including the "Risk Factors" section and the financial statements. Unless otherwise indicated, all references in this prospectus to "we," "us," "our" and similar terms, as well as references to "our company" and "United," refer to United Industries Corporation. References in this prospectus to industry data and statistics are based on estimates compiled by or derived from Gallup Organization, Inc. and/or Kalorama Information, LLC. Unless otherwise indicated, references in this prospectus to our sales data were obtained from Information Resources, Inc. and Triad Systems Corporation. The Company United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water-soluble fertilizers, under a variety of brand names. Our "value" and "opening price point" brands generally compete with higher priced premium brands. Our portfolio of value-oriented brands includes the following: o Spectracide, the leading value brand and overall fastest growing brand of consumer lawn and garden pesticides; o Spectracide Terminate, the first ever do-it-yourself consumer termite killing system, launched in 1998; o Spectracide Pro, lawn and garden and household pesticides targeted toward the professional market, introduced in 1999; o Hot Shot, the leading value brand and overall fastest growing brand of consumer household insecticides; o Cutter, the leading value brand and overall fastest growing brand of consumer insect repellents; o Peters, the leading value brand of consumer water-soluble fertilizers; and o Real-Kill (Home Depot), No-Pest (Lowe's) and KRid and KGro (Kmart), the opening price point brands of consumer lawn and garden pesticides and household insecticides at key retailers. We believe that our market leadership is a result of our: (a) leading value-oriented brands, (b) strategic relationships with major national retailers, (c) extensive distribution capabilities, (d) exclusive direct sales force and (e) proprietary management information systems. Our portfolio of pesticide brands holds the number one position in the home improvement center channel and the number two position in the mass merchandiser channel. In 1998, we generated net sales and pro forma EBITDA (as defined herein) of $282.7 million and $60.3 million, respectively. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. As a result, from 1994 to 1998 (pro forma for the transactions) our: o Net sales grew at a compound annual rate of 19.2%; o EBITDA grew at a compound annual rate of 36.6%; and o EBITDA margin increased from 12.4% to 21.3%. Industry Overview Retail sales of consumer lawn and garden pesticides and household insecticides in the United States totaled $2.7 billion in 1998. Since 1994, the market for these products has grown at an average annual rate of approximately 3%. We believe that the industry will continue to grow at a similar rate over the next several years due to favorable demographic trends. Approximately 67% of households in the United States, or 68 million households, participate in some form of lawn and garden care activity. Moreover, consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically enjoy more leisure time and higher levels of discretionary income than the general population. As the baby boom generation ages, this segment is expected to grow at a rate more than twice that of the total population. This demographic trend is likely to increase the number of lawn and garden care product users. We also believe that we will benefit from the following trends in the industry: Channel Consolidation. Historically, consumer lawn and garden care products have been distributed through a variety of retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, warehouse clubs and garden centers. In recent years, as home improvement centers and mass merchandisers have added stores and expanded their lawn and garden care departments, consumers have increasingly purchased their lawn and garden care needs from these outlets due to their broader and deeper product offerings, competitive prices and convenient locations and hours. In 1997, approximately 70% of consumers purchased lawn and garden care products at home improvement centers and mass merchandisers compared to just 57% in 1992. We believe that these retail channels will continue to gain market share from other channels over the next several years. Growth in Value-Oriented Brands. Consumer lawn and garden care products fall into one of three brand tiers: (a) premium brands, (b) value brands or (c) opening price point brands. Historically, the market was dominated by premium brands. Over the past several years, the market has shifted toward value and opening price point brands. Value brands are targeted toward consumers who want products and packaging that are comparable or superior to premium brands, but at a lower price, while opening price point brands are designed for consumers who want quality products and packaging, but are extremely cost conscious. Value and opening price point brands' combined share of shelf space at our four largest customers increased from approximately 40% to 60% between 1995 and 1998 at the expense of premium brands. We believe that value and opening price point brands will continue to grow because of (a) continued improving consumer perception of the quality and performance of these brands and (b) ongoing increases in shelf space dedicated to these brands due to the higher margins they offer to retailers. Professional Market Buying Patterns. Home improvement centers are increasingly targeting the trade professionals in a variety of industries. As a result, trade professionals are utilizing this channel with greater frequency to take advantage of the competitive prices, convenience of locations and hours, delivery services and availability of credit offered by such retailers. Smaller independent pest control operators and lawn and garden care professionals, who represent approximately 70% of the professional market, have historically purchased their supplies from commercial distributors. While the current selection of professional lawn and garden care products is limited at home improvement centers, we believe that strategic initiatives underway at several national retailers will improve the breadth of professional products offered and drive future growth through this channel. Competitive Strengths Leading Value-Oriented Brands. United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. Our value and opening price point brands have driven a shift in the industry by offering innovative products comparable or superior quality to premium brands at lower prices. As a result, our products have developed significant brand awareness and customer loyalty. Our portfolio of pesticide brands holds the number one position (36% share) in the home improvement center channel and the number two position (29% share) in the mass merchandiser channel. Strategic Partnerships With Leading Retailers. We have developed "strategic partnerships" with a number of leading national retailers in the fastest growing retail channels. Our four largest customers, Home Depot, Wal*Mart, -2- Lowe's and Kmart, each hold significant positions in the lawn and garden care market and have together opened approximately 750 net new stores over the last five years. As a result, we have been able to significantly increase our sales as these retailers have added new stores and captured market share. Large, Exclusive Direct Sales Force. We have the largest direct sales force in our industry, with approximately 300 sales representatives dedicated to merchandising our products. Each representative is responsible for approximately 30 retail outlets and typically visits each store on a weekly basis to merchandise shelf space, collect inventory data, record orders and educate in-store personnel about our products. This process facilitates real-time marketing, re-ordering and pricing decisions, helping to maximize store-level profitability. In addition, our exclusive sales force helps us to identify emerging trends and develop products to meet consumers' needs. We believe that our level of direct in-store sales support is unique among our competitors. Proprietary Management Information System. Our highly advanced and proprietary management information system provides real-time data on sales, orders and inventories at each retail outlet, allowing targeted sales promotions and efficient inventory management. With same-day order processing and strategically located distribution centers throughout the United States, we are generally able to deliver products to retailers within 72 hours of an order, allowing retailers to maintain lower inventory levels, generate higher turns and minimize costly returns. Proven, Committed Senior Management Team. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. In connection with the recapitalization, we named Stephen R. Brian as our President and Chief Executive Officer. Mr. Brian complements the present management team, joining us with over 30 years of experience in the consumer products industry. Combined, our top four senior managers have over 80 years of experience in the consumer products industry and 19 years of experience with us. After the recapitalization, our senior management team owns or has the right to acquire approximately 9% of our fully diluted common stock. Business Strategy We plan to capitalize on our strengths and the favorable industry trends to enhance our leadership position in value and opening price point brands by implementing the following key elements of our business strategy: Enhance Value Brand Position. We plan to maintain our focus on building our leading value brands for the consumer lawn and garden pesticide and household insecticide markets. Our strategy is to provide innovative products of comparable or superior quality to our competitors at a lower price to appeal to the large, growing segment of consumers that desire a better value. Over the past five years, we have grown the sales and market shares of our core value brands - Spectracide, Hot Shot, Cutter and Peters - through the successful execution of this strategy. Partner with Leading Retailers. We believe that our strong value brand position coupled with our operational expertise allows us to partner with leading national retailers to develop opening price point brands. We currently manufacture and market the opening price point brands for retailers such as Home Depot, Kmart and Lowe's. Our strategic partnerships with these retailers have enabled us to significantly increase our portion of their category shelf space. Specifically, our products occupy over half of the category shelf space at Home Depot, Kmart and Lowe's, where we are "category manager" for lawn and garden pesticides. As category manager, our representatives work together with these national retailers to determine advantageous pricing, product mix and merchandising plans. Maximize Category Profitability for Retailers. We focus on maximizing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution. We are a low-cost provider as a result of our high level of vertical integration and our patented water-based aerosol technology. We have a one-step distribution process through our approximately 300 person exclusive direct sales force, the largest in the industry. Leverage Distribution Network. We continually seek to capitalize on our strong distribution network and relationships with retailers. To that end, we have increased our sales and improved our operating leverage by supplying complementary product lines to retailers. We add new products either through new product development or by -3- acquiring product lines. Our new product development strategy has been to introduce innovative products that have superior performance, easy-to-understand packaging and value pricing. Over the past three years, we have introduced 80 new products, which represented nearly 40% of our 1998 net sales. New products generate additional sales and generally provide higher margins to us and our retailers. Spectracide Terminate generated net sales of $21.9 million in its limited initial launch in 1998, demonstrating the strength of our distribution network. Our brand acquisition strategy has been to selectively acquire product lines that can benefit from our strong distribution network, product development expertise and other competitive strengths. Acquired product lines such as Peters and Cutter have experienced rapid growth upon integration into our distribution system. Target Professional Market. While the primary end users of our products have historically been household consumers, we have begun to target smaller independent pest control operators and lawn and garden care professionals through our existing retail channels. Historically, these professionals have purchased their pesticide and lawn and garden care products from commercial distributors. We believe that these professionals will increasingly utilize the home improvement center channel to take advantage of the competitive prices, convenience of locations and hours, delivery services and availability of credit offered. To benefit from and further drive this trend, we developed Spectracide Pro, a group of products designed specifically for the professional market. Launched in March 1999, this line of professional pesticides is supported by national advertising in relevant trade magazines, in-store promotional campaigns, an exclusive direct sales force and technical support. We believe that we can capitalize on our strong relationships with leading national retailers to gain a meaningful position in the professional market. The Transactions On January 20, 1999, pursuant to a recapitalization agreement with UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P., we completed a $652.0 million recapitalization (as further described in "The Transactions" section of this prospectus, the "Transactions"). -4- The Initial Offering On March 24, 1999, we privately placed $150 million of our old 9-7/8% Senior Subordinated Notes due 2009. We entered into a registration rights agreement with the initial purchasers in that private offering in which we agreed, among other things, to use our reasonable best efforts to file a registration statement with the SEC, complete this exchange offer within 195 days after issuing the old notes and, in some circumstances, file a shelf registration statement. We must pay liquidated damages to the holders of the old notes if we do not meet these deadlines or if we file a shelf registration statement and fail to keep it effective until the second anniversary of the issue date of the notes.
The Exchange Offer Securities Offered...................................... $150,000,000 principal amount of 9-7/8% Series B Registered Senior Subordinated Notes due 2009. The Exchange Offer...................................... We are offering to exchange $150,000,000 principal amount of our new notes which have been registered under the Securities Act of 1933 for $150,000,000 of our outstanding 9-7/8% Series A Unregistered Senior Subordinated Notes due 2009, which were issued in March 1999. We will accept the old notes in exchange for the new notes in order to increase the liquidity of both series of our outstanding notes. The new notes are substantially identical to the old notes, except that certain transfer restrictions and registration rights relating to the old notes do not apply to the new notes. You may tender your old notes by following the procedures described in this prospectus under the heading "The Exchange Offer." Expiration Date......................................... The exchange offer will expire at 5:00 p.m., New York City time, on , 1999, unless we extend it. Withdrawal Rights....................................... You may withdraw your tender of your notes at any time prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Conditions to the Exchange Offer........................ The exchange offer is subject to customary conditions, which we may waive. Please read the "The Exchange Offer--Conditions" section of this prospectus for more information regarding conditions to the exchange offer. Procedures for Tendering Your Old Notes............................................... If you are a holder of old notes who wishes to accept the exchange offer, you must either: (a) complete, sign and date the accompanying Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver such documentation, together with your old notes, to the exchange agent at the address set forth under "The Exchange--Offer Exchange Agent;" or (b) arrange for The Depository Trust Company to transmit certain required information to the exchange agent for this exchange offer in connection with a book-entry transfer. By tendering your notes in this manner, you will be representing, among other things, that: -5- o the new notes you acquire pursuant to the exchange offer are being acquired in the ordinary course of your business; o you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate in the distribution of the new notes issued to you in the exchange offer; and o you are not an "affiliate" of our company. Certain United States Federal Income Tax Consequences............................................ Your exchange of old notes for new notes pursuant to the exchange offer will not result in any gain or loss to you for federal income tax purposes. See the "Certain United States Federal Income Tax Consequences" section of this prospectus. Consequences of Failure to Exchange..................... Old notes that are not tendered or that are tendered, but not accepted, will be subject to the existing transfer restrictions on such notes after the exchange offer. We will have no further obligation to register the old notes. If you do not participate in the exchange offer, the liquidity of your notes could be adversely affected. Procedures for Beneficial Owners........................ If you are the beneficial owner of old notes registered in the name of a broker, dealer or other nominee and you wish to tender your notes, you should contact such person in whose name your notes are registered and promptly instruct such person to tender on your behalf. Guaranty Delivery Procedures............................ If you wish to tender your old notes and time will not permit your required documents to reach the State Street Bank and Trust Company by the expiration date, or the procedure for book-entry transfer cannot be completed on time, or the certificate for your notes cannot be delivered on time, you may tender your notes pursuant to the guaranteed delivery procedures. See "The Exchange Offer--Guaranteed Delivery Procedures." Acceptance of Old Notes; Delivery of New Notes .................................. Subject to certain conditions, we will accept old notes which are properly tendered in the exchange offer and not withdrawn, prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. The new notes will be delivered as promptly as practicable following the expiration date. Use of Proceeds ........................................ We will receive no proceeds from the exchange offer. Exchange Agent.......................................... State Street Bank and Trust Company is the exchange agent for the exchange offer. Summary of the New Notes Issuer.................................................. United Industries Corporation. Securities Offered...................................... $150,000,000 principal amount of 9-7/8% Series B Senior Subordinated Notes due 2009. Maturity Date........................................... April 1, 2009. -6- Interest Rate........................................... 9.875% per year (calculated using a 360-day year). Interest Payment Dates.................................. Every April 1 and October 1, beginning on October 1, 1999. Ranking................................................. The notes will not be secured by any collateral. The notes will rank below all of our senior debt, but will rank equal to our other senior subordinated debt. Therefore, if we default, your right to payment under the notes will be junior to the rights of holders of our senior debt to collect money we owe them. As of December 31, 1998, on a pro forma basis, we had $225.0 million of senior debt outstanding (not including $110.0 million of available borrowings under our senior credit facility). Guarantees ............................................. The notes will not be guaranteed by anyone on the issue date. We currently have no subsidiaries, but if we create any subsidiaries in the future, certain of these subsidiaries will be required to guarantee the notes with unconditional guarantees that will rank below their senior debt, but equal to their senior subordinated debt, in the right of payment. Optional Redemption after Five Years.................... Except in connection with certain public equity offerings by our company, we cannot choose to redeem the notes until April 1, 2004. At any time after that date (which may be more than once), we can choose to redeem some or all of the notes at prices listed under "Description of the Notes--Optional Redemption." Optional Redemption after Equity Offerings.............. At any time (which may be more than once) before the third anniversary date of the issue date of the notes, we can choose to buy back up to 40% of the original principal amount of the notes with money that we raise in one or more public equity offerings of $25.0 million or more, as long as: o we pay 109.875% of the face amount of the notes, plus interest, o we buy the notes back within 90 days of completing the public equity offering, and o at least 60% of the notes originally issued remain outstanding afterwards. Change of Control Offer................................. If we experience a change of control, we must give holders of the notes the opportunity to sell us their notes at 101% of their face amount, plus accrued interest. We might not be able to pay you the required price for notes you present to us at the time of a change of control, because: o we might not have enough funds at that time, or o the terms of our other debt may prevent us from paying the required price. Asset Sale Proceeds..................................... We may have to use the cash proceeds from assets we sell to offer -7- to buy back notes at their face amount, plus accrued interest. Certain Indenture Provisions............................ The indenture governing the notes will limit what we (and most or all of our future subsidiaries) may do. The provisions of the indenture will limit our ability to: o incur more debt; o pay dividends and make distributions; o issue stock of subsidiaries; o make certain investments; o repurchase stock; o create subsidiaries; o create liens; o enter into transactions with affiliates; o enter into sale and leaseback transactions; o merge or consolidate; and o transfer and sell assets. These covenants are subject to a number of important exceptions. Transfer Restrictions................................... The new notes are new securities, and there is currently no established market for them. We do not intend to list the new notes on any securities exchange. Use of Proceeds......................................... We will not receive cash proceeds from the issuance of the new notes. See "Use of Proceeds."
For more information about the new notes, see the "Description of the Notes" section of this prospectus. Risk Factors You should carefully consider the information set forth under "Risk Factors" as well as the other information and data included in this prospectus before tendering your old notes in exchange for new notes. -8- Summary Historical and Pro Forma Financial Data (Dollars in thousands) In the table below, we provide you with selected historical and pro forma financial data for United. When you read this historical and pro forma financial data, it is important that you read along with it the financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which is included in this prospectus. The statement of income data for the years ended December 31, 1994 and 1995, and balance sheet data as of December 31, 1994, 1995 and 1996, have been derived from audited financial statements which do not appear in this prospectus. The summary pro forma statement of income and other financial data give effect to the Transactions as if they occurred on January 1, 1998. The summary pro forma balance sheet data give effect to the Transactions as if they occurred on December 31, 1998. The unaudited pro forma financial data do not purport to be indicative of our actual financial position or results of operations, nor are they necessarily indicative of the results that we may achieve in the future. See "Unaudited Pro Forma Financial Statements."
Year Ended December 31, ------------------------------------------------------------------------------------ Pro Forma 1994 1995 1996 1997 1998 1998 ------------------------------------------------------------------------------------ Statement of Income Data: Net sales ............................... $ 139,822 $ 159,192 $ 199,495 $ 242,601 $ 282,676 $ 282,676 Cost of goods sold ...................... 73,230 82,603 106,640 128,049 140,445 140,445 Advertising and promotion expenses ...... 15,575 17,813 22,804 25,547 31,719 31,719 Selling, general and administrative expenses ................................ 35,032 38,629 46,276 52,092 61,066 54,076 Operating income ........................ 15,985 20,147 23,775 36,913 47,125 54,115 Interest expense ........................ 445 609 1,502 1,267 1,106 37,926 Income from continuing operations ....... 15,235 19,249 21,826 34,920 45,027 12,959 Other Financial Data: EBITDA (1) .............................. $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284 $ 60,274 Depreciation and amortization ........... 1,314 2,715 3,561 3,597 3,838 3,838 Capital expenditures (2) ................ 1,993 4,726 6,384 5,138 3,628 3,628 Gross margin ............................ 47.6% 48.1% 46.5% 47.2% 50.3% 50.3% EBITDA margin............................ 12.4% 14.4% 13.7% 16.7% 18.8% 21.3% Ratio of total debt to EBITDA............ 6.2x Ratio of EBITDA to cash interest expense(3)......................... 1.7x
As of December 31, 1998 -------------------------- Pro Actual Forma ------ ----- Balance Sheet Data: Working capital (4) .............................................. $ 30,042 $ 24,242 Total assets ..................................................... 94,161 225,683 Total debt ....................................................... 4,645 375,000 Stockholders' equity (deficit) ................................... 58,257 (186,376)
(see footnotes on following page) -9- (1) EBITDA represents income from continuing operations before interest expense, income tax expense, depreciation and amortization, and $2,321 in non-recurring litigation expenses accrued in 1998. Pro Forma 1998 EBITDA includes certain related party transactions and the THL management fee as discussed below. We have included information concerning EBITDA because we believe it is used by certain investors as one measure of a company's historical ability to fund operations and meet its financial obligations. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to operating income or income from continuing operations as an indicator of our operating performance or cash flow as a measure of liquidity. In addition, our definition of EBITDA may not be comparable to that reported by other companies. Pro Forma EBITDA is calculated as follows:
Year Ended December 31, ------------------------------------------------------------- 1994 1995 1996 1997 1998 ------------------------------------------------------------- Income from continuing operations ................................. $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027 Interest expense .................................................. 445 609 1,502 1,267 1,106 Income tax expense ................................................ 305 289 447 726 992 Depreciation and amortization ..................................... 1,314 2,715 3,561 3,597 3,838 Non-recurring litigation charges (a) .............................. -- -- -- -- 2,321 -------- -------- -------- -------- -------- EBITDA............................................................. $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284 Related party transactions(b)...................................... ======== ======== ======== ======== 7,740 THL management fee ................................................ (750) -------- Pro Forma EBITDA .................................................. $ 60,274 ========
- ------------------------------- (a) Reflects non-recurring costs associated with two separate lawsuits: (a) a suit filed in 1992 by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy, which we are appealing, and (b) certain litigation concerning the advertising of our Spectracide Terminate product for which we have negotiated a settlement. (b) Reflects the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. EBITDA for 1994, 1995, 1996 and 1997, has not been adjusted for related party transactions. The related party transactions amounts were $3,754, $4,215, $3,847 and $3,061 for 1994, 1995, 1996 and 1997, respectively. (2) Capital expenditures for 1995 exclude $8,272 of expenditures related to acquisitions. (3) Cash interest expense represents interest expense adjusted to exclude amortization of deferred financing costs of $2,375 related to our senior credit facility and the notes offered hereby. (4) Working capital is defined as current assets (excluding cash and cash equivalents) less current liabilities (excluding short-term debt and current portion of long-term debt). -10- RISK FACTORS You should carefully consider each of the following factors and all of the other information set forth in this prospectus before tendering your old notes for new notes. The risks and uncertainties described below are not the only ones facing our company. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develop into actual events, our business, financial condition or results of operations could be materially adversely affected. In such case, we may not be able to make principal and interest payments on the notes, and you may lose all or part of your investment. Holders of old notes that fail to exchange their notes may be unable to resell their notes. We did not register the old notes under the federal or any state securities laws, nor do we intend to following the exchange offer. As a result, the old notes may only be transferred in limited circumstances under the securities laws. If the holders of old notes do not exchange their notes in the exchange offer, they lose their right to have the old notes registered under the federal securities laws. As a result, a holder of old notes after the exchange offer may be unable to sell its notes. Your notes will not be accepted for exchange if you fail to follow the exchange offer procedures. The new notes will be issued to you in exchange for your old notes only after timely receipt by the exchange agent of: o your old notes; o a properly completed and executed Letter of Transmittal and all other required documentation; o a book-entry delivery by transmittal of an agent's message through the Depository Trust Company. If you want to tender your old notes in exchange for new notes, you should allow sufficient time to ensure timely delivery. Neither the exchange agent nor our company is under any duty to give you notification of defects or irregularities with respect to tenders of old notes for exchange. Old notes that are not tendered or are tendered but not accepted will, following the exchange offer, continue to be subject to the existing transfer restrictions on the old notes. In addition, if you tender your old notes in the exchange offer to participate in a distribution of the new notes, you will be required to comply with the registration and prospectus delivery requirements of the federal securities laws in connection with any resale transaction. For additional information, please refer to "The Exchange Offer" and "Plan of Distribution" sections of this prospectus. We may be unable to service our debt, including the notes, as a result of our high level of indebtedness. We have now and, after the offering, will continue to have a significant amount of indebtedness. The following chart is presented assuming we had completed the Transactions as of the dates or at the beginning of the periods specified below and applied the proceeds as intended:
Pro Forma As of December 31, 1998 -------------------------------- (Dollars in millions) Indebtedness senior to the notes.............................. $225.0 Total indebtedness............................................ 375.0
Pro Forma Year Ended December 31, 1998 --------------------------------- Ratio of earnings to fixed charges............................ 1.4x
-11- Our substantial indebtedness could have important consequences to you. For example, it could: o make it more difficult for us to satisfy our obligations with respect to these notes; o increase our vulnerability to general adverse economic and industry conditions; o limit our ability to fund future working capital, capital expenditures, research and development costs and other general corporate requirements; o require a substantial portion of our cash flow from operations for debt payments; o limit our flexibility to plan for, or react to, changes in our business and the industry in which we operate; o place us at a competitive disadvantage compared to our competitors that have less debt; and o limit our ability to borrow additional funds. Any of the above listed factors could materially adversely affect us. See "Description of the Notes" and "Description of Our Senior Credit Facility." We may incur more debt, which could further increase the risks described above. We may incur substantial additional indebtedness in the future. Our senior credit facility allows us to borrow up to an additional $110.0 million and all of those borrowings would be senior to the notes. If new debt is added to our current debt level, the related risks that we now face could increase. See "Capitalization," "Selected Historical Financial Data," "Description of the Notes" and "Description of Our Senior Credit Facility." To service our indebtedness, we will require a significant amount of cash. Our ability to make payments on and to refinance our indebtedness, including these notes, and to fund planned capital expenditures will depend on our ability to generate cash in the future. Our ability to generate cash is subject to some factors beyond our control. We believe our cash flow from operations and available borrowings under our senior credit facility will be adequate to meet our future liquidity needs for the next few years. We cannot assure you, however, that our business will generate sufficient cash flow from operations, or that future borrowings will be available to us under our senior credit facility in a sufficient amount to enable us to pay our indebtedness, including these notes, or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. However, we might not be able to refinance any of our indebtedness on commercially reasonable terms or at all. You may lose part of your investment because the notes are subordinated to our senior debt. Your right to receive payments on these notes is junior to our debt under our senior credit facility which as of December 31, 1998, on a pro forma basis, would have been $225.0 million. In addition, these notes may rank behind our future borrowings except any future indebtedness that expressly provides that it ranks equal with, or subordinated in right of payment to, the notes. As a result, upon any distribution to our creditors in a bankruptcy or similar proceeding relating to us, the holders of our senior debt will be entitled to be paid in full in cash before any payment may be made with respect to the notes. In addition, all payments on the notes will be blocked in the event of a payment default on senior debt and may be prohibited for up to 179 consecutive days in the event of certain non-payment defaults on senior debt. In the event of bankruptcy, liquidation or reorganization or similar proceeding relating to us, the holders of the notes will participate with trade creditors and all other holders of our subordinated indebtedness in the assets remaining after we have paid all of our senior debt. Because the indenture requires that amounts otherwise payable to holders of the notes in a bankruptcy or similar proceeding be paid to holders of senior debt instead, holders of the notes may receive less, ratably, than holders of trade payables. In any of these cases, we may not have sufficient assets or funds to pay all of our creditors, and holders of notes may receive less, ratably, than the holders of senior debt. -12- The terms of our indebtedness impose operational and financial restrictions on our company. Our senior credit facility and the indenture for the notes restrict our ability to: o incur additional indebtedness o pay dividends and make distributions o issue common and preferred stock of subsidiaries o make certain investments o repurchase stock o create subsidiaries o create liens o enter into transactions with affiliates o enter into sale and leaseback transactions o merge or consolidate our company o transfer and sell assets In addition, we must maintain minimum debt service and maximum leverage ratios under our senior credit facility. A failure to comply with the restrictions contained in our senior credit facility could lead to an event of default which could result in an acceleration of indebtedness. An acceleration would also constitute an event of default under the indenture relating to the notes. See "Description of Our Senior Credit Facility." We may not have the ability to raise the funds necessary to finance the change of control offer required by the indenture. Upon the occurrence of certain kinds of control events, we will be required to offer to repurchase all outstanding notes. Certain events involving a change of control may result in an event of default under our senior credit facility or other indebtedness that we may incur in the future. However, it is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our senior credit facility will not allow such repurchases. In addition, certain important corporate events, such as leveraged stock purchases that would increase the level of our indebtedness, may not constitute a change of control under the indenture. See "Description of the Notes -- Repurchase at the Option of Holders." The holders of a majority of the notes may waive defaults under or modify the indenture in a manner adverse to noteholders who do not approve of such actions. Subject to certain limitations specified in the indenture, the holders of a majority in principal amount of the new notes then outstanding will have the right to: o waive certain existing defaults or events of default; o waive compliance with certain provisions of the indenture or the new notes; o modify or supplement the indenture; and o direct the time, method and place of conducting any proceeding for any remedy available to the Trustee under the indenture. These provisions of the indenture could allow actions affecting the new notes to be taken without the approval of all of the holders of the new notes and thus may have an adverse effect on the holders of new notes who do not approve of such actions. See "Description of the Notes--Events of Default" and "--Modification of Indenture." We depend heavily on a few customers for the substantial majority of our sales. Our four largest customers, Home Depot, Wal*Mart, Lowe's and Kmart, accounted for approximately 26%, 17%, 14% and 11%, respectively, of our net sales in 1998. We anticipate a similar or greater concentration of customers for the foreseeable future. Our reliance on these customers may significantly influence our negotiations with them. We do not have long-term contracts with any of our customers, and there can be no assurance that our customers will continue to purchase our products to the degree they have in the past or at all. The loss of, or a significant adverse change in, our relationship with any major customer could have a material adverse effect on us. See "Business--Customers." -13- Our historical seasonality could impair our ability to make interest payments on the notes. Our products are used primarily in the spring and summer, so our business is highly seasonal. For the past two years, approximately 75% of our net sales have occurred in the first and second quarters. Our working capital needs, and correspondingly our borrowings, peak near the end of our first quarter. If cash on hand is insufficient to cover payments due on the notes and if we are also unable to draw on our senior credit facility, this seasonality could adversely affect our ability to make interest payments as required by the notes. Adverse weather conditions during our peak selling season could adversely impact our financial results. Weather conditions in North America have a significant impact on the timing of sales in the spring selling season and our overall annual sales. Periods of dry, hot weather can decrease insecticide sales, while periods of cold and wet weather can slow sales of herbicides and fertilizers. In addition, an abnormally cold spring throughout North America could adversely affect both fertilizer and pesticide sales and therefore our financial results. We may be unable to compete successfully in our highly competitive industry. We compete against a number of large national and regional brands. Our principal national competitors include: The Scotts Company, which markets products under the Ortho(R), Roundup(R) and Miracle- Gro(R) brand names; S.C. Johnson & Son, Inc., which markets products under the Raid(R) and OFF!(R) brand names; and The Clorox Company, which markets products under the Combat(R) and Black Flag(R) brand names. Some of our competitors are larger, have longer operating histories, greater financial resources and greater market recognition than us. We cannot assure you that we will be able to compete successfully against our competitors. The growth of our business may make it more difficult to manage. Rapid growth may strain our ability to manage our business and will strain our operational and financial resources and accounting controls. Our continued growth will require an increase in personnel, particularly in our sales force. There can be no assurance that we will be able to continue to attract, train, develop and retain the personnel necessary to pursue our growth strategy. We depend on our key personnel and we could be adversely affected if we lose our key personnel. If we were to lose the services of one or more members of our senior management or if one or more members of management were to depart and subsequently compete with us, it could have a material adverse effect on our business. Although we believe we could replace our key employees should the need arise, the loss of key personnel could have a material adverse effect on us. See "Management--Employment Agreements." The interests of the holders of the notes may conflict with our controlling shareholders. The THL Parties beneficially own approximately 91.9% of our issued and outstanding common stock, and accordingly, they have the power to elect a majority of our directors, appoint new management and approve any action requiring the approval of the holders of our common stock, including adopting amendments to our charter and approving mergers or sales of substantially all of our assets. Our directors elected by the THL Parties will have the authority to make decisions affecting our capital structure including the issuance of additional capital stock, the implementation of stock purchase programs and the declaration of dividends. We may be adversely affected by environmental regulations. We are subject to federal, state, local and foreign environmental laws and regulations governing our manufacturing operations and the registration and sale of our pesticide products. The risk arising from environmental regulation may increase in the future because the EPA is currently analyzing the risk that certain pesticides present to children. Failure to comply with the EPA requirements, the cost of supplying data to EPA, and the results of EPA's risk analyses could adversely our business. See "Business--Environmental Regulation." We may be exposed to significant product liability claims. Although we have product liability insurance coverage in the aggregate amount of $1.0 million per occurrence, subject to a $500,000 per occurrence self-insured retention, and an umbrella policy for occurrences exceeding $1.0 million in the amount of $10.0 million, we cannot assure you that this insurance will provide coverage for any claim against us or will be sufficient to cover all possible liabilities. Moreover, any adverse publicity arising from claims made against us, even if the claims were not successful, could adversely affect the reputation and sales of our products. See "Business--Litigation." -14- We may be unable to use and protect our trademarks. Our ability to successfully compete in our markets depends, in part, on our ability to use and protect our trademarks such as Spectracide and Hot Shot. There can be no assurance that our trademarks will be enforceable or adequately protect us from others using similar marks. Although we believe that our products do not violate the patents or proprietary rights of others, it is possible that competitors or others could claim this. If our products are found to infringe on the rights of others, we could be required to modify our products or pay for a license for the manufacture and sale of such products. We may be adversely affected if our year 2000 remediation efforts are not successful. Our failure, or the failure of our third party suppliers or customers, to address information technology issues related to the year 2000 could adversely affect our operations. Like other business entities, we must address the ability of our computer software applications and other business systems to properly identify the year 2000 due to a commonly used programming convention of using only two digits to identify a year. Unless modified or replaced, these systems could fail or create erroneous results when referencing the year 2000. While we believe we have assessed the relevant issues related to the year 2000 problem, we cannot be sure that we will have adequately addressed the issue. Moreover, we rely on third party suppliers for finished goods, raw materials, water, other utilities, transportation and a variety of other key services. If one or more of these suppliers fail to address the year 2000 problem adequately, these suppliers' operations could be interrupted. Our or our customers' failure to address the year 2000 problem adequately could adversely affect our financial results. There is currently no public market for the notes and one may not develop. The notes are a new issue of securities for which there is currently no trading market. We have been informed by CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC that they intend to make a market in the notes. However, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC may cease their market-making at any time. In addition, the liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by changes in the overall market for high yield securities and by changes in our financial performance or prospects or in the prospects for companies in our industry generally. As a result, you cannot be sure that an active trading market will develop for the notes. -15- THE TRANSACTIONS On January 20, 1999, we completed our $652.0 million recapitalization, in which: o Thomas H. Lee Equity Fund IV, L.P. contributed $254.7 million to UIC Holdings, L.L.C., which purchased common stock from stockholders for approximately $254.7 million; o our senior managers purchased common stock from stockholders for approximately $5.7 million; o we borrowed $150 million under a senior subordinated facility and $225 million under a senior credit facility to redeem a portion of the common stock held by stockholders; and o existing stockholders retained equity having an implied fair market value of approximately $16.6 million. The proceeds of the offering of old notes completed on March 24, 1999 were used to pay off the $150 million senior subordinated facility. Following the recapitalization, UIC Holdings, L.L.C. owns approximately 91.9% of our issued and outstanding common stock, the previous stockholders retain approximately 6.0% and our senior managers own approximately 2.1%. We are making an election under Section 338(h)(10) of the Internal Revenue Code of 1986, as amended. As a result, the tax basis of our assets will increase, which should permit us to increase our tax deduction for depreciation and amortization which should lower cash paid for taxes. This step-up in basis will result in an anticipated cash tax benefit of approximately $15 million per year over each of the next 15 years, if fully utilized. The following table sets forth the sources and uses of funds in connection with the Transactions assuming they were consummated on December 31, 1998 (in millions):
Sources of Funds: Senior credit facility (1).......................................... $225.0 Old notes .......................................................... 150.0 Equity contribution (2) ............................................ 277.0 -------- Total sources.................................................. $652.0 ======== Uses of Funds: Recapitalization (3)................................................ $612.4 Repayment of existing indebtedness.................................. 4.6 Estimated fees and expenses......................................... 35.0 -------- Total uses..................................................... $652.0 ========
- ------------------------------- (1) Our senior credit facility consists of: (a) the $110.0 million revolving credit facility, of which no borrowings were outstanding at the closing of the recapitalization; (b) the $75.0 million Term Loan A; and (c) the $150.0 million Term Loan B. See "Description of Our Senior Credit Facility." (2) The equity contribution consists of: (a) Thomas H. Lee Equity Fund IV, L.P.'s investment of approximately $254.7 million; (b) the management investment of approximately $5.7 million; and (c) the equity retained by our existing stockholders having an implied fair market value of approximately $16.6 million. (3) The recapitalization consists of: (a) approximately $335.4 million used by us to redeem a portion of common stock held by our existing stockholders; (b) approximately $260.4 million (comprised of Thomas H. Lee Equity Fund IV, L.P.'s investment and management's investment) used to purchase a portion of common stock held by our existing stockholders; and (c) approximately $16.6 million (comprised of the equity retained by our existing stockholders) of implied fair market value of common stock retained by our existing stockholders. -16- USE OF PROCEEDS We will not receive cash proceeds from the issuance of the new notes. We used the net proceeds of approximately $145.8 million from the initial offering of the old notes plus borrowings under our senior credit facility to repay our borrowings under our senior subordinated facility. -17- CAPITALIZATION The following table sets forth our actual capitalization as of December 31, 1998, and our capitalization as of this date on a pro forma basis to give effect to the Transactions. The information in this table should be read in conjunction with "Unaudited Pro Forma Financial Statements," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited financial statements, including the related notes, which are included in this prospectus.
As of December 31, 1998 ------------------------- Actual Pro Forma ----------- --------- Debt: Existing indebtedness ...................................................... $ 4,645 $ -- Revolving credit facility (1) .............................................. -- 0 Term Loan A ................................................................ -- 75,000 Term Loan B ................................................................ -- 150,000 Notes offered hereby ....................................................... -- 150,000 --------- ------- Total debt .............................................................. 4,645 375,000 --------- ------- Stockholders' equity (deficit): Common stock ............................................................... 2 554 Additional paid-in capital ................................................. 972 104,142 Retained earnings (deficit) ................................................ 70,193 (291,072) Treasury stock ............................................................. (12,910) 0 --------- -------- Total stockholders' equity (deficit) .................................... 58,257 (186,376) --------- -------- Total capitalization .................................................... $62,902 $188,624 ========= ========
- ------------------------------- (1) Our revolving credit facility provides for borrowings of up to $110.0 million for working capital and general corporate purposes. -18- UNAUDITED PRO FORMA FINANCIAL STATEMENTS In the table below, we provide you with unaudited pro forma financial data for United. The unaudited pro forma data gives effect to the Transactions as if they occurred at the beginning on December 31, 1998. The information in the column titled "Actual" is summarized from the historical financial statements included in this prospectus. The unaudited pro forma financial data do not purport to be indicative of our actual financial position or results of operations, nor are they necessarily indicative of the results that we may achieve in the future. When you read this pro forma financial data, it is important that you read along with it the financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which is included in this prospectus. -19- UNITED INDUSTRIES CORPORATION UNAUDITED PRO FORMA BALANCE SHEET (Dollars in thousands) As of December 31, 1998
Transaction Actual Adjustments Pro Forma -------- ----------- --------- ASSETS Current assets: Accounts receivable, net................................................ $ 17,650 $ -- $ 17,650 Inventories............................................................. 41,444 41,444 Prepaid expenses........................................................ 2,172 2,172 -------- -------- Total current assets............................................... 61,266 61,266 Equipment and leasehold improvements, net..................................... 20,156 20,156 Other assets.................................................................. 6,948 14,500(1) 21,448 Investment in discontinued operations......................................... 5,791 5,791 Deferred income taxes......................................................... -- 117,022(2) 117,022 -------- -------- -------- Total assets............................................................ $ 94,161 $131,522 $225,683 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Current maturities of long-term debt.................................... $ 929 $ (929)(3) $ -- Accounts payable........................................................ 18,519 18,519 Accrued expenses........................................................ 12,705 5,800(4) 18,505 -------- -------- -------- Total current liabilities.......................................... 32,153 4,871 37,024 Long-term debt................................................................ 3,716 371,284(3) 375,000 Other liabilities............................................................. 35 35 -------- -------- -------- Total liabilities.................................................. 35,904 376,155 412,059 Stockholders' equity (deficit): Common stock............................................................ 2 552(5) 554 Additional paid-in capital.............................................. 972 103,170(5) 104,142 Retained earnings (deficit)............................................. 70,193 (361,265)(5) (291,072) Treasury stock.......................................................... (12,910) 12,910(5) 0 -------- -------- -------- Total stockholders' equity (deficit)............................... 58,257 (244,633)(5) (186,376) -------- -------- -------- Total liabilities and stockholders' equity......................... $ 94,161 $131,522 $225,683 ======== ======== ========
See the accompanying notes to unaudited pro forma balance sheet. -20- UNITED INDUSTRIES CORPORATION NOTES TO UNAUDITED PRO FORMA BALANCE SHEET (Dollars in thousands) The pro forma financial data have been derived by the application of pro forma adjustments to our historical financial statements for the period noted. The recapitalization has been accounted for as a leveraged recapitalization which will have no impact on the historical basis of assets and liabilities for financial reporting purposes. (1) The pro forma adjustment to other assets reflects the following: Capitalized financing costs............................................... $19,000 Write-off of unamortized financing costs on debt refinanced............... (4,500) -------- $14,500 ========
The $19,000 reflects the capitalized portion of fees and expenses paid to effect the Transactions. Total estimated fees and expenses are $35,000, the remaining $16,000 of which have been charged against stockholders' equity. Such total estimated fees and expenses consist of: (a) fees and expenses related to the Transactions, including bank commitment fees and underwriting commissions; (b) professional, advisory and investment banking fees and expenses; and (c) miscellaneous fees and expenses such as printing and filing fees. The $4,500 write-off relates to unamortized financing costs related to the portion of existing debt refinanced. (2) The pro forma adjustment to deferred income taxes reflects the following: (a) the establishment of a deferred tax asset resulting from the planned Section 338(h)(10) election with respect to the recapitalization; (b) the establishment of a 50% valuation allowance to partially reserve the deferred tax asset arising from the Section 338(h)(10) election; and (c) the conversion to a "C" corporation. (3) The pro forma adjustments to long-term debt reflect the following:
Cash inflow/ outflow ---------- Repayment of current portion of existing long-term debt outstanding....................... $ (929) ========== Senior Credit Facility.................................................................... $ 225,000 Notes offered hereby...................................................................... 150,000 Repayment of existing long-term debt outstanding.......................................... (3,716) ---------- Pro forma adjustment to long-term debt............................................... $ 371,284 ==========
(4) The pro forma adjustment to accrued expenses reflects the accrual for change of control bonuses that were paid to management in connection with the recapitalization, net of equity contributed by our senior managers. -21- UNITED INDUSTRIES CORPORATION NOTES TO UNAUDITED PRO FORMA BALANCE SHEET--(continued) (Dollars in thousands) (5) The pro forma adjustments to stockholders' equity reflect the following:
Additional Common Paid-In Retained Treasury Stock Capital Earnings Stock Total --------- ----------- -------- ----------- --------- Redemption of common stock.................................... $ -- $ -- $ (335,355) $ -- $ (335,355) Cancellation of treasury stock................................ -- -- (12,910) 12,910 0 Fees and expenses related to the transactions................. -- (16,000) -- -- (16,000) Write-off of unamortized financing costs...................... -- -- (4,500) -- (4,500) Equity contributed by senior managers......................... -- 2,700 -- -- 2,700 Compensation expense related to change of control bonuses..... -- -- (8,500) -- (8,500) Deferred tax asset............................................ -- 117,022 -- -- 117,022 552 (552) -- -- 0 --------- --------- ---------- ------- ---------- Stock split................................................... $ 552 $ 103,170 $ (361,265) $12,910 $ (244,633) ========= ========= ========== ======= ==========
-22- UNITED INDUSTRIES CORPORATION UNAUDITED PRO FORMA STATEMENT OF INCOME (Dollars in thousands) Year Ended December 31, 1998
Related Party Transaction Actual Adjustments Adjustments Pro Forma -------- ------------- ----------- ---------- Net sales ........................................................... $282,676 $ -- $ -- $282,676 Operating costs and expenses: Cost of goods sold ............................................ 140,455 -- -- 140,445 Advertising and promotion expenses ............................ 31,719 -- -- 31,719 Selling, general and administrative expenses .................. 61,066 (7,740)(1) 750(2) 54,076 Non-recurring litigation charges .............................. 2,321 -- -- 2,321 -------- -------- -------- --------- Total operating costs and expenses .................................. 235,551 (7,740) 750 228,561 -------- -------- -------- --------- Operating income .................................................... 47,125 7,740 (750) 54,115 Interest expense .................................................... 1,106 -- 36,820(3) 37,926 -------- -------- -------- --------- Income before provision for income taxes and discontinued operations .................................................... 46,019 7,740 (37,570) 16,189 Income tax expense .................................................. 992 -- 2,238(4) 3,230 -------- -------- -------- --------- Income from continuing operations ................................... $ 45,027 $ 7,740 $(39,808) $ 12, 959 ======== ======== ======== ========= Other Data: EBITDA (5) .......................................................... $ 60,274 Depreciation and amortization ....................................... 3,838
See the accompanying notes to unaudited pro forma statement of income. -23- UNITED INDUSTRIES CORPORATION NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME (Dollars in thousands) The unaudited pro forma statement of income excludes approximately $8,500 of non-recurring expenses related to compensation expense to be recorded for change of control bonuses paid to management in connection with the recapitalization and the write-off of unamortized financing costs of $4,500. (1) The pro forma adjustment to selling, general and administrative expenses reflects the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. (2) The pro forma adjustment to selling, general and administrative expenses reflects the annual management fee we will pay to THL. (3) The pro forma adjustment to interest expense reflects the following:
Rate Amount --------- --------------- Interest expense on revolving credit facility ................................ 7.750% $ 2,000(a) Interest expense on Term Loan A .............................................. 7.750% 5,813 Interest expense on Term Loan B .............................................. 8.250% 12,375 Interest expense on notes offered hereby ..................................... 9.875% 14,813 Amortization of capitalized financing fees ................................... 2,375(b) Commitment fees on unused available revolving credit facility ................ 550 Interest expense on debt refinanced .......................................... (1,106) ------- Total adjustment ............................................................. $36,820 =======
- ------------------- (a) Reflects management's estimate of the annual interest expense associated with seasonal working capital borrowings. (b) Reflects annual amortization expense utilizing a weighted average maturity on all borrowings of eight years. A 0.125% increase or decrease in the assumed interest rate on our senior credit facility would change the pro forma interest expense by approximately $312 for the year ended December 31, 1998. (4) The pro forma adjustment to income taxes reflects the following: (a) the planned Section 338(h)(10) election with respect to the recapitalization; (b) a 50% valuation allowance to partially reserve the deferred tax asset arising from the Section 338(h)(10) election; (c) the conversion to a "C" corporation; and (d) the direct tax effects of the pro forma adjustments described above at an estimated 38% effective tax rate. -24- UNITED INDUSTRIES CORPORATION NOTES TO UNAUDITED PRO FORMA STATEMENT OF INCOME--(continued) (Dollars in thousands) (5) EBITDA represents income from continuing operations before interest expense, income tax expense, depreciation and amortization, and $2,321 in non-recurring litigation expenses accrued in 1998. Pro Forma 1998 EBITDA includes certain related party transactions and the THL management fee discussed below. We have included information concerning EBITDA because we believe it is used by certain investors as one measure of a company's historical ability to fund operations and meet its financial obligations. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to operating income or income from continuing operations as an indicator of our operating performance or cash flow as a measure of liquidity. In addition, our definition of EBITDA may not be comparable to that reported by other companies. Pro Forma 1998 EBITDA is calculated as follows:
Year Ended December 31, 1998 --------------- Income from continuing operations............................................... $45,027 Interest expense................................................................ 1,106 Income tax expense.............................................................. 992 Depreciation and amortization................................................... 3,838 Non-recurring litigation charges (a)............................................ 2,321 ---------- EBITDA.......................................................................... 53,284 Related party transactions (b).................................................. 7,740 THL management fee.............................................................. (750) ---------- Pro Forma EBITDA................................................................ $60,274 ==========
- ------------------------------- (a) Reflects non-recurring costs associated with two separate lawsuits: (a) a suit filed in 1992 by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy, which we are appealing, and (b) certain litigation concerning the advertising of our Spectracide Terminate product for which we have negotiated a settlement. (b) Reflects the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. -25- SELECTED HISTORICAL FINANCIAL DATA (Dollars in thousands) In the table below, we provide you with selected historical financial data for United. When you read this selected historical financial data, it is important that you read along with it the financial statements and related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," all of which is included in this prospectus.
Year Ended December 31, ---------------------------------------------------------------------- 1994 1995 1996 1997 1998 ---------------------------------------------------------------------- Statement of Income Data: Net sales ............................................... $139,822 $159,192 $199,495 $242,601 $282,676 Operating costs and expenses: Cost of goods sold .................................... 73,230 82,603 106,640 128,049 140,445 Advertising and promotion expenses .................... 15,575 17,813 22,804 25,547 31,719 Selling, general and administrative expenses ..................................... 35,032 38,629 46,276 52,092 61,066 Non-recurring litigation charges ...................... -- -- -- -- 2,321 -------- -------- -------- -------- -------- Total operating costs and expenses ...................... 123,837 139,045 175,720 205,688 235,551 -------- -------- -------- -------- -------- Operating income ........................................ 15,985 20,147 23,775 36,913 47,125 Interest expense ........................................ 445 609 1,502 1,267 1,106 -------- -------- -------- -------- -------- Income before provision for income taxes and discontinued operations ........................... 15,540 19,538 22,273 35,646 46,019 Income tax expense ...................................... 305 289 447 726 992 -------- -------- -------- -------- -------- Income from continuing operations ....................... $ 15,235 $ 19,249 $ 21,826 $ 34,920 $ 45,027 ======== ======== ======== ======== ======== Other Financial Data: EBITDA (1) .............................................. $ 17,299 $ 22,862 $ 27,336 $ 40,510 $ 53,284 Depreciation and amortization ........................... 1,314 2,715 3,561 3,597 3,838 Capital expenditures (2) ................................ 1,993 4,726 6,384 5,138 3,628 Gross margin ............................................ 47.6% 48.1% 46.5% 47.2% 50.3% EBITDA margin ........................................... 12.4% 14.4% 13.7% 16.7% 18.8% Ratio of earnings to fixed charges (3) .................. 11.8x 12.4x 8.3x 13.9x 17.6x Balance Sheet Data: Working capital (4) ..................................... $ 21,867 $ 29,565 $ 26,919 $ 32,046 $ 30,042 Total assets ............................................ 56,037 82,979 84,254 97,441 94,161 Total debt .............................................. -- 16,200 13,960 3,997 4,645 Stockholders' equity (deficit) .......................... 40,131 45,864 46,829 64,449 58,257
(see footnotes on following page) -26- (1) EBITDA represents income from continuing operations before interest expense, income tax expense, depreciation and amortization, and $2,321 in non-recurring litigation expenses accrued in 1998. Pro Forma 1998 EBITDA includes certain related party transactions and the THL management fee as discussed below. We have included information concerning EBITDA because we believe it is used by certain investors as one measure of a company's historical ability to fund operations and meet its financial obligations. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles and should not be used as an alternative to operating income or income from continuing operations as an indicator of our operating performance or cash flow as a measure of liquidity. In addition, our definition of EBITDA may not be comparable to that reported by other companies. EBITDA is calculated as follows:
Year Ended December 31, ------------------------------------------------------ 1994 1995 1996 1997 1998 ------- ------- ------- ------- ------- Income from continuing operations ....................... $15,235 $19,249 $21,826 $34,920 $45,027 Interest expense ........................................ 445 609 1,502 1,267 1,106 Income tax expense ...................................... 305 289 447 726 992 Depreciation and amortization ........................... 1,314 2,715 3,561 3,597 3,838 Non-recurring litigation charges (a) .................... -- -- -- -- 2,321 ------- ------- ------- ------- ------- EBITDA (b) .............................................. $17,299 $22,862 $27,336 $40,510 $53,284 ======= ======= ======= ======= =======
- ------------------------------- (a) Reflects non-recurring costs associated with two separate lawsuits: (a) a suit filed in 1992 by the spouse of a former employee claiming benefits from a United-owned key man life insurance policy, which we are appealing, and (b) certain litigation concerning the advertising of our Spectracide Terminate product for which we have negotiated a settlement. (b) Does not reflect the elimination of stockholder salaries and certain fringe benefits that were in effect prior to the recapitalization and were reflective of the private ownership structure that existed prior to the recapitalization, offset by the salary and fringe benefit structure that was implemented with the recapitalization. EBITDA for 1994, 1995, 1996 and 1997, has not been adjusted for related party transactions. The related party transactions amounts were $3,754, $4,215, $3,847, $3,061 and $7,740 for 1994, 1995, 1996, 1997 and 1998, respectively. (2) Capital expenditures for 1995 exclude $8,272 of expenditures related to acquisitions. (3) For purposes of this calculation, earnings are defined as income before provision for income taxes and discontinued operations plus fixed charges. Fixed charges include interest expense on all indebtedness (including amortization of deferred financing costs) and the portion of operating lease rental expense which management believes is representative of the interest factor of rent expense (approximately one-third of rent expense). (4) Working capital is defined as current assets (excluding cash and cash equivalents) less current liabilities (excluding short-term debt and current portion of long-term debt). -27- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water-soluble fertilizers, under a variety of brand names. We believe that the key drivers of growth for the $2.7 billion consumer lawn and garden pesticide and household insecticide retail markets include: (a) the aging of the United States population; (b) growth in the home improvement center and mass merchandiser channels; and (c) shifting consumer preferences toward value-oriented branded products. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry and has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. The following discussion of our historical results of operations and financial condition should be read in conjunction with the audited financial statements and the related notes which are included in this prospectus. Results of Operations The following table sets forth the percentage relationship of certain items in our income statement to net sales.
Year Ended December 31, ------------------------------------- 1996 1997 1998 ------ ------ ------ Net sales: Value brands .................................................................... 83.4% 73.9% 76.6% Opening price point brands ...................................................... 9.2 18.6 17.7 Other ........................................................................... 7.4 7.5 5.7 ----- ----- ----- Total net sales ....................................................................... 100.0 100.0 100.0 Operating costs and expenses: Cost of goods sold .............................................................. 53.5 52.8 49.7 Advertising and promotion expenses .............................................. 11.4 10.5 11.2 Selling, general and administrative expenses .................................... 23.2 21.5 21.6 Non-recurring litigation charges ................................................ 0.0 0.0 0.0 ----- ----- ----- Total operating costs and expenses .................................................... 88.1 84.8 83.3 ----- ----- ----- Operating income ...................................................................... 11.9 15.2 16.7 Interest expense ...................................................................... 0.8 0.5 0.4 ----- ----- ----- Income before provision for income taxes and discontinued operations .................. 11.1 14.7 16.3 Income tax expense .................................................................... 0.2 0.3 0.4 ----- ----- ----- Income from continuing operations ..................................................... 10.9% 14.4% 15.9% ===== ===== =====
1998 Compared to 1997 Net Sales. Net sales increased 16.5% to $282.7 million in 1998 from $242.6 million in 1997. This increase was driven by a combination of factors including: (a) the continued shift of consumers' preferences toward value and opening price point brands; (b) the introduction of Spectracide Terminate; and (c) expanded distribution at home improvement centers and mass merchandisers through increased shelf space and rapid store expansion. Net sales of our value brands increased 20.9% to $216.6 million in 1998 from $179.2 million in 1997. This increase was a result of continued growth of core value brands including Spectracide, Hot Shot and Peters, and the introduction of Spectracide Terminate, which contributed $21.9 million in net sales in 1998. Net sales of opening price point brands increased 11.1% to $50.1 million in 1998 from $45.1 million in 1997 driven by the continued rapid pace of store openings by our top retail customers. -28- Gross Profit. Gross profit increased 24.2% to $142.2 million in 1998 compared to $114.6 million in 1997. As a percentage of net sales, gross profit increased to 50.3% in 1998 compared to 47.2% in 1997. The improvement in gross profit as a percentage of net sales was a result of a more profitable sales mix, mainly attributable to the introduction of Spectracide Terminate, and volume efficiencies. Advertising and Promotion Expenses. Advertising and promotion expenses increased 24.2% to $31.7 million in 1998 from $25.5 million in 1997. As a percentage of net sales, advertising and promotion expenses increased to 11.2% in 1998 from 10.5% in 1997. The overall increase in advertising and promotion expenses was primarily related to the launch of Spectracide Terminate. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 17.2% to $61.1 million in 1998 from $52.1 million in 1997. As a percentage of net sales, selling, general and administrative expenses increased slightly to 21.6% in 1998 from 21.5% in 1997. The overall increase in selling, general and administrative expenses was related to higher selling, marketing and distribution costs to support the launch of Spectracide Terminate and the rapid growth in sales, as well as higher related party expenses. Operating Income. Operating income increased 27.7% to $47.1 million in 1998 from $36.9 million in 1997. As a percentage of net sales, operating income increased to 16.7% in 1998 from 15.2% in 1997 as a result of improved gross margins as discussed above. 1997 Compared to 1996 Net Sales. Net sales increased 21.6% to $242.6 million in 1997 from $199.5 million in 1996. This increase was driven by a combination of factors including: (a) the continued shift of consumers' preferences toward value and opening price point brands; (b) new product introductions, including opening price point brands at Home Depot and Lowe's; and (c) expanded distribution at home improvement centers and mass merchandisers through increased shelf space and rapid store expansion. Net sales of our value brands increased 7.8% to $179.2 million in 1997 from $166.3 million in 1996. This increase was a result of continued growth of core value brands including Spectracide, Hot Shot and Peters. Net sales of opening price point brands increased 146.4% to $45.1 million in 1997 from $18.3 million in 1996 driven by the introductions of Real-Kill at Home Depot and No-Pest at Lowe's. Gross Profit. Gross profit increased 23.4% to $114.6 million in 1997 compared to $92.9 million in 1996. As a percentage of net sales, gross profit increased to 47.2% in 1997 compared to 46.5% in 1996. The improvement in gross profit as a percentage of net sales was a result of a more profitable sales mix, volume efficiencies and cost reduction efforts completed late in 1996 related to the acquisitions made in 1995. Advertising and Promotion Expenses. Advertising and promotion expenses increased 12.0% to $25.5 million in 1997 from $22.8 million 1996. As a percentage of net sales, advertising and promotion expenses declined to 10.5% in 1997 from 11.4% in 1996. The overall increase in advertising and promotion expenses related to costs associated with the launch of opening price point brands at Home Depot and Lowe's. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased 12.6% to $52.1 million in 1997 from $46.3 million in 1996. As a percentage of net sales, selling, general and administrative expenses decreased to 21.5% in 1997 from 23.2% in 1996. The overall increase in selling, general and administrative expenses was related to higher selling, marketing and distribution costs to support the rapid growth in sales. The decline in selling, general and administrative expenses as a percentage of net sales was a result of increased total sales and the benefits of cost containment efforts and improved operating leverage. Operating Income. Operating income increased 55.3% to $36.9 million in 1997 from $23.8 million in 1996. As a percentage of net sales, operating income increased to 15.2% in 1997 from 11.9% in 1996 as a result of improved gross margins and a decline in selling, general and administrative expenses as a percentage of net sales as discussed above. -29- Income Tax Expense The low effective tax rate for 1996, 1997 and 1998 was attributable to our election to be taxed as an "S" corporation under the provisions of the Internal Revenue Code and similar provisions of Missouri tax law. In conjunction with the recapitalization, we converted to a "C" corporation and will be subject to federal and Missouri income tax beginning in 1999. Liquidity and Capital Resources Historically, we have utilized internally generated funds and borrowings under credit facilities to meet ongoing working capital and capital expenditure requirements. As a result of the recapitalization, we have significantly increased our cash requirements for debt service relating to the notes and our senior credit facility. As of December 31, 1998, on a pro forma basis, we would have had long-term debt outstanding of approximately $375.0 million and up to $110.0 million available under our revolving credit facility. We will rely on internally generated funds and, to the extent necessary, borrowings under our revolving credit facility to meet our liquidity needs. See "The Transactions." Our senior credit facility consists of: (a) the $110.0 million revolving credit facility, under which no borrowings were outstanding at the closing of the recapitalization; (b) the $75.0 million Term Loan A; and (c) the $150.0 million Term Loan B. Our revolving credit facility and the Term Loan A mature six years from the closing date of our senior credit facility, and the Term Loan B matures seven years from the closing date of our senior credit facility. Our revolving credit facility is subject to a clean-down period during which the aggregate amount outstanding under our revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. Our principal liquidity requirements are for working capital, capital expenditures and debt service under our senior credit facility and the notes. Cash flow from continuing operations provided net cash of approximately $27.7 million, $35.1 million and $50.8 million in 1996, 1997 and 1998, respectively. Cash flow from operating activities fluctuates during the year as the seasonal nature of our sales results in a significant increase in working capital (primarily accounts receivable and inventory) during the first half of the year, with the second and third quarters being significant cash collection periods. Capital expenditures are related to the maintenance of our existing facilities and the construction of additional production and distribution capacity. Capital expenditures for 1996, 1997 and 1998 were approximately $6.4 million, $5.1 million and $3.6 million, respectively. Capital expenditures for 1999 are expected to be less than $5.0 million. Principal on the Term Loan A is required to be repaid quarterly in annual amounts of $10.0 million for years one through four and $17.5 million for years five and six after the closing of our senior credit facility. Principal on the Term Loan B is required to be repaid quarterly in annual amounts of $1.5 million for the first six years and $141.0 million for the seventh year after the closing of our senior credit facility. See "Description of Our Senior Credit Facility." Based on our current operations, we believe that our cash flow from operations, together with available borrowings under our revolving credit facility, will be adequate to meet our anticipated requirements for working capital, capital expenditures and scheduled principal and interest payments for the next few years. However, we cannot ensure that we will generate sufficient cash flow from operations to repay the notes and amounts outstanding under our senior credit facility at maturity without requiring additional financing. Our ability to meet our debt service and clean-down obligations and reduce our debt will be dependent on our future performance, which in turn, will be subject to general economic conditions and to financial, business and other factors, including factors beyond our control. See "Risk Factors." Because a portion of our debt bears interest at floating rates, our financial condition is and will continue to be affected by changes in prevailing interest rates. -30- Seasonality Our business is highly seasonal because our products are used primarily in the spring and summer. For the past two years, approximately 75% of our net sales have occurred in the first and second quarters. Our working capital needs, and correspondingly our borrowings, peak near the end of our first quarter. Year 2000 Compliance The year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of our computer programs that have date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. In connection with a $2.5 million management information systems upgrade, we have substantially completed an inventory of our computer programs and assessed our year 2000 readiness. Our information systems and computer programs include programs developed for our proprietary management information system. For programs which were identified as not being year 2000 ready, we repaired or replaced the programs and have substantially completed performing appropriate testing for year 2000. We believe that substantially all of our information systems should now be year 2000 compliant, but we do not expect to complete our testing until June 1999. Costs related to the year 2000 issue are included in the $2.5 million management information systems upgrade. We estimate that the remaining testing, repair and replacement necessary to complete our year 2000 compliance program will cost less than $1.0 million. In our opinion, we do not anticipate any additional costs relating to the year 2000 issue which would have a material adverse effect on our financial condition or our results of operations. While we believe all necessary work will be completed in a timely fashion, we cannot assure you that all systems will be compliant by the year 2000, or that the systems of other companies and government agencies on which we rely will be compliant. We believe the most likely worst-case scenarios that we might confront with respect to the year 2000 issues have to do with the possible failure of third-party systems over which we have no control, including, but not limited to, satellite, power and telephone services. However, we have developed a contingency plan to facilitate electronic data interchange communication with our main customers. Since June 30, 1998, we have been communicating with our largest customers to determine their state of readiness with regard to the year 2000 issue. Based on our assessment to date, we have not received any indication from a third party indicating that it expects to experience year 2000 non-compliance of a nature which would have a material impact on us. However, the risk remains that our customers or other third parties may not have accurately determined their state of readiness, in which case these parties' lack of year 2000 compliance may have a material adverse effect on our results of operations. We continue to monitor the year 2000 compliance of third parties with which we do business. Recently Issued Accounting Pronouncements The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" in June 1998. SFAS 133 provides standards on accounting and disclosure for derivative instruments and requires that all derivatives be measured at fair value and reported as either assets or liabilities on the balance sheet. We will be required to adopt this statement no later than the beginning of fiscal year 2000. We have not completed our analysis to determine the impact of this statement on our financial statements. -31- BUSINESS General We are the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water-soluble fertilizers, under a variety of brand names. Our "value" and "opening price point" brands generally compete with higher priced premium brands. Our portfolio of value-oriented brands includes the following: o Spectracide, the leading value brand and overall fastest growing brand of consumer lawn and garden pesticides; o Spectracide Terminate, the first ever do-it-yourself consumer termite killing system, launched in 1998; o Spectracide Pro, lawn and garden and household pesticides targeted toward the professional market, introduced in 1999; o Hot Shot, the leading value brand and overall fastest growing brand of consumer household insecticides; o Cutter, the leading value brand and overall fastest growing brand of consumer insect repellents; o Peters, the leading value brand of consumer water-soluble fertilizers; and o Real-Kill (Home Depot), No-Pest (Lowe's) and KRid and KGro (Kmart), the opening price point brands of consumer lawn and garden pesticides and household insecticides at key retailers. We believe that our market leadership is a result of our: (a) leading value-oriented brands, (b) strategic relationships with major national retailers, (c) extensive distribution capabilities, (d) exclusive direct sales force and (e) proprietary management information systems. Our portfolio of pesticide brands holds the number one position in the home improvement center channel and the number two position in the mass merchandiser channel. In 1998, we generated net sales and pro forma EBITDA of $282.7 million and $60.3 million, respectively. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. As a result, from 1994 to 1998 our: o Net sales grew at a compound annual rate of 19.2%; o EBITDA grew at a compound annual rate of 36.6%; and o EBITDA margin increased from 12.4% to 21.3%. Industry Overview Retail sales of consumer lawn and garden pesticides and household insecticides in the United States totaled $2.7 billion in 1998. Since 1994, the market for these products has grown at an average annual rate of approximately 3%. We believe that the industry will continue to grow at a similar rate over the next several years due to favorable demographic trends. Approximately 67% of households in the United States, or 68 million households, participate in some form of lawn and garden care activity. Moreover, consumers over the age of forty-five represent the largest segment of lawn and garden care product users and typically enjoy more leisure time and higher levels of discretionary income than the general population. As the baby boom generation ages, this segment is expected to grow at a rate more -32- than twice that of the total population. This demographic trend is likely to increase the number of lawn and garden care product users. We also believe that we will benefit from the following trends in the industry: Channel Consolidation. Historically, consumer lawn and garden care products have been distributed through a variety of retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, warehouse clubs and garden centers. In recent years, as home improvement centers and mass merchandisers have added stores and expanded their lawn and garden care departments, consumers have increasingly purchased their lawn and garden care needs from these outlets due to their broader and deeper product offerings, competitive prices and convenient locations and hours. In 1997, approximately 70% of consumers purchased lawn and garden care products at home improvement centers and mass merchandisers compared to just 57% in 1992. We believe that these retail channels will continue to gain market share from other channels over the next several years. Growth in Value-Oriented Brands. Consumer lawn and garden care products fall into one of three brand tiers: (a) premium brands, (b) value brands or (c) opening price point brands. Historically, the market was dominated by premium brands. Over the past several years, the market has shifted toward value and opening price point brands. Value brands are targeted toward consumers who want products and packaging that are comparable or superior to premium brands, but at a lower price, while opening price point brands are designed for consumers who want quality products and packaging, but are extremely cost conscious. Value and opening price point brands' combined share of shelf space at our four largest customers increased from approximately 40% to 60% between 1995 and 1998 at the expense of premium brands. We believe that value and opening price point brands will continue to grow because of (a) continued improving consumer perception of the quality and performance of these brands and (b) ongoing increases in shelf space dedicated to these brands due to the higher margins they offer to retailers. Professional Market Buying Patterns. Home improvement centers are increasingly targeting the trade professionals in a variety of industries. As a result, trade professionals are utilizing this channel with greater frequency to take advantage of the competitive prices, convenience of locations and hours, delivery services and availability of credit offered by such retailers. Smaller independent pest control operators and lawn and garden care professionals, who represent approximately 70% of the professional market, have historically purchased their supplies from commercial distributors. While the current selection of professional lawn and garden care products is limited at home improvement centers, we believe that strategic initiatives underway at several national retailers will improve the breadth of professional products offered and drive future growth through this channel. Competitive Strengths Leading Value-Oriented Brands. United is the leading manufacturer and marketer of value-oriented branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. Our value and opening price point brands have driven a shift in the industry by offering innovative products comparable or superior quality to premium brands at lower prices. As a result, our products have developed significant brand awareness and customer loyalty. Our portfolio of pesticide brands holds the number one position (36% share) in the home improvement center channel and the number two position (29% share) in the mass merchandiser channel. Strategic Partnerships With Leading Retailers. We have developed "strategic partnerships" with a number of leading national retailers in the fastest growing retail channels. Our four largest customers, Home Depot, Wal*Mart, Lowe's and Kmart, each hold significant positions in the lawn and garden care market and have together opened approximately 750 net new stores over the last five years. As a result, we have been able to significantly increase our sales as these retailers have added new stores and captured market share. Large, Exclusive Direct Sales Force. We have the largest direct sales force in our industry, with approximately 300 sales representatives dedicated to merchandising our products. Each representative is responsible for approximately 30 retail outlets and typically visits each store on a weekly basis to merchandise shelf space, collect inventory data, record orders and educate in-store personnel about our products. This process facilitates real time marketing, re-ordering -33- and pricing decisions, helping to maximize store-level profitability. In addition, our exclusive sales force helps us to identify emerging trends and develop products to meet consumers' needs. We believe that our level of direct in-store sales support is unique among our competitors. Proprietary Management Information System. Our highly advanced and proprietary management information system provides real time data on sales, orders and inventories at each retail outlet, allowing targeted sales promotions and efficient inventory management. With same-day order processing and strategically located distribution centers throughout the United States, we are generally able to deliver products to retailers within 72 hours of an order, allowing retailers to maintain lower inventory levels, generate higher turns and minimize costly returns. Proven, Committed Senior Management Team. Our management team has extensive operating, merchandising and marketing experience with us and in the consumer products industry. This management team has grown our business by developing new products and acquiring strategic brands while also improving operating efficiencies. In connection with the recapitalization, we named Stephen R. Brian as our President and Chief Executive Officer. Mr. Brian complements the present management team, joining us with over 30 years of experience in the consumer products industry. Combined, our top four senior managers have over 80 years of experience in the consumer products industry and 19 years of experience with us. After the recapitalization, our senior management team owns or has the right to acquire approximately 9% of our fully diluted common stock. Business Strategy We plan to capitalize on our strengths and the favorable industry trends to enhance our leadership position in value and opening price point brands by implementing the following key elements of our business strategy: Enhance Value Brand Position. We plan to maintain our focus on building our leading value brands for the consumer lawn and garden pesticide and household insecticide markets. Our strategy is to provide innovative products of comparable or superior quality to our competitors at a lower price to appeal to the large, growing segment of consumers that desire a better value. Over the past five years, we have grown the sales and market shares of our core value brands - Spectracide, Hot Shot, Cutter and Peters - through the successful execution of this strategy. Partner with Leading Retailers. We believe that our strong value brand position coupled with our operational expertise allows us to partner with leading national retailers to develop opening price point brands. We currently manufacture and market the opening price point brands for retailers such as Home Depot, Kmart and Lowe's. Our strategic partnerships with these retailers have enabled us to significantly increase our portion of their category shelf space. Specifically, our products occupy over half of the category shelf space at Home Depot, Kmart and Lowe's, where we are "category manager" for lawn and garden pesticides. As category manager, our representatives work together with these national retailers to determine advantageous pricing, product mix and merchandising plans. Maximize Category Profitability for Retailers. We focus on maximizing retailers' profitability in selling our products by being a low-cost provider and leveraging our one-step distribution. We are a low-cost provider as a result of our high level of vertical integration and our patented water-based aerosol technology. We have a one-step distribution process through our approximately 300 person exclusive direct sales force, the largest in the industry. Leverage Distribution Network. We continually seek to capitalize on our strong distribution network and relationships with retailers. To that end, we have increased our sales and improved our operating leverage by supplying complementary product lines to retailers. We add new products either through new product development or by acquiring product lines. Our new product development strategy has been to introduce innovative products that have superior performance, easy-to-understand packaging and value pricing. Over the past three years, we have introduced 80 new products, which represented nearly 40% of our 1998 net sales. New products generate additional sales and generally provide higher margins to us and our retailers. Spectracide Terminate generated net sales of $21.9 million in its limited initial launch in 1998, demonstrating the strength of our distribution network. Our brand acquisition strategy has been to selectively acquire product lines that can benefit from our strong distribution network, product -34- development expertise and other competitive strengths. Acquired product lines such as Peters and Cutter have experienced rapid growth upon integration into our distribution system. Target Professional Market. While the primary end users of our products have historically been household consumers, we have begun to target smaller independent pest control operators and lawn and garden care professionals through our existing retail channels. Historically, these professionals have purchased their pesticide and lawn and garden care products from commercial distributors. We believe that these professionals will increasingly utilize the home improvement center channel to take advantage of the competitive prices, convenience of locations and hours, delivery services and availability of credit offered. To benefit from and further drive this trend, we developed Spectracide Pro, a group of products designed specifically for the professional market. Launched in March 1999, this line of professional pesticides is supported by national advertising in relevant trade magazines, in-store promotional campaigns, an exclusive direct sales force and technical support. We believe that we can capitalize on our strong relationships with leading national retailers to gain a meaningful position in the professional market. Our History United was founded by David C. Pratt in 1969. We initially focused on metal works and anchor and bolt production. In 1973, we acquired Spray Chem, a contract manufacturer of liquid and aerosol insecticides and herbicides. In 1985, we acquired Real-Kill and entered into the manufacturing and distribution of branded products. In 1988, we formed our core businesses through the acquisition of certain assets of various businesses of Chesebrough-Ponds, a subsidiary of Unilever plc. The acquired brands included Spectracide, Hot Shot, Rid-a-Bug, Bag-a-Bug and No-Pest, expanding our products to include a wide array of value-oriented indoor and outdoor pesticides. In 1994, we acquired certain assets relating to Cutter from Miles, Inc. In 1995, we acquired certain assets from Alljack Company and Celex Corporation, including Peters, the manufacturing rights of Kmart's opening price point brands, KRid and KGro, and the Shootout and Gro Best brand names. In addition to acquisitions, we have grown through new product introductions. Our new product development strategy has been to identify unmet consumer needs, exploit competitors' weaknesses and introduce innovative products that have superior performance, easy-to-understand packaging and value pricing. Over the past three years, we have introduced 80 new products, which represented nearly 40% of our 1998 net sales. Examples include: (a) Spectracide Terminate, the first ever do-it-yourself consumer termite killing system, introduced in 1998, and (b) Spectracide Pro, a line of lawn and garden and household pesticides targeted toward smaller independent pest control operators and lawn and garden care professionals, introduced in March 1999. Products We are the leading manufacturer and marketer of value and opening price point branded products for the consumer lawn and garden pesticide and household insecticide markets in the United States. We manufacture and market one of the broadest lines of pesticides in the industry, including herbicides and indoor and outdoor insecticides, as well as insect repellents and water soluble fertilizers, under a variety of brand names. Our products have comparable or superior quality and performance to premium brands, but are typically priced at a 10% to 20% discount. Our value brands are targeted toward consumers who want products and packaging that are comparable or superior to premium brands, but at a lower price, while our opening price point brands are designed for consumers who want quality products and packaging, but are extremely cost conscious. Our portfolio of value- oriented pesticide brands hold the number one position (36% share) in the home improvement center channel and the number two position (29% share) in the mass merchandiser channel. The following is a description of each of our major products. Value Brands (76% of 1998 net sales) - ------------------------------------ We sell a broad line of value brands marketed under such names as Spectracide, Spectracide Terminate, Spectracide Pro, Hot Shot, Cutter and Peters. Since 1994, net sales of our value brands have grown at a compound annual rate of 13.7% from $129.4 million to $216.6 million in 1998. Below is a description of each of our value brands: -35- Spectracide. The Spectracide product line primarily consists of outdoor insect control products and herbicides, but also includes indoor insect control products, specialty items such as plant disease control and rose care products, and regional products such as fire ant killer and Bag-a-Bug Japanese beetle traps. Since its acquisition from Unilever in 1988, Spectracide has grown faster than any brand in the consumer lawn and garden category with net sales growing at a compound annual rate of 14.1% since 1994. When we acquired the Spectracide product line, it held a single digit market share in the home improvement center and mass merchandiser channels. Today, the Spectracide brand has an average market share in excess of 20% in both of these channels. We have grown this brand by capitalizing on our strong distribution network, product development expertise and other competitive strengths. The Spectracide product line consists of 115 SKUs. Spectracide Terminate. Introduced in 1998, Spectracide Terminate is the first ever do-it-yourself consumer termite killing system. The product is based on professional bait stake technology and comes in 20, 40 or 60 stake packages to meet the needs of a wide range of property sizes. Prices per package range from $49 to $129, which is a significant discount to professional services. The introduction of Spectracide Terminate reflects our focus on innovative product development. We identified a need for a do-it-yourself alternative because approximately 98% of the revenues in the $2.0 billion termite control industry are generated by professional termite franchises. Conceived, developed and introduced in less than a year, Spectracide Terminate has been very successful during its initial marketing stage, with net sales of $21.9 million in 1998. As we continue to expand distribution and enhance marketing programs dedicated to this product, we believe sales of the Spectracide Terminate product will continue to grow. The Spectracide Terminate product line consists of 12 SKUs. Spectracide Pro. The Spectracide Pro product line, which was introduced in March 1999, targets smaller independent lawn and garden care professionals and pest control operators. Many trade professionals are increasingly purchasing their supplies at home improvement centers. To benefit from and drive this trend, we developed the Spectracide Pro line, a group of products designed specifically for the professional market. This product line will be the first to offer both convenience and value to this market through the home improvement center channel. Conceived, developed and introduced in less than a year, this product line is supported by national advertising in relevant trade magazines, an exclusive direct sales force, a technical support team and in-store promotional campaigns. Preliminary distribution is through over 400 Home Depot retail locations. The Spectracide Pro product line consists of 21 SKUs. Hot Shot. The Hot Shot product line consists of household insecticides, including items such as roach and ant killers, flying insect killers, foggers, wasp and hornet killers, rodenticides, flea control products and, most recently, a new line of roach and ant baits. Acquired from Unilever in 1988, Hot Shot is the fastest growing household insecticide brand in the United States, recently passing Black Flag(R) to become the number two brand in the home improvement center and mass merchandiser channels. Hot Shot's market penetration has consistently increased, growing from a market share in the low single digits in the home improvement center and mass merchandiser channels when we acquired the brand to over 16% today in the categories in which it competes. The Hot Shot product line consists of 48 SKUs. Cutter. Acquired from Miles, Inc. in 1994, Cutter's product line provides protection for the entire family, ranging from area repellent citronella candles to products designed especially for use on children and the outdoorsman. We have repositioned Cutter as a value brand and increased its distribution, enabling it to become the fastest growing brand in the insect repellent category. Today, Cutter has the number one market position in the home improvement center and hardware store channels. Cutter's average market share in personal repellents is 18% within the channels that it competes. The Cutter product line consists of 27 SKUs. Peters. Peters is a water soluble fertilizer available in all purpose formulations as well as specialty formulations for lawns, roses, tomatoes, orchids and azaleas. We acquired Peters, our most recent brand acquisition, from Alljack Company and Celex Corporation in 1995. Originally developed for professional greenhouse growers, Peters is now the number two water-soluble fertilizer in the home improvement center channel. For 1999, Peters introduced new high-impact packaging graphics and new all-weather packaging material and merchandising displays to improve shelf appearance and allow the products to be displayed in the live goods departments of home improvement centers and mass merchandisers. We believe that capital investments made in 1998 for new and upgraded manufacturing equipment for -36- Peters will streamline operations and reduce overhead, resulting in significant improvements in manufacturing productivity. Peters will also continue to benefit from our strong distribution network, product development expertise and other competitive strengths. The Peters product line consists of 18 SKUs. Other Value Brands. We also manufacture and market regional value brands in Florida and the Caribbean. Rid-a-Bug, sold exclusively in Florida, is a leading household pesticide product in that state. Real-Kill, marketed as a Spanish-labeled product throughout the Caribbean, has become the leading brand of household insecticides in Puerto Rico. Opening Price Point Brands (18% of 1998 net sales) - -------------------------------------------------- An important aspect of our growth over the past few years has resulted from our introduction of opening price point brands at certain home improvement centers and mass merchandisers. By introducing these products, we have effectively acquired shelf space at the expense of our competitors by displacing premium brands and lower quality regional brands. Our strategic retail partners have also benefited from our introduction of opening price point brands through streamlined logistics, better inventory control and higher margins. Net sales of our opening price point brands have grown rapidly from zero in 1994 to $50.1 million in 1998. Below is a description of each of our opening price point brands. Real-Kill. In 1997, we repositioned Real-Kill, relaunching the brand exclusively at Home Depot as its opening price point brand. The brand consists of indoor and outdoor pesticides. No-Pest. In late 1997, we introduced No-Pest exclusively at Lowe's as its opening price point brand. The brand consists of indoor and outdoor pesticides. KRid, KGro, Shootout and Gro Best. In late 1995, we acquired the manufacturing operations which produce the Kmart owned opening price point brands, KRid and KGro, and the brand names, Shootout and Gro Best. These brands consist of indoor and outdoor pesticides. Other (6% of 1998 net sales) - ---------------------------- We also manufacture private label products for hardware co-operatives and other retailers and produce under contract pesticides and other chemicals for other companies. Customers We sell our products through all major retail channels, including home improvement centers, mass merchandisers, hardware stores, grocery and drug stores, wholesale clubs and garden centers. We manufacture and supply products to hundreds of customers representing more than 70,000 retail stores across the United States and in select locations in Canada, Puerto Rico and the Caribbean. Our leadership position in the home improvement center and mass merchandiser channels is a key element of our past and future success. Industry wide, category sales continue to shift to the home improvement center and mass merchandiser channels. In 1997, approximately 70% of consumers purchased lawn and garden products through these channels compared to just 57% in 1992. Within these channels, we focus on the fastest growing retailers and enjoy long-standing relationships with market leaders such as Home Depot,Wal*Mart, Lowe's, Kmart, Food Lion, Albertsons and Walgreens. Our four largest customers, Home Depot,Wal*Mart, Lowe's and Kmart, represented 68% of our 1998 net sales. The combination of consumer demand shifting away from premium price brands and our control of the opening price point brand at three of these top four customers has helped us achieve the role of "category manager" for lawn and garden pesticides at Home Depot, Lowe's and Kmart. As category manager, our representatives work together with these national retailers to determine advantageous pricing, product mix and merchandising plans. The following table sets forth our share of shelf space and position at each of our key retailers: -37- Shelf Space and Position at Four Largest Customers (1)
Home Depot Wal*Mart Lowe's Kmart ------ -------- ------ ----- Category manager................................................. Yes No Yes Yes Share of 1999 shelf space (2).................................... 52% 13% 53% 57% Position based on unit sales (3)................................. #1 #2 #1 #1
- ------------------------------- (1) As to lawn and garden pesticides. (2) Management estimate of our share of shelf space in the category based on store shelf plans. (3) Based on 1998 point-of-sale data from Information Resources, Inc. and Triad Systems Corporation Home Depot, Wal*Mart, Lowe's and Kmart have together opened approximately 750 net new stores, increasing their number of stores from 5,118 in 1994 to 5,858 in 1998. This store growth has permitted us to drive volume by stocking new shelves rather than depending solely on acquiring existing shelf space from competitors. We believe that new store growth will continue to drive volume in the future, as our top customers alone expect to open approximately 400 new stores in 1999. We expect to occupy the same amount of shelf space in new stores as in existing stores in comparable geographic locations. The following table sets forth the store base of each of our top four customers: Store Growth of Four Largest Customers(1)
Home Depot Wal*Mart Lowe's Kmart -------- ---------- --------- --------- 1994.................................................. 340 2,132 330 2,316 1995.................................................. 423 2,234 365 2,161 1996.................................................. 512 2,304 402 2,134 1997.................................................. 624 2,362 446 2,136 1998.................................................. 761 2,467 492 2,138
- ------------------------------- (1) Represents stores at year-end. Below is a brief description of our relationships with our four largest customers: Home Depot. Prior to 1997, our relationship with Home Depot included only the distribution of our core value brands. We capitalized on a shift in consumer preferences toward value and opening price point brands away from premium brands by working in partnership with Home Depot to reintroduce Real-Kill exclusively at Home Depot as its opening price point brand. Our net sales to Home Depot grew from $9.3 million in 1994 to $73.5 million in 1998, representing a compound annual growth rate of 67.7%. During the same period, Home Depot grew its store base at a compound annual growth rate of 22.3%. Our share of shelf space in our category at Home Depot is approximately 52%. Wal*Mart. At Wal*Mart, we distribute our core value brands. Wal*Mart's opening price point brand is currently manufactured by a third-party manufacturer pursuant to a contract that expires in 2000. Our net sales to Wal*Mart grew from $42.2 million in 1994 to $49.0 million in 1998, representing a compound annual growth rate of 3.8%. During the same period, Wal*Mart grew its store base at approximately the same rate. Our share of shelf space in our category at Wal*Mart is approximately 13%. Lowe's. Prior to 1997, our relationship with Lowe's included only the distribution of our core value brands. Like our relationship with Home Depot, our relationship was greatly enhanced with the introduction of No-Pest, which we sell exclusively to Lowe's as its opening price point brand. Our net sales to Lowe's grew from $11.0 million in 1994 to $40.6 million in 1998, representing a compound annual growth rate of 38.6%. During the same period, Lowe's grew -38- its store base at a compound annual growth rate of 10.5%. Our share of shelf space in our category at Lowe's is approximately 53%. Kmart. Prior to 1995, our relationship with Kmart included only the distribution of our core value brands. Like our relationships with Home Depot and Lowe's, our relationship was greatly enhanced when we began manufacturing Kmart's opening price point brands, KRid and KGro, and acquired its other opening price point brands, Shootout and Gro Best. Our net sales to Kmart grew from $0.8 million in 1994 to $32.1 million in 1998, representing a compound annual growth rate of 151.7%. During that same period, Kmart's store base was essentially constant. Our share of space in our category at Kmart is approximately 57%. Sales and Marketing We conduct our sales activities through our exclusive direct sales force, the largest in our industry. Our sales force consists of approximately 300 territory managers and 20 area sales managers. Territory managers are typically responsible for 30 retail accounts and visit accounts on a weekly basis to merchandise shelves and collect inventory data. Our proprietary management information system allows this information to be linked from territory managers' laptop computers to our main database. Territory managers' store visits generate close to 1,000 store reports a day. The data collected and analyzed includes valuable real-time information on SKUs, inventory levels and sales, information that is used by territory managers and our customers to develop promotional campaigns and merchandising plans that maximize store level sales and profitability. This process facilitates real-time marketing, re-ordering and pricing decisions, helping to maximize store level profitability. Orders can be placed directly to our distribution facilities during a store visit, generally allowing for delivery of orders within 72 hours of a visit. Our rapid delivery allows customers to maximize inventory turns and minimize costly returns. In addition, our sales force is better able to help us identify emerging trends and develop products to meet consumers' needs. Moreover, our one-step distribution system allows us to minimize our distribution costs relative to our competitors' smaller sales forces and use of third-party distributors. Customers benefit as we can offer our products at a lower price. We believe that our level of direct in-store sales support is unique among our competitors. In the retail grocery and drug channel, we use a network of independent brokers to ensure execution of our sales programs. Our marketing department leads our new product development process as well as develops all consumer support plans to help drive sales through our strong distribution network. To promote our products to consumers, we advertise on national and local television, radio and print media; develop consumer promotions; and engage in market research efforts. We promote the quality and efficacy of our value brands, while emphasizing their lower cost relative to premium brands. Research and Development Our research and development department has developed over 80 new products since 1996 which represented nearly 40% of our 1998 net sales, evidence of our focus on innovation and the speed of our development cycle. As a result, our active ingredient chemical vendors often approach us first with new active ingredients, allowing us to rapidly develop and introduce new products. Our research and development staff has extensive experience across all of our product segments. Although our expertise is in applied formulation, items like our patented water-based aerosol technology, our exclusive formulation of diquat fusilade and our dual insect and disease control formulations were developed internally. Raw Materials and Suppliers The key elements of our products are various commodity and specialty chemicals including diazinon, Dursban(R) and sulfluramid, as well as packaging materials. We obtain raw materials from various sources, which we currently consider to be adequate. No one source is considered to be essential to our operations, and we have never experienced a significant interruption of supply. Our top suppliers for 1998 included Novartis Crop Protection, Inc., AgrEvo Environmental Health and Dow Agro Sciences for active ingredients and United States Can Co. and C. L. Smith for components. In addition, The Andersons performs toll processing of granular insecticides for us. Several of our -39- agreements with suppliers provide for price adjustments under certain circumstances. In addition, some of our agreements with suppliers provide for exclusivity rights, subject to minimum purchase requirements. Competition We operate in a highly competitive market and compete against a number of large national and regional brands. Our principal national competitors include: The Scotts Company, which markets products under the Ortho(R), Roundup(R) and Miracle-Gro(R) brand names; S.C. Johnson & Son, Inc., which markets products under the Raid(R) and OFF!(R) brand names; and The Clorox Company, which markets products under the Combat(R) and Black Flag(R) brand names. Some of our competitors are larger, have longer operating histories, greater financial resources and greater market recognition than us. See "Risk Factors--Competition." Intellectual Property We operate and own a substantial number of trademarks and tradenames including the following: Spectracide, Spectracide Terminate, Spectracide Pro, Hot Shot, Rid-a-Bug, Bag-a-Bug, Real-Kill, No-Pest, Shootout and Gro Best. We license the Cutter trademark and other members of the Cutter family of trademarks from Bayer Corporation and the Peters and Peters Professional trademarks from The Scotts Company. These licenses are, in effect, perpetual and exclusive. We also own a number of United States and foreign patents and have a number of patent applications pending. Manufacturing and Distribution We have four manufacturing facilities located throughout Missouri and Michigan. Our facilities manufacture primarily three types of product categories: (a) aerosols, (b) liquids and (c) water-soluble fertilizers. Our products are formulated using active ingredients manufactured by major chemical companies. The chemical composition of our products is based on internally developed, proprietary formulas. The typical manufacturing process consists of four stages: (a) batch, (b) fill, (c) label and (d) pack. We currently produce over 400 SKUs through our four aerosol production lines, three liquid production lines and two water-soluble fertilizer production lines. Our production lines are flexible and can operate at a variety of filling speeds and produce multiple shipping configurations. We use outside manufacturers for the production of our granular insecticides, baits and candles. Our three aerosol production lines have an annual capacity of 100 million cans, and production on these lines is approximately 60 million cans. Our three liquid production lines have annual capacity of approximately 80 million bottles and are producing approximately 40 million bottles. Our two water-soluble production lines have an annual capacity of close to 40 million pounds, and current output is approximately 17 million pounds. We believe our capacity is sufficient to meet our seasonal inventory needs. On average, the cost of adding a new aerosol production line is approximately $3.0 million, a new liquid production line is approximately $2.0 million and a new water- soluble production line is approximately $1.0 million. We have four distribution centers, located in Vinita Park, Missouri; Allentown, Pennsylvania; Gainesville, Georgia; and City of Industry, California. The strategic location of these centers, combined with the real-time order information provided by our proprietary management information system, allows same day shipment from one of these locations directly to our retail customers. All of our facilities are leased under leases expiring on December 31, 1999 or December 31, 2000, but may be renewed at our option for one-year periods until 2010 in the case of leases initially expiring in December 31, 1999, and for three additional five-year periods, in the case of a lease expiring on December 31, 2000. Our leases, like substantially all of our other properties, are pledged to secure our senior credit facility. See "Certain Transactions." The table below provides information regarding the location, the use and the approximate square footage of our facilities: -40-
Approximate Location Facility Description Square Footage - -------------------- ------------------------------------------- -------------- Overland, MO Office space and finished goods warehousing 182,200 Vinita Park, MO Office space and distribution center 159,550 Bentonville, AR Office space 3,125 Troy, MI Office space 918 Gainesville, GA Distribution center 79,000 Allentown, PA Distribution center 40,000 City of Industry, CA Distribution center 38,000 Vinita Park, MO Manufacturing plant and warehousing 318,500 Plymouth, MI Manufacturing plant 50,000 Earth City, MO Finished goods warehousing 125,000
Employees As of December 31, 1998, we had approximately 1,000 full-time employees. Approximately 240 of our employees at our Vinita Park and Overland, Missouri locations are covered by collective bargaining agreements, which expire in September, 1999, with Finishers, Maintenance Painters, Industrial and Allied Workers Local Union 980, ALL-CIO. We have not experienced any significant work stoppage in recent years, and we believe our labor relations are satisfactory. Legal Proceedings In October 1998, the FTC and several state attorneys general filed a suit against us seeking to enjoin our advertising of Spectracide Terminate as a "termite home defense system." The suit alleges that we have made deceptive and unsubstantiated claims regarding Spectracide Terminate; we have denied these allegations. We have negotiated and received a signed settlement agreement regarding our advertising claims with the FTC and the state attorneys general involved in the litigation. As part of the settlement, we agreed that we would not, without competent and reliable scientific evidence, represent to consumers that: (a) use of Spectracide Terminate alone is effective in preventing termite infestations or eliminating active termite infestations; (b) Spectracide Terminate provides "protection for your home against subterranean termites"; and (c) Spectracide Terminate is a "termite home defense system" or make any representations comparing the performance of Spectracide Terminate to other termite control methods. We further agreed to apply to the federal EPA to rename our product as "Spectracide Terminate" (without reference to "termite home defense system"). The agreement provides that we may describe the product as a "do-it-yourself termite killing system for subterranean termites." Finally, in virtually any advertisement that indicates, either expressly or implicitly, that Spectracide Terminate kills termites or prevents termite damage or infestation, we agreed that we would make the following disclosure: "Not recommended as sole protection against termites, and for active infestations, get a professional inspection." We are also involved in other lawsuits and claims which arise in the ordinary course of business. Our management does not believe that these claims, or the claims described above, individually or in the aggregate, will have a material adverse effect on our financial position or operations. See "Risk Factors--Product Liability." Environmental Matters We are subject to federal, state, local and foreign laws and regulations governing environmental matters. Our manufacturing operations are subject to requirements regulating air emissions, wastewater discharge, waste management, and the cleanup of contamination. Based on assessments conducted by an independent environmental consultant in connection with the Transactions, we believe that we are in material compliance with these requirements and have no material environmental liabilities. Nonetheless, like all companies, we may be subject to potentially significant fines or penalties if we fail to comply with these requirements, and we could be subject to potentially significant cleanup liabilities if contamination is discovered at properties currently or formerly owned or operated by -41- us or at a facility to which we sent wastes. We are in the process of eliminating process wastewater discharges from our manufacturing operations, and expect to reach "zero discharge" by late 1999. The completion of this project will involve capital expenditures of approximately $200,000. We do not anticipate any material capital expenditures for environmental controls in 2000 or 2001. Our pesticide products must be reviewed and registered by EPA and similar state agencies or, in foreign jurisdictions, foreign agencies, before they can be marketed. We devote substantial resources to maintaining compliance with these registration requirements. If we fail to comply, however, the affected pesticide could be suspended or canceled, and we could be subject to fines or penalties. Depending upon the pesticide involved, the severity of the sanction, and the availability of a substitute product, failure to comply with the EPA requirements could have a material adverse effect on us. Additionally, EPA is in the process of re-registering all pesticides and is requiring manufacturers to supply EPA with additional data regarding their pesticides. Where possible, we are working with trade associations to reduce our cost of developing this data. We expect that EPA will continue to request additional pesticide data over the next five to ten years. Because we do not yet know the extent of the data EPA will require, it is impossible for us to predict the cost impact it will have on us. It is also possible that the data we submit could show a risk that EPA deems unacceptable, which could result in cancellation of the pesticide registration. While we cannot assure you, we do not expect the impact to have a material adverse effect on us. EPA also intends to analyze the risk that certain pesticides present to children, as required by the Food Quality Protection Act. Depending upon the outcome of its risk analyses, EPA could limit the use of some of our products, which could adversely affect our business. The severity of the effect would depend on which products were involved, whether another product or ingredient could be substituted, and whether our competitors are similarly affected. Our fertilizer products must be reviewed and registered by each state prior to sale. The states typically check the weight of the product and the accuracy of the analysis statement on the packaging. Other consumer products we market are subject to the safety requirements of the Consumer Product Safety Commission. If we fail to comply with any of these requirements, we could be suspended or prohibited from marketing the affected product, which could adversely affect our business. -42- MANAGEMENT Directors and Executive Officers Set forth below is the name, age and position of each of our executive officers and directors. Our board of directors presently consists of seven directors who are elected annually. Executive officers serve at the discretion of the board of directors and, in the case of Messrs. Brian, Bender, Johnson and Johnston, pursuant to employment agreements.
Name Age Position - --------------------------- ------ ------------------------------------------------------------------- Stephen R. Brian 50 President and Chief Executive Officer; Director Richard A. Bender 49 Senior Vice President, Distribution, Human Resources and MIS William P. Johnson 43 Senior Vice President, Sales and Marketing Daniel J. Johnston 41 Senior Vice President, Finance and Manufacturing; Director David C. Pratt 54 Chairman of the Board; Director David A. Jones 51 Director C. Hunter Boll 43 Director Scott A. Schoen 40 Director Charles A. Brizius 30 Director
Stephen R. Brian has served as our President and Chief Executive Officer since the recapitalization. Mr. Brian was formerly the President of Home Products International from January 1998 to January 1999 and President and Chief Executive Officer of Seymour Housewares from January 1996 to January 1998, each a designer, manufacturer and marketer of houseware and home improvement products. Mr. Brian has also held senior management positions at General Electric Company, Electrolux AB and Hamilton Beach/Proctor Silex, Inc. Richard A. Bender has served as our Senior Vice President, Distribution, Human Resources and MIS since 1996. Mr. Bender joined us in 1988 as Vice President of Human Resources. He has held various positions during his tenure with us, including responsibilities in our former metals group division, administration, management information systems, product supply and distribution. Prior to joining us, Mr. Bender was a general manager in an automotive related private business and spent 13 years in various roles including sales, plant operations and human resources at Colgate-Palmolive Co. William P. Johnson has served as our Senior Vice President, Sales and Marketing since 1998. From 1996 to 1998, Mr. Johnson served as Senior Vice President, Sales, and from 1993 to 1996, as Vice President of Sales in Non-Food National Accounts. Prior to joining us, Mr. Johnson was a national accounts manager for Rubbermaid, Inc. from 1989 to 1993. Prior to joining Rubbermaid, Inc., Mr. Johnson held the position of Vice President of Sales & Marketing for Dorcy International from 1979 to 1989. Daniel J. Johnston has served as our Senior Vice President, Finance and Manufacturing since 1997. Mr. Johnston joined us in 1994 as Controller and then worked as Assistant to the Chairman. Prior to joining us, he spent five years from 1990 to 1994 at Cooper Industries, Inc. in various financial functions at its corporate office and Bussmann Division. Prior to joining Cooper Industries, Inc., he was employed by Price Waterhouse, LLP from 1982 to 1990, finishing as an audit manager. David C. Pratt was our President and Chief Executive Officer from our inception until the recapitalization. Mr. Pratt has continued as our Chairman of the Board and a director. David A. Jones became a director of our company in January 1999 in connection with the recapitalization. Mr. Jones has been the President and Chief Executive Officer of Rayovac Corporation since March 1996. Between February 1995 and March 1996, Mr. Jones was Chief Operating Officer, Chief Executive Officer and Chairman of the Board of Directors of Thermoscan, Inc. From 1989 to 1994, he served as President and Chief Executive Officer of The Regina Company, a manufacturer of vacuum cleaners and other floor care equipment. -43- C. Hunter Boll became a director of our company in January 1999 in connection with the recapitalization. Mr. Boll is a managing director of THL where he has been employed since 1986. Mr. Boll is also a Managing Director and Member of THL Equity Advisors IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, L.P. and Vice President of Thomas H. Lee Advisors I and T. H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P., respectively. Mr. Boll also serves as a director of Stanley Furniture Company, Inc., New York Restaurant Group, Inc., Freedom Securities Corporation, Big V Supermarkets, Inc., TransWestern Communications Company, Inc. and several private corporations. Scott A. Schoen became a director of our company in January 1999 in connection with the recapitalization. He is a Managing Director of THL, which he joined in 1986. In addition, Mr. Schoen is a Managing Director and Member of THL Equity Advisors IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, LP and Vice President of Thomas H. Lee Advisors I and T. H. Lee Mezzanine II, affiliates of ML-Lee Acquisition Fund, L.P., ML-Lee Acquisition Fund II, L.P. and ML-Lee Acquisition Fund II (Retirement Accounts), L.P., respectively. He is also a director of Rayovac Corporation, Syratech Corporation, TransWestern Communications Company, Inc. and several private corporations. Charles A. Brizius became a director of our company in January 1999 in connection with the recapitalization. Mr. Brizius worked at THL from 1993 to 1995, rejoined in 1997 and currently serves as an Associate. Mr. Brizius is a Member of THL Equity Advisors IV, LLC, the general partner of Thomas H. Lee Equity Fund IV, L.P. From 1991 to 1993, Mr. Brizius worked at Morgan Stanley & Co. Incorporated in the Corporate Finance Department. He is also a director of Eye Care Centers of America, Inc. Compensation of Directors Other than Mr. Jones and Mr. Pratt, who receive compensation in connection with consulting agreements, we do not compensate our directors. In connection with the recapitalization, we entered into several agreements with David A. Jones. These agreements provide that Mr. Jones (a) serve on our board of directors for three years from the closing of the recapitalization (unless removed earlier by the other directors), (b) receive a consulting payment of $75,000 per year, (c) receive a directorship fee of $25,000 per year, (d) receive a signing bonus, (e) purchase $1.0 million of common stock and (f) receive options pursuant to the 1999 Stock Option Plan to purchase 300,000 shares of common stock. Also in connection with the recapitalization, we entered into a consulting agreement with David C. Pratt. This consulting agreement provides that Mr. Pratt (a) receive a consulting payment of $15,000 per month for four months from the closing of the recapitalization or until a mutually agreed upon later date, (b) act as Chairman of our board of directors for four months from the closing of the recapitalization - which term can continue for up to an additional five months at the discretion of the other directors, (c) remain a member of our board of directors after his term as Chairman has ended until the earlier of nine months after the closing of the recapitalization and the end of the consulting term, (d) receive a directorship fee of $25,000 per year and (e) receive United-paid health and welfare benefits for four months from the closing of the recapitalization. Compensation of Executive Officers The following table sets forth the compensation of our former Chief Executive Officer and the other executive officers (collectively, the "Named Executive Officers") for the year ended December 31, 1998. -44- Summary Compensation Table
Annual Compensation ---------------------------- All Other Name and Principal Position Salary Bonus Compensation - --------------------------------------------------------------------------- ---------- ---------- ------------- David C. Pratt ........................................................... $ 250,000 $2,771,061 $ 42,740(2) President and Chief Executive Officer(1) Richard A. Bender ........................................................ 100,000 260,143 24,018(3) Senior Vice President, Distribution, Human Resources and MIS William P. Johnson ....................................................... 100,000 251,809 25,364(3) Senior Vice President, Sales and Marketing Daniel J. Johnston ....................................................... 100,000 251,809 4,716(3) Senior Vice President, Finance and Manufacturing
- ------------------------------- (1) Mr. Pratt resigned as our President and Chief Executive Officer on January 20, 1999 in connection with the recapitalization. (2) Includes auto allowance and country club dues. (3) Includes deferred compensation under The Long-Term Incentive Compensation Plan, which was terminated in the first quarter of 1998. Employment Agreements Messrs. Brian, Bender, Johnson and Johnston have each entered into an employment agreement with us. The agreements provide for employment until January 31, 2002 for Mr. Brian and December 31, 2001 for Messrs. Bender, Johnson and Johnston, unless terminated earlier as provided in their respective employment agreements. The employment agreements provide for annual base salaries as follows: Mr. Brian--$437,000; Mr. Bender--$300,000; Mr. Johnson--$300,000; and Mr. Johnston--$300,000. In addition, each employment agreement provides for annual incentive compensation to be determined in accordance with our attainment of certain target EBITDA and customary benefits. Each employment agreement may be terminated by us at any time with or without cause. If the employment agreement is terminated by us for cause or by the executive without good reason, the terminated executive will be entitled to any unpaid base salary through the date of termination plus any unpaid incentive compensation. If we terminate the employment agreement without cause or if the executive terminates the employment agreement for good reason or the executive dies or becomes disabled, he will be entitled to any unpaid base salary through the date of termination, any unpaid incentive compensation and, under certain conditions, his base salary through the later of January 2002 and the first anniversary of his termination. Each employment agreement provides for non-compete, nonsolicitation and confidentiality provisions through the later of one year after the executive's date of termination or the last date severance payments are owed to the executive. In connection with entering his employment agreement, Messrs. Brian, Johnson and Johnston each purchased $1.0 million of common stock, and Mr. Bender purchased $700,000 of common stock. Messrs. Johnson, Johnston and Bender purchased their common stock out of the proceeds of a bonus paid at the closing of the recapitalization. Mr. Brian paid for a portion of his shares by delivering promissory notes with original principal amounts of $250,000 (maturing in June 1999) and $500,000 (maturing in January 2004), which accrue interest at a rate equal to our borrowing rate. The repayment of these notes is secured by Mr. Brian's shares of common stock. Under certain circumstances, we have the right to repurchase the shares owned by each executive. 1999 Stock Option Plan In connection with the recapitalization, we instituted the 1999 Stock Option Plan (the "Plan"), which is administered by a committee of our board of directors. The Plan was designed as an incentive to selected employees, our consultants and directors to acquire proprietary interest in us, to continue to perform services for us, to increase their efforts on our behalf and to promote the success of our business. The options are not designed to be incentive stock options within -45- the meaning of Section 422 of the U.S. Internal Revenue Code of 1986, as amended. The option pool under the Plan consists of an aggregate of 4,000,000 shares of our common stock that may consist of shares of our Class A Voting Common Stock, our Class B Non-Voting Common Stock or some combination of Class A Voting Common Stock and Class B Non-Voting Common Stock. We granted to Mr. Brian 600,000 shares of Class A Voting Common Stock and 600,000 shares of Class B NonVoting Common Stock, and granted 300,000 shares of Class A Voting Common Stock and 300,000 shares of Class B Non-Voting Common Stock to Messrs. Bender, Johnson and Johnston. The remaining options will be granted to selected employees as determined by our board of directors from time to time. The options to purchase shares of common stock are subject to vesting schedules, which are both time and performance based. Deferred Compensation and 401(k) Plans In connection with the recapitalization, we established a deferred compensation plan. Messrs. Bender, Johnson and Johnston are eligible to participate in the plan. The plan provides for the establishment of a grantor trust for the purpose of accumulating the assets contributed pursuant to the plan. The grantor trust used the funds contributed to it to purchase (a) 70,000 shares of our Class A Voting Common Stock and 70,000 shares of our Class B Non-Voting Common Stock for the benefit of Mr. Bender, (b) 100,000 shares of our Class A Voting Common Stock and 100,000 shares of our Class B Non-Voting Common Stock for the benefit of Mr. Johnson and (c) 100,000 shares of our Class A Voting Common Stock and 100,000 shares of our Class B Non-Voting Common Stock for the benefit of Mr. Johnston. The plan is administered by a committee of our board of directors. We also maintain a 401(k) defined contribution plan. The plan allows for discretionary participant elective contributions. We are required to match 50% of each participant's contributions up to 6% of the employee's salary for those employees having less than 10 years of service and 75% of each participant's contributions up to 6% of the employee's salary for those employees having 10 or more years of service. In 1998, our contributions on behalf of the Named Executive Officers totalled $7,200 for Mr. Pratt and $4,800 for each of the others. -46- CERTAIN TRANSACTIONS Professional Services Agreement In connection with the recapitalization, we entered into a professional services agreement with THL. The agreement has a term of three years and automatically extends for successive one year periods thereafter, unless the parties give 30 days' notice prior to the end of the term. The agreement provides for a financial advisory fee of $12.0 million in connection with structuring, negotiating and arranging the recapitalization and structuring, negotiating and arranging the debt financing, which was paid at the closing of the recapitalization. In addition, THL will initially receive $62,500 per month for management and other consulting services provided to us. The agreement also provides that we will reimburse reasonable out-of-pocket expenses incurred in connection with management advisory services. We believe that the terms of the professional services agreement are comparable to those that would have been obtained by unaffiliated sources. Stockholders Agreement In connection with the recapitalization, we entered into a stockholders agreement with certain of our stockholders. The agreement provides for certain restrictions on transfer of shares of capital stock, registration rights and drag-along rights. Recapitalization Agreement Our recapitalization agreement with UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P., contains customary provisions, including representations and warranties with respect to the condition and operations of the business, covenants with respect to the conduct of the business prior to the recapitalization closing date and various closing conditions, including the continued accuracy of the representations and warranties. In general, the representations and warranties made by the sellers in the recapitalization agreement survive until the earlier of 10 days following the delivery of our December 31, 1999, audited financial statements or April 15, 2000. Representations and warranties with respect to tax matters survive until 30 days after the expiration of the applicable statute of limitations; representations with respect to environmental matters survive until December 31, 2002. Certain other representations and warranties do not expire. Pursuant to the recapitalization agreement, David C. Pratt and Mark R. Gale, our former general counsel, agreed that for a period ending on the fourth anniversary of the recapitalization closing date not to own, control, participate or engage in any line of business in which we are actively engaged or any line of business competitive with us anywhere in the United States and any other country in which we were doing business at the closing of the recapitalization. In addition, each Seller has agreed that for a period ending on the fourth anniversary of the recapitalization closing date not to contact, approach or solicit for the purpose of offering employment to or hiring any person employed by us during the four year period. Pursuant to the recapitalization, we redeemed a portion of our common stock held by our stockholders, and UIC Holdings, L.L.C. and certain members of our senior management purchased a portion of our common stock from our stockholders. In the recapitalization, Messrs. Bender, Johnson and Johnston collectively received an aggregate of approximately $5.8 million in cash and an additional $2.7 million with which the officers purchased our common stock through grantor trusts. Lease Agreements We lease six of our facilities in St. Louis from an affiliate of David C. Pratt. Five of the leases expire on December 31, 1999, but are renewable for one-year periods until 2010 and one lease expires on December 31, 2000, but may be extended for three additional five-year periods. We believe that the terms of these leases are similar to those negotiated by unrelated parties at arms length. -47- PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our Class A Voting Common Stock by each of our directors and our Named Executive Officers, by all of our directors and executive officers as a group, and by each owner of more than 5% of the outstanding shares of our Class A Voting Common Stock. Each of our directors and Named Executive Officers owns an equal number of our Class B Non-Voting Common Stock.
Name of Beneficial Owner (1) Number of Shares Percent of Class - ---------------------------- ---------------- ------------------ UIC Holdings, L.L.C............................................................. 25,468,000 91.9% c/o Thomas H. Lee Company 75 State Street Boston, Massachusetts 02109 Stephen R. Brian (2)........................................................... 370,000 1.3% David C. Pratt (3)............................................................. 1,325,108 4.8% Richard A. Bender (2).......................................................... -- * Williams P. Johnson (2)........................................................ -- * Daniel J. Johnston (2)......................................................... -- * David A. Jones................................................................. 100,000 * C. Hunter Boll (4)............................................................. 25,468,000 91.9% Scott A. Schoen (4)............................................................ 25,468,000 91.9% Charles A. Brizius (4)......................................................... 25,468,000 91.9% All Directors and Executive Officers as a Group (9 persons) (4)................. 26,971,135 97.4%
- ------------------------------- * Denotes less than one percent. (1) Beneficial owner generally means any person who, directly or indirectly, has or shares voting power or investment power with respect to a security. All of the parties listed above are party to a stockholders agreement, pursuant to which they have agreed to vote their shares in the election of directors in accordance with the terms of the stockholders agreement. The number of shares indicated in this table does not include the shares of Class A Voting Common Stock that are held by other stockholders subject to the stockholders agreement. Unless otherwise indicated, we believe that each person has sole voting and investment power with regard to their shares listed as beneficially owned. The calculation of beneficial ownership is based on 27,700,000 shares outstanding and includes all options exercisable within 60 days of January 20, 1999. (2) Mr. Brian's ownership includes shares held by him as trustee under the grantor trust under the deferred compensation plan for the benefit of Messrs. Bender, (70,000 shares of each of our Class A Voting Common Stock and Class B Non-Voting Common Stock), Johnson (100,000 shares of each class) and Johnston (100,000 shares of each class) because Mr. Brian has the sole right to direct the voting and disposition of these shares. (3) Includes 134,756 shares of our Class A Voting Common Stock held by the David C. Pratt Grantor Retained Interest Trust and 157,216 shares of our Class A Voting Common Stock held by the 1994 Ryder Pratt Grantor Retained Annuity Trust. (4) All of the equity interests in UIC Holdings, L.L.C. are controlled by the THL Parties, which may therefore be deemed the beneficial owner of the shares held by UIC Holdings, L.L.C. All of the shares beneficially owned by the THL Parties may be deemed to be beneficially owned by THL Equity Advisors IV, L.L.C. ("Advisors"), the general partner of THL Fund IV, by THL Equity Trust IV, the general partner of Advisors, by THL and by Messrs. Boll, Schoen and Brizius and the other officers of THL. Each of these persons disclaims beneficial ownership of such shares. -48- DESCRIPTION OF CAPITAL STOCK We are a Delaware corporation. Our authorized capital stock consists of 65 million shares, of which 32,500,000 have been designated as Class A Voting Common Stock, par value $.01 per share, and 32,500,000 have been designated as Class B Non-Voting Common Stock, par value $.01 per share. As of January 20, 1999, there were 27,700,000 shares of Class A Voting Common Stock outstanding and 27,700,000 shares of Class B NonVoting Common Stock outstanding. Set forth below is a summary of the material terms of our capital stock. Distributions. The Class A Voting Common Stock and the Class B Non-Voting Common Stock share ratably in any distribution by us to the holders of our capital stock or with respect to our liquidation, dissolution or winding up. Voting Rights. The holders of Class B Non-Voting Common Stock have no right to vote on matters submitted to a vote of our stockholders, except as otherwise required by law. The holders of Class A Voting Common Stock are entitled to one vote per share on all matters to be voted upon by our stockholders. -49- DESCRIPTION OF OUR SENIOR CREDIT FACILITY In connection with the recapitalization, we entered into our senior credit facility by and among our company, a syndicate of lenders, NationsBanc Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as co- arrangers and NationsBank N.A., Morgan Stanley Senior Funding, Inc. and Canadian Imperial Bank of Commerce as agents to such lenders. Pursuant to our senior credit facility, the lenders are lending up to $335.0 million, consisting of our $110.0 million revolving credit facility, the $75.0 million Term Loan A and the $150.0 million Term Loan B. Repayment. Outstanding commitments under our revolving credit facility, our swing line facility and our letter of credit facility terminate and all amounts outstanding thereunder are to repaid in full on January 20, 2005. The principal amount of the Term Loan A is to be repaid in twenty-four consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2005, with $10 million to be payable in each of the first four years and $17.5 million to be repaid in each of the last two years. The principal amount of the Term Loan B is to be repaid in twenty-eight consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2006, with $1.5 million to be payable in each of the first six years and $141 million to be payable in year seven. Security; Guaranty. Our obligations under our senior credit facility are secured by a first priority lien on substantially all of our properties and assets as well as the properties and assets of our future domestic subsidiaries. Future domestic subsidiaries will be required to guarantee our obligations under our senior credit facility, and the stock of future domestic subsidiaries (or a percentage thereof, in the case of foreign subsidiaries) will also be pledged to the lenders as security. Interest. The interest rate per annum applicable to advances under our senior credit facility will be a fluctuating rate of interest measured, at our option, by reference to (i) the Eurodollar Rate (as defined in our senior credit facility) plus the applicable borrowing margin, or (ii) a rate per annum equal to the higher of the published prime rate of NationsBank or the Federal Funds Rate (as defined in our senior credit facility) plus 1/4 of 1% (the Base Rate) plus the applicable borrowing margin. The applicable borrowing margin for the Term Loan B is 2.25% for the Base Rate advances and 3.25% for Eurodollar advances. The applicable borrowing margin for our revolving credit facility and the Term Loan A is between 1.00% and 1.75% for the Base Rate advances and between 2.00% and 2.75% for the Eurodollar advances, in each case based on our consolidated leverage ratio. Prepayments; Reductions of Commitments. Subject to certain exceptions set forth in our senior credit facility, the Term Loan A and the Term Loan B are required to be prepaid and commitments under our revolving credit facility are required to be permanently reduced with: (i) 50% of the net cash proceeds of any issuance of capital stock; (ii) 100% of the net cash proceeds of any new indebtedness; (iii) 50% of the excess cash flow; (iv) 100% of the net cash proceeds of (a) any asset sale (subject to limited exceptions) or (b) proceeds from any insurance claim relating to one of our assets, unless the proceeds are applied to replace or repair the lost or damaged assets; and (v) 100% of the net cash proceeds of certain other extraordinary receipts. These mandatory prepayments and reductions will generally first be applied ratably to the prepayment of the Term Loan A and the Term Loan B and second to the permanent reduction of our revolving credit facility. Our revolving credit facility is subject to a clean- down period during which the aggregate amount outstanding under our revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. Covenants. Our senior credit facility contains covenants restricting our ability and that of our subsidiaries to, among others (i) incur or suffer to exist indebtedness or liens, (ii) merge, consolidate or liquidate, (iii) sell assets or stock, (iv) pay dividends or repurchase stock, (v) make capital expenditures, (vi) prepay or amend debt and other material agreements and (vii) transact with affiliates. Events of Default. Events of default under our senior credit facility include (i) our failure to pay principal or interest when due, (ii) material breach by us of any representation or warranty contained in any loan document, (iii) material breach by us of any covenant contained in any loan documents, (iv) customary cross-default provisions, (v) events of bankruptcy, insolvency or dissolution by us or any of our subsidiaries, (vi) the levy of certain judgments against us or -50- any of our subsidiaries, (vii) the actual or asserted invalidity of security documents or guarantees, (viii) certain adverse events under ERISA plans, and (ix) a change of control of our company. -51- DESCRIPTION OF THE NEW NOTES The Company will issue the Notes under an Indenture, dated as of March 24, 1999 (the "Indenture"), between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"). The following is a summary of the material terms and provisions of the Notes. It does not include all of the provisions of the Indenture. We urge you to read the Indenture because it defines your rights. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), as in effect on the date of the Indenture. A copy of the Indenture may be obtained from the Company by any holder or prospective investor upon request. You can find definitions of certain capitalized terms used in the following summary under "-- Certain Definitions" and throughout this description. Capitalized terms that are used but not otherwise defined herein have the meanings assigned to them in the Indenture and such definitions are incorporated herein by reference. For purposes of this "Description of the Notes," the term "Company" means United Industries Corporation. General The Notes will be general unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Indebtedness of the Company and senior in right of payment to all current and future subordinated indebtedness of the Company. The Notes will be unconditionally guaranteed, on a senior subordinated basis, as to payment of principal, premium, if any, and interest, jointly and severally, by each Restricted Subsidiary which guarantees payment of the Notes pursuant to the covenant described under "Limitation on Creation of Subsidiaries" (the "Guarantors"). Maturity, Interest and Principal The Notes will be limited in aggregate principal amount to $150.0 million. The Notes will mature on April 1, 2009. The Notes will bear interest at a rate of 9.875% per annum, which will be payable semiannually in arrears on each April 1 and October 1, commencing October 1, 1999, to holders of record of the Notes at the close of business on the immediately preceding March 15 and September 15, respectively. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from March 24, 1999. The interest rate on the Notes is subject to increase, and such Additional Interest will be payable on the payment dates set forth above, in certain circumstances, if the Notes (or other securities substantially similar to the Notes) are not registered with the SEC within the prescribed time periods. See "Exchange Offer; Registration Rights." Optional Redemption Except as described below, the Notes are not redeemable before April 1, 2004. On one or more occasions thereafter, the Company may redeem the Notes, in whole or in part, at the following redemption prices (expressed as a percentage of principal amount), if redeemed during the twelve-month period beginning on April 1 of each year listed below:
Year Percentage - ---- ---------- 2004 ....................... 104.938% 2005 ....................... 103.292% 2006 ....................... 101.646% 2007 and thereafter ........ 100.000%
In addition, the Company must pay all accrued and unpaid interest on the Notes redeemed. On one or more occasions prior to April 1, 2002, the Company may use the Net Proceeds of one or more Qualified Public Offerings to redeem up to 40% of the original principal amount of the Notes at a redemption price of 109.875% of the principal amount thereof plus accrued and unpaid interest thereon; provided that: -52- (1) at least 60% of the original principal amount of the Notes remains outstanding immediately after the occurrence of any such redemption; and (2) the Company makes such redemption not more than 90 days following the closing of any such Qualified Public Offering. In the event that the Company chooses to redeem less than all of the Notes, selection of the Notes for redemption will be made by the Trustee either: (1) in compliance with the requirements of the principal national securities exchange, if any, on which such Notes are listed; or (2) on a pro rata basis or by lot or by such method as the Trustee shall deem fair and appropriate. If a partial redemption is made with the proceeds of a Qualified Public Offering, the Trustee will select the Notes or portion thereof only on a pro rata basis or on as nearly a pro rata basis as practicable, unless such method is prohibited. Notice of redemption will be mailed by first-class mail at least 30 but not more than 60 days before the redemption date to each holder at its registered address. On and after any redemption date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Company fails to redeem any such Note. Asset Drop-Down The Equity Investor, in its sole discretion, may cause the Company to form and contribute all or substantially all of its assets to a newly-created Wholly-Owned Subsidiary (the "New Operating Company"), at which time the New Operating Company would assume all or substantially all of the liabilities of the Company (including the Notes) (collectively, the "Asset Drop-Down"). As a result of the Asset Drop-Down, the Company would become a holding company (as such, the "Holding Company") that directly owns, and the primary asset of which would be, all of the equity interests in the New Operating Company. The New Operating Company would conduct all of the operations that were previously conducted by the Company and for purposes of this "Description of Notes" and the indenture, the New Operating Company would be the "Company." The Asset Drop-Down will be carried out, if at all, in compliance with the "Merger, Consolidation or Sale of Assets" provisions described below, and the Notes will continue to be guaranteed by Restricted Subsidiaries of the New Operating Company as described below under "Guarantees." Subordination The indebtedness represented by the Notes will be subordinate in right of payment to the prior payment in full in cash of all existing and future Senior Indebtedness of the Company. As of December 31, 1998, on a pro forma basis after giving effect to Recapitalization, the Offering and the use of proceeds described in this Offering Memorandum, the principal amount of outstanding Senior Indebtedness of the Company, on a consolidated basis, would have been $225.0 million. In addition, the Company would have had $110.0 million of undrawn commitments available under the Senior Credit Facility. The holders of Senior Indebtedness of the Company will be entitled to receive payment in full in cash of all amounts due on or in respect of all Senior Indebtedness of the Company (including Accrued Bankruptcy Interest) and all outstanding Letter of Credit Obligations cash collateralized before the holders of the Notes will be entitled to receive any payment with respect to the Notes in the event of any distribution to creditors of the Company: (1) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or to its creditors, as such, or to its assets; (2) in a liquidation or dissolution or other winding-up of the Company; (3) in an assignment for the benefit of creditors; or -53- (4) in any marshalling of assets or liabilities of the Company (all of the foregoing referred to herein individually as a "Bankruptcy Proceeding" and collectively as "Bankruptcy Proceedings"). For purposes of this section, all Senior Indebtedness now or hereafter existing and all Obligations relating thereto will not be deemed to have been paid in full unless and until all of the Obligations of any holder thereof have been indefeasibly paid in full in cash (including, without limitation, all Accrued Bankruptcy Interest) and all of the commitments thereunder have been terminated and, in the case of Letter of Credit Obligations, such Obligations have been fully drawn and paid in full in cash or 100% cash collateralized. As a result of such subordination, in the event of any Bankruptcy Proceeding, holders of the Notes may recover less ratably than creditors of the Company who are holders of Senior Indebtedness. No payment may be made on the Notes following (1) a Payment Default on Designated Senior Indebtedness or (2) a Non-Payment Event of Default on Designated Senior Indebtedness and the acceleration of the maturity of Designated Senior Indebtedness. Any such prohibition shall continue until the Payment Default is cured, waived in writing or ceases to exist or such acceleration has been rescinded or otherwise cured. Upon a Non-Payment Event of Default on Designated Senior Indebtedness, no payment may be made on the Notes for a period (a "Payment Blockage Period") beginning on the date the Trustee receives written notice from the Representative of the Non-Payment Event of Default until (subject to any blockage under the preceding paragraph) the earliest of (1) more than 179 days have elapsed since the Trustee received the notice, (2) the NonPayment Event of Default has been cured or waived in writing or ceased to exist or such Designated Senior Indebtedness has been paid in full or (3) the Payment Blockage Period has been terminated by written notice to the Company or the Trustee from the Representative. No Payment Blockage Period can extend beyond 179 days from the date the Trustee receives the notice (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, that no additional Payment Blockage Period can extend beyond the Initial Blockage Period. After the Initial Blockage Period, no Payment Blockage Period may be commenced until at least 180 days after the Initial Blockage Period. No event of default with respect to Designated Senior Indebtedness (other than a Payment Default) which existed or was continuing on the first day of any Payment Blockage Period can serve as the basis for a second Payment Blockage Period, unless such event of default has been cured or waived for at least 90 days. Each Guarantee will, to the extent set forth in the Indenture, be subordinate in right of payment to the prior indefeasible payment and satisfaction in full in cash of all Senior Indebtedness of the respective Guarantor, including obligations of such Guarantor with respect to the Senior Credit Facility (including any guarantee thereof), and will be subject to the rights of holders of Designated Senior Indebtedness of such Guarantor to initiate blockage periods, upon terms substantially comparable to the subordination of the Notes to all Senior Indebtedness of the Company. If the Company or any Guarantor fails to make any payment on the Notes or any Guarantee when due or within any applicable grace period, whether or not on account of payment blockage provisions, such failure would constitute an Event of Default under the Indenture. See "Events of Default." By accepting these Notes, each holder agrees to be bound by such provisions and, if any such holder fails to file a proper proof of claim of debt in any Bankruptcy Proceeding with respect to the Company at least 30 days before the time to file such proofs of claim expires, authorizes the Representative to file an appropriate claim on behalf of such holder. The subordination provisions of the Indenture cannot be amended without the consent of all holders of Senior Indebtedness unless such amendment could not adversely affect such holders. Certain Covenants The Indenture will contain, among others, the following covenants: -54- Limitation on Additional Indebtedness The Company will not, and will not permit any Restricted Subsidiary of the Company to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness and including Disqualified Capital Stock); provided that the Company or any of the Guarantors may incur Indebtedness (including Acquired Indebtedness or Disqualified Capital Stock) if (1) after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the Company's Consolidated Fixed Charge Coverage Ratio is at least 2.0 to 1 and (2) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness. Notwithstanding the foregoing, the Company and its Restricted Subsidiaries may incur Permitted Indebtedness; provided that the Company will not incur any Permitted Indebtedness that ranks junior in right of payment to the Notes that has a maturity or mandatory sinking fund payment prior to the maturity of the Notes. For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness or is entitled to be incurred pursuant to the first paragraph of this covenant, the Company will, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of the clauses in the definition of Permitted Indebtedness or pursuant to the first paragraph hereof. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Indebtedness for purposes of this covenant. Limitation on Other Senior Subordinated Debt The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any Indebtedness (other than the Notes and the Guarantees, as the case may be) that is both: (1) subordinate in right of payment to any Senior Indebtedness of the Company or its Restricted Subsidiaries, as the case may be, and (2) senior in right of payment to the Notes and the Guarantees, as the case may be. For purposes of this covenant, Indebtedness is deemed to be senior in right of payment to the Notes and the Guarantees, as the case may be, if it is not explicitly subordinate in right of payment to Senior Indebtedness at least to the same extent as the Notes and the Guarantees, as the case may be, are subordinate to Senior Indebtedness. Limitation on Restricted Payments The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, make any Restricted Payment, unless: (1) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (2) immediately after giving pro forma effect to such Restricted Payment, the Company could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under the "Limitation on Additional Indebtedness" covenant; and (3) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of: (a) 50% of the cumulative Consolidated Net Income of the Company subsequent to the Issue Date (or minus 100% of any cumulative deficit in Consolidated Net Income during such period) plus -55- (b) 100% of the aggregate Net Proceeds and the fair market value of securities or other property received by the Company from the issue or sale, after the Issue Date, of Capital Stock (other than Disqualified Capital Stock or Capital Stock of the Company issued to any Subsidiary of the Company) of the Company or any Indebtedness or other securities of the Company convertible into or exercisable or exchangeable for Capital Stock (other than Disqualified Capital Stock) of the Company which have been so converted or exercised or exchanged, as the case may be, net of any amounts thereof previously relied upon or to be relied upon to make any Permitted Investments pursuant to clause (15) of the definition thereof, plus (c) without duplication of any amounts included in clauses (a) and (b) above, 100% of the aggregate net proceeds of any equity contribution received by the Company (other than in return for Disqualified Capital Stock) from a holder of the Company's Capital Stock, net of any amounts thereof previously relied upon or to be relied upon to make any Permitted Investments pursuant to clause (15) of the definition thereof, plus (d) $7,500,000. For purposes of determining under clause (3) above the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value determined, in good faith, by the Board of Directors of the Company. The provisions of this covenant will not prohibit: (i) the payment of any distribution within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of the Indenture; (ii) the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of the Company or Indebtedness subordinated to the Notes by conversion into, or by or in exchange for, shares of Capital Stock (other than Disqualified Capital Stock), or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Capital Stock of the Company (other than Disqualified Capital Stock); (iii) the redemption or retirement of Indebtedness of the Company subordinated to the Notes in exchange for, by conversion into, or out of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company that is Refinancing Indebtedness; (iv) the retirement of any shares of Disqualified Capital Stock by conversion into, or by exchange for, shares of Disqualified Capital Stock, or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of other shares of Disqualified Capital Stock; (v) so long as no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such payment, the purchase, redemption or other acquisition for value of shares of Capital Stock of the Company or, in the event of the Asset Drop-Down, the Holding Company (other than Disqualified Capital Stock) or options on such shares held by the Company's or its Subsidiaries' (or, in the event of the Asset Drop-Down, the Holding Company's) officers, employees or directors or former officers, employees or directors (or their estates or beneficiaries under their estates) upon the death, -56- disability, retirement or termination of employment of such current or former officers or employees pursuant to the terms of an employee benefit plan or any other agreement pursuant to which such shares of Capital Stock or options were issued or pursuant to a severance, buy-sale or right of first refusal agreement with such current or former officer or employee; provided that the aggregate cash consideration paid, or distributions or payments made, pursuant to this clause shall not exceed $3,000,000 in any fiscal year (provided, that the Company may carry over and make in a subsequent fiscal year, in addition to the amounts permitted for such fiscal year, the amount of such distributions permitted to have been made, but not made, in any preceding fiscal year) or $15,000,000 in the aggregate from and after the Issue Date, provided that the foregoing amounts shall be increased by (a) the amount of any payments by officers, employees or directors of the Holding Company, the Company or a Subsidiary thereof for the purchase of Capital Stock of the Company (other than in connection with the Recapitalization) or, in the event of the Asset Drop- Down, the Holding Company except to the extent such payments consist of proceeds from loans by the Company or a Subsidiary thereof and (b) the amount of any cash capital contributions to the Company by THL or any Affiliate thereof used by the Company to purchase, redeem or otherwise acquire for value shares of such capital stock; (vi) the payment of THL Fees; (vii) so long as no Default or Event of Default shall have occurred and be continuing, payments not to exceed $100,000 in the aggregate to enable the Company to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (viii) Restricted Payments made pursuant to the Recapitalization Agreement; (ix) the Company or any Restricted Subsidiary from purchasing all (but not less than all), excluding directors' qualifying shares, of the Capital Stock or other ownership interests in a Subsidiary of the Company which Capital Stock or other ownership interests were not theretofore owned by the Company or a Subsidiary of the Company, such that after giving effect to such purchase such Subsidiary becomes a Restricted Subsidiary of the Company; (x) the payment of distributions (A) to the Equity Investor solely for the purpose of enabling the Equity Investor to pay its reasonable, ordinary course operating and administrative expenses and taxes in any fiscal year will not exceed $250,000, and (B) in the event of the Asset Drop-Down, to the Holding Company for the purpose of enabling the Holding Company to pay its reasonable, ordinary course operating and administrative expenses, the amount of which distributions pursuant to subclauses (A) and (B) of this clause (x) in any fiscal year will not exceed $500,000; and (xi) in the event of the Asset Drop-Down, the payment of distributions to the Holding Company solely for the purpose of enabling the Holding Company to pay taxes attributable to the operations of the New Operating Company and its Subsidiaries to the extent such taxes are actually owed and the Holding Company is permitted or required to make such payments. Notwithstanding the foregoing, (a) the amount of any payments made in reliance on clause (i) and clause (v) above shall reduce the amount otherwise available for Restricted Payments pursuant to subparagraphs (1)-(3) above and -57- (b) in the event of the Asset Drop-Down, the amount of any payments that could otherwise have been made in reliance on clauses (v), (vi), (vii), and (x)(A) may be paid for the respective purposes set forth therein by the New Operating Company as dividends or distributions to the Holding Company. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth in reasonable detail the basis upon which the calculations required by this covenant were computed (including without limitation the date, amount and nature of any purchase or contribution referred to in clauses (3)(b) or (c) above), which calculations may be based upon the Company's latest available financial statements, and, to the extent that the absence of a Default or an Event of Default is a condition to the making of such Restricted Payment, that no Default or Event of Default exists and is continuing and no Default or Event of Default will occur immediately after giving effect to any Restricted Payments. Limitations on Investments The Company will not, and will not permit any of its Restricted Subsidiaries to, make any Investment other than (1) a Permitted Investment or (2) an Investment that is made as a Restricted Payment in compliance with the "Limitation on Restricted Payments" covenant, after the Issue Date. Limitations on Liens The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or asset of the Company or any Restricted Subsidiary or any shares of stock or debt of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, which secures Indebtedness pari passu with or subordinated to the Notes unless: (1) if such Lien secures Indebtedness which is pari passu with the Notes, then the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (2) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to the Lien granted to the Holders of the Notes in the same collateral as that securing such Lien to the same extent as such subordinated Indebtedness is subordinated to the Notes. Limitation on Transactions with Affiliates The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which the Company or any of its Restricted Subsidiaries owns a minority interest) (an "Affiliate Transaction") or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the date hereof if such extension, renewal, replacement, waiver or other modification is more disadvantageous to the holders of the Notes in any material respect than the original agreement as in effect on the date hereof unless (1) such Affiliate Transaction is between or among the Company and/or its Restricted Subsidiaries; or (2) the terms of such Affiliate Transaction are fair and reasonable to the Company or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Company or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of $2,000,000 which is not permitted under clause (1) above, the Company must obtain a resolution of the Board of Directors certifying that such -58- Affiliate Transaction complies with clause (2) above. In any Affiliate Transaction with a value in excess of $10,000,000 which is not permitted under clause (1) above (other than any sale by the Company of its Capital Stock that is not Disqualified Capital Stock), the Company must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm. The limitations set forth in this and the preceding paragraph will not apply to: (1) any Restricted Payment that is not prohibited by the "Limitation on Restricted Payments" covenant or Permitted Investment permitted by the "Limitation on Investments" covenant, (2) any transaction pursuant to an agreement, arrangement or understanding existing on the Issue Date, (3) any transaction, compensation or agreement, approved by the Board of Directors of the Company, with an officer or director of, or consultant to, the Company or of any Subsidiary in his or her capacity as officer or director entered into in the ordinary course of business, (4) any transaction permitted by the provisions described under "Merger, Consolidation or Sale of Assets," (5) any transaction (a) between the Company and any THL Group Member solely in its capacity as a holder or buyer of the Company's Capital Stock or (b) in the event of the Asset Drop-Down, between the New Operating Company and the Holding Company solely in its capacity as a holder or buyer of the New Operating Company's Capital Stock, provided that any such transaction described in this clause (5) is not otherwise prohibited by the indenture, or (6) in the event of the Asset Drop-Down, any commercially reasonable transaction between the New Operating Company and the Holding Company solely in its capacity as a holder or buyer of the New Operating Company's Indebtedness, provided that any such transaction is not otherwise prohibited by the indenture. Limitation on Creation of Subsidiaries The Company will not create or acquire, and will not permit any of its Restricted Subsidiaries to create or acquire, any Subsidiary other than: (1) a Restricted Subsidiary that is acquired or created in connection with an acquisition by the Company or (2) an Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary acquired or created pursuant to clause (1) will at the time it has either assets or stockholder's equity in excess of $200,000 execute a guarantee in the form attached to the Indenture, pursuant to which such Restricted Subsidiary will become a Guarantor, which Guarantee shall be subordinated to such Restricted Subsidiary's guarantee of or pledge to secure any other Indebtedness that constitutes Senior Indebtedness to the same extent as the Senior Subordinated Notes are subordinated to Senior Indebtedness. Notwithstanding the foregoing, any such Senior Subordinated Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon certain mergers, consolidations, sales and other dispositions (including, without limitation, by foreclosure) in accordance with the Indenture. Limitation on Certain Asset Sales The Company will not, and will not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless: -59- (1) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the equity interests, property or assets constituting such Asset Sale (as determined in good faith by the Board of Directors of the Company, and evidenced by a board resolution); (2) not less than 75% of the consideration received by the Company or its Subsidiaries, as the case may be, is in the form of cash or Temporary Cash Investments; and (3) the Asset Sale Proceeds received by the Company or such Restricted Subsidiary are applied: (a) first, to the extent the Company elects, or is required, to prepay, repay or purchase debt or to reduce an unused commitment to lend under any then existing Senior Indebtedness of the Company or any Restricted Subsidiary within 365 days following the receipt of the Asset Sale Proceeds from any Asset Sale, but only to the extent that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid or be applied to secure Letter of Credit Obligations; and (b) second, to the extent of the balance of Asset Sale Proceeds after application as described above, to the extent the Company elects, to an investment in assets (including Capital Stock or other securities purchased in connection with the acquisition of Capital Stock or property of another Person) used or useful in businesses similar or ancillary to the business of the Company or such Restricted Subsidiary as conducted at the time of such Asset Sale, provided that such investment occurs or the Company or a Restricted Subsidiary enters into contractual commitments to make such investment, subject only to customary conditions (other than the obtaining of financing), on or prior to the 365th day following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually committed are so applied within 365 days following the receipt of such Asset Sale Proceeds. Pending the final application of any such available Asset Sale Proceeds, the Company or such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving credit facility or otherwise invest such Available Asset Sale Proceeds in any manner not prohibited under the Indenture. If, on the Reinvestment Date with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10,000,000, the Company shall apply an amount equal to such Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). If the Company is required to make an Excess Proceeds Offer, the Company will mail, within 30 days following the Reinvestment Date, a notice to the holders of the Notes stating, among other things: (1) that such holders have the right to require the Company to apply the Available Asset Sale Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (2) the purchase date (the "Purchase Date"), which shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed; (3) the instructions, determined by the Company, that each holder must follow in order to have such Notes repurchased; and (4) the calculations used in determining the amount of Available Asset Sale Proceeds to be applied to the repurchase of such Notes. The Excess Proceeds Offer shall remain open for a period of 20 Business Days following its commencement. -60- The Company will publicly announce the results of the Excess Proceeds Offer on the Purchase Date by sending a press release to the Dow Jones News Service or similar business news service in the United States. If an Excess Proceeds Offer is not fully subscribed, the Company may retain that portion of the Available Asset Sale Proceeds not required to repurchase Notes and use such portion for general corporate purposes, and such retained portion shall not be considered in the calculation of "Available Asset Sale Proceeds" with respect to any subsequent offer to purchase Notes. Limitation on Preferred Stock of Restricted Subsidiaries The Company will not permit any Restricted Subsidiary to issue any Preferred Stock (except Preferred Stock to the Company or a Restricted Subsidiary) or permit any Person (other than the Company or a Restricted Subsidiary) to hold any such Preferred Stock unless the Company or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under the "Limitation on Additional Indebtedness" covenant in an aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. Limitation on Capital Stock of Subsidiaries The Company will not: (1) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Subsidiary (other than Liens under the Senior Credit Facility or under the terms of any Designated Senior Indebtedness and Liens not prohibited by the "Limitations on Liens" covenant) other than to the Company or another Restricted Subsidiary or (2) permit any of its Subsidiaries to issue any Capital Stock (other than director's qualifying shares) other than (a) to the Company or a Wholly-Owned Subsidiary of the Company or (b) to any other shareholder of such Subsidiary (including to another Subsidiary) in an amount not to exceed such shareholders' proportionate share of any dividend, distribution or other issuance to all shareholders. The foregoing restrictions will not apply to an Asset Sale made in compliance with the "Limitation on Certain Asset Sales" covenant or the issuance of Preferred Stock in compliance with the "Limitation on Preferred Stock of Restricted Subsidiaries" covenant. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to: (1) (a) pay dividends or make any other distributions to the Company or any Restricted Subsidiary of the Company (i) on its Capital Stock or (ii) with respect to any other interest or participation in, or measured by, its profits or (b) repay any Indebtedness or any other obligation owed to the Company or any Restricted Subsidiary of the Company, (2) make loans or advances or capital contributions to the Company or any of its Restricted Subsidiaries or (3) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of -61- (a) encumbrances or restrictions existing on the date hereof to the extent and in the manner such encumbrances and restrictions are in effect on the date hereof or no more restrictive in any material respect (including without limitation pursuant to the Senior Credit Facility), (b) the Indenture, the Notes and the Guarantees, (c) applicable law, (d) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person (including any Subsidiary of the Person), so acquired, (e) any agreement or instrument governing Indebtedness (whether or not outstanding) of Foreign Subsidiaries, (f) customary non-assignment provisions in leases, licenses or other agreements entered in the ordinary course of business and consistent with past practices, (g) Refinancing Indebtedness; provided that such payment restrictions are no more restrictive in any material respect than those contained in the agreements governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (h) customary restrictions in security agreements or mortgages or other similar agreements securing Indebtedness of the Company or a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages or (i) customary restrictions with respect to a Restricted Subsidiary of the Company pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary. Limitation on Sale and Lease-Back Transactions The Company shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Lease- Back Transaction unless: (1) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold, as determined, in good faith, by the Board of Directors of the Company, and (2) the Company or such Restricted Subsidiary, as the case may be, could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with the "Limitation on Additional Indebtedness" covenant. Payments for Consent Neither the Company nor any of its Subsidiaries will, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all holders of the Notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. -62- Change of Control Offer In the event of a Change of Control, the Company will be obligated to make an offer to purchase (the "Change of Control Offer") the outstanding Notes at a purchase price equal to 101% of the principal amount thereof together with any accrued and unpaid interest thereon to the Change of Control Payment Date (as hereinafter defined) (such applicable purchase price being hereinafter referred to as the "Change of Control Purchase Price") in accordance with the procedures set forth in this covenant. Within 30 days following the first date on which the Company has knowledge of any Change of Control, the Company will send by first-class mail, postage prepaid, to the Trustee and to each holder of the Notes, at the address appearing in the register maintained by the registrar of the Notes, a notice stating: (1) that the Change of Control Offer is being made pursuant to this covenant and that all Notes tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (2) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 20 Business Days from the date such notice is mailed (the "Change of Control Payment Date"); (3) that any Note not tendered will remain outstanding and continue to accrue interest; (4) that, unless the Company defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (5) that holders accepting the offer to have their Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Change of Control Payment Date; (6) that holders will be entitled to withdraw their acceptance if the Paying Agent receives, not later than the close of business on the Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Notes delivered for purchase, and a statement that such holder is withdrawing his election to have such Notes purchased; (7) that holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each such new Note issued shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; and (8) any other procedures that a holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance. On the Change of Control Payment Date, the Company will, to the extent lawful: (1) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer; (2) deposit at the paying office established by the Company money sufficient to pay the purchase price of all Notes or portions thereof so tendered; and (3) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Company. -63- The Indenture will require that if the Senior Credit Facility is in effect, or any amounts are owing thereunder or in respect thereof, at the time of the occurrence of a Change of Control, prior to the mailing of the notice to holders described above, but in any event within 30 days following the first date on which the Company has knowledge of any Change of Control, the Company covenants to: (1) repay in full all obligations under or in respect of the Senior Credit Facility or offer to repay in full all obligations under or in respect of the Senior Credit Facility and repay the obligations under or in respect of the senior credit facility of each lender who has accepted such offer; or (2) obtain the requisite consent under the senior credit facility to permit the repurchase of the Notes as described above. The Company will be deemed to have knowledge of all filings with the SEC. The Company must first comply with the covenant described in the preceding sentence before it shall be required to purchase Notes in the event of a Change of Control; provided that the Company's failure to comply with the covenant described in the preceding sentence constitutes an Event of Default described in clause (3) under "Events of Default" below if not cured within 60 days after the notice required by such clause. As a result of the foregoing, a holder of the Notes may not be able to compel the Company to purchase the Notes unless the Company is able at the time to refinance all of the obligations under or in respect of the senior credit facility or obtain requisite consents under the senior credit facility. Failure by the Company to make a Change of Control Offer when required by the Indenture constitutes a default under the Indenture and, if not cured within 60 days after notice, constitutes an Event of Default. The Indenture will require that: (1) if the Company or any Subsidiary thereof has issued any outstanding (a) Indebtedness that is subordinate in right of payment to the Notes; or (b) Preferred Stock, and the Company or such Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a change of control, the Company shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Company shall have paid the Change of Control Purchase Price in full to the holders of Notes that have accepted the Company's Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to holders of the Notes and (2) the Company will not issue Indebtedness that is subordinate in right of payment to the Notes or Preferred Stock with change of control provisions requiring the payment of such Indebtedness or Preferred Stock prior to the payment of the Notes in the event of a Change in Control under the Indenture. In the event that a Change of Control occurs and the holders of Notes exercise their right to require the Company to purchase Notes, if such purchase constitutes a "tender offer" for purposes of Rule l4e-1 under the Exchange Act at that time, the Company will comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase. Merger, Consolidation or Sale of Assets The Company will not, nor will it permit any Guarantor to, consolidate with, merge with or into, or transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person unless (in the case of the Company or any Guarantor): (1) the Company or such Guarantor, as the case may be, shall be the continuing Person, or the Person (if other than the Company or such Guarantor) formed by such consolidation or into which the Company or such Guarantor, as the case may be, is merged or to which the properties and assets of the Company or such Guarantor, as the case may be, are transferred shall be a corporation, a limited -64- liability company or a limited partnership organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume in writing all of the obligations of the Company or such Guarantor, as the case may be, under the Notes and the Indenture or Guarantee, as applicable, and the obligations under the Indenture shall remain in full force and effect; provided that at any time the Company or its successor is a limited partnership or limited liability company there shall be a co-issuer of the Notes that is a corporation; (2) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (3) unless the merger or consolidation is with, or the transfer of all or substantially all its assets is to, a Wholly-Owned Subsidiary, immediately after giving effect to such transaction on a pro forma basis the Company or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness" covenant. Nothing in this "Merger, Consolidation or Sale of Assets" provision will prohibit the consolidation, merger or transfer of all or substantially all the assets of any Guarantor that is otherwise permitted by and conducted in accordance with the other applicable provisions of the Indenture. In connection with any consolidation, merger or transfer of assets contemplated by this provision, the Company will deliver, or cause to be delivered, to the Holders, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an opinion of counsel, each stating that such consolidation, merger or transfer and the supplemental Indenture in respect thereof comply with this provision and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. Guarantees The Notes will be unconditionally guaranteed on an unsecured senior subordinated basis by the Guarantors. All payments pursuant to the Guarantees by the Guarantors will be unconditionally subordinate in right of payment to the prior indefeasible payment and satisfaction in full in cash of all Senior Indebtedness of the Guarantor, to the same extent and in the same manner that all payments pursuant to the Notes are subordinate in right of payment to the prior payment in full of all Senior Indebtedness of the Company. The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any Guarantees of Senior Indebtedness) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. A Guarantor shall be released from all of its obligations under its Guarantee if all or substantially all of its assets are sold or at least 80% of its Capital Stock is sold, in each case in a transaction in compliance with the covenant described under "Limitation on Certain Asset Sales," provided that in the event of a sale of less than all of the Capital Stock of a Guarantor, such release shall not be effective unless and until such Guarantor is similarly released from its guarantee under the senior credit facility or the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Company or another Guarantor in a transaction in compliance with "Merger, Consolidation or Sale of Assets," and such Guarantor has delivered to the Trustee an Officers' Certificate and an opinion of counsel, each stating that all conditions precedent herein provided for relating to such transaction have been complied with. -65- Events of Default The following events will be defined in the Indenture as "Events of Default": (1) default in payment of any principal of, or premium, if any, on the Notes whether at maturity, upon acceleration or redemption or otherwise (whether or not such payment is prohibited by the subordination provisions of the Indenture); (2) default for 30 days (whether or not such payment is prohibited by the subordination provisions of the Indenture) in payment of any interest on the Notes; (3) default by the Company or any Guarantor in the observance or performance of any other covenant in the Notes or the Indenture for 60 days after written notice from the Trustee or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding (except in the case of the consummation of a transaction governed by the "Merger, Consolidation or Sale of Assets" provision in violation of the terms thereof, which will constitute an Event of Default with such notice requirement but without such passage of time requirement); (4) default in the payment at final maturity of principal in an aggregate amount of $10.0 million or more with respect to any Indebtedness of the Company or any Restricted Subsidiary thereof, or the acceleration of any such Indebtedness aggregating $10.0 million or more which default shall not be cured, waived or postponed pursuant to an agreement with the holders of such Indebtedness within 60 days after written notice as provided in the Indenture, or such acceleration shall not be rescinded or annulled within 20 days after written notice as provided in the Indenture; (5) any final judgment or judgments which can no longer be appealed or stayed for the payment of money in excess of $10.0 million (net of amounts covered by insurance for which coverage is not being challenged or denied) is rendered against the Company or any Restricted Subsidiary thereof, and shall not be discharged, paid or otherwise satisfied for any period of 60 consecutive days during which a stay of enforcement shall not be in effect; (6) certain events involving bankruptcy, insolvency or reorganization of the Company or any Restricted Subsidiary thereof; and (7) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid or any of the Guarantors denies in writing its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of the Indenture). The Indenture will provide that the Trustee may withhold notice to the holders of the Notes of any default (except in payment of principal or premium, if any, or interest on the Notes) if the Trustee considers it to be in the best interest of the holders of the Notes to do so. The Indenture will provide that if an Event of Default (other than an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization of the Company) shall have occurred and be continuing, then the Trustee by notice to the Company or the holders of not less than 25% in aggregate principal amount of the Notes then outstanding by written notice to the Company and the Trustee may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration and (1) such amounts shall become immediately due and payable or (2) if there are any amounts outstanding under or in respect of the senior credit facility or any commitments remain in effect under the senior credit facility, such amounts shall become due and -66- payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the senior credit facility or five Business Days after receipt by the Company and the Representative of notice of the acceleration of the Notes; provided, however, that after such acceleration but before a judgment or decree based on such acceleration is obtained by the Trustee, the holders of a majority in aggregate principal amount of outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all existing Events of Default, other than nonpayment of accelerated principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived as provided in the Indenture. In case an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization of the Company shall occur, the principal, premium, if any, and interest amount with respect to all of the Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the Notes. The holders of a majority in principal amount of the Notes then outstanding shall have the right to waive any existing default or compliance with any provision of the Indenture or the Notes and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. No holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless such holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the holders of at least 25% in aggregate principal amount of the outstanding Notes shall have made written request and offered indemnity satisfactory to the Trustee to institute such proceeding as a trustee, and unless the Trustee shall not have received from the holders of a majority in aggregate principal amount of the outstanding Notes a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. However, such limitations do not apply to a suit instituted on such Note on or after the respective due dates expressed in such Note. Defeasance and Covenant Defeasance The Indenture will provide that the Company may elect either (1) to defease and be discharged from any and all obligations with respect to the Notes (except for the obligations to register the transfer or exchange of such Notes, to replace temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office or agency in respect of the Notes and to hold monies for payment in trust) ("defeasance"); or (2) to be released from their obligations with respect to the Notes under certain covenants contained in the Indenture and described above under "Certain Covenants" ("covenant defeasance") upon the deposit with the Trustee (or other qualifying trustee), in trust for such purpose of money and/or U.S. Government Obligations (as defined in the Indenture) which through the payment of principal and interest in accordance with their terms will provide money, in an amount sufficient to pay the principal of, premium, if any, and interest on the Notes, on the scheduled due dates therefor or on a selected date of redemption in accordance with the terms of the Indenture. Such a trust may only be established if, among other things, the Company has delivered to the Trustee an opinion of counsel: (a) to the effect that neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended, and (b) describing either a private ruling concerning the Notes or a published ruling of the Internal Revenue Service, to the effect that holders of the Notes or persons in their positions will not recognize income, gain or loss for federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to federal income tax on the same amount and -67- in the same manner and at the same times, as would have been the case if such deposit, defeasance and discharge had not occurred. Modification of Indenture From time to time, the Company, the Guarantors and the Trustee may, without the consent of holders of the Notes, amend the Indenture or the Notes or supplement the Indenture for certain specified purposes, including providing for uncertificated Notes in addition to certificated Notes, consummating the Asset Drop-Down, and curing any ambiguity, defect or inconsistency, or making any other change that does not adversely affect the rights of any holder. The Indenture contains provisions permitting the Company, the Guarantors and the Trustee, with the consent of holders of at least a majority in principal amount of the outstanding Notes, to modify or supplement the Indenture or the Notes, except that no such modification shall, without the consent of each holder affected thereby, (1) reduce the amount of Notes whose holders must consent to an amendment, supplement, or waiver to the Indenture or the Notes; (2) reduce the rate of or change the time for payment of interest on any Note; (3) reduce the principal of or premium on or change the stated maturity of any Note; (4) waive a default in the payment of the principal of, interest on, or redemption payment with respect to any Note; (5) make any Note payable in money other than that stated in the Note or change the place of payment from New York, New York; (6) make any change in provisions of the Indenture protecting the right of each holder of Notes to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (7) amend, change or modify in any material respect the obligation of the Company to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate an Excess Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; (8) affect the ranking of the Notes or the Guarantees in a manner adverse to the holders; (9) change any provision of the Indenture relating to the redemption of Notes; (10) release any Guarantor from any of its obligations under its Guarantee or the Indenture otherwise than in accordance with the terms of the Indenture. Reports to Holders So long as the Company is subject to the periodic reporting requirements of the Exchange Act, it will continue to furnish the information required thereby to the SEC and to the holders of the Notes. The Indenture will provide that even if the Company is entitled under the Exchange Act not to furnish such information to the SEC or to the holders of the Notes, it will nonetheless continue to furnish such information to the SEC and holders of the Notes. -68- Compliance Certificate The Company will deliver to the Trustee on or before 100 days after the end of the Company's fiscal year and on or before 55 days after the end of each of the first, second and third fiscal quarters in each year an Officers' Certificate stating whether or not the signers know of any Default or Event of Default that has occurred. If they do, the certificate will describe the Default or Event of Default and its status. The Trustee The Trustee under the Indenture will be the Registrar and Paying Agent with regard to the Notes. The Indenture will provide that, except during the continuance of an Event of Default, the Trustee will perform only such duties as are specifically set forth in the Indenture. During the existence of an Event of Default, the Trustee will exercise such rights and powers vested in it under the Indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. Transfer and Exchange Holders of the Notes may transfer or exchange the Notes in accordance with the Indenture. The Registrar under the Indenture may require a holder, among other things, to furnish appropriate endorsements and transfer documents, and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar is not required to transfer or exchange any Note selected for redemption. Also, the Registrar is not required to transfer or exchange any Note for a period of 15 days before selection of the Notes to be redeemed. The Notes will be issued in a transaction exempt from registration under the Securities Act and will be subject to the restrictions on transfer described in "Notice to Investors." The registered holder of a Note may be treated as the owner of it for all purposes. Certain Definitions Set forth below is a summary of certain of the defined terms used in the covenants contained in the Indenture. We refer you to the Indenture for the full definition of all such terms as well as any other capitalized terms used herein for which no definition is provided. "Accrued Bankruptcy Interest" means, with respect to any Indebtedness of any Person, all interest accrued or accruing on such Indebtedness after the commencement of any bankruptcy, reorganization, insolvency, receivership or similar proceeding, whether voluntary or involuntary, against such Person in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing or governing such Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such proceeding. "Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with the acquisition of the outstanding equity interests on, or assets from, such Person. "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of the amount by which (1) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities), but excluding liabilities under the Guarantee, of such Guarantor at such date and (2) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other -69- fixed and contingent liabilities and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding Indebtedness in respect of the Guarantee, as they become absolute and matured. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Asset Acquisition" means (1) an Investment by the Company or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Company or any Restricted Subsidiary or (2) the acquisition by the Company or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Drop-Down" means the transaction described under "Asset Drop-Down" above. "Asset Sale" means the sale, transfer or other disposition (including any Sale and Lease-Back Transaction), other than to the Company or any of its Restricted Subsidiaries, in any single transaction or series of related transactions having a fair market value in excess of $1,500,000 of (1) any Capital Stock of or other equity interest in any Restricted Subsidiary of the Company or (2) any other property or assets of the Company or of any Restricted Subsidiary thereof; provided that Asset Sales shall not include: (a) sales, leases, conveyances, transfers or other dispositions to the Company or to a Restricted Subsidiary or to any other Person if after giving effect to such sale, lease, conveyance, transfer or other disposition such other Person becomes a Restricted Subsidiary; (b) the contribution of any assets to a joint venture, partnership or other Person (which may be a Subsidiary) to the extent such contribution constitutes a Permitted Investment (other than by operation of clause (4) of the definition thereof); (c) the sale, transfer or other disposition of all or substantially all of the assets of the Company or any Guarantor as permitted under the "Merger, Consolidation or Sale of Assets" provision; (d) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (e) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the industry; (f) the licensing of intellectual property; -70- (g) disposals or replacements of obsolete equipment in the ordinary course of business; (h) leases or subleases to third persons not interfering in any material respect with the business of the Company or any of its Restricted Subsidiaries; (i) a disposition of Temporary Cash Investments or goods held for sale in the ordinary course of business consistent with past practices of the Company; (j) a disposition that constitutes a Change of Control; and (k) any foreclosures on assets. "Asset Sale Proceeds" means, with respect to any Asset Sale, (1) cash received by the Company or any Restricted Subsidiary from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees (including legal and accounting fees) and expenses (including relocation expenses) related to such Asset Sale, (c) any consideration for an Asset Sale (which would otherwise constitute Asset Sale Proceeds) that is required to be held in escrow pending determination of whether a purchase price adjustment will be made, but amounts under this clause (c) will become Asset Sale Proceeds at such time and to the extent such amounts are released to the Company or a Restricted Subsidiary, (d) repayment of Indebtedness that either (i) is secured by a Lien on the property or assets sold or (ii) is required to be repaid in connection with such Asset Sale (in order to obtain a consent required in connection therewith), (e) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale and (f) deduction of appropriate amounts to be provided by the Company or a Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Company or a Restricted Subsidiary after such Asset Sale, including, without limitation, severance, healthcare, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (2) promissory notes and other non-cash consideration received by the Company or any Restricted Subsidiary from such Asset Sale or other disposition upon the liquidation or conversion of such notes or non-cash consideration into cash. "Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the greater of: (1) the fair value of the property subject to such arrangement (as determined by the Board of Directors) and -71- (2) the present value of the total obligations (discounted at the rate borne by the Notes, compounded annually) of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in accordance with clauses (3)(a) or (3)(b) of the first paragraph of "Limitation on Certain Asset Sales," and that have not previously been the basis for an Excess Proceeds Offer in accordance with the third paragraph of "Limitation on Certain Asset Sales." "Board of Directors" means (1) in the case of a Person that is a corporation, the board of directors of such Person or any committee authorized to act therefor, (2) in the case of a Person that is a limited partnership, the board of directors of its corporate general partner or any committee authorized to act therefor (or, if the general partner is itself a limited partnership, the board of directors of such general partner's corporate general partner or any committee authorized to act therefor), and (3) in the case of any other Person, the board of directors, management committee or similar governing body or any authorized committee thereof responsible for the management of the business and affairs of such Person. "Business Day" means any day except a Saturday, Sunday or other day on which (1) commercial banks in the City of New York are authorized or required by law to close or (2) the New York Stock Exchange is not open for trading. "Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated and whether or not voting) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exercisable for any of the foregoing. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Change of Control" means, at any time after the Issue Date, the occurrence of one or more of the following events: (1) any Person (including a Person's Affiliates and associates), other than a Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the total voting power of the Common Stock of the Company, (2) there shall be consummated any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which the Common Stock of the Company would be converted into cash, securities or other property, other than a merger or consolidation of the Company in which the holders of the Common Stock of the Company outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger, or (3) during any period of two consecutive years commencing after the Issue Date, individuals who at the beginning of such period constituted the Board of Directors of Company (together with any new -72- directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company has been approved by a majority of the directors then still in office who either were directors at the beginning of such period or whose election or recommendation for election was previously so approved) cease to constitute a majority of the Board of Directors of the Company. "Commodity Hedge Agreement" shall mean any option, hedge or other similar agreement or arrangement designed to protect against fluctuations in commodity or materials prices. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to: (1) vote in the election of directors of such Person or (2) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") for which financial statements are available to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to: (1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to revolving credit facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any EBITDA (provided that such EBITDA shall be included only to the extent includible pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period; (3) with respect to any such Four Quarter Period commencing prior to the recapitalization, the recapitalization, which shall be deemed to have taken place on the first day of such Four Quarter Period; and (4) any asset sales or asset acquisitions (including any EBITDA attributable to the assets which are the subject of the asset acquisition or asset sale during the Four Quarter Period (provided that such EBITDA shall be included only to the extent includible pursuant to the definition of "Consolidated Net Income")) that have been made by any Person that has become a Restricted Subsidiary of the Company or has been merged with or into the Company or any Restricted Subsidiary of the Company during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period -73- and on or prior to the Transaction Date that would have constituted Asset Sales or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary of the Company or subsequent to such Person's merger into the Company, as if such asset sale or asset acquisition (including the incurrence, assumption or liability for any Indebtedness or Acquired Indebtedness in connection therewith) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by one or more Interest Rate Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person, for any period, the sum of: (1) Consolidated Interest Expense (excluding amortization or write-off of debt issuance costs relating to the recapitalization and the financing therefor or relating to retired or existing Indebtedness and amortization or write-off of customary debt issuance costs relating to future Indebtedness incurred in the ordinary course of business), plus (2) without duplication, the product of (a) the amount of all dividend payments on any series of Preferred Stock of such Person or any Restricted Subsidiary, determined on a consolidated basis (other than dividends paid in Capital Stock (other than Disqualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Restricted Subsidiaries on a consolidated basis (including, but not limited to, imputed interest included in Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount (other than any such discount arising from the issuance of warrants to purchase Common Stock to purchasers of the Company's debt securities simultaneously with the issuance thereof) or premium, if any, and all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person, plus the amount of all dividends or distributions paid on Disqualified Capital Stock (other than dividends paid or payable in shares of Capital Stock of the Company), less the amortization of deferred financing costs. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, however, that: -74- (1) the Net Income of any (a) Person (the "other Person") in which the Person in question or any of its Restricted Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) and (b) Unrestricted Subsidiary shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or the Restricted Subsidiary, (2) the Net Income of any Restricted Subsidiary of the Person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than pursuant to the Notes or as permitted under "Certain Covenants--Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries") shall be excluded to the extent of such restriction or limitation, (3) (a) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (b) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Restricted Subsidiaries other than in the ordinary course of business shall be excluded, (4) extraordinary, unusual and non-recurring gains and losses (including any related tax effects on such Person) shall be excluded, (5) income or loss attributable to discontinued operations (including without limitation operations disposed of during such period whether or not such operations were classified as discontinued) shall be excluded, (6) to the extent not otherwise excluded in accordance with GAAP, the Net Income of any Restricted Subsidiary in an amount that corresponds to the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period, directly or indirectly, by such Person shall be excluded, (7) dividends, distributions and any other payments constituting return of capital from Investments shall in any event be excluded to the extent used to increase the amount available for Investment under clause (15) of the definition of "Permitted Investments" in accordance with the terms thereof, (8) non-cash compensation charges, including any arising from existing stock options resulting from any merger or recapitalization transaction, shall be excluded, and (9) without duplication, any charges related to the recapitalization shall be excluded. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement, which may include the use of derivatives, designed to protect against fluctuations in currency values. "Default" means any condition or event that is, or with the passing of time or giving of any notice expressly required under the Indenture (or both) would be, an Event of Default. "Designated Senior Indebtedness," as to the Company or any Guarantor, as the case may be, means (1) so long as Indebtedness under or in respect of the senior credit facility is outstanding or has commitments for the extension of credit, such Senior Indebtedness and -75- (2) any other Senior Indebtedness (a) which at the time of determination exceeds $25,000,000 in aggregate principal amount (or accreted value in the case of Indebtedness issued at a discount) outstanding or available under a committed facility, (b) which is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by such Person, and (c) as to which the Trustee has been given written notice of such designation and, so long as there is a Representative with respect to the senior credit facility, such Representative shall have concurred in such designation. "Disqualified Capital Stock" means any Capital Stock of the Company or a Restricted Subsidiary thereof which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, (1) matures on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness; or (2) is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness; or (3) is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness; provided that Capital Stock of the Company that is held by a current or former employee of the Company subject to a put option and/or a call option with the Company triggered by the termination of such employee's employment with the Company and/or the Company's performance shall not be deemed to be Disqualified Capital Stock solely by virtue of such call option and/or put option. Without limitation of the foregoing, Disqualified Capital Stock will be deemed to include (a) any Preferred Stock of a Restricted Subsidiary of the Company and (b) any Preferred Stock of the Company, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, the Company is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; provided, however, that Capital Stock of the Company or any Restricted Subsidiary that is issued with the benefit of provisions requiring (i) a change of control offer or asset sale proceeds offer to be made for such Capital Stock in the event of a change of control of or asset sale by the Company or such Restricted Subsidiary, which provisions have substantially the same effect as the provisions of the Indenture described under "Change of Control" or "Limitation on Certain Asset Sales," as the case may be or (ii) payment of dividends or redemption only after the Notes have been fully paid, shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EBITDA" means, for any Person, for any period, an amount equal to (1) the sum of (a) Consolidated Net Income for such period, plus (b) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (a) hereof, plus (c) Consolidated Interest Expense for such period (but only including Redeemable Dividends in the calculation of such Consolidated Interest Expense to the extent that such Redeemable Dividends have not been excluded in the calculation of Consolidated Net Income), plus -76- (d) depreciation for such period on a consolidated basis, plus (e) amortization of intangibles for such period on a consolidated basis, plus (f) any other non-cash items (excluding any such non-cash item to the extent that it represents an accrual of or a reserve for a cash expense in any period subsequent to the period for which EBITDA is being calculated) reducing or not included in the definition of Consolidated Net Income for such period, plus (g) without duplication, all cash and non-cash expenses and restructuring charges arising in connection with the recapitalization, minus (2) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Subsidiaries determined in accordance with GAAP, except that with respect to the Company each of the foregoing items shall be determined on a consolidated basis with respect to the Company and its Restricted Subsidiaries only; provided, however, that, for purposes of calculating EBITDA during any fiscal quarter, cash income from a particular Investment (other than in a Subsidiary which under GAAP is consolidated) of such Person shall be included only (1) to the extent cash income has been received by such Person with respect to such Investment, or (2) if the cash income derived from such Investment is attributable to Temporary Cash Investments. "Equity Investor" means UIC Holdings, L.L.C., a Delaware limited liability company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's-length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. "Foreign Subsidiary" means a Restricted Subsidiary of the Company (1) that is organized in a jurisdiction other than the United States of America or a state thereof or the District of Columbia and (2) with respect to which at least 90% of its sales (as determined in accordance with GAAP) are generated by operations located in jurisdictions outside the United States of America. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States from time to time. "Guarantee" means, as the context may require, individually, a guarantee, or collectively, any and all guarantees, of the Obligations of the Company with respect to the Notes by each Guarantor, if any, pursuant to the terms of the Indenture. "Guarantor" means each Restricted Subsidiary of the Company that hereafter becomes a Guarantor pursuant to the Indenture, and "Guarantors" means such entities, collectively. "Guarantor Representative" means -77- (1) so long as the senior credit facility remains outstanding or any commitments thereunder remain in effect, the agent (or if there is more than one agent therefor, the administrative agent for the lender parties thereunder) and (2) thereafter the agent, indenture trustee, other trustee or other representative for any Guarantor Senior Indebtedness. "Guarantor Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, Accrued Bankruptcy Interest) on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts and Obligations incurred or owing pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with, (1) any Guarantor's direct incurrence of any Indebtedness or its guarantee of all Indebtedness of the Company or any of its Subsidiaries, in each case, under the senior credit facility, (2) all obligations of such Guarantor with respect to any Interest Rate Agreement, (3) all obligations of such Guarantor to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (4) all other Indebtedness of such Guarantor which does not expressly provide that it is to rank pari passu with or subordinate to the Guarantees and (5) all deferrals, renewals, extensions, refinancings, replacements and refundings in whole or in part of, and amendments, modifications, restatements and supplements to, any of the Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Indebtedness will not include (1) Indebtedness of such Guarantor to any of its Subsidiaries (except to the extent such Indebtedness is pledged as security under the senior credit facility), (2) Indebtedness represented by the Guarantees, (3) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any other item of Indebtedness of the Company (although this clause (3) shall not apply to the subordination of liens or security interests covering property or assets securing Guarantor Senior Indebtedness), (4) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business or (5) liability for federal, state, local or other taxes owed or owing by the Company. "Holding Company" means the parent company of the New Operating Company following the Asset Drop- Down. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurable" and "incurring" shall have meanings correlative to the foregoing); provided that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. -78- "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables or liabilities arising from advance payments or customer deposits for goods and services sold by the Company in the ordinary course of business, and other accrued liabilities and expenses arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included: (1) any Capitalized Lease Obligations, (2) obligations secured by a Lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed (provided, however, that if such obligation or obligations shall not have been assumed, the amount of such Indebtedness shall be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets), (3) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), (4) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (provided that in the case of any such letters of credit, the items for which such letters of credit provide credit support are those of other Persons which would be included within this definition for such other Persons), (5) Disqualified Capital Stock of such Person or any Restricted Subsidiary thereof, and (6) obligations of any such Person under any Interest Rate Agreement applicable to any of the foregoing (if and to the extent such Interest Rate Agreement obligations would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided: (1) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (2) that Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Company or any Restricted Subsidiary for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Individual Investors" means the Persons who made the Management Contribution and, without duplication, the Persons who hold the Retained Equity as of the Issue Date. -79- "Interest Rate Agreement" shall mean any interest or foreign currency rate swap, cap, collar, option, hedge, forward rate or other similar agreement or arrangement designed to protect against fluctuations in interest rates or currency exchange rates. "Investments" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by the Company in connection with an acquisition of assets which is otherwise permitted by the terms of the Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. For the purposes of the "Limitation on Restricted Payments" covenant, "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date the Notes are first issued by the Company and authenticated by the Trustee under the Indenture. "Letter of Credit Obligations" means all Obligations in respect of Indebtedness of the Company or any of its Restricted Subsidiaries with respect to letters of credit issued pursuant to the Senior Indebtedness which Indebtedness shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing) and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement (other than advance payments or customer deposits for goods and services sold by the Company in the ordinary course of business), security interest, lien, charge, easement or encumbrance of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Proceeds" means: (1) in the case of any sale of Capital Stock by any Person, the aggregate net proceeds received by such Person, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof, as determined in good faith by the Board of Directors of such Person, at the time of receipt) and (2) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock of such Person which is not Disqualified Capital Stock, the net book value of such outstanding securities on the date of such exchange, exercise, conversion or -80- surrender (plus any additional amount required to be paid by the holder to such Person upon such exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account of fractional shares and less all expenses incurred by the Company in connection therewith). "New Operating Company" means the newly-formed Wholly-Owned Subsidiary of the Company participating in the Asset Drop-Down. "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles (or, in the case of certain of the events described in clause (6) under "Events of Default," with the passage of time would entitle) one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Obligations" means, with respect to any Indebtedness, any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other expenses and liabilities payable under the documentation governing such Indebtedness. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of the Indenture and delivered to the Trustee. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of (or premium, if any) or interest on or any other Obligations payable in connection with Designated Senior Indebtedness. "Permitted Holders" means, collectively, (1) the Company and, in the event of the Asset Drop-Down, the Holding Company, (2) any THL Group Member, (3) the Individual Investors, each of the spouses, children (adoptive or biological) or other lineal descendants of the Individual Investors, the probate estate of any such individual and any trust, so long as one or more of the foregoing individuals retains substantially all of the controlling or beneficial interest thereunder, and (4) any underwriter during the course of an underwritten public offering until completion of the initial distribution thereof. "Permitted Indebtedness" means: (1) Indebtedness of the Company or any Restricted Subsidiary arising under or in connection with the senior credit facility in an amount not to exceed the sum of (a) $225,000,000 plus (b) the greater of (i) $110,000,000 or (ii) the aggregate of 80% of the accounts receivable and 50% of the inventory of the Company and its consolidated Restricted Subsidiaries, which sum shall be reduced by any mandatory prepayments actually made thereunder required as a result of any Asset Sale or similar sale of assets (to the extent, in the case of payments of revolving credit indebtedness, that the corresponding commitments have been permanently reduced) and any scheduled payments actually made thereunder; (2) Indebtedness under the Notes and the Guarantees; (3) Indebtedness of Foreign Subsidiaries not to exceed $5,000,000 in the aggregate at any one time outstanding; -81- (4) Indebtedness not covered by any other clause of this definition which is outstanding on the Issue Date (including, for purposes of this clause (4), Capitalized Lease Obligations in an amount not to exceed $10,000,000 incurred in the leasing of an aircraft for use by the Company, which lease is entered into on or before September 30, 1999); (5) Indebtedness of the Company to any Restricted Subsidiary of the Company and Indebtedness of any Restricted Subsidiary of the Company to the Company or another Restricted Subsidiary of the Company; provided that (a) if the Company or any Guarantor is the obligor on such Indebtedness, such Indebtedness is unsecured and expressly subordinated to the payment in full to all obligations in respect of the Notes and the Guarantee of such Guarantor on terms substantially in the form provided in the Indenture and (b)(i) any subsequent issuance or transfer of equity interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company, and (ii) any sale or transfer of any such Indebtedness to a Person other than the Company or a Restricted Subsidiary of the Company, shall be deemed to constitute an incurrence of Indebtedness by the Company or such Restricted Subsidiary not permitted by this clause (5); (6) Interest Rate Agreements; (7) Refinancing Indebtedness; (8) Indebtedness under Commodity Hedge Agreements and Currency Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (9) Indebtedness consisting of guarantees made in the ordinary course of business by the Company or its Restricted Subsidiaries of obligations of the Company or any of its Restricted Subsidiaries, which obligations are not otherwise prohibited under the Indenture; (10) Contingent obligations of the Company or its Subsidiaries in respect of customary indemnification and purchase price adjustment obligations incurred in connection with an Asset Sale; provided that the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds actually received by the Company and its Subsidiaries in connection with such Asset Sale; (11) Indebtedness incurred in respect of performance, surety and other similar bonds and completion guarantees provided by the Company and the Restricted Subsidiaries in the ordinary course of business, and extensions, refinancings and replacements thereof; (12) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation or other similar claims; (13) Purchase Money Indebtedness and Capitalized Lease Obligations of the Company and its Subsidiaries incurred to acquire, construct or improve property and assets in the ordinary course of business and any refinancings, renewals or replacements of any such Purchase Money Indebtedness or Capitalized Lease Obligation (subject to the limitations on the principal amount thereof set forth in this clause (13)), the principal amount of which Purchase Money Indebtedness and Capitalized Lease Obligations shall not in the aggregate at any one time outstanding exceed $15,000,000; and (14) Additional Indebtedness of the Company or any of its Restricted Subsidiaries (other than Indebtedness specified in clauses (1) through (13) above) not to exceed $25,000,000 in the aggregate at any one time outstanding. -82- "Permitted Investments" means, for any Person, Investments made on or after the Issue Date consisting of: (1) Investments by the Company, or by a Restricted Subsidiary thereof, in the Company or a Restricted Subsidiary; (2) Temporary Cash Investments; (3) Investments by the Company, or by a Restricted Subsidiary thereof, in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Company, (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary thereof or (c) such business or assets are owned by the Company or a Restricted Subsidiary; (4) an Investment that is made by the Company or a Restricted Subsidiary thereof in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to the Company or a Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted under the covenant described under "Limitation on Certain Asset Sales"; (5) Investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets in each case in the ordinary course of business; (6) Investments consisting of (a) loans and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business not to exceed $2,000,000 in the aggregate at any one time outstanding, (b) loans to employees of the Company or its Subsidiaries for the sole purpose of purchasing equity of the Company, (c) extensions of trade credit in the ordinary course of business, and (d) prepaid expenses incurred in the ordinary course of business; (7) without duplication, Investments consisting of Indebtedness permitted pursuant to clause (5) of the definition of "Permitted Indebtedness"; (8) Investments existing on the Issue Date; (9) Investments of the Company under Interest Rate Agreements; (10) Investments under Commodity Hedge Agreements and Currency Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (11) Investments consisting of endorsements for collection or deposit in the ordinary course of business; (12) Investments in suppliers or customers that are in bankruptcy, receivership or similar proceedings or as a result of foreclosure on a secured Investment in a third party received in exchange for or cancellation of an existing obligation of such supplier or customer to the Company or a Restricted Subsidiary; (13) Investments paid for solely with Capital Stock (other than Disqualified Capital Stock) of the Company; (14) Investments in joint venture arrangements (which may be structured as corporations, partnerships, trusts, limited liability companies or other Persons), or in a Person which as a result of such Investment becomes a joint venture arrangement, in an aggregate amount, as valued at the time each -83- such Investment is made, not exceeding $10,000,000 for all such Investments from and after the date hereof; and (15) Investments (other than Investments specified in clauses (1) through (14) above) in an aggregate amount, as valued at the time each such Investment is made, not exceeding $10,000,000 for all such Investments from and after the Issue Date; provided that the amount available for Investments to be made pursuant to this clause (15) shall be increased from time to time (a) to the extent any return of capital is received by the Company or a Restricted Subsidiary on an Investment previously made in reliance on this clause (15), in each case, up to, but not exceeding, the amount of the original Investment but only to the extent such return of capital is excluded from Consolidated Net Income and (b) by 100% of the aggregate net proceeds from the issue or sale of the Company's Capital Stock or of any equity contribution received by the Company (other than in return for Disqualified Capital Stock) from a holder of the Company's Capital Stock, net of any amounts thereof used to calculate amounts available for Restricted Payments pursuant to clause (3) under "Limitation on Restricted Payments" or previously relied upon to make any Permitted Investments pursuant to this clause (15). Not later than the date of making of any Permitted Investment made in reliance on clause (15) above that includes proceeds described in clause (b) thereof, the Company shall deliver to the Trustee an Officers' Certificate stating that such Permitted Investment is permitted and setting forth in reasonable detail the date, amount and nature of the purchase or contribution being relied upon. "Permitted Liens" means (1) Liens on property or assets of, or any shares of stock of or secured debt of, any corporation existing at the time such corporation becomes a Restricted Subsidiary of the Company or at the time such corporation is merged into the Company or any of its Restricted Subsidiaries; provided that such Liens are not incurred in connection with, or in contemplation of, such corporation becoming a Restricted Subsidiary of the Company or merging into the Company or any of its Restricted Subsidiaries, (2) Liens securing Refinancing Indebtedness; provided that any such Lien does not extend to or cover any Property, shares or debt other than the Property, shares or debt securing the Indebtedness so refunded, refinanced or extended, (3) Liens in favor of the Company or any of its Restricted Subsidiaries, and (4) Liens existing on the Issue Date. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Purchase Money Indebtedness" means any Indebtedness incurred by a Person to finance (within 90 days from incurrence) the cost (including the cost of construction or improvement) of an item of Property acquired in the ordinary course of business, the principal amount of which Indebtedness does not exceed the sum of -84- (1) 100% of such cost and (2) reasonable fees and expenses of such Person incurred in connection therewith. "Qualified Public Offering" means a public offering and sale by the Company (or, in the event of the Asset Drop-Down, the New Operating Company or the Holding Company) of shares of its common stock (however designated and whether voting or non-voting) and any and all rights, warrants or options to acquire such common stock pursuant to a registration statement registered pursuant to the Securities Act; provided that the aggregate Net Proceeds to the issuer from such offering and sale is at least $25,000,000 and, provided, further that, in the event of the Asset Drop-Down and a subsequent Qualified Public Offering by the Holding Company, the Holding Company will contribute to the capital of the New Operating Company that portion of the Net Proceeds thereof necessary to pay the aggregate redemption price (including accrued interest) of the Notes to be redeemed. "Recapitalization" means the transactions described in the Recapitalization Agreement. "Recapitalization Agreement" means the Agreement and Plan of Recapitalization, Purchase and Redemption dated as of December 24, 1998 (as amended by Amendment No. 1 dated January 20, 1999 and Amendment No. 2 dated January 25, 1999) by and among the Sellers named therein, the Company and the Equity Investor. "Redeemable Dividend" means, for any dividend or distribution with regard to Disqualified Capital Stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Capital Stock. "Refinancing Indebtedness" means Indebtedness that is issued in exchange for, or refunds, refinances, renews, replaces, defeases or extends, in whole or in part, any Indebtedness of the Company outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Company or its Restricted Subsidiaries pursuant to the terms of the Indenture, but only to the extent that: (1) the Refinancing Indebtedness is subordinated to the Notes to at least the same extent as the Indebtedness being exchanged for, refunded, refinanced, renewed, replaced, defeased or extended, if at all, (2) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Notes, (3) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Notes, (4) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses and costs related to the incurrence of such Refinancing Indebtedness, and (5) such Refinancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Company or a Wholly- Owned Subsidiary thereof may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of the Company or any other Wholly-Owned Subsidiary of the Company. -85- "Representative" means (a) so long as the senior credit facility remains outstanding or any commitments thereunder remain in effect, the agent (or if there is more than one agent therefor, the administrative agent for the lender parties thereunder) and (b) thereafter the agent, indenture trustee, other trustee or other representative for any Senior Indebtedness. "Restricted Payment" means any of the following: (1) the declaration or payment of any dividend or any other distribution or payment on Capital Stock of the Company or any Restricted Subsidiary of the Company or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Company or any Restricted Subsidiary of the Company (other than (a) dividends or distributions payable solely in Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Capital Stock) and (b) in the case of Restricted Subsidiaries of the Company, dividends or distributions payable to the Company or to a Wholly-Owned Subsidiary of the Company), (2) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company or any of its Restricted Subsidiaries (other than Capital Stock owned by the Company or a Wholly-Owned Subsidiary of the Company, excluding Disqualified Capital Stock), (3) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Notes other than subordinated Indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity (in each case due within one year of the date of acquisition), (4) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment, (5) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Company therein and (6) forgiveness of any Indebtedness of an Affiliate of the Company (other than a Restricted Subsidiary) to the Company or a Restricted Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value determined by the Company's Board of Directors. "Restricted Subsidiary" means a Subsidiary of the Company other than an Unrestricted Subsidiary. The Board of Directors of the Company may designate any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a Restricted Subsidiary if: (1) immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action), the Company could have incurred at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness" covenant and (2) no Default or Event of Default shall have occurred and be continuing. The Company shall deliver an Officers' Certificate to the Holders upon designating any Unrestricted Subsidiary as a Restricted Subsidiary. -86- "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Company or any Restricted Subsidiary of the Company of any real or tangible personal Property, which Property has been or is to be sold or transferred by the Company or such Restricted Subsidiary to such Person in contemplation of such leasing. "S&P" means Standard & Poor's Corporation and its successors. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facility" means the Credit Agreement, dated as of January 20, 1999, among the Company, the banks, financial institutions and other institutional lenders from time to time party thereto, NationsBank, N.A., as the Swing Line Bank and the Initial Issuing Bank thereunder, NationsBanc Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as the Co-Arrangers therefor, Canadian Imperial Bank of Commerce, as Documentation Agent therefor, Morgan Stanley Senior Funding, Inc., as Syndication Agent thereunder, NationsBanc Montgomery Securities LLC, as Lead Arranger and Book Manager therefor, and NationsBank, N.A., as Administrative Agent for the lender parties thereunder, together with all "Loan Documents" as defined therein and all other documents related thereto (including, without limitation, any notes, guarantee agreements, security documents and Interest Rate Agreements), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, renewing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Company as additional borrowers or guarantors thereunder), in whole or in part, all or any portion of the Indebtedness under such agreement or any successor or replacement agreement and whether by the same or any other agent, lender or group of lenders or other party thereto. "Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, Accrued Bankruptcy Interest) on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts and Obligations incurred or owing pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (1) all Indebtedness of the Company under the senior credit facility, (2) all obligations of the Company with respect to any Interest Rate Agreement, (3) all obligations of the Company to reimburse any bank or other Person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (4) all other Indebtedness of the Company which does not expressly provide that it is to rank pari passu with or subordinate to the Notes and (5) all deferrals, renewals, extensions, refinancings, replacements and refundings in whole or in part of, and amendments, modifications, restatements and supplements to, any of the Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (1) Indebtedness of the Company to any of its Subsidiaries, except to the extent such Indebtedness is pledged as security under the senior credit facility, (2) Indebtedness represented by the Notes, -87- (3) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any other item of Indebtedness of the Company (although this clause (3) shall not apply to the subordination of liens or security interests covering property or assets securing Senior Indebtedness), (4) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business or (5) liability for federal, state, local or other taxes owed or owing by the Company. "Subsidiary" of any specified Person means any corporation, partnership, limited liability company, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (1) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (2) in the case of a partnership, limited liability company, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "Temporary Cash Investments" means (1) Investments in marketable direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (2) Investments in certificates of deposit and time deposits issued by a lender under the senior credit facility or by a bank (or subsidiary of a bank holding company) organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits at the time of investment totaling more than $500,000,000 and rated at the time of investment at least A by S&P and A-2 by Moody's maturing within 365 days of purchase; (3) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's or at least "A- 1" (or the then equivalent grade) by S&P, in each case with a maturity of not more than 180 days from the date of acquisition thereof; or (4) Investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (1), (2) and (3). "THL" means Thomas H. Lee Equity Fund IV, L.P. "THL Fees" means (1) management fees under the management agreement between the Company and THL and its Affiliates and successors and assigns that do not exceed $750,000 per year and the reimbursement of expenses pursuant thereto, provided that the amount of such management fees paid per year shall increase to $1,500,000 if at the time of such payment the Company could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to the "Limitation on Additional Indebtedness" covenant and -88- (2) one time fees to THL in connection with each acquisition of a company or a line of business by the Company or its Subsidiaries, such fees to be payable at the time of each such acquisition and not to exceed 1% of the aggregate consideration paid by the Company and its Subsidiaries for any such acquisition. "THL Group Member" means THL and any Affiliate thereof (including any equity fund advised by any such Affiliate) (other than any of their portfolio companies). "Unrestricted Subsidiary" of any Person means (1) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below and (2) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Company or any other Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided that (1) such designation complies with the "Limitation on Restricted Payments" covenant and (2) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Company or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (1) immediately after giving effect to such designation and treating all Indebtedness of such Unrestricted Subsidiary as being incurred on such date, the Company is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with the "Limitation on Additional Indebtedness" covenant and (2) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the board resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. The Trustee shall be given prompt notice by the Company of each board resolution of the Company under this provision, together with a copy of each such resolution adopted. "Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or, if such specified Person is the Company, a Restricted Subsidiary), all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by such Person. Book-Entry, Delivery and Form The notes were offered and sold to QIBs (as defined) in reliance on Rule 144A under the Securities Act ("Rule 144A Notes"). Notes also were offered and sold in reliance on Regulation S ("Regulation S Notes"). In addition, notes may have been subsequently transferred to institutional accredited investors within the meaning of subparagraph (a)(1), (2), (3) or (7) of Rule 501 under the Securities Act of Institutional Accredited Investors in transactions exempt from -89- registration under the Securities Act not made in reliance on Rule 144A or Regulation S under the Securities Act ("Other Notes"). Rule 144A Notes initially were represented by one or more notes in registered, global form without interest coupons (collectively, the "Rule 144A Global Note"). The Rule 144A Global Notes were deposited upon issuance with the Trustee as custodian for The Depository Trust Company ("DTC"), in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant as described below. Other Notes held by Institutional Accredited Investors were represented by one or more certificated notes bearing the restrictive legend described under Notice to Investors ("Accredited Investor Certificated Notes"). Regulation S Notes initially were represented by one or more notes in registered, global form without interest coupons (collectively, the "Regulation S Global Note," and, together with the Rule 144A Global Note, the "Global Notes"). The Regulation S Global Notes were deposited upon issuance with the Trustee as custodian for DTC, and registered in the name of a nominee of DTC, in each case for credit to the accounts of Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL"). On or prior to the 40th day after the later of the commencement of the offering and the Issue Date (such period through and including such 40th day, the "Restricted Period"), beneficial interests in the Regulation S Note may be held only through Euroclear or CEDEL, as indirect participants in DTC, unless transferred to a person that takes delivery in the form of an interest in the corresponding Rule 144A Global Note in accordance with the certification requirements described below. Beneficial interests in the Rule 144A Global Note may not be exchanged for beneficial interests in the Regulation S Global Note at any time except in the limited circumstances described below. See "-- Exchanges between Regulation S Notes and Rule 144A Notes and Other Notes." Except as set forth below, the Global Notes may be transferred, in whole but not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for notes in certificated form except in the limited circumstances described below. See "-- Exchange of Book-Entry Notes for Certificated Notes." Rule 144A Notes (including beneficial interests in the Rule 144A Global Note) and Other Notes are subject to certain restrictions on transfer and bear a restrictive legend as described under Notice to Investors. In addition, transfer of beneficial interests in the Global Notes are subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of Euroclear and CEDEL), which may change from time to time. The notes may be presented for registration of transfer and exchange at the offices of the Registrar. Depository Procedures DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between the Participants through electronic book-entry changes in accounts of the Participants. The Participants include securities brokers and dealers (including the Initial Purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and the Indirect Participants. DTC has also advised us that pursuant to procedures established by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the Initial Purchasers with portions of the principal amount of the Global Notes and (ii) ownership of such interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). -90- Investors in the Rule 144A Global Note may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations (including Euroclear and CEDEL) which are Participants in such system. Investors in the Regulation S Global Note must initially hold their interests therein through Euroclear or CEDEL, if they are accountholders in such systems, or indirectly through organizations which are accountholders in such systems. After the expiration of the Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Note through organizations other than Euroclear and CEDEL that are Participants in the DTC system. Euroclear and CEDEL will hold interests in the Regulation S Global Note on behalf of their participants through their respective depositories, which in turn will hold such interests in the Regulation S Global Note customers' securities accounts in their respective names on the books of DTC. The Chase Manhattan Bank, Brussels office, will initially act as depository for Euroclear, and Citibank, N.A., will initially act as depository for CEDEL. All interests in a Global Note, including those held through Euroclear or CEDEL, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or CEDEL may also be subject to the procedures and requirements of such system. The laws of some states require that certain persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons may be limited to that extent. Because DTC can act only on behalf of the Participants, which in turn act on behalf of the Indirect Participants and certain banks, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the notes, see "-- Exchange of Book-Entry Notes for Certificated Notes" and "-- Exchanges between Regulation S Notes and Rule 144A Notes and Other Notes." Except as described below, owners of interests in the Global Notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or holders thereof under the indenture for any purpose. Payments in respect of the principal of (and premium, if any) and interest on a Global Note registered in the name of DTC or its nominee will be payable to DTC or its nominee in its capacity as the registered holder under the indenture. Under the terms of the indenture, we and the Trustee will treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, none of our company, the Initial Purchasers, the Trustee or any of our agents or agents of the Initial Purchasers or the Trustee has or will have any responsibility or liability for (i) any aspect or accuracy of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership or (ii) any other matter relating to the actions and practices of DTC or any of the Participants or the Indirect Participants. DTC has advised us that our current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will not be the responsibility of DTC, the Trustee or our company. Neither our company nor the Trustee will be liable for any delay by DTC or any of the Participants in identifying the beneficial owners of the notes, and our company and the Trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee as the registered owner of the Global Notes for all purposes. Except for trades involving only Euroclear and CEDEL participants, interests in the Global Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and the Participants. Transfers between Participants in DTC will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between accountholders in Euroclear and CEDEL will be effected in the ordinary way in accordance with their respective rules and operating procedures. -91- Subject to compliance with the transfer restrictions applicable to the notes described herein, cross-market transfers between the accountholders in DTC, on the one hand, and directly or indirectly through Euroclear or CEDEL accountholders, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or CEDEL, as the case may be, by its respective depository; however, such cross-market transactions will require delivery of instructions to Euroclear or CEDEL, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or CEDEL, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depository to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear and CEDEL accountholders may not deliver instructions directly to the depositories for Euroclear or CEDEL. Because of time zone differences, the securities account of a Euroclear or CEDEL accountholder purchasing an interest in a Global Note from an accountholder in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or CEDEL participant, during the securities settlement processing day (which must be a business day for Euroclear or CEDEL) immediately following the settlement date of DTC. Cash received in Euroclear or CEDEL as a result of sales of interests in a Global Note by or through a Euroclear or CEDEL accountholder to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or CEDEL cash account only as of the business day for Euroclear or CEDEL following DTC's settlement date. DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account with DTC interests in the Global Notes are credited and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if any of the events described under -- Exchange of Book Entry Notes for Certificated Notes occurs, DTC reserves the right to exchange the Global Notes for (in the case of the Rule 144A Global Note) legended notes in certificated form and to distribute such notes to its Participants. The information in this section concerning DTC, Euroclear and CEDEL and their book-entry systems has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof. Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures to facilitate transfers of interests in the Regulation S Global Note and in the Rule 144A Global Note among accountholders in DTC and accountholders of Euroclear and CEDEL, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. None of our company, the Initial Purchasers or the Trustee or any agent of our company, the Initial Purchasers or the Trustee will have any responsibility for the performance by DTC, Euroclear or CEDEL or their respective participants, indirect participants or accountholders of their respective obligations under the rules and procedures governing their operations. Exchange of Book-Entry Notes for Certificated Notes Notes transferred to Institutional Accredited Investors who are not QIBs will be issued in registered certificated form. In addition, a Global Note is exchangeable for definitive notes in registered certificated form if (i) DTC (x) notifies us that it is unwilling or unable to continue as depository for the Global Note and we thereupon fail to appoint a successor depository or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) we, at our option, notify the Trustee in writing that they elect to cause the issuance of the notes in certificated form or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the notes. In all cases, certificated notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of DTC (in accordance with its customary procedures) and will bear, in the case of the Restricted Global Note, the restrictive legend described in Notice to Investors and, in the case of the Regulation S Global Note, a legend substantially in the form of the first sentence of the legend in bold type on the cover of this Offering Memorandum, in each case, unless we determine otherwise in compliance with applicable law. -92- EXCHANGE OFFER Purpose and Effect of the Exchange Offer We originally sold our old notes on March 19, 1999 to CIBC Oppenheimer and NationsBanc Montgomery Securities LLC (the "Initial Purchasers") pursuant to a Securities Purchase Agreement dated March 19, 1999. The Initial Purchasers subsequently resold the notes to qualified institutional buyers in reliance on Rule 144A under the Securities Act. As a condition of the purchase agreement, we entered into an Exchange Offer Registration Rights Agreement (the "Exchange Offer Registration Rights Agreement") with the Initial Purchasers pursuant to which we agreed, for the benefit of the holders of the old notes, at our cost, to: o use our reasonable best efforts to file an exchange offer registration statement (the "Exchange Offer Registration Statement") within 45 days after the date of the original issuance of the old notes with the SEC with respect to the exchange offer for the new notes; and o use our reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 165 days after the date of the original issuance of the old notes. Upon the Exchange Offer Registration Statement being declared effective, we will offer the new notes in exchange for surrender of the old notes. We will keep the exchange offer open for not less than 30 days, or longer if required by applicable law, after the date on which notice of the exchange offer is mailed to the holders of the old notes. For each old note surrendered to us pursuant to the exchange offer, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old note. Under existing interpretations of the staff of the SEC contained in several no-action letters to third parties, we believe that the new notes will in general be freely tradeable after the exchange offer without further registration under the Securities Act. However, any purchaser of old notes who is an "affiliate" of the Issuers or who intends to participate in the exchange offer for the purpose of distributing the new notes: o will not be able to rely on the interpretation of the staff of the SEC; o will not be able to tender its old notes in the exchange offer; and o must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the old notes, unless such sale or transfer is made pursuant to an exemption from such requirements. As contemplated by these no-action letters and the Exchange Offer Registration Rights Agreement, each holder accepting the exchange offer is required to represent to us in the Letter of Transmittal that: o the new notes are to be acquired by the holder or the person receiving such new notes, whether or not such person is the holder, in the ordinary course of business; o the holder or any such other person, other than a broker-dealer referred to in the next sentence, is not engaging and does not intend to engage, in distribution of the new notes; o the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the new notes; o neither the holder nor any such other person is an "affiliate" of ours within the meaning of Rule 405 under the Securities Act; and -93- o the holder or any such other person acknowledges that if such holder or any other person participates in the exchange offer for the purpose of distributing the new notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the new notes and cannot rely on those no-action letters. As indicated above, each broker-dealer (a "Participating Broker-Dealer") that receives new notes for its own account in exchange for old notes must acknowledge that it: o acquired the new notes for its own account as a result of market-making activities or other trading activities; o has not entered into any arrangement or understanding with us or any "affiliate" (within the meaning of Rule 405 under the Securities Act) to distribute the new notes to be received in the exchange offer; and o will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such new notes. For a description of the procedures for resales by Participating Broker-Dealers, see "Plan of Distribution." In the event that changes in the law or the applicable interpretations of the staff of the SEC do not permit us to effect such an exchange offer, or if for any other reason the exchange offer is not consummated within 195 days of the date of the original issuance of the old notes, we will: o file a shelf registration statement covering the resale of the old notes; o use our reasonable best efforts to cause the shelf registration statement to be declared effective under the Securities Act; and o use our reasonable best efforts to keep effective the shelf registration statement for two years after its effective date. We will, in the event of the filing of the shelf registration statement, provide to each applicable holder of the old notes copies of the prospectus, which is a part of the shelf registration statement, notify each such holder when the shelf registration statement has become effective, and take certain other actions as are required to permit unrestricted resale of the old notes. A holder of the old notes that sells such old notes pursuant to the shelf registration statement generally will be required to be named as a selling security holder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales, and will be bound by the provisions of the Exchange Offer Registration Rights Agreement which are applicable to such a holder, including certain indemnification obligations. In addition, each holder of the old notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the Exchange Offer Registration Rights Agreement in order to have their old notes included in the shelf registration statement and to benefit from the provisions set forth in the following paragraph. The Exchange Offer Registration Rights Agreement provides that: o we will use our reasonable best efforts to file an Exchange Offer Registration Statement with the SEC on or prior to 45 days after the date of the original issue of the old notes; -94- o we will use our reasonable best efforts to have the Exchange Offer Registration Statement declared effective by the SEC on or prior to 165 days after the date of the original issue of the old notes; o unless the exchange offer would not be permitted by applicable law or SEC policy, we will commence the exchange offer and use our reasonable best efforts to issue on or prior to 45 days after the exchange offer effectiveness date, new notes in exchange for all old notes tendered prior thereto in the exchange offer; and o if obligated to file the shelf registration statement, we will use our reasonable best efforts to file the shelf registration statement with the SEC in a timely fashion. If: (a) we fail to file any of the registration statements required by the Exchange Offer Registration Rights Agreement on or before the date specified for such filing; (b) any of such registration statements is not declared effective by the SEC on or prior to the date specified for such effectiveness; (c) we fail to consummate the exchange offer within 165 days of the date of the original issuance of the old notes; or (d) the shelf registration statement or the Exchange Offer Registration Statement is declared effective but thereafter ceases to be effective or usable in connection with resales of Transfer Restricted Securities (as such term is defined in the Exchange Offer Registration Rights Agreement) during the period specified in the Exchange Offer Registration Rights Agreement (each such event referred to in clauses (a) through (d) above a "registration default"), the sole remedy available to holders of the old notes will be the immediate assessment of additional interest as follows: the per annum interest rate on the old notes will increase by .25% for each 90-day period during which the registration default continues, up to a maximum additional interest rate of 2% per annum in excess of 9-7/8% per annum. All additional interest will be payable to holders of the old notes in cash on each April 1 and October 1, commencing with the first such date occurring after any such additional interest commences to accrue, until such registration default is cured. After the date on which such registration default is cured, the interest rate on the old notes will revert to 9-7/8% per annum. Holders of old notes have no right to receive such additional interest, if any. Holders of old notes will be required to make certain representations to us in order to participate in the exchange offer and holders of old notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the Exchange Offer Registration Rights Agreement in order to have their old notes included in the shelf registration statement and benefit from the provisions regarding additional interest set forth above. Such required representations and information is described in the Exchange Offer Registration Rights Agreement. The summary herein of certain provisions of the Exchange Offer Registration Rights Agreement is subject to, and is qualified in its entirety by, all the provisions of the Exchange Offer Registration Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement of which this prospectus is a part. Following the consummation of the exchange offer, holders of the old notes who were eligible to participate in the exchange offer but who did not tender their old notes will not have any further registration rights and such old -95- notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such old notes could be adversely affected. Terms of the Exchange Offer Upon the terms and subject to the conditions set forth in this prospectus and in the Letter of Transmittal, we will accept any and all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1999. We will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding old notes accepted in the exchange offer. Holders may tender some or all of their old notes pursuant to the exchange offer. However, old notes may be tendered only in integral multiples of $1,000. The form and terms of the new notes are substantially the same as the form and terms of the old notes except that: o the new notes bear a new designation and a different CUSIP number from the old notes; o the new notes have been registered under the federal securities laws and hence will not bear legends restricting the transfer thereof as the old notes do; and o the holders of the new notes will generally not be entitled to certain rights under the Exchange Offer Registration Rights Agreement, which rights generally will be satisfied when the exchange offer is consummated. The new notes will evidence the same debt as the tendered old notes and will be entitled to the benefits of the indenture under which the old notes were issued. As of the date of this prospectus, $150,000,000 aggregate principal amount of old notes were outstanding. Holders of old notes do not have any appraisal or dissenters' rights under the General Corporation Law of Delaware, the Delaware Limited Liability Company Act or the indentures relating to such notes in connection with the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC thereunder. We shall be deemed to have accepted validly tendered old notes when, as and if we have given oral or written notice thereof, such notice if given orally, to be confirmed in writing, to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the new notes from our company. If any tendered old notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, the certificates for any such unaccepted old notes will be returned, without expense, to the tendering holder thereof as promptly as practicable after the expiration date. Holders who tender old notes in the exchange offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of old notes pursuant to the exchange offer. We will pay all charges and expenses, other than transfer taxes in certain circumstances, in connection with the exchange offer. See "--Fees and Expenses." Expiration Date; Extensions; Amendments The expiration date is 5:00 p.m., New York City time, on , 1999, unless we extend the exchange offer, in which case the expiration date will be the latest date and time to which the exchange offer is extended. In order to extend the exchange offer, we will notify the exchange agent of any extension by oral or written notice, such notice if given orally, to be confirmed in writing, and will issue a press release or other public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. -96- We reserve the right: o to delay accepting any old notes, to extend the exchange offer or to terminate the exchange offer if any of the conditions set forth below under "conditions" shall not have been satisfied, by giving oral or written notice, such notice if given orally, to be confirmed in writing, of such delay, extension or termination to the exchange agent, or o to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders. Interest on the New Notes The new notes will bear interest from their date of issuance. Holders of old notes that are accepted for exchange will receive, in cash, accrued interest thereon to, but not including, the date of issuance of the new notes. Such interest will be paid with the first interest payment on the new notes on October 1, 1999 to persons who are registered holders of the new notes on September 1, 1999. Interest on the old notes accepted for exchange will cease to accrue upon issuance of the new notes. Interest on the new notes is payable semi-annually on each April 1 and October 1, commencing on October 1, 1999. Procedures for Tendering Only a registered holder of old notes may tender such notes in the exchange offer. To tender in the exchange offer, a holder must complete, sign and date the Letter of Transmittal, or a facsimile thereof, have the signatures thereon guaranteed if required by the Letter of Transmittal and mail or otherwise deliver such Letter of Transmittal or such facsimile, together with the old notes and any other required documents, or cause The Depository Trust Company to transmit an agent's message in connection with a book-entry transfer, to the exchange agent prior to 5:00 p.m., New York City time, on the expiration date. To be tendered effectively, the old notes, the Letter of Transmittal or agent's message and other required documents must be completed and received by the exchange agent at the address set forth below under "--Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. Delivery of the old notes may be made by book entry transfer in accordance with the procedures described below. Confirmation of such book-entry transfer must be received by the exchange agent prior to the expiration date. The term "agent's message" means a message, transmitted by a book-entry transfer facility to, and received by, the exchange agent forming a part of a confirmation of a book-entry, which states that such book-entry transfer facility has received an express acknowledgment from the participant in such book-entry transfer facility tendering the old notes that such participant has received and agrees: o to participate in the Automated Tender Option Program ("ATOP"); o to be bound by the terms of the Letter of Transmittal; and o that we may enforce such agreement against such participant. By executing the Letter of Transmittal or agent's message, each holder will make to us the representations set forth above in the fourth paragraph under the heading "--Purpose and Effect of the Exchange Offer." -97- The tender by a holder and the acceptance thereof by us will constitute agreement between such holder and the company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal or agent's message. The method of delivery of old notes and the Letter of Transmittal or agent's message and all other required documents to the exchange agent is at the election and sole risk of the holder. As an alternative to delivery by mail, holders may wish to consider overnight or hand delivery service. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No Letter of Transmittal or old notes should be sent to the company. Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for such holders. Any beneficial owner whose old notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. See "Instructions to Registered Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner" included with the Letter of Transmittal. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution (as defined below) unless the notes tendered pursuant thereto are tendered by a registered holder who has not completed the box entitled "Special Registration Instructions" or "Special Delivery Instructions" on the Letter of Transmittal, or for the account of an eligible institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a member firm of the Medallion System (an "eligible institution"). If the Letter of Transmittal is signed by a person other than the registered holder of any old notes listed therein, such notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such notes with the signature thereon guaranteed by an eligible institution. If the Letter of Transmittal or any old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence to our satisfaction of their authority to so act must be submitted with the Letter of Transmittal. We understand that the exchange agent will make a request promptly after the date of this prospectus to establish accounts with respect to the old notes at the book-entry transfer facility, The Depository Trust Company (the "book-entry transfer facility"), for the purpose of facilitating the exchange offer, and subject to the establishment thereof, any financial institution that is a participant in the book-entry transfer facility's system may make book-entry delivery of old notes by causing such book-entry transfer facility to transfer such old notes into the exchange agent's account with respect to the old notes in accordance with the book-entry transfer facility's procedures for such transfer. Although delivery of the old notes may be effected through book-entry transfer into the exchange agent's account at the book-entry transfer facility, unless an agent's message is transmitted to and received by the exchange agent in compliance with ATOP on or prior to the expiration date, or, if the guaranteed delivery procedures described below are complied with, within the time period provided under such procedures, the tender of such notes will not be valid. Delivery of documents to the book-entry transfer facility does not constitute delivery to the exchange agent. All questions as to the validity, form, eligibility, including time of receipt, acceptance of tendered old notes and withdrawal of tendered old notes will be determined by us, in our sole discretion, which determination will be final and binding. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes our acceptance of which would, in the opinion of our counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old notes. We may not waive any condition to the exchange offer unless such condition is legally waiveable. In the event such a waiver by us gives rise to the legal requirement to do so, we will hold the exchange offer open for at least five business days thereafter. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the Letter of Transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such -98- time as the we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old notes, neither the issuers, the exchange agent nor any other person shall incur any liability for failure to give such notification. Tender of old notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders, unless otherwise provided in the Letter of Transmittal, as soon as practicable following the expiration date. Guaranteed Delivery Procedures Holders who wish to tender their old notes and whose old notes are not immediately available, who cannot deliver their old notes, the Letter of Transmittal or any other required documents to the exchange agent, or who cannot complete the procedures for book-entry transfer, prior to the expiration date, may effect a tender if: (a) the tender is made through an eligible institution; (b) prior to the expiration date, the exchange agent receives by facsimile transmission, mail or hand delivery from such eligible institution a properly completed and duly executed Notice of Guaranteed Delivery, setting forth the name and address of the holder, the certificate number(s) of such old notes and the principal amount of old notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the Letter of Transmittal, or facsimile thereof, or, in the case of a book-entry transfer, an agent's message, together with the certificate(s) representing the old notes, or a confirmation of book-entry transfer of such notes into the exchange agent's account at the Book- Entry Transfer Facility, and any other documents required by the Letter of Transmittal will be deposited by the eligible institution with the exchange agent; and (c) the certificate(s) representing all tendered old notes in proper form for transfer, or a confirmation of a book-entry transfer of such old notes into the exchange agent's account at the book entry transfer facility, together with a Letter of Transmittal, of facsimile thereof, properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an agent's message, are received by the exchange agent within three New York Stock Exchange trading days after the expiration date of the exchange offer. Withdrawal of Tenders Except as otherwise provided herein, tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. To withdraw a tender of old notes in the exchange offer, a telegram, telex, letter or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth herein prior to 5:00 p.m., New York City time, on the expiration date of the exchange offer. Any such notice of withdrawal must: o specify the name of the person having deposited notes to be withdrawn (the "Depositor"); o identify the notes to be withdrawn, including the certificate number(s) and principal amount of such notes, or, in the case of old notes transferred by book-entry transfer, the name and number of the account at the book entry transfer facility to be credited; o be signed by the holder in the same manner as the original signature on the Letter of Transmittal by which such notes were tendered, including any required signature guarantees, or be accompanied by documents of transfer sufficient to have the trustee with respect to the old notes register the transfer of such notes into the name of the person withdrawing the tender; and -99- o specify the name in which any such old notes are to be registered, if different from that of the Depositor. All questions as to the validity, form and eligibility, including time of receipt, of such notices will be determined by us and shall be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer and no new notes will be issued with respect thereto unless the old notes so withdrawn are validly retendered. Any old notes which have been tendered but which are not accepted for exchange will be returned to the holder thereof without cost to such holder as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the expiration date. Conditions Notwithstanding any other term of the exchange offer, we shall not be required to accept for exchange, or new notes for, any old notes, and may terminate or amend the exchange offer as provided herein before the acceptance of such old notes, if: o any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our sole judgment, might materially impair our ability to proceed with the exchange offer, or any material adverse development has occurred in any existing action or proceeding with respect to our company or any of our subsidiaries; or o any law, statute, rule, regulation or interpretation by the staff of the SEC is proposed, adopted or enacted, which, in our sole judgment, might materially impair our ability to proceed with the exchange offer or materially impair the contemplated benefits of the exchange offer; or o any governmental approval has not been obtained, which approval we shall, in our sole discretion, deem necessary for the consummation of the exchange offer as contemplated hereby. If we determine, in our sole discretion, that any of the conditions are not satisfied, we may: o refuse to accept any old notes and return all tendered old notes to the tendering holders; o extend the exchange offer and retain all old notes tendered prior to the expiration of the exchange offer, subject, however, to the rights of holders to withdraw such old notes as described in "--Withdrawal of Tenders" above; o waive such unsatisfied conditions with respect to the exchange offer and accept all properly tendered old notes which have not been withdrawn. Exchange Agent State Street Bank and Trust Company has been appointed as exchange agent for the exchange offer. Questions and requests for assistance, requests for additional copies of this prospectus or of the Letter of Transmittal and requests for Notice of Guaranteed Delivery should be directed to the exchange agent addressed as follows: -100- By Mail: Overnight Courier: State Street Bank and Trust Company State Street Bank and Trust Company Corporate Trust Department Corporate Trust Department P.O. Box 778 Two International Place Boston, Massachusetts 02110 Boston, Massachusetts 02110 Attention: Kellie Mullen Attention: Kellie Mullen By Hand in New York (as Drop Agent): By Hand in Boston: State Street Bank and Trust Company, N.A. State Street Bank and Trust Company 61 Broadway Two International Place Concourse Level, Corporate Trust Window Fourth Floor, Corporate Trust Department New York, New York 10006 Boston, Massachusetts 02110 Attention: Kellie Mullen Facsimile Transmission: Confirm by Telephone: (For Eligible Institutions Only) (617) 664-5587 (617) 664-5314
Delivery to an address other than set forth above will not constitute a valid delivery. Fees and Expenses The expenses of soliciting tenders will be borne by us. The principal solicitation is being made by mail however, additional solicitation may be made by telegraph, telecopy, telephone or in person by officers and regular employees of our company and our affiliates. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to brokers, dealers, or others soliciting acceptances of the exchange offer. We, however, will pay the exchange agent reasonable and customary fees for its services and will reimburse it for its reasonable out-of-pocket expenses in connection therewith. We will pay the cash expenses to be incurred in connection with the exchange offer. Such expenses include fees and expenses of the exchange agent and trustee, accounting and legal fees and printing costs, among others. Accounting Treatment The new notes will be recorded at the same carrying value as the old notes, which is face value, as reflected in our company's accounting records on the date of exchange. Accordingly, we will recognize no gain or loss for accounting purposes. The expenses of the exchange offer will be expensed over the term of the new notes. Consequences of Failure to Exchange The old notes that are not exchanged for new notes pursuant to the exchange offer will remain restricted securities. Accordingly, such old notes may be resold only: o to our company, upon redemption thereof or otherwise; o so long as the old notes are eligible for resale pursuant to Rule 144A under the Securities Act, to a person inside the United States whom the seller reasonably believes is a qualified institutional buyer within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, in accordance with Rule 144 under the Securities Act, or pursuant to another exemption from -101- the registration requirements of the Securities Act, and based upon an opinion of counsel reasonably acceptable to our company; o outside the United States to a foreign person in a transaction meeting the requirements of Rule 904 under the Securities Act; or o pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Resale of the New Notes With respect to resales of new notes, based on interpretations by the staff of the SEC set forth in no-action letters issued to third parties, we believe that a holder or other person who receives new notes, whether or not such person is the holder, other than a person that is an "affiliate" of our company within the meaning of Rule 405 under the Securities Act, in exchange for old notes in the ordinary course of business and who is not participating, does not intend to participate, and has no arrangement or understanding with any person to participate, in the distribution of the new notes, will be allowed to resell the new notes to the public without further registration under the Securities Act and without delivering to the purchasers of the new notes a prospectus that satisfies the requirements of Section 10 of the Securities Act. However, if any holder acquires new notes in the exchange offer for the purpose of distributing or participating in a distribution of the new notes, such holder cannot rely on the position of the staff of the SEC enunciated in such no-action letters or any similar interpretive letters, and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction, unless an exemption from registration is otherwise available. Further, each Participating Broker-Dealer that receives new notes for its own account in exchange for old notes, where such old notes were acquired by such Participating Broker-Dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. As contemplated by these no-action letters and the Exchange Offer Registration Rights Agreement, each holder accepting the exchange offer is required to represent to our company in the Letter of Transmittal that: o the new notes are to be acquired by the holder or the person receiving such new notes, whether or not such person is the holder, in the ordinary course of business; o the holder or any such other person, other than a broker-dealer referred to in the next sentence, is not engaging and does not intend to engage, in the distribution of the new notes; o the holder or any such other person has no arrangement or understanding with any person to participate in the distribution of the new notes; o neither the holder nor any such other person is an "affiliate" of our company within the meaning of Rule 405 under the Securities Act; and o the holder or any such other person acknowledges that if such holder or other person participates in the exchange offer for the purpose of distributing the new notes it must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the new notes and cannot rely on those no-action letters. As indicated above, each Participating Broker-Dealer that receives new notes for its own account in exchange for old notes must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. For a description of the procedures for such resales by Participating Broker-Dealers, see "Plan of Distribution." -102- CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS The following discussion summarizes the material U.S. federal income tax aspects of the exchange of old notes for new notes pursuant to the exchange offer and the ownership and disposition of the new notes. This discussion is for general information and does not consider all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership and disposition of the notes by a prospective investor in light of your personal circumstances. This discussion also does not address the U.S. federal income tax consequences of ownership of notes not held as capital assets within the meaning of Section 1221 of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), or the U.S. federal income tax consequences to investors subject to special treatment under the U.S. federal income tax laws, such as dealers in securities or foreign currency, tax-exempt entities, financial institutions, insurance companies, persons that hold the notes as part of a "straddle," a "hedge" or a "conversion transaction," persons that have a "functional currency" other than the U.S. dollar, and investors in pass-through entities. In addition, this discussion does not describe any tax consequences arising under U.S. federal gift and estate taxes or out of the tax laws of any state, local or foreign jurisdiction. This discussion is based upon the Code, existing, temporary and proposed Treasury regulations issued by the Internal Revenue Service (the "IRS"), and current administrative rulings and court decisions as of the date of this Registration Statement. All of the foregoing is subject to change, possibly on a retroactive basis, and any such change could affect the continuing validity of this discussion. Persons considering investing in the notes should consult their own tax advisors concerning the application of federal income tax laws, as well as the laws of any state, local or foreign taxing jurisdiction, to their particular situations. U.S. Holders The following discussion is limited to the U.S. federal income tax consequences relevant to a holder of a new note that is: o a citizen or resident (as defined in Section 7701(b)(1) of the Code) of the United States; o a corporation organized under the laws of the United States or any U.S. political subdivision (or one treated as a citizen or resident under the Code); o an estate, the income of which is subject to U.S. federal income tax regardless of the source; or o a trust with respect to which a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of its substantial decisions (a "U.S. Holder"). Certain U.S. federal income tax consequences relevant to a holder other than a U.S. Holder are discussed separately below. New Notes The exchange of old notes for new notes pursuant to the exchange offer will not be treated as an "exchange" for federal income tax purposes because the new notes will not be considered to differ materially in kind or extent from the old notes. Rather, the new notes received by a Holder will be treated as a continuation of the old notes in the hands of such Holder. As a result, there will be no federal income tax consequences to Holders exchanging old notes for new notes pursuant to the exchange offer. -103- Stated Interest Stated interest on a new note should be taxable to a U.S. Holder as ordinary interest income at the time it accrues or is received in accordance with such U.S. Holder's method of accounting for U.S. federal income tax purposes. Market Discount If a new note is acquired at a "market discount," some or all of any gain realized upon a sale or other disposition or payment at maturity or some or all of a partial principal payment of such new note may be treated as ordinary income, as described below. For this purpose, "market discount" is the excess, if any, of the stated redemption price at maturity of a new note over its purchase price, subject to a statutory de minimis exception. Unless a U.S. Holder has elected to include market discount in income as it accrues, any gain realized on a subsequent disposition of a new note, other than in connection with certain nonrecognition transactions, or payment at maturity, or some or all of any partial principal payment with respect to the new note, will be treated as ordinary income to the extent of the market discount that is treated as having accrued during the period such U.S. Holder held the new note. The amount of market discount treated as having accrued will be determined either: o on a straight-line basis by multiplying the market discount times a fraction, the numerator of which is the number of days the new note was held by the U.S. Holder and the denominator of which is the total number of days after the date such U.S. Holder acquired the new note up to and including the date of its maturity; or o if the U.S. Holder so elects, on a constant interest rate method. A U.S. Holder may make that election with respect to any new note but, once made, such election is irrevocable. In lieu of recharacterizing gain upon disposition as ordinary income to the extent of accrued market discount at the time of disposition, a U.S. Holder of a new note acquired at a market discount may elect to include market discount in income currently, through the use of either the straight-line inclusion method or the elective constant interest method. Once made, the election to include market discount in income currently applies to all new notes and other obligations held by the U.S. Holder that are purchased at a market discount during the taxable year for which the election is made, and all subsequent taxable years of the U.S. Holder, unless the Internal Revenue Service (the "IRS") consents to a revocation of the election. If an election is made to include market discount in income currently, the basis of the new note in the hands of the U.S. Holder will be increased by the market discount thereon as it is included in income. In addition, the U.S. Holder may be required to defer, until the maturity of the old note or its earlier disposition in a taxable transaction, the deduction of all or a portion of the interest expense on any indebtedness incurred (or continued) in order to purchase or carry such old note. Unless a U.S. Holder who acquires a new note at a market discount elects to include market discount in income currently, such U.S. Holder may be required to defer deductions for any interest paid on indebtedness allocable to such new notes in an amount not exceeding the deferred income until such income is realized. In addition, in President Clinton's Fiscal Year 2000 Budget which was submitted to Congress on February 1, 1999, a proposal was submitted which would require holders that use an accrual method of accounting to include market discount in income (as ordinary interest income) as it accrues. Under this proposal, the holder's yield for purposes of determining and accruing market discount would be limited to the greater of (1) the original yield-to-maturity of the debt instrument plus 5 percentage points, or (2) the applicable federal rate at the time the holder acquired the debt instrument plus 5 percentage points. As currently proposed, this proposal would be effective for debt instruments acquired on or after the date of enactment. As of the date of this Registration Statement, whether this proposal will be enacted is uncertain. -104- Bond Premium If a U.S. Holder purchases a note and immediately after the purchase the adjusted basis of the note exceeds the sum of all amounts payable on the instrument after the purchase date, other than qualified stated interest, the note has "bond premium." The old notes were issued for an amount in excess of their principal amount, and thus have "bond premium." A U.S. Holder may elect to amortize such bond premium over the remaining term of such note or if it results in a smaller amount of amortizable bond premium, until an earlier call date. If bond premium is amortized, the amount of interest that must be included in the U.S. Holder's income for each period ending on an interest payment date or at the stated maturity, as the case may be, will be reduced by the portion of premium allocable to such period based on the note's yield to maturity. If such an election to amortize bond premium is not made, a U.S. Holder must include the full amount of each interest payment in income in accordance with its regular method of accounting and will receive a tax benefit from the premium only in computing such U.S. Holder's gain or loss upon the sale or other disposition or payment of the principal amount of the new note. An election to amortize premium will apply to amortizable bond premium on all notes and other bonds, the interest on which is includible in the U.S. Holder's gross income, held at the beginning of the U.S. Holder's first taxable year to which the election applies or that are thereafter acquired and may be revoked only with the consent of the IRS. Sale, Exchange or Redemption of the new notes Upon the disposition of a new note by sale, exchange or redemption, a U.S. Holder will generally recognize gain or loss equal to the difference between the amount realized on the disposition, other than amounts attributable to accrued interest not yet taken into income which will be taxed as ordinary income, and the U.S. Holder's tax basis in the new note. A U.S. Holder's tax basis in a new note generally will equal the cost of the new note to the U.S. Holder increased by amounts includible in income as market discount, if the U.S. Holder elects to include market discount on a current basis, and reduced by any bond premium amortized by any U.S. Holder. Assuming the new note is held as a capital asset, such gain or loss, except to the extent that the market discount rules otherwise provide, will generally constitute capital gain or loss and will be long-term capital gain, which is taxed, in the case of non-corporate taxpayers, at a maximum rate of 20%, or loss if the U.S. Holder has held such new note for longer than 12 months. Backup Withholding and Information Reporting Under the Code, a U.S. Holder of a new note may be subject, under certain circumstances, to information reporting and/or backup withholding at a 31% rate with respect to cash payments in respect of interest on, or the gross proceeds from disposition of, a new note. This withholding applies only if a U.S. Holder: o fails to furnish its social security or other taxpayer identification number ("TIN") within a reasonable time after a request therefor; o furnishes an incorrect TIN; o fails to report interest or dividends properly; or o fails, under certain circumstances, to provide a certified statement, signed under penalty of perjury, that the TIN provided is its correct number and that it is not subject to backup withholding. Any amount withheld from a payment to a U.S. Holder under the backup withholding rules is allowable as a credit, and may entitle such holder to a refund, against such Holder's U.S. federal income tax liability, provided that the required information is furnished to the IRS. Certain persons are exempt from backup withholding, including -105- corporations and financial institutions. Holders of new notes should consult their tax advisors as to their qualification for exemption from withholding and the procedure for obtaining such exemption. Non-U.S. Holders The following discussion is limited to the U.S. federal income tax consequences relevant to a holder of a new note that is not a U.S. Holder (a "Non-U.S. Holder"). This discussion does not address all aspects of U.S. federal income taxation that may be relevant to the purchase, ownership or disposition of the new notes by any particular Non-U.S. Holder in light of such Holder's personal circumstances, including holding the new notes through a partnership. For example, persons who are partners in foreign partnerships or beneficiaries of foreign trusts or estates and who are subject to U.S. federal income tax because of their own status, such as U.S. residence or foreign persons engaged in a trade or business in the United States, may be subject to U.S. federal income tax even though the entity is not subject to income tax on disposition of its new note. For purposes of the following discussion, interest and gain on the sale, exchange or other disposition of the new note will be considered "U.S. trade or business income" if such income or gain is effectively connected with the conduct of a U.S. trade or business, or in the case of an applicable income tax treaty between the United States and the country of which the Holder is a qualified resident, attributable to a U.S. permanent establishment (or to a fixed base) in the United States. Stated Interest Generally, any interest paid to a Non-U.S. Holder of a new note that is not U.S. trade or business income will not be subject to U.S. federal income tax if the interest qualifies as "portfolio interest." Interest on the new notes will qualify as portfolio interest if: o the Non-U.S. Holder does not actually or constructively own 10% or more of the total voting power of United Industries corporation, and is not a "controlled foreign corporation" with respect to which either of the issuers is a "related person" within the meaning of Section 881(c)(3)(C) of the Code; and o the beneficial owner, under penalties of perjury, certifies that the beneficial owner is not a U.S. person and such certificate provides the beneficial owner's name and address and such beneficial owner files the requisite withholding form. The gross amount of payments to a Non-U.S. Holder of interest that do not qualify for the portfolio interest exception and that are not U.S. trade or business income will be subject to U.S. withholding tax at the rate of 30%, unless a U.S. income tax treaty applies to reduce or eliminate withholding. U.S. trade or business income will be taxed at regular U.S. federal income tax rates rather than the 30% gross rate. To claim the benefit of a tax treaty or to claim exemption from withholding because the income is U.S. trade or business income, the Non-U.S. Holder must provide a properly executed Form 1001 or 4224, or such successor forms as the IRS designates, as applicable, prior to payment of interest. These forms must be periodically updated. Under regulations effective beginning after December 31, 1999, the Forms 1001 and 4224 will be replaced by Form W-8, and a Non-U.S. Holder who is claiming the benefits of a tax treaty may be required to obtain a U.S. TIN and to provide certain documentary evidence issued by foreign governmental authorities to prove residence in the foreign country. Sale, Exchange or Redemption of Notes Subject to the discussion concerning backup withholding, any gain realized by a Non-U.S. Holder on the sale, exchange or redemption of a new note generally will not be subject to U.S. federal income tax unless such gain is U.S. trade or business income, or, subject to certain exceptions, the Non-U.S. Holder is an individual who holds the new note as a capital asset and is present in the United States for 183 days or more in the taxable year of the disposition. -106- Information Reporting and Backup Withholding The issuers must report annually to the IRS and to each Non-U.S. Holder any interest that is subject to U.S. withholding tax or that is exempt from withholding pursuant to a tax treaty or the portfolio interest exception. Copies of these information returns may also be made available under the provisions of a specific treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides. Backup withholding and information reporting will not apply to payments of principal on the new notes by the issuers to a Non-U.S. Holder, if the Holder certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that neither the issuers nor their paying agent has actual knowledge that the Holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of notes to or through the U.S. office of any broker, U.S. or foreign, will be subject to information reporting and possible backup withholding unless the owner certifies as to its non-U.S. status under penalties of perjury or otherwise establishes an exemption, provided that the broker does not have actual knowledge that the holder is a U.S. Holder or that the conditions of any other exemption are not, in fact, satisfied. The payment of the proceeds from the disposition of a new note to or through a non-U.S. office of a U.S. broker that is not a "U.S. related person" will not be subject to information reporting or backup withholding. For this purpose, a "U.S. related person" is a "controlled foreign corporation" for U.S. federal income tax purposes or a foreign person 50% or more of whose gross income from all sources for the three-year period ending with the close of its taxable year preceding the payment, or for such part of the period that the broker has been in existence, is derived from activities that are effectively connected with the conduct of a U.S. trade or business. In the case of the payment of proceeds from the disposition of new notes to or through a non-U.S. office of a broker that is either a U.S. person or a U.S. related person, the regulations require information reporting on the payment unless the broker has documentary evidence in its files that the owner is a Non-U.S. Holder and the broker has no knowledge to the contrary. Backup withholding will not apply to payments made through foreign offices of a broker that is a U.S. person or a U.S. related person, absent actual knowledge that the payee is a U.S. Holder. Any amounts withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S. Holder's U.S. federal income tax liability, provided that the requisite procedures are followed. -107- PLAN OF DISTRIBUTION Each Participating Broker-Dealer that receives new notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with the resale of new notes received in exchange for new notes where such new notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 180 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any Participating Broker-Dealer for use in connection with any such resale. We will not receive any proceeds from any sales of the new notes by Participating Broker Dealers. new notes received by Participating Broker-Dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker-Dealer and/or the purchasers of any such new notes. Any Participating Broker-Dealer that resells the new notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such new notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of new notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 180 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any Participating Broker-Dealer that requests such documents in the Letter of Transmittal. LEGAL MATTERS Certain legal matters in connection with the offering and the sale of the notes will be passed upon for us by Kirkland & Ellis, Chicago, Illinois. INDEPENDENT AUDITORS Our financial statements as of December 31, 1998, and for the year ended December 31, 1998, included in this prospectus have been audited by PricewaterhouseCoopers LLP, independent public accountants, as stated in their report appearing herein. Our financial statements as of December 31, 1996 and 1997, and for each of the years ended December 31, 1996 and 1997, included in this prospectus have been audited by Rubin, Brown, Gornstein & Co., LLP, independent public accountants, as stated in their report appearing herein. AVAILABLE INFORMATION We are not currently subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934. We have agreed that, whether or not we are required to do so by the rules and regulations of the Securities Exchange Commission, for so long as any of the notes remain outstanding, we will furnish to the holders of the notes and file with the Securities Exchange Commission, unless the Securities Exchange Commission will not accept such a filing: (a) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10-K if we were required to file such forms, including a Management's Discussion and Analysis of Financial Condition and Results of Operations and, with respect to the annual information only, a report thereon by our certified independent accountants and (b) all reports that would be required to be filed with the Commission on Form 8-K if we were required to file such reports. -108- FORWARD-LOOKING STATEMENTS We make forward-looking statements throughout this prospectus. Whenever you read a statement that is not simply a statement of historical fact, such as when we describe what we believe, expect or anticipate will occur, and other similar statements, you must remember that our expectations may not be correct, even though we believe they are reasonable. We do not guarantee that the transactions and events described in this prospectus will happen as described, or that they will happen at all. You should read this prospectus completely and with the understanding that actual future results may be materially different from what we expect. We will not update these forward- looking statements, even though our situation will change in the future. -109- [THIS PAGE INTENTIONALLY LEFT BLANK] -110- UNITED INDUSTRIES CORPORATION INDEX TO FINANCIAL STATEMENTS
Page ---- Report of Independent Accountants--PricewaterhouseCoopers LLP...................... F-2 Report of Independent Auditors--Rubin, Brown, Gornstein & Co. LLP.................. F-3 Balance Sheets..................................................................... F-4 Statements of Income............................................................... F-5 Statements of Stockholders' Equity................................................. F-6 Statements of Cash Flows........................................................... F-7 Notes to Financial Statements...................................................... F-8
F-1 REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors United Industries Corporation St. Louis, Missouri In our opinion, the accompanying balance sheet of United Industries Corporation and the related statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of United Industries Corporation at December 31, 1998, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. These financial statements are the responsibility of the United's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. The financial statements of United Industries Corporation for the year ended December 31, 1997 and December 31, 1996 were audited by other independent accountants whose report dated February 25, 1998 expressed an unqualified opinion on those statements. /s/ PricewaterhouseCoopers LLP St. Louis, Missouri February 24, 1999 F-2 REPORT OF INDEPENDENT AUDITORS Board of Directors United Industries Corporation St. Louis, Missouri We have audited the accompanying balance sheet of United Industries Corporation, an S Corporation, as of December 31, 1997 and 1996 and the related statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of United's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Industries Corporation as of December 31, 1997 and 1996, and the results of its operations and cash flows for the years then ended in conformity with generally accepted accounting principles. /s/ Rubin, Brown, Gornstein & Co. LLP February 25, 1998 F-3 UNITED INDUSTRIES CORPORATION BALANCE SHEETS DECEMBER 31, 1997 AND 1998 (Dollars in thousands)
December 31, --------------------- 1997 1998 ------- ------- ASSETS Current assets: Cash and cash equivalents ..................................................... $ 316 $ -- Accounts receivable (less allowance for doubtful accounts of $60 at December 31, 1997 and 1998) ......................................... 17,526 17,650 Inventories ................................................................... 41,637 41,444 Prepaid expenses............................................................... 1,696 2,172 ------- ------- Total current assets ................................................ 61,175 61,266 Equipment and leasehold improvements, net ................................................ 20,022 20,156 Amounts due from affiliated company ...................................................... 3,428 -- Other assets ............................................................................. 7,018 6,948 Investment in discontinued operations..................................................... 5,798 5,791 ------- ------- Total assets......................................................... $97,441 $94,161 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt .......................................... $ 1,050 $ 929 Accounts payable .............................................................. 22,090 18,519 Accrued expenses .............................................................. 6,723 12,705 ------- ------- Total current liabilities ........................................... 29,863 32,153 Long-term debt ........................................................................... 2,947 3,716 Other liabilities ........................................................................ 182 35 ------- ------- Total liabilities ................................................... 32,992 35,904 Stockholders' equity: Common stock .................................................................. 2 2 Additional paid-in capital .................................................... 972 972 Retained earnings ............................................................. 70,798 70,193 Treasury stock ................................................................ (7,323) (12,910) ------- ------- Total stockholders' equity .......................................... 64,449 58,257 ------- ------- Total liabilities and stockholders' equity .......................... $97,441 $94,161 ======= =======
The accompanying notes are an integral part of these financial statements. F-4 UNITED INDUSTRIES CORPORATION STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (Dollars in thousands)
For the years ended December 31, ----------------------------------------- 1996 1997 1998 ---------- ---------- ---------- Net sales....................................................................... $ 199,495 $ 242,601 $ 282,676 Operating costs and expenses: Cost of goods sold................................................... 106,640 128,049 140,445 Advertising and promotion expenses................................... 22,804 25,547 31,719 Selling, general and administrative expenses......................... 46,276 52,092 61,066 Non-recurring litigation charges..................................... -- -- 2,321 ---------- ---------- ---------- Total operating costs and expenses......................... 175,720 205,688 235,551 ---------- ---------- ---------- Operating income................................................................ 23,775 36,913 47,125 Interest expense................................................................ 1,502 1,267 1,106 ---------- ---------- ---------- Income before provision for income taxes and discontinued operations........................................................... 22,273 35,646 46,019 Income tax expense.............................................................. 447 726 992 ---------- ---------- ---------- Income from continuing operations............................................... 21,826 34,920 45,027 Income from discontinued operations, net of tax................................. 2,325 1,923 1,714 ---------- ---------- ---------- Net income...................................................................... $ 24,151 $ 36,843 $ 46,741 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-5 UNITED INDUSTRIES CORPORATION STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (Dollars in thousands)
Accumulated Class B Non-Voting Other Common Stock Common Stock Comprehen- ------------------- ----------------- Additional sive Paid-In Retained Income Shares Amount Shares Amount Capital Earnings ----------- -------- -------- -------- ------- ---------- --------- Balance-January 1, 1996 ...... $-- 1,000 $1 1,000 $1 $913 $45,817 Net income ................... 24,151 Other comprehensive income ... Distributors paid ............ (17,005) Treasury stock reissued ...... 59 Treasury stock purchased ..... --------- ------- ----- ------ ----- -------- -------- Balance-December 31, 1996 .... -- 1,000 1 1,000 1 972 52,963 --------- ------- ----- ------ ----- -------- -------- Balance-January 1, 1997 ...... -- 1,000 1 1,000 1 972 52,963 Net income ................... 36,843 Other comprehensive income ... Distributions paid ........... (19,008) Treasury stock cost adjustment --------- ------- ----- ------ ----- -------- -------- Balance-December 31, 1997 .... -- 1,000 1 1,000 1 972 70,798 --------- ------- ----- ------ ----- -------- -------- Balance-January 1, 1998 ...... -- 1,000 1 1,000 1 972 70,798 Net income ................... 46,741 Other comprehensive income ... Distributions paid ........... (47,346) Treasury stock purchased ..... Treasury stock cost adjustment --------- ------- ----- ------ ----- -------- -------- Balance-December 31, 1998 .... $-- 1,000 $1 1,000 $1 $972 $70,193 ========= ======= ===== ====== ===== ======== ======== Notes Treasury Stock Receivable- Total ------------------- Treasury Stock- Stock holders' Shares Amount Reissued Equity -------- -------- ----------- ---------- Balance-January 1, 1996 ...... (135) (169) (699) 45,864 Net income ................... 24,151 Other comprehensive income ... Distributors paid ............ (17,005) Treasury stock reissued ...... 43 53 (112) Treasury stock purchased ..... (308) (6,993) 811 (6,182) ------ ------ ------- -------- Balance-December 31, 1996 .... (400) (7,109) -- 46,828 ------ ------ ------- -------- Balance-January 1, 1997 ...... (400) (7,109) -- 46,828 Net income ................... 36,843 Other comprehensive income ... Distributions paid ........... (19,008) Treasury stock cost adjustment (214) (214) ------ -------- ------- -------- Balance-December 31, 1997 .... (400) (7,323) -- 64,449 ------ -------- ------- -------- Balance-January 1, 1998 ...... (400) (7,323) -- 64,449 Net income ................... 46,741 Other comprehensive income ... Distributions paid ........... (47,346) Treasury stock purchased ..... (120) (5,818) (5,818) Treasury stock cost adjustment 231 231 ------ -------- ------- -------- Balance-December 31, 1998 .... $(520) $(12,910) $-- $58,257 ====== ======== ======= ========
F-6 UNITED INDUSTRIES CORPORATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (Dollars in thousands)
For the years ended December 31, -------------------------------- 1996 1997 1998 ------- ------- ------- Cash flows from operating activities: Net income................................................................................. $24,151 $36,843 $46,741 Adjustments to reconcile net income to net cash provided by operating activities: Income from discontinued operations....................................................... (2,325) (1,923) (1,714) Depreciation and amortization............................................................. 3,561 3,597 3,838 Loss on sale or disposal of equipment..................................................... 1,411 97 31 Changes in assets and liabilities: (Increase) in accounts receivable....................................................... (2,560) (5,410) (124) Decrease (increase) in inventories...................................................... 2,121 (6,608) 193 Decrease (increase) in prepaid expenses................................................. 352 92 (476) Increase in accounts payable and accrued expenses....................................... 967 8,565 2,411 Other, net............................................................................... 63 (117) (137) ------- ------- ------- Cash flow from continuing operations........................................................ 27,741 35,136 50,763 Cash flow from discontinued operations...................................................... 3,155 1,896 1,858 ------- ------- ------- Net cash provided by operating activities............................................. 30,896 37,032 52,621 Cash flows from investing activities: Payments for acquisition of equipment and leasehold improvements, net..................... (6,384) (5,138) (3,628) ------- ------- ------- Cash used by investing activities--continuing operations..................................... (6,384) (5,138) (3,628) Cash used by investing activities--discontinued operations................................... (279) (422) (221) ------- ------- ------- Net cash used in investing activities................................................. (6,663) (5,560) (3,849) Cash flows from financing activities: Decrease in line of credit, net........................................................... (2,050) (9,250) -- Payments on long-term debt................................................................ (4,900) (927) (3,997) Purchase of treasury stock................................................................ (1,437) -- (1,173) Net advances from (to) affiliated company................................................. 1,747 (3,144) 3,428 Distributions paid........................................................................ (17,005) (19,008) (47,346) ------- ------- ------- Net cash used in financing activities................................................. (23,645) (32,329) (49,088) Net increase (decrease) in cash and cash equivalents........................................ 588 (857) (316) Cash and cash equivalents--beginning of year................................................ 585 1,173 316 ------- ------- ------- Cash and cash equivalents--end of year....................................................... $ 1,173 $ 316 $ -- ======= ======= ======= Supplemental disclosure of cash flow information: Interest paid............................................................................. $ 1,401 $ 1,308 $ 1,584 Income taxes paid......................................................................... $ 465 $ 612 $ 567 Noncash financing activity: Treasury stock purchased for stockholder notes........................................... $ 4,745 $ -- $ 4,645 Revaluation of treasury stock............................................................ $ -- $ 214 $ (231) Forgiveness of shareholder note.......................................................... $ 811 $ -- $ --
The accompanying notes are an integral part of these financial statements. F-7 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 1. Summary of significant accounting policies Estimates and assumptions 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Cash and cash equivalents United considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Inventories Inventories are stated at the lower of cost or market, with cost being determined using the first-in, first-out method. Cost includes raw materials, direct labor and overhead. Equipment and leasehold improvements Expenditures for equipment and leasehold improvements and those which substantially increase the useful lives of equipment are capitalized. Maintenance, repairs and minor renewals are expensed as incurred. When equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the accounts and gains or losses on the dispositions are reflected in earnings. Depreciation is provided on the straight-line basis by charges to costs or expenses at rates based on the estimated useful lives of the assets. Machinery and equipment are depreciated over periods ranging from three to twelve years. Office furniture and equipment are depreciated over periods ranging from five to ten years. Automobiles and trucks are depreciated over periods ranging from three to seven years. Leasehold improvements are amortized over periods ranging from five to thirty-nine years. Subsequent to acquisition, United continually evaluates whether later events and circumstances have occurred that indicate the remaining useful life of equipment and leasehold improvements may warrant revision or that the remaining balance of equipment and leasehold improvements may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of equipment and leasehold improvements from expected future operating cash flows on an undiscounted basis. In the opinion of management, no such impairment existed as of December 31, 1997 and 1998. Goodwill Goodwill is included in other assets and represents the excess of cost over the net tangible assets of acquired businesses. Goodwill is amortized over 40 years. Subsequent to acquisition, United continually evaluates whether later events and circumstances have occurred that indicate the remaining useful life of an intangible asset may warrant revision or that the remaining balance of an intangible asset may not be recoverable. The measurement of possible impairment is based on the ability to recover the balance of intangible assets from expected future operating cash flows on an undiscounted basis. In the opinion of management, no such impairment existed as of December 31, 1997 and 1998. F-8 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) Advertising and promotion expenses The Company advertises and promotes its products through national and regional media. Products are also advertised and promoted through cooperative programs with retailers. The Company expenses advertising and promotion costs as incurred, although costs incurred during interim periods are generally expensed ratably in relation to revenues. Research and development Research and development costs are expensed as incurred and approximated $427, $592 and $776 for 1996, 1997 and 1998, respectively. Revenue recognition The Company recognizes revenue upon shipment of its products. Sales are net of discounts and allowances. Comprehensive income Comprehensive income is defined as the total of net income and all other non-owner changes in equity (see the accompanying statements of stockholders' equity). The Company has no other items that affect comprehensive income other than net income. Earnings per share In accordance with generally accepted accounting principles, earnings per share information is not presented since the Company does not have publicly held common stock. Segment information In 1998, United adopted Statement of Financial Accounting Standards (FAS) 131, Disclosure about Segments of an Enterprise and Related Information. FAS 131 supersedes FAS 14, Financial Reporting for Segments of a Business Enterprise, replacing the "industry segment" approach with the "management" approach. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of United's reportable segments. FAS 131 also requires disclosures about products and services, geographic areas and major customers. The adoption of FAS 131 did not affect results of operations or financial position but did affect the disclosure of segment information (see Note 17--Segment information). 2. Subsequent event--Recapitalization of United On January 20, 1999, pursuant to a recapitalization agreement with UIC Holdings, L.L.C., which is owned by Thomas H. Lee Equity Fund IV, L.P. ("THL Fund IV" and, together with its affiliates, the "THL Parties"), the Company was recapitalized in a transaction in which: (a) UIC Holdings, L.L.C. purchased common stock from the Company's stockholders for approximately $254.7 million; (b) the Company's senior managers purchased common stock from the Company's existing stockholders for approximately $5.7 million; and (c) the Company used the net proceeds of a senior subordinated facility (the "senior subordinated facility") and borrowings under a senior credit facility (the "senior credit facility") to redeem a portion of the common stock held by the Company's existing stockholders. Following the recapitalization, UIC Holdings, L.L.C. owns approximately 91.9% of the Company's issued and F-9 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) outstanding common stock, the existing stockholders retain approximately 6.0% and the Company's senior managers own approximately 2.1%. The total transaction value of the recapitalization was approximately $652.0 million, including related fees and expenses, and the implied total equity value following the recapitalization was approximately $277.0 million. The total consideration paid to redeem the Company's common stock is subject to both upward and downward adjustments based on the Company's working capital on the date of the recapitalization. The recapitalization was funded by: (a) $225.0 million of borrowings under a senior credit facility; (b) $150.0 million of borrowings under a senior subordinated facility; (c) the approximate $254.7 million equity investment by the THL Parties through UIC Holdings, L.L.C.; (d) the approximate $5.7 million equity investment by the Company's senior management team; and (e) equity retained by the Company's existing stockholders having an implied fair market value of approximately $16.6 million. The recapitalization will be accounted for as a leveraged recapitalization which will have no impact on United's historical basis of assets and liabilities for financial reporting purposes. The effects of the recapitalization have not been included in these financial statements. 3. Discontinued operations In connection with the recapitalization of United as described in Note 2 above, United formed a wholly-owned subsidiary DW Wej-it, Inc., a Delaware corporation ("DW"). All of United's assets and liabilities related to United's business of manufacturing and marketing construction anchoring fasteners and providing contract manufacturing services in metals fabrication (which is collectively referred to as the "Metals Business") were contributed to DW. Effective January 1, 1999, United distributed all of the shares of capital stock of DW owned by United to its shareholders. The Metals Business is accounted for as a discontinued operation in the accompanying financial statements. The Investment in discontinued operations at December 31, 1998 and 1997 is primarily comprised of cash, accounts receivable, inventory, fixed assets, accounts payable and accrued expenses. Operating results for the Metals Business have been included in the Statements of Income for 1996, 1997 and 1998. Results for discontinued operations are as follows:
For the years ended December 31, ------------------------------------------- 1996 1997 1998 --------- --------- -------- Net sales $ 18,242 $ 18,757 $ 18,038 Income before income taxes 2,373 1,963 1,751 Income tax expense 48 40 37 Income from discontinued operations 2,325 1,923 1,714
4. Common stock and stock split The Company's articles of incorporation previously authorized 20,000 shares of $1.00 par value Class A Voting shares and 20,000 shares of $1.00 par value Class B Non-Voting shares. At December 31, 1998, 740 Class A Voting shares and 740 Class B Non-Voting shares were outstanding. At December 31, 1996 and 1997, 800 Class A Voting shares and 800 Class B Non-Voting shares were outstanding. F-10 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) On January 20, 1999, United's Board of Directors declared a 83,378.37838 to 1 stock split and increased United's authorized capital to 65 million shares, of which 32.5 million have been designated as Class A Voting Common Stock and 32.5 million have been designated as Class B Non-Voting Common Stock. As of January 20, 1999, there were 27.7 million shares of Class A Voting Common Stock outstanding and 27.7 million shares of Class B Non-Voting Common Stock outstanding. In conjunction with the stock split, United's board of directors reduced the par value of both the Class A Voting shares and Class B Non-Voting shares to $0.01 per share. The effects of the stock split and changes to the authorized capital of United have not been reflected in the accompanying financial statements. 5. Inventories Inventories at December 31, are as follows:
1997 1998 -------- -------- Raw materials............................................... $ 8,253 $ 7,748 Finished good............................................... 33,384 33,696 -------- -------- $ 41,637 $ 41,444 ======== ========
6. Equipment and leasehold improvements Equipment and leasehold improvements at December 31, are as follows:
Machinery and equipment...................................... $ 27,379 $ 30,243 Office furniture and equipment............................... 3,065 3,316 Automobiles and trucks....................................... 322 322 Leasehold improvements....................................... 6,401 6,793 -------- -------- 37,167 40,674 Less: Accumulated depreciation and amortization............. 17,145 20,518 -------- -------- $ 20,022 $ 20,156 ======== ========
Depreciation charged against income approximated to $3,324, $3,377 and $3,624 in 1996, 1997 and 1998, respectively. F-11 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 7. Other assets Other assets at December 31, are as follows:
1997 1998 ------- ------- Goodwill.......................................... $ 7,988 $ 7,988 Accumulated amortization.......................... (1,530) (1,744) ------- ------- 6,458 6,244 Other............................................. 560 704 ------- ------- $ 7,018 $ 6,948 ======= =======
Amortization charged against income for goodwill approximated $237, $220 and $214 in 1996, 1997 and 1998, respectively. 8. Accrued expenses Accrued expenses at December 31 are as follows:
1997 1998 ------- --------- Cash overdraft $ -- $ 3,148 Litigation accrual -- 2,321 Other 6,723 7,236 ------- -------- $ 6,723 $ 12,705 ======= ========
9. Long-term debt and credit facilities Long-term debt at December 31, consists of:
1997 1998 -------- --------- Former stockholder, unsecured, payable in annual principal installments of $982 plus interest at the six-month U.S. Treasury Bill rate in effect on the first day of each annual period......................................................................................... $ 3,997 $ -- Former stockholders, unsecured, payable in annual principal installments of $929 plus interest at the six-month U.S. Treasury Bill rate in effect on the first day of each annual period.................................................................................. -- 4,645 Less: current maturities............................................................................ (1,050) (929) -------- -------- $ 2,947 $ 3,716 ======== ========
The long-term debt outstanding at December 31, 1998 was repaid in conjunction with the recapitalization on January 20, 1999. The fair value of long-term debt approximates its carrying value. Prior to the recapitalization, United had available an unsecured seasonal working capital line of credit with a bank. The agreement provided United with a maximum $80,000 line of credit. Interest on outstanding borrowings were payable monthly at a rate not to exceed the bank's LIBOR rate plus 0.75% or the bank's prime rate less 1.75%. No F-12 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) borrowings were outstanding at December 31, 1998. This agreement was canceled in conjunction with the recapitalization. In conjunction with the recapitalization on January 20, 1999 as discussed in Note 2, United borrowed $225,000 under the senior credit facility and $150,000 under the senior subordinated facility. The senior credit facility was provided by NationsBank, N.A., Morgan Stanley Senior Funding, Inc. and CIBC Inc. and consists of (a) a $110,000 revolving credit facility (the "revolving credit facility"), under which no borrowings were outstanding at the closing of the recapitalization; (b) a $75,000 term loan facility ("Term Loan A"); and (c) a $150,000 term loan facility ("Term Loan B"). The revolving credit facility and the Term Loan A mature six years from the closing date of the senior credit facility, and the Term Loan B matures seven years from the closing date of the senior credit facility. The revolving credit facility is subject to a clean-down period during which the aggregate amount outstanding under the revolving credit facility shall not exceed $10.0 million for 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. The principal amount of the Term Loan A is to be repaid in twenty-three consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2005, with $10,000 to be payable in each of the first four years and $17,500 to be repaid in each of the last two years. The principal amount of the Term Loan B is to be repaid in twenty-seven consecutive quarterly installments commencing June 30, 1999 and a final installment due January 20, 2006, with $1,500 to be payable in each of the first six years and $141,000 to be payable in year seven. Interest on the revolving credit facility, Term Loan A and Term Loan B ranges from 200 to 325 basis points above LIBOR depending on certain financial ratios. Unused commitments under the revolving credit facility are subject to a 50 basis point annual commitment fee. Obligations under the senior credit facility are secured by substantially all of the properties and assets of United and substantially all of the properties and assets of United's future domestic subsidiaries. The senior subordinated facility was provided by CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. The notes mature in 2009 and bear interest at 10.5% per annum, which is payable semi-annually in arrears on July 15 and January 15, commencing in 1999. The interest rate on the notes is subject to increase under certain circumstances. Aggregate maturities under the senior credit facility (excluding the revolving credit facility) and the senior subordinated facility are as follows: 1999............................................................. $ 8,625 2000............................................................. 11,500 2001............................................................. 11,500 2002............................................................. 11,500 2003............................................................. 17,125 Thereafter....................................................... 314,750 ---------- $ 375,000 ==========
F-13 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 10. Treasury stock reissued/purchased On January 1, 1996, United reissued 42.56 shares of treasury stock in exchange for a note for $112 from a stockholder. The note bore interest at 8.17%, payable in January of each year. The difference between the reissue price and the cost of the treasury stock was credited to additional paid-in capital. On August 15, 1996, United purchased all the outstanding shares covered by the note discussed above and by previous transactions and related notes. As part of this treasury stock purchase, the outstanding notes, along with accrued interest, were credited against the purchase price of the stock. During 1997, the cost of the treasury stock purchased in 1996 was revalued, resulting in an increase of $214 in treasury stock and long-term debt. On January 30, 1998, United purchased 120 shares, which represented all of the outstanding common stock of three stockholders for cash of $1,173 and shareholder notes totaling $4,645. In 1998, the treasury stock was revalued, resulting in a decrease of $231 in treasury stock. 11. Income taxes The Company had elected "S" corporation status under provisions of the Internal Revenue Code, and similar provisions of Missouri tax law. As such, United was not liable for federal or Missouri state income taxes, but rather the stockholders include their distributive share of the taxable income of United on their respective income tax returns. The Company was under a contractual obligation to its stockholders to distribute a percentage of net income equal to 110% of the highest personal income tax rates to provide the stockholders with funds to make their personal quarterly estimated income tax payments. The provision for income taxes consists of certain state income taxes computed at statutory rates in effect. In conjunction with the recapitalization, United converted to a "C" corporation and will be subject to federal income tax beginning in 1999. 12. Deferred compensation plans The Company has a 401(k) savings plan which covers substantially all of its employees with six months or more continuous service. The 401(k) feature allows participants to defer a portion of eligible compensation on a tax-deferred basis. The plan provides for United to match 50% of the voluntary contribution up to 6% of gross earnings. The matching amount increases to 75% after ten years of service. The matching contribution amounted to $352, $347 and $239 for 1996, 1997 and 1998, respectively. 13. Transactions with related parties The Company occasionally advanced funds or received funds from a company with common ownership to United. The advances are unsecured and bear interest at United's borrowing rate. The amounts due from the affiliated company bore interest at 10.5% per year and were repaid in 1998. Effective January 1, 1996, United entered into a services agreement with an affiliated company to provide executive, administrative, acquisition, bookkeeping, clerical and other services. The fees for these services are to be F-14 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) determined by mutual agreement within 120 days of year end for the prior year. The services agreement will remain in place until terminated by either party. Fees charged under this service agreement were $768, $0 and $0 for 1996, 1997 and 1998, respectively. This agreement was canceled in connection with the recapitalization. The Company has guaranteed the debt of an affiliated company. The guaranteed debt amounted to approximately $5,528 and $4,833 at December 31, 1997 and 1998, respectively. The guarantee of this debt was terminated in connection with the recapitalization. See Note 15--Commitments--for a discussion of lease arrangements with a related party. 14. Concentration of credit risks, exposures and financial instruments Financial instruments which potentially subject United to concentration of credit risk consist principally of trade accounts receivable. The Company is heavily dependent on four customers for a substantial majority of its sales. These four customers accounted for approximately 64% and 68% of net sales for 1997 and 1998, respectively. At December 31, 1997 and 1998, accounts receivable from these four customers were 56% and 51%, respectively, of total accounts receivable. (See Note 17--Segment information for sales to United's four largest customers.) The Company performs ongoing credit evaluations of its customers' financial conditions and generally does not require collateral from its customers. The Company maintains allowances for potential credit losses, and such losses have generally been within management's expectations. Through December 31, 1998, United did not have any significant amounts of debt outstanding that was sensitive to changes in interest rates. The Company does not use any derivative financial instruments to hedge its exposure to interest rate changes. The Company does utilize various commodity and specialty chemicals in its production process. The Company does not use derivative commodity instruments to hedge its exposures to changes in commodity prices. The carrying value of cash and short-term financial instruments approximates fair value due to the short maturity of those instruments. 15. Commitments The Company rents one of its facilities from an affiliated company under an operating lease expiring December 31, 2000 with minimum annual rentals of $138. The Company has three options to renew the lease for additional five-year periods. Rent expense amounted to $138 in 1996, 1997 and 1998. The Company leases the majority of its operating facilities from an affiliated company under various operating leases expiring December 31, 1999 at minimum annual rentals of approximately $2,637. The leases also provide that on an annual basis the monthly rent is adjusted by one-half of the annual change in the Consumer Price Index percentage. The Company has options to renew the leases on a year-to-year basis for an additional ten years, beginning January 1, 2000. The Company also leased an aircraft from this company for $96 per month through December 1998. The Company leases a portion of its operating facilities from the same company under a sublease agreement expiring on December 31, 2005 with minimum annual rentals ranging from $140 to $368. The Company has two, five-year options to renew the lease, beginning January 1, 2006. Total rent expense to this affiliated company amounted to $3,202, $3,528 and $3,575 for 1996, 1997 and 1998, respectively. F-15 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) The Company is also obligated under other operating leases for use of warehouse space. The leases expire at various dates through January 31, 2001. Three of the leases provide as many as three five-year options to renew. Total rent expense under these lease agreements amounted to $1,233, $654 and $654 for 1996, 1997 and 1998, respectively. Management believes that the terms and expenses associated with the related party leases described above are similar to those negotiated by unrelated parties at arm's length. The future minimum rental commitments, required under noncancellable operating leases, are as follows:
Amount -------------------------------- Year Affiliate Other Total - ------ --------- ------ -------- 1999......................................... $ 2,514 $ 472 $ 2,986 2000......................................... 506 180 686 2001......................................... 416 -- 416 2002......................................... 416 -- 416 2003......................................... 416 -- 416 Thereafter................................... 832 -- 832 -------- ------ -------- $ 5,100 $ 652 $ 5,752 ======== ====== ========
16. Contingencies In March 1998, a judgement was entered against United for a lawsuit filed in 1992 by the spouse of a former employee claiming benefits from a Company-owned key man life insurance policy. The Company is currently appealing this judgment. In October 1998, the FTC and several state attorneys general filed a suit against United seeking to enjoin its advertising of Spectracide Terminate as "a home defense system." The FTC and attorneys general alleged that United had made deceptive and unsubstantiated claims regarding this product. In February 1999, the Company negotiated a settlement agreement with the FTC which is currently being circulated among the parties to the case for signatures, in which United agrees to modify its advertising and to reimburse the other parties for certain costs incurred. Costs related to the two cases described above have been reflected as non-recurring litigation charges in 1998. The Company is involved in litigation and arbitration proceedings in the normal course of business that assert product liability and other claims. The Company is contesting all such claims. When it appears probable in management's judgment that United will incur monetary damages or other costs in connection with such claims and proceedings, and such costs can be reasonably estimated, appropriate liabilities are recorded in the financial statements and charges are made against earnings. Management believes the possibility of a material adverse effect on United's consolidated financial position, results of operations and cash flows from the claims and proceedings described above is remote. F-16 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 17. Segment information The Company operates in one segment consisting of the manufacturing, marketing and distribution of lawn and garden care and insect control products to retail channels principally in the United States. (See Note 3--Discontinued operations--for a discussion of the spin-off of the Metals Business.) The Company's product lines include herbicides, household insecticides, insect repellents and water-soluble fertilizers under a variety of brand names. The product lines are as follows: Value brands o Spectracide--consumer lawn and garden pesticides; o Hot Shot--household insecticides; o Cutter--consumer insect repellents; and o Peters--consumer water-soluble fertilizers. Opening price point brands o Real-Kill--opening price point brand at Home Depot; o No-Pest--opening price point brand at Lowe's; and o KRid and KGro--exclusive opening price point brand at Kmart. The Company sells and distributes both its value and opening price point brands to its four largest customers. Net sales to United's four largest customers were as follows:
For the years ended December 31, ---------------------- 1997 1998 ---------- --------- Customer A.................................................. 19% 26% Customer B.................................................. 18% 17% Customer C.................................................. 10% 14% Customer D.................................................. 17% 11%
No other customers represented more than 10% of 1997 or 1998 net sales. F-17 UNITED INDUSTRIES CORPORATION NOTES TO FINANCIAL STATEMENTS (Dollars in thousands) 18. Unaudited quarterly financial information
Year Ended December 31, 1998 ------------------------------------------------------------------- First Second Third Fourth Total ---------- ----------- ----------- ----------- ----------- Net sales................................................... $ 82,295 $ 126,938 $ 47,952 $ 25,491 $ 282,676 Operating income............................................ 15,525 29,864 4,268 (2,532) 47,125 Income from continuing operations........................... 14,999 28,448 4,273 (2,693) 45,027 Income from discontinued operations, net of tax............. 420 534 424 336 1,714 Net income.................................................. 15,419 28,982 4,697 (2,357) 46,741 Year Ended December 31, 1997 ------------------------------------------------------------------- First Second Third Fourth Total ---------- ----------- ----------- ----------- ----------- Net sales................................................... $ 83,133 $ 100,483 $ 40,187 $ 18,798 $ 242,601 Operating income............................................ 15,968 23,607 2,476 (5,138) 36,913 Income from continuing operations........................... 15,274 22,507 2,168 (5,029) 34,920 Income from discontinued operations, net of tax............. 534 577 436 376 1,923 Net income.................................................. 15,808 23,084 2,604 (4,653) 36,843
F-18 [THIS PAGE INTENTIONALLY LEFT BLANK] F-19 [THIS PAGE INTENTIONALLY LEFT BLANK] F-20 [THIS PAGE INTENTIONALLY LEFT BLANK] F-21 ========================================================================== We have not authorized any dealer, salesperson or other person to give any information or represent anything to you other than the information contained in this prospectus. You must not rely on unauthorized information or representations. This prospectus does not offer to sell or ask for offers to buy any of the securities in any jurisdiction where it is unlawful, where the person making the offer is not qualified to do so, or to any person who can not legally be offered the securities. The information in this prospectus is current only as of the date on its cover, and may change after that date. For any time after the cover date of this prospectus, we do not represent that our affairs are the same as described or that the information in this prospectus is correct -- nor do we imply those things by delivering this prospectus or selling securities to you. ------------------------------- TABLE OF CONTENTS
Page ---- Prospectus Summary............................................ 1 Risk Factors................................................. 11 The Transactions............................................. 16 Use of Proceeds.............................................. 17 Capitalization............................................... 18 Unaudited Pro Forma Financial Statements..................... 19 Selected Historical Financial Data........................... 26 Management's Discussion and Analysis of Financial Condition and Results of Operations.................... 28 Business..................................................... 32 Management................................................... 43 Certain Transactions......................................... 47 Principal Stockholders....................................... 48 Description of Capital Stock................................. 49 Description of Our Senior Credit Facility.................... 50 Description of the New Notes................................. 52 Exchange Offer............................................... 93 Certain United States Federal Income Tax Considerations......................................... 102 Plan of Distribution......................................... 108 Legal Matters................................................ 108 Independent Auditors......................................... 108 Available Information........................................ 108 Forward-looking Statements................................... 109 Index to Financial Statements................................ F-1
================================================================================ $150,000,000 United Industries Corporation [picture] Offer to Exchange their 9-7/8% Series B Registered Senior Subordinated Notes due 2009 for any and all of their outstanding 9-7/8% Series A Unregistered Senior Subordinated Notes due 2009 ----------------------- Prospectus ----------------------- , 1999 ================================================================================ PART II: INFORMATION NOT REQUIRED IN THE PROSPECTUS Item 20. Indemnification of Directors and Officers. United is incorporated under the laws of the State of Delaware. Section 145 of the General Corporation Law of the State of Delaware, inter alia ("Section 145") provides that a Delaware corporation may indemnify any persons who were, are or are threatened to be made, parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation), by reason of the fact that such person is or was an officer, director, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses, such as attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided such person acted in good faith and in a manner he or she reasonably believed to be or not opposed to the corporation's best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe that his or her conduct was illegal. A Delaware corporation may indemnify any persons who are, were or are threatened to be made, party to any threatened, pending or completed action or suit by or in the right of the corporation by reasons of the fact that such person was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. The indemnity may include expenses, including attorneys' fees, actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, provided such person acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the corporation's best interests, provided that no indemnification is permitted without judicial approval if the officer, director, employee or agent is adjudged to be liable to the corporation. Where an officer, director, employee or agent is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses which such officer or director has actually and reasonably incurred. Article V of the By-laws of United ("Article V") provides, among other things, that any person who, by reason of the fact he is a director or officer of United, or is or was serving at the request of the United as a director, officer of United, or is or was serving at the request of United as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, is or was a party, or is threatened to be made a party, to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, shall be indemnified by United, provided he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of United, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. Such indemnification shall be provided against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in that with respect to an action or suit by or in the right of United, such indemnification shall be only against expenses, including attorneys' fees, and in such cases no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to United, unless, and only to the extent that, the court in which the action or suit was brought determines, upon application, that despite the adjudication of liability and in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court shall deem proper. To the extent that a director, officer, employee or agent of United has been successful on the merits or otherwise in defense of any such action, suit, or proceeding or in defense of any claim, issue or mater therein, he shall be indemnified against expenses, including attorneys' fees, actually and reasonably incurred by him in connection with the action, suit or proceeding. Any other indemnification hereunder, unless ordered by a court, is made by United only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth within Article V of United's bylaws. The determination is made by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the action, suit, or proceeding, or if such a quorum is not obtainable, or, even if obtainable, if a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or by the shareholders. The termination of any action, suit, or proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere or its equivalent, does not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of United, or, with respect to any criminal action or proceeding, that he had reasonable cause to believe that his conduct was unlawful. Article V further provides that expenses, including attorneys' fees, incurred in defending a civil or criminal action, suit or proceeding may be paid by United in advance of the final disposition of the action, suit, or proceeding as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it ultimately determines that he is entitled to be indemnified by United as authorized by Article V of United's bylaws. Section 145 further authorizes a corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against any liability asserted against him and incurred by him or her in any such capacity, arising out of his or her status as such, whether or not the corporation would otherwise have the power to indemnify him or her under Section 145. Article V further provides that United may purchase and maintain insurance on its behalf and on behalf of any person who is or was a director, officer, employee, fiduciary or agent of United or is or was serving at the request of United as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his status as such, whether or not United would have the power to indemnify such person against such liability under Article V. Item 21. Exhibits and Financial Statement Schedules. 3.1 Amended and Restated Certificate of Incorporation of the Company, dated January 13, 1999. 3.2 Certificate of Amendment of the Company, dated January 20, 1999. 3.3 By-laws of the Company. 4.1 Securities Purchase Agreement, dated as of March 19, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. 4.2 Indenture, dated as of March 24, 1999, between the Company and State Street Bank and Trust Company as Trustee with respect to the 9-7/8% Senior Subordinated Notes due 2009 (including the form of 9-7/8% Senior Subordinated Notes). 4.3 Registration Rights Amendment, dated as of March 24, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. 5.1 Opinion of Kirkland & Ellis.* 10.1 United Industries Corporation Deferred Compensation Plan. 10.2 Management Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian.+ 10.3 Management Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender.+ 10.4 Management Agreement, dated as of January 20, 1999, between the Company and William P. Johnson.+ 10.5 Management Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston.+ 10.6 Consulting Agreement, dated as of January 20, 1999, between the Company and David A. Jones. 10.7 United Industries Corporation 1999 Stock Option Plan. 10.8 Stock Option Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian.+ 10.9 Stock Option Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender.+ 10.10 Stock Option Agreement, dated as of January 20, 1999, between the Company and William P. Johnson.+ 10.11 Stock Option Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston.+ 10.12 Stock Option Agreement, dated as of January 20, 1999, between the Company and David A. Jones.+ 10.13 Stockholders Agreement, dated as of January 20, 1999, among the Company and the Stockholders (as defined therein).+ 10.14 Professional Services Agreement, dated as of January 20, 1999, between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital, L.L.C. and the Company. 10.15 Amended and Restated Credit Agreement dated as of March 24, 1999 among the Company, NationsBanc Montgomery Securities LLC, Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce, NationsBank, N.A., the Initial Lenders (as defined therein), the Swing Line Bank (as defined therein) and the Initial Issuing Bank (as defined therein).+ 10.16 Lease, dated as of December 1, 1995, between Rex Realty Co. and the Company.+ 10.17 Lease, dated as of November 27, 1989, between Rex Realty Co. and the Company.+ 10.18 Agreement and Plan of Reorganization, Purchase and Redemption, dated as of December 24, 1998, among the Company, the sellers named therein and UIC Holdings, L.L.C. (the "Recapitalization Agreement").* 10.19 Amendment No. 1 to the Recapitalization Agreement, dated as of January 20, 1999.* 10.20 Amendment No. 2 to the Recapitalization Agreement, dated as of January 25, 1999.* 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Rubin, Brown, Gornstein & Co., LLP. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).* 24.1 Powers of Attorney (included in Part II of the Registration Statement).* 25.1 Statement of Eligibility of Trustee on Form T-1.* 27.1 Financial Data Schedule.* 99.1 Form of Letter of Transmittal.* 99.2 Form of Letter of Notice of Guaranteed Delivery.* 99.3 Form of Tender Instructions.*
- --------------------- * To be filed by amendment. + The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon request by the Commission. All schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or not material, or the information called for thereby is otherwise included in the financial statements and therefore has been omitted. Item 22. Undertakings. (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (a) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (b) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (c) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuers undertake that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (5) The registrant undertakes that every prospectus (a) that is filed pursuant to paragraph (1) immediately preceding, or (b) that purports to meet the requirements of Section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 20 or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by them is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (6) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (7) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (8) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first Class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, United Industries Corporation has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in City of San Diego, State of California, on the 7th day of April, 1999. UNITED INDUSTRIES CORPORATION By: /s/ STEPHEN R. BRIAN -------------------------------------------- Name: Stephen R. Brian Title: President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Stephen R. Brian and Daniel J. Johnston and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their, his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. * * * Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities indicated on the 7th day of April, 1999.
Signature Capacity --------- -------- /s/ STEPHEN R. BRIAN President, Chief Executive Officer and Director of - -------------------------------------------------------- United (Principal Executive Officer) Stephen R. Brian /s/ DANIEL J. JOHNSTON Senior Vice President, Financing and Manufacturing - -------------------------------------------------------- and Director of United Daniel J. Johnston /s/ DAVID A. JONES Director of United - -------------------------------------------------------- David A. Jones /s/ C. HUNTER BOLL - -------------------------------------------------------- Director of United C. Hunter Boll /s/ SCOTT A. SCHOEN - -------------------------------------------------------- Director of United Scott A. Schoen /s/ CHARLES A. BRIZIUS - -------------------------------------------------------- Director of United Charles A. Brizius - -------------------------------------------------------- Director of United David C. Pratt
EXHIBIT INDEX -------------
SEQUENTIALLY EXHIBIT NUMBERED NUMBER DESCRIPTION PAGES - ------ ----------- ----- 3.1 Amended and Restated Certificate of Incorporation of the Company, dated January 13, 1999. 3.2 Certificate of Amendment of the Company, dated January 20, 1999. 3.3 By-laws of the Company. 4.1 Securities Purchase Agreement, dated as of March 19, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC. 4.2 Indenture, dated as of March 24, 1999, between the Company and State Street Bank and Trust Company as Trustee with respect to the 9-7/8% Senior Subordinated Notes due 2009 (including the form of 9-7/8% Senior Subordinated Notes). 4.3 Registration Rights Agreement, dated as of March 24, 1999, among the Company, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC.* 5.1 Opinion of Kirkland & Ellis.* 10.1 United Industries Corporation Deferred Compensation Plan. 10.2 Management Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian.+ 10.3 Management Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender.+ 10.4 Management Agreement, dated as of January 20, 1999, between the Company and William P. Johnson.+ 10.5 Management Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston.+ 10.6 Consulting Agreement, dated as of January 20, 1999, between the Company and David A. Jones. 10.7 United Industries Corporation 1999 Stock Option Plan. 10.8 Stock Option Agreement, dated as of January 20, 1999, between the Company and Stephen R. Brian.+ 10.9 Stock Option Agreement, dated as of January 20, 1999, between the Company and Richard A. Bender.+ 10.10 Stock Option Agreement, dated as of January 20, 1999, between the Company and William P. Johnson.+ 10.11 Stock Option Agreement, dated as of January 20, 1999, between the Company and Daniel J. Johnston.+* 10.12 Stock Option Agreement, dated as of January 20, 1999, between the Company and David A. Jones.+ 10.13 Stockholders Agreement, dated as of January 20, 1999, among the Company and the Stockholders (as defined therein). + 10.14 Professional Services Agreement, dated as of January 20, 1999, between THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital, L.L.C. and the Company. 10.15 Amended and Restated Credit Agreement dated as of March 24, 1999 among the Company, NationsBanc Montgomery Securities LLC, Morgan Stanley Senior Funding, Inc., Canadian Imperial Bank of Commerce, NationsBank, N.A.., the Initial Lenders (as defined therein), the Swing Line Bank (as defined therein) and the Initial Issuing Bank (as defined therein).+ 10.16 Lease, dated as of December 1, 1995, between Rex Realty Co. and the Company.+ 10.17 Lease, dated as of November 27, 1989, between Rex Realty Co. and the Company.+ 10.18 Agreement and Plan of Reorganization, Purchase and Redemption, dated as of December 24, 1998, among the Company, the sellers named therein and UIC Holdings, L.L.C. (the "Recapitalization Agreement").* 10.19 Amendment No. 1 to the Recapitalization Agreement, dated as of January 20, 1999.* 10.20 Amendment No. 2 to the Recapitalization Agreement, dated as of January 25, 1999.* 12.1 Statement Regarding Computation of Ratio of Earnings to Fixed Charges.* 23.1 Consent of PricewaterhouseCoopers LLP. 23.2 Consent of Rubin, Brown, Gornstein & Co., LLP. 23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).* 24.1 Powers of Attorney (included in Part II of the Registration Statement).* 25.1 Statement of Eligibility of Trustee on Form T-1.* 27.1 Financial Data Schedule.* 99.1 Form of Letter of Transmittal.* 99.2 Form of Letter of Notice of Guaranteed Delivery.* 99.3 Form of Tender Instructions.*
- -------------------- * To be filed by amendment. + The Company agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon request by the Commission. EX-3.1 2 AMENDED CERTIFICATE OF INCORPORATION Exhibit 3.1 ----------- AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED INDUSTRIES CORPORATION David C. Pratt and Mark R. Gale, being the duly elected President and Secretary, respectively, of United Industries Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation") do hereby certify that: 1. The name of the Corporation is United Industries Corporation. The original Certificate of Incorporation was filed with the Delaware Secretary of State pursuant to the Act on April 16, 1973 under the name "Kensico Industries, Inc." A prior Amended and Restated Certificate of Incorporation was filed with the Delaware Secretary of State pursuant to the Act on October 13, 1987 under the name of "United Industries Corporation." A prior Amended and Restated Certificate of Incorporation was filed with the Delaware Secretary of State pursuant to the Act on November 16, 1992 under the name of "United Industries Corporation." 2. The Amended and Restated Certificate of Incorporation (the "Certificate") has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware. 3. The Certificate is hereby amended and restated as set forth in Exhibit A attached hereto and made a part hereof. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be executed by its president and Secretary on the 13th day of January, 1999. UNITED INDUSTRIES CORPORATION By: /s/ David C. Pratt ------------------------- David C. Pratt, President ATTEST: /s/ Mark R. Gale - ----------------------------- Mark R. Gale, Secretary - 1 - EXHIBIT A AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED INDUSTRIES CORPORATION ARTICLE ONE The name of the corporation is United Industries Corporation (the "Corporation"). ARTICLE TWO The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, Delaware 19801, the County of New Castle. The name of its registered agent at such address is The Corporation Trust Company. ARTICLE THREE The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE FOUR A. AUTHORIZED SHARES The total number of shares of capital stock which the Corporation has authority to issue is forty thousand (40,000) shares, divided into two classes. The designation of each class, the number of shares of each class authorized, and the par value, if any of the shares of each class are as follows:
NUMBER PAR VALUE CLASS OF SHARES PER SHARE ----- --------- --------- Class A Voting Common Stock ("Class A Common") 20,000 $1.00 Class B Non-Voting Common Stock ("Class B Common") 20,000 $1.00
The Class A Common and the Class B Common are collectively referred to as "Common Stock." - 2 - B. COMMON STOCK The distinguishing preferences, qualifications, limitations, restrictions and special or relative rights in respect of each class of Common Stock are as follows: 1. All dividends shall, at all times be paid at the same rate per share on both the Class A Common and the Class B Common and if any dividend to paid in Common Stock of the Corporation, such dividend shall be paid in Common Stock of the same class as the shares with respect to which said dividend is paid. 2. Upon the liquidation, dissolution or winding up of the Corporation, any and all assets and property for the Corporation remaining after payment or provision for the debts and liabilities of the Corporation shall be distributed ratably, on a share-for-share basis, to the holders of both Class A Common and Class B Common, without distinction as to class. 3. The voting power for the election of directors, and for all other purposes, except as is otherwise specifically provided by the General Corporation Law of the State of Delaware, is vested exclusively in the holders of the Class A Common, the holders of the Class B Common expressly waiving any right to vote the Class B Common at elections for directors, or on any question or for any purpose whatsoever, except as is otherwise specifically provided by the General Corporation Law of the State of Delaware, and the holders of Class B Common shall not be entitled to, and expressly waive notice of and the right to participate in any meeting of shareholders unless matters are to be voted upon at such meeting upon which the holders of Class B Common are entitled to vote pursuant to the specific provisions of the General Corporation Law of the State of Delaware. Except as is otherwise specifically provided by the General Corporation Law of the State of Delaware, the Class A Common shall be entitled to one (1) vote per share. ARTICLE FIVE The Corporation is to have perpetual existence. ARTICLE SIX In furtherance and not in limitation of the powers conferred by statue, the board of directors of the Corporation is expressly authorized to make, alter or repeal the by-laws of the Corporation. ARTICLE SEVEN Meetings of stockholders may be held within or without the State of Delaware, as the by-laws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the board of - 3 - directors or in the by-laws of the Corporation. Election of directors need not be by written ballot unless the by-laws of the Corporation so provide. ARTICLE EIGHT To the fullest extent permitted by the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended, a director of this Corporation shall not be liable to the Corporation or its stockholders for monetary damages for a breach of fiduciary duty as a director. Any repeal or modification of this ARTICLE EIGHT shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification. ARTICLE NINE The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner now or hereafter prescribed herein and by the laws of the State of Delaware, and all rights conferred upon stockholders herein are granted subject to this reservation. * * * * * - 4 - EX-3.2 3 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION Exhibit 3.2 ----------- CERTIFICATE OF AMENDMENT TO AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF UNITED INDUSTRIES CORPORATION * * * * Adopted in accordance with the provisions of ss.242 of the General Corporation Law of the State of Delaware * * * * Stephen R. Brian, being the President of United Industries Corporation, a corporation duly organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY as follows: FIRST: The Board of Directors of the Corporation adopted the resolutions set forth below proposing an amendment to the Amended and Restated Certificate of Incorporation of the Corporation (the "Amendment") and directed that the Amendment be submitted to the holders of the issued and outstanding shares Capital Stock of the Corporation entitled to vote thereon for their consideration and approval: "WHEREAS, the Board of Directors of the Corporation (the "Board") desires to effect a 83,378.37838-for-one split of the shares of Class A Voting Common Stock, par value $1.00 per share, of the Corporation (the "Class A Common Stock") and a 83,378.37838-for-one split of the shares of Class B Non-Voting Common Stock, par value $1.00 per share, of the Corporation (the "Class B Common Stock" and together with the Class A Common Stock is collectively referred to herein as the "Common Stock"). RESOLVED, that the split of 83,378.37838-for-one of the shares of the Common Stock (the "Split") be, and hereby is, in all respects, approved. FURTHER RESOLVED, that in order to effect the Split, the Amended and Restated Certificate of Incorporation of the Corporation (the "Restated Certificate of Incorporation") be, and hereby is, amended in accordance with ss.242 of the General Corporation Law of the State of Delaware by deleting part A. Authorized Shares of ARTICLE FOUR thereof in its entirety and substituting therefor part A. Authorized Shares of ARTICLE FOUR as follows: "A. AUTHORIZED SHARES The total number of shares of capital stock which the Corporation has authority to issue is Sixty-Five Million (65,000,000) shares, divided into two classes. The designation of each class, the number of shares of each class authorized, and the par value, if any, of the shares of each class are as follows:
NUMBER OF PAR VALUE CLASS SHARES PER SHARE - ----- ------ --------- Class A Voting Common Stock ("Class A Common") 32,500,000 $0.01 Class B Non-Voting Common Stock ("Class B Common") 32,500,000 $0.01
The Class A Common and the Class B Common are collectively referred to as the "Common Stock"."" SECOND: The Amendment was duly adopted in accordance with ss.228 and ss.242 of the General Corporation Law of the State of Delaware by the holders of the issued and outstanding shares of the Capital Stock of the Corporation entitled to vote thereon. * * * * * * IN WITNESS WHEREOF, the undersigned does hereby certify under penalties of perjury that this Certificate of Amendment to the Amended and Restated Certificate of Incorporation of the Corporation is the act and deed of the undersigned and the facts stated herein are true and accordingly has hereunto set his hand this 20th day of January, 1999. United Industries Corporation, a Delaware corporation By: /s/ Stephen R. Brian -------------------------- Stephen R. Brian President EX-3.3 4 BY-LAWS OF UNITED INDUSTRIES CORPORATION Exhibit 3.3 ----------- BY-LAWS OF UNITED INDUSTRIES CORPORATION A Delaware corporation (Adopted on January 20, 1999) ARTICLE I OFFICES Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be located at 1209 Orange Street, Wilmington, Delaware, 19801, County of New Castle. The name of the corporation's registered agent at such address shall be The Corporation Trust Company. The registered office and/or registered agent of the corporation may be changed from time to time by action of the board of directors. Section 2. Other Offices. The corporation may also have offices at such other places, both within and without the State of Delaware, as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. Place and Time of Meetings. An annual meeting of the stockholders shall be held each year within one hundred twenty (120) days after the close of the immediately preceding fiscal year of the corporation for the purpose of electing directors and conducting such other proper business as may come before the meeting. The date, time and place of the annual meeting shall be determined by the president of the corporation; provided, that if the president does not act, the board of directors shall determine the date, time and place of such meeting. Section 2. Special Meetings. Special meetings of stockholders may be called for any purpose and may be held at such time and place, within or without the State of Delaware, as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Such meetings may be called at any time by the board of directors, the president or the holders of shares entitled to cast not less than a majority of the votes at the meeting. Section 3. Place of Meetings. The board of directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the board of directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal executive office of the corporation. Section 4. Notice. Whenever stockholders are required or permitted to take action at a meeting, written or printed notice stating the place, date, time, and, in the case of special meetings, the purpose or purposes, of such meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. All such notices shall be delivered, either personally or by mail, by or at the direction of the board of directors, the president or the secretary, and if mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, addressed to the stockholder at his, her or its address as the same appears on the records of the corporation. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Section 5. Stockholders List. The officer having charge of the stock ledger of the corporation shall make, at least ten (10) days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at such meeting arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 6. Quorum. The holders of a majority of the outstanding shares of capital stock, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders, except as otherwise provided by statute or by the certificate of incorporation. If a quorum is not present, the holders of a majority of the shares present in person or represented by proxy at the meeting, and entitled to vote at the meeting, may adjourn the meeting to another time and/or place. Section 7. Adjourned Meetings. When a meeting is adjourned to another time and place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Vote Required. When a quorum is present, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders, unless the question is one upon which by express - 2 - provisions of an applicable law or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 9. Voting Rights. Except as otherwise provided by the General Corporation Law of the State of Delaware or by the certificate of incorporation of the corporation or any amendments thereto and subject to Section 3 of Article VI hereof, every stockholder shall at every meeting of the stockholders be entitled to one (1) vote in person or by proxy for each share of common stock held by such stockholder. Section 10. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. Any proxy is suspended when the person executing the proxy is present at a meeting of stockholders and elects to vote, except that when such proxy is coupled with an interest and the fact of the interest appears on the face of the proxy, the agent named in the proxy shall have all voting and other rights referred to in the proxy, notwithstanding the presence of the person executing the proxy. At each meeting of the stockholders, and before any voting commences, all proxies filed at or before the meeting shall be submitted to and examined by the secretary or a person designated by the secretary, and no shares may be represented or voted under a proxy that has been found to be invalid or irregular. Section 11. Action by Written Consent. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in the state of Delaware, or the corporation's principal place of business, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested provided, however, that no consent or consents delivered by certified or registered mail shall be deemed delivered until such consent or consents are actually received at the registered office. All consents properly delivered in accordance with this section shall be deemed to be recorded when so delivered. No written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation as required by this section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded. Prompt notice of the taking of the corporate action without a - 3 - meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. Any action taken pursuant to such written consent or consents of the stock holders shall have the same force and effect as if taken by the stockholders at a meeting thereof. ARTICLE III DIRECTORS Section 1. General Powers. The business and affairs of the corporation shall be managed by or under the direction of the board of directors. Section 2. Number, Election and Term of Office. The number of directors which shall constitute the board shall be set at seven. The number of directors shall be established from time to time by resolution of the board. The directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote in the election of directors. The directors shall be elected in this manner at the annual meeting of the stockholders. Each director elected shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as hereinafter provided. Section 3. Removal and Resignation. Any director or the entire board of directors may be removed at any time, with or without cause, by the holders of a majority of the shares then entitled to vote in the election of directors. Any director may resign at any time upon written notice to the corporation. Section 4. Vacancies. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until a successor is duly elected and qualified or until his or her earlier death, resignation or removal as herein provided. Section 5. Annual Meetings. The annual meeting of each newly elected board of directors shall be held without other notice than this by-law immediately after, and at the same place as, the annual meeting of stockholders. Section 6. Other Meetings and Notice. Regular meetings, other than the annual meeting, of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by resolution of the board. Special meetings of the board of directors may be called by or at the request of the president on at least twenty-four (24) hours notice to each director, either personally, by telephone, by mail, or by telegraph. Section 7. Quorum, Required Vote and Adjournment. A majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the board of directors. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat - 4 - may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 8. Committees. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation, which to the extent provided in such resolution or these by-laws shall have and may exercise the powers of the board of directors in the management and affairs of the corporation except as otherwise limited by law. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. Section 9. Committee Rules. Each committee of the board of directors may fix its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the board of directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member and that member's alternate, if alternates are designated by the board of directors as provided in Section 8 of this Article III, of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in place of any such absent or disqualified member. Section 10. Communications Equipment. Members of the board of directors or any committee thereof may participate in and act at any meeting of such board or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this section shall constitute presence in person at the meeting. Section 11. Waiver of Notice and Presumption of Assent. Any member of the board of directors or any committee thereof who is present at a meeting shall be conclusively presumed to have waived notice of such meeting except when such member attends for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Such member shall be conclusively presumed to have assented to any action taken unless his or her dissent shall be entered in the minutes of the meeting or unless his or her written dissent to such action shall be filed with the person acting as the secretary of the meeting before the adjournment thereof or shall be forwarded by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to any member who voted in favor of such action. Section 12. Action by Written Consent. Unless otherwise restricted by the certificate of incorporation, any action required or permitted to be taken at any meeting of the board of directors, - 5 - or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. ARTICLE IV OFFICERS Section 1. Number. The officers of the corporation shall be elected by the board of directors and shall consist of a chairman, president, one or more senior vice presidents, one or more vice presidents, secretary, a treasurer, and such other officers and assistant officers as may be deemed necessary or desirable by the board of directors. Any number of offices may be held by the same person. In its discretion, the board of directors may choose not to fill any office for any period as it may deem advisable, except that the offices of president and secretary shall be filled as expeditiously as possible. Section 2. Election and Term of Office. The officers of the corporation shall be elected annually by the board of directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as conveniently may be. The president shall be elected annually by the board of directors at the first meeting of the board of directors held after each annual meeting of stockholders or as soon thereafter as conveniently may be. The president shall appoint other officers to serve for such terms as he or she deems desirable. Vacancies may be filled or new offices created and filled at any meeting of the board of directors. Each officer shall hold office until a successor is duly elected and qualified or until his earlier death, resignation or removal as hereinafter provided. Section 3. Removal. Any officer or agent elected by the board of directors may be removed by the board of directors whenever in its judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Section 4. Vacancies. Any vacancy occurring in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the board of directors for the unexpired portion of the term by the board of directors then in office. Section 5. Compensation. Compensation of all officers shall be fixed by the board of directors, and no officer shall be prevented from receiving such compensation by virtue of his or her also being a director of the corporation. Section 6. Chairman of the Board. The chairman of the board shall have the powers and perform the duties incident to that position. Subject to the powers of the board of directors, he shall be in the general and active charge of the entire business and affairs of the corporation. He shall preside at all meetings of the board of directors and stockholders and shall have such other powers and perform such other duties as may be prescribed by the board of directors or provided in these - 6 - by-laws. Whenever the president is unable to serve, by reason of sickness, absence or otherwise, the chairman of the board shall perform all the duties and responsibilities and exercise all the powers of the president. Section 7. The President. The president shall preside at all meetings of the stockholders and board of directors at which he is present; subject to the powers of the board of directors, shall have general charge of the business, affairs and property of the corporation, and control over its officers, agents and employees; and shall see that all orders and resolutions of the board of directors are carried into effect. The president shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. The president shall have such other powers and perform such other duties as may be prescribed by the board of directors, chairman or as may be provided in these by-laws. Section 8. Senior Vice Presidents and Vice Presidents. The senior vice president or vice president, or if there shall be more than one, the senior vice presidents and vice presidents in the order determined by the board of directors or by the president, shall, in the absence or disability of the president, act with all of the powers and be subject to all the restrictions of the president. The senior vice presidents and vice presidents shall also perform such other duties and have such other powers as the board of directors, the chairman, the president or these by-laws may, from time to time, prescribe. Section 9. The Secretary and Assistant Secretaries. The secretary shall attend all meetings of the board of directors, all meetings of the committees thereof and all meetings of the stockholders and record all the proceedings of the meetings in a book or books to be kept for that purpose. Under the president's supervision, the secretary shall give, or cause to be given, all notices required to be given by these by-laws or by law; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe; and shall have custody of the corporate seal of the corporation. The secretary, or an assistant secretary, shall have authority to affix the corporate seal to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors, shall, in the absence or disability of the secretary, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors, the chairman, the president, or secretary may, from time to time, prescribe. Section 10. The Treasurer and Assistant Treasurer. The treasurer shall have the custody of the corporate funds and securities; shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation; shall deposit all monies and other valuable effects in the name and to the credit of the corporation as may be ordered by the board of directors; shall cause the funds of the corporation to be disbursed when such disbursements have been duly - 7 - authorized, taking proper vouchers for such disbursements; and shall render to the president and the board of directors, at its regular meeting or when the board of directors so requires, an account of the corporation; shall have such powers and perform such duties as the board of directors, the president or these by-laws may, from time to time, prescribe. If required by the board of directors, the treasurer shall give the corporation a bond (which shall be rendered every six (6) years) in such sums and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of the office of treasurer and for the restoration to the corporation, in case of death, resignation, retirement, or removal from office, of all books, papers, vouchers, money, and other property of whatever kind in the possession or under the control of the treasurer belonging to the corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors, shall in the absence or disability of the treasurer, perform the duties and exercise the powers of the treasurer. The assistant treasurers shall perform such other duties and have such other powers as the board of directors, the chairman, the president may, from time to time, prescribe. Section 11. Other Officers, Assistant Officers and Agents. Officers, assistant officers and agents, if any, other than those whose duties are provided for in these by-laws, shall have such authority and perform such duties as may from time to time be prescribed by resolution of the board of directors. Section 12. Absence or Disability of Officers. In the case of the absence or disability of any officer of the corporation and of any person hereby authorized to act in such officer's place during such officer's absence or disability, the board of directors may by resolution delegate the powers and duties of such officer to any other officer or to any director, or to any other person whom it may select. ARTICLE V INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS Section 1. Nature of Indemnity. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director or officer, of the corporation or is or was serving at the request of the corporation as a director, officer, employee, fiduciary, or agent of another corporation or of a partnership, joint venture, trust or other enterprise, shall be indemnified and held harmless by the corporation to the fullest extent which it is empowered to do so unless prohibited from doing so by the General Corporation Law of the State of Delaware, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment) against all expense, liability and loss (including attorneys' fees actually and reasonably incurred by such person in connection with such proceeding) and such indemnification shall inure to the benefit of his heirs, executors and - 8 - administrators; provided, however, that, except as provided in Section 2 hereof, the corporation shall indemnify any such person seeking indemnification in connection with a proceeding initiated by such person only if such proceeding was authorized by the board of directors of the corporation. The right to indemnification conferred in this Article V shall be a contract right and, subject to Sections 2 and 5 hereof, shall include the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition. The corporation may, by action of its board of directors, provide indemnification to employees and agents of the corporation with the same scope and effect as the foregoing indemnification of directors and officers. Section 2. Procedure for Indemnification of Directors and Officers. Any indemnification of a director or officer of the corporation under Section 1 of this Article V or advance of expenses under Section 5 of this Article V shall be made promptly, and in any event within thirty (30) days, upon the written request of the director or officer. If a determination by the corporation that the director or officer is entitled to indemnification pursuant to this Article V is required, and the corporation fails to respond within sixty (60) days to a written request for indemnity, the corporation shall be deemed to have approved the request. If the corporation denies a written request for indemnification or advancing of expenses, in whole or in part, or if payment in full pursuant to such request is not made within thirty (30) days, the right to indemnification or advances as granted by this Article V shall be enforceable by the director or officer in any court of competent jurisdiction. Such person's costs and expenses incurred in connection with successfully establishing his right to indemnification, in whole or in part, in any such action shall also be indemnified by the corporation. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to the corporation) that the claimant has not met the standards of conduct which make it permissible under the General Corporation Law of the State of Delaware for the corporation to indemnify the claimant for the amount claimed, but the burden of such defense shall be on the corporation. Neither the failure of the corporation (including its board of directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the General Corporation Law of the State of Delaware, nor an actual determination by the corporation (including its board of directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. Section 3. Article Not Exclusive. The rights to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article V shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. Section 4. Insurance. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary, or agent of the corporation or was serving at the request of the corporation as a director, officer, employee - 9 - or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, whether or not the corporation would have the power to indemnify such person against such liability under this Article V. Section 5. Expenses. Expenses incurred by any person described in Section 1 of this Article V in defending a proceeding shall be paid by the corporation in advance of such proceeding's final disposition unless otherwise determined by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation. Such expenses incurred by other employees and agents may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. Section 6. Employees and Agents. Persons who are not covered by the foregoing provisions of this Article V and who are or were employees or agents of the corporation, or who are or were serving at the request of the corporation as employees or agents of another corporation, partnership, joint venture, trust or other enterprise, may be indemnified to the extent authorized at any time or from time to time by the board of directors. Section 7. Contract Rights. The provisions of this Article V shall be deemed to be a contract right between the corporation and each director or officer who serves in any such capacity at any time while this Article V and the relevant provisions of the General Corporation Law of the State of Delaware or other applicable law are in effect, and any repeal or modification of this Article V or any such law shall not affect any rights or obligations then existing with respect to any state of facts or proceeding then existing. Section 8. Merger or Consolidation. For purposes of this Article V, references to "the corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article V with respect to the resulting or surviving corporation as he or she would have with respect to such constituent corporation if its separate existence had continued. ARTICLE VI CERTIFICATES OF STOCK Section 1. Form. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by the president or a senior vice president - 10 - or vice president and the secretary or an assistant secretary of the corporation, certifying the number of shares of a specific class or series owned by such holder in the corporation. If such a certificate is countersigned (1) by a transfer agent or an assistant transfer agent other than the corporation or its employee or (2) by a registrar, other than the corporation or its employee, the signature of any such president, senior vice president, vice president, secretary, or assistant secretary may be facsimiles. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation whether because of death, resignation or otherwise before such certificate or certificates have been delivered by the corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the corporation. All certificates for shares shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the corporation. Shares of stock of the corporation shall only be transferred on the books of the corporation by the holder of record thereof or by such holder's attorney duly authorized in writing, upon surrender to the corporation of the certificate or certificates for such shares endorsed by the appropriate person or persons, with such evidence of the authenticity of such endorsement, transfer, authorization, and other matters as the corporation may reasonably require, and accompanied by all necessary stock transfer stamps. In that event, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate or certificates, and record the transaction on its books. The board of directors may appoint a bank or trust company organized under the laws of the United States or any state thereof to act as its transfer agent or registrar, or both in connection with the transfer of any class or series of securities of the corporation. Section 2. Lost Certificates. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates previously issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his or her legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the loss, theft or destruction of any such certificate or the issuance of such new certificate. Section 3. Fixing a Record Date for Stockholder Meetings. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A - 11 - determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. Section 4. Fixing a Record Date for Action by Written Consent. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the board of directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the board of directors. If no record date has been fixed by the board of directors, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the board of directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the board of directors and prior action by the board of directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the board of directors adopts the resolution taking such prior action. Section 5. Fixing a Record Date for Other Purposes. In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment or any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purposes of any other lawful action, the board of directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board of directors adopts the resolution relating thereto. Section 6. Registered Stockholders. Prior to the surrender to the corporation of the certificate or certificates for a share or shares of stock with a request to record the transfer of such share or shares, the corporation may treat the registered owner as the person entitled to receive dividends, to vote, to receive notifications, and otherwise to exercise all the rights and powers of an owner. The corporation shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof. Section 7. Subscriptions for Stock. Unless otherwise provided for in the subscription agreement, subscriptions for shares shall be paid in full at such time, or in such installments and at such times, as shall be determined by the board of directors. Any call made by the board of directors for payment on subscriptions shall be uniform as to all shares of the same class or as to all shares of - 12 - the same series. In case of default in the payment of any installment or call when such payment is due, the corporation may proceed to collect the amount due in the same manner as any debt due the corporation. ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created. Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders for the payment of money by or to the corporation and all notes and other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner, as shall be determined by resolution of the board of directors or a duly authorized committee thereof. Section 3. Contracts. The board of directors may authorize any officer or officers, or any agent or agents, of the corporation to enter into any contract or to execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. Section 4. Loans. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiary, including any officer or employee who is a director of the corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest, and may be unsecured, or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in this section contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the board of directors. - 13 - Section 6. Corporate Seal. The board of directors shall provide a corporate seal which shall be in the form of a circle and shall have inscribed thereon the name of the corporation and the words "Corporate Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Section 7. Voting Securities Owned By Corporation. Voting securities in any other corporation held by the corporation shall be voted by the president, unless the board of directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with general power of substitution. Section 8. Inspection of Books and Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records, and to make copies or extracts therefrom. A proper purpose shall mean any purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent shall be the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing which authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal place of business. Section 9. Section Headings. Section headings in these by-laws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein. Section 10. Inconsistent Provisions. In the event that any provision of these by-laws is or becomes inconsistent with any provision of the certificate of incorporation, the General Corporation Law of the State of Delaware or any other applicable law, the provision of these by-laws shall not be given any effect to the extent of such inconsistency but shall otherwise be given full force and effect. ARTICLE VIII AMENDMENTS Except for Article III hereof, these by-laws may be amended, altered, or repealed and new by-laws adopted at any meeting of the board of directors by a majority vote. The fact that the power to adopt, amend, alter, or repeal the by-laws has been conferred upon the board of directors shall not divest the stockholders of the same powers. - 14 - EX-4.1 5 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS - -------------------------------------------------------------------------------- SECURITIES PURCHASE AGREEMENT by and among UNITED INDUSTRIES CORPORATION and THE INITIAL PURCHASERS NAMED HEREIN - -------------------------------------------------------------------------------- Dated as of March 19, 1999 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS Section 1.1. Definitions....................................1 Section 1.2. Accounting Terms; Financial Statements...................................4 ARTICLE II ISSUE OF NOTES; PURCHASE AND SALE OF NOTES; RIGHTS OF HOLDERS OF NOTES; OFFERING BY INITIAL PURCHASERS Section 2.1. Issue of Notes.................................5 Section 2.2. Purchase, Sale and Delivery of Notes........................................5 Section 2.3. Registration Rights of Holders of Notes........................................6 Section 2.4. Offering by the Initial Purchasers.............6 ARTICLE III REPRESENTATIONS AND WARRANTIES; RESALE OF NOTES Section 3.1. Representations and Warranties of the Company..................................6 Section 3.2. Resale of Notes...............................20 ARTICLE IV CONDITIONS PRECEDENT TO CLOSING Section 4.1. Conditions Precedent to Obligations of the Initial Purchasers...................21 Section 4.2. Conditions Precedent to Obligations of the Company..............................22 ARTICLE V COVENANTS Section 5.1. Covenants of the Company......................23 ARTICLE VI FEES Section 6.1. Costs, Expenses and Taxes.....................25 ARTICLE VII INDEMNITY Section 7.1. Indemnity.....................................26 Section 7.2. Contribution..................................29 Section 7.3. Registration Rights Agreement.................30 ARTICLE VIII MISCELLANEOUS Section 8.1. Survival of Provisions........................31 Section 8.2. Termination...................................31 Section 8.3. No Waiver; Modifications in Writing...........32 Section 8.4. Information Supplied by the Initial Purchasers..................................33 Section 8.5. Communications................................33 Section 8.6. Execution in Counterparts.....................33 Section 8.7. Successors....................................33 Section 8.8. Governing Law.................................34 Section 8.9. Severability of Provisions....................34 Section 8.10. Headings......................................34 SIGNATURE PAGE ............................................37 SCHEDULE I Exhibit A -6- SECURITIES PURCHASE AGREEMENT, dated as of March 19, 1999 (the "Agreement"), among UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Company"), and CIBC OPPENHEIMER CORP. ("CIBC") and NATIONSBANC MONTGOMERY SECURITIES LLC ("NationsBanc") (the "Initial Purchasers"). In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS Section 1.1. Definitions. As used in this Agreement, and unless the context requires a different meaning, the following terms have the meanings indicated: "Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agreement" means this Agreement, as the same may be amended, supplemented or modified in accordance with the terms hereof and in effect. "Basic Documents" means, collectively, the Indenture, the Notes, the Registration Rights Agreement and this Agreement. "Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exercisable for any of the foregoing. "Closing" has the meaning provided therefor in Section 2.2 of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission or any similar agency then having jurisdiction to enforce the Act. "Commonly Controlled Entity" has the meaning provided therefor in Section 3.1(aa) of this Agreement. "Company Delivered Documents" has the meaning provided therefor in Section 3.1(e) of this Agreement. "Default" means any event, act or condition which, with notice or lapse of time or both, would constitute an Event of Default. "Employee Benefit Plan" has the meaning provided therefor in Section 3.1(aa) of this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, together with all rules and regulations promulgated pursuant thereto, as amended from time to time. "Event of Default" means any event defined as an Event of Default in the Indenture. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder. "Exchange Notes" shall have the meaning provided therefor in the Registration Rights Agreement. "Final Memorandum" has the meaning provided thereof in Section 2.1 of this Agreement. "Indemnified Party" has the meaning provided therefor in Section 7.1(c) of this Agreement. "Indemnifying Party" has the meaning provided therefor in Section 7.1(c) of this Agreement. "Indenture" means the indenture between the Company and State Street Bank and Trust Company, as Trustee, under which the Notes will be issued. "Initial Purchasers" has the meaning set forth in the introductory paragraph to this Agreement. "Intellectual Property Rights" has the meaning provided therefor in Section 3.1(q) of this Agreement. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement (other than advance payments or customer deposits for goods and services sold by the Company in the ordinary course of business), security interest, lien, charge, easement, encumbrance, preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including without limitation, any Capitalized Lease Obligations (as defined in the Indenture)), conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing. "Material Adverse Effect" means (i) a material adverse effect on the business, assets, condition (financial or otherwise), results of operations or properties of the Company or (ii) a material adverse effect on the legality, validity, binding effect or enforceability of this Agreement or the other Basic Documents. "Material Contract" has the meaning provided therefor in Section 3.1(p) of this Agreement. "Memorandum" has the meaning provided therefor in Section 2.1 of this Agreement. "Notes" means the 9 7/8% Senior Subordinated Notes due 2009 of the Company. "Offering" means the offering of the Notes pursuant to the Memorandum. "Offering Materials" has the meaning provided therefor in Section 7.1 of this Agreement. "Person" means any individual, corporation, partnership, limited liability company, joint venture, joint-stock company, trust, unincorporated organization or association or government (including any agency or political subdivision thereof). "PORTAL" means the Private Offering, Resales, and Trading through Automated Linkages Market. "Preliminary Memorandum" has the meaning provided therefor in Section 2.1 of this Agreement. "Private Exchange Notes" has the meaning provided therefor in the Registration Rights Agreement. "Proceeding" has the meaning provided therefor in Section 7.1(c) of this Agreement. "QIB" has the meaning provided therefor in Section 3.2 of this Agreement. "Registration Rights Agreement" means the registration rights agreement among the Company and the Initial Purchasers relating to the Notes. "Regulation S" means Regulation S under the Act. "State" means each of the states of the United States, the District of Columbia and the Commonwealth of Puerto Rico. "State Commission" means any agency of any State having jurisdiction to enforce such State's securities laws. "Tax" has the meaning provided therefor in Section 3.1(y) of this Agreement. "Time of Purchase" has the meaning provided therefor in Section 2.2 of this Agreement. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Commission thereunder. Section 1.2. Accounting Terms; Financial Statements. All accounting terms used herein not expressly defined in this Agreement shall have the respective meanings given to them in accordance with sound accounting practice. The term "sound accounting practice" shall mean such accounting practice as, in the opinion of the independent accountants regularly retained by the Company, conforms at the time to generally accepted accounting principles in the United States applied on a consistent basis except for changes with which such accountants concur. All determinations to which accounting principles apply shall be made in accordance with sound accounting practice. ARTICLE II ISSUE OF NOTES; PURCHASE AND SALE OF NOTES; RIGHTS OF HOLDERS OF NOTES; OFFERING BY INITIAL PURCHASERS Section 2.1. Issue of Notes. The Company has authorized the issuance of $150,000,000 aggregate principal amount of the Notes which are to be issued pursuant to the Indenture. Each Note will be substantially in the form of the Note set forth as Exhibit A to the Indenture. The Notes will be offered and sold to the Initial Purchasers without being registered under the Act, in reliance on exemptions therefrom. In connection with the sale of the Notes, the Company has prepared a preliminary offering memorandum dated March 5, 1999 (the "Preliminary Memorandum") and prepared a final offering memorandum dated March 19, 1999 (the "Final Memorandum" and, together with the Preliminary Memorandum, the "Memorandum") setting forth or including a description of the terms of the Notes, the terms of the offering, a description of the Company and any material developments relating to the Company occurring after the date of the most recent financial statements included therein. Section 2.2. Purchase, Sale and Delivery of Notes. On the basis of the representations, warranties, agreements and covenants herein contained and subject to the terms and conditions herein set forth, the Company agrees that it will sell to each Initial Purchaser, and each Initial Purchaser agrees, acting severally and not jointly, that it will purchase from the Company at the Time of Purchase, the principal amount of the Notes set forth opposite the name of such Initial Purchaser on Schedule I hereto at a price equal to 97% of the principal amount thereof. The purchase, sale and delivery of the Notes will take place at a closing (the "Closing") at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, at 9:00 A.M., New York time, on March 24, 1999, or such later date and time, if any, as the Initial Purchasers and the Company shall agree. The time at which such Closing is concluded is herein called the "Time of Purchase." One or more certificates in definitive form for the Notes that the Initial Purchasers have agreed to purchase hereunder, and in such denomination or denominations and registered in such name or names as the Initial Purchasers request upon notice to the Company at least 24 hours prior to the Closing, shall be delivered by or on behalf of the Company to the Initial Purchasers, against payment by or on behalf of the Initial Purchasers of the purchase price therefor by wire transfer of immediately available funds wired in accordance with the written instructions of the Company. The Company will make such certificate or certificates for the Notes available for checking and packaging by the Initial Purchasers at the offices of CIBC or NationsBanc, or such other place as CIBC and NationsBanc may designate, at least 24 hours prior to the Closing. Section 2.3. Registration Rights of Holders of Notes. The Initial Purchasers and their direct and indirect transferees of the Notes will have such rights with respect to the registration thereof under the Act and qualification of the Indenture under the Trust Indenture Act as are set forth in the Registration Rights Agreement. Section 2.4. Offering by the Initial Purchasers. The Initial Purchasers propose to make an offering of the Notes at the price and upon the terms set forth in the Final Memorandum, as soon as practicable after this Agreement is entered into and as in the judgment of the Initial Purchasers is advisable. ARTICLE III REPRESENTATIONS AND WARRANTIES; RESALE OF NOTES Section 3.1. Representations and Warranties of the Company. The Company represents and warrants to and agrees with each of the Initial Purchasers as follows: (a) Final Memorandum. The Final Memorandum, as of its date does not, and at the Time of Purchase will not, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, except that the representations and warranties set forth in this Section 3.1(a) do not apply to statements or omissions made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by the Initial Purchasers expressly for use in the Final Memorandum or any amendment or supplement thereto as set forth in Section 8.4 hereof. The statistical and market-related data included in the Final Memorandum are based on or derived from sources which the Company believes to be reliable and accurate or represent the Company's good faith estimates that are made on the basis of data derived from such sources. The Notes, the Indenture and the Registration Rights Agreement conform in all material respects to the description thereof in the Final Memorandum. (b) Financial Statements. The audited financial statements of the Company set forth in the Final Memorandum are in accordance with the books and records of the Company, fairly present in all material respects the financial position, results of operations, stockholders' equity and cash flows of the Company at the dates and for the periods to which they relate and have been prepared in accordance with generally accepted accounting principles consistently applied (except as otherwise stated therein); the summary and selected financial data in the Final Memorandum present fairly the financial information shown therein and have been prepared and compiled on a basis consistent with audited financial statements included therein, except as otherwise stated therein. Each of Rubin, Brown, Gornstein & Co. LLP and PriceWaterhouseCoopers, LLP which has reported upon the audited financial statements included in the Final Memorandum, is an independent public accounting firm as required by the Act and the rules and regulations thereunder. The pro forma financial statements and other pro forma financial information (including the notes thereto) included in the Final Memorandum (A) have been prepared in accordance with applicable requirements of Regulation S-X promulgated under the Exchange Act (it being understood that the rules under Regulation S-X relative to pro forma adjustments require the application of judgment regarding whether such adjustments are directly attributable to the transaction, have a continuing impact and are factually supportable and that the staff of the Commission could disagree that certain of the adjustments meet these requirements) and (B) have been properly computed on the bases described therein; and the assumptions used therein are appropriate to give effect to the transactions or circumstances referred to therein. (c) Existence. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the power and authority to carry on its business as now being conducted and to own and operate the properties and assets now owned and being operated by it. The Company has delivered to the Initial Purchasers complete and correct copies of its Certificate of Incorporation and by-laws as in effect on the date hereof. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which such qualification is necessary under the applicable law as a result of the conduct of its business or the ownership of its properties except where the failure to be so qualified, licensed or in good standing does not have a Material Adverse Effect. The Company does not have any subsidiaries, and, other than DW-Wej-it, Inc., a Delaware corporation ("DW"), has not had since it became an "S Corporation" in April 1982, any subsidiaries. (d) Capital Stock. As of the Time of Purchase (after giving effect to the Offering), the Company will have the capitalization as set forth in the Final Memorandum, except for revolving credit borrowings since December 31, 1998 and except as described in the Final Memorandum, all of the issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable and none of them have been issued in violation of any preemptive or other right; and, except as contemplated in this Agreement or the other agreements, instruments or documents delivered in connection with the transactions contemplated hereby or referred to in the Final Memorandum, the Company is not a party to or bound by any contract, agreement or arrangement to issue, sell or otherwise dispose of or redeem, purchase or otherwise acquire any Capital Stock or any other security exercisable or exchangeable for or convertible into any capital stock or any other security of the Company. (e) Authority. The Company has the requisite power to enter into the Basic Documents and all other agreements, instruments and documents executed and delivered by the Company pursuant thereto (collectively, the "Company Delivered Documents") and to carry out its obligations thereunder, including without limitation issuing the Notes in the manner and for the purpose contemplated by this Agreement. The execution, delivery and performance of the Company Delivered Documents and the consummation of the transactions contemplated thereby have been duly authorized by the Company (to the extent a party thereto), and no other proceeding or approval on the part of the Company is necessary to authorize the execution and delivery of the Company Delivered Documents or the performance of any of the transactions contemplated thereby. (f) Purchase Agreement. This Agreement has been duly authorized, executed and delivered by the Company and (assuming the due authorization, execution and delivery thereof by the Initial Purchasers), is a valid and legally binding agreement of the Company, enforceable against it in accordance with its terms except (i) that the enforcement hereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. (g) Indenture. The Indenture has been duly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery thereof by the Trustee), will constitute a valid and legally binding agreement of the Company, enforceable against it in accordance with its terms except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (h) Registration Rights Agreement. The Registration Rights Agreement has been duly authorized by the Company and, when executed and delivered by the Company (assuming the due authorization, execution and delivery thereof by the Initial Purchasers), will constitute a valid and legally binding agreement of the Company, enforceable against it in accordance with its terms except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity or contribution thereunder may be limited by federal and state securities laws and public policy considerations. (i) Notes. The Notes, the Exchange Notes and the Private Exchange Notes have each been duly authorized by the Company and, when executed by the Company and authenticated by the Trustee in accordance with the provisions of the Indenture and, in the case of the Notes, delivered to and paid for by the Initial Purchasers in accordance with the terms of this Agreement, will be entitled to the benefits of the Indenture and will constitute valid and legally binding obligations of the Company enforceable in accordance with their terms, except that the enforcement thereof may be subject to (i) bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity and the discretion of the court before which any proceeding therefor may be brought. (j) Other Documents. Each other Company Delivered Document executed and delivered by the Company (to the extent a party thereto) has been duly and validly authorized, executed and delivered by the Company (to the extent a party thereto) and constitutes or will constitute a valid and legally binding obligation of the Company (to the extent a party thereto), enforceable against it in accordance with its terms, except (i) that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding therefor may be brought and (ii) as any rights to indemnity and contribution hereunder and thereunder may be limited by applicable law. (k) Solvency. Immediately after the consummation of the transactions contemplated by this Agreement (including the use of proceeds from the sale of Notes at the Time of Purchase), the fair value and present fair saleable value of the assets of the Company will exceed the sum of its stated liabilities and identified contingent liabilities; the Company will not be, after giving effect to the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (including the use of proceeds from the sale of Notes at the Time of Purchase), (i) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (ii) unable to pay its debts (contingent or otherwise) as they mature or (iii) otherwise insolvent. (l) Absence of Certain Changes. Subsequent to the date as of which information is given in the Final Memorandum, except as described in the Final Memorandum, there has not been (i) any event or condition that had a Material Adverse Effect, (ii) any transaction entered into by the Company, other than in the ordinary course of business, that had a Material Adverse Effect, or (iii) any dividend or distribution of any kind declared, paid or made by the Company on its Capital Stock other than distributions permitted under the Indenture. (m) No Violation. Neither the execution, delivery or performance of any of the Company Delivered Documents nor the consummation of any of the transactions contemplated thereby (i) will violate or conflict with the Certificates of Incorporation or By-laws of the Company, (ii) will, as of the Time of Purchase, result in any breach of or default under any provision of any material contract or agreement to which the Company is a party or by which the Company is bound or to which any property or assets of the Company is subject, (iii) violates, is prohibited by or requires the Company to obtain or make any consent, authorization, approval, registration or filing under any statute, law, ordinance, regulation (including without limitation Regulation T, U or X of the Board of Governors of the Federal Reserve System), rule, judgment, decree or order of any court or governmental agency, board, bureau, body, department or authority, or of any other person, presently in effect or in effect at the Time of Purchase, (iv) will cause any acceleration of maturity of any note, instrument or other indebtedness to which the Company is a party or by which the Company is bound or with respect to which the Company is an obligor or guarantor, or (v) except as contemplated by this Agreement and the other Basic Documents, will result in the creation or imposition of any Lien upon or give to any other person any interest or right (including any right of termination or cancellation) in or with respect to the equity or any of the properties, assets, business, agreements or contracts of the Company, other than any violation, conflict, breach, default, acceleration or Lien which, individually or in the aggregate, which does not have a Material Adverse Effect. (n) Title and Condition of Properties and Assets. As of the date hereof, each of the Company has good and valid title to all of its owned assets and properties which are material to its business, taken as a whole and as of the Time of Purchase, the Company will have good and valid title to all of its assets and properties which are material to its business, taken as a whole (except as sold or otherwise disposed of in the ordinary course of business), subject to no Liens other than Permitted Liens (as defined in the Indenture). (o) Leased Property. Each lease of real property or personal property that is material to the business of the Company and its subsidiaries, taken as a whole, is in full force and effect and is valid and enforceable in accordance with its terms except that (i) that the enforcement hereof may be subject to bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to creditors' rights generally, and to general principles of equity and the discretion of the court before which any proceeding may be brought and (ii) as any rights to indemnity or contribution hereunder may be limited by federal and state securities laws and public policy considerations. There is not under any such lease any default by the Company or any event that with notice or lapse of time or both would constitute such a default by the Company and with respect to which the Company or has not taken adequate steps to prevent such default from occurring, except for any such default that has not had a Material Adverse Effect; all of such events, if any, and the aforesaid steps taken by the Company are set forth in the Final Memorandum. To the Company's knowledge, there is not under any such lease any default by any other party thereto or any event that with notice or lapse of time or both would constitute such a default thereunder by such party, which default has had a Material Adverse Effect. The Company does not owns any real property. (p) Litigation. Except as set forth in the Final Memorandum, there are no actions, suits, proceedings or investigations, either at law or in equity, or before any commission or other administrative authority in any United States jurisdiction, of any kind now pending or, to the best of the Company's knowledge, threatened involving the Company that (i) seeks to restrain, enjoin, prevent the consummation of or otherwise challenge the issuance and sale of the Notes by the Company or any of the other material transactions contemplated hereby, (ii) questions the legality or validity of any such transactions or seeks to recover damages or obtain other relief in connection with any such transactions or (iii) which individually or in the aggregate, has had a Material Adverse Effect. (q) Intangible Property Rights. The Final Memorandum accurately describes: (i) all material copyrights, patents, trademarks, service marks and trade names, and all registrations or pending applications thereof in the United States (collectively "Intangible Property Rights") owned by the Company; and (ii) all material licenses and similar agreements under which the Company uses Intangible Property Rights of any third party. Except as otherwise described in the Final Memorandum, (i) the Company owns, is licensed or otherwise has sufficient rights to use the material Intellectual Property Rights and the Technology (as defined below) necessary for the conduct of its business free and clear of all Liens other than Permitted Liens; (ii) there are no pending claims challenging the validity, enforceability or ownership of such Intellectual Property Rights or Technology or the Company's right to use such Intellectual Property Rights or Technology; (iii) the material issued patents, registered trademarks and registered copyrights in the United States under such Intellectual Property Rights are valid and subsisting and, to the Company's knowledge, none of the claims of said issued patents, registered trademarks or copyrights is now being infringed by others; (iv) there are no material licenses or sublicense agreements now in effect regarding the Company's or to the Company's knowledge, any third party's use of such Intellectual Property Rights or Technology; and (v) to the Company's knowledge, the Company is not infringing or misappropriating any U.S. or foreign patent, trademark, copyright owned by third parties and no claim is now pending or is threatened to such effect, except for any of the foregoing which does not have a Material Adverse Effect. "Technology" means the material patterns, plans, designs, confidential information, research data, trade secrets and other proprietary know-how, formulae and manufacturing processes, operating manuals, drawings, technology, manuals, data, records, procedures, research and development records, and all licenses or other rights to use any of the foregoing of others used in connection with the business. (r) Compliance with Laws, Etc. Except as disclosed in the Final Memorandum and except for those failures to have, to be in full force and effect, to file, retain and maintain and to comply, in each case, that do not have a Material Adverse Effect, (i) with respect to its business, the Company has all licenses, permits or franchises issued by any United States or foreign, federal, state, provincial, municipal or local authority or regulatory body and other governmental certificates, authorizations and approvals (collectively "Licenses and Permits") required by every United States or foreign, federal, state, provincial, municipal and local governmental or regulatory body for the operation of their businesses and the use of their properties as presently operated or used; (ii) all such Licenses and Permits are in full force and effect and no action, claim or proceeding is pending, nor to the knowledge of the Company is threatened, to suspend, revoke, revise, limit, restrict or terminate any of such Licenses and Permits or declare any such License or Permit invalid; (iii) the Company has filed all necessary reports and maintained and retained all necessary records pertaining to such Licenses and Permits; and (iv) the Company has otherwise complied with all of the laws, ordinances, regulations and orders applicable to their existence, financial condition, operations, properties or business, and the Company has not received any notice to the contrary. (s) Governmental Authorizations and Regulations. Except as set forth in the Final Memorandum, no authorization, consent, approval, license, qualification or formal exemption from, nor any filing, declaration or registration with, any court, governmental agency, securities exchange or any regulatory authority is required in connection with the execution, delivery or performance by the Company of this Agreement or any of the other Basic Documents or any of the transactions contemplated thereby, except (i) as may be required under state securities or "blue sky" laws or the laws of any foreign jurisdiction in connection with the offer and sale of the Notes, or (ii) as does (individually or in the aggregate) have a Material Adverse Effect. All such authorizations, consents, approvals, licenses, qualifications, exemptions, filings, declarations and registrations set forth in the Final Memorandum (other than as disclosed therein) which are required to have been obtained by the date hereof have been obtained or made, as the case may be, and are in full force and effect and not the subject of any pending or, to the knowledge of the Company, threatened attack by appeal or direct proceeding or otherwise. (t) Labor Controversies. Except as disclosed in the Final Memorandum and except for the following which do not have a Material Adverse Effect (i) no employees of the Company are currently represented by a labor union or labor organization, no labor union or labor organization has been certified or recognized as a representative of any such employees, and the Company has no obligation under any collective bargaining agreement or other agreement with any labor union or labor organization that, in any way, affects the Company. (ii) there is no unfair labor practice complaint against the Company pending before the National Labor Relations Board, (iii) there is no labor strike, dispute, slowdown or stoppage actually pending or to the knowledge of the Company threatened against or affecting the Company, (iv) the Company has not experienced any strike, work stoppage or other labor difficulty during the past three years, and (v) the Company is not a party to, or subject to, a collective bargaining agreement, and no collective bargaining agreement relating to employees, and no collective bargaining agreement relating to employees of the Company is currently being negotiated. (u) Employment Contracts. Except as described in the Final Memorandum, there are no material employment contracts between the Company, on the one hand, and Employees, on the other hand, other than contracts representing the standard terms and conditions prevailing between the Company and its Employees. (v) Finders; Brokers. Except as described in the Final Memorandum, there re no claims for commissions or fees from any investment banker, broker, finder, consultant or intermediary hired by or on behalf of the Company in connection with the transactions contemplated by this Agreement, based on any arrangement or agreement. (w) Environmental Matters. Except as disclosed in the Final Memorandum and except as does not individually or in the aggregate, have a Material Adverse Effect, (A) the Company is in compliance with and not subject to liability under all applicable Environmental Laws, (B) the Company has made all filings and provided all notices required under any applicable Environmental Law, and has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (C) there is no civil, criminal or administrative action, suit, demand, claim, hearing, notice of violation, investigation, proceeding, notice or demand letter or request for information pending or, to the best knowledge of the Company, threatened against the Company under any Environmental Law, (D) no lien, charge, encumbrance or restriction has been recorded under any Environmental Law with respect to any assets, facility or property owned, operated, leased or controlled by the Company, (E) the Company has not received notice that it had been identified as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA") or any comparable state law, (F) no property or facility owned, leased or operated by the Company is (i) listed or proposed for listing on the National Priorities List under CERCLA or (ii) listed in the Comprehensive Environmental Response, Compensation, Liability Information System List promulgated pursuant to CERCLA, or any comparable list maintained by any state or local governmental authority; (G) there are no events, activities, conditions, or occurrences which could reasonably be expected to prevent the Company from complying with, or to result in liability under, Applicable Environmental Laws. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any federal, state, local or municipal statute, law, rule, regulation, ordinance, code, policy or rule of common law and any judicial or administrative interpretation thereof, including any judicial or administrative order, consent decree or judgment binding on the Company relating to pollution or protection of the environment (including, without limitation, ambient air, indoor air, surface water, groundwater, land surface or subsurface strata), natural resources, or health or safety or any pollutant, contaminant, waste, constituent, chemical, material or substance, that is subject to regulation thereunder. (x) Year 2000 Compliance. The Company believes that its internal computer systems used in the operation of the Business are in all material respects able to store, process and output dates from and after January 1, 2000 in the same manner and with the same accuracy, functionality and performance as when dates prior to January 1, 2000 are involved. (y) Tax Matters. (a) There are no Liens on any of the assets used in the Company's business for any taxes, duties or assessments, or any interest, penalties or additions imposed with respect to such amounts (collectively, "Taxes") (other than for Taxes not yet due and payable). (b) (i) All material Tax Returns required to be filed relating to the Company have been timely filed, (ii) all such Tax Returns are complete and correct in all material respects, and (iii) all material Taxes due and owing from the Company have been timely paid or have been provided for on the Closing Balance Sheet (as defined in the Recapitalization Agreement). With respect to any period or portion thereof ending on or before the Closing Date for which Tax Returns have not yet been filed, or for which material Taxes have accrued but are not yet due and owing, the Company has made due and sufficient accruals for such Taxes on the Closing Balance Sheet (as defined in the Recapitalization Agreement). (c) The Company has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to any material Tax assessment or deficiency. (d) No audit or other proceeding by any court, governmental or regulatory authority, or similar person has formally commenced and no written notification has been given to the Company that such an audit or other proceeding is pending or threatened with respect to any material Taxes due from or with respect to the Company or any material Tax Return filed by or with respect to the Company. No assessment of a material Tax has been proposed in writing against the Company or any of its assets. (e) The Company has made a valid election under Section 1362 of the Internal Revenue Code and any corresponding state or local provisions (collectively, the "S Elections") to be an S corporation within the meaning of Section 1361 of the Code for all taxable years (or portions thereof) ending prior to the Closing Date which have not been closed by the applicable statute of limitations. (f) The Company made a valid election to treat DW as a "qualified Subchapter S subsidiary" under Internal Revenue Code ss. 1361(b)(3) for all taxable years (or portions thereof) ending prior to the Closing Date during which the Company held an ownership interest in DW. (g) The Company is not a party to any Tax allocation or Tax sharing agreement. (z) Investment Company. The Company is not and immediately after the Time of Purchase will not be, an "investment company" or, to the Company's knowledge, a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (aa) ERISA. No Reportable Event (as defined in Section 4043 of ERISA) has occurred during the three-year period prior to the date on which this representation is made with respect to any Employee Benefit Plan, and the Company has complied in all material respects with the applicable provisions of ERISA and the Code in connection with the Employee Benefit Plans. No Employee Benefit Plan of the Company or plan of any Commonly Controlled Entity is subject to Title IV of ERISA and the Company has no director interest, actual or contingent liability under Title IV of ERISA. Neither the Company, nor any Commonly Controlled Entity (as defined below) has Incurred or is reasonably likely to incur any withdrawal liability with respect to any Multiemployer Plan (as defined in Section 4001(a)(3) of ERISA). No such Multiemployer Plan is in reorganization or insolvent. There are no material liabilities of the Company or any Commonly Controlled Entity for post-retirement benefits to be provided to their current and former employees under Employee Benefit Plans which are welfare benefit plans (as described in Section 3(1) of ERISA)("Welfare Benefit Plans"), and all Welfare Benefit Plans of the Company and welfare plans of its Commonly Controlled Entaties are in substancial compliance with the continuation coverage requirements of Section 498OB of the Code and Part 6 of Title I of ERISA. With respect to each Employee Benefit Plan, no event has occurred and there exists no conditions or set of circumstances in connection with which the Company or any of its subsidiaries is reasonably likely to be subject to material liability under the Code, ERISA or any other applicable law, except for liability for benefit claims and funding obligations payable in the ordinary course. "Commonly Controlled Entity" means any person or entity that, together with any Company, is treated as a single employer under Section 414(b), (c), (m) or (o) of the Code. "Employee Benefit Plan" means an employee benefit plan, as defined in Section 3(3) of ERISA, which is maintained or contributed to by an Company or to which the Company may have liability. (bb) Insurance. The Company carries insurance (including self insurance) in such amounts and covering such risks as in its reasonable determination is adequate for the conduct of its business and the value of its properties. (cc) The Offering. Assuming the accuracy of the Initial Purchasers' representations and warranties in Section 3.2 hereof and the performance of their covenants in this Agreement, no form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) was used by the Company or its representatives in connection with the offer and sale of the Notes; neither the Company nor any Person authorized to act for the Company has, either directly or indirectly, sold or offered for sale any of the Notes or any other similar security of the Company to, or solicited any offers to buy any thereof from, or has otherwise approached or negotiated in respect thereof with, any Person or Persons other than with or through the Initial Purchasers; and the Company agrees that neither the Company nor any Person acting on its behalf will sell or offer for sale any Notes to, or solicit any offers to buy any Notes from, or otherwise approach or negotiate in respect thereof with, any Person or Persons so as thereby to bring the issuance or sale of any of the Notes within the provisions of Section 5 of the Act. Assuming the accuracy of the Initial Purchasers' representations and warranties set forth in Section 3.2 hereof, and the due performance by the Initial Purchasers of the covenants and agreements set forth in Section 3.2 hereof, the offer and sale of the Notes to the Initial Purchasers in the manner contemplated by this Agreement and the Final Memorandum does not require registration under the Act and the Indenture does not require qualification under the Trust Indenture Act. No securities of the Company are of the same class (within the meaning of Rule 144A under the Act) as the Notes and listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated interdealer quotation system. The Company has not taken, nor will it take, directly or indirectly, any action designed to, or that might be reasonably expected to, cause or result in stabilization or manipulation of the price of the Notes. Neither of the Company nor any of its Affiliates or any person acting on its or their behalf (other than the Initial Purchasers) has engaged in any directed selling efforts (as that term is defined in Regulation S with respect to the Notes and the Company and their respective Affiliates and any person acting on its or their behalf (other than the Initial Purchasers) have acted in accordance with the offering restrictions requirements of Regulation S. Section 3.2. Resale of Notes. Each of the Initial Purchasers represents and warrants (as to itself only) that it is a "qualified institutional buyer" as defined in Rule 144A of the Act ("QIB"). Each of the Initial Purchasers agrees with the Company (as to itself only) that (a) it has not and will not solicit offers for, or offer or sell, the Notes by any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act; and (b) it has and will solicit offers for the Notes only from, and will offer the Notes only to (A) in the case of offers inside the United States, Persons whom the Initial Purchasers reasonably believe to be QIBs or, if any such Person is buying for one or more institutional accounts for which such Person is acting as fiduciary or agent, only when such Person has represented to the Initial Purchasers that each such account is a QIB, to whom notice has been given that such sale or delivery is being made in reliance on Rule 144A, and, in each case, in transactions under Rule 144A and (B) in the case of offers outside the United States, to Persons other than U.S. Persons ("foreign purchasers," which term shall include dealers or other professional fiduciaries in the United States acting on a discretionary basis for foreign beneficial owners (other than an estate or trust)); provided, however, that, in the case of this clause (B), in purchasing such Notes such Persons are deemed to have represented and agreed as provided under the caption "Notice to Investors" contained in the Final Memorandum. ARTICLE IV CONDITIONS PRECEDENT TO CLOSING Section 4.1. Conditions Precedent to Obligations of the Initial Purchasers. The obligation of each Initial Purchaser to purchase the Notes to be purchased at the Closing is subject, at the Time of Purchase, to the satisfaction of the following conditions: (a) At the Time of Purchase, the Initial Purchasers shall have received the opinions, dated as of the Time of Purchase and addressed to the Initial Purchasers, of Kirkland & Ellis, counsel for the Company, in form and substance [reasonably satisfactory to counsel for the Initial Purchasers, to the effect] as set forth on Exhibit A hereto. (b) The Initial Purchasers shall have received an opinion, addressed to the Initial Purchasers in form and substance satisfactory to the Initial Purchasers and dated the Time of Purchase, of Cahill Gordon & Reindel, counsel to the Initial Purchasers. (c) The Initial Purchasers shall have received from PriceWaterhouseCoopers a comfort letter or letters dated the date hereof and the Closing in form and substance reasonably satisfactory to counsel to the Initial Purchasers. (d) The representations and warranties made by the Company herein shall be true and correct in all material respects (except for changes expressly provided for in this Agreement) on and as of the Time of Purchase with the same effect as though such representations and warranties had been made on and as of the Time of Purchase, the Company shall have complied in all material respects with all agreements as set forth in or contemplated hereunder and in the Basic Documents required to be performed by it at or prior to the Time of Purchase and the Company shall have furnished to each Initial Purchaser a certificate, dated the Time of Purchase, to such effect. (e) Subsequent to the date of the Final Memorandum, (i) there shall not have been any change which has a Material Adverse Effect and (ii) the Company shall not have taken any voluntary, affirmative action to conduct their business other than in the ordinary course. (f) At the Time of Purchase and after giving effect to the consummation of the transactions contemplated by this Agreement and the Basic Documents, there shall exist no Default or Event of Default. (g) The purchase of and payment for the Notes by the Initial Purchasers hereunder shall not be prohibited or enjoined (temporarily or permanently) by any applicable law or governmental regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System). (h) At the Time of Purchase, the Initial Purchasers shall have received a certificate, dated the Time of Purchase, from the Company, stating that the conditions specified in Sections 4.1(d), (e), (f) and (g) have been satisfied or duly waived at the Time of Purchase. (i) Each of the Basic Documents shall have been executed and delivered by all the respective parties thereto and shall be in full force and effect. (j) All proceedings required in order to issue the Notes and consummate the transactions contemplated by this Agreement and all documents and papers relating thereto shall be reasonably satisfactory to the Initial Purchasers and counsel to the Initial Purchasers. The Initial Purchasers and counsel to the Initial Purchasers shall have received copies of such papers and documents of the Company as they may reasonably request in connection therewith, all in form and substance reasonably satisfactory to them. (k) The sale of the Notes hereunder shall not have been enjoined (temporarily or permanently) at the Time of Purchase. On or before the Closing, the Initial Purchasers and counsel to the Initial Purchasers shall have received such further documents, opinions, certificates and schedules or other instruments relating to the business, corporate, legal and financial affairs of the Company as they may reasonably request. Section 4.2. Conditions Precedent to Obligations of the Company. The obligations of the Company to deliver the Notes shall be subject to the accuracy as of the date hereof and at the Time of Purchase (as if made on and as of the time of Purchase) of the representations and warranties of the Initial Purchasers herein (delivery of the purchase price by the Initial Purchasers for the Notes being an affirmation by the Initial Purchasers of the accuracy of their representations and warranties). ARTICLE V COVENANTS Section 5.1. Covenants of the Company. The Company covenants and agrees with each of the Initial Purchasers that: (a) The Company will not amend or supplement the Final Memorandum or any amendment or supplement thereto of which the Initial Purchasers shall not previously have been advised and furnished a copy for a reasonable period of time prior to the proposed amendment or supplement and as to which the Initial Purchasers shall not have given their consent, which consent shall not be unreasonably withheld. The Company will promptly, upon the reasonable request of the Initial Purchasers or counsel to the Initial Purchasers, make any amendments or supplements to the Final Memorandum that may be necessary or advisable in connection with the resale of the Notes by the Initial Purchasers. (b) The Company will cooperate with the Initial Purchasers in arranging for the qualification of the Notes for offering and sale under the securities or "blue sky" laws of such jurisdictions as the Initial Purchasers may designate and will continue such qualifications in effect for as long as may be reasonably necessary to complete the resale of the Notes; provided, however, that in connection therewith, the Company shall not be required to qualify as a foreign corporation, to take any acts which would require it to qualify to do business or to execute a general consent to service of process in any jurisdiction or subject itself to taxation in excess of a nominal dollar amount in any such jurisdiction where it is not then so subject. (c) If, at any time prior to the completion of the distribution by the Initial Purchasers of the Notes, the Exchange Notes or the Private Exchange Notes, any event occurs or information becomes known as a result of which the Final Memorandum as then amended or supplemented would include any untrue statement of a material fact, or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, or if for any other reason it is necessary at any time to amend or supplement the Final Memorandum to comply with applicable law, the Company will promptly notify the Initial Purchasers thereof (who thereafter will not use such Final Memorandum until appropriately amended or supplemented) and will prepare, at the expense of the Company, an amendment or supplement to the Final Memorandum that corrects such statement or omission or effects such compliance. (d) The Company will, without charge, provide to the Initial Purchasers and to counsel to the Initial Purchasers as many copies of the Preliminary and Final Memorandum or any amendment or supplement thereto as the Initial Purchasers may reasonably request. (e) The Company will apply the net proceeds from the sale of the Notes as set forth under "Use of Proceeds" in the Final Memorandum. (f) For and during the period ending on the date no Notes are outstanding, the Company will furnish to the Initial Purchasers copies of all reports and other communications (financial or otherwise) furnished by the Company to the Trustee or the holders of the Notes and, promptly after available, copies of any reports or financial statements furnished to or filed by the Company with the Commission or any national securities exchange on which any class of securities of the Company may be listed. (g) Prior to the Time of Purchase, the Company will furnish to the Initial Purchasers, as soon as they have been prepared in final form, a copy of any unaudited interim financial statements of the Company for any period subsequent to the period covered by the most recent financial statements appearing in the Final Memorandum. (h) The Company and its Affiliates will not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any "security" (as defined in the Act) which could be integrated with the sale of the Notes in a manner which would require the registration under the Act of the Notes. (i) The Company will not solicit any offer to buy or offer to sell the Notes by means of any form of general solicitation or general advertising (as those terms are used in Regulation D under the Act) or in any manner involving a public offering within the meaning of Section 4(2) of the Act. (j) For so long as any of the Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Act and not saleable in full under Rule 144 under the Act (or any successor provision), the Company will make available, upon request, to any seller of such Notes the information specified in Rule 144A(d)(4) under the Act, unless the Company is then subject to Section 13 or 15(d) of the Exchange Act. (k) The Company will use its best efforts to (i) permit the Notes to be included for quotation on PORTAL and (ii) permit the Notes to be eligible for clearance and settlement through The Depository Trust Company. (l) The Company will do and perform all things required to be done and performed by it under this Agreement and the other Basic Documents prior to or after the Closing, subject to the qualifications and limitations in the writing that expresses such obligations, and to satisfy all conditions precedent on their part to the obligations of the Initial Purchasers under this Agreement to purchase and accept delivery of the Notes. (m) In connection with Notes offered and sold in an offshore transaction (as defined in Regulation S), the Company will not register any transfer of such Notes not made in accordance with the provisions of Regulation S and will not, except in accordance with the provisions of Regulation S, if applicable, issue any such Notes in the form of definitive securities. ARTICLE VI FEES Section 6.1. Costs, Expenses and Taxes. The Company agrees to pay all costs and expenses incident to the performance of their obligations under this Agreement, whether or not the transactions contemplated herein are consummated or this Agreement is terminated pursuant to Section 8.2 hereof, including, but not limited to, all costs and expenses incident to (i) the Company's cost of preparation, printing, reproduction, execution and delivery of this Agreement, each of the other Basic Documents, any amendment or supplement to or modification of any of the foregoing and any and all other documents furnished pursuant hereto or thereto or in connection herewith or therewith, (ii) any costs of printing the Preliminary and Final Memorandum and any amendment or supplement thereto, any other marketing related materials, (iii)any costs of all arrangements relating to the delivery including postage, etc. to the Initial Purchasers of copies of the foregoing documents, (iv) the fees and disbursements of the counsel, the accountants and any other experts or advisors retained by the Company, (v) preparation (including printing), issuance and delivery to the Initial Purchasers of the Notes, (vi) the qualification of the Notes under state securities and "blue sky" laws, including filing fees, word processing and reproduction costs of any "blue sky" memoranda and fees (not to exceed $15,000) and disbursements of counsel to the Initial Purchasers relating thereto, (vii) one-half of the expenses (including one-half of the costs related to the chartered airplane) in connection with any meetings with prospective investors in the Notes, (viii) fees and expenses of the Trustee, including fees and expenses of counsel to the Trustee, (ix) all expenses and listing fees incurred in connection with the application for quotation of the Notes on PORTAL, (x) any fees charged by investment rating agencies for the rating of the Notes, and (xi) except as limited by Article VII, all costs and expenses (including, without limitation, reasonable attorneys' fees and expenses), if any, of the successful enforcement of this Agreement, the Notes or any other agreement furnished pursuant hereto or thereto or in connection herewith or therewith. In addition, the Company shall pay any and all stamp, transfer and other similar taxes payable or determined to be payable in connection with the execution and delivery of this Agreement, any other Basic Document or the issuance of the Notes, and shall save and hold each Initial Purchaser harmless from and against any and all liabilities with respect to or resulting from any delay in paying, or omission to pay, such taxes. ARTICLE VII INDEMNITY Section 7.1. Indemnity. (a) Indemnification by the Company. The Company agrees and covenants to hold harmless and indemnify each of the Initial Purchasers and any Affiliates thereof (including any director, officer, employee, agent or controlling Person of any of the foregoing) from and against any losses, claims, damages, liabilities and expenses (including expenses of investigation) to which such Initial Purchaser and its Affiliates may become subject arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in the Final Memorandum and any amendments or supplements thereto, the Basic Documents or any application or other documents filed with the Commission or any State Commission (collectively, the "Offering Materials") or arising out of or based upon the omission or alleged omission to state in any of the Offering Materials a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that the Company shall not be liable under this paragraph (a) to the extent that such losses, claims, damages or liabilities arose out of or are based upon an untrue statement or omission made in any of the documents referred to in this paragraph (a) in reliance upon and in conformity with the information relating to the Initial Purchasers furnished in writing by such Initial Purchasers for inclusion therein; provided, further, that the Company shall not be liable under this paragraph (a) to the extent that such losses, claims, damages or liabilities arose out of or are based upon an untrue statement or omission made in any Memorandum that is corrected in any amendment or supplement thereto if the person asserting such loss, claim, damage or liability purchased Notes from an Initial Purchaser in reliance on such Memorandum but was not given the amendment or supplement thereto on or prior to the confirmation of the sale of such Notes. The Company further agrees to reimburse each Initial Purchaser for any reasonable legal and other expenses as they are incurred by it in connection with investigating, preparing to defend or defending any lawsuits, claims or other proceedings or investigations arising in any manner out of or in connection with such Person being an Initial Purchaser; provided that if the Company reimburses an Initial Purchaser hereunder for any expenses incurred in connection with a lawsuit, claim or other proceeding for which indemnification is sought, such Initial Purchaser hereby agrees to refund such reimbursement of expenses to the extent that the losses, claims, damages or liabilities are not entitled to indemnification hereunder. The Company further agrees that the indemnification, contribution and reimbursement commitments set forth in this Article VII shall apply whether or not an Initial Purchaser is a formal party to any such lawsuits, claims or other proceedings. The indemnity, contribution and expense reimbursement obligations of the Company under this Article VII shall be in addition to any liability the Company may otherwise have. (b) Indemnification by the Initial Purchasers. Each of the Initial Purchasers agrees and covenants, severally and not jointly, to hold harmless and indemnify the Company and any Affiliates thereof (including any director, officer, employee, agent or controlling Person of any of the foregoing) from and against any losses, claims, damages, liabilities and expenses insofar as such losses, claims, damages, liabilities or expenses arise out of or are based upon any untrue statement of any material fact contained in the Offering Materials, or upon the omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or omission was made in reliance upon and in conformity with the information relating to such Initial Purchaser furnished in writing by such Initial Purchaser for inclusion therein. The indemnity, contribution and expense reimbursement obligations of the Initial Purchasers under this Article VII shall be in addition to any liability the Initial Purchasers may otherwise have. (c) Procedure. If any Person shall be entitled to indemnity hereunder (each an "Indemnified Party"), such Indemnified Party shall give prompt written notice to the party or parties from which such indemnity is sought (each an "Indemnifying Party") of the commencement of any action, suit, investigation or proceeding, governmental or otherwise (a "Proceeding"), with respect to which such Indemnified Party seeks indemnification or contribution pursuant hereto; provided, however, that the failure so to notify the Indemnifying Parties shall not relieve the Indemnifying Parties from any obligation or liability except to the extent that the Indemnifying Parties have been prejudiced materially by such failure. The Indemnifying Parties shall have the right, exercisable by giving written notice to an Indemnified Party promptly after the receipt of written notice from such Indemnified Party of such Proceeding, to assume, at the Indemnifying Parties' expense, the defense of any such Proceeding, with counsel reasonably satisfactory to such Indemnified Party; provided, however, that an Indemnified Party or parties (if more than one such Indemnified Party is named in any Proceeding) shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or parties unless: (1) the Indemnifying Parties agree to pay such fees and expenses; or (2) the Indemnifying Parties fail promptly to assume the defense of such Proceeding or fail to employ counsel reasonably satisfactory to such Indemnified Party or parties; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party or parties and the Indemnifying Party or an Affiliate of the Indemnifying Party and such Indemnified Parties, and the Indemnified Parties shall have been advised in writing by counsel that there may be one or more legal defenses available to such Indemnified Party or parties that are different from or additional to those available to the Indemnifying Parties, in which case, if such Indemnified Party or parties notifies the Indemnifying Parties in writing that it elects to employ separate counsel at the expense of the Indemnifying Parties, the Indemnifying Parties shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Parties, it being understood, however, that, unless there exists a conflict among Indemnified Parties, the Indemnifying Parties shall not, in connection with any one such Proceeding or separate but substantially similar or related Proceedings in the same jurisdiction, arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for such Indemnified Party or Parties, or for fees and expenses that are not reasonable. No Indemnified Party or Parties will settle any Proceeding without the consent of the Indemnifying Party or Parties (but such consent shall not be unreasonably withheld). No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability or claims that are the subject of such Proceeding. Section 7.2. Contribution. If for any reason the indemnification provided for in Section 7.1 of this Agreement is unavailable to an Indemnified Party, or insufficient to hold it harmless, in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each applicable Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such losses, claims, damages or liabilities in such proportion as is appropriate to reflect not only the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other, but also the relative fault of the Indemnifying and Indemnified Parties in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, as well as any other relevant equitable considerations. The relative benefits received by the Indemnifying and Indemnified Parties shall be deemed to be in the same proportion as the total proceeds from the offering of the Notes (net of the Initial Purchasers' discounts and commissions but before deducting expenses) received by the Company bear to the total discounts and commissions received by each Initial Purchaser. The relative fault of the Indemnifying and Indemnified Parties shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Indemnifying or Indemnified Parties and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages and liabilities referred to above shall be deemed to include any legal or other fees or expenses incurred by such party in connection with investigating or defending any such claim. The Company and each of the Initial Purchasers agree that it would not be just and equitable if contribution pursuant to the immediately preceding paragraph were determined pro rata or per capita or by any other method of allocation which does not take into account the equitable considerations referred to in such paragraph. Notwithstanding any other provision of this Section 7.2, no Initial Purchaser shall be obligated to make contributions hereunder that in the aggregate exceed the total discounts, commissions and other compensation received by such Initial Purchaser under this Agreement, less the aggregate amount of any damages that such Initial Purchaser has otherwise been required to pay by reason of the untrue or alleged untrue statements or the omissions or alleged omissions to state a material fact. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Section 7.3. Registration Rights Agreement. Notwithstanding anything to the contrary in this Article 7, the indemnification and contribution provisions of the Registration Rights Agreement shall govern any claim with respect thereto. ARTICLE VIII MISCELLANEOUS Section 8.1. Survival of Provisions. The representations, warranties and covenants of the Company and the Initial Purchasers made herein, the indemnity and contribution agreements contained herein and each of the provisions of Articles VI, VII and VIII shall remain operative and in full force and effect regardless of (a) any investigation made by or on behalf of the Company, any Initial Purchaser or any Indemnified Party, (b) acceptance of any of the Notes and payment therefor, (c) any termination of this Agreement other than pursuant to Section 8.2, or (d) disposition of the Notes by the Initial Purchasers whether by redemption, exchange, sale or otherwise. With respect to any termination of this Agreement pursuant to Section 8.2, this Agreement and the obligations contemplated hereby shall terminate without liability to any party, and no party shall have any continuing obligation hereunder or liability to any other party hereto, except that each of the provisions of Articles VI, VII, and VIII shall remain operative and in full force and effect regardless of any termination pursuant thereto. Section 8.2. Termination. (a) This Agreement may be terminated in the sole discretion of the Initial Purchasers by notice to the Company given prior to the Time of Purchase in the event that the Company shall have failed, refused or been unable to perform all obligations and satisfy all conditions on their part to be performed or satisfied hereunder at or prior thereto or, if at or prior to the Closing: (i) the Company shall have sustained any loss or interference with respect to its businesses or properties from fire, flood, hurricane, accident or other calamity, whether or not covered by insurance, or from any strike, labor dispute, slow down or work stoppage or any legal or governmental proceeding, which loss or interference, in the sole judgment of the Initial Purchasers, has a Material Adverse Effect, or there shall have been, in the sole judgment of the Initial Purchasers, any event or development that, individually or in the aggregate, has a Material Adverse Effect (including without limitation a Change of Control (as defined in the Indenture)), except in each case as described in the Final Memorandum (exclusive of any amendment or supplement thereto); (ii) trading in securities of the Company or in securities generally on the New York Stock Exchange, American Stock Exchange or the Nasdaq National Market shall have been suspended or minimum or maximum prices shall have been established on any such exchange or market; (iii) a banking moratorium shall have been declared by New York or United States authorities; (iv) there shall have been (A) an outbreak or escalation of hostilities between the United States and any foreign power, or (B) an outbreak or escalation of any other insurrection or armed conflict involving the United States or any other national or international calamity or emergency, or (C) any material change in the financial markets of the United States which, in the case of (A), (B) or (C) above and in the sole judgment of the Initial Purchasers, makes it impracticable or inadvisable to proceed with the offering or the delivery of the Notes as contemplated by the Final Memorandum; or (v) any securities of the Company shall have been downgraded or placed on any "watch list" for possible downgrading by any nationally recognized statistical rating organization. (b) Termination of this Agreement pursuant to this Section 8.2 shall be without liability of any party to any other party except as provided in Section 8.1 hereof. Section 8.3. No Waiver; Modifications in Writing. No failure or delay on the part of the Company or either Initial Purchaser in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to the Company or any Initial Purchaser at law or in equity or otherwise. No waiver of or consent to any departure by the Company from any provision of this Agreement shall be effective unless signed in writing by the party hereto entitled to the benefit thereof, provided that notice of any such waiver shall be given to each party hereto as set forth below. Except as otherwise provided herein, no amendment, modification or termination of any provision of this Agreement shall be effective unless signed in writing by or on behalf of each of the Company and each Initial Purchaser. Any amendment, supplement or modification of or to any provision of this Agreement, any waiver of any provision of this Agreement, and any consent to any departure by the Company from the terms of any provision of this Agreement, shall be effective only in the specific instance and for the specific purpose for which made or given. Except where notice is specifically required by this Agreement, no notice to or demand on the Company in any case shall entitle the Company to any other or further notice or demand in similar or other circumstances. Section 8.4. Information Supplied by the Initial Purchasers. The statements set forth and in the fourth and fifth sentences of the sixth paragraph and the eighth paragraph under the heading "Plan of Distribution" in the Final Memorandum (to the extent such statements relate to the Initial Purchasers) constitute the only information furnished by the Initial Purchasers to the Company for the purposes of Sections 3.1(a) and 7.1(a) and (b) hereof. Section 8.5. Communications. All notices, demands and other communications provided for hereunder shall be in writing, and, (a) if to the Initial Purchasers, shall be given by registered or certified mail, return receipt requested, telex, telegram, telecopy, courier service or personal delivery, addressed to CIBC Oppenheimer Corp., 425 Lexington Avenue, 3rd floor, New York, New York 10017, and NationsBanc Montgomery Securities LLC, 9 West 57th Street, 43rd Floor, New York, NY 10019, with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, Attention: Geoffrey E. Liebmann, Esq. and (b) if to the Company, shall be given by similar means to United Industries Corporation, 8825 Page Boulevard, P.O. Box 15842, St. Louis, Missouri 63114, Attn: Chief Financial Officer, with copies to Kirkland & Ellis, 200 East Randolph Drive, Chicago, IL 60601, Attention: Carter W. Emerson, P.C. and to Thomas H. Lee Company, 75 State Street, 26th Floor, Boston, MA 02109, Attention: C. Hunter Boll. In each case notices, demands and other communications shall be deemed given when received. Section 8.6. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. Section 8.7. Successors. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors and legal representatives, and nothing expressed or mentioned in this Agreement is intended or shall be construed to give any other Person any legal or equitable right, remedy or claim under or in respect of this Agreement, or any provisions herein contained; this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of such Persons and for the benefit of no other Person except that (i) the indemnities of the Company contained in Section 7.1(a) of this Agreement shall also be for the benefit of the directors, officers, employees and agents of the Initial Purchasers and any Person or Persons who control the Initial Purchasers within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and (ii) the indemnities of the Initial Purchasers contained in Section 7.1(b) of this Agreement shall also be for the benefit of the Company, its directors, officers, employees and agents and any Person or Persons who control the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of Notes from the Initial Purchasers will be deemed a successor because of such purchase. Section 8.8. Governing Law. THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. Section 8.9. Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction. Section 8.10. Headings. The Article and Section headings and Table of Contents used or contained in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first written above. UNITED INDUSTRIES CORPORATION By: Name: Title: CIBC OPPENHEIMER CORP. By: Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC By: Name: Title: SCHEDULE I Principal Amount at Maturity Initial Purchaser of Notes CIBC Oppenheimer Corp. $90,000,000 Nationsbanc Montgomery Securities LLC 60,000,000 Total $150,000,000 Exhibit A Form of Opinion of Kirkland & Ellis [To be supplied by Kirkland & Ellis] EX-4.2 6 INSTRUMENTS DEFINING RIGHTS OF SECURITY HOLDERS ================================================================================ UNITED INDUSTRIES CORPORATION, as Issuer, and STATE STREET BANK AND TRUST COMPANY, as Trustee $150,000,000 9-7/8% Senior Subordinated Notes due 2009 ================================================================================ N.A. means Not Applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture CROSS-REFERENCE TABLE TIA Indenture Section Section 310(a)(1)................................. 7.10 (a)(2)................................. 7.10 (a)(3)................................. N.A. (a)(4)................................. N.A. (b).................................... 7.08; 7.10; 12.02 (b)(1)................................. 7.10 (b)(9)................................. 7.10 (c).................................... N.A. 311(a).................................... 7.11 (b).................................... 7.11 (c).................................... N.A. 312(a).................................... 2.05 (b).................................... 12.03 (c).................................... 12.03 313(a).................................... 7.06 (b)(1)................................. 7.06 (b)(2)................................. 7.06 (c).................................... 12.02 (d).................................... 7.06 314(a).................................... 4.02; 4.04; 12.02 (b).................................... N.A. (c)(1)................................. 12.04; 12.05 (c)(2)................................. 12.04; 12.05 (c)(3)................................. N.A. (d).................................... N.A. (e).................................... 12.05 (f).................................... N.A. 315(a).................................... 7.01; 7.02 (b).................................... 7.05; 12.02 (c).................................... 7.01 (d).................................... 6.05; 7.01; 7.02 (e).................................... 6.11 316(a) (last sentence).................... 2.10 (a)(1)(A).............................. 6.05 (a)(1)(B).............................. 6.04 (a)(2)................................. 8.02 (b).................................... 6.07 (c).................................... 8.04 317(a)(1)................................. 6.08 (a)(2)................................. 6.09 (b).................................... 7.12 318(a).................................... 12.01 TABLE OF CONTENTS Page ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions..................................1 Section 1.02. Other Definitions...........................34 Section 1.03. Incorporation by Reference of Trust Indenture Act.............................35 Section 1.04. Rules of Construction.......................36 ARTICLE 2 THE NOTES Section 2.01. Amount of Notes.............................37 Section 2.02. Form and Dating.............................37 Section 2.03. Execution and Authentication................38 Section 2.04. Registrar and Paying Agent..................39 Section 2.05. Paying Agent to Hold Money in Trust.........40 Section 2.06. Noteholder Lists............................40 Section 2.07. Transfer and Exchange.......................41 Section 2.08. Replacement Notes...........................42 Section 2.09. Outstanding Notes...........................42 Section 2.10. Treasury Notes..............................43 Section 2.11. Temporary Notes.............................43 Section 2.12. Cancellation................................44 Section 2.13. Defaulted Interest..........................44 Section 2.14. CUSIP Number................................45 Section 2.15. Deposit of Moneys...........................45 Section 2.16. Book-Entry Provisions for Global Notes......46 Section 2.17. Special Transfer Provisions.................49 Section 2.18. Computation of Interest.....................52 ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee..........................52 Section 3.02. Selection by Trustee of Notes to Be Redeemed..................................52 Section 3.03. Notice of Redemption........................53 Section 3.04. Effect of Notice of Redemption..............54 Section 3.05. Deposit of Redemption Price.................55 Section 3.06. Notes Redeemed in Part......................55 ARTICLE 4 COVENANTS Section 4.01. Payment of Notes............................56 Section 4.02. SEC Reports.................................56 Section 4.03. Waiver of Stay, Extension or Usury Laws.....58 Section 4.04. Compliance Certificate......................58 Section 4.05. Taxes.......................................60 Section 4.06. Limitation on Additional Indebtedness.......60 Section 4.07. Limitation on Preferred Stock of Restricted Subsidiaries...................61 Section 4.08. Limitation on Capital Stock of Subsidiaries..............................61 Section 4.09. Limitation on Restricted Payments...........62 Section 4.10. Limitation on Certain Asset Sales...........65 Section 4.11. Limitation on Transactions with Affiliates................................69 Section 4.12. Limitations on Liens........................70 Section 4.13. Limitations on Investments..................71 Section 4.14. Limitation on Creation of Subsidiaries......71 Section 4.15. Limitation on Other Senior Subordinated Debt......................................71 Section 4.16. Limitation on Sale and Lease-Back Transactions..............................72 Section 4.17. Payments for Consent........................72 Section 4.18. Legal Existence.............................73 Section 4.19. Change of Control...........................73 Section 4.20. Maintenance of Office or Agency.............76 Section 4.21. Maintenance of Properties; Insurance; Books and Records; Compliance with Law....77 Section 4.22. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries..............................78 Section 4.23. Further Assurance to the Trustee............79 ARTICLE 5 SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, Merger and Sale of Assets............................79 Section 5.02. Successor Person Substituted................81 ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default...........................81 Section 6.02. Acceleration................................84 Section 6.03. Other Remedies..............................84 Section 6.04. Waiver of Past Defaults and Events of Default...................................85 Section 6.05. Control by Majority.........................85 Section 6.06. Limitation on Suits.........................86 Section 6.07. Rights of Holders to Receive Payment........87 Section 6.08. Collection Suit by Trustee..................87 Section 6.09. Trustee May File Proofs of Claim............87 Section 6.10. Priorities..................................88 Section 6.11. Undertaking for Costs.......................89 Section 6.12. Restoration of Rights and Remedies..........89 ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee...........................90 Section 7.02. Rights of Trustee...........................92 Section 7.03. Individual Rights of Trustee................93 Section 7.04. Trustee's Disclaimer........................93 Section 7.05. Notice of Defaults..........................93 Section 7.06. Reports by Trustee to Holders...............94 Section 7.07. Compensation and Indemnity..................94 Section 7.08. Replacement of Trustee......................96 Section 7.09. Successor Trustee by Consolidation, Merger, Etc...............................97 Section 7.10. Eligibility; Disqualification...............97 Section 7.11. Preferential Collection of Claims Against Company...........................98 Section 7.12. Paying Agents...............................98 ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 8.01. Without Consent of Holders..................99 Section 8.02. With Consent of Holders....................100 Section 8.03. Compliance with Trust Indenture Act........102 Section 8.04. Revocation and Effect of Consents..........102 Section 8.05. Notation on or Exchange of Notes...........103 Section 8.06. Trustee to Sign Amendments, etc............103 ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Indenture.....................104 Section 9.02. Legal Defeasance...........................105 Section 9.03. Covenant Defeasance........................105 Section 9.04. Conditions to Defeasance or Covenant Defeasance...............................106 Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions.................109 Section 9.06. Reinstatement..............................109 Section 9.07. Moneys Held by Paying Agent................110 Section 9.08. Moneys Held by Trustee.....................110 ARTICLE 10 GUARANTEE OF NOTES Section 10.01. Guarantee..................................111 Section 10.02. Execution and Delivery of Guarantees.......112 Section 10.03. Limitation of Guarantee....................113 Section 10.04. Release of Guarantor.......................113 Section 10.05. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness............114 Section 10.06. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor........115 Section 10.07. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default..................................117 Section 10.08. Subrogation to Rights of Holders of Guarantor Senior Indebtedness............120 Section 10.09. Guarantee Subordination Provisions Solely To Define Relative Rights.........120 Section 10.10. Application of Certain Article 11 Provisions...............................121 ARTICLE 11 SUBORDINATION OF NOTES Section 11.01. Notes Subordinate to Senior Indebtedness...122 Section 11.02. Payment Over of Proceeds upon Dissolution, etc.........................123 Section 11.03. Suspension of Payment When Senior Indebtedness in Default..................124 Section 11.04. Trustee's Relation to Senior Indebtedness.............................127 Section 11.05. Subrogation to Rights of Holders of Senior Indebtedness......................128 Section 11.06. Provisions Solely To Define Relative Rights...................................128 Section 11.07. Trustee To Effectuate Subordination........129 Section 11.08. No Waiver of Subordination Provisions......130 Section 11.09. Notice to Trustee..........................131 Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent.........132 Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights.........................133 Section 11.12. Article Applicable to Paying Agents........133 Section 11.13. No Suspension of Remedies..................133 SECTION 11.14. Authorization to Effect Subordination......134 SECTION 11.15. Amendments.................................134 ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls...............134 Section 12.02. Notices....................................135 Section 12.03. Communications by Holders with Other Holders..................................136 Section 12.04. Certificate and Opinion as to Conditions Precedent................................136 Section 12.05. Statements Required in Certificate and Opinion..................................137 Section 12.06. Rules by Trustee and Agents................138 Section 12.07. Business Days; Legal Holidays..............138 Section 12.08. Governing Law..............................138 Section 12.09. No Adverse Interpretation of Other Agreements...............................139 Section 12.10. No Recourse Against Others.................139 Section 12.11. Successors.................................140 Section 12.12. Multiple Counterparts......................140 Section 12.13. Table of Contents, Headings, etc...........140 Section 12.14. Separability...............................140 EXHIBITS Exhibit A Form of Note.............................. A-1 Exhibit B Form of Legend and Assignment for 144A Note............................... B-1 Exhibit C Form of Legend and Assignment for Regulation S Note....................... C-1 Exhibit D Form of Legend for Global Note............ D-1 Exhibit E Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors............ E-1 Exhibit F Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S................ F-1 Exhibit G Form of Guarantee......................... G-1 INDENTURE, dated as of March 24, 1999, between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Issuer"), and STATE STREET BANK AND TRUST COMPANY, a Massachusetts Trust Company, as trustee (the "Trustee"). Each party agrees as follows for the benefit of the other parties and for the equal and ratable benefit of the Holders of the Issuer's 9-7/8% Senior Subordinated Notes due 2009 (the "Notes"): ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "Accrued Bankruptcy Interest" means, with respect to any Indebtedness of any Person, all interest accrued or accruing on such Indebtedness after the commencement of any bankruptcy, reorganization, insolvency, receivership or similar proceeding, whether voluntary or involuntary, against such Person in accordance with and at the contract rate (including, without limitation, any rate applicable upon default) specified in the agreement or instrument creating, evidencing or governing such Indebtedness, whether or not, pursuant to applicable law or otherwise, the claim for such interest is allowed as a claim in such proceeding. "Acquired Indebtedness" means Indebtedness of a Person (including an Unrestricted Subsidiary) existing at the time such Person becomes a Restricted Subsidiary or assumed in connection with the acquisition of the outstanding equity interests on, or assets from, such Person. "Additional Interest" means additional interest on the Notes which the Issuer agrees to pay to the Holders pursuant to Section 4 of the Registration Rights Agreement. "Adjusted Net Assets" of a Guarantor at any date shall mean the lesser of the amount by which (x) the fair value of the property of such Guarantor exceeds the total amount of liabilities, including, without limitation, contingent liabilities (after giving effect to all other fixed and contingent liabilities), but excluding liabilities under the Guarantee, of such Guarantor at such date and (y) the present fair salable value of the assets of such Guarantor at such date exceeds the amount that will be required to pay the probable liability of such Guarantor on its debts (after giving effect to all other fixed and contingent liabilities and after giving effect to any collection from any Subsidiary of such Guarantor in respect of the obligations of such Subsidiary under the Guarantee), excluding Indebtedness in respect of the Guarantee, as they become absolute and matured. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means the Registrar, any Paying Agent, or agent for service of notices and demands. "Asset Acquisition" means (a) an Investment by the Issuer or any Restricted Subsidiary in any other Person pursuant to which such Person shall become a Restricted Subsidiary or shall be merged with or into the Issuer or any Restricted Subsidiary or (b) the acquisition by the Issuer or any Restricted Subsidiary of the assets of any Person (other than a Restricted Subsidiary) which constitute all or substantially all of the assets of such Person or comprise any division or line of business of such Person or any other properties or assets of such Person other than in the ordinary course of business. "Asset Drop-Down" means the contribution of all or substantially all of the Issuer's assets to a newly-created Wholly-Owned Subsidiary, which would also assume all or substantially all of the Issuer's liabilities. "Asset Sale" means the sale, transfer or other disposition (including any Sale and Lease-Back Transaction) (other than to the Issuer or any of its Restricted Subsidiaries) in any single transaction or series of related transactions having a fair market value in excess of $1,500,000 of (a) any Capital Stock of or other equity interest in any Restricted Subsidiary of the Issuer or (b) any other property or assets of the Issuer or of any Restricted Subsidiary thereof; provided that Asset Sales shall not include (i) sales, leases, conveyances, transfers or other dispositions to the Issuer or to a Restricted Subsidiary or to any other Person if after giving effect to such sale, lease, conveyance, transfer or other disposition such other Person becomes a Restricted Subsidiary; (ii) the contribution of any assets to a joint venture, partnership or other Person (which may be a Subsidiary) to the extent such contribution constitutes a Permitted Investment (other than by operation of clause (iv) of the definition thereof); (iii) the sale, transfer or other disposition of all or substantially all of the assets of the Issuer or any Guarantor as permitted under Section 5.01, including without limitation, an Asset Drop-Down; (iv) the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (v) the factoring of accounts receivable arising in the ordinary course of business pursuant to arrangements customary in the industry; (vi) the licensing of intellectual property; (vii) disposals or replacements of obsolete equipment in the ordinary course of business; (viii) leases or subleases to third persons not interfering in any material respect with the business of the Issuer or any of its Restricted Subsidiaries; (ix) a disposition of Temporary Cash Investments or goods held for sale in the ordinary course of business consistent with past practices of the Issuer; (x) a disposition that constitutes a Change of Control; and (xi) any foreclosures on assets. "Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash received by the Issuer or any Restricted Subsidiary from such Asset Sale (including cash received as consideration for the assumption of liabilities incurred in connection with or in anticipation of such Asset Sale), after (a) provision for all income or other taxes measured by or resulting from such Asset Sale, (b) payment of all brokerage commissions, underwriting and other fees (including legal and accounting fees) and expenses (including relocation expenses) related to such Asset Sale, (c) any consideration for an Asset Sale (which would otherwise constitute Asset Sale Proceeds) that is required to be held in escrow pending determination of whether a purchase price adjustment will be made, but amounts under this clause (c) will become Asset Sale Proceeds at such time and to the extent such amounts are released to the Issuer or a Restricted Subsidiary, (d) repayment of Indebtedness that either (i) is secured by a Lien on the property or assets sold or (ii) is required to be repaid in connection with such Asset Sale (in order to obtain a consent required in connection therewith), (e) provision for minority interest holders in any Restricted Subsidiary as a result of such Asset Sale and (f) deduction of appropriate amounts to be provided by the Issuer or a Restricted Subsidiary as a reserve, in accordance with GAAP, against any liabilities associated with the assets sold or disposed of in such Asset Sale and retained by the Issuer or a Restricted Subsidiary after such Asset Sale, including, without limitation, severance, healthcare, pension and other post-employment benefit liabilities and liabilities related to environmental matters or against any indemnification obligations associated with the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and other non-cash consideration received by the Issuer or any Restricted Subsidiary from such Asset Sale or other disposition upon the liquidation or conversion of such notes or non-cash consideration into cash. "Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction means, as at the time of determination, the greater of (i) the fair value of the property subject to such arrangement (as determined by the Board of Directors of the Issuer) and (ii) the present value of the total obligations (discounted at the rate borne by the Notes, compounded annually) of the lessee for rental payments during the remaining term of the lease included in such Sale and Lease-Back Transaction (including any period for which such lease has been extended). "Available Asset Sale Proceeds" means, with respect to any Asset Sale, the aggregate Asset Sale Proceeds from such Asset Sale that have not been applied in accordance with clause (iii)(a) or (iii)(b) of Section 4.10(a) and that have not previously been the basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of Section 4.10(a). "Board of Directors" means (i) in the case of a Person that is a corporation, the board of directors of such Person or any committee authorized to act therefore, (ii) in the case of a Person that is a limited partnership, the board of directors of its corporate general partner or any committee authorized to act therefor (or, if the general partner is itself a limited partnership, the board of directors of such general partner's corporate general partner or any committee authorized to act therefor) and (iii) in the case of any other Person, the board of directors, management committee or similar governing body or any authorized committee thereof responsible for the management of the business and affairs of such Person. "Board Resolution" means a copy of a resolution certified pursuant to an Officers' Certificate to have been duly adopted by the Board of Directors of the Issuer or a Guarantor, as appropriate, and to be in full force and effect, and delivered to the Trustee. "Capital Stock" means, with respect to any Person any and all shares or other equivalents (however designated and whether or not voting,) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into or exercisable for any of the foregoing. "Capitalized Lease Obligations" means Indebtedness represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Indebtedness shall be the capitalized amount of such obligations determined in accordance with GAAP. "Change of Control" means, at any time after the Issue Date, the occurrence of one or more of the following events: (i) any Person (including a Person's Affiliates and associates), other than a Permitted Holder, becomes the beneficial owner (as defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of 50% or more of the total voting power of the Common Stock of the Issuer, (ii) there shall be consummated any consolidation or merger of the Issuer in which the Issuer is not the continuing or surviving corporation or pursuant to which the Common Stock of the Issuer would be converted into cash, securities or other property, other than a merger or consolidation of the Issuer in which the beneficial owners of the Common Stock of the Issuer outstanding immediately prior to the consolidation or merger hold, directly or indirectly, at least a majority of the Common Stock of the surviving corporation immediately after such consolidation or merger, or (iii) during any period of two consecutive years commencing after the Issue Date, individuals who at the beginning of such period constituted the Board of Directors of the Issuer (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Issuer has been approved by a majority of the directors then still in office who either were directors at the beginning of such period or whose election or recommendation for election was previously so approved) cease to constitute a majority of the Board of Directors of the Issuer. "Commodity Hedge Agreement" shall mean any option, hedge or other similar agreement or arrangement designed to protect against fluctuations in commodity or materials prices. "Common Stock" of any Person means all Capital Stock of such Person that is generally entitled to (i) vote in the election of directors of such Person or (ii) if such Person is not a corporation, vote or otherwise participate in the selection of the governing body, partners, managers or others that will control the management and policies of such Person. "Consolidated Fixed Charge Coverage Ratio" means, with respect to any Person, the ratio of EBITDA of such Person during the four full fiscal quarters (the "Four Quarter Period") ending on or prior to the date of the transaction giving rise to the need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction Date") for which financial statements are available to Consolidated Fixed Charges of such Person for the Four Quarter Period. In addition to and without limitation of the foregoing, for purposes of this definition, "EBITDA" and "Consolidated Fixed Charges" shall be calculated after giving effect on a pro forma basis for the period of such calculation to: (1) the incurrence or repayment of any Indebtedness of such Person or any of its Restricted Subsidiaries (and the application of the proceeds thereof) giving rise to the need to make such calculation and any incurrence or repayment of other Indebtedness (and the application of the proceeds thereof), other than the incurrence or repayment of Indebtedness in the ordinary course of business for working capital purposes pursuant to revolving credit facilities, occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such incurrence or repayment, as the case may be (and the application of the proceeds thereof), occurred on the first day of the Four Quarter Period; (2) any Asset Sales or Asset Acquisitions (including, without limitation, any Asset Acquisition giving rise to the need to make such calculation as a result of such Person or one of its Restricted Subsidiaries (including any Person who becomes a Restricted Subsidiary as a result of the Asset Acquisition) incurring, assuming or otherwise being liable for Acquired Indebtedness and also including any EBITDA (provided that such EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income") attributable to the assets which are the subject of the Asset Acquisition during the Four Quarter Period) occurring during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date, as if such Asset Sale or Asset Acquisition (including the incurrence, assumption or liability for any such Acquired Indebtedness) occurred on the first day of the Four Quarter Period; (3) with respect to any such Four Quarter Period commencing prior to the Recapitalization, the Recapitalization, which shall be deemed to have taken place on the first day of such Four Quarter Period; and (4) any asset sales or asset acquisitions (including any EBITDA attributable to the assets which are the subject of the asset acquisition or asset sale during the Four Quarter Period (provided that such EBITDA shall be included only to the extent includable pursuant to the definition of "Consolidated Net Income")) that have been made by any Person that has become a Restricted Subsidiary of the Issuer or has been merged with or into the Issuer or any Restricted Subsidiary of the Issuer during the Four Quarter Period or at any time subsequent to the last day of the Four Quarter Period and on or prior to the Transaction Date that would have constituted Asset Sales or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary of the Issuer or subsequent to such Person's merger into the Issuer, as if such asset sale or asset acquisition (including the incurrence, assumption or liability for any Indebtedness or Acquired Indebtedness in connection therewith) occurred on the first day of the Four Quarter Period. If such Person or any of its Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a third Person, the preceding sentence shall give effect to the incurrence of such guaranteed Indebtedness as if such Person or any Restricted Subsidiary of such Person had directly incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated Fixed Charges" for purposes of determining the denominator (but not the numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on outstanding Indebtedness determined on a fluctuating basis as of the Transaction Date and which will continue to be so determined thereafter shall be deemed to have accrued at a fixed rate per annum equal to the rate of interest on such Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause (1) above, interest on Indebtedness determined on a fluctuating basis, to the extent such interest is covered by one or more Interest Rate Agreements, shall be deemed to accrue at the rate per annum resulting after giving effect to the operation of such agreements. "Consolidated Fixed Charges" means, with respect to any Person, for any period, the sum of (1) Consolidated Interest Expense (excluding amortization or write-off of debt issuance costs relating to the Recapitalization and the financing therefor or relating to retired or existing Indebtedness and amortization or write-off of customary debt issuance costs relating to future Indebtedness incurred in the ordinary course of business), plus (2) without duplication, the product of (a) the amount of all dividend payments on any series of Preferred Stock of such Person or any Restricted Subsidiary, determined on a consolidated basis (other than dividends paid in Capital Stock (other than Disqualified Capital Stock)) paid, accrued or scheduled to be paid or accrued during such period times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current effective consolidated federal, state and local tax rate of such Person, expressed as a decimal. "Consolidated Interest Expense" means, with respect to any Person, for any period, the aggregate amount of interest which, in conformity with GAAP, would be set forth opposite the caption "interest expense" or any like caption on an income statement for such Person and its Restricted Subsidiaries on a consolidated basis (including, but not limited to, imputed interest included in Capitalized Lease Obligations, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, the net costs associated with hedging obligations, amortization of other financing fees and expenses, the interest portion of any deferred payment obligation, amortization of discount (other than any such discount arising from the issuance of warrants to purchase Common Stock to purchasers of the Issuer's debt securities simultaneously with the issuance thereof) or premium, if any, and all other non-cash interest expense (other than interest amortized to cost of sales)) plus, without duplication, all net capitalized interest for such period and all interest incurred or paid under any guarantee of Indebtedness (including a guarantee of principal, interest or any combination thereof) of any Person, plus the amount of all dividends or distributions paid on Disqualified Capital Stock (other than dividends paid or payable in shares of Capital Stock of the Issuer), less the amortization of deferred financing costs. "Consolidated Net Income" means, with respect to any Person, for any period, the aggregate of the Net Income of such Person and its Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided, however, that (1) (a) the Net Income of any Person (the "other Person") in which the Person in question or any of its Registered Subsidiaries has less than a 100% interest (which interest does not cause the net income of such other Person to be consolidated into the net income of the Person in question in accordance with GAAP) and (2) Unrestricted Subsidiary shall be included only to the extent of the amount of dividends or distributions paid to the Person in question or the Restricted Subsidiary, (2) the Net Income of any Restricted Subsidiary of the Person in question that is subject to any restriction or limitation on the payment of dividends or the making of other distributions (other than pursuant to the Notes or as permitted under Section 4.22) shall be excluded to the extent of such restriction or limitation, (3) (i) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by the Person in question or any of its Restricted Subsidiaries other than in the ordinary course of business shall be excluded, (4) extraordinary, unusual and non-recurring gains and losses (including any related tax effects on the Issuer) shall be excluded, (5) income or loss attributable to discontinued operations (including without limitation operations disposed of during such period whether or not such operations were classified as discontinued) shall be excluded, (6) to the extent not otherwise excluded in accordance with GAAP, the Net Income of any Restricted Subsidiary in an amount that corresponds to the percentage ownership interest in the income of such Restricted Subsidiary not owned on the last day of such period, directly or indirectly, by such Person shall be excluded, (7) dividends, distributions and any other payments constituting return of capital from Investments shall in any event be excluded to the extent used to increase the amount available for Investment under clause (xv) of the definition of "Permitted Investments" in accordance with the terms thereof, (8) non-cash compensation charges, including any arising from existing stock options resulting from any merger or recapitalization transaction, shall be excluded, and (9) without duplication, any charges related to the Recapitalization shall be excluded. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 225 Asylum Street, 23rd Street, Hartford, CT 06103. "Currency Agreement" means any foreign exchange contract, currency swap agreement or other similar agreement or arrangement, which may include the use of derivatives, designed to protect against fluctuations in currency values. "Default" means any condition or event that is, or with the passing of time or giving of any notice expressly required under Section 6.01 (or both) would be, an Event of Default. "Depository" means, with respect to the Notes issued in the form of one or more Global Notes, The Depository Trust Company or another Person designated as Depository by the Issuer, which Person must be a clearing agency registered under the Exchange Act. "Designated Senior Indebtedness," as to the Issuer or any Guarantor, as the case may be, means (1) so long as Indebtedness under or in respect of the Senior Credit Facility is outstanding or has commitments for the extension of credit, such Senior Indebtedness and (2) any other Senior Indebtedness (a) which at the time of determination exceeds $25,000,000 in aggregate principal amount (or accreted value in the case of Indebtedness issued at a discount) outstanding or available under a committed facility, (b) which is specifically designated in the instrument evidencing such Senior Indebtedness as "Designated Senior Indebtedness" by such Person, and (c) as to which the Trustee has been given written notice of such designation and, so long as there is a Representative with respect to the Senior Credit Facility, such Representative shall have concurred in such designation. "Disqualified Capital Stock" means any Capital Stock of the Issuer or a Restricted Subsidiary thereof which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder), or upon the happening of any event, (1) matures on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness; or (2) is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness; or (3) is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity date of the Notes, for cash or securities constituting Indebtedness; provided that Capital Stock of the Issuer that is held by a current or former employee of the Issuer subject to a put option and/or a call option with the Issuer triggered by the termination of such employee's employment with the Issuer and/or the Issuer's performance shall not be deemed to be Disqualified Capital Stock solely by virtue of such call option and/or put option. Without limitation of the foregoing, Disqualified Capital Stock will be deemed to include (a) any Preferred Stock of a Restricted Subsidiary of the Issuer and (b) any Preferred Stock of the Issuer, with respect to either of which, under the terms of such Preferred Stock, by agreement or otherwise, the Issuer is obligated to pay current dividends or distributions in cash during the period prior to the maturity date of the Notes; provided, however, that Capital Stock of the Issuer or any Restricted Subsidiary that is issued with the benefit of provisions requiring (i) a change of control offer or asset sale proceeds offer to be made for such Capital Stock in the event of a change of control of or asset sale by the Issuer or such Restricted Subsidiary, which provisions have substantially the same effect as Section 4.10 or Section 4.19, as the case may be or (ii) payment of dividends or redemption only after the Notes have been fully paid, shall not be deemed to be Disqualified Capital Stock solely by virtue of such provisions. "EBITDA" means, for any Person, for any period, an amount equal to (a) the sum of (i) Consolidated Net Income for such period, plus (ii) the provision for taxes for such period based on income or profits to the extent such income or profits were included in computing Consolidated Net Income and any provision for taxes utilized in computing net loss under clause (i) hereof, plus (iii) Consolidated Interest Expense for such period (but only including Redeemable Dividends in the calculation of such Consolidated Interest Expense to the extent that such Redeemable Dividends have not been excluded in the calculation of Consolidated Net Income), plus (iv) depreciation for such period on a consolidated basis, plus (v) amortization of intangibles for such period on a consolidated basis, plus (vi) any other non-cash items (excluding any such non-cash item to the extent that it represents an accrual of or a reserve for cash expense in any period subsequent to the period for which EBIDTA is being calculated) reducing or not included in the definition of Consolidated Net Income for such period, plus, (vii) without duplication, all cash and non-cash expenses and restructuring charges arising in connection with the Recapitalization, minus (b) all non-cash items increasing Consolidated Net Income for such period, all for such Person and its Subsidiaries determined in accordance with GAAP, except that with respect to the Issuer each of the foregoing items shall be determined on a consolidated basis with respect to the Issuer and its Restricted Subsidiaries only; provided, however, that, for purposes of calculating EBITDA during any fiscal quarter, cash income from a particular Investment (other than in a Subsidiary which under GAAP is consolidated) of such Person shall be included only (x) to the extent that cash income has been received by such Person with respect to such Investment or (y) if the cash income derived from such Investment is attributable to Temporary Cash Investments. "Equity Investor" means UIC Holdings, L.L.C., a Delaware limited liability company. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" shall have the meaning assigned thereto in the Registration Rights Agreement. "fair market value" means, with respect to any asset or property, the price which could be negotiated in an arm's length, free market transaction, for cash, between a willing seller and a willing and able buyer, neither of whom is under undue pressure or compulsion to complete the transaction. "Financing Documents" means this Indenture, the Notes, and the Guarantees. "Foreign Subsidiary" means a Restricted Subsidiary of the Company (a) that is organized in a jurisdiction other than the United States of America or a state thereof or the District of Columbia and (b) with respect to which at least 90% of its sales (as determined in accordance with GAAP) are generated by operations located in jurisdictions outside the United States of America. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States from time to time. "Guarantee" means, as the context may require, individually, a guarantee, or collectively, any and all guarantees, of the Obligations of the Issuer with respect to the Notes by each Guarantor, if any, pursuant to the terms of Article 10 hereof, substantially in the form set forth in Exhibit G. "Guarantor" means each Restricted Subsidiary of the Issuer that hereafter becomes a Guarantor pursuant to Section 4.14, and "Guarantors" means such entities, collectively. "Guarantor Representative" means (1) so long as the Senior Credit Facility remains outstanding or any commitments thereunder remain in effect, the agent (or if there is more than one agent therefor, the administrative agent for the lender parties thereunder) and (2) thereafter the agent, the indenture trustee, other trustee or other representative for any Guarantor Senior Indebtedness. "Guarantor Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, Accrued Bankruptcy Interest) on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts and obligations incurred or owing pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with, (a) any Guarantor's direct incurrence of any Indebtedness or its guarantee of all Indebtedness of the Issuer or any Restricted Subsidiaries, in each case, under the Senior Credit Facility, (b) all obligations of such Guarantor with respect to any Interest Rate Agreement, (c) all obligations of such Guarantor to reimburse any bank or other person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of such Guarantor which does not expressly provide that it is to rank pari passu with or subordinate to the Guarantees and (e) all deferrals, renewals, extensions, refinancings, replacements and refundings in whole or in part of, and amendments, modifications, restatements and supplements to, any of the Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Guarantor Senior Indebtedness will not include (i) Indebtedness of such Guarantor to any of its Subsidiaries except to the extent such Indebtedness is pledged as security under the Senior Credit Facility, (ii) Indebtedness represented by the Guarantees, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any other item of Indebtedness of the Company (although this clause (iii) shall not apply to the subordination of liens or security interests covering property or assets securing Guaranteed Senior Indebtedness of the Company); (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, or (v) liability for federal, state, local or other taxes owed or owing by the Issuer. "Holding Company" means the parent company of the New Operating Company following the Asset Drop-Down. "incur" means, with respect to any Indebtedness or other obligation of any Person, to create, issue, incur (by conversion, exchange or otherwise), assume, guarantee or otherwise become liable in respect of such Indebtedness or other obligation or the recording, as required pursuant to GAAP or otherwise, of any such Indebtedness or other obligation on the balance sheet of such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall have meanings correlative to the foregoing); provided that a change in GAAP that results in an obligation of such Person that exists at such time becoming Indebtedness shall not be deemed an incurrence of such Indebtedness. "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding, without limitation, any balances that constitute accounts payable or trade payables or liabilities arising from advance payments or customer deposits for goods and services sold by the Issuer in the ordinary course of business, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, and shall also include, to the extent not otherwise included (i) any Capitalized Lease Obligations, (ii) obligations secured by a Lien to which the property or assets owned or held by such Person is subject, whether or not the obligation or obligations secured thereby shall have been assumed (provided, however, that if such obligation or obligations shall not have been assumed, the amount of such Indebtedness shall be deemed to be the lesser of the principal amount of the obligation or the fair market value of the pledged property or assets), (iii) guarantees of items of other Persons which would be included within this definition for such other Persons (whether or not such items would appear upon the balance sheet of the guarantor), (iv) all obligations for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (provided that in the case of any such letters of credit, the items for which such letters of credit provide credit support are those of other Persons which would be included within this definition for such other Persons), (v) in the case of the Issuer, Disqualified Capital Stock of the Issuer or any Restricted Subsidiary thereof, and (vi) obligations of any such Person under any Interest Rate Agreement applicable to any of the foregoing (if and to the extent such Interest Rate Agreement obligations would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided (i) that the amount outstanding at any time of any Indebtedness issued with original issue discount is the principal amount of such Indebtedness less the remaining unamortized portion of the original issue discount of such Indebtedness at such time as determined in conformity with GAAP and (ii) that Indebtedness shall not include any liability for federal, state, local or other taxes. Notwithstanding any other provision of the foregoing definition, any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business shall not be deemed to be "Indebtedness" of the Issuer or any Restricted Subsidiary for purposes of this definition. Furthermore, guarantees of (or obligations with respect to letters of credit supporting) Indebtedness otherwise included in the determination of such amount shall not also be included. "Indenture" means this Indenture as amended, restated or supplemented from time to time. "Individual Investors" means the individuals listed on Schedule 1.01 hereto. "Institutional Accredited Investor" means an institution that is an "accredited investor" as that term is defined in Rule 501 (a)(1), (2), (3) or (7) promulgated under the Securities Act. "Interest Payment Date" means the stated maturity of an installment of interest on the Notes. "Interest Rate Agreement" shall mean any interest or foreign currency rate swap, cap, collar, option, hedge, forward rate or other similar agreement or arrangement designed to protect against fluctuations in interest rates or currency exchange rates. "Investments" means, directly or indirectly, any advance, account receivable (other than an account receivable arising in the ordinary course of business or acquired as part of the assets acquired by the Issuer in connection with an acquisition of assets which is otherwise permitted by the terms of the Indenture), loan or capital contribution to (by means of transfers of property to others, payments for property or services for the account or use of others or otherwise), the purchase of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities of, the acquisition, by purchase or otherwise, of all or substantially all of the business or assets or stock or other evidence of beneficial ownership of, any Person or the making of any investment in any Person. Investments shall exclude extensions of trade credit on commercially reasonable terms in accordance with normal trade practices. For the purposes of Section 4.09, "Investment" shall include and be valued at the fair market value of the net assets of any Restricted Subsidiary at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary and shall exclude the fair market value of the net assets of any Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is designated a Restricted Subsidiary. If the Issuer or any Restricted Subsidiary of the Issuer sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Issuer such that, after giving effect to any such sale or disposition, the Issuer no longer owns, directly or indirectly, greater than 50% of the outstanding Common Stock of such Restricted Subsidiary, the Issuer shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date the Notes are first issued by the Issuer and authenticated by the Trustee under this Indenture. "Issuer Request" means any written request signed in the names of each of the Issuer by the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer or the Treasurer of the Issuer and attested to by the Secretary or any Assistant Secretary of the Issuer. "Issuer" means the party named as such in the first paragraph of this Indenture until a successor replaces such parties pursuant to Article 5 of this Indenture and thereafter means the successor and any other obligor (other than a Guarantor) on the Notes. In the event of an Asset Drop-Down, the New Operating Company shall be the "Issuer" for all purposes hereunder. "Letter of Credit Obligations" means all Obligations in respect of Indebtedness of the Issuer or any of its Restricted Subsidiaries with respect to letters of credit issued pursuant to the Senior Indebtedness which Indebtedness shall be deemed to consist of (a) the aggregate maximum amount then available to be drawn under all such letters of credit (the determination of such maximum amount to assume compliance with all conditions for drawing) and (b) the aggregate amount that has then been paid by, and not reimbursed to, the issuers under such letters of credit. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement (other than advance payments or customer deposits for goods and services sold by the Issuer in the ordinary course of business), security interest, lien, charge, easement or encumbrance of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any Capitalized Lease Obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Maturity Date" means April 1, 2009. "Moody's" means Moody's Investors Service, Inc. and its successors. "Net Income" means, with respect to any Person for any period, the net income (loss) of such Person determined in accordance with GAAP. "Net Proceeds" means (a) in the case of any sale of Capital Stock by any Person, the aggregate net proceeds received by such Person, after payment of expenses, commissions and the like incurred in connection therewith, whether such proceeds are in cash or in property (valued at the fair market value thereof, as determined in good faith by the Board of Directors of such Person, at the time of receipt) and (b) in the case of any exchange, exercise, conversion or surrender of outstanding securities of any kind for or into shares of Capital Stock of any Person which is not Disqualified Capital Stock, the net book value of such outstanding securities on the date of such exchange, exercise, conversion or surrender (plus any additional amount required to be paid by the holder to any Person upon such exchange, exercise, conversion or surrender, less any and all payments made to the holders, e.g., on account of fractional shares and less all expenses incurred by the Issuer in connection therewith). "New Operating Company" means the newly-formed Wholly-Owned Subsidiary of United Industries Corporation, which becomes the "Issuer" hereunder pursuant to the Asset Drop-Down. "Non-Payment Event of Default" means any event (other than a Payment Default) the occurrence of which entitles (or, in the case of any of the events described in clause (7) of Section 6.01, with the passage of time would entitle) one or more Persons to accelerate the maturity of any Designated Senior Indebtedness. "Non-U.S. Person" means a person who is not a U.S. person, as defined in Regulation S. "Notes" means the securities that are issued under this Indenture, as amended or supplemented from time to time pursuant to this Indenture. "Obligations" means, with respect to any Indebtedness, any principal, premium, interest, penalties, fees, indemnifications, reimbursements, damages and other expenses and liabilities payable under the documentation governing such Indebtedness. "Offering Memorandum" means the Final Offering Memorandum dated March 19, 1999 pursuant to which the Notes were offered. "Officer," with respect to any Person (other than the Trustee), means the Chief Executive Officer, the President, any Vice President and the Chief Financial Officer, the Treasurer or the Secretary of such Person, or any other officer designated by the Board of Directors of such Person, as the case may be. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chief Executive Officer, the President or any Vice President and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of this Indenture and delivered to the Trustee. "Opinion of Counsel" means a written opinion reasonably satisfactory in form and substance to the Trustee from legal counsel which counsel is reasonably acceptable to the Trustee stating the matters required by Section 12.05 and delivered to the Trustee. "Payment Default" means any default, whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default has occurred, in the payment of principal of (or premium, if any) or interest on or any other Obligations payable in connection with Designated Senior Indebtedness. "Permitted Holders" means, collectively, (i) the Issuer and, in the event of the Asset Drop-Down, the Holding Company, (ii) any THL Group Member, (iii) the Individual Investors, each of the spouses, children (adoptive or biological) or other lineal descendants of the Individual Investors, the probate estate of any such individual and any trust, so long as one or more of the foregoing individuals retains substantially all of the controlling or beneficial interest thereunder, and (iv) any underwriter during the course of an underwritten public offering until completion of the initial distribution thereof. "Permitted Indebtedness" means: (i) Indebtedness of the Issuer or any Restricted Subsidiary arising under or in connection with the Senior Credit Facility in an amount not to exceed the sum of (a) $225,000,000 plus (b) the greater of (i) $110,000,000 or (ii) the aggregate of 80% of the accounts receivable and 50% of the inventory of the Issuer and its consolidated Restricted Subsidiaries, which sum shall be reduced by any mandatory prepayments actually made thereunder required as a result of any Asset Sale or similar sale of assets (to the extent, in the case of payments of revolving credit indebtedness, that the corresponding commitments have been permanently reduced) and any scheduled payments actually made thereunder; (ii) Indebtedness under the Notes and the Guarantees; (iii) Indebtedness of Foreign Subsidiaries not to exceed $5,000,000 in the aggregate at any one time outstanding; (iv) Indebtedness not covered by any other clause of this definition which is outstanding on the date of this Indenture including for purposes of this clause (iv) Capitalized Lease Obligations in an amount not to exceed $10,000,000 incurred in the leasing of an aircraft for use by the Issuer, which lease is entered into on or before September 30, 1999; (v) Indebtedness of the Issuer to any Restricted Subsidiary of the Issuer and Indebtedness of any Restricted Subsidiary of the Issuer to the Issuer or another Restricted Subsidiary of the Issuer; provided that (a) if the Issuer or any Guarantor is the obligor on such Indebtedness, such Indebtedness is unsecured and expressly subordinated to the payment in full to all obligations in respect of the Notes and the Guarantee of such Guarantor on terms substantially in the form provided in this Indenture and (b)(i) any subsequent issuance or transfer of equity interests that results in any such Indebtedness being held by a Person other than the Issuer or a Restricted Subsidiary of the Issuer, and (ii) any sale or transfer of any such Indebtedness to a Person other than the Issuer or a Restricted Subsidiary of the Issuer, shall be deemed to constitute an incurrence of Indebtedness by the Issuer or such Restricted Subsidiary not permitted by this clause (v); (vi) Interest Rate Agreements; (vii) Refinancing Indebtedness; (viii) Indebtedness under Commodity Hedge Agreements and Currency Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (ix) Indebtedness consisting of guarantees made in the ordinary course of business by the Issuer or its Subsidiaries of obligations of the Issuer or any of its Subsidiaries, which obligations are not otherwise prohibited under this Indenture; (x) contingent obligations of the Issuer or its Subsidiaries in respect of customary indemnification and purchase price adjustment obligations incurred in connection with an Asset Sale; provided that the maximum assumable liability in respect of all such obligations shall at no time exceed the gross proceeds actually received by the Issuer and its Subsidiaries in connection with such Asset Sale; (xi) Indebtedness incurred in respect of performance, surety and other similar bonds and completion guarantees provided by the Issuer and the Restricted Subsidiaries in the ordinary course of business, and extensions, refinancings and replacements thereof; (xii) Indebtedness incurred by the Issuer or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation or other similar claims; (xiii) Purchase Money Indebtedness and Capitalized Lease Obligations of the Issuer and its Subsidiaries incurred to acquire, construct of improve property and assets in the ordinary course of business and any refinancings, renewals or replacements of any such Purchase Money Indebtedness or Capitalized Lease Obligation (subject to the limitations on the principal amount thereof set forth in this clause (xiii)), the principal amount of which Purchase Money Indebtedness and Capitalized Lease Obligations shall not in the aggregate at any one time outstanding exceed $15,000,000; and (xiv) additional Indebtedness of the Issuer or any of its Subsidiaries (other than Indebtedness specified in clauses (i) through (xiii) above) not to exceed $25,000,000 in the aggregate at any one time outstanding. "Permitted Investments" means, for any Person, Investments made on or after the date of this Indenture consisting of: (i) Investments by the Issuer, or by a Restricted Subsidiary thereof, in the Issuer or a Restricted Subsidiary; (ii) Temporary Cash Investments; (iii) Investments by the Issuer, or by a Restricted Subsidiary thereof, in a Person, if as a result of such Investment (a) such Person becomes a Restricted Subsidiary of the Issuer, (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Issuer or a Restricted Subsidiary thereof or (c) such business or assets are owned by the Issuer or a Restricted Subsidiary; (iv) an Investment that is made by the Issuer or a Restricted Subsidiary thereof in the form of any stock, bonds, notes, debentures, partnership or joint venture interests or other securities that are issued by a third party to either or both of the Issuer or a Restricted Subsidiary solely as partial consideration for the consummation of an Asset Sale that is otherwise permitted by Section 4.10; (v) Investments consisting of (a) purchases and acquisitions of inventory, supplies, materials and equipment, or (b) licenses or leases of intellectual property and other assets, in each case in the ordinary course of business; (vi) Investments consisting of (a) loans and advances to employees for reasonable travel, relocation and business expenses in the ordinary course of business not to exceed $2,000,000 in the aggregate at any one time outstanding, (b) loans to employees of the Issuer or its Subsidiaries for the sole purpose of purchasing equity of the Issuer, (c) extensions of trade credit in the ordinary course of business, and (d) prepaid expenses incurred in the ordinary course of business; (vii) without duplication, Investments consisting of Indebtedness permitted pursuant to clause (v) of the definition of Permitted Indebtedness; (viii) Investments existing on the date of this Indenture; (ix) Investments of the Issuer under Interest Rate Agreements; (x) Investments under Commodity Hedge Agreements and Currency Agreements entered into in the ordinary course of business consistent with reasonable business requirements and not for speculation; (xi) Investments consisting of endorsements for collection or deposit in the ordinary course of business; (xii) Investments in suppliers or customers that are in bankruptcy, receivership or similar proceedings or as a result of foreclosure on a secured Investment in a third party received in exchange for or cancellation of an existing obligation of such supplier or customer to the Issuer or a Restricted Subsidiary; (xiii) Investments paid for solely with Capital Stock (other than Disqualified Capital Stock) of the Issuer; (xiv) Investments in joint venture arrangements (which may be structured as corporations, partnerships, trusts, limited liability companies or other Persons), or in a Person which as a result of such Investment becomes a joint venture arrangement, in an aggregate amount, as valued at the time each such Investment is made, not exceeding $10,000,000 for all such Investments from and after the date hereof; and (xv) Investments (other than Investments specified in clauses (i) through (xiv) above) in an aggregate amount, as valued at the time each such Investment is made, not exceeding $10,000,000 for all such Investments from and after the Issue Date; provided that the amount available for Investments to be made pursuant to this clause (xv) shall be increased from time to time (a) to the extent any return of capital is received by the Issuer or a Restricted Subsidiary on an Investment previously made in reliance on this clause (xv), in each case, up to, but not exceeding, the amount of the original Investment but only to the extent such return of capital is excluded from Consolidated Net Income and (b) by 100% of the aggregate net proceeds of any equity contribution received by the Issuer (other than in return for Disqualified Capital Stock) from a holder of the Issuer's Capital Stock, net of any amounts thereof used to calculate amounts available for Restricted Payments pursuant to clause (a)(iii) of Section 4.09 or previously relied upon to make any Permitted Investments pursuant to this clause (xv). Not later than the date of making of any Permitted Investment made in reliance on clause (xv) above that includes proceeds described in clause (b) thereof, the Issuer shall deliver to the Trustee an Officers' Certificate stating that such Permitted Investment is permitted and setting forth in reasonable detail the date, amount and nature of the purchase or contribution being relied upon. "Permitted Liens" means (i) Liens on property or assets of, or any shares of stock of or secured debt of, any corporation or other entity existing at the time such corporation or other entity becomes a Restricted Subsidiary of the Issuer or at the time such corporation or other entity is merged into the Issuer or any of its Restricted Subsidiaries; provided that such Liens are not incurred in connection with, or in contemplation of, such corporation becoming a Restricted Subsidiary of the Issuer or merging into the Issuer or any of its Restricted Subsidiaries, (ii) Liens securing Refinancing Indebtedness; provided that any such Lien does not extend to or cover any Property, shares or debt other than the Property, shares or debt securing the Indebtedness so refunded, refinanced or extended, (iii) Liens in favor of the Issuer or any of its Restricted Subsidiaries and (iv) Liens existing on the Issue Date. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Physical Notes" means certificated Notes in registered form in substantially the form set forth in Exhibit A. "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such Person over the holders of other Capital Stock issued by such Person. "Private Exchange Notes" shall have the meaning assigned thereto in the Registration Rights Agreement. "Private Placement Legend" means the legend initially set forth on the Rule 144A Notes and on any Physical Notes (other than Regulation S Notes) delivered prior to the issuance of the Exchange Notes in the form set forth in Exhibit B. "Property" of any Person means all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent consolidated balance sheet of such Person and its Subsidiaries under GAAP. "Purchase Money Indebtedness" means any Indebtedness incurred by a Person to finance (within 90 days from incurrence) the cost (including the cost of construction or improvement) of an item of Property acquired in the ordinary course of business, the principal amount of which Indebtedness does not exceed the sum of (i) 100% of such cost and (ii) reasonable fees and expenses of such Person incurred in connection therewith. "Qualified Institutional Buyer" or "QIB" shall have the meaning specified in Rule 144A promulgated under the Securities Act. "Qualified Public Offering" means a public offering and sale by the Issuer (or, in the event of the Asset Drop-Down, the New Operating Company or the Holding Company) of shares of its common stock (however designated and whether voting or non-voting) and any and all rights, warrants or options to acquire such common stock pursuant to a registration statement registered pursuant to the Securities Act; provided that the aggregate Net Proceeds to the Issuer or the Holding Company in the event of an Asset Drop-Down, from such offering and sale is at least $25,000,000 and, provided, further that, in the event of the Asset Drop-Down and a subsequent Qualified Public Offering by the Holding Company, the Holding Company will contribute to the capital of the New Operating Company that portion of the Net Proceeds thereof necessary to pay the aggregate redemption price (including accrued interest) of the Notes to be redeemed. "Recapitalization" means the transactions described in the Recapitalization Agreement. "Recapitalization Agreement" means the Agreement and Plan of Recapitalization, Purchase and Redemption Agreement dated as of December 24, 1998 as amended by Amendment No. 1 dated January 20, 1999 and Amendment No. 2 dated January 25, 1999 by and among the Sellers named therein, the Issuer, and the Equity Investor. "Redeemable Dividend" means, for any dividend or distribution with regard to Disqualified Capital Stock, the quotient of the dividend or distribution divided by the difference between one and the maximum statutory federal income tax rate (expressed as a decimal number between 1 and 0) then applicable to the issuer of such Disqualified Capital Stock. "Redemption Date" when used with respect to any Note to be redeemed means the date fixed for such redemption pursuant to the terms of the Notes. "Refinancing Indebtedness" means Indebtedness that is issued in exchange for, or refunds, refinances, renews, replaces, defeases or extends in whole or in part any Indebtedness of the Issuer outstanding on the Issue Date or other Indebtedness permitted to be incurred by the Issuer or its Restricted Subsidiaries pursuant to the terms of this Indenture, but only to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes to at least the same extent as the Indebtedness being exchanged for, refunded, refinanced, renewed, replaced, defeased or extended, if at all, (ii) the Refinancing Indebtedness is scheduled to mature either (a) no earlier than the Indebtedness being refunded, refinanced or extended, or (b) after the maturity date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to mature on or prior to the maturity date of the Notes has a weighted average life to maturity at the time such Refinancing Indebtedness is incurred that is equal to or greater than the weighted average life to maturity of the portion of the Indebtedness being refunded, refinanced or extended that is scheduled to mature on or prior to the maturity date of the Notes, (iv) such Refinancing Indebtedness is in an aggregate principal amount that is equal to or less than the sum of (a) the aggregate principal amount then outstanding under the Indebtedness being refunded, refinanced or extended, (b) the amount of accrued and unpaid interest, if any, and premiums owed, if any, not in excess of preexisting prepayment provisions on such Indebtedness being refunded, refinanced or extended and (c) the amount of customary fees, expenses, and costs related to the incurrence of such Refinancing Indebtedness and (v) such Reifnancing Indebtedness is incurred by the same Person that initially incurred the Indebtedness being refunded, refinanced or extended, except that the Issuer or a Wholly-Owned Subsidiary thereof may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness of the Issuer or any Wholly-Owned Subsidiary of the Issuer. "Registration Rights Agreement" means the Registration Rights Agreement dated as of March 24, 1999 among the Issuer and CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities, LLC, as Initial Purchasers. "Regulation S" means Regulation S promulgated under the Securities Act. "Representative" means (a) so long as the Senior Credit Facility remains outstanding or any commitments thereunder remain in effect, the agent (or if there is more than one agent therefor, the administrative agent for the lender parties thereunder) and (b) thereafter the agent, indenture trustee, other trustee or other representative for any Senior Indebtedness. "Responsible Officer," when used with respect to the Trustee, means an officer or assistant officer assigned to the corporate trust department of the Trustee (or any successor group of the Trustee) including any vice president, assistant vice president, assistant secretary, treasurer or assistant treasurer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "Restricted Payment" means any of the following: (i) the declaration or payment of any dividend or any other distribution or payment on Capital Stock of the Issuer or any Restricted Subsidiary of the Issuer or any payment made to the direct or indirect holders (in their capacities as such) of Capital Stock of the Issuer or any Restricted Subsidiary of the Issuer (other than (x) dividends or distributions payable solely in Capital Stock (other than Disqualified Capital Stock) or in options, warrants or other rights to purchase Capital Stock (other than Disqualified Capital Stock) and (y) in the case of Restricted Subsidiaries of the Issuer, dividends or distributions payable to the Issuer or to a Wholly-Owned Subsidiary of the Issuer), (ii) the purchase, redemption or other acquisition or retirement for value of any Capital Stock of the Issuer or any of its Restricted Subsidiaries (other than Capital Stock owned by the Issuer or a Wholly-Owned Subsidiary of the Issuer, excluding Disqualified Capital Stock), (iii) the making of any principal payment on, or the purchase, defeasance, repurchase, redemption or other acquisition or retirement for value, prior to any scheduled maturity, scheduled repayment or scheduled sinking fund payment, of any Indebtedness which is subordinated in right of payment to the Notes other than subordinated Indebtedness acquired in anticipation of satisfying a scheduled sinking fund obligation, principal installment or final maturity (in each case due within one year of the date of acquisition), (iv) the making of any Investment or guarantee of any Investment in any Person other than a Permitted Investment, (v) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary on the basis of the Investment by the Issuer therein and (vi) forgiveness of any Indebtedness of an Affiliate of the Issuer (other than a Restricted Subsidiary) to the Issuer or a Restricted Subsidiary. For purposes of determining the amount expended for Restricted Payments, cash distributed or invested shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value determined by the Issuer's Board of Directors. "Restricted Subsidiary" means a Subsidiary of the Issuer other than an Unrestricted Subsidiary. The Board of Directors of the Issuer may designate any Unrestricted Subsidiary or any Person that is to become a Subsidiary as a Restricted Subsidiary if: (i) immediately after giving effect to such action (and treating any Acquired Indebtedness as having been incurred at the time of such action), the Issuer could have incurred at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06 and (ii) no Default or Event of Default shall have occurred and be continuing. The Issuer shall deliver an Officers' Certificate to the Holders upon designating any Unrestricted Subsidiary as a Restricted Subsidiary. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Sale and Lease-Back Transaction" means any arrangement with any Person providing for the leasing by the Issuer or any Restricted Subsidiary of the Issuer of any real or tangible personal Property, which Property has been or is to be sold or transferred by the Issuer or such Restricted Subsidiary to such Person in contemplation of such leasing. "S&P" means Standard & Poor's Ratings Services, a division of the McGraw-Hill Company, Inc. and its successors. "SEC" means the United States Securities and Exchange Commission as constituted from time to time or any successor performing substantially the same functions. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Facility" means the Amended and Restated Credit Agreement, dated as of March 24, 1999, among the Issuer, the banks, financial institutions and other institutional lenders from time to time party thereto, NationsBank, N.A., as the Swing Line Bank and the Initial Issuing Bank thereunder, NationsBanc Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as the Co-Arrangers therefor, Canadian Imperial Bank of Commerce, as Documentation Agent therefor, Morgan Stanley Senior Funding, Inc., as Syndication Agent thereunder, NationsBanc Montgomery Securities LLC, as Lead Arranger and Book Manager therefor, and NationsBank, N.A., as Administrative Agent for the lender parties thereunder, together with all "Loan Documents" as defined therein and all other documents related thereto (including, without limitation, any notes, guarantee agreements, security documents and Interest Rate Agreements), in each case as such agreements may be amended (including any amendment and restatement thereof), supplemented or otherwise modified from time to time, including any agreement extending the maturity of, refinancing, renewing, replacing or otherwise restructuring (including increasing the amount of available borrowings thereunder or adding Subsidiaries of the Issuer as additional borrowers or guarantors thereunder), in whole or in part, all or any portion of the Indebtedness under such agreement or any successor or replacement and whether by the same or any other agent, lender or group of lenders or other party thereto. "Senior Indebtedness" means the principal of and premium, if any, and interest (including, without limitation, Accrued Bankruptcy Interest) on, and any and all other fees, expense reimbursement obligations, indemnities and other amounts and Obligations incurred or owing pursuant to the terms of all agreements, documents and instruments providing for, creating, securing or evidencing or otherwise entered into in connection with (a) all Indebtedness of the Issuer under the Senior Credit Facility, (b) all obligations of the Issuer with respect to any Interest Rate Agreement, (c) all obligations of the Issuer to reimburse any bank or other Person in respect of amounts paid under letters of credit, acceptances or other similar instruments, (d) all other Indebtedness of the Issuer which does not expressly provide that it is to rank pari passu with or subordinate to the Notes and (e) all deferrals, renewals, extensions, refinancings, replacements and refundings in whole or in part of, and amendments, modifications, restatements and supplements to, any of the Senior Indebtedness described above. Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness will not include (i) Indebtedness of the Issuer to any of its Subsidiaries, except to the extent such Indebtedness is pledged as security under the Senior Credit Facility, (ii) Indebtedness represented by the Notes, (iii) any Indebtedness which by the express terms of the agreement or instrument creating, evidencing or governing the same is junior or subordinate in right of payment to any other item of Indebtedness of the Issuer (although this clause (iii) shall not apply to the subordination of liens or security interests covering property or assets securing Senior Indebtedness), (iv) any trade payable arising from the purchase of goods or materials or for services obtained in the ordinary course of business, or (v) liability for federal, state, local or other taxes owed or owing by the Issuer. "Subsidiary" of any specified Person means any corporation, partnership, limited liability company, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, officers or trustees thereof is held by such first-named Person or any of its Subsidiaries; or (ii) in the case of a partnership, limited liability company, joint venture, association or other business entity, with respect to which such first-named Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with the first-named Person for financial statement purposes. "Temporary Cash Investments" means (i) Investments in marketable direct obligations issued or guaranteed by the United States of America, or of any governmental agency or political subdivision thereof, maturing within 365 days of the date of purchase; (ii) Investments in certificates of deposit and time deposits issued by a lender under the Senior Credit Facility or by a bank (or subsidiary of a bank holding company) organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits at the time of investment totaling more than $500,000,000 and rated at the time of investment at least A by S&P and A-2 by Moody's maturing within 365 days of purchase; or (iii) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's or at least "A-1" (or the then equivalent grade) by S&P, in each case with a maturity of not more than 180 days from the date of acquisition thereof; or (iv) Investments not exceeding 365 days in duration in money market funds that invest substantially all of such funds' assets in the Investments described in the preceding clauses (i), (ii), and (iii). "THL" means Thomas H. Lee Equity Fund IV, L.P. "THL Fees" means (i) management fees under the management agreement between the Issuer and THL and its Affiliates and successors and assigns that do not exceed $750,000 per year and the reimbursement of expenses pursuant thereto, provided that the amount of such management fees paid per year shall increase to $1,500,000 if at the time of such payment the Issuer could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06 and (ii) one time fees to THL in connection with each acquisition of a company or a line of business by the Issuer or its Subsidiaries, such fees to be payable at the time of each such acquisition and not to exceed 1% of the aggregate consideration paid by the Issuer and its Subsidiaries for any such acquisition. "THL Group Member" means THL and any Affiliate thereof (including any equity fund advised by any such Affiliate) (other than any of their portfolio companies). "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of this Indenture (except as provided in Section 8.03 hereof). "Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor. "Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such Person that at the time of determination shall be or continue to be designated an Unrestricted Subsidiary by the Board of Directors of such Person in the manner provided below; and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary (including any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any property of, the Issuer or any other Subsidiary of the Issuer that is not a Subsidiary of the Subsidiary to be so designated; provided that (i) such designation complies with Section 4.09; and (ii) each Subsidiary to be so designated and each of its Subsidiaries has not at the time of designation, and does not thereafter, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable with respect to any Indebtedness pursuant to which the lender has recourse to any of the assets of the Issuer or any of its Restricted Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary only if (i) immediately after giving effect to such designation and treating all Indebtedness of such Unrestricted Subsidiary as being incurred on such date, the Issuer is able to incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.06; and (ii) immediately before and immediately after giving effect to such designation, no Default or Event of Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced by the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. The Trustee shall be given prompt notice by the Issuer of each Board Resolution of the Issuer under this provision, together with a copy of each such resolution adopted. "U.S. Government Obligations" means (a) securities that are direct obligations of the United States of America for the payment of which its full faith and credit are pledged or (b) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such U.S. Government Obligation or a specific payment of principal of or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt; provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the U.S. Government Obligation or a specific payment of principal or interest on any such U.S. Government Obligation held by such custodian for the account of the holder of such depository receipt. "Wholly-Owned Subsidiary" of a specified Person means any Subsidiary (or, if such specified Person is the Issuer, a Restricted Subsidiary), all of the outstanding voting securities (other than directors' qualifying shares) of which are owned, directly or indirectly, by such Person. Section 1.02. Other Definitions. The definitions of the following terms may be found in the sections indicated as follows: Term Defined in Section - ---- ------------------ "Affiliate Transaction".................... 4.11(a) "Agent Members"............................ 2.16(a) "Bankruptcy Law"........................... 6.01 "Business Day"............................. 12.07 "CEDEL" 2.16(a) "Change of Control Offer".................. 4.19(a) "Change of Control Payment Date"........... 4.19(b) "Change of Control Purchase Price" 4.19(a) "Covenant Defeasance"...................... 9.03 "Custodian"................................ 6.01 "Euroclear"................................ 2.16(a) "Event of Default"......................... 6.01 "Excess Proceeds Offer".................... 4.10(a) "Global Notes"............................. 2.16(a) "Guarantee Payment Blockage Period"........ 10.07(b) "Guarantor Representative.................. 10.07(a) "Initial Blockage Period".................. 11.03(b) "Initial Guarantee Blockage Period"........ 10.07(b) "Legal Defeasance"......................... 9.02 "Legal Holiday"............................ 12.07 "Offer Period"............................. 4.10(b) "Other Notes".............................. 2.02 "Paying Agent"............................. 2.03 "Payment Blockage Period".................. 11.03(b) "Purchase Date"............................ 4.10(b) "Registrar"................................ 2.03 "Regulation S Global Notes"................ 2.16(a) "Regulation S Notes"....................... 2.02 "Reinvestment Date"........................ 4.10(a) "Restricted Global Note"................... 2.16(a) "Restricted Period"........................ 2.16(f) "Rule 144A Notes".......................... 2.02 "Subordinated Obligations"................. 11.01 Section 1.03. Incorporation by Reference of Trust Indenture Act. Whenever this Indenture refers to a provision of the TIA, the portion of such provision required to be incorporated herein in order for this Indenture to be qualified under the TIA is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Notes. "indenture securityholder" means a Noteholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor on the indenture securities" means the Issuer, the Guarantors or any other obligor on the Notes. All other terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings therein assigned to them. Section 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it herein, whether defined expressly or by reference; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) words used herein implying any gender shall apply to every gender; and (6) whenever in this Indenture there is mentioned, in any context, principal, interest or any other amount payable under or with respect to any Note, such mention shall be deemed to include mention of the payment of Additional Interest to the extent that, in such context, Additional Interest is, was or would be payable in respect thereof. ARTICLE 2 THE NOTES Section 2.01. Amount of Notes. The Trustee shall authenticate Notes for original issue on the Issue Date in the aggregate principal amount of $150,000,000, upon a written order of the Issuer in the form of an Officers' Certificate of the Issuer. Such written order shall specify the amount of Notes to be authenticated and the date on which the Notes are to be authenticated. Upon receipt of an Issuer Request and an Officers' Certificate certifying that a registration statement relating to an exchange offer specified in the Registration Rights Agreement is effective and that the conditions precedent to a private exchange thereunder have been met, the Trustee shall authenticate an additional series of Notes in an aggregate principal amount not to exceed $150,000,000 for issuance in exchange for the Notes tendered for exchange pursuant to such exchange offer registered under the Securities Act not bearing the Private Placement Legend or pursuant to a Private Exchange. Exchange Notes or Private Exchange Notes may have such distinctive series designations and such changes in the form thereof as are specified in the Issuer Request referred to in the preceding sentence. Section 2.02. Form and Dating. The Notes and the Trustee's certificate of authentication with respect thereto shall be substantially in the form set forth in Exhibit A, which is incorporated in and forms a part of this Indenture. The Notes may have notations, legends or endorsements required by law, rule or usage to which the Issuer are subject. Any such notations, legends or endorsements shall be furnished to the Trustee in writing. Without limiting the generality of the foregoing, Notes offered and sold to Qualified Institutional Buyers in reliance on Rule 144A ("Rule 144A Notes") shall bear the legend and include the form of assignment set forth in Exhibit B, Notes offered and sold in offshore transactions in reliance on Regulation S ("Regulation S Notes") shall bear the legend and include the form of assignment set forth in Exhibit C, and Notes offered and sold to Institutional Accredited Investors in transactions exempt from registration under the Securities Act not made in reliance on Rule 144A or Regulation S ("Other Notes") shall be represented by Physical Notes bearing the Private Placement Legend. Each Note shall be dated the date of its authentication. The terms and provisions contained in the Notes shall constitute, and are expressly made, a part of this Indenture and, to the extent applicable, the Issuer and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and agree to be bound thereby. The Notes may be presented for registration of transfer and exchange at the offices of the Registrar in the Borough of Manhattan. Section 2.03. Execution and Authentication. Two Officers shall sign, or one Officer shall sign and one Officer (each of whom shall, in each case, have been duly authorized by all requisite corporate actions) shall attest to, the Notes for the Issuer by manual or facsimile signature. If an Officer whose signature is on a Note was an Officer at the time of such execution but no longer holds that office at the time the Trustee authenticates the Note, the Note shall be valid nevertheless. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Note a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder. Notwithstanding the foregoing, if any Note shall have been authenticated and delivered hereunder but never issued and sold by the Issuer, and the Issuer shall deliver such Note to the Trustee for cancellation as provided in Section 2.12, for all purposes of this Indenture such Note shall be deemed never to have been authenticated and delivered hereunder and shall never be entitled to the benefits of this Indenture. The Trustee may appoint an authenticating agent reasonably acceptable to the Issuer to authenticate the Notes. Unless otherwise provided in the appointment, an authenticating agent may authenticate the Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Issuer and Affiliates of the Issuer. Each Paying Agent is designated as an authenticating agent for purposes of this Indenture. The Notes shall be issuable only in registered form without coupons in denominations of $1,000 and any integral multiple thereof. Section 2.04. Registrar and Paying Agent. The Issuer shall maintain an office or agency (which shall be located in the Borough of Manhattan in The City of New York, State of New York) where Notes may be presented for registration of transfer or for exchange (the "Registrar"), and an office or agency where Notes may be presented for payment (the "Paying Agent") and an office or agency where notices and demands to or upon the Issuer, if any, in respect of the Notes and this Indenture may be served. The Issuer hereby initially designates the office of State Street Bank and Trust Company, 61 Broadway, New York, New York, ATTN: Corporate Trust Division, as their office or agency in the Borough of Manhattan, The City of New York. The Registrar shall keep a register of the Notes and of their transfer and exchange. The Issuer may have one or more additional Paying Agents. The term "Paying Agent" includes any additional Paying Agent. Neither the Issuer nor any Affiliate thereof may act as Paying Agent. The Issuer may change any Paying Agent or Registrar without notice to any Noteholder. The Issuer shall enter into an appropriate agency agreement with any Agent not a party to this Indenture, which shall incorporate the provisions of the TIA. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Issuer shall notify the Trustee of the name and address of any such Agent. If the Issuer fail to maintain a Registrar or Paying Agent, or fail to give the foregoing notice, the Trustee shall act as such and shall be entitled to compensation in accordance with Section 7.07. The Issuer initially designate the Corporate Trust Office of the Trustee as Registrar, Paying Agent and agent for service of notices and demands in connection with the Notes and this Indenture. Section 2.05. Paying Agent to Hold Money in Trust. Each Paying Agent shall hold in trust for the benefit of the Noteholders or the Trustee all money held by the Paying Agent for the payment of principal of or premium or interest on the Notes (whether such money has been paid to it by the Issuer or any other obligor on the Notes), and the Issuer and the Paying Agent shall notify the Trustee of any default by the Issuer (or any other obligor on the Notes) in making any such payment. Money held in trust by the Paying Agent need not be segregated except as required by law and in no event shall the Paying Agent be liable for any interest on any money received by it hereunder. The Issuer at any time may require the Paying Agent to pay all money held by it to the Trustee and account for any funds disbursed and the Trustee may at any time during the continuance of any Event of Default specified in Section 6.01(1) or (2), upon written request to the Paying Agent, require such Paying Agent to pay forthwith all money so held by it to the Trustee and to account for any funds disbursed. Upon making such payment, the Paying Agent shall have no further liability for the money delivered to the Trustee. Section 2.06. Noteholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Noteholders. If the Trustee is not the Registrar, the Issuer shall furnish to the Trustee at least five Business Days before each Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Noteholders. Section 2.07. Transfer and Exchange. Subject to Sections 2.16 and 2.17, when Notes are presented to the Registrar with a request from the Holder of such Notes to register a transfer or to exchange them for an equal principal amount of Notes of other authorized denominations, the Registrar shall register the transfer as requested. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Registrar, duly executed by the Holder thereof or his attorneys duly authorized in writing. To permit registrations of transfers and exchanges, the Issuer shall issue and execute and the Trustee shall authenticate new Notes evidencing such transfer or exchange at the Registrar's request. No service charge shall be made to the Noteholder for any registration of transfer or exchange. The Issuer may require from the Noteholder payment of a sum sufficient to cover any transfer taxes or other governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to Section 2.11, 3.06, 4.10, 4.19 or 8.05 (in which events the Issuer shall be responsible for the payment of such taxes). The Trustee shall not be required to exchange or register a transfer of any Note for a period of 15 days immediately preceding the selection of Notes to be redeemed or any Note selected for redemption. Any Holder of the Global Note shall, by acceptance of such Global Note, agree that transfers of the beneficial interests in such Global Note may be effected only through a book entry system maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Global Note shall be required to be reflected in a book entry. Each Holder of a Note agrees to indemnify the Issuer, the Registrar and the Trustee against any liability that may result from the transfer, exchange or assignment of such Holder's Note in violation of any provision of this Indenture and/or applicable U.S. Federal or state securities law. Except as expressly provided herein, neither the Trustee nor the Registrar shall have any duty to monitor the Issuer's compliance with or have any responsibility with respect to the Issuer's compliance with any Federal or state securities laws. Section 2.08. Replacement Notes. If a mutilated Note is surrendered to the Registrar or the Trustee, or if the Holder of a Note claims that the Note has been lost, destroyed or wrongfully taken, the Issuer shall issue and the Trustee shall authenticate a replacement Note if the Holder of such Note furnishes to the Issuer and the Trustee evidence reasonably acceptable to them of the ownership and the destruction, loss or theft of such Note and if the requirements of Section 8-405 of the New York Uniform Commercial Code as in effect on the date of this Indenture are met. If required by the Trustee or the Issuer, an indemnity bond shall be posted, sufficient in the judgment of both to protect the Issuer, the Trustee or any Paying Agent from any loss that any of them may suffer if such Note is replaced. The Issuer may charge such Holder for the Issuer' reasonable out-of-pocket expenses in replacing such Note and the Trustee may charge the Issuer for the Trustee's expenses (including, without limitation, attorneys' fees and disbursements) in replacing such Note. Every replacement Note shall constitute an additional contractual obligation of the Issuer, subject to Section 2.09. Section 2.09. Outstanding Notes. The Notes outstanding at any time are all Notes that have been authenticated by the Trustee except for (a) those canceled by it, (b) those delivered to it for cancellation, (c) to the extent set forth in Sections 9.01 and 9.02, on or after the date on which the conditions set forth in Section 9.01 or 9.02 have been satisfied, those Notes theretofore authenticated and delivered by the Trustee hereunder and (d) those described in this Section 2.09 as not outstanding. Subject to Section 2.10, a Note does not cease to be outstanding because an Issuer or one of its Affiliates holds the Note. If a Note is replaced pursuant to Section 2.08, it ceases to be outstanding unless the Trustee receives written notice that the replaced Note is held by a bona fide purchaser in whose hands such Note is a legal, valid and binding obligation of the Issuer. If the Paying Agent holds, in its capacity as such, on any Maturity Date or on any optional redemption date, money sufficient to pay all accrued interest and principal with respect to the Notes payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture, then on and after that date such Notes cease to be outstanding and interest on them ceases to accrue. Section 2.10. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any declaration of acceleration or notice of default or direction, waiver or consent or any amendment, modification or other change to this Indenture, Notes owned by an Issuer or any Affiliate of an Issuer shall be disregarded as though they were not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such declaration, notice, direction, waiver or consent or any amendment, modification or other change to this Indenture, only Notes as to which a Responsible Officer of the Trustee has received an Officers' Certificate stating that such Notes are so owned shall be so disregarded. Notes so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes the pledgee's right so to act with respect to the Notes and that the pledgee is not either of the Issuer, any other obligor or guarantor on the Notes or any of their respective Affiliates. Section 2.11. Temporary Notes. Until definitive Notes are prepared and ready for delivery, the Issuer may prepare and the Trustee shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of definitive Notes but may have variations that the Issuer consider appropriate for temporary Notes. Without unreasonable delay, the Issuer shall prepare and the Trustee shall authenticate definitive Notes in exchange for temporary Notes. Until such exchange, temporary Notes shall be entitled to the same rights, benefits and privileges as definitive Notes. Section 2.12. Cancellation. The Issuer at any time may deliver Notes to the Trustee for cancellation. The Registrar and the Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall (subject to the record-retention requirements of the Exchange Act) destroy canceled Notes and deliver a certificate of destruction thereof to the Issuer. The Issuer may not reissue or resell, or issue new Notes to replace, Notes that the Issuer have redeemed or paid, or that have been delivered to the Trustee for cancellation. Section 2.13. Defaulted Interest. If the Issuer defaults on a payment of interest on the Notes, they shall pay the defaulted interest, plus (to the extent permitted by law) any interest payable on the defaulted interest, pursuant to Section 4.01 hereof, to the Persons who are Noteholders on a subsequent special record date, which date shall be at least five Business Days prior to the payment date. The Issuer shall fix such special record date and payment date and provide the Trustee at least 20 days notice of the proposed amount of defaulted interest to be paid and the special payment date and at the same time the Issuer shall deposit with the Trustee the aggregate amount proposed to be paid in respect of such defaulted interest. At least 15 days before such special record date, the Issuer shall mail to each Noteholder a notice that states the special record date, the payment date and the amount of defaulted interest, and interest payable on defaulted interest, if any, to be paid. The Issuer may make payment of any defaulted interest in any other lawful manner not inconsistent with the requirements (if applicable) of any securities exchange on which the Notes may be listed and, upon such notice as may be required by such exchange, if, after written notice given by the Issuer to the Trustee of the proposed payment pursuant to this sentence, such manner of payment shall be deemed practicable by the Trustee. Section 2.14. CUSIP Number. The Issuer in issuing the Notes may use a "CUSIP" number, and if so, such CUSIP number shall be included in notices of redemption or exchange as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Notes, and that reliance may be placed only on the other identification numbers printed on the Notes. The Issuer shall promptly notify the Trustee of any such CUSIP number used by the Issuer in connection with the issuance of the Notes and of any change in the CUSIP number. Section 2.15. Deposit of Moneys. Prior to 11:00 a.m., New York City time, on each Interest Payment Date and Maturity Date, the Issuer shall have deposited with the Paying Agent in immediately available funds money sufficient to make cash payments, if any, due on such Interest Payment Date or Maturity Date, as the case may be, in a timely manner which permits the Trustee to remit payment to the Holders on such Interest Payment Date or Maturity Date, as the case may be. The principal and interest on Global Notes shall be payable to the Depository or its nominee, as the case may be, as the sole registered owner and the sole holder of the Global Notes represented thereby. The principal and interest on Physical Notes shall be payable at the office of the Paying Agent. The Issuer shall deliver an Officers' Certificate to the Trustee, at least 5 business days before any applicable payment date, setting forth the amount of Additional Interest due per $1,000 aggregate principal amount of Notes. Section 2.16. Book-Entry Provisions for Global Notes. (a) Rule 144A Notes initially shall be represented by one or more notes in registered, global form without interest coupons (collectively, the "Restricted Global Note"). Regulation S Notes initially shall be represented by one or more notes in registered, global form without interest coupons (collectively, the "Regulation S Global Note," and, together with the Restricted Global Note and any other global notes representing Notes, the "Global Notes"). The Global Notes shall bear legends as set forth in Exhibit D. The Global Notes initially shall (i) be registered in the name of the Depository or the nominee of such Depository, in each case for credit to an account of an Agent Member (or, in the case of the Regulation S Global Notes, Agent Members of the Depository holding for Euroclear System ("Euroclear") and Cedel Bank, S.A. ("CEDEL")), (ii) be delivered to the Trustee as custodian for such Depository and (iii) bear legends as set forth in Exhibit B with respect to Restricted Global Notes and Exhibit C with respect to Regulation S Global Notes. Members of, or direct or indirect participants in, the Depository ("Agent Members") shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depository, or the Trustee as its custodian, or under the Global Notes, and the Depository may be treated by the Issuer, the Trustee and any agent of the Issuer or the Trustee as the absolute owner of the Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Trustee or any agent of the Issuer or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depository or impair, as between the Depository and its Agent Members, the operation of customary practices governing the exercise of the rights of a Holder of any Note. (b) Transfers of Global Notes shall be limited to transfer in whole, but not in part, to the Depository, its successors or their respective nominees. Interests of beneficial owners in the Global Notes may be transferred or exchanged for Physical Notes in accordance with the rules and procedures of the Depository and the provisions of Section 2.17. In addition, a Global Note shall be exchangeable for Physical Notes if (i) the Depository (x) notifies the Issuer that it is unwilling or unable to continue as depository for such Global Note and the Issuer thereupon fail to appoint a successor depository or (y) has ceased to be a clearing agency registered under the Exchange Act, (ii) the Issuer, at their option, notify the Trustee in writing that they elect to cause the issuance of such Physical Notes or (iii) there shall have occurred and be continuing a Default or an Event of Default with respect to the Notes. In all cases, Physical Notes delivered in exchange for any Global Note or beneficial interests therein shall be registered in the names, and issued in any approved denominations, requested by or on behalf of the Depository (in accordance with its customary procedures). (c) In connection with any transfer or exchange of a portion of the beneficial interest in any Global Note to beneficial owners pursuant to paragraph (b), the Registrar shall (if one or more Physical Notes are to be issued) reflect on its books and records the date and a decrease in the principal amount of the Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Issuer shall execute, and the Trustee shall upon receipt of a written order from the Issuer authenticate and make available for delivery, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of Global Notes as an entirety to beneficial owners pursuant to paragraph (b), the Global Notes shall be deemed to be surrendered to the Trustee for cancellation, and the Issuer shall execute, and the Trustee shall authenticate and deliver, to each beneficial owner identified by the Depository in writing in exchange for its beneficial interest in the Global Notes, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note constituting a Restricted Note delivered in exchange for an interest in a Global Note pursuant to paragraph (b), (c) or (d) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c) of Section 2.17, bear the Private Placement Legend or, in the case of the Regulation S Global Note, the legend set forth in Exhibit C, in each case, unless the Issuer determine otherwise in compliance with applicable law. (f) On or prior to the 40th day after the later of the commencement of the offering of the Notes represented by a Regulation S Global Note and the original issue date of such Notes (such period through and including such 40th day, the "Restricted Period"), a beneficial interest in the Regulation S Global Note may be held only through Euroclear or CEDEL, as indirect participants in DTC, unless transferred to a Person who takes delivery in the form of an interest in the corresponding Restricted Global Note, only upon receipt by the Trustee of a written certification from the transferor to the effect that such transfer is being made (i)(a) to a Person who the transferor reasonably believes is a Qualified Institutional Buyer in a transaction meeting the requirements of Rule 144A or (b) pursuant to another exemption from the registration requirements under the Securities Act which is accompanied by an opinion of counsel regarding the availability of such exemption and (ii) in accordance with all applicable securities laws of any state of the United States or any other jurisdiction. (g) Beneficial interests in the Restricted Global Note may be transferred to a Person who takes delivery in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Restricted Period, only if the transferor first delivers to the Trustee a written certificate to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or CEDEL. (h) Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of an interest in another Global Note shall, upon transfer, cease to be an interest in such Global Note and become an interest in such other Global Note and, accordingly, shall thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such other Global Note for as long as it remains such an interest. (i) The Holder of any Global Note may grant proxies and otherwise authorize any Person, including Agent Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Notes. Section 2.17. Special Transfer Provisions. (a) Transfers to Non-QIB Institutional Accredited Investors and Non-U.S. Persons. The following provisions shall apply with respect to the registration of any proposed transfer of a Note constituting a Restricted Note to any Institutional Accredited Investor which is not a QIB or to any Non-U.S. Person: (i) the Registrar shall register the transfer of any Note constituting a Restricted Note, whether or not such Note bears the Private Placement Legend, if (x) the requested transfer is after March 24, 2001 or such other date as such Note shall be freely transferable under Rule 144 as certified in an Officers' Certificate or (y) (1) in the case of a transfer to an Institutional Accredited Investor which is not a QIB (excluding Non-U.S. Persons), the proposed transferee has delivered to the Registrar a certificate substantially in the form of Exhibit E hereto or (2) in the case of a transfer to a Non-U.S. Person (including a QIB), the proposed transferor has delivered to the Registrar a certificate substantially in the form of Exhibit F hereto; provided that in the case of a transfer of a Note bearing the Private Placement Legend for a Note not bearing the Private Placement Legend, the Registrar has received an Officers' Certificate authorizing such transfer; and (ii) if the proposed transferor is an Agent Member holding a beneficial interest in a Global Note, upon receipt by the Registrar of (x) the certificate, if any, required by paragraph (i) above and (y) instructions given in accordance with the Depository's and the Registrar's procedures, whereupon (a) the Registrar shall reflect on its books and records the date and (if the transfer does not involve a transfer of outstanding Physical Notes) a decrease in the principal amount of a Global Note in an amount equal to the principal amount of the beneficial interest in a Global Note to be transferred, and (b) the Registrar shall reflect on its books and records the date and an increase in the principal amount of a Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note transferred or the Issuer shall execute and the Trustee shall authenticate and make available for delivery one or more Physical Notes of like tenor and amount. (b) Transfers to QIBs. The following provisions shall apply with respect to the registration of any proposed registration of transfer of a Note constituting a Restricted Note to a QIB (excluding transfers to Non-U.S. Persons): (i) the Registrar shall register the transfer if such transfer is being made by a proposed transferor who has checked the box provided for on such Holder's Note stating, or has otherwise advised the Issuer and the Registrar in writing, that the sale has been made in compliance with the provisions of Rule 144A to a transferee who has signed the certification provided for on such Holder's Note stating, or has otherwise advised the Issuer and the Registrar in writing, that it is purchasing the Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a QIB within the meaning of Rule 144A, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as it has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon its foregoing representations in order to claim the exemption from registration provided by Rule 144A; and (ii) if the proposed transferee is an Agent Member, and the Notes to be transferred consist of Physical Notes which after transfer are to be evidenced by an interest in the Restricted Global Note, upon receipt by the Registrar of instructions given in accordance with the Depository's and the Registrar's procedures, the Registrar shall reflect on its books and records the date and an increase in the principal amount of the Restricted Global Note in an amount equal to the principal amount of the Physical Notes to be transferred, and the Trustee shall cancel the Physical Notes so transferred. (c) Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes not bearing the Private Placement Legend, the Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the registration of transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Registrar shall deliver only Notes that bear the Private Placement Legend unless (i) it has received the Officers' Certificate required by paragraph (a)(i)(x) of this Section 2.17, (ii) there is delivered to the Registrar an Opinion of Counsel reasonably satisfactory to the Issuer to the effect that neither such legend nor the related restrictions on transfer are required in order to maintain compliance with the provisions of the Securities Act or (iii) such Note has been sold pursuant to an effective registration statement under the Securities Act and the Registrar has received an Officers' Certificate from the Issuer to such effect. (d) General. By its acceptance of any Note bearing the Private Placement Legend, each Holder of such Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. The Registrar shall retain for a period of two years copies of all letters, notices and other written communications received pursuant to Section 2.16 or this Section 2.17. The Issuer shall have the right to inspect and make copies of all such letters, notices or other written communications at any reasonable time upon the giving of reasonable notice to the Registrar. Section 2.18. Computation of Interest. Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. ARTICLE 3 REDEMPTION Section 3.01. Notices to Trustee. If the Issuer elects to redeem Notes pursuant to paragraph 6 of the Notes, at least 30 days prior to the Redemption Date or during such other period as the Trustee may agree to (which agreement shall not unreasonably be withheld) the Issuer shall notify the Trustee in writing of the Redemption Date, the principal amount of Notes to be redeemed and the redemption price, and deliver to the Trustee an Officers' Certificate stating that such redemption will comply with the conditions contained in paragraph 6 of the Notes, as appropriate. Section 3.02. Selection by Trustee of Notes to Be Redeemed. In the event that fewer than all of the Notes are to be redeemed, the Trustee shall select the Notes to be redeemed, if the Notes are listed on a national securities exchange, in accordance with the rules of such exchange or, if the Notes are not so listed, either on a pro rata basis or by lot, or such other method as it shall deem fair and equitable; provided, however, that the Issuer shall have previously notified the Trustee in writing of any such exchange on which the Notes are listed, and provided, further, that if a partial redemption is made with the proceeds of a Qualified Public Offering, selection of the Notes or portion thereof for redemption shall be made by the Trustee on a pro rata basis, unless such a method is prohibited. The Trustee shall promptly notify the Issuer of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. The Trustee may select for redemption portions of the principal of the Notes that have denominations larger than $1,000. Notes and portions thereof the Trustee selects shall be redeemed in amounts of $1,000 or whole multiples of $1,000. For all purposes of this Indenture unless the context otherwise requires, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. At least 30 days, and no more than 60 days, before a Redemption Date, the Issuer shall mail, or cause to be mailed, a notice of redemption by first-class mail to each Holder of Notes to be redeemed at his or her last address as the same appears on the registry books maintained by the Registrar pursuant to Section 2.03 hereof. The notice shall identify the Notes to be redeemed (including the CUSIP numbers thereof) and shall state: (1) the Redemption Date; (2) the redemption price and the amount of premium and accrued interest to be paid; (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date and upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion will be issued; (4) the name and address of the Paying Agent; (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (6) that unless the Issuer defaults in making the redemption payment, interest on Notes called for redemption ceases to accrue on and after the Redemption Date; (7) the provision of paragraph 6 of the Notes pursuant to which the Notes called for redemption are being redeemed; and (8) the aggregate principal amount of Notes that are being redeemed. At the Issuer's written request made at least five Business Days prior to the date on which notice is to be given, the Trustee shall give the notice of redemption in the Issuer's name and at the Issuer's sole expense. Section 3.04. Effect of Notice of Redemption. Once the notice of redemption described in Section 3.03 is mailed, Notes called for redemption become due and payable on the Redemption Date and at the redemption price, including any premium, plus interest accrued to the Redemption Date. Upon surrender to the Paying Agent, such Notes shall be paid at the redemption price, including any premium, plus interest accrued to the Redemption Date, provided that if the Redemption Date is after a regular record date and on or prior to the Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Notes registered on the relevant record date, and provided, further, that if a Redemption Date is a Legal Holiday, payment shall be made on the next succeeding Business Day and no interest shall accrue for the period from such Redemption Date to such succeeding Business Day. Section 3.05. Deposit of Redemption Price. On or prior to 11:00 A.M., New York City time, on each Redemption Date, the Issuer shall deposit with the Paying Agent in immediately available funds money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date other than Notes or portions thereof called for redemption on that date which have been delivered by the Issuer to the Trustee for cancellation. On and after any Redemption Date, if money sufficient to pay the redemption price of, premium, if any, and accrued interest on Notes called for redemption shall have been made available in accordance with the preceding paragraph, the Notes called for redemption will cease to accrue interest and the only right of the Holders of such Notes will be to receive payment of the redemption price of, premium, if any, and, subject to the first proviso in Section 3.04, accrued and unpaid interest on such Notes to the Redemption Date. If any Note surrendered for redemption shall not be so paid, interest will be paid, from the Redemption Date until such redemption payment is made, on the unpaid principal of the Note and any interest not paid on such unpaid principal, in each case, at the rate and in the manner provided in the Notes. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Trustee shall authenticate for a Holder a new Note equal in principal amount to the unredeemed portion of the Note surrendered. ARTICLE 4 COVENANTS Section 4.01. Payment of Notes. The Issuer shall pay the principal of and interest (including all Additional Interest as provided in the Registration Rights Agreement) on the Notes on the dates and in the manner provided in the Notes and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date money designated for and sufficient to pay such installment. The Issuer shall pay interest on overdue principal (including post-petition interest in a proceeding under any Bankruptcy Law), and overdue interest, to the extent lawful, at the rate specified in the Notes. Section 4.02. SEC Reports. (a) The Issuer will file with the SEC all information, documents and reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, whether or not the Issuer is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act; provided, however, that the Issuer shall not be required to make any such filings prior to the date on which the Issuer's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999 would have been required to be filed, if, at the time such filings would have been required to be made with the SEC, either (i) the Issuer shall have provided to each Holder of the Notes the information that would have been required to be filed or (ii) the Exchange Registration Statement (as such term is defined in the Registration Rights Agreement) has been filed with the SEC but has not yet been declared effective and copies of the Exchange Offer Registration Statement and any amendments thereto (to the extent such Registration Statement and/or amendments contain additional information not disclosed in the Offering Memorandum that would have been the subject of a filing required to be made under Section 13 or 15(d) of the Exchange Act) have been provided to each Holder of the Notes, provided that any exhibits to the Exchange Registration Statement (or any amendments thereto) need not be delivered to any Holder of the Notes, but sufficient copies thereof shall be furnished to the Trustee as reasonably requested to permit the Trustee to deliver any such exhibits to any Holder of the Notes upon request. The Issuer (at its own expense) will file with the Trustee within 15 days after the Issuer files them with the SEC, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the SEC may by rules and regulations prescribe) which the Issuer files with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Upon qualification of this Indenture under the TIA, the Issuer shall also comply with the provisions of TIA ss. 314(a). Delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer's compliance with any of its covenants hereunder (as to which the Trustee is entitled to rely exclusively on Officers' Certificates). (b) At the Issuer's expense, regardless of whether the Issuer is required to furnish such reports and other information referred to in paragraph (a) above to its equityholders pursuant to the Exchange Act, the Issuer shall cause such reports and other information to be mailed to the Holders at their addresses appearing in the register of Notes maintained by the Registrar within 15 days after they file them with the SEC. (c) The Issuer shall, upon request, provide to any Holder of Notes or any prospective transferee of any such Holder any information concerning the Issuer (including financial statements) necessary in order to permit such Holder to sell or transfer Notes in compliance with Rule 144A under the Securities Act; provided, however, that the Issuer shall not be required to furnish such information in connection with any request made on or after the date which is two years from the later of (i) the date such Note (or any predecessor Note) was acquired from the Issuer or (ii) the date such Note (or any predecessor Note) was last acquired from an "affiliate" of the Issuer within the meaning of Rule 144 under the Securities Act. Section 4.03. Waiver of Stay, Extension or Usury Laws. The Issuer covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, or plead (as a defense or otherwise) or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law or any usury law or other law which would prohibit or forgive the Issuer from paying all or any portion of the principal of, premium, if any, and/or interest on the Notes as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that it may lawfully do so) the Issuer hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 4.04. Compliance Certificate. (a) The Issuer shall deliver to the Trustee, within 100 days after the end of each fiscal year and on or before 55 days after the end of the first, second and third quarters of each fiscal year, an Officers' Certificate (one of the signers on behalf of the Issuer of which shall be the principal executive officer, principal financial officer or principal accounting officer of the Issuer) stating that a review of the activities of the Issuer and its Subsidiaries during such fiscal year or fiscal quarter, as the case may be, has been made under the supervision of the signing Officers with a view to determining whether the Issuer has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Issuer has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action they are taking or propose to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Issuer is taking or propose to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered pursuant to Section 4.02 above shall be accompanied by a written statement of the Issuer's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements nothing has come to their attention which would lead them to believe that the Issuer has violated any provisions of this Article 4 or Article 5 of this Indenture or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly for any failure to obtain knowledge of any such violation. (c) The Issuer will, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Issuer is taking or proposes to take with respect thereto. (d) The Issuer's fiscal year currently ends on December 31. The Issuer will provide notice to the Trustee of any change in fiscal year. Section 4.05. Taxes. The Issuer shall, and shall cause each of its Subsidiaries to, pay prior to delinquency all material taxes, assessments, and governmental levies except as contested in good faith and by appropriate proceedings or where such failure to effect such payment will not have a Material Adverse Effect. Section 4.06. Limitation on Additional Indebtedness. (a) The Issuer shall not, and shall not permit any Restricted Subsidiary of the Issuer to, directly or indirectly, incur any Indebtedness (including Acquired Indebtedness and including Disqualified Capital Stock); provided that the Issuer or any of the Guarantors may incur Indebtedness (including Acquired Indebtedness or Disqualified Capital Stock) if (1) after giving effect to the incurrence of such Indebtedness and the receipt and application of the proceeds thereof, the Issuer's Consolidated Fixed Charge Coverage Ratio is at least 2.0 to 1 and (2) no Default or Event of Default shall have occurred and be continuing at the time or as a consequence of the incurrence of such Indebtedness. (b) Notwithstanding the foregoing, the Issuer and its Restricted Subsidiaries may incur Permitted Indebtedness; provided that the Issuer will not incur any Permitted Indebtedness that ranks junior in right of payment to the Notes that has a maturity or mandatory sinking fund payment prior to the maturity of the Notes. (c) For purposes of determining compliance with this covenant, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Indebtedness or is entitled to be incurred pursuant to paragraph (a) of this Section 4.06, the Issuer will, in its sole discretion, classify such item of Indebtedness in any manner that complies with this covenant and such item of Indebtedness will be treated as having been incurred pursuant to only one of the clauses in the definition of Permitted Indebtedness or pursuant to paragraph (a) hereof. Accrual of interest and the accretion of accreted value will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.06. Section 4.07. Limitation on Preferred Stock of Restricted Subsidiaries. The Issuer shall not permit any Restricted Subsidiary to issue any Preferred Stock (except Preferred Stock to the Issuer or a Restricted Subsidiary) or permit any Person (other than the Issuer or a Restricted Subsidiary) to hold any such Preferred Stock unless the Issuer or such Restricted Subsidiary would be entitled to incur or assume Indebtedness under paragraph (a) of Section 4.06 hereof in an aggregate principal amount equal to the aggregate liquidation value of the Preferred Stock to be issued. Section 4.08. Limitation on Capital Stock of Subsidiaries. The Issuer shall not (i) sell, pledge, hypothecate or otherwise convey or dispose of any Capital Stock of a Subsidiary (other than Liens under the Senior Credit Facility or under the terms of any Designated Senior Indebtedness and Liens not prohibited by Section 4.12) other than to the Issuer or another Restricted Subsidiary or (ii) permit any of its Subsidiaries to issue any Capital Stock (other than director's qualifying shares), other than (a) to the Issuer or a Wholly-Owned Subsidiary of the Issuer or (b) to any other shareholder of such Subsidiary (including to another Subsidiary) in an amount not to exceed such shareholders' proportionate share of any dividend, distribution or other issuance to all shareholders. The foregoing restrictions shall not apply to an Asset Sale made in compliance with Section 4.10 hereof or the issuance of Preferred Stock in compliance with Section 4.07 hereof. Section 4.09. Limitation on Restricted Payments. (a) The Issuer shall not make, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless: (i) no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such Restricted Payment; (ii) immediately after giving pro forma effect to such Restricted Payment, the Issuer could incur $1.00 of additional Indebtedness (other than Permitted Indebtedness) under Section 4.06 hereof; and (iii) immediately after giving effect to such Restricted Payment, the aggregate of all Restricted Payments declared or made after the Issue Date does not exceed the sum of (1) 50% of the cumulative Consolidated Net Income of the Issuer subsequent to the Issue Date (or minus 100% of any cumulative deficit in Consolidated Net Income during such period) plus (2) 100% of the aggregate Net Proceeds and the fair market value of securities or other property received by the Issuer from the issue or sale, after the Issue Date, of Capital Stock (other than Disqualified Capital Stock or Capital Stock of the Issuer issued to any Subsidiary of the Issuer) of the Issuer or any Indebtedness or other securities of the Issuer convertible into or exercisable or exchangeable for Capital Stock (other than Disqualified Capital Stock) of the Issuer which has been so converted or exercised or exchanged, as the case may be, net of any amounts thereof previously relied upon or to be relied upon to make any Permitted Investments pursuant to clause (xv) of the definition thereof, plus (3) without duplication of any amounts included in clauses (1) and (2) above, 100% of the aggregate net proceeds of any equity contribution received by the Issuer (other than in return for Disqualified Capital Stock) from a holder of the Issuer's Capital Stock, net of any amounts thereof previously relied upon or to be relied upon to make any Permitted Investments pursuant to clause (xv) of the definition thereof, plus (4) $7,500,000. For purposes of determining under this clause (iii) the amount expended for Restricted Payments, cash distributed shall be valued at the face amount thereof and property other than cash shall be valued at its fair market value determined, in good faith, by the Board of Directors of the Issuer. (b) The provisions of this Section 4.09 shall not prohibit: (i) the payment of any distribution within 60 days after the date of declaration thereof, if at such date of declaration such payment would comply with the provisions of this Indenture; (ii) the repurchase, redemption or other acquisition or retirement of any shares of Capital Stock of the Issuer or Indebtedness subordinated to the Notes by conversion into, or by or in exchange for, shares of Capital Stock (other than Disqualified Capital Stock), or out of, the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Issuer) of other shares of Capital Stock of the Issuer (other than Disqualified Capital Stock); (iii) the redemption or retirement of Indebtedness of the Issuer subordinated to the Notes in exchange for, by conversion into, or out of the Net Proceeds of, a substantially concurrent sale or incurrence of Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Issuer that is Refinancing Indebtedness; (iv) the retirement of any shares of Disqualified Capital Stock by conversion into, or by exchange for, shares of Disqualified Capital Stock, or out of the Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of the Issuer) of other shares of Disqualified Capital Stock; (v) so long as no Default or Event of Default shall have occurred and be continuing at the time of or immediately after giving effect to such payment, the purchase, redemption or other acquisition for value of shares of Capital Stock of the Issuer or, in the event of the Asset Drop-Down, the Holding Company (other than Disqualified Capital Stock) or options on such shares held by the Issuer's or its Subsidiaries' (or, in the event of the Asset Drop-Down, the Holding Company's or its Subsidiaries) officers, employees or directors or former officers, employees or directors (or their estates or beneficiaries under their estates) upon the death, disability, retirement or termination of employment of such current or former officers or employees pursuant to the terms of an employee benefit plan or any other agreement pursuant to which such shares of Capital Stock or options were issued or pursuant to a severance, buy-sale or right of first refusal agreement with such current or former officer or employee; provided that the aggregate cash consideration paid, or distributions or payments made, pursuant to this clause shall not exceed $3,000,000 in any fiscal year (provided, that the Issuer may carry over and make in a subsequent fiscal year, in addition to the amounts permitted for such fiscal year, the amount of such distributions permitted to have been made, but not made, in any preceding fiscal year) or $15,000,000 in the aggregate from and after the Issue Date, provided that the foregoing amounts shall be increased by (A) the amount of any payments by officers, employees or directors of the Holding Company, the Issuer or a Subsidiary thereof for the purchase of Capital Stock of the Issuer (other than in connection with the Recapitalization) or, in the event of the Asset Drop-Down, the Holding Company except to the extent such payments consist of proceeds from loans by the Issuer or a Subsidiary thereof and (B) the amount of any cash capital contributions to the Issuer by THL or any Affiliate thereof used by the Issuer to purchase, redeem or otherwise acquire for value shares of such capital stock; (vi) the payment of THL Fees; (vii) so long as no Default or Event of Default shall have occurred and be continuing, payments not to exceed $100,000 in the aggregate to enable the Issuer to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock; (viii) Restricted Payments made pursuant to the Recapitalization Agreement; (ix) the Issuer or any Restricted Subsidiary from purchasing all (but not less than all), excluding directors' qualifying shares, of the Capital Stock or other ownership interests in a Subsidiary of the Issuer which Capital Stock or other ownership interests were not theretofore owned by the Issuer or a Subsidiary of the Issuer, such that after giving effect to such purchase such Subsidiary becomes a Restricted Subsidiary of the Issuer; (x) the payment of distributions (A) to the Equity Investor solely for the purpose of enabling the Equity Investor to pay its reasonable, ordinary course operating and administrative expenses and taxes in any fiscal year will not exceed $250,000, and (B) in the event of the Asset Drop-Down, to the Holding Company for the purpose of enabling the Holding Company to pay its reasonable, ordinary course operating and administrative expenses, the amount of which distributions pursuant to subclauses (A) and (B) of this clause (x) in any fiscal year will not exceed $500,000; and (xi) in the event of the Asset Drop-Down, the payment of distributions to the Holding Company solely for the purpose of enabling the Holding Company to pay taxes attributable to the operations of the New Operating Company and its Subsidiaries to the extent such taxes are actually owed and the Holding Company is permitted or required to make such payments. (c) Notwithstanding the foregoing, (i) the amount of any payments made in reliance on clause (i) and clause (v) of paragraph (b) above shall reduce the amount otherwise available for Restricted Payments pursuant to paragraph (a) above and (ii) in the event of the Asset Drop-Down, the amount of any payments that could otherwise have been made in reliance on clauses (v), (vi), (vii), and (x)(A) of paragraph (b) above may be paid for the respective purposes set forth therein by the New Operating Company as dividends or distributions to the Holding Company. (d) Not later than the date of making any Restricted Payment, the Issuer shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth in reasonable detail the basis upon which the calculations required by this covenant were computed (including without limitation the date, amount and nature of any purchase or contribution referred to in clauses (a)(iii)(2) or (3) above), which calculations may be based upon the Issuer's latest available financial statements, and, to the extent that the absence of a Default or an Event of Default is a condition to the making of such Restricted Payment, that no Default or Event of Default exists and is continuing and no Default or Event of Default will occur immediately after giving effect to any Restricted Payments. Section 4.10. Limitation on Certain Asset Sales. (a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Issuer or such Restricted Subsidiary, as the case may be, receives consideration at the time of such sale or other disposition at least equal to the fair market value of the equity interests, property or assets constituting such Asset Sale (as determined in good faith by the Board of Directors of the Issuer, and evidenced by a Board Resolution); (ii) not less than 75% of the consideration received by the Issuer or its Subsidiaries, as the case may be, is in the form of cash or Temporary Cash Investments; and (iii) the Asset Sale Proceeds received by the Issuer or such Restricted Subsidiary are applied (a) first, to the extent the Issuer elects, or is required, to prepay, repay or purchase debt or to reduce an unused commitment to lend under any then existing Senior Indebtedness of the Issuer or any Restricted Subsidiary within 365 days following the receipt of the Asset Sale Proceeds from any Asset Sale, but only to the extent that any such repayment shall result in a permanent reduction of the commitments thereunder in an amount equal to the principal amount so repaid or be applied to secure Letter of Credit Obligations; and (b) second, to the extent of the balance of Asset Sale Proceeds after application as described above, to the extent the Issuer or a Restricted Subsidiary elects, to an investment in assets (including Capital Stock or other securities purchased in connection with the acquisition of Capital Stock or property of another Person) used or useful in businesses similar or ancillary to the business of the Issuer or such Restricted Subsidiary as conducted at the time of such Asset Sale, provided that such investment occurs or the Issuer or a Restricted Subsidiary enter into contractual commitments to make such investment, subject only to customary conditions (other than the obtaining of financing), on or prior to the 365th day following receipt of such Asset Sale Proceeds (the "Reinvestment Date") and Asset Sale Proceeds contractually committed are so applied within 365 days following the receipt of such Asset Sale Proceeds. Pending the final application of any such available Asset Sale Proceeds, the Issuer or such Restricted Subsidiary may temporarily reduce Indebtedness under a revolving credit facility or otherwise invest such Available Asset Sale Proceeds in any manner not prohibited under this Indenture. If, on the Reinvestment Date with respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10,000,000, the Issuer shall apply an amount equal to such Available Asset Sale Proceeds to an offer to repurchase the Notes, at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of repurchase (an "Excess Proceeds Offer"). (b) If the Issuer is required to make an Excess Proceeds Offer, the Issuer shall mail, within 30 days following the Reinvestment Date, a notice to the Holders stating: (1) that such Holders have the right to require the Issuer to apply the Available Asset Sale Proceeds to repurchase such Notes at a purchase price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase; (2) the purchase date (the "Purchase Date"), which shall be no earlier than 30 days and not later than 60 days from the date such notice is mailed; (3) the instructions, determined by the Issuer, that each Holder must follow in order to have such Notes repurchased; and (4) the calculations used in determining the amount of Available Asset Sale Proceeds to be applied to the repurchase of such Notes. The Excess Proceeds Offer shall remain open for a period of 20 Business Days following its commencement (the "Offer Period"). The notice, which shall govern the terms of the Excess Proceeds Offer, in addition to the foregoing, shall also state: (1) that any Note not tendered or accepted for payment will continue to accrue interest; (2) that any Note accepted for payment pursuant to the Excess Proceeds Offer shall cease to accrue interest on and after the Purchase Date and the deposit of the purchase price with the Trustee; (3) that Holders electing to have a Note purchased pursuant to any Excess Proceeds Offer will be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Issuer, a depositary, if appointed by the Issuer, or a Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Purchase Date; (4) that Holders will be entitled to withdraw their election if the Issuer, depositary or Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing its election to have the Note purchased; (5) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Available Asset Sale Proceeds, the Issuer shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Issuer so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and (6) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered. On or before the Purchase Date, the Issuer shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, Notes or portions thereof tendered pursuant to the Excess Proceeds Offer, deposit with the Paying Agent U.S. legal tender sufficient to pay the purchase price plus accrued interest, if any, on the Notes to be purchased and deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Issuer in accordance with the terms of this Section 4.10. The Paying Agent shall promptly (but in any case not later than 5 days after the Purchase Date) mail or deliver to each tendering Holder from the amount deposited by the Issuer an amount equal to the purchase price of the Note tendered by such Holder and accepted by the Issuer for purchase, and the Issuer shall promptly issue a new Note, the Guarantors shall endorse the guarantee thereon and the Trustee shall authenticate and mail or make available for delivery such new Note to such Holder equal in principal amount to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuer to the Holder thereof. If an Excess Proceeds Offer is not fully subscribed, the Issuer may retain that portion of the Available Asset Sale Proceeds not required to repurchase Notes and use such portion for general corporate purposes, and such retained portion shall not be considered in the calculation of "Available Asset Sale Proceeds" with respect to any subsequent offer to purchase Notes. Section 4.11. Limitation on Transactions with Affiliates. (a) The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or lease of assets, property or services) with any Affiliate (including entities in which the Issuer or any of its Restricted Subsidiaries own a minority interest)(an "Affiliate Transaction") or extend, renew, waive or otherwise modify the terms of any Affiliate Transaction entered into prior to the Issue Date if such extension, renewal, replacement, waiver or other modification is more disadvantageous to the Holders in any material respect than the original agreement as in effect on the Issue Date unless (i) such Affiliate Transaction is between or among the Issuer and/or its Restricted Subsidiaries and/or, in the event of the Asset Drop-Down, the Holding Company; or (ii) the terms of such Affiliate Transaction are fair and reasonable to the Issuer or such Restricted Subsidiary, as the case may be, and the terms of such Affiliate Transaction are at least as favorable as the terms which could be obtained by the Issuer or such Restricted Subsidiary, as the case may be, in a comparable transaction made on an arm's-length basis between unaffiliated parties. In any Affiliate Transaction involving an amount or having a value in excess of $2,000,000 which is not permitted under clause (i) above, the Issuer must obtain a resolution of the Board of Directors of the Issuer certifying that such Affiliate Transaction complies with clause (ii) above. In any Affiliate Transaction with a value in excess of $10,000,000 which is not permitted under clause (i) above (other than any sale by the Issuer of its Capital Stock that is not Disqualified Capital Stock), the Issuer must obtain a written opinion as to the fairness of such a transaction from an independent investment banking firm. (b) The limitations set forth in Section 4.11(a) shall not apply to (i) any Restricted Payment that is not prohibited by Section 4.09 hereof or Permitted Investment permitted by Section 4.13 hereof, (ii) any transaction pursuant to an agreement, arrangement or understanding existing on the Issue Date, (iii) any transaction, compensation or agreement approved by the Board of Directors of the Issuer, with an officer or director of or consultant to the Issuer or of any Subsidiary in his or her capacity as officer or director entered into in the ordinary course of business, (iv) transactions permitted by Section 5.01 hereof, (v) any transaction (a) between the Issuer and any THL Group Member solely in its capacity as a holder or buyer of the Issuer's Capital Stock or (b) in the event of the Asset Drop-Down, between the New Operating Company and the Holding Company solely in its capacity as a holder or buyer of the New Operating Company's Capital Stock, provided that any such transaction described in this clause (v) is not otherwise prohibited by this Indenture, or (vi) in the event of the Asset Drop-Down, any commercially reasonable transaction between the New Operating Company and the Holding Company solely in its capacity as a holder or buyer of the New Operating Company's Indebtedness provided that any such transaction is not otherwise prohibited by this Indenture. Section 4.12. Limitations on Liens. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur or otherwise cause or suffer to exist or become effective any Liens of any kind (other than Permitted Liens) upon any property or asset of the Issuer or any Restricted Subsidiary or any shares of stock or debt of any Restricted Subsidiary which owns property or assets, now owned or hereafter acquired, which secures Indebtedness pari passu with or subordinated to the Notes unless (i) if such Lien secures Indebtedness which is pari passu with the Notes, then the Notes are secured on an equal and ratable basis with the obligations so secured until such time as such obligation is no longer secured by a Lien or (ii) if such Lien secures Indebtedness which is subordinated to the Notes, any such Lien shall be subordinated to the Lien granted to the Holders of the Notes in the same collateral as that securing such Lien to the same extent as such subordinated Indebtedness is subordinated to the Notes. Section 4.13. Limitations on Investments. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, make any Investment other than (i) a Permitted Investment or (ii) an Investment that is made as a Restricted Payment in compliance with Section 4.09 hereof, after the Issue Date. Section 4.14. Limitation on Creation of Subsidiaries. The Issuer shall not create or acquire, nor permit any of its Restricted Subsidiaries to create or acquire, any Subsidiary other than (i) a Restricted Subsidiary that is acquired or created in connection with an acquisition by the Issuer or (ii) an Unrestricted Subsidiary; provided, however, that each Restricted Subsidiary acquired or created pursuant to clause (i) shall at the time it has either assets or stockholder's equity in excess of $200,000 execute a guarantee in the form attached as Exhibit G to this Indenture, pursuant to which such Restricted Subsidiary shall become a Guarantor which Guarantee shall be subordinated to such Restricted Subsidiary's guarantee of or pledge to secure any other Indebtedness that constitutes Senior Indebtedness to the same extent as Notes are subordinated to Senior Indebtedness. Notwithstanding the foregoing, any such Guarantee shall provide by its terms that it shall be automatically and unconditionally released and discharged upon certain mergers, consolidations, sales and other dispositions (including, without limitation, by foreclosure) in accordance with this Indenture. Section 4.15. Limitation on Other Senior Subordinated Debt. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, incur, contingently or otherwise, any Indebtedness (other than the Notes and the Guarantees, as the case may be) that is both (i) subordinate in right of payment to any Senior Indebtedness of the Issuer or its Restricted Subsidiaries, as the case may be, and (ii) senior in right of payment to the Notes and the Guarantees, as the case may be. For purposes of this Section 4.15, Indebtedness is deemed to be senior in right of payment to the Notes and the Guarantees, as the case may be, if it is not explicitly subordinate in right of payment to Senior Indebtedness at least to the same extent as the Notes and the Guarantees, as the case may be, are subordinate to Senior Indebtedness. Section 4.16. Limitation on Sale and Lease-Back Transactions. The Issuer shall not, and shall not permit any Restricted Subsidiary to, enter into any Sale and Lease-Back Transaction unless (i) the consideration received in such Sale and Lease-Back Transaction is at least equal to the fair market value of the property sold, as determined, in good faith, by the Board of Directors of the Issuer and (ii) the Issuer or such Restricted Subsidiary, as the case may be, could incur the Attributable Indebtedness in respect of such Sale and Lease-Back Transaction in compliance with Section 4.06. Section 4.17. Payments for Consent. Neither the Issuer nor any of its Subsidiaries shall, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of any Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or agreed to be paid to all Holders of the Notes which so consent, waive or agree to amend in the time frame set forth in solicitation documents relating to such consent, waiver or agreement. Section 4.18. Legal Existence. Subject to Article 5 hereof, the Issuer shall do or cause to be done all things necessary to preserve and keep in full force and effect its legal existence, and the corporate, partnership or other existence of each Restricted Subsidiary, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Issuer any such Restricted Subsidiary and the rights (charter and statutory), licenses and franchises of the Issuer and its Restricted Subsidiaries; provided, however, that the Issuer shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries if the Board of Directors of the Issuer shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Issuer and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders. Section 4.19. Change of Control. (a) In the event of a Change of Control, the Issuer shall notify the Trustee in writing of such occurrence and shall make an offer to purchase (the "Change of Control Offer") the outstanding Notes at a purchase price equal to 101% of the principal amount thereof together with any accrued and unpaid interest thereon to the Change of Control Payment Date (as hereinafter defined) (such applicable purchase price being hereinafter referred to as the "Change of Control Purchase Price") in accordance with the procedures set forth in this Section 4.19. If the Senior Credit Facility is in effect, or any amounts are owing thereunder or in respect thereof, at the time of the occurrence of a Change of Control, prior to the mailing of the notice to Holders described in paragraph (b) below, but in any event within 30 days following the first date on which the Issuer has knowledge of any Change of Control, the Issuer covenants to (i) repay in full all obligations under or in respect of the Senior Credit Facility or offer to repay in full all obligations under or in respect of the Senior Credit Facility and repay the obligations under or in respect of the Senior Credit Facility of each lender who has accepted such offer or (ii) obtain the requisite consent under the Senior Credit Facility to permit the repurchase of the Notes pursuant to this Section 4.19. The Issuer must first comply with the covenant described in the preceding sentence before it shall be required to purchase Notes in the event of a Change of Control; provided that the Issuer's failure to comply with the covenant described in the preceding sentence constitutes an Event of Default described in clause (3) of Section 6.01 hereof if not cured within 60 days after the notice required by such clause. (b) Within 30 days prior to the expiration date stated in such Notice of any Change of Control, the Issuer shall send by first-class mail, postage prepaid, to the Trustee and to each Holder of the Notes, at the address appearing in the register maintained by the Registrar of the Notes, a notice stating: (i) that the Change of Control Offer is being made pursuant to this Section 4.19 and that all Notes validly tendered will be accepted for payment, and otherwise subject to the terms and conditions set forth herein; (ii) the Change of Control Purchase Price and the purchase date (which shall be a Business Day no earlier than 20 Business Days from the date such notice is mailed (the "Change of Control Payment Date")); (iii) that any Note not timely tendered in accordance with such notice will remain outstanding and continue to accrue interest; (iv) that, unless the Issuer defaults in the payment of the Change of Control Purchase Price, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that Holders accepting the offer to have their Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, to the Paying Agent at the address specified in the notice prior to the close of business on the Business Day preceding the Change of Control Payment Date; (vi) that Holders will be entitled to withdraw their acceptance if the Paying Agent receives, not later than the close of business on the Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have such Notes purchased; (vii) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, provided that each Note purchased and each such new Note issued shall be in an original principal amount in denominations of $1,000 and integral multiples thereof; (viii) any other procedures that a Holder must follow to accept a Change of Control Offer or effect withdrawal of such acceptance; and (ix) the name and address of the Paying Agent. On or before the Change of Control Payment Date, the Issuer shall, to the extent lawful, (i) accept for payment Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient to pay the purchase price of all Notes or portions thereof so tendered and (iii) deliver or cause to be delivered to the Trustee Notes so accepted together with an Officers' Certificate stating the Notes or portions thereof tendered to the Issuer. The Paying Agent shall promptly mail to each Holder of Notes so accepted from the amount deposited by the Issuer payment in an amount equal to the purchase price for such Notes, and the Issuer shall execute and issue, the Guarantors shall endorse the Guarantee and the Trustee shall promptly authenticate and mail to such Holder, a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided that each such new Note shall be issued in an original principal amount in denominations of $1,000 and integral multiples thereof. (c) (i) If the Issuer or any Subsidiary thereof has issued any outstanding (A) Indebtedness that is subordinated in right of payment to the Notes or (B) Preferred Stock, and such Issuer or Subsidiary is required to make a change of control offer or to make a distribution with respect to such subordinated Indebtedness or Preferred Stock in the event of a change of control, the Issuer shall not consummate any such offer or distribution with respect to such subordinated Indebtedness or Preferred Stock until such time as the Issuer shall have paid the Change of Control Purchase Price in full to the Holders of Notes that have accepted the Issuer's Change of Control Offer and shall otherwise have consummated the Change of Control Offer made to Holders of the Notes and (ii) the Issuer will not issue Indebtedness that is subordinated in right of payment to the Notes or Preferred Stock with change of control provisions requiring the payment of such Indebtedness or Preferred Stock prior to the payment of the Notes in the event of a Change in Control under this Indenture. In the event that a Change of Control occurs and the Holders of Notes exercise their right to require the Issuer to purchase Notes, if such purchase constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act at that time, the Issuer will comply with the requirements of Rule 14e-1 as then in effect with respect to such repurchase. Section 4.20. Maintenance of Office or Agency. The Issuer shall maintain an office or agency where Notes may be surrendered for registration of transfer or exchange or for presentation for payment and where notices and demands to or upon the Issuer in respect of the Notes and this Indenture may be served. The Issuer shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuer shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee as set forth in Section 12.02. The Issuer may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Issuer shall give prompt written notice to the Trustee of such designation or rescission and of any change in the location of any such other office or agency. The Issuer hereby initially designates the Corporate Trust Office of the Trustee as such office of the Issuer. Section 4.21. Maintenance of Properties; Insurance; Books and Records; Compliance with Law. (a) The Issuer shall, and shall cause each of its Restricted Subsidiaries to, at all times cause all material properties used or useful in the conduct of its business to be maintained and kept in good condition, repair and working order (reasonable wear and tear excepted) and supplied with all necessary equipment, and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereto. (b) The Issuer shall, and shall cause each of their Restricted Subsidiaries to, maintain insurance (which may include self-insurance) in such amounts and covering such risks as are usually and customarily carried with respect to similar facilities according to their respective locations. (c) The Issuer shall, and shall cause each of its Subsidiaries to, keep proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Issuer and each Subsidiary of the Issuer, in accordance with GAAP consistently applied to the Issuer and their Subsidiaries taken as a whole. (d) The Issuer shall and shall cause each of its Subsidiaries to comply with all statutes, laws, ordinances or government rules and regulations to which they are subject, non-compliance with which would materially adversely affect the business, earnings, assets or financial condition of the Issuer and its Subsidiaries taken as a whole. Section 4.22. Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries. The Issuer shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Issuer to (a)(i) pay dividends or make any other distributions to the Issuer or any Restricted Subsidiary of the Issuer (A) on its Capital Stock or (B) with respect to any other interest or participation in, or measured by, its profits or (ii) repay any Indebtedness or any other obligation owed to the Issuer or any Restricted Subsidiary of the Issuer, (b) make loans or advances or capital contributions to the Issuer or any of its Restricted Subsidiaries or (c) transfer any of its properties or assets to the Issuer or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (i) encumbrances or restrictions existing on the Issue Date to the extent and in the manner such encumbrances and restrictions are in effect on the Issue Date or are no more restrictive in any material respect (including without limitation pursuant to the Senior Credit Facility), (ii) the Indenture, the Notes and the Guarantees, (iii) applicable law, (iv) any instrument governing Acquired Indebtedness, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person (including any Subsidiary of the Person), so acquired, (v) any agreement or instrument governing Indebtedness (whether or not outstanding) of Foreign Subsidiaries, (vi) customary non-assignment provisions in leases, licenses or other agreements entered in the ordinary course of business and consistent with past practices, (vii) Refinancing Indebtedness; provided that such payment restrictions are no more restrictive in any material respect than those contained in the agreements governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, (viii) customary restrictions in security agreements or mortgages or similar agreements securing Indebtedness of the Issuer or a Restricted Subsidiary to the extent such restrictions restrict the transfer of the property subject to such security agreements and mortgages or (ix) customary restrictions with respect to a Restricted Subsidiary of the Issuer pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock or assets of such Restricted Subsidiary. Section 4.23. Further Assurance to the Trustee. The Issuer shall, upon the reasonable request of the Trustee, execute and deliver such further instruments and do such further acts as may be reasonably necessary or proper to carry out more effectively the provisions of this Indenture. ARTICLE 5 SUCCESSOR CORPORATION Section 5.01. Limitation on Consolidation, Merger and Sale of Assets. (a) The Issuer shall not, nor shall it permit any Guarantor to, consolidate with, merge with or into, or transfer all or substantially all of its assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions) to, any Person unless (in the case of the Issuer or any Guarantor): (i) the Issuer or such Guarantor, as the case may be, shall be the continuing Person, or the Person (if other than the Issuer or such Guarantor) formed by such consolidation or into which the Issuer or such Guarantor, as the case may be, is merged or to which the properties and assets of the Issuer or such Guarantor, as the case may be, are transferred shall be a corporation, limited liability company or a limited partnership organized and existing under the laws of the United States or any State thereof or the District of Columbia and shall expressly assume, in writing by a supplemental indenture, executed and delivered to the Trustee, in form and substance satisfactory to the Trustee, all of the obligations of the Issuer or such Guarantor, as the case may be, under the Notes and this Indenture or Guarantee, as applicable, and the obligations under this Indenture shall remain in full force and effect; provided that at any time the Issuer or its successor is a limited partnership or limited liability company there shall be a co-issuer of the Notes that is a corporation; (ii) immediately before and immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (iii) unless the merger or consolidation is with, or the transfer of all or substantially all its assets is to a Wholly-Owned Subsidiary, immediately after giving effect to such transaction on a pro forma basis the Issuer or such Person could incur at least $1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to Section 4.06 hereof. Nothing in this Section 5.01 will prohibit the consolidation, merger or transfer of all or substantially all the assets of any Guarantor that is otherwise permitted by and conducted in accordance with the other applicable sections of this Indenture. In connection with any consolidation, merger or transfer of assets contemplated by this Section 5.01, the Issuer shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this Section 5.01 and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. Section 5.02. Successor Person Substituted. Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Issuer or any Guarantor in accordance with Section 5.01 above, the successor corporation formed by such consolidation or into which the Issuer is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Issuer or such Guarantor under this Indenture with the same effect as if such successor corporation had been named as the Issuer or such Guarantor herein, and thereafter the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Notes. ARTICLE 6 DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if (1) there is a default in the payment of any principal of, or premium, if any, on the Notes when the same becomes due and payable whether at maturity, upon acceleration, redemption or otherwise, whether or not such payment is prohibited by the provisions of Article 11 hereof; (2) there is a default in the payment of any interest on any Note when the same becomes due and payable and the Default continues for a period of 30 days, whether or not such payment is prohibited by the provisions of Article 11 hereof; (3) the Issuer or any Guarantor defaults in the observance or performance of any other covenant in the Notes or this Indenture for 60 days after written notice from the Trustee or the Holders of not less than 25% in the aggregate principal amount of the Notes then outstanding; (4) there is a default in the payment at final maturity of principal in an aggregate amount of $10,000,000 or more with respect to any Indebtedness of the Issuer or any Restricted Subsidiary thereof, or there is an acceleration of any such Indebtedness aggregating $10,000,000 or more which default shall not be cured, waived or postponed pursuant to an agreement with the holders of such Indebtedness within 60 days after written notice by the Trustee or any Holder, or which acceleration shall not be rescinded or annulled within 20 days after written notice to the Issuer of such Default by the Trustee or any Holder; (5) the entry of a final judgment or judgments which can no longer be appealed or stayed for the payment of money in excess of $10,000,000 (net of amounts covered by insurance for which coverage is not being challenged or denied) against the Issuer or any Restricted Subsidiary thereof and such judgment remains undischarged, paid or otherwise satisfied, for a period of 60 consecutive days during which a stay of enforcement of such judgment shall not be in effect; (6) the Issuer or any Restricted Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; (7) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Issuer or any Restricted Subsidiary in an involuntary case, (B) appoints a Custodian of the Issuer or any Restricted Subsidiary or for all or substantially all of the property of either of the Issuer or any Restricted Subsidiary, or (C) orders the liquidation of the Issuer or any Restricted Subsidiary, and the order or decree remains unstayed and in effect for 60 days; or (8) any of the Guarantees ceases to be in full force and effect or any of the Guarantees is declared to be null and void and unenforceable or any of the Guarantees is found to be invalid or any of the Guarantors denies in writing its liability under its Guarantee (other than by reason of release of a Guarantor in accordance with the terms of this Indenture). The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Trustee may withhold notice to the Holders of the Notes of any Default (except in payment of principal or premium, if any, or interest on the Notes) if the Trustee considers it to be in the best interest of the Holders of the Notes to do so. The Trustee shall not be charged with knowledge of any Default, Event of Default, Change of Control or Asset Sale in payment of Additional Interest unless written notice thereof shall have been given to a Responsible Officer at the corporate trust office of the Trustee by the Issuer or any other Person. Section 6.02. Acceleration. If an Event of Default (other than an Event of Default arising under Section 6.01(6) or (7) with respect to the Issuer) occurs and is continuing, the Trustee by notice to the Issuer, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding may by written notice to the Issuer and the Trustee declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration and (i) such amounts shall become immediately due and payable or (ii) if there are any amounts outstanding or owing under or in respect of the Senior Credit Facility or any commitments remain in effect under the Senior Credit Facility, such amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the Senior Credit Facility or five Business Days after receipt by the Issuer and the Representative of notice of the acceleration of the Notes; provided, however, that after such acceleration but before a judgment or decree based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of accelerated principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) with respect to the Issuer occurs, such principal, premium, if any, and interest amount with respect to all of the Notes shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, or premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture and may take any necessary action requested of it as Trustee to settle, compromise, adjust or otherwise conclude any proceedings to which it is a party. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Noteholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative. Section 6.04. Waiver of Past Defaults and Events of Default. Subject to Sections 6.02, 6.07 and 8.02 hereof, the Holders of a majority in principal amount of the Notes then outstanding have the right to waive any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. Section 6.05. Control by Majority. The Holders of a majority in principal amount of the Notes then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee by this Indenture. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of another Noteholder not taking part in such direction, and the Trustee shall have the right to decline to follow any such direction if the Trustee, being advised by counsel, determines that the action so directed may not lawfully be taken or if the Trustee in good faith shall, by a Responsible Officer, determine that the proceedings so directed may involve it in personal liability; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Section 6.06. Limitation on Suits. Subject to Section 6.07 below, a Noteholder may not institute any proceeding or pursue any remedy with respect to this Indenture or the Notes unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default; (2) the Holders of at least 25% in aggregate principal amount of the Notes then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer and if requested provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer, and, if requested provision, of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60 day period by the Holders of a majority in aggregate principal amount of the Notes then outstanding. A Noteholder may not use this Indenture to prejudice the rights of another Noteholder or to obtain a preference or priority over another Noteholder. Section 6.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal of, or premium, if any, and interest of the Note (including Additional Interest) on or after the respective due dates expressed in the Note, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default in payment of principal, premium or interest specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Issuer or the Guarantors (or any other obligor on the Notes) for the whole amount of unpaid principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate set forth in the Notes, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Noteholders allowed in any judicial proceedings relative to the Issuer or the Guarantors (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after deduction of its charges and expenses to the extent that any such charges and expenses are not paid out of the estate in any such proceedings and any custodian in any such judicial proceeding is hereby authorized by each Noteholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Noteholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Noteholder any plan or reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Noteholder in any such proceedings. Section 6.10. Priorities. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.07 hereof; SECOND: to Noteholders for amounts due and unpaid on the Notes for principal, premium, if any, and interest (including Additional Interest, if any) as to each, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes; and THIRD: to the Issuer or, to the extent the Trustee collects any amount from any Guarantor, to such Guarantor. The Trustee may fix a record date and payment date for any payment to Noteholders pursuant to this Section 6.10. Section 6.11. Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof or a suit by Holders of more than 10% in principal amount of the Notes then outstanding. Section 6.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Issuer, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. ARTICLE 7 TRUSTEE Section 7.01. Duties of Trustee. (a) If a Default or an Event of Default has occurred and is continuing, the Trustee shall exercise the rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent Person would exercise or use under the same circumstances in the conduct of such Person's own affairs. (b) Except during the continuance of a Default or an Event of Default of which a Responsible Officer of the Trustee has actual knowledge: (1) The Trustee undertakes to perform such duties and only such duties that are specifically set forth in this Indenture and no implied covenants or obligations shall be read into this Indenture against the Trustee. (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.01. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.02, 6.05 or 6.06 hereof. (d) Whether or not therein expressly so provided, paragraphs (a), (b), (c) and (e) of this Section 7.01 shall govern every provision of this Indenture that in any way relates to the Trustee. (e) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuer or any Guarantor. (f) Money held in trust by the Trustee need not be segregated from other funds except to the extent required by the law. (g) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights, powers or duties or to take or omit to take any action under this Indenture or take any action at the request or direction of Holders if it shall have reasonable grounds for believing that repayment of such funds is not assured to it or it does not receive an indemnity satisfactory to it in its sole discretion against such risk, liability, loss, fee or expense which may be incurred by it in connection with such performance. (h) Every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section and to the provisions of the TIA. Section 7.02. Rights of Trustee. Subject to Section 7.01 hereof: (1) The Trustee may rely and shall be protected in acting or refraining from acting on any document reasonably believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to the provisions of Section 12.05 hereof. The Trustee shall be protected and shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (3) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed by it with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel of its selection, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may make loans to, accept deposits from, perform services for or otherwise deal with either of the Issuer or any Guarantor, or any Affiliates thereof, with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, shall be subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes or any Guarantee, it shall not be accountable for the Issuer's or any Guarantor's use of the proceeds from the sale of Notes or any money paid to the Issuer or any Guarantor pursuant to the terms of this Indenture and it shall not be responsible for any statement in the Notes, Guarantee or this Indenture other than its certificate of authentication. Section 7.05. Notice of Defaults. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Noteholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of the principal of, or premium, if any, or interest on any Note the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determine(s) that withholding the notice is in the interests of the Noteholders. Section 7.06. Reports by Trustee to Holders. If required by TIA ss. 313(a), within 60 days after May 15 of any year, commencing May 15, 2000, the Trustee shall mail to each Noteholder a brief report dated as of such May 15 that complies with TIA ss. 313(a). The Trustee also shall comply with TIA ss. 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA ss. 313(c) and TIA ss. 313(d). Reports pursuant to this Section 7.06 shall be transmitted by mail: (1) to all registered Holders of Notes, as the names and addresses of such Holders appear on the Registrar's books; and (2) to such Holder of Notes as have, within the two years preceding such transmission, filed their names and addresses with the Trustee for that purpose. A copy of each report at the time of its mailing to Noteholders shall be filed with the SEC and each stock exchange on which the Notes are listed. The Issuer shall promptly notify the Trustee when the Notes are listed on any stock exchange. Section 7.07. Compensation and Indemnity. The Issuer and the Guarantors shall pay to the Trustee and Agents from time to time such compensation as shall be agreed in writing between the Issuer and the Trustee for its services hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Issuer and the Guarantors shall reimburse the Trustee and Agents upon request for all reasonable disbursements, expenses and advances incurred or made by it in connection with its duties under this Indenture, including the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Issuer and the Guarantors shall indemnify each of the Trustee and any predecessor Trustee for, and hold each of them harmless against, any and all loss, damage, claim, liability or expense, including without limitation taxes (other than taxes based on the income of the Trustee or such Agent) and reasonable attorneys' fees and expenses incurred by each of them in connection with the acceptance or performance of its duties under this Indenture including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (including, without limitation, settlement costs). The Trustee or Agent shall notify the Issuer in writing promptly of any claim asserted against the Trustee or Agent for which it may seek indemnity. However, the failure by the Trustee or Agent to so notify the Issuer shall not relieve the Issuer of its obligations hereunder except to the extent the Issuer are prejudiced thereby. Notwithstanding the foregoing, the Issuer and the Guarantors need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by the Trustee through its negligence or bad faith. To secure the payment obligations of the Issuer and the Guarantors in this Section 7.07, the Trustee shall have a lien prior to the Notes on all money or property held or collected by the Trustee except such money or property held in trust to pay principal of and interest on particular Notes. The obligations of the Issuer and the Guarantors under this Section 7.07 to compensate, reimburse and indemnify the Trustee, Agents and each predecessor Trustee and to pay or reimburse the Trustee, Agents and each predecessor Trustee for expenses, disbursements and advances shall be joint and several liabilities of the Issuer and each of the Guarantors and shall survive the satisfaction, discharge and termination of this Indenture, including any termination or rejection hereof under any bankruptcy law or the resignation or removal of the Trustee. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(6) or (7) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. For purposes of this Section 7.07, the term "Trustee" shall include any trustee appointed pursuant to Article 9. Section 7.08. Replacement of Trustee. The Trustee may resign by so notifying the Issuer and the Guarantors in writing. The Holders of a majority in principal amount of the outstanding Notes may remove the Trustee by notifying the removed Trustee in writing and may appoint a successor Trustee with the Issuer's written consent which consent shall not be unreasonably withheld. The Issuer may remove the Trustee at their election if: (1) the Trustee fails to comply with Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent; (3) a receiver or other public officer takes charge of the Trustee or its property; (4) the Trustee otherwise becomes incapable of acting; or (5) a successor corporation becomes successor Trustee pursuant to Section 7.09 below. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuer shall notify the holders of such event and promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuer. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuer or the Holders of a majority in principal amount of the outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 7.10 hereof, any Noteholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Issuer. Immediately following such delivery, the retiring Trustee shall, subject to its rights under Section 7.07 hereof, transfer all property held by it as Trustee to the successor Trustee, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Noteholder. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuer obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. Successor Trustee by Consolidation, Merger, Etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, subject to Section 7.10 hereof, the successor corporation without any further act shall be the successor Trustee. Section 7.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA ss. 310(a)(1) and (2) in every respect. The Trustee shall have a combined capital and surplus of at least $150,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA ss. 310(b), including the provision in ss. 310(b)(1). Section 7.11. Preferential Collection of Claims Against Issuer. The Trustee shall comply with TIA ss. 311(a), excluding any creditor relationship listed in TIA ss. 311 (b). A Trustee who has resigned or been removed shall be subject to TIA ss. 311(a) to the extent indicated therein. Section 7.12. Paying Agents. The Issuer shall cause each Paying Agent other than the Trustee to execute and deliver to it and the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 7.12: (A) that it will hold all sums held by it as agent for the payment of principal of, or premium, if any, or interest on, the Notes (whether such sums have been paid to it by the Issuer or by any obligor on the Notes) in trust for the benefit of Holders of the Notes or the Trustee; (B) that it will at any time during the continuance of any Event of Default, upon written request from the Trustee, deliver to the Trustee all sums so held in trust by it together with a full accounting thereof; and (C) that it will give the Trustee written notice within three (3) Business Days of any failure of the Issuer (or by any obligor on the Notes) in the payment of any installment of the principal of, premium, if any, or interest on, the Notes when the same shall be due and payable. ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS Section 8.01. Without Consent of Holders. The Issuer and the Guarantors, when authorized by a Board Resolution of each of them, and the Trustee may amend, waive or supplement this Indenture or the Notes without notice to or consent of any Noteholder: (1) to comply with Section 5.01 hereof; (2) to provide for uncertificated Notes in addition to or in place of certificated Notes; (3) to consummate the Asset Drop-Down; (4) to comply with any requirements of the SEC under the TIA; (5) to cure any ambiguity, defect or inconsistency; (6) to make any other change that does not adversely affect the rights of any Noteholders hereunder; or (7) to add a Guarantor. The Trustee is hereby authorized to join with the Issuer and the Guarantors in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture which adversely affects its own rights, duties or immunities under this Indenture. Section 8.02. With Consent of Holders. The Issuer (when authorized by a Board Resolution), the Guarantors (each when authorized by a Board Resolution) and the Trustee may modify or supplement this Indenture or the Notes with the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Notes. The Holders of not less than a majority in aggregate principal amount of the outstanding Notes may waive compliance in a particular instance by the Issuer or Guarantors with any provision of this Indenture or the Notes. Subject to Section 8.04, without the consent of each Noteholder affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.04, may not: (1) reduce the amount of Notes whose Holders must consent to an amendment, supplement or waiver to this Indenture or the Notes; (2) reduce the rate of or change the time for payment of interest on any Note; (3) reduce the principal of or premium on or change the stated maturity of any Note; (4) waive a default in the payment of the principal of, interest on, or redemption payment with respect to any Note; (5) make any Note payable in money other than that stated in the Note or change the place of payment from New York, New York; (6) make any change in provisions of the Indenture protecting the right of each holder of Notes to receive payment of principal of and interest on such Note on or after the due date thereof or to bring suit to enforce such payment, or permitting holders of a majority in principal amount of Notes to waive Defaults or Events of Default; (7) amend, change or modify in any material respect the obligation of the Issuer to make and consummate a Change of Control Offer in the event of a Change of Control or make and consummate an Excess Proceeds Offer with respect to any Asset Sale that has been consummated or modify any of the provisions or definitions with respect thereto; (8) affect the ranking of the Notes or the Guarantees in a manner adverse to the holders; (9) change any provision of this Indenture relating to the redemption of Notes; (10) release any Guarantor from any of its obligations under its Guarantee or this Indenture otherwise than in accordance with the terms of this Indenture. After an amendment, supplement or waiver under this Section 8.02 or Section 8.01 becomes effective, the Issuer shall mail to the Holders a notice briefly describing the amendment, supplement or waiver. Upon the written request of the Issuer, accompanied by Board Resolutions authorizing the execution of any such supplemental indenture by the Issuer and the Guarantors, and upon the receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the consent of the Noteholders as aforesaid and upon receipt by the Trustee of the documents described in Section 8.06 hereof, the Trustee shall join with the Issuer and the Guarantors in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture, in which case the Trustee may, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. Section 8.03. Compliance with Trust Indenture Act. Every amendment to or supplement of this Indenture or the Notes shall comply with the TIA as then in effect. Section 8.04. Revocation and Effect of Consents. Until an amendment, supplement, waiver or other action becomes effective, a consent to it by a Holder of a Note is a continuing consent conclusive and binding upon such Holder and every subsequent Holder of the same Note or portion thereof, and of any Note issued upon the transfer thereof or in exchange therefor or in place thereof, even if notation of the consent is not made on any such Note. Any such Holder or subsequent Holder, however, may revoke the consent as to his Note or portion of a Note, if the Trustee receives the written notice of revocation before the date the amendment, supplement, waiver or other action becomes effective. The Issuer may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement, or waiver. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. No such consent shall be valid or effective for more than 90 days after such record date unless the consent of the requisite number of Holders has been obtained. After an amendment, supplement, waiver or other action becomes effective, it shall bind every Noteholder, unless it makes a change described in any of clauses (1) through (8) of Section 8.02 hereof. In that case the amendment, supplement, waiver or other action shall bind each Holder of a Note who has consented to it and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note. Section 8.05. Notation on or Exchange of Notes. If an amendment, supplement, or waiver changes the terms of a Note, the Trustee (in accordance with the specific written direction of the Issuer) shall request the Holder of the Note (in accordance with the specific written direction of the Issuer) to deliver it to the Trustee. In such case, the Trustee shall place an appropriate notation on the Note about the changed terms and return it to the Holder. Alternatively, if the Issuer or the Trustee so determines, the Issuer in exchange for the Note shall issue, the Guarantors shall endorse, and the Trustee shall authenticate a new Note that reflects the changed terms. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment supplement or waiver. Section 8.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 8 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, supplement or waiver the Trustee shall be entitled to receive and, subject to Section 7.01 hereof, shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel stating that such amendment, supplement or waiver is authorized or permitted by this Indenture and is a legal, valid and binding obligation of the Issuer and the Guarantors, enforceable against the Issuer and the Guarantors in accordance with its terms (subject to customary exceptions). ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE Section 9.01. Discharge of Indenture. The Issuer and the Guarantors may terminate their obligations under the Notes, the Guarantees and this Indenture, except the obligations referred to in the last paragraph of this Section 9.01, if there shall have been canceled by the Trustee or delivered to the Trustee for cancellation all Notes theretofore authenticated and delivered (other than any Notes that are asserted to have been destroyed, lost or stolen and that shall have been replaced as provided in Section 2.08 hereof) and the Issuer have paid all sums payable by them hereunder or deposited all required sums with the Trustee. After such delivery the Trustee upon Issuer request shall acknowledge in writing the discharge of the Issuer' and the Guarantors' obligations under the Notes, the Guarantees and this Indenture except for those surviving obligations specified below. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Issuer and Guarantors in Sections 7.07, 9.05 and 9.06 hereof shall survive. Section 9.02. Legal Defeasance. The Issuer may at its option, by Board Resolution of the Board of Directors of the Issuer, be discharged from their obligations with respect to the Notes and the Guarantors discharged from their obligations under the Guarantees on the date the conditions set forth in Section 9.04 below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Issuer shall be deemed to have paid and discharged the entire indebtedness represented by the Notes and to have satisfied all its other obligations under such Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Issuer, shall, subject to Section 9.06 hereof, execute instruments in form and substance reasonably satisfactory to the Trustee and Issuer acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Notes to receive solely from the trust funds described in Section 9.04 hereof and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (B) the Issuer's obligations with respect to such Notes under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09 and 4.20 hereof, (C) the rights, powers, trusts, duties, and immunities of the Trustee hereunder (including claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof) and (D) this Article 9. Subject to compliance with this Article 9, the Issuer may exercise its option under this Section 9.02 with respect to the Notes notwithstanding the prior exercise of its option under Section 9.03 below with respect to the Notes. Section 9.03. Covenant Defeasance. At the option of the Issuer, pursuant to a Board Resolution of the Board of Directors of the Issuer, the Issuer and the Guarantors shall be released from their respective obligations under Sections 4.02 through 4.19, Sections 4.21 through 4.22 and Sections 4.24 through 4.25 hereof, inclusive, and clauses (a)(ii) and (iii) of Section 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 9.04 hereof are satisfied (hereinafter, "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that the Issuer and the Guarantors may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified Section or portion thereof, whether directly or indirectly by reason of any reference elsewhere herein to any such specified Section or portion thereof or by reason of any reference in any such specified Section or portion thereof to any other provision herein or in any other document, but the remainder of this Indenture and the Notes shall be unaffected thereby. Section 9.04. Conditions to Defeasance or Covenant Defeasance. The following shall be the conditions to application of Section 9.02 or Section 9.03 hereof to the outstanding Notes: (1) the Issuer shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who shall agree to comply with the provisions of this Article 9 applicable to it) as funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Notes, (A) money in an amount, or (B) U.S. Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and accrued interest on the outstanding Notes at the maturity date of such principal, premium, if any, or interest, or on dates for payment and redemption of such principal, premium, if any, and interest selected in accordance with the terms of this Indenture and of the Notes; (2) no Event of Default or Default with respect to the Notes shall have occurred and be continuing on the date of such deposit, or shall have occurred and be continuing at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period under any Bankruptcy Law applicable to the Issuer in respect of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (3) such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest for purposes of the TIA with respect to any securities of the Issuer; (4) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute default under any other agreement or instrument to which the Issuer is a party or by which it is bound; (5) the Issuer shall have delivered to the Trustee an Opinion of Counsel stating that, as a result of such Legal Defeasance or Covenant Defeasance, neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended; (6) in the case of an election under Section 9.02 above, the Issuer shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Issuer has received from, or there has been published by, the Internal Revenue Service a ruling to the effect that or (ii) there has been a change in any applicable Federal income tax law with the effect that, and such opinion shall confirm that, the Holders of the outstanding Notes or persons in their positions will not recognize income, gain or loss for Federal income tax purposes solely as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if such Legal Defeasance had not occurred; (7) in the case of an election under Section 9.03 hereof, the Issuer shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of the outstanding Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (8) the Issuer shall have delivered to the Trustee an Officers' Certificate stating that the deposit under clause (1) was not made by the Issuer with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuer or others; (9) the Issuer shall have paid or duly provided for payment under terms mutually satisfactory to the Issuer and the Trustee all amounts then due to the Trustee pursuant to Section 7.07 hereof; and (10) the Issuer shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel (to the extent matters of law are involved), each stating that (x) all conditions precedent herein provided for relating to either the legal defeasance under paragraph 9.02 above or the covenant defeasance under paragraph 9.03 above, as the case may be, have been complied with and (y) if any other Indebtedness of the Issuer shall then be outstanding or committed, such legal defeasance or covenant defeasance will not violate the provisions of the agreements or instruments evidencing such Indebtedness. Section 9.05. Deposited Money and U.S. Government Obligations to Be Held in Trust; Other Miscellaneous Provisions. All money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 9.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent, to the Holders of such Notes, of all sums due and to become due thereon in respect of principal, premium, if any, and accrued interest, but such money need not be segregated from other funds except to the extent required by law. The Issuer and the Guarantors shall (on a joint and several basis) pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations deposited pursuant to Section 9.04 hereof or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 9 to the contrary notwithstanding, the Trustee shall deliver or pay to the Issuer from time to time upon an Issuer Request any money or U.S. Government Obligations held by it as provided in Section 9.04 hereof which, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 9.06. Reinstatement. If the Trustee or Paying Agent is unable to apply any money or U.S. Government Obligations in accordance with Section 9.01, 9.02 or 9.03 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuer's and each Guarantor's obligations under this Indenture, the Notes and the Guarantees shall be revived and reinstated as though no deposit had occurred pursuant to this Article 9 until such time as the Trustee or Paying Agent is permitted to apply all such money or U.S. Government Obligations in accordance with Section 9.01 hereof; provided, however, that if the Issuer or the Guarantors have made any payment of principal of, premium, if any, or accrued interest on any Notes because of the reinstatement of their obligations, the Issuer or the Guarantors, as the case may be, shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or U.S. Government Obligations held by the Trustee or Paying Agent. Section 9.07. Moneys Held by Paying Agent. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under the provisions of this Indenture shall, upon written demand of the Issuer, be paid to the Trustee, or if sufficient moneys have been deposited pursuant to Section 9.01 hereof, to the Issuer upon an Issuer Request (or, if such moneys had been deposited by the Guarantors, to such Guarantors), and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. Section 9.08. Moneys Held by Trustee. Any moneys deposited with the Trustee or any Paying Agent or then held by the Issuer or the Guarantors in trust for the payment of the principal of, or premium, if any, or interest on any Note that are not applied but remain unclaimed by the Holder of such Note for two years after the date upon which the principal of, or premium, if any, or interest on such Note shall have respectively become due and payable shall be repaid to the Issuer (or, if appropriate, the Guarantors) upon an Issuer Request, or if such moneys are then held by the Issuer or the Guarantors in trust, such moneys shall be released from such trust; and the Holder of such Note entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Issuer and the Guarantors for the payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; provided, however, that the Trustee or any such Paying Agent, before being required to make any such repayment, may, at the expense of the Issuer and the Guarantors, either mail to each Noteholder affected, at the address shown in the register of the Notes maintained by the Registrar pursuant to Section 2.04 hereof, or cause to be published once a week for two successive weeks, in a newspaper published in the English language, customarily published each Business Day and of general circulation in the City of New York, New York, a notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing or publication, any unclaimed balance of such moneys then remaining will be repaid to the Issuer. After payment to the Issuer or the Guarantors or the release of any money held in trust by the Issuer or any Guarantors, as the case may be, Noteholders entitled to the money must look only to the Issuer and the Guarantors for payment as general creditors unless applicable abandoned property law designates another person. ARTICLE 10 GUARANTEE OF NOTES Section 10.01. Guarantee. Subject to the provisions of this Article 10, each Guarantor, by execution of the Guarantee, will jointly and severally unconditionally guarantee to each Holder and to the Trustee, (i) the due and punctual payment of the principal of, and premium, if any, and interest on each Note, when and as the same shall become due and payable, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on the overdue principal of, and premium, if any, and interest on the Notes, to the extent lawful, and the due and punctual performance of all other Obligations of the Issuer to the Holders or the Trustee (including without limitation amounts due the Trustee under Section 7.07) all in accordance with the terms of such Note and this Indenture, and (ii) in the case of any extension of time of payment or renewal of any Notes or any of such other Obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, at stated maturity, by acceleration or otherwise. Each Guarantor, by execution of the Guarantee, will agree that its obligations thereunder and hereunder shall be absolute and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any such Note or this Indenture, any failure to enforce the provisions of any such Note or this Indenture, any waiver, modification or indulgence granted to the Issuer with respect thereto by the Holder of such Note or the Trustee, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or such Guarantor. Each Guarantor, by execution of the Guarantee, will waive diligence, presentment, demand for payment, filing of claims with a court in the event of merger or bankruptcy of the Issuer, any right to require a proceeding first against the Issuer, protest or notice with respect to any such Note or the Indebtedness evidenced thereby and all demands whatsoever, and will covenant that this Guarantee will not be discharged as to any such Note except by payment in full of the principal thereof, premium if any, and interest thereon and as provided in Section 9.01 hereof. Each Guarantor, by execution of the Guarantee, will further agree that, as between such Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, (i) the maturity of the Obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the Obligations guaranteed hereby, and (ii) in the event of any declaration of acceleration of such Obligations as provided in Article 6 hereof, such Obligations (whether or not due and payable) shall forthwith become due and payable by each Guarantor for the purpose of this Guarantee. Section 10.02. Execution and Delivery of Guarantees. A Guarantee shall be executed on behalf of a Guarantor by the manual or facsimile signature of an Officer of such Guarantor. If an Officer of a Guarantor whose signature is on the Guarantee no longer holds that office, such Guarantee shall be valid nevertheless. Section 10.03. Limitation of Guarantee. The obligations of each Guarantor are limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Guarantor (including, without limitation, any guarantees of Senior Indebtedness) and after giving effect to any collections from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under its Guarantee or pursuant to its contribution obligations under this Indenture, result in the obligations of such Guarantor under the Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Guarantor that makes a payment or distribution under a Guarantee shall be entitled to a contribution from each other Guarantor in a pro rata amount based on the Adjusted Net Assets of each Guarantor. Section 10.04. Release of Guarantor. A Guarantor shall be released from all of its obligations under its Guarantee if: (i) the Guarantor has sold all or substantially all of its assets or the Issuer and its Restricted Subsidiaries have sold at least 80% of the Capital Stock of the Guarantor owned by them, in each case in a transaction in compliance with Sections 4.10 and 5.01 hereof; provided that in the event of a sale of less than all of the Capital Stock of a Guarantor, the release hereunder shall not be effective unless and until such Guarantor is similarly released from its guarantee under the Senior Credit Facility; or (ii) the Guarantor merges with or into or consolidates with, or transfers all or substantially all of its assets to, the Issuer or another Guarantor in a transaction in compliance with Section 5.01 hereof; and in each such case, such Guarantor has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to such transactions have been complied with. Section 10.05. Guarantee Obligations Subordinated to Guarantor Senior Indebtedness. Each Guarantor, by execution of the Guarantee, will covenant and agree, and each Holder of Notes, by its acceptance thereof, likewise covenants and agrees, that to the extent and in the manner hereinafter set forth in this Article 10, the Indebtedness represented by the Guarantee and the payment of the principal of, premium, if any, interest, indemnification payments, expenses and other amounts on the Notes pursuant to the Guarantee by such Guarantor and under or in respect of the Financing Documents are hereby expressly made subordinate and subject in right of payment as provided in this Article 10 to the prior indefeasible payment and satisfaction in full (as hereinafter defined) of all Guarantor Senior Indebtedness of such Guarantor. This Section 10.05 and the following Sections 10.06 through 10.10 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Guarantor Senior Indebtedness of any Guarantor; and such provisions are made for the benefit of the holders of Guarantor Senior Indebtedness of each Guarantor; and such holders are made obligees hereunder and they or each of them may enforce such provisions. For all purposes of this Article X, all Guarantor Senior Indebtedness now or hereafter existing and all other Obligations relating thereto shall not be deemed to have been paid in full unless and until all of the Obligations of any holder thereof shall have been indefeasibly paid in full in cash (including, without limitation, all Accrued Bankruptcy Interest) and all of the commitments thereunder shall have been terminated and, in the case of any Letter of Credit Obligations, such Obligations shall have been fully drawn and paid in full in cash or 100% cash collateralized. A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 10.06. Payment Over of Proceeds upon Dissolution, etc., of a Guarantor. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, arrangement, reorganization or other similar case or proceeding in connection therewith, relative to any Guarantor or to its creditors, as such, or to its assets, whether voluntary or involuntary, or (b) any liquidation, dissolution or other winding-up of any Guarantor, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (c) any general assignment for the benefit of creditors or any other marshalling of assets or liabilities of any Guarantor, then and in any such event: (1) the holders of all Guarantor Senior Indebtedness of such Guarantor shall be entitled to receive payment in full of all obligations due on or in respect of all such Guarantor Senior Indebtedness (including Accrued Bankruptcy Interest) and all outstanding Letter of Credit Obligations cash collateralized, before the Holders of the Notes are entitled to receive or retain, pursuant to the Guarantee of such Guarantor, any payment or distribution of any kind or character by such Guarantor on account of any of its Obligations on its Guarantee; and (2) any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the subordination provisions of this Article X including any such distribution that is payable or deliverable by reason of the payment of any other Indebtedness of the Issuer being subordinated to the payment of the Notes shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Guarantor Senior Indebtedness of such Guarantor or the Guarantor Representative, ratably according to the aggregate amounts remaining unpaid on account of such Guarantor Senior Indebtedness held or represented by each, to the extent necessary to make payment in full of all such Guarantor Senior Indebtedness remaining unpaid, after giving effect to any concurrent payments or distribution, or provisions thereof, to the Holders of such Guarantor Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section 10.06, the Trustee or the Holder of any Note shall have received any payment or distribution of assets of such Guarantor of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of any of its Obligations on its Guarantee before all Guarantor Senior Indebtedness of such Guarantor is paid in full, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of such Guarantor for application to the payment of all such Guarantor Senior Indebtedness remaining unpaid, to the extent necessary to pay all of such Guarantor Senior Indebtedness in full in cash, after giving effect to any concurrent payment or distribution, or provision thereof to or for the holders of such Guarantor Senior Indebtedness. The consolidation of a Guarantor with, or the merger of a Guarantor with or into, another Person or the liquidation or dissolution of a Guarantor following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of such Guarantor for the purposes of this Article 10 if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof. Section 10.07. Suspension of Guarantee Obligations When Guarantor Senior Indebtedness in Default. (a) Unless Section 10.06 hereof shall be applicable, after the occurrence of a Payment Default on Designated Senior Indebtedness which constitutes Guarantor Senior Indebtedness, the occurrence of a Non-Payment Default on Designated Senior Indebtedness which constitutes Guarantor Senior Indebtedness and the acceleration of the maturity of Designated Senior Indebtedness which constitutes Guarantor Senior Indebtedness in accordance with its terms, or if any judicial proceeding is pending to determine whether any such default has occurred, no payment or distribution of any assets or securities of a Guarantor (or any Subsidiary of such Guarantor) of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of such Guarantor being subordinated to its Obligations on its Guarantee) may be made by or on behalf of such Guarantor (or any Subsidiary of such Guarantor), including, without limitation, by way of set-off or otherwise, for or on account of its Obligations on its Guarantee, and no holder or owner of any Notes shall take or receive from any Guarantor (or any Subsidiary of such Guarantor), directly or indirectly in any manner, payment in respect of all or any portion of its Obligations on its Guarantee (and, in any such event, such prohibition shall continue) until such Payment Default is cured, waived in writing or ceases to exist, such acceleration has been rescinded or otherwise cured, or such judicial proceeding shall be discharged, vacated or settled. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect and, subject to the provisions of the following paragraph (b), such Guarantor shall resume making any and all required payments in respect of its Obligations under its Guarantee including any missed payments. (b) Unless Section 10.06 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness guaranteed by a Guarantor (which guarantee constitutes Guarantor Senior Indebtedness of such Guarantor), no payment or distribution of any assets or securities of such Guarantor or any of its Subsidiaries of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of such Guarantor being subordinated to its Obligations on its Guarantee) shall be made by or on behalf of such Guarantor or any of its Subsidiaries, including, without limitation, by way of set-off or otherwise, for or on account of any of its Obligations on its Guarantee, and neither the Trustee nor any holder or owner of any Notes shall take or receive from any Guarantor (or any Subsidiary of such Guarantor), directly or indirectly in any manner, payment in respect of all or any portion of its Obligations on its Guarantee for a period (a "Guarantee Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Guarantor Representative of such Non-Payment Event of Default (subject, however, to the provisions of Section 11.09), unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraph (a)) the earliest to occur of the following events: (x) more than 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, unless another default, event of default or other event that would prohibit such payment, distribution or acquisition under Section 10.07(a) has occurred and is continuing (y) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist unless another default, event of default or other event that would prohibit such payment, distribution or acquisition under Section 10.07(a) has occurred and is continuing or such Designated Senior Indebtedness shall have been discharged or paid in full or (z) such Guarantee Payment Blockage Period shall have been terminated by written notice to such Guarantor or the Trustee from the Guarantor Representative, after which, in the case of clause (x), (y) or (z), such Guarantor shall resume making any and all required payments in respect of its Obligations on its Guarantee, including any missed payments. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Guarantee Payment Blockage Period initiated by the Guarantor Representative shall be, or be made, the basis for the commencement of a second Guarantee Payment Blockage Period initiated by the Guarantor Representative, whether or not initiated within the Initial Guarantee Blockage Period, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. In no event shall a Guarantee Payment Blockage Period extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to in this Section 10.07(b) or, in the event of a Non-Payment Event of Default which formed the basis for a Payment Blockage Period under Section 11.03(b) hereof, 179 days from the date of the receipt by the Trustee of the notice referred to in Section 11.03(b) (the "Initial Guarantee Blockage Period"). Any number of additional Guarantee Payment Blockage Periods may be commenced during the Initial Guarantee Blockage Period; provided, however, that no such additional Guarantee Payment Blockage Period shall extend beyond the Initial Guarantee Blockage Period. After the expiration of the Initial Guarantee Blockage Period, no Guarantee Payment Blockage Period may be commenced under this Section 10.07(b) and no Payment Blockage Period may be commenced under Section 11.03(b) hereof until at least 180 consecutive days have elapsed from the last day of the Initial Guarantee Blockage Period. (c) If, notwithstanding the provisions of Sections 10.06 and 10.07, any direct or indirect payment or distribution on account of principal of or interest on or other Obligations with respect to the Guarantees or acquisition, repurchase, redemption, retirement or defeasance of any of the Guarantees shall be made by or on behalf of the Issuer (including any payments or distribution by any liquidating trustee or agent or other Person in a proceeding referred to in Section 10.06) and received by any Holder at a time when such payment or distribution was prohibited by the provisions of Section 10.06 or 10.07 or such payment or distribution was required to be made to holders of Guarantor Senior Indebtedness or their Guarantor Representative, then, unless and until such payment or distribution is no longer prohibited by Section 10.06 or 10.07, such payment or distribution shall be received, segregated from other funds or assets and held in trust by the Holders, for the benefit of, and shall be immediately paid or delivered over to, the holders of Guarantor Senior Indebtedness or their Guarantor Representative, ratably in accordance with the respective amounts of the principal of such Guarantor Senior Indebtedness, interest (including Accrued Bankruptcy Interest) thereon and all other Obligations with respect thereto held or represented by each, until the principal of all Guarantor Senior Indebtedness, interest (including Accrued Bankruptcy Interest) thereon and all other Obligations with respect thereto have been paid in full and all outstanding Letter of Credit Obligations have been fully cash collateralized. Any distribution to the holders of Guarantor Senior Indebtedness or their Guarantor Representative of assets other than cash may be held by such holders or such Guarantor Representative as additional collateral without any duty to the Holders to liquidate or otherwise realize on such assets or to apply such assets to any Guarantor Senior Indebtedness or other Obligations relating thereto. Section 10.08. Subrogation to Rights of Holders of Guarantor Senior Indebtedness. Upon the payment in full of all amounts payable under or in respect of all Guarantor Senior Indebtedness of a Guarantor and until the Notes are paid in full, the Holders shall be subrogated to the rights of the holders of such Guarantor Senior Indebtedness to receive payments and distributions of cash, property and securities of such Guarantor applicable to such Guarantor Senior Indebtedness until all amounts due to be paid under the Guarantee shall be paid in full. For the purposes of such subrogation, no payments or distributions to holders of Guarantor Senior Indebtedness of any cash, property or securities to which Holders of the Notes or the Trustee would be entitled except for the provisions of this Article 10, and no payments over pursuant to the provisions of this Article 10 to holders of Guarantor Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among each Guarantor, its creditors other than holders of Guarantor Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by such Guarantor to or on account of such Guarantor Senior Indebtedness. Section 10.09. Guarantee Subordination Provisions Solely To Define Relative Rights. The subordination provisions of this Article 10 are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of Guarantor Senior Indebtedness on the other hand. Nothing contained in this Article 10 or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among each Guarantor, its creditors other than holders of its Guarantor Senior Indebtedness and the Holders of the Notes, the obligation of such Guarantor, which is absolute and unconditional, to make payments to the Holders in respect of its Obligations on its Guarantee in accordance with its terms; or (b) affect the relative rights against such Guarantor of the Holders of the Notes and creditors of such Guarantor other than the holders of the Guarantor Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article 10 of the holders of Guarantor Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Issuer referred to in Section 10.06 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 10.07 hereof, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 10.07(c) hereof. The failure by any Guarantor to make a payment in respect of its obligations on its Guarantee by reason of any provision of this Article 10 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. Section 10.10. Application of Certain Article 11 Provisions. The provisions of Sections 11.04, 11.07, 11.08, 11.09, 11.10, 11.11 11.12, 11.13, 11.14 and 11.15 hereof shall apply, mutatis mutandis, to each Guarantor and their respective holders of Guarantor Senior Indebtedness and the rights, duties and obligations set forth therein shall govern the rights, duties and obligations of each Guarantor, the holders of Guarantor Senior Indebtedness, the Holders and the Trustee with respect to the Guarantee and all references therein to Article 11 hereof shall mean this Article 10. ARTICLE 11 SUBORDINATION OF NOTES Section 11.01. Notes Subordinate to Senior Indebtedness. The Issuer covenants and agrees, and each Holder of Notes, by its acceptance thereof, likewise covenants and agrees, that, to the extent and in the manner hereinafter set forth in this Article 11, the Indebtedness represented by the Notes and the payment of the principal of, and premium, if any, interest, indemnification payments, expenses and other amounts on the Notes and under or in respect of the Financing Documents (collectively, the "Subordinated Obligations") are hereby expressly made subordinate and subject in right of payment as provided in this Article 11 to the prior indefeasible payment and satisfaction in full (as hereinafter defined) of all Senior Indebtedness. This Article 11 shall constitute a continuing offer to all Persons who, in reliance upon such provisions, become holders of or continue to hold Senior Indebtedness; and such provisions are made for the benefit of the holders of Senior Indebtedness; and such holders are made obligees hereunder and they or each of them may enforce such provisions. For all purposes of this Article XI, all Senior Indebtedness now or hereafter existing and all other Obligations relating thereto shall not be deemed to have been paid in full unless and until all of the Obligations of any holder thereof shall have been indefeasibly paid in full in cash (including, without limitation, all Accrued Bankruptcy Interest) and all of the commitments thereunder shall have been terminated and, in the case of any Letter of Credit Obligations, such Obligations shall have been fully drawn and paid in full in cash or 100% cash collateralized. A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 11.02. Payment Over of Proceeds upon Dissolution, etc. In the event of (a) any insolvency or bankruptcy case or proceeding, or any receivership, liquidation, arrangement, reorganization or other similar case or proceeding in connection therewith, relative to the Issuer or to its creditors, as such, or to its assets, whether voluntary or involuntary or (b) any liquidation, dissolution or other winding-up of the Issuer, whether voluntary or involuntary and whether or not involving insolvency or bankruptcy, or (c) any general assignment for the benefit of creditors or any other marshalling of assets or liabilities of the Issuer, then and in any such event: (1) the holders of Senior Indebtedness shall be entitled to receive payment in full of all obligations due on or in respect of all Senior Indebtedness (including Accrued Bankruptcy Interest) and all outstanding Letter of Credit Obligations cash collateralized, before the Holders of the Notes are entitled to receive or retain any payment or distribution of any kind or character on account of any of the Subordinated Obligations; and (2) any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, by set-off or otherwise, to which the Holders or the Trustee would be entitled but for the provisions of this Article XI (including any such distribution that is payable or deliverable by reason of the payment of any other Indebtedness of the Issuer being subordinated to the payment of the Notes) shall be paid by the liquidating trustee or agent or other Person making such payment or distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee or otherwise, directly to the holders of Senior Indebtedness or their Representative, ratably according to the aggregate amounts remaining unpaid on account of the Senior Indebtedness held or represented by each, to the extent necessary to make payment in full in cash of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution, or provision therefor, to the holders of such Senior Indebtedness; and (3) in the event that, notwithstanding the foregoing provisions of this Section 11.02, the Trustee or the Holder of any Note shall have received any payment or distribution of assets of the Issuer of any kind or character, whether in cash, property or securities, including, without limitation, by way of set-off or otherwise, in respect of any of the Subordinated Obligations before all Senior Indebtedness is paid in full in cash, then and in such event such payment or distribution shall be paid over or delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee, agent or other Person making payment or distribution of assets of the Issuer for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full in cash, after giving effect to any concurrent payment or distribution, or provision therefor, to or for the holders of Senior Indebtedness. The consolidation of the Issuer with, or the merger of Issuer with or into, another Person or the liquidation or dissolution of the Issuer following the conveyance, transfer or lease of its properties and assets substantially as an entirety to another Person upon the terms and conditions set forth in Article 5 hereof shall not be deemed a dissolution, winding-up, liquidation, reorganization, assignment for the benefit of creditors or marshaling of assets and liabilities of the Issuer for the purposes of this Article XI if the Person formed by such consolidation or the surviving entity of such merger or the Person which acquires by conveyance, transfer or lease such properties and assets substantially as an entirety, as the case may be, shall, as a part of such consolidation, merger, conveyance, transfer or lease, comply with the conditions set forth in such Article 5 hereof. Section 11.03. Suspension of Payment When Senior Indebtedness in Default. (a) Unless Section 11.02 hereof shall be applicable, after the occurrence of a Payment Default on Designated Senior Indebtedness, the occurrence of a Non-Payment Default on Designated Senior Indebtedness and the acceleration of the maturity of Designated Senior Indebtedness in accordance with its terms, or if any judicial proceeding is pending to determine whether any such default has occurred, no payment or distribution of any assets or securities of the Issuer (or any Subsidiary of the Issuer) of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Issuer being subordinated to the payment of the Notes by the Issuer) may be made by or on behalf of the Issuer (or any Subsidiary of the Issuer), including, without limitation, by way of set-off or otherwise, for or on account of any of the Subordinated Obligations or for or on account of the purchase, redemption or other acquisition of the Notes, and no holder or owner of any Notes shall take or receive from the Issuer or any Subsidiary of the Issuer, directly or indirectly in any manner, payment in respect of all or any portion of any of the Subordinated Obligations (and, in any such event, such prohibition shall continue) until such Payment Default is cured, waived in writing or ceases to exist or such judicial proceeding shall be discharged, vacated or settled, such acceleration has been rescinded or otherwise cured. At such time as the prohibition set forth in the preceding sentence shall no longer be in effect and, subject to the provisions of the following paragraph (b), the Issuer shall resume making any and all required payments in respect of the Subordinated Obligations, including any missed payments. (b) Unless Section 11.02 hereof shall be applicable, upon the occurrence of a Non-Payment Event of Default on Designated Senior Indebtedness, no payment or distribution of any assets or securities of the Issuer or any of its Subsidiaries of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other Indebtedness of the Issuer being subordinated to the payment of the Notes by the Issuer) may be made by or on behalf of the Issuer or any of its subsidiaries, including, without limitation, by way of set-off or otherwise, for or on account of any of the Subordinated Obligations, or for or on account of the purchase, redemption, defeasance or other acquisition of Notes, and neither the Trustee nor any holder or owner of Notes shall take or receive from the Issuer or any of its Subsidiaries, directly or indirectly in any manner, payment in respect of all or any portion of the Subordinated Obligations for a period (a "Payment Blockage Period") commencing on the date of receipt by the Trustee of written notice from the Representative of such Non-Payment Event of Default (subject, however, to the provisions of Section 11.09) unless and until (subject to any blockage of payments that may then be in effect under the preceding paragraph (a)) the earliest to occur of the following events: (x) more than 179 days shall have elapsed since the date of receipt of such written notice by the Trustee, unless another default, event of default or other event that would prohibit such payment, distribution or acquisition under Section 11.03(a) has occurred and is continuing (y) such Non-Payment Event of Default shall have been cured or waived in writing or shall have ceased to exist , unless another default, event of default or other event that would prohibit such payment, distribution or acquisition under Section 11.03(a) has occurred and is continuing or such Designated Senior Indebtedness shall have been paid in full or (z) such Payment Blockage Period shall have been discharged or terminated by written notice to the Issuer or the Trustee from the Representative, after which, in the case of clause (x), (y) or (z), the Issuer shall resume making any and all required payments in respect of the Subordinated Obligations, including any missed payments. Notwithstanding any other provisions of this Indenture, no Non-Payment Event of Default with respect to Designated Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period initiated by the Representative shall be, or be made, the basis for the commencement of a second Payment Blockage Period initiated by the Representative, whether or not within the Initial Blockage Period, unless such event of default shall have been cured or waived for a period of not less than 90 consecutive days. Notwithstanding any other provisions of this Indenture, in no event shall a Payment Blockage Period commenced in accordance with the provisions of this Indenture described in this paragraph extend beyond 179 days from the date of the receipt by the Trustee of the notice referred to in this Section 11.03(b) (the "Initial Blockage Period"). Any number of additional Payment Blockage Periods may be commenced during the Initial Blockage Period; provided, however, that no such additional Payment Blockage Period shall extend beyond the Initial Blockage Period. After the expiration of the Initial Blockage Period, no Payment Blockage Period may be commenced under this Section 11.03(b) (and no Guarantee Payment Blockage Period may be commenced under Section 10.07(b) hereof) until at least 180 consecutive days have elapsed from the last day of the Initial Blockage Period. (c) If, notwithstanding the provisions of Sections 11.02 and 11.03, any direct or indirect payment or distribution on account of any of the Subordinated Obligations or acquisition, repurchase, redemption, retirement or defeasance of any of the Notes shall be made by or on behalf of the Issuer (including any payments or distribution by any liquidating trustee or agent or other Person in a proceeding referred to in Section 11.02) and received by any Holder at a time when such payment or distribution was prohibited by the provisions of Section 11.02 or 11.03 or such payment or distribution was required to be made to holders of Senior Indebtedness or their Representative, then, unless and until such payment or distribution is no longer prohibited by Section 11.02 or 11.03, such payment or distribution shall be received, segregated from other funds or assets and held in trust by the Holders, for the benefit of, and shall be immediately paid or delivered over to, the holders of Senior Indebtedness or their Representative, ratably in accordance with the respective amounts of the principal of such Senior Indebtedness, interest (including Accrued Bankruptcy Interest) thereon and all other Obligations with respect thereto held or represented by each, until the principal of all Senior Indebtedness, interest (including Accrued Bankruptcy Interest) thereon and all other Obligations with respect thereto have been paid in full and all outstanding Letter of Credit Obligations have been fully cash collateralized. Any distribution to the holders of Senior Indebtedness or their Representative of assets other than cash may be held by such holders or such Representative as additional collateral without any duty to the Holders to liquidate or otherwise realize on such assets or to apply such assets to any Senior Indebtedness or other Obligations relating thereto. Section 11.04. Trustee's Relation to Senior Indebtedness. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 11, and no implied covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall not be liable to any holder of Senior Indebtedness if it shall mistakenly pay over or deliver to Holders, the Issuer or any other Person moneys or assets to which any holder of Senior Indebtedness shall be entitled by virtue of this Article 11 or otherwise. Section 11.05. Subrogation to Rights of Holders of Senior Indebtedness. Upon the payment in full of all Senior Indebtedness and until the Notes are paid in full, the Holders of the Notes shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until Subordinated Obligations shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article 11, and no payments over pursuant to the provisions of this Article 11 to the holders of Senior Indebtedness by Holders of the Notes or the Trustee, shall, as among the Issuer, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, be deemed to be a payment or distribution by the Issuer to or on account of the Senior Indebtedness. Section 11.06. Provisions Solely To Define Relative Rights. The provisions of this Article XI are and are intended solely for the purpose of defining the relative rights of the Holders of the Notes on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article XI or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as among the Issuer, its creditors other than holders of Senior Indebtedness and the Holders of the Notes, the obligation of the Issuer, which is absolute and unconditional, to pay to the Holders of the Subordinated Obligations as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Issuer or the Holders of the Notes and creditors of the Issuer other than the holders of Senior Indebtedness; or (c) prevent the Trustee or the Holder of any Note from exercising all remedies otherwise permitted by applicable law upon a Default or an Event of Default under this Indenture, subject to the rights, if any, under this Article 11 of the holders of Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or other winding-up, assignment for the benefit of creditors or other marshaling of assets and liabilities of the Issuer referred to in Section 11.02 hereof, to receive, pursuant to and in accordance with such Section, cash, property and securities otherwise payable or deliverable to the Trustee or such Holder, or (2) under the conditions specified in Section 11.03, to prevent any payment prohibited by such Section or enforce their rights pursuant to Section 11.03(c) hereof. The failure to make a payment on account of any Subordinated Obligations by reason of any provision of this Article 11 shall not be construed as preventing the occurrence of a Default or an Event of Default hereunder. Section 11.07. Trustee To Effectuate Subordination. Each Holder of a Note by his acceptance thereof authorizes and directs the Trustee on his behalf to take, in the Trustee's sole discretion, such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes, including, in the event of any dissolution, winding-up, liquidation or reorganization of the Issuer whether in bankruptcy, insolvency, receivership proceedings, or otherwise, the timely filing of a claim for the unpaid balance of the indebtedness of the Issuer owing to such Holder in the form required in such proceedings and the causing of such claim to be approved. If the Trustee does not file such a claim prior to 30 days before the expiration of the time to file such a claim, the holders of Senior Indebtedness, or any Representative, may file such a claim on behalf of Holders of the Notes. Section 11.08. No Waiver of Subordination Provisions. (a) No right of any present or future holder of any Senior Indebtedness to enforce subordination of the Subordinated Obligations as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Issuer or any Holder or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Issuer or any Holder with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. (b) Without limiting the generality of subsection (a) of this Section 11.08, the holders of Senior Indebtedness may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of the Notes, without incurring responsibility to the Holders of the Notes and without impairing or releasing the subordination provided in this Article 11 or the obligations hereunder of the Holders of the Notes to the holders of Senior Indebtedness, do any one or more of the following: (1) change the manner, place or terms of payment or extend the time of payment of, or extended, restate, refinance, amend, supplement, renew or alter, Senior Indebtedness, any security thereof or any instrument evidencing the same or any agreement under which Senior Indebtedness is outstanding; (2) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing Senior Indebtedness; (3) release any Person liable in any manner for the collection or payment of Senior Indebtedness; and (4) exercise or refrain from exercising any rights against the Issuer and any other Person; provided, however, that in no event shall any such actions limit the right of the Trustee or the Holders of the Notes to take any action to accelerate the maturity of the Notes pursuant to Article 6 hereof or to pursue any rights or remedies hereunder or under applicable laws if the taking of such action does not otherwise violate the terms of this Indenture. (c) Each Holder by its acceptance of any Note: (1) acknowledges and agrees that the holders of any Senior Indebtedness or their Representative, in its or their discretion, and without affecting any rights of any holder of Senior Indebtedness under this Article XI, may foreclose any mortgage or deed of trust covering interest in real property securing such Senior Indebtedness or any guarantee thereof by judicial or nonjudicial sale, even though such action may release the Issuer or any guarantor of such Senior Indebtedness from further liability under such Senior Indebtedness or any guarantee thereof or may otherwise limit the remedies available to the holders thereof; and (2) hereby waives any defense that such Holder may otherwise have to the enforcement by any holder of any Senior Indebtedness or any Representative of such holder against such Holder of this Article XI after or as a result of any action, including any such defense based on any loss or impairment of rights of subrogation. (d) If at any time any payment of Obligations with respect to any Senior Indebtedness is rescinded or must otherwise be returned upon the insolvency, bankruptcy, reorganization or liquidation of the Issuer or otherwise, the provisions of this Article 11 shall continue to be effective or reinstated, as the case may be, to the same extent as though such payments had not been made. Section 11.09. Notice to Trustee. (a) The Issuer shall give prompt written notice to the Trustee of any fact known to the Issuer which would prohibit the making of any payment to or by the Trustee at its Corporate Trust Office in respect of the Notes. Notwithstanding the provisions of this Article 11 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Notes, unless and until the Trustee shall have received written notice at least two Business Days prior to the date of any payment to the Holders thereof from the Issuer or a holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the timely receipt of any such written notice, the Trustee, subject to the provisions of this Section 11.09, shall be entitled in all respects to assume that no such facts exist. (b) Subject to the provisions of Section 7.01 hereof, the Trustee shall be entitled to rely on the delivery to it of a written notice to the Trustee and the Issuer by a Person representing itself to be a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor) to establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor); provided, however, that failure to give such notice to the Issuer shall not affect in any way the right of the Trustee to rely on such notice. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article 11, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 11, and if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Section 11.10. Reliance on Judicial Order or Certificate of Liquidating Agent. Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Issuer referred to in this Article XI, the Trustee, subject to the provisions of Section 7.01 hereof, and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other Indebtedness of the Issuer, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 11. Section 11.11. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 11 with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 11 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. Section 11.12. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Issuer and be then acting hereunder, the term "Trustee" as used in this Article 11 shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article XI in addition to or in place of the Trustee. Section 11.13. No Suspension of Remedies. Nothing contained in this Article 11 shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article 6 or to pursue any rights or remedies hereunder or under applicable law, subject to the rights, if any, under this Article XI of the holders, from time to time, of Senior Indebtedness. SECTION 11.14. Authorization to Effect Subordination. If any of the Holders does not file a proper proof of claim of debt in the form required in any proceeding referred to in Section 6.01(6) or 6.01(7) with respect to the Issuer at least 30 days before the expiration of the time to file such claim, the Representative is hereby authorized to file an appropriate claim for, and on behalf of, the Holders; provided that nothing herein shall be deemed to give the Representative any rights to vote or otherwise act on behalf of any Holder in such proceeding other than to make such filing. SECTION 11.15. Amendments. The provisions of this Article XI shall not be amended or modified in any manner without the written consent of the holders of all Senior Indebtedness unless such amendment or modification could not adversely affect the holders of such Senior Indebtedness. ARTICLE 12 MISCELLANEOUS Section 12.01. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. Section 12.02. Notices. Except for notice or communications to Holders any notice or communication shall be given in writing and delivered in person, sent by facsimile, delivered by commercial courier service or mailed by first-class mail, postage prepaid, addressed as follows: If to the Issuer or any Guarantor: United Industries Corporation 8825 Page Boulevard St. Louis, Missouri 63114 Attention: Chief Financial Officer Fax Number: (314) 253-5964 Copy to: Kirkland & Ellis 200 East Randolph Drive Chicago, Illinois 60601 Attention: Carter Emerson, P.C. William S. Kirsch, P.C. If to the Trustee: State Street Bank and Trust Company 225 Asylum Street, 23rd Floor Hartford, CT 06103 Attention: Corporate Trust Administration Fax Number: (860) 244-1896 Such notices or communications shall be effective when received and shall be sufficiently given if so given within the time prescribed in this Indenture. The Issuer or the Trustee by written notice to the others may designate additional or different addresses for subsequent notices or communications. Any notice or communication mailed to a Noteholder shall be mailed to him by first-class mail, postage prepaid, at his address shown on the register kept by the Registrar. Failure to mail a notice or communication to a Noteholder or any defect in it shall not affect its sufficiency with respect to other Noteholders. If a notice or communication to a Noteholder is mailed in the manner provided above, it shall be deemed duly given, whether or not the addressee receives it. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice as required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. Section 12.03. Communications by Holders with Other Holders. Noteholders may communicate pursuant to TIA ss. 312(b) with other Noteholders with respect to their rights under this Indenture or the Notes. The Issuer, the Guarantors, the Trustee, the Registrar and anyone else shall have the protection of TIA ss. 312(c). Section 12.04. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Issuer or any Guarantor to the Trustee to take any action under this Indenture, the Issuer or such Guarantor shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 12.05 below) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 12.05 below) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Section 12.05. Statements Required in Certificate and Opinion. Each certificate and opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, it or he has made such examination or investigation as is necessary to enable it or him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with. Section 12.06. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or meetings of Noteholders. The Registrar and Paying Agent may make reasonable rules for their functions. Section 12.07. Business Days; Legal Holidays. A "Business Day" is a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on which banking institutions are not required to be open in the State of New York or the State of Massachusetts. If a payment date is a Legal Holiday payment may be made on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. Section 12.08. Governing Law. THIS INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE OR THE NOTES. Section 12.09. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret another indenture, loan, security or debt agreement of the Issuer or any Subsidiary thereof. No such indenture, loan, security or debt agreement may be used to interpret this Indenture. Section 12.10. No Recourse Against Others. No recourse for the payment of the principal of or premium, if any, or interest on any of the Notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Issuer or any Guarantor in this Indenture or in any supplemental indenture, or in any of the Notes, or because of the creation of any Indebtedness represented thereby, shall be had against any stockholder, officer, director or employee, as such, past, present or future, of the Issuer or of any successor corporation or against the property or assets of any such stockholder, officer, employee or director, either directly or through the Issuer or any Guarantor, or any successor corporation thereof, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the Notes are solely obligations of the Issuer and the Guarantors, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any stockholder, officer, employee or director of the Issuer or any Guarantor, or any successor corporation thereof, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or the Notes or implied therefrom, and that any and all such personal liability of, and any and all claims against every stockholder, officer, employee and director, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of the Notes. It is understood that this limitation on recourse is made expressly for the benefit of any such shareholder, employee, officer or director and may be enforced by any of them. Section 12.11. Successors. All agreements of the Issuer in this Indenture and the Notes shall bind its successor. All agreements of the Trustee, any additional trustee and any Paying Agents in this Indenture shall bind its successor. Section 12.12. Multiple Counterparts. The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent one and the same agreement. Section 12.13. Table of Contents, Headings, etc. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. Section 12.14. Separability. Each provision of this Indenture shall be considered separable and if for any reason any provision which is not essential to the effectuation of the basic purpose of this Indenture or the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. IN WITNESS WHEREOF, the parties have caused this Indenture to be duly executed all as of the date and year first written above. UNITED INDUSTRIES CORPORATION By: Name: Title: STATE STREET BANK AND TRUST COMPANY By: Name: Title: A-9 EXHIBIT A [FORM OF FACE OF NOTE] Number CUSIP UNITED INDUSTRIES CORPORATION 9-7/8% SENIOR SUBORDINATED NOTE DUE 2009 United Industries Corporation (the "Issuer"), for value received promise to pay to or registered assigns the principal sum of ONE HUNDRED FIFTY MILLION DOLLARS ($150,000,000), on April 1, 2009. Interest Payment Dates: April 1 and October 1, commencing October 1, 1999 Record Dates: March 15 and September 15 This Note shall not be valid or obligatory for any purpose until the certificate of authentication shall have been executed by the Trustee by its manual signature. Reference is made to the further provisions of this Security contained herein, which will for all purposes have the same effect as if set forth at this place. IN WITNESS WHEREOF, the Issuer has caused this Note to be signed manually or by facsimile by its duly authorized Officers. UNITED INDUSTRIES CORPORATION By: Name: Title: By: Name: Title: Certificate of Authentication: This is one of the 9-7/8% Senior Subordinated Notes due 2009 referred to in the within-mentioned Indenture Dated: STATE STREET BANK AND TRUST COMPANY, as Trustee By: Authorized Signatory (REVERSE SIDE) UNITED INDUSTRIES CORPORATION 9-7/8% SENIOR SUBORDINATED NOTE DUE 2009 1. INTEREST. UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Issuer"), promises to pay interest on the principal amount of this Note semiannually on April 1 and October 1 of each year (each an "Interest Payment Date"), commencing on October 1, 1999, at the rate of 9-7/8% per annum. Interest will be computed on the basis of a 360-day year of twelve 30-day months. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of the original issuance of the Notes. The Issuer shall pay interest on overdue principal, and on overdue premium, if any, and overdue interest, to the extent lawful, at the rate equal to 2% per annum in excess of the rate borne by the Notes. 2. METHOD OF PAYMENT. The Issuer will pay interest on this Note provided for in Paragraph 1 above (except defaulted interest) to the person who is the registered Holder of this Note at the close of business on the March 15 or September 15 preceding the Interest Payment Date (whether or not such day is a Business Day). The Holder must surrender this Note to a Paying Agent to collect principal payments. The Issuer will pay principal, premium, if any, and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts; provided, however, that the Issuer may pay principal, premium, if any, and interest by check payable in such money. They may mail an interest check to the Holder's registered address. 3. PAYING AGENT AND REGISTRAR. Initially, State Street Bank and Trust Company (the "Trustee") will act as Paying Agent and Registrar. The Issuer may change any Paying Agent or Registrar without notice to the Holders of the Notes. Neither the Issuer nor any of its Subsidiaries or Affiliates may act as Paying Agent but may act as Registrar. 4. INDENTURE; RESTRICTIVE COVENANTS. The Issuer issued this Note under an Indenture dated as of March 24, 1999 (the "Indenture") among the Issuer, the Guarantors and the Trustee. The terms of this Note include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-77bbbb) as in effect on the date of the Indenture. This Note is subject to all such terms, and the Holder of this Note is referred to the Indenture and said Trust Indenture Act for a statement of them. All capitalized terms in this Note, unless otherwise defined, have the meanings assigned to them by the Indenture. The Notes are general unsecured obligations of the Issuer limited to $150,000,000 aggregate principal amount. The Indenture imposes certain restrictions on, among other things, the incurrence of indebtedness, the incurrence of liens and the issuance of capital stock by Subsidiaries of the Issuer, mergers and sale of assets, the payments of dividends on, or the repurchase of, capital stock of the Issuer and their Restricted Subsidiaries, certain other restricted payments by the Issuer and their Restricted Subsidiaries, certain transactions with, and investments in, its affiliates, certain sale and lease-back transactions and a provision regarding change-of-control transactions. 5. SUBORDINATION. The Indebtedness evidenced by the Notes is, to the extent and in the manner provided in the Indenture, subordinated and subject in right of payment to the prior payment in full of all Senior Indebtedness as defined in the Indenture, and this Note is issued subject to such provisions. Each Holder of this Note, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose; provided, however, that the Indebtedness evidenced by this Note shall cease to be so subordinate and subject in right of payment upon any defeasance of this Note referred to in Paragraph 18 below. 6. OPTIONAL REDEMPTION. The Issuer, at its option, may redeem the Notes, in whole or in part, at any time on or after April 1, 2004 upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount), set forth below, together, in each case, with accrued and unpaid interest to the Redemption Date, if redeemed during the twelve month period beginning on April 1 of each year listed below: Year Redemption Price 2004............................... 104.938% 2005............................... 103.292% 2006............................... 101.646% 2007 and thereafter................ 100.000% Notwithstanding the foregoing, the Issuer may redeem in the aggregate up to 40% of the original principal amount of Notes at any time and from time to time prior to April 1, 2002 at a redemption price equal to 109.875% of the aggregate principal amount so redeemed, plus accrued interest to the Redemption Date out of the Net Proceeds of one or more Qualified Public Offerings; provided that at least 60% of the principal amount of Notes remain outstanding immediately after the occurrence of any such redemption and that any such redemption occurs within 90 days following the closing of any such Qualified Public Offering. 7. NOTICE OF REDEMPTION. Notice of redemption will be mailed via first class mail at least 30 days but not more than 60 days prior to the redemption date to each Holder of Notes to be redeemed at its registered address as it shall appear on the register of the Notes maintained by the Registrar. On and after any Redemption Date, interest will cease to accrue on the Notes or portions thereof called for redemption unless the Issuer shall fail to redeem any such Note. 8. OFFERS TO PURCHASE. The Indenture requires that certain proceeds from Asset Sales be used, subject to further limitations contained therein, to make an offer to purchase certain amounts of Notes in accordance with the procedures set forth in the Indenture. The Issuer are also required to make an offer to purchase Notes upon the occurrence of a Change of Control in accordance with procedures set forth in the Indenture. 9. REGISTRATION RIGHTS. Pursuant to the Registration Rights Agreement among the Issuer, CIBC Oppenheimer Corp. and NationsBanc Montgomery Securities LLC, as initial purchasers of the Notes, the Issuer will be obligated to consummate an exchange offer pursuant to which the Holder of this Note shall have the right to exchange this Note for Notes of a separate series issued under the Indenture (or a trust indenture substantially identical to the Indenture in accordance with the terms of the Registration Rights Agreement) which have been registered under the Securities Act, in like principal amount and having substantially identical terms as the Notes. The Holders shall be entitled to receive certain additional interest payments in the event such exchange offer is not consummated and upon certain other conditions, all pursuant to and in accordance with the terms of the Registration Rights Agreement. 10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples thereof. A Holder may register the transfer or exchange of Notes in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Note selected for redemption or register the transfer of or exchange any Note for a period of 15 days before the mailing of notice of redemption of Notes to be redeemed or any Note after it is called for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. 11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be treated as the owner of it for all purposes. 12. UNCLAIMED MONEY. If money for the payment of principal, premium or interest on any Note remains unclaimed for two years, the Trustee or Paying Agent will pay the money back to the Issuer at its written request. After that, Holders entitled to money must look to the Issuer for payment as general creditors unless an "abandoned property" law designates another person. 13. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Indenture or the Notes may be modified, amended or supplemented by the Issuer, the Guarantors and the Trustee with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding and any existing default or compliance with any provision may be waived in a particular instance with the consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of Holders, the Issuer, the Guarantors and the Trustee may amend the Indenture or the Notes or supplement the Indenture for certain specified purposes including providing for uncertificated Notes in addition to certificated Notes, and curing any ambiguity, defect or inconsistency, or making any other change that does not adversely affect the rights of any Holder. 14. SUCCESSOR ENTITY. When a successor corporation assumes all the obligations of its predecessor under the Notes and the Indenture and immediately before and thereafter no Default exists and certain other conditions are satisfied, the predecessor corporation will be released from those obligations. 15. DEFAULTS AND REMEDIES. Events of Default are set forth in the Indenture. If an Event of Default (other than an Event of Default pursuant to Section 6.01(6) or (7) of the Indenture with respect to the Issuer) occurs and is continuing, the Trustee by notice to the Issuer, or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding, may declare to be immediately due and payable the entire principal amount of all the Notes then outstanding plus accrued but unpaid interest to the date of acceleration and (i) such amounts shall become immediately due and payable or (ii) if there are any amounts outstanding under or in respect of the Senior Credit Facility, such amounts shall become due and payable upon the first to occur of an acceleration of amounts outstanding under or in respect of the Senior Credit Facility or five Business Days after receipt by the Issuer and the Representative of notice of the acceleration of the Notes; provided, however, that after such acceleration but before judgment or decree based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Notes may, under certain circumstances, rescind and annul such acceleration and its consequences if all existing Events of Default, other than the nonpayment of principal, premium or interest that has become due solely because of the acceleration, have been cured or waived and if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.01(6) or (7) of the Indenture with respect to either of the Issuer occurs, such principal amount, together with premium, if any, and interest with respect to all of the Notes, shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Notes. 16. TRUSTEE DEALINGS WITH THE ISSUER The Trustee under the Indenture, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuer, any Guarantor or their Affiliates, and may otherwise deal with the Issuer any Guarantor or their Affiliates, as if it were not Trustee. 17. NO RECOURSE AGAINST OTHERS. As more fully described in the Indenture, a director, officer, employee or stockholder, as such, of the Issuer or any Guarantor shall not have any liability for any obligations of the Issuer or any Guarantor under the Notes or the Indenture or for any claim based on, in respect or by reason of, such obligations or their creation. The Holder of this Note by accepting this Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of this Note. 18. DEFEASANCE AND COVENANT DEFEASANCE. The Indenture contains provisions for defeasance of the entire indebtedness on this Note and for defeasance of certain covenants in the Indenture upon compliance by the Issuer with certain conditions set forth in the Indenture. 19. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder of a Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to Minors Act). 20. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Note Identification Procedures, the Issuer has caused CUSIP Numbers to be printed on the Notes and have directed the Trustee to use CUSIP numbers in notices of redemption as a convenience to Holders of the Notes. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. 21. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE. THE ISSUER WILL FURNISH TO ANY HOLDER OF A NOTE UPON WRITTEN REQUEST AND WITHOUT CHARGE A COPY OF THE INDENTURE. REQUESTS MAY BE MADE TO: UNITED INDUSTRIES CORPORATION, 8825 Page Boulevard, St. Louis, Missouri 63114, Attention: Chief Financial Officer. 22. GUARANTEES BY FUTURE SUBSIDIARIES. The Notes will be entitled to the benefits of certain Guarantees by future subsidiaries made for the benefit of the Holders. Reference is hereby made to the Indenture for a statement of the respective rights, limitations of rights, duties and obligations thereunder of the Guarantors, the Trustee and the Holders. ASSIGNMENT I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) (Print or type name, address and zip code of assignee) and irrevocably appoint: Agent to transfer this Note on the books of the Issuer. The Agent may substitute another to act for him. Date: Your Signature: (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have all or any part of this Note purchased by the Issuer pursuant to Section 4.10 or Section 4.19 of the Indenture, check the appropriate box: Section 4.10 Section 4.19 If you want to have only part of the Note purchased by the pursuant to Section 4.10 or Section 4.19 of the Indenture, state the amount you elect to have purchased (in amounts of $1,000 or an integral multiple thereof): $ Date: Your Signature: (Sign exactly as your name appears on the face of this Note) Signature Guaranteed B-3 EXHIBIT B [FORM OF LEGEND FOR 144A NOTE] THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS, EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") THAT IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE OF THIS NOTE AND THE LAST DATE ON WHICH THE ISSUER OR ANY AFFILIATE OF THE ISSUER, WAS THE OWNER OF THIS NOTE (OR ANY PREDECESSOR OF SUCH NOTE), RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO AN ISSUER OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (C) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE ACT, (D) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S. BROKER-DEALER) TO THE COMPANY AND THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE), (E) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE ACT OR (F) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE ACT (IF AVAILABLE) AND (2) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THIS NOTE PRIOR TO THE RESALE RESTRICTION TERMINATION DATE, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE ACT. [FORM OF ASSIGNMENT FOR 144A NOTE] I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ============================================================== - -------------------------------------------------------------- (Print or type name, address and zip code of assignee) and irrevocably appoint: ============================================================== Agent to transfer this Note on the books of the Issuer. The Agent may substitute another to act for him. [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Sections 2.16 and 2.17 of the Indenture shall have been satisfied. Date: __________________ Your Signature: _____________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ____________________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ________________________________ NOTICE: To be executed by an executive officer EXHIBIT C [FORM OF LEGEND FOR REGULATION S NOTE] THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS UNLESS REGISTERED UNDER THE SECURITIES ACT OR EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. [FORM OF ASSIGNMENT FOR REGULATION S NOTE] I or we assign and transfer this Note to: (Insert assignee's social security or tax I.D. number) ============================================================== - -------------------------------------------------------------- (Print or type name, address and zip code of assignee) and irrevocably appoint: ============================================================== Agent to transfer this Note on the books of the Issuer. The Agent may substitute another to act for him. [Check One] [ ] (a) this Note is being transferred in compliance with the exemption from registration under the Securities Act provided by Rule 144A thereunder. or [ ] (b) this Note is being transferred other than in accordance with (a) above and documents are being furnished which comply with the conditions of transfer set forth in this Note and the Indenture. If none of the foregoing boxes is checked, the Trustee or Registrar shall not be obligated to register this Note in the name of any person other than the Holder hereof unless and until the conditions to any such transfer of registration set forth herein and in Sections 2.16 and 2.17 of the Indenture shall have been satisfied. Date: __________________ Your Signature: _____________________ (Sign exactly as your name appears on the other side of this Note) Signature Guarantee: ____________________________________ TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Issuer as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Dated: __________________ ________________________________ NOTICE: To be executed by an executive officer EXHIBIT D [FORM OF LEGEND FOR GLOBAL NOTE] Any Global Note authenticated and delivered hereunder shall bear a legend (which would be in addition to any other legends required in the case of a Restricted Note or Regulation S Note) in substantially the following form: THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY. THIS NOTE IS NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (A NEW YORK CORPORATION) ("DTC") TO THE ISSUER OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IT REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. EXHIBIT E Form of Certificate to Be Delivered in Connection with Transfers to Non-QIB Accredited Investors -----------, ---- State Street Bank and Trust Company 225 Asylum Street, 23rd Floor Hartford, CT Attention: Re: UNITED INDUSTRIES CORPORATION (the "Issuer") 9-7/8% Senior Subordinated Notes due 2009 (the "Notes") Dear Sirs: In connection with our proposed purchase of Notes, we confirm that: 1. We understand that any subsequent transfer of the Notes is subject to certain restrictions and conditions set forth in the Indenture dated as of March 24, 1999 relating to the Notes and we agree to be bound by, and not to resell, pledge or otherwise transfer the Notes except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the Notes have not been registered under the Securities Act, and that the Notes may not be offered, sold, pledged or otherwise transferred except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell any Notes, we will do so only (i) to an Issuer or any subsidiary thereof, (ii) pursuant to an effective registration statement under the Securities Act, (iii) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined in Rule 144A), (iv) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you a signed letter containing certain representations and agreements relating to the restrictions on transfer of the Notes, (v) outside the United States to persons other than U.S. persons in offshore transactions meeting the requirements of Rule 904 of Regulation S under the Securities Act, or (vi) pursuant to any other exemption from registration under the Securities Act (if available), and we further agree to provide to any person purchasing any of the Notes from us a notice advising such purchaser that resales of the Notes are restricted as stated herein. 3. We understand that, on any proposed resale of any Notes, we will be required to furnish to you and the Issuer such certifications, legal opinions and other information as you and the Issuer may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting each are able to bear the economic risk of our or their investment, as the case may be. 5. We are acquiring the Notes purchased by us for our account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Issuer are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceeding or official inquiry with respect to the matters covered hereby. Very truly yours, [Name of Transferee] By: Authorized Signature EXHIBIT F Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S ----------, ---- State Street Bank and Trust Company 225 Asylum Street, 23rd Floor Hartford, CT Attention: Re: UNITED INDUSTRIES CORPORATION (the "Issuer") 9-7/8% Senior Subordinated Notes due 2009 (the "Notes") Dear Sirs: In connection with our proposed sale of $150,000,000 aggregate principal amount of the Notes, we confirm that such sale has been effected pursuant to and in accordance with Regulation S under the U.S. Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, we represent that: (1) the offer of the Notes was not made to a U.S. person or to a person in the United States; (2) either (a) at the time the buy offer was originated, the transferee was outside the United States or we and any person acting on our behalf reasonably believed that the transferee was outside the United States, or (b) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither we nor any person acting on our behalf knows that the transaction has been prearranged with a buyer in the United States; (3) no directed selling efforts have been made in the United States in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S, as applicable; (4) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act; and (5) we have advised the transferee of the transfer restrictions applicable to the Notes. You and the Issuer are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. Terms used in this certificate have the meanings set forth in Regulation S. Very truly yours, [Name of Transferor] By: Authorized Signature EXHIBIT G [FORM OF GUARANTEE] The undersigned (the "Guarantor") hereby unconditionally guarantees, on a senior subordinated basis, jointly and severally with all other guarantors under the Indenture dated as of March 24, 1999 by and among United Industries Corporation, a Delaware corporation (the "Issuer"), and State Street Bank and Trust Company, as trustee (as amended, restated or supplemented from time to time, the "Indenture"), to the extent set forth in the Indenture and subject to the provisions of the Indenture, (a) the due and punctual payment of the principal of and premium, if any, and interest on the Notes, whether at maturity, by acceleration or otherwise, the due and punctual payment of interest on overdue principal of, and premium, if any, and interest on the Notes, to the extent lawful, and the due and punctual performance of all other obligations of the Issuer to the Noteholders or the Trustee, all in accordance with the terms set forth in Article 10 of the Indenture, and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. This guarantee shall be automatically and unconditionally released and discharged upon certain mergers, consolidations, sales and other dispositions (including, without limitation, by foreclosure) in accordance with the Indenture. The obligations of the Guarantor to the Noteholders and to the Trustee pursuant to this Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms and limitations of this Guarantee. Guarantor By: Name: Title: EX-10.1 7 UNITED INDUSTRIES DEFERRED COMPENSATION PLAN Exhibit 10.1 ------------ UNITED INDUSTRIES CORPORATION DEFERRED COMPENSATION PLAN (Effective January 20, 1999) CERTIFICATE ----------- I, _______________________, the_____________________ of United Industries Corporation, do hereby certify that the attached is a true and correct copy of the United Industries Corporation Deferred Compensation Plan as in effect January 20, 1999. By: __________________________________ Dated this 20th day of January, 1999 UNITED INDUSTRIES CORPORATION DEFERRED COMPENSATION PLAN (Effective January 20, 1999) Table of Contents ARTICLE I Introduction..........................................................1 1.1 Name........................................................1 1.2 Purpose.....................................................1 1.3 Administration of the Plan..................................1 ARTICLE II Definitions...........................................................1 ARTICLE III Plan Participation....................................................3 3.1 Eligibility.................................................3 3.2 Participation...............................................3 ARTICLE IV Deferral Contributions................................................3 4.1 Deferral Contributions......................................3 4.2 Deferral Contribution Account...............................4 ARTICLE V Earnings on Account Balances..........................................4 5.1 Investments.................................................4 5.2 Crediting of Deferrals......................................4 ARTICLE VI Establishment of Trust................................................5 6.1 Establishment of Trust......................................5 6.2 Status of Trust.............................................5 ARTICLE VII Distribution of Account Balances......................................5 7.1 Vesting.....................................................5 7.2 Timing of Distributions.....................................5 7.3 Form of Distribution of Accounts............................6 7.4 Involuntary Distributions...................................6 7.5 Designation of Beneficiaries................................7 i ARTICLE VIII Amendment and Termination.............................................7 8.1 Amendment...................................................7 8.2 Plan Termination............................................7 ARTICLE IX General Provisions....................................................7 9.1 Non-Alienation of Benefits..................................7 9.2 Withholding for Taxes.......................................8 9.3 Immunity of Committee Members...............................8 9.4 Plan Not to Affect Employment Relationship..................8 9.5 Assumption of Company Liability.............................8 9.6 Notices.....................................................8 9.7 Gender and Number; Headings.................................8 9.8 Controlling Law.............................................8 9.9 Successors..................................................9 9.10 Severability................................................9 9.11 Action by Company...........................................9 9.12 Review of Benefit Determinations............................9
ii UNITED INDUSTRIES CORPORATION DEFERRED COMPENSATION PLAN ARTICLE I Introduction 1.1 Name. The name of this plan shall be the "United Industries Corporation Deferred Compensation Plan." Unless otherwise expressly provided herein, the capitalized terms used in this Plan shall have the meanings set forth in Article II. 1.2 Purpose. This Plan shall constitute an unfunded nonqualified deferred compensation arrangement established for the purpose of providing deferred compensation to the Participants in connection with the recapitalization of the Company. 1.3 Administration of the Plan. The Plan shall be administered by the Committee. The duties and authority of the Committee under the Plan shall include (i) the interpretation of the provisions of the Plan, (ii) the adoption of any rules and regulations which may become necessary or advisable in the operation of the Plan, (iii) the making of such determinations as may be permitted or required pursuant to the Plan, and (iv) the taking of such other actions as may be required for the proper administration of the Plan in accordance with its terms. Any decision of the Committee with respect to any matter within the authority of the Committee shall be final, binding and conclusive upon the Company and each Participant, former Participant, designated beneficiary, and each person claiming under or through any Participant or designated beneficiary; and no additional authorization or ratification by the Board of Directors or stockholders of the Company shall be required. Any action taken by the Committee with respect to any one or more Participants shall not be binding on the Committee as to any action to be taken with respect to any other Participant. A member of the Committee may be a Participant, but no member of the Committee may participate in any decision directly affecting his rights or the computation of his benefits under the Plan. Each determination required or permitted under the Plan shall be made by the Committee in the sole and absolute discretion of the Committee. ARTICLE II Definitions 2.1 "Account" means a bookkeeping account maintained by the Company for a Participant under the Plan. 2.2 "Account Balance" means the value, as of a specified date, of any of the Accounts of a Participant. 2.3 "Affiliate" of any Person means any other Person, directly or indirectly controlling, controlled by or under common control with such Person. 1 2.4 "Cause" for termination by the Company of a Participant's employment shall have the meaning set forth in such Participant's Management Agreement. 2.5 "Code" means the Internal Revenue Code of 1986, as amended. 2.6 "Committee" means the persons who have been designated by the Board of Directors of the Company to administer the Plan; provided that each Participant shall be a member of the Committee and Participants shall constitute a majority of the Committee so long as there are at least two Participants, unless otherwise determined by the Board of Directors of the Company. 2.7 "Company" means United Industries Corporation, a Delaware corporation, or its successors or assigns under the Plan. 2.8 "Deferral Contributions" means the contributions made on behalf of a Participant pursuant to Section 4.1 of this Plan. 2.9 "Deferral Contribution Account" has the meaning set forth in Section 4.2 of the Plan. 2.10 "Fair Market Value" shall have the meaning set forth in such Participant's Management Agreement. 2.11 "Good Reason" for termination by a Participant of such Participant's employment shall have the meaning set forth in such Participant's Management Agreement. 2.12 "Management Agreements" means, collectively, the Management Agreements, dated as of January 20, 1999 between the Company and each of Richard A. Bender, William P. Johnson and Daniel J. Johnston, as each may be subsequently amended. Each such agreement is individually referred to herein as a "Management Agreement." 2.13 "Marketable Securities" means any securities which are, or will be immediately after distribution hereunder, (i) covered by an effective registration statement filed pursuant to the Securities Act of 1933, as amended from time to time, (ii) listed for trading on a national securities exchange and (iii) otherwise freely tradable. 2.14 "Participant" means any eligible employee of the Company who is participating under the Plan pursuant to Article III. 2.15 "Participant Securities" means, with respect to each Participant, the Permitted Investments in which a Participant's Account is deemed to be invested. 2.16 "Permitted Investment" means an investment of 50% in Class A voting common stock of the Company ("Class A") and 50% in Class B nonvoting common stock of the Company ("Class B"), including any cash or property received in exchange for, or with respect to the Class A or Class B, in connection with a merger of the Company, a sale of substantially all of the stock of the Company, or any similar transaction. 2 2.17 "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. 2.18 "Plan" means this "United Industries Corporation Deferred Compensation Plan," as amended from time to time. 2.19 "Public Offering" shall have the meaning set forth in such Participant's Management Agreement. 2.20 "Public Sale" shall have the meaning set forth in such Participant's Management Agreement. 2.21 "Sale of the Company" shall have the meaning set forth in such Participant's Management Agreement. 2.22 "Stockholders" shall have the meaning set forth in such Participant's Management Agreement. 2.23 "Subsidiary" shall have the meaning set forth in such Participant's Management Agreement. 2.24 "Transfer" shall have the meaning set forth in such Participant's Management Agreement. ARTICLE III Plan Participation 3.1 Eligibility. Richard A. Bender, William P. Johnson and Daniel J. Johnston are eligible to participate under this Plan. 3.2 Participation. Each person eligible to participate in this Plan shall become a Participant hereunder by timely executing a deferral election form with the Committee in accordance with the requirements of Article IV. ARTICLE IV Deferral Contributions 4.1 Deferral Contributions. Each person who is eligible to participate in this Plan may elect to reduce the amount that such person would otherwise be entitled to be paid in connection with the recapitalization of the Company pursuant to such person's Contract for Release in Event of Sale (as accelerated by such person's Management Agreement) by an amount less than or equal to the amount to be paid to such Participant pursuant to such contract. Each Participant desiring to 3 defer compensation hereunder shall file an election with the Committee in such form and at such time as the Committee may determine. The completion of such an election shall evidence the Participant's authorization of the Company to reduce the amount payable to such Participant and shall thereafter be irrevocable. 4.2 Deferral Contribution Account. The Committee shall establish and maintain an account (the "Deferral Contribution Account") with respect to each Participant who has elected to make a Deferral Contribution under this Article IV. The Participant's Deferral Contribution Account shall be a bookkeeping account maintained by the Company and shall reflect the amount the Participant has elected to defer under the Plan. The amount of any deemed investment earnings and losses on the amounts reflected in a Participant's Deferral Contribution Account shall be credited or charged to his Deferral Contribution Account in accordance with Article V. ARTICLE V Earnings on Account Balances 5.1 Investments. (a) Permitted Investments. Except as provided in Section 5.1(b), all of a Participant's Deferral Contribution Account shall be deemed to be invested in the Permitted Investments. Such amounts shall be deemed to be invested as of the time the amount payable to each Participant pursuant to such person's Contract for Release in Event of Sale (as accelerated by such person's Management Agreement) is reduced pursuant to Section 4.1. (b) Receipts. Each Account shall be deemed to receive all interest, dividends, earnings and other payments of cash or property which would have been received with respect to or in exchange for a Permitted Investment deemed to be held in such Account if such Account was actually invested in such Permitted Investment (including with respect to a Sale of the Company) to the extent that such amounts are not previously included in the definition of Permitted Investment. Any such payments of cash or of property consisting of Marketable Securities shall be paid (in the case of property consisting of Marketable Securities, at the option of the Company, in kind or in cash in an amount equal to the Fair Market Value of such Marketable Securities) to the Participant to whose Account it is attributable not more than ten days after the date it would have been received with respect to the Permitted Investment. (c) Actual Investment Not Required. The Company need not actually make any Permitted Investment. If the Company should from time to time make any investment similar to a Permitted Investment, such investment shall be solely for the Company's own account and the Participant shall have no right, title or interest therein. Accordingly, each Participant is solely an unsecured creditor of the Company with respect to any amount distributable to him under the Plan. 5.2 Crediting of Deferrals. The Company shall credit all Deferral Contributions to a Participant's Deferral Contribution Account as of the date such Deferral Contribution is made. 4 ARTICLE VI Establishment of Trust 6.1 Establishment of Trust. The Company shall establish a grantor trust (as described in Section 671 of the Code) for the purpose of accumulating assets to provide for the obligations hereunder (the "Trust"). The assets and income of the Trust shall be subject to the claims of the general creditors of the Company. The establishment of the Trust shall not affect the Company's liability to pay benefits hereunder except that any such liability shall be offset by any payments actually made to a Participant under the Trust. The Company shall cause an amount in cash equal to each Participant's Deferral Contributions (determined pursuant to Section 4.1) to be contributed to the Trust, and the Trust shall use such cash to purchase Permitted Investments from the Company as described in Section 7(a) of each Participant's Management Agreement. Any additional amount to be contributed to the Trust shall be determined by the Company and the investment of such assets shall be made in accordance with the trust document. 6.2 Status of Trust. Participants shall have no direct or secured claim in any asset of the Trust or in specific assets of the Company and will have the status of general unsecured creditors of the Company for any amounts due under this Plan. The assets and income of the Trust will be subject to the claims of the Company's creditors. ARTICLE VII Distribution of Account Balances 7.1 Vesting. A Participant's benefit under his Deferral Contribution Account shall be 100% vested and nonforfeitable and shall be distributable to the Participant or, in the event of the Participant's death, to his beneficiary, as provided in Section 7.2 below. 7.2 Timing of Distributions. Each Participant's Account shall be distributable as soon as administratively practicable following December 31, 2009. Any Participant which is a member of the Committee shall have no right to participate in any decision regarding the effect of, or amend the provisions in, this Section 7.2. The amount and time of a distribution shall be accelerated and changed only as described below. (a) Distribution if Marketable. If at any time any Permitted Investments deemed to be held in a Participant's Account consist of cash or Marketable Securities, such Marketable Securities or, at the option of the Company, cash in an amount equal to the Fair Market Value of such Marketable Securities, shall be distributed to such Participant as soon as administratively possible. (b) Optional Distribution Following Termination. In the event any Participant ceases to be employed by the Company or its Subsidiaries for any reason (including, without limitation, the death of the Participant) (the "Termination"), the Company may, but shall not be required to, distribute to such Participant all or a portion of the balance of such Participant's Account as of the date of the applicable Company Distribution Notice, as defined in Section 7.2(c) or at any time thereafter. Any amount distributed to such Participant pursuant to this Section 7.2(b) 5 shall be paid, at the option of the Company, in the form of (i) cash in an amount equal to the Fair Market Value of the Permitted Investments deemed to be held in the portion of such Participant's Account being distributed, (ii) Permitted Investments deemed to be held in the portion of such Participant's Account being distributed, or (iii) a combination of (i) and (ii) above, provided that, if the Permitted Investments deemed to be held in the portion of such Participant's Account being distributed do not consist of Marketable Securities, the distribution shall be made in the form of cash to the extent necessary, in the reasonable determination of the Committee, to allow such Participant to pay applicable income taxes imposed on the amount being distributed (including, without limitation, any penalties or interest assessed against such Participant with respect to his Account). Any capital stock of the Company distributed pursuant to this Section 7.2(b) shall be subject to repurchase by the Company pursuant to Section 8 of the Management Agreement. (c) Notice of Distribution. The Company may elect to distribute all or a portion of a Participant's Account pursuant to Section 7.2(b) at any time after a Participant's Termination by delivering written notice (the "Company Distribution Notice") to the Participant. The Company Distribution Notice shall set forth the portion of such Participant's Account to be distributed, the portion of such distribution to be made in the form of cash, the Fair Market Value of the Permitted Investments deemed to be held in the portion of such Participant's Account being distributed and the time of such distribution. The distribution shall be made on the date designated by the Company in the Company Distribution Notice, which date shall not be more than 60 days nor less than 10 days after the delivery of such notice. Any distribution of cash shall be made by delivery of a check or wire transfer of funds. 7.3 Form of Distribution of Accounts. Subject to Section 5.3(b) and Section 7.2, each Participant's benefit under this Plan shall be distributed in a lump sum payment in cash or in-kind, in the Committee's discretion (excluding from this decision any Committee members who are also Participants). 7.4 Involuntary Distributions. Notwithstanding the foregoing provisions of this Article VII, the Committee (excluding from this decision any Committee members who are also Participants) may on its own initiative authorize and instruct the Company to distribute to any Participant (or to a designated beneficiary in the event of the Participant's death) all or any portion of the Participant's Account Balances. Such payment must be specifically authorized in the event that the Committee determines in good faith that a Participant has or is reasonably likely to recognize income for federal income tax purposes with respect to amounts deferred under this Plan prior to the time such amounts otherwise would be paid to such Participant, or in the event the Internal Revenue Service formally notifies such Participant in writing of its position that such Participant has recognized income for federal income tax purposes with respect to such amounts. Any amount distributed to such Participant pursuant to this Section 7.4 shall be paid, at the option of the Company, in the form of (i) cash in an amount equal to the Fair Market Value of the Permitted Investments deemed to be held in such Participant's Account, (ii) Permitted Investments deemed to be held in such Participant's Account, or (iii) a combination of (i) and (ii) above, provided that, if the Permitted Investments deemed to be held in such Participant's Account do not consist of Marketable Securities, the distribution shall be made in the form of cash to the extent necessary and to the extent permissible under the restrictive covenants in the Company's debt documents, in the reasonable determination of the Committee, to allow such Participant to pay applicable income taxes 6 imposed on the amount being distributed (including, without limitation, any penalties or interest assessed against such Participant with respect to his Account). Any capital stock of the Company distributed pursuant to this Section 7.4 shall be subject to repurchase by the Company pursuant to Section 8 of the Management Agreement. 7.5 Designation of Beneficiaries. Each Participant may name any person (who may be named concurrently, contingently or successively) to whom the Participant's Account Balance under the Plan is to be paid if the Participant dies before such Account Balance is fully distributed. Each such beneficiary designation will revoke all prior designations by the Participant, shall not require the consent of any previously named beneficiary, shall be in a form prescribed by the Committee and will be effective only when filed with the Committee during the Participant's lifetime. If a Participant fails to designate a beneficiary before his death, as provided above, or if the beneficiary designated by a Participant dies before the date of the Participant's death or before complete payment of the Participant's Account Balance, the Committee, in its discretion, may pay the Participant's Account Balance to either (i) one or more of the Participant's relatives by blood, adoption or marriage and in such proportions as the Committee determines, or (ii) the legal representative or representatives of the estate of the last to die of the Participant and his designated beneficiary. ARTICLE VIII Amendment and Termination 8.1 Amendment. The Company, in its discretion, shall have the right to amend the Plan from time to time, except that no such amendment shall, without the consent of the Participant to whom deferred compensation has been credited to any Account under this Plan, adversely affect the right of the Participant (or his beneficiary) to receive payments of such deferred compensation under the terms of this Plan, including, but not limited to, the timing and amount of such payments. 8.2 Plan Termination. The Company may, in its discretion, terminate the Plan at any time, however, no termination of this Plan shall alter the right of a Participant (or his beneficiary) to payments of deferred compensation previously credited to such Participant's Accounts under the Plan, including, but not limited to, the timing and amount of such payments. ARTICLE IX General Provisions 9.1 Non-Alienation of Benefits. A Participant's rights to the amounts credited to his Accounts under the Plan shall not be grantable, transferable, pledgeable or otherwise assignable, in whole or in part, by the voluntary or involuntary acts of any person, or by operation of law, and shall not be liable or taken for any obligation of such person. Any such attempted grant, transfer, pledge or assignment shall be null and void and without any legal effect. 7 9.2 Withholding for Taxes. Notwithstanding anything contained in this Plan to the contrary, the Company shall withhold from any distribution made under the Plan such amount or amounts as may be required for purposes of complying with the tax withholding provisions of the Code or any State income tax act for purposes of paying any estate, inheritance or other tax attributable to any amounts distributable or creditable under the Plan. 9.3 Immunity of Committee Members. The members of the Committee may rely upon any information, report or opinion supplied to them by any officer of the Company or any legal counsel, independent public accountant or actuary, and shall be fully protected in relying upon any such information, report or opinion. No member of the Committee shall have any liability to the Company or any Participant, former Participant, designated beneficiary, person claiming under or through any Participant or designated beneficiary or other person interested or concerned in connection with any decision made by such member of the Committee pursuant to the Plan which was based upon any such information, report or opinion if such member of the Committee relied thereon in good faith. 9.4 Plan Not to Affect Employment Relationship. Neither the adoption of the Plan nor its operation shall in any way affect the right and power of the Company to dismiss or otherwise terminate the employment or change the terms of the employment or amount of compensation of any Participant at any time for any reason or without cause. By deferring compensation under this Plan, each Participant, former Participant, designated beneficiary and each person claiming under or through such person, shall be conclusively bound by any action or decision taken or made under the Plan by the Committee. 9.5 Assumption of Company Liability. The obligations of the Company under the Plan may be assumed by any Affiliate of the Company, in which case such Affiliate shall be obligated to satisfy all of the Company's obligations under the Plan and the Company shall be released from any continuing obligation under the Plan. At the Company's request, a Participant or designated beneficiary shall sign such documents as the Company may require in order to effectuate the purposes of this Section 9.5. 9.6 Notices. Any notice required to be given by the Company or the Committee hereunder shall be in writing and shall be delivered in person, by reputable overnight courier with charges prepaid or by registered mail, return receipt requested. Any notice given by courier or registered mail shall be deemed to have been given upon the date of delivery, correctly addressed to the last known address of the person to whom such notice is to be given. 9.7 Gender and Number; Headings. Wherever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply; and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. Headings of sections and subsections of the Plan are inserted for convenience of reference and are not part of the Plan and are not to be considered in the construction thereof. 9.8 Controlling Law. The Plan shall be construed in accordance with the laws of the State of Delaware, to the extent not preempted by any applicable federal law. 8 9.9 Successors. The Plan is binding on all persons entitled to benefits hereunder and their respective heirs and legal representatives, on the Committee and its successor and on the Company and its successor, whether by way of merger, consolidation, purchase or otherwise. 9.10 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, and the Plan shall be enforced as if the invalid provisions had never been set forth therein. 9.11 Action by Company. Any action required or permitted by the Company under the Plan shall be by resolution of its Board of Directors or by a duly authorized committee of its Board of Directors, or by a person or persons authorized by resolution of its Board of Directors or such committee. 9.12 Review of Benefit Determinations. If a claim for benefits made by a Participant or his or her beneficiary is denied, the Committee shall within 90 days (or 180 days if special circumstances require an extension of time) after the claim is made furnish the person making the claim with a written notice specifying the reasons for the denial. Such notice shall also refer to the pertinent Plan provisions on which the denial is based, describe any additional material or information necessary for properly completing the claim and explain why such material or information is necessary, and explain the Plan's claim review procedures. If requested in writing, the Committee shall afford each claimant whose claim has been denied a full and fair review of the Committee's decision and, within 60 days (120 days if special circumstances require additional time) of the request for reconsideration of the denied claim, the Committee shall notify the claimant in writing of the Committee's final decision. 9 EX-10.2 8 UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT Exhibit 10.2 ------------ UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of January 20, 1999, is entered into by and among United Industries Corporation, a Delaware corporation (the "Company") and Stephen R. Brian ("Executive"). Certain capitalized terms used but not otherwise defined herein are defined in Section 11. The Company and Executive desire to enter into an agreement relating to Executive's employment by the Company and pursuant to which Executive shall purchase, and the Company shall sell, for an aggregate purchase price of $1,000,000.00, 100,000 shares of Class A Voting Common Stock and 100,000 shares of Class B Non-Voting Common Stock (collectively, the "Common Stock"). The Common Stock and all other capital stock of the Company hereafter acquired by Executive (including, without limitation, shares of Common Stock purchased upon the exercise of the Options) are sometimes collectively referred to as "Executive Securities." The Executive Securities are subject to certain transfer restrictions and repurchase rights as set forth herein. Simultaneously with the execution of this Agreement, the parties hereto have entered into a Stock Option Agreement in the form of Annex A attached hereto. The parties hereto, in exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, hereby agree as follows: PART I. EMPLOYMENT TERMS 1. Employment and Duties. (a) The Company shall employ Executive, and Executive hereby accepts employment with the Company, as the Company's President and Chief Executive Officer pursuant to the terms and conditions of this Agreement. At such time as David Pratt is no longer serving as Chairman of the Board, Executive shall also become the Chairman of the Board for the remainder of the Term. (b) Executive shall devote his best efforts to the interests of the Company, which interests may change from time to time, and shall devote such time to his employment as the duties and responsibilities of his position reasonably require. (c) Executive shall perform such duties and functions commensurate with his position as may be reasonably assigned or delegated to him from time to time by the Company's Board. Executive acknowledges that such executive duties and functions may or may not involve performance of services for or on behalf of affiliates of the Company. (d) The principal office of the Company at the date hereof is situated in St. Louis, Missouri. Executive agrees to relocate his primary residence to the St. Louis, Missouri, area as soon as possible after February 1, 1999 but in no event later than July 20, 1999 at the Company's expense as provided in Schedule 1.1(d) (subject to the Company's expense reimbursement policies). Prior to the date of such relocation, the Company shall reimburse Executive for his costs incurred in commuting each week between his current primary residence and St. Louis, Missouri including temporary housing in the St. Louis area, such housing to be of a size sufficient to accommodate Executive and his wife and of a location and quality consistent with Executive's position with the Company (subject to the Company's expense reimbursement policies with respect to reporting and documentation). While the duties of Executive will require him to travel, Executive shall not be required to change his principal residence from St. Louis to a locale other than a locale in which the Company's principal office may be situated at the time. 2. Term and Termination. (a) Term. The "Term" of Executive's employment is from the date hereof until the "Termination Date", which is defined as the earlier of (i) January 31, 2002 or (ii) the date of termination of Executive's employment pursuant to any one or more of Sections 2(b), 2(c), 2(d) or 2(e) of this Agreement; provided that the date in clause (i) above shall be automatically extended by one year on January 31, 2002, and on each subsequent anniversary thereof. Executive is an at-will employee of the Company and such employment may be terminated by Executive, in his sole and arbitrary discretion, at any time with or without Good Reason, or by the Company, in the Company's sole and arbitrary discretion, at any time with or without Cause, by delivery of a written termination notice to the other party, in each case subject to the consequences in Section 4. (b) Death. If Executive dies during the Term, the Termination Date shall be the date of his death. (c) Disability. If Executive becomes Disabled during the Term, the Termination Date shall be the date as of which such Disability is determined. Subject to applicable law, "Disability" means such physical, mental or psychological condition or other impairment that prevents Executive from effectively performing the duties of his employment for more than ninety (90) calendar days in any six (6) consecutive months commencing on the initial date of such impairment commencing on the initial date of such impairment. In connection with any Disability (or possible Disability): (i) Executive shall cooperate with any physicians engaged by the Company to examine Executive to determine whether or not Executive is Disabled, and each of Executive and the Company irrevocably consents to disclosure to each of them by any such physicians of all matters relating to such examinations. (ii) The determination of Disability shall be by agreement of the Company and Executive, or if Executive's condition is such that he is unable to participate in such determination, then by agreement of the Company and Executive's spouse or whoever else - 2 - is then acting on his behalf, and if the parties involved in such determination are unable to reach agreement within 10 days of a request by either party, then the issue shall be decided by a physician chosen by the Company and reasonably acceptable to Executive. The Company will pay all expenses incurred in the determination of whether Executive is Disabled. (d) Termination By Executive. If Executive terminates his employment, with or without Good Reason, the Termination Date shall be the date on which Executive's termination notice is given to the Company, or such later date indicated on such termination notice, which may not be more than thirty (30) days nor less than fourteen (14) days from its receipt by the Company; provided that upon receipt of Executive's termination notice, the Company may, in its sole discretion, request that Executive cease his employment activities prior to the date referenced in such notice and Executive shall promptly comply with such request, it being understood that such request will not change the Termination Date specified in this Section 2(d) or affect the characterization of the termination of Executive's employment. (e) Termination by the Company. If the Company terminates the employment of Executive, with or without Cause, the Termination Date shall be the date on which the Company's termination notice is given to Executive, or such later date indicated on such termination notice, which may not be more than thirty (30) days from its receipt by Executive. (f) Reversal of Determination. If Executive's employment is terminated by the Company for Cause or by Executive for Good Reason, and it is thereafter judicially determined that Cause or Good Reason as appropriate for such termination does not exist, then Executive's employment shall be deemed to have been terminated without Cause or Good Reason as appropriate as of the Termination Date. If matters constituting Cause or Good Reason as appropriate become known to the Company or to Executive subsequent to the time that Executive's employment is terminated, then either party may, by delivery of written notice to the other party, treat such termination as being for Cause or Good Reason as appropriate. (g) Definition of Cause. "Cause" for termination by the Company of Executive's employment means: (i) the commission by Executive of any willful act against the interests of the Company which causes or is intended to cause harm to the Company or any of its Stockholders. For purposes of this definition, no act or failure to act on the part of Executive shall be considered "willful" unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon specific instructions given pursuant to a resolution duly adopted by the Board or based upon the written advice of regular outside counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company; - 3 - (ii) Executive has been convicted of, or pleads nolo contendere with respect to, any felony, or of any lesser crime or offense having as its predicate element fraud, dishonesty or misappropriation of the property of the Company; (iii) the habitual drug addiction or habitual intoxication of Executive which negatively impacts his job performance; or (iv) Executive breaches any of the terms of this Agreement or any other agreement between Executive and the Company which breach is not cured within twenty (20) days after the delivery of notice in writing from the Board to Executive of such breach, which notice indicates the Company's intention to terminate Executive's employment hereunder if such breach is not cured within such twenty (20) day period and describes the nature of such breach. (h) Definition of Good Reason. "Good Reason" for termination by Executive of Executive's employment means (i) a material breach by the Company of its obligations under this Agreement which is not cured (if curable) within twenty (20) days after written notice by Executive to the Company, (ii) the Company requiring Executive to move his primary place of employment by more than seventy-five (75) miles, if such move increases Executive's commute from his primary residence, without Executive's written consent thereto; provided that Executive must notify the Company in writing of his intent to terminate his employment pursuant to this Section 2(h)(ii) prior to the sixtieth day after the earlier of (x) the date that the Company notifies Executive in writing of its intent to relocate and (y) the date that such relocation occurs, and (iii) the failure of any successor to the Company to assume this Agreement as set forth in Section 13(k). 3. Compensation. (a) Executive's compensation for his services hereunder shall consist of (a) Base Salary, plus (b) Incentive Compensation, if any, plus (c) Benefits. (b) "Base Salary" shall be paid by the Company to Executive at an annual rate of $437,000, payable in arrears in equal monthly installments, subject to periodic review by the compensation committee of the Board for increase only, any such increased salary thereafter constituting "Base Salary." (c) "Incentive Compensation," if any, is equal to the sum of the following three amounts, up to a maximum of 75% of Base Salary in any given year, it being understood that no Incentive Compensation is required to be paid in any year in which the Company's actual EBITDA for the year in question is not at least 90% of Target EBITDA for such year: (i) If the Company's actual EBITDA for the year in question equals or exceeds 90% of Target EBITDA for such year, Incentive Compensation will equal the product of (A) Base Salary multiplied by (B) 25%; plus - 4 - (ii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2.5% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 90% of Target EBITDA for such year (for example, if the Company's actual EBITDA was 93% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 93%-90% = 3)), up to a maximum of 25% of Base Salary in any year; plus (iii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 100% of the Target EBITDA for such year (for example, if the Company's actual EBITDA was 103% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 103%-100% = 3)). All Incentive Compensation due hereunder shall be payable promptly after the Company has received audited financial statements from its independent accountants for the year in question which set forth such accountant's determination of actual EBITDA for such year and not later than at or about the time bonuses are paid to the Company's other senior executives whose bonuses are determined based on the receipt of the Company's audited financial statements.. The formula for determining Incentive Compensation provided for in this Section 3 shall not be changed during the Term without Executive's consent. The minimum amount of Incentive Compensation in respect of 1999 shall be $95,000. (d) "Benefits" consist of whatever, if any, health, hospitalization, sick pay, life insurance, disability insurance, profit sharing, pension, 401(k), and deferred compensation plans and programs that the Company may have in effect from time to time for its employees who are not members of a collective bargaining unit, all of which Executive shall be entitled to participate in on a basis commensurate with his position. Executive shall also be entitled to four (4) calendar weeks paid vacation each year, in addition to regularly scheduled holidays. The Company may initiate, change and discontinue any such plans and programs at any time; provided that no such change shall be effective as to Executive unless it is also effective as to the other senior managers of the Company. If any of such plans or programs require contributions by employees, Executive shall pay the contributions required by his participation at a rate no greater than that applicable to any senior executive of the Company. (e) Stock Options. The Company shall grant Executive options (the "Options") to purchase 1,200,000 shares of Common Stock, all on the terms and conditions contained in the Company's 1999 Stock Option Plan approved by the Board and in a Stock Option Agreement in the form of Annex A attached hereto. Shares of Common Stock acquired through the exercise of options shall be referred to herein as "Option Shares." (f) Signing Bonus. Upon the beginning of Executive's employment with the Company, the Company shall pay to Executive a signing bonus of $100,000. - 5 - (g) Setoff. Executive shall be entitled to direct the Company to setoff any amounts owing to Executive pursuant to Section 3(f) (net of all withholding obligations) against the amounts owed by Executive to the Company pursuant to Section 7(a). 4. Termination Provisions. (a) If the Company terminates Executive's employment for Cause, or if Executive terminates his employment without Good Reason, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; and (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as any Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year. (b) If the Company terminates Executive's employment without Cause, if Executive terminates his employment for Good Reason or if Executive's employment terminates by reason of his death or Disability, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive the Company in such year (it being agreed that if the Termination Date is prior to January 1, 2000, in no event shall the amount of Executive's Incentive Compensation payable pursuant to this Section 4(b)(ii) be less than the amount referenced in the last sentence of Section 3(c)); and (iii) if, and only if, Executive (or his estate, guardian or personal representative, as the case may be) signs and delivers to the Company a complete general release of claims in the form of Annex B attached hereto, then Executive shall be entitled to his Base Salary (but no Incentive Compensation) for the period commencing on the Termination Date and ending on the later of (x) January 31, 2002 and (y) the date which is one year after the Termination Date together with any other Benefits as may be provided under the terms of any applicable written plan, program or arrangement of the Company applicable to senior executives of the Company. - 6 - (c) Any amounts owed by the Company to Executive pursuant to Section 4(b)(iii) shall be paid at such times and in such manner as if the termination giving rise to such payments had not occurred (with the Company retaining the right to prepay all or any portion of such amount at any time in its sole discretion). The Company's obligation to make any payments pursuant to Section 4(b) shall be conditioned upon Executive's continued and continuing compliance with the terms and conditions of this Agreement (including, without limitation, Section 6 hereof). (d) Except as otherwise specified herein, if Executive's employment terminates on any date other than the last day of a month, Executive's compensation for that month shall be calculated on the basis of a fraction, the numerator of which is the number of calendar days during that month that Executive is in the Company's employ and the denominator of which is the number of days in that month. 5. Expenses. (a) The Company shall reimburse Executive for all reasonable expenses incurred in the performance of his duties in accordance with the expense reimbursement policy of the Company with respect to senior executives of the Company in effect at the time. (b) If the Company requires Executive to locate outside of St. Louis, then the Company shall reimburse Executive for his reasonable relocation expenses in accordance with the expense reimbursement policy of the Company in effect at the time. 6. Noncompetition, Nonsolicitation, Confidentiality. As a material inducement to the Company to enter into this Agreement and in consideration of the payment by the Company of the compensation detailed herein to Executive: (a) During the period (the "Noncompete Period") beginning on the date hereof and ending on the later of (x) the first anniversary of the Termination Date and (y) if severance payments are owed to Executive by the Company pursuant to Section 4(b)(iii), above, the last date on which such payments are due to be paid to Executive (notwithstanding any reduction in such payments pursuant to Section 4(c)), Executive shall not, without the prior written consent of the Company (which consent may be granted or withheld in the Company's sole discretion) directly or indirectly, Participate in any line of business in which the Business is actively engaged or any line of business competitive with the Business anywhere in the United States and any other country in which the Company does business as of the Closing (the "Competitive Activities"). For purposes of this Agreement, the term "Participate" includes any direct or indirect interest in, or providing any direct or indirect assistance (whether financial, advisory or otherwise) to, any enterprise (or any affiliate thereof), whether as an officer, director, employee, partner, member, sole proprietor, agent, representative, independent contractor, consultant, creditor, stockholders, unitholder, owner or otherwise; provided that the term "Participate" shall not include ownership of less than 2% of the Common Stock of a publicly-held corporation whose Common Stock is traded on a national securities exchange or in the over-the-counter market. The parties agree that, without violating this - 7 - Section 6(a), Executive may accept employment with any Person which engages in Competitive Activities; provided that such Person's business is diversified (and has separate and distinct divisions) and Executive is employed in a part of its business which does not engage in Competitive Activities; provided further that the Company, prior to Executive accepting such employment, shall receive separate written assurances satisfactory to the Company from the board of directors of such Person and Executive acknowledging that Executive is bound by this Section 6, the terms of which such Person has read, and covenanting that Executive will not render services directly or indirectly in connection with any product, process, system or service of any person or organization other than the Company, in existence or under development, which is the same as or competes with a product, process, system or service upon which Executive has worked during the last two years of Executive's employment by the Company or about which Executive acquires Confidential Information. (b) During the Noncompete Period, Executive (a) shall not, directly or indirectly contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) or actually hire any person employed by the Company during the Noncompete Period and (b) shall not induce or attempt to induce any customer or other business relation of the Company to cease doing business with the Company or to engage in any business relationship which might materially harm the Company. (c) Executive acknowledges that certain of the information, observations and data relating to the Company which he possesses or has obtained as an employee, officer, director or stockholder of the Company is the confidential and proprietary property of the Company ("Confidential Information"). Executive agrees that he shall not, directly or indirectly, use for his own purposes or use for or disclose to any third party any of such Confidential Information without the prior written consent of the Company, unless and to the extent that the aforementioned matters (i) become generally known to and available for use by the public other than as a result of a Executive's acts or omissions to act, or (ii) Executive is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information (provided that in such case, Executive shall promptly inform the Company of such order, shall cooperate with the Company at the Company's expense in attempting to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). This Section 6(c) shall not apply to disclosures of Confidential Information by Executive during his employment with the Company in the ordinary course of business that he reasonably believes are necessary or appropriate and in the Company's best interests. (d) The parties hereto acknowledge and agree that the Company will suffer irreparable harm from a breach by Executive of any of the covenants or agreements contained in this Section 6. In the event of an alleged or threatened breach by Executive of any of the provisions of this Section 6, the Company or their successors or assigns may, in addition to all other rights and remedies existing in its or their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of the provisions hereof. Executive acknowledges and agrees that the restrictions contained in this Section 6 are reasonable. - 8 - (e) If, at the time enforcement is sought of any of the provisions of this Section 6, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Executive agrees that the covenants made in this Section 6 shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. PART II. PURCHASE OF EXECUTIVE SECURITIES 7. Purchase and Sale of Executive Securities. (a) Common Stock. Upon execution of this Agreement, Executive shall purchase, and the Company shall sell, 100,000 shares of the Company's Class A Voting Common Stock and 100,000 shares of the Company's Class B Non-Voting Common Stock at a price of $5.00 per share (the "Purchased Stock"). Executive shall deliver to the Company a cashier's or certified check or wire transfer of funds in the aggregate amount of $250,000, a promissory note in the form of Annex C attached hereto with a principal amount of $250,000 and a promissory note in the form of Annex D attached hereto with a principal amount of $500,000 (each of these promissory notes is referred to as an "Executive Note" and collectively as the "Executive Notes"). Executive's obligations under the Executive Notes shall be secured by a pledge to the Company of all of the shares of Executive Securities, and in connection therewith, Executive shall enter into a pledge agreement in the form of Annex E attached hereto. (b) 83(b) Election. Within 30 days after the date hereof, Executive shall make an effective election with the Internal Revenue Service under Section 83(b) of the Internal Revenue Code and the regulations promulgated thereunder in the form of Annex F attached hereto. (c) Certain Representations and Warranties. In connection with the purchase and sale of the Executive Securities hereunder, Executive hereby represents and warrants to the Company that: (i) The Executive Securities to be acquired by Executive pursuant to this Agreement shall be acquired for his own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act, or any applicable state securities laws, and the Executive Securities shall not be disposed of in contravention of the Securities Act or any applicable state securities laws; (ii) Executive is an executive officer of the Company, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Securities; (iii) Executive is an "accredited investor" as defined under Regulation D promulgated under the Securities Act; - 9 - (iv) Executive is able to bear the economic risk of his investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Executive Securities and has had full access to such other information concerning the Company as he has requested. Executive has reviewed, or has had an opportunity to review, a copy of the Recapitalization Agreement, the Stockholders Agreement, all of the exhibits thereto and all of the other agreements contemplated hereby and thereby; (vi) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any material agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which he is subject; and (vii) Executive is a United States citizen and a resident of the State of Illinois. (d) Certain Representations and Warranties of the Company. In connection with the purchase and sale of the Executive Securities hereunder, the Company hereby represents and warrants to Executive that: (i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) The execution, delivery and performance of this Agreement will not violate, conflict with or result in any breach of the Company's organizational documents or any terms or conditions of any material agreements to which the Company is a party; (iii) Any Executive Securities to be delivered pursuant to this Agreement, including the shares of Common Stock issuable upon exercise of the Options, shall, when delivered, be duly authorized, validly issued, fully paid and non-assessable and will not be subject to pre-emptive or similar rights; and (iv) The holders of least 75% of the Company's voting common stock have reviewed this Agreement and the Stock Option Agreement attached hereto as Annex A and have approved the terms and conditions contained herein and therein, including, without limitation, those terms and conditions relating to contingent payments that may be due to Executive upon a Sale of the Company and may have otherwise constituted an "excess - 10 - parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended and a copy of such consent is attached hereto as Exhibit 7(c)(iv). (e) Additional Representation and Warranty. As an inducement to the Company to sell the Executive Securities to Executive, and as a condition thereto, Executive acknowledges and agrees that neither the issuance of the Executive Securities to Executive nor any provision contained herein shall entitle him to remain in the employment of the Company and its Subsidiaries or affect the right of the Company or Executive to terminate his employment at any time, in accordance with the provisions of Section 4 hereof. (f) Compensation Arrangements. The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Securities have been issued hereunder, in connection with and as a part of the compensation and incentive arrangements between the Company and Executive. 8. Repurchase Option. (a) Right of Repurchase. In the event Executive ceases to be employed by the Company and its Subsidiaries for any reason or in the event that Executive's employment with the Company never commences (the "Termination"), the Executive Securities (whether held by Executive or one or more of Executive's transferees) shall be subject to repurchase by the Company pursuant to the terms and conditions set forth in this Section 8 (the "Repurchase Option"). (b) Purchase Price. Any repurchase of Executive Securities pursuant to the Repurchase Option shall be at the "Repurchase Price" described in this Section 8(b) determined as of the date of the Termination. If Executive's employment is terminated by Executive without Good Reason prior to the fifth anniversary of the date hereof or by the Company for Cause, the Repurchase Price for all of the Option Shares shall be the lower of (i) the Fair Market Value therefor and (ii) the Original Cost therefor. If Executive's employment is terminated for any other reason, the Repurchase Price for all Option Shares shall be the Fair Market Value therefor. Notwithstanding the reason for the termination of Executive's employment, the Repurchase Price for all Purchased Shares shall be the Fair Market Value therefor. (c) Repurchase by the Company. The Company may elect to purchase all or any portion of the Executive Securities at the Repurchase Price by delivering written notice (the "Repurchase Notice") to Executive within 120 days after the Termination. The Repurchase Notice shall set forth the number of shares to be acquired from Executive and/or his transferees (if any), the aggregate consideration to be paid for such securities, and the time and place for the closing of the transaction (the "Repurchase Closing"). The Company may, in its sole discretion, assign its rights pursuant to this Section 8 to the holders of its capital stock (other than Executive and any other Stockholder whose shares are being repurchased) pro rata on the basis of the number of shares owned (with subsequent re-offer in the event of under subscription); provided that any such assignee shall comply with the terms of this Section 8. - 11 - (d) Repurchase Closing. The closing of the purchase of the Executive Securities pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase Notice which date shall not be more than 60 days nor less than 10 days after the delivery of such notice delivered. Subject to Section 8(e), the Company shall pay for the Executive Securities to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds. The Company shall be entitled to receive customary representations and warranties regarding good title to such securities, free and clear of any liens or encumbrances, power and authority, due execution, and enforceability. (e) Certain Restrictions. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Securities by the Company shall be subject to applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Securities hereunder which the Company is otherwise entitled or required to make, the time periods provided in this Section 8 shall be suspended, and the Company shall make such repurchases as soon as it is permitted to do so under such restrictions with interest at an annual rate of 7%. In addition, the Company may pay the Repurchase Price for such Executive Securities by offsetting any bona fide debts owed by Executive to the Company. (f) Termination of Repurchase Option. The Repurchase Option set forth in this Section 8 shall continue with respect to all Executive Securities following any Transfer thereof; provided that such Repurchase Option shall terminate effective immediately after the consummation of a Sale of the Company or a Public Offering of the Company's equity securities in which the Company receives net proceeds of at least $100 million; and provided further that, with respect to each share of Executive Securities, the Repurchase Option with respect to such share shall terminate immediately upon the Transfer of such share pursuant to a Public Sale. 9. Restrictions on Transfer. (a) Stockholders Agreement. The Executive Securities are subject to the restrictions on Transfer set forth in the Stockholders Agreement. (b) Legend. The certificates representing the Executive Securities shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JANUARY 20, 1999 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON - 12 - TRANSFER, CERTAIN REPURCHASE OPTIONS, AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND STEPHEN R. BRIAN DATED AS OF JANUARY 20, 1999, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." 10. Survival. Section 4 and Sections 6 through 13 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 11. Definitions. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated: (a) Defined Terms. "Board" means the Company's board of directors. "Business" means the business conducted by the Company including, without limitation, (a) the production and sale of termiticide products and (b) the business conducted by the Company's Spectrum and Chemsico Divisions. "EBITDA" means, for a given period, the consolidated Company's accounting earnings of the Company and its consolidated Subsidiaries before taking into account any interest expense, provision for income taxes or depreciation or amortization expense, excluding for this purpose extraordinary gains and losses unless included in the determination of Target EBITDA. "Executive Securities" has the meaning set forth in the Preamble. Executive Securities shall continue to be Executive Securities in the hands of any holder other than Executive and except as otherwise provided herein, each such other holder of Executive Securities shall succeed to all rights and obligations attributable to Executive as a holder of Executive Securities hereunder. Executive Securities shall also include securities of the Company issued with respect to Executive Securities by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of any class or type of Executive Security means the fair value of such shares or such class or type of Executive Security determined in good faith by the Board, based on the assumption of an arms-length transaction between a willing buyer and a willing seller, taking into account all reasonable and customary factors relevant to value including, without limitation, the fact that there may be no public market for the Company's securities, but not including any minority discount; provided that, until the first anniversary hereof, the "Fair Market Value" of each share of Executive Securities shall not be less than the Original Cost of such share. - 13 - "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 50% of the Company's voting common stock on a fully-diluted basis (a "50% Owner"), who is not an affiliate of any such 50% Owner, who is not the spouse or descendent (by birth or adoption) of any such 50% Owner or a trust for the benefit of any such 50% Owner and/or such other Persons, and who is not a Person who through contract or other arrangements (other than arrangements entered into in connection with the contemplated transactions) would be an affiliate immediately after the contemplated transaction. "Original Cost" for each share of Common Stock shall be equal to $5.00 (as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Public Offering" means the sale in an underwritten public offering registered under the Securities Act of shares of any class of the Company's Common Stock. "Public Sale" means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 promulgated under the Securities Act effected through a broker, dealer or market maker. "Sale of the Company" means (a) the acquisition by an Independent Third Party of voting securities of (x) the Company or (y) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Independent Third Party to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates, (b) the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, (c) the acquisition by an Independent Third Party of more than 50% of the Company's assets determined on a consolidated basis or (d) if individuals who constitute the Board on the date of the Company's initial Public Offering of equity securities (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter, it being understood that any individual becoming a director subsequent to such date whose election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholders" means the Persons holding the outstanding Common Stock or other equity interests of the Company at the time in question. - 14 - "Stockholders Agreement" means that certain Stockholders Agreement, dated as of the date hereof, by and among the Company, Executive and certain other Persons listed on the signature pages thereto. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. "Target EBITDA" means the annual performance goal for the Company approved by the Board in its reasonable discretion with the input of Executive, with Target EBITDA for fiscal 1999 being $85,400,000. The Board shall use reasonable efforts to determine Target EBITDA for any fiscal year after 1999 no later than the 90th day of the fiscal year of the Company to which it relates. "Transfer" has the meaning ascribed to such term in the Stockholders Agreement. (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement: Agreement ................................................................. - 1 - Base Salary ............................................................... - 4 - Benefits .................................................................. - 5 - Cause ..................................................................... - 3 - Common Stock .............................................................. - 1 - Company ................................................................... - 1 - Competitive Activities..................................................... - 7 - Confidential Information................................................... - 8 - Disability ................................................................ - 2 - Executive ................................................................. - 1 - Executive Note ............................................................ - 9 - Executive Notes ........................................................... - 9 - Executive Securities ...................................................... - 1 - Good Reason ............................................................... - 4 - Incentive Compensation..................................................... - 4 - Noncompete Period ......................................................... - 7 - Option Shares ............................................................. - 5 - Options ................................................................... - 5 - Participate ............................................................... - 7 - Purchased Stock ........................................................... - 9 - Repurchase Closing ........................................................ - 11 - Repurchase Notice ......................................................... - 11 - Repurchase Option ......................................................... - 11 - Repurchase Price .......................................................... - 11 - Stock ..................................................................... - 1 - Term ...................................................................... - 2 - Termination ............................................................... - 11 - Termination Date .......................................................... - 2 -
- 15 - 12. Indemnification. During the Term, the Company shall provide Executive with indemnification at least as broad as the indemnification provided pursuant to the Company's constituent documents on the date hereof. 13. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: To the Company United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Telecopy: (314) 253-5941 Attention: Chief Financial Officer with a copy to Thomas H. Lee Equity Fund IV, L.P. c/o Thomas H. Lee Company 75 State Street Boston, MA 02109 Telecopy: (617) 227-3514 Attention: C. Hunter Boll Scott Schoen To Executive Stephen R. Brian c/o Stephan G. Bachelder Stephan G. Bachelder & Associates, P.A. 22 Free Street, Suite 201 Portland, Maine 04112-8594 Telecopy: (207) 775-6441 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. - 16 - 14. General Provisions. (a) Expenses. The Company will pay the reasonable and documented hourly legal fees and legal expenses of Executive's counsel in connection with the negotiation and execution of this Agreement and the agreements contemplated hereby. (b) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (c) Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. (d) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (e) Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a permitted Transfer of Executive Securities. (f) Governing Law. The laws of the state of Missouri shall govern all issues and questions concerning the employment of Executive, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Missouri or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Missouri. All other issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (g) Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may - 17 - in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (h) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company and Executive. (i) Third-Party Beneficiary. There are no beneficiaries to this Agreement other than the signatories hereto. (j) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (k) Assignment. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation; provided that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume this Agreement. As used in this Agreement, "Company" shall mean the Company, as defined above, and any successor to its business and/or assets as aforesaid which assumes this Agreement by operation of law or otherwise. (l) Withholding. All amounts payable to Executive as compensation hereunder shall be subject to customary withholding by the Company. (m) Mitigation by Executive. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. * * * * - 18 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. UNITED INDUSTRIES CORPORATION By: --------------------------- Its: --------------------------- -------------------------------- STEPHEN R. BRIAN - 19 - EX-10.3 9 UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT Exhibit 10.3 ------------ UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of January 20, 1999, is entered into by and among United Industries Corporation, a Delaware corporation (the "Company"), Richard Bender ("Executive") and the Trust established by that certain Trust Agreement, dated as of the date hereof, by and between the Company and Stephen R. Brian, as trustee (the "Trust"). Certain capitalized terms used but not otherwise defined herein are defined in Section 11. The Company, Executive and the Trust desire to enter into an agreement relating to Executive's employment by the Company and pursuant to which the Trust shall purchase, and the Company shall sell, for an aggregate purchase price of $700,000.00, 70,000 shares of Class A Voting Common Stock and 70,000 shares of Class B Non-Voting Common Stock (collectively, the "Common Stock"). The Common Stock and all other capital stock of the Company hereafter acquired by Executive and/or the Trust (including, without limitation, shares of Common Stock purchased upon the exercise of the Options) are sometimes collectively referred to as "Executive Securities." The Executive Securities are subject to certain transfer restrictions and repurchase rights as set forth herein. Simultaneously with the execution of this Agreement, the parties hereto have entered into a Stock Option Agreement in the form of Annex A attached hereto. The parties hereto, in exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, hereby agree as follows: PART I. EMPLOYMENT TERMS 1. Employment and Duties. (a) The Company shall employ Executive, and Executive hereby accepts employment with the Company, as a Senior Vice President pursuant to the terms and conditions of this Agreement. Executive shall report to the President of the Company and/or the Board. The Company shall not assign to Executive duties or functions which are outside of Executive's areas of competence in order to use Executive's failure to perform as a basis for termination for Cause. (b) Executive shall devote his best efforts to the interests of the Company, which interests may change from time to time, and shall devote such time to his employment as the duties and responsibilities of his position reasonably require. (c) Executive shall perform such duties and functions commensurate with his position as may be reasonably assigned or delegated to him from time to time by the Company's President or Board. Executive acknowledges that such executive duties and functions may or may not involve performance of services for or on behalf of affiliates of the Company. (d) The principal office of the Company at the date hereof, which is Executive's primary place of employment, is situated in St. Louis, Missouri. While the duties of Executive will require him to travel, Executive shall not be required to change his principal residence from St. Louis to a locale other than a locale in which the Company's principal office may be situated at the time. (e) The provisions of Exhibit 1(e) are hereby acknowledged as obligations of Executive both during the Term of his employment and thereafter. 2. Term and Termination. (a) Term. The "Term" of Executive's employment is from the date hereof until the "Termination Date", which is defined as the earlier of (i) December 31, 2001 or (ii) the date of termination of Executive's employment pursuant to any one or more of Sections 2(b), 2(c), 2(d) or 2(e) of this Agreement; provided that the date in clause (i) above shall be automatically extended by one year on December 31, 2001, and on each subsequent anniversary thereof. Executive is an at-will employee of the Company and such employment may be terminated by Executive, in his sole and arbitrary discretion, at any time with or without Good Reason, or by the Company, in the Company's sole and arbitrary discretion, at any time with or without Cause, by delivery of a written termination notice to the other party, in each case subject to the consequences in Section 4. (b) Death. If Executive dies during the Term, the Termination Date shall be the date of his death. (c) Disability. If Executive becomes Disabled during the Term, the Termination Date shall be the date as of which such Disability is determined. Subject to applicable law, "Disability" means such physical, mental or psychological condition or other impairment that prevents Executive from effectively performing the duties of his employment for more than ninety (90) calendar days in any six (6) consecutive months commencing on the initial date of such impairment commencing on the initial date of such impairment. In connection with any Disability (or possible Disability): (i) Executive shall cooperate with any physicians engaged by the Company to examine Executive to determine whether or not Executive is Disabled, and each of Executive and the Company irrevocably consents to disclosure to each of them by any such physicians of all matters relating to such examinations. (ii) The determination of Disability shall be by agreement of the Company and Executive, or if Executive's condition is such that he is unable to participate in such - 2 - determination, then by agreement of the Company and Executive's spouse or whoever else is then acting on his behalf, and if the parties involved in such determination are unable to reach agreement within 10 days of a request by either party, then the issue shall be decided by a physician chosen by the Company and reasonably acceptable to Executive. The Company will pay all expenses incurred in the determination of whether Executive is Disabled. (d) Termination By Executive. If Executive terminates his employment, with or without Good Reason, the Termination Date shall be the date on which Executive's termination notice is given to the Company, or such later date indicated on such termination notice, which may not be more than thirty (30) days nor less than fourteen (14) days from its receipt by the Company; provided that upon receipt of Executive's termination notice, the Company may, in its sole discretion, request that Executive cease his employment activities prior to the date referenced in such notice and Executive shall promptly comply with such request, it being understood that such request will not change the Termination Date specified in this Section 2(d) or affect the characterization of the termination of Executive's employment. (e) Termination by the Company. If the Company terminates the employment of Executive, with or without Cause, the Termination Date shall be the date on which the Company's termination notice is given to Executive, or such later date indicated on such termination notice, which may not be more than thirty (30) days from its receipt by Executive. (f) Reversal of Determination. If Executive's employment is terminated by the Company for Cause or by Executive for Good Reason, and it is thereafter judicially determined that Cause or Good Reason as appropriate for such termination does not exist, then Executive's employment shall be deemed to have been terminated without Cause or Good Reason as appropriate as of the Termination Date. If matters constituting Cause or Good Reason as appropriate become known to the Company or to Executive subsequent to the time that Executive's employment is terminated, then either party may, by delivery of written notice to the other party, treat such termination as being for Cause or Good Reason as appropriate. (g) Definition of Cause. "Cause" for termination by the Company of Executive's employment means: (i) the commission by Executive of any willful act against the interests of the Company which causes or is intended to cause harm to the Company or any of its Stockholders. For purposes of this definition, no act or failure to act on the part of Executive shall be considered "willful" unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon specific instructions given pursuant to a resolution duly adopted by the Board or directed by the President of the Company or based upon the written advice of regular outside counsel for the Company shall be - 3 - conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company; (ii) Executive has been convicted of, or pleads nolo contendere with respect to, any felony, or of any lesser crime or offense having as its predicate element fraud, dishonesty or misappropriation of the property of the Company; (iii) the habitual drug addiction or habitual intoxication of Executive which negatively impacts his job performance; or (iv) Executive breaches any of the terms of this Agreement or any other agreement between Executive and the Company which breach is not cured within twenty (20) days after the delivery of notice in writing from the Board to Executive of such breach, which notice indicates the Company's intention to terminate Executive's employment hereunder if such breach is not cured within such twenty (20) day period and describes the nature of such breach. (h) Definition of Good Reason. "Good Reason" for termination by Executive of Executive's employment means (i) a material breach by the Company of its obligations under this Agreement which is not cured (if curable) within twenty (20) days after written notice by Executive to the Company, (ii) the Company requiring Executive to move his primary place of employment by more than seventy-five (75) miles, if such move increases Executive's commute from his primary residence, without Executive's written consent thereto; provided that Executive must notify the Company in writing of his intent to terminate his employment pursuant to this Section 2(h)(ii) prior to the sixtieth day after the earlier of (x) the date that the Company notifies Executive in writing of its intent to relocate and (y) the date that such relocation occurs, and (iii) the failure of any successor to the Company to assume this Agreement as set forth in Section 13(k). 3. Compensation. (a) Executive's compensation for his services hereunder shall consist of (a) Base Salary, plus (b) Incentive Compensation, if any, plus (c) Benefits. (b) "Base Salary" shall be paid by the Company to Executive at an annual rate of $300,000, payable in arrears in equal monthly installments. Under no circumstances may the Base Salary be decreased during the Term. (c) "Incentive Compensation," if any, is equal to the sum of the following three amounts, up to a maximum of 60% of Base Salary in any given year, it being understood that no Incentive Compensation is required to be paid in any year in which the Company's actual EBITDA for the year in question is not at least 90% of Target EBITDA for such year: - 4 - (i) If the Company's actual EBITDA for the year in question equals or exceeds 90% of Target EBITDA for such year, Incentive Compensation will equal the product of (A) Base Salary multiplied by (B) 25%; plus (ii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2.5% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 90% of Target EBITDA for such year (for example, if the Company's actual EBITDA was 93% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 93%-90% = 3)), up to a maximum of 25% of Base Salary in any year; plus (iii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 100% of the Target EBITDA for such year (for example, if the Company's actual EBITDA was 103% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 103%-100% = 3)). All Incentive Compensation due hereunder shall be payable promptly after the Company has received audited financial statements from its independent accountants for the year in question which set forth such accountant's determination of actual EBITDA for such year and not later than at or about the time bonuses are paid to the Company's other senior executives whose bonuses are determined based on the receipt of the Company's audited financial statements. The formula for determining Incentive Compensation provided for in this Section 3 shall not be changed during the Term without Executive's consent. The minimum amount of Incentive Compensation in respect of 1999 shall be $65,000. (d) "Benefits" consist of whatever, if any, health, hospitalization, sick pay, life insurance, disability insurance, profit sharing, pension, 401(k), and deferred compensation plans and programs that the Company may have in effect from time to time for its employees who are not members of a collective bargaining unit, all of which Executive shall be entitled to participate in on a basis commensurate with his position. Executive shall also be entitled to four (4) calendar weeks paid vacation each year, in addition to regularly scheduled holidays. The Company may initiate, change and discontinue any such plans and programs at any time; provided that no such change shall be effective as to Executive unless it is also effective as to the other senior managers of the Company. If any of such plans or programs require contributions by employees, Executive shall pay the contributions required by his participation at a rate no greater than that applicable to any senior executive of the Company. (e) Stock Options. The Company shall grant Executive options (the "Options") to purchase 600,000 shares of Common Stock, all on the terms and conditions contained in the Company's 1999 Stock Option Plan approved by the Board and in a Stock Option Agreement in the - 5 - form of Annex A attached hereto. Shares of Common Stock acquired through the exercise of options shall be referred to herein as "Option Shares." (f) Signing Bonus. Upon the beginning of Executive's employment with the Company, the Company shall pay to Executive a signing bonus of $40,000. 4. Termination Provisions. (a) If the Company terminates Executive's employment for Cause, or if Executive terminates his employment without Good Reason, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; and (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as any Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year. (b) If the Company terminates Executive's employment without Cause, if Executive terminates his employment for Good Reason or if Executive's employment terminates by reason of his death or Disability, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year (it being agreed that if the Termination Date is prior to January 1, 2000, in no event shall the amount of Executive's Incentive Compensation payable pursuant to this Section 4(b)(ii) be less than the amount referenced in the last sentence of Section 3(c)); and (iii) if, and only if, Executive (or his estate, guardian or personal representative, as the case may be) signs and delivers to the Company a complete general release of claims in the form of Annex B attached hereto, then Executive shall be entitled to his Base Salary (but no Incentive Compensation) for the period commencing on the Termination Date and ending on the later of (x) December 31, 2001 and (y) the date which is one year after the Termination Date, together with any other Benefits as may be provided under the terms of any applicable written plan, - 6 - program or arrangement of the Company applicable to senior executives of the Company. If Executive does not comply with the terms of Section 4(b)(iii), above, within 30 days after the Termination Date, then Executive shall only be entitled to payments as set forth in Sections 4(b)(i), and 4(b)(ii), above, and the Company shall not be responsible for any further payments to Executive. (c) Any amounts owed by the Company to Executive pursuant to Section 4(b)(iii) shall be paid at such times and in such manner as if the termination giving rise to such payments had not occurred (with the Company retaining the right to prepay all or any portion of such amount at any time in its sole discretion). The Company's obligation to make any payments pursuant to Section 4(b) shall be conditioned upon Executive's continued and continuing compliance with the terms and conditions of this Agreement (including, without limitation, Section 6 hereof). (d) Except as otherwise specified herein, if Executive's employment terminates on any date other than the last day of a month, Executive's compensation for that month shall be calculated on the basis of a fraction, the numerator of which is the number of calendar days during that month that Executive is in the Company's employ and the denominator of which is the number of days in that month. 5. Expenses. (a) The Company shall reimburse Executive for all reasonable expenses incurred in the performance of his duties in accordance with the expense reimbursement policy of the Company with respect to senior executives of the Company in effect at the time. (b) If the Company requires Executive to locate outside of St. Louis, then the Company shall reimburse Executive for his reasonable relocation expenses in accordance with the expense reimbursement policy of the Company in effect at the time. 6. Noncompetition, Nonsolicitation, Confidentiality. As a material inducement to the Company to enter into this Agreement and in consideration of the payment by the Company of the compensation detailed herein to Executive: (a) During the period (the "Noncompete Period") beginning on the date hereof and ending on the later of (x) the first anniversary of the Termination Date and (y) if severance payments are owed to Executive by the Company pursuant to Section 4(b)(iii), above, the last date on which such payments are due to be paid to Executive (notwithstanding any reduction in such payments pursuant to Section 4(c)), Executive shall not, without the prior written consent of the Company (which consent may be granted or withheld in the Company's sole discretion), directly or indirectly, Participate in any line of business in which the Business is actively engaged or any line of business competitive with the Business anywhere in the United States and any other country in - 7 - which the Company does business as of the Closing (the "Competitive Activities"). For purposes of this Agreement, the term "Participate" includes any direct or indirect interest in, or providing any direct or indirect assistance (whether financial, advisory or otherwise) to, any enterprise (or any affiliate thereof), whether as an officer, director, employee, partner, member, sole proprietor, agent, representative, independent contractor, consultant, creditor, stockholders, unitholder, owner or otherwise; provided that the term "Participate" shall not include ownership of less than 2% of the Common Stock of a publicly-held corporation whose Common Stock is traded on a national securities exchange or in the over-the-counter market. The parties agree that, without violating this Section 6(a), Executive may accept employment with any Person which engages in Competitive Activities; provided that such Person's business is diversified (and has separate and distinct divisions) and Executive is employed in a part of its business which does not engage in Competitive Activities; provided further that the Company, prior to Executive accepting such employment, shall receive separate written assurances satisfactory to the Company from the board of directors of such Person and Executive acknowledging that Executive is bound by this Section 6, the terms of which such Person has read, and covenanting that Executive will not render services directly or indirectly in connection with any product, process, system or service of any person or organization other than the Company, in existence or under development, which is the same as or competes with a product, process, system or service upon which Executive has worked during the last two years of Executive's employment by the Company or about which Executive acquires Confidential Information. (b) During the Noncompete Period, Executive (a) except with respect to Executive's personal secretary, shall not, directly or indirectly contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) or actually hire any person employed by the Company during the Noncompete Period and (b) shall not induce or attempt to induce any customer or other business relation of the Company to cease doing business with the Company or to engage in any business relationship which might materially harm the Company. (c) Executive acknowledges that certain of the information, observations and data relating to the Company which he possesses or has obtained as an employee, officer, director or stockholder of the Company is the confidential and proprietary property of the Company ("Confidential Information"). Executive agrees that he shall not, directly or indirectly, use for his own purposes or use for or disclose to any third party any of such Confidential Information without the prior written consent of the Company, unless and to the extent that the aforementioned matters (i) become generally known to and available for use by the public other than as a result of a Executive's acts or omissions to act, or (ii) Executive is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information (provided that in such case, Executive shall promptly inform the Company of such order, shall cooperate with the Company at the Company's expense in attempting to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). This Section 6(c) shall not apply to disclosures of Confidential Information by Executive during his employment with the Company - 8 - in the ordinary course of business that he reasonably believes are necessary or appropriate and in the Company's best interests. (d) The parties hereto acknowledge and agree that the Company will suffer irreparable harm from a breach by Executive of any of the covenants or agreements contained in this Section 6. In the event of an alleged or threatened breach by Executive of any of the provisions of this Section 6, the Company or their successors or assigns may, in addition to all other rights and remedies existing in its or their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of the provisions hereof. Executive acknowledges and agrees that the restrictions contained in this Section 6 are reasonable. (e) If, at the time enforcement is sought of any of the provisions of this Section 6, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Executive agrees that the covenants made in this Section 6 shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. PART II. PURCHASE OF EXECUTIVE SECURITIES 7. Purchase and Sale of Executive Securities. (a) Common Stock. Upon execution of this Agreement, the Trust shall purchase, and the Company shall sell, 70,000 shares of the Company's Class A Voting Common Stock and 70,000 shares of the Company's Class B Non-Voting Common Stock at a price of $5.00 per share (the "Purchased Stock"). The Company shall deliver to the Trust the certificates representing such shares of Common Stock, and the Trust shall deliver to the Company the aggregate amount of $700,000 (the "Purchase Price"). (b) Certain Representations and Warranties. In connection with the purchase and sale of the Executive Securities hereunder, Executive hereby represents and warrants to the Company that: (i) The Executive Securities to be beneficially acquired by Executive pursuant to this Agreement shall be acquired for his own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act, or any applicable state securities laws, and the Executive Securities shall not be disposed of in contravention of the Securities Act or any applicable state securities laws; - 9 - (ii) Executive is an executive officer of the Company, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Securities; (iii) Executive is an "accredited investor" as defined under Regulation D promulgated under the Securities Act; (iv) Executive is able to bear the economic risk of his investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Executive Securities and has had full access to such other information concerning the Company as he has requested. Executive has reviewed, or has had an opportunity to review, a copy of the Recapitalization Agreement, the Stockholders Agreement, all of the exhibits thereto and all of the other agreements contemplated hereby and thereby; (vi) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any material agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which he is subject; and (vii) Executive is a United States citizen and a resident of the State of Missouri. (c) Certain Representations and Warranties of the Company. In connection with the purchase and sale of the Executive Securities hereunder, the Company hereby represents and warrants to Executive that: (i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) The execution, delivery and performance of this Agreement will not violate, conflict with or result in any breach of the Company's organizational documents or any terms or conditions of any material agreements to which the Company is a party; (iii) Any Executive Securities to be delivered pursuant to this Agreement, including the shares of Common Stock issuable upon exercise of the Options, shall, when - 10 - delivered, be duly authorized, validly issued, fully paid and non-assessable and will not be subject to pre-emptive or similar rights; and (iv) The holders of least 75% of the Company's voting common stock have reviewed this Agreement and the Stock Option Agreement attached hereto as Annex A and have approved the terms and conditions contained herein and therein, including, without limitation, those terms and conditions relating to contingent payments that may be due to Executive upon a Sale of the Company and may have otherwise constituted an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended and a copy of such consent is attached hereto as Exhibit 7(c)(iv). (d) Additional Representation and Warranty. As an inducement to the Company to sell the Executive Securities to Executive, and as a condition thereto, Executive acknowledges and agrees that neither the issuance of the Executive Securities to Executive nor any provision contained herein shall entitle him to remain in the employment of the Company and its Subsidiaries or affect the right of the Company or Executive to terminate his employment at any time, in accordance with the provisions of Section 4 hereof. (e) Compensation Arrangements. The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Securities have been issued hereunder, in connection with and as a part of the compensation and incentive arrangements between the Company and Executive. (f) Payments to the Trust. In consideration of Executive's agreement to continue employment with the Company, the Company hereby agrees to accelerate the payment of all amounts owed to Executive by the Company pursuant to that certain Contract for Release in Event of Sale dated as of January 1, 1997 by and between the Company and Executive. Notwithstanding the terms of such agreement, the Company shall pay to the Trust, on behalf of Executive, a portion of the Share (as defined therein) equal to the Purchase Price immediately upon the execution of the election attached as Annex C hereto. The Company shall pay the remainder of the Share (net of any withholding obligations) to Executive immediately upon the execution of such election (the aggregate amount paid on the date hereof to the Trust and Executive (prior to withholding) with respect to the Share is referred to as the "Estimated Share Amount"). The amounts paid to the Trust on behalf of Executive pursuant to such election are for the sole benefit of the Trust, and Executive has no right or ability to receive such amounts except as provided in the Trust's constituent documents. Executive and the Company acknowledge and agree that the final determination of the amount of the Share is contingent upon the final determination by the Company of the Company's Stockholders Equity as of December 31, 1998, as reflected on the Company's audited financial statements. If the amount of the Share as finally determined (based on the final determination of 12/31/98 Stockholders Equity) is less than the Estimated Share Amount, Executive shall promptly pay to the Company an amount of cash equal to such shortfall. If the amount of the Share as finally determined (based on the final determination of 12/31/98 Stockholders Equity) is greater than the - 11 - Estimated Share Amount, the Company shall promptly pay to Executive an amount of cash equal to such excess, net of any withholding obligations. 8. Repurchase Option. (a) Right of Repurchase. In the event Executive ceases to be employed by the Company and its Subsidiaries for any reason (the "Termination"), the Executive Securities (whether held by Executive or the Trust or one or more of their transferees) shall be subject to repurchase by the Company pursuant to the terms and conditions set forth in this Section 8 (the "Repurchase Option"). (b) Purchase Price. Any repurchase of Executive Securities pursuant to the Repurchase Option shall be at the "Repurchase Price" described in this Section 8(b) determined as of the date of the Termination. If Executive's employment is terminated by Executive without Good Reason prior to the fifth anniversary of the date hereof or by the Company for Cause, the Repurchase Price for all of the Option Shares shall be the lower of (i) the Fair Market Value therefor and (ii) the Original Cost therefor. If Executive's employment is terminated for any other reason, the Repurchase Price for all Option Shares shall be the Fair Market Value therefor. Notwithstanding the reason for the termination of Executive's employment, the Repurchase Price for all Purchased Shares shall be the Fair Market Value therefor. (c) Repurchase by the Company. The Company may elect to purchase all or any portion of the Executive Securities at the Repurchase Price by delivering written notice (the "Repurchase Notice") to Executive within 120 days after the Termination. The Repurchase Notice shall set forth the number of shares to be acquired from Executive and/or the Trust and/or their transferees (if any), the aggregate consideration to be paid for such securities, and the time and place for the closing of the transaction (the "Repurchase Closing"). The Company may, in its sole discretion, assign its rights pursuant to this Section 8 to the holders of its capital stock (other than Executive and any other Stockholder whose shares are being repurchased) pro rata on the basis of the number of shares owned (with subsequent re-offer in the event of under subscription); provided that any such assignees shall comply with the terms of this Section 8. (d) Repurchase Closing. The closing of the purchase of the Executive Securities pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase Notice which date shall not be more than 60 days nor less than 10 days after the delivery of such notice delivered. Subject to Section 8(e), the Company shall pay for the Executive Securities to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds. The Company shall be entitled to receive customary representations and warranties regarding good title to such securities, free and clear of any liens or encumbrances, power and authority, due execution, and enforceability. (e) Certain Restrictions. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Securities by the Company shall be subject to - 12 - applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Securities hereunder which the Company is otherwise entitled or required to make, the time periods provided in this Section 8 shall be suspended, and the Company shall make such repurchases as soon as it is permitted to do so under such restrictions with interest at an annual rate of 7%. In addition, the Company may pay the Repurchase Price for such Executive Securities by offsetting any bona fide debts owed by Executive to the Company. (f) Termination of Repurchase Option. The Repurchase Option set forth in this Section 8 shall continue with respect to all Executive Securities following any Transfer thereof; provided that such Repurchase Option shall terminate effective immediately after the consummation of a Sale of the Company or a Public Offering of the Company's equity securities in which the Company receives net proceeds of at least $100 million; and provided further that, with respect to each share of Executive Securities, the Repurchase Option with respect to such share shall terminate immediately upon the Transfer of such share pursuant to a Public Sale. 9. Restrictions on Transfer. (a) Stockholders Agreement. The Executive Securities are subject to the restrictions on Transfer set forth in the Stockholders Agreement. (b) Legend. The certificates representing the Executive Securities shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JANUARY 20, 1999 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS, AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND RICHARD BENDER DATED AS OF JANUARY 20, 1999, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." - 13 - 10. Survival. Section 4 and Sections 6 through 13 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 11. Definitions. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated: (a) Defined Terms. "Board" means the Company's board of directors. "Business" means the business conducted by the Company including, without limitation, (a) the production and sale of termiticide products and (b) the business conducted by the Company's Spectrum and Chemsico Divisions. "EBITDA" means, for a given period, the consolidated Company's accounting earnings of the Company and its consolidated Subsidiaries before taking into account any interest expense, provision for income taxes or depreciation or amortization expense, excluding for this purpose extraordinary gains and losses unless included in the determination of Target EBITDA. "Executive Securities" has the meaning set forth in the Preamble. Executive Securities shall continue to be Executive Securities in the hands of any holder other than Executive and except as otherwise provided herein, each such other holder of Executive Securities shall succeed to all rights and obligations attributable to Executive as a holder of Executive Securities hereunder. Executive Securities shall also include securities of the Company issued with respect to Executive Securities by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of any class or type of Executive Security means the fair value of such shares or such class or type of Executive Security determined in good faith by the Board, based on the assumption of an arms-length transaction between a willing buyer and a willing seller, taking into account all reasonable and customary factors relevant to value including, without limitation, the fact that there may be no public market for the Company's securities, but not including any minority discount; provided that, until the first anniversary hereof, the "Fair Market Value" of each share of Executive Securities shall not be less than the Original Cost of such share. "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 50% of the Company's voting common stock on a fully-diluted basis (a "50% Owner"), who is not an affiliate of any such 50% Owner, who is not the spouse or descendent (by birth or adoption) of any such 50% Owner or a trust for the benefit of any such 50% Owner and/or such other Persons, and who is not a Person who through contract or other arrangements (other than arrangements entered into in connection with the contemplated transactions) would be an affiliate immediately after the contemplated transaction. - 14 - "Original Cost" for each share of Common Stock shall be equal to $5.00 (as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Public Offering" means the sale in an underwritten public offering registered under the Securities Act of shares of any class of the Company's Common Stock. "Public Sale" means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 promulgated under the Securities Act effected through a broker, dealer or market maker. "Sale of the Company" means (a) the acquisition by an Independent Third Party of voting securities of (x) the Company or (y) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Independent Third Party to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates, (b) the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, (c) the acquisition by an Independent Third Party of more than 50% of the Company's assets determined on a consolidated basis or (d) if individuals who constitute the Board on the date of the Company's initial Public Offering of equity securities (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter, it being understood that any individual becoming a director subsequent to such date whose election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholders" means the Persons holding the outstanding Common Stock or other equity interests of the Company at the time in question. "Stockholders Agreement" means that certain Stockholders Agreement, dated as of the date hereof, by and among the Company, Executive and certain other Persons listed on the signature pages thereto. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that - 15 - Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. "Target EBITDA" means the annual performance goal for the Company approved by the Board in its reasonable discretion with the input of Executive, with Target EBITDA for fiscal 1999 being $85,400,000. The Board shall use reasonable efforts to determine Target EBITDA for any fiscal year after 1999 no later than the 90th day of the fiscal year of the Company to which it relates. "Transfer" has the meaning ascribed to such term in the Stockholders Agreement. (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement: Agreement ........................................................... - 1 - Base Salary ......................................................... - 4 - Benefits ............................................................ - 5 - Cause ............................................................... - 3 - Common Stock ........................................................ - 1 - Company ............................................................. - 1 - Competitive Activities............................................... - 8 - Confidential Information............................................. - 8 - Disability .......................................................... - 2 - Executive ........................................................... - 1 - Executive Securities ................................................ - 1 - Good Reason ......................................................... - 4 - Incentive Compensation............................................... - 4 - Noncompete Period ................................................... - 7 - Option Shares ....................................................... - 6 - Options ............................................................. - 5 - Participate ......................................................... - 8 - Purchase Price ...................................................... - 9 - Purchased Stock ..................................................... - 9 - Repurchase Closing .................................................. - 12 - Repurchase Notice ................................................... - 12 - Repurchase Option ................................................... - 12 - Repurchase Price .................................................... - 12 - Term ................................................................ - 2 - Termination ......................................................... - 12 - Termination Date .................................................... - 2 - Trust ............................................................... - 1 -
12. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: - 16 - To the Company United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Telecopy: (314) 253-5941 Attention: Chief Executive Officer To Executive Richard Bender 1563 Dietrich Ridge Drive Manchester, MO 63021 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. 13. General Provisions. (a) Expenses. The Company will pay the reasonable and documented hourly legal fees and legal expenses of Executive's counsel in connection with the negotiation and execution of this Agreement and the agreements contemplated hereby. (b) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (c) Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way including, without limitation, that certain Employment Agreement by and between the Company and Executive dated as of January 1, 1998 and that certain Contract for Release in the Event of Sale by and between the Company and Executive dated as of January 1, 1997. - 17 - (d) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (e) Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a permitted Transfer of Executive Securities. (f) Governing Law. The laws of the state of Missouri shall govern all issues and questions concerning the employment of Executive, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Missouri or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Missouri. All other issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (g) Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (h) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company, the Trust and Executive. (i) Third-Party Beneficiary. There are no beneficiaries to this Agreement other than the signatories hereto. (j) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (k) Assignment. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another - 18 - corporation; provided that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume this Agreement. As used in this Agreement, "Company" shall mean the Company, as defined above, and any successor to its business and/or assets as aforesaid which assumes this Agreement by operation of law or otherwise. (l) Withholding. All amounts payable to Executive as compensation hereunder shall be subject to customary withholding by the Company. (m) Mitigation by Executive. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. * * * * - 19 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. UNITED INDUSTRIES CORPORATION By: ---------------------------------------- Its: ---------------------------------------- -------------------------------------------- RICHARD BENDER -------------------------------------------- STEPHEN R. BRIAN, in his capacity as trustee of that certain Trust Agreement, dated as of January 20, 1999, by and between the Company and Stephen R. Brian, as trustee - 20 - EX-10.4 10 UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT Exhibit 10.4 ------------ UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of January 20, 1999, is entered into by and among United Industries Corporation, a Delaware corporation (the "Company"), William Johnson ("Executive") and the Trust established by that certain Trust Agreement, dated as of the date hereof, by and between the Company and Stephen R. Brian, as trustee (the "Trust"). Certain capitalized terms used but not otherwise defined herein are defined in Section 11. The Company, Executive and the Trust desire to enter into an agreement relating to Executive's employment by the Company and pursuant to which the Trust shall purchase, and the Company shall sell, for an aggregate purchase price of $1,000,000.00, 100,000 shares of Class A Voting Common Stock and 100,000 shares of Class B Non-Voting Common Stock (collectively, the "Common Stock"). The Common Stock and all other capital stock of the Company hereafter acquired by Executive and/or the Trust (including, without limitation, shares of Common Stock purchased upon the exercise of the Options) are sometimes collectively referred to as "Executive Securities." The Executive Securities are subject to certain transfer restrictions and repurchase rights as set forth herein. Simultaneously with the execution of this Agreement, the parties hereto have entered into a Stock Option Agreement in the form of Annex A attached hereto. The parties hereto, in exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, hereby agree as follows: PART I. EMPLOYMENT TERMS 1. Employment and Duties. (a) The Company shall employ Executive, and Executive hereby accepts employment with the Company, as a Senior Vice President pursuant to the terms and conditions of this Agreement. Executive shall report to the President of the Company and/or the Board. The Company shall not assign to Executive duties or functions which are outside of Executive's areas of competence in order to use Executive's failure to perform as a basis for termination for Cause. (b) Executive shall devote his best efforts to the interests of the Company, which interests may change from time to time, and shall devote such time to his employment as the duties and responsibilities of his position reasonably require. (c) Executive shall perform such duties and functions commensurate with his position as may be reasonably assigned or delegated to him from time to time by the Company's President or Board. Executive acknowledges that such executive duties and functions may or may not involve performance of services for or on behalf of affiliates of the Company. (d) The principal office of the Company at the date hereof, which is Executive's primary place of employment, is situated in St. Louis, Missouri. While the duties of Executive will require him to travel, Executive shall not be required to change his principal residence from St. Louis to a locale other than a locale in which the Company's principal office may be situated at the time. (e) The provisions of Exhibit 1(e) are hereby acknowledged as obligations of Executive both during the Term of his employment and thereafter. 2. Term and Termination. (a) Term. The "Term" of Executive's employment is from the date hereof until the "Termination Date", which is defined as the earlier of (i) December 31, 2001 or (ii) the date of termination of Executive's employment pursuant to any one or more of Sections 2(b), 2(c), 2(d) or 2(e) of this Agreement; provided that the date in clause (i) above shall be automatically extended by one year on December 31, 2001, and on each subsequent anniversary thereof. Executive is an at-will employee of the Company and such employment may be terminated by Executive, in his sole and arbitrary discretion, at any time with or without Good Reason, or by the Company, in the Company's sole and arbitrary discretion, at any time with or without Cause, by delivery of a written termination notice to the other party, in each case subject to the consequences in Section 4. (b) Death. If Executive dies during the Term, the Termination Date shall be the date of his death. (c) Disability. If Executive becomes Disabled during the Term, the Termination Date shall be the date as of which such Disability is determined. Subject to applicable law, "Disability" means such physical, mental or psychological condition or other impairment that prevents Executive from effectively performing the duties of his employment for more than ninety (90) calendar days in any six (6) consecutive months commencing on the initial date of such impairment commencing on the initial date of such impairment. In connection with any Disability (or possible Disability): (i) Executive shall cooperate with any physicians engaged by the Company to examine Executive to determine whether or not Executive is Disabled, and each of Executive and the Company irrevocably consents to disclosure to each of them by any such physicians of all matters relating to such examinations. (ii) The determination of Disability shall be by agreement of the Company and Executive, or if Executive's condition is such that he is unable to participate in such - 2 - determination, then by agreement of the Company and Executive's spouse or whoever else is then acting on his behalf, and if the parties involved in such determination are unable to reach agreement within 10 days of a request by either party, then the issue shall be decided by a physician chosen by the Company and reasonably acceptable to Executive. The Company will pay all expenses incurred in the determination of whether Executive is Disabled. (d) Termination By Executive. If Executive terminates his employment, with or without Good Reason, the Termination Date shall be the date on which Executive's termination notice is given to the Company, or such later date indicated on such termination notice, which may not be more than thirty (30) days nor less than fourteen (14) days from its receipt by the Company; provided that upon receipt of Executive's termination notice, the Company may, in its sole discretion, request that Executive cease his employment activities prior to the date referenced in such notice and Executive shall promptly comply with such request, it being understood that such request will not change the Termination Date specified in this Section 2(d) or affect the characterization of the termination of Executive's employment. (e) Termination by the Company. If the Company terminates the employment of Executive, with or without Cause, the Termination Date shall be the date on which the Company's termination notice is given to Executive, or such later date indicated on such termination notice, which may not be more than thirty (30) days from its receipt by Executive. (f) Reversal of Determination. If Executive's employment is terminated by the Company for Cause or by Executive for Good Reason, and it is thereafter judicially determined that Cause or Good Reason as appropriate for such termination does not exist, then Executive's employment shall be deemed to have been terminated without Cause or Good Reason as appropriate as of the Termination Date. If matters constituting Cause or Good Reason as appropriate become known to the Company or to Executive subsequent to the time that Executive's employment is terminated, then either party may, by delivery of written notice to the other party, treat such termination as being for Cause or Good Reason as appropriate. (g) Definition of Cause. "Cause" for termination by the Company of Executive's employment means: (i) the commission by Executive of any willful act against the interests of the Company which causes or is intended to cause harm to the Company or any of its Stockholders. For purposes of this definition, no act or failure to act on the part of Executive shall be considered "willful" unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon specific instructions given pursuant to a resolution duly adopted by the Board or directed by the President of the Company or based upon the written advice of regular outside counsel for the Company shall be - 3 - conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company; (ii) Executive has been convicted of, or pleads nolo contendere with respect to, any felony, or of any lesser crime or offense having as its predicate element fraud, dishonesty or misappropriation of the property of the Company; (iii) the habitual drug addiction or habitual intoxication of Executive which negatively impacts his job performance; or (iv) Executive breaches any of the terms of this Agreement or any other agreement between Executive and the Company which breach is not cured within twenty (20) days after the delivery of notice in writing from the Board to Executive of such breach, which notice indicates the Company's intention to terminate Executive's employment hereunder if such breach is not cured within such twenty (20) day period and describes the nature of such breach. (h) Definition of Good Reason. "Good Reason" for termination by Executive of Executive's employment means (i) a material breach by the Company of its obligations under this Agreement which is not cured (if curable) within twenty (20) days after written notice by Executive to the Company, (ii) the Company requiring Executive to move his primary place of employment by more than seventy-five (75) miles, if such move increases Executive's commute from his primary residence, without Executive's written consent thereto; provided that Executive must notify the Company in writing of his intent to terminate his employment pursuant to this Section 2(h)(ii) prior to the sixtieth day after the earlier of (x) the date that the Company notifies Executive in writing of its intent to relocate and (y) the date that such relocation occurs, and (iii) the failure of any successor to the Company to assume this Agreement as set forth in Section 13(k). 3. Compensation. (a) Executive's compensation for his services hereunder shall consist of (a) Base Salary, plus (b) Incentive Compensation, if any, plus (c) Benefits. (b) "Base Salary" shall be paid by the Company to Executive at an annual rate of $300,000, payable in arrears in equal monthly installments. Under no circumstances may the Base Salary be decreased during the Term. (c) "Incentive Compensation," if any, is equal to the sum of the following three amounts, up to a maximum of 60% of Base Salary in any given year, it being understood that no Incentive Compensation is required to be paid in any year in which the Company's actual EBITDA for the year in question is not at least 90% of Target EBITDA for such year: - 4 - (i) If the Company's actual EBITDA for the year in question equals or exceeds 90% of Target EBITDA for such year, Incentive Compensation will equal the product of (A) Base Salary multiplied by (B) 25%; plus (ii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2.5% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 90% of Target EBITDA for such year (for example, if the Company's actual EBITDA was 93% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 93%-90% = 3)), up to a maximum of 25% of Base Salary in any year; plus (iii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 100% of the Target EBITDA for such year (for example, if the Company's actual EBITDA was 103% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 103%-100% = 3)). All Incentive Compensation due hereunder shall be payable promptly after the Company has received audited financial statements from its independent accountants for the year in question which set forth such accountant's determination of actual EBITDA for such year and not later than at or about the time bonuses are paid to the Company's other senior executives whose bonuses are determined based on the receipt of the Company's audited financial statements. The formula for determining Incentive Compensation provided for in this Section 3 shall not be changed during the Term without Executive's consent. The minimum amount of Incentive Compensation in respect of 1999 shall be $65,000. (d) "Benefits" consist of whatever, if any, health, hospitalization, sick pay, life insurance, disability insurance, profit sharing, pension, 401(k), and deferred compensation plans and programs that the Company may have in effect from time to time for its employees who are not members of a collective bargaining unit, all of which Executive shall be entitled to participate in on a basis commensurate with his position. Executive shall also be entitled to four (4) calendar weeks paid vacation each year, in addition to regularly scheduled holidays. The Company may initiate, change and discontinue any such plans and programs at any time; provided that no such change shall be effective as to Executive unless it is also effective as to the other senior managers of the Company. If any of such plans or programs require contributions by employees, Executive shall pay the contributions required by his participation at a rate no greater than that applicable to any senior executive of the Company. (e) Stock Options. The Company shall grant Executive options (the "Options") to purchase 600,000 shares of Common Stock, all on the terms and conditions contained in the Company's 1999 Stock Option Plan approved by the Board and in a Stock Option Agreement in the - 5 - form of Annex A attached hereto. Shares of Common Stock acquired through the exercise of options shall be referred to herein as "Option Shares." (f) Signing Bonus. Upon the beginning of Executive's employment with the Company, the Company shall pay to Executive a signing bonus of $40,000. 4. Termination Provisions. (a) If the Company terminates Executive's employment for Cause, or if Executive terminates his employment without Good Reason, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; and (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as any Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year. (b) If the Company terminates Executive's employment without Cause, if Executive terminates his employment for Good Reason or if Executive's employment terminates by reason of his death or Disability, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year (it being agreed that if the Termination Date is prior to January 1, 2000, in no event shall the amount of Executive's Incentive Compensation payable pursuant to this Section 4(b)(ii) be less than the amount referenced in the last sentence of Section 3(c)); and (iii) if, and only if, Executive (or his estate, guardian or personal representative, as the case may be) signs and delivers to the Company a complete general release of claims in the form of Annex B attached hereto, then Executive shall be entitled to his Base Salary (but no Incentive Compensation) for the period commencing on the Termination Date and ending on the later of (x) December 31, 2001 and (y) the date which is one year after the Termination Date, together with any other Benefits as may be provided under the terms of any applicable written plan, - 6 - program or arrangement of the Company applicable to senior executives of the Company. If Executive does not comply with the terms of Section 4(b)(iii), above, within 30 days after the Termination Date, then Executive shall only be entitled to payments as set forth in Sections 4(b)(i), and 4(b)(ii), above, and the Company shall not be responsible for any further payments to Executive. (c) Any amounts owed by the Company to Executive pursuant to Section 4(b)(iii) shall be paid at such times and in such manner as if the termination giving rise to such payments had not occurred (with the Company retaining the right to prepay all or any portion of such amount at any time in its sole discretion). The Company's obligation to make any payments pursuant to Section 4(b) shall be conditioned upon Executive's continued and continuing compliance with the terms and conditions of this Agreement (including, without limitation, Section 6 hereof). (d) Except as otherwise specified herein, if Executive's employment terminates on any date other than the last day of a month, Executive's compensation for that month shall be calculated on the basis of a fraction, the numerator of which is the number of calendar days during that month that Executive is in the Company's employ and the denominator of which is the number of days in that month. 5. Expenses. (a) The Company shall reimburse Executive for all reasonable expenses incurred in the performance of his duties in accordance with the expense reimbursement policy of the Company with respect to senior executives of the Company in effect at the time. (b) If the Company requires Executive to locate outside of St. Louis, then the Company shall reimburse Executive for his reasonable relocation expenses in accordance with the expense reimbursement policy of the Company in effect at the time. 6. Noncompetition, Nonsolicitation, Confidentiality. As a material inducement to the Company to enter into this Agreement and in consideration of the payment by the Company of the compensation detailed herein to Executive: (a) During the period (the "Noncompete Period") beginning on the date hereof and ending on the later of (x) the first anniversary of the Termination Date and (y) if severance payments are owed to Executive by the Company pursuant to Section 4(b)(iii), above, the last date on which such payments are due to be paid to Executive (notwithstanding any reduction in such payments pursuant to Section 4(c)), Executive shall not, without the prior written consent of the Company (which consent may be granted or withheld in the Company's sole discretion), directly or indirectly, Participate in any line of business in which the Business is actively engaged or any line of business competitive with the Business anywhere in the United States and any other country in - 7 - which the Company does business as of the Closing (the "Competitive Activities"). For purposes of this Agreement, the term "Participate" includes any direct or indirect interest in, or providing any direct or indirect assistance (whether financial, advisory or otherwise) to, any enterprise (or any affiliate thereof), whether as an officer, director, employee, partner, member, sole proprietor, agent, representative, independent contractor, consultant, creditor, stockholders, unitholder, owner or otherwise; provided that the term "Participate" shall not include ownership of less than 2% of the Common Stock of a publicly-held corporation whose Common Stock is traded on a national securities exchange or in the over-the-counter market. The parties agree that, without violating this Section 6(a), Executive may accept employment with any Person which engages in Competitive Activities; provided that such Person's business is diversified (and has separate and distinct divisions) and Executive is employed in a part of its business which does not engage in Competitive Activities; provided further that the Company, prior to Executive accepting such employment, shall receive separate written assurances satisfactory to the Company from the board of directors of such Person and Executive acknowledging that Executive is bound by this Section 6, the terms of which such Person has read, and covenanting that Executive will not render services directly or indirectly in connection with any product, process, system or service of any person or organization other than the Company, in existence or under development, which is the same as or competes with a product, process, system or service upon which Executive has worked during the last two years of Executive's employment by the Company or about which Executive acquires Confidential Information. (b) During the Noncompete Period, Executive (a) except with respect to Executive's personal secretary, shall not, directly or indirectly contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) or actually hire any person employed by the Company during the Noncompete Period and (b) shall not induce or attempt to induce any customer or other business relation of the Company to cease doing business with the Company or to engage in any business relationship which might materially harm the Company. (c) Executive acknowledges that certain of the information, observations and data relating to the Company which he possesses or has obtained as an employee, officer, director or stockholder of the Company is the confidential and proprietary property of the Company ("Confidential Information"). Executive agrees that he shall not, directly or indirectly, use for his own purposes or use for or disclose to any third party any of such Confidential Information without the prior written consent of the Company, unless and to the extent that the aforementioned matters (i) become generally known to and available for use by the public other than as a result of a Executive's acts or omissions to act, or (ii) Executive is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information (provided that in such case, Executive shall promptly inform the Company of such order, shall cooperate with the Company at the Company's expense in attempting to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). This Section 6(c) shall not apply to disclosures of Confidential Information by Executive during his employment with the Company - 8 - in the ordinary course of business that he reasonably believes are necessary or appropriate and in the Company's best interests. (d) The parties hereto acknowledge and agree that the Company will suffer irreparable harm from a breach by Executive of any of the covenants or agreements contained in this Section 6. In the event of an alleged or threatened breach by Executive of any of the provisions of this Section 6, the Company or their successors or assigns may, in addition to all other rights and remedies existing in its or their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of the provisions hereof. Executive acknowledges and agrees that the restrictions contained in this Section 6 are reasonable. (e) If, at the time enforcement is sought of any of the provisions of this Section 6, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Executive agrees that the covenants made in this Section 6 shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. PART II. PURCHASE OF EXECUTIVE SECURITIES 7. Purchase and Sale of Executive Securities. (a) Common Stock. Upon execution of this Agreement, the Trust shall purchase, and the Company shall sell, 100,000 shares of the Company's Class A Voting Common Stock and 100,000 shares of the Company's Class B Non-Voting Common Stock at a price of $5.00 per share (the "Purchased Stock"). The Company shall deliver to the Trust the certificates representing such shares of Common Stock, and the Trust shall deliver to the Company the aggregate amount of $1,000,000 (the "Purchase Price"). (b) Certain Representations and Warranties. In connection with the purchase and sale of the Executive Securities hereunder, Executive hereby represents and warrants to the Company that: (i) The Executive Securities to be beneficially acquired by Executive pursuant to this Agreement shall be acquired for his own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act, or any applicable state securities laws, and the Executive Securities shall not be disposed of in contravention of the Securities Act or any applicable state securities laws; - 9 - (ii) Executive is an executive officer of the Company, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Securities; (iii) Executive is an "accredited investor" as defined under Regulation D promulgated under the Securities Act; (iv) Executive is able to bear the economic risk of his investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Executive Securities and has had full access to such other information concerning the Company as he has requested. Executive has reviewed, or has had an opportunity to review, a copy of the Recapitalization Agreement, the Stockholders Agreement, all of the exhibits thereto and all of the other agreements contemplated hereby and thereby; (vi) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any material agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which he is subject; and (vii) Executive is a United States citizen and a resident of the State of Missouri. (c) Certain Representations and Warranties of the Company. In connection with the purchase and sale of the Executive Securities hereunder, the Company hereby represents and warrants to Executive that: (i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) The execution, delivery and performance of this Agreement will not violate, conflict with or result in any breach of the Company's organizational documents or any terms or conditions of any material agreements to which the Company is a party; (iii) Any Executive Securities to be delivered pursuant to this Agreement, including the shares of Common Stock issuable upon exercise of the Options, shall, when - 10 - delivered, be duly authorized, validly issued, fully paid and non-assessable and will not be subject to pre-emptive or similar rights; and (iv) The holders of least 75% of the Company's voting common stock have reviewed this Agreement and the Stock Option Agreement attached hereto as Annex A and have approved the terms and conditions contained herein and therein, including, without limitation, those terms and conditions relating to contingent payments that may be due to Executive upon a Sale of the Company and may have otherwise constituted an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended and a copy of such consent is attached hereto as Exhibit 7(c)(iv). (d) Additional Representation and Warranty. As an inducement to the Company to sell the Executive Securities to Executive, and as a condition thereto, Executive acknowledges and agrees that neither the issuance of the Executive Securities to Executive nor any provision contained herein shall entitle him to remain in the employment of the Company and its Subsidiaries or affect the right of the Company or Executive to terminate his employment at any time, in accordance with the provisions of Section 4 hereof. (e) Compensation Arrangements. The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Securities have been issued hereunder, in connection with and as a part of the compensation and incentive arrangements between the Company and Executive. (f) Payments to the Trust. In consideration of Executive's agreement to continue employment with the Company, the Company hereby agrees to accelerate the payment of all amounts owed to Executive by the Company pursuant to that certain Contract for Release in Event of Sale dated as of January 1, 1997 by and between the Company and Executive. Notwithstanding the terms of such agreement, the Company shall pay to the Trust, on behalf of Executive, a portion of the Share (as defined therein) equal to the Purchase Price immediately upon the execution of the election attached as Annex C hereto. The Company shall pay the remainder of the Share (net of any withholding obligations) to Executive immediately upon the execution of such election (the aggregate amount paid on the date hereof to the Trust and Executive (prior to withholding) with respect to the Share is referred to as the "Estimated Share Amount"). The amounts paid to the Trust on behalf of Executive pursuant to such election are for the sole benefit of the Trust, and Executive has no right or ability to receive such amounts except as provided in the Trust's constituent documents. Executive and the Company acknowledge and agree that the final determination of the amount of the Share is contingent upon the final determination by the Company of the Company's Stockholders Equity as of December 31, 1998, as reflected on the Company's audited financial statements. If the amount of the Share as finally determined (based on the final determination of 12/31/98 Stockholders Equity) is less than the Estimated Share Amount, Executive shall promptly pay to the Company an amount of cash equal to such shortfall. If the amount of the Share as finally determined (based on the final determination of 12/31/98 Stockholders Equity) is greater than the - 11 - Estimated Share Amount, the Company shall promptly pay to Executive an amount of cash equal to such excess, net of any withholding obligations. 8. Repurchase Option. (a) Right of Repurchase. In the event Executive ceases to be employed by the Company and its Subsidiaries for any reason (the "Termination"), the Executive Securities (whether held by Executive or the Trust or one or more of their transferees) shall be subject to repurchase by the Company pursuant to the terms and conditions set forth in this Section 8 (the "Repurchase Option"). (b) Purchase Price. Any repurchase of Executive Securities pursuant to the Repurchase Option shall be at the "Repurchase Price" described in this Section 8(b) determined as of the date of the Termination. If Executive's employment is terminated by Executive without Good Reason prior to the fifth anniversary of the date hereof or by the Company for Cause, the Repurchase Price for all of the Option Shares shall be the lower of (i) the Fair Market Value therefor and (ii) the Original Cost therefor. If Executive's employment is terminated for any other reason, the Repurchase Price for all Option Shares shall be the Fair Market Value therefor. Notwithstanding the reason for the termination of Executive's employment, the Repurchase Price for all Purchased Shares shall be the Fair Market Value therefor. (c) Repurchase by the Company. The Company may elect to purchase all or any portion of the Executive Securities at the Repurchase Price by delivering written notice (the "Repurchase Notice") to Executive within 120 days after the Termination. The Repurchase Notice shall set forth the number of shares to be acquired from Executive and/or the Trust and/or their transferees (if any), the aggregate consideration to be paid for such securities, and the time and place for the closing of the transaction (the "Repurchase Closing"). The Company may, in its sole discretion, assign its rights pursuant to this Section 8 to the holders of its capital stock (other than Executive and any other Stockholder whose shares are being repurchased) pro rata on the basis of the number of shares owned (with subsequent re-offer in the event of under subscription); provided that any such assignees shall comply with the terms of this Section 8. (d) Repurchase Closing. The closing of the purchase of the Executive Securities pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase Notice which date shall not be more than 60 days nor less than 10 days after the delivery of such notice delivered. Subject to Section 8(e), the Company shall pay for the Executive Securities to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds. The Company shall be entitled to receive customary representations and warranties regarding good title to such securities, free and clear of any liens or encumbrances, power and authority, due execution, and enforceability. (e) Certain Restrictions. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Securities by the Company shall be subject to - 12 - applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Securities hereunder which the Company is otherwise entitled or required to make, the time periods provided in this Section 8 shall be suspended, and the Company shall make such repurchases as soon as it is permitted to do so under such restrictions with interest at an annual rate of 7%. In addition, the Company may pay the Repurchase Price for such Executive Securities by offsetting any bona fide debts owed by Executive to the Company. (f) Termination of Repurchase Option. The Repurchase Option set forth in this Section 8 shall continue with respect to all Executive Securities following any Transfer thereof; provided that such Repurchase Option shall terminate effective immediately after the consummation of a Sale of the Company or a Public Offering of the Company's equity securities in which the Company receives net proceeds of at least $100 million; and provided further that, with respect to each share of Executive Securities, the Repurchase Option with respect to such share shall terminate immediately upon the Transfer of such share pursuant to a Public Sale. 9. Restrictions on Transfer. (a) Stockholders Agreement. The Executive Securities are subject to the restrictions on Transfer set forth in the Stockholders Agreement. (b) Legend. The certificates representing the Executive Securities shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JANUARY 20, 1999 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS, AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND WILLIAM JOHNSON DATED AS OF JANUARY 20, 1999, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." - 13 - 10. Survival. Section 4 and Sections 6 through 13 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 11. Definitions. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated: (a) Defined Terms. "Board" means the Company's board of directors. "Business" means the business conducted by the Company including, without limitation, (a) the production and sale of termiticide products and (b) the business conducted by the Company's Spectrum and Chemsico Divisions. "EBITDA" means, for a given period, the consolidated Company's accounting earnings of the Company and its consolidated Subsidiaries before taking into account any interest expense, provision for income taxes or depreciation or amortization expense, excluding for this purpose extraordinary gains and losses unless included in the determination of Target EBITDA. "Executive Securities" has the meaning set forth in the Preamble. Executive Securities shall continue to be Executive Securities in the hands of any holder other than Executive and except as otherwise provided herein, each such other holder of Executive Securities shall succeed to all rights and obligations attributable to Executive as a holder of Executive Securities hereunder. Executive Securities shall also include securities of the Company issued with respect to Executive Securities by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of any class or type of Executive Security means the fair value of such shares or such class or type of Executive Security determined in good faith by the Board, based on the assumption of an arms-length transaction between a willing buyer and a willing seller, taking into account all reasonable and customary factors relevant to value including, without limitation, the fact that there may be no public market for the Company's securities, but not including any minority discount; provided that, until the first anniversary hereof, the "Fair Market Value" of each share of Executive Securities shall not be less than the Original Cost of such share. "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 50% of the Company's voting common stock on a fully-diluted basis (a "50% Owner"), who is not an affiliate of any such 50% Owner, who is not the spouse or descendent (by birth or adoption) of any such 50% Owner or a trust for the benefit of any such 50% Owner and/or such other Persons, and who is not a Person who through contract or other arrangements (other than arrangements entered into in connection with the contemplated transactions) would be an affiliate immediately after the contemplated transaction. - 14 - "Original Cost" for each share of Common Stock shall be equal to $5.00 (as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Public Offering" means the sale in an underwritten public offering registered under the Securities Act of shares of any class of the Company's Common Stock. "Public Sale" means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 promulgated under the Securities Act effected through a broker, dealer or market maker. "Sale of the Company" means (a) the acquisition by an Independent Third Party of voting securities of (x) the Company or (y) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Independent Third Party to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates, (b) the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, (c) the acquisition by an Independent Third Party of more than 50% of the Company's assets determined on a consolidated basis or (d) if individuals who constitute the Board on the date of the Company's initial Public Offering of equity securities (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter, it being understood that any individual becoming a director subsequent to such date whose election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholders" means the Persons holding the outstanding Common Stock or other equity interests of the Company at the time in question. "Stockholders Agreement" means that certain Stockholders Agreement, dated as of the date hereof, by and among the Company, Executive and certain other Persons listed on the signature pages thereto. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that - 15 - Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. "Target EBITDA" means the annual performance goal for the Company approved by the Board in its reasonable discretion with the input of Executive, with Target EBITDA for fiscal 1999 being $85,400,000. The Board shall use reasonable efforts to determine Target EBITDA for any fiscal year after 1999 no later than the 90th day of the fiscal year of the Company to which it relates. "Transfer" has the meaning ascribed to such term in the Stockholders Agreement. - 16 - (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement: Agreement ................................................................. - 1 - Base Salary ............................................................... - 4 - Benefits .................................................................. - 5 - Cause ..................................................................... - 3 - Common Stock .............................................................. - 1 - Company ................................................................... - 1 - Competitive Activities .................................................... - 8 - Confidential Information .................................................. - 8 - Disability ................................................................ - 2 - Executive ................................................................. - 1 - Executive Securities ...................................................... - 1 - Good Reason ............................................................... - 4 - Incentive Compensation .................................................... - 4 - Noncompete Period ......................................................... - 7 - Option Shares ............................................................. - 6 - Options ................................................................... - 5 - Participate ............................................................... - 8 - Purchase Price ............................................................ - 9 - Purchased Stock ........................................................... - 9 - Repurchase Closing ........................................................ - 12 - Repurchase Notice ......................................................... - 12 - Repurchase Option ......................................................... - 12 - Repurchase Price .......................................................... - 12 - Term ..................................................................... - 2 - Termination ............................................................... - 12 - Termination Date .......................................................... - 2 - Trust ..................................................................... - 1 -
12. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: To the Company United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Telecopy: (314) 253-5941 Attention: Chief Executive Officer To Executive William Johnson 1411 Highland Valley Ct. Chesterfield, MO 63005 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. - 17 - 13. General Provisions. (a) Expenses. The Company will pay the reasonable and documented hourly legal fees and legal expenses of Executive's counsel in connection with the negotiation and execution of this Agreement and the agreements contemplated hereby. (b) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (c) Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way including, without limitation, that certain Employment Agreement by and between the Company and Executive dated as of January 1, 1998 and that certain Contract for Release in the Event of Sale by and between the Company and Executive dated as of January 1, 1997. (d) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (e) Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a permitted Transfer of Executive Securities. (f) Governing Law. The laws of the state of Missouri shall govern all issues and questions concerning the employment of Executive, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Missouri or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Missouri. All other issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of - 18 - Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (g) Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (h) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company, the Trust and Executive. (i) Third-Party Beneficiary. There are no beneficiaries to this Agreement other than the signatories hereto. (j) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (k) Assignment. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation; provided that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume this Agreement. As used in this Agreement, "Company" shall mean the Company, as defined above, and any successor to its business and/or assets as aforesaid which assumes this Agreement by operation of law or otherwise. (l) Withholding. All amounts payable to Executive as compensation hereunder shall be subject to customary withholding by the Company. (m) Mitigation by Executive. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. * * * * - 19 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. UNITED INDUSTRIES CORPORATION By: -------------------------------------------- Its: -------------------------------------------- ------------------------------------------------ WILLIAM JOHNSON ------------------------------------------------ STEPHEN R. BRIAN, in his capacity as trustee of that certain Trust Agreement, dated as of January 20, 1999, by and between the Company and Stephen R. Brian, as trustee - 20 - EX-10.5 11 UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT Exhibit 10.5 ------------ UNITED INDUSTRIES CORPORATION MANAGEMENT AGREEMENT THIS MANAGEMENT AGREEMENT (this "Agreement"), dated as of January 20, 1999, is entered into by and among United Industries Corporation, a Delaware corporation (the "Company"), Daniel Johnston ("Executive") and the Trust established by that certain Trust Agreement, dated as of the date hereof, by and between the Company and Stephen R. Brian, as trustee (the "Trust"). Certain capitalized terms used but not otherwise defined herein are defined in Section 11. The Company, Executive and the Trust desire to enter into an agreement relating to Executive's employment by the Company and pursuant to which the Trust shall purchase, and the Company shall sell, for an aggregate purchase price of $1,000,000.00, 100,000 shares of Class A Voting Common Stock and 100,000 shares of Class B Non-Voting Common Stock (collectively, the "Common Stock"). The Common Stock and all other capital stock of the Company hereafter acquired by Executive and/or the Trust (including, without limitation, shares of Common Stock purchased upon the exercise of the Options) are sometimes collectively referred to as "Executive Securities." The Executive Securities are subject to certain transfer restrictions and repurchase rights as set forth herein. Simultaneously with the execution of this Agreement, the parties hereto have entered into a Stock Option Agreement in the form of Annex A attached hereto. The parties hereto, in exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, hereby agree as follows: PART I. EMPLOYMENT TERMS 1. Employment and Duties. (a) The Company shall employ Executive, and Executive hereby accepts employment with the Company, as a Senior Vice President pursuant to the terms and conditions of this Agreement. Executive shall report to the President of the Company and/or the Board. The Company shall not assign to Executive duties or functions which are outside of Executive's areas of competence in order to use Executive's failure to perform as a basis for termination for Cause. (b) Executive shall devote his best efforts to the interests of the Company, which interests may change from time to time, and shall devote such time to his employment as the duties and responsibilities of his position reasonably require. (c) Executive shall perform such duties and functions commensurate with his position as may be reasonably assigned or delegated to him from time to time by the Company's President or Board. Executive acknowledges that such executive duties and functions may or may not involve performance of services for or on behalf of affiliates of the Company. (d) The principal office of the Company at the date hereof, which is Executive's primary place of employment, is situated in St. Louis, Missouri. While the duties of Executive will require him to travel, Executive shall not be required to change his principal residence from St. Louis to a locale other than a locale in which the Company's principal office may be situated at the time. (e) The provisions of Exhibit 1(e) are hereby acknowledged as obligations of Executive both during the Term of his employment and thereafter. 2. Term and Termination. (a) Term. The "Term" of Executive's employment is from the date hereof until the "Termination Date", which is defined as the earlier of (i) December 31, 2001 or (ii) the date of termination of Executive's employment pursuant to any one or more of Sections 2(b), 2(c), 2(d) or 2(e) of this Agreement; provided that the date in clause (i) above shall be automatically extended by one year on December 31, 2001, and on each subsequent anniversary thereof. Executive is an at-will employee of the Company and such employment may be terminated by Executive, in his sole and arbitrary discretion, at any time with or without Good Reason, or by the Company, in the Company's sole and arbitrary discretion, at any time with or without Cause, by delivery of a written termination notice to the other party, in each case subject to the consequences in Section 4. (b) Death. If Executive dies during the Term, the Termination Date shall be the date of his death. (c) Disability. If Executive becomes Disabled during the Term, the Termination Date shall be the date as of which such Disability is determined. Subject to applicable law, "Disability" means such physical, mental or psychological condition or other impairment that prevents Executive from effectively performing the duties of his employment for more than ninety (90) calendar days in any six (6) consecutive months commencing on the initial date of such impairment commencing on the initial date of such impairment. In connection with any Disability (or possible Disability): (i) Executive shall cooperate with any physicians engaged by the Company to examine Executive to determine whether or not Executive is Disabled, and each of Executive and the Company irrevocably consents to disclosure to each of them by any such physicians of all matters relating to such examinations. (ii) The determination of Disability shall be by agreement of the Company and Executive, or if Executive's condition is such that he is unable to participate in such - 2 - determination, then by agreement of the Company and Executive's spouse or whoever else is then acting on his behalf, and if the parties involved in such determination are unable to reach agreement within 10 days of a request by either party, then the issue shall be decided by a physician chosen by the Company and reasonably acceptable to Executive. The Company will pay all expenses incurred in the determination of whether Executive is Disabled. (d) Termination By Executive. If Executive terminates his employment, with or without Good Reason, the Termination Date shall be the date on which Executive's termination notice is given to the Company, or such later date indicated on such termination notice, which may not be more than thirty (30) days nor less than fourteen (14) days from its receipt by the Company; provided that upon receipt of Executive's termination notice, the Company may, in its sole discretion, request that Executive cease his employment activities prior to the date referenced in such notice and Executive shall promptly comply with such request, it being understood that such request will not change the Termination Date specified in this Section 2(d) or affect the characterization of the termination of Executive's employment. (e) Termination by the Company. If the Company terminates the employment of Executive, with or without Cause, the Termination Date shall be the date on which the Company's termination notice is given to Executive, or such later date indicated on such termination notice, which may not be more than thirty (30) days from its receipt by Executive. (f) Reversal of Determination. If Executive's employment is terminated by the Company for Cause or by Executive for Good Reason, and it is thereafter judicially determined that Cause or Good Reason as appropriate for such termination does not exist, then Executive's employment shall be deemed to have been terminated without Cause or Good Reason as appropriate as of the Termination Date. If matters constituting Cause or Good Reason as appropriate become known to the Company or to Executive subsequent to the time that Executive's employment is terminated, then either party may, by delivery of written notice to the other party, treat such termination as being for Cause or Good Reason as appropriate. (g) Definition of Cause. "Cause" for termination by the Company of Executive's employment means: (i) the commission by Executive of any willful act against the interests of the Company which causes or is intended to cause harm to the Company or any of its Stockholders. For purposes of this definition, no act or failure to act on the part of Executive shall be considered "willful" unless it is done, or omitted to be done, by Executive in bad faith or without reasonable belief that Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon specific instructions given pursuant to a resolution duly adopted by the Board or directed by the President of the Company or based upon the written advice of regular outside counsel for the Company shall be - 3 - conclusively presumed to be done, or omitted to be done, by Executive in good faith and in the best interests of the Company; (ii) Executive has been convicted of, or pleads nolo contendere with respect to, any felony, or of any lesser crime or offense having as its predicate element fraud, dishonesty or misappropriation of the property of the Company; (iii) the habitual drug addiction or habitual intoxication of Executive which negatively impacts his job performance; or (iv) Executive breaches any of the terms of this Agreement or any other agreement between Executive and the Company which breach is not cured within twenty (20) days after the delivery of notice in writing from the Board to Executive of such breach, which notice indicates the Company's intention to terminate Executive's employment hereunder if such breach is not cured within such twenty (20) day period and describes the nature of such breach. (h) Definition of Good Reason. "Good Reason" for termination by Executive of Executive's employment means (i) a material breach by the Company of its obligations under this Agreement which is not cured (if curable) within twenty (20) days after written notice by Executive to the Company, (ii) the Company requiring Executive to move his primary place of employment by more than seventy-five (75) miles, if such move increases Executive's commute from his primary residence, without Executive's written consent thereto; provided that Executive must notify the Company in writing of his intent to terminate his employment pursuant to this Section 2(h)(ii) prior to the sixtieth day after the earlier of (x) the date that the Company notifies Executive in writing of its intent to relocate and (y) the date that such relocation occurs, and (iii) the failure of any successor to the Company to assume this Agreement as set forth in Section 13(k). 3. Compensation. (a) Executive's compensation for his services hereunder shall consist of (a) Base Salary, plus (b) Incentive Compensation, if any, plus (c) Benefits. (b) "Base Salary" shall be paid by the Company to Executive at an annual rate of $300,000, payable in arrears in equal monthly installments. Under no circumstances may the Base Salary be decreased during the Term. (c) "Incentive Compensation," if any, is equal to the sum of the following three amounts, up to a maximum of 60% of Base Salary in any given year, it being understood that no Incentive Compensation is required to be paid in any year in which the Company's actual EBITDA for the year in question is not at least 90% of Target EBITDA for such year: - 4 - (i) If the Company's actual EBITDA for the year in question equals or exceeds 90% of Target EBITDA for such year, Incentive Compensation will equal the product of (A) Base Salary multiplied by (B) 25%; plus (ii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2.5% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 90% of Target EBITDA for such year (for example, if the Company's actual EBITDA was 93% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 93%-90% = 3)), up to a maximum of 25% of Base Salary in any year; plus (iii) Incentive Compensation will increase by an amount equal to the product of (A) Base Salary multiplied by (B) 2% multiplied by (C) the number of percentage points by which the Company's actual EBITDA for the year in question exceeds 100% of the Target EBITDA for such year (for example, if the Company's actual EBITDA was 103% of Target EBITDA for the year in question, the number derived in clause (C) would be 3 (i.e., 103%-100% = 3)). All Incentive Compensation due hereunder shall be payable promptly after the Company has received audited financial statements from its independent accountants for the year in question which set forth such accountant's determination of actual EBITDA for such year and not later than at or about the time bonuses are paid to the Company's other senior executives whose bonuses are determined based on the receipt of the Company's audited financial statements. The formula for determining Incentive Compensation provided for in this Section 3 shall not be changed during the Term without Executive's consent. The minimum amount of Incentive Compensation in respect of 1999 shall be $65,000. (d) "Benefits" consist of whatever, if any, health, hospitalization, sick pay, life insurance, disability insurance, profit sharing, pension, 401(k), and deferred compensation plans and programs that the Company may have in effect from time to time for its employees who are not members of a collective bargaining unit, all of which Executive shall be entitled to participate in on a basis commensurate with his position. Executive shall also be entitled to four (4) calendar weeks paid vacation each year, in addition to regularly scheduled holidays. The Company may initiate, change and discontinue any such plans and programs at any time; provided that no such change shall be effective as to Executive unless it is also effective as to the other senior managers of the Company. If any of such plans or programs require contributions by employees, Executive shall pay the contributions required by his participation at a rate no greater than that applicable to any senior executive of the Company. (e) Stock Options. The Company shall grant Executive options (the "Options") to purchase 600,000 shares of Common Stock, all on the terms and conditions contained in the Company's 1999 Stock Option Plan approved by the Board and in a Stock Option Agreement in the - 5 - form of Annex A attached hereto. Shares of Common Stock acquired through the exercise of options shall be referred to herein as "Option Shares." (f) Signing Bonus. Upon the beginning of Executive's employment with the Company, the Company shall pay to Executive a signing bonus of $40,000. 4. Termination Provisions. (a) If the Company terminates Executive's employment for Cause, or if Executive terminates his employment without Good Reason, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; and (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as any Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year. (b) If the Company terminates Executive's employment without Cause, if Executive terminates his employment for Good Reason or if Executive's employment terminates by reason of his death or Disability, then in any such case (i) Executive shall be entitled to Base Salary and Benefits for the period ending on the Termination Date; (ii) Executive shall be entitled to any unpaid Incentive Compensation for any calendar year ending prior to the year in which the Termination Date occurs, as well as Incentive Compensation for the calendar year in which the Termination Date occurs pro-rated based on the portion of Base Salary paid to Executive by the Company in such year (it being agreed that if the Termination Date is prior to January 1, 2000, in no event shall the amount of Executive's Incentive Compensation payable pursuant to this Section 4(b)(ii) be less than the amount referenced in the last sentence of Section 3(c)); and (iii) if, and only if, Executive (or his estate, guardian or personal representative, as the case may be) signs and delivers to the Company a complete general release of claims in the form of Annex B attached hereto, then Executive shall be entitled to his Base Salary (but no Incentive Compensation) for the period commencing on the Termination Date and ending on the later of (x) December 31, 2001 and (y) the date which is one year after the Termination Date, together with any other Benefits as may be provided under the terms of any applicable written plan, - 6 - program or arrangement of the Company applicable to senior executives of the Company. If Executive does not comply with the terms of Section 4(b)(iii), above, within 30 days after the Termination Date, then Executive shall only be entitled to payments as set forth in Sections 4(b)(i), and 4(b)(ii), above, and the Company shall not be responsible for any further payments to Executive. (c) Any amounts owed by the Company to Executive pursuant to Section 4(b)(iii) shall be paid at such times and in such manner as if the termination giving rise to such payments had not occurred (with the Company retaining the right to prepay all or any portion of such amount at any time in its sole discretion). The Company's obligation to make any payments pursuant to Section 4(b) shall be conditioned upon Executive's continued and continuing compliance with the terms and conditions of this Agreement (including, without limitation, Section 6 hereof). (d) Except as otherwise specified herein, if Executive's employment terminates on any date other than the last day of a month, Executive's compensation for that month shall be calculated on the basis of a fraction, the numerator of which is the number of calendar days during that month that Executive is in the Company's employ and the denominator of which is the number of days in that month. 5. Expenses. (a) The Company shall reimburse Executive for all reasonable expenses incurred in the performance of his duties in accordance with the expense reimbursement policy of the Company with respect to senior executives of the Company in effect at the time. (b) If the Company requires Executive to locate outside of St. Louis, then the Company shall reimburse Executive for his reasonable relocation expenses in accordance with the expense reimbursement policy of the Company in effect at the time. 6. Noncompetition, Nonsolicitation, Confidentiality. As a material inducement to the Company to enter into this Agreement and in consideration of the payment by the Company of the compensation detailed herein to Executive: (a) During the period (the "Noncompete Period") beginning on the date hereof and ending on the later of (x) the first anniversary of the Termination Date and (y) if severance payments are owed to Executive by the Company pursuant to Section 4(b)(iii), above, the last date on which such payments are due to be paid to Executive (notwithstanding any reduction in such payments pursuant to Section 4(c)), Executive shall not, without the prior written consent of the Company (which consent may be granted or withheld in the Company's sole discretion), directly or indirectly, Participate in any line of business in which the Business is actively engaged or any line of business competitive with the Business anywhere in the United States and any other country in - 7 - which the Company does business as of the Closing (the "Competitive Activities"). For purposes of this Agreement, the term "Participate" includes any direct or indirect interest in, or providing any direct or indirect assistance (whether financial, advisory or otherwise) to, any enterprise (or any affiliate thereof), whether as an officer, director, employee, partner, member, sole proprietor, agent, representative, independent contractor, consultant, creditor, stockholders, unitholder, owner or otherwise; provided that the term "Participate" shall not include ownership of less than 2% of the Common Stock of a publicly-held corporation whose Common Stock is traded on a national securities exchange or in the over-the-counter market. The parties agree that, without violating this Section 6(a), Executive may accept employment with any Person which engages in Competitive Activities; provided that such Person's business is diversified (and has separate and distinct divisions) and Executive is employed in a part of its business which does not engage in Competitive Activities; provided further that the Company, prior to Executive accepting such employment, shall receive separate written assurances satisfactory to the Company from the board of directors of such Person and Executive acknowledging that Executive is bound by this Section 6, the terms of which such Person has read, and covenanting that Executive will not render services directly or indirectly in connection with any product, process, system or service of any person or organization other than the Company, in existence or under development, which is the same as or competes with a product, process, system or service upon which Executive has worked during the last two years of Executive's employment by the Company or about which Executive acquires Confidential Information. (b) During the Noncompete Period, Executive (a) except with respect to Executive's personal secretary, shall not, directly or indirectly contact, approach or solicit for the purpose of offering employment to or hiring (whether as an employee, consultant, agent, independent contractor or otherwise) or actually hire any person employed by the Company during the Noncompete Period and (b) shall not induce or attempt to induce any customer or other business relation of the Company to cease doing business with the Company or to engage in any business relationship which might materially harm the Company. (c) Executive acknowledges that certain of the information, observations and data relating to the Company which he possesses or has obtained as an employee, officer, director or stockholder of the Company is the confidential and proprietary property of the Company ("Confidential Information"). Executive agrees that he shall not, directly or indirectly, use for his own purposes or use for or disclose to any third party any of such Confidential Information without the prior written consent of the Company, unless and to the extent that the aforementioned matters (i) become generally known to and available for use by the public other than as a result of a Executive's acts or omissions to act, or (ii) Executive is required by order of a court of competent jurisdiction (by subpoena or similar process) to disclose or discuss any Confidential Information (provided that in such case, Executive shall promptly inform the Company of such order, shall cooperate with the Company at the Company's expense in attempting to obtain a protective order or to otherwise restrict such disclosure, and shall only disclose Confidential Information to the minimum extent necessary to comply with any such court order). This Section 6(c) shall not apply to disclosures of Confidential Information by Executive during his employment with the Company - 8 - in the ordinary course of business that he reasonably believes are necessary or appropriate and in the Company's best interests. (d) The parties hereto acknowledge and agree that the Company will suffer irreparable harm from a breach by Executive of any of the covenants or agreements contained in this Section 6. In the event of an alleged or threatened breach by Executive of any of the provisions of this Section 6, the Company or their successors or assigns may, in addition to all other rights and remedies existing in its or their favor, apply to any court of competent jurisdiction for specific performance and/or injunctive or other equitable relief in order to enforce or prevent any violations of the provisions hereof. Executive acknowledges and agrees that the restrictions contained in this Section 6 are reasonable. (e) If, at the time enforcement is sought of any of the provisions of this Section 6, a court holds that the restrictions stated herein are unreasonable under the circumstances then existing, the parties hereto agree that the maximum period, scope or geographical area reasonable under such circumstances shall be substituted for the stated period, scope or area. Executive agrees that the covenants made in this Section 6 shall be construed as an agreement independent of any other provision of this Agreement and shall survive any order of a court of competent jurisdiction terminating any other provision of this Agreement. PART II. PURCHASE OF EXECUTIVE SECURITIES 7. Purchase and Sale of Executive Securities. (a) Common Stock. Upon execution of this Agreement, the Trust shall purchase, and the Company shall sell, 100,000 shares of the Company's Class A Voting Common Stock and 100,000 shares of the Company's Class B Non-Voting Common Stock at a price of $5.00 per share (the "Purchased Stock"). The Company shall deliver to the Trust the certificates representing such shares of Common Stock, and the Trust shall deliver to the Company the aggregate amount of $1,000,000 (the "Purchase Price"). (b) Certain Representations and Warranties. In connection with the purchase and sale of the Executive Securities hereunder, Executive hereby represents and warrants to the Company that: (i) The Executive Securities to be beneficially acquired by Executive pursuant to this Agreement shall be acquired for his own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act, or any applicable state securities laws, and the Executive Securities shall not be disposed of in contravention of the Securities Act or any applicable state securities laws; - 9 - (ii) Executive is an executive officer of the Company, is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Executive Securities; (iii) Executive is an "accredited investor" as defined under Regulation D promulgated under the Securities Act; (iv) Executive is able to bear the economic risk of his investment in the Executive Securities for an indefinite period of time because the Executive Securities have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available; (v) Executive has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Executive Securities and has had full access to such other information concerning the Company as he has requested. Executive has reviewed, or has had an opportunity to review, a copy of the Recapitalization Agreement, the Stockholders Agreement, all of the exhibits thereto and all of the other agreements contemplated hereby and thereby; (vi) This Agreement constitutes the legal, valid and binding obligation of Executive, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Executive do not and shall not conflict with, violate or cause a breach of any material agreement, contract or instrument to which Executive is a party or any judgment, order or decree to which he is subject; and (vii) Executive is a United States citizen and a resident of the State of Missouri. (c) Certain Representations and Warranties of the Company. In connection with the purchase and sale of the Executive Securities hereunder, the Company hereby represents and warrants to Executive that: (i) The Company is duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) The execution, delivery and performance of this Agreement will not violate, conflict with or result in any breach of the Company's organizational documents or any terms or conditions of any material agreements to which the Company is a party; (iii) Any Executive Securities to be delivered pursuant to this Agreement, including the shares of Common Stock issuable upon exercise of the Options, shall, when - 10 - delivered, be duly authorized, validly issued, fully paid and non-assessable and will not be subject to pre-emptive or similar rights; and (iv) The holders of least 75% of the Company's voting common stock have reviewed this Agreement and the Stock Option Agreement attached hereto as Annex A and have approved the terms and conditions contained herein and therein, including, without limitation, those terms and conditions relating to contingent payments that may be due to Executive upon a Sale of the Company and may have otherwise constituted an "excess parachute payment" pursuant to Section 280G of the Internal Revenue Code of 1986, as amended and a copy of such consent is attached hereto as Exhibit 7(c)(iv). (d) Additional Representation and Warranty. As an inducement to the Company to sell the Executive Securities to Executive, and as a condition thereto, Executive acknowledges and agrees that neither the issuance of the Executive Securities to Executive nor any provision contained herein shall entitle him to remain in the employment of the Company and its Subsidiaries or affect the right of the Company or Executive to terminate his employment at any time, in accordance with the provisions of Section 4 hereof. (e) Compensation Arrangements. The Company and Executive acknowledge and agree that this Agreement has been executed and delivered, and the Executive Securities have been issued hereunder, in connection with and as a part of the compensation and incentive arrangements between the Company and Executive. (f) Payments to the Trust. In consideration of Executive's agreement to continue employment with the Company, the Company hereby agrees to accelerate the payment of all amounts owed to Executive by the Company pursuant to that certain Contract for Release in Event of Sale dated as of January 1, 1997 by and between the Company and Executive. Notwithstanding the terms of such agreement, the Company shall pay to the Trust, on behalf of Executive, a portion of the Share (as defined therein) equal to the Purchase Price immediately upon the execution of the election attached as Annex C hereto. The Company shall pay the remainder of the Share (net of any withholding obligations) to Executive immediately upon the execution of such election (the aggregate amount paid on the date hereof to the Trust and Executive (prior to withholding) with respect to the Share is referred to as the "Estimated Share Amount"). The amounts paid to the Trust on behalf of Executive pursuant to such election are for the sole benefit of the Trust, and Executive has no right or ability to receive such amounts except as provided in the Trust's constituent documents. Executive and the Company acknowledge and agree that the final determination of the amount of the Share is contingent upon the final determination by the Company of the Company's Stockholders Equity as of December 31, 1998, as reflected on the Company's audited financial statements. If the amount of the Share as finally determined (based on the final determination of 12/31/98 Stockholders Equity) is less than the Estimated Share Amount, Executive shall promptly pay to the Company an amount of cash equal to such shortfall. If the amount of the Share as finally determined (based on the final determination of 12/31/98 Stockholders Equity) is greater than the - 11 - Estimated Share Amount, the Company shall promptly pay to Executive an amount of cash equal to such excess, net of any withholding obligations. 8. Repurchase Option. (a) Right of Repurchase. In the event Executive ceases to be employed by the Company and its Subsidiaries for any reason (the "Termination"), the Executive Securities (whether held by Executive or the Trust or one or more of their transferees) shall be subject to repurchase by the Company pursuant to the terms and conditions set forth in this Section 8 (the "Repurchase Option"). (b) Purchase Price. Any repurchase of Executive Securities pursuant to the Repurchase Option shall be at the "Repurchase Price" described in this Section 8(b) determined as of the date of the Termination. If Executive's employment is terminated by Executive without Good Reason prior to the fifth anniversary of the date hereof or by the Company for Cause, the Repurchase Price for all of the Option Shares shall be the lower of (i) the Fair Market Value therefor and (ii) the Original Cost therefor. If Executive's employment is terminated for any other reason, the Repurchase Price for all Option Shares shall be the Fair Market Value therefor. Notwithstanding the reason for the termination of Executive's employment, the Repurchase Price for all Purchased Shares shall be the Fair Market Value therefor. (c) Repurchase by the Company. The Company may elect to purchase all or any portion of the Executive Securities at the Repurchase Price by delivering written notice (the "Repurchase Notice") to Executive within 120 days after the Termination. The Repurchase Notice shall set forth the number of shares to be acquired from Executive and/or the Trust and/or their transferees (if any), the aggregate consideration to be paid for such securities, and the time and place for the closing of the transaction (the "Repurchase Closing"). The Company may, in its sole discretion, assign its rights pursuant to this Section 8 to the holders of its capital stock (other than Executive and any other Stockholder whose shares are being repurchased) pro rata on the basis of the number of shares owned (with subsequent re-offer in the event of under subscription); provided that any such assignees shall comply with the terms of this Section 8. (d) Repurchase Closing. The closing of the purchase of the Executive Securities pursuant to the Repurchase Option shall take place on the date designated by the Company in the Repurchase Notice which date shall not be more than 60 days nor less than 10 days after the delivery of such notice delivered. Subject to Section 8(e), the Company shall pay for the Executive Securities to be purchased pursuant to the Repurchase Option by delivery of a check or wire transfer of funds. The Company shall be entitled to receive customary representations and warranties regarding good title to such securities, free and clear of any liens or encumbrances, power and authority, due execution, and enforceability. (e) Certain Restrictions. Notwithstanding anything to the contrary contained in this Agreement, all repurchases of Executive Securities by the Company shall be subject to - 12 - applicable restrictions contained in the Delaware General Corporation Law and in the Company's and its Subsidiaries' debt and equity financing agreements. If any such restrictions prohibit the repurchase of Executive Securities hereunder which the Company is otherwise entitled or required to make, the time periods provided in this Section 8 shall be suspended, and the Company shall make such repurchases as soon as it is permitted to do so under such restrictions with interest at an annual rate of 7%. In addition, the Company may pay the Repurchase Price for such Executive Securities by offsetting any bona fide debts owed by Executive to the Company. (f) Termination of Repurchase Option. The Repurchase Option set forth in this Section 8 shall continue with respect to all Executive Securities following any Transfer thereof; provided that such Repurchase Option shall terminate effective immediately after the consummation of a Sale of the Company or a Public Offering of the Company's equity securities in which the Company receives net proceeds of at least $100 million; and provided further that, with respect to each share of Executive Securities, the Repurchase Option with respect to such share shall terminate immediately upon the Transfer of such share pursuant to a Public Sale. 9. Restrictions on Transfer. (a) Stockholders Agreement. The Executive Securities are subject to the restrictions on Transfer set forth in the Stockholders Agreement. (b) Legend. The certificates representing the Executive Securities shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JANUARY 20, 1999 HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS, AND CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGEMENT AGREEMENT BETWEEN THE COMPANY AND DANIEL JOHNSTON DATED AS OF JANUARY 20, 1999, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." - 13 - 10. Survival. Section 4 and Sections 6 through 13 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Employment Period. 11. Definitions. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated: (a) Defined Terms. "Board" means the Company's board of directors. "Business" means the business conducted by the Company including, without limitation, (a) the production and sale of termiticide products and (b) the business conducted by the Company's Spectrum and Chemsico Divisions. "EBITDA" means, for a given period, the consolidated Company's accounting earnings of the Company and its consolidated Subsidiaries before taking into account any interest expense, provision for income taxes or depreciation or amortization expense, excluding for this purpose extraordinary gains and losses unless included in the determination of Target EBITDA. "Executive Securities" has the meaning set forth in the Preamble. Executive Securities shall continue to be Executive Securities in the hands of any holder other than Executive and except as otherwise provided herein, each such other holder of Executive Securities shall succeed to all rights and obligations attributable to Executive as a holder of Executive Securities hereunder. Executive Securities shall also include securities of the Company issued with respect to Executive Securities by way of a stock split, stock dividend or other recapitalization. "Fair Market Value" of each share of any class or type of Executive Security means the fair value of such shares or such class or type of Executive Security determined in good faith by the Board, based on the assumption of an arms-length transaction between a willing buyer and a willing seller, taking into account all reasonable and customary factors relevant to value including, without limitation, the fact that there may be no public market for the Company's securities, but not including any minority discount; provided that, until the first anniversary hereof, the "Fair Market Value" of each share of Executive Securities shall not be less than the Original Cost of such share. "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 50% of the Company's voting common stock on a fully-diluted basis (a "50% Owner"), who is not an affiliate of any such 50% Owner, who is not the spouse or descendent (by birth or adoption) of any such 50% Owner or a trust for the benefit of any such 50% Owner and/or such other Persons, and who is not a Person who through contract or other arrangements (other than arrangements entered into in connection with the contemplated transactions) would be an affiliate immediately after the contemplated transaction. - 14 - "Original Cost" for each share of Common Stock shall be equal to $5.00 (as proportionately adjusted for all subsequent stock splits, stock dividends and other recapitalizations). "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Public Offering" means the sale in an underwritten public offering registered under the Securities Act of shares of any class of the Company's Common Stock. "Public Sale" means any sale pursuant to a Public Offering or any sale to the public pursuant to Rule 144 promulgated under the Securities Act effected through a broker, dealer or market maker. "Sale of the Company" means (a) the acquisition by an Independent Third Party of voting securities of (x) the Company or (y) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Independent Third Party to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates, (b) the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company, (c) the acquisition by an Independent Third Party of more than 50% of the Company's assets determined on a consolidated basis or (d) if individuals who constitute the Board on the date of the Company's initial Public Offering of equity securities (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter, it being understood that any individual becoming a director subsequent to such date whose election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholders" means the Persons holding the outstanding Common Stock or other equity interests of the Company at the time in question. "Stockholders Agreement" means that certain Stockholders Agreement, dated as of the date hereof, by and among the Company, Executive and certain other Persons listed on the signature pages thereto. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that - 15 - Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. "Target EBITDA" means the annual performance goal for the Company approved by the Board in its reasonable discretion with the input of Executive, with Target EBITDA for fiscal 1999 being $85,400,000. The Board shall use reasonable efforts to determine Target EBITDA for any fiscal year after 1999 no later than the 90th day of the fiscal year of the Company to which it relates. "Transfer" has the meaning ascribed to such term in the Stockholders Agreement. - 16 - (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement: Agreement ................................................................... - 1 - Base Salary ................................................................. - 4 - Benefits .................................................................... - 5 - Cause ....................................................................... - 3 - Common Stock ................................................................ - 1 - Company ..................................................................... - 1 - Competitive Activities....................................................... - 8 - Confidential Information..................................................... - 8 - Disability .................................................................. - 2 - Executive ................................................................... - 1 - Executive Securities ........................................................ - 1 - Good Reason ................................................................. - 4 - Incentive Compensation....................................................... - 4 - Noncompete Period ........................................................... - 7 - Option Shares ............................................................... - 6 - Options ..................................................................... - 5 - Participate ................................................................. - 8 - Purchase Price .............................................................. - 9 - Purchased Stock ............................................................. - 9 - Repurchase Closing .......................................................... - 12 - Repurchase Notice ........................................................... - 12 - Repurchase Option ........................................................... - 12 - Repurchase Price ............................................................ - 12 - Term ........................................................................ - 2 - Termination ................................................................. - 12 - Termination Date ............................................................ - 2 - Trust ....................................................................... - 1 -
12. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: To the Company United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Telecopy: (314) 253-5941 Attention: Chief Executive Officer To Executive Daniel Johnston 1939 Newberryport Chesterfield, MO 63005 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. - 17 - 13. General Provisions. (a) Expenses. The Company will pay the reasonable and documented hourly legal fees and legal expenses of Executive's counsel in connection with the negotiation and execution of this Agreement and the agreements contemplated hereby. (b) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (c) Complete Agreement. This Agreement, those documents expressly referred to herein and other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way including, without limitation, that certain Employment Agreement by and between the Company and Executive dated as of January 1, 1998 and that certain Contract for Release in the Event of Sale by and between the Company and Executive dated as of January 1, 1997. (d) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. (e) Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by Executive, the Company and their respective successors and assigns (including subsequent holders of Executive Securities); provided that the rights and obligations of Executive under this Agreement shall not be assignable except in connection with a permitted Transfer of Executive Securities. (f) Governing Law. The laws of the state of Missouri shall govern all issues and questions concerning the employment of Executive, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Missouri or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Missouri. All other issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of - 18 - Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (g) Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (h) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company, the Trust and Executive. (i) Third-Party Beneficiary. There are no beneficiaries to this Agreement other than the signatories hereto. (j) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (k) Assignment. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation; provided that the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company to assume this Agreement. As used in this Agreement, "Company" shall mean the Company, as defined above, and any successor to its business and/or assets as aforesaid which assumes this Agreement by operation of law or otherwise. (l) Withholding. All amounts payable to Executive as compensation hereunder shall be subject to customary withholding by the Company. (m) Mitigation by Executive. In no event shall Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not Executive obtains other employment. * * * * - 19 - IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. UNITED INDUSTRIES CORPORATION By: ---------------------------------------- Its: ---------------------------------------- -------------------------------------------- DANIEL JOHNSTON -------------------------------------------- STEPHEN R. BRIAN, in his capacity as trustee of that certain Trust Agreement, dated as of January 20, 1999, by and between the Company and Stephen R. Brian, as trustee - 20 - EX-10.6 12 MATERIAL CONTRACTS Exhibit 10.6 UNITED INDUSTRIES CORPORATION CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (this "Agreement") is entered into as of January 20, 1999, by and between David Jones ("Consultant") and United Industries Corporation, a Delaware corporation (the "Company"). The Company and Consultant are sometimes collectively referred to herein as the "Parties" and individually as a "Party." Capitalized terms used herein and not otherwise defined are defined in Section 13. The Company, UIC Holdings, L.L.C. and certain stockholders of the Company, are parties to an Agreement and Plan of Recapitalization, Purchase and Redemption dated as of December 24, 1998 (the "Recapitalization Agreement"). Upon the closing of the transaction contemplated thereunder, the Company desires to obtain the services of Consultant to consult with and perform services as an independent contractor for the Company with respect to its businesses, and Consultant desires to provide services to the Company upon the terms and conditions set forth in this Agreement. In addition, pursuant to the terms of this Agreement, Consultant shall purchase, and the Company shall sell, for an aggregate purchase price of $1,000,000.00, 100,000.00 shares of Class A Voting Common Stock and 100,000.00 shares of Class B Non-Voting Common Stock (collectively, the "Common Stock"). The Common Stock and all other capital stock of the Company hereafter acquired by Consultant (including, without limitation, shares of Common Stock purchased upon the exercise of the Options (as defined in Section 2(b) below) are sometimes collectively referred to as "Consultant Securities." The Consultant Securities are subject to certain transfer restrictions as set forth herein. In consideration of the mutual covenants and agreements set forth herein, the Parties agree as follows: PART I. CONSULTING TERMS 1. Consulting Services. The Company hereby engages Consultant as an independent contractor, and not as an employee, to render consulting services to the Company as hereinafter provided, and Consultant hereby accepts such engagement, for a period commencing on the Closing Date (as defined in the Recapitalization Agreement) and terminating one year after the Closing Date, or such later date as may be mutually agreed upon in writing by the Parties (the "Consulting Period"). During the Consulting Period, Consultant shall render such consulting services to the Company in connection with the Company's business as the Company from time to time reasonably requests. The Consultant shall devote reasonable time and efforts to the performance of the consulting services contemplated by this Agreement as mutually agreed by the Company and Consultant. Consultant shall not have any authority to bind or act on behalf of the Company. In the event that after the expiration of the Consulting Period, the Company desires to engage Consultant for broader or more extensive services than as set forth in this Section 1, -1- Consultant and the Company shall enter into a mutually satisfactory arrangement relating to the additional services and the compensation thereof. 2. Compensation; Reimbursement. (a) In consideration of Consultant's consulting services set forth in Section 1 above, during the Consulting Period the Company shall pay to Consultant a monthly fee of $6,250.00 (pro-rated for any partial month)(the "Consulting Payment"), payable on the last day of each month in which consulting services are rendered. Consultant shall be entitled to receive the full Consulting Payment regardless of the amount and frequency of consulting services actually requested of him by the Company. The Company shall reimburse Consultant for all reasonable expenses incurred by him in the course of performing his duties under this Agreement which are consistent with the Company's policies in effect from time to time with respect to travel, entertainment and other business expenses, subject to the Company's requirements with respect to reporting and documentation of such expenses. (b) Stock Options. The Company shall grant Consultant options (the "Options") to purchase 300,000 shares of Common Stock, all on the terms and conditions contained in the Company's 1999 Stock Option Plan approved by the Board. (c) Signing Bonus. Upon the Company's and Consultant's execution hereof, the Company shall pay to Consultant a signing bonus of $500,000. 3. Confidential Information. Consultant acknowledges that the information, observations and data relating to the business of the Company and its subsidiaries which Consultant shall obtain during the course of his association with the Company and its subsidiaries and his performance under this Agreement are the property of the Company and its subsidiaries. Consultant agrees that he shall not use for his own purposes or disclose to any third party any of such information, observations or data without the prior written consent of the Board, unless and to the extent that (i) the aforementioned matters become generally known to or generally available for use by the public, in each case other than as a result of Consultant's acts or omissions, (ii) disclosure is compelled by law or judicial, administrative or regulatory action or proceeding or (iii) disclosure is reasonably necessary in order for Consultant to enforce his rights under this Agreement or to defend himself in any judicial, administrative or regulatory action or proceeding to which the Company or its affiliates are directly or indirectly a party. 4. Board Membership. Consultant shall be a member of the Board of Directors of the Company (the "Board") for a period of three years, unless earlier removed by a vote of the directors or stockholders of the Company. In consideration of Consultant's services as a member of the Board, the Company shall pay to Consultant $25,000 per year (pro-rated for any partial year) or such greater amount as may be established from time to time by the Company as its payment to non-employee directors in consideration of their services as members of the Board. -2- 5. Tax Returns. It is intended that the fees paid to Consultant hereunder shall constitute revenues to Consultant and (unless otherwise required by law) the Company will not withhold any amounts therefrom as federal income tax withholding from wages or as employee contributions under the Federal Insurance Contribution Act or any other state or federal law. Consultant shall file all tax returns and reports required to be filed by him on the basis that Consultant is an independent contractor, rather than an employee, as defined in Treasury Regulation ss.31.3121(d)-1(c)(2). 6. Indemnification. Without prejudice to (or enlargement or other modification of) any existing rights of indemnification as an officer or director enjoyed by Consultant, the Company will defend and indemnify and hold Consultant harmless for serving as a consultant and as a director to the same extent as the Company indemnifies its officers and directors under the Company's articles of incorporation and bylaws as in effect on the Closing Date, and Consultant shall be entitled to the protection of any insurance policies the Company may elect to maintain generally for the benefit of its consultants, directors or officers (and to the extent the Company maintains such an insurance policy or policies, Consultant shall be covered by such policy or policies, in accordance with its or their terms to the maximum extent of the coverage provided for any other Company consultant, officer or director). No amendment to the Company's Certificate of Incorporation or bylaws after the date of this Agreement which reduces the scope of indemnification of officers and directors shall affect the rights of Consultant under this Agreement. 7. Consultant's Representations. Consultant represents and warrants to the Company that (i) his execution, delivery and performance of this Agreement does not and shall not conflict with, or result in the breach of or violation of, any other agreement, instrument, order, judgment or decree to which he is a party or by which he is bound, (ii) he is not a party to or bound by any employment agreement or confidentiality agreement with any other person or entity which is in conflict with or would be breached by the execution, delivery and performance of this Agreement and (iii) upon the execution and delivery of this Agreement by the Company, this Agreement shall be the valid and binding obligation of his, enforceable in accordance with its terms. 8. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Company and its affiliates, successors and assigns and shall be binding upon and inure to the benefit of Consultant and his legal representatives and assigns (including subsequent holders of Consultant Securities); provided that (i) in no event shall Consultant delegate or transfer his obligations to perform future services for the Company without the prior written consent of the Company (which consent may be withheld in its sole discretion) and (ii) the Company may not assign or transfer its rights hereunder, other than to any of its affiliates or to a successor corporation in the event of merger, consolidation or transfer or sale of all or substantially all of the assets of the Company. 9. Modification or Waiver. No amendment, modification or waiver of this Agreement shall be binding or effective for any purpose unless it is made in a writing signed by the Party against whom enforcement of such amendment, modification or waiver is sought. No course -3- of dealing between the Parties to this Agreement shall be deemed to affect or to modify, amend or discharge any provision or term of this Agreement. No delay on the part of the Company or Consultant in the exercise of any of their respective rights or remedies shall operate as a waiver thereof, and no single or partial exercise by the Company or Consultant of any such right or remedy shall preclude other or further exercises thereof. A waiver of right or remedy on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on any other occasion. PART II. PURCHASE OF CONSULTANT SECURITIES 10. Purchase and Sale of Consultant Securities. (a) Common Stock. Upon execution of this Agreement, Consultant shall purchase, and the Company shall sell, 100,000.00 shares of the Company's Class A Voting Common Stock and $100,000.00 shares of the Company's Class B Non-Voting Common Stock at a price of $5.00 per share. Consultant shall deliver to the Company a cashier's or certified check or wire transfer of funds in the aggregate amount of $1,000,000.00 (provided that Consultant shall be permitted to net against such payment amounts owed to Consultant pursuant to Section 2(c)). (b) Certain Representations and Warranties. In connection with the purchase and sale of the Consultant Securities hereunder, Consultant hereby represents and warrants to the Company that: The Consultant Securities to be acquired by Consultant pursuant to this Agreement shall be acquired for his own account and not with a view to, or intention of, distribution thereof in violation of the Securities Act, or any applicable state securities laws, and the Consultant Securities shall not be disposed of in contravention of the Securities Act or any applicable state securities laws; Consultant is sophisticated in financial matters and is able to evaluate the risks and benefits of the investment in the Consultant Securities; Consultant is an "accredited investor" as defined under Regulation D promulgated under the Securities Act; Consultant is able to bear the economic risk of his investment in the Consultant Securities for an indefinite period of time because the Consultant Securities have not been registered under the Securities Act and, therefore, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available; Consultant has had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of Consultant Securities and has had full access to such other information concerning the Company as he has requested. Consultant has reviewed, or has had an opportunity to review, a copy of the Recapitalization Agreement, -4- the Stockholders Agreement, all of the exhibits thereto and all of the other agreements contemplated hereby and thereby; This Agreement constitutes the legal, valid and binding obligation of Consultant, enforceable in accordance with its terms, and the execution, delivery and performance of this Agreement by Consultant do not and shall not conflict with, violate or cause a breach of any material agreement, contract or instrument to which Consultant is a party or any judgment, order or decree to which he is subject; and Consultant is a United States citizen and a resident of the State of Wisconsin. (c) Additional Representation and Warranty. As an inducement to the Company to issue Consultant Securities to Consultant, and as a condition thereto, Consultant acknowledges and agrees that neither the issuance of the Consultant Securities to Consultant nor any provision contained herein shall entitle him to remain as a consultant to the Company and its Subsidiaries other than as specifically set forth in this Agreement. (d) Compensation Arrangements. The Company and Consultant acknowledge and agree that this Agreement has been executed and delivered, and the Consultant Securities have been issued hereunder, in connection with and as a part of the compensation and incentive arrangements between the Company and Consultant. 11. Restrictions on Transfer. (a) Stockholders Agreement. The Consultant Securities are subject to the restrictions on Transfer set forth in the Stockholders Agreement. (b) Legend. The certificates representing the Consultant Securities shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON JANUARY 20, 1999, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF WITHOUT AN EFFECTIVE REGISTRATION UNDER THE ACT OR AN EXEMPTION THEREFROM. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS, AND CERTAIN OTHER AGREEMENTS SET FORTH IN A CONSULTING AGREEMENT BETWEEN THE COMPANY AND DAVID JONES DATED AS OF JANUARY 20, 1999, AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY -5- OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." 12. Survival. Sections 3 and 6 and Sections 8 through 15 shall survive and continue in full force in accordance with their terms notwithstanding any termination of the Consulting Period. 13. Definitions. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated: (a) Defined Terms. "Consultant Securities" has the meaning set forth in the Preamble. Consultant Securities shall continue to be Consultant Securities in the hands of any holder other than Consultant and except as otherwise provided herein, each such other holder of Consultant Securities shall succeed to all rights and obligations attributable to Consultant as a holder of Consultant Securities hereunder. Consultant Securities shall also include securities of the Company issued with respect to Consultant Securities by way of a stock split, stock dividend or other recapitalization. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholders Agreement" means that certain Stockholders Agreement, dated as of the date hereof, by and among the Company, Consultant and certain other Persons listed on the signature pages thereto, as amended from time to time. "Transfer" has the meaning ascribed to such term in the Stockholders Agreement. (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement: Agreement............................................- 1 - Board................................................- 2 - Common Stock.........................................- 1 - Company..............................................- 1 - Consultant...........................................- 1 - Consulting Payment...................................- 2 - Consulting Period....................................- 1 - Options..............................................- 2 - Party................................................- 1 - -6- Parties..............................................- 1 - Recapitalization Agreement...........................- 1 - 14. Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated: To the Company United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Telecopy: (314) 253-5941 Attention: President To Consultant David Jones 4596 Signature Drive Middleton, WI 53562 Telecopy: (608) 828-9721 or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Agreement shall be deemed to have been given when so delivered or sent or, if mailed, five days after deposit in the U.S. mail. 15. General Provisions. (a) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. (b) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. -7- (c) Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. (d) Remedies. Each of the parties to this Agreement shall be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement. (e) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of the Company and Consultant. (f) Third-Party Beneficiary. There are no beneficiaries to this Agreement other than the signatories hereto. (g) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the Parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any Party. (h) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief executive office is located, the time period shall be automatically extended to the business day immediately following such Saturday, Sunday or legal holiday. (i) Assignment. Nothing in this Agreement shall preclude the Company from consolidating or merging into or with, or transferring all or substantially all of its assets to, another corporation which assumes this Agreement and all obligations and undertakings of the Company hereunder. Upon such a consolidation, merger, or sale of assets the term "the Company" will mean the other corporation and this Agreement shall continue in full force and effect. (j) Captions. The captions used in this Agreement are for convenience of reference only and do not constitute a part of this Agreement and shall not be deemed to limit, characterize or in any way affect any provision of this Agreement, and all provisions of this Agreement shall be enforced and construed as if no caption had been used in this Agreement. * * * * * -8- IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By:________________________________ Its:________________________________ ----------------------------------- DAVID JONES -9- CONSENT The undersigned spouse of Consultant hereby acknowledges that I have read the foregoing Consulting Agreement and that I understand its contents. I am aware that the Consulting Agreement imposes restrictions on the transfer of my spouse's Consultant Securities. I agree that my spouse's interest in the Consultant Securities is subject to this Agreement and any interest I may have in such Consultant Securities shall be irrevocably bound by this Agreement and further that my community property interest, if any, shall be similarly bound by this Agreement. I am aware that the legal, financial and other matters contained in this Agreement are complex and I am free to seek advice with respect thereto from independent counsel. I have either sought such advice or determined after carefully reviewing this Agreement that I will waive such right. Date: January __, 1999 Name of Consultant: David Jones Name of Spouse: Signature of Spouse: Name of Witness: Signature of Witness: -10- EX-10.7 13 1999 STOCK OPTION PLAN Exhibit 10.7 ------------ UNITED INDUSTRIES CORPORATION 1999 STOCK OPTION PLAN 1. Purpose: Restrictions on Amount Available under the Plan. This United Industries Corporation 1999 Stock Option Plan (the "Plan") is intended to afford an incentive to selected employees, consultants and directors of United Industries Corporation ("UIC") or any Subsidiary (as defined in Section 2 hereof) (collectively referred to as the "Company"), to acquire a proprietary interest in the Company, to continue to perform services for the Company, to increase their efforts on behalf of the Company and to promote the success of the Company's business. 2. Definitions. As used in this Plan, the following words and phrases shall have the meanings indicated: "Board" shall mean the Board of Directors of UIC. "Cause" shall have the meaning set forth in the applicable Option Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Disability" shall mean a Participant's disability within the meaning of Section 22(e)(3) of the Code or any successor provision. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "Fair Market Value" per share as of a particular date shall mean (i) the closing sales price per share of Common Stock (as defined in Section 5 hereof) on the New York Stock Exchange for the last preceding date on which there was a sale of such Common Stock on such exchange, or (ii) if the shares of Common Stock are not then admitted for trading on the New York Stock Exchange, the closing price for the shares of Common Stock in such other national securities exchange or interdealer quotation system on which the Common Stock is then traded for the last preceding date on which there was a sale of such Common Stock in such market, or (iii) if the shares of Common Stock are not then listed on a national securities exchange or interdealer quotation system, such value as the Committee (as defined in Section 3 hereof) in good faith may determine. "Option" shall mean the right, granted pursuant to this Plan, of a holder to purchase shares of Common Stock at a price and upon the terms to be specified by the Committee. "Option Agreement" shall mean any written agreement, contract or other instrument or document between the Company and a Participant evidencing an Option. "Participant" shall mean an officer, employee, director or consultant of the Company who is, pursuant to Section 4 of the Plan, selected to participate herein. "Subsidiary" shall mean any corporation (other than UIC) in an unbroken chain of corporations beginning with UIC if, at the time of granting an Option, each of such corporation other than the last corporation in the unbroken chain owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Administration Unless otherwise determined by the Board, the Plan shall be administered by a committee of the Board ("Compensation Committee"), which shall consist of two or more members of the Board. Following such time that Common Stock is registered pursuant to Section 12 of the Exchange Act, members of the Compensation Committee shall be "non-employee directors" as defined in Rule 16b-3 under the Exchange Act. The Compensation Committee may, in its discretion, delegate to a subcommittee its duties hereunder, including the grant of Options. The full Board shall also have the authority, in its discretion, to grant Options under the Plan and to administer the Plan. For all purposes under the Plan, any entity which performs the duties described herein, shall be referred to as the "Committee." The Committee shall have the authority in its discretion, subject to and not inconsistent with the express provisions of the Plan, to administer the Plan and to exercise all the powers and authorities either specifically granted to it under the Plan or necessary or advisable in the administration of the Plan, including, without limitation, the authority to grant Options; to determine the persons to whom and the time or times at which Options shall be granted; to determine the type and number of Options to be granted, the number of shares of Common Stock to which an Option may relate and the terms, conditions and restrictions relating to any Option; to determine whether, to what extent and under what circumstances an Option may be settled, canceled, forfeited, exchanged or surrendered; to construe and interpret the Plan and any Option; to prescribe, amend and rescind rules and regulations relating to the Plan; to determine the terms and provisions of Option Agreements; and to make all other determinations deemed necessary or advisable for the administration of the Plan. No member of the Committee shall be liable for any action taken or determination made in good faith with respect to the Plan or any Option granted hereunder. 2 4. Eligibility Options may be granted to employees, consultants and directors of the Company or a Subsidiary. In determining the persons to whom Options shall be granted and the number of shares to be covered by each Option, the Committee shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company and such other factors as the Committee shall deem relevant in connection with accomplishing the purpose of the Plan. 5. Stock. The stock subject to Options hereunder shall be shares of UIC's Class A Voting Common Stock, par value $0.01 per share and Class B Non-Voting Common Stock, par value $0.01 per share (referred to herein, collectively, as "Common Stock"). Such shares may, in whole or in part, be authorized but unissued shares or shares that shall have been or that may be reacquired by the Company. The aggregate number of shares of Common Stock as to which Options may be granted from time to time under the Plan shall not exceed 4,000,000. The limitations established by the preceding two sentences shall be subject to adjustment as provided in Section 7 hereof. 6. Stock Options. The Committee shall have authority to grant Options to Participants on the following terms and conditions: (a) Number of Shares. Each Option Agreement shall state the number of shares of Common Stock to which the Option relates. (b) Type of Option. No Option granted pursuant to this Plan shall be an incentive stock option within the meaning of Section 422 of the Code. (c) Exercise Price. Each Option Agreement shall state the Exercise Price. The Exercise Price per share of Common Stock purchasable under an Option shall be determined by the Committee. The date as of which the Committee adopts a resolution expressly granting an Option shall be considered the day on which such Option is granted. (d) Method and Time of Payment. The Exercise Price shall be paid in full, at the time of exercise, (i) in cash, (ii) in shares of Common Stock, valued at then Fair Market Value, which either (A) were purchased by the Participant in other than a compensatory transaction, (B) have been held by the Participant free and clear for at least six (6) months prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds 3 sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or, in the sole discretion of the Committee, through a cashless exercise procedure. (e) Term and Exercisability of Options. Options shall be exercisable over the exercise period, at such times and upon such conditions as the Committee may determine, as reflected in the Option Agreement; provided that, the Committee shall have the authority to accelerate the exercisability of any outstanding Option at such time and under such circumstances as it, in its sole discretion, deems appropriate. An Option may be exercised, as to any or all full shares of Common Stock as to which the Option has become exercisable, by written notice delivered in person or by mail to the Compensation Committee or as it shall direct, specifying the number of shares of Common Stock with respect to which the Option is being exercised. The exercise period shall be subject to earlier termination as provided in Section 6(f) hereof. At the time any Option granted under the Plan is exercised, the Company shall be entitled to legend the certificates representing the shares of Common Stock purchased pursuant to the Option to clearly identify them as representing shares purchased upon exercise of an Option. (f) Termination. If a Participant's employment by, or service as a consultant to or director with, the Company terminates: (i) Unless provided otherwise in the applicable Option Agreement, upon a Participant's termination of employment or service as a consultant to or director with the Company or a Subsidiary by reason of death or Disability or by the Company without Cause, all Options that are not then exercisable shall immediately terminate and all Options that are then exercisable shall remain exercisable for a period of one year following such termination and shall terminate thereafter; (ii) Unless provided otherwise in the applicable Option Agreement, if a Participant's employment or service as a consultant to or director with the Company is terminated by the Company for Cause, all Options shall immediately terminate; and (iii) Unless provided otherwise in the applicable Option Agreement, upon any termination of Participant's employment or service as a consultant to or director with the Company other than for Cause, without Cause or by reason of death or Disability, all Options that are not than exercisable shall immediately terminate and all Options that are then exercisable shall remain exercisable for a period of thirty days from the date of such termination and shall terminate thereafter. (g) Other Provisions. Options may be subject to such other conditions including, but not limited to, restrictions on transferability of the shares acquired upon exercise of such Options, as the Committee may prescribe in the Option Agreement in its discretion. 4 7. Effect of Certain Changes. If there is any change in the number of outstanding shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination, exchange of shares, merger, consolidation, liquidation, split-up, spin-off or other similar change in capitalization, any distribution to common shareholders, including a rights offering, other than cash dividends which are not extraordinary in frequency or amount, or any like change, then the number of shares of Common Stock available for Options, the number of such shares covered by outstanding Options and/or the Exercise Price of such Options shall be proportionately adjusted by the Committee to reflect such change or distribution with the intent of preserving the rights granted by, and value and economic benefits of, such Options; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. 8. General Provisions. (a) Restrictions on Delivery and Sale of Shares. Each Option granted under the Plan is subject to the condition that if at any time the Committee, in its discretion, shall determine that the listing, registration or qualification of the shares covered by such Option upon any securities exchange or under any state or federal law is necessary as a condition of or in connection with the purchase or delivery of shares thereunder, the delivery of any or all shares pursuant to such Option may be withheld unless and until such listing, registration or qualification shall have been effected, and the Company shall use its reasonable best efforts to effectuate such listing, registration or qualification as promptly as reasonably practicable. If a registration statement is not in effect under the Securities Act of 1933, as amended (the "Securities Act"), or any applicable state securities laws with respect to the shares of Common Stock purchasable or otherwise deliverable under Options then outstanding, the Committee may require, as a condition of exercise of any Option, that the Option holder or other recipient of an Option represent, in writing, that the shares received pursuant to the Option are being acquired for investment and not with a view to distribution and agree that the shares will not be disposed of except pursuant to an effective registration statement, unless the Company shall have received an opinion of counsel that such disposition is exempt from such requirement under the Securities Act and any applicable state securities laws. The Company may endorse on certificates representing shares delivered pursuant to an Option such legends referring to the foregoing representation or restrictions or any other applicable restrictions on resale as the Company, in its discretion, shall deem appropriate. (b) Nontransferability. Except to the extent provided otherwise in the applicable Option Agreement, Options shall not be transferable by a Participant except by will or the laws of 5 descent and distribution and shall be exercisable during the lifetime of a Participant only by such Participant or his guardian or legal representative. (c) No Right To Continued Employment. Nothing in the Plan or in any Option granted or any Option Agreement or other agreement entered into pursuant hereto shall confer upon any Participant the right to continue in the employ or service of the Company or to be entitled to any remuneration or benefits not set forth in the Plan or such Option Agreement or other agreement or to interfere with or limit in any way the right of the Company to terminate such Participant's employment. (d) Withholding Taxes. Where a Participant or other person is entitled to receive shares of Common Stock pursuant to an Option hereunder, the Company shall have the right to require the Participant or such other person to pay to the Company the amount of any taxes which the Company may be required to withhold before delivery to such Participant or other person of cash or a certificate or certificates representing such shares. Unless otherwise prohibited by applicable law, a Participant may satisfy any such withholding tax obligation by either of the following methods, or by a combination of such methods: (a) tendering a cash payment; or (b) delivering to the Company previously acquired shares of Common Stock, or having the Company withhold shares of Common Stock otherwise deliverable upon exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding tax obligation arises, less than or equal to the amount of the total withholding tax obligation. (e) Amendment and Termination of the Plan. The Board or the Committee may at any time and from time to time alter, amend, suspend or terminate the Plan in whole or in part; provided that, no amendment which requires stockholder approval under applicable law or in order for the Plan to continue to comply with section 162(m) of the Code shall be effective unless the same shall be approved by the requisite vote of the stockholders of the Company. Notwithstanding the foregoing, no amendment shall affect adversely any of the rights of any Participant, without such Participant's consent, under any Option theretofore granted under the Plan. The power to grant Options under the Plan will automatically terminate ten years after the adoption of the Plan by the Board. If the Plan is terminated, any unexercised Option shall continue to be exercisable in accordance with its terms and the terms of the Plan in effect immediately prior to such termination. (f) Participant Rights. No Participant shall have any claim to be granted any Option under the Plan, and there is no obligation for uniformity of treatment for Participants. Except as provided specifically herein, a Participant or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by any Option until the date of the issuance of a stock certificate to him for such shares. (g) No Fractional Shares. No fractional shares of Common Stock shall be issued or delivered pursuant to the Plan or any Option. The Committee shall determine (in its sole discretion) whether cash, other Options or other property shall be issued or paid in lieu of such 6 fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated. (h) Pro Rata Exercise. In the event that any Option Agreement grants a Participant Options to acquire more than one class of Common Stock, such Option Agreement shall (unless otherwise determined by the Committee) provide that Options may only be exercised with respect to shares of Common Stock of all such classes on a pro rata basis, based on the aggregate number of shares of each class of Common Stock subject to the Options granted pursuant to such Option Agreement. (i) Governing Law. The Plan and all determinations made and actions taken pursuant hereto shall be governed by the laws of the State of Delaware, without giving effect to the conflict of laws principles thereof. (j) Headings. The section and subsection headings contained herein are for convenience only and shall not affect the construction hereof. 9. Effectiveness The Plan shall take effect upon its adoption by the Board. 7 EX-10.8 14 UNITED INDUSTRIES STOCK OPTION AGREEMENT Exhibit 10.8 ------------ UNITED INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into as of January 20, 1999, by and between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Company"), and Stephan R. Brian ("Optionee") pursuant to the United Industries Corporation 1999 Stock Option Plan (the "Plan"). The Company and Optionee are referred to collectively herein as the "Parties." Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. Simultaneously with the execution of this Agreement, the parties hereto have executed a Management Agreement, dated as of the date hereof (the "Management Agreement"), to which this Agreement is attached as Annex A. THE PARTIES AGREE AS FOLLOWS: 1. Grant of Options and Effective Date. 1.1 Grant. The Company hereby grants to Optionee pursuant to the Plan an option (the "Option") to purchase all or any part of an aggregate of 600,000 shares (the "Class A Shares") of the Company's Class A Voting Common Stock, par value $0.01 per share, and 600,000 shares (the "Class B Shares" and, together with the Class A Shares (the "Shares")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "Common Stock"), on the terms and conditions set forth herein and in the Plan as in effect on the Grant Date (as defined below), the terms of which are incorporated herein by reference. 1.2 Grant Date. The Grant Date of this Option is January 20, 1999 (the "Grant Date"). 2. Exercise Price. The exercise price for the Shares of Common Stock covered by this Option shall be $5.00 per share (the "Exercise Price"). 3. Adjustment and Termination of Options. Subject to the restrictions, and under the circumstances described, in the Plan and this Agreement, the Company shall adjust the number and kind of Shares and the Exercise Price thereof, and this Option shall be terminated in certain circumstances, in accordance with the provisions of the Plan. 4. Exercise of Options. 4.1 When Exercisable. (a) Rate of Exercise for 5-Year Options. Optionee's right to exercise this Option as to 400,000 of the Shares (200,000 Class A Shares and 200,000 Class B Shares) subject thereto (the "5 Year Options") shall vest ratably over the five (5) year period commencing on the Grant Date in accordance with the following schedule if (but only if) Optionee is employed by the Company or any of its Subsidiaries as of each such date:
Cumulative Shares of Date 5 Year Option Vested 1st Anniversary of Grant Date 80,000 2nd Anniversary of Grant Date 160,000 3rd Anniversary of Grant Date 240,000 4th Anniversary of Grant Date 320,000 5th Anniversary of Grant Date 400,000
(b) Rate of Exercise on TARSAP Options. (i) Optionee shall not be vested with the right to exercise this Option with respect to 800,000 of the Shares (400,000 Class A Shares and 400,000 Class B Shares) (the "TARSAP Shares") subject thereto (the "TARSAP Options") until ten (10) years after the Grant Date, at which time Optionee shall acquire the vested right to exercise the TARSAP Options and purchase one hundred percent (100%) of the TARSAP Shares if (but only if) Optionee is an employee of the Company or any of its Subsidiaries as of such date. (ii) Acceleration of TARSAP Options. Notwithstanding the foregoing, if on and after the publication of each written determination by the Board of Directors of the Company (the "Board") or a committee thereof which is authorized to do so that the Company has met at least ninety percent (90%) of its objective for EBITDA (as defined below) (100% of the Company's objective referred to herein as the "Performance Goals") with respect to any fiscal year commencing with the fiscal year ending December 31, 1999 and continuing for each of the four fiscal years thereafter (which Performance Goals are set forth on Annex I attached hereto), then (subject to the other restrictions in the Plan and this Agreement), Optionee shall acquire the vested right to exercise the TARSAP Options to purchase ten percent (10%) of the TARSAP Shares, and for each additional one percent (1%) achievement over ninety percent (90%) of the Performance Goals for any such fiscal year, as so determined, Optionee shall acquire the vested right to exercise the TARSAP Options to purchase an additional one percent (1%) of the TARSAP Shares, but no more than twenty percent (20%) of the TARSAP Shares in respect of each full fiscal year. Additionally, on and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5%) of its Performance Goals for the fiscal year ending December 31, 2003 and at least ninety percent (90%) of its cumulative Performance Goals for the five fiscal years - 2 - ending December 31, 2003 ("Five Year Performance Goals"), then subject to the other restrictions in the Plan and this Agreement, (i) Optionee shall acquire the vested right to exercise the TARSAP Options to purchase fifty percent (50%) of the TARSAP Shares as to which Optionee had not otherwise acquired the vested right to exercise, and (ii) for each additional one percent (1%) achievement over ninety percent (90%) of the Five Year Performance Goals, as so determined, Optionee shall acquire the vested right to exercise this TARSAP Option to purchase an additional five percent (5%) of the TARSAP Shares as to which Optionee has not otherwise acquired the vested right to exercise (such additional exercise rights pursuant to clauses (i) and (ii) above are referred to herein as the "Additional Exercise Rights"). Such determinations shall be made by the Board or such committee within ten (10) days after receipt of audited financial statements for each fiscal year. The Board's or committee's determination as to whether the Company has met such objectives shall be final and not subject to dispute. In addition, the Board or a committee thereof shall have complete discretion to modify such objectives from time to time for any year or years to reflect business combinations or dispositions, fiscal year changes, purchases or sales of assets or any other circumstances the Board or committee thereof deems relevant. For purposes hereof, "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, excluding any non-recurring or extraordinary items, as determined in accordance with generally accepted accounting principles, consistently applied. (iii) Acceleration Upon Sale. Notwithstanding any provision to the contrary in this Section 4.1(b), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the TARSAP Options shall become vested and immediately exercisable to the extent set forth below. On and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5%) of its Performance Goals for the last twelve (12) full months and at least ninety percent (90%) of its cumulative Performance Goals for the completed fiscal years (if any) and the Interim Period (as defined below) (based on months elapsed), the Board or such committee shall treat the percentage of cumulative Performance Goals achieved through the completed fiscal years (if any) and Interim Period as the percentage of Five Year Performance Goals achieved and on that basis shall determine the Additional Exercise Rights with respect to all 800,000 TARSAP Options as to which Optionee had not otherwise acquired the vested right to exercise consistent with the method set forth in the second sentence of Section 4.1(b)(ii) above. The percentage of Five Year Performance Goals for such period shall be computed by dividing (i) the sum of EBITDA achieved for the completed fiscal years (if any) and the Interim Period by (ii) the annual Performance Goals for the completed fiscal years (if any) and the monthly Performance Goals for the Interim Period. For purposes hereof, the term "Interim Period" shall mean the period beginning on the first day of the then current fiscal year and ending on the last full month of that uncompleted fiscal year. For purposes hereof, the term "Sale" shall mean: - 3 - (w) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of (a) the Company or (b) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Person to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates; (x) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; (y) the acquisition by a third party not affiliated with the Company of all or substantially all of the Company's assets; or (z) individuals who constitute the Board on the date of the Company's initial public sale of equity securities registered under the Securities Act (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter. Any person becoming a director subsequent to such date whose, election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. The accelerated vesting provided in this Section 4.1(b)(iii) shall take effect immediately prior to but contingent upon the Sale giving rise to such accelerated vesting. The phrase "immediately prior to the Sale" shall be understood to mean sufficiently in advance of a Sale to permit the Optionee to take all steps reasonably necessary to permit the Optionee to become a shareholder of the Company as of the consummation of such Sale with respect to the TARSAP Shares subject to the accelerated vesting provided in this Section 4.1(b)(iii). The Board or committee thereof may in good faith shorten the Interim Period or make approximations of EBITDA during the Interim Period in order to comply with the preceding sentence. (c) Partial Exercise. Subject to the other restrictions in the Plan and this Agreement, the Options may be exercised for all or a part of the Shares with respect to which each Option is exercisable under Section 4.1(a) and (b) above. 4.2 Method of Exercise; Stockholders Agreement. Subject to Section 4.1 and the other restrictions in the Plan and this Agreement, Options are exercisable from time to time by Optionee, who shall complete, execute and deliver to the Company a Form of Exercise and Stock Transfer Power substantially in the form attached hereto or in such other form as the Company may require. Except as otherwise permitted by - 4 - Section 6(d) of the Plan, such notice shall be accompanied by payment in full for the Shares to be purchased. Payment of the Exercise Price may be made: (i) in cash, (ii) in shares of Common Stock which either (A) were purchased by Optionee in other than a compensatory transaction, (B) have been held by Optionee free and clear for at least six (6) months prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or in the sole discretion of the Committee, through a cashless exercise procedure. Optionee shall also execute and deliver to the Company a copy of the Company's Stockholders Agreement, dated as of January 20, 1999, in the form in effect at the time of exercise (as amended and modified from time to time, the "Stockholders Agreement"), if Optionee has not previously done so. Upon due exercise of any Option and (if required) execution and delivery of the Stockholders Agreement, subject to the terms and conditions in this Agreement, the Company shall issue in the name of Optionee and deliver to Optionee a certificate for the Shares in respect of which such Option shall have been exercised, but no Shares will be issued until arrangements satisfactory to Company have been made for appropriate income tax withholding, if any, pursuant to Section 12 hereof. 4.3 Exercise After Termination of Employment; Termination of Options. (a) Definitions. For purposes of this Section 4.3, the capitalized terms Good Reason, Cause, and Disability shall have the meanings set forth in the Management Agreement. (b) Termination Without Good Reason. Upon any termination of employment by Optionee without Good Reason, the Options may, to the extent exercisable and not terminated pursuant to Section 4.3(e), be exercised only within thirty (30) days after the date of such employment termination. This Section 4.3(b) shall not, however, extend the term of the Options beyond that specified in Section 4.3(e). For purposes of this Section 4.3(b), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (c) Termination by Virtue of Death or Disability or Without Cause or With Good Reason. Upon any termination of employment of Optionee by virtue of Optionee's death or Disability or upon any termination of employment by Optionee with Good Reason, or by the Company without Cause, the Options may, to the extent exercisable and not terminated pursuant to Section 4.3(e), be exercised only within twelve (12) months after the date - 5 - of such termination. This Section 4.3 (c) shall not extend the term of the Options beyond that specified in Section 4.3(e). For purposes of this Section 4.3(c), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (d) Termination for Cause. The Option shall terminate immediately upon termination of the employment of Optionee for Cause. (e) Other Termination. The Options shall not be exercisable after the earliest of (i) a Sale (provided that Optionee has at least five (5) business days prior to the Sale to exercise the Options or the Options are treated as exercised in connection with such Sale) or (ii) January 20, 2009. (f) Company Repurchase; Extension of Exercise Period. If Optionee properly elects to exercise all or any portion of the Option following a termination of Optionee's employment as described in Section 4.3(c) (a "Post-Termination Exercise"), at the written request of Optionee delivered to the Company prior to or simultaneously with the attempted exercise of such Option, the Company shall either: (i) offer to purchase from Optionee, within fifteen (15) days following its receipt of such request, at a purchase price equal to Fair Market Value, such portion of the Shares obtained by Optionee through the Post-Termination Exercise having an aggregate Fair Market Value equal to the excess of (A) Optionee's aggregate federal, state and local income tax obligations in respect of the Post-Termination Exercise over (B) any amounts related to income tax previously withheld by the Company with respect to such Post-Termination Exercise; or (ii) extend the period during which Optionee may exercise the Options specified in Optionee's notice until the earlier of (A) such time as the Company elects to comply with Section 4.3(f)(i), above (disregarding the fifteen (15) day period referenced therein), and (B) such time as the Shares to be received by Optionee upon the exercise of the Options specified in Optionee's notice are registered under the Securities Act and freely tradable. 5. Non-transferability of Options. The Options shall not be transferable or assignable except upon Optionee's death by will or the laws of descent and distribution and shall be exercisable, during Optionee's lifetime, only by Optionee. 6. Purchase for Investment; Other Representations of Optionee; Legends. 6.1 Investment Intent. As provided in the Plan, in the event that the offering of Shares with respect to which the Options are being exercised is not registered under the Securities Act, but an exemption is available that requires an investment - 6 - representation or other representation, Optionee, if electing to purchase Shares, will be required to represent that such Shares are being acquired for investment and not with a view to distribution thereof, and to make such other reasonable and customary representations regarding matters relevant to compliance with applicable securities laws as are deemed necessary by counsel to the Company. Stock certificates evidencing such unregistered Shares that are acquired upon exercise of the Options shall bear restrictive legends in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws or are provided for in the Stockholders Agreement or any other agreement to which Optionee is a party: THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED AT ANY TIME IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES AT SUCH TIME, OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH TRANSFER AT SUCH TIME WILL NOT VIOLATE THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS. 6.2 Other Representations. Optionee hereby represents and warrants to the Company as follows: (a) Access to Information. Because of Optionee's business relationship with the Company and with the management of the Company, Optionee has had access to all material and relevant information concerning the Company, thereby enabling Optionee to make an informed investment decision with respect to his investment in the Company, and all pertinent data and information requested by Optionee from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of this Agreement have been furnished. Optionee acknowledges that Optionee has had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. (b) Financial Sophistication. Optionee has such knowledge and experience in financial and business matters that Optionee is capable of evaluating the merits and risks of investing in the Shares. (c) Understanding the Investment Risks. Optionee understands that: - 7 - (i) An investment in the Shares represents a highly speculative investment, and there can be no assurance as to the success of the Company in its business; and (ii) There is at present no market for the Shares and there can be no assurance that a market will develop in the future. (d) Understanding of the Nature of the Shares. Optionee understands and agrees that: (i) There can be no assurance that the Shares will be registered under the Securities Act or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and the representations and warranties of Optionee contained herein, which will have to be renewed as to the Shares at the times of exercise of the Options, are essential to any claim of exemption by the Company under the Securities Act and such state laws; (ii) If the Shares are not so registered, the Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (iii) The Option cannot be exercised and the Shares will not be sold to Optionee and Optionee cannot resell or transfer the Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (iv) Only the Company can register the Shares under the Securities Act and applicable state securities laws; (v) The Company has not made any representations to Optionee that the Company will register the Shares under the Securities Act or - 8 - any applicable state securities laws, or with respect to compliance with any exemption therefrom; (vi) Optionee is aware of the conditions for Optionee's obtaining an exemption for the resale of the Shares under the Securities Act and any applicable state securities laws; and (vii) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act and any applicable state securities laws, and any additional restrictions imposed by state securities administrators. (e) Investment Intent. Optionee acknowledges that: (i) Optionee is acquiring the Option for Optionee's own account and not on behalf of any other person; (ii) Optionee is acquiring the option for investment and not with a view to distribution or with the intent to divide Optionee's participation with others or resell or otherwise distribute the Options or the Shares; (iii) Neither Optionee nor anyone acting on Optionee's behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Options or the Shares; and (iv) At the time of exercise of any Option, Optionee will have to make all the representations and warranties contained in this Section 6 with respect to the Shares to be issued and other representations concerning investment intent as a condition of the issuance of the Shares by the Company. 7. Restriction on Issuance of Shares. The Company shall not be obligated to sell or issue any Shares pursuant to this Agreement if such issuance would result in the violation of any laws, including the Securities Act or any applicable state securities laws. The Company agrees to use its reasonable best efforts to qualify for available exemptions under the Securities Act or any applicable state securities laws which will enable it to issue Shares hereunder in compliance with applicable law. 8. Rights as a Shareholder. Optionee shall have no rights as a shareholder with respect to any Shares covered by the Options until the date of exercise and payment of the Exercise Price in accordance with the terms of this Agreement. Subject to Section 3 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 9. No Employment Rights. This Agreement shall not confer upon Optionee any right with respect to the continuance as an employee of the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate such employment at any time. - 9 - 10. Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 11. Notices. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or by reputable overnight courier service (charges prepaid), or transmitted by facsimile with answer-back confirmation to the following address, or any other address specified, by notice duly given: To Optionee at: Stephan R. Brian 401 E. Ontario, Unit #2810 Chicago, IL 60601 To the Company at: United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: President Telecopy: (314) 253-5941 12. Withholdings. Except to the extent prohibited by applicable law, Optionee may satisfy any required withholding obligation upon the exercise of an Option hereunder by either of the following methods, or by a combination of such methods: (a) tendering a cash payment or (b) delivering to the Company previously acquired Shares, or having the Company withhold Shares otherwise deliverable upon the exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding obligation arises, less than or equal to the amount of the total withholding obligation. 13. Pro Rata Exercise. The Shares of Common Stock covered by this Option shall only be exercised, if at all, ratably among the Class A Shares and Class B Shares, based on the aggregate number of Class A Shares and Class B Shares subject to the Options granted hereunder. 14. Registration of Shares. At any time after UIC Holdings, L.L.C., together with its affiliates, holds less than 25% of the Common Stock held by such entities as of the date hereof, Optionee shall have the right to cause the Company to register all of the Shares on a Form S-8, along with a Form S-3 reoffer prospectus, under the Securities Act of 1933, as amended from time to time, or any successor form thereto, and the Company shall use its reasonable best efforts to comply with such request in a timely manner. * * * * * - 10 - IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By -------------------------- Name: ------------------- Title: ------------------- OPTIONEE: ----------------------------- Stephan R. Brian - 11 - EX-10.9 15 UNITED INDUSTRIES STOCK OPTION AGREEMENT Exhibit 10.9 ------------ UNITED INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into as of January 20, 1999, by and between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Company"), and Richard A. Bender ("Optionee") pursuant to the United Industries Corporation 1999 Stock Option Plan (the "Plan"). The Company and Optionee are referred to collectively herein as the "Parties." Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. Simultaneously with the execution of this Agreement, the parties hereto have executed a Management Agreement, dated as of the date hereof (the "Management Agreement"), to which this Agreement is attached as Annex A. THE PARTIES AGREE AS FOLLOWS: 1. Grant of Options and Effective Date. 1.1 Grant. The Company hereby grants to Optionee pursuant to the Plan an option (the "Option") to purchase all or any part of an aggregate of 300,000 shares (the "Class A Shares") of the Company's Class A Voting Common Stock, par value $0.01 per share, and 300,000 shares (the "Class B Shares" and, together with the Class A Shares (the "Shares")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "Common Stock"), on the terms and conditions set forth herein and in the Plan as in effect on the Grant Date (as defined below), the terms of which are incorporated herein by reference. 1.2 Grant Date. The Grant Date of this Option is January 20, 1999 (the "Grant Date"). 2. Exercise Price. The exercise price for the Shares of Common Stock covered by this Option shall be $5.00 per share (the "Exercise Price"). 3. Adjustment and Termination of Options. Subject to the restrictions, and under the circumstances described, in the Plan and this Agreement, the Company shall adjust the number and kind of Shares and the Exercise Price thereof, and this Option shall be terminated in certain circumstances, in accordance with the provisions of the Plan. 4. Exercise of Options. 4.1 When Exercisable. (a) Rate of Exercise for 5-Year Options. Optionee's right to exercise this Option as to 200,000 of the Shares (100,000 Class A Shares and 100,000 Class B Shares) subject thereto (the "5 Year Options") shall vest ratably over the five (5) year period commencing on the Grant Date in accordance with the following schedule if (but only if) Optionee is employed by the Company or any of its Subsidiaries as of each such date:
Cumulative Shares of Date 5 Year Option Vested ---- -------------------- 1st Anniversary of Grant Date 40,000 2nd Anniversary of Grant Date 80,000 3rd Anniversary of Grant Date 120,000 4th Anniversary of Grant Date 160,000 5th Anniversary of Grant Date 200,000;
provided that if Optionee's employment by the Company terminates by virtue of the expiration of the "Term" (as defined in the Management Agreement) (i.e., Optionee's employment terminates due to the passage of the date referenced in Section 2(a)(i) thereof (as extended pursuant to the provision in such Section 2(a)) as opposed to any termination by the Company or Optionee or by virtue of Optionee's death or disability), then Optionee shall be credited with an additional 21 days of vesting (for example, if Optionee's employment with the Company terminates as described above on December 31, 2001, the 5 Year Options will vest through January 20, 2002). Notwithstanding any provision to the contrary in this Section 4.1(a), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the 5 Year Options shall become vested and immediately exercisable. (b) Rate of Exercise on TARSAP Options. (i) Optionee shall not be vested with the right to exercise this Option with respect to 400,000 of the Shares (200,000 Class A Shares and 200,000 Class B Shares) (the "TARSAP Shares") subject thereto (the "TARSAP Options") until ten (10) years after the Grant Date, at which time Optionee shall acquire the vested right to exercise the TARSAP Options and purchase one hundred percent (100%) of the TARSAP Shares if (but only if) Optionee is an employee of the Company or any of its Subsidiaries as of such date. (ii) Acceleration of TARSAP Options. Notwithstanding the foregoing, if on and after the publication of each written determination by the Board of Directors of the Company (the "Board") or a committee thereof which is authorized to do so that the Company has met at least ninety percent (90%) of its objective for EBITDA (as defined below) (100% of the Company's objective referred to herein as the "Performance Goals") with respect to any fiscal year commencing with the fiscal year ending December 31, 1999 and continuing for each of the four fiscal years thereafter (which Performance Goals are set forth on Annex I attached hereto), then (subject to the other restrictions in the Plan - 2 - and this Agreement), Optionee shall acquire the vested right to exercise the TARSAP Options to purchase ten percent (10%) of the TARSAP Shares, and for each additional one percent (1%) achievement over ninety percent (90%) of the Performance Goals for any such fiscal year, as so determined, Optionee shall acquire the vested right to exercise the TARSAP Options to purchase an additional one percent (1%) of the TARSAP Shares, but no more than twenty percent (20%) of the TARSAP Shares in respect of each full fiscal year. Additionally, on and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the fiscal year ending December 31, 2003 and at least ninety percent (90%) of its cumulative Performance Goals for the five fiscal years ending December 31, 2003 ("Five Year Performance Goals"), then subject to the other restrictions in the Plan and this Agreement, (i) Optionee shall acquire the vested right to exercise the TARSAP Options to purchase fifty percent (50%) of the TARSAP Shares as to which Optionee had not otherwise acquired the vested right to exercise, and (ii) for each additional one percent (1%) achievement over ninety percent (90%) of the Five Year Performance Goals, as so determined, Optionee shall acquire the vested right to exercise this TARSAP Option to purchase an additional five percent (5%) of the TARSAP Shares as to which Optionee has not otherwise acquired the vested right to exercise (such additional exercise rights pursuant to clauses (i) and (ii) above are referred to herein as the "Additional Exercise Rights"). Such determinations shall be made by the Board or such committee within ten (10) days after receipt of audited financial statements for each fiscal year. The Board's or committee's determination as to whether the Company has met such objectives shall be final and not subject to dispute. In addition, the Board or a committee thereof shall have complete discretion to modify such objectives from time to time for any year or years to reflect business combinations or dispositions, fiscal year changes, purchases or sales of assets or any other circumstances the Board or committee thereof deems relevant. For purposes hereof, "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, excluding any non-recurring or extraordinary items, as determined in accordance with generally accepted accounting principles, consistently applied. (iii) Acceleration Upon Sale. Notwithstanding any provision to the contrary in this Section 4.1(b), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the TARSAP Options shall become vested and immediately exercisable to the extent set forth below. On and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the last twelve (12) full months and at least ninety percent (90%) of its cumulative Performance Goals for the completed fiscal years (if any) and the Interim Period (as defined below) (based on months elapsed), the Board or such committee shall treat the percentage of cumulative Performance Goals achieved through the completed fiscal years (if any) and Interim Period as the percentage of Five Year Performance Goals achieved and on that basis shall determine the Additional Exercise Rights with respect to all 400,000 TARSAP Options as to which Optionee had not otherwise acquired the vested right to exercise consistent with the method set forth in the second - 3 - sentence of Section 4.1(b)(ii) above. The percentage of Five Year Performance Goals for such period shall be computed by dividing (i) the sum of EBITDA achieved for the completed fiscal years (if any) and the Interim Period by (ii) the annual Performance Goals for the completed fiscal years (if any) and the monthly Performance Goals for the Interim Period. For purposes hereof, the term "Interim Period" shall mean the period beginning on the first day of the then current fiscal year and ending on the last full month of that uncompleted fiscal year. For purposes hereof, the term "Sale" shall mean: (w) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of (a) the Company or (b) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Person to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates; (x) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; (y) the acquisition by a third party not affiliated with the Company of all or substantially all of the Company's assets; or (z) individuals who constitute the Board on the date of the Company's initial public sale of equity securities registered under the Securities Act (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter. Any person becoming a director subsequent to such date whose, election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. The accelerated vesting provided in this Section 4.1(b)(iii) shall take effect immediately prior to but contingent upon the Sale giving rise to such accelerated vesting. The phrase "immediately prior to the Sale" shall be understood to mean sufficiently in advance of a Sale to permit the Optionee to take all steps reasonably necessary to permit the Optionee to become a shareholder of the Company as of the consummation of such Sale with respect to the TARSAP Shares subject to the accelerated vesting provided in this Section 4.1(b)(iii). The Board or committee thereof may in good faith shorten the Interim Period or make approximations of EBITDA during the Interim Period in order to comply with the preceding sentence. - 4 - (c) Partial Exercise. Subject to the other restrictions in the Plan and this Agreement, the Options may be exercised for all or a part of the Shares with respect to which each Option is exercisable under Section 4.1(a) and (b) above. 4.2 Method of Exercise; Stockholders Agreement. Subject to Section 4.1 and the other restrictions in the Plan and this Agreement, Options are exercisable from time to time by Optionee, who shall complete, execute and deliver to the Company a Form of Exercise and Stock Transfer Power substantially in the form attached hereto or in such other form as the Company may require. Except as otherwise permitted by Section 6(d) of the Plan, such notice shall be accompanied by payment in full for the Shares to be purchased. Payment of the Exercise Price may be made: (i) in cash, (ii) in shares of Common Stock which either (A) were purchased by Optionee in other than a compensatory transaction, (B) have been held by Optionee free and clear for at least six (6) months prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or in the sole discretion of the Committee, through a cashless exercise procedure. Optionee shall also execute and deliver to the Company a copy of the Company's Stockholders Agreement, dated as of January 20, 1999, in the form in effect at the time of exercise (as amended and modified from time to time, the "Stockholders Agreement"), if Optionee has not previously done so. Upon due exercise of any Option and (if required) execution and delivery of the Stockholders Agreement, subject to the terms and conditions in this Agreement, the Company shall issue in the name of Optionee and deliver to Optionee a certificate for the Shares in respect of which such Option shall have been exercised, but no Shares will be issued until arrangements satisfactory to Company have been made for appropriate income tax withholding, if any, pursuant to Section 12 hereof. 4.3 Exercise After Termination of Employment; Termination of Options. (a) Definitions. For purposes of this Section 4.3, the capitalized terms Good Reason, Cause, and Disability shall have the meanings set forth in the Management Agreement. (b) Termination Without Good Reason. Upon any termination of employment by Optionee without Good Reason, the Options may, to the extent exercisable and not terminated pursuant to Section 4.3(e), be exercised only within thirty (30) days after the date of such employment termination. This Section 4.3(b) shall not, however, extend the term of the Options beyond that specified in Section 4.3(e). For purposes of this Section 4.3(b), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (c) Termination by Virtue of Death or Disability or Without Cause or With Good Reason. Upon any termination of employment of Optionee by virtue of Optionee's death or Disability or upon any termination of employment by Optionee with Good Reason, or by the - 5 - Company without Cause, the Options may, to the extent exercisable and not terminated pursuant to Section 4.3(e), be exercised only within twelve (12) months after the date of such termination. This Section 4.3 (c) shall not extend the term of the Options beyond that specified in Section 4.3(e). For purposes of this Section 4.3(c), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (d) Termination for Cause. The Option shall terminate immediately upon termination of the employment of Optionee for Cause. (e) Other Termination. The Options shall not be exercisable after the earliest of (i) a Sale (provided that Optionee has at least five (5) business days prior to the Sale to exercise the Options or the Options are treated as exercised in connection with such Sale) or (ii) January 20, 2009. (f) Company Repurchase; Extension of Exercise Period. If Optionee properly elects to exercise all or any portion of the Option following a termination of Optionee's employment as described in Section 4.3(c) (a "Post-Termination Exercise"), at the written request of Optionee delivered to the Company prior to or simultaneously with the attempted exercise of such Option, the Company shall either: (i) offer to purchase from Optionee, within fifteen (15) days following its receipt of such request, at a purchase price equal to Fair Market Value, such portion of the Shares obtained by Optionee through the Post-Termination Exercise having an aggregate Fair Market Value equal to the excess of (A) Optionee's aggregate federal, state and local income tax obligations in respect of the Post-Termination Exercise over (B) any amounts related to income tax previously withheld by the Company with respect to such Post-Termination Exercise; or (ii) extend the period during which Optionee may exercise the Options specified in Optionee's notice until the earlier of (A) such time as the Company elects to comply with Section 4.3(f)(i), above (disregarding the fifteen (15) day period referenced therein), and (B) such time as the Shares to be received by Optionee upon the exercise of the Options specified in Optionee's notice are registered under the Securities Act and freely tradable. 5. Non-transferability of Options. The Options shall not be transferable or assignable except upon Optionee's death by will or the laws of descent and distribution and shall be exercisable, during Optionee's lifetime, only by Optionee. 6. Purchase for Investment; Other Representations of Optionee; Legends. 6.1 Investment Intent. As provided in the Plan, in the event that the offering of Shares with respect to which the Options are being exercised is not registered under the Securities Act, but an exemption is available that requires an investment representation or other - 6 - representation, Optionee, if electing to purchase Shares, will be required to represent that such Shares are being acquired for investment and not with a view to distribution thereof, and to make such other reasonable and customary representations regarding matters relevant to compliance with applicable securities laws as are deemed necessary by counsel to the Company. Stock certificates evidencing such unregistered Shares that are acquired upon exercise of the Options shall bear restrictive legends in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws or are provided for in the Stockholders Agreement or any other agreement to which Optionee is a party: THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED AT ANY TIME IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES AT SUCH TIME, OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH TRANSFER AT SUCH TIME WILL NOT VIOLATE THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS. 6.2 Other Representations. Optionee hereby represents and warrants to the Company as follows: (a) Access to Information. Because of Optionee's business relationship with the Company and with the management of the Company, Optionee has had access to all material and relevant information concerning the Company, thereby enabling Optionee to make an informed investment decision with respect to his investment in the Company, and all pertinent data and information requested by Optionee from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of this Agreement have been furnished. Optionee acknowledges that Optionee has had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. (b) Financial Sophistication. Optionee has such knowledge and experience in financial and business matters that Optionee is capable of evaluating the merits and risks of investing in the Shares. (c) Understanding the Investment Risks. Optionee understands that: (i) An investment in the Shares represents a highly speculative investment, and there can be no assurance as to the success of the Company in its business; and - 7 - (ii) There is at present no market for the Shares and there can be no assurance that a market will develop in the future. (d) Understanding of the Nature of the Shares. Optionee understands and agrees that: (i) There can be no assurance that the Shares will be registered under the Securities Act or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and the representations and warranties of Optionee contained herein, which will have to be renewed as to the Shares at the times of exercise of the Options, are essential to any claim of exemption by the Company under the Securities Act and such state laws; (ii) If the Shares are not so registered, the Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (iii) The Option cannot be exercised and the Shares will not be sold to Optionee and Optionee cannot resell or transfer the Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (iv) Only the Company can register the Shares under the Securities Act and applicable state securities laws; (v) The Company has not made any representations to Optionee that the Company will register the Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (vi) Optionee is aware of the conditions for Optionee's obtaining an exemption for the resale of the Shares under the Securities Act and any applicable state securities laws; and (vii) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act and any applicable state securities laws, and any additional restrictions imposed by state securities administrators. (e) Investment Intent. Optionee acknowledges that: (i) Optionee is acquiring the Option for Optionee's own account and not on behalf of any other person; - 8 - (ii) Optionee is acquiring the option for investment and not with a view to distribution or with the intent to divide Optionee's participation with others or resell or otherwise distribute the Options or the Shares; (iii) Neither Optionee nor anyone acting on Optionee's behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Options or the Shares; and (iv) At the time of exercise of any Option, Optionee will have to make all the representations and warranties contained in this Section 6 with respect to the Shares to be issued and other representations concerning investment intent as a condition of the issuance of the Shares by the Company. 7. Restriction on Issuance of Shares. The Company shall not be obligated to sell or issue any Shares pursuant to this Agreement if such issuance would result in the violation of any laws, including the Securities Act or any applicable state securities laws. The Company agrees to use its reasonable best efforts to qualify for available exemptions under the Securities Act or any applicable state securities laws which will enable it to issue Shares hereunder in compliance with applicable law. 8. Rights as a Shareholder. Optionee shall have no rights as a shareholder with respect to any Shares covered by the Options until the date of exercise and payment of the Exercise Price in accordance with the terms of this Agreement. Subject to Section 3 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 9. No Employment Rights. This Agreement shall not confer upon Optionee any right with respect to the continuance as an employee of the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate such employment at any time. 10. Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 11. Notices. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or by reputable overnight courier service (charges prepaid), or transmitted by facsimile with answer-back confirmation to the following address, or any other address specified, by notice duly given: - 9 - To Optionee at: Richard A. Bender 1563 Dietrich Ridge Drive Manchester, MO 63021 To the Company at: United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: President Telecopy: (314) 253-5941 12. Withholdings. Except to the extent prohibited by applicable law, Optionee may satisfy any required withholding obligation upon the exercise of an Option hereunder by either of the following methods, or by a combination of such methods: (a) tendering a cash payment or (b) delivering to the Company previously acquired Shares, or having the Company withhold Shares otherwise deliverable upon the exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding obligation arises, less than or equal to the amount of the total withholding obligation. 13. Pro Rata Exercise. The Shares of Common Stock covered by this Option shall only be exercised, if at all, ratably among the Class A Shares and Class B Shares, based on the aggregate number of Class A Shares and Class B Shares subject to the Options granted hereunder. 14. Registration of Shares. At any time after UIC Holdings, L.L.C., together with its affiliates, holds less than 25% of the Common Stock held by such entities as of the date hereof, Optionee shall have the right to cause the Company to register all of the Shares on a Form S-8, along with a Form S-3 reoffer prospectus, under the Securities Act of 1933, as amended from time to time, or any successor form thereto, and the Company shall use its reasonable best efforts to comply with such request in a timely manner. * * * * * - 10 - IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By ------------------------------ Name: ------------------------ Title: ------------------------ OPTIONEE: --------------------------------- Richard A. Bender - 11 - ANNEX I ------- The Performance Goal with respect to each fiscal year from 1999 through 2003 is as follows:
Fiscal Year Performance Goal ----------- ---------------- 1999* $ 85,400,000 2000 111,200,000 2001 123,100,000 2002 133,000,000 2003 143,800,000 ------------ Aggregate $596,500,000
*Including any portion of calendar 1999 prior to closing. These Performance Goals have been calculated without deduction for any expenses associated with the recapitalization being effectuated by the Company on the date hereof or any relocation expenses of the Company's new president, and the measurement of the Company's actual performance shall similarly be calculated without deduction for such items. These Performance Goals have already been reduced to reflect (i) the Company's revised aviation budget, (ii) management fees payable to Thomas H. Lee Company and/or its affiliates, (iii) consulting and directors fees payable to David Jones and David Pratt and (iv) the salary and bonus payable to the Company's new president. - 12 - UNITED INDUSTRIES CORPORATION FORM OF EXERCISE AND STOCK TRANSFER POWER United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Ladies and Gentlemen: Reference is made to the Stock Option Agreement between United Industries Corporation (the "Company") and me (the "Option Agreement"), whereby on January 20, 1999, I was granted an option to purchase all or any part of an aggregate of 300,000 shares (the "Class A Shares") of the Company's Class A Voting Common Stock, par value $0.01 per share and 300,000 shares (the "Class B Shares" and, together with the Class A Shares (the "Shares")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "Common Stock"), at $5.00 per share. I hereby exercise my right to purchase Shares (on a pro rata basis among the Class A Shares and the Class B Shares) (the "Exercised Shares") of Common Stock at said price and deliver to you herewith the full purchase price of such Exercised Shares, as follows: [ ] Cash or check in the amount $ ; ----------------------------- [ ] Previously owned shares of Common Stock having a Fair Market Value (as defined in the Option Agreement) equal to $_______ as of the date hereof, and otherwise in accordance with Section 4.2 of the Option Agreement; and/or [ ] If the Common Stock is publicly traded, by delivery to the Company of the attached copy of irrevocable broker instructions to deliver promptly to the Company $_______ of loan proceeds, or $_________ of proceeds of the sale of Exercised Shares of Common Stock deliverable upon exercise of the option represented by the Option Agreement. I understand that no Exercised Shares will be issued until arrangements satisfactory to the Company have been made for appropriate income tax withholding, if any, and I have executed the Company's Stockholders Agreement (the "Stockholders Agreement"). The Exercised Shares will be subject to certain rights of repurchase and other restrictions, as more particularly set forth in the Management Agreement by and between the Company and me dated as of January 20, 1999 and the Stockholders Agreement. - 1 - In the event that the Exercised Shares have not been registered under the Securities Act of 1933, as amended from time to time, upon the date hereof, I hereby represent and warrant to the Company as follows: 1. Because of my business relationship with the Company and with the management of the Company, I have had access to all material and relevant information concerning the Company, thereby enabling me to make an informed investment decision with respect to my investment in the Company, and all pertinent data and information requested by me from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of the Option Agreement have been furnished. I acknowledge that I have had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. 2. I have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of investing in the Exercised Shares. 3. I understand that: (a) An investment in the Exercised Shares represents a highly speculative investment, and there can be no assurance as to the success of the company in its business; and (b) There is at present no market for the Exercised Shares and there can be no assurance that a market will develop in the future. 4. I understand and agree that: (a) There can be no assurance that the Exercised Shares will be registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and my representations and warranties contained herein are essential to any claim of exemption by the Company under the Securities Act and such state laws; (b) If the Exercised Shares are not so registered, the Exercised Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (c) I cannot resell or transfer the Exercised Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (d) Only the Company can register the Exercised Shares under the Securities Act and applicable state securities laws; - 2 - (e) The Company has not made any representations to me that the Company will register the Exercised Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (f) I am aware of the conditions for obtaining an exemption for the resale of the Exercised Shares under the Securities Act and any applicable state securities laws; (g) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act, and any applicable state securities laws, and any additional restrictions imposed by state securities administrators; and (h) I understand that stock certificates evidencing the Exercised Shares shall bear restrictive legends as more particularly described in the Option Agreement and the Stockholders Agreement. 5. I acknowledge that: (a) I am acquiring the Exercised Shares for my own account and not on behalf of any other person; (b) I am acquiring the Exercised Shares for investment and not with a view to distribution or with the intent to divide my participation with others or resell or otherwise distribute the Exercised Shares; and (c) Neither I nor anyone acting on my behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Exercised Shares. Signature ------------------------------- Address: ------------------------------- ------------------------------- ------------------------------- Social Security No.: -------------------- - 3 - EX-10.10 16 UNITED INDUSTRIES STOCK OPTION AGREEMENT Exhibit 10.10 ------------- UNITED INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into as of January 20, 1999, by and between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Company"), and William P. Johnson ("Optionee") pursuant to the United Industries Corporation 1999 Stock Option Plan (the "Plan"). The Company and Optionee are referred to collectively herein as the "Parties." Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. Simultaneously with the execution of this Agreement, the parties hereto have executed a Management Agreement, dated as of the date hereof (the "Management Agreement"), to which this Agreement is attached as Annex A. THE PARTIES AGREE AS FOLLOWS: 1. Grant of Options and Effective Date. 1.1 Grant. The Company hereby grants to Optionee pursuant to the Plan an option (the "Option") to purchase all or any part of an aggregate of 300,000 shares (the "Class A Shares") of the Company's Class A Voting Common Stock, par value $0.01 per share, and 300,000 shares (the "Class B Shares" and, together with the Class A Shares (the "Shares")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "Common Stock"), on the terms and conditions set forth herein and in the Plan as in effect on the Grant Date (as defined below), the terms of which are incorporated herein by reference. 1.2 Grant Date. The Grant Date of this Option is January 20, 1999 (the "Grant Date"). 2. Exercise Price. The exercise price for the Shares of Common Stock covered by this Option shall be $5.00 per share (the "Exercise Price"). 3. Adjustment and Termination of Options. Subject to the restrictions, and under the circumstances described, in the Plan and this Agreement, the Company shall adjust the number and kind of Shares and the Exercise Price thereof, and this Option shall be terminated in certain circumstances, in accordance with the provisions of the Plan. 4. Exercise of Options. 4.1 When Exercisable. (a) Rate of Exercise for 5-Year Options. Optionee's right to exercise this Option as to 200,000 of the Shares (100,000 Class A Shares and 100,000 Class B Shares) subject thereto (the "5 Year Options") shall vest ratably over the five (5) year period commencing on the Grant Date in accordance with the following schedule if (but only if) Optionee is employed by the Company or any of its Subsidiaries as of each such date:
Cumulative Shares of Date 5 Year Option Vested ---- -------------------- 1st Anniversary of Grant Date 40,000 2nd Anniversary of Grant Date 80,000 3rd Anniversary of Grant Date 120,000 4th Anniversary of Grant Date 160,000 5th Anniversary of Grant Date 200,000;
provided that if Optionee's employment by the Company terminates by virtue of the expiration of the "Term" (as defined in the Management Agreement) (i.e., Optionee's employment terminates due to the passage of the date referenced in Section 2(a)(i) thereof (as extended pursuant to the provision in such Section 2(a)) as opposed to any termination by the Company or Optionee or by virtue of Optionee's death or disability), then Optionee shall be credited with an additional 21 days of vesting (for example, if Optionee's employment with the Company terminates as described above on December 31, 2001, the 5 Year Options will vest through January 20, 2002). Notwithstanding any provision to the contrary in this Section 4.1(a), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the 5 Year Options shall become vested and immediately exercisable. (b) Rate of Exercise on TARSAP Options. (i) Optionee shall not be vested with the right to exercise this Option with respect to 400,000 of the Shares (200,000 Class A Shares and 200,000 Class B Shares) (the "TARSAP Shares") subject thereto (the "TARSAP Options") until ten (10) years after the Grant Date, at which time Optionee shall acquire the vested right to exercise the TARSAP Options and purchase one hundred percent (100%) of the TARSAP Shares if (but only if) Optionee is an employee of the Company or any of its Subsidiaries as of such date. (ii) Acceleration of TARSAP Options. Notwithstanding the foregoing, if on and after the publication of each written determination by the Board of Directors of the Company (the "Board") or a committee thereof which is authorized to do so that the Company has met at least ninety percent (90%) of its objective for EBITDA (as defined below) (100% of the Company's objective referred to herein as the "Performance Goals") with respect to any fiscal year commencing with the fiscal year ending December 31, 1999 and continuing for each of the four fiscal years thereafter (which Performance Goals are set forth on Annex I attached hereto), then (subject to the other restrictions in the Plan - 2 - and this Agreement), Optionee shall acquire the vested right to exercise the TARSAP Options to purchase ten percent (10%) of the TARSAP Shares, and for each additional one percent (1%) achievement over ninety percent (90%) of the Performance Goals for any such fiscal year, as so determined, Optionee shall acquire the vested right to exercise the TARSAP Options to purchase an additional one percent (1%) of the TARSAP Shares, but no more than twenty percent (20%) of the TARSAP Shares in respect of each full fiscal year. Additionally, on and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the fiscal year ending December 31, 2003 and at least ninety percent (90%) of its cumulative Performance Goals for the five fiscal years ending December 31, 2003 ("Five Year Performance Goals"), then subject to the other restrictions in the Plan and this Agreement, (i) Optionee shall acquire the vested right to exercise the TARSAP Options to purchase fifty percent (50%) of the TARSAP Shares as to which Optionee had not otherwise acquired the vested right to exercise, and (ii) for each additional one percent (1%) achievement over ninety percent (90%) of the Five Year Performance Goals, as so determined, Optionee shall acquire the vested right to exercise this TARSAP Option to purchase an additional five percent (5%) of the TARSAP Shares as to which Optionee has not otherwise acquired the vested right to exercise (such additional exercise rights pursuant to clauses (i) and (ii) above are referred to herein as the "Additional Exercise Rights"). Such determinations shall be made by the Board or such committee within ten (10) days after receipt of audited financial statements for each fiscal year. The Board's or committee's determination as to whether the Company has met such objectives shall be final and not subject to dispute. In addition, the Board or a committee thereof shall have complete discretion to modify such objectives from time to time for any year or years to reflect business combinations or dispositions, fiscal year changes, purchases or sales of assets or any other circumstances the Board or committee thereof deems relevant. For purposes hereof, "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, excluding any non-recurring or extraordinary items, as determined in accordance with generally accepted accounting principles, consistently applied. (iii) Acceleration Upon Sale. Notwithstanding any provision to the contrary in this Section 4.1(b), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the TARSAP Options shall become vested and immediately exercisable to the extent set forth below. On and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the last twelve (12) full months and at least ninety percent (90%) of its cumulative Performance Goals for the completed fiscal years (if any) and the Interim Period (as defined below) (based on months elapsed), the Board or such committee shall treat the percentage of cumulative Performance Goals achieved through the completed fiscal years (if any) and Interim Period as the percentage of Five Year Performance Goals achieved and on that basis shall determine the Additional Exercise Rights with respect to all 400,000 TARSAP Options as to which Optionee had not otherwise acquired the vested right to exercise consistent with the method set forth in the second - 3 - sentence of Section 4.1(b)(ii) above. The percentage of Five Year Performance Goals for such period shall be computed by dividing (i) the sum of EBITDA achieved for the completed fiscal years (if any) and the Interim Period by (ii) the annual Performance Goals for the completed fiscal years (if any) and the monthly Performance Goals for the Interim Period. For purposes hereof, the term "Interim Period" shall mean the period beginning on the first day of the then current fiscal year and ending on the last full month of that uncompleted fiscal year. For purposes hereof, the term "Sale" shall mean: (w) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of voting securities of (a) the Company or (b) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Person to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates; (x) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; (y) the acquisition by a third party not affiliated with the Company of all or substantially all of the Company's assets; or (z) individuals who constitute the Board on the date of the Company's initial public sale of equity securities registered under the Securities Act (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter. Any person becoming a director subsequent to such date whose, election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. The accelerated vesting provided in this Section 4.1(b)(iii) shall take effect immediately prior to but contingent upon the Sale giving rise to such accelerated vesting. The phrase "immediately prior to the Sale" shall be understood to mean sufficiently in advance of a Sale to permit the Optionee to take all steps reasonably necessary to permit the Optionee to become a shareholder of the Company as of the consummation of such Sale with respect to the TARSAP Shares subject to the accelerated vesting provided in this Section 4.1(b)(iii). The Board or committee thereof may in good faith shorten the Interim Period or make approximations of EBITDA during the Interim Period in order to comply with the preceding sentence. - 4 - (c) Partial Exercise. Subject to the other restrictions in the Plan and this Agreement, the Options may be exercised for all or a part of the Shares with respect to which each Option is exercisable under Section 4.1(a) and (b) above. 4.2 Method of Exercise; Stockholders Agreement. Subject to Section 4.1 and the other restrictions in the Plan and this Agreement, Options are exercisable from time to time by Optionee, who shall complete, execute and deliver to the Company a Form of Exercise and Stock Transfer Power substantially in the form attached hereto or in such other form as the Company may require. Except as otherwise permitted by Section 6(d) of the Plan, such notice shall be accompanied by payment in full for the Shares to be purchased. Payment of the Exercise Price may be made: (i) in cash, (ii) in shares of Common Stock which either (A) were purchased by Optionee in other than a compensatory transaction, (B) have been held by Optionee free and clear for at least six (6) months prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or in the sole discretion of the Committee, through a cashless exercise procedure. Optionee shall also execute and deliver to the Company a copy of the Company's Stockholders Agreement, dated as of January 20, 1999, in the form in effect at the time of exercise (as amended and modified from time to time, the "Stockholders Agreement"), if Optionee has not previously done so. Upon due exercise of any Option and (if required) execution and delivery of the Stockholders Agreement, subject to the terms and conditions in this Agreement, the Company shall issue in the name of Optionee and deliver to Optionee a certificate for the Shares in respect of which such Option shall have been exercised, but no Shares will be issued until arrangements satisfactory to Company have been made for appropriate income tax withholding, if any, pursuant to Section 12 hereof. 4.3 Exercise After Termination of Employment; Termination of Options. (a) Definitions. For purposes of this Section 4.3, the capitalized terms Good Reason, Cause, and Disability shall have the meanings set forth in the Management Agreement. (b) Termination Without Good Reason. Upon any termination of employment by Optionee without Good Reason, the Options may, to the extent exercisable and not terminated pursuant to Section 4.3(e), be exercised only within thirty (30) days after the date of such employment termination. This Section 4.3(b) shall not, however, extend the term of the Options beyond - 5 - that specified in Section 4.3(e). For purposes of this Section 4.3(b), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (c) Termination by Virtue of Death or Disability or Without Cause or With Good Reason. Upon any termination of employment of Optionee by virtue of Optionee's death or Disability or upon any termination of employment by Optionee with Good Reason, or by the Company without Cause, the Options may, to the extent exercisable and not terminated pursuant to Section 4.3(e), be exercised only within twelve (12) months after the date of such termination. This Section 4.3 (c) shall not extend the term of the Options beyond that specified in Section 4.3(e). For purposes of this Section 4.3(c), the extent to which the Options are exercisable shall be determined as of the date of termination of employment. (d) Termination for Cause. The Option shall terminate immediately upon termination of the employment of Optionee for Cause. (e) Other Termination. The Options shall not be exercisable after the earliest of (i) a Sale (provided that Optionee has at least five (5) business days prior to the Sale to exercise the Options or the Options are treated as exercised in connection with such Sale) or (ii) January 20, 2009. (f) Company Repurchase; Extension of Exercise Period. If Optionee properly elects to exercise all or any portion of the Option following a termination of Optionee's employment as described in Section 4.3(c) (a "Post-Termination Exercise"), at the written request of Optionee delivered to the Company prior to or simultaneously with the attempted exercise of such Option, the Company shall either: (i) offer to purchase from Optionee, within fifteen (15) days following its receipt of such request, at a purchase price equal to Fair Market Value, such portion of the Shares obtained by Optionee through the Post-Termination Exercise having an aggregate Fair Market Value equal to the excess of (A) Optionee's aggregate federal, state and local income tax obligations in respect of the Post-Termination Exercise over (B) any amounts related to income tax previously withheld by the Company with respect to such Post-Termination Exercise; or (ii) extend the period during which Optionee may exercise the Options specified in Optionee's notice until the earlier of (A) such time as the Company elects to comply with Section 4.3(f)(i), above (disregarding the fifteen (15) day period referenced therein), and (B) such time as the Shares to be received by Optionee upon the exercise of the Options specified in Optionee's notice are registered under the Securities Act and freely tradable. - 6 - 5. Non-transferability of Options. The Options shall not be transferable or assignable except upon Optionee's death by will or the laws of descent and distribution and shall be exercisable, during Optionee's lifetime, only by Optionee. 6. Purchase for Investment; Other Representations of Optionee; Legends. 6.1 Investment Intent. As provided in the Plan, in the event that the offering of Shares with respect to which the Options are being exercised is not registered under the Securities Act, but an exemption is available that requires an investment representation or other representation, Optionee, if electing to purchase Shares, will be required to represent that such Shares are being acquired for investment and not with a view to distribution thereof, and to make such other reasonable and customary representations regarding matters relevant to compliance with applicable securities laws as are deemed necessary by counsel to the Company. Stock certificates evidencing such unregistered Shares that are acquired upon exercise of the Options shall bear restrictive legends in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws or are provided for in the Stockholders Agreement or any other agreement to which Optionee is a party: THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED AT ANY TIME IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES AT SUCH TIME, OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH TRANSFER AT SUCH TIME WILL NOT VIOLATE THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS. 6.2 Other Representations. Optionee hereby represents and warrants to the Company as follows: (a) Access to Information. Because of Optionee's business relationship with the Company and with the management of the Company, Optionee has had access to all material and relevant information concerning the Company, thereby enabling Optionee to make an informed investment decision with respect to his investment in the Company, and all pertinent data and information requested by Optionee from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of this Agreement have been furnished. Optionee acknowledges that Optionee has had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company - 7 - and its representatives concerning the present and proposed business and financial condition of the Company. (b) Financial Sophistication. Optionee has such knowledge and experience in financial and business matters that Optionee is capable of evaluating the merits and risks of investing in the Shares. (c) Understanding the Investment Risks. Optionee understands that: (i) An investment in the Shares represents a highly speculative investment, and there can be no assurance as to the success of the Company in its business; and (ii) There is at present no market for the Shares and there can be no assurance that a market will develop in the future. (d) Understanding of the Nature of the Shares. Optionee understands and agrees that: (i) There can be no assurance that the Shares will be registered under the Securities Act or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and the representations and warranties of Optionee contained herein, which will have to be renewed as to the Shares at the times of exercise of the Options, are essential to any claim of exemption by the Company under the Securities Act and such state laws; (ii) If the Shares are not so registered, the Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (iii) The Option cannot be exercised and the Shares will not be sold to Optionee and Optionee cannot resell or transfer the Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (iv) Only the Company can register the Shares under the Securities Act and applicable state securities laws; - 8 - (v) The Company has not made any representations to Optionee that the Company will register the Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (vi) Optionee is aware of the conditions for Optionee's obtaining an exemption for the resale of the Shares under the Securities Act and any applicable state securities laws; and (vii) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act and any applicable state securities laws, and any additional restrictions imposed by state securities administrators. (e) Investment Intent. Optionee acknowledges that: (i) Optionee is acquiring the Option for Optionee's own account and not on behalf of any other person; (ii) Optionee is acquiring the option for investment and not with a view to distribution or with the intent to divide Optionee's participation with others or resell or otherwise distribute the Options or the Shares; (iii) Neither Optionee nor anyone acting on Optionee's behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Options or the Shares; and (iv) At the time of exercise of any Option, Optionee will have to make all the representations and warranties contained in this Section 6 with respect to the Shares to be issued and other representations concerning investment intent as a condition of the issuance of the Shares by the Company. 7. Restriction on Issuance of Shares. The Company shall not be obligated to sell or issue any Shares pursuant to this Agreement if such issuance would result in the violation of any laws, including the Securities Act or any applicable state securities laws. The Company agrees to use its reasonable best efforts to qualify for available exemptions under the Securities Act or any applicable state securities laws which will enable it to issue Shares hereunder in compliance with applicable law. 8. Rights as a Shareholder. Optionee shall have no rights as a shareholder with respect to any Shares covered by the Options until the date of exercise and payment of the Exercise Price in accordance with the terms of this Agreement. Subject to Section 3 hereof, no - 9 - adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 9. No Employment Rights. This Agreement shall not confer upon Optionee any right with respect to the continuance as an employee of the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate such employment at any time. 10. Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. 11. Notices. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or by reputable overnight courier service (charges prepaid), or transmitted by facsimile with answer-back confirmation to the following address, or any other address specified, by notice duly given: To Optionee at: William P. Johnson 1411 Highland Valley Cr. Chesterfield, MO 63005 To the Company at: United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: President Telecopy: (314) 253-5941 12. Withholdings. Except to the extent prohibited by applicable law, Optionee may satisfy any required withholding obligation upon the exercise of an Option hereunder by either of the following methods, or by a combination of such methods: (a) tendering a cash payment or (b) delivering to the Company previously acquired Shares, or having the Company withhold Shares otherwise deliverable upon the exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding obligation arises, less than or equal to the amount of the total withholding obligation. 13. Pro Rata Exercise. The Shares of Common Stock covered by this Option shall only be exercised, if at all, ratably among the Class A Shares and Class B Shares, based on the - 10 - aggregate number of Class A Shares and Class B Shares subject to the Options granted hereunder. 14. Registration of Shares. At any time after UIC Holdings, L.L.C., together with its affiliates, holds less than 25% of the Common Stock held by such entities as of the date hereof, Optionee shall have the right to cause the Company to register all of the Shares on a Form S-8, along with a Form S-3 reoffer prospectus, under the Securities Act of 1933, as amended from time to time, or any successor form thereto, and the Company shall use its reasonable best efforts to comply with such request in a timely manner. * * * * * - 11 - IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By -------------------------- Name: -------------------- Title: -------------------- OPTIONEE: ----------------------------- William P. Johnson - 12 - EX-10.12 17 UNITED INDUSTRIES STOCK OPTION AGREEMENT Exhibit 10.12 ------------- UNITED INDUSTRIES CORPORATION STOCK OPTION AGREEMENT THIS STOCK OPTION AGREEMENT (the "Agreement") is entered into as of January 20, 1999, by and between UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Company"), and David Jones ("Optionee") pursuant to the United Industries Corporation 1999 Stock Option Plan (the "Plan"). The Company and Optionee are referred to collectively herein as the "Parties." Capitalized terms used but not defined herein shall have the meaning set forth in the Plan. THE PARTIES AGREE AS FOLLOWS: 1. Grant of Options and Effective Date. 1.1 Grant. The Company hereby grants to Optionee pursuant to the Plan an option (the "Option") to purchase all or any part of an aggregate of 150,000 shares (the "Class A Shares") of the Company's Class A Voting Common Stock, par value $0.01 per share and 150,000 shares (the "Class B Shares" and, together with the Class A Shares (the "Shares")) of the Company's Class B Non-Voting Common Stock, par value $0.01 per share (collectively, "Common Stock"), on the terms and conditions set forth herein and in the Plan as in effect on the Grant Date (as defined below), the terms of which are incorporated herein by reference. 1.2 Grant Date. The Grant Date of this Option is January 20, 1999 (the "Grant Date"). 2. Exercise Price. The exercise price for the Shares of Common Stock covered by this Option shall be $5.00 per share (the "Exercise Price"). 3. Adjustment and Termination of Options. Subject to the restrictions, and under the circumstances described, in the Plan and this Agreement, the Company shall adjust the number and kind of Shares and the Exercise Price thereof, and this Option shall be terminated in certain circumstances, in accordance with the provisions of the Plan. 4. Exercise of Options. 4.1 When Exercisable. (a) Rate of Exercise for 5-Year Options. Optionee's right to exercise this Option as to 100,000 of the Shares (50,000 Class A Shares and 50,000 Class B Shares) subject thereto (the "5 Year Options") shall vest ratably over the five (5) year period commencing on the Grant Date in accordance with the following schedule if (but only if) Optionee is a director of the Company or any of its Subsidiaries as of each such date:
Cumulative Shares of Date 5 Year Option Vested ---- -------------------- 1st Anniversary of Grant Date 20,000 2nd Anniversary of Grant Date 40,000 3rd Anniversary of Grant Date 60,000 4th Anniversary of Grant Date 80,000 5th Anniversary of Grant Date 100,000
Notwithstanding any provision to the contrary in this Section 4.1(a), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the 5 Year Options shall become vested and immediately exercisable. (b) Rate of Exercise on TARSAP Options. (i) Optionee shall not be vested with the right to exercise this Option with respect to 200,000 of the Shares (100,000 Class A Shares and 100,000 Class B Shares) (the "TARSAP Shares") subject thereto (the "TARSAP Options") until ten (10) years after the Grant Date, at which time Optionee shall acquire the vested right to exercise the TARSAP Options and purchase one hundred percent (100%) of the TARSAP Shares if (but only if) Optionee is a director of the Company or any of its Subsidiaries as of such date. (ii) Acceleration of TARSAP Options. Notwithstanding the foregoing, if on and after the publication of each written determination by the Board of Directors of the Company (the "Board") or a committee thereof which is authorized to do so that the Company has met at least ninety percent (90%) of its objective for EBITDA (as defined below) (100% of the Company's objective referred to herein as the "Performance Goals") with respect to any fiscal year commencing with the fiscal year ending December 31, 1999 and continuing for each of the four fiscal years thereafter (which Performance Goals are set forth on Annex I attached hereto), then (subject to the other restrictions in the Plan and this Agreement), Optionee shall acquire the vested right to exercise the TARSAP Options to purchase ten percent (10%) of the TARSAP Shares, and for each additional one percent (1%) achievement over ninety percent (90%) of the Performance Goals for any such fiscal year, as so determined, Optionee shall acquire the vested right to exercise the TARSAP Options to purchase an additional one percent (1%) of the TARSAP Shares, but no more than twenty percent (20%) of the TARSAP Shares in respect of each full fiscal year. Additionally, on and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the fiscal year ending December 31, 2003 and at least ninety percent (90%) of its cumulative Performance Goals for the five fiscal years ending December 31, 2003 ("Five Year Performance Goals"), then subject to the other restrictions in the Plan and this Agreement, (i) Optionee shall acquire the vested right to - 2 - exercise the TARSAP Options to purchase fifty percent (50%) of the TARSAP Shares as to which Optionee had not otherwise acquired the vested right to exercise, and (ii) for each additional one percent (1%) achievement over ninety percent (90%) of the Five Year Performance Goals, as so determined, Optionee shall acquire the vested right to exercise this TARSAP Option to purchase an additional five percent (5%) of the TARSAP Shares as to which Optionee has not otherwise acquired the vested right to exercise (such additional exercise rights pursuant to clauses (i) and (ii) above are referred to herein as the "Additional Exercise Rights"). Such determinations shall be made by the Board or such committee within ten (10) days after receipt of audited financial statements for each fiscal year. The Board's or committee's determination as to whether the Company has met such objectives shall be final and not subject to dispute. In addition, the Board or a committee thereof shall have complete discretion to modify such objectives from time to time for any year or years to reflect business combinations or dispositions, fiscal year changes, purchases or sales of assets or any other circumstances the Board or committee thereof deems relevant. For purposes hereof, "EBITDA" shall mean earnings before interest, taxes, depreciation and amortization, excluding any non-recurring or extraordinary items, as determined in accordance with generally accepted accounting principles, consistently applied. (iii) Acceleration Upon Sale. Notwithstanding any provision to the contrary in this Section 4.1(b), but subject to the other restrictions in the Plan and this Agreement, in the event of a Sale (as defined below) prior to December 31, 2003, the TARSAP Options shall become vested and immediately exercisable to the extent set forth below. On and after publication of a written determination by the Board or a committee thereof which is authorized to do so that the Company has met at least eighty seven and one-half percent (87.5 %) of its Performance Goals for the last twelve (12) full months and at least ninety percent (90%) of its cumulative Performance Goals for the completed fiscal years (if any) and the Interim Period (as defined below) (based on months elapsed), the Board or such committee shall treat the percentage of cumulative Performance Goals achieved through the completed fiscal years (if any) and Interim Period as the percentage of Five Year Performance Goals achieved and on that basis shall determine the Additional Exercise Rights with respect to all 200,000 TARSAP Options as to which Optionee had not otherwise acquired the vested right to exercise consistent with the method set forth in the second sentence of Section 4.1(b)(ii) above. The percentage of Five Year Performance Goals for such period shall be computed by dividing (i) the sum of EBITDA achieved for the completed fiscal years (if any) and the Interim Period by (ii) the annual Performance Goals for the completed fiscal years (if any) and the monthly Performance Goals for the Interim Period. For purposes hereof, the term "Interim Period" shall mean the period beginning on the first day of the then current fiscal year and ending on the last full month of that uncompleted fiscal year. For purposes hereof, the term "Sale" shall mean: (w) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated - 3 - under the Exchange Act) of voting securities of (a) the Company or (b) the surviving entity in any reorganization, merger or consolidation (each an "Acquisition") involving the Company (any such entity referred to herein as the "Corporation") where such Acquisition causes such Person to own more than fifty percent (50%) of the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors, other than acquisitions by the Thomas H. Lee Company or its affiliates; (x) approval by the shareholders of the Company of a complete liquidation or dissolution of the Company; (y) the acquisition by a third party not affiliated with the Company of all or substantially all of the Company's assets; or (z) individuals who constitute the Board on the date of the Company's initial public sale of equity securities registered under the Securities Act (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board thereafter. Any person becoming a director subsequent to such date whose, election, or nomination for election, is, at any time, approved by a vote of at least a majority of the directors comprising the Incumbent Board shall be considered a member of the Incumbent Board. The accelerated vesting provided in this Section 4.1(b)(iii) shall take effect immediately prior to but contingent upon the Sale giving rise to such accelerated vesting. The phrase "immediately prior to the Sale" shall be understood to mean sufficiently in advance of a Sale to permit the Optionee to take all steps reasonably necessary to permit the Optionee to become a shareholder of the Company as of the consummation of such Sale with respect to the TARSAP Shares subject to the accelerated vesting provided in this Section 4.1(b)(iii). The Board or committee thereof may in good faith shorten the Interim Period or make approximations of EBITDA during the Interim Period in order to comply with the preceding sentence. (c) Partial Exercise. Subject to the other restrictions in the Plan and this Agreement, the Options may be exercised for all or a part of the Shares with respect to which each Option is exercisable under Section 4.1(a) and (b) above. 4.2 Method of Exercise; Stockholders Agreement. Subject to Section 4.1 and the other restrictions in the Plan and this Agreement, Options are exercisable from time to time by Optionee, who shall complete, execute and deliver to the Company a Form of Exercise and Stock Transfer Power substantially in the form attached hereto or in such other form as the Company may require. Except as otherwise permitted by Section 6(d) of the Plan, such notice shall be accompanied by payment in full for the Shares to be purchased. Payment of the Exercise Price may be made: (i) in cash, (ii) in shares of Common Stock which either (A) were purchased by Optionee in other than a compensatory transaction, (B) have been held by Optionee free and clear for - 4 - at least six (6) months prior to the use thereof to pay part or all of the Exercise Price or (C) otherwise are considered "mature" shares for purposes of generally accepted accounting principles, as determined by the Company's outside auditors, or (iii) so long as the Common Stock is publicly traded, by delivery to the Committee of irrevocable instructions to a stockbroker to deliver promptly to the Company an amount of sale or loan proceeds sufficient to pay a portion of the Exercise Price subject to this clause (iii), or a combination of the methods specified in clauses (i), (ii) and (iii), or in the sole discretion of the Committee, through a cashless exercise procedure. Optionee shall also execute and deliver to the Company a copy of the Company's Stockholders Agreement, dated as of January 20, 1999, in the form in effect at the time of exercise (as amended and modified from time to time, the "Stockholders Agreement"), if Optionee has not previously done so. Upon due exercise of any Option and (if required) execution and delivery of the Stockholders Agreement, subject to the terms and conditions in this Agreement, the Company shall issue in the name of Optionee and deliver to Optionee a certificate for the Shares in respect of which such Option shall have been exercised, but no Shares will be issued until arrangements satisfactory to Company have been made for appropriate income tax withholding, if any, pursuant to Section 12 hereof. 4.3 Exercise After Termination of Directorship; Termination of Options. (a) Termination of Vesting. Upon any termination of Optionee as a director of the Company or any of its Subsidiaries for any reason, the Options may, to the extent exercisable as of the date of termination and not terminated pursuant to Section 4.3(b), be exercised by Optionee until termination pursuant to Section 4.3(b). (b) Termination of Options. The Options shall not be exercisable after the earliest of (i) a Sale (provided that Optionee has at least five (5) business days prior to the Sale to exercise the Options or the Options are treated as exercised in connection with such Sale) or (ii) January 20, 2009. 5. Non-transferability of Options. The Options shall not be transferable or assignable except upon Optionee's death by will or the laws of descent and distribution and shall be exercisable, during Optionee's lifetime, only by Optionee. 6. Purchase for Investment; Other Representations of Optionee; Legends. 6.1 Investment Intent. As provided in the Plan, in the event that the offering of Shares with respect to which the Options are being exercised is not registered under the Securities Act, but an exemption is available that requires an investment representation or other representation, Optionee, if electing to purchase Shares, will be required to represent that such Shares are being acquired for investment and not with a view to distribution thereof, and to make such other reasonable and customary representations regarding matters relevant to compliance with applicable securities - 5 - laws as are deemed necessary by counsel to the Company. Stock certificates evidencing such unregistered Shares that are acquired upon exercise of the Options shall bear restrictive legends in substantially the following form and such other restrictive legends as are required or advisable under the provisions of any applicable laws or are provided for in the Stockholders Agreement or any other agreement to which Optionee is a party: THE SHARES REPRESENTED BY THIS STOCK CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), NOR UNDER ANY STATE SECURITIES LAWS AND SHALL NOT BE TRANSFERRED AT ANY TIME IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS WITH RESPECT TO SUCH SHARES AT SUCH TIME, OR (II) AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL, TO THE EFFECT THAT SUCH TRANSFER AT SUCH TIME WILL NOT VIOLATE THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS. 6.2 Other Representations. Optionee hereby represents and warrants to the Company as follows: (a) Access to Information. Because of Optionee's business relationship with the Company and with the management of the Company, Optionee has had access to all material and relevant information concerning the Company, thereby enabling Optionee to make an informed investment decision with respect to his investment in the Company, and all pertinent data and information requested by Optionee from the Company or its representatives concerning the business and financial condition of the Company and the terms and conditions of this Agreement have been furnished. Optionee acknowledges that Optionee has had the opportunity to ask questions of and receive answers from and to obtain additional information from the Company and its representatives concerning the present and proposed business and financial condition of the Company. (b) Financial Sophistication. Optionee has such knowledge and experience in financial and business matters that Optionee is capable of evaluating the merits and risks of investing in the Shares. (c) Understanding the Investment Risks. Optionee understands that: (i) An investment in the Shares represents a highly speculative investment, and there can be no assurance as to the success of the Company in its business; and - 6 - (ii) There is at present no market for the Shares and there can be no assurance that a market will develop in the future. (d) Understanding of the Nature of the Shares. Optionee understands and agrees that: (i) There can be no assurance that the Shares will be registered under the Securities Act or any state securities laws and if they are not so registered, they will only be issued and sold in reliance upon certain exemptions contained in the Securities Act and applicable state securities laws, and the representations and warranties of Optionee contained herein, which will have to be renewed as to the Shares at the times of exercise of the Options, are essential to any claim of exemption by the Company under the Securities Act and such state laws; (ii) If the Shares are not so registered, the Shares will be "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act; (iii) The Option cannot be exercised and the Shares will not be sold to Optionee and Optionee cannot resell or transfer the Shares without registration under the Securities Act and applicable state securities laws unless the Company receives an opinion of counsel acceptable to it (as to both counsel and the opinion) that such registration is not necessary, the cost of such opinion to be borne by the Company; (iv) Only the Company can register the Shares under the Securities Act and applicable state securities laws; (v) The Company has not made any representations to Optionee that the Company will register the Shares under the Securities Act or any applicable state securities laws, or with respect to compliance with any exemption therefrom; (vi) Optionee is aware of the conditions for Optionee's obtaining an exemption for the resale of the Shares under the Securities Act and any applicable state securities laws; and (vii) The Company may, from time to time, make stop transfer notations in its transfer records to ensure compliance with the Securities Act and any applicable state securities laws, and any additional restrictions imposed by state securities administrators. - 7 - (e) Investment Intent. Optionee acknowledges that: (i) Optionee is acquiring the Option for Optionee's own account and not on behalf of any other person; (ii) Optionee is acquiring the option for investment and not with a view to distribution or with the intent to divide Optionee's participation with others or resell or otherwise distribute the Options or the Shares; (iii) Neither Optionee nor anyone acting on Optionee's behalf has paid or will pay a commission or other remuneration to any person in connection with the acquisition of the Options or the Shares; and (iv) At the time of exercise of any Option, Optionee will have to make all the representations and warranties contained in this Section 6 with respect to the Shares to be issued and other representations concerning investment intent as a condition of the issuance of the Shares by the Company. 7. Restriction on Issuance of Shares. The Company shall not be obligated to sell or issue any Shares pursuant to this Agreement if such issuance would result in the violation of any laws, including the Securities Act or any applicable state securities laws. The Company agrees to use its reasonable best efforts to qualify for available exemptions under the Securities Act or any applicable state securities laws which will enable it to issue Shares hereunder in compliance with applicable law. 8. Rights as a Shareholder. Optionee shall have no rights as a shareholder with respect to any Shares covered by the Options until the date of exercise and payment of the Exercise Price in accordance with the terms of this Agreement. Subject to Section 3 hereof, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 9. No Directorship Rights. This Agreement shall not confer upon Optionee any right with respect to the continuance as a director of the Company or any Subsidiary, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate such directorship at any time. 10. Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. - 8 - 11. Notices. All notices and other communications under this Agreement shall be in writing, and shall be deemed to have been duly given on the date of delivery if delivered personally or when received if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or by reputable overnight courier service (charges prepaid), or transmitted by facsimile with answer-back confirmation to the following address, or any other address specified, by notice duly given: To Optionee at: David Jones 4596 Signature Drive Middleton, WI 53562 Telecopy (608) 828-9721 To the Company at: United Industries Corporation 8825 Page Boulevard St. Louis, MO 63114 Attention: President Telecopy: (314) 253-5941 12. Withholdings. Except to the extent prohibited by applicable law, Optionee may satisfy any required withholding obligation upon the exercise of an Option hereunder by either of the following methods, or by a combination of such methods: (a) tendering a cash payment or (b) delivering to the Company previously acquired Shares, or having the Company withhold Shares otherwise deliverable upon the exercise of an Option, in either case having an aggregate Fair Market Value, determined as of the date the withholding obligation arises, less than or equal to the amount of the total withholding obligation. 13. Pro Rata Exercise. The Shares of Common Stock covered by this Option shall only be exercised, if at all, ratably among the Class A Shares and Class B Shares, based on the aggregate number of Class A Shares and Class B Shares subject to the Options granted hereunder. 14. Registration of Shares. At any time after UIC Holdings, L.L.C., together with its affiliates, holds less than 25% of the Common Stock held by such entities as of the date hereof, Optionee shall have the right to cause the Company to register all of the Shares on a Form S-8, along with a Form S-3 reoffer prospectus, under the Securities Act of 1933, as amended from time to time, or any successor form thereto, and the Company shall use its reasonable best efforts to comply with such request in a timely manner. * * * * * - 9 - IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written. UNITED INDUSTRIES CORPORATION By -------------------------- Name: -------------------- Title: -------------------- OPTIONEE: ----------------------------- David Jones - 10 - EX-10.13 18 UNITED INDUSTRIES STOCKHOLDERS AGREEMENT Exhibit 10.13 ------------- UNITED INDUSTRIES CORPORATION STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (this "Agreement") is made as of January 20, 1999, by and among United Industries Corporation, a Delaware corporation (the "Company"), UIC Holdings, L.L.C., a Delaware limited liability company ("Holdings"), and certain other stockholders of the Company who are from time to time party hereto (Holdings and such other stockholders who are parties hereto from time to time are collectively referred to as the "Stockholders" and individually as a "Stockholder"). Each Stockholder and the Company are referred to individually as a "Party" and collectively as the "Parties." Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in Section 6 hereof. The execution and delivery of this Agreement by certain of the Stockholders, the Company and Holdings is a condition to closing under that certain Agreement and Plan of Recapitalization, Purchase and Redemption, dated as of December 24, 1998 (as amended from time to time, the "Recapitalization Agreement"), by and among the Company, Holdings and certain sellers listed therein. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: Section 1. Representations and Warranties; No Inconsistent Agreements. (a) Each Stockholder represents and warrants that (i) such Stockholder is the record owner of the number of Stockholder Shares set forth opposite its name on the Schedule of Stockholders attached hereto, (ii) in the case of any Stockholder that it not a natural person, this Agreement has been duly authorized, and in the case of all Stockholders, this Agreement has been duly executed and delivered by such Stockholder and constitutes the valid and binding obligation of such Stockholder, enforceable in accordance with its terms, and (iii) such Stockholder has not granted and is not a party to any proxy, voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. (b) No holder of Stockholder Shares shall grant any proxy or become party to any voting trust or other agreement which is inconsistent with, conflicts with or violates any provision of this Agreement. - 1 - Section 2. Restrictions on Transfer of Stockholder Shares. (a) Restrictions on Transfer Applicable to All Stockholders Other Than Holdings. No Stockholder (other than Holdings) may, directly or indirectly, Transfer Stockholder Shares except (i) with the prior written consent of the Board of Directors of the Company, which consent may be withheld in its sole discretion, or (ii) pursuant to Sections 2(b), 2(c), 3 or 5 below. (b) Restrictions on Transfer Applicable to Holdings; Participation Rights. Holdings may Transfer its Stockholder Shares in its sole discretion; provided that Holdings shall comply with the provisions of this Section 2(b) in connection with any such Transfer (other than pursuant to a Public Sale or to a Permitted Transferee). At least 15 days prior to any Transfer of Stockholder Shares by Holdings (other than pursuant to a Public Sale or to a Permitted Transferee), Holdings shall deliver a written notice (the "Sale Notice") to the Company and each other Stockholder, specifying in reasonable detail the number of shares to be Transferred and the terms and conditions of the Transfer. Each Stockholder may elect to participate in the contemplated Transfer at the same price per share and on the same terms by delivering written notice to Holdings within 15 days after delivery of the Sale Notice. If any Stockholder elects to participate in such Transfer, such Stockholder shall be entitled to Transfer in the contemplated Transfer, at the same price and on the same terms as Holdings, a number of Stockholder Shares equal to the product of (i) the percentage of the total number of outstanding Stockholder Shares owned by such Stockholder and (ii) the number of Stockholder Shares to be Transferred in the contemplated Transfer. For example, if the Sale Notice contemplated a sale of 100 Stockholder Shares by Holdings, and if one Stockholder elects to participate and owns 10% of the total number of outstanding Stockholder Shares, such Stockholder would be entitled to sell 10 shares (10% x 100 shares). Holdings shall not Transfer any of its Stockholder Shares to any prospective transferee if such prospective transferee(s) declines to allow the participation of electing Stockholders. Each Stockholder Transferring Stockholder Shares pursuant to this Section 2(b) shall pay its pro rata share (based on the number of Stockholder Shares to be sold) of the expenses incurred by the Stockholders in connection with such Transfer (other than transaction fees paid to Holdings or its Affiliates) and shall be obligated to join on a pro rata basis (based on the number of Stockholder Shares to be sold) in any representations, warranties, indemnification provisions or other obligations (including without limitation any escrow arrangements) that Holdings agrees to provide in connection with such Transfer (other than any such obligations that relate specifically to a particular Stockholder such as indemnification with respect to representations and warranties given by a Stockholder regarding such Stockholder's title to and ownership of Stockholder Shares); provided that no Stockholder shall be obligated in connection with such Transfer to agree to indemnify or hold harmless the transferees with respect to an amount in excess of the sum of the net cash and value of other proceeds paid to such Stockholder in connection with such Transfer. Notwithstanding anything to the contrary contained in this Section 2(b), no Stockholder shall be entitled to participate in such Transfer (other than a Transfer which constitutes a Sale of the Company) if the Company's - 2 - independent accountants advise the Company in writing (copies of which the Company will promptly provide to any Stockholder upon request therefor) that the inclusion of such Stockholder will adversely affect the recapitalization accounting treatment of the transactions contemplated by the Recapitalization Agreement; provided, that the foregoing is intended solely to protect the recapitalization accounting treatment of the transactions contemplated by the Recapitalization Agreement and shall not be deemed to allow Holdings, without sufficient basis in the form of written advice from the Company's independent accountants, to prohibit any Stockholder from participating in a Transfer if such participation will not adversely affect such recapitalization accounting treatment. (c) Permitted Transfers. The restrictions set forth in this Section 2 shall not apply with respect to any Transfer of Stockholder Shares (i) by Holdings to any of its Affiliates (ii) by Holdings to the Company within 180 days after the date hereof of Stockholder Shares with a purchase price not to exceed in the aggregate $2,000,000, or (iii) by a Stockholder to members of such Stockholder's Family Group (such transferees are collectively referred to herein as "Permitted Transferees"); provided that the restrictions contained in this Section 2 shall continue to be applicable to the Stockholder Shares after any such Transfer; and provided further that prior to or in connection with such Transfer, the transferee of such Stockholder Shares shall have executed a Transfer Notice in the form attached hereto as Exhibit A pursuant to which such transferee agrees to be bound by the provisions of this Agreement affecting the Stockholder Shares so Transferred. Notwithstanding the foregoing, no Party shall avoid the provisions of this Agreement by making one or more Transfers to one or more Permitted Transferees and then disposing of all or any portion of such Party's interest in any such Permitted Transferee, or, in the case of an entity Stockholder, by permitting a Transfer of any ownership interests in such entity Stockholder. Section 3. Sale of Company; Reorganization Prior to Public Offering. (a) Approved Sale. Subject to Section 3(c) below, if the Company's Board of Directors recommends or approves or the holders of a majority of the outstanding shares of Common Stock (the "Majority Holders") approve a Sale of the Company (an "Approved Sale"), each Stockholder agrees to vote for, consent to and raise no objections against the Approved Sale. If the Approved Sale is structured as a (i) merger or consolidation, each Stockholder shall waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) sale of stock, each Stockholder shall agree to sell all of its shares of Common Stock on the terms and conditions approved by the Majority Holders. Each Stockholder shall take all necessary or desirable actions in connection with the consummation of the Approved Sale as reasonably requested by the Majority Holders and/or the Company. (b) Reorganization Prior to Public Offering. Subject to Section 3(c) below, if the Company's Board of Directors recommends or approves or the Majority Holders approve a reorganization of the Company in connection with a proposed initial Public Offering by the Company (the "Approved Reorganization"), each Stockholder agrees to vote for, consent to and raise no objections against the Approved Reorganization. If the Approved Reorganization is structured - 3 - as a (i) merger or consolidation, each Stockholder shall waive any dissenters' rights, appraisal rights or similar rights in connection with such merger or consolidation or (ii) sale of stock, each Stockholder shall agree to sell all of its shares of Common Stock on the terms and conditions approved by the Majority Holders. Each Stockholder shall take all necessary or desirable actions in connection with the consummation of the Approved Reorganization as reasonably requested by the Majority Holders and/or the Company. (c) Obligations of Stockholders. In connection with an Approved Sale or Approved Reorganization: (i) upon the consummation of the Approved Sale or Approved Reorganization, all of the Stockholders shall receive the same form and amount of consideration per share of Common Stock, or if any Stockholders are given an option as to the form and amount of consideration to be received, all Stockholders shall be given the same option; provided, that if any consideration to be paid in connection with such Approved Sale or Approved Reorganization takes the form of restricted securities of another entity and any Stockholder is granted registration rights with respect thereto in connection with such Approved Sale or Approved Reorganization, then all Stockholders shall be entitled to similar registration rights (it being understood that if the holders (or former holders) of Holdings Stockholder Shares are granted demand registration rights and the holders (or former holders) of other Stockholder Shares are granted piggyback registration rights similar to the provisions set forth in Section 5 hereto, such rights shall qualify as "similar registration rights"); and (ii) all Stockholders who hold then currently exercisable rights to acquire shares of Common Stock shall be given an opportunity to either (A) exercise such rights prior to the consummation of the Approved Sale or Approved Reorganization and participate in such sale as Stockholders or (B) upon the consummation of the Approved Sale or Approved Reorganization, receive in exchange for such rights consideration equal to the amount determined by multiplying (1) the same amount of consideration per share of Common Stock received by the Stockholders in connection with the Approved Sale or Approved Reorganization less the exercise price per share of Common Stock of such rights to acquire Common Stock by (2) the number of shares of Common Stock represented by such rights. (d) Purchaser Representative. If any transaction undertaken pursuant to this Section 3 involves entering into any negotiation or transaction for which Rule 506 under the Securities Act (or any similar rule then in effect) promulgated by the Securities and Exchange Commission may be available with respect to such negotiation or transaction (including a merger, consolidation or other reorganization), those Stockholders involved in such transaction who are not "accredited investors" (as such term is defined in Rule 501 under the Securities Act) (the "Unaccredited Stockholders") shall, at the request of the Company or the Majority Holders, appoint one "purchaser representative" (as such term is defined in Rule 501 under the Securities Act (or any similar rule then in effect)) for all such Unaccredited Stockholders reasonably acceptable to the Company. The Company shall first propose a purchaser representative to the Unaccredited Stockholders. If holders of a majority of the Stockholders Shares held by the Unaccredited Stockholders do not approve the purchaser representative designated by the Company, such holders shall appoint one purchaser representative to represent all Unaccredited Stockholders, subject to the - 4 - approval of the Company (which approval shall not be unreasonably withheld). The Company shall be responsible for the fees of the purchaser representative so appointed. (e) Transaction Costs and Indemnity. Each Stockholder involved in any transaction pursuant to this Section 3 shall be required to bear its pro rata share (based upon the number of shares sold or the number of shares to be acquired pursuant to options or other rights) of the expenses incurred by the Stockholders in connection with such transaction (other than transaction fees paid to Holdings or its Affiliates) to the extent such costs are incurred for the benefit of all such Stockholders and are not otherwise paid by the Company or the acquiring party and each Stockholder shall be obligated to join on a pro rata basis (based on the number of shares sold or the number of shares to be acquired pursuant to options or other rights) in any representations, warranties, indemnification provisions or other obligations (including without limitation any escrow arrangements) that Holdings agrees to provide in connection with such transaction (other than any such obligations that relate specifically to a particular Stockholder such as indemnification with respect to representations and warranties given by a Stockholder regarding such Stockholder's title to and ownership of Stockholder Shares); provided that no Stockholder shall be obligated in connection with such transaction to agree to indemnify or hold harmless the transferees with respect to an amount in excess of the net cash proceeds paid to such Stockholder in connection with such transaction. The Company will use its reasonable best efforts to provide a draft of any agreement to be signed by any Stockholder in connection with any such transaction to be sent to each Stockholder at least five days prior to the date of execution and delivery of such agreement. Costs incurred by any such Stockholder on its own behalf shall not be considered costs of the transaction hereunder. Section 4. Additional Restrictions on Transfer. (a) Restricted Securities Legend. The Stockholder Shares have not been registered under the Securities Act and, therefore, in addition to the other restrictions on Transfer contained in this Agreement, cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is then available. Each certificate evidencing Stockholder Shares and each certificate issued in exchange for or upon the Transfer of any Stockholder Shares shall be stamped or otherwise imprinted with a legend in substantially the following form: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON ___________, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER SPECIFIED IN THE STOCKHOLDERS AGREEMENT, DATED AS OF JANUARY 20, 1999 (THE "STOCKHOLDERS AGREEMENT"), AS AMENDED AND MODIFIED FROM - 5 - TIME TO TIME, AMONG THE ISSUER (THE "COMPANY"), AND CERTAIN INVESTORS, AND THE COMPANY RESERVES THE RIGHT TO REFUSE THE TRANSFER OF SUCH SECURITIES UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED WITH RESPECT TO ANY TRANSFER. A COPY OF THE STOCKHOLDERS AGREEMENT SHALL BE FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE." The Company shall imprint such legend on certificates evidencing Stockholder Shares. The legend set forth above shall be removed from the certificates evidencing any securities of the Company which cease to be Stockholder Shares in accordance with the definition thereof. (b) Opinion of Counsel. No holder of Stockholder Shares may Transfer any Securities (except (i) pursuant to an effective registration statement under the Securities Act, (ii) to a wholly-owned Affiliate or (iii) as part of a Public Sale) without first delivering to the Company (unless waived by the Board of Directors) an opinion of counsel (reasonably acceptable in form and substance to the Board of Directors) that neither registration nor qualification under the Securities Act and applicable state securities laws is required in connection with such Transfer. The conditions to Transfer set forth in this Section 4(b) are in addition to any other restrictions on Transfer contained in this Agreement. (c) Actions By Transferee. Prior to Transferring any Stockholder Shares (other than pursuant to a Public Sale), the Transferring holder of Stockholder Shares shall cause the prospective transferee to be bound by this Agreement and to execute and deliver to the Company and the other holders of Stockholder Shares counterparts to this Agreement. (d) Transfers in Violation of Agreement. Any Transfer or attempted Transfer of any Stockholder Shares in violation of any provision of this Agreement shall be void, and the Company shall not record such Transfer on its books or treat any purported transferee of such Stockholder Shares as the owner of such shares for any purpose. Section 5. Registration Rights. (a) Demand Registrations. (i) Requests for Registration. At any time, the holders of a majority of Holdings Stockholder Shares may request registration under the Securities Act of (x) all or any portion of their Stockholder Shares on Form S-1 or any similar long-form registration ("Long-Form Registrations"), or (y) all or any portion of its Stockholder Shares on Form S-2 or S-3 (including pursuant to Rule 415 under the Securities Act) or any similar short-form registration ("Short-Form Registrations"), if available. All registrations requested pursuant to this Section 5(a) are referred to herein as "Demand Registrations." Each request for a Demand Registration shall specify the approximate number of Stockholder Shares requested - 6 - to be registered and the anticipated per share price range for such offering. Within 10 days after receipt of any such request, the Company shall give written notice of such requested registration to all other holders of Stockholder Shares and, subject to Section 5(a)(iv) below, shall include in such registration all Stockholder Shares with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. In connection with a Demand Registration or Piggyback Registration (as defined below), Stockholder Shares which are options, warrants or other securities which are exerciseable, convertible or exchangeable for Common Stock shall be required to be exercised, converted or exchanged prior to being included in such registration; provided that the Company shall permit such exercise, conversion or exchange to be conditioned upon inclusion in such registration. (ii) Long-Form Registrations. The holders of a majority of Holdings Stockholder Shares shall be entitled to request unlimited Long-Form Registrations in which the Company shall pay all Registration Expenses (as defined in Section 5(e) below). All Long-Form Registrations shall be underwritten registrations. (iii) Short-Form Registrations. In addition to the Long-Form Registrations provided pursuant to Section 5(a)(ii), the holders of a majority of Holdings Stockholder Shares shall be entitled to request an unlimited number of Short-Form Registrations in which the Company shall pay all Registration Expenses. Notwithstanding anything contained herein to the contrary, Demand Registrations shall be Short-Form Registrations whenever the Company is permitted to use any applicable short form. After the Company has become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the Company shall use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Stockholder Shares. If the Company is qualified to and, pursuant to the request of the holders of Stockholder Shares entitled to demand a registration as permitted above, has filed with the Securities and Exchange Commission a registration statement under the Securities Act on Form S-3 pursuant to Rule 415 under the Securities Act (the "Required Registration"), the Company shall use its best efforts to cause the Required Registration to be declared effective under the Securities Act as soon as practicable after filing, and once effective, the Company shall cause such Required Registration to remain effective for a period ending on the earlier of (x) the date on which all Stockholder Shares have been sold pursuant to the Required Registration or (y) the date which is 90 days following the declaration of effectiveness of the Required Registration (the "Effective Period"). (iv) Priority on Demand Registrations. The Company shall not include in any Demand Registration any securities which are not Stockholder Shares without the prior written consent of the holders of a majority of Holdings Stockholder Shares, unless the Company has granted Piggyback Registration rights to the holder of such securities. If a Demand Registration is an underwritten offering and the managing underwriters advise the Company in writing (with a copy to each party hereto requesting registration of Stockholder - 7 - Shares) that in their opinion the number of Stockholder Shares and, if permitted hereunder, other securities requested to be included in such offering exceeds the number of Stockholder Shares and other securities, if any, which can be sold without adversely affecting the marketability of the offering, the Company shall include in such registration (x) first, Stockholder Shares requested to be included in such registration and Warrant Shares requested to be included in such registration, pro rata among the holders of such shares on the basis of the number of shares owned by each such holder and (y) second, the other securities requested to be included in such registration. (v) Restrictions on Demand Registrations. The Company shall not be obligated to effect any Demand Registration within 180 days after the effective date of a previous Demand Registration or within 90 days prior to the proposed effective date of any such registration statement. The Company shall be entitled to postpone, for up to 180 days, the filing or the effectiveness of a registration statement for a Demand Registration if the Company determines, through its Board of Directors, that such Demand Registration would be reasonably expected (x) to have an adverse effect on any proposal or plan by the Company or any of its Subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or similar transaction or (y) to otherwise be detrimental to the Company or its securityholders. (vi) Selection of Underwriters. The holders of a majority of Holdings Stockholder Shares included in any Demand Registration will have the right to select the investment banker(s) and manager(s) to administer the offering. (vii) Other Registration Rights. Except as provided in this Agreement, the Company shall not grant to any Persons the right to request the Company to register any equity securities of the Company, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of a majority of Holdings Stockholder Shares. (b) Piggyback Registrations. (i) Right to Piggyback. Whenever the Company proposes to register any of its equity securities under the Securities Act (other than pursuant to any Demand Registration and other than a registration on Forms S-4 or S-8 (or any successor forms thereto) or any other form for which Stockholder Shares are not eligible under the Securities Act for registration) (a "Piggyback Registration"), the Company shall give prompt written notice to all holders of Stockholder Shares of its intention to effect such a registration and shall include in such registration all Stockholder Shares with respect to which the Company has received written requests for inclusion therein within 15 days after the receipt of the Company's notice. - 8 - (ii) Piggyback Expenses. The Registration Expenses of the holders of Stockholder Shares shall be paid by the Company in all Piggyback Registrations. (iii) Priority on Piggyback Registrations. If a Piggyback Registration is an underwritten registration on behalf of the Company or any other Person, and the managing underwriters advise the Company in writing that in their opinion the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering, the Company shall include in such registration (w) first, the securities the Company proposes to sell, (x) second, all Common Stock hereafter issued to Persons (other than Holdings or its Affiliates) who exercise demand registration rights pursuant to agreements binding upon the Company, (y) third, the Stockholder Shares held by all Stockholders requested to be included in such registration and Warrant Shares requested to be included in such registration, pro rata among the holders of such shares on the basis of the number of shares owned by each such holder, and (z) fourth, other securities requested to be included in such registration. (c) Holdback Agreement. Each holder of Stockholder Shares shall not effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of the Company, or any securities convertible into or exchangeable or exercisable for such securities, during the seven days prior to and the 180-day period beginning on the effective date of any underwritten registration of the Company's securities (except as part of such underwritten registration), unless the underwriters managing the Public Offering otherwise agree. (d) Registration Procedures. Whenever the holders of Stockholder Shares have requested that any Stockholder Shares be registered pursuant to this Agreement, the Company shall use its reasonable best efforts to effect the registration and the sale of such Stockholder Shares in accordance with the intended method of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible: (i) prepare and file with the Securities and Exchange Commission a registration statement with respect to such Stockholder Shares and use its reasonable best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company shall furnish to the counsel selected by the holders of a majority of the Stockholder Shares covered by such registration statement copies of all such documents proposed to be filed, which documents shall be subject to the review and comment before filing of such counsel); (ii) notify each holder of Stockholder Shares of the effectiveness of each registration statement filed hereunder and prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of not less than 180 days and comply with the provisions of - 9 - the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iii) furnish to each seller of Stockholder Shares such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Stockholder Shares owned by such seller; (iv) use its reasonable best efforts to register or qualify such Stockholder Shares under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Stockholder Shares owned by such seller (provided that the Company shall not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction); (v) notify each seller of such Stockholder Shares, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Company shall prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Stockholder Shares, such prospectus shall not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (vi) cause all such Stockholder Shares to be listed on each securities exchange on which similar securities issued by the Company are then listed and, if not so listed, to be listed on the NASD automated quotation system; (vii) provide a transfer agent and registrar for all such Stockholder Shares not later than the effective date of such registration statement; (viii) enter into such customary agreements (including underwriting agreements in customary form) approved by the holders of a majority of the Stockholder Shares and take all such other actions as the holders of a majority of the Stockholder Shares being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Stockholder Shares (including effecting a stock split or a combination of shares); - 10 - (ix) make available for inspection by any seller of Stockholder Shares, any underwriter participating in any disposition pursuant to such registration statement and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (x) otherwise use its reasonable best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve months beginning with the first day of the Company's first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder; (xi) use its reasonable best efforts to cause such Stockholder Shares covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Stockholder Shares; and (xii) cause representatives of the Company to participate in any "road show" or "road shows" reasonably requested by any underwriter. (e) Registration Expenses. (i) All expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, travel expenses, filing expenses, messenger and delivery expenses, fees and disbursements of custodians, fees and disbursements of counsel for the Company and fees and disbursements of all independent certified public accountants, underwriters (excluding discounts and commissions) and other Persons retained by the Company (all such expenses being herein called "Registration Expenses"), shall be borne by the Company, except as otherwise expressly provided in this Agreement, except that the Company shall, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by the Company are then listed or on the NASD automated quotation system (or any successor or similar system). (ii) In connection with each Demand Registration and each Piggyback Registration, the Company shall reimburse the holders of Stockholder Shares included in - 11 - such registration for the reasonable fees and disbursements of one counsel (in addition to local counsel) chosen by the holders of a majority of the Stockholder Shares included in such registration. (iii) To the extent Registration Expenses are not required to be paid by the Company, each holder of securities included in any registration hereunder shall pay those Registration Expenses allocable to the registration of such holder's securities so included (other than transaction fees paid to Holdings or its Affiliates), and any Registration Expenses not so allocable shall be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of the securities to be so registered (other than transaction fees paid to Holdings or its Affiliates). (f) Indemnification. (i) The Company agrees to indemnify, to the extent permitted by law, each holder of Stockholder Shares, its officers and directors and each Person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Company by such holder expressly for use therein or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Company has furnished such holder with a sufficient number of copies of the same. In connection with an underwritten offering, the Company shall indemnify such underwriters, their officers and directors and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Stockholder Shares. (ii) In connection with any registration statement in which a holder of Stockholder Shares is participating, each such holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, shall indemnify the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify shall be individual, not joint and several, for each holder and shall be limited to the net - 12 - amount of proceeds received by such holder from the sale of Stockholder Shares pursuant to such registration statement. (iii) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent shall not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. (iv) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities. The Company also agrees to make such provisions, as are reasonably requested by any indemnified party, for contribution to such party in the event the Company's indemnification is unavailable for any reason. (g) Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements. Section 6. Definitions. (a) Defined Terms. The following definitions shall be applied to the capitalized terms used in this Agreement for all purposes, unless otherwise clearly indicated to the contrary. "Affiliate" of any Person means any other Person, directly or indirectly controlling, controlled by or under common control with such Person. "Common Stock" means the Company's Class A Voting Common Stock, par value $0.01 per share and the Company's Class B Non-Voting Common Stock. par value $0.01 per share. - 13 - "Family Group" means a Stockholder's spouse, siblings, parents and descendants (whether natural or adopted), any trust solely for the benefit of such Stockholder and/or the Stockholder's spouse and/or descendants (and the beneficiaries of such trusts upon their dissolution), a Stockholder's heirs, devises or estate upon such Stockholder's death and any corporation, partnership or limited liability company controlled (as defined below) by one or more Stockholders; provided that in the case of such a corporation, partnership or limited liability company, such entity shall be part of a Family Group only so long as such Stockholder(s) continue(s) to control such entity, and if for any reason such Stockholder(s) no longer control such entity, such Stockholder(s) shall be required to cause the Stockholder Shares owned by such entity to be Transferred back to such Stockholder(s). For purposes of this definition, "control" shall mean record and beneficial ownership of more than 50% of both (i) the outstanding shares of common stock or other equity securities of such entity and (ii) the combined voting power of the such entity's then outstanding voting securities entitled to vote generally in the election of directors of such entity. "Holdings Stockholder Shares" means the Stockholder Shares originally issued to Holdings pursuant to the Recapitalization Agreement. "Independent Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of 50% of the Class A Voting Common Stock on a fully-diluted basis (a "50% Owner"), who is not an Affiliate of any such 50% Owner, who is not the spouse or descendent (by birth or adoption) of any such 50% Owner or a trust for the benefit of any such 50% Owner and/or such other Persons, and who is not a Person who through contract or other arrangements (other than arrangements entered into in connection with the contemplated transactions) would be an Affiliate immediately after the contemplated transaction. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Public Offering" means the sale in an underwritten public offering registered under the Securities Act of shares of any class of the Common Stock. "Public Sale" means any sale of Stockholder Shares to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker pursuant to the provisions of Rule 144 under the Securities Act. "Sale of the Company" means the sale of the Company to an Independent Third Party or group of Independent Third Parties pursuant to which such party or parties acquire (i) capital stock of the Company possessing the voting power under normal circumstances to elect a majority of the Company's Board of Directors (whether by merger, consolidation, sale or transfer of the Company's capital stock) or (ii) more than 50% of the Company's assets determined on a consolidated basis. - 14 - "Securities Act" means the Securities Act of 1933, as amended from time to time. "Stockholder Shares" means (i) any Common Stock purchased or otherwise acquired by any Stockholder, (ii) any Common Stock issued or (to extent vested and exerciseable) issuable to any Stockholder upon exercise of any options, warrants or other convertible or exchangeable securities and (iii) any Common Stock issued or issuable to any Stockholder with respect to the securities referred to in clauses (i) and (ii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization. As to any particular shares constituting Stockholder Shares, such shares shall cease to be Stockholder Shares when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them, (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the Securities Act or (z) or repurchased by the Company or any Subsidiary. "Subsidiary" means, with respect to any Person, any corporation, limited liability company, partnership, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a limited liability company, partnership, association or other business entity, a majority of the limited liability company, partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association or other business entity if such Person or Persons shall be allocated a majority of limited liability company, partnership, association or other business entity gains or losses or shall be or control the managing director or general partner of such limited liability company, partnership, association or other business entity. "Transfer" means any sale, transfer, assignment, pledge or other disposition (whether with or without consideration and whether voluntarily or involuntarily or by operation of law). "Warrant Shares" means shares of Common Stock issued or issuable upon exercise of any warrants issued by the Company in connection with the Senior Subordinated Increasing Rate Notes issued in connection with the consummation of the transactions contemplated by the Recapitalization Agreement (or any warrants issued in connection with other debt securities which are used to refinance the Subordinated Increasing Rate Notes). (b) Other Definitions. The terms set forth below are defined on the following pages of this Agreement. Agreement.......................................................... - 1 - Approved Reorganization............................................ - 3 - - 15 - Approved Sale ..................................................... - 3 - Company............................................................ - 1 - Demand Registration................................................ - 6 - Effective Period................................................... - 7 - 50% Owner.......................................................... - 14 - Holdings........................................................... - 1 - Long-Form Registrations............................................ - 6 - Majority Holders................................................... - 3 - Parties ........................................................... - 1 - Party ............................................................. - 1 - Permitted Transferees.............................................. - 3 - Piggyback Registration............................................. - 8 - Recapitalization Agreement......................................... - 1 - Registration Expenses.............................................. - 11 - Required Registration.............................................. - 7 - Sale Notice........................................................ - 2 - Short-Form Registrations........................................... - 6 - Stockholder........................................................ - 1 - Stockholders....................................................... - 1 - Unaccredited Stockholder........................................... - 4 -
Section 7. Amendment and Waiver. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement shall be effective against the Company or the Stockholders unless such modification, amendment or waiver is approved in writing by the Company, Holdings and the holders of a majority of the Stockholder Shares held by all Stockholders (other than Holdings); provided that without the prior written consent of a Stockholder, no modification, amendment or waiver shall be effective against such Stockholder if it adversely affects in any material respect the rights or obligations of such Stockholder under this Agreement. The failure of any party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms. Section 8. Termination. This Agreement shall continue in effect until the earlier of: (a) the consummation of a Sale of the Company and (b) January 20, 2009, after which time this Agreement shall terminate automatically and shall have no further force and effect; provided that the restrictions set forth in Section 2 and Section 3(b) shall terminate earlier upon the consummation of a Public Offering by the Company; provided further that (notwithstanding anything contained in this Section 8) the provisions of Section 5 shall not terminate until the consummation of a Sale of the Company. - 16 - Section 9. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision of this Agreement in such jurisdiction or affect the validity, legality or enforceability of any provision in any other jurisdiction, but this Agreement shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein. Section 10. Entire Agreement. Except as otherwise expressly set forth herein, this Agreement embodies the complete agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way. Section 11. Successors and Assigns. Except as otherwise provided herein, this Agreement shall bind and inure to the benefit of and be enforceable by the Company and its successors and assigns and the Stockholders and any subsequent holders of Stockholder Shares and the respective successors and assigns of each of them, so long as they hold Stockholder Shares. Section 12. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. Section 13. Remedies. The Company and each Stockholder shall be entitled to enforce their rights under this Agreement specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages would not be an adequate remedy for any breach of the provisions of this Agreement and that the Company and any Stockholder may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement. Section 14. Notices. Any notice provided for in this Agreement shall be in writing and shall be either personally delivered, or mailed first class mail (postage prepaid) or sent by reputable overnight courier service (charges prepaid) to the Company at the address set forth below and to any other recipient at the address indicated on the Schedule of Stockholders attached hereto and to any subsequent holder of Stockholder Shares subject to this Agreement at such address as indicated by the Company's records, or at such address or to the attention of such other person as - 17 - the recipient party has specified by prior written notice to the sending party. Notices shall be deemed to have been given hereunder when delivered personally, five days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service. The Company's address is: United Industries Corporation 8825 Page Boulevard St. Louis, Missouri 63114 Telecopy: (314) 253-5941 Attention: President With copies to: UIC Holdings, L.L.C. 75 State Street Boston, Massachusetts 02109 Attention: C. Hunter Boll, Scott A. Schoen Kirkland & Ellis 200 E. Randolph Drive Chicago, IL 60601 Attention: William S. Kirsch, P.C. Section 15. Governing Law. All issues and questions concerning the relative rights and obligations of the Company and its stockholders, or the construction, validity, enforcement and interpretation of this Agreement and the exhibits and schedules hereto, shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. Section 16. Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which the Company's chief-executive office is located, the time period shall automatically be extended to the first business day immediately following such Saturday, Sunday or legal holiday. Section 17. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. Section 18. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. * * * * - 18 - IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date and year first above written. THE COMPANY: UNITED INDUSTRIES CORPORATION By: ---------------------------------- Name: ---------------------------------- Title: ---------------------------------- HOLDINGS: UIC HOLDINGS, L.L.C. By: ---------------------------------- Name: ---------------------------------- Its: ---------------------------------- OTHER STOCKHOLDERS: ---------------------------------------- DAVID C. PRATT DAVID C. PRATT GRANTOR RETAINED INTEREST TRUST ---------------------------------------- Name: Title: MARK R. GALE REVOCABLE TRUST ---------------------------------------- Name: Title: - 19 - ---------------------------------------- M. ROBERT GALE ---------------------------------------- CHARLES R. GALE ---------------------------------------- RANDOLPH D. GALE RALPH EDWARDS REVOCABLE TRUST ---------------------------------------- Name: Title: DAVID C. PRATT RETAINED ANNUITY TRUST ---------------------------------------- Name: Title: RYDER PRATT GRANTOR RETAINED ANNUITY TRUST ---------------------------------------- Name: Title: 1994 RYDER PRATT GRANTOR RETAINED ANNUITY TRUST ---------------------------------------- Name: Title: - 20 - 1998 GALE FAMILY NEVADA IRREVOCABLE TRUST ---------------------------------------- Name: Title: By: Ternion Corporation as Trustee ---------------------------------------- Name: Title: ---------------------------------------- RICHARD A. BENDER ---------------------------------------- STEPHEN R. BRIAN ---------------------------------------- WILLIAM P. JOHNSON ---------------------------------------- DANIEL J. JOHNSTON ---------------------------------------- DAVID JONES - 21 - LOUIS D. DWORSKY, TRUSTEE UNDER THE JONES FAMILY TRUST FBO JEFFREY D. JONES ---------------------------------------- Louis D. Dworsky, Trustee LOUIS D. DWORSKY, TRUSTEE UNDER THE JONES FAMILY TRUST FBO LESLIE A. JONES ---------------------------------------- Louis D. Dworsky, Trustee LOUIS D. DWORSKY, TRUSTEE UNDER THE JONES FAMILY TRUST FBO DANA M. SMITH ---------------------------------------- Louis D. Dworsky, Trustee LOUIS D. DWORSKY, TRUSTEE UNDER THE JONES FAMILY TRUST FBO BRENTON A. KINDLE ---------------------------------------- Louis D. Dworsky, Trustee LOUIS D. DWORSKY, TRUSTEE UNDER THE JONES FAMILY TRUST FBO BROOKE M. KINDLE ---------------------------------------- Louis D. Dworsky, Trustee - 22 - STEPHEN R. BRIAN, TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT, DATED JANUARY 20, 1999 BETWEEN THE COMPANY AND STEPHAN A. BRIAN, TRUSTEE FBO RICHARD A. BENDER ---------------------------------------- Name: Stephen R. Brian, Trustee STEPHEN R. BRIAN, TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT, DATED JANUARY 20, 1999 BETWEEN THE COMPANY AND STEPHAN A. BRIAN, TRUSTEE FBO WILLIAM P. JOHNSON ---------------------------------------- Name: Stephen R. Brian, Trustee STEPHEN R. BRIAN, TRUSTEE UNDER THAT CERTAIN TRUST AGREEMENT, DATED JANUARY 20, 1999 BETWEEN THE COMPANY AND STEPHAN A. BRIAN, TRUSTEE FBO DANIEL J. JOHNSTON ---------------------------------------- Name: Stephen R. Brian, Trustee - 23 - EX-10.14 19 UNITED INDUSTRIES PROFESSIONAL SERVICES AGREEMENT Exhibit 10.14 ------------- UNITED INDUSTRIES CORPORATION PROFESSIONAL SERVICES AGREEMENT THIS PROFESSIONAL SERVICES AGREEMENT (this "Agreement") is entered into as of January 20, 1999, by and among THL Equity Advisors IV, L.L.C., a Massachusetts limited liability company with its principal place of business at 75 State Street, Boston, Massachusetts 02109 and Thomas H. Lee Capital, L.L.C., a Delaware limited liability company with its principal place of business at 75 State Street, Boston, Massachusetts 02109 and United Industries Corporation, a Delaware corporation (the "Company"). THL Equity Advisors IV, L.L.C. and Thomas H. Lee Capital, L.L.C. are each referred to herein as a "Consultant" and collectively as the "Consultants." WHEREAS, the Consultants have staff specially skilled in corporate finance, strategic corporate planning and other management skills and services; WHEREAS, as the date hereof, the Company has completed its recapitalization (the "Recapitalization") pursuant to the Agreement and Plan of Recapitalization, Purchase and Redemption dated as of December 24, 1998 by and among the Company, certain Sellers listed therein and UIC Holdings, L.L.C.; WHEREAS, the Company will require the Consultants' special skills and management advisory services in connection with its general business operations; and WHEREAS, the Consultants are willing to provide such skills and services to the Company on the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the mutual promises contained herein, the parties hereto, intending to be legally bound, do hereby agree as follows: 1. Engagement. The Company hereby engages the Consultants for the Term (as hereinafter defined in Section 2 below) and upon the terms and conditions herein set forth to provide consulting and management advisory services to the Company, as requested by the Company from time to time. These services will be in connection with financial and strategic corporate planning and such other management services as each Consultant and the Company shall mutually agree. In consideration of the remuneration herein specified, each Consultant accepts such engagement and agrees to perform the services specified herein. 2. Term. The engagement hereunder shall be for a term commencing on the date hereof and expiring on the third (3rd) anniversary hereof (as such period may be extended, the "Term"). Upon expiration of the Term, this Agreement shall automatically extend for successive periods of one (1) year, unless the Consultants or the Company's Board of Directors shall give notice to the other at least thirty (30) days prior to the end of the Term (including any annual extension thereof) indicating that such party does not intend to renew the Agreement. Upon final expiration of the Term (including any annual extension thereof) all obligations as between the parties and/or any third party beneficiaries shall be extinguished without recourse to any party under this Agreement. 3. Services to be Performed. The Consultants shall devote reasonable time and efforts to the performance of the consulting and management advisory services contemplated by this Agreement. However, no precise number of hours is to be devoted by the Consultants on a weekly or monthly basis. The Consultants may perform services under this Agreement directly, through their employees or agents, or with such outside consultants as the Consultants may engage for such purpose. 4. Compensation; Expense Reimbursement. (a) Closing Fee. In connection with the closing of the Recapitalization, on the date hereof, the Company shall pay or cause to be paid to the Consultants a closing fee of Twelve Million Dollars ($12,000,000.00) to be paid as follows: Six Million Seven Hundred Twenty Thousand Dollars ($6,720,000.00) to THL Equity Advisors IV, L.L.C. and Five Million Two Hundred Eighty Thousand Dollars ($5,280,000.00) to Thomas H. Lee Capital, L.L.C. (b) Management Fee. In consideration of the management advisory services provided by Consultants hereunder, the Company shall pay or cause to be paid to the Consultants a monthly management fee of Sixty-Two Thousand Five Hundred Dollars ($62,500.00) on the last day of each month during the Term (the "Management Fee") to be paid as follows: Thirty-Five Thousand Dollars ($35,000.00) to THL Equity Advisors IV, L.L.C. and Twenty-Seven Thousand Five Hundred Dollars ($27,500.00) to Thomas H. Lee Capital, L.L.C. Payment of the Management Fee shall be subject to the terms of that certain Subordination Agreement of even date herewith executed and delivered by Consultants in favor of the Administrative Agent and the other Secured Parties under that certain Credit Agreement dated as of January 20, 1999 among the Company, the banks, financial institutions and other institutional lenders from time to time party thereto, NationsBank, N.A. as Swing Line Bank and Initial Issuing Bank thereunder, NationsBanc Montgomery Securities LLC and Morgan Stanley Senior Funding, Inc., as Co-Arrangers therefor, Canadian Imperial Bank of Commerce, as Documentation Agent therefor, Morgan Stanley Senior Funding, Inc. as Syndication Agent thereunder, NationsBanc Montgomery Securities LLC, as Lead Arranger therefor, and NationsBank, N.A., as Administrative Agent for the Lender Parties (the "THL Subordination Agreement"). (c) Expense Reimbursement. The Company shall promptly reimburse the Consultants for all reasonable out-of-pocket expenses incurred in connection with management advisory services to be provided by the Consultants hereunder, including, without limitation, reasonable travel, lodging and similar out-of-pocket costs reasonably incurred by it in connection with or on account of its performance of services for the Company hereunder. Reimbursement shall -2- be made only upon presentation to the Company by the Consultants of reasonably itemized documentation therefor. 5. Liability. Neither of the Consultants nor any of their respective affiliates, officers, directors, stockholders, partners, employees, agents, representatives, successors or assigns (collectively, "Consultant Parties") shall be liable to the Company or any of its subsidiaries, affiliates, stockholders, employees, agents, representatives, successors or assigns, for any loss, liability, damage or expense (collectively, "Losses") arising out of or in connection with the performance of services contemplated by this Agreement, except to the extent such Losses are finally judicially determined to result from actions taken by the Consultant Parties due primarily to the Consultant Parties' gross negligence or willful misconduct. 6. Indemnification. The Company agrees to defend, indemnify and hold harmless each of the Consultant Parties from and against any and all claims and Losses (or actions in respect thereof), in any way related to or arising out of the performance by the Consultant Parties of services under this Agreement, and to reimburse each of the Consultant Parties for reasonable out-of-pocket legal and other expenses incurred by it in connection with or relating to investigating, preparing to defend, or defending any actions, claims or other proceedings (including any investigation or inquiry) arising in any manner out of or in connection with this Agreement (whether or not such indemnified person is a named party in such proceeding); provided, however, that the Company shall not be responsible under this Section 6 for any Losses to the extent that they are finally judicially determined to result from actions taken by the Consultant Parties due primarily to the Consultant Parties' gross negligence or willful misconduct. 7. Notice. All notices hereunder, to be effective, shall be in writing and shall be mailed by certified mail, postage prepaid as follows (or to such other address as shall be given by one party to the other in writing): (i) To the Consultants: THL Equity Advisors IV, L.L.C. 75 State Street Boston, Massachusetts 02109 Attention: C. Hunter Boll, Scott A. Schoen Thomas H. Lee Capital, L.L.C. 75 State Street Boston, Massachusetts 02109 Attention: C. Hunter Boll, Scott A. Schoen (iii) To the Company: United Industries Corporation 8825 Page Boulevard St. Louis, Missouri 63114 Telecopy: (314) 253-5941 Attention: President -3- 8. Modifications. This Agreement and the THL Subordination Agreement constitute the entire agreement between the parties hereto with regard to the subject matter hereof, superseding all prior understandings and agreements whether written or oral. This Agreement may not be amended or revised except by a writing signed by each of the parties. 9. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns but may not be assigned by either party without the prior written consent of the other party. 10. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 11. Governing Law. All issues and questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Massachusetts, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Commonwealth of Massachusetts or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Commonwealth of Massachusetts. 12. Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original and all of which taken together shall constitute one and the same agreement. * * * * * -4- IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written. THL EQUITY ADVISORS IV, L.L.C. By: ---------------------------- Name: ---------------------- Title: ---------------------- THOMAS H. LEE CAPITAL, L.L.C. By: ---------------------------- Name: ---------------------- Title: ---------------------- UNITED INDUSTRIES CORPORATION By: ---------------------------- Name: ---------------------- Title: ---------------------- -5- EX-10.15 20 AMENDED AND RESTATED CREDIT AGREEMENT ================================================================================ $335,000,000 AMENDED AND RESTATED CREDIT AGREEMENT Dated as of March 24, 1999 Among UNITED INDUSTRIES CORPORATION, as Borrower, and THE INITIAL LENDERS, THE SWING LINE BANK AND THE INITIAL ISSUING BANK NAMED HEREIN, as Initial Lender Parties, and NATIONSBANC MONTGOMERY SECURITIES LLC and MORGAN STANLEY SENIOR FUNDING, INC., as Co-Arrangers, and CANADIAN IMPERIAL BANK OF COMMERCE, as Documentation Agent, and MORGAN STANLEY SENIOR FUNDING, INC., as Syndication Agent, and NATIONSBANC MONTGOMERY SECURITIES LLC, as Lead Arranger and Book Manager, and NATIONSBANK, N.A., as Administrative Agent ================================================================================ TABLE OF CONTENTS
Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms...................................................................-3- SECTION 1.02. Computation of Time Periods; Other Constructional Provisions...........................-42- SECTION 1.03. Accounting Terms.......................................................................-43- SECTION 1.04. Currency Equivalents Generally.........................................................-43- ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Advances and the Letters of Credit...............................-43- SECTION 2.02. Making the Advances....................................................................-46- SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit.....................-49- SECTION 2.04. Repayment of Advances..................................................................-51- SECTION 2.05. Termination or Reduction of the Commitments............................................-54- SECTION 2.06. Prepayments............................................................................-55- SECTION 2.07. Interest...............................................................................-59- SECTION 2.08. Fees...................................................................................-60- SECTION 2.09. Conversion of Advances.................................................................-60- SECTION 2.10. Increased Costs, Etc...................................................................-62- SECTION 2.11. Payments and Computations..............................................................-64- SECTION 2.12. Taxes..................................................................................-67- SECTION 2.13. Sharing of Payments, Etc...............................................................-70- SECTION 2.14. Defaulting Lenders.....................................................................-70- SECTION 2.15. Use of Proceeds........................................................................-73- ARTICLE III CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit....................................-73- SECTION 3.02. Conditions Precedent to Effectiveness of this Agreement................................-81- SECTION 3.03. Conditions Precedent to Each Borrowing, Issuance and Renewal...........................-83- SECTION 3.04. Determinations Under Section 3.02......................................................-84- ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties.........................................................-84- -ii- ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants..................................................................-93- SECTION 5.02. Negative Covenants.....................................................................-99- SECTION 5.03. Reporting Requirements................................................................-120- SECTION 5.04. Financial Covenants...................................................................-126- ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default.....................................................................-130- SECTION 6.02. Actions in Respect of the Letters of Credit upon Default..............................-133- ARTICLE VII THE AGENTS SECTION 7.01. Authorization and Action..............................................................-133- SECTION 7.02. Administrative Agent's Reliance, Etc..................................................-134- SECTION 7.03. NationsBank, NMS, MSSF, CIBC and Affiliates...........................................-135- SECTION 7.04. Lender Credit Decision................................................................-135- SECTION 7.05. Indemnification.......................................................................-135- SECTION 7.06. Successor Administrative Agent........................................................-137- ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc.......................................................................-138- SECTION 8.02. Notices, Etc..........................................................................-139- SECTION 8.03. No Waiver; Remedies...................................................................-140- SECTION 8.04. Costs and Expenses; Indemnification...................................................-140- SECTION 8.05. Right of Setoff.......................................................................-142- SECTION 8.06. Binding Effect........................................................................-142- SECTION 8.07. Assignments and Participations........................................................-142- SECTION 8.08. No Liability of the Issuing Bank......................................................-147- SECTION 8.09. Confidentiality.......................................................................-147- SECTION 8.10. Execution in Counterparts.............................................................-148- SECTION 8.11. Governing Law; Jurisdiction, Etc......................................................-148- SECTION 8.12. Waiver of Jury Trial..................................................................-148- -iii- SCHEDULES Schedule I - Existing Letters of Credit; Commitments and Applicable Lending Offices Schedule 3.01(f) - Surviving Indebtedness Schedule 3.02(b) - Disclosed Litigation Schedule 4.01(b) - Subsidiaries; Equity Interests in the Borrower Schedule 4.01(d) - Required Authorizations, Approvals, Etc. Schedule 4.01(y) - Open Years Schedule 4.01(cc) - Existing Liens Schedule 4.01(dd) - Owned and Leased Real Property Schedule 4.01(ee) - Existing Investments Schedule 5.02(j) - Existing Dividend and Other Payment Restrictions EXHIBITS Exhibit A-1 - Form of Term A Note Exhibit A-2 - Form of Term B Note Exhibit A-3 - Form of Revolving Credit Note Exhibit B-1 - Form of Notice of Borrowing Exhibit B-2 - Form of Notice of Swing Line Borrowing Exhibit B-3 - Form of Notice of Conversion Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Security Agreement Exhibit E - Form of Holdings LLC Agreement Exhibit F-1 - Form of Solvency Opinion Exhibit F-2 - Form of Solvency Certificate Exhibit G-1 - Form of Opinion of Special Counsel to the Loan Parties Exhibit G-2 - Form of Opinion of Special Missouri Counsel for the Lender Parties Exhibit H - Terms of Subordination Exhibit I - Form of Subsidiaries Guarantee
Exhibit 10.15 ------------- AMENDED AND RESTATED CREDIT AGREEMENT AMENDED AND RESTATED CREDIT AGREEMENT dated as of March 24, 1999 among UNITED INDUSTRIES CORPORATION, a Delaware corporation (the "Borrower"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof under the caption "Initial Lenders" (the "Initial Lenders"), NATIONSBANK, N.A. ("NationsBank"), as provider of the Swing Line Facility (as hereinafter defined) (in such capacity, the "Swing Line Bank") and initial issuer of Letters of Credit (as hereinafter defined) (in such capacity, the "Initial Issuing Bank"), NATIONSBANC MONTGOMERY SECURITIES LLC ("NMS") and MORGAN STANLEY SENIOR FUNDING, INC. ("MSSF"), as co-arrangers (the "Co-Arrangers") for the Facilities (as hereinafter defined), CANADIAN IMPERIAL BANK OF COMMERCE ("CIBC"), as documentation agent (the "Documentation Agent") for the Facilities, MSSF, as syndication agent (the "Syndication Agent") for the Facilities, NMS, as lead arranger and book manager (the "Lead Arranger and Book Manager") for the Facilities, and NationsBank, as administrative and collateral agent (together with any successor thereto appointed pursuant to Article VII, the "Administrative Agent") for the Lender Parties (as hereinafter defined). PRELIMINARY STATEMENTS (1) The Thomas H. Lee Company, a sole proprietorship ("THL"), organized UIC Holdings, L.L.C., a Delaware limited liability company ("Holdings LLC"), which upon consummation of the Recapitalization (as hereinafter defined) acquired control of the Borrower. (2) Pursuant to the terms of the Recapitalization Agreement (as hereinafter defined) and the Agreement dated as of January 1, 1999 (the "Reorganization Agreement") between the Borrower and its wholly owned subsidiary, DW-Wej-it, Inc., a Delaware corporation ("DW"), on or prior to the Closing Date (as hereinafter defined), the Borrower (a) contributed all of its assets primarily used in or related to the manufacturing and marketing of construction anchoring fasteners and providing contract manufacturing services in metals fabrication (collectively, the "Metals Business") to DW, and DW assumed all of the liabilities and Obligations (as hereinafter defined) of the Borrower related to the Metals Business and (b) distributed to certain of the Sellers (as hereinafter defined) all of the outstanding shares of capital stock of DW owned by the Borrower (such contribution and distribution being, collectively, the "Pre-Closing Reorganization"). (3) Furthermore, pursuant to the terms of the Agreement and Plan of Recapitalization, Purchase and Redemption dated as of December 24, 1998 (as amended by Amendment No. 1 dated as of January 20, 1999 and Amendment No. 2 dated January 25, 1999 and as further amended, supplemented or otherwise modified from time to time hereafter in accordance with its terms, to the extent permitted under the terms of the Loan Documents (as hereinafter defined), the "Recapitalization Agreement") among Holdings LLC, the Borrower and the sellers of the Borrower listed on Exhibit A thereto (the "Sellers"), as of the Closing Date, (a) THL contributed to Holdings LLC $254,680,000 in exchange for all of the outstanding Equity Interests (as hereinafter defined) in Holdings LLC, and the Borrower lent to Holdings LLC $5,700,000 in exchange for (i) a promissory note in an original principal amount equal to $4,700,000 (the "Managers Note") and (ii) a promissory note in an original principal amount equal to $1,000,000, which promissory note was co-signed by certain of the THL Entities (as hereinafter defined) (the "Employees Note"), (b) Holdings LLC purchased from the Sellers in the aggregate 312.2872 shares of outstanding Class A voting common stock of the Borrower, par value $1.00 per share (the "UIC Class A Common Stock"), -2- and 312.2872 shares of outstanding Class B nonvoting common stock of the Borrower, par value $1.00 per share (the "UIC Class B Common Stock" and, together with the UIC Class A Common Stock, the "UIC Common Stock"), for an aggregate purchase price of $260,380,000 and (c) the Borrower redeemed 407.7796 shares of outstanding UIC Class A Common Stock and 407.7796 shares of outstanding UIC Class B Common Stock for an aggregate redemption price of $340,000,000, as adjusted pursuant to Section 2.1 of the Recapitalization Agreement. In connection with the transactions described in the immediately preceding sentence, (A) the Borrower immediately thereafter effected a stock split of approximately 83,378 to one, in the case of each of the UIC Class A Common Stock and the UIC Class B Common Stock, (B) certain executive officers of the Borrower purchased in the aggregate 470,000 shares of UIC Class A Common Stock and 470,000 shares of UIC Class B Common Stock for an aggregate purchase price of $4,700,000, whereupon an equal number of shares of UIC Class A Common Stock and UIC Class B Common Stock were contributed by Holdings LLC to the Borrower in full satisfaction of the Managers Note, and (C) the Borrower agreed to sell to certain employees of the Borrower (at their option) on or prior to April 20, 1999 100,000 shares of UIC Class A Common Stock and 100,000 shares of UIC Class B Common Stock, whereupon an equal number of shares of UIC Class A Common Stock and UIC Class B Common Stock will be contributed by Holdings LLC to the Borrower in full satisfaction of the Employees Note (and, if on April 20, 1999 all such shares have not been so purchased by such employees of the Borrower, then Holdings LLC will contribute to the Borrower an amount equal to the product of (1) the number of such shares not so purchased multiplied by (2) $5.00 (which obligation of Holdings LLC to make such contribution has been guaranteed by certain of the THL Entities)). The contribution and loan described above in clause (a) of this Preliminary Statement (3), the purchase described above in clause (b) of this Preliminary Statement (3), the redemption described above in clause (c) of this Preliminary Statement (3), the stock splits described above in clause (A) of the immediately preceding sentence and the purchases, contributions and sales described above in clauses (B) and (C) of the immediately preceding sentence are, collectively, the "Recapitalization". Upon consummation of the Recapitalization (and assuming that all shares offered in connection with the transaction described above in clause (C) have been purchased by employees of the Borrower, but without giving effect to the dilution, if any, caused by an option pool exercisable into 2,000,000 shares of UIC Class A Common Stock and 2,000,000 shares of UIC Class B Common Stock), Holdings LLC owned 91.94% of the outstanding UIC Class A Common Stock and 91.94% of the outstanding UIC Class B Common Stock, and the Sellers retained 6% of the outstanding UIC Class A Common Stock and 6% of the outstanding UIC Class B Common Stock. (4) In connection with the consummation of the Recapitalization, the Borrower entered into a Credit Agreement dated as of January 20, 1999 (the "Existing Credit Agreement") with the banks, financial institutions and other institutional lenders party thereto (the "Existing Lenders"), NationsBank, as provider of the swing line facility and initial issuer of letters of credit thereunder, NMS and MSSF, as co- arrangers therefor, CIBC, as documentation agent therefor, MSSF, as syndication agent thereunder, NMS, as lead arranger therefor, and NationsBank, as administrative and collateral agent for the Existing Lenders and the other existing lender parties. Pursuant to the terms of the Existing Credit Agreement, the Existing Lenders made advances available to the Borrower and the Initial Issuing Bank issued letters of credit for the account of the Borrower from time to time prior to the date of this Agreement in an aggregate outstanding principal amount of $242,887,000 ($2,887,000 of which are outstanding Swing Line Advances made by the Swing Line Bank) in order to finance the redemption of 55.11% of each class of outstanding UIC Common Stock from the Sellers as part of the Recapitalization, to pay fees and expenses incurred in connection with the consummation of the Transaction (as hereinafter defined) and to provide working capital to, and for other general corporate purposes of, the Borrower and its Subsidiaries (as hereinafter defined). -3- (5) The Borrower has requested that the Lender Parties amend and restate the terms of the Existing Credit Agreement in its entirety and agree to lend to the Borrower from time to time up to $335,000,000 at any time outstanding in order to refinance all of the outstanding advances (the "Existing Advances") made to the Borrower by the Existing Lenders under the Existing Credit Agreement, to pay certain fees and expenses incurred in connection with the consummation of the Transaction and to provide working capital to, and for other general corporate purposes of, the Borrower and its Subsidiaries not otherwise prohibited under the terms of the Loan Documents. The Lender Parties have indicated their willingness to amend and restate the Existing Credit Agreement in its entirety and to lend such amounts and to issue Letters of Credit on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and the plural forms of the terms defined): "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with NationsBank at its office at 101 North Tryon Street, 15th Floor, NC1-001-15-04, Charlotte, North Carolina 28255, ABA No. 053-000-196, Account No. 13662122506, Reference: United Industries Corporation, Attention: Corporate Credit Services, or such other account maintained by the Administrative Agent and designated by the Administrative Agent as such in a written notice to the Borrower and each of the Lender Parties. "Advance" means a Term A Advance, a Term B Advance, a Revolving Credit Advance, a Swing Line Advance or a Letter of Credit Advance, as the context may require. "Affiliate" means, with respect to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person or, with respect to an individual, has a relationship with such individual by blood, adoption or marriage not more remote than first cousin. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 10% or more of the Voting Interests in such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agents" means, collectively, the Administrative Agent, the Lead Arranger and Book Manager, the Syndication Agent, the Documentation Agent, the Co-Arrangers and each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 7.01(b). -4- "Agreement Value" means, with respect to each Hedge Agreement on any date of determination, an amount equal to the greater of: (a) (i) in the case of any Hedge Agreement documented pursuant to the ISDA Master Agreement, the amount, if any, that would be payable by any of the Loan Parties or any of their Subsidiaries to its counterparty to such Hedge Agreement, as if (A) such Hedge Agreement was being terminated early on such date of determination, (B) such Loan Party or such Subsidiary, as the case may be, was the sole Affected Party (as defined in the applicable Master Agreement) and (C) the Administrative Agent was the sole party determining such payment amount (with the Administrative Agent making such determination pursuant to the provisions of the form of Master Agreement); or (ii) in the case of a Hedge Agreement traded on an exchange, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or the Subsidiary of a Loan Party party to such Hedge Agreement (determined by the Administrative Agent based on the settlement price of such Hedge Agreement on such date); or (b) in all cases, the mark-to-market value of such Hedge Agreement, which will be the unrealized loss on such Hedge Agreement to the Loan Party or the Subsidiary of a Loan Party party to such Hedge Agreement (determined by the Administrative Agent based on the amount, if any, by which (i) the present value of the future cash flows to be paid by such Loan Party or such Subsidiary of a Loan Party, as the case may be, exceeds (ii) the present value of the future cash flows to be received by such Loan Party or such Subsidiary of a Loan Party pursuant to such Hedge Agreement). "Applicable Lending Office" means (a) with respect to each of the Lenders, the Base Rate Lending Office of such Lender in the case of a Base Rate Advance and the Eurodollar Lending Office of such Lender in the case of a Eurodollar Rate Advance and (b) with respect to the Swing Line Bank or the Issuing Bank, the Base Rate Lending Office of the Swing Line Bank or the Issuing Bank, respectively, for all purposes of this Agreement. "Applicable Margin" means (a) with respect to the Term B Facility, a rate equal to 2.25% per annum for Base Rate Advances and 3.25% per annum for Eurodollar Rate Advances and (b) with respect to the Term A Facility and the Revolving Credit Facility, (i) at any time during the period from the date of this Agreement through the earlier of (A) the date on which the Required Financial Information for the Fiscal Quarter ending September 30, 1999 is delivered to the Administrative Agent and the Lender Parties pursuant to Section 5.03(c) and (B) November 15, 1999, a rate equal to 1.75% per annum for Base Rate Advances and 2.75% per annum for Eurodollar Rate Advances and (ii) at any time and from time to time thereafter, a rate per annum equal to the percentage set forth below opposite the applicable Performance Level at such time:
=========================================================================== Performance Term A/Revolving Credit Term A/Revolving Credit Level Eurodollar Rate Advances Base Rate Advances --------------------------------------------------------------------------- 1 2.00% 1.00% --------------------------------------------------------------------------- II 2.25% 1.25% --------------------------------------------------------------------------- III 2.50% 1.50% --------------------------------------------------------------------------- -5- =========================================================================== Performance Term A/Revolving Credit Term A/Revolving Credit Level Eurodollar Rate Advances Base Rate Advances --------------------------------------------------------------------------- IV 2.75% 1.75% ===========================================================================
For purposes of subclause (b)(ii) of the immediately preceding sentence, the Applicable Margin for each Base Rate Advance shall be determined by reference to the Performance Level in effect from time to time and the Applicable Margin for each Eurodollar Rate Advance shall be determined by reference to the Performance Level in effect on the first day of each Interest Period. "Applicable Percentage" means, with respect to the Commitment Fee, (a) at any time during the period from the date of this Agreement through the earlier of (i) the date on which the Required Financial Information for the Fiscal Quarter ending September 30, 1999 is delivered to the Administrative Agent and the Lender Parties pursuant to Section 5.03(c) and (ii) November 15, 1999, 0.500% per annum and (b) at any time and from time to time thereafter, a percentage per annum equal to the applicable percentage set forth below for the Performance Level set forth below:
=========================================================================== Performance Level Commitment Fee --------------------------------------------------------------------------- I 0.375% --------------------------------------------------------------------------- II 0.500% --------------------------------------------------------------------------- III 0.500% --------------------------------------------------------------------------- IV 0.500% ===========================================================================
For purposes of clause (b) of the immediately preceding sentence, the Applicable Percentage for the Commitment Fee shall be determined by reference to the Performance Level in effect from time to time. "Application Date" has the meaning specified in Section 2.06(b)(vii). "Appropriate Lender" means, at any time, (a) with respect to either of the Term Facilities or the Revolving Credit Facility, a Lender that has a Commitment with respect to such Facility at such time, (b) with respect to the Swing Line Facility, (i) the Swing Line Bank and (ii) if the Revolving Credit Lenders have made Swing Line Advances pursuant to Section 2.02(b)(ii) that are outstanding at such time, each such Revolving Credit Lender and (c) with respect to the Letter of Credit Facility, (i) the Issuing Bank and (ii) if the Revolving Credit Lenders have made Letter of Credit Advances pursuant to Section 2.03(c)(i) that are outstanding at such time, each such Revolving Credit Lender. "Approved Fund" means, with respect to any Lender that is a fund that invests in syndicated bank loans, any other fund that also invests in syndicated bank loans and is advised or managed by the same investment advisor as such Lender or an Affiliate of such investment advisor. "Assigned Agreements" has the meaning specified in Section 1(d) of the Security Agreement. -6- "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender Party and an Eligible Assignee, and accepted by the Administrative Agent and, if applicable, the Borrower, in accordance with Section 8.07 and in substantially the form of Exhibit C hereto. "Available Amount" means, with respect to any Letter of Credit at any time, the maximum amount available to be drawn under such Letter of Credit at such time (assuming compliance at such time with all conditions to drawing). "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest established by NationsBank from time to time as its prime rate (which rate of interest may not be the lowest rate of interest charged by NationsBank to its customers); and (b) the Federal Funds Rate plus 0.50%. Any change in the Base Rate resulting from a change in the prime rate established by NationsBank shall become effective on the Business Day on which such change in the prime rate is announced by NationsBank. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(i). "Base Rate Lending Office" means, with respect to each of the Lender Parties, the office of such Lender Party specified as its "Base Rate Lending Office" opposite its name on Part B of Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender Party, as the case may be, or such other office of such Lender Party as such Lender Party may from time to time specify to the Borrower and the Administrative Agent for such purpose. "Borrower" has the meaning specified in the recital of parties to this Agreement. "Borrower's Account" means the account of the Borrower maintained by the Borrower with NationsBank at its offices at 800 Market Street, St. Louis, Missouri 63101, Account No. 010100131794, Reference: United Industries Corporation, or such other account of the Borrower as is agreed in writing from time to time between the Borrower and the Administrative Agent. "Borrowing" means a Term A Borrowing, a Term B Borrowing, a Revolving Credit Borrowing or a Swing Line Borrowing, as the context may require. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York, New York or Charlotte, North Carolina and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in U.S. dollar deposits in the London interbank market. "Capital Assets" means, with respect to any Person, all equipment, fixed assets and real property or improvements of such Person, or replacements or substitutions therefor or additions -7- thereto, that, in accordance with GAAP, have been or should be reflected as additions to property, plant or equipment on the balance sheet of such Person. "Capital Expenditures" means, with respect to any Person for any period, (a) all expenditures made directly or indirectly by such Person during such period for Capital Assets (whether paid in cash or other consideration or accrued as a liability, and including, without limitation, all expenditures for maintenance and repairs which, in accordance with GAAP, have been or should be capitalized on the balance sheet of such Person) and (b) solely to the extent not otherwise included in clause (a) of this definition, the aggregate principal amount of all Indebtedness (including, without limitation, Obligations in respect of Capitalized Leases) assumed or incurred during such period in connection with any such expenditures for Capital Assets. For purposes of this definition, the purchase price of equipment that is purchased with the trade-in of existing equipment or the cash proceeds of the sale or other disposition of existing equipment pursuant to Section 5.02(d)(iv) or with insurance proceeds shall be included in Capital Expenditures only to the extent of the gross amount by which such purchase price exceeds the credit granted by the seller of such equipment for the equipment being traded in, the amount of the cash proceeds of any such sale or other disposition or the amount of such insurance proceeds, as the case may be. "Capitalized Lease" means any lease with respect to which the lessee is required to recognize concurrently the acquisition of property or an asset and the incurrence of a liability in accordance with GAAP. "Carryover Capital Expenditure Amount" has the meaning specified in Section 5.02(g). "Cash Collateral Account" has the meaning specified in Preliminary Statement (3) to the Security Agreement. "Cash Distributions" means, with respect to any Person for any period, all dividends and other distributions on any of the outstanding Equity Interests in such Person, all purchases, redemptions, retirements, defeasances or other acquisitions of any of the outstanding Equity Interests in such Person and all returns of capital to the stockholders, partners or members (or the equivalent persons) of such Person, in each case to the extent paid in cash by or on behalf of such Person during such period. "Cash Equivalents" means any of the following types of Investments, to the extent owned by the Borrower or any of its Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents): (a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof; (b) time deposits with, or insured certificates of deposit or bankers' acceptances of, any commercial bank that (i) (A) is a Lender Party or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia, or is the principal banking subsidiary of a bank holding company organized under the laws of the -8- United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described below in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with a maturity of not more than one year from the date of acquisition thereof; (c) commercial paper issued by any Person organized under the laws of any state of the United States of America and rated at least "Prime-1" (or the then equivalent grade) by Moody's Investors Service, Inc. or at least "A-1" (or the then equivalent grade) by Standard & Poor's Ratings Group, in each case with a maturity of not more than 180 days from the date of acquisition thereof; and (d) Investments, classified as Current Assets of the Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, as amended, which are administered by financial institutions that have the highest rating obtainable from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group, and the portfolios of which are limited solely to Investments of the character and quality described in clauses (a), (b) and (c) of this definition, in each case with a maturity of not more than one year from the date of such Investment. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time. "CERCLIS" means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the United States Environmental Protection Agency. "Change of Control" means, at any time: (a) the THL Entities shall cease to own and control legally and beneficially, either directly or indirectly, Voting Interests in the Borrower representing at least 51% of the combined voting power of all of the Voting Interests in the Borrower (on a fully diluted basis); (b) the THL Entities shall cease to have the ability, whether by voting power, contract or otherwise, to elect a majority of the board of directors of the Borrower; (c) any Lien shall be created, incurred, assumed or otherwise suffered to exist on any of the Equity Interests in the Borrower (other than (i) Liens consisting solely of restrictions on the sale, transfer or other disposition of the UIC Common Stock set forth in the Stockholders Agreement and (ii) Liens on the UIC Common Stock owned or otherwise controlled by one of more of the Equity Investors and representing less than 20% of the outstanding UIC Common Stock (on a fully diluted basis)); or (d) with respect to any pledge or other security agreement covering all or any portion of the Equity Interests in Holdings LLC that are owned beneficially and of record by any of the THL Entities or their nominees, any secured party or pledgee thereunder shall become the holder of record of any such shares (except in the case of a registration of the -9- pledge of such Equity Interests to such secured party or pledgee solely in its capacity as a pledgee) or shall exercise voting or other consensual rights in respect thereof (whether by proxy, voting or other similar arrangement or otherwise), or shall otherwise commence to realize upon such shares. "CIBC" has the meaning specified in the recital of parties to this Agreement. "Clean-Down Period" means a period of 30 consecutive days occurring during the period between August 1 and November 30 in each calendar year. "Closing Date" means January 20, 1999, the date on which the Initial Extension of Credit occurred following the satisfaction of all of the conditions precedent thereto set forth in Sections 3.01 and 3.03. "Co-Arrangers" has the meaning specified in the recital of parties to this Agreement. "Collateral" means all of the "Collateral" referred to in the Collateral Documents and all of the other property and assets that are or are intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties. "Collateral Documents" means, collectively, the Security Agreement, each of the mortgages, collateral assignments, Security Agreement Supplements, security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent and the Lender Parties pursuant to Section 5.01(k) or 5.02(k), and each of the other agreements that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties. "Commitment" means a Term A Commitment, a Term B Commitment, a Revolving Credit Commitment, a Swing Line Commitment or a Letter of Credit Commitment, as the context may require. "Commitment Date" has the meaning specified in Section 2.06(b)(vii). "Commitment Fee" has the meaning specified in Section 2.08(a). "Confidential Information" means any information that is furnished to any of the Agents or any of the Lender Parties by or on behalf of the Borrower or any of its Subsidiaries in a writing that either is conspicuously marked as confidential or that a reasonable person would believe is confidential or proprietary in nature, but does not include any such information that (a) is or becomes generally available to the public (other than as a result of a breach by any such Agent or any such Lender Party of its confidentiality obligations under this Agreement) or (b) is or becomes available to any of the Agents or any of the Lender Parties from a source other than the Borrower or any of its Subsidiaries that is not, to the knowledge of such Agent or such Lender Party, acting in violation of a confidentiality agreement with the Borrower or any such Subsidiary. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. -10- "Consolidated Cash Interest Expense" means, with respect to any Person for any period, the interest expense paid or payable on all Indebtedness of such Person and its Subsidiaries (net of all interest income of such Person and its Subsidiaries) for such period, determined on a Consolidated basis and in accordance with GAAP, including, without limitation, (a) in the case of the Borrower, (i) interest expense paid or payable in respect of Indebtedness resulting from Advances and (ii) all fees paid or payable pursuant to Section 2.08(a), (b) the interest component of all Obligations in respect of Capitalized Leases, (c) commissions, discounts and other fees and charges paid or payable in connection with letters of credit (including, without limitation, the Letters of Credit) and (d) the net payment, if any, paid or payable in connection with Hedge Agreements less the net credit, if any, received in connection with Hedge Agreements, but excluding (A) any amortization of original issue discount, (B) the interest portion of any deferred payment obligation and (C) any other interest not payable in cash. "Consolidated EBITDA" means, with respect to any Person for any period, (a) the Consolidated Net Income of such Person and its Subsidiaries for such period plus (b) the sum of each of the following expenses that have been deducted from the determination of the Consolidated Net Income of such Person and its Subsidiaries for such period: (i) all interest expense of such Person and its Subsidiaries (net of (A) all interest income of such Person and its Subsidiaries for such period and (B) solely to the extent otherwise excluded from the determination of the Consolidated interest expense of such Person and its Subsidiaries for such period in accordance with GAAP, any unrealized gains or losses on any interest rate Hedge Agreements of such Person and its Subsidiaries resulting from the mark-to-market value thereof as of the last day of such period), (ii) all income tax expense (whether federal, state, local, foreign or otherwise) of such Person and its Subsidiaries for such period, (iii) all depreciation expense of such Person and its Subsidiaries for such period, (iv) all amortization expense of such Person and its Subsidiaries for such period and (v)(A) all noncash losses and noncash charges otherwise deducted from the determination of the Consolidated Net Income of such Person and its Subsidiaries for such period (other than any such noncash losses or noncash charges that require an accrual or reserve for cash charges or cash expenses paid or payable (or to be paid or payable) at any time during such period and any write-downs or write-offs of accounts receivables) less (B) all noncash gains and noncash credits otherwise added in the determination of the Consolidated Net Income of such Person and its Subsidiaries for such period, in each case determined on a Consolidated basis and in accordance with GAAP for such period; provided, however, that, in the case of the Borrower and its Subsidiaries, Consolidated EBITDA shall be increased to include, solely to the extent any such amount is otherwise deducted in the determination of the Consolidated Net Income of the Borrower and its Subsidiaries for such period, (A) any nonrecurring cash restructuring charges taken in accordance with GAAP in connection with the consummation of the Recapitalization, (B) the aggregate amount of all transaction fees paid in cash to the THL Entities during such period to the extent otherwise permitted under Section 5.01(j)(vi) and (C) the nonrecurring cash charges taken in accordance with GAAP during the Fiscal Year ended December 31, 1998 for severance payments to, and redemptions and repurchases of outstanding UIC Common Stock (or warrants, rights or options to acquire UIC Common Stock) from, former senior officers of the Borrower in an aggregate amount of $2,955,000. "Consolidated Net Income" means, for any period, the net income (or net loss) of any Person and its Subsidiaries for such period, determined on a Consolidated basis and in accordance with GAAP, but excluding for each such period (without duplication): -11- (a) the income (or loss) of any other Person accrued prior to the date on which it became a Subsidiary of such Person or was merged into or consolidated with such Person or any of its Subsidiaries or all or substantially all of the property and assets of such other Person were acquired by such Person or any of its Subsidiaries; (b) the income (or loss) of any other Person (other than a Subsidiary of such Person) in which a Person other than such Person or any of its Subsidiaries owns or otherwise holds an Equity Interest, except to the extent such income (or loss) shall have been received in the form of cash dividends or other distributions actually paid to such Person or any of its Subsidiaries by such other Person during such period; (c) the income of any Subsidiary of such Person to the extent that the declaration or payment of any dividends or other distributions of such income by such Subsidiary is not permitted to be made or paid (whether by contract or otherwise) on the last day of such period; (d) any gains or losses (on an after-tax basis) attributable to the sale, lease, transfer or other disposition of any property or assets of such Person or any of its Subsidiaries (other than inventory sold in the ordinary course of business of such Person or its applicable Subsidiary); (e) any earnings or charges resulting from the write-up or write-down of any property or assets of such Person or any of its Subsidiaries other than in the ordinary course of business; and (f) any gains attributable to the collection of proceeds of insurance policies (other than any such proceeds collected from the business interruption insurance policies of such Person or any of its Subsidiaries during such period which are applied to the recoupment of losses otherwise included in the determination of the Consolidated Net Income of such Person and its Subsidiaries for such period). "Constitutive Documents" means, with respect to any Person, the certificate of incorporation, formation or registration (including, if applicable, certificate of change of name), articles of incorporation or association, memorandum of association, charter, bylaws, partnership agreement, trust agreement, limited liability company operating or members agreement, joint venture agreement or one or more similar agreements, instruments or documents constituting the organization or formation of such Person. "Consulting Agreements" means (a) the Consulting Agreement dated as of January 20, 1999 between the Borrower and David Pratt and (b) the Consulting Agreement dated as of January 20, 1999 among the Borrower and David Jones, in each case as such agreement may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. "Contingent Obligation" means, with respect to any Person, any obligation of such Person to guarantee or intended to guarantee any Indebtedness, leases, dividends or other obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly -12- or indirectly, including, without limitation, (a) the direct or indirect guaranty, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds (A) for the purchase or payment of any such primary obligation or (B) to maintain working capital, equity capital, net worth or any other balance sheet condition or any income statement condition of the primary obligor or otherwise to maintain the solvency of the primary obligor, (iii) to purchase, lease or otherwise acquire property, assets, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the holder of such primary obligation against loss in respect thereof. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the agreement, instrument or other document evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Conversion", "Convert" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.09 or 2.10. "Copyrights" has the meaning specified in Section 1(h) of the Security Agreement. "Current Assets" means, with respect to any Person, all assets of such Person that, in accordance with GAAP, would be classified as current assets on the balance sheet of a Person conducting a business the same as or similar to that of such Person, after deducting appropriate and adequate reserves therefrom in accordance with GAAP. "Current Liabilities" means, with respect to any Person, (a) all Indebtedness of such Person that by its terms is payable on demand or matures within one year after the date of determination (excluding any Indebtedness renewable or extendible, at the option of such Person, to a date more than one year from such date or arising under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date), (b) all amounts of Funded Indebtedness of such Person required to be paid or prepaid within one year after such date and (c) all other items (including, without limitation, taxes accrued as estimated and trade payables otherwise excluded from Indebtedness under clause (b) of the definition thereof set forth below in this Section 1.01) that, in accordance with GAAP, would be classified on the balance sheet of such Person as current liabilities of such Person. "Declined Prepayment Amount" has the meaning specified in Section 2.06(b)(ix). "Declining Term B Lender" has the meaning specified in Section 2.06(b)(ix). -13- "Default" means any Event of Default or any event or condition that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any of the Lender Parties at any time, the portion of any Advance required to be made by such Lender Party to the Borrower pursuant to Section 2.01 at or prior to such time that has not been made by such Lender Party or by the Administrative Agent for the account of such Lender Party pursuant to Section 2.02(e) as of such time. If a portion of a Defaulted Advance shall be deemed made pursuant to Section 2.14(a), the remaining portion of such Defaulted Advance shall be considered a Defaulted Advance originally required to be made pursuant to Section 2.01 on the same date as the Defaulted Advance so deemed made in part. "Defaulted Amount" means, with respect to any of the Lender Parties at any time, any amount required to be paid by such Lender Party to the Administrative Agent or any of the other Lender Parties under this Agreement or any of the other Loan Documents at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender Party to (a) the Swing Line Bank pursuant to Section 2.02(b)(ii) to purchase a portion of a Swing Line Advance made by the Swing Line Bank, (b) the Issuing Bank pursuant to Section 2.03(c)(i) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank, (c) the Administrative Agent pursuant to Section 2.02(e) to reimburse the Administrative Agent for the amount of any Advance made by the Administrative Agent for the account of such Lender Party, (d) any of the other Lender Parties pursuant to Section 2.13 to purchase any participation in Advances owing to such other Lender Party and (e) the Administrative Agent or the Issuing Bank pursuant to Section 7.05 to reimburse the Administrative Agent or the Issuing Bank, as the case may be, for such Lender Party's ratable share of any amount required to be paid by the Lender Parties to the Administrative Agent or the Issuing Bank as provided therein. If a portion of a Defaulted Amount shall be deemed paid pursuant to Section 2.14(b), the remaining portion of such Defaulted Amount shall be considered a Defaulted Amount originally required to be paid under this Agreement or any of the other applicable Loan Documents on the same date as the Defaulted Amount so deemed paid in part. "Defaulting Lender" means, at any time, any of the Lender Parties that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). "Disclosed Litigation" has the meaning specified in Section 3.02(b). "Documentation Agent" has the meaning specified in the recital of parties to this Agreement. "Domestic Subsidiary" means, at any time, each of the direct or indirect Subsidiaries of the Borrower that is incorporated or organized under the laws of any state of the United States of America or the District of Columbia. "DW" has the meaning specified in Preliminary Statement (2) to this Agreement. "Effective Date" has the meaning specified in Section 3.02. -14- "Eligible Assignee" means (a) with respect to either of the Term Facilities or the Revolving Credit Facility, (i) a Lender; (ii) an affiliate or an Approved Fund of a Lender; or (iii) any other Person approved by the Administrative Agent and, so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default has occurred and is continuing at the time the related assignment is effected pursuant to Section 8.07, the Borrower (in either case such approval not to be unreasonably withheld or delayed and, in the case of the Borrower, such approval to be deemed to have been given if no objection thereto is received by the Administrative Agent and the assigning Lender within two Business Days after the date on which notice of the proposed assignment is received by the Borrower); and (b) with respect to the Letter of Credit Facility, a Person that is an Eligible Assignee under clause (a) of this definition and is a commercial bank organized under the laws of the United States of America or any state thereof; provided, however, that neither any of the Loan Parties nor any of the Affiliates of a Loan Party shall qualify as an Eligible Assignee under this definition. "Employees Note" has the meaning specified in Preliminary Statement (3) to this Agreement. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of noncompliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement, abatement order or other order or directive (conditional or otherwise) relating in any way to any Environmental Law, any Environmental Permit or any Hazardous Materials or arising from alleged injury or threat to health, safety, natural resources or the environment, including, without limitation, (a) by any Governmental Authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any applicable Governmental Authority or other third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Requirement of Law, any judicial or agency interpretation, policy or guideline having the force or effect of law or any other requirement of any Governmental Authority relating to (a) the generation, use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials, (b) the protection of the environment, occupational health or safety or natural resources or (c) pollution (including, without limitation , any release to land, surface water, ground water or any other medium), including CERCLA, the Hazardous Materials Transportation Act (49 U.S.C. ss. 1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. ss. 1251 et seq.), the Clean Air Act (42 U.S.C. ss. 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. ss. 2601 et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C. ss. 136 et seq.), the Occupational Safety and Health Act (29 U.S.C. ss. 651 et seq.), the Oil Pollution Act (33 U.S.C. ss. 2701 et seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. ss. 11001 et seq.), in each case as amended from time to time, and including the regulations promulgated and the rulings issued from time to time thereunder. "Environmental Permit" means any permit, approval, license, identification number or other authorization required under any Environmental Law. "Equity Interests" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or -15- profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "Equity Investors" means, at any time, Holdings LLC and each other Person that owns or otherwise holds any of the UIC Common Stock or the Permitted Preferred Stock at such time. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and the rulings issued from time to time thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any of the Loan Parties, or under common control with any of the Loan Parties, within the meaning of Section 414 of the Internal Revenue Code. "ERISA Event" means: (a) (i) the occurrence of a reportable event, within the meaning of Section 4043 of ERISA, with respect to any Plan unless the 30-day notice requirement with respect to such event has been waived by the PBGC or (ii) the requirements of Section 4043(b) of ERISA apply with respect to a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9), (10), (11), (12) or (13) of Section 4043(c) of ERISA could reasonably be expected to occur with respect to such Plan within the following 30 days; (b) the application for a minimum funding waiver with respect to a Plan; (c) the provision by the administrator of any Plan of a notice of intent to terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any such notice with respect to a plan amendment referred to in Section 4041(e) of ERISA); (d) the cessation of operations at a facility of any of the Loan Parties or any of the ERISA Affiliates in the circumstances described in Section 4062(e) of ERISA; (e) the withdrawal by any of the Loan Parties or any of the ERISA Affiliates from a Multiple Employer Plan during a plan year for which it was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for imposition of a lien under Section 302(f) of ERISA shall have been met with respect to any Plan; (g) the adoption of an amendment to a Plan requiring the provision of security to such Plan pursuant to Section 307 of ERISA; or -16- (h) the institution by the PBGC of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or the occurrence of any event or condition described in Section 4042 of ERISA that constitutes grounds for the termination of, or the appointment of a trustee to administer, a Plan. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to each of the Lenders, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Part B of Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, as the case may be (or, if no such office is specified, its Base Rate Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent for such purpose. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if necessary, to the nearest 1/00 of 1%) obtained by dividing (a) the rate per annum at which deposits in U.S. dollars appear on page 3750 (or any successor page thereto) of the Dow Jones Markets Telerate Screen two Business Days before the first day of such Interest Period and for a term comparable to such Interest Period or, if such rate does not so appear on the Dow Jones Markets Telerate Screen on any date of determination, on the Reuters Screen LIBO Page two Business Days before the first day of such Interest Period and for a term comparable to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period; provided, however, that, if the Reuters Screen LIBO Page is being used to determine the Eurodollar Rate at any date of determination and more than one rate is specified thereon as the London interbank offered rate for deposits in U.S. dollars for a term comparable to such Interest Period, the applicable rate shall be the arithmetic mean (rounded upward, if necessary, to the nearest whole multiple of 1/100 of 1% per annum) of all such rates. "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" means, for any Interest Period for all of the Eurodollar Rate Advances comprising part of the same Borrowing, the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor thereto) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York, New York with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term comparable to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Excess Cash Flow" means, for any period (without duplication): -17- (a) Consolidated pre-tax income (or pre-tax loss) of the Borrower and its Subsidiaries for such period, less (b) Consolidated income tax and franchise tax expense of the Borrower and its Subsidiaries for such period, plus (c) an amount equal to the aggregate amount of all noncash charges deducted in determining the Consolidated Net Income of the Borrower and its Subsidiaries for such period, plus (d) an amount (whether positive or negative) equal to the change in Consolidated Current Liabilities of the Borrower and its Subsidiaries during such period, less (e) an amount equal to the aggregate amount of all noncash credits included in determining the Consolidated Net Income of the Borrower and its Subsidiaries for such period, less (f) an amount (whether positive or negative) equal to the change in Consolidated Current Assets (excluding cash and Cash Equivalents) of the Borrower and its Subsidiaries during such period, less (g) an amount equal to the aggregate amount of all Capital Expenditures made in cash by the Borrower and its Subsidiaries during such period, less (h) to the extent not otherwise excluded from the determination of Excess Cash Flow for such period, an amount equal to the aggregate cash consideration paid by the Borrower and its Subsidiaries during such period to any Person other than the Borrower or any of its Affiliates for the purchase or other acquisition of Equity Interests in, or property and assets of, any other Person in accordance with Section 5.02(e)(ix) or 5.02(e)(x), less (i) to the extent not otherwise excluded from the determination of Excess Cash Flow for such period, an amount equal to the aggregate amount of all indemnification payments (A) made to the Seller for the incremental tax liability incurred thereby as a result of the election by the Borrower under Section 338(H)(10) of the Internal Revenue Code in connection with the consummation of the Recapitalization in an amount not to exceed $12,000,000 and (B) made by the Borrower and its Subsidiaries during such period to one or more purchasers of property and assets thereof that have been sold, leased, transferred or otherwise disposed of pursuant to Section 5.02(d)(viii) or 5.02(d)(ix) for liabilities existing prior to the date of consummation of such sale, lease, transfer or other disposition, provided that the indemnification obligations giving rise to such payments were included in the original documentation for such sale, lease, transfer or other disposition, less (j) an amount equal to the aggregate amount of all Scheduled Principal Payments made by the Borrower and its Subsidiaries, and the aggregate principal amount of all optional prepayments of Advances made pursuant to Section 2.06(a) and all mandatory prepayments of Advances made pursuant to Sections 2.06(b)(i), 2.06(b)(ii) and 2.06(b)(vii), -18- during such period (so long as each such optional and mandatory prepayment resulted in a corresponding permanent commitment reduction at the time of such prepayment), less (k) an amount equal to the aggregate amount of all Cash Distributions paid by the Borrower during such period. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "Existing Advances" has the meaning specified in Preliminary Statement (5) to this Agreement. "Existing Credit Agreement" has the meaning specified in Preliminary Statement (4) to this Agreement. "Existing Lenders" has the meaning specified in Preliminary Statement (4) to this Agreement. "Existing Letters of Credit" means the irrevocable standby letters of credit and trade letters of credit issued by the Issuing Bank under the terms of the Existing Credit Agreement and outstanding on the Effective Date, in each case as more fully described on Part A of Schedule I hereto. "Existing Revolving Credit Advances" means the Existing Advances that constitute "Revolving Credit Advances" under the Existing Credit Agreement and are outstanding on the Effective Date immediately prior to giving effect to the assignments and assumptions thereof described in Section 2.01(c). "Existing Term A Advances" means the Existing Advances that constitute "Term A Advances" under the Existing Credit Agreement and are outstanding on the Effective Date immediately prior to giving effect to the assignments and assumptions thereof described in Section 2.01(a) "Existing Term B Advances" means the Existing Advances that constitute "Term B Advances" under the Existing Credit Agreement and are outstanding on the Effective Date immediately prior to giving effect to the assignments and assumptions thereof described in Section 2.01(b) "Extraordinary Receipt" means any cash received by or paid to or for the account of any Person other than in the ordinary course of business, including, without limitation, tax refunds, pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments, purchase price adjustments received in connection with any purchase agreement (or other similar agreement) and payments in respect of judgments or settlements of claims, litigation or proceedings; provided, however, that Extraordinary Receipts shall not include cash receipts received from proceeds of insurance, condemnation awards (or payments in lieu thereof), indemnity payments or payments in respect of judgments or -19- settlements of claims, litigation or proceedings to the extent that such proceeds, awards or payments (a) are received by any Person in respect of any third party claim against or loss by such Person and promptly applied to pay (or to reimburse such Person for its prior payment of) such claim or loss and the costs and expenses of such Person with respect thereto and (b) are applied (or are in respect of expenditures that were previously incurred) to replace or repair Capital Assets in respect of which such proceeds were received (or to reimburse such amounts previously paid), in each case in accordance with the terms of the Loan Documents and so long as such application is commenced within 270 days after the receipt of such proceeds, awards or payments; provided that, in the case of clause (a) or (b) of this definition, any third party being so reimbursed shall not be a Loan Party or an Affiliate of a Loan Party. "Facility" means the Term A Facility, the Term B Facility, the Revolving Credit Facility, the Swing Line Facility or the Letter of Credit Facility, as the context may require. "Fair Market Value" means, with respect to any property or assets (including, without limitation, any of the Equity Interests) of any Person on any date of determination, the value of the consideration obtainable in a sale of such property or asset in the open market on such date assuming an arm's-length sale that has been arranged without duress or compulsion between a willing seller and a willing and knowledgeable purchaser in a commercially reasonable manner over a reasonable period of time under all conditions necessary or desirable for a fair sale (taking into account the nature and characteristics of such property or asset); provided that the Fair Market Value of any of the property or assets of any of the Loan Parties or any of their respective Subsidiaries shall be determined in good faith by the board of directors (or the persons performing similar functions) of such Loan Party or such Subsidiary, as the case may be, and certified by a Responsible Officer of such Loan Party or such Subsidiary in a certificate delivered to the Administrative Agent, on behalf of the Lender Parties. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates (rounded upward, if necessary, to the nearest whole multiple of 1/100 of 1% per annum) 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 immediately 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 for such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Fiscal Quarter" means, with respect to the Borrower or any of its Subsidiaries, the period commencing January 1 in any Fiscal Year and ending on the next succeeding March 31, the period commencing April 1 in any Fiscal Year and ending on the next succeeding June 30, the period commencing July 1 in any Fiscal Year and ending on the next succeeding September 30 or the period commencing October 1 in any Fiscal Year and ending on the next succeeding December 31, as the context may require, or, if any such Subsidiary was not in existence on the first day of any such period, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the last day of such period. "Fiscal Year" means, with respect to the Borrower or any of its Subsidiaries, the period commencing on January 1 in any calendar year and ending on the next succeeding December 31 or, -20- if any such Subsidiary was not in existence on January 1 in any calendar year, the period commencing on the date on which such Subsidiary is incorporated, organized, formed or otherwise created and ending on the next succeeding December 31. "Fixed Charge Coverage Ratio" means, for any period, the ratio of (a) (i) Consolidated EBITDA of the Borrower and its Subsidiaries (or, solely for purposes of determining compliance with the applicable requirements of Section 5.02(c), 5.02(d) or 5.02(e), Pro Forma Consolidated EBITDA) for such period less (ii) the aggregate amount of all Capital Expenditures made in cash by or on behalf of the Borrower and its Subsidiaries during such period to (b) the sum of (i) Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for such period, (ii) the aggregate principal amount (or the equivalent thereto) of all Scheduled Principal Payments of the Borrower and its Subsidiaries for such period and (iii) the aggregate amount of all Cash Distributions made by or on behalf of the Borrower during such period (other than redemptions or repurchases of UIC Common Stock, or warrants, rights or options to acquire UIC Common Stock, from retired, terminated, deceased or departing executives and managers made during such period to the extent otherwise permitted under Section 5.02(f)(vii)); provided that, solely for the purposes of determining the Fixed Charge Coverage Ratio for the first three Measurement Periods ending after the Closing Date, (A) the Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for such Measurement Period shall be equal to (1) the Consolidated Cash Interest Expense for the completed Fiscal Quarters since the Closing Date multiplied by (2) a fraction the numerator of which is four and the denominator of which is equal to the number of completed Fiscal Quarters since the Closing Date and (B) the aggregate principal amount of all Scheduled Principal Payments of the Borrower and its Subsidiaries for such Measurement Period shall be the aggregate principal amount of all Advances scheduled to be repaid under Sections 2.04(a) and 2.04(b) during the period from the Closing Date to the first anniversary thereof; and provided further that, solely for purposes of determining the Fixed Charge Coverage Ratio for the first four Measurement Periods ending after the Closing Date, the Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for such Measurement Period shall be increased by $2,000,000. "Foreign Corporation" means each Foreign Subsidiary that constitutes a "controlled foreign corporation" under Section 957 of the Internal Revenue Code. "Foreign Subsidiary" means, at any time, each of the direct or indirect Subsidiaries of the Borrower that is not a Domestic Subsidiary at such time. "Funded Indebtedness" means, with respect to any Person (without duplication), Indebtedness in respect of the Advances in the case of the Borrower, and all other Indebtedness of such Person that by its terms matures more than one year after any date of determination or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year after such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year after such date, in each case determined on a Consolidated basis in accordance with GAAP; provided, however, that the term "Funded Indebtedness" shall not include any Contingent Obligations of such Person (if and to the extent such Contingent Obligations would otherwise be included in such term on any date of determination) that are incurred solely to support Indebtedness of one or more Subsidiaries of such Person so long as such Contingent Obligations are otherwise expressly permitted to be incurred under the terms of the Loan Documents. -21- "GAAP" means generally accepted accounting principles in effect from time to time in the United States of America and applied on a consistent basis, subject, however, to the terms of Section 1.03. "Governmental Authority" means any nation or government, any state, province, city, municipal entity or other political subdivision thereof, and any governmental, executive, legislative, judicial, administrative or regulatory agency, department, authority, instrumentality, commission, board or similar body, whether federal, state, territorial, local or foreign. "Governmental Authorization" means any authorization, approval, consent, franchise, license, covenant, order, ruling, permit, certification, exemption, notice, declaration or similar right, undertaking or other action of, to or by, or any filing, qualification or registration with, any Governmental Authority. "Guarantee Supplement" has the meaning specified in Section 8 of the Subsidiaries Guarantee. "Guaranteed Obligations" has the meaning specified in Section 1(a) of the Subsidiaries Guarantee. "Hazardous Materials" means: (a) any chemical, material or substance at any time defined as or included in the definition of "hazardous substances", "hazardous wastes", "hazardous materials", "extremely hazardous waste", "acutely hazardous waste", "radioactive waste", "biohazardous waste", "pollutant", "toxic pollutant", "contaminant", "restricted hazardous waste", "infectious waste", "toxic substances", or any other term or expression intended to define, list or classify substances by reason of properties harmful to health, safety or the indoor or outdoor environment (including, without limitation, such harmful properties as ignitability, corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP toxicity" or "EP toxicity" or words of similar meaning and regulatory effect under any applicable Environmental Laws); (b) any oil, petroleum, petroleum fraction or petroleum derived substance; (c) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (d) any flammable substances or explosives; (e) any radioactive materials; (f) any asbestos-containing materials; (g) any urea formaldehyde foam insulation; (h) any electrical equipment which contains any oil or dielectric fluid containing polychlorinated biphenyls; (i) any pesticides; (j) any radon gas; and (k) any other chemical, material or substance designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means, collectively, interest rate swap, cap or collar agreements, interest rate future or option contracts, commodity future or option contracts, currency swap agreements, currency future or option contracts and other similar agreements. "Hedge Bank" means any Person that is a Lender Party or an affiliate of a Lender Party, in its capacity as a party to a Secured Hedge Agreement. "Holdings LLC" has the meaning specified in Preliminary Statement (1) to this Agreement. -22- "Holdings LLC Agreement" has the meaning specified in Section 3.02(e)(iii). "Indebtedness" means, with respect to any Person (without duplication): (a) all indebtedness of such Person for borrowed money; (b) all Obligations of such Person for the deferred purchase price of property and assets or services (other than trade payables or other accounts payable incurred in the ordinary course of such Person's business and not past due, by their respective terms, for more than 90 days); (c) all Obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, or upon which interest payments are customarily made; (d) all Obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property or assets acquired by such Person (even though the rights and remedies of the seller or the lender under such agreement in the event of default are limited to repossession or sale of such property or assets); (e) all Obligations of such Person as lessee under Capitalized Leases; (f) all Obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities; (g) all Obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person, valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all Obligations, contingent or otherwise, of such Person in respect of Hedge Agreements, in each case valued at the Agreement Value thereof, take-or-pay agreements or other similar agreements; (i) all Obligations of such Person under any synthetic lease, tax retention operating lease, off-balance sheet loan or similar off-balance sheet financing, if the transaction giving rise to such Obligation is considered indebtedness for borrowed money for tax purposes but is classified as an operating lease in accordance with GAAP; (j) all Contingent Obligations of such Person; and (k) all Indebtedness referred to in clauses (a) through (j) above and other payment Obligations of another Person secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property or assets (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness or other payment Obligations, valued, in the case of any such Indebtedness as to which recourse for the payment thereof is expressly limited to the -23- property or assets on which such Lien is granted, at the lesser of (i) the stated or determinable amount of the Indebtedness that is so secured or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) and (ii) the Fair Market Value of such property or assets. The Indebtedness of any Person shall include (i) all Obligations of the types described in clauses (a) through (k) above of any partnership in which such Person is a general partner and (ii) all Obligations of the types described in clauses (a) through (k) above of such Person to the extent such Person remains legally liable in respect thereof, notwithstanding that any such Obligation is deemed to be extinguished under GAAP at any date of determination. "Indemnified Party" has the meaning specified in Section 8.04(b). "Initial Extension of Credit" means, collectively, the initial Borrowings made under one or more of the Facilities and/or the initial issuances of one or more Letters of Credit made on the Closing Date. "Initial Issuing Bank" has the meaning specified in the recital of parties to this Agreement. "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Initial Pledged Indebtedness" has the meaning specified in Preliminary Statement (2) of the Security Agreement. "Initial Pledged Interests" has the meaning specified in Preliminary Statement (2) of the Security Agreement. "Interest Coverage Ratio" means, for any period, the ratio of (a) Consolidated EBITDA of the Borrower and its Subsidiaries (or, solely for purposes of determining compliance with the applicable requirements of Section 5.02(c), 5.02(d) or 5.02(e), Pro Forma Consolidated EBITDA) for such period to (b) Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for such period; provided that, solely for the purposes of determining the Interest Coverage Ratio for the first three Measurement Periods ending after the Closing Date, the Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for such Measurement Period shall be equal to (A) the Consolidated Cash Interest Expense for the completed Fiscal Quarters since the Closing Date multiplied by (B) a fraction the numerator of which is four and the denominator of which is equal to the number of completed Fiscal Quarters since the Closing Date; and provided further that, solely for purposes of determining the Interest Coverage Ratio for the first four Measurement Periods ending after the Closing Date, the Consolidated Cash Interest Expense of the Borrower and its Subsidiaries for such Measurement Period shall be increased by $2,000,000. "Interest Period" means, for each of the Eurodollar Rate Advances comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, as the case may be, and ending on the last day of the period selected by the Borrower pursuant to the provisions set forth below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant -24- to the provisions set forth below. The duration of each such Interest Period shall be one, two, three or six months and, subject to clause (c) of this definition, nine or twelve months as the Borrower may, upon notice received by the Administrative Agent not later than 1:00 P.M. (Charlotte, North Carolina time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance under a Facility that ends after (i) any principal repayment installment date for such Facility unless, after giving effect to such selection, the aggregate principal amount of Base Rate Advances and of Eurodollar Rate Advances having Interest Periods that end on or prior to such principal repayment installment date for such Facility shall be at least equal to the aggregate principal amount of Advances under such Facility due and payable on or prior to such date or (ii) the scheduled Termination Date for such Facility; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration; (c) the Borrower shall not be entitled to select an Interest Period having a duration of nine or twelve months unless, by 3:00 P.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, each of the Appropriate Lenders notifies the Administrative Agent that such Lender will be providing funding for such Borrowing with such Interest Period (the failure of any of the Appropriate Lenders to so respond by such time being deemed for all purposes of this Agreement as an objection by such Lender to the requested duration of such Interest Period); provided that if any of the Appropriate Lenders objects (or is deemed to have objected) to the requested duration of such Interest Period, the duration of the Interest Period for such Borrowing shall be one, two, three or six months, as specified by the Borrower in the applicable Notice of Borrowing or Notice of Conversion as the desired alternative to the requested Interest Period of nine or twelve months therefor; (d) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided, however, that if such extension would cause the last day of such Interest Period to occur in the next succeeding calendar month, the last day of such Interest Period shall occur on the immediately preceding Business Day; and (e) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and the rulings issued thereunder. "Investment" means, with respect to any Person, (a) any direct or indirect purchase or other acquisition (whether for cash, securities, property, services or otherwise) by such Person of, or of -25- a beneficial interest in, any Equity Interests or Indebtedness of any other Person, (b) any direct or indirect purchase or other acquisition (whether for cash, securities, property, services or otherwise) by such Person of all or substantially all of the property and assets of any other Person or of any division, branch or other unit of operation of any other Person, (c) any direct or indirect redemption, retirement, purchase or other acquisition for value by such Person from any other Person of any Equity Interests in such Person, (d) the making of a deposit by such Person with, or any direct or indirect loan, advance, other extension of credit or capital contribution by such Person to, or any other investment by such Person in, any other Person (including, without limitation, any indebtedness or accounts receivable from such other Person that are not current assets or did not arise from sales to such other Person in the ordinary course of business and any arrangement pursuant to which the investor incurs Indebtedness of the types referred to in clause (j) or (k) of the definition of "Indebtedness" set forth above in this Section 1.01 in respect of such other Person) and (e) any agreement to make any Investment (including any "short sale" or any sale of any securities at a time when such securities are not owned by the Person entering into such sale). The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "IP Security Agreements--Short Form" means, collectively, the Copyright Security Agreement--Short Form, the Trademark Security Agreement--Short Form and the Patent Security Agreement--Short Form, in each case as referred to in Section 15 of the Security Agreement. "ISDA Master Agreement" means the Master Agreement (Multicurrency-Cross Border) published by the International Swap and Derivatives Association, Inc., as in effect from time to time. "Issuing Bank" means the Initial Issuing Bank and each other Person to which the Letter of Credit Commitment has been assigned pursuant to Section 8.07, in each case for so long as the Initial Issuing Bank or such other Person, as the case may be, shall be a party to this Agreement in such capacity. "L/C Cash Collateral Account" has the meaning specified in Preliminary Statement (6) to the Security Agreement. "L/C Related Documents" has the meaning specified in Section 2.03(c)(ii). "Lead Arranger and Book Manager" has the meaning specified in the recital of parties to this Agreement. "Lender Party" means any Lender, the Swing Line Bank or the Issuing Bank, as the context may require. "Lenders" means, collectively, the Initial Lenders and each Person that becomes a Lender pursuant to Section 8.07, in each case for so long as such Initial Lender or such other Person, as the case may be, shall be a party to this Agreement in such capacity. "Letter of Credit" has the meaning specified in Section 2.01(e). -26- "Letter of Credit Advance" means an advance made by the Issuing Bank or any of the Revolving Credit Lenders pursuant to Section 2.03(c)(i). "Letter of Credit Agreement" has the meaning specified in Section 2.03(a). "Letter of Credit Commitment" means, with respect to the Issuing Bank at any time, the amount set forth opposite the Issuing Bank's name on Part B of Schedule I hereto under the caption "Letter of Credit Commitment" or, if the Issuing Bank has entered into one or more Assignment and Acceptances, the amount set forth for the Issuing Bank in the Register maintained by the Administrative Agent pursuant to Section 8.07(f) as the Issuing Bank's "Letter of Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Letter of Credit Facility" means, at any time, an amount equal to the lesser of (a) the amount of the Letter of Credit Commitment at such time and (b) $5,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Leverage Ratio" means, at any date of determination, the ratio of (a) (i) all Funded Indebtedness of the Borrower and its Subsidiaries (other than the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances outstanding on such date) plus (ii) the average daily aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances outstanding during the most recently completed Measurement Period prior to such date plus (iii) to the extent not otherwise included in subclause (a)(i) or (a)(ii) of this definition, all Indebtedness of the Borrower and its Subsidiaries outstanding on such date that would (or would be required to) appear on the Consolidated balance sheet of the Borrower and its Subsidiaries (other than any such outstanding Indebtedness evidenced by the Permitted Preferred Stock) to (b) Pro Forma Consolidated EBITDA of the Borrower and its Subsidiaries for the most recently completed Measurement Period prior to such date. "Lien" means, with respect to any Person, (a) any mortgage, lien (statutory or other), pledge, hypothecation, security interest, charge or other preference or encumbrance of any kind (including, without limitation, any agreement to give any of the foregoing), (b) any sale of accounts receivable or chattel paper, or any assignment, deposit arrangement or lease intended as, or having the effect of, security, (c) any easement, right of way or other encumbrance on title to real property or (d) any other interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or any Capitalized Lease or otherwise upon or with respect to any property or asset of such Person (including, in the case of Equity Interests, voting trust agreements and other similar arrangements). "Loan Documents" means, collectively, (a) for all purposes of this Agreement and the Notes and any amendment, supplement or other modification hereof or thereof and for all other purposes other than for purposes of the Subsidiaries Guarantee and the Collateral Documents, (i) this Agreement, (ii) the Notes, (iii) the Subsidiaries Guarantee, (iv) the Collateral Documents, (v) each Letter of Credit Agreement, (vi) the Holdings LLC Agreement and (vii) each of the other agreements evidencing any of the Obligations of any of the Loan Parties secured by the Collateral Documents (other than the Secured Hedge Agreements) and (b) for all purposes of the Subsidiaries Guarantee and the Collateral Documents, (i) this Agreement, (ii) the Notes, (iii) the Subsidiaries Guarantee, (iv) the Collateral Documents, (v) each Letter of Credit Agreement, (vi) the Holdings LLC Agreement, -27- (vii) the Secured Hedge Agreements and (viii) each of the other agreements evidencing any of the Obligations of any of the Loan Parties secured by the Collateral Documents, in each case as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 8.01; provided, however, that, solely for purposes of Section 3.01, the term "Loan Documents" shall have the meaning specified therefor in the Existing Credit Agreement. "Loan Parties" means, collectively, the Borrower and each of the Restricted Subsidiaries. "Management Agreements" means collectively, the Management Agreement dated as of January 20, 1999 between the Borrower and Richard A. Bender, the Management Agreement dated as of January 20, 1999 between the Borrower and Stephan R. Brian, the Management Agreement dated as of January 20, 1999 between the Borrower and William P. Johnson and the Management Agreement dated as of January 20, 1999 between the Borrower and Daniel J. Johnston, in each case as such agreement may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. "Managers Note" has the meaning specified in Preliminary Statement (3) to this Agreement. "Mandatory Prepayment Amount" has the meaning specified in Section 2.06(b)(ix). "Mandatory Prepayment Date" has the meaning specified in Section 2.06(b)(ix). "Material Adverse Change" means any material adverse change in the business, condition (financial or otherwise), operations, liabilities (actual or contingent), properties or prospects of the Borrower and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition (financial or otherwise), operations, liabilities (actual or contingent), properties or prospects of the Borrower and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Administrative Agent or any of the Lender Parties under any of the Loan Documents or the Related Documents or (c) the ability of any of the Loan Parties to perform its Obligations under any of the Loan Documents or the Related Documents to which it is or is to be a party (including, for purposes of clauses (a) and (b) of this definition, the imposition of materially burdensome conditions thereon). "Measurement Period" means, at any date of determination, the most recently completed four consecutive Fiscal Quarters on or immediately prior to such date. "Metals Business" has the meaning specified in Preliminary Statement (2) to this Agreement. "MSSF" has the meaning specified in the recital of parties to this Agreement. "Multiemployer Plan" means a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) to which any of the Loan Parties or any of the ERISA Affiliates is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. -28- "Multiple Employer Plan" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any of the Loan Parties or any of the ERISA Affiliates and at least one Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any of the Loan Parties or any of the ERISA Affiliates could reasonably be expected to have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated. "NationsBank" has the meaning specified in the recital of parties to this Agreement. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any property or assets, or the incurrence or issuance of any Indebtedness, or the sale or issuance of any Equity Interests in any Person, or any Extraordinary Receipt received by or paid to or for the account of any Person, as the case may be, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person for its own account in connection with any such transaction, after deducting therefrom only: (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees, costs and commissions; (b) the amount of taxes payable in connection with or as a result of such transaction; (c) in the case of any sale, lease, transfer or other disposition of any property or asset, the outstanding principal amount of, the premium or penalty, if any, on, and any accrued and unpaid interest on, any Indebtedness (other than Indebtedness under or in respect of the Loan Documents) that is secured by a Lien on the property and assets subject to such sale, lease, transfer or other disposition and is required to be repaid under the terms of such Indebtedness as a result of such sale, lease, transfer or other disposition; and (d) in the case of the sale, lease, transfer or other disposition of any property and assets of the Borrower or any of its Subsidiaries pursuant to Section 5.02(d)(viii) or 5.02(d)(ix), the aggregate amount of all reasonable and customary post-closing purchase price adjustments to the cash consideration received by such Person or any of its Subsidiaries for such sale, lease, transfer or other disposition to the extent (and only to the extent) that (i) such purchase price adjustments are solely for working capital reconciliations determined on the basis of actual (as opposed to estimated) financial statement information delivered pursuant to the terms of the documentation for such sale, lease, transfer or other disposition, (ii) such Person or its applicable Subsidiary reasonably believes that it will be obligated to remit the amount of such purchase price adjustments to the purchaser of the related property and assets within 180 days of the date of consummation of such sale, lease, transfer or other disposition and (iii) the amount of any such purchase price adjustment so deducted from any determination of Net Cash Proceeds shall not exceed 10% of the total cash consideration received (or to be received) by such Person and its Subsidiaries for such sale, lease, transfer or other disposition; -29- in each case to the extent, but only to the extent, that the amounts so deducted are properly attributable to such transaction or to the property or asset that is the subject thereof and (i) in the case of clauses (a) and (c) of this definition, are actually paid at the time of receipt of such cash to a Person that is not an Affiliate of such Person or any of the Loan Parties or of any Affiliate of any of the Loan Parties, (ii) in the case of clause (b) of this definition, are actually paid at the time of receipt of such cash to a Person that is not an Affiliate of such Person or any of the Loan Parties or of any Affiliate of any of the Loan Parties or, so long as such Person is not otherwise indemnified therefor, are reserved for in accordance with GAAP, as in effect at the time of receipt of such cash (based upon such Person's reasonable estimate of such taxes), and paid to the applicable taxation authority or other Governmental Authority within 360 days after the date of consummation of the related transaction and (iii) in the case of clause (d) of this definition, are actually paid to the purchaser of the related property and assets within 180 days of the date of consummation of such sale, lease, transfer or other disposition to a Person that is not an Affiliate of such Person or any of the Loan Parties or of any Affiliate of any of the Loan Parties; provided, however, that if, at the time any such taxes or post-closing purchase price adjustments are actually paid or otherwise satisfied, the reserve therefor or the amount otherwise retained by such Person or its applicable Subsidiary for the payment thereof exceeds the amount paid or otherwise satisfied, then the amount of such excess reserve or retained amount, as the case may be, shall constitute "Net Cash Proceeds" on and as of the date of such payment or other satisfaction for all purposes of this Agreement and, to the extent required under Sections 2.05(b) and 2.06(b), the Borrower shall reduce the Commitments on such date in accordance with the terms of Section 2.05(b), and shall prepay the Advances and cash collateralize the Letters of Credit outstanding on such date in accordance with the terms of Section 2.06(b), in an amount equal to the amount of such excess reserve or retained amount. "New Subsidiary" has the meaning specified in Section 5.02(k). "NMS" has the meaning specified in the recital of parties to this Agreement. "Note" means a Term A Note, a Term B Note or a Revolving Credit Note, as the context may require. "Note Purchase Agreement" means the Note Purchase Agreement dated as of January 20, 1999 among the Borrower and the purchasers of the Senior Subordinated Notes party thereto, as such agreement may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. "Notice of Borrowing" has the meaning specified in Section 2.02(a). "Notice of Conversion" has the meaning specified in Section 2.09(a). "Notice of Issuance" has the meaning specified in Section 2.03(a). "Notice of Renewal" has the meaning specified in Section 2.01(e). "Notice of Swing Line Borrowing" has the meaning specified in Section 2.02(b). -30- "Notice of Termination" has the meaning specified in Section 2.01(e). "NPL" means the National Priorities List under CERCLA. "Obligation" means, with respect to any Person, any payment, performance or other obligation of such Person of any kind, including, without limitation, any liability of such Person on any claim, whether or not the right of any creditor to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any action or proceeding of the type referred to in Section 6.01(f). Without limiting the generality of the immediately preceding sentence, the Obligations of the Loan Parties under or in respect of the Loan Documents include (a) the obligation to pay principal, interest, Letter of Credit commissions, charges, expenses, fees, attorneys' fees and disbursements, indemnity payments and other amounts payable by any of the Loan Parties under or in respect of any of the Loan Documents and (b) the obligation of any of the Loan Parties to reimburse any amount in respect of any of the items described above in clause (a) of this definition that the Administrative Agent or any of the Lender Parties, in its sole discretion, may elect to pay or advance on behalf of such Loan Party. "Open Year" means, with respect to any Person, any year for which United States federal income tax returns have been filed by or on behalf of such Person and for which the expiration of the applicable statute of limitations for assessment, reassessment or collection has not occurred (whether by reason of extension or otherwise). "Operating Lease" means, with respect to any Person, any lease (including, without limitation, leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capitalized Lease or a lease under which such Person is the lessor. "Other Taxes" has the meaning specified in Section 2.12(b). "Patents" has the meaning specified in Section 1(j) of the Security Agreement. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Performance Level" means Performance Level I, Performance Level II, Performance Level III or Performance Level IV, as the context may require. For the purposes of determining the Performance Level at any date of determination: (a) not more than two decreases in the Performance Level (each thereby resulting in a decrease in the Applicable Margin) shall occur in any three-month period; and (b) no change in the Performance Level shall be effective until three Business Days after the date on which the Administrative Agent and the Lender Parties receive the Required Financial Information reflecting such change; provided, however, that if the Borrower has not delivered to the Administrative Agent and the Lender Parties all of the information required under this clause (b) within five Business Days after the date on which such information is otherwise required under Section 5.03(c) or 5.03(d), as applicable, and -31- Section 5.03(e), the Performance Level shall be deemed to be Performance Level IV for so long as such information has not been submitted. "Performance Level I" means, at any date of determination, that the Borrower and its Subsidiaries shall have maintained a Leverage Ratio of less than 4.00:1 for the most recently completed Measurement Period prior to such date. "Performance Level II" means, at any date of determination, that (a) the Performance Level does not meet the requirements of Performance Level I and (b) the Borrower and its Subsidiaries shall have maintained a Leverage Ratio of less than 4.50:1 for the most recently completed Measurement Period prior to such date. "Performance Level III" means, at any date of determination, that (a) the Performance Level does not meet the requirements of Performance Level I or Performance Level II and (b) the Borrower and its Subsidiaries shall have maintained a Leverage Ratio of less than 5.50:1 for the most recently completed Measurement Period prior to such date. "Performance Level IV" means, at any date of determination, that the Performance Level does not meet the requirements of Performance Level I, Performance Level II or Performance Level III. "Permitted Affiliate Investment" means (a) any capital contributions to the Borrower made by one or more of the Equity Investors or (b) the Net Cash Proceeds received by the Borrower from the issuance and sale of UIC Common Stock or Permitted Preferred Stock to one or more of the Equity Investors; provided that on the date on which any such Permitted Affiliate Investment is made, the Borrower shall deliver to the Administrative Agent, on behalf of the Lender Parties, a certificate of a Responsible Officer of the Borrower, certifying that such capital contributions or the Net Cash Proceeds received by the Borrower from such issuance and sale are intended to constitute, and are to be used for, one or more Investments to be made in accordance with the terms of Section 5.02(e)(ix) or 5.02(e)(x), or one or more redemptions or repurchases of UIC Common Stock, or warrants, rights or options to acquire UIC Common Stock, from retired, terminated, deceased or departing executives and managers to be made in accordance with the terms of Section 5.02(f)(vii). "Permitted Liens" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA or any such Lien relating to or imposed in connection with any Environmental Action), in each case as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not otherwise required to be paid under Section 5.01(b); (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's, storage and repairmen's Liens and other similar Liens arising in the ordinary course of business and securing obligations (other than Indebtedness for borrowed money) (i) that are not overdue for a period of more than 60 days or (ii) the amount, applicability or validity of which is being contested in good faith and by appropriate proceedings -32- diligently conducted and with respect to which the Borrower or its applicable Subsidiary, as the case may be, has established reserves in accordance with GAAP; (c) pledges or deposits to secure obligations incurred in the ordinary course of business under workers' compensation laws, unemployment insurance or other similar social security legislation (other than in respect of employee benefit plans subject to ERISA) or to secure public or statutory obligations; (d) Liens securing the performance of, or payment in respect of, bids, tenders, government or utility contracts (other than for the repayment of borrowed money), surety and appeal bonds and other obligations of a similar nature incurred in the ordinary course of business; (e) any interest or title of a lessor or sublessor or a licensor and any restriction or encumbrance to which the interest or title of such lessor, sublessor or licensor may be subject that is incurred in the ordinary course of business and, either individually or when aggregated with all other Permitted Liens in effect on any date of determination, could not reasonably be expected to have a Material Adverse Effect; (f) Liens arising out of judgments or awards that do not constitute an Event of Default under Section 6.01(g) or 6.01(h) and in respect of which the Borrower or any of its Subsidiaries subject thereto shall be prosecuting an appeal or proceeding for review in good faith and, pending such appeal or proceeding, shall have secured within ten days after the entry thereof a subsisting stay of execution and shall be maintaining reserves, in accordance with GAAP, with respect to any such judgment or award; (g) Liens in favor of customs and revenue authorities arising as a matter of law or pursuant to a bond to secure payment of customs duties in connection with the importation of goods; (h) customary rights of setoff upon deposits of cash in favor of banks or other depository institutions in which such cash is maintained in the ordinary course of business; and (i) easements, rights-of-way, zoning restrictions and other encumbrances and survey exceptions, minor defects or irregularities in title and other similar restrictions on title to, or the use of, real property that do not, either individually or in the aggregate, (i) materially detract from the value of such real property or (ii) materially and adversely affect the use of such real property for its intended purposes or the conduct of the business of the Borrower and its Subsidiaries in the ordinary course and, in any case, that were not incurred in connection with and do not secure Indebtedness or other extensions of credit. "Permitted Preferred Stock" means Preferred Interests in the Borrower issued from time to time to one or more of the Equity Investors that have (a) no dividends or other distributions required to be paid in cash, and no scheduled or mandatory redemption or repurchase dates, in whole or in part, prior to March 31, 2009, (b) no voting rights and (c) no other conditions, covenants, events of default or redemption or liquidation events that could reasonably be expected to adversely -33- affect the rights or interests of the Administrative Agent or any of the other Secured Parties in any manner. "Permitted Preferred Stock Documents" means, collectively, the Certificate of Designation for the Permitted Preferred Stock, any subscription agreements therefor and all of the other agreements, instruments and other documents pursuant to which the Permitted Preferred Stock will be issued or otherwise setting forth the terms of the Permitted Preferred Stock, in each case as such agreement, instrument or other document may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but to the extent permitted under the terms of the Loan Documents. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, unlimited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Plan" means a Single Employer Plan or a Multiple Employer Plan, as the context may require. "Pledged Indebtedness" has the meaning specified in Section 1(c)(iv) of the Security Agreement. "Pre-Closing Reorganization" has the meaning specified in Preliminary Statement (2) to this Agreement. "Pre-Commitment Information" means all of the information furnished to the Agents and the Existing Lenders by or on behalf of THL, Holdings LLC or the Borrower prior to December 23, 1998 and relating to the Loan Documents or the Related Documents, any aspect of the Transaction or any of the transactions contemplated hereby or thereby or to the structuring of the Transaction or the syndication of the Facilities. "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. "primary obligations" has the meaning specified in the definition of "Contingent Obligation" set forth above in this Section 1.01. "primary obligor" has the meaning specified in the definition of "Contingent Obligation" set forth above in this Section 1.01. "Pro Forma Consolidated EBITDA" means, at any date of determination, an amount equal to the Consolidated EBITDA of the Borrower and its Subsidiaries for the most recently completed Measurement Period prior to such date for which the Borrower has delivered the Required Financial Information; provided that, with respect to any purchase or other acquisition of any property or assets of any Person by the Borrower or any of its Subsidiaries pursuant to Section 5.02(e)(ix) or -34- 5.02(e)(x) or any sale, lease, transfer or other disposition of property or assets by the Borrower or any of its Subsidiaries pursuant to Section 5.02(d)(viii) or 5.02(d)(ix) or otherwise, if the Borrower or any of its Subsidiaries shall have purchased or otherwise acquired or shall have sold, leased, transferred or otherwise disposed of any property or assets at any time on or after the first day of such Measurement Period and prior to such date, such Consolidated EBITDA shall be increased (in the case of each such purchase or other acquisition) or reduced (in the case of each such sale, lease, transfer or other disposition) by the Consolidated EBITDA of the Borrower and its Subsidiaries that would have been contributed thereto by such property or assets during such Measurement Period, as determined in good faith by the board of directors of the Borrower on a pro forma basis as though the Borrower or the Subsidiary of the Borrower that is effecting such transaction had purchased or otherwise acquired or had sold, transferred or otherwise disposed of such property or assets on the first day of such Measurement Period and after giving effect to all of the pro forma cost savings of the Borrower and its Subsidiaries that are to be recognized as a result of such transaction during such Measurement Period. "Pro Rata Share" of any amount means, with respect to any of the Lenders at any time, the product of (a) a fraction the numerator of which is the amount of such Lender's Commitment(s) under the applicable Facility or Facilities at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01 at or prior to such time, such Lender's Commitment(s) under the applicable Facility or Facilities as in effect immediately prior to such termination) and the denominator of which is the aggregate amount of such Facility or Facilities at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01 at or prior to such time, the applicable Facility or Facilities as in effect immediately prior to such termination) multiplied by (b) such amount. "Professional Services Agreement" means the Professional Services Agreement dated as of January 20, 1999 by and among THL Equity Advisors IV, L.L.C., Thomas H. Lee Capital, L.L.C. and the Borrower, as such agreement may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. "Recapitalization" has the meaning specified in Preliminary Statement (3) to this Agreement. "Recapitalization Agreement" has the meaning specified in Preliminary Statement (3) to this Agreement. "Redeemable" means, with respect to any Equity Interest, any Indebtedness or any other right or Obligation, any such Equity Interest, Indebtedness, right or Obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Reduction Amount" has the meaning specified in Section 2.06(b)(vi). "Register" has the meaning specified in Section 8.07(f). -35- "Related Documents" means the Recapitalization Agreement, the Reorganization Agreement, the Stockholders Agreement, the Consulting Agreements, the Management Agreements, the Professional Services Agreement and THL Subordination Agreement. "Related Indemnified Party" means, with respect to any of the Indemnified Parties, each of the officers, directors, employees, agents and advisors of such Indemnified Party. "Reorganization Agreement" has the meaning specified in Preliminary Statement (2) to this Agreement. "Required Financial Information" means, at any date of determination, the Consolidated financial statements of the Borrower and its Subsidiaries most recently delivered to the Administrative Agent and the Lender Parties on or prior to such date pursuant to, and satisfying all of the requirements of, Section 5.03(c) or 5.03(d) and accompanied by the certificates and other information required to be delivered therewith pursuant to Section 5.03(e). "Required Lenders" means, at any time, Lenders owed or holding more than 50% of the sum of (a) the aggregate principal amount of all Advances outstanding at such time, (b) the aggregate Available Amount of all Letters of Credit outstanding at such time and (c) the aggregate Unused Revolving Credit Commitments at such time; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (i) the aggregate principal amount of all Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (ii) if such Defaulting Lender is a Revolving Credit Lender, such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (iii) the Unused Revolving Credit Commitment of such Lender at such time. For purposes of this definition, the aggregate principal amount of all Swing Line Advances owing to the Swing Line Bank and outstanding at such time and all Letter of Credit Advances owing to the Issuing Bank and outstanding at such time and the Available Amount of all Letters of Credit outstanding at such time shall be deemed to be owed to the Revolving Credit Lenders in accordance with their respective Revolving Credit Commitments at such time. "Requirements of Law" means, with respect to any Person, all laws, constitutions, statutes, treaties, ordinances, rules and regulations, all orders, writs, decrees, injunctions, judgments, determinations and awards of an arbitrator, a court or any other Governmental Authority, and all Governmental Authorizations, binding upon or applicable to such Person or any of its Subsidiaries or to any of their property, assets or businesses. "Responsible Officer" means the chief executive officer, the president, the chief financial officer, the principal accounting officer or the treasurer (or the equivalent of any of the foregoing) of the Borrower or any of its Subsidiaries or any other officer, partner or member (or person performing similar functions) of the Borrower or any of its Subsidiaries responsible for overseeing the administration of, or reviewing compliance with, all or any portion of this Agreement and the other Loan Documents. "Restricted Subsidiary" means (a) each of the wholly owned Domestic Subsidiaries and each of the other Subsidiaries of the Borrower that is organized, purchased or otherwise acquired after the Effective Date, whether pursuant to Section 5.02(e)(ix) or otherwise (other than any non- -36- wholly owned Domestic Subsidiary or any Foreign Subsidiary that is organized, purchased or otherwise acquired pursuant to Section 5.02(e)(x)), or (b) each of the other Subsidiaries of the Borrower that, at the option of the Borrower (i) executes and delivers the Subsidiaries Guarantee or a Guarantee Supplement and a Security Agreement Supplement, (ii) in which 100% of the issued and outstanding Equity Interests are pledged to the Administrative Agent, on behalf of the Secured Parties, pursuant to the applicable Collateral Documents and (iii) delivers such other agreements, opinions, certificates and other documents as are required or requested under Section 5.01(k) or 5.02(k). "Revolving Credit Advance" means, with respect to each of the Revolving Credit Lenders, any advance made (or deemed to have been made on the Effective Date) by such Revolving Credit Lender to the Borrower pursuant to Section 2.01(c). "Revolving Credit Borrowing" means a borrowing consisting of simultaneous Revolving Credit Advances of the same Type made (or deemed to have been made) by the Revolving Credit Lenders. "Revolving Credit Commitment" means, with respect to any of the Revolving Credit Lenders at any time, the amount set forth opposite such Revolving Credit Lender's name on Part B of Schedule I hereto under the caption "Revolving Credit Commitment" or, if such Revolving Credit Lender has entered into one or more Assignment and Acceptances, the amount set forth for such Revolving Credit Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(f) as such Revolving Credit Lender's "Revolving Credit Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Revolving Credit Facility" means, at any time, the aggregate Revolving Credit Commitments of all of the Revolving Credit Lenders at such time. "Revolving Credit Lender" means, at any time, any of the Lenders that has a Revolving Credit Commitment at such time. "Revolving Credit Note" means a promissory note of the Borrower payable to the order of any of the Revolving Credit Lenders, in substantially the form of Exhibit A-3 hereto, evidencing the aggregate indebtedness of the Borrower to such Revolving Credit Lender resulting from the Revolving Credit Advances made (or deemed to have been made) by such Revolving Credit Lender. "Scheduled Principal Payments" means, with respect to any Person for any period, the sum of all regularly scheduled principal payments or repurchases, redemptions or similar acquisitions for value of outstanding Indebtedness made or required to be made during such period, including, without limitation, all repayments of Advances outstanding hereunder pursuant to Section 2.04(a), 2.04(b) or 2.04(c). "Secured Hedge Agreement" means any interest rate Hedge Agreement permitted under Article V that is entered into by and between the Borrower and any of the Hedge Banks. "Secured Obligations" has the meaning specified in Section 2 of the Security Agreement. -37- "Secured Parties" means, collectively, the Agents, the Lender Parties, the Hedge Banks and the other Persons, if any, the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents. "Securities Act" means the Securities Act of 1933, as amended, and the regulations promulgated and the rulings issued thereunder. "Security Agreement" has the meaning specified in Section 3.02(e)(ii). "Security Agreement Supplement" has the meaning specified in Section 22(b) of the Security Agreement. "Sellers" has the meaning specified in Preliminary Statement (3) to this Agreement. "Senior Financial Officer" means the chief financial officer, the principal accounting officer or the treasurer of the Borrower. "Senior Subordinated Notes" means, collectively, (a) the senior unsecured subordinated increasing rate notes of the Borrower due January 20, 2009 in an aggregate principal amount of $150,000,000 that were issued and sold by the Borrower on the Closing Date pursuant to the terms of the Note Purchase Agreement and (b) the senior unsecured subordinated notes of the Borrower due no earlier than January 20, 2009 to be issued and sold in an aggregate principal amount of not more than $150,000,000, the proceeds of which shall be applied to redeem or refinance the senior unsecured subordinated increasing rate notes of the Borrower referred to in clause (a) above; provided that the senior unsecured subordinated notes of the Borrower described in this clause (b) (i) shall not accrue interest at a rate per annum of more than 12.50%, (ii) shall not be subject to any covenants or agreements that are not set forth in the Preliminary Offering Memorandum therefor (and such covenants and agreements shall be on terms no less favorable to any of the Loan Parties or any of their Subsidiaries or to the Administrative Agent or the Lender Parties than the comparable covenants and agreements set forth in such Preliminary Offering Memorandum), except for defeasance provisions, provisions regarding the rights and obligations of the trustee for such senior unsecured subordinated notes of the Borrower and other customary indenture provisions that are reasonably satisfactory to the Lender Parties, and (iii) shall not be subject to any of the covenants or agreements set forth in the Note Purchase Agreement which, by the terms of the Note Purchase Agreement, are to be discharged upon the "Conversion Date" (as defined in the Note Purchase Agreement). "Senior Subordinated Notes Documents" means the Note Purchase Agreement, the Senior Subordinated Notes, all indentures, securities purchase agreements, warrant agreements and registration rights agreements entered into in connection with the redemption or refinancing of the initial Senior Subordinated Notes and all of the other agreements, instruments and other documents pursuant to which the Senior Subordinated Notes have been issued or otherwise setting forth the terms of the Senior Subordinated Notes, in each case as such agreement, instrument or other document may be amended, supplemented or otherwise modified from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. -38- "Single Employer Plan" means a single employer plan (as defined in Section 4001(a)(15) of ERISA) that (a) is maintained for employees of any of the Loan Parties or any of the ERISA Affiliates and no Person other than the Loan Parties and the ERISA Affiliates or (b) was so maintained and in respect of which any of the Loan Parties or any of the ERISA Affiliates could reasonably be expected to have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated. "Solvent" and "Solvency" mean, with respect to any Person on any date of determination, that, on such date: (a) the fair value of the property and assets of such Person is greater than the total amount of liabilities (including, without limitation, contingent liabilities) of such Person; (b) the present fair salable value of the property and assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay such debts and liabilities as they mature; and (d) such Person is not engaged in business or in a transaction, and is not about to engage in business or in a transaction, for which such Person's property and assets would constitute an unreasonably small capital. The fair value and the present fair salable value of the property and assets of any such Person shall be computed taking into account the aggregate amount of all payments in respect of reimbursement, contribution and indemnification claims against any other Person (other than an Affiliate of such Person) that, in light of the circumstances existing at such time, such Person reasonably believes in good faith it will receive with reasonable promptness. The amount of contingent liabilities of any such Person at any time shall be computed as the amount that, in the light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "Standby Letter of Credit" means any Letter of Credit issued under the Letter of Credit Facility other than a Trade Letter of Credit. "Stockholders Agreement" means the Stockholders Agreement dated as of January 20, 1999 among the Borrower, Holdings LLC, the Sellers and each of the other Equity Investors from time to time party thereto, as such agreement may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. "Subsidiaries Guarantee" has the meaning specified in Section 5.02(k). -39- "Subsidiary" means, with respect to any Person, any corporation, partnership, joint venture, limited liability company, unlimited liability company, trust or estate of which (or in which) more than 50% of: (a) the issued and outstanding shares of capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time shares of capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency); (b) the interest in the capital or profits of such partnership, joint venture, limited liability company or unlimited liability company; or (c) the beneficial interest in such trust or estate, is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Surviving Indebtedness" has the meaning specified in Section 3.01(f). "Swing Line Advance" means an advance made by (a) the Swing Line Bank pursuant to Section 2.01(d) or (b) any of the Revolving Credit Lenders pursuant to Section 2.02(b)(ii). "Swing Line Bank" has the meaning specified in the recital of parties to this Agreement. "Swing Line Borrowing" means a borrowing consisting of (a) a Swing Line Advance made by the Swing Line Bank pursuant to Section 2.01(d) or (b) simultaneous Swing Line Advances made by the Revolving Credit Lenders pursuant to Section 2.02(b)(ii). "Swing Line Commitment" means, with respect to the Swing Line Bank at any time, the amount set forth opposite the Swing Line Bank's name on Part B of Schedule I hereto under the caption "Swing Line Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Swing Line Facility" means, at any time, an amount equal to the lesser of (a) the amount of the Swing Line Commitment at such time and (b) $10,000,000, as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Syndication Agent" has the meaning specified in the recital of parties to this Agreement. "Taxes" has the meaning specified in Section 2.12(a). "Term A Advance" means, with respect to each of the Term A Lenders, the single advance deemed to have been made on the Effective Date by such Term A Lender to the Borrower pursuant to Section 2.01(a). "Term A Borrowing" means a borrowing consisting of simultaneous Term A Advances of the same Type made (or deemed to have been made) by the Term A Lenders. -40- "Term A Commitment" means, with respect to any of the Term A Lenders at any time, the amount set forth opposite such Term A Lender's name on Part B of Schedule I hereto under the caption "Term A Commitment" or, if such Term A Lender has entered into one or more Assignment and Acceptances, the amount set forth for such Term A Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(f) as such Term A Lender's "Term A Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Term A Facility" means, at any time, the aggregate Term A Commitments of all of the Term A Lenders at such time. "Term A Lender" means, at any time, any of the Lenders that has a Term A Commitment at such time. "Term A Note" means a promissory note of the Borrower payable to the order of any of the Term A Lenders, in substantially the form of Exhibit A-1 hereto, evidencing the indebtedness of the Borrower to such Term A Lender resulting from the Term A Advance made (or deemed to have been made) by such Term A Lender. "Term Advance" means a Term A Advance or a Term B Advance, as the context may require. "Term B Advance" means, with respect to each of the Term B Lenders, the single advance deemed to have been made on the Effective Date by such Term B Lender to the Borrower pursuant to Section 2.01(b). "Term B Borrowing" means a borrowing consisting of simultaneous Term B Advances of the same Type made (or deemed to have been made) by the Term B Lenders. "Term B Commitment" means, with respect to any of the Term B Lenders at any time, the amount set forth opposite such Term B Lender's name on Part B of Schedule I hereto under the caption "Term B Commitment" or, if such Term B Lender has entered into one or more Assignment and Acceptances, the amount set forth for such Term B Lender in the Register maintained by the Administrative Agent pursuant to Section 8.07(f) as such Term B Lender's "Term B Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Term B Facility" means, at any time, the aggregate Term B Commitments of all of the Term B Lenders at such time. "Term B Lender" means, at any time, any of the Lenders that has a Term B Commitment at such time. "Term B Note" means a promissory note of the Borrower payable to the order of any of the Term B Lenders, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such Term B Lender resulting from the Term B Advance made (or deemed to have been made) by such Term B Lender. -41- "Term Commitment" means a Term A Commitment or a Term B Commitment, as the context may require. "Term Facility" means the Term A Facility or the Term B Facility, as the context may require. "Term Lender" means a Term A Lender or a Term B Lender, as the context may require. "Termination Date" means the earlier of (a) the date of termination in whole of all of the Commitments of the Lender Parties pursuant to Section 2.05 or 6.01 and (b) (i) with respect to the Term A Facility, the Revolving Credit Facility, the Swing Line Facility and the Letter of Credit Facility, January 20, 2005 and (ii) with respect to the Term B Facility, January 20, 2006. "THL" has the meaning specified in Preliminary Statement (1) to this Agreement. "THL Entities" means, collectively, the Thomas H. Lee Equity Fund IV, L.P. and the Thomas H. Lee Foreign Fund IV, L.P. "THL Subordination Agreement" means the Subordination Agreement dated as of January 20, 1999 made by THL Equity Advisors IV, L.L.C. and Thomas H. Lee Capital, L.L.C. in favor of the Administrative Agent, on behalf of the Secured Parties, as such agreement may be amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof, but solely to the extent permitted under the terms of the Loan Documents. "Trade Letter of Credit" means any Letter of Credit that is issued under the Letter of Credit Facility for the benefit of a supplier of inventory to the Borrower or any of the Restricted Subsidiaries to effect payment for such inventory. "Transaction" means, collectively, (a) the consummation of the Pre-Closing Reorganization and the Recapitalization, (b) the entering into by the Borrower and its Subsidiaries of the Loan Documents and the Related Documents to which they are or are intended to be a party, (c) the issuance and sale of the initial Senior Subordinated Notes, (d) the redemption or refinancing of the initial Senior Subordinated Notes with the proceeds of the issuance and sale of the permanent Senior Subordinated Notes and, if applicable, the issuance and sale of the Warrants related thereto, (e) the payment of the fees and expenses incurred in connection with the consummation of the foregoing and (f) on or after the Effective Date, the issuance and sale of the Permitted Preferred Stock. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "UIC Class A Common Stock" has the meaning specified in Preliminary Statement (3) to this Agreement. "UIC Class B Common Stock" has the meaning specified in Preliminary Statement (3) to this Agreement. -42- "UIC Common Stock" has the meaning specified in Preliminary Statement (3) to this Agreement. "Unrestricted Subsidiary" means, at any time, each of the Subsidiaries of the Borrower that does not constitute a Restricted Subsidiary at such time. "Unused Revolving Credit Commitment" means, with respect to any of the Revolving Credit Lenders at any time, (a) the Revolving Credit Commitment of such Revolving Credit Lender at such time less (b) the sum of: (i) the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances made (or deemed to have been made) by such Revolving Credit Lender (in its capacity as a Lender) and outstanding at such time; and (ii) such Revolving Credit Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit outstanding at such time, (B) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank (in its capacity as the Issuing Bank) pursuant to Section 2.03(c)(i) and outstanding at such time and (C) the aggregate principal amount of all Swing Line Advances made by the Swing Line Bank (in its capacity as the Swing Line Bank) pursuant to Section 2.01(d) and outstanding at such time. "Voting Equity Interests" has the meaning specified in Section 5.02(k)(v). "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Warrants" means the warrants to purchase UIC Common Stock representing up to 5% of all of the UIC Common Stock (on a fully diluted basis) to be issued, if required, to the purchasers of the Senior Subordinated Notes in accordance with the provisions of the Note Purchase Agreement. "Welfare Plan" means a welfare plan, as defined in Section 3(l) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. "Year 2000 Problem" has the meaning specified in Section 4.01(aa). SECTION 1.02. Computation of Time Periods; Other Constructional Provisions. In this Agreement and the other Loan Documents, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including", the word "through" means "through and including" and the words "to" and "until" each mean "to but excluding". References in this Agreement or -43- any of the other Loan Documents to any agreement, instrument or other document "as amended" shall mean and be a reference to such agreement, instrument or other document as amended, amended and restated, supplemented or otherwise modified hereafter from time to time in accordance with its terms. SECTION 1.03. Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with GAAP; provided, however, that, if any changes in accounting principles from those used in the preparation of the Consolidated financial statements of the Borrower and its Subsidiaries for the Fiscal Year ended December 31, 1998 (as delivered to the Lender Parties pursuant to Section 4.01(f)) occur by reason of the promulgation of rules, regulations, pronouncements, opinions or other requirements of the Financial Accounting Standards Board of the American Institute of Certified Public Accountants (or successors thereto or agencies with similar functions) and such changes would affect (or would result in a change in the method of calculation of) any of the covenants set forth in Section 5.02 or 5.03, the determination of Excess Cash Flow for any Fiscal Year or any of the defined terms related to the foregoing contained in Section 1.01, then, upon the request of any party hereto, the Borrower, the Administrative Agent and the Lender Parties shall enter into negotiations in good faith, if and to the extent necessary, to amend in accordance with Section 8.01 all such covenants or terms as would be affected by such changes in GAAP in such manner as would maintain the economic and credit terms of such covenants as in effect under this Agreement, prior to giving effect to the occurrence of any such changes; and provided further, however, that until the amendment of the covenants and the defined terms referred to in the immediately preceding proviso becomes effective, all covenants and defined terms shall be performed, observed and determined, and any determination of compliance with any such covenant shall be made, as though no such changes in accounting principles had been made and the Borrower shall deliver to the Lender Parties, in addition to the Consolidated financial statements of the Borrower and its Subsidiaries otherwise required to be delivered to the Lenders under Sections 5.03(b), 5.03(c) and 5.03(d) during such period, a statement of reconciliation conforming such Consolidated financial statements of the Borrower and its Subsidiaries to GAAP as in effect prior to such changes. SECTION 1.04. Currency Equivalents Generally. Any amount specified in this Agreement (other than in Articles II, VII and VIII) or any of the other Loan Documents to be in U.S. dollars shall also include and be a reference to the equivalent of such amount in any currency other than U.S. dollars, such equivalent amount to be determined at the rate of exchange quoted by NationsBank in Charlotte, North Carolina at the close of business on the Business Day immediately preceding any date of determination thereof to prime banks in New York, New York for the spot purchase in the New York foreign exchange market of such amount in U.S. dollars with such other currency. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Advances and the Letters of Credit. (a) The Term A Advances. Each of the Existing Lenders will, as of the Effective Date, sell and assign to the other Term A Lenders an undivided interest in and to all of its respective rights and obligations under and in respect of the Existing Term A Advances (other than that portion of the Existing Term A Advances that is equal to the amount of such Existing Lender's Term A Commitment on the Effective Date), and each of the other Term A Lenders severally agrees, on the terms and conditions hereinafter set forth, to purchase and assume an undivided -44- interest in that portion of all Existing Term A Advances being so sold and assigned by the Existing Lenders on the Effective Date that is equal to its Term A Commitment on such date. The Existing Term A Advance owing to each of the Term A Lenders on the Effective Date immediately after giving effect to all of the assignments and assumptions described in the immediately preceding sentence shall be deemed to be a Term A Advance made by such Term A Lender to the Borrower hereunder on the Effective Date for all purposes of this Agreement. Amounts purchased and assumed (or, in the case of any Term A Lender that is also an Existing Lender, retained) by the Term A Lenders under this Section 2.01(a) and repaid or prepaid may not be reborrowed. (b) The Term B Advances. Each of the Existing Lenders will, as of the Effective Date, sell and assign to the other Term B Lenders an undivided interest in and to all of its respective rights and obligations under and in respect of the Existing Term B Advances (other than that portion of the Existing Term B Advances that is equal to the amount of such Existing Lender's Term B Commitment on the Effective Date), and each of the other Term B Lenders severally agrees, on the terms and conditions hereinafter set forth, to purchase and assume an undivided interest in that portion of all Existing Term B Advances being so sold and assigned by the Existing Lenders on the Effective Date that is equal to its Term B Commitment on such date. The Existing Term B Advance owing to each of the Term B Lenders on the Effective Date immediately after giving effect to all of the assignments and assumptions described in the immediately preceding sentence shall be deemed to be a Term B Advance made by such Term B Lender to the Borrower hereunder on the Effective Date for all purposes of this Agreement. Amounts purchased and assumed (or, in the case of any Term B Lender that is also an Existing Lender, retained) by the Term B Lenders under this Section 2.01(b) and repaid or prepaid may not be reborrowed. (c) The Revolving Credit Advances. Each of the Existing Lenders will, as of the Effective Date, sell and assign to the other Revolving Credit Lenders an undivided interest in and to all of its respective rights and obligations under and in respect of the Existing Revolving Credit Advances (other than the portion of the Existing Revolving Credit Advances that is equal to such Existing Lender's Pro Rata Share (based on its Revolving Credit Commitment on the Effective Date) of all Existing Revolving Credit Advances being so sold and assigned by the Existing Lenders on such date), and each of the other Revolving Credit Lenders severally agrees, on the terms and conditions hereinafter set forth, to purchase and assume an undivided interest in its Pro Rata Share (based on its Revolving Credit Commitment on the Effective Date) of all Existing Revolving Credit Advances outstanding on such date. The Existing Revolving Credit Advance owing to each of the Revolving Credit Lenders on the Effective Date immediately after giving effect to all of the assignments and assumptions described in the immediately preceding sentence shall be deemed to be a Revolving Credit Advance made by such Revolving Credit Lender to the Borrower hereunder on the Effective Date for all purposes of this Agreement. Each of the Revolving Credit Lenders severally further agrees, on the terms and conditions hereinafter set forth, to make additional Revolving Credit Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date for the Revolving Credit Facility in an amount for each such Revolving Credit Advance not to exceed the Unused Revolving Credit Commitment of such Revolving Credit Lender at such time. Each of the Revolving Credit Borrowings shall be in an aggregate amount of $3,000,000 or an integral multiple of $500,000 in excess thereof (other than a Revolving Credit Borrowing the proceeds of which shall be used solely to repay or prepay in full the Swing Line Advances and the Letter of Credit Advances outstanding at such time) or, if less, the amount of the aggregate Unused Revolving Credit Commitments at the time of such Revolving Credit Borrowing. Each of the Revolving Credit Borrowings shall consist of Revolving Credit Advances made simultaneously by the Revolving Credit Lenders in accordance with their respective Pro Rata Shares of the Revolving Credit Facility. Within the limits of the Unused Revolving Credit Commitments -45- of the Revolving Credit Lenders in effect from time to time, the Borrower may borrow under this Section 2.01(c), prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(c). (d) The Swing Line Advances. The Borrower may request the Swing Line Bank to make, and the Swing Line Bank shall make, unless it promptly notifies the Borrower of its reasonable objection to doing so, on the terms and conditions hereinafter set forth, Swing Line Advances to the Borrower from time to time on any Business Day during the period from the Effective Date until the Termination Date for the Swing Line Facility in an amount (i) for all outstanding Swing Line Advances not to exceed the Swing Line Facility on such Business Day and (ii) for each such Swing Line Advance not to exceed the aggregate Unused Revolving Credit Commitments of the Revolving Credit Lenders on such Business Day. No Swing Line Advance shall be used for the purpose of funding the payment of principal of any other Swing Line Advance. Each Swing Line Advance shall be in an amount of $250,000 or an integral multiple of $50,000 in excess thereof and shall be comprised of a Base Rate Advance. Within the limits of the first sentence of this Section 2.01(d), so long as the Swing Line Bank has not notified the Borrower of its reasonable objection to making Swing Line Advances, the Borrower may borrow under this Section 2.01(d), repay pursuant to Section 2.04(d) or prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01(d). (e) Letters of Credit. The Borrower, the Issuing Bank and each of the Revolving Credit Lenders hereby agree that each of the Existing Letters of Credit shall, on and after the Effective Date, continue as and be deemed for all purposes of this Agreement to be a Letter of Credit issued and outstanding under the terms of this Agreement. The Issuing Bank agrees, on the terms and conditions hereinafter set forth, to issue letters of credit (each a "Letter of Credit") in U.S. dollars for the account of the Borrower from time to time on any Business Day during the period from the Effective Date to ten days prior to the scheduled Termination Date for the Letter of Credit Facility (i) in an aggregate Available Amount for all outstanding Letters of Credit not to exceed the Letter of Credit Facility on such Business Day and (ii) in an Available Amount for each such Letter of Credit not to exceed the aggregate Unused Revolving Credit Commitment of the Revolving Credit Lenders on such Business Day. No Trade Letter of Credit shall have an expiration date later than the earlier of (A) ten days prior to the scheduled Termination Date for the Letter of Credit Facility and (B) 60 days after the date of issuance thereof. No Standby Letter of Credit shall have an expiration date (including all rights of the Borrower or the beneficiary of such Letter of Credit to require renewal) later than the earlier of (1) 30 days prior to the scheduled Termination Date for the Letter of Credit Facility and (2) one year after the date of issuance thereof, but any such Standby Letter of Credit may by its terms be renewable annually upon notice (a "Notice of Renewal") given to the Issuing Bank and the Administrative Agent on or prior to any date for notice of renewal set forth in such Standby Letter of Credit, but in any event at least three Business Days prior to the date of the proposed renewal of such Standby Letter of Credit and upon fulfillment of the applicable conditions set forth in Article III, unless the Issuing Bank has notified the Borrower (with a copy to the Administrative Agent) on or prior to the date for notice of termination set forth in such Standby Letter of Credit but in any event at least ten Business Days prior to the date of automatic renewal of its election not to renew such Standby Letter of Credit (a "Notice of Termination"); provided that the terms of each of the Standby Letters of Credit that is automatically renewable annually (1) shall require the Issuing Bank to give the beneficiary of such Standby Letter of Credit notice of any Notice of Termination, (2) shall permit such beneficiary, upon receipt of such notice, to draw under such Standby Letter of Credit prior to the date on which such Standby Letter of Credit otherwise would have been automatically renewed and (3) shall not permit the expiration date (after giving effect to any renewal) of such Standby Letter of Credit in any event to be extended to a date that is later than 30 days prior to the scheduled Termination Date for the Letter of Credit Facility. If either a Notice of Renewal is not given -46- by the Borrower or a Notice of Termination is given by the Issuing Bank pursuant to the immediately preceding sentence, the related Standby Letter of Credit shall expire on the date on which it otherwise would have been automatically renewed; provided, however, that in the absence of receipt of a Notice of Renewal the Issuing Bank may in its discretion, unless instructed to the contrary by the Administrative Agent or the Borrower, deem that a Notice of Renewal had been timely delivered and, in such case, a Notice of Renewal shall be deemed to have been so delivered for all purposes under this Agreement. Within the limits of the Letter of Credit Facility, and subject to the limits referred to above in this Section 2.01(e), the Borrower may request the issuance of Letters of Credit under this Section 2.01(e), repay any Letter of Credit Advances resulting from drawings thereunder pursuant to Section 2.03(c) and request the issuance of additional Letters of Credit under this Section 2.01(e). (f) Clean-Down. Notwithstanding any of the provisions of Sections 2.01(c), 2.01(d) and 2.01(e), no Borrowing may be made under Section 2.01(c) or 2.01(d) and no new Letter of Credit may be issued under Section 2.01(e) during any Clean-Down Period unless, in each case, the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances outstanding (or to be outstanding) after giving effect to any such Borrowing or any such issuance, as the case may be, shall not exceed $10,000,000. SECTION 2.02. Making the Advances. (a) Except as otherwise provided in Section 2.02(b) or 2.03 or in respect of any Borrowing requested to be made on the Effective Date, in which case notice shall be given on the Effective Date, each Borrowing shall be made on notice, given not later than 1:00 P.M. (Charlotte, North Carolina time) on the third Business Day prior to the date of the proposed Borrowing in the case of any Borrowing comprised of Eurodollar Rate Advances, or on the first Business Day prior to the date of the proposed Borrowing in the case of any Borrowing comprised of Base Rate Advances, by the Borrower to the Administrative Agent, which shall give prompt notice thereof to each of the Appropriate Lenders by telex or telecopier. Each notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or by telex or telecopier, shall be in substantially the form of Exhibit B-1 hereto and duly executed by a Responsible Officer of the Borrower, and shall specify therein: (i) the requested date of such Borrowing (which shall be a Business Day); (ii) the Facility under which such Borrowing is requested to be made; (iii) the Type of Advances requested to comprise such Borrowing; (iv) the requested aggregate principal amount of such Borrowing; and (v) in the case of a Borrowing comprised of Eurodollar Rate Advances, the requested duration of the initial Interest Period for each such Eurodollar Rate Advance (and, if the requested duration of such initial Interest Period is specified to be nine or twelve months, the desired alternative Interest Period for each such Eurodollar Rate Advance). Each Appropriate Lender shall, before 1:00 P.M. (Charlotte, North Carolina time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's Pro Rata Share of such Borrowing. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account; provided, however, that, in the case of any Revolving Credit Borrowing, the Administrative Agent shall first make a portion of such funds equal to the aggregate principal amount of all Swing Line Advances and Letter of Credit Advances made by the Swing Line Bank and the Issuing Bank, respectively, and by any of the Revolving Credit Lenders and outstanding on the date of such Revolving Credit Borrowing, together with all accrued and unpaid interest thereon to and as of such date, available to the Swing Line Bank or the Issuing Bank, as the case may be, and to each such Revolving Credit Lender for repayment of such outstanding Swing Line Advances and Letter of Credit Advances made thereby. -47- (b) (i) Each Swing Line Borrowing shall be made initially by the Swing Line Bank on notice, given not later than 2:00 P.M. (Charlotte, North Carolina time) on the date of the proposed Swing Line Borrowing, by the Borrower to the Swing Line Bank and the Administrative Agent. Each notice of a Swing Line Borrowing (a "Notice of Swing Line Borrowing") shall be by telephone, confirmed immediately in writing, or by telex or telecopier, shall be in substantially the form of Exhibit B-2 hereto and duly executed by a Responsible Officer of the Borrower, and shall specify therein: (A) the requested date of such Swing Line Borrowing (which shall be a Business Day); (B) the requested amount of such Swing Line Borrowing; and (C) the requested maturity of such Swing Line Borrowing (which maturity shall be no later than the 30th day after the requested date of such Swing Line Borrowing). Unless the Swing Line Bank promptly notifies the Borrower of its reasonable objection to making such Swing Line Borrowing, the Swing Line Bank will make the amount thereof available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account. (ii) Upon demand by the Swing Line Bank, with a copy of such demand to the Administrative Agent (which shall give prompt notice thereof to each of the Revolving Credit Lenders), each of the Revolving Credit Lenders shall purchase from the Swing Line Bank, and the Swing Line Bank shall sell and assign to each of the Revolving Credit Lenders, such Revolving Credit Lender's Pro Rata Share of each of the outstanding Swing Line Advances owing to the Swing Line Bank as of the date of such demand, by making available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account for the account of the Swing Line Bank, in same day funds, an amount equal to its Pro Rata Share of each such outstanding Swing Line Advance. Promptly after receipt of such funds, the Administrative Agent shall transfer such funds to the Swing Line Bank at its Applicable Lending Office. Each of the Revolving Credit Lenders hereby agrees to purchase its Pro Rata Share of each outstanding Swing Line Advance owing to the Swing Line Bank for which a demand for the purchase thereof has been made on (A) the Business Day on which demand therefor is made by the Swing Line Bank so long as notice of such demand is given not later than 1:00 P.M. (Charlotte, North Carolina time) on such Business Day or (B) the first Business Day next succeeding such demand if notice of such demand is given after such time. The Borrower hereby agrees to each such sale and assignment. Upon any such assignment by the Swing Line Bank to any of the Revolving Credit Lenders of a portion of a Swing Line Advance owing to the Swing Line Bank, the Swing Line Bank represents and warrants to such Revolving Credit Lender that the Swing Line Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any adverse claim, but makes no other representation or warranty and assumes no responsibility with respect to such Swing Line Advance, any of the Loan Documents or any of the Loan Parties. If and to the extent that any of the Revolving Credit Lenders shall not have so made its Pro Rata Share of any applicable Swing Line Advance available to the Administrative Agent in accordance with the foregoing provisions of this Section 2.02(b)(ii), such Revolving Credit Lender hereby agrees to pay to the Administrative Agent forthwith on demand the amount of its Pro Rata Share of such Swing Line Advance, together with all accrued and unpaid interest thereon, for each day from the date of demand therefor by the Swing Line Bank until the date on which such amount is paid to the Administrative Agent, at the Federal Funds Rate. If any of the Revolving Credit Lenders shall pay to the Administrative Agent the amount of its Pro Rata Share of any applicable Swing Line Advance for the account of the Swing Line Bank on any Business Day, such amount so paid in respect of principal shall constitute a Swing Line Advance made by such Revolving Credit Lender on such Business Day for all purposes of this Agreement, and the outstanding principal amount of the applicable Swing Line Advance made by the Swing Line Bank shall be reduced by such amount on such Business Day. -48- (iii) The Obligation of each of the Revolving Credit Lenders to purchase their respective Pro Rata Shares of each outstanding Swing Line Advance owing to the Swing Line Bank upon demand for the purchase thereof pursuant to clause (ii) of this Section 2.02(b) shall be absolute, unconditional and irrevocable, and shall be made strictly in accordance with the terms thereof under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any of the Loan Documents or any of the other agreements or instruments relating thereto; (B) the existence of any claim, setoff, defense or other right that such Revolving Credit Lender may have at any time against the Swing Line Bank, the Borrower or any other Person, whether in connection with the transactions contemplated by the Loan Documents or any unrelated transaction; (C) the occurrence and continuance of any Default; or (D) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. (iv) The failure of any of the Revolving Credit Lenders to purchase its Pro Rata Share of any outstanding Swing Line Advance owing to the Swing Line Bank for which a demand for the purchase thereof has been made pursuant to clause (ii) of this Section 2.02(b) shall not relieve any of the other Revolving Credit Lenders of its obligation to purchase its Pro Rata Share of such outstanding Swing Line Advance on the date of demand therefor, but none of the Revolving Credit Lenders shall be responsible for the failure of any of the other Revolving Credit Lenders to purchase its Pro Rata Share of such outstanding Swing Line Advance on the date of demand therefor. (c) Anything in subsection (a) of this Section 2.02 to the contrary notwithstanding, the Borrower may not select Eurodollar Rate Advances for any Borrowing (i) made on the Effective Date (it being understood and agreed that the Existing Advances that are purchased and assumed (or, in the case of any of the Initial Lenders that is also an Existing Lender, retained) by the Appropriate Lenders under each of the Facilities on the Effective Date may continue as (or otherwise be Converted into) Eurodollar Rate Advances on such date), (ii) if the aggregate amount of such Borrowing is less than $3,000,000 or (iii) if the obligation of the Appropriate Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09(b) or 2.10. In addition, the Term A Advances may not be outstanding as part of more than three separate Term A Borrowings comprised of Eurodollar Rate Advances, the Term B Advances may not be outstanding as part of more than three separate Term B Borrowings comprised of Eurodollar Rate Advances, and the Revolving Credit Advances may not be outstanding as part of more than eight separate Revolving Credit Borrowings comprised of Eurodollar Rate Advances. (d) Each Notice of Borrowing and Notice of Swing Line Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each of the Appropriate Lenders against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender -49- to fund the Eurodollar Rate Advance to be made by such Lender as part of such Borrowing when such Eurodollar Rate Advance, as a result of such failure, is not made on such date. A certificate of the Lender requesting compensation pursuant to this Section 2.02(d), submitted to the Borrower by such Lender (with a copy to the Administrative Agent) and specifying therein the amount of such additional compensation (including the basis of calculation thereof), shall be conclusive and binding for all purposes, absent manifest error. (e) Unless the Administrative Agent shall have received notice from an Appropriate Lender prior to the date of any Borrowing under a Facility under which such Lender has a Commitment that such Lender will not make available to the Administrative Agent such Lender's Pro Rata Share of such Borrowing, the Administrative Agent may assume that such Lender has made the amount of such Pro Rata Share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make a corresponding amount available to the Borrower on such date. If and to the extent that such Lender shall not have so made the amount of such Pro Rata Share available to the Administrative Agent, such Lender and the Borrower severally agree to repay or to pay to the Administrative Agent forthwith on demand such corresponding amount, together with all accrued and unpaid interest thereon, for each day from the date on which such corresponding amount is made available to the Borrower until the date on which such corresponding amount is repaid or paid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable under Section 2.07 at such time to Advances comprising part of such Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such corresponding amount so paid shall constitute such Lender's Advance as part of such Borrowing for all purposes under this Agreement. (f) The failure of any of the Lenders to make the Advance to be made by it as part of any Borrowing shall not relieve any of the other Lenders of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but none of the Lenders shall be responsible for the failure of any of the other Lenders to make the Advance to be made by such other Lender on the date of any Borrowing. SECTION 2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be issued upon notice, given not later than 3:00 P.M. (Charlotte, North Carolina time) on the fifth Business Day prior to the date of the proposed issuance of such Letter of Credit (or such later day as the Issuing Bank in its sole discretion shall agree), by the Borrower to the Issuing Bank, which shall give the Administrative Agent and each of the Revolving Credit Lenders prompt notice thereof by telex or telecopier. Each notice of issuance of a Letter of Credit (a "Notice of Issuance") shall be by telephone, confirmed immediately in writing, or by telex or telecopier, shall be duly executed by a Responsible Officer of the Borrower, and shall specify therein: (i) the requested date of such issuance (which shall be a Business Day); (ii) the requested type and Available Amount of such Letter of Credit; (iii) the requested expiration date of such Letter of Credit (which shall comply with the requirements of Section 2.01(e)); (iv) the name and address of the proposed beneficiary of such Letter of Credit; and (v) the proposed form of such Letter of Credit, and shall be accompanied by such application and agreement for letters of credit as the Issuing Bank may specify to the Borrower for use in connection with such requested Letter of Credit (a "Letter of Credit Agreement"). If the requested form of such Letter of Credit is acceptable to the Issuing Bank in its sole discretion, the Issuing Bank will, upon fulfillment of the applicable conditions set forth in Article III, make such Letter of Credit available to the Borrower at its office referred to in Section 8.02 or as otherwise agreed with the Borrower in connection with such issuance. If -50- and to the extent that the provisions of any Letter of Credit Agreement shall conflict with this Agreement, the provisions of this Agreement shall govern. (b) Letter of Credit Reports. The Issuing Bank shall furnish to the Administrative Agent and each of the Revolving Credit Lenders on the first Business Day of each calendar quarter a written report setting forth (i) the issuance and expiration dates of all Letters of Credit issued during the immediately preceding calendar quarter and the drawings under all Letters of Credit outstanding during such immediately preceding calendar quarter and (ii) the average daily aggregate Available Amount of all Letters of Credit outstanding during the immediately preceding calendar quarter. (c) Drawing and Reimbursement. (i) The payment by the Issuing Bank of a draft drawn under any Letter of Credit shall constitute for all purposes of this Agreement the making by the Issuing Bank of a Letter of Credit Advance, which shall be a Base Rate Advance, in the amount of such draft. Upon demand by the Issuing Bank, with a copy of such demand to the Administrative Agent, each of the Revolving Credit Lenders shall purchase from the Issuing Bank, and the Issuing Bank shall sell and assign to each of the Revolving Credit Lenders, such Revolving Credit Lender's Pro Rata Share of each of the outstanding Letter of Credit Advances owing to the Issuing Bank as of the date of such demand, by making available for the account of its Applicable Lending Office to the Administrative Agent for the account of the Issuing Bank, at the Administrative Agent's Account, in same day funds, an amount equal to its Pro Rata Share of each such outstanding Letter of Credit Advance. Promptly after receipt of such funds, the Administrative Agent shall transfer such funds to the Issuing Bank at its Applicable Lending Office. Each of the Revolving Credit Lenders hereby agrees to purchase its Pro Rata Share of each outstanding Letter of Credit Advance owing to the Issuing Bank for which a demand for the purchase thereof has been made on (A) the Business Day on which demand therefor is made by the Issuing Bank so long as notice of such demand is given not later than 1:00 P.M. (Charlotte, North Carolina time) on such Business Day or (B) the first Business Day next succeeding such demand if notice of such demand is given after such time. The Borrower hereby agrees to each such sale and assignment. Upon any such assignment by the Issuing Bank to any of the Revolving Credit Lenders of a portion of a Letter of Credit Advance owing to the Issuing Bank, the Issuing Bank represents and warrants to such Revolving Credit Lender that the Issuing Bank is the legal and beneficial owner of such interest being assigned by it, free and clear of any adverse claim, but makes no other representation or warranty and assumes no responsibility with respect to such Letter of Credit Advance, any of the Loan Documents or any of the Loan Parties. If and to the extent that any of the Revolving Credit Lenders shall not have so made its Pro Rata Share of any applicable Letter of Credit Advance available to the Administrative Agent in accordance with the foregoing provisions of this Section 2.03(c)(i), such Revolving Credit Lender hereby agrees to pay to the Administrative Agent forthwith on demand the amount of its Pro Rata Share of such Letter of Credit Advance, together with all accrued and unpaid interest thereon, for each day from the date of demand therefor by the Issuing Bank until the date on which such amount is paid to the Administrative Agent, at the Federal Funds Rate. If any of the Revolving Credit Lenders shall pay to the Administrative Agent the amount of its Pro Rata Share of any applicable Letter of Credit Advance for the account of the Issuing Bank on any Business Day, such amount so paid in respect of principal shall constitute a Letter of Credit Advance made by such Revolving Credit Lender on such Business Day for all purposes of this Agreement, and the outstanding principal amount of the applicable Letter of Credit Advance made by the Issuing Bank shall be reduced by such amount on such Business Day. (ii) The Obligation of each of the Revolving Credit Lenders to purchase their respective Pro Rata Shares of each outstanding Letter of Credit Advance owing to the Issuing Bank upon demand for the purchase thereof pursuant to clause (i) of this Section 2.03(c) shall be absolute, unconditional and -51- irrevocable, and shall be made strictly in accordance with the terms thereof under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any of the Loan Documents, any of the Letter of Credit Agreements, any of the Letters of Credit or any of the other agreements or instruments relating thereto (collectively, the "L/C Related Documents"); (B) the existence of any claim, setoff, defense or other right that such Revolving Credit Lender may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank, the Borrower or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (C) the occurrence and continuance of any Default; or (D) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing. (d) Failure to Make Letter of Credit Advances. The failure of any of the Revolving Credit Lenders to purchase its Pro Rata Share of any outstanding Letter of Credit Advance owing to the Issuing Bank for which a demand for the purchase thereof has been made pursuant to Section 2.03(c)(i) shall not relieve any of the other Revolving Credit Lenders of its obligation to purchase its Pro Rata Share of such outstanding Letter of Credit Advance on the date of demand therefor, but none of the Revolving Credit Lenders shall be responsible for the failure of any of the other Revolving Credit Lenders to purchase its Pro Rata Share of such outstanding Letter of Credit Advance on the date of demand therefor. SECTION 2.04. Repayment of Advances. (a) Term A Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Term A Lenders the aggregate principal amount of all Term A Advances outstanding on the following dates in the respective amounts set forth opposite such dates (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.05):
Date Amount ---- ------ June 30, 1999 $2,500,000 September 30, 1999 2,500,000 December 31, 1999 2,500,000 March 31, 2000 2,500,000 June 30, 2000 2,500,000 September 30, 2000 2,500,000 December 31, 2000 2,500,000 March 31, 2001 2,500,000 June 30, 2001 2,500,000 September 30, 2001 2,500,000 December 31, 2001 2,500,000 -52- Date Amount ---- ------ March 31, 2002 2,500,000 June 30, 2002 2,500,000 September 30, 2002 $2,500,000 December 31, 2002 2,500,000 March 31, 2003 2,500,000 June 30, 2003 4,375,000 September 30, 2003 4,375,000 December 31, 2003 4,375,000 March 31, 2004 4,375,000 June 30, 2004 4,375,000 September 30, 2004 4,375,000 December 31, 2004 4,375,000 January 20, 2005 4,375,000
provided, however, that the final principal repayment installment of the Term A Advances shall be repaid on the Termination Date for the Term A Facility and in any event shall be in an amount equal to the aggregate principal amount of all Term A Advances outstanding on such date. (b) Term B Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Term B Lenders the aggregate principal amount of all Term B Advances outstanding on the following dates in the respective amounts set forth opposite such dates (which amounts shall be reduced as a result of the application of prepayments in accordance with the order of priority set forth in Section 2.05):
Date Amount ---- ------ June 30, 1999 $375,000 September 30, 1999 375,000 December 31, 1999 375,000 March 31, 2000 375,000 June 30, 2000 375,000 September 30, 2000 375,000 December 31, 2000 375,000 March 31, 2001 375,000 June 30, 2001 375,000 September 30, 2001 375,000 December 31, 2001 375,000 March 31, 2002 375,000 June 30, 2002 375,000
-53-
Date Amount ---- ------ September 30, 2002 375,000 December 31, 2002 375,000 March 31, 2003 375,000 June 30, 2003 $ 375,000 September 30, 2003 375,000 December 31, 2003 375,000 March 31, 2004 375,000 June 30, 2004 375,000 September 30, 2004 375,000 December 31, 2004 375,000 March 31, 2005 375,000 June 30, 2005 35,250,000 September 30, 2005 35,250,000 December 31, 2005 35,250,000 January 20, 2006 35,250,000
provided, however, that the final principal repayment installment of the Term B Advances shall be repaid on the Termination Date for the Term B Facility and in any event shall be in an amount equal to the aggregate principal amount of all Term B Advances outstanding on such date. (c) Revolving Credit Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Revolving Credit Lenders on the Termination Date for the Revolving Credit Facility the aggregate principal amount of all Revolving Credit Advances outstanding on such date. (d) Swing Line Advances. The Borrower shall repay to the Administrative Agent for the account of the Swing Line Bank and, if applicable, each of the Revolving Credit Lenders on the earlier of (i) the maturity date for each Swing Line Advance as specified in the related Notice of Swing Line Borrowing (which maturity shall be no later than the 30th day after the date on which such Swing Line Borrowing was initially made by the Swing Line Bank) and (ii) the Termination Date for the Swing Line Facility the principal amount of each such Swing Line Advance made by the Swing Line Bank and each such Revolving Credit Lender and outstanding on such date. (e) Letter of Credit Advances. (i) The Borrower shall repay to the Administrative Agent for the account of the Issuing Bank and, if applicable, each of the Revolving Credit Lenders on the earlier of (A) the date of demand therefor and (B) the Termination Date for the Letter of Credit Facility the principal amount of each such Letter of Credit Advance made by the Issuing Bank and each such Revolving Credit Lender and outstanding on such date. (ii) The Obligations of the Borrower under this Agreement, any of the Letter of Credit Agreements and any of the other agreements or instruments relating to any Letter of Credit shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, such Letter of Credit Agreement and such other agreement or instrument under all circumstances (subject to the -54- rights afforded to the Borrower under Section 8.08), including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any of the L/C Related Documents; (B) any change in the time, manner or place of payment of, or in any of the other terms of, all or any of the Obligations of the Borrower in respect of any of the L/C Related Documents or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, setoff, defense or other right that the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (E) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit, unless such draft is substantially different from the applicable form specified by such Letters of Credit; (F) any exchange, release or nonperfection of any Collateral or other collateral, or any release or amendment or waiver of or consent to departure from the Subsidiaries Guarantee or any other guarantee, for all or any of the Obligations of the Borrower under or in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Borrower or a guarantor. SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Borrower may, upon at least one Business Day's notice to the Administrative Agent, terminate in whole or reduce in part the unused portion of the Letter of Credit Facility or the Unused Revolving Credit Commitments; provided that each partial reduction of a Facility shall be in an aggregate amount of $3,000,000 or an integral multiple of $500,000 in excess thereof or, if less, the aggregate amount of such Facility. (b) Mandatory. (i) The Term A Facility shall be automatically and permanently reduced on each date on which the Term A Advances outstanding thereunder are repaid or prepaid by an amount equal to the amount, if any, by which (A) the Term A Facility immediately prior to such reduction exceeds (B) the aggregate principal amount of all Term A Advances outstanding on such date (after giving effect to such repayment or prepayment). -55- (ii) The Term B Facility shall be automatically and permanently reduced on each date on which the Term B Advances outstanding thereunder are repaid or prepaid by an amount equal to the amount, if any, by which (A) the Term B Facility immediately prior to such reduction exceeds (B) the aggregate principal amount of all Term B Advances outstanding on such date (after giving effect to such repayment or prepayment). (iii) The Revolving Credit Facility shall be automatically and permanently reduced on each date on which the prepayment of Revolving Credit Advances outstanding thereunder is required to be made pursuant to Section 2.06(b)(i), 2.06(b)(ii) or 2.06(b)(vii) by an amount equal to the applicable Reduction Amount. (iv) The Swing Line Facility shall be automatically and permanently reduced on the date of each reduction in the Revolving Credit Facility by an amount equal to the amount, if any, by which (A) the Swing Line Facility on such date exceeds (B) the Revolving Credit Facility on such date (after giving effect to such reduction of the Revolving Credit Facility on such date). (v) The Letter of Credit Facility shall be automatically and permanently reduced on the date of each reduction in the Revolving Credit Facility by an amount equal to the amount, if any, by which (A) the Letter of Credit Facility on such date exceeds (B) the Revolving Credit Facility on such date (after giving effect to such reduction of the Revolving Credit Facility). (c) Application of Commitment Reductions. Upon each reduction of a Facility pursuant to this Section 2.05, the Commitment of each of the Appropriate Lenders under such Facility shall be reduced by such Lender's Pro Rata Share of the amount by which such Facility is reduced. SECTION 2.06. Prepayments. (a) Optional. The Borrower may, upon at least three Business Days' notice to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the aggregate principal amount of the Advances comprising part of the same Borrowing and outstanding on such date, in whole or ratably in part; provided, however, that (i) each partial prepayment shall be in an aggregate principal amount of $3,000,000 or an integral multiple of $500,000 in excess thereof and (ii) in the case of any such prepayment of a Eurodollar Rate Advance on a date other than the last day of an Interest Period therefor, the Borrower shall also pay any amounts owing in respect of such Eurodollar Rate Advance pursuant to Section 8.04(c). Each prepayment of Term Advances pursuant to this Section 2.06(a) shall be applied ratably to the Term Facilities and, in the case of each of the Term Facilities, first, to the next two succeeding principal repayment installments thereof in direct order of maturity until such principal repayment installments are repaid in full and second, to the remaining principal repayment installments thereof in on a pro rata basis. (b) Mandatory. (i) The Borrower shall, on the fifth day following each date on which the Borrower delivers the Required Financial Information for any Fiscal Year (but in any event within 95 days after the end of each Fiscal Year), commencing with the Required Financial Information for the Fiscal Year ending December 31, 1999, prepay an aggregate principal amount of the Advances comprising part of the same Borrowings (and, if applicable, deposit an amount in the L/C Cash Collateral Account) in an amount equal to 50% of the amount of Excess Cash Flow for such Fiscal Year. Each prepayment of Advances and deposit into the L/C Cash Collateral Account pursuant to this Section 2.06(b)(i) shall be applied, first, ratably to the Term Facilities and, in the case of each of the Term Facilities, to the principal -56- repayment installments thereof on a pro rata basis until all Term Advances are paid in full and, thereafter, to the Revolving Credit Facility in the manner set forth in clause (vi) of this Section 2.06(b). (ii) The Borrower shall, on the date of receipt of the Net Cash Proceeds by the Borrower or any of its Subsidiaries from: (A) the sale, lease, transfer or other disposition of any property or assets of the Borrower or any of its Subsidiaries (other than any property or assets expressly permitted to be sold, leased, transferred or disposed of under clause (i), (ii) or (iii) of Section 5.02(d) and, except to the extent such prepayment is required thereunder, under subclauses (iv) and (v) of Section 5.02(d)); (B) the incurrence or issuance by the Borrower or any of its Subsidiaries of any Indebtedness (other than Indebtedness expressly permitted to be incurred or issued pursuant to subclause (i)(B), (ii)(A), (ii)(C) or (ii)(H) of Section 5.02(b)); (C) the issuance or sale by the Borrower or any of its Subsidiaries of any Equity Interests therein (other than any Permitted Affiliate Investment or any Equity Interests expressly permitted to be issued and sold pursuant to clause (i), (ii), (vi), (ix) or (x) of Section 5.02(f)); (D) the acceptance of any capital contributions by the Borrower or any of its Subsidiaries (other than any Permitted Affiliate Investment or clause (viii)(B) of Section 5.02(f)); and (E) any Extraordinary Receipts received by or paid to or for the account of the Borrower or any of its Subsidiaries and not otherwise included in subclause (ii)(A), (ii)(B), (ii)(C) or (ii)(D) of this Section 2.06(b), prepay an aggregate principal amount of the Advances comprising part of the same Borrowings (and, if applicable, deposit an amount in the L/C Cash Collateral Account) in an amount equal to 50% of the amount of such Net Cash Proceeds, in the case of subclauses (ii)(C) and (ii)(D) of this Section 2.06(b), and 100% of the amount of such Net Cash Proceeds, in all other cases under this Section 2.06(b); provided, however, that, notwithstanding the foregoing provisions of this Section 2.06(b)(ii), the Borrower shall not be required to prepay any outstanding Advances or to cash collateralize any outstanding Letters of Credit pursuant to this Section 2.06(b)(ii) with any of the Net Cash Proceeds received by the Borrower from post-closing purchase price adjustments made pursuant to Section 2.1 of the Recapitalization Agreement. Each prepayment of Advances and deposit into the L/C Cash Collateral Account pursuant to this Section 2.06(b)(ii) shall be applied, first, ratably to the Term Facilities and, in the case of each of the Term Facilities, to the principal repayment installments thereof on a pro rata basis until all Term Advances are paid in full and, thereafter, to the Revolving Credit Facility in the manner set forth in clause (vi) of this Section 2.06(b). (iii) The Borrower shall, on each Business Day, prepay an aggregate principal amount of the Revolving Credit Advances comprising part of the same Borrowings, the Swing Line Advances and the Letter of Credit Advances (and, if applicable, shall deposit an amount into the L/C Cash Collateral Account) in an amount equal to the amount, if any, by which (A) the sum of (1) the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances outstanding on such Business Day and (2) the aggregate Available Amount of all Letters of Credit outstanding on such -57- Business Day exceeds (B) the Revolving Credit Facility on such Business Day (after giving effect to any permanent reduction thereof pursuant to Section 2.05 on such Business Day). (iv) The Borrower shall, on each Business Day, pay to the Administrative Agent for deposit into the L/C Cash Collateral Account an amount sufficient to cause the aggregate amount on deposit in the L/C Cash Collateral Account on such Business Day to equal the amount, if any, by which (A) the aggregate Available Amount of all Letters of Credit outstanding on such Business Day exceeds (B) the Letter of Credit Facility on such Business Day (after giving effect to any permanent reduction thereof pursuant to Section 2.05 on such Business Day). (v) The Borrower shall, on the first Business Day of each Clean-Down Period, prepay an aggregate principal amount of the Revolving Credit Advances comprising part of the same Borrowings, the Swing Line Advances and the Letter of Credit Advances outstanding on such Business Day in an amount equal to the amount by which (A) the aggregate principal amount of all Revolving Credit Advances, Swing Line Advances and Letter of Credit Advances outstanding on such Business Day exceeds (B) $10,000,000. (vi) Prepayments of the Revolving Credit Facility made pursuant to clause (i), (ii), (iii), (v) or (vii) of this Section 2.06(b), first, shall be applied to prepay Letter of Credit Advances owing to the Issuing Bank and outstanding at such time until all such Letter of Credit Advances are paid in full, second, shall be applied to prepay Swing Line Advances owing to the Swing Line Bank and outstanding at such time until all such Swing Line Advances are paid in full, third, shall be applied to prepay Letter of Credit Advances and Swing Line Advances owing to the Revolving Credit Lenders and outstanding at such time until all such Letter of Credit Advances and Swing Line Advances are paid in full, fourth, shall be applied to prepay Revolving Credit Advances comprising part of the same Borrowings and outstanding at such time until all Revolving Credit Advances are paid in full and, fifth, shall be deposited in the L/C Cash Collateral Account to cash collateralize 100% of the Available Amount of all Letters of Credit outstanding at such time; and, in the case of prepayments of the Revolving Credit Facility required pursuant to clause (i), (ii) or (vii) of this Section 2.06(b), the amount remaining, if any, after the prepayment in full of all Advances outstanding at such time and the 100% cash collateralization of the aggregate Available Amount of all Letters of Credit outstanding at such time (the sum of such prepayment amounts, cash collateralization amounts and remaining amount being, collectively, the "Reduction Amount") may be retained by the Borrower for use by the Borrower and its Subsidiaries in the ordinary course of their business, and the Revolving Credit Facility shall be automatically and permanently reduced as set forth in Section 2.05(b)(iii). Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied (without any further action by or notice to or from the Borrower or any of the other Loan Parties) to reimburse the Issuing Bank or the Revolving Credit Lenders, as applicable. (vii) Notwithstanding any of the other provisions of this Section 2.06, (A) if, following the occurrence of any "Asset Sale" (as defined in the applicable Senior Subordinated Notes Documents), the Borrower is required to commit by a particular date (a "Commitment Date") to apply or to cause any of its Subsidiaries to apply an amount equal to any of the "Asset Sale Proceeds" (as defined in the applicable Senior Subordinated Notes Documents) thereof in a particular manner, or to apply or to cause any of its Subsidiaries to apply by a particular date (an "Application Date") an amount equal to any such "Asset Sale Proceeds" in a particular manner, in either case in order to excuse the Borrower from being required to make an offer to redeem or to repurchase all or a portion of the Senior Subordinated Notes as a result of such "Asset Sale", and the Borrower shall have failed to so commit or to so apply, or to have caused any of its Subsidiaries to so commit or to so apply, an amount equal to such "Asset Sale Proceeds" at least 30 days -58- prior to the Commitment Date or the Application Date, as the case may be, or (B) if the Borrower at any other time shall have failed to apply or to commit, or to have caused any of its Subsidiaries to apply or to commit, an amount equal to any such "Asset Sale Proceeds" and within 30 days thereafter (assuming no further application or commitment of an amount equal to such "Asset Sale Proceeds"), the Borrower would otherwise be required to make an offer to redeem or to repurchase all or a portion of the Senior Subordinated Notes as a result of such "Asset Sale", then, in either such case, the Borrower shall immediately pay or cause to be paid to the Administrative Agent an amount equal to 100% of such "Asset Sale Proceeds" to be applied to the prepayment of Advances outstanding at such time and, if applicable, to cash collateralization of Letters of Credit outstanding at such time, in each case, in the manner set forth in clause (ii) of this Section 2.06(b) in such amounts as are required to excuse the Borrower from making any such offer of redemption or repurchase. (viii) Notwithstanding any of the other provisions of clause (ii) of this Section 2.06(b), so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default shall have occurred and be continuing, if any prepayment of Eurodollar Rate Advances is required to be made under clause (i) or (ii) of this Section 2.06(b) other than on the last day of the Interest Period therefor, the Borrower may, in its sole discretion, direct the Administrative Agent to deposit (and, if so directed, the Administrative Agent shall deposit) the amount of any such prepayment otherwise required to be made hereunder into the Cash Collateral Account until the last day of such Interest Period, at which time the Administrative Agent shall be authorized (without any further action by or notice to or from the Borrower or any of the other Loan Parties) to apply such amount to the prepayment of such Advances in accordance with the applicable provisions of this Section 2.06(b); provided, however, that all such Eurodollar Rate Advances shall continue to bear interest as set forth in Section 2.07 until the last day of the applicable Interest Period therefor. (ix) Any of the Term B Lenders, at its option, may elect not to accept any prepayment of the outstanding Term B Advances owing to it pursuant to clause (i), (ii) or (vii) of this Section 2.06(b) so long as a corresponding amount of Term A Advances remains outstanding at the time of such election, in which event the provisions set forth in the next three succeeding sentences of this Section 2.06(b)(ix) shall apply. Promptly upon receipt by the Administrative Agent of the amount of any Excess Cash Flow pursuant to clause (i) of this Section 2.06(b) or the amount of any Net Cash Proceeds pursuant to clause (ii) or (vii) of Section 2.06(b), the Administrative Agent shall, so long as (and to the extent that) a corresponding amount of aggregate Term A Advances are outstanding on the date of such receipt, deposit the amount of such Excess Cash Flow or such Net Cash Proceeds, as the case may be, applicable to the prepayment of outstanding Term B Advances into the Cash Collateral Account pending application of such amount on the related Mandatory Prepayment Date, and promptly after the date of such receipt, the Administrative Agent shall give written notice to each of the Term B Lenders of (A) the amount of Excess Cash Flow or Net Cash Proceeds, as the case may be, so prepaid that, pursuant to the applicable terms of this Section 2.06(b), is applicable to the prepayment of outstanding Term B Advances (the "Mandatory Prepayment Amount") and (B) the date on which the related prepayment of outstanding Term B Advances shall be made (the "Mandatory Prepayment Date"), which date shall be no later than five Business Days after the date of receipt of the related amount of Excess Cash Flow or Net Cash Proceeds, as the case may be. Any Term B Lender that wishes to decline its Pro Rata Share of such Mandatory Prepayment Amount on the related Mandatory Prepayment Date (each a "Declining Term B Lender") shall give written notice thereof to the Administrative Agent not later than 1:00 P.M. (Charlotte, North Carolina time) at least two Business Days prior to the related Mandatory Prepayment Date. The Administrative Agent shall, not later than 1:00 P.M. (New York City time) on the related Mandatory Prepayment Date, (1) withdraw from the Cash Collateral Account an amount equal to the aggregate amount so declined by all of the Declining Term B Lenders (the -59- "Declined Prepayment Amount") and apply such amount to the prepayment of the Term A Advances outstanding on such Mandatory Prepayment Date, such prepayment to be applied to the principal repayment installments thereof on a pro rata basis, and (2) withdraw from the Cash Collateral Account an amount equal to the difference between (x) the Mandatory Prepayment Amount and (y) the Declined Prepayment Amount and apply such amount to the prepayment of the Term B Advances owing to the Term B Lenders other than the Declining Term B Lenders and outstanding on such Mandatory Prepayment Date, such prepayment to be applied to the principal repayment installments owing to each such Term B Lender on a pro rata basis. (c) Prepayments to Include Accrued Interest, Etc. (i) All prepayments under this Section 2.06 shall be made together with (A) accrued and unpaid interest to the date of such prepayment on the principal amount so prepaid and (B) in the case of any such prepayment of a Eurodollar Rate Advance on a date other than the last day of an Interest Period therefor, any amounts owing in respect of such Eurodollar Rate Advance pursuant to 8.04(c). (ii) Prepayments of Advances outstanding under any Facility pursuant to this Section 2.06 shall be applied to Base Rate Advances comprising part of the same Borrowings under such Facility and outstanding at such time and/or to Eurodollar Rate Advances comprising part of the same Borrowings under such Facility and outstanding at such time which have an Interest Period then in effect for which the last day is the same as the date of such prepayment before any such prepayment shall be applied to any other Eurodollar Rate Advances comprising part of the same Borrowings under such Facility and outstanding at such time. SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance owing to each of the Lender Parties from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time and (B) the Applicable Margin for such Base Rate Advance in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Advance for such Interest Period and (B) the Applicable Margin for such Eurodollar Rate Advance in effect on the first day of such Interest Period, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (b) Default Interest. Upon the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f) or an Event of Default, the Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each of the Lender Parties, payable in arrears on the dates referred to in clause (i) or (ii) of Section 2.07(a), as applicable, and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (i) or (ii) of Section 2.07(a), as applicable, and (ii) to the fullest extent permitted by applicable law, the amount of any -60- interest, fees or other amounts payable under this Agreement or any of the other Loan Documents to any of the Agents or any of the Lender Parties that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (i) or (ii) of Section 2.07(a), as applicable, and, in all other cases, on Base Rate Advances pursuant to clause (i) of Section 2.07(a). (c) Notice of Interest Rate. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a) or a Notice of Conversion pursuant to Section 2.09(a), the Administrative Agent shall give notice to the Borrower and each of the Appropriate Lenders of the applicable interest rate determined by the Administrative Agent for purposes of clause (i) or (ii) of Section 2.07(a), as applicable. SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of the Revolving Credit Lenders a fee (the "Commitment Fee"), from the Closing Date in the case of each of the Existing Lenders, from the Effective Date in the case of each of the appropriate Initial Lenders (other than the Existing Lenders) and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each of the other Revolving Credit Lenders until, in each case, the Termination Date, payable in arrears quarterly on the last day of each March, June, September and December, commencing March 31, 1999, and on the Termination Date, at the Applicable Percentage in effect from time to time on the sum of (i) the average daily Unused Revolving Credit Commitment of each of the Revolving Credit Lenders during such quarter and (ii) each such Revolving Credit Lender's Pro Rata Share of the average daily outstanding Swing Line Advances during such quarter; provided, however, that no commitment fee shall accrue on any of the Revolving Credit Commitments of a Defaulting Lender so long as such Revolving Credit Lender shall be a Defaulting Lender. (b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the Administrative Agent for the account of each of the Revolving Credit Lenders a commission, payable in arrears quarterly on the last day of each March, June, September and December, commencing March 31, 1999, on the earliest to occur of the full drawing, expiration, termination or cancellation of any Letter of Credit and on the Termination Date, on such Revolving Credit Lender's Pro Rata Share of the average daily aggregate Available Amount of all Letters of Credit outstanding from time to time during such quarter at the rate per annum equal to the Applicable Margin in effect at such time for Eurodollar Rate Advances under the Revolving Credit Facility. (ii) The Borrower shall pay to the Issuing Bank, for its own account, (A) an issuance fee for each Letter of Credit in an amount equal to 0.25% of the Available Amount of such Letter of Credit, payable on the date of issuance of such Letter of Credit, and (B) such other commissions, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as the Borrower and the Issuing Bank shall from time to time agree. (c) Agent's Fees. The Borrower shall pay to the Administrative Agent for its account and, if applicable, the account of the other Agents such fees as may from time to time be agreed between the Borrower and the Administrative Agent. SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 1:00 P.M. (Charlotte, North -61- Carolina time) on the third Business Day prior to the date of the proposed Conversion in the case of a Conversion of Base Rate Advances into Eurodollar Rate Advances or of Eurodollar Rate Advances of one Interest Period into Eurodollar Rate Advances of another Interest Period, or 1:00 P.M. (Charlotte, North Carolina time) on the first Business Day prior to the date of the proposed Conversion in the case of a Conversion of Eurodollar Rate Advances into Base Rate Advances, and subject to the provisions of subsection (b) of this Section 2.09 and Section 2.10, Convert all or any portion of the Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that: (i) any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances; (ii) any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be made only if no Default under Section 6.01(a) or 6.01(f) or Event of Default shall have occurred and be continuing and shall be in an amount not less than the minimum amount specified in Section 2.02(c); (iii) no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(c); and (iv) each Conversion of Advances comprising part of the same Borrowing under any Facility shall be made among the Appropriate Lenders in accordance with their respective Pro Rata Shares of such Facility. Each notice of a Conversion (a "Notice of Conversion") shall be delivered by telephone, confirmed immediately in writing, or by telex or telecopier, shall be in substantially the form of Exhibit B-3 hereto and duly executed by a Responsible Officer of the Borrower, and shall, within the restrictions set forth in the immediately preceding sentence, specify therein: (A) the requested date of such Conversion (which shall be a Business Day); (B) the Advances requested to be Converted; and (C) if such Conversion is into Eurodollar Rate Advances, the requested duration of the Interest Period for such Eurodollar Rate Advances (and, if the requested duration of such Interest Period is specified to be nine or twelve months, the desired alternative Interest Period for such Eurodollar Rate Advances). The Administrative Agent shall give each of the Appropriate Lenders prompt notice of each Notice of Conversion received by it, by telex or telecopier. Each Notice of Conversion shall be irrevocable and binding on the Borrower. (b) Mandatory. (i) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" set forth in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Appropriate Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. -62- (ii) Upon the occurrence and during the continuance of any Default under Section 6.01(a) or 6.01(f) or any Event of Default, (A) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (B) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change (other than any change by way of the imposition of or increase in reserve requirements included in the Eurodollar Rate Reserve Percentage) in or in the interpretation or application of any Requirement of Law after the date of this Agreement or (ii) the compliance with any directive, guideline or request from any central bank or other Governmental Authority or any change therein or in the interpretation, application, implementation, administration or enforcement thereof, that, in any case under this clause (ii), becomes effective or is issued or made after the date of this Agreement (whether or not having the force of law), there shall be any increase in the cost to any of the Lender Parties of agreeing to make or making, agreeing to participate in or participating in, agreeing to renew or renewing or funding or maintaining any Advances of either Type, or of agreeing to issue or of issuing, maintaining or participating in Letters of Credit or of agreeing to make or of making or maintaining Swing Line Advances or Letter of Credit Advances, or any reduction in the amount owing to any of the Lender Parties or their respective Applicable Lending Offices under this Agreement in respect of any Advances of either Type or any Letters of Credit (excluding, for purposes of this Section 2.10, any such increased costs resulting from (A) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (B) changes in the basis of taxation of overall net income or overall gross income by the United States of America or the jurisdiction under the laws of which such Lender Party is organized or has either of its Applicable Lending Offices or any political subdivision thereof), then the Borrower hereby agrees to pay, from time to time upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), to the Administrative Agent for the account of such Lender Party additional amounts sufficient to compensate or to reimburse such Lender Party for all such increased costs or reduced amounts. Each of the Lender Parties shall, as promptly as practicable after such Lender Party obtains knowledge of such circumstances and the determination of such Lender Party to request additional compensation from the Borrower pursuant to this Section 2.10(a), provide notice to the Administrative Agent and the Borrower of the circumstances entitling such Lender Party to such additional compensation and the amount of such additional compensation (including the basis of calculation thereof), which notice shall be conclusive and binding for all purposes, absent manifest error; provided, however, that none of the Lender Parties shall be entitled to additional compensation under this Section 2.10(a) for any such cost incurred or reduced amount suffered from and after the date that is 180 days prior to the date such Lender Party first delivers such notice to the Borrower. In determining any such additional compensation, such Lender Party may use reasonable averaging and attribution methods. If any of the Lenders requests additional compensation from the Borrower under this Section 2.10(a) in respect of its making, participating in or renewing Eurodollar Rate Advances, the Borrower may, upon notice to such Lender (with a copy of such notice to the Administrative Agent), suspend the obligation of such Lender to make, participate in and/or renew Eurodollar Rate Advances until the circumstances giving rise to such request no longer exist and, during such time, all Eurodollar Rate Advances that would otherwise be made by such Lender as part of any Borrowing shall be made instead as Base Rate Advances and all payments of principal of and interest on such Base Rate Advances shall, notwithstanding the provisions of Section 2.07, be made at the same time as payments on the Eurodollar Rate Advances otherwise comprising part of such Borrowing. (b) If any of the Lender Parties determines that compliance with any Requirements of Law or any directive, guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), or any change therein or in the interpretation, application, implementation, -63- administration or enforcement thereof, that is enacted or becomes effective, or is implemented or is first required or expected to be complied with, after the date of this Agreement, affects the amount of capital required or expected to be maintained by such Lender Party (or either of the Applicable Lending Offices of such Lender Party) or by any Person controlling such Lender Party and that the amount of such capital is increased by or is based upon the existence of the commitment of such Lender Party to lend hereunder or to issue or participate in Letters of Credit hereunder and other commitments of such type or the issuance or maintenance of or participation in the Letters of Credit (or similar contingent obligations), then the Borrower hereby agrees to pay, upon demand by such Lender Party (with a copy of such demand to the Administrative Agent), to the Administrative Agent for the account of such Lender Party, from time to time as specified by such Lender Party, additional amounts sufficient to compensate such Lender Party or such Person in light of such circumstances, to the extent that such Lender Party or such Person reasonably determines such increase in capital to be allocable to the existence of the commitment of such Lender Party to lend or to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. Each of the Lender Parties shall, as promptly as practicable after such Lender Party obtains knowledge of such circumstances and the determination of such Lender Party to request additional compensation from the Borrower pursuant to this Section 2.10(b), provide notice to the Administrative Agent and the Borrower of the circumstances entitling such Lender Party to such additional compensation and the amount of such additional compensation (including the basis of calculation thereof), which notice shall be conclusive and binding for all purposes, absent manifest error; provided, however, that none of the Lender Parties shall be entitled to additional compensation under this Section 2.10(b) for any such increases in capital required from and after the date that is 180 days prior to the date such Lender Party first delivers such notice to the Borrower. In determining any such additional compensation, such Lender Party may use reasonable averaging and attribution methods. (c) If, with respect to any Eurodollar Rate Advances under either of the Term Facilities or the Revolving Credit Facility, Lenders owed or holding not less than a majority in interest of the aggregate principal amount of all Advances outstanding under such Facility at any time notify the Administrative Agent that the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Lenders of making, participating in or renewing, or funding or maintaining, their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Appropriate Lenders, whereupon (i) each such Eurodollar Rate Advance under such Facility will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (ii) the obligation of the Appropriate Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower (promptly following notice thereof from the Appropriate Lenders) that such Lenders have determined that the circumstances causing such suspension no longer exist. (d) Notwithstanding any of the other provisions of this Agreement, if the introduction of or any change in or in the interpretation of any Requirements of Law shall make it unlawful, or any central bank or other Governmental Authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder, then, upon notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) each Eurodollar Rate Advance of such Lender will automatically, on the last day of the then existing Interest Period therefor, if permitted by applicable law, or otherwise upon demand, Convert into a Base Rate Advance and (ii) the obligation of such Lender to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower (promptly following notice thereof from such Lender) that such Lender has -64- determined that the circumstances causing such suspension no longer exist. If the obligation of a Lender to make Eurodollar Rate Advances is suspended pursuant to this Section 2.10(d), then, until the circumstances that gave rise to such suspension no longer apply to such Lender, all Eurodollar Rate Advances that would otherwise be made by such Lender as part of any Borrowing shall be made instead as Base Rate Advances and all payments of principal of and interest on such Base Rate Advances shall, notwithstanding the provisions of Section 2.07, be made at the same time as payments on the Eurodollar Rate Advances otherwise comprising part of such Borrowing. (e) Each of the Lender Parties hereby agrees that, upon the occurrence of any circumstances entitling such Lender Party to additional compensation or to cease making, participating in or renewing, or funding or maintaining, Advances under any of the foregoing provisions of this Section 2.10, such Lender Party shall use reasonable efforts (consistent with its internal policy and with legal and regulatory restrictions) to designate a different Applicable Lending Office for any Advances affected by such circumstances if the making of such designation, in the case of subsection (a) or (b) of this Section 2.10, would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue or, in the case of subsection (c) or (d) of this Section 2.10, would allow such Lender Party to continue to perform its obligations to make, to participate in or renew, or to fund or maintain, Advances and, in any such case, would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party. (f) If (i) any of the Lenders entitled to additional compensation under any of the foregoing provisions of this Section 2.10 shall fail to designate a different Eurodollar Lending Office as provided in subsection (e) of this Section 2.10 or if the circumstances entitling any of the Lender Parties to additional compensation under subsection (a) or (b) of this Section 2.10 shall continue to be in effect notwithstanding such designation or since subsection (e) of this Section 2.10 is inapplicable or (ii) the inadequacy or illegality contemplated under subsection (c) or (d) of this Section 2.10, respectively, shall continue with respect to any of the Lenders notwithstanding such designation, then, so long as no Default shall have occurred and be continuing and subject to the other terms of Section 8.07(a), the Borrower may cause such Lender Party to (and, if the Borrower so demands, such Lender Party shall) assign all of its rights and obligations under this Agreement to one or more other Persons in accordance with Section 8.07(a); provided that if, upon such demand by the Borrower, such Lender Party elects to waive its request for additional compensation pursuant to subsection (a) or (b) of this Section 2.10, the demand by the Borrower for such Lender Party to so assign all of its rights and obligations under this Agreement shall thereupon be deemed withdrawn. Nothing in subsection (e) of this Section 2.10 or this Section 2.10(f) shall affect or postpone any of the rights of any of the Lender Parties or any of the Obligations of the Borrower under any of the foregoing provisions of this Section 2.10 in any manner. SECTION 2.11. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or setoff (except as otherwise provided in Section 2.14), not later than 1:00 P.M. (Charlotte, North Carolina time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments received by the Administrative Agent after 1:00 P.M. Noon (Charlotte, North Carolina time) on any such day being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by the Borrower is in respect of principal, interest, Commitment Fees or any of the other Obligations then due and payable hereunder and under the Notes to more than one of the Lender Parties, to such Lender Parties for the accounts of their respective Applicable Lending Offices in accordance with their respective Pro Rata Shares -65- of the amounts of such Obligations due and payable to such Lender Parties at such time and (ii) if such payment by the Borrower is in respect of any of the Obligations then due and payable hereunder to one Lender Party, to such Lender Party for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 8.07(g), from and after the effective date of such Assignment and Acceptance the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender Party assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) All computations of interest based on clause (a) of the definition of "Base Rate" set forth in Section 1.01 shall be made by the Administrative Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and all computations of fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or Letter of Credit commission hereunder shall be conclusive and binding for all purposes, absent manifest error. (c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or Commitment Fees, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next succeeding calendar month, such payment shall be made on the immediately preceding Business Day. (d) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to any of the Lender Parties hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender Party on such due date an amount equal to the amount due such Lender Party on such date. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender Party shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender Party, together with all accrued and unpaid interest thereon, for each day from the date such amount is distributed to such Lender Party until the date such Lender Party repays such amount to the Administrative Agent, at the Federal Funds Rate. (e) Whenever any payment received by the Administrative Agent under this Agreement or any of the other Loan Documents is insufficient to pay in full all amounts due and payable to the Agents and the Secured Parties under and in respect of this Agreement and the other Loan Documents on any date, such payment shall be distributed by the Administrative Agent and applied by the Agents and the Secured Parties in the following order of priority: (i) first, to the payment of all of the fees, indemnification payments, costs and expenses that are due and payable to the Agents (solely in their respective capacities as Agents) under and in respect of this Agreement and the other Loan Documents on such date, ratably in the respective -66- aggregate amounts of all such fees, indemnification payments, costs and expenses owing to the Agents on such date; (ii) second, to the payment of all of the fees, indemnification payments, costs and expenses that are due and payable to the Swing Line Bank and the Issuing Bank (solely in their respective capacities as Swing Line Bank and Issuing Bank) under and in respect of this Agreement and the other Loan Documents on such date, ratably in the respective aggregate amounts of all such fees, indemnification payments, costs and expenses owing to the Swing Line Bank and the Issuing Bank on such day; (iii) third, to the payment of all of the indemnification payments, costs and expenses that are due and payable to the Lender Parties under Section 8.04 hereof, Section 12 of the Subsidiaries Guarantee, Section 25 of the Security Agreement and similar provisions of the other Loan Documents on such date, ratably in accordance with the respective aggregate amounts of all such indemnification payments, costs and expenses owing to the Lender Parties on such date; (iv) fourth, to the payment of all of the amounts that are due and payable to the Agents and the Lender Parties under Sections 2.10 and 2.12 hereof and Section 5 of the Subsidiaries Guarantee on such date, ratably in accordance with the respective aggregate amounts thereof owing to the Agents and the Lender Parties on such date; (v) fifth, to the payment of all of the fees that are due and payable to the Lenders under Section 2.08(a) on such date, ratably in accordance with the respective aggregate Commitments of the Lenders under the applicable Facilities on such date; (vi) sixth, to the payment of all of the accrued and unpaid interest on the Obligations of the Borrower under and in respect of this Agreement and the other Loan Documents that is due and payable to the Administrative Agent and the Lender Parties under Section 2.07(b) on such date, ratably in accordance with the respective aggregate amounts of all such interest owing to the Administrative Agent and the Lender Parties on such date; (vii) seventh, to the payment of all of the accrued and unpaid interest on the Advances that is due and payable to the Administrative Agent and the Lender Parties under Section 2.07(a) on such date, ratably in accordance with the respective aggregate amounts of all such interest owing to the Administrative Agent and the Lender Parties on such date; (viii) eighth, to the payment of the principal amount of all of the outstanding Advances that is due and payable to the Administrative Agent and the Lender Parties on such date, ratably in accordance with the respective aggregate amounts of all such principal owing to the Administrative Agent and the Lender Parties on such date; and (ix) ninth, to the payment of all other Obligations of the Secured Parties owing under and in respect of this Agreement and the other Loan Documents that are due and payable to the Administrative Agent and the other Secured Parties on such date, ratably in accordance with the respective aggregate amounts of all such Obligations owing to the Administrative Agent and the other Secured Parties on such date. -67- If the Administrative Agent receives funds for application to the Obligations of the Loan Parties under or in respect of the Loan Documents under circumstances for which the Loan Documents do not specify the Advances or the Facility to which, or the manner in which, such funds are to be applied, the Administrative Agent may, but shall not be obligated to, elect to distribute such funds to each of the Lender Parties in accordance with such Lender Party's Pro Rata Share of the sum of (A) the aggregate principal amount of all Advances outstanding at such time and (B) the aggregate Available Amount of all Letters of Credit outstanding at such time, in repayment or prepayment of such of the outstanding Advances or other Obligations then owing to such Lender Party and, in the case of the Term Facilities, for application to such principal repayment installments as the Administrative Agent shall direct. SECTION 2.12. Taxes. (a) Any and all payments by the Borrower shall be made, in accordance with Section 2.11 (or the applicable provisions of the other Loan Documents), free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each of the Lender Parties and each of the Agents, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender Party or such Agent, as the case may be, is organized or any political subdivision thereof, and, in the case of each of the Lender Parties, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of either of its Applicable Lending Offices or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges and liabilities in respect of payments under or in respect of the Loan Documents being, collectively, "Taxes"). If the Borrower shall be required under any applicable Requirements of Law to deduct any Taxes from or in respect of any sum payable under or in respect of this Agreement or any of the other Loan Documents to any of the Lender Parties or any of the Agents, (i) the sum payable by the Borrower shall be increased as may be necessary so that, after the Borrower and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.12), such Lender Party or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make all such deductions and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other Governmental Authority in accordance with the applicable Requirements of Law. (b) In addition, the Borrower hereby agrees to pay any present or future stamp, recording, documentary, excise, property or similar taxes, charges or levies that arise from any payment made under or in respect of this Agreement or any of the other Loan Documents or from the execution, delivery or registration of, any performance under, or otherwise with respect to, this Agreement or any of the Loan Documents (collectively, "Other Taxes"). (c) The Borrower hereby agrees to indemnify each of the Lender Parties and each of the Agents for, and hold each of them harmless against, the full amount of Taxes and Other Taxes, and the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by such Lender Party or such Agent, as the case may be, and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. The indemnity by the Borrower provided for in this Section 2.12(c) shall apply and be made whether or not the Taxes or Other Taxes for which indemnification hereunder is sought have been correctly or legally asserted; provided, however, that such Lender Party or such Agent seeking such indemnification shall take all reasonable actions (consistent with its internal policy and legal and regulatory restrictions) requested by the Borrower to assist the Borrower in recovering the amounts paid thereby pursuant to this Section 2.12(c) from the relevant -68- taxation authority or other Governmental Authority. Amounts payable by the Borrower under the indemnity set forth in this Section 2.12(c) shall be paid within 30 days from the date on which the applicable Lender Party or Agent, as the case may be, makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes by or on behalf of the Borrower, the Borrower (or the Person making such payment on behalf of the Borrower) shall furnish to the Administrative Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing payment thereof, to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Administrative Agent. In the case of any payment under or in respect of this Agreement or any of the other Loan Documents by or on behalf of the Borrower through an account or branch outside the United States, or on behalf of the Borrower by a payor that is not a United States person, if the Borrower determines that no Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at its address referred to in Section 8.02, an opinion of counsel reasonably acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of this Section 2.12(d) and subsection (e) of this Section 2.12, the terms "United States" and "United States person" shall have the meanings specified in Section 7701 of the Internal Revenue Code. (e) Each of the Lender Parties organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each of the Initial Lenders, the Swing Line Bank and the Initial Issuing Bank, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender Party in the case of each of the other Lender Parties, and from time to time thereafter as reasonably requested in writing by the Borrower or the Administrative Agent (but only so long thereafter as such Lender Party remains lawfully able to do so), provide each of the Borrower and the Administrative Agent with two original Internal Revenue Service forms 1001 or 4224 or, in the case of any of the Lender Parties that is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest", form W-8 (and, if such Lender Party delivers a form W-8, a certificate representing that such Lender Party is not (i) a "bank" for purposes of Section 881(c) of the Internal Revenue Code, (ii) a ten-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrower or (iii) a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code), as appropriate), or any successor form, certificate or statement required by the Internal Revenue Service, certifying that such Lender Party is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the other Loan Documents or, in the case of any of the Lender Parties delivering a form W-8, certifying that such Lender Party is a foreign corporation, partnership, estate or trust. If the forms referred to above in this Section 2.12(e) that are provided by a Lender Party at the time such Lender Party first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender Party provides the appropriate form certifying that a lesser rate applies, whereupon withholding tax at such lesser rate shall be considered excluded from Taxes solely for the periods governed by such form. However, if, on the date of the Assignment and Acceptance pursuant to which a Lender Party assignee becomes a party to this Agreement, the Lender Party assignor was entitled to payments under subsection (a) of this Section 2.12 (whether in its capacity as a Lender Party or, if applicable, a Hedge Bank) in respect of United States withholding tax with respect to interest paid at such date, then, to such extent (and only to such extent), the term "Taxes" shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to such Lender Party assignee on such -69- date. None of the Lender Parties shall be entitled to payment pursuant to subsection (a) or (c) of this Section 2.12 with respect to any additional Taxes that resulted solely and directly from a change in either of the Applicable Lending Offices of such Lender Party (other than any such additional Taxes that are imposed as a result of a change in the applicable Requirements of Law, or in the interpretation or application thereof, occurring after the date of such change), unless such change is made pursuant to the terms of Section 2.10(e) or subsection (g) of this Section 2.12 or otherwise as a result of a request therefor by any of the Loan Parties. (f) For any period with respect to which any of the Lender Parties has failed to provide the Borrower with the appropriate form, certificate or other document described in subsection (e) of this Section 2.12 (other than if such failure is due to a change in the applicable Requirements of Law, or in the interpretation or application thereof, occurring after the date on which a form, certificate or other document originally was required to be provided or if such form, certificate or other document otherwise is not required under subsection (e) of this Section 2.12), such Lender Party shall not be entitled to payment or indemnification under subsection (a) or (c) of this Section 2.12 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender Party become subject to Taxes because of its failure to deliver a form, certificate or other document required hereunder, the Borrower shall take such steps as such Lender Party shall reasonably request to assist such Lender Party in recovering such Taxes. (g) Each of the Lender Parties hereby agrees that, upon the occurrence of any circumstances entitling such Lender Party to additional amounts pursuant to this Section 2.12, such Lender Party shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender Party, be otherwise disadvantageous to such Lender Party. (h) If any of the Lender Parties entitled to additional compensation under any of the foregoing provisions of this Section 2.12 shall fail to designate a different Applicable Lending Office as provided in subsection (g) of this Section 2.12, then, so long as no Default shall have occurred and be continuing and subject to the other terms of Section 8.07(a), the Borrower may cause such Lender Party to (and, if the Borrower so demands, such Lender Party shall) assign all of its rights and obligations under this Agreement to one or more other Persons in accordance with Section 8.07(a); provided that if, upon such demand by the Borrower, such Lender Party elects to waive its request for additional compensation pursuant to this Section 2.12, the demand by the Borrower for such Lender Party to so assign all of its rights and obligations under the Agreement shall thereupon be deemed withdrawn. Nothing in subsection (g) of this Section 2.12 or this Section 2.12(h) shall affect or postpone any of the rights of any of the Lender Parties or any of the Obligations of the Borrower under any of the foregoing provisions of this Section 2.12 in any manner. (i) If any of the Lender Parties determines, in its sole discretion, that it has actually and finally realized, by reason of a refund of any Taxes paid or reimbursed by the Borrower pursuant to subsection (a), (b) or (c) of this Section 2.12 in respect of payments under the Loan Documents, a current monetary benefit that such Lender Party would otherwise not have obtained and that would result in the total payments made to such Lender Party under this Section 2.12 exceeding the amount needed to make such Lender Party whole, such Lender Party shall pay to the Borrower, with reasonable promptness following the date on which it actually and finally realizes such benefit (but only so long as the making of such payment would leave such Lender Party (after making such payment) in no worse position than it would have been -70- in if the Borrower had not made the deduction or withholding that gave rise to such refund) an amount equal to the lesser of (i) the amount of such benefit and (ii) the amount of such excess, in each case net of all out-of-pocket expenses incurred by or on behalf of such Lender Party in securing such refund. Nothing contained in this Section 2.12 (A) shall interfere with the right of each of the Lender Parties and their affiliates to arrange its tax affairs in whatever manner it deems proper, (B) shall oblige any of the Lender Parties or any of their affiliates to claim any tax credit or to disclose any information relating to its tax affairs or any computations in respect thereof, (C) shall require any of the Lender Parties to contest the imposition of any Taxes or Other Taxes, regardless of whether such Taxes or Other Taxes were correctly or legally asserted, or (D) shall require any of the Lender Parties or any of their affiliates to do anything that would prejudice its ability to benefit from any other credits, reliefs, remissions or repayments to which such Lender Party or any of its affiliates may be entitled. SECTION 2.13. Sharing of Payments, Etc. If any of the Lender Parties shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of setoff, or otherwise) (a) on account of Obligations due and payable to such Lender Party under or in respect of this Agreement or any of the other Loan Documents at such time (other than pursuant to Section 2.10, 2.12, 8.04 or 8.07) in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender Party at such time to (ii) the aggregate amount of the Obligations due and payable to all of the Lender Parties at such time) of payments on account of the Obligations due and payable to all of the Lender Parties under or in respect of this Agreement and the other Loan Documents at such time obtained by all of the Lender Parties at such time or (b) on account of Obligations owing (but not due and payable) to such Lender Party under or in respect of this Agreement or any of the other Loan Documents at such time (other than pursuant to Section 2.10, 2.12, 8.04 or 8.07) in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Lender Party at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all of the Lender Parties under or in respect of this Agreement and the other Loan Documents at such time) of payments on account of the Obligations owing (but not due and payable) to all of the Lender Parties under or in respect of this Agreement and the other Loan Documents at such time obtained by all of the Lender Parties at such time, such Lender Party shall forthwith purchase from the other Lender Parties such interests or participating interests in the Obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender Party to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender Party, such purchase from each of the other Lender Parties shall be rescinded and such other Lender Party shall repay to the purchasing Lender Party the purchase price to the extent of such Lender Party's ratable share (according to the proportion of (A) the purchase price paid to such Lender Party to (B) the aggregate purchase price paid to all of the Lender Parties) of such recovery, together with an amount equal to such Lender Party's ratable share (according to the proportion of (1) the amount of such other Lender Party's required repayment to (2) the total amount so recovered from the purchasing Lender Party) of any such interest or participating interest or other amount paid or payable by the purchasing Lender Party in respect of the total amount so recovered. The Borrower hereby agrees that any of the Lender Parties so purchasing a participation from another Lender Party pursuant to this Section 2.13 may, to the fullest extent permitted by applicable law, exercise all of its rights of payment (including the right of setoff) with respect to such participation as fully as if such Lender Party were the direct creditor of the Borrower in the amount of such participation. SECTION 2.14. Defaulting Lenders. (a) If, at any time, (i) any of the Lender Parties shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrower and -71- (iii) the Borrower shall be required to make any payment hereunder or under any of the other Loan Documents to or for the account of such Defaulting Lender, then the Borrower may, so long as no Default shall occur or be continuing at such time and to the fullest extent permitted by applicable law, set off and otherwise apply the Obligation of the Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. If, on any date, the Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff and application under the Facility pursuant to which such Defaulted Advance was originally required to have been made pursuant to Section 2.01. Such Advance shall be a Base Rate Advance and shall be considered, for all purposes of this Agreement, to comprise part of the Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this Section 2.14(a). The Borrower shall notify the Administrative Agent at any time the Borrower exercises its right of setoff pursuant to this Section 2.14(a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this Section 2.14(a). Any portion of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Lender which is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this Section 2.14(a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.14. (b) If, at any time, (i) any of the Lender Parties shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any of the Agents or any of the Lender Parties and (iii) the Borrower shall make any payment hereunder or under any of the other Loan Documents to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lender Parties and to the fullest extent permitted by applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay in full such Defaulted Amount. If the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Agents or such other Lender Parties, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lender Parties and, if the amount of such payment made by the Borrower shall at such time be insufficient to pay all Defaulted Amounts owing to the Agents and the other Lender Parties at such time, then in the following order of priority: (A) first, to the Agents for any Defaulted Amount then owing to the Agents (solely in their capacities as Agents), ratably in accordance with the respective Defaulted Amounts owing to the Agents on such date; (B) second, to the Swing Line Bank and the Issuing Bank for any Defaulted Amounts then owing to the Swing Line Bank and the Issuing Bank (solely in their respective capacities as -72- Swing Line Bank and Issuing Bank), ratably in accordance with the respective Defaulted Amounts owing to the Swing Line Bank and the Issuing Bank on such date; and (C) third, to any of the other Lender Parties for any Defaulted Amounts then owing to such other Lender Parties, ratably in accordance with such respective Defaulted Amounts owing to such other Lender Parties on such date. Any portion of such amount paid by the Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this Section 2.14(b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.14. (c) If, at any time, (i) any Lender Party shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, the Administrative Agent or any of the other Lender Parties shall be required to pay or distribute any amount hereunder or under any of the other Loan Documents to or for the account of such Defaulting Lender, then the Borrower or such other Lender Party shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this Section 2.14(c) shall be deposited by the Administrative Agent in an account with NationsBank, in the name and under the control of the Administrative Agent, but subject to the provisions of this Section 2.14(c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be NationsBank's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the terms of, this Section 2.14(c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent, any of the other Agents or any of the other Lender Parties, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and all such amounts required to be made or paid to the Agents and the other Lender Parties at such time, then in the following order of priority: (A) first, to the Agents for any amounts then due and payable by such Defaulting Lender to the Agents (solely in their capacities as Agents) hereunder and under the other Loan Documents, ratably in accordance with such respective amounts due and payable to the Agents on such date; (B) second, to the Swing Line Bank and the Issuing Bank for any amounts then due and payable by such Defaulting Lender to the Swing Line Bank and the Issuing Bank (solely in their respective capacities as Swing Line Bank and Issuing Bank) hereunder and under the other Loan Documents, ratably in accordance with such respective amounts due and payable to the Swing Line Bank and the Issuing Bank on such date; (C) third, to any of the other Lender Parties for any amount then due and payable by such Defaulting Lender to such other Lender Parties hereunder and under the other Loan Documents, ratably in accordance with such respective amounts due and payable to such other Lender Parties on such date; and -73- (D) fourth, to the Borrower for any Advance then required to be made by such Defaulting Lender pursuant to one or more of the Commitments of such Defaulting Lender. If any of the Lender Parties that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender Party shall be distributed by the Administrative Agent to such Lender Party and applied by such Lender Party to the Obligations owing to such Lender Party at such time under or in respect of this Agreement and the other Loan Documents, ratably in accordance with the respective amounts of such Obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.14 are in addition to other rights and remedies that the Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that the Administrative Agent or any of the other Lender Parties may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.15. Use of Proceeds. The proceeds of the Advances shall be available, and the Borrower hereby agrees that it shall use such proceeds, solely to finance in part the Recapitalization, to pay certain fees and expenses incurred in connection with the consummation of the Transaction and to provide working capital to, and for other general corporate purposes of, the Borrower and its Subsidiaries not otherwise prohibited under the terms of the Loan Documents. The Letters of Credit shall be issued, and the Borrower hereby agrees that it shall request the issuance of Letters of Credit, solely in support of the Obligations of the Borrower or any of the Restricted Subsidiaries not otherwise prohibited under the Loan Documents to a Person other than the Secured Parties which has supplied inventory to, or extended credit or secured an Obligation on behalf of, the Borrower or any of the Restricted Subsidiaries. ARTICLE III CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit. The obligation of each of the Existing Lenders to have made an Advance or of the Issuing Bank to have issued a Letter of Credit on the occasion of the Initial Extension of Credit was subject to the satisfaction of all of the following conditions precedent prior to or concurrently with the Initial Extension of Credit: (a) The Existing Lenders shall have been reasonably satisfied with the organizational and legal structure and capitalization of the Borrower (including, without limitation, the terms and conditions of the Constitutive Documents of and each class of Equity Interests in the Borrower and of each agreement or instrument relating to such structure or capitalization). The Borrower did not have, and has not had since it became an "S Corporation" in April 1982, any Subsidiaries other than DW (which was disposed of in the Pre-Closing Reorganization). (b) The Pre-Closing Reorganization shall have been consummated prior to the Closing Date strictly in accordance with the terms and conditions of the Recapitalization Agreement and the Reorganization Agreement, without any waiver of or amendment to any of the provisions set forth therein not consented to by the Existing Lenders and in compliance with all applicable Requirements -74- of Law. All of the liabilities and Obligations of the Borrower arising out of or relating to the Metals Business shall have been assumed by the Sellers or, if not so assumed, the Borrower shall have been fully and unconditionally indemnified therefor in a manner reasonably satisfactory to the Existing Lenders. The Recapitalization shall have been consummated prior to or concurrently with the Initial Extension of Credit strictly in accordance with the terms and conditions of the Recapitalization Agreement, without any waiver of or amendment to any of the provisions set forth therein not consented to by the Existing Lenders and in compliance with all applicable Requirements of Law. All of the Related Documents shall have been in full force and effect in the form received by the Existing Lenders on or prior to the Closing Date. (c) All of the Governmental Authorizations, and all of the consents, approvals and authorizations of, notices and filings to or with, and other actions by, any other Person necessary in connection with any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Existing Lenders) and shall remain in full force and effect; all applicable waiting periods shall have expired without any action being taken by any competent authority; and no Requirements of Law shall have been applicable in the reasonable judgment of the Existing Lenders that would restrain, prevent or impose materially adverse conditions upon any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby or the rights of the Borrower freely to transfer or otherwise dispose of, or to create any Lien on, any property or assets now or hereafter acquired by any of them. (d) Before giving effect and immediately after giving pro forma effect to the Transaction, no Material Adverse Change shall have occurred since August 31, 1998. The Pre- Commitment Information, considered as a whole, shall have been complete and correct in all material respects; and no events, developments or changes shall have occurred, and no additional information shall have come to the attention of the Agents or the Existing Lenders, that was inconsistent with the Pre-Commitment Information and that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (e) No action, suit, litigation, arbitration or proceeding shall have been pending or, to the best knowledge of the Borrower, shall have been threatened (and, to the best knowledge of the Borrower, no investigation shall have been pending or threatened) against or affecting the Borrower or any of its property or assets in any court or before any arbitrator or by or before any Governmental Authority of any kind that (i) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect other than the matters described on Schedule 3.01(e) to the Existing Credit Agreement or (ii) could reasonably be expected to adversely affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby; and there shall have been no adverse change in the status, or the reasonably anticipated financial effect on the Borrower, of such action, suit, litigation, arbitration or proceeding from that described on Schedule 3.01(e) to the Existing Credit Agreement. (f) All of the Indebtedness of the Borrower in existence on the Closing Date other than the Indebtedness described on Schedule 3.01(f) hereto (the "Surviving Indebtedness") shall have been prepaid, redeemed or defeased in full or otherwise satisfied and extinguished, and all -75- commitments therefor shall have been terminated; and all of the Surviving Indebtedness shall have been on terms and conditions reasonably satisfactory to the Existing Lenders. (g) The Borrower shall have been the legal and beneficial owner of the Collateral purported to be owned thereby under the Collateral Documents, free and clear of all Liens, except for the liens and security interests created or expressly permitted under the terms of the Loan Documents. The Collateral Documents shall have created valid and perfected first priority liens on and security interests in the Collateral (subject to the liens and security interests expressly permitted under Section 5.02(a)) in favor of the Administrative Agent, for the benefit of the Secured Parties, securing the payment of the Secured Obligations. All filings, searches and other actions (including, without limitation, the payment of all filing and recording fees and taxes) necessary to perfect and protect the first priority liens and security interests of the Administrative Agent in the Collateral shall have been duly made or taken and shall be in full force and effect or the Existing Lenders shall have been reasonably satisfied that all such filings, searches and other actions were to have been made or taken promptly following the Closing Date. (h) (i) Holdings LLC shall have directly purchased from the Sellers at least 42% of the UIC Class A Common Stock and 42% of the UIC Class B Common Stock for a purchase price of not more than $260,380,000 in cash and (ii) the Sellers shall have retained equity in the Borrower in an amount of at least $16,620,000. The Borrower shall have received at least $150,000,000 in gross proceeds from the sale and issuance of the Senior Subordinated Notes which shall have been used to finance in part the consummation of the Recapitalization and to pay fees and expenses incurred in connection with the consummation of the Transaction. Upon consummation of the Recapitalization, Holdings LLC shall have owned 91.94% of the outstanding UIC Class A Common Stock and 91.94% of outstanding UIC Class B Common Stock, and the Sellers shall have retained 6% of the outstanding UIC Class A Common Stock and 6% of outstanding UIC Class B Common Stock. All of the Senior Subordinated Notes Documents and the Permitted Preferred Stock Documents, if any, shall have been in form and substance reasonably satisfactory to the Existing Lenders. (i) The representations and warranties contained in each of the Loan Documents shall have been correct in all material respects on and as of the Closing Date, before and after giving effect to the Initial Extension of Credit and to the application of proceeds therefrom, as though made on and as of such date (other than any such representation and warranty that, by its terms, referred to a specific date other than the Closing Date, in which case, as of such specific date). No event shall have occurred and be continuing, or shall have occurred as a result of the Initial Extension of Credit or the application of proceeds therefrom, that would constitute a Default. (j) All of the reasonable and documented fees and expenses of the Agents and the Lender Parties (including, without limitation, all of the reasonable fees and expenses of counsel for the Agents and local counsel for the Lender Parties) shall have been paid in full. (k) The Administrative Agent shall have received on or before the Closing Date the following, each dated such date (unless otherwise specified), in form and substance satisfactory to the Existing Lenders (unless otherwise specified) and (except for the notes referred to in clause (i) of this Section 3.01(k)) in sufficient copies for each of the Existing Lenders: -76- (i) The Term A Notes, payable to the order of the Term A Lenders, the Term B Notes, payable to the order of the Term B Lenders, and the Revolving Credit Notes, payable to the order of the Revolving Credit Lenders (each as defined in the Existing Credit Agreement), respectively. (ii) Certified copies of the resolutions of the board of directors (or the persons performing similar functions) of each of Holdings LLC and the Borrower, approving each of the Loan Documents and the Related Documents to which it is or is to be a party, the consummation of each aspect of the Transaction involving or affecting Holdings LLC or the Borrower and the other transactions contemplated by any of the foregoing, and of all documents evidencing necessary Governmental Authorizations, or other necessary consents, approvals, authorizations, notices, filings or actions, of or to any Person with respect to any of the Loan Documents or the Related Documents to which it is or is to be a party, the consummation of any aspect of the Transaction involving or affecting Holdings LLC or the Borrower or any of the other transactions contemplated by any of the foregoing. (iii) A copy of the certificate of incorporation (or similar Constitutive Document) of each of Holdings LLC and the Borrower, and each amendment thereto, certified (as of a date reasonably near the Closing Date) as being a true and complete copy thereof by the Secretary of State of the State of Delaware. (iv) Copies of certificates of the Secretary of State of the State of Delaware, listing the certificate of incorporation (or similar Constitutive Document) of Holdings LLC and the Borrower, respectively, and each amendment thereto on file in the office of such Secretary of State, and certifying (A) that such amendments are the only amendments to Holdings LLC's or the Borrower's certificate of incorporation (or similar Constitutive Document), as the case may be, on file in its office, (B) that Holdings LLC or the Borrower has paid all franchise taxes (or the equivalent thereof) to the date of such certificate and (C) that Holdings LLC or the Borrower is duly organized and is in good standing under the laws of the State of Delaware. (v) Copies of the certificates of the Secretary of State (or the equivalent Governmental Authority) of each jurisdiction in which each of Holdings LLC and the Borrower is qualified or licensed as a foreign corporation or limited liability company, except where the failure to so qualify or be licensed, either individually or in the aggregate, could not reasonably have been expected to have a Material Adverse Effect, dated reasonably near the Closing Date and stating that Holdings LLC or the Borrower, as the case may be, was duly qualified and in good standing as a foreign corporation or limited liability company, as applicable, and had filed all annual reports required to be filed, and had paid all franchise taxes (or the equivalent thereof) required to be paid, in such jurisdiction to the date of such certificate. (vi) A certificate of the Borrower, signed on behalf of the Borrower by its President or a Vice President or its Secretary or an Assistant Secretary (or the persons performing similar functions), dated the Closing Date (the statements made in which certificate shall have been true on and as of the Closing Date), certifying as to: -77- (A) the absence of any amendments to the certificate of incorporation of the Borrower since the date of the Secretary of State's certificate referred to in clause (iv) of this Section 3.01(k), or any steps taken by the board of directors (or the persons performing similar functions) or the stockholders of the Borrower to effect or authorize any further amendment, supplement or other modification thereto; (B) the accuracy and completeness of the bylaws of the Borrower as in effect on the date on which the resolutions of the board of directors (or the persons performing similar functions) of the Borrower referred to in clause (ii) of this Section 3.01(k) were adopted and on the Closing Date (a copy of which shall be attached to such certificate); (C) the absence of any proceedings (either pending or contemplated) for the dissolution, liquidation or other termination of the existence of the Borrower; (D) since June 30, 1998, the absence of any change in the jurisdiction of organization of the Borrower, any merger, consolidation or other similar transaction directly or indirectly involving the Borrower or any issuance or sale of any Equity Interests in the Borrower, except for the issuance of the UIC Class A Common Stock and UIC Class B Common Stock to Holdings LLC as part of the Recapitalization; (E) the accuracy in all material respects of the representations and warranties made (or deemed to have been made) by the Borrower in the Loan Documents to which it is or is to be a party as though made on and as of the Closing Date, before and after giving effect to the Initial Extension of Credit and to the application of proceeds therefrom (other than any such representation and warranty that, by its terms, refers to a specific date other than the Closing Date, in which case, as of such specific date); (F) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit or the application of proceeds therefrom, that would constitute a Default; and (G) the satisfaction of the conditions precedent set forth in subsections (a), (b), (c), (d), (e), (f), (g), (h) and (j) of this Section 3.01. (vii) A certificate of Holdings LLC, signed on behalf of Holdings LLC by its President or a Vice President or its Secretary or an Assistant Secretary (or the persons performing similar functions), dated the Closing Date (the statements made in which certificate shall have been true on and as of the Closing Date), certifying as to the accuracy and completeness of the limited liability company agreement (or similar Constitutive Document) of Holdings LLC as in effect on the date on which the resolutions of the board of directors (or persons performing similar functions) of Holdings LLC referred to in clause -78- (ii) of this Section 3.01(k) were adopted and on the Closing Date (a copy of which shall have been attached to such certificate). (viii) A certificate of the Secretary or an Assistant Secretary (or a person performing similar functions) of the Borrower certifying as to the names and true signatures of the officers of the Borrower authorized to sign each of the Loan Documents and the Related Documents to which it is or is to be a party and the other agreements, instruments and documents to be delivered hereunder and thereunder. (ix) A security agreement duly executed by the Borrower, together with: (A) certificates representing the Initial Pledged Interests referred to therein, accompanied by undated stock powers or other appropriate powers, duly executed in blank, and instruments evidencing the Initial Pledged Indebtedness referred to therein, duly endorsed in blank; (B) proper termination statements (Form UCC-3 or a comparable form) or the equivalent thereof under the Uniform Commercial Code (or any similar Requirements of Law) of all jurisdictions that may have been necessary or that the Administrative Agent may have deemed reasonably desirable in order to terminate or amend existing liens on and security interests in the Collateral, in each case completed in a manner satisfactory to the Existing Lenders and duly executed by the appropriate secured party; (C) proper financing statements (Form UCC-1 or a comparable form) or the equivalent thereof under the Uniform Commercial Code (or any similar Requirements of Law) of all jurisdictions that may have been necessary or the Administrative Agent may have deemed reasonably desirable in order to perfect and protect the liens and security interests created or purported to be created under such security agreement, covering the Collateral described therein, in each case completed in a manner reasonably satisfactory to the Existing Lenders and duly executed by the Borrower; (D) completed requests for information, dated reasonably near the Closing Date, listing the financing statements referred to in subclause (ix)(C) of this Section 3.01(k) and all other effective financing statements filed in the jurisdictions referred to in subclause (ix)(C) of this Section 3.01(k) that named the Borrower as debtor, together with copies of such other financing statements; (E) IP Security Agreements--Short Form, covering all of the Copyrights, if any, Patents and Trademarks of the Borrower, in each case completed in a manner satisfactory to the Existing Lenders and duly executed by the Borrower; (F) copies of the Assigned Agreements (as defined in such security agreement), in each case together with (1) a consent, in form and substance reasonably satisfactory to the Existing Lenders, to the assignment of such Assigned Agreement and the rights and interest of the Borrower thereunder to the -79- Administrative Agent pursuant to such security agreement, duly executed by each party to such Assigned Agreement other than the Borrower, and (2) notice from the Borrower to each of the other Persons party to such Assigned Agreement other than the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, of the assignment of such Assigned Agreement and the rights and interest of the Borrower thereunder to the Administrative Agent pursuant to such security agreement, duly executed by the Borrower; and (G) evidence that all of the other actions (including, without limitation, the completion of all of the other recordings and filings of or with respect to such security agreement) that may have been necessary or that the Administrative Agent may have deemed reasonably desirable in order to perfect and protect the liens and security interests created under such security agreement had been taken or would be taken in accordance with the terms of the Loan Documents. (x) A letter from Valuation Research Corporation and a certificate of the Borrower, duly executed by the chief financial officer thereof, in each case attesting to the Solvency of the Borrower, immediately before and immediately after giving pro forma effect to the Transaction and the other transactions contemplated by the Loan Documents and the Related Documents. (xi) Copies, certified by a Responsible Officer of the Borrower, of all of the Related Documents and the Senior Subordinated Notes Documents, duly executed by each of the parties thereto, together with all agreements, instruments, opinions and other documents delivered in connection therewith. (xii) Copies, certified by a Responsible Officer of the Borrower, of all of the agreements, instruments and other documents evidencing or setting forth the terms and conditions of each item of the Surviving Indebtedness that was outstanding or had commitments for the extension of credit on the Closing Date. (xiii) Such financial, business and other information regarding the Borrower as the Existing Lenders shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, environmental matters, obligations under Plans, Multiemployer Plans and Welfare Plans, collective bargaining agreements and other arrangements with employees, and copies, certified by a Responsible Officer of the Borrower, of (A) the audited financial statements of the Borrower for the Fiscal Years ended December 31, 1995, December 31, 1996 and December 31, 1997 and for the eight-month period ended August 31, 1998, (B) the unaudited financial statements of the Borrower for the eleven-month period ended November 30, 1998, (C) the pro forma statements of income of the Borrower for the Fiscal Years ended December 31, 1995, December 31, 1996 and December 31, 1997 and for the eight-month period ended August 31, 1998, in each case after giving effect to the Pre-Closing Reorganization, and (D) forecasts prepared by management of the Borrower, in form and substance reasonably satisfactory to the Lender Parties, of balance sheets and statements of income, stockholders' equity and cash flow of the Borrower on a quarterly basis for the Fiscal Year in which the Closing Date occurred and on an annual basis for each Fiscal Year thereafter through December 31, 2003. -80- (xiv) One or more Phase I environmental assessment reports, in form and substance reasonably satisfactory to the Existing Lenders, from environmental consulting firms reasonably acceptable to the Administrative Agent, for the manufacturing and distribution facilities of the Borrower located at (A) 8464/8494 Chapin Industrial Drive, St. Louis, Missouri, 377 Amelia Street, Plymouth, Michigan, (B) 8825 Page Avenue, St. Louis, Missouri, (C) 8530 Page Avenue, St. Louis, Missouri, (D) 2129 Chapin Industrial Drive, St. Louis, Missouri, (E) 1242 West Ridge Road, Gainesville, Georgia, (F) 7346 Penn Drive, Allentown, Pennsylvania, (G) 4142 Rider Trail North, Earth City, Missouri and (H) 15205 East Stafford Street, City of Industry, California, in each case assessing any hazards, costs or liabilities under Environmental Laws to which the Borrower may be subject, the amount and nature of which and the Borrower's plans with respect to which shall have been reasonably acceptable to the Existing Lenders, together with evidence, in form and substance reasonably satisfactory to the Existing Lenders, that all applicable Environmental Laws shall have been complied with. (xv) A consent and agreement executed by the lessor of each leasehold on which Collateral was located (other than the leasehold located at 377 Amelia Street, Plymouth, Michigan) that is reasonably requested by the Existing Lenders, in each case which provides, among other things, that such lessor waives any lien or security interest it may now have or hereafter acquire on the Collateral located on the premises thereof and that the Administrative Agent has the right to receive notice of any default by the Borrower under the lease and to repossess the Collateral located thereon upon the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f) or an Event of Default, and such other rights as may have been reasonably requested by the Existing Lenders in any such consent and agreement. (xvi) A letter, in form and substance reasonably satisfactory to the Administrative Agent, from the Borrower to Rubin, Brown, Gornstein and Co. LLP, its independent public accountants, advising such accountants that the Administrative Agent, on behalf of the Lender Parties, has been authorized to exercise from time to time all rights of the Borrower to require such accountants to disclose any and all financial statements and any other information relating to the financial condition, operations or performance of the Borrower or any of its Subsidiaries that they may have and directing such accountants to comply with any reasonable request of the Administrative Agent for such information. (xvii) Evidence of all of the insurance of the Borrower required to be maintained thereby under Section 5.01(d). (xviii) Certified copies of each of the employment and other compensation agreements with each senior executive officer of the Borrower in effect on the Closing Date. (xix) One or more duly completed and executed Notices of Borrowing for each Borrowing made on the Closing Date and one or more duly completed and executed Notices of Issuance for each Letter of Credit issued on the Closing Date. (xx) A favorable opinion of Kirkland & Ellis, special counsel to the Loan Parties. -81- (xxi) Favorable opinions of Simpson, Thacher & Bartlett, special counsel to the Sellers, and Mark R. Gale, Esq., counsel for the Seller, delivered in connection with the consummation of the Recapitalization. (xxii) A favorable opinion of Blackwell Sanders Peper Martin LLP, special Missouri counsel for the Lender Parties. SECTION 3.02. Conditions Precedent to Effectiveness of this Agreement. This Agreement shall become effective on and as of the first date (the "Effective Date") on which all of the following conditions precedent shall have been satisfied: (a) Before giving effect and immediately after giving pro forma effect to the Transaction, no Material Adverse Change shall have occurred since August 31, 1998. (b) There shall exist no action, suit, litigation, arbitration or proceeding pending or, to the best knowledge of the Borrower, threatened (and, to the best knowledge of the Borrower, there shall exist no investigation pending or threatened) against or affecting the Borrower or any of its property or assets in any court or before any arbitrator or by or before any Governmental Authority of any kind that (i) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect other than the matters described on Schedule 3.02(b) hereto (the "Disclosed Litigation") or (ii) could reasonably be expected to adversely affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby; and there shall have been no adverse change in the status, or the reasonably anticipated financial effect on the Borrower, of the Disclosed Litigation from that described on Schedule 3.02(b) hereto. (c) The representations and warranties contained in each of the Loan Documents shall be correct in all material respects on and as of the Effective Date, as though made on and as of such date (except for any such representation and warranty that, by its terms, refers to a specific date other than the Effective Date, in which case as of such specific date). No event shall have occurred and be continuing, or shall occur as a result of the Effective Date, therefrom, that constitutes a Default. (d) All amounts due and payable to the Agents and the Existing Lenders under and in respect of the Existing Credit Agreement and each of the other "Loan Documents" (as defined in the Existing Credit Agreement) on or prior to the Effective Date shall have been paid in full. All of the reasonable and documented fees and expenses of the Agents and the Lender Parties (including, without limitation, all of the reasonable fees and expenses of counsel for the Agents and local counsel for the Lender Parties) shall have been paid in full. (e) The Administrative Agent shall have received on or before the Effective Date the following, each dated such date (unless otherwise specified), in form and substance reasonably satisfactory to the Lender Parties and (except for the Notes) in sufficient copies for each of the Lender Parties: -82- (i) The Term A Notes, payable to the order of the Term A Lenders, the Term B Notes, payable to the order of the Term B Lenders, and the Revolving Credit Notes, payable to the order of the Revolving Credit Lenders, respectively. (ii) An amended and restated security agreement, in substantially the form of Exhibit D hereto (together with each Security Agreement Supplement, as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 8.01, the "Security Agreement"), duly executed by the Borrower, together with: (A) copies of the Assigned Agreements referred to in the Security Agreement, in each case together with (1) a consent, in form and substance reasonably satisfactory to the Lender Parties, to the assignment of such Assigned Agreement and the rights and interest of the Borrower thereunder to the Administrative Agent pursuant to the Security Agreement, duly executed by each party to such Assigned Agreement other than the Borrower, and (2) notice from the Borrower to each of the other Persons party to such Assigned Agreement other than the Borrower, in form and substance reasonably satisfactory to the Administrative Agent, of the assignment of such Assigned Agreement and the rights and interest of the Borrower thereunder to the Administrative Agent pursuant to the Security Agreement, duly executed by the Borrower; and (B) evidence that all of the other actions (including, without limitation, the completion of all of the other recordings and filings of or with respect to the Security Agreement) that may be necessary or that the Administrative Agent may deem reasonably desirable in order to perfect and protect the liens and security interests created under the Security Agreement have been taken. (iii) A negative pledge agreement, in substantially the form of Exhibit E hereto (as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 8.01, the "Holdings LLC Agreement"), duly executed by Holdings LLC. (iv) A letter from Valuation Research Corporation, in substantially the form of Exhibit F-1 hereto, and a certificate of the Borrower, in substantially the form of Exhibit F-2 hereto, duly executed by the chief financial officer thereof, in each case attesting to the Solvency of the Borrower, immediately before and immediately after giving pro forma effect to the Transaction and the other transactions contemplated by the Loan Documents and the Related Documents. (v) Copies, certified by a Responsible Officer of the Borrower, of (A) the Preliminary Offering Memorandum and, if completed, the Final Offering Memorandum and the indenture for the permanent Senior Subordinated Notes and (B) all amendments, supplements, modifications, refinancings, restatements or replacements of the Related Documents and the Senior Subordinated Notes Documents, duly executed by each of the parties thereto, together with all agreements, instruments, opinions and other documents delivered or to be delivered in connection therewith. -83- (vi) Copies, certified by a Responsible Officer of the Borrower, of the audited financial statements of the Borrower for the Fiscal Year ended December 31, 1998. (vii) A letter, in form and substance reasonably satisfactory to the Administrative Agent, from the Borrower to PriceWaterhouseCoopers LLP, its independent public accountants, advising such accountants that the Administrative Agent, on behalf of the Lender Parties, has been authorized to exercise from time to time all rights of the Borrower to require such accountants to disclose any and all financial statements and any other information relating to the financial condition, operations or performance of the Borrower or any of its Subsidiaries that they may have and directing such accountants to comply with any reasonable request of the Administrative Agent for such information. (viii) One or more duly completed and executed Notices of Borrowing for each Borrowing to be made on the Effective Date and one or more duly completed and executed Notices of Issuance for each Letter of Credit to be issued on the Effective Date. (ix) A favorable opinion of Kirkland & Ellis, special counsel to the Loan Parties, in substantially the form of Exhibit G-1 hereto, and addressing such other matters as any of the Lender Parties through the Administrative Agent may reasonably request. (x) A favorable opinion of Blackwell Sanders Peper Martin LLP, special Missouri counsel for the Lender Parties, in substantially the form of Exhibit G-2 hereto, and addressing such other matters as any of the Lender Parties through the Administrative Agent may reasonably request. SECTION 3.03. Conditions Precedent to Each Borrowing, Issuance and Renewal. The obligation of each of the Appropriate Lenders to make an Advance (other than a Swing Line Advance made by any of the Revolving Credit Lenders pursuant to Section 2.02(b)(ii) or a Letter of Credit Advance made by the Issuing Bank or any of the Revolving Credit Lenders pursuant to Section 2.03(c)(i)) on the occasion of each Borrowing (including the initial Borrowings), and the obligation of the Issuing Bank to issue a Letter of Credit (including the initial issuance thereof) or to renew a Letter of Credit, shall be subject to the further conditions precedent that on the date of such Borrowing, issuance or renewal (a) the following statements shall be true (and each of the giving of the applicable Notice of Borrowing, Notice of Issuance or Notice of Renewal by the Borrower and the acceptance by the Borrower of the proceeds of such Borrowing or of such Letter of Credit or the renewal of such Letter of Credit, as the case may be, shall constitute a representation and warranty by the Borrower that, both on the date of such notice and on the date of such Borrowing, issuance or renewal, such statements are true): (i) the representations and warranties contained in each of the Loan Documents are correct in all material respects on and as of such date, before and after giving effect to such Borrowing, issuance or renewal and to the application of the proceeds, if any, therefrom, as though made on and as of such date (except (A) for any such representation and warranty that, by its terms, refers to a specific date other than the date of such Borrowing, issuance or renewal, in which case as of such specific date, and (B) that the financial statements of the Borrower referred to in Sections 4.01(f) and 4.01(g) shall be deemed at any time and from time to time after the Effective Date to refer to the Consolidated financial statements of the Borrower and its Subsidiaries comprising part of the Required Financial Information most recently delivered to the Administrative Agent and the -84- Lender Parties pursuant to Sections 5.03(c) and 5.03(d), respectively, on or prior to the date of such Borrowing, issuance or renewal); and (ii) no event has occurred and is continuing, or would result from such Borrowing, issuance or renewal, or from the application of the proceeds, if any, therefrom, that constitutes a Default; and (b) the Administrative Agent shall have received such other approvals, authorizations, opinions, documents and information as any of the Lenders (or, in the case of the issuance or renewal of a Letter of Credit, the Issuing Bank) through the Administrative Agent may reasonably request. SECTION 3.04. Determinations Under Section 3.02. For purposes of determining compliance with the conditions specified in Section 3.02, each of the Lender Parties shall be deemed to have consented to, approved or accepted or to be satisfied with each document or other matter required thereunder to be consented to or approved by, or acceptable or satisfactory to, the Lender Parties unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender Party prior to the Effective Date specifying its objection thereto and, in the case of any Lender, such Lender shall not have made available to the Administrative Agent on the Effective Date such Lender Party's cash consideration for its purchase of a portion of the Existing Advances or, if applicable, its Pro Rata Share of any Borrowing to be made on such date. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties. The Borrower hereby represents and warrants as follows: (a) Each of the Loan Parties and each of their Subsidiaries (i) are corporations, limited partnerships or limited liability companies duly organized and validly existing under the laws of the jurisdictions of their respective organization and are in good standing under the laws of such jurisdiction and (ii) are duly qualified as foreign corporations, limited partnerships or limited liability companies and are in good standing in each other jurisdiction in which the ownership, lease or operation of their respective property and assets or the conduct of their respective businesses require them to so qualify or be licensed, except, solely in the case of this clause (ii), where the failure to so qualify or be licensed or to be in good standing, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties and each of their Subsidiaries have all of the requisite power and authority, and the legal right, to own or lease and to operate all of the property and assets they purport to own, lease or operate and to conduct all of their respective businesses as now conducted and as proposed to be conducted. Each of the Loan Parties has all of the requisite power and authority, and the legal right, to execute and deliver each of the Loan Documents and the Related Documents to which it is or is to be a party, to perform all of its Obligations hereunder and thereunder and to consummate the Transaction and all of the other transactions contemplated hereby and thereby. -85- (b) Set forth on Part A of Schedule 4.01(b) hereto is a complete and accurate list of all of the Subsidiaries of the Borrower as of the date of this Agreement showing, as to each such Subsidiary, the correct legal name thereof, the legal structure thereof, the jurisdiction of its organization, the number and type of each class of its Equity Interests authorized and the number outstanding, and the percentage of each such class of its Equity Interests outstanding on such date that are owned by any of the Loan Parties. All of the outstanding Equity Interests in each of the Subsidiaries of the Borrower are owned directly or indirectly by one or more of the Loan Parties, free and clear of all Liens (including, without limitation, preemptive or other similar rights of the holders thereof), except those created under the Collateral Documents. All of the outstanding Equity Interests in the Borrower and each of its Subsidiaries have been validly issued and are fully paid and nonassessable. As of the date of this Agreement, all of the outstanding Equity Interests in the Borrower are owned by Holdings LLC and the Sellers in the type and amounts disclosed opposite the names of Holdings LLC and the respective Sellers on Part B of Schedule 4.01(b) hereto. (c) The execution, delivery and performance by each of the Loan Parties of each of the Loan Documents and the Related Documents to which it is or is to be a party, and the consummation of the Transaction and the other transactions contemplated hereby and thereby, have been duly authorized by all necessary action (including, without limitation, all necessary shareholder, partner, member or other similar action) and do not: (i) contravene the Constitutive Documents of such Loan Party; (ii) violate any Requirement of Law; (iii) conflict with or result in the breach of, or constitute a default under, any loan agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement binding on or affecting such Loan Party or any of its Subsidiaries or any of their respective property or assets; or (iv) except for the Liens created under the Collateral Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the property or assets of such Loan Party or any of its Subsidiaries. Neither any of the Loan Parties nor any of their respective Subsidiaries is in violation of any Requirements of Law or in breach of any loan agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement referred to in the immediately preceding sentence, the violation or breach of which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (d) Each of the Loan Parties and each of their Subsidiaries own or possess all of the Governmental Authorizations that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as proposed to be conducted, except where and to the extent that the failure to obtain or maintain in effect any such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. Neither any of the Loan Parties nor any of their Subsidiaries has received any notice relating to or threatening the revocation, termination, cancellation, denial, impairment or modification of any such Governmental Authorization, or is in -86- violation or contravention of, or in default under, any such Governmental Authorization. No Governmental Authorization and no consent, approval or authorization of, or notice to or filing with, or other action by, any other Person is required for: (i) the due execution, delivery, recordation, filing or performance by any of the Loan Parties of any of the Loan Documents or the Related Documents to which it is or is to be a party, or for the consummation of any aspect of the Transaction or the other transactions contemplated hereby or thereby; (ii) the grant by any of the Loan Parties of the Liens granted by it pursuant to the Collateral Documents; (iii) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof); or (iv) the exercise by any of the Agents or any of the Lender Parties of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, except for the Governmental Authorizations, and the consents, approvals, authorizations, notices, filings and other actions, described on Schedule 4.01(d) hereto. Except as described on Schedule 4.01(d) hereto, all of the Governmental Authorizations and the consents, approvals, authorizations, notices, filings and other actions described on Schedule 4.01(d) hereto have been duly obtained, taken, given or made and are in full force and effect. All applicable waiting periods in connection with each aspect of the Transaction and the other transactions contemplated hereby and thereby have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon any aspect of the Transaction or the rights of any of the Loan Parties or any of their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any property or assets now owned or hereafter acquired by any of them. (e) This Agreement has been, and each of the Notes and each of the other Loan Documents when delivered hereunder will have been, duly executed and delivered by each of the Loan Parties intended to be a party thereto. This Agreement is, and each of the Notes and each of the other Loan Documents when delivered hereunder will be, the legal, valid and binding obligations of each of the Loan Parties intended to be a party thereto, enforceable against such Loan Party in accordance with their respective terms, except to the extent such enforceability may be limited by the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally or by general principles of equity. (f) The balance sheets of the Borrower as of December 31, 1995, December 31, 1996, December 31, 1997 and December 31, 1998, and the related statements of income, stockholders' equity and cash flow of the Borrower for the Fiscal Years then ended, and the balance sheet of the Borrower as of August 31, 1998, and the related statements of income, stockholders' equity and cash flow of the Borrower for the eight-month period then ended, in each case including the schedules and notes thereto and accompanied by an opinion of Rubin, Brown, Gornstein and Co. LLP or, in the case of such financial statements of the Borrower for the Fiscal Year ended December 31, 1998, PriceWaterhouseCoopers LLP, the independent public accountants of the Borrower, copies of all -87- of which have been furnished to the Lender Parties, fairly present in all material respects (subject, solely in the case of such financial statements of the Borrower as of and for the eight-month period ended August 31, 1998, to normal year-end audit adjustments) the financial condition of the Borrower as at such dates and the results of operations and cash flow of the Borrower for the respective periods ended on such dates. All of the financial statements referred to above in this Section 4.01(f), including the schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the respective periods covered thereby. The Borrower does not have any material indebtedness or other material fixed or contingent liabilities, material liabilities for taxes, unusual forward or long-term material commitments or anticipated material losses from any unfavorable commitments, except as referred to, or reflected or provided for in, the financial statements of the Borrower as of and for the Fiscal Year ended December 31, 1998 described above in this Section 4.01(f) or as otherwise set forth on one or more of the Schedules to the Loan Documents. (g) The balance sheet of the Borrower as of November 30, 1998, and the related statements of income, stockholders' equity and cash flow of the Borrower for the eleven-month period then ended, duly certified by a Senior Financial Officer, copies of which have been furnished to the Lender Parties, fairly present in all material respects, subject to the absence of footnote disclosure and normal year-end audit adjustments, the financial condition of the Borrower as at such date and the results of operations and cash flow of the Borrower for the period ended on such date. The financial statements referred to above in this Section 4.01(g) have been prepared, subject to normal year-end audit adjustments and the absence of notes thereto, in accordance with GAAP applied consistently throughout the respective periods covered thereby. (h) The pro forma statements of income of the Borrower for the Fiscal Years ended December 31, 1995, December 31, 1996, December 31, 1997 and for the eight-month period ended August 31, 1998, accompanied by a report of Rubin, Brown, Gornstein and Co. LLP, the independent public accountants of the Borrower, copies of all of which have been furnished to the Lender Parties, fairly present in all material respects the pro forma adjustments to the results of operations of the Borrower for the respective periods covered thereby, in each case after giving effect to the Pre-Closing Reorganization. (i) The forecasted Consolidated balance sheets and statements of income, stockholders' equity and cash flow of the Borrower and its Subsidiaries delivered to the Lender Parties pursuant to Section 3.01(k)(xiii)(D) or 5.03(f) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in the light of conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery thereof to the Lender Parties, the Borrower's reasonable estimate of its future financial performance (although the actual results during the periods covered by such forecasts may differ from the forecasted results). (j) All of the information (other than financial projections and pro forma information) furnished by or on behalf of any of the Loan Parties or any of their Subsidiaries to any of the Agents or any of the Lender Parties or any of their representatives or advisors in connection with the Loan Documents or the Related Documents or any aspect of the Transaction or any of the other transactions contemplated hereby or thereby, considered as a whole, does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in light of the circumstances in which any such statements were made, not misleading. No -88- fact, event, condition or circumstance is known to any of the Loan Parties which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, which has not been set forth herein or in the financial statements referred to in subsection (f) or (g) of this Section 4.01. (k) There is no action, suit, litigation, arbitration or proceeding pending or, to the best knowledge of the Borrower, threatened (and, to the best knowledge of the Borrower, there is no investigation pending or threatened) against or affecting any of the Loan Parties or any of their Subsidiaries or any of the property or assets thereof in any court or before any arbitrator or by or before any Governmental Authority of any kind that (i) either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect (other than the Disclosed Litigation) or (ii) could reasonably be expected to adversely affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby; and there shall have been no adverse change in the status, or in the reasonably anticipated financial effect on any of the Loan Parties or any of their Subsidiaries, of the Disclosed Litigation from that described on Schedule 3.02(b) hereto. (l) Each of the Loan Parties is the legal and beneficial owner of the Collateral purported to be owned thereby under the Collateral Documents, free and clear of all Liens, except for the liens and security interests created or expressly permitted under the Collateral Documents. The Collateral Documents, together with the filing of appropriate Uniform Commercial Code financing statements in favor of the Administrative Agent, on behalf of the Secured Parties, and the possession of the certificates evidencing the Equity Interests in the Subsidiaries of the Borrower comprising part of the Collateral, create valid and perfected first priority liens on and security interests in the Collateral (subject to the liens and security interests expressly permitted under Section 5.02(a)) in favor of the Administrative Agent, for the benefit of the Secured Parties, securing the payment of the Secured Obligations. Certificates representing all of the Equity Interests in the Subsidiaries of the Loan Parties that are purported to comprise part of the Collateral have been delivered to the Administrative Agent as required under the terms of the Collateral Documents, together with undated stock powers or other appropriate powers duly executed in blank; all filings and other actions necessary to perfect and protect the liens and security interests of the Administrative Agent in the Collateral have been duly made or taken and are in full force and effect or will be duly made or taken in accordance with the terms of the Loan Documents; and all filing fees and recording taxes have been paid in full. (m) Each of the Loan Parties and each of their Subsidiaries own or have the legal right to use all of the patents, licenses, franchises, copyrights, service marks, trademarks, trade secrets and trade names that are necessary to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as currently proposed to be conducted, without known conflict with the rights of any other Person (other than any such patent, licence, franchise, copyright, service mark, trademark, trade secret, trade name or other right that, both individually and in the aggregate, is not material to the business, financial condition or operations of the Loan Party or the Subsidiary of a Loan Party that owns or possesses it). No action, suit, litigation, arbitration or proceeding is pending or, to the best knowledge of the Borrower, threatened (and, to the best knowledge of the Borrower, no investigation is pending or threatened) challenging the use by any of the Loan Parties or any of their Subsidiaries of any such patent, license, franchise, copyright, service mark, trademark, trade secret, trade name or the validity or effectiveness thereof, -89- except for any such action, suit, investigation, litigation, arbitration or proceeding that, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (n) None of the proceeds of any Advance or the drawings under any Letter of Credit will be used to acquire any equity security of a class which is registered pursuant to Section 12 of the Exchange Act. Neither the Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying any "margin stock" (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 207)). None of the proceeds of any Advance or the drawings under any Letter of Credit will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. (o) Neither any of the Loan Parties nor any of their Subsidiaries is an "investment company" or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company" (each as defined in the Investment Company Act of 1940, as amended). None of the making (or deemed making) of any Advance, the issuance (or deemed issuance) of any Letter of Credit or the application of the proceeds therefrom, or the repayment of any Advance by the Borrower, or the consummation of the Transaction or any of the other transactions contemplated hereby, will violate any provision of the Investment Company Act of 1940, as amended, or any rule, regulation or order of the Securities and Exchange Commission thereunder. (p) The Borrower is, individually and together with its Subsidiaries, taken as a whole, Solvent. (q) Neither any of the Loan Parties nor any of their Subsidiaries is a party to any loan agreement, indenture, mortgage, deed of trust, lease, instrument, contract or other agreement or is subject to any restriction in its Constitutive Documents or any other corporate, partnership, limited liability company or similar restriction that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (r) Except as, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, there is (i) no unfair labor practice complaint pending or, to the best knowledge of the Borrower, threatened against any of the Loan Parties or any of their Subsidiaries by or before any Governmental Authority, and no grievance or arbitration proceeding pending or, to the best knowledge of the Borrower, threatened against any of the Loan Parties or any of their Subsidiaries which arises out of or under any collective bargaining agreement, (ii) no strike, labor dispute, slowdown, stoppage or similar action or grievance pending or, to the best knowledge of the Borrower, threatened against any of the Loan Parties or any of their Subsidiaries and (iii) to the best knowledge of the Borrower, no union representation question existing with respect to the employees of any of the Loan Parties or any of their Subsidiaries and no union organizing activity taking place with respect to any of the employees of any of them. (s) Except as, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, there exists no actual or threatened termination, cancellation or limitation of, or modification to or change in, the business relationship between (i) any of the Loan Parties or any of their Subsidiaries, on the one hand, and any carrier, any customer or any group thereof, on the other hand, or (ii) any of the Loan Parties or any of their Subsidiaries, on the one hand, and any supplier thereof, on the other hand; and, to the best knowledge of the Borrower, there -90- exists no present state of facts or circumstances that could reasonably be expected to give rise to or result in any such termination, cancellation, limitation, modification or change. (t) No ERISA Event has occurred or could reasonably be expected to occur with respect to any Plan that, either individually or in the aggregate, has had or could reasonably be expected to have, a Material Adverse Effect. Schedule B (Actuarial Information) to the most recent annual report (form 5500 series) for each of the Plans, copies of which have been filed with the Internal Revenue Service and furnished or made available to the Lender Parties, is complete and accurate and fairly presents in all material respects the funding status of such Plan; and, since the date of such Schedule B, there has been no material adverse change in the funding status of such Plan. Neither any of the Loan Parties nor any of the ERISA Affiliates (i) has incurred or could reasonably be expected to incur any Withdrawal Liability to any Multiemployer Plan in excess of $1,000,000 or (ii) has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and, to the best knowledge of the Loan Parties and the ERISA Affiliates, no such Multiemployer Plan could reasonably be expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (u) The operations and properties of each of the Loan Parties and each of their Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits; all past noncompliance with such Environmental Laws and Environmental Permits has been resolved without any material ongoing obligations or costs; all Environmental Permits that are necessary for the operations or properties of any of the Loan Parties or any of their Subsidiaries have been obtained and are in full force and effect, except where and to the extent that the failure to obtain or maintain in full force and effect any such Environmental Permit, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect; and no circumstances exist that, either individually or in the aggregate, could reasonably be expected to (i) form the basis of an Environmental Action against any of the Loan Parties or any of their Subsidiaries or any of the properties thereof that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or (ii) cause any such property to be subject to any material restrictions on ownership, occupancy or use or on the transferability of such property by any of the Loan Parties or any of their Subsidiaries under any Environmental Law. (v) (i) None of the properties owned or operated by any of the Loan Parties or any of their Subsidiaries is listed or, to the best knowledge of the Borrower, is proposed for listing on the NPL or on the CERCLIS or any analogous state or local list or, to the best knowledge of the Borrower, is adjacent to any such property; and (ii) except as, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, (A) there are no, and never have been any, underground or aboveground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed of on any property owned or operated by any of the Loan Parties or any of their Subsidiaries or, to the best knowledge of the Borrower, on any property formerly owned or operated by any of the Loan Parties or any of their Subsidiaries, (B) there is no asbestos or asbestos-containing material on any property owned or operated by any of the Loan Parties or any of their Subsidiaries and (C) Hazardous Materials have not been released, discharged or disposed of on any property owned or operated by any of the Loan Parties or any of their Subsidiaries. -91- (w) Neither any of the Loan Parties nor any of their Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened release, discharge or disposal of Hazardous Materials at any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law that, either individually or in the aggregate, could reasonably be expected to result in material liability to the Borrower or any of its Subsidiaries. All Hazardous Materials generated, used, treated, handled or stored at, or transported to or from, any property owned or operated by any of the Loan Parties or any of their Subsidiaries have been disposed of in a manner that, either individually or in the aggregate, could not reasonably be expected to result in material liability to the Borrower or any of its Subsidiaries. (x) Each of the Loan Parties and each of their Subsidiaries and Affiliates have filed, have caused to be filed or have been included in all federal and state tax returns, reports and statements, and all other material tax returns, reports and statements, required to be filed and have paid or caused to be paid all taxes, assessments, levies, fees and other charges shown thereon (or on any assessments received by any such Person or of which any such Person has been notified) to be due and payable, together with applicable interest and penalties, except for any such taxes, assessments, levies, fees and other charges the amount, applicability or validity of which is being contested in good faith and by appropriate proceedings diligently conducted and with respect to which the applicable Loan Party or Subsidiary or Affiliate of a Loan Party, as the case may be, has established appropriate and adequate reserves in accordance with GAAP. All of the tax returns, reports and statements referred to in the immediately preceding sentence have been prepared in good faith and are complete and accurate in all material respects for each of the Loan Parties and each of their Subsidiaries for the respective periods covered thereby. (y) Set forth on Schedule 4.01(y) hereto is a complete and accurate list, as of the date of this Agreement, of each of the Open Years of each of the Loan Parties and each of their Subsidiaries. There are no adjustments, as of the date of this Agreement, to (i) the federal income tax liability (including, without limitation, interest and penalties) of any of the Loan Parties or any of their Subsidiaries proposed in writing by the Internal Revenue Service with respect to their respective Open Years or (ii) any foreign, state or local tax liability (including, without limitation, interest and penalties) of any of the Loan Parties or any of their Subsidiaries proposed in writing by any foreign, state or local taxation authority or other Governmental Authority (other than amounts arising solely from adjustments to federal income tax returns of the Loan Parties and their Subsidiaries) that, in the case of clauses (i) and (ii) of this sentence, have not been fully assumed or retained by (or for which the Loan Parties and their Subsidiaries are not fully and unconditionally indemnified for by), the Sellers under the terms of the Recapitalization Agreement. No issues have been raised by the Internal Revenue Service in respect of Open Years of any of the Loan Parties or any of their Subsidiaries or by any such foreign, state or local taxation authorities or other Governmental Authorities that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither any of the Loan Parties nor any of their Subsidiaries has entered into an agreement or waiver or been requested to enter into an agreement or waiver extending any statute of limitations relating to the assessment, reassessment, payment or collection of taxes of any Loan Party or any such Subsidiary, or is aware of any circumstances that would cause the taxable years or other taxable periods of any Loan Party or any such Subsidiary to no longer be subject to the normally applicable statute of limitations. Neither any of the Loan Parties nor any of -92- their Subsidiaries has provided, with respect to itself or any property held by it, any consent under Section 341(f) of the Internal Revenue Code. (z) At all times from 1982 until the Closing Date, the Borrower had in effect a valid election under Section 1362(a) of the Internal Revenue Code (or a comparable election under any successor provision) to be taxed as an "S Corporation" for federal income tax purposes and comparable elections under state or local law and the Borrower has not received and is not aware of any proposal from the Internal Revenue Service or any state or local taxation authority to disallow such election to be taxed as an "S Corporation" (or any comparable state or local law election) for any taxable year from 1982 to the short taxable year ending on the day immediately preceding the Closing Date. (aa) The Borrower, on behalf of itself and its Subsidiaries, (i) has initiated a review and assessment of all areas within its own and each of its Subsidiaries' business and operations (including those affected by material suppliers, vendors and customers) that could reasonably be expected to be adversely affected by the risk that computer applications used by the Borrower or any of its Subsidiaries (or by their respective material suppliers, vendors and customers) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (collectively, the "Year 2000 Problem"), (ii) has developed a plan and timeline for addressing the Year 2000 Problem on a timely basis and (iii) has implemented such plan to date in accordance with such timetable. Based on the foregoing, the Borrower believes that all computer applications (including those of its own and each of its Subsidiary's suppliers, vendors and customers) that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that a failure to do so, either individually or in the aggregate, could not reasonably be expected to have Material Adverse Effect. (bb) Set forth on Schedule 3.01(f) hereto is a complete and accurate list as of the Closing Date of all Surviving Indebtedness, showing, as of such date, the principal amount outstanding thereunder, the interest rate thereon, the scheduled maturity date thereof and the amortization schedule, if any, therefor. (cc) Set forth on Schedule 4.01(cc) hereto is a complete and accurate list as of the Closing Date of all Liens on the property or assets of the Borrower, showing as of such date, the lienholder thereof, the principal amount of the Obligations secured thereby and the property or assets of the Borrower subject thereto. (dd) Set forth on (i) Part A of Schedule 4.01(dd) hereto is a complete and accurate list as of the date of this Agreement or as of the date of the most recent amendment, supplement or other modification to Schedule 4.01(dd) hereto (whether pursuant to Section 5.03(g) or otherwise) of all real property owned by the Borrower or any of its Subsidiaries, showing as of such date, the street address, county or other relevant jurisdiction, state, record owner and book and fair value thereof and (ii) Part B of Schedule 4.01(dd) hereto is a complete and accurate list as of the date of this Agreement or as of the date of the most recent amendment, supplement or other modification to Schedule 4.01(dd) hereto (whether pursuant to Section 5.03(g) or otherwise) of all leases of real property under which any of the Loan Parties or any of their Subsidiaries is the lessee, showing as of such date, the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof. The Borrower and each of its Subsidiaries have good, -93- marketable and insurable fee simple title to all of the real property set forth on Part A of Schedule 4.01(dd) hereto, free and clear of all Liens other than Liens created or expressly permitted under the Loan Documents, except for any such real property that has been sold, leased, transferred or otherwise disposed of in accordance with the terms of the Loan Documents. All of the leases referred to on Schedule 4.01(dd) hereto are valid and subsisting and in full force and effect, unless such lease has lapsed, terminated or been canceled in accordance with the terms of the Loan Documents. (ee) Set forth on Schedule 4.01(ee) hereto is a complete and accurate list as of the date of this Agreement or as of the date of the most recent amendment, supplement or other modification to Schedule 4.01(ee) hereto (whether pursuant to Section 5.03(g) or otherwise) of all of the Investments (other than cash and Cash Equivalents and intercompany Investments expressly permitted under Section 5.02(e)(iv)) held by any of the Loan Parties or any of their Subsidiaries, showing, as of such date, the amount, the obligor or issuer thereof and the maturity, if any, thereof. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any of the Advances or any of the other Obligations of any Loan Party under or in respect of any of the Loan Documents (other than any such Obligations of any of the Loan Parties under Section 2.10, 2.12 or 8.04 (or other similar provisions of the other Loan Documents that are specified under the terms thereof to survive the payment in full of such other Obligations under or in respect of the Loan Documents) to the extent no demand or claim thereunder has been made) shall remain unpaid, any of the Letters of Credit shall remain outstanding or any of the Lender Parties shall have any Commitment hereunder, the Borrower will, at all times: (a) Compliance with Laws, Maintenance of Governmental Authorizations, Etc. (i) Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable Requirements of Law, such compliance to include, without limitation, compliance with ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970 and (ii) except as provided in Section 5.01(e), obtain and maintain in effect all Governmental Authorizations that are necessary (A) to own or lease and operate their respective property and assets and to conduct their respective businesses as now conducted and as proposed to be conducted, except where and to the extent that the failure to obtain or maintain in effect any such Governmental Authorization, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, or (B) for the due execution, delivery or performance by the Borrower or any of its Subsidiaries of any of the Loan Documents or the Related Documents to which it is or is to be a party, or for the consummation of any aspect of the Transaction or any of the other transactions contemplated hereby and thereby. This Section 5.01(a) shall not apply to compliance with Environmental Laws or Environmental Permits (which is the subject of Section 5.01(c)). (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, to the extent due and payable and before the same shall become delinquent, (i) all taxes, assessments, reassessments, levies and other governmental charges imposed upon it or upon its property, assets, income or franchises and (ii) all lawful claims that, if unpaid, might by law -94- become a Lien upon its property and assets or any part thereof; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, reassessment, levy, charge or claim the amount, applicability or validity of which is being contested in good faith and by proper proceedings diligently conducted and as to which appropriate and adequate reserves are being maintained by the Borrower or its applicable Subsidiary in accordance with GAAP, unless and until any Lien resulting therefrom attaches to its property and assets and enforcement, collection, execution, levy or foreclosure proceedings shall have been commenced with respect thereto. (c) Compliance with Environmental Laws. (i) Comply (and require all lessees and other Persons operating or occupying any of its properties to comply), and cause each of its Subsidiaries to comply (and to require all lessees and other Persons operating or occupying any of its properties to comply), in all material respects, with all of the applicable Environmental Laws and the Environmental Permits applicable to such Person or its operations or properties; (ii) obtain and renew, and cause each of its Subsidiaries to obtain and renew, all of the Environmental Permits necessary for the ownership or operation of their respective properties or the conduct of their respective businesses as now conducted and as proposed to be conducted; and (iii) conduct, and cause each of its Subsidiaries to conduct, any investigation, study, sampling or testing, and undertake, and cause each of its Subsidiaries to undertake, any cleanup, removal, remedial or other action, necessary to remove and clean up all of the Hazardous Materials from any of its properties in accordance with the requirements of all applicable Environmental Laws, except, in the case of clause (ii) or (iii) of this Section 5.01(c), where the failure to obtain or renew any such Environmental Permit, to conduct any such investigation, study, sampling or testing or to undertake any such cleanup, removal, remedial or other action, either individually or in the aggregate, could not reasonably be expected (A) to have a Material Adverse Effect or (B) to subject the Borrower or any of its Subsidiaries to any criminal penalty or liability or to subject the Administrative Agent or any of the Lender Parties to any criminal penalty or liability or (except for nonmaterial fines for which the Administrative Agent or such Lender Party is fully indemnified under Section 8.04) any civil penalty or liability; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action otherwise required under this Section 5.01(c) to the extent that the amount, applicability or validity thereof is being contested in good faith and by proper proceedings diligently conducted and appropriate and adequate reserves are being maintained by the Borrower or its applicable Subsidiary with respect to such circumstances in accordance with GAAP. (d) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance for their respective properties, assets and businesses (i) with insurance companies or associations that have, or that have directly reinsured such insurance with insurance companies or associations that have, an A.M. Best Company claims paying ability rating of at least "A-" (or the then equivalent rating) and (ii) of such types (including, without limitation, insurance against theft and fraud and against loss or damage by fire, explosion or hazard of or to property and general public liability insurance), in such amounts and with such deductibles, covering such casualties and contingencies and otherwise on such terms as are at least as favorable as those usually carried by companies of established reputations engaged in similar businesses and owning similar properties and assets in the same general areas in which the Borrower or its applicable Subsidiary operates or as may otherwise be required by applicable Requirements of Law; provided, however, that the Borrower and its Subsidiaries may effect workers' compensation insurance or similar coverage with respect to their respective operations in any particular jurisdiction through an insurance fund -95- operated by such jurisdiction or by meeting the self-insurance requirements of such jurisdiction so long as the Borrower or such Subsidiary establishes and maintains appropriate and adequate reserves therefor in accordance with GAAP. (e) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, organization, rights (statutory and pursuant to its Constitutive Documents), permits, licenses, approvals, privileges and franchises; provided, however, that the Borrower and its Subsidiaries (i) may consummate any merger or consolidation otherwise expressly permitted under Section 5.02(c) and (ii) may amend, supplement or otherwise modify their rights under their respective Constitutive Documents to the extent otherwise expressly permitted under Section 5.02(m); and provided further, however, that neither the Borrower nor any of its Subsidiaries shall be required to preserve any permit, license, approval, privilege or franchise if the board of directors (or the persons performing similar functions) of the Borrower or such Subsidiary shall determine in good faith that the preservation thereof is no longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower, such Subsidiary or the Lender Parties or, solely in the case of any such permit, license or qualification to do business as a foreign corporation, limited partnership or limited liability company in any jurisdiction, that the loss thereof, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (f) Visitation Rights. At any reasonable time and from time to time, permit any of the Agents or any of the Lender Parties, or any agents or representatives thereof (so long as such agents or representatives are or agree to be bound by the provisions of Section 8.09), to examine and make copies of and abstracts from the records and books of account of, and to visit the properties of, the Borrower and its Subsidiaries and to discuss the affairs, finances and accounts of the Borrower and/or any of its Subsidiaries with any of their officers or directors and with their independent public accountants (and, in furtherance thereof, the Borrower shall deliver to any independent public accountants engaged by the Borrower or any of its Subsidiaries after the date of this Agreement a letter from the Borrower, on behalf of itself and its Subsidiaries, advising such accountants that the Administrative Agent, on behalf of the Lender Parties, has been authorized to exercise all rights of the Borrower to require such accountants to disclose any and all financial statements and any other information relating to the financial condition, operations or performance of the Borrower or any of its Subsidiaries that they may have and directing such accountants to comply with any reasonable request of the Administrative Agent for such information). (g) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account in which full and accurate entries shall be made of all of the financial transactions and the property, assets and businesses of the Borrower and each of its Subsidiaries (including, without limitation, the establishment and maintenance of adequate and appropriate reserves) in accordance with GAAP and all applicable Requirements of Law. (h) Maintenance of Properties, Etc. (i) Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its material properties that, either individually or in the aggregate, are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear and casualty and condemnation excepted, and (ii) make, and cause each of its Subsidiaries to make, from time to time, all repairs, renewals, additions, replacements, -96- betterments and improvements of such properties that are reasonably necessary in order to permit the business and activities carried on in connection therewith to be properly conducted at all times. (i) Compliance with Terms of Leaseholds. (i) Make all payments and otherwise perform all obligations in respect of all leases of real property to which the Borrower or any of its Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or to be terminated or any rights to renew such leases to be forfeited or canceled, in each case except to the extent that, in the reasonable business judgment of the Borrower or the Subsidiary of the Borrower that is the lessee thereof, it is in the best interest of the Borrower or such Subsidiary, as the case may be, to allow or to cause such nonperformance, lapse, termination, forfeiture or cancellation, and such nonperformance, lapse, termination, forfeiture or cancellation, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect, and (ii) promptly notify the Administrative Agent, upon obtaining knowledge thereof, of (A) any default by any party with respect to any lease that is material to the business, financial condition or operations of the Borrower or the Subsidiary thereof that occupies the real property subject to such lease or is otherwise the lessee thereof, and cooperate with the Administrative Agent to cure any such default, and (B) any material nonperformance, or any lapse, termination, forfeiture or cancellation of any lease otherwise permitted to occur under clause (i) of this Section 5.01(i), and, in respect of each of the foregoing provisions of this Section 5.01(i), cause each of its Subsidiaries to do so. (j) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, directly or indirectly, all transactions or series of related transactions (including, without limitation, the purchase, sale, lease, transfer or exchange of property or assets of any kind or the rendering of services of any kind) otherwise permitted under the Loan Documents with any of their Affiliates on terms that are fair and reasonable and no less favorable to the Borrower or any of its Subsidiaries than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate thereof, other than: (i) the consummation of the Recapitalization; (ii) the performance by the Borrower of its obligations under the Related Documents, in each case as in effect on the Closing Date; (iii) loans and advances by the Borrower or any of its Subsidiaries to one or more employees thereof, in each case to the extent permitted under Section 5.02(e)(vi); (iv) the performance by the Borrower of its obligations under the Operating Leases under which Rex Realty Co. or one or more other Affiliates of David Pratt is the lessor, as in effect on the Closing Date, and any extensions, renewals or refinancings thereof on terms no less favorable to the Borrower or any of its Subsidiaries or to the rights or interests of the Lender Parties than the terms of any such Operating Lease being so extended, renewed or refinanced; (v) the payment of management fees in cash to one or more of the THL Entities pursuant to the terms of the Professional Services Agreement, as in effect on the Closing Date, in an aggregate amount not to exceed $1,000,000 in any Fiscal Year; -97- (vi) the payment of nonrecurring transaction fees to the THL Entities in connection with any purchase or other acquisition of a Person or a line of business by the Borrower or any of the Restricted Subsidiaries in an amount not to exceed 1% of the total consideration being paid by the Borrower and its Subsidiaries for such purchase or other acquisition, such fee, in each case, to be payable in full upon the consummation of the related purchase or other acquisition; and (vii) any transaction or series of related transactions solely between or among the Borrower and one or more of the Restricted Subsidiaries, between or among one or more of the Restricted Subsidiaries, or between or among one or more of the Unrestricted Subsidiaries, in each case to the extent such transaction or series of related transactions is otherwise permitted under the terms of the Loan Documents. Notwithstanding the foregoing provisions of this Section 5.01(j), neither the Borrower nor any of its Subsidiaries shall conduct any transaction or series of related transactions (other than any transaction or series of transactions otherwise permitted under any of clauses (i) through (vii) of this Section 5.01(j)), directly or indirectly, with any of its Affiliates (A) having an aggregate value or involving an aggregate amount of more than $2,000,000 unless the Borrower obtains a resolution of its board of directors certifying that such transaction or series of related transactions complies with this Section 5.01(j) and (B) having an aggregate value or involving an aggregate amount of more than $10,000,000 (other than any transaction or series of transactions otherwise permitted under any of clauses (i) through (vii) of this Section 5.01(j) or any sale by the Borrower of common Equity Interests therein) unless the Borrower has delivered to the Administrative Agent, on behalf of the Lender Parties, an opinion of an independent investment banking firm or appraisal firm of national standing stating that such transaction or series of related transactions are fair to the Borrower and/or its applicable Subsidiaries from a financial point of view. (k) Covenant to Give Security. Upon (i) the request of the Administrative Agent following the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f) or an Event of Default or (ii) the purchase or other acquisition of any real property or any personal property by any Loan Party, which property, in the judgment of the Administrative Agent, shall not already be subject to a valid and perfected first priority lien and security interest in favor of the Administrative Agent, for the benefit of the Secured Parties, the Borrower shall, in each case at its own expense: (A) within ten days after such request or purchase or other acquisition, furnish to the Administrative Agent a description of the real and personal properties of each of the Loan Parties and their respective Subsidiaries in detail reasonably satisfactory to the Administrative Agent; (B) within 20 days after such request or purchase or other acquisition, duly execute and deliver, and cause each such Subsidiary to duly execute and deliver, to the Administrative Agent mortgages, collateral assignments, Security Agreement Supplements and other security agreements, as specified by and in form and substance reasonably satisfactory to the Administrative Agent, securing payment of all of the Obligations of the applicable Loan Party or Subsidiary of a Loan Party, as the case may be, under and in respect of the Loan Documents and constituting liens on and security interests in all such real and personal properties; -98- (C) within 30 days after such request or purchase or other acquisition, take, and cause each such Subsidiary to take, whatever action (including, without limitation, the recording of mortgages, the filing of Uniform Commercial Code financing statements and IP Security Agreements--Short Form, the giving of notices and the endorsement of notices on title documents) may be necessary or in the reasonable opinion of the Administrative Agent advisable to vest in the Administrative Agent (or in any co-agent, sub-agent or other representative of the Administrative Agent designated by it) valid and subsisting liens on and security interests in the real and personal properties purported to be subject to the mortgages, collateral assignments, Security Agreement Supplements and security agreements delivered pursuant to this Section 5.01(k), enforceable against all third parties in accordance with their terms; (D) within 35 days after such request or purchase or other acquisition, upon the request of the Administrative Agent, deliver to the Administrative Agent a signed copy of one or more favorable opinions of counsel for the applicable Loan Parties, addressed to the Administrative Agent and the other Secured Parties and reasonably acceptable to the Administrative Agent, as to the matters contained in subclauses (A), (B) and (C) of this Section 5.01(k), as to such mortgages, collateral assignments, Security Agreement Supplements and security agreements being legal, valid and binding obligations of each of the Loan Parties party thereto, enforceable against such Loan Party in accordance with their terms, as to such recordings, filings, notices, endorsements and other actions being sufficient to create valid and perfected liens on and security interests in such real and personal properties, and as to such other matters as the Administrative Agent may reasonably request; (E) as promptly as practicable after such request or purchase or other acquisition, deliver, upon the reasonable request of the Administrative Agent, to the Administrative Agent with respect to each parcel of real property owned or held by the Loan Party or the Subsidiary of the Loan Party that is the subject of such request or such purchase or other acquisition, title reports, surveys and engineering, soils and other reports, and Phase I environmental assessment reports, each in scope, form and substance reasonably satisfactory to the Administrative Agent, provided, however, that to the extent that any of the Loan Parties or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent; (F) upon the occurrence and during the continuance of a Default under Section 6.01(a) or 6.01(f) or an Event of Default, promptly execute and deliver, and cause each of its Subsidiaries to promptly execute and deliver, any and all instruments and take, and cause each of its Subsidiaries to take, any and all such other actions as may be necessary or as the Administrative Agent may deem reasonably desirable in order to obtain and maintain from and after the time any dividend or other distribution is paid or payable by any of the Subsidiaries of the Borrower a valid and perfected first priority lien on and security interest in such dividend or other distribution; and (G) at any time and from time to time, promptly execute and deliver any and all further instruments and documents and take all such other action as may be necessary or as the Administrative Agent may deem reasonably desirable in obtaining the full benefits of, -99- or in perfecting and preserving the Liens created under, such mortgages, collateral assignments, Security Agreement Supplements and security agreements. (l) Further Assurances. Promptly upon the request of the Administrative Agent, or any of the Lender Parties through the Administrative Agent, at any time and from time to time, (i) correct, and cause each of its Subsidiaries to promptly correct, any defect or error that may be discovered in any of the Loan Documents or in the execution, acknowledgment, filing or recordation thereof and (ii) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re- register any and all such further acts, deeds, conveyances, pledge agreements, mortgages, deeds of trust, trust deeds, collateral assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments and take such further actions, and cause each of its Subsidiaries promptly to do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, pledge agreements, mortgages, deeds of trust, trust deeds, collateral assignments, financing statements and continuations thereof, termination statements, notices of collateral assignments, transfers, certificates, assurances and other instruments and take such further action, as may be necessary or as the Administrative Agent, or any of the Lender Parties through the Administrative Agent, may reasonably request from time to time in order to (A) carry out more effectively the provisions and purposes of the Loan Documents or assure the Administrative Agent or the Lender Parties of their rights and interests herein and therein, (B) to the fullest extent permitted by applicable law, subject any of the Loan Party's or any of its Subsidiaries' properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (C) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (D) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any of the Loan Documents or under any other instrument executed in connection with any of the Loan Documents to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so. SECTION 5.02. Negative Covenants. So long as any of the Advances or any of the other Obligations of any Loan Party under or in respect of any of the Loan Documents (other than any such Obligations of any of the Loan Parties under Section 2.10, 2.12 or 8.04 (or other similar provisions of the other Loan Documents that are specified under the terms thereof to survive the payment in full of such other Obligations under or in respect of the Loan Documents) to the extent no demand or claim thereunder has been made) shall remain unpaid, any of the Letters of Credit shall remain outstanding or any of the Lender Parties shall have any Commitment hereunder, the Borrower shall not, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its property or assets of any character (including, without limitation, accounts), whether now owned or hereafter acquired, or sign or file or suffer to exist, or permit any of its Subsidiaries to sign or file or suffer to exist, under the Uniform Commercial Code or any similar Requirements of Law of any jurisdiction, a financing statement (or the equivalent thereof) that names the Borrower or any of its Subsidiaries as debtor, or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any security agreement authorizing any secured party thereunder to file any such financing statement (or the equivalent thereof), or sign or suffer to exist, or permit any of its Subsidiaries to sign or suffer to exist, any agreement or arrangement for the sale of any of its property or assets subject to an -100- understanding or agreement, contingent or otherwise, to repurchase such property or assets (including sales of accounts receivable with recourse to the Borrower or any of its Subsidiaries), or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, excluding, however, from the operation of the foregoing restrictions: (i) Liens created under the Loan Documents; (ii) Permitted Liens; (iii) Liens existing on the Closing Date and described on Schedule 4.01(cc) hereto; (iv) purchase money Liens upon or in real property or equipment acquired or held by the Borrower or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such real property or equipment or to secure Indebtedness incurred solely for the purpose of financing the acquisition, construction or improvement of any such real property or equipment to be subject to such Liens, or Liens existing on any such real property or equipment at the time of its acquisition or the completion of its construction or improvement (other than any such Liens created in contemplation of such acquisition, construction or improvement that do not secure the purchase price of such real property or equipment); provided, however, that no such Lien shall extend to or cover any property or assets other than the real property or equipment being so acquired, constructed or improved; and provided further that (a) the principal amount of Indebtedness secured by any such Lien shall not exceed 100% of the lesser of (1) the cost to the Borrower or the applicable Subsidiary of the real property or equipment to be subject to any such Lien (including all such Indebtedness secured thereby, whether or not assumed) and (2) the Fair Market Value of such real property or equipment, determined as of the date of acquisition, construction or improvement thereof, and (b) any Indebtedness secured by Liens shall otherwise be expressly permitted under Section 5.02(b)(ii)(D) and shall not otherwise be prohibited under the terms of the Loan Documents; (v) Liens arising solely in connection with Capitalized Leases otherwise permitted under Section 5.02(b)(ii)(E) and not otherwise prohibited under the terms of the Loan Documents; provided that no such Lien shall extend to or cover any property or assets other than property or assets subject to such Capitalized Leases; (vi) Liens upon any of the property and assets (other than any Equity Interests in any Person) existing at the time such property or asset is purchased or otherwise acquired by the Borrower or any of its Subsidiaries; provided that any such Lien was not created in contemplation of such purchase or other acquisition and does not extend to or cover any property or assets other than the property or asset being so purchased or otherwise acquired; and provided further that any Indebtedness or other Obligations secured by such Liens shall otherwise be expressly permitted under Section 5.02(b) and shall not otherwise be prohibited under the terms of the Loan Documents; (vii) Liens upon any of the property and assets (other than any Equity Interests in any Person) of a Person and its Subsidiaries existing at the time such Person is merged into or consolidated with any of the Subsidiaries of the Borrower, or otherwise becomes a -101- Subsidiary of the Borrower, in accordance with the terms of the Loan Documents; provided that any such Lien was not created in contemplation of such merger, consolidation or acquisition and does not extend to or cover any property or assets other than property and assets of the Person and its Subsidiaries being so merged into or consolidated with the applicable Subsidiary of the Borrower or being acquired by the Borrower or its applicable Subsidiary, as the case may be; and provided further that any Indebtedness or other Obligations secured by such Lien shall otherwise be expressly permitted under Section 5.02(b) and shall not otherwise be prohibited under the terms of the Loan Documents; (viii) deposits made, and letters of credit issued, to secure the performance of Operating Leases of the Borrower and its Subsidiaries in the ordinary course of business; provided that no such Lien shall extend to or cover any property or assets other than such deposit or such letter of credit and the property and assets subject to such Operating Lease, as applicable; and provided further that any such Operating Lease shall not otherwise be prohibited under the terms of the Loan Documents; (ix) Liens arising solely from precautionary filings of financing statements under the Uniform Commercial Code of the applicable jurisdictions in respect of Operating Leases of the Borrower or any of its Subsidiaries not otherwise prohibited under the terms of the Loan Documents; (x) Liens upon any of the property and assets of the Foreign Subsidiaries to secure Indebtedness otherwise permitted under Section 5.02(b)(ii)(H) and not otherwise prohibited under the terms of the Loan Documents; (xi) Liens not otherwise permitted under this Section 5.02(a) securing Obligations of the Borrower and its Subsidiaries (other than Indebtedness for borrowed money) in an aggregate amount not to exceed $3,000,000 at any time outstanding; and (xii) the replacement, extension or renewal of any Lien otherwise permitted to be created or to exist under clauses (iii) (except to the extent Schedule 4.01(cc) hereto provides that any such Lien shall not be replaced, extended or renewed), (iv), (v), (viii), (x) and (xi) of this Section 5.02(a) upon or in the same property and assets theretofore subject thereto; provided that no such extension, renewal or replacement shall extend to or cover any property or assets not theretofore subject to the Lien being extended, renewed or replaced and shall not secure any additional Indebtedness or other Obligations; and provided further that any Indebtedness secured by such Liens shall otherwise be permitted under the terms of the Loan Documents. (b) Indebtedness. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, directly or indirectly, any Indebtedness other than: (i) in the case of the Borrower, (A) Surviving Indebtedness; -102- (B) Indebtedness under the Senior Subordinated Notes Documents in an aggregate principal amount not to exceed $150,000,000; (C) Indebtedness evidenced by the Permitted Preferred Stock; and (D) Indebtedness of the Borrower in respect of interest rate Hedge Agreements entered into from time to time after the date of this Agreement with counterparties that are Lender Parties (or affiliates of Lender Parties) at the time any such interest rate Hedge Agreement is entered into in an aggregate notional amount not to exceed (1) 50% of the aggregate Commitments under all of the Facilities at the time any such interest rate Hedge Agreement is entered into less (2) the aggregate notional amount of all interest rate Hedge Agreements that constitute Investments made under Section 5.02(e)(iii); provided that in all cases under this subclause (i)(D), such interest rate Hedge Agreements shall be nonspeculative in nature (including, without limitation, with respect to the term and purpose thereof); and (ii) in the case of the Borrower and its Subsidiaries, (A) Indebtedness under the Loan Documents; (B) guarantees of the Senior Subordinated Notes by the wholly owned Subsidiaries of the Borrower, so long as (1) each such wholly owned Subsidiary is party to the Subsidiary Guarantee (whether directly or through a Guarantee Supplement) on or prior to the date on which it enters into such guarantee and (2) the Obligations of each such wholly owned Subsidiary under such guarantee are subordinated to the Obligations of such wholly owned Subsidiary under the Subsidiary Guarantee to at least the same extent as the Obligations of the Borrower under the Senior Subordinated Notes Documents are subordinated to the Obligations of the Borrower under and in respect of the Loan Documents; (C) Indebtedness of (1) the Borrower owing to any of the Restricted Subsidiaries, (2) any of the Restricted Subsidiaries owing to the Borrower or any of the other Restricted Subsidiaries, (3) any of the Unrestricted Subsidiaries owing to the Borrower or any of the Restricted Subsidiaries to the extent the Investment in such Unrestricted Subsidiary is otherwise expressly permitted under Section 5.02(e)(x) and (4) any of the Unrestricted Subsidiaries owing to any of the other Unrestricted Subsidiaries; provided that all such intercompany Indebtedness owing to the Borrower or any of the Restricted Subsidiaries shall be evidenced by a promissory note containing subordination provisions in substantially the form of Exhibit H hereto and such other terms and conditions as shall be reasonably acceptable to the Administrative Agent, which promissory note shall, in each case, be pledged as Collateral to the Administrative Agent, on behalf of the Secured Parties, under the applicable Collateral Documents immediately upon the creation thereof; (D) Indebtedness secured by Liens expressly permitted under Section 5.02(a)(iv) in an aggregate principal amount not to exceed, when aggregated -103- with the principal amount of all Indebtedness incurred under subclause (ii)(E)(2) of this Section 5.02(b), $10,000,000 at any time outstanding; (E) (1) a Capitalized Lease replacing or refinancing prior to September 30, 1999 the Operating Lease under which David Pratt leases an airplane to the Borrower on the date of this Agreement, which Capitalized Lease shall be in an aggregate amount (as capitalized in accordance with GAAP) not to exceed $10,000,000, and (2) Capitalized Leases which, when aggregated with the principal amount of all Indebtedness incurred under subclause (ii)(D) of this Section 5.02(b), do not exceed $10,000,000 at any time outstanding; (F) Contingent Obligations of the Borrower guaranteeing all or any portion of the outstanding Obligations of any of the Restricted Subsidiaries; provided that each such Obligation is not otherwise prohibited under the terms of the Loan Documents; (G) Indebtedness comprised of trade payables or other accounts payable to trade creditors incurred in the ordinary course of business to the extent otherwise included in the definition of "Indebtedness" set forth in Section 1.01; (H) Indebtedness of one or more Foreign Subsidiaries arising in the ordinary course of business in an aggregate principal amount not to exceed $5,000,000 at any time outstanding; provided that all such Indebtedness incurred pursuant to this subclause (ii)(H) shall be nonrecourse in all respects to the property and assets of the Loan Parties and their Subsidiaries (other than one or more of the Foreign Subsidiaries); (I) Indebtedness existing at the time that any property or asset is purchased or otherwise acquired by the Borrower or any of its Subsidiaries, or that any Person (other than the Borrower or any of its Subsidiaries) is merged into or consolidated with any of the Subsidiaries of the Borrower or otherwise becomes a Subsidiary of the Borrower, in accordance with the terms of the Loan Documents in an aggregate principal amount not to exceed the lesser of (1) $5,000,000 at any time outstanding and (2) the aggregate amount of Indebtedness that would be able to be incurred or assumed at such time under subclause (ii)(J) of this Section 5.02(b); provided that (x) no such Indebtedness shall be incurred in contemplation of any such purchase or other acquisition or any such merger, consolidation or acquisition, (y) such Indebtedness shall be secured, if at all, solely by Liens expressly permitted under Section 5.02(a)(vi) or 5.02(a)(vii) and (z) immediately before and immediately after giving pro forma effect to such Indebtedness, no Default shall have occurred and be continuing; (J) Indebtedness not otherwise permitted under this Section 5.02(b) in an aggregate principal amount, when aggregated with the aggregate principal amount of all Indebtedness incurred under subclause (ii)(I) of this Section 5.02(b), not to exceed $20,000,000 at any time outstanding; provided that, with respect to any such Indebtedness issued or incurred pursuant to this subclause (ii)(J), (1) such Indebtedness shall not have a maturity date or any scheduled or mandatory -104- redemption or repurchase date prior to at least one year after the scheduled Termination Date, (2) such Indebtedness shall not be guaranteed or otherwise credit enhanced by the Borrower or any of its Subsidiaries, (3) if such Indebtedness is comprised of seller financing of all or any portion of the purchase price of any property or assets purchased or otherwise acquired by the Borrower or any of its Subsidiaries pursuant to Section 5.02(e), such Indebtedness shall be subordinated to the Obligations of the Borrower or its applicable Subsidiary under and in respect of the Loan Documents on terms reasonably satisfactory to the Lender Parties, (4) the other terms and conditions of such Indebtedness (and of any agreement entered into and of any instrument issued in connection therewith) shall be no less favorable to the Borrower and its Subsidiaries or to the rights or interests of the Lender Parties than the terms of the Loan Documents and (5) immediately before and immediately after giving pro forma effect to such Indebtedness, no Default shall have occurred and be continuing; (K) endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (L) Indebtedness extending the maturity of, or refunding, refinancing or replacing, in whole or in part, any Indebtedness incurred under any of subclauses (i)(A) (except to the extent Schedule 3.01(f) hereto provides that such Indebtedness shall not be extended, refunded, refinanced or replaced), (ii)(D), (ii)(E), (ii)(F), (ii)(H) and (ii)(J) of this Section 5.02(b); provided, however, that (1) the aggregate principal amount of such extended, refunding, refinancing or replacement Indebtedness shall not be increased above the principal amount thereof and the premium, if any, payable thereon outstanding immediately prior to such extension, refunding, refinancing or replacement, (2) the direct and contingent obligors therefor shall not be changed as a result of or in connection with such extension, refunding, refinancing or replacement, (3) such extended, refunding, refinancing or replacement Indebtedness shall not mature prior to the stated maturity date or mandatory redemption date of the Indebtedness being so extended, refunded, refinanced or replaced, (4) if the Indebtedness being so extended, refunded, refinanced or replaced is subordinated in right of payment or otherwise to the Obligations of the Borrower or any of its Subsidiaries under and in respect of the Loan Documents, such extended, refunding, refinancing or replacement Indebtedness shall be subordinated to such Obligations to at least the same extent, (5) the terms of any such extending, refunding, refinancing or replacement Indebtedness (and of any agreement entered into and of any instrument issued in connection therewith) shall be no less favorable to the Borrower and its Subsidiaries or to the rights or interests of the Lender Parties than the terms of the Indebtedness being so extended, refunded, refinanced or replaced and (6) immediately before and immediately after giving pro forma effect to any such extension, refunding, refinancing or replacement, no Default shall have occurred and be continuing. (c) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into or consolidate with it, or permit any of its Subsidiaries to do so, except that: -105- (i) any of the Restricted Subsidiaries may merge into or consolidate with the Borrower; provided that the Borrower is the surviving corporation; (ii) any of the Subsidiaries of the Borrower may merge into or consolidate with any of the Restricted Subsidiaries; provided that the Person formed by such merger or consolidation is a Restricted Subsidiary; (iii) any of the Unrestricted Subsidiaries may merge into or consolidate with any of the other Unrestricted Subsidiaries; (iv) in connection with any purchase or other acquisition of Equity Interests in, or property and assets of, any Person permitted under Section 5.02(e)(ix), any of the Subsidiaries of the Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that (A) if such Subsidiary of the Borrower is a Restricted Subsidiary, the Person formed by such merger or consolidation shall be a Restricted Subsidiary, (B) if such Subsidiary is a non-wholly owned Domestic Subsidiary, the Person formed by such merger or consolidation shall be a Domestic Subsidiary and (C) if such Subsidiary is a Foreign Subsidiary, the Person formed by such merger or consolidation shall be a Subsidiary of the Borrower; and provided further that the Person with which such Subsidiary is merging or consolidating (1) shall be engaged in substantially the same lines of business as one or more of the principal businesses of the Borrower and its Subsidiaries in the ordinary course and (2) shall not have any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrower and its Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or the persons performing similar functions) of the Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Senior Financial Officer); and (v) in connection with any sale, transfer or other disposition of all or substantially all of the Equity Interests in, or the property and assets of, any Person permitted under Section 5.02(d)(ix), any of the Subsidiaries of the Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it. In all cases under this Section 5.02(c), (x) such merger or consolidation shall be effected in compliance with all applicable Requirements of Law, (y) all Governmental Authorizations, and all consents, approvals and authorizations of, and notices and filings to or with, and other actions by, any other Person necessary in connection with such merger or consolidation shall have been obtained or made and (z) immediately before and immediately after giving pro forma effect to such merger or consolidation, no Default shall have occurred and be continuing. In addition, in the case of any merger or consolidation effected pursuant to clause (iv) or (v) of this Section 5.02(c), immediately after giving effect to such merger or consolidation, the Borrower and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 5.04, such compliance to be determined on the basis of the Required Financial Information most recently delivered to the Administrative Agent and the Lender Parties as though such merger or consolidation had been consummated as of the first day of the fiscal period covered thereby and to give effect to all of the pro forma cost savings of the Borrower and its Subsidiaries that are to be recognized as a result of such merger or consolidation. The Borrower shall notify the Administrative Agent of any proposed -106- merger or consolidation at least five Business Days prior to the date on which such merger or consolidation is to be effected and shall deliver to the Administrative Agent, on behalf of the Lender Parties, at the time such notice is delivered, a certificate of a Senior Financial Officer, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the applicable requirements set forth in the two immediately preceding sentences have been satisfied or will be satisfied prior to the consummation of the applicable merger or consolidation and, in the case of any merger or consolidation proposed to be effected pursuant to clause (iv) of this Section 5.02(c), that all of the matters described in the provisos to such clause (iv) have been or will be so satisfied and, in any event, including a schedule that sets forth in reasonable detail all of the pro forma cost savings of the Borrower and its Subsidiaries that are to be realized as a result of such merger or consolidation and all of the computations used by the Borrower in determining compliance with such requirements. (d) Sales, Etc. of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any property or assets (including, without limitation, any Equity Interests), or grant any option or other right to purchase, lease or otherwise acquire any property or assets, except that so long as no Default shall have occurred and be continuing at the time of any of the transactions described in clauses (v), (viii), (ix) and (x) or would occur as a result thereof: (i) the Borrower and its Subsidiaries may sell Inventory in the ordinary course of business; (ii) the Borrower and its Subsidiaries may sell, lease, transfer or otherwise dispose of property and assets in a transaction otherwise expressly permitted under Section 5.02(a), 5.02(c) (other than clause (v) thereof), 5.02(e) or 5.02(f); (iii) (A) the Borrower may sell, lease, transfer or otherwise dispose of any of its property or assets to any of the Restricted Subsidiaries, (B) any of the Restricted Subsidiaries may sell, lease, transfer or otherwise dispose of any of its property or assets to the Borrower or any of the other Restricted Subsidiaries, (C) any of the Unrestricted Subsidiaries may sell, lease, transfer or otherwise dispose of any of its property or assets for Fair Market Value to the Borrower or any of its Subsidiaries and (D) any of the Unrestricted Subsidiaries may sell, lease, transfer or otherwise dispose of any of its property and assets to any of the Unrestricted Subsidiaries; (iv) the Borrower and its Subsidiaries may sell any real property or equipment that is replaced, or the replacement of which has been commenced and substantially completed, within 180 days after the date of such sale with real property or equipment, as the case may be, of equal or greater value (as determined in good faith by management of the Borrower); provided, however, that if any such real property or equipment is not replaced, or the replacement thereof has not been substantially completed, within such 180 day period, or if at any time during such 180 day period a Default under Section 6.01(a) or 6.01(f) or an Event of Default shall have occurred and be continuing, then the Net Cash Proceeds of such sale shall be applied on the last day of such period or on the date of such Default or Event of Default, as the case may be, to reduce the Commitments in accordance with, and to the extent required under, Section 2.05(b) and to prepay the Advances (and/or to cash collateralize the Letters of Credit) outstanding at such time in accordance with, and to the extent required under, Section 2.06(b)(ii); -107- (v) the Borrower and its Subsidiaries may sell, lease, transfer or otherwise dispose of any obsolete, damaged or worn out equipment that is no longer useful in the conduct of their businesses and operations in the ordinary course of business; provided, however, that in the case of each such sale, lease, transfer or other disposition of obsolete, damaged or worn out equipment in which the Borrower and its Subsidiaries receive total consideration in excess of $2,000,000, all of the Net Cash Proceeds of such sale, lease, transfer or other disposition shall be applied on the date of receipt of such Net Cash Proceeds to reduce the Commitments in accordance with, and to the extent required under, Section 2.05(b) and to prepay the Advances (and/or to cash collateralize the Letters of Credit) outstanding at such time in accordance with, and to the extent required under, Section 2.06(b)(ii); (vi) leases or subleases of real property of the Borrower or any of its Subsidiaries to any Person so long as each such lease or sublease, as the case may be, (A) shall not interfere in any material respect with the business or operations of the Borrower or any of the Restricted Subsidiaries and (B) shall be for consideration in an amount (determined by reference to the lease payments owing from such Person on an annual basis) at least equal to the lease payments, if any, owing from the Borrower or such Subsidiary on such real property or, if less, to the Fair Market Value of such lease or sublease at the time such lease or sublease is created; (vii) nonexclusive licenses of Patents, Trademarks, computer software and know-how to customers of the Borrower or any of its Subsidiaries in the ordinary course of business so long as (A) the Borrower or such Subsidiary retains and protects the right to use all or any portion of such Patents, Trademarks, computer software and know-how to the extent necessary to properly conduct the business of the Borrower and its Subsidiaries (in each case as determined by management of the Borrower in good faith) and (B) each such license shall be for the Fair Market Value thereof or shall be provided to a customer of the Borrower or any of its Subsidiaries in connection with the provision of services in the ordinary course of business; (viii) the sale, transfer or other disposition of any property and assets of the Borrower and its Subsidiaries within 270 days of the date on which such property and assets were purchased or otherwise acquired pursuant to Section 5.02(e)(ix); provided that: (A) the gross proceeds received from any such sale, lease, transfer or other disposition shall be at least equal to the Fair Market Value of the property and assets so sold, transferred or otherwise disposed of, determined at the time of such sale, transfer or other disposition; (B) at least 90% of the value of the aggregate consideration received from any such sale, transfer or other disposition shall be in cash and shall be received within ten Business Days after the date of consummation of such transaction; (C) all of the noncash consideration received in any such sale, transfer or other disposition shall be pledged as Collateral under, and in accordance with the terms of, the Collateral Documents promptly upon receipt thereof; and -108- (D) all of the Net Cash Proceeds received in any such sale, transfer or other disposition shall be applied on the date of receipt thereof by the Borrower or any of its Subsidiaries to reduce the Commitments in accordance with, and to the extent required under, Section 2.05(b) and to prepay the Advances (and/or to cash collateralize the Letters of Credit) outstanding at such time in accordance with, and to the extent required under, Section 2.06(b)(ii); (ix) the Borrower and its Subsidiaries may sell, lease, transfer or otherwise dispose of property and assets not otherwise permitted to be sold, leased, transferred or disposed of pursuant to this Section 5.02(d) so long as the aggregate Fair Market Value of all of the property and assets of the Borrower and its Subsidiaries so sold, leased, transferred or otherwise disposed of pursuant to this clause (ix) does not exceed $30,000,000; provided that: (A) the gross proceeds received from any such sale, lease, transfer or other disposition shall be at least equal to the Fair Market Value of the property and assets so sold, leased, transferred or otherwise disposed of, determined at the time of such sale, lease, transfer or other disposition; (B) at least 90% of the value of the aggregate consideration received from any such sale, lease, transfer or other disposition shall be in cash and shall be received within ten Business Days after the date of consummation of such transaction; (C) all of the noncash consideration received in any such sale, lease, transfer or other disposition shall be pledged as Collateral under, and in accordance with the terms of, the Collateral Documents promptly upon receipt thereof; and (D) all of the Net Cash Proceeds received in any such sale, lease, transfer or other disposition shall be applied on the date of receipt thereof by the Borrower or any of its Subsidiaries to reduce the Commitments in accordance with, and to the extent required under, Section 2.05(b) and to prepay the Advances (and/or to cash collateralize the Letters of Credit) outstanding at such time in accordance with, and to the extent required under, Section 2.06(b)(ii); and (x) the grant of any option or other right to purchase any property or asset in a transaction that is otherwise permitted under clause (iv), (v), (viii) or (ix) of this Section 5.02(d). (e) Investments in Other Persons. Purchase, acquire, make or hold, or permit any of its Subsidiaries to purchase, acquire, make or hold, any Investment in any Person, except: (i) Investments existing on the Closing Date and described on Schedule 4.01(ee) hereto; (ii) Investments in cash and Cash Equivalents; -109- (iii) in the case of the Borrower, Investments in respect of interest rate Hedge Agreements entered into from time to time after the date of this Agreement with one or more counterparties that are Lender Parties (or affiliates of Lender Parties) at the time any such interest rate Hedge Agreement is entered into in an aggregate notional amount not to exceed (A) 50% of the aggregate Commitments under all of the Facilities at the time any such interest rate Hedge Agreement is entered into less (B) the aggregate notional amount of any interest rate Hedge Agreements that constitute Indebtedness incurred under Section 5.02(b)(i)(D) and outstanding at such time; provided that all such interest rate Hedge Agreements shall be nonspeculative in nature (including, without limitation, with respect to the term and purpose thereof); (iv) Investments by (A) the Borrower in any of the Restricted Subsidiaries, (B) any of the Subsidiaries of the Borrower in the Borrower or any of the Restricted Subsidiaries and (C) any of the Unrestricted Subsidiaries in any of the other Unrestricted Subsidiaries; (v) Investments by the Borrower and its Subsidiaries in account debtors received in connection with the bankruptcy or reorganization, or in settlement of the delinquent obligations of financially troubled suppliers or customers, in the ordinary course of business and in accordance with applicable collection and credit policies established by the Borrower or such Subsidiary, as the case may be; (vi) loans and advances by the Borrower and its Subsidiaries to their respective employees in an aggregate amount not to exceed $4,750,000 at any time outstanding; (vii) the acceptance of promissory notes, contingent payment obligations and other noncash consideration received as partial payment of the purchase price of any property or assets sold, leased, transferred or otherwise disposed of in accordance with Sections 5.02(d)(viii) and 5.02(d)(ix); (viii) the assumption of Indebtedness of any Person existing at the time that all or substantially all of the property and assets of such Person are purchased or otherwise acquired by the Borrower or any of its Subsidiaries, or that such Person is merged into or consolidated with any of the Subsidiaries of the Borrower, or becomes a Subsidiary of the Borrower; provided that such Indebtedness is otherwise expressly permitted to be incurred under Section 5.02(b)(ii)(I) and such purchase or other acquisition or such merger, consolidation or acquisition is otherwise not prohibited under the terms of the Loan Documents; and (ix) the purchase or other acquisition of all of the Equity Interests in, or all or substantially all of the property and assets of, any Person that, upon the consummation thereof, will be owned directly by the Borrower or any of the Restricted Subsidiaries or will be a Restricted Subsidiary (including, without limitation, as a result of a merger or consolidation) with or into a Restricted Subsidiary, with the surviving entity being a Restricted Subsidiary); provided that, with respect to each purchase or other acquisition made pursuant to this clause (ix): -110- (A) any newly created or acquired Restricted Subsidiary shall comply with the requirements of Sections 5.01(k) and 5.02(k); (B) the lines of business of the Person to be (or the property and assets of which are to be) so purchased or otherwise acquired shall be substantially the same lines of business as one or more of the principal businesses of the Borrower and its Subsidiaries in the ordinary course; (C) such purchase or other acquisition shall not include or result in any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrower and its Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or the persons performing similar functions) of the Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Senior Financial Officer); (D) the total cash and noncash consideration (including, without limitation, the Fair Market Value of all Equity Interests issued or transferred to the sellers thereof, all indemnities, earnouts and other contingent payment obligations to, and the aggregate amounts paid or to be paid under noncompete, consulting and other affiliated agreements with, the sellers thereof, all write-downs of property and assets and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith) paid by or on behalf of the Borrower and its Subsidiaries for any such purchase or other acquisition, when aggregated with the total cash and noncash consideration paid by or on behalf of the Borrower and its Subsidiaries for all other purchases and other acquisitions made by the Borrower and its Subsidiaries pursuant to this clause (ix), shall not exceed the sum of (1) $25,000,000, (2) the aggregate amount of all Permitted Affiliate Investments made in connection with all such purchases and other acquisitions pursuant to this clause (ix) at or prior to the time of such purchase or other acquisition and (3) an amount equal to the aggregate amount of all Net Cash Proceeds received from the prior sale, lease, transfer or other disposition of property and assets purchased or otherwise acquired by the Borrower and its Subsidiaries pursuant to this clause (ix) in accordance with the terms of Section 5.02(d)(viii); (E) (1) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (2) immediately after giving effect to such purchase or other acquisition, the Borrower and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 5.04, such compliance to be determined on the basis of the Required Financial Information most recently delivered to the Administrative Agent and the Lender Parties as though such purchase or other acquisition had been consummated as of the first day of the fiscal period covered thereby and to give effect to all of the pro forma cost savings of the Borrower and its Subsidiaries that are to be recognized as a result of such purchase or other acquisition; and -111- (F) the Borrower shall have delivered to the Administrative Agent, on behalf of the Lender Parties, at least five Business Days prior to the date on which any such purchase or other acquisition is to be consummated, a certificate of a Senior Financial Officer, in form and substance reasonably satisfactory to the Administrative Agent, certifying that all of the requirements set forth in this clause (ix) have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition (and including a schedule that sets forth in reasonable detail all of the pro forma cost savings of the Borrower and its Subsidiaries that are to be recognized as a result of such purchase or other acquisition and all of the computations used by the Borrower in determining compliance with such requirements); and (x) Investments by the Borrower and its Subsidiaries not otherwise permitted under this Section 5.02(e) in an aggregate amount not to exceed the sum of (A) $15,000,000 and (B) the aggregate amount of all Permitted Affiliate Investments made in connection with all such Investments pursuant to this clause (x) at or prior to the time of such Investment; provided that, with respect to each Investment made pursuant to this clause (x): (1) such Investment shall not include or result in any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrower and its Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or persons performing similar functions) of the Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Senior Financial Officer); (2) such Investment shall be in property and assets which are part of, or in lines of business which are, substantially the same lines of business as one or more of the principal businesses of the Borrower and its Subsidiaries in the ordinary course; (3) any determination of the amount of such Investment shall include all cash and noncash consideration (including, without limitation, the Fair Market Value of all Equity Interests issued or transferred to the sellers thereof, all indemnities, earnouts and other contingent payment obligations to, and the aggregate amounts paid or to be paid under noncompete, consulting and other affiliated agreements with, the sellers thereof, all write-downs of property and assets and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith) paid by or on behalf of the Borrower and its Subsidiaries in connection with such Investment; and (4) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing. (f) Restricted Payments. Declare or pay any dividends on, or purchase, redeem, retire, defease or otherwise acquire for value, any of its Equity Interests, now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as -112- such, make any distribution of property, assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such, or issue or sell any Equity Interests therein or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Borrower, or to issue or sell any of its Equity Interests in order to acquire such Equity Interests, except that so long as no Default shall have occurred and be continuing at the time of any of the transactions described in clauses (iv), (v) (vi) or (vii) or would occur as a result thereof: (i) the Borrower may consummate the Recapitalization; (ii) the Borrower may issue and sell the Warrants to the purchasers of the Senior Subordinated Notes in accordance with the terms of the Senior Subordinated Notes Documents, and may issue and sell UIC Common Stock to the purchasers of the Senior Subordinated Notes upon the exercise of any of the Warrants in accordance with the terms of the Senior Subordinated Notes Documents; (iii) the Borrower may declare and make dividends and other distributions on its outstanding Equity Interests payable in UIC Common Stock or, solely in the case of the Permitted Preferred Stock, payable in additional shares of Permitted Preferred Stock; (iv) the Borrower may issue and sell additional UIC Common Stock so long as (A) the gross proceeds received from any such issuance and sale are at least equal to the Fair Market Value of the shares being so issued and sold, determined at the time of such issuance and sale, (B) either (1) all of the consideration received from any such issuance and sale shall be in cash or (2) such UIC Common Stock shall be issued and transferred as part of the noncash consideration paid for the purchase or other acquisition by the Borrower or any of its Subsidiaries of Equity Interests in, or property and assets of, another Person in a transaction otherwise permitted under Section 5.02(e)(ix) and (C) such issuance and sale would not result in a Change of Control; (v) the Borrower may issue and sell Permitted Preferred Stock so long as (A) the gross proceeds received from any such issuance and sale are at least equal to the Fair Market Value of the shares being so issued and sold, determined at the time of such issuance and sale, and (B) all of the consideration received from such sale shall be in cash; (vi) the Borrower may issue and sell UIC Common Stock, or warrants, rights or options to acquire UIC Common Stock, to one or more executives and managers of the Borrower and its Subsidiaries under any stock option plan or stock purchase plan adopted by the Borrower and its Subsidiaries so long as (A) the aggregate number of shares of UIC Common Stock so issued and sold (or subject to all warrants, rights and options so issued and sold) does not exceed 10% of the outstanding UIC Common Stock on the date of the related issuance and sale (on a fully diluted basis) and (B) the purchase price for any UIC Common Stock so issued and sold, or the exercise price for any warrants, rights or options so issued and sold, shall not be less than the Fair Market Value of the UIC Common Stock on the date of the issuance of such UIC Common Stock or such warrants, rights or options, as the case may be, and shall be paid in cash or with a loan or advance from the Borrower or its applicable Subsidiary otherwise permitted under Section 5.02(e)(vi); -113- (vii) the Borrower may redeem or repurchase UIC Common Stock, or warrants, rights or options to acquire UIC Common Stock, owned by retired, terminated, deceased or departing executives or managers of the Borrower or any of its Subsidiaries so long as the aggregate amount paid by the Borrower and its Subsidiaries for all such redemptions and repurchases shall not exceed the sum of (A) $5,000,000 and (B) the aggregate amount of all Permitted Affiliate Investments made in connection with all such redemptions and repurchases pursuant to this clause (vii) at or prior to the time of such redemption or repurchase; (viii) (A) the Borrower may accept capital contributions from the Equity Investors (and issue and sell additional UIC Common Stock and Permitted Preferred Stock to the applicable Equity Investors in consideration thereof) and (B) any of the Subsidiaries of the Borrower may accept capital contributions from their respective equity holders (and issue and sell additional common Equity Interests therein to their applicable equity holders in consideration thereof) so long as such capital contribution is not otherwise prohibited under Section 5.02(e); (ix) (A) any of the Subsidiaries of the Borrower may declare and pay or make dividends and other distributions in cash or in additional common Equity Interests therein, or issue or sell additional Equity Interests therein, to the Borrower or any of the Restricted Subsidiaries; provided that such additional common Equity Interests shall, to the extent required under the terms of the applicable Collateral Documents, be pledged as Collateral thereunder to the Administrative Agent, on behalf of the Secured Parties, immediately upon the issuance thereof and (B) any of the Unrestricted Subsidiaries may declare and make dividends and other distributions to any of the other Unrestricted Subsidiaries; and (x) any of the non-wholly owned Subsidiaries of the Borrower may declare and pay or make dividends and other distributions, and may issue and sell additional common Equity Interests therein, to its shareholders, partners or members (or the equivalent persons thereof) generally so long as the Borrower and each of the Restricted Subsidiaries that own any of the Equity Interests therein receive at least their respective proportionate shares of any such dividend, distribution or issuance of common Equity Interests (based upon their relative holdings of the Equity Interests therein and taking into account the relative preferences, if any, of the various classes of the Equity Interests therein). (g) Capital Expenditures. Make, or permit any of its Subsidiaries to make, any Capital Expenditures that would cause the aggregate amount of all such Capital Expenditures made by the Borrower and its Subsidiaries during any Fiscal Year to exceed $5,000,000; provided, however, that if, at the end of any Fiscal Year, the aggregate amount of all Capital Expenditures made by the Borrower and its Subsidiaries during such Fiscal Year is less than $5,000,000 (the amount of such difference being the "Carryover Capital Expenditure Amount"), then, notwithstanding the foregoing provision of this Section 5.02(g), the Borrower and its Subsidiaries shall be permitted to make additional Capital Expenditures during the next succeeding two Fiscal Years in an amount not to exceed the Carryover Capital Expenditure Amount, if any, from such Fiscal Year; provided further, however, that any Carryover Capital Expenditure Amount carried forward to the next two succeeding Fiscal Years shall be deemed to have been utilized to make Capital Expenditures prior to the utilization of the amount set forth above in this Section 5.02(g) for Capital Expenditures permitted to be made in such Fiscal Year, and may not be carried forward to any subsequent Fiscal -114- Years; and provided further, however, that (i) the Borrower shall be permitted to make additional Capital Expenditures during the Fiscal Year ending December 31, 1999 comprised solely of Indebtedness assumed or incurred thereby for the Capitalized Lease set forth in, and otherwise permitted under, Section 5.02(b)(ii)(E)(1) and (ii) no Capital Expenditures shall be made by the Borrower or any of its Subsidiaries on or after December 31, 2005 unless the Borrower and its Subsidiaries have (and then only to the extent of) any Carryover Capital Expenditure Amount from the two immediately preceding Fiscal Years. (h) Prepayments, Etc. of Indebtedness. (i) Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness other than: (A) the prepayment of Advances outstanding from time to time in accordance with the terms of this Agreement; (B) so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default shall have occurred and be continuing or shall occur as a result thereof, any regularly scheduled or required redemption, repurchase or repayment of Surviving Indebtedness; (C) the satisfaction of any Indebtedness incurred under Section 5.02(b)(ii)(D) or 5.02(b)(ii)(E) that is secured by a Lien on the property or assets of the Borrower or any of its Subsidiaries that incurred such Indebtedness, which property or assets are otherwise permitted to be disposed of under Section 5.02(d); (D) the regularly scheduled payment or required prepayment of any Indebtedness that is refunded, refinanced or replaced in accordance with Section 5.02(b)(ii)(L); (E) the prepayment, redemption, purchase, defeasance or other satisfaction of Indebtedness of any Person existing at the time such Person is purchased or otherwise acquired by the Borrower or any of its Subsidiaries to the extent that such prepayment, redemption, purchase, defeasance or other satisfaction is required by the terms of such Indebtedness (and not created in contemplation of the purchase or other acquisition of such Person by the Borrower or its applicable Subsidiary); provided that the purchase or other acquisition of such Person is otherwise expressly permitted under the terms of the Loan Documents; and (F) so long as no Default under Section 6.01(a) or 6.01(f) or Event of Default shall have occurred and be continuing or shall occur as a result thereof, the prepayment, redemption, purchase, defeasance or other satisfaction of Indebtedness of the Borrower or any of its Subsidiaries (other than the Senior Subordinated Notes) (1) if the Performance Level at the time of such prepayment, redemption, purchase, defeasance or other satisfaction is Performance Level I or Performance Level II, with any Excess Cash Flow that, under the terms of this Agreement, is available to the Borrower from one or more prior Fiscal Years and (2) if the Performance Level is Performance Level III or Performance Level IV, with up to $5,000,000 of the aggregate amount of Excess Cash Flow that, under the terms of this Agreement, is available to the Borrower from one or more prior Fiscal Years; -115- (ii) Amend, modify or change in any manner any of the terms or conditions of any of the Surviving Indebtedness, the Senior Subordinated Notes Documents or the Permitted Preferred Stock Documents, except (A) as could not adversely affect the rights or interests of the Lender Parties or (B) as otherwise expressly permitted under Section 5.02(b)(ii)(L); or (iii) Permit any of its Subsidiaries to do any of the foregoing, other than to prepay any Indebtedness payable to the Borrower or, subject to the terms of the Pledged Indebtedness, the Restricted Subsidiaries. (i) Negative Pledge. Enter into or suffer to exist, or permit any of its Subsidiaries to enter into or suffer to exist, any agreement prohibiting or conditioning the creation or assumption of any Lien upon any of its property or assets other than: (i) any such agreement with or in favor of the Secured Parties or the Administrative Agent, on behalf of the Secured Parties; (ii) any such agreement with or in favor of the holders of the Senior Subordinated Notes or the trustee for the Senior Subordinated Notes, on behalf of the holders thereof, in each case as such agreement was in effect under the Note Purchase Agreement on the Closing Date; (iii) in connection with (A) any Surviving Indebtedness to the extent such agreement is in effect on the Closing Date, (B) any Indebtedness otherwise permitted to be incurred under Section 5.02(b)(ii)(L) to the extent such agreement is on terms that are no less favorable to the Borrower or any of its Subsidiaries or to the Lender Parties than the terms in effect for the Indebtedness being refunded, refinanced or replaced immediately prior to effecting such refunding, refinancing or replacement and (C) any Indebtedness outstanding on the date any Person first becomes a Subsidiary of the Borrower; provided that such agreement was not created in contemplation of the purchase or other acquisition of such Person and does not extend to or cover any property or assets other than property and assets of the Person becoming such Subsidiary; (iv) any such agreement prohibiting other encumbrances on specific property and assets of the Borrower or any of its Subsidiaries, which agreement secures the payment of Indebtedness incurred solely to acquire, construct or improve such property or assets or to finance the purchase price therefor (including, without limitation, Capitalized Leases) and which Indebtedness is otherwise permitted to be incurred under the terms of this Agreement; (v) any such agreement with or in favor of the holders of the Indebtedness of one or more of the Foreign Subsidiaries (or any agent for the holders of such Indebtedness) incurred pursuant to Section 5.02(b)(ii)(H); (vi) any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; and (vii) any restriction or encumbrance imposed pursuant to an agreement that has been entered into by the Borrower or any of its Subsidiaries for the sale, lease, transfer or -116- other disposition of any of its property or assets so long as such sale, lease, transfer or other disposition is otherwise permitted to be made under Section 5.02(d). (j) Dividends and Other Payment Restrictions Affecting Subsidiaries. Enter into, create, assume or otherwise suffer to exist or become effective, or permit any of its Subsidiaries to enter into, create, assume or otherwise suffer to exist or become effective, directly or indirectly, any encumbrance or restriction of any kind on the ability of any of its Subsidiaries (i) to pay dividends or to make any other distributions on any of the Equity Interests in such Subsidiary owned or otherwise held by the Borrower or any of its Subsidiaries, (ii) to repay or prepay or to subordinate any Indebtedness owed to the Borrower or any of its Subsidiaries, (iii) to make loans or advances to the Borrower or any of its Subsidiaries, (iv) to transfer any of its property or assets to the Borrower or any of its Subsidiaries or (v) to otherwise make Investments in the Borrower or any of its Subsidiaries (whether through a covenant restricting dividends, loans, asset transfers or investments, a financial covenant or otherwise); provided, however, that nothing in any of clauses (i) through (iv) of this Section 5.02(j) shall prohibit or restrict: (A) this Agreement and the other Loan Documents; (B) any agreements in effect on the Closing Date and described on Schedule 5.02(j) hereto; (C) any applicable law, rule or regulation (including, without limitation, applicable currency control laws and applicable state corporate statutes restricting the payment of dividends in certain circumstances) or Governmental Authorization; (D) in the case of clause (iv) of this Section 5.02(j), any agreement setting forth customary restrictions on the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract of similar property or assets; (E) in the case of clause (iv) of this Section 5.02(j), any agreement with the holder of a Lien otherwise permitted to exist under Section 5.02(a)(iv) or 5.02(a)(v) restricting on customary terms the transfer of any property or assets subject thereto; (F) any such agreement with or in favor of the holders of the Indebtedness of one or more of the Foreign Subsidiaries (or any agent for the holders of such Indebtedness) incurred pursuant to Section 5.02(b)(ii)(H); provided that any such restrictions set forth therein shall not apply to any of the Loan Parties or any of their Subsidiaries (other than one or more of the Foreign Subsidiaries); (G) any agreement evidencing Indebtedness outstanding on the date a Person first becomes a Subsidiary of the Borrower; provided that such agreement was not created in contemplation of the purchase or other acquisition of such Person by the Borrower or any of its Subsidiaries and does not extend to or cover any property or assets other than the property or assets of the Person becoming such Subsidiary; -117- (H) any agreement evidencing or setting forth the terms of any refunding, refinancing or replacement Indebtedness otherwise permitted to be incurred under Section 5.02(b)(ii)(L) that contains any such restrictions to the extent such restrictions are no less favorable to the Borrower or any of its Subsidiaries or to the Lender Parties than the terms in effect in the Indebtedness being so refunded, refinanced or replaced immediately prior to such refunding, refinancing or replacement; and (I) any agreement that has been entered into by the Borrower or any of its Subsidiaries for the sale, lease, transfer or other disposition of any of its property or assets so long as such sale, lease, transfer or other disposition is otherwise permitted to be made under Section 5.02(d). (k) New Subsidiaries. Create, organize, incorporate or acquire any Subsidiary (each a "New Subsidiary"), or permit any of its Subsidiaries to create, organize, incorporate or acquire any New Subsidiary, unless: (i) either (A) such New Subsidiary constitutes a Restricted Subsidiary or (B) if such New Subsidiary does not constitute a Restricted Subsidiary, all Investments necessary for the creation, organization, incorporation or acquisition of such New Subsidiary are otherwise permitted to be made pursuant to Section 5.02(e)(x); (ii) the Administrative Agent shall have approved the legal structure (if other than a corporation, limited partnership or limited liability company organized under the laws of any state of the United States of America) and capitalization of such New Subsidiary, such approval not to be unreasonably withheld or delayed; (iii) such New Subsidiary shall execute and deliver to the Administrative Agent, on behalf of the Secured Parties, promptly following the date of its creation, organization, incorporation or acquisition, (A) if such New Subsidiary constitutes a Restricted Subsidiary, either a guarantee, in substantially the form of Exhibit I hereto (together with each Guarantee Supplement, in each case as amended, supplemented or otherwise modified hereafter from time to time in accordance with the terms thereof and Section 8.01, the "Subsidiaries Guarantee") or a Guarantee Supplement, a Security Agreement Supplement and, if necessary or in the reasonable opinion of the Administrative Agent desirable to properly create and perfect a lien and security interest in the Equity Interests in, or the property and assets of, such New Subsidiary, one or more other mortgages, security agreements or pledge agreements (or other similar documents), in each case in form and substance reasonably satisfactory to the Lender Parties, all duly executed by such New Subsidiary, (B) if such New Subsidiary constitutes a Foreign Corporation, such documentation as may be necessary or in the reasonable opinion of the Administrative Agent desirable to properly create and perfect a lien and security interest in the Equity Interests of such Foreign Corporation referred to in clause (v) of this Section 5.02(k), duly executed by such New Subsidiary and (C) in each case, such other agreements, instruments, certificates or documents as the Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to the Lender Parties; (iv) if such New Subsidiary constitutes a Restricted Subsidiary, such New Subsidiary and the owners of all of the Equity Interests therein shall have taken or shall take -118- all of the other actions that may be necessary or that the Administrative Agent may reasonably deem desirable in order (A) to perfect and protect any Liens granted under the Security Agreement, the Security Agreement Supplement and the other mortgages, security agreements and pledge agreements referred to in Section 5.01(k) and clause (iii) of this Section 5.02(k) and (B) to enable the Administrative Agent and the Lender Parties to exercise and enforce their rights and remedies under the Loan Documents; (v) if such New Subsidiary constitutes a Foreign Corporation, such New Subsidiary and the Borrower and each of the Restricted Subsidiaries that own any of the Equity Interests therein shall have taken or shall take all of the other actions that may be necessary or that the Administrative Agent may reasonably deem desirable in order to perfect and protect any Liens granted or intended to be granted under the Collateral Documents in 66% of the Equity Interests in such New Subsidiary entitled to vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2) promulgated under the Internal Revenue Code) (the "Voting Equity Interests") (on a fully diluted basis) or, if less, all of the Voting Equity Interests in such New Subsidiary owned by the Borrower and/or the Restricted Subsidiaries, and all of the Equity Interests in such New Subsidiary not entitled to vote (within the meaning of Treasury Regulation Section 1.956-2(c)(2) promulgated under the Internal Revenue Code) now or hereafter owned by the Borrower and/or the Restricted Subsidiaries; provided, however, that, if as a result of any changes in the tax laws of the United States of America after the date of this Agreement the pledge by the Borrower or any of its Subsidiaries of any additional Equity Interests in such New Subsidiary to the Administrative Agent, on behalf of the Secured Parties, would not result in an increase in the aggregate net consolidated tax liabilities of the Borrower and its Subsidiaries, then, promptly after the changes in such laws, all such additional Equity Interests shall be pledged to the Administrative Agent, on behalf of the Secured Parties, pursuant to the terms and conditions of the Collateral Documents and/or one or more additional pledge agreements (or other similar documents), in form and substance reasonably acceptable to the Lender Parties; and (vi) upon the reasonable request of the Administrative Agent, signed copies of one or more favorable opinions of special and appropriate local and/or foreign counsel for such New Subsidiary and, if appropriate, counsel for each of the owners of the Equity Interests therein as the Administrative Agent shall reasonably request, addressed to the Administrative Agent, on behalf of the Secured Parties, and reasonably acceptable to the Administrative Agent and each of the other Secured Parties, as to the Subsidiaries Guarantee or the Guarantee Supplement, as the case may be, the Security Agreement Supplement and, if applicable, one or more other mortgages, security agreements, pledge agreements, assignment agreements (or other similar documents) referred to in clause (ii) of this Section 5.02(k) being the legal, valid and binding obligations of such New Subsidiary or such owners of the Equity Interests therein, as the case may be, enforceable against such New Subsidiary or each such owner in accordance with their respective terms, as to the creation, perfection and priority of the liens and security interests created or purported to be created therein, as to the choice of New York law being recognized in the courts of the jurisdiction in which such New Subsidiary is organized and as such other matters as the Administrative Agent, or any of the Lenders through the Administrative Agent, may reasonably request. -119- (l) Change in Nature of Business. Make, or permit any of its Subsidiaries to make, any change in the nature of its business that would cause the Borrower or such Subsidiary to no longer be primarily engaged in one or more of the businesses engaged in by the Borrower and its Subsidiaries on the date of this Agreement. (m) Amendments to Constitutive Documents. Amend, or permit any of its Subsidiaries to amend, its Constitutive Documents, except where such amendment, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect or to adversely affect the rights or interests of the Lender Parties; provided that copies of any such amendment to the Constitutive Documents of the Borrower or any such Subsidiary shall be delivered to the Administrative Agent at least three Business Days prior to the date on which such amendment is intended to become effective. (n) Accounting Changes, Etc. Make or permit, or permit any of its Subsidiaries to make or permit, any change in (i) its accounting policies or reporting practices, except as required by GAAP in effect at the time of such change or by applicable Requirements of Law, or (ii) its Fiscal Year. (o) Amendments, Etc. of Related Documents. Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of any Related Document, agree in any manner to any other amendment, modification or change of any term or condition of any Related Document, or take any other action in connection with any Related Document that, in each of the foregoing cases under this Section 5.02(o), either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or permit any of its Subsidiaries to do any of the foregoing; provided, however, that, notwithstanding the foregoing provisions of this Section 5.02(o), no amendment, modification or change of any term or condition of (i) any of the Related Documents, and no consent, waiver or approval thereunder, shall be given on or prior to the Closing Date without the prior written consent of all of the Lender Parties and (ii) Sections 2.1, 8.1 and 8.3 of the Recapitalization Agreement, Section 3 of the Reorganization Agreement or any of the terms of the THL Subordination Agreement shall be made at any time without the prior written consent of the Required Lenders. (p) Partnerships, Etc. Be or become a general partner in any general or limited partnership or joint venture, or permit any of its Subsidiaries to do so, other than any Subsidiary the sole assets of which consist of its interest in one or more of such partnerships or joint ventures. (q) Speculative Transactions. Engage, or permit any of its Subsidiaries to engage, in any transaction involving commodity options or futures contracts or any similar speculative transactions. SECTION 5.03. Reporting Requirements. So long as any of the Advances or any of the other Obligations of any Loan Party under or in respect of any of the Loan Documents (other than any such Obligations of any of the Loan Parties under Section 2.10, 2.12 or 8.04 (or other similar provisions of the other Loan Documents that are specified under the terms thereof to survive the payment in full of such other Obligations under or in respect of the Loan Documents) to the extent no demand or claim thereunder has been made) shall remain unpaid, any of the Letters of Credit shall remain outstanding or any of the Lender -120- Parties shall have any Commitment hereunder, the Borrower will furnish to the Administrative Agent and the Lender Parties: (a) Default Notices. As soon as possible and in any event within three Business Days after the occurrence of each Default or any event, development or occurrence that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect continuing on the date of such statement, a statement of a Responsible Officer of the Borrower setting forth the details of such Default or such event, development or occurrence (including, without limitation, the anticipated effect thereof), the period of time such Default or such event, development or occurrence has existed and been continuing and the action that the Borrower has taken and/or proposes to take with respect thereto. (b) Monthly Financials. During the period commencing on the Closing Date and ending on May 20, 1999 (or such later date as the Borrower agrees to continue to deliver monthly financial information to the holders of the Senior Subordinated Notes), as soon as available and in any event within 30 days after the end of the first two months of each Fiscal Quarter, a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such month and Consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous month and ending with the end of such month and for the period commencing at the end of the previous Fiscal Year and ending with the end of such month, setting forth in comparative form, in the case of each such Consolidated balance sheet, the corresponding figures as of the last day of the corresponding month in the immediately preceding Fiscal Year and, in the case of each such Consolidated statement of income, stockholders' equity and cash flows, the corresponding figures for the corresponding month in the immediately preceding Fiscal Year, all in reasonable detail, together with a certificate of a Senior Financial Officer, in form and substance reasonably satisfactory to the Administrative Agent, duly certifying that, subject to the absence of footnote disclosure and normal year-end audit adjustments, (i) the Consolidated financial statements of the Borrower and its Subsidiaries delivered with such certificate fairly present in all material respects the Consolidated financial condition of the Borrower and its Subsidiaries as of the last day of such month and the Consolidated results of operations and cash flows of the Borrower and its Subsidiaries for the month ended on such date and (ii) the Consolidated financial statements of the Borrower and its Subsidiaries delivered with such certificate have been prepared in accordance with GAAP (or a reconciliation statement has been delivered together therewith conforming such Consolidated financial statements to GAAP). (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, a Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such Fiscal Quarter and Consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous Fiscal Quarter and ending with the end of such Fiscal Quarter and for the period commencing at the end of the previous Fiscal Year and ending with the end of such Fiscal Quarter, setting forth in comparative form, in the case of each such Consolidated balance sheet, the corresponding figures as of the last day of the corresponding period in the immediately preceding Fiscal Year and, in the case of each such Consolidated statement of income, stockholders' equity and cash flows, the corresponding figures for the corresponding period in the immediately preceding Fiscal Year, all in reasonable detail. -121- (d) Annual Financials. As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual audit report for such Fiscal Year for the Borrower and its Subsidiaries, including therein the Consolidated balance sheets of the Borrower and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such Fiscal Year, accompanied by an unqualified opinion or an opinion otherwise reasonably acceptable to the Required Lenders of PriceWaterhouseCoopers LLP or other independent public accountants of nationally recognized standing, setting forth in comparative form, in the case of each such Consolidated balance sheet, the corresponding figures as of the last day of the immediately preceding Fiscal Year, and, in the case of each such Consolidated statement of income, stockholders' equity and cash flows, the corresponding figures for the corresponding period in the immediately preceding Fiscal Year, together with (i) either (A) a letter from PriceWaterhouseCoopers LLP or such independent public accountants of nationally recognized standing stating that, in the course of their regular audit of the Consolidated financial statements of the Borrower and its Subsidiaries, which audit was conducted by such accountants in accordance with generally accepted auditing standards, such accountants have not obtained any knowledge that a Default has occurred and is continuing or if, in the opinion of such accountants, a Default has occurred and is continuing, a statement as to the status and nature thereof or (B) a schedule in form satisfactory to the Administrative Agent of the computations used by such accountants in determining, as of the end of such Fiscal Year, the amount of Excess Cash Flow, if any, for such Fiscal Year and compliance with the covenants contained in Sections 5.02(g) and 5.04 (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Section, and the calculation of the amount, ratio or percentage then in existence) and (ii) in the event of any change in the generally accepted accounting principles used by such accountants in the preparation of the Consolidated financial statements of the Borrower and its Subsidiaries referred to above in this Section 5.03(d) from GAAP, such accountants shall also provide a reasonably detailed description of such changes and, if and to the extent necessary for the determination of compliance with Section 5.02(g) or 5.04, a statement of reconciliation conforming such Consolidated financial statements to GAAP. (e) Compliance Certificate. Together with each delivery to the Administrative Agent and Lender Parties of the Consolidated financial statements of the Borrower and its Subsidiaries referred to in Sections 5.03(c) and 5.03(d), a certificate of a Senior Financial Officer, in form and substance reasonably satisfactory to the Administrative Agent: (i) duly certifying that, subject, in the case of any such Consolidated financial statements delivered to the Administrative Agent and the Lender Parties pursuant to Section 5.03(c), to the absence of footnote disclosure and normal year-end audit adjustments, (A) the Consolidated financial statements of the Borrower and its Subsidiaries delivered with such certificate fairly present in all material respects the Consolidated financial condition of the Borrower and its Subsidiaries as of the last day of such Fiscal Quarter or such Fiscal Year, as the case may be, and the Consolidated results of operations and cash flows of the Borrower and its Subsidiaries for the Fiscal Quarter or the Fiscal Year ended on such date and (B) the Consolidated financial statements of the Borrower and its Subsidiaries delivered with such certificate have been prepared in accordance with GAAP (or a reconciliation statement has been delivered together therewith conforming such Consolidated financial statements to GAAP); -122- (ii) duly certifying that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof, the period of time such Default has existed and been continuing and the action that the Borrower has taken and/or proposes to take with respect thereto; (iii) setting forth a schedule of the computations used by the Borrower in determining compliance with the covenants contained in Sections 5.02(g) and 5.04 (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Section, and the calculation of the amount, ratio or percentage then in existence) and, in the case of any such Consolidated financial statements delivered to the Administrative Agent and the Lender Parties pursuant to Section 5.03(d), the amount of Excess Cash Flow for the Fiscal Year covered thereby; and (iv) in the case of any such Consolidated financial statements delivered to the Administrative Agent and the Lender Parties pursuant to Section 5.03(c), setting forth (A) a description in reasonable detail of all of the changes in the generally accepted accounting principles applied in the preparation of such financial statements from GAAP and (B) a statement of reconciliation, if and to the extent necessary for determining whether any of the changes in the generally accepted accounting principles applied in the preparation of such financial statements would affect the calculation of, or compliance with, Sections 5.02(g) or 5.04, conforming such Consolidated financial statements to GAAP. (f) Forecasts. As soon as available and in any event at least ten days prior to the first day of each Fiscal Year, commencing with the Fiscal Year ending December 31, 1999, Consolidated forecasts prepared by management of the Borrower of balance sheets and statements of income, stockholders' equity and cash flows on a quarterly basis for such Fiscal Year, in the form of the forecasts delivered by the Borrower pursuant to Section 3.01(k)(xiii)(D) or otherwise in a form reasonably satisfactory to the Administrative Agent and setting forth in comparative form the corresponding figures for the immediately preceding Fiscal Year. (g) Schedule Updates. Promptly and in any event within 30 days of the end of each Fiscal Quarter and together with any amendment, waiver or other modification of any of the Loan Documents, amendments and supplements to Schedules 4.01(dd) and 4.01(ee) to this Agreement, Schedules III and IV to the Security Agreement and such other Schedules to any of the Loan Documents as the Administrative Agent shall reasonably request, in each case so as to ensure that, at the time of the delivery of such amendments and supplements, such Schedules are accurate and complete as to the subject matter thereof. (h) Accountants' Letters, Etc. Promptly upon receipt thereof, copies of all "management letters" submitted to the Borrower or any of its Subsidiaries by any independent public accountants of the Borrower or any of its Subsidiaries in connection with each annual audit of its financial statements made by such accountants. (i) Licenses, Etc. Promptly and in any event within five Business Days after receipt thereof, notice of any actual, pending or threatened suspension, termination or revocation of any of the Governmental Authorizations of any of the Loan Parties or any of their Subsidiaries that is necessary to own or lease and operate their respective property and assets and to conduct their -123- respective businesses as now conducted and as proposed to be conducted, or any enjoinment, barring or suspension of the ability of any Loan Party or any such Subsidiary to conduct any of its businesses in the ordinary course. (j) Litigation. Promptly and in any event within five Business Days after the commencement thereof, notice of all actions, suits, investigations, litigation, arbitrations and proceedings against or affecting any of the Loan Parties or any of their Subsidiaries or any of the property or assets thereof in any court or before any arbitrator or by or before any Governmental Authority of any kind (i) in which there is a reasonable likelihood of an adverse determination and that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect (other than the Disclosed Litigation) or (ii) that could reasonably be expected to adversely affect the legality, validity, binding effect or enforceability of any aspect of the Transaction, any of the Loan Documents or the Related Documents or any of the other transactions contemplated thereby; and promptly after the occurrence thereof, notice of any adverse change in the status, or in the reasonably anticipated financial effect on the Borrower or any of its Subsidiaries, of any such action, suit, investigation, litigation, arbitration or proceeding or of any of the Disclosed Litigation (and, in each case, upon the reasonable request of the Administrative Agent, any other information available to any of the Loan Parties or any of their Subsidiaries with respect to any of the foregoing that would enable the Administrative Agent and the Lender Parties to more fully evaluate such action, suit, investigation, litigation, arbitration or proceeding, unless the applicable Loan Party or Subsidiary of a Loan Party is precluded from disclosing any such report or statement pursuant to a confidentiality agreement with the applicable Governmental Authority). (k) Related Document Notices. Promptly and in any event within five Business Days after the furnishing or receipt thereof, copies of all documents and all material notices and requests furnished or received by the Borrower or any of its Subsidiaries under or pursuant to any of the Related Documents and, from time to time upon the reasonable request of the Administrative Agent, such information and reports regarding the Related Documents as the Administrative Agent, or any of the Lender Parties through the Administrative Agent, may reasonably request. (l) Securities Reports, Etc. Promptly and in any event within five Business Days after the sending or filing thereof, copies of all proxy statements, financial statements, change reports and other reports that the Borrower or any of its Subsidiaries sends to its stockholders, partners or members (or equivalent persons thereto), and copies of all regular, periodic and special reports and information forms, and all registration statements, prospectuses and information memoranda, that the Borrower or any of its Subsidiaries files with the Securities and Exchange Commission or any Governmental Authority that may be substituted therefor, or with any national or international securities exchange, and copies of all private placement or offering memoranda pursuant to which securities of the Borrower or any of its Subsidiaries that are exempt from registration under the Securities Act are proposed to be issued and sold thereby. (m) Creditor Reports. Promptly and in any event within three Business Days after the furnishing or receipt thereof, copies of any statement or report furnished to or received from any other holder of the securities of the Borrower or any of its Subsidiaries pursuant to the terms of any indenture, loan or credit agreement, receivables purchase agreement or similar agreement of the Borrower or any of its Subsidiaries with amounts outstanding or having commitments to extend credit in an aggregate principal amount of at least $1,000,000 (including, without limitation, any amendments, waivers or consents given or requested in respect thereof and any notices of default, -124- acceleration or redemption delivered thereunder) and not otherwise required to be furnished to the Administrative Agent and the Lender Parties pursuant to any other clause of this Section 5.03. (n) ERISA Events and ERISA Reports; Plan Terminations, Etc. (i) Promptly and in any event within 15 days after any of the Loan Parties or any of the ERISA Affiliates knows or has reason to know that any material ERISA Event has occurred, a statement of a Responsible Officer of the Borrower describing such material ERISA Event and the action, if any, that the Borrower, such other applicable Loan Party or such ERISA Affiliate has taken and/or proposes to take with respect thereto, together with materials or information filed or to be filed with any Governmental Authority or any trustee for any Plan as a result of such material ERISA Event; (ii) on the date on which any records, documents or other information must be furnished to the PBGC with respect to any Plan pursuant to Section 4010 of ERISA, a copy of such records, documents and information; (iii) promptly and in any event within two Business Days after receipt thereof by any of the Loan Parties or any of the ERISA Affiliates, copies of each notice from the PBGC stating its intention to terminate any Plan or to have a trustee appointed to administer any Plan; (iv) promptly following the request of the Administrative Agent, or any of the Lender Parties through the Administrative Agent, therefor, a copy of the most recent Schedule B (Actuarial Information) to the annual report (form 5500) with respect to each of the Plans; and (v) promptly and in any event within 15 Business Days after receipt thereof by any of the Loan Parties or any of the ERISA Affiliates from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that could reasonably be expected to be incurred, by such Loan Party or any such ERISA Affiliate in connection with any event described in subclause (v)(A) or (v)(B) of this Section 5.03(n). (o) Tax Reports and Notices. (i) Within ten Business Days after receipt thereof, copies of all Revenue Agent Reports (Internal Revenue Service form 886) or other written proposals of the Internal Revenue Service that propose, determine or otherwise set forth adjustments (whether positive or negative) to the United States federal income tax liability of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which the Borrower is a member aggregating $2,500,000 or more; (ii) promptly and in any event within five Business Days after the due date (after giving effect to all applicable extensions) for filing the final federal income tax return in respect of each taxable year of the Borrower, a certificate of the Borrower, duly executed by a Responsible Officer thereof, stating that the common parent of the affiliated group (within the meaning of Section 1504(a)(1) of the Internal Revenue Code) of which the Borrower is a member has paid to the Internal Revenue Service or other relevant taxation authority the full amount that such affiliated group is required to pay in respect of United States federal income taxes for such taxable year (other than any portion of such amount which is being contested in good faith and by proper proceedings diligently conducted and as to which appropriate and adequate reserves are being maintained in accordance with GAAP) and that the Borrower and each of its Subsidiaries have received any amount payable to them, and have not paid amounts in respect of taxes (federal, state, local or foreign) in excess of the amount the Borrower or such Subsidiary is required to pay, under the established tax sharing arrangements of the Borrower and its Affiliates in respect of such taxable year; and (iii) promptly and in any event within ten Business Days after receipt thereof, copies of the determination of any request for a ruling or determination letter from the Internal Revenue Service or any other taxation authority or Governmental Authority regarding the actual or asserted tax liability or deficiency of the Borrower or any of its Subsidiaries. -125- (p) Environmental Conditions. Promptly and in any event within five Business Days after the assertion or occurrence thereof: (i) notice of any condition or occurrence on or arising from any property owned or operated by the Borrower or any of its Subsidiaries that resulted or is alleged to have resulted in noncompliance in any material respect by the Borrower or such Subsidiary with any applicable Environmental Law or Environmental Permit; (ii) any condition or occurrence on any property owned or operated by the Borrower or any of its Subsidiaries that could reasonably be expected to cause such property to be subject to any material restrictions on the ownership, occupancy or use thereof or on the transferability of such property by the Borrower or its applicable Subsidiary under any Environmental Law; and (iii) the taking of any removal or remedial action involving material costs or liabilities in response to the actual or alleged presence of any Hazardous Material on any property owned or operated by the Borrower or any of its Subsidiaries as required by any Environmental Law, any Environmental Permit or any Governmental Authority. All such notices shall describe in reasonable detail the nature of the condition, occurrence, removal or remedial action described therein, the period of time such condition or circumstance has existed and been continuing and, in the case of each such condition or occurrence, the action that the Borrower or its applicable Subsidiary has taken and/or proposes to take with respect thereto. (q) Insurance. As soon as available and in any event within 30 days after the end of each Fiscal Year, commencing with the Fiscal Year ending December 31, 1999, a report summarizing the insurance coverage in effect for the Borrower and each of its Subsidiaries, specifying therein the type, carrier, amount, deductibles and co-insurance requirements and expiration dates thereof and containing such additional information as any of the Lender Parties, through the Administrative Agent, may reasonably request. (r) Year 2000 Compliance. Promptly upon the discovery or determination thereof by any Responsible Officer of the Borrower, notice (in reasonable detail) of any computer application (including any such computer application of its or any of its Subsidiary's suppliers, vendors and customers) that will not be able on a timely basis to perform properly date-sensitive functions for all dates before and after January 1, 2000, except to the extent that such failure, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. (s) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, liabilities (actual or contingent), performance, properties or prospects of the Borrower or any of its Subsidiaries as any of the Lender Parties, through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any of the Advances or any of the other Obligations of any Loan Party under or in respect of any of the Loan Documents (other than any such Obligations of any of the Loan Parties under Section 2.10, 2.12 or 8.04 (or other similar provisions of the other Loan Documents that are specified under the terms thereof to survive the payment in full of such other Obligations under or in respect of the Loan Documents) to the extent no demand or claim thereunder has -126- been made) shall remain unpaid, any of the Letters of Credit shall remain outstanding or any of the Lender Parties shall have any Commitment hereunder, the Borrower will: (a) Leverage Ratio. Maintain a Leverage Ratio at all times of not more than the amount set forth below for and during the period set forth below:
Period Ratio ------ ------ January 20, 1999 through March 30, 1999 6.60:1 March 31, 1999 through June 29, 1999 6.30:1 June 30, 1999 through September 29, 1999 6.30:1 September 30, 1999 through December 30, 1999 5.75:1 December 31, 1999 through March 30, 2000 5.75:1 March 31, 2000 through June 29, 2000 5.75:1 June 30, 2000 through September 29, 2000 5.75:1 September 30, 2000 through December 30, 2000 5.25:1 December 31, 2000 through March 30, 2001 5.00:1 March 31, 2001 through June 29, 2001 5.00:1 June 30, 2001 through September 29, 2001 5.00:1 September 30, 2001 through December 30, 2001 4.50:1 December 31, 2001 through March 30, 2002 4.50:1 -127- Period Ratio ------ ------ March 31, 2002 through June 29, 2002 4.50:1 June 30, 2002 through September 29, 2002 4.50:1 September 30, 2002 through December 30, 2002 4.00:1 December 31, 2002 through March 30, 2003 4.00:1 March 31, 2003 through June 29, 2003 4.00:1 June 30, 2003 through September 29, 2003 4.00:1 September 30, 2003 and thereafter 3.50:1
(b) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage Ratio as of the last day of each Measurement Period of not less than the amount set forth below for each Measurement Period set forth below:
Measurement Period Ending In Ratio ------------------ ------ March 1999 1.15:1 June 1999 1.15:1 September 1999 1.15:1 December 1999 1.15:1 March 2000 1.20:1 June 2000 1.20:1 September 2000 1.20:1 December 2000 1.20:1 March 2001 1.35:1 June 2001 1.35:1 September 2001 1.35:1 December 2001 1.35:1
-128-
Measurement Period Ending In Ratio ------------------ ------ March 2002 1.40:1 June 2002 1.40:1 September 2002 1.40:1 December 2002 1.40:1 March 2003 and thereafter 1.50:1
(c) Interest Coverage Ratio. Maintain an Interest Coverage Ratio as of the last day of each Measurement Period of not less than the amount set forth below for each Measurement Period set forth below:
Measurement Period Ending In Ratio ------------------ ------ March 1999 1.60:1 June 1999 1.60:1 September 1999 1.60:1 December 1999 1.60:1 March 2000 1.70:1 June 2000 1.70:1 September 2000 1.75:1 December 2000 1.75:1 March 2001 1.85:1 June 2001 1.85:1 September 2001 2.00:1 December 2001 2.00:1 March 2002 2.00:1 June 2002 2.20:1
-129-
Measurement Period Ending In Ratio ------------------ ------ September 2002 2.25:1 December 2002 2.25:1 March 2003 2.40:1 June 2003 2.40:1 September 2003 2.50:1 December 2003 2.50:1 March 2004 2.75:1 June 2004 2.75:1 September 2004 2.75:1 December 2004 2.75:1 March 2005 and 3.00:1 thereafter
ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) the Borrower shall fail to pay any principal of any Advance when the same shall become due and payable, whether by scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise, or (ii) the Borrower shall fail to pay any interest on any Advances, or any of the Loan Parties shall fail to make any other payment under or in respect of any of the Loan Documents required to have been made by it, in each case whether by scheduled maturity or at a date fixed for prepayment or by acceleration, demand or otherwise and, in each case under this clause (ii), such failure remains unremedied for at least three Business Days after the same becomes due and payable; or (b) any representation or warranty made by any of the Loan Parties (or any of their respective officers) under or in connection with any of the Loan Documents (including, without limitation, in any certificate, report, statement or other writing at any time furnished (or deemed to have been furnished) to the Administrative Agent or any of the Lender Parties by or on behalf of any -130- of the Loan Parties) shall prove to have been incorrect in any material respect on the date as of which it was made or deemed made; or (c) (i) the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.15, 5.01(b)(i), 5.01(e), 5.01(i) or 5.01(j), any of subclauses (A) through (D) of Section 5.01(k) or Section 5.02, 5.03 or 5.04 on its part to be performed or observed or (ii) any of the Loan Parties shall fail to perform or observe any term, covenant or agreement contained in Section 4 of the Subsidiaries Guarantee or Section 4, 5 or 10(a) or any of Sections 11, 12, 13, 14(a)(i), 14(b), 15(a), 15(b), 15(c) or 16 of the Security Agreement on its part to be performed or observed; or (d) any of the Loan Parties shall fail to perform or observe any term, covenant or agreement contained in any of the Loan Documents on its part to be performed or observed that is not otherwise referred to in Section 6.01(c) if such failure shall remain unremedied for at least ten consecutive days after the earlier of the date on which (i) a Responsible Officer of the Borrower or any of its Subsidiaries first becomes aware of such failure and (ii) written notice thereof shall have been given to the Borrower by the Administrative Agent or any of the Lender Parties; or (e) (i) any of the Loan Parties or any of their Subsidiaries shall fail to pay any principal of, premium or interest on, or any other amount payable in respect of, one or more items of Indebtedness of the Loan Parties and their Subsidiaries (excluding Indebtedness outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal amount (or, in the case of any Hedge Agreement, having an Agreement Value) of at least $5,000,000 at the time of such failure, when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreements or instruments relating to all such Indebtedness; or (ii) any other event shall occur or condition shall exist under the agreements or instruments relating to one or more items of Indebtedness of any of the Loan Parties or any of their Subsidiaries (excluding Indebtedness outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal amount (or, in the case of any Hedge Agreement, having an Agreement Value) of at least $5,000,000 at the time of such other event or condition, and shall continue after the applicable grace period, if any, specified in all such agreements or instruments, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness or otherwise to cause, or to permit the holder thereof to cause, such Indebtedness to mature; or (iii) one or more items of Indebtedness of any of the Loan Parties or any of their Subsidiaries (excluding Indebtedness outstanding hereunder) that is outstanding (or under which one or more Persons have a commitment to extend credit) in an aggregate principal amount (or, in the case of any Hedge Agreement, having an Agreement Value) of at least $5,000,000 shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled or required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Indebtedness shall be required to be made, in each case prior to the stated maturity thereof; or (f) any of the Loan Parties or any of their Subsidiaries shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any of the Loan Parties or any of their Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, -131- arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, administrator or other similar official for it or for any substantial part of its property and assets and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of at least 45 consecutive days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property and assets) shall occur; or any event or action analogous to or having a substantially similar effect to any of the events or actions set forth above in this Section 6.01(f) (other than a solvent reorganization) shall occur under the Requirements of Law of any jurisdiction applicable to any of the Loan Parties or any of their Subsidiaries; or any of the Loan Parties or any of their Subsidiaries shall take any corporate, partnership, limited liability company or other similar action to authorize any of the actions set forth above in this Section 6.01(f); or (g) one or more judgments or orders for the payment of money in excess of $5,000,000 in the aggregate shall be rendered against one or more of the Loan Parties and their Subsidiaries and shall remain unsatisfied and either (i) enforcement proceedings shall have been commenced by any creditor upon any such judgment or order and remain unstayed or (ii) there shall be any period of at least 20 consecutive days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; provided, however, that any such judgment or order shall not give rise to an Event of Default under this Section 6.01(g) if and for so long as (A) the amount of such judgment or order which remains unsatisfied is covered by a valid and binding policy of insurance between the defendant and the insurer covering full payment thereof and (B) such insurer has been notified, and has not disputed the claim made for payment, of the amount of such judgment or order; or (h) one or more nonmonetary judgments or orders (including, without limitation, writs or warrants of attachment, garnishment, execution, distraint or similar process) shall be rendered against one or more of the Loan Parties and their Subsidiaries that, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect, and there shall be any period of at least 20 consecutive days during which a stay of enforcement of any such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any of the Loan Documents after delivery thereof pursuant to Section 3.01, 3.02, 5.01(k) or 5.02(k) shall for any reason (other than pursuant to the terms thereof) cease to be valid and binding on or enforceable against any of the Loan Parties intended to be a party to it, or any such Loan Party shall so state in writing; or (j) any Collateral Document after delivery thereof pursuant to Section 3.01, 5.01(k) or 5.02(k) shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority (subject to the liens and security interests expressly permitted under Section 5.02(a)) lien on and security interest in the Collateral purported to be covered thereby; or (k) any of the following events or conditions shall have occurred and such event or condition, when aggregated with any and all other such events or conditions set forth in this Section 6.01(k), has resulted, or, with respect to clause (i) of this Section 6.01(k), could reasonably be -132- expected to result, in liabilities of one or more of the Loan Parties and/or the ERISA Affiliates in an aggregate amount exceeding $5,000,000 at any time: (i) any ERISA Event shall have occurred with respect to a Plan; or (ii) any of the Loan Parties or any of the ERISA Affiliates shall have incurred Withdrawal Liability to a Multiemployer Plan or liability in connection with the reorganization, insolvency or termination of a Multiemployer Plan; or (iii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA and Section 412 of the Internal Revenue Code), whether or not waived, shall exist with respect to one or more of the Plans, or any Lien shall exist on the property and assets of any of the Loan Parties or any of the ERISA Affiliates in favor of the PBGC or any Plan; or (l) an "Event of Default" (as defined in the applicable Senior Subordinated Notes Documents) shall have occurred and be continuing under the Senior Subordinated Notes Documents; or (m) a Change of Control shall occur; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Commitments of each of the Lender Parties and the obligation of each of the Lender Parties to make Advances (other than Swing Line Advances by any of the Revolving Credit Lenders pursuant to Section 2.02(b)(ii) and Letter of Credit Advances by the Issuing Bank or any of the Revolving Credit Lenders pursuant to Section 2.03(c)(i)) and of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under or in respect of this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such other amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the United States Federal Bankruptcy Code or a similar order or action under any other Requirements of Law covering the protection of creditors' rights or the relief of debtors applicable to the Borrower, (1) the Commitments of each of the Lender Parties and the obligation of each of the Lender Parties to make Advances (other than Swing Line Advances by any of the Revolving Credit Lenders pursuant to Section 2.02(b)(ii) and Letter of Credit Advances by the Issuing Bank or any of the Revolving Credit Lenders pursuant to Section 2.03(c)(i)) and of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (2) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, irrespective of whether it is taking any of the actions described in Section 6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent, on behalf of the Lender Parties, in same day funds at the Administrative Agent's office designated in such demand, for deposit in the L/C Cash Collateral Account, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding. If at any time the Administrative -133- Agent determines that any funds held in the L/C Cash Collateral Account are subject to any right or claim of any Person other than the Agents and the other Secured Parties or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional funds to be deposited and held in the L/C Cash Collateral Account, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, then held in the L/C Cash Collateral Account that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit for which funds are on deposit in the L/C Cash Collateral Account, such funds shall be applied to reimburse the Issuing Bank or the Revolving Credit Lenders, as applicable, to the extent permitted under applicable law. ARTICLE VII THE AGENTS SECTION 7.01. Authorization and Action. (a) Each of the Lender Parties (in its respective capacities as a Lender, the Swing Line Bank, the Issuing Bank and a Hedge Bank, in each case if applicable) hereby appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to the Administrative Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for under the Loan Documents (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all of the Lender Parties and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action (i) that exposes the Administrative Agent to personal liability or that is contrary to this Agreement or to applicable Requirements of Law or (ii) as to which the Administrative Agent has not received adequate security or indemnity (whether pursuant to Section 7.05 or otherwise). If the security or indemnity furnished to the Administrative Agent for any purpose under or in respect of the Loan Documents shall, in the good faith opinion of the Administrative Agent, be insufficient or become impaired, then the Administrative Agent may require additional security or indemnity and cease, or not commence, to follow the directions or take the actions indemnified against until such additional security or indemnity is furnished. The Administrative Agent agrees to give to each of the Lender Parties prompt notice of each notice given to it by the Borrower pursuant to the terms of this Agreement. (b) The Administrative Agent shall also act as the "collateral agent" under the Loan Documents, and each of the Lender Parties (in its capacity as a Lender, the Swing Line Bank, the Issuing Bank and a Hedge Bank, in each case if applicable, and as a Secured Party) hereby appoints and authorizes the Administrative Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Secured Obligations, together with such powers and discretion as are reasonably incidental thereto. The Administrative Agent may from time to time in its discretion appoint any of the Lender Parties or any of the affiliates of a Lender Party to act as its co-agent or sub-agent for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents or of exercising any rights or remedies thereunder at the direction of the Administrative Agent. In such capacity, such co-agents and sub-agents shall be entitled to the benefits of all provisions of this Article VII (including, without limitation, -134- Section 7.05, as though such co-agents or sub-agents were the "Administrative Agent" under the Loan Documents) as if set forth in full herein with respect thereto. The Administrative Agent shall not be responsible for any gross negligence or willful misconduct of any of the co-agents or sub-agents selected by it with reasonable care. (c) None of the Lead Arranger and Book Manager, the Syndication Agent, the Documentation Agent or either Co-Arranger shall have any powers or discretion under this Agreement or any of the other Loan Documents other than those bestowed upon it as a co-agent or sub-agent from time to time by the Administrative Agent pursuant to subsection (b) of this Section 7.01, and each of the Lender Parties hereby acknowledges that none of the Lead Arranger and Book Manager, the Syndication Agent, the Documentation Agent or either Co-Arranger shall have any liability under this Agreement or under any of the other Loan Documents. SECTION 7.02. Administrative Agent's Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct as determined in a final, nonappealable judgment by a court of competent jurisdiction. Without limiting the generality of the immediately preceding sentence, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, as provided in Section 8.07; (b) may consult with legal counsel (including counsel for any of the Loan Parties), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no representation or warranty to any of the Secured Parties and shall not be responsible to any of the Secured Parties for any statements, representations or warranties (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any of the Loan Documents on the part of any of the Loan Parties or to inspect the property and assets (including the books and records) of any of the Loan Parties; (e) shall not be responsible to any of the Secured Parties for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the protection or priority of any lien or security interest created or purported to be created under or in connection with, any of the Loan Documents or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any of the Loan Documents by acting upon any notice, consent, order, certificate or other instrument or writing (which may be by telegram, telecopy or telex) believed by it to be genuine and signed or sent by the proper party or parties. -135- SECTION 7.03. NationsBank, NMS, MSSF, CIBC and Affiliates. With respect to its Commitment or Commitments, the Advances made by it and the Note or Notes issued to it, each of NationsBank, MSSF and CIBC shall have the same rights and powers under the Loan Documents as any of the other Lender Parties and may exercise the same as though it were not an Agent hereunder; and the term "Lender", "Lenders", "Lender Party", "Lender Parties", "Secured Party" or "Secured Parties" shall, unless otherwise expressly indicated, include NationsBank, NMS, MSSF, CIBC and their respective affiliates parties hereto in their respective individual capacities. NationsBank, NMS, MSSF, CIBC and their respective affiliates (whether or not parties hereto) may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any of the Loan Parties, any of their respective Subsidiaries and any Person who may do business with or own securities of any such Loan Party or any such Subsidiary, all as if NationsBank, NMS, MSSF and CIBC were not Agents hereunder and without any duty to account therefor to the other Lender Parties. SECTION 7.04. Lender Credit Decision. Each of the Lender Parties hereby acknowledges that it has, independently and without reliance upon any of the Agents or any of the other Lender Parties and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lender Parties also hereby acknowledges that it will, independently and without reliance upon any of the Agents or any of the other Lender Parties 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 Agreement. SECTION 7.05. Indemnification. (a) Each of the Lenders hereby severally agrees to indemnify the Administrative Agent (to the extent not promptly reimbursed by the Borrower) from and against such Lender's ratable share (determined as provided below in this Section 7.05(a)) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Administrative Agent under the Loan Documents; provided, however, that none of the Lenders shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent's gross negligence or willful misconduct as determined in a final, nonappealable judgment by a court of competent jurisdiction. In the case of any claim, investigation, litigation or proceeding to which the indemnity in this Section 7.05(a) applies, such indemnity shall be effective whether or not such claim, investigation, litigation or proceeding is brought by the Administrative Agent, any of the Lender Parties or a third party. Without limiting any of the provisions of the immediately preceding sentence, each of the Lenders hereby agrees to reimburse the Administrative Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any of the other Loan Documents, to the extent that the Administrative Agent is not promptly reimbursed for such costs and expenses by the Borrower. For purposes of this Section 7.05(a), the Lenders' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of all Advances owing to the respective Lenders and outstanding at such time, (ii) in the case of each of the Revolving Credit Lenders, such respective Revolving Credit Lender's Pro Rata Shares of the aggregate Available Amount of all Letters of Credit outstanding at such time and (iii) the aggregate Unused Revolving Credit Commitments of the respective Revolving Credit Lenders at such time; provided that the aggregate principal amount of all Swing Line Advances owing to the Swing Line Bank and -136- all Letter of Credit Advances owing to the Issuing Bank and outstanding at such time shall be considered to be owed to the Revolving Credit Lenders ratably in accordance with their respective Revolving Credit Commitments. The failure of any of the Lenders to reimburse the Administrative Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to the Administrative Agent as provided in this Section 7.05(a) shall not relieve any of the other Lenders of its obligation hereunder to reimburse the Administrative Agent for its ratable share of such amount, but none of the Lenders shall be responsible for the failure of any of the other Lenders to reimburse the Administrative Agent for such other Lender's ratable share of such amount. (b) Each of the Revolving Credit Lenders hereby severally agrees to indemnify the Issuing Bank (to the extent not promptly reimbursed by the Borrower) from and against such Revolving Credit Lender's ratable share (based upon its Revolving Credit Commitment) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by or asserted against the Issuing Bank in any way relating to or arising out of the Loan Documents or any action taken or omitted by the Issuing Bank under the Loan Documents; provided, however, that none of the Revolving Credit Lenders shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Issuing Bank's gross negligence or willful misconduct as determined in a final, nonappealable judgment by a court of competent jurisdiction. In the case of any claim, investigation, litigation or proceeding to which the indemnity in this Section 7.05(b) applies, such indemnity shall be effective whether or not such claim, investigation, litigation or proceeding is brought by the Issuing Bank, any of the Lender Parties or a third party. Without limiting any of the provisions of the immediately preceding sentence, each of the Revolving Credit Lenders hereby agrees to reimburse the Issuing Bank promptly upon demand for its ratable share (based upon Revolving Credit Commitment) of any costs and expenses (including, without limitation, reasonable fees and expenses of counsel) incurred by the Issuing Bank in connection with the administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of its rights or responsibilities under, this Agreement or any of the other Loan Documents, to the extent that the Issuing Bank is not promptly reimbursed for such costs and expenses by the Borrower. The failure of any of the Revolving Credit Lenders to reimburse the Issuing Bank promptly upon demand for its ratable share of any amount required to be paid by the Revolving Credit Lenders to the Issuing Bank as provided in this Section 7.05(b) shall not relieve any of the other Revolving Credit Lenders of its obligation hereunder to reimburse the Issuing Bank for its ratable share of such amount, but none of the Revolving Credit Lenders shall be responsible for the failure of any of the other Revolving Credit Lenders to reimburse the Issuing Bank for such other Revolving Credit Lender's ratable share of such amount. (c) Without prejudice to the survival of any other agreement of any of the Lender Parties hereunder, the agreement and obligations of each of the Lenders contained in this Section 7.05 shall survive the payment in full of all principal, interest and other amounts payable under or in respect of this Agreement or any of the other Loan Documents. SECTION 7.06. Successor Administrative Agent. The Administrative Agent may resign as to any or all of the Facilities at any time by giving written notice thereof to the Lender Parties and the Borrower and may be removed as to all of the Facilities at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent as to such of the Facilities as to which the Administrative Agent has resigned or been removed; provided that, so long as no Default shall have occurred and be continuing, the Borrower shall have the right to consent to any such successor Administrative Agent, such consent not to be -137- unreasonably withheld and to be deemed to have been given if the Borrower does not object to the proposed successor Administrative Agent within five Business Days of notice thereof. If no successor Administrative Agent shall have been so appointed by the Required Lenders (and, if applicable, consented to by the Borrower), and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Lender Parties and the other Secured Parties, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States of America or of any state thereof and having a combined capital and surplus of at least $250,000,000. If within 45 days after written notice is given of the retiring Administrative Agent's resignation or removal as to any or all of the Facilities under this Section 7.06 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (a) the retiring Administrative Agent's resignation or removal shall become effective as to such of the Facilities as to which the Administrative Agent has resigned or been removed, (b) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations as to such Facilities under the Loan Documents and (c) the Required Lenders shall thereafter perform all duties and obligations of the retiring Administrative Agent as to such Facilities under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided above in this Section 7.06. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent as to all of the Facilities and upon the execution and filing of such financing statements, or amendments thereto, and such other instruments and notices, as may be necessary or desirable or as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted under the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent as to less than all of the Facilities and upon the execution and filing or recording of such financing statements, amendments thereto, and such other instruments or notices, as may be necessary or desirable, as the Required Lenders may request, in order to continue the perfection of the Liens granted or purported to be granted by the Collateral Documents, such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent as to such Facilities, other than with respect to funds transfers and other similar aspects of the administration of Borrowings under such Facilities, issuances of Letters of Credit (notwithstanding any resignation as Administrative Agent with respect to the Letter of Credit Facility) and payments by the Borrower in respect of such Facilities, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents as to such Facilities, other than as aforesaid. After any retiring Administrative Agent's resignation or removal hereunder as Administrative Agent as to any of the Facilities shall have become effective, the provisions of this Article VII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent as to such Facilities under this Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, the Notes or any of the other Loan Documents, nor consent to any departure by any of the Loan Parties therefrom, shall in any event be effective unless the same shall be in writing and signed by each of the Loan Parties party to such Loan Document and directly affected by such amendment, waiver or consent -138- and signed (or in the case of the Collateral Documents, consented to) by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that: (a) no amendment, waiver or consent shall, unless in writing and signed by the Borrower and all of the Lenders (other than any of the Lenders that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or 3.02 or, in the case of the Initial Extension of Credit, Section 3.03; (ii) change the number of Lenders or the percentage of the Commitments or the aggregate outstanding principal amount of Advances or the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Lender Parties or any of them to take any action hereunder; (iii) release all or substantially all of the value of the guarantees of the Restricted Subsidiaries under the Subsidiaries Guarantee; (iv) release all or substantially all of the Collateral in any transaction or series of related transactions; or (v) amend this Section 8.01; (b) no amendment, waiver or consent shall, unless in writing and signed by the Borrower and the Required Lenders and each of the Lenders (other than any of the Lenders that is, at such time, a Defaulting Lender) that has a Commitment under the Term A Facility, the Term B Facility or the Revolving Credit Facility if such Lender is directly affected by such amendment, waiver or consent: (i) increase the Commitments of such Lender; (ii) reduce the principal of, or stated rate of interest on, the Notes held by such Lender or any fees or other amounts payable hereunder to such Lender; or (iii) postpone any date scheduled for any payment of principal of, or interest on, the Notes held by such Lender pursuant to Section 2.04 or 2.07 or any date fixed for any payment of fees or the Guaranteed Obligations payable hereunder or thereunder to such Lender; and (c) no amendment, waiver or consent shall, unless in writing and signed by the Borrower and the Required Lenders and, if the Lenders under any such Facility are directly affected by such amendment, waiver or consent, Lenders holding more than 50% of the aggregate Commitments under the Term A Facility, the Term B Facility or the Revolving Credit Facility, change the order of application of any reduction in the Commitments or any prepayment of Advances between the Term A Facility and the Term B Facility from the application thereof set forth in the applicable provisions of Section 2.05(b) or 2.06(b), respectively, in any manner that materially -139- affects the Lenders under such Facility or permanently reduce the Revolving Credit Facility at any time when all or a portion of the Term Facilities remain in effect; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Bank or the Issuing Bank, as the case may be, in addition to the Lenders required above to take such action, affect the rights or duties of the Swing Line Bank or the Issuing Bank under this Agreement or any of the other Loan Documents; and provided further that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lender Parties required above to take such action, affect the rights or duties of the Administrative Agent under this Agreement or any of the other Loan Documents. Notwithstanding any of the foregoing provisions of this Section 8.01, none of the defined terms set forth in Section 1.01 shall be amended, supplemented or otherwise modified hereafter in any manner that would change the meaning, purpose or effect of this Section 8.01 or any section referred to herein unless such amendment, supplement or modification is agreed to in writing by the number and percentage of Lenders (and the Swing Line Bank, the Issuing Bank and Administrative Agent, in each case, if applicable) otherwise required to amend such section under the terms of this Section 8.01. SECTION 8.02. Notices, Etc. (a) All notices and other communications provided for hereunder shall be in writing (including telegraphic, telecopy or telex communication) and mailed, telegraphed, telecopied, telexed or delivered: (i) if to the Borrower, at its address at 8825 Page Boulevard, St. Louis, Missouri 63114, Telecopier No.: (314) 253-5941, Attention: President; (ii) if to any of the Initial Lenders, the Swing Line Bank or the Issuing Bank, at its Base Rate Lending Office specified opposite its name on Part B of Schedule I hereto; (iii) if to any of the other Lender Parties, at its Base Rate Lending Office specified on Schedule I to the Assignment and Acceptance pursuant to which it became a Lender Party; (iv) if to the Administrative Agent, at its address at Independence Center, 101 North Tryon Street, 15th Floor, NC1-001-15-04, Charlotte, North Carolina 28255 (Telecopier No. (704) 388-9436), Attention: Corporate Credit Services; or (v) as to the Borrower or the Administrative Agent, at such other address as shall be designated by such party in a written notice to each of the other parties and, as to each other party, at such other address as shall be designated by such party in a written notice to both the Borrower and the Administrative Agent. All such notices and communications shall, when mailed, telegraphed, telecopied or telexed, be effective when deposited in the mails, delivered to the telegraph company, transmitted by telecopier or confirmed by telex answerback, respectively, addressed as aforesaid, except that notices and communications to the Administrative Agent pursuant to Article II, III or VII shall not be effective until received by the Administrative Agent. Delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an originally executed counterpart thereof. (b) If any notice required under this Agreement is permitted to be made, and is made, by telephone, actions taken or omitted to be taken in reliance thereon by the Administrative Agent or any of -140- the Lender Parties shall be binding upon the Borrower and the other Loan Parties notwithstanding any inconsistency between the notice provided by telephone and any subsequent writing in confirmation thereof provided to the Administrative Agent or such Lender Party; provided that any such action taken or omitted to be taken by the Administrative Agent or any such Lender Party shall have been in good faith and in accordance with the terms of this Agreement. SECTION 8.03. No Waiver; Remedies. No failure on the part of any of the Lender Parties or the Administrative Agent to exercise, and no delay in exercising, any right, power or privilege hereunder or under any Note shall operate as a waiver thereof or consent thereto; nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The remedies herein provided are cumulative and not exclusive of any remedies provided by applicable law. SECTION 8.04. Costs and Expenses; Indemnification. (a) The Borrower hereby agrees to pay on demand (i) all reasonable costs and expenses of each of the Agents in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, audit, insurance, consultant and search fees and expenses and (B) the reasonable fees and expenses of one principal counsel for the Agents and other special and local counsel for the Agents and the Lender Parties with respect thereto, with respect to advising each such Agent as to its rights and responsibilities, or the protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any of the Loan Parties or with other creditors of any of the Loan Parties or any of their Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all costs and expenses of each of the Agents and the Lender Parties in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or in any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for each of the Agents and each of the Lender Parties with respect thereto). (b) The Borrower hereby agrees to indemnify and hold harmless each of the Agents, each of the Lender Parties and each of their respective affiliates and their respective officers, directors, employees, agents, representatives and advisors (each an "Indemnified Party") from, and hold each of them harmless against, any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) (i) any aspect of the Transaction, the Facilities, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents, the Related Documents or any of the transactions contemplated thereby, (ii) any acquisition or proposed acquisition by any of the Equity Investors, any of their respective Affiliates or any other Person of all or any portion of the Equity Interests in or debt securities of, or all or substantially all the property and assets of, the Borrower or any of its Subsidiaries or other Affiliates or (iii) the actual or alleged presence of Hazardous Materials on any property of any of the Loan Parties or any of their Subsidiaries or any Environmental Action relating in any way to any of the Loan Parties or any of their Subsidiaries, except to the extent such claim, damage, loss, liability or expense is determined to have resulted from (A) such Indemnified Party's or any Related Indemnified Party's gross negligence or willful misconduct, (B) claims of any of the Lender Parties solely against one or more other Lender Parties (and not by one or more Lender Parties against the Administrative Agent or one -141- or more of the other Agents) that have not resulted from the action, inaction, participation or contribution of the Borrower or its Subsidiaries or other Affiliates or any of their respective officers, directors, stockholders, partners, members, employees, agents, representative or advisors or (C) any action brought by the Borrower or any of its Subsidiaries against one or more Indemnified Parties in which the Borrower or its applicable Subsidiary, as the case may be, prevails in a final, nonappealable judgment by a court of competent jurisdiction. In the case of any claim, investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such claim, investigation, litigation or proceeding is brought by any of the Loan Parties, its directors, stockholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the Transaction (or any aspect thereof) or any of the other transactions contemplated hereby are consummated. The Borrower also hereby agrees that none of the Indemnified Parties shall have any liability (whether direct or indirect, in contract, tort or otherwise) to the Borrower, any of the other Loan Parties or any of its or their respective Affiliates or its or their respective officers, directors, stockholders, partners, members, employees, agents, representatives or advisors, and the Borrower hereby further agrees not to assert any claim against any of the Indemnified Parties on any theory of liability, for special, indirect, consequential or punitive damages, arising out of or otherwise relating to any aspect of the Transaction, the Facilities, the actual or proposed use of the proceeds of any Advances or any Letters of Credit, the Loan Documents, the Related Documents or any of the other transactions contemplated thereby, except, in the case of any such Indemnified Party, for direct, as opposed to consequential, damages that are determined to have resulted from such Indemnified Party's or any Related Indemnified Party's gross negligence or willful misconduct. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of any of the Lender Parties other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06 or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to any of the Lender Parties other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 8.07 as a result of a demand by the Borrower pursuant to Section 8.07(a), or if the Borrower fails to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.04, 2.06 or 6.01 or otherwise, the Borrower shall, upon demand by such Lender Party, pay to the Administrative Agent for the account of such Lender Party any amounts required to compensate such Lender Party for any additional losses, costs or expenses that it may reasonably incur as a result of such payment, including, without limitation, any loss (excluding any loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender Party to fund or maintain such Advance. A certificate of the Lender Party requesting compensation pursuant to this Section 8.04(c), submitted to the Borrower by such Lender Party (with a copy to the Administrative Agent) and specifying therein the amount of such additional compensation (including the basis of calculation thereof), shall be conclusive and binding for all purposes, absent manifest error. (d) If any of the Loan Parties fails to pay when due any costs, expenses or other amounts payable by it under or in respect of any of the Loan Documents (including, without limitation, fees and expenses of counsel and indemnification payments), such amount may be paid on behalf of such Loan Party by the Administrative Agent or any of the Lender Parties, in its sole discretion. (e) Without prejudice to the survival of any other agreement of any of the Loan Parties under or in respect of this Agreement or any of the other Loan Documents, the agreements and obligations of the Borrower contained in Sections 2.10 and 2.12 and in this Section 8.04 shall survive the payment in -142- full of principal, interest and all other amounts payable under or in respect of this Agreement or any of the other Loan Documents. SECTION 8.05. Right of Setoff. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each of the Agents and the Lender Parties and each of their respective affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Lender Party or such affiliate to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing under and in respect of this Agreement and the other Loan Documents, irrespective of whether such Agent or such Lender Party shall have made any demand under this Agreement or any such other Loan Document and although such Obligations may be unmatured. Each of the Agents and the Lender Parties hereby agrees promptly to notify the Borrower after any such setoff and application is made by such Agent or such Lender Party, as the case may be, or any of its affiliates; provided, however, that the failure to give such notice shall not affect the validity of such setoff and application. The rights of each of the Agents and each of the Lender Parties and their respective affiliates under this Section 8.05 are in addition to any other rights and remedies (including, without limitation, other rights of setoff) that such Agent, such Lender Party and their respective affiliates may have. SECTION 8.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent and when the Administrative Agent shall have been notified by each of the Initial Lenders, the Swing Line Bank and the Initial Issuing Bank that such Initial Lender, the Swing Line Bank and the Initial Issuing Bank has executed it and, thereafter, shall be binding upon and inure to the benefit of, and be enforceable by, the Borrower, each of the Agents and each of the Lender Parties and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights hereunder or any interest herein without the prior written consent of all of the Lender Parties. SECTION 8.07. Assignments and Participations. (a) Each of the Lenders may, and so long as no Default has occurred and is continuing, if demanded by the Borrower (following (i) a demand by such Lender for the payment of additional compensation pursuant to Section 2.10(a), 2.10(b) or 2.12, (ii) an assertion by such Lender pursuant to Section 2.10(c) or 2.10(d) that it is impractical or unlawful for such Lender to make Eurodollar Rate Advances or (iii) a refusal by such Lender to approve any amendment or waiver of, or consent to departure from, any of the terms or conditions of this Agreement or any of the other Loan Documents; provided that the Borrower may not demand the replacement of one or more Lenders pursuant to this clause (iii) holding, in the aggregate, more than 10% of the aggregate Commitments under all of the Facilities as of the date of any such proposed demand or the date of any such proposed amendment, waiver or consent), upon at least five Business Days' notice to such Lender and the Administrative Agent, each of such Lenders will, assign to one or more Persons all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes held by it); provided, however, that: (A) each such assignment with respect to any of the Facilities shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of such Facility; -143- (B) except in the case of an assignment to a Person that immediately prior to such assignment was a Lender or an affiliate or an Approved Fund of a Lender or an assignment of all of a Lender's rights and obligations under one or more of the Facilities, the aggregate amount of the Commitments of the assigning Lender under all of the Facilities being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $1,000,000 or such other amount as the Administrative Agent and the assigning Lender and, so long as no Default has occurred and is continuing, the Borrower shall agree; (C) each such assignment shall be to an Eligible Assignee; (D) each such assignment made as a result of a demand by the Borrower pursuant to this Section 8.07(a) shall be arranged by the Borrower with the approval of the Administrative Agent, which approval shall not be unreasonably withheld or delayed, and either shall be an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that, in the aggregate, cover all of the rights and obligations of the assigning Lender under this Agreement; (E) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to this Section 8.07(a) unless and until such Lender shall have received one or more payments from one or more Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of all Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount, and from the Borrower and/or one or more Eligible Assignees in an aggregate amount equal to all other amounts payable to such Lender under this Agreement and the Notes (including, without limitation, any amounts owing under Sections 2.10, 2.12 and 8.04); (F) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment; and (G) the Lender assignor (or, if such assignment is being made pursuant to a demand by the Borrower therefor under this Section 8.07(a), the Borrower or the Lender assignee) shall pay to the Administrative Agent a processing and recordation fee of $3,500. (b) The Issuing Bank may assign to any other Person all, but not a portion of, its rights and obligations under the undrawn portion of its Letter of Credit Commitment at any time; provided, however, that: (i) each such assignment shall be to an Eligible Assignee; and (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $3,500. (c) The Swing Line Bank may not assign its rights and obligations hereunder, but may terminate all such rights and obligations if, at any time, the Swing Line Bank ceases to have a Revolving -144- Credit Commitment in an amount at least equal to the amount of the Swing Line Facility on the date of this Agreement. (d) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender or the Issuing Bank hereunder and (ii) the Lender or Issuing Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.10, 2.12 and 8.04 (and other similar provisions of the other Loan Documents that are specified under the terms of such other Loan Documents to survive the payment in full of the Obligations of the Loan Parties under and in respect of the Loan Documents) to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations (other than its obligations under Section 7.05 to the extent any claim thereunder relates to an event arising prior to such assignment) under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (e) By executing and delivering an Assignment and Acceptance, the Lender or the Issuing Bank assignor thereunder and the assignee thereunder (or, solely with respect to the assignments and assumptions of the Existing Advances being made on the Effective Date pursuant to Section 2.01(a), 2.01(b) or 2.01(c), by executing and delivering this Agreement, the Existing Lenders and the other Initial Lenders) confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance (or, in the case of the Existing Lenders, this Agreement), such assigning Lender or Issuing Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any of the other Loan Documents, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, this Agreement or any of the other Loan Documents, or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender or Issuing Bank makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any of the other Loan Parties or the performance or observance by the Borrower or any of the other Loan Parties of any of its Obligations under or in respect of any of the Loan Documents, or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 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; (iv) such assignee will, independently and without reliance upon any of the Agents, such assigning Lender or any of the other Lender Parties 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 Agreement; -145- (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each of the Agents to take such action as an agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender Party. With respect to the assignments and assumptions of the Existing Advances being made on the Effective Date pursuant to Section 2.01(a), 2.01(b) or 2.01(c), by executing and delivering this Agreement, each of the Existing Lenders and each of the other Initial Lenders hereby represents and warrants that its name set forth on Schedule I hereto is its legal name, that it is the legal and beneficial owner of the interest or interests being assigned by it hereunder and that such interest or interests are free and clear of any adverse claim. (f) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Borrower, shall maintain at its address set forth in Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lender Parties and the Commitment under each of the Facilities of, and principal amount of the Advances owing under each of the Facilities to, each of the Lender Parties from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent and the Lender Parties shall treat each Person whose name is recorded in the Register as a Lender Party hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower, any of the Agents or any of the Lender Parties at any reasonable time and from time to time during normal business hours and upon reasonable prior notice. (g) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender or Issuing Bank and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. In the case of any assignment by a Lender, within ten Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note or Notes from the Borrower payable to or to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it under each of the Facilities pursuant to such Assignment and Acceptance and, if the assigning Lender has retained a Commitment under one or more of the Facilities, a new Note or Notes from the Borrower payable to or to the order of the assigning Lender in an amount equal to the Commitment retained by it under each such Facility. Each of the new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1, A-2 or A-3 hereto, as appropriate. (h) Each of the Lender Parties may sell participations to one or more Persons (other than any of the Loan Parties or any of their respective Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or Commitments, the Advances owing to it and the Note or Notes, if any, held by it); provided, however, that: -146- (i) such Lender Party's obligations under this Agreement (including, without limitation, its Commitments) shall remain unchanged; (ii) such Lender Party shall remain solely responsible to the other parties hereto for the performance of such obligations; (iii) such Lender Party shall remain the holder of any such Note for all purposes of this Agreement; (iv) the Borrower, the Administrative Agent and the other Lender Parties shall continue to deal solely and directly with such Lender Party in connection with such Lender Party's rights and obligations under and in respect of this Agreement and the other Loan Documents; and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any of the Loan Documents, or any consent to any departure by any of the Loan Parties therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or stated rate of interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date scheduled for any payment of principal of, or interest on, the Notes pursuant to Section 2.04 or 2.07 or any date fixed for the payment of any fees or the Guaranteed Obligations payable hereunder or thereunder, in each case to the extent subject to such participation, or release all or substantially all of the Collateral in any transaction or series of related transactions. (i) Any of the Lender Parties may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.07, disclose to the assignee or participant or proposed assignee or participant, as the case may be, any information relating to the Borrower or any of its Subsidiaries or to any aspect of the Transaction that has been furnished to such Lender Party by or on behalf of the Borrower or any of its Subsidiaries; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender Party on substantially the same terms as those set forth in Section 8.09. (j) Any of the Lender Parties may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. SECTION 8.08. No Liability of the Issuing Bank. The Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers or directors shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of any documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; -147- (c) payment by the Issuing Bank against presentation of any documents that do not comply with the terms of a Letter of Credit, including the failure of any documents to bear any reference or adequate reference to the Letter of Credit, unless such documents are substantially different from the applicable form specified in such Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit; except that the Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to the Borrower, to the extent of any direct, but not consequential, damages suffered by the Borrower that the Borrower proves were caused by (i) the Issuing Bank's willful misconduct or gross negligence as determined in a final, nonappealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 8.09. Confidentiality. Neither any of the Agents nor any of the Lender Parties shall disclose any Confidential Information to any Person without the consent of the Borrower, other than (a) to such Agent's or such Lender Party's respective affiliates and their respective officers, directors, employees, agents, representatives, attorneys, auditors and other advisors on a confidential basis, (b) to one or more of the other Agents or other Secured Parties, (c) to actual or prospective Eligible Assignees and participants, in each case on a confidential basis and otherwise in accordance with Section 8.07(i), (d) as required by any applicable Requirements of Law or by subpoena or any other judicial or other legal process, (e) to any rating agency when required by it; provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information received by it from such Lender Party, (f) as requested or required by any Governmental Authority or any state, federal or foreign authority or examiner regulating banks or banking, (g) to any other Person to which such disclosure may be necessary in connection with any claim, suit, litigation or proceeding to which such Agent or such Lender Party is a party and (h) if an Event of Default shall have occurred and be continuing, to the extent such Agent or such Lender Party reasonably determines that such disclosure is necessary in the enforcement of or for the protection of the rights and remedies afforded to it under this Agreement or any of the other Loan Documents. SECTION 8.10. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an originally executed counterpart of this Agreement. SECTION 8.11. Governing Law; Jurisdiction, Etc. (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. (b) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property and assets, to the nonexclusive jurisdiction of any New York state court or any federal court of the United States of America sitting in New York City, New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan -148- Documents to which it is a party, or for recognition or enforcement of any judgment in respect thereof, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in any such New York state court or, to the fullest extent permitted by applicable law, in any such federal court. Each of the parties hereto hereby irrevocably consents to the service of copies of any summons and complaint and any other process which may be served in any such action or proceeding by certified mail, return receipt requested, or by delivering a copy of such process to such party, at its address specified in Section 8.02, or by any other method permitted by applicable law. Each of the parties hereto hereby agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Nothing in this Agreement shall affect any right that any of the parties hereto may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (c) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York state court or federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the Agents and the Lender Parties hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement, any of the other Loan Documents, any documents delivered pursuant to the Loan Documents, the Advances, the Letters of Credit, any aspect of the Transaction or any of the other transactions contemplated hereby or thereby or the actions of any of the Agents or any of the Lender Parties in the negotiation, administration, performance or enforcement thereof. -149- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. THE BORROWER UNITED INDUSTRIES CORPORATION By ________________________________________ Name: Title: THE AGENTS NATIONSBANK, N.A., as Administrative Agent By ________________________________________ Name: Title: NATIONSBANC MONTGOMERY SECURITIES LLC, as Lead Arranger and Book Manager and a Co-Arranger By ________________________________________ Name: Title: MORGAN STANLEY SENIOR FUNDING, INC., as Syndication Agent and a Co-Arranger By ________________________________________ Name: Title: -150- CANADIAN IMPERIAL BANK OF COMMERCE, as Documentation Agent By ________________________________________ Name: Title: THE EXISTING LENDERS AND THE INITIAL LENDER PARTIES NATIONSBANK, N.A., as an Existing Lender, an Initial Lender and the Initial Issuing Bank By ________________________________________ Name: Title: MORGAN STANLEY SENIOR FUNDING, INC. as an Existing Lender and an Initial Lender By ________________________________________ Name: Title: CIBC INC., as an Existing Lender and an Initial Lender By ________________________________________ Name: Title: EX-10.16 21 LEASE Exhibit 10.16 ------------- LEASE By and between REX REALTY CO., Lessor and UNITED INDUSTRIES CORPORATION, Lessee Effective Date of Lease: December 1, 1995 "Plant II" at 8458-8464 Industrial Drive Vinita Park, St. Louis County, Missouri (Consisting of Chemsico Division Offices and Manufacturing, facilities) LEASE INDEX 8458-8464 Chapin Industrial Drive Vinita Park, St. Louis County, Missouri
Section Page - ------- ---- 1. Parties 1 2. Premises 1 3. Term 1 4. Rent 1 4.1 When and Where Payable 1 4.2 Amount of Rent 1 4.3 Rental for Renewal Terms 1 5. Use 2 5.1 Use 2 5.2 Compliance with Law at Date of Lease 2 5.3 Condition of Premises at Date of Lease 2 6. Maintenance, Repairs and Modifications 2 6.1 Lessee's Obligations 2 6.2 Condition on Termination 3 6.3 Lessor's Rights 3 6.4 Lessor's Obligations 3 6.5 Modifications of Premises by Lessee 3 6.6 Lessee's Trade Fixtures 4 7. Insurance and Indemnification 4 7.1 Insuring Party; Lessee's Obligation for Cost of All Insurance 4 7.2 Liability Insurance 5 7.3 Property Insurance 5 7.4 Insurance Policies 6 7.5 Waiver of Subrogation 6 7.6 Indemnity 6 7.7 Exemption of Lessor from Liability 7 8. Damage or Destruction 7 8.1 Partial Damage - Insured 7 8.2 Partial Damage - Uninsured 8 8.3 Total Destruction 8 8.4 Damage Near End of Term 8 8.5 Abatement of Rent; Lessee's Remedies 8 8.6 Termination - Advance Payments 9 8.7 Waiver 9 9. Property Taxes 9 9.1 Real Property Taxes 9 9.2 Definition of "Real Property Taxes" 9 9.3 Joint Assessment 10 i LEASE INDEX 8458-8464 Chapin Industrial Drive Vinita Park, St. Louis County, Missouri 9.4 Personal Property Taxes 10 10. Utilities 10 11. Assignment and Subletting 10 11.1 Lessor's Consent Required 10 11.2 Named Lessee Affiliate 10 11.3 No Release of Named Lessee 11 11.4 Attorneys' Fees 11 12. Defaults; Remedies 11 12.1 Default by Lessee 11 12.2 Remedies 12 12.3 Default by Lessor 13 12.4 Late Charges 13 13. Condemnation 13 14. Interest 14 15. General Provisions 14 15.1 Estoppel Certificate; Lessee's Financials 14 15.2 Definition of Lessor 15 15.3 Definition of Lessee 15 15.4 Severability 16 15.5 Time is of the Essence 16 15.6 Captions 16 15.7 Incorporation of Prior Agreements; Amendments 16 15.8 Notices 16 15.9 Waivers 16 15.10 Recording 17 15.11 Holding Over 17 15.12 Cumulative Remedies 17 15.13 Covenants and Conditions 17 15.14 Binding Effect; Choice of Law 17 15.15 Subordination 17 15.16 Attorneys' Fees 18 15.17 Lessor's Access 18 15.18 Signs and Auctions 18 15.19 Merger 18 15.20 Corporate Authority 18 15.21 Approvals and Consents 18 15.22 Quiet Possession 19 15.23 Options 19 ii LEASE INDEX 8458-8464 Chapin Industrial Drive Vinita Park, St. Louis County, Missouri 15.24 Multiple Tenant Property Rules and Regulations 19 15.25 Insuring Party 19 15.26 When Lessor is Obligated 19 15.27 Effect of Lease on Existing Tenancies 19
iii LEASE ----- 1. Parties. This Lease, dated effective as of December 1, 1995, is made by and between Rex Realty Co., a Delaware corporation ("Lessor") and United Industries Corporation, a Delaware corporation ("Lessee"). 2. Premises. Lessor leases to Lessee and Lessee leases from Lessor for the Term, at the rent, and subject to all of the provisions of this Lease, that certain real property, together with all improvements thereon, if any, situated in the County of St. Louis, State of Missouri, known and numbered as 8458-8464 Chapin Industrial Drive, consisting of an office and manufacturing plant, of approximately 85,500 square feet, situated on approximately 3.3 acres of land (the "Premises"). A legal description of the land is described on Exhibit A attached hereto and incorporated herein by this reference. 3. Term. The "Terrn" of this Lease shall commence on December 1, 1995, ("Commencement Date") and continue through December 31, 1999. Thereafter the Term shall automatically be extended on a year-to-year basis from January 1 through December 31 of each year through and until December 31, 2010, unless either party elects to terminate such year-to-year extension by giving Termination Notice in which case the Term shall terminate at the end of the year following the year during which such Termination Notice is given. 4. Rent. 4.1 When and Where Payable. Lessee shall pay rent to Lessor for the Premises, without offset or demand, in advance, on the first day of each month of the Term. Rent for any period during the Term which is for less than one month shall be a pro rata portion of the monthly rent based on a month of thirty (30) days. Rent shall be payable in lawful money of the United States to Lessor at Lessor's address stated herein or to such other persons or at such other places as Lessor may designate by Notice to Lessee. 4.2 Amount of Rent Rent for the period from the Commencement Date to December 31, 1999, shall be at the monthly rate of Thirty Thousand Five Hundred Sixty-Six and 25/100 Dollars ($30,566.25) (bemig an annualized amount of $366,795.00) ($4.29/sq. ft.). 4.3 Rental for Renewal Terms. The parties shall no later than ninety (90) days prior to expiration of the then current Term or Renewal Term agree upon Rent for the next Renewal Term. 1 5. Use. 5.1 Use. The Premises shall be used and occupied for any lawful purpose. Lessee shall comply at all times with all federal, state and local ordinances and regulations that apply to the Premises or Lessee's business. Lessee covenants that it will commit no nuisance or waste on the Premises. 5.2 Compliance with Law at Date of Lease. 5.2 Compliance with Law at Date of Lease. (a) Lessor represents to Lessee that, to the best of Lessor's knowledge, as of the date of this Lease, the Premises do not violate any existing applicable building code regulation. If it be determined that a violation exists at the date hereof, then it shall be the obligation of Lessor, after Notice from Lessee, at Lessor's sole cost and expense, to promptly rectify any such violation. If Lessee does not give Notice of any such violation to Lessor within one (1) year after the Comrnencement Date, it shall be conclusively deemed that such violation did not exist at the date hereof and the correction of any violation shall be the obligation of the Lessee. (b) Except as otherwise provided in ss.5.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable laws and regulations in effect during any part of the Term in respect of the Premises. Lessee shall not use nor permit the use of the Prermises in any manner that will tend to create waste, or constitute nuisance, or disturb Lessor or other tenants of Lessor, if any. 5.3 Condition of Premises at Date of Lease. Except as provided in ss.5.2(a), Lessee hereby accepts the Premises in the condition existing as of the date hereof, subject to all applicable laws and regulations in respect of the Premises. 6. Maintenance, Repairs and Modifications. 6.1 Lessee's Obligations. Lessee shall keep the Premises and every part thereof in good order, condition and repair, structural and nonstructural (whether or not the part of the Premises requiring repair, or the means of repairing the same are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of the Premises) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, ventilating, electrical and lighting facilities and equipment, fixtures, walls (interior and exterior), foundations, ceilings, roofs (interior and exterior), floors, windows, doors; plate glass and skylights, and all landscaping, driveways, walkways, parking lots, fences and signs located on and adjacent to the Premises. 6.2 Condition On Termination. On the last day of the Term, Lessee shall surrender the Premises to Lessor in the same condition as at the Comniencement Date except for reasonable wear and tear and for Modifications made in accordance with ss.6.5 (which 2 Lessor does not require Lessee to remove). Lessee shall repair any damage to the Premises occasioned by the removal of Lessee's trade fixtures, furnishings and equipment which repair shall include, but is not limited to patching and filling of holes and repair of structural damage, if any. 6.3 Lessor's Rights. If Lessee fails to perform Lessee's obligations under this ss.6, Lessor may (but shall not be required to) enter the Premises, after ten (10) days' prior Notice to Lessee (except that no prior Notice shall be required if Lessor believes prompt action is required), and put the same in good order, condition and repair, and the cost thereof together with interest thereon at the rate per annum stated in ss.14 shall become due and payable as additional rent to Lessor together with Lessee' next rent installment. 6.4 Lessor's Obligations. Except for the obligations of Lessor under ss.5.2(a) (relating to Lessor's representation), ss.8 (relating to destruction of the Premises) and ss.13 (relating to condemnation of the Premises), it is intended by the parties hereto that Lessor have no obligation, in any manner whatsoever, to repair or maintain the Premises, whether structural or nonstructural, all of which obligations are intended to be obligations of Lessee. Lessee expressly waives the benefit of any law or Judicial decision now or hereafter in effect which would require Lessor to repair or maintain the Premises or which would afford Lessee the right to (i) make repairs at Lessor's expense, or (ii) terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 6.5 Modifications of Premises by Lessee. (a) Lessee shall not, without Lessor's prior written approval, make any Modifications in, or about the Premises, except for nonstructural items not exceeding $5,000 in cost. "Modifications" include but is not limited to structural and nonstructural alterations, additions and improvements such as but not limited to partitions, electrical, plumbing, heating, ventilating and air cooling equipment and work. Lessor may require that Lessee remove any or all Modifications at the expiration of the Term, and restore the Premises to the same condition as at the Commencement Date. Lessor may require Lessee to provide to Lessor, at Lessee's sole cost and expense, a payment and performance bond in an amount equal to one and one-half times the estimated cost of any Modifications which Lessor may approve. Should Lessee make any Modifications without the prior written approval of Lessor, Lessor may require that Lessee remove any or all of the same at any time. (b) Detailed plans and drawings of any proposed Modifications in or about the Premises that Lessee shall desire to make shall be presented to Lessor. If Lessor approves, such approval shall be deemed conditioned on Lessee acquiring all pen-nits from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the comrnencement of the work, and the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. At Lessor's request, 3 Lessee shall furnish to Lessor three (3) full sets of as-built plans detailing such Modifications. (c) Lessee shall pay, when due, all claims for labor and materials furnished or alleged to have been furnished to or for use 'in, on or about the Premises, which claims are or may be secured by any mechanics or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' Notice prior to the commencement of any Modifications work, and Lessor shall have the right to post statements of non-responsibility in or on the Premises. If Lessee desires to contest the validity of any lien, claim or demand, then Lessee shall, at its sole expense, defend and indemnify Lessor against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof against Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor indemnifying Lessor against liability for, and holding the Premises free from the effect of, any judgment, lien or claim. (d) Unless Lessor requires their removal, as provided in ss.6.5(a), all Modifications, which may be made in, on or about the Premises, shall become the property of Lessor and remain on and be surrendered with the Premises at the end of the Term. 6.6 Lessee's Trade Fixtures. Lessee's trade fixtures, furnishings and equipment, other than items affixed to the Premises so that they cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee, subject to the provisions of ss.6.2. Any of Lessee's trade fixtures, furnishings or equipment which remain at the Premises after the end of the Term may be removed and disposed of by Lessor (at Lessee's cost and expense) without liability or Notice to Lessee. 7. Insurance and Indemnification. 7.1 Insuring Party; Lessee's Obligation for Cost of All Insurance. (a) "Insuring Party" means the party who has the obligation to obtain and keep in force insurance required by this Lease. The Insuring Party is designated in ss. 15-25 hereof. Whether the Insuring Party is the Lessor or the Lessee, the Lessee shall, as additional rent for the Premises, pay the cost of all insurance. If Lessor is the Insuring Party, then Lessee shall reimburse Lessor for the cost of all insurance within ten (10) days following Lessor's Notice thereof If the Insuring Party shall fail to obtain and keep in force any insurance required by this Lease, the other party may, but shall not be required to obtain such insurance and keep the same in force, at the cost and expense of Lessee. If any such insurance has a deductible or co-payment provision, Lessee shall be liable for the deductible or co-payment amount. 4 (b) If the Premises constitute a part of a larger property, then Lessee shall pay for any increase in the cost of insurance applicable to such larger property if said increase is attributable to Lessee's acts, omissions, use or occupancy of the Premises. 7.2 Liability Insurance. (a) During the Term, the Insuring Party -shall obtain and keep in force a policy or policies of Combined Single Limit, Bodily Injury and Property Damage Insurance insuring Lessor and Lessee against liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Subject to ss.7.2(b), such insurance shall be a combined single limit policy 'in an amount not less than $1,000,000.00. The policy shall contain cross liability endorsements and shall insure performance by Lessee of the provisions of ss.ss.7.6 and 7.7. The limits of said insurance shall not, however, limit the liability of Lessee. If the Premises constitute a part of a larger property said insurance shall 'include a Lessor's Protective Liability endorsement. (b) In the reasonable opinion of Lessor, if the minimum amount of liability insurance stated in ss.7.2(a) is not adequate, the amount of insurance coverage shall be increased as requested by Lessor, provided, however that in no event shall the amount of the liability insurance increase be more than fifty percent (50%) greater than the amount thereof during the preceding year. Failure of Lessor to require additional insurance coverage shall not be deemed to relieve Lessee from any of its obligations and shall not limit Lessee's liability under any provision of this Lease. 7.3 Property Insurance. (a) During the Term, the Insuring Party shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises, in the amount of the full replacement value thereof, as the same may exist from time to time, but in no event less than the total amount of promissory notes secured by liens on the Premises, against all perils included within the classification of fire, extended coverage, vandalism, earthquake, malicious mischief, boiler, special extended perils (all risk) and sprinkler leakage. Said insurance shall provide for payment of loss thereunder to Lessor or to the holders of mortgages or deeds of trust on the Premises, as Lessor may from time to time direct by Notice to Lessee. The Insuring Party shall, in addition, obtain and keep in force during g the Term a policy of rental income insurance covering a period of six (6) months, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. (b) If Lessor is the Insuring Party, Lessor will not insure Lessee's trade fixtures, furnishings or equipment. If Lessee is the Insuring Party, Lessee shall *insure its trade fixtures, furnishings and equipment. 5 7.4 Insurance Policies. Insurance required by this Lease shall be provided by carriers reasonably satisfactory to Lessor. The Insuring Party shall deliver to the other party copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Lessor or Lessor's mortgagee, if so required. No such policy shall be cancelable or subject to reduction of coverage or other modification except after twenty (20) days' prior written Notice to Lessor. All insurance policies shall name both Lessor and Lessee, and Lessor's mortgagee if so required, as named additional insureds. The Insuring Party shall, within twenty (20) days prior to the expiration of such policies, furnish the other party with renewals or "binders" thereof The InsUn g Party shall not do or omit doing anything which shall 'invalidate the 'insurance. Lessee shall pay any additional insurance costs attributable to Lessee's acts, omissions, use or occupancy of the Premises. If Lessor is the Insuring Party, and if the insurance policies maintained hereunder cover other properties 'in addition to the Premises, Lessor shall deliver to Lessee a written statement showinc, in reasonable detail the manner in which the cost of insurance payable by Lessee has been calculated. 7.5 Waiver of Subrogation. Lessee and Lessor each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents and representatives of the other, for loss of or dama e to such waiving party or its property or the property of others under its control to the extent that such loss or damage is insured against under any insurance policy in force at the time of such loss or damage. The Insuring Party shall notify the insurance carrier or carriers of the existence of this mutual waiver of subrogation. 7.6 Indemnity. Lessee shall defend, protect, release and indemnify Lessor and hold Lessor harmless from and against any and all claims arising (directly or indirectly) from Lessee's acts, omissions, use or occupancy of the Premises and from the conduct of Lessee's business, and from any act, omission, work or thing done, permitted or suffered by Lessee in or about the Premises or elsewhere, and shall further defend, protect, release, indemnify and hold harmless Lessor from and against any and all claims arising from any default in the performance of any obligation on Lessee's part to be performed, or arising from any negligence of Lessee, or any of Lessee' agents, contractors, or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or proceeding be brought against Lessor by reason of any such claim, Lessee (on Notice from Lessor) shall defend the same at Lessee's expense by counsel satisfactory to Lessor. Lessee shall pay Lessors attorneys' fees and costs in participating in any action in respect of which Lessee is required to defend or indemnify Lessor if Lessor shall decide it is to its best interest to so participate. 7.7 Exemption of Lessor from Liability. Lessor shall not be liable for injury to the person, or for any direct, indirect or consequential damage or loss to the property or business or Lessee, Lessee's employees, agents, contractors, invitees, customers, or 6 other persons in, on or about the Premises, howsoever caused including, but not limited to damage or injury caused by or resulting from fire, steam, electricity, gas, hazardous or toxic substances, water or rain, or from breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether resulting from conditions arising on the Premises or on other portions of any larger property of which the Prernises are a part, or from other sources or places, and regardless of whether the cause of such injury or damage or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any act or omission of any other occupant, if any, of the property of which the Premises are a part, if so. Lessee hereby assunies all risk of and responsibility for loss and damage to property of Lessee and others or injury or death to persons in, on or about the Premises from any cause, and Lessee hereby waives all claims in respect thereof against Lessor. The exemption of Lessor from liability, and the assumptions and waivers, all as set forth in this ss.7.7, are for the benefit of Lessor and Lessee only, shall at no time inure to the benefit of third parties, and shall not in any way affect or hinder any rights or claims that either Lessor or Lessee may have against any third parties. 8. Damage or Destruction. 8.1 Partial Damage - Insured. Subject to the provisions of ss.ss.8.2, 8.3) and 8.4, if the Premises are damacred by a casualty covered by insurance, subject to the rights of any mortgagee of Lessor in and to such insurance proceeds, to the extent of insurance proceeds received by Lessor, the Lessor shall repair such damage (but not Lessee's modifications, trade fixtures, furnishings or equipment) as soon as reasonably possible, and the Term of this Lease shall continue in full force and effect. If the insurance proceeds received by Lessor are not sufficient to effect such repair, Lessor shall give Notice to Lessee of the amount required in addition to the insurance proceeds to effect such repair. Lessee shall contribute the required amount to Lessor within ten (10) days after Notice from Lessor of the shortage in the insurance. When Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as soon as reasonably possible and the Term of this Lease shall continue in full force and effect. Lessee shall in no event have any right to reimbursement for any such amount so contributed. 8.2 Partial Damage - Uninsured: Insured with Proceeds Retained by Mortgagee. Subject to the provisions of ss.ss.8.3 and 8.4, if the Premises are damaged (except by an act or omission of Lessee in which event Lessee shall make the repairs, at its expense) by a casualty not covered under an insurance policy required to be maintained pursuant to this Lease, or if such casualty is insured against under an insurance policy but the proceeds of the insurance are retained by a mortgagee of Lessor, Lessor may, at Lessor's option, either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event the Term of this Lease shall continue in full force and effect, or (ii) give Notice to Lessee within thirty (30) days 7 after the date of the occurrence of such damage of Lessor's intention to terminate the Term of this Lease, which termination Notice shall state the intended date of termination which shall be not less than fifteen (15) days and not more than thirty (30) days after the date of such Notice. If Lessor gives such termination Notice, Lessee shall have the right within ten (10) days after the date of such termination Notice to give its repair Notice to Lessor or Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event the Term of this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give its repair Notice within such ten (10) days period, the Term of this Lease shall terminate as of the date of termination stated in Lessor's termination Notice. 8.3 Total Destruction. If, in the reasonable opinion of Lessor, there is total destruction of the Premises from any cause, whether or not covered by 'insurance, (Including any total destruction required by any public authority), then at the election of Lessor and on Notice to Lessee the Term of this Lease shall terminate as of the date of such total destruction which shall be the date of termination. For purposes of this Lease, "total destruction" includes but is not limited to damage or injury so extensive either (i) that the estimated cost of repair and replacement exceeds 60% of the full replacement value of the improvements constituting part of the Premises, or (ii) that the estimated time to effect repair and replacement exceeds six (6) months. 8.4 Damage Near End of Term. If the Premises are damaged during the last six (6) months of the then current Term of this Lease, Lessor may, at Lessor's option, terminate the Tenn of this Lease by giving termination Notice to Lessee within thirty (30) days after the date of occurrence of such damage. In such case, the date of termination shall be stated in Lessor's termination Notice and such date of termination shall not be less than fifteen (15) days and not more than thirty (3 ) 0) days after the date of such Notice. 8.5 Abatement of Rent; Lessee's Remedies. (a) If the Premises are damaged, and Lessor or Lessee repairs the Premises pursuant to the provisions of this Lease, rent for the period in excess of six (6) months during which such damage or repair continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired; provided, however, that the aggregate amount of abatement hereunder shall not exceed the total rent payable for a period of four (4) months. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any loss which Lessee may suffer by reason of any such damage or repair. There shall be no abatement of rent for the initial six (6) months period of such damage or repair which is covered by the rental insurance provided for in ss.7-31(a) of this Lease. (b) If Lessor shall be obligated to repair the Premises under the provisions of this Lease and shall not commence such repair within ninety (90) days after such obligation shall accrue, Lessee may, at Lessee's option, terminate the Term of this 8 Lease by giving Lessor Notice of Lessee's election to do so at any time prior to the commencement of such repair. In such event, the Term of this Lease shall terminate as of the date of such Notice. 8.6 Termination - Advance Payments. On termination of the Term of this Lease pursuant to this ss.8, an equitable adjustment shall be made concerning advance rent payments, if any, made by Lessee to Lessor. 8.7 Waiver. Lessee waives the provisions of all applicable laws and judicial decisions which relate to termination of leases when the property leased is damaged or destroyed, and agrees that such event shall be governed by the provisions of this Lease. 9. Property Taxes. 9.1 Real Property Taxes. Lessee shall pay all Real Property Taxes (as hereinafter defined) applicable to the Premises during the Terms of this Lease. All such payments shall be made at least ten (10) days prior to the applicable delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes paid by Lessee cover any period of time prior to or after expiration of the Term, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during the Term. of this Lease, and Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount ('including any late or delinquency charges) to Lessor with Lessee's next rent installment together with interest at the rate stated in ss. 14. 9.2 Definition of "Real Property Taxes". As used in this Lease, "Real Property Taxes" shall include any form of assessment, license fee, commercial rental tax, ad valorem tax, gross receipts, tax, levy, penalty, or tax (other than net income, inheritance or estate taxes), imposed by any public or private authority against any legal or equitable interest of Lessor in the Premises or in the larger property of which the Premises are a part, if so, or against Lessor's right to rent or other income therefrom, or against Lessor's business of leasing the Premises, or any tax or assessment imposed in substitution, partially or totally, of any tax or assessment previously included within the definition of Real Property Taxes, or any additional tax or assessment the nature of which was previously included within the definition of Real Property Taxes. 9.3 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable portion of the Real Property Taxes for all of the property included within the tax parcel assessed, such portion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 9 9.4 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied on trade fixtures, furnishings, equipment and all other personal property of Lessee in, on or about the Premises. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the property of Lessor. (b) If any of Lessee's personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor or to the taxing authority the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's personal property. 10. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable portion to be deterrIn ed by Lessor of all jointly metered charges. 11. Assignment and Subletting. 11.1 Lessor's Consent Required. Subject to the provisions of ss. 11.2 , Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or encumber all or any part of Lessee's interest in this Lease or in the Premises, without Lessor's prior written consent. 11.2 Named Lessee Affiliate. Notwithstanding the provisions of ss. 11.1 hereof, the Named Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any entity which controls, is controlled by or is under common control with the Named Lessee, or to any entity resulting from merger or consolidation with the Named Lessee or to any entity which acquires all the assets, as a going concern, of the business of the Named Lessee that is being conducted on the Premises, provided that said assignee or sublessee assumes, in full, the obligations of Lessee under this Lease. 11.3 No Release of Named Lessee. Any subletting or assignment with Lessor's consent pursuant to ss. 11.1 or without Lessor's consent pursuant to ss. 11.2 shall not release the Named Lessee of its obligations or alter the primary liability of the Named Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any person other than the Named Lessee shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee, sublessee, or successor of the Named Lessee, in the performance of any of the provisions hereof, 10 Lessor may proceed directly against the Named Lessee without the necessity of exhausting remedies against any assignee, sublessee or successor or, at Lessor's option, may proceed jointly or severally against the Named Lessee and any one or more assignees, sublessee or successors. Lessor may consent to subsequent assignments or sublettings or amendments to this Lease with direct or remote assignees, sublessee or successors of the Named Lessee, without notifying the Named Lessee, or any direct or remote assignee, sublessee or successor of the Named Lessee, and without obtaining its or their consent thereto, and such action shall not release the Named Lessee of liability under this Lease. 11.4 Attorneys' Fees. In the event Lessee shall request the consent of Lessor to any assignment or subletting, or if Lessee shall request the approval or consent of Lessor for any act that Lessee proposes to do, then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection with Lessor's decision relative to granting or refusing approval or consent. 12. Defaults; Remedies. 12.1 Default by Lessee. The occurrence of any one or more of the following events shall constitute a default of this Lease by Lessee: (a) Vacating the Premises or ceasing to actively conduct business at the Premises for more than thirty (30) days, except for reasonable periods on account of repair or reconstruction of the Premises. (b) Failure to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of five (5) days after notice thereof from Lessor to Lessee. (c) Failure by Lessee to observe or perform any of the provisions of this Lease to be observed or performed by Lessee, other than described in ss. 12. 1 (b), where such failure shall continue for a period of thirty (30) days after Notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within ten (10) days after such Notice and thereafter diligently pursues such cure to completion. (d) (i) the making by Lessee of any general assignment, or general arrangement for the benefit of creditors; (ii) filing by or against Lessee of either a petition to have Lessee adjudicated a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial 11 seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, or by any guarantor of Lessee's obligations hereunder, was materially inaccurate, whether intentionally so or not. (f) The failure of Lessee to deliver an Estoppel Certificate pursuant to ss. 15.1 of this Lease. 12.2 Remedies. In the event of any default by Lessee, the Lessor may, at any time thereafter, with or without Notice or demand and without limiting Lessor in the exercise of any other right or remedy, in law of equity, which Lessor may have by reason of such default: (a) Terminate Lessee's night to possession of the Premises in which event Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of such default including, but not limited to: the cost of recovering possession of the Premises; expenses of reletting, including renovation and alteration of the Premises; reasonable attorneys' fees; any real estate commission paid or payable with respect to reletting; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the Term after the time of such award exceeds the amount of rental loss for the same period that Lessee proves could be reasonably avoided; and that portion of any leasing commission paid by Lessor (if so) allocable to the unexpired Term of this Lease. (b) Maintain Lessee's right to possession of the Premises, in which case the Term of this Lease shall continue in effect whether or not Lessee shall have vacated the Premises. In such event, Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder, without any obligation or duty on the party of Lessor to mitigate damage or loss. If Lessor elects the remedy provided for in this ss. 12.2(b), then at any time thereafter, and without Notice to Lessee, the Lessor may elect to terminate Lessee's possession of the Premises pursuant to ss. 12.2(a) of this Lease. (c) Pursue any other remedy now or hereafter available to Lessor under the law of the State in which the Premises are located. 12.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after Notice by Lessee to Lessor (and to the holder of any mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee by Notice) specifying the default complained of, provided, however, that if the nature of Lessor's default is such that more than thirty (30) days 12 are reasonably required for its cure, then Lessor shall not be deemed to be in default if Lessor commences such cure within said thirty (30) days period and thereafter diligently pursues such cure to completion. 12.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor. Accordingly, if any installment of rent or any other sum due from Lessee shall not be paid by Lessee when due, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. Such late charge represents a fair and reasonable estimate of the costs Lessor may incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any other right or remedy. Any late charge is in addition to and not in lieu of interest on the amount due at the rate per annum stated in ss.14. 13. Condemnation. If the Premises or any portion thereof be taken under the power of eminent domain, or be sold under the threat of the exercise of said power (all of which are herein called "condemnation"), the Term of this Lease shall terminate as to the part so taken as of the date the condemning authority takes possession. If more than 10% of the floor area of the improvements constituting part of the Premises, or more than 25% of the land area constituting part of the Premises which is not occupied by any improvements, is taken by condemnation, Lessee may, at Lessee's option, to be exercised by Notice within ten (10) days after Lessor shall have given Notice to Lessee of such taking (or in the absence of such Notice, within ten (10) days after the condemning authority shall have taken possession) terminate the Term of this Lease as of the date the condemning authority takes possession. If Lessee does not so terminate the Term of this Lease, the Term shall continue in full force and effect as to the portion of the Premises remaining, except that the rent shall be equitably reduced consistent with the degree to which Lessee's use of the Premises is reduced by reason of the condemnation. Any award for the condemnation of all of any part of the Premises shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any separate award by the condemning authority for loss of or damage to Lessee's trade fixtures, furnishings, and removable personal property, or for moving expenses of Lessee. In the event that the Term of this Lease is not terminated by reason of such condemnation, Lessor shall, to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair. 13 14. Interest. In addition to and not in lieu of all amounts payable by Lessee pursuant to the provisions of this Lease, the Lessee shall pay simple interest on the amount of every delinquent payment at a floating or adjusting rate per annum. equal to one hundred fifty percent (150%) of the per annum rate published or declared as "base" or "prime" by the Bank which is in effect on the first day of the month during which the delinquency first occurs and on the first day of each succeeding month thereafter until the delinquency, together with interest thereon, be paid; provided, however, that if such amount exceeds the highest amount allowed by law, then the interest rate shall be the highest amount allowed by law. The Bank is such financial institution doing business in the State in which the Premises are situate as Lessor may designate from time to time by Notice to Lessee. The accrual or payment of interest shall not excuse or cure any default by Lessee. 15. General Provisions. 15.1 Estoppel Certificate; Lessee's Financials (a) Within ten (10) days after Notice from Lessor, the Lessee shall execute, acknowledge and deliver to Lessor, or to such other person as Lessor may designate, a written statement ("Estoppel Certificate") in form satisfactory to Lessor (i) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect), (ii) the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed and (iv) providing such other information as Lessor may reasonably request. Any such statement may be conclusively relied upon by Lessor and by any prospective purchaser or encumbrances of the Premises. (b) Lessee's failure to deliver such Estoppel Certificate within ten (10) days after Notice from Lessor, shall be conclusive on Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance, and shall make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in-Lessee's name, place and stead to execute such Estoppel Certificate. Such failure may also be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to utilize the Premises or the obligations of Lessee under this Lease as security for any borrowing, credit or financing desired by Lessor, then within ten (10) days after notice from Lessor, the Lessee shall deliver to any financier designated by Lessor such financial statements of Lessee as may be reasonably required by such financier. All such financial statements shall be received in confidence and shall be used only for the purposes herein set forth. 14 15.2 Definition of Lessor. "Lessor" means only the owner or owners at the time in question of the fee title and in the event of any transfer of such title or interest, the Lessor herein named (and in case of any subsequent transfers the then grantor) shall be released, from and after the date of such transfer, of all liability as respects Lessor's obligations thereafter to be performed. Any funds in the hands of Lessor (or the then grantor) at the time of such transfer in which Lessee has an interest, shall be delivered to the transferee. The obligations contained in this Lease to be performed by Lessor shall be binding on Lessor's successors and assigns, only during their respective periods of ownership. 15.3 Definition of Lessee. "Lessee" means (i) the party signing this Lease as Lessee ("Named Lessee") whether the Premises are at any time occupied by or 'in the possession of the Named Lessee or any direct or remote assignee, sublessee or successor of the Named Lessee or any other person claiming any rights by, through or under the Named Lessee; and (ii) every direct and remote assignee, sublessee and successor of the Named Lessee during whatever period such assignee, sublessee or successor occupies or is in possession of the Premises or asserts or has any claim or right to occupy or be in possession of the Premises; and (iii) every other person claiming by, through or under the Named Lessee any right to occupy or be possession of the Premises during whatever period such person occupies or is in possession of the Premises or asserts or has any claim or right to occupy or be in possession of the Premises. 15.4 Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 15.5 Time is of the Essence. Time is of the essence. 15.6 Captions. Captions are for convenience only and are not a part of this Lease. 15.7 Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to the subject matter hereof. No representation, declaration, promise, warranty, agreement or understanding which is not expressed in this document, or in any amendment of this document, shall be effective. This Lease may be amended only in a document signed by the parties. 15.8 Notices. Any Notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, return receipt requested, addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by Notice to the other specify a different address for Notice purposes except that on Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for Notice purposes. A copy of all Notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may 15 from time to time hereafter designate by Notice to Lessee. Notices given by personal delivery shall be deemed given on the date of delivery, and Notices given by certified mail shall be deemed given on the second regular business day after the date of mailing. 15.9 Waivers. No waiver by Lessor of any provision of this Lease shall be deemed a waiver of any other provision of this Lease or of any subsequent default by Lessee of the same or any other provision. Lessor's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to or approval of any subsequent act by Lessee. The acceptance of rent by Lessor shall not be a waiver of any preceding default by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding default at the time of acceptance of such rent. 15.10 Recording. Lessee shall not record this Lease without Lessor's prior written consent, and such recordation shall, at the option of Lessor, constitute a non-curable default of Lessee. Each party shall, on request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 15.11 Holding Over. If Lessee remains in possession of the Premises or any part thereof after expiration of the Term without the express written consent of Lessor, such occupancy shall be a tenancy from month-to-month at a monthly rental in the amount of double the last monthly rental during the Term, plus all other charges payable hereunder, and subject to all provisions of this Lease which may be applicable to a month-to-month tenancy. 15.12 Cumulative Remedies. No remedy or election available to Lessor shall be deemed exclusive but shall be cumulative with all other remedies at law and 'in equity available to Lessor. 15.13 Covenants and Conditions. Each provision of this Lease shall be deemed both a covenant and a condition. 15.14 Binding Effect, Choice of Law. Subject to the provisions of ss.ss. 15.2 and 15.3 ), this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State in which the Premises are situate. 15.15 Subordination. (a) At Lessor's option, this Lease, and the leasehold interests and rights of Lessee, shall be subordinate to any ground lease, master or superior lease, mortgage, deed of trust, hypothecation, or security 'interest now or hereafter affecting the Premises or any part of the Premises, and to any and all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises during the Term shall not be disturbed so 16 long as Lessee shall observe and perform all of the provisions of this Lease to be observed and performed by Lessee. If any mortgagee, trustee, lessor or security interest holder shall elect to have this Lease regarded as being prior and superior to its mortgage, deed of trust, lease or security interest, and shall give Notice thereof to Lessee, this Lease shall be deemed prior and superior to such mortgage, deed of trust, lease or security interest, whether this Lease is dated before or after the date of said mortgage, deed of trust, lease or security interest, or the date or recording thereof. (b) Lessee agrees to execute any documents required to effectuate such subordination or to make this Lease prior and superior to any mortgage, deed of trust, lease or security interest, as the case may be, and failing to do so within ten (10) days after Notice from Lessor shall make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute any such document. 15.16 Attorney's Fees. If either party brings an action to enforce the provisions hereof or declare rights hereunder or recover for any loss or damage on account of the default of the other party, the prevailing party in any such action shall be entitled to reasonable attorneys' fees, costs of litigation and court costs to be paid by the losing party as fixed by the court. 15.17 Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs improvements or additions to the Premises, or to the larger property of which they are a part, if so, as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs, and Lessor may at any time during the last 120 days of the Term place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 15.18 Signs and Auctions. Lessee shall not place any sign on or visible from the exterior of the Premises, or conduct any auction in, on or about the Premises without Lessor's prior written consent. 15.19 Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination of the Term by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 15.20 Corporate Authority. If Lessee is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the Bylaws of said corporation, and that this Lease is binding on said 17 corporation. If Lessee is a corporation, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor a certified copy of a resolution of the Board of Directors of Lessee authorizing or ratifying the execution of this Lease. 15.21 Approvals and Consents. If approval or consent of one party is required to an act of the other party, such approval or consent shall not be unreasonably withheld. 15.22 Quiet Possession. By observing and performing all of the provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire Term, subject to all of the provisions of this Lease. 15.23 Options. In the event that Lessee has any option to extend the Term, or any option to purchase the Premises or any right of first refusal to purchase the Premises or other property of Lessor, then each of such options and rights are personal to the Named Lessee and may not be exercised by any one other than (i) theNamed Lessee or (ii) an assignee or subtenant described in ss. 11.2 of this Lease. If there are multiple options to extend the Term of this Lease, a later option to extend cannot be exercised urdess every prior option has been duly exercised. Any option night referenced 'in this ss. 15.231 may be exercised only if Lessee is not in default. 15.24 Multiple Tenant Property Rules and Regulations. In the event that the Premises are part of a larger property, then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care and cleanliness of such larger property, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants. Lessee will promptly pay its pro rata share, as reasonably determined by Lessor, of any maintenance or repair or such portion of the Premises or such portion of the larger property of which the Premises are a part, which are common areas or used by Lessee and others. The violation of any such rules and regulations, or the failure to pay such pro rata share of costs, shall be deemed a default of this Lease by Lessee. 15.25 Insuring Party. The Insuring Party under this Lease shall be the Lessee. 15.26 When Lessor is Obligated. The submission of this document by Lessor to Lessee does not constitute an offer or option of any kind capable of being accepted by Lessee: Lessor will be obligated if, and only if Lessor duly executes this document by affixing its signature hereto, and delivers a signed copy hereof to Lessee. 15.27 Effect of Lease on Existing Tenancies. In the event any existing leases or tenancies are in effect with respect to the Premises as of the effective date hereof, Named Lessee nonetheless shall be directly liable to Lessor pursuant to all terms and provisions of this Lease, and such lease or tenancy shall effectively be deemed a sublease between Named Lessee and such lessee or tenant, pursuant to such lease or tenancy. Named Lessee further agrees to indemnify, defend, release and hold 18 harmless Lessor from any and all claims of such lessee or tenant, unless due to a default by Lessor under this Lease. 19 EX-10.17 22 LEASE LEASE INDEX ----------- LESSOR: Rex Realty Co. LESSEE: United Industries Corporation EFFECTIVE DATE OF LEASE: November 27, 1989 ADDRESS OR LOCATION OF PREMISES: 8453-8489 Chapin Industrial Drive, Vinita Park, St. Louis County, Missouri (Office/ Warehouse Building)
Section Page 1. Parties 1 2. Premises 1 3. Term 1 4. Rent 1 4.1 When and Where Payable 1 4.2 Amount of Rent 1 5. Use 2 5.1 Use 2 5.2 Compliance with Law at Date of Lease 2 5.3 Condition of Premises at Date of Lease 3 6. Maintenance, Repairs and Modifications 3 6.1 Lessee's Obligation 3 6.2 Condition on Termination 3 6.3 Lessor's Rights 3 6.4 Lessor's Obligation 3 6.5 Modifications of Premises by Lessee 4 6.6 Modifications of Premises by Lessor 5 6.7 Lessee's Trade Fixtures 5 7. Insurance and Indemnification 6 7.1 Insuring Party; Lessee's Obligation for Cost of All Insurance 6 7.2 Liability Insurance 6 7.3 Property Insurance 7 7.4 Insurance Policies 7 7.5 Waiver of Subrogation 7 7.6 Indemnity 8 7.7 Exemption of Lessor8from Liability 8 8. Damage or Destruction 9 8.1 Partial Damage--Insured 9 8.2 Partial Damage--Uninsured 9 8.3 Total Destruction 10 -1- 8.4 Damage Near End of Term 10 8.5 Abatement of Rent; Lessee's Remedies 10 8.6 Termination--Advance Payments 10 8.7 Waiver 11 9. Property Taxes 11 9.1 Real Property Taxes 11 9.2 Definition of "Real Property Taxes" 11 10. Utilities 12 11. Assignment and Subletting 12 11.2 Lessor's Consent Required 12 11.3 Named Lessee Affiliate 12 11.4 Attorneys' Fees 13 12. Defaults; Remedies 13 12.1 Default by Lessee 13 12.2 Remedies 14 12.3 Default by Lessor 14 12.4 Late Charges 15 13. Condemnation 15 14. Interest 15 15 General Provisions 16 15.1 Estoppel Certificate; Lessee's Financials 16 15.2 Definition of Lessor 17 15.3 Definition of Lessee 17 15.4 Severability 17 15.5 Time is of the Essence 18 15.6 Captions 18 15.7 Incorporation of Prior Agreements; Amendments 18 15.8 Notices 18 15.9 Waivers 18 15.10 Recording 18 15.11 Holding Over 18 15.12 Cumulative Remedies 19 15.13 Covenants and Conditions 19 15.14 Binding Effect; Choice of Law 19 15.15 Subordination 19 15.16 Attorneys' Fees 19 15.17 lessor's Access 20 15.18 Signs and Auctions 20 15.19 Merger 20 15.20 Corporate Authority 20 15.21 Approvals and Consents 20 15.22 Quiet Possession 20 15.23 Options 20 15.24 Multiple Tenant Property Rules and Regulations 21 -2- 15.25 Insuring Party 21 15.26 When Lessor is Obligated 21 15.27 Effect of Lease on Existing Tenancies 21
-3- LEASE ----- 1. Parties. This Lease, dated effective as of November 27, 1989, is made by and between Rex Realty Co., a Delaware corporation ("Lessor") and United Industries Corporation, a Delaware corporation ("Lessee"). 2. Premises. Lessor leases to Lessee and Lessee leases from Lessor for the Term at the rent, and subject to all of the provisions of this Lease, that certain real property, together with all improvements thereon, if any, situated in the County of St. Louis, State of Missouri, known and numbered as 8453-8489 Chapin Industrial Drive, consisting of an office and warehouse building of approximately 87,500 square feet situated on approximately 3.6 acres of land (the "Premises"). A legal description of the land is described on Exhibit A attached hereto and incorporated herein by this reference. 3. Term. The "Term" of this Lease shall commence on November 27, 1989 ("Commencement Date") and continue through December 31, 1999. Thereafter the Term shall automatically be extended on a year-to-year basis from January 1 through December 31 of each year through and until December 31, 2010, unless either party elects to terminate such year-to-year extension by giving Termination Notice in which case, the Term shall terminate at the end of the year following the year during which such Termination Notice is given. 4. Rent. 4.1 When and Where Payable. Lessee shall pay rent to Lessor for the Premises, without offset or demand, in advance, on the first day of each month of the Term. Rent for any period during the Term which is for less than one month shall be a pro rata portion of the monthly rent based on a month of thirty (30) days. Rent shall be payable in lawful money of the United States to Lessor at Lessor's address stated herein or to such other persons or at such other places as Lessor may designate by Notice to Lessee. 4.2 Amount of Rent. Rent for the period from the Commencement Date to December 31, 1990 shall be at the monthly rate equal to the sum of (i) Twenty- Three Thousand Five Hundred Dollars ($23,500) (being an annualized amount of $282,000), plus (ii) an amount determined by multiplying the annual rate of thirteen percent (13%) by the aggregate expenditures made by Lessor pursuant to Section 6.6 of this Lease and dividing such product by twelve (12). Such aggregate expenditures shall be determined as of the first day of the month preceding the month for which Rent is being calculated. For each calendar year of -4- the term of this Lease following 1990 (each such year being hereafter called "Period"), Rent for each such Period shall be at a monthly rate equal to the sum of (a) the total amount of all rent payable for the month immediately preceding the beginning of such Period, plus (b) one-half (1/2) of the product resulting from multiplying that amount as described in subpart (a) hereinabove by the percentage change in the "CPI" from the "Initial Date" to the "Measuring Date" plus (c) an amount as determined pursuant to subpart (ii) hereinabove with respect to any such expenditure made throughout said Period. For the Period commencing January 1, 1991, the "Initial Date" is the "CPI" publication date most proximately preceding the date of this Lease, and the "Measuring Date" is the "CPI" publication date most proximately preceding December 31, 1990. For each other Period, the Initial Date is the CPI publication date most proximately preceding the first day of the preceding Period, and the Measuring Date is the CPI publication date most proximately preceding the last day of the preceding Period. "CPI" shall mean the United States Consumer Price Index for all urban consumers published by the Bureau of Labor Statistics of the Department of Labor, All Items Index, U.S. City Average, 1982-84 = 100. In the event that the CPI shall be converted to a different standard reference base or otherwise revised, the determination of rent adjustment shall be made with the use of such conversion factor, formula or table converting the CPI as may be published by the Bureau of Labor Statistics or if not published by the Bureau of Labor Statistics, then as reasonably determined by Lessor. if the CPI ceases to be published or if no conversion factor, formula or table is reasonably available, then there shall be substituted such other index as Lessor shall reasonably determine. S. Use. 5.1 Use. The Premises shall be used and occupied for any lawful purpose. Lessee shall comply at all times with all federal, state and local ordinances and regulations that apply to the Premises or Lessee's business. Lessee covenants that it will commit no nuisance or waste on the Premises. 5.2 Compliance with Law at Date of Lease. (a) knowledge, as of the date of this Lease, the Premises do not violate any existing applicable building code regulation. If it be determined that a violation exists at the date hereof, then it shall be the obligation of Lessor, after Notice from Lessee, at Lessor's sole cost and expense, to promptly rectify any such violation. If Lessee does not give Notice of any such violation to Lessor within one (1) year after the Commencement Date, it shall be conclusively deemed that such violation did not exist at the date hereof and the correction of any violation shall be the obligation of the Lessee. (b) Except as otherwise provided in ss.5.2(a), Lessee shall, at Lessee's expense, comply promptly with all applicable laws and regulations in effect during any part of the Term in respect of the Premises. Lessee shall not use nor permit the use of the Premises in any manner that will tend to create waste, or constitute 5.3 Condition of Premises at Date of Lease. Except as provided in ss.5.2(a), Lessee hereby accepts the Premises in the condition existing as of the date hereof, subject to all applicable laws and regulations in respect of the Premises. -5- 6. Maintenance, Repairs and Modifications. 6.1 Lessee's Obligations. Lessee shall keep the Premises and every part thereof in good order, condition and repair, structural and nonstructural (whether or not the part of the Premises requiring repair, or the means of repairing the same are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of the Premises) including, without limiting the generality of the foregoing, all plumbing, heating, air conditioning, ventilating, electrical and lighting facilities and equipment, fixtures, walls (interior and exterior), foundations, ceilings, roofs (interior and exterior), floors, windows, doors, plate glass and skylights, and all landscaping, driveways, walkways, parking lots, fences and signs located on and adjacent to the Premises. 6.2 Condition on Termination. On the last day of the Term, Lessee shall surrender the Premises to Lessor in the same condition as at the Commencement Date except for reasonable wear and tear and for Modifications made in accordance with 56.5 (which Lessor does not require Lessee to remove) and/or ss.6.6. Lessee shall repair any damage to the Premises occasioned by the removal of Lessee's trade fixtures, furnishings and equipment which repair shall include, but is not limited to patching and filling of holes and repair of structural damage, if any. 6.3 Lessor's Rights. If Lessee fails to perform Lessee's obligations under this ss.6, Lessor may (but shall not be required to) enter the Premises, after ten (10) days' prior Notice to Lessee (except that no prior Notice shall be required if Lessor believes prompt action is required), and put the same in good order, condition and repair, and the cost thereof together with interest thereon at the rate per annum stated in ss.14 shall become due and payable as additional rent to Lessor together with Lessee's next rent installment. 6.4 Lessor's Obligations. Except for the obligations of Lessor under 55.2(a) (relating to Lessor's representation), ss.6.6 (relating to Modifications by Lessor), ss.8 (relating to destruction of the Premises) and ss.13 (relating to condemnation of the Premises), it is intended by the parties hereto that Lessor have no obligation, in any manner whatsoever, to repair or maintain the Premises, whether structural or nonstructural, all of which obligations are intended to be obligations of Lessee. Lessee expressly waives the benefit of any law or judicial decision now or hereafter in effect which would require Lessor to repair or maintain the Premises or which would afford Lessee the right to (i) make repairs at Lessor's expense or (ii) terminate this Lease because of Lessor's failure to keep the Premises in good order, condition and repair. 6.5 Modifications of Premises by Lessee. (a) Lessee shall not, without Lessor's prior written approval, make any Modifications in, on or about the Premises, except for nonstructural items not exceeding $1,000 in cost. "Modifications" include but is not limited to structural and nonstructural alterations, additions and improvements such as but not limited to partitioning, electrical, plumbing, heating, ventilating and air cooling equipment and work. Lessor may require that Lessee remove any or all Modifications at the expiration of the Term, and restore the Premises to the same condition as at the Commencement Date. Lessor may require Lessee to provide to -6- Lessor, at Lessee's sole cost and expense, a payment and performance bond in an amount equal to one and one-half times the estimated cost of any Modifications which Lessor may approve. Should Lessee make any Modifications without the prior written approval of Lessor, Lessor may require that Lessee remove any or all of the same at any time. (b) Detailed plans and drawings of any proposed Modifications in or about the Premises that Lessee shall desire to make shall be presented to Lessor. If Lessor approves, such approval shall be deemed conditioned on Lessee acquiring all permits from appropriate governmental agencies, the furnishing of a copy thereof to Lessor prior to the commencement of the work, and the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. At Lessor's request, Lessee shall furnish to Lessor three (3) full sets of as-built plans detailing such Modifications. (c) Lessee shall pay, when due, all claims for labor and materials furnished or alleged to have been furnished to or -7- for use in, on or about the Premises, which claims are or may be secured by any mechanics or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' Notice prior to the commencement of any Modifications work, and Lessor shall have the right to post statements of non-responsibility in or on the Premises. if Lessee desires to contest the validity of any lien, claim or demand, then Lessee shall, at its sole expense, defend and indemnify Lessor against the same and shall pay and satisfy any adverse judgment that may be rendered thereon before the enforcement thereof against Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor indemnifying Lessor against liability for, and holding the Premises free from the effect of, any judgment, lien or claim. (d) Unless Lessor requires their removal, as provided in ss.6.5(a), all Modifications, which may be made in, on or about the Premises, shall become the property of Lessor and remain on and be surrendered with the Premises at the end of the Term. 6.6 Modifications of Premises by Lessor. (a) At any time and from time to time during the period commencing with the Commencement Date hereof and ending December 31, 1991, Lessor shall at Lessor's sole cost and expense make such Modifications to the Premises and/or install therein for Lessee's use and enjoyment such production equipment as identified and requested in writing by Lessee. Provided, that, Lessor shall not be obligated to expend in the aggregate greater than One Million Dollars ($1,000,000) for any Modifications and/or production equipment requested hereunder by Lessee; and further provided that all Modifications made to the Premises by Lessor shall be in the nature of capital improvements or installation of equipment and not in the nature of repair or maintenance. Any production equipment installed by Lessor shall be maintained by Lessee at Lessee's cost and expense during the term hereof in good operating order and condition, except for reasonable wear and tear and destruction by casualty which is fully insured. All Modifications and production equipment made or installed by Lessor shall be and remain the property of Lessor. Lessor shall keep accurate records of its expenditures made pursuant to this Section and shall provide copies thereof to Lessee from time to time as Lessee may reasonably require. (b) All work done by Lessor pursuant to this Section 6.6 shall be done in a good and workmanlike manner in compliance with all applicable building, zoning and/or other laws, ordinances, governmental regulations or requirements and in -8- accordance with the requirements of all insurors under the policies of insurance required by the provisions of this Lease. (c) Lessor shall, at its own cost and expense, make any repairs, improvements, alterations, or additions to the Premises required by any governmental authority ("Required Work") as a result of work undertaken by Lessor pursuant to subparagraph (a)hereof, provided that Lessor shall not be obligated to undertake any Required Work the cost of which, when added to the cost of Lessor's performance under subparagraph (a)hereof, exceeds the aforementioned $1,000,000 limit, in which event Lessee shall undertake such Required Work at its sole cost and expense. 6.7 Lessee's Trade Fixtures. Lessee's trade fixtures, furnishings and equipment, other than items affixed to the Premises so that they cannot be removed without material damage to the Premises, shall remain the property of Lessee and may be removed by Lessee, subject to the provisions of 56.2. Any of Lessee's trade fixtures, furnishings or equipment which remain at the Premises after the end of the Term may be removed and disposed of by Lessor (at Lessee's cost and expense) without liability or Notice to Lessee. 7. Insurance and Indemnification. 7.1 Insuring Party; Lessee's Obligation for Cost of All Insurance. (a) "Insuring Party" means the party who has the obligation to obtain and keep in force insurance required by this Lease. The Insuring Party is designated in ss.15.25 hereof. Whether the Insuring Party is the Lessor or the Lessee, the Lessee shall, as additional rent for the Premises, pay the cost of all insurance. If Lessor is the Insuring Party, then Lessee shall reimburse Lessor for the cost of all insurance within ten (10) days following Lessor's Notice therefor. If the Insuring Party shall fail to obtain and keep in force any insurance required by this Lease, the other party may, but shall not be required to obtain such insurance and keep the same in force, at the cost and expense of Lessee. If any such insurance has a deductible or co-payment provision, Lessee shall be liable for the deductible or co-payment amount. (b) If the Premises constitute a part of a larger property, then Lessee shall pay for any increase in the cost of insurance applicable to such larger property if said increase is attributable to Lessee's acts, omissions, use or occupancy of the Premises. -9- 7.2 Liability Insurance. (a) During the Term, the Insuring Party shall obtain and keep in force a policy or policies of Combined Single Limit, Bodily Injury and Property Damage Insurance insuring Lessor and Lessee against liability arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Subject to ss.7.2(b), such insurance shall be a combined single limit policy in an amount not less than $1,000,000.00. The policy shall contain cross liability endorsements and shall insure performance by Lessee of the provisions of ss.ss.7.6 and 7.7. The limits of said insurance shall not, however, limit the liability of Lessee. if the Premises constitute a part of a larger property, said insurance shall include a Lessor's Protective Liability endorsement. (b) In the reasonable opinion of Lessor, if the minimum amount of liability insurance stated in ss.7.2(a) is not adequate, the amount of insurance coverage shall be increased as requested by Lessor, provided, however that in no event shall the amount of the liability insurance increase be more than fifty percent (50%) greater than the amount thereof during the preceding year. Failure of Lessor to require additional insurance coverage shall not be deemed to relieve Lessee from any of its obligations and shall not limit Lessee's liability under any provision of this Lease. 7.3 Property Insurance. (a) During the Term, the Insuring Party shall obtain and keep in force a policy or policies of insurance covering loss or damage to the Premises, in the amount of the full replacement value thereof, as the same may exist from time to time, but in no event less than the total amount of promissory notes secured by liens on the Premises, against all perils included within the classification of fire, extended coverage, vandalism, earthquake, malicious mischief, boiler, special extended perils (all risk) and sprinkler leakage. Said insurance shall provide for payment of loss thereunder to Lessor or to the holders of mortgages or deeds of trust on the Premises, as Lessor may from time to time direct by Notice to Lessee. The Insuring Party shall, in addition, obtain and keep in force during the Term a policy of rental income insurance covering a period of six (6) months, with loss payable to Lessor, which insurance shall also cover all real estate taxes and insurance costs for said period. (b) If Lessor is the Insuring Party, Lessor will not insure Lessee's trade fixtures, furnishings or equipment. if Lessee is the Insuring Party, Lessee shall insure its trade fixtures, furnishings and equipment. -10- 7.4 Insurance Policies. Insurance required by this Lease shall be provided by carriers reasonably satisfactory to Lessor. The Insuring Party shall deliver to the other party copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with loss payable clauses satisfactory to Lessor or Lessor's mortgagee, if so required. No such policy shall be cancelable or subject to reduction of coverage or other modification except after twenty (20) days' prior written Notice to Lessor. All insurance policies shall name both Lessor and Lessee, and Lessor's mortgagee if so required, as named additional insureds. The Insuring Party shall, within twenty (20) days prior to the expiration of such policies, furnish the other party with renewals or "binders" thereof. The Insuring Party shall not do or omit doing anything which shall invalidate the insurance. Lessee shall pay any additional insurance costs attributabe to Lessee's acts, omissions, use or occupancy of the Premises. If Lessor is the Insuring Party, and if the insurance policies maintained hereunder cover other properties in addition to the Premises, Lessor shall deliver to Lessee a written statement showing in reasonable detail the manner in which the cost of insurance payable by Lessee has been calculated. 7.5 Waiver of Subrogation. Lessee and Lessor each hereby waive any and all rights of recovery against the other, or against the officers, employees, agents and representatives of the other, for loss of or damage to such waiving party or its property or the property of others under its control to the extent that such loss or damage is insured against under any insurance policy in force at the time of such loss or damage. The Insuring Party shall notify the insurance carrier or carriers of the existence of this mutual waiver of subrogation. 7.6 Indemnity. Lessee shall defend, protect, release and indemnify Lessor and hold Lessor harmless from and against any and all claims arising (directly or indirectly) from Lessee's acts, omissions, use or occupancy of the Premises and from the conduct of Lessee's business, and from any act, omission, work or thing done, permitted or suffered by Lessee in or about the Premises or elsewhere, and shall further defend, protect, release, indemnify and hold harmless Lessor from and against any and all claims arising from any default in the performance of any obligation on Lessee's part to be performed, or arising from any negligence of Lessee, or any of Lessee's agents, contractors, or employees, and from and against all costs, attorneys' fees, expenses and liabilities incurred in the defense of any such claim or any action or proceeding brought thereon; and in case any action or*proceeding be brought against Lessor by reason of any such claim, Lessee (on Notice from Lessor) shall defend the -11- same at Lessee's expense by counsel satisfactory to Lessor. Lessee shall pay Lessor's attorneys' fees and costs in participating in any action in respect of which Lessee is required to defend or indemnify Lessor if Lessor shall decide it is to its best interest to so participate. 7.7 Exemption of Lessor from Liability. Lessor shall not be liable for injury to the person, or for any direct, indirect or consequential damage or loss to the property or business of Lessee, Lessee's employees, agents, contractors, invitees, customers, or other persons in, on or about the Premises, howsoever caused including, but not limited to damage or injury caused by or resulting from fire, steam, electricity, gas, hazardous or toxic substances, water or rain, or from breakage, leakage, obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether resulting from conditions arising on the Premises or on other portions of any larger property of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such injury or damage or the means of repairing the same is inaccessible to Lessee. Lessor shall not be liable for any act or omission of any other occupant, if any, of the property of which the Premises are a part, if so. Lessee hereby assumes all risk of and responsibility for loss and damage to property of Lessee and others or injury or death to persons in, on or about the Premises from any cause, and Lessee hereby waives all claims in respect thereof against Lessor. The exemption of Lessor from liability, and the assumptions and waivers, all as set forth in this Section 7.7, are for the benefit of Lessor and Lessee only, shall at no time inure to the benefit of third parties, and shall not in any way affect or hinder any rights or claims that either Lessor or Lessee may have against any third parties. 8. Damage or Destruction. 8.1 Partial Damage - Insured. Subject to the provisions of ss.ss.8.2, 8.3 and 8.4, if the Premises are damaged by a casualty covered by insurance, subject to the rights of any mortgagee of Lessor in and to such insurance proceeds, to the extent of insurance proceeds received by Lessor, the Lessor shall repair such damage (but not Lessee's modifications, trade fixtures, furnishings or equipment) as soon as reasonably possible, and the Term of this Lease shall continue in full force and effect. if the insurance proceeds received by Lessor are not sufficient to effect such repair, Lessor shall give Notice to Lessee of the amount required in addition to the insurance proceeds to effect such repair. Lessee shall contribute the required amount to -12- Lessor within ten (10) days after Notice from Lessor of the shortage in the insurance. When Lessee shall contribute such amount to Lessor, Lessor shall make such repairs as soon as reasonably possible and the Term of this Lease shall continue in full force and effect. Lessee shall in no event have any right to reimbursement for any such amount so contributed. 8.2 Partial Damage - Uninsured; Insured with Proceeds Retained by Mortgagee. Subject to the provisions of ss.ss.8.3 and 8.4, if the Premises are damaged (except by an act or omission of Lessee in which event Lessee shall make the repairs, at its expense) by a casualty not covered under an insurance policy required to be maintained pursuant to this Lease, or if such casualty is insured against under an insurance policy but the proceeds of the insurance are retained by a mortgagee of Lessor, Lessor may, at Lessor's option, either (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event the Term of this Lease shall continue in full force and effect, or (ii) give Notice to Lessee within thirty (30) days after the date of the occurrence of such damage of Lessor's intention to terminate the Term of this Lease, which termination Notice shall state the intended date of termination which shall be not less than fifteen (15) days and not more than thirty (30) days after the date of such Notice. If Lessor gives such termination Notice, Lessee shall have the right within ten (10) days after the date of such termination Notice to give its repair Notice to Lessor of Lessee's intention to repair such damage at Lessee's expense, without reimbursement from Lessor, in which event the Term of this Lease shall continue in full force and effect, and Lessee shall proceed to make such repairs as soon as reasonably possible. If Lessee does not give its repair Notice within such ten (10) days period, the Term of this Lease shall terminate as of the date of termination stated in Lessor's termination Notice. 8.3 Total Destruction. If, in the reasonable opinion of Lessor, there is total destruction of the Premises from any cause, whether or not covered by insurance, (including any total destruction required by any public authority), then at the election of Lessor and on Notice to Lessee the Term of this Lease shall terminate as of the date of such total destruction which shall be the date of termination. For purposes of this Lease, "total destruction" includes but is not limited to damage or injury so extensive either (i) that the estimated cost of repair and replacement exceeds 60% of the full replacement value of the improvements constituting part of the Premises, or (ii) that the estimated time to effect repair and replacement exceeds six (6) months. 8.4 Damage Near End of Term. If the Premises are damaged during the last six (6) months of the then current Term of this -13- Lease, Lessor may, at Lessor's option, terminate the Term of this Lease by giving termination Notice to Lessee within thirty (30) days after the date of occurrence of such damage . In such case, the date of termination shall be stated in Lessor's termination Notice and such date of termination shall not be less than fifteen (15) days and not more than thirty (30) days after the date of such Notice. 8.5 Abatement of Rent; Lessee's Remedies. (a) If the Premises are damaged, and Lessor or Lessee repairs the Premises pursuant to the provisions of this Lease, rent for the period in excess of six (6) months during which such damage or repair continues shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired; provided, however, that the aggregate amount of abatement hereunder shall not exceed the total rent payable for a period of four (4) months. Except for abatement of rent, if any, Lessee shall have no claim against Lessor for any loss which Lessee may suffer by reason of any such damage or repair. There shall be no abatement of rent for the initial six (6) months period of such damage or repair which is covered by the rental insurance provided for in ss.7.3(a) of this Lease. (b) If Lessor shall be obligated to repair the Premises under the provisions of this Lease and shall not commence such repair within ninety (90) days after such obligation shall accrue, Lessee may, at Lessee's option, terminate the Term of this Lease by giving Lessor Notice of Lessee's election to do so at any time prior to the commencement of such repair. In such event, the Term of this Lease shall terminate as of the date of such Notice. 8.6 Termination - Advance Payments. On termination of the Term of this Lease pursuant to this ss.8, an equitable adjustment shall be made concerning advance rent payments, if any, made by Lessee to Lessor. 8.7 Waiver. Lessee waives the provisions of all applicable laws and judicial decisions which relate to termination of leases when the property leased is damaged or destroyed, and agrees that such event shall be governed by the provisions of this Lease. 9. Property Taxes. 9.1 Real Property Taxes. Lessee shall pay all Real Property Taxes (as hereinafter defined) applicable to the Premises during the Term of this Lease. All such payments shall be made at least ten (10) days prior to the applicable delinquency date. Lessee shall promptly furnish Lessor with -14- satisfactory evidence that such taxes have been paid. If any such taxes paid by Lessee cover any period of time prior to or after expiration of the Term, Lessee's share of such taxes shall be equitably prorated to cover only the period of ..time within the tax fiscal year during the Term of this Lease, and Lessor shall reimburse Lessee to the extent required. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount (including any late or delinquency charges) to Lessor with Lessee's next rent installment together with interest at the rate stated in 514. 9.2 Definition of "Real Property Taxes". As used in this Lease, "Real Property Taxes" shall include any form of assessment, license fee, commercial rental tax, ad valorem tax, gross receipts tax, levy, penalty, or tax (other than net income, inheritance or estate taxes), imposed by any public or private authority against any legal or equitable interest of Lessor in the Premises or in the larger property of which the Premises are a part, if so, or against Lessor's right to rent or other income therefrom, or against Lessor's business of leasing the Premises, or any tax or assessment imposed in substitution, partially or totally, of any tax or assessment previously included within the definition of Real Property Taxes, or any additional tax or assessment the nature of which was previously included within the definition of Real Property Taxes. 9.3 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable portion of the Real Property Taxes for all of the property included within the tax parcel assessed, such portion to be determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 9.4 Personal Property Taxes. (a) Lessee shall pay prior to delinquency all taxes assessed against and levied on trade fixtures, furnishings, equipment and all other personal property of Lessee in, on or about the Premises. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the property of Lessor. (b) If any of Lessee's personal property shall be assessed with Lessor's real property, Lessee shall pay to Lessor or to the taxing authority the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's personal property. -15- 10. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable portion to be determined by Lessor of all jointly metered charges. 11. Assignment and Subletting. 11.1 Lessor's Consent Required. Subject to the provisions of 511.2, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, or encumber all or any part of Lessee I s interest in this Lease or in the Premises, without Lessor's prior written consent. 11.2 Named Lessee Affiliate. Notwithstanding the provisions of ss.11.1 hereof, the Named Lessee may assign or sublet the Premises, or any portion thereof, without Lessor's consent, to any entity which controls, is controlled by or is under common control with the Named Lessee, or to any entity resulting from merger or consolidation with the Named Lessee, or to any entity which acquires all the assets, as a going concern, of the business of the Named Lessee that is being conducted on the Premises, provided that said assignee or sublessee assumes, in full, the obligations of Lessee under this Lease. 11.3 No Release of Named Lessee. Any subletting or assignment with Lessor's consent pursuant to ss.11.1 or without Lessor's consent pursuant to ss.11.2 shall not release the Named Lessee of its obligations or alter the primary liability of the Named Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any person other than the Named Lessee shall not be deemed to be a waiver by Lessor of any provision hereof. Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee, sublessee or successor of the Named Lessee, in the performance of any of the provisions hereof, Lessor may proceed directly against the Named Lessee without the necessity of exhausting remedies against any assignee, sublessee or successor or, at Lessor's option, may proceed jointly or severally against the Named Lessee and any one or more assignees, sublessees or successors. Lessor may consent to subsequent assignments or sublettings or amendments to this Lease with direct or remote assignees, sublessees or successors of the Named Lessee, without notifying the Named Lessee, or any direct or remote assignee, sublessee or successor of the Named Lessee, and -16- without obtaining its or their consent thereto, and such action shall not release the Named Lessee of liability under this Lease. 11.4 Attorneys' Fees. In the event Lessee shall request the consent of Lessor to any assignment or subletting, or if Lessee shall request the approval or consent of Lessor for any act that Lessee proposes to do, then Lessee shall pay Lessor's reasonable attorneys' fees incurred in connection with Lessor's decision relative to granting or refusing approval or consent. 12. Defaults; Remedies. 12.1 Default by Lessee. The occurrence of any one or more of the following events shall constitute a default of this Lease by Lessee: (a) Vacating the Premises or ceasing to actively conduct business at the Premises for more than thirty (30) days, except for reasonable periods on account of repair or reconstruction of the Premises. (b) Failure to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, where such failure shall continue for a period of five (5) days after Notice thereof from Lessor to Lessee. (c) Failure by Lessee to observe or perform any of the provisions of this Lease to be observed or performed by Lessee, other than described in ss.12.1(b), where such failure shall continue for a period of thirty (30) days after Notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's default is such that more than thirty (30) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within ten (10) days after such Notice and thereafter diligently pursues such cure to completion. (d) (i) The making by Lessee of any general assignment, or general arrangement for the benefit of creditors; (ii) filing by or against Lessee of either a petition to have Lessee adjudicated a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the -17- Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days. (e) The discovery by Lessor that any financial statement given to Lessor by Lessee, or by any guarantor of Lessee's obligations hereunder, was materially inaccurate, whether intentionally so or not. (f) The failure of Lessee to deliver an Estoppel Certificate pursuant to ss.15.1 of this Lease. 12.2 Remedies. In the event of any default by Lessee, the Lessor may, at any time thereafter, with or without Notice or demand and without limiting Lessor in the exercise of any other right or remedy, in law or equity, which Lessor may have by reason of such default: (a) Terminate Lessee's right to possession of the Premises in which event Lessee shall immediately surrender possession of the Premises to Lessor. In such event, Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of such default including, but not limited to: the cost of recovering possession of the Premises; expenses of reletting, including renovation and alteration of the Premises; reasonable attorneys' fees; any real estate commission paid or payable with respect to reletting; the worth at the time of award by the court having jurisdiction thereof of the amount by which the unpaid rent for the balance of the Term after the time of such award exceeds the amount of rental loss for the same period that Lessee proves could be reasonably avoided; and that portion of any leasing commission paid by Lessor (if so) allocable to the unexpired Term of this Lease. (b) Maintain Lessee's right to possession of the Premises in which case the Term of this Lease shall continue in effect whether or not Lessee shall have vacated the Premises. In such event, Lessor shall be entitled to enforce all of Lessor's rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder, without any obligation or duty on the part of Lessor to mitigate damage or loss. If Lessor elects the remedy provided for in this ss.12.2(b), then at any time thereafter, and without Notice to Lessee, the Lessor may elect to terminate Lessee's possession of the Premises pursuant to ss.12.2(a) of this Lease. (c) Pursue any other remedy now or hereafter available to Lessor under the law of the State in which the Premises are located -18- 12.3 Default by Lessor. Lessor shall not be in default unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after Notice by Lessee to Lessor (and to the holder of any mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee by Notice) specifying the default complained of; provided, however, that if the nature of Lessor's default is such that more than thirty (30) days are reasonably required for its cure, then Lessor shall not be deemed to be in default if Lessor commences such cure within said thirty (30) days period and thereafter diligently pursues such cure to completion. 12.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor. Accordingly, if any installment of rent or any other sum due from Lessee shall not be paid by Lessee when due, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. Such late charge represents a fair and reasonable estimate of the costs Lessor may incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's default with respect to such overdue amount, nor prevent Lessor from exercising any other right or remedy. Any late charge is in addition to and not in lieu of interest on the amount due at the rate per annum stated in ss.14. 13. Condemnation. If the Premises or any portion thereof be taken under the power of eminent domain, or be sold under the threat of the exercise of said power (all of which are herein called "condemnation"), the Term of this Lease shall terminate as to the part so taken as of the date the condemning authority takes possession. If more than 10% of the floor area of the improvements constituting part of the Premises, or more than 25% of the land area constituting part of the Premises which is not occupied by any improvements, is taken by condemnation, Lessee may, at Lessee's option, to be exercised by Notice within ten (10) days after Lessor shall have given Notice to Lessee of such taking (or in the absence of such Notice, within ten (10) days after the condemning authority shall have taken possession) terminate the Term of this Lease as of the date the condemning authority takes possession. If Lessee does not so terminate the Term of this Lease, the Term shall continue in full force and effect as to the portion of the Premises remaining, except that the rent shall be equitably reduced consistent with the degree to -19- which Lessee's use of the Premises is reduced by reason of the condemnation. Any award for the condemnation of all or any part of the Premises shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any separate award by the condemning authority for loss of or damage to Lessee's trade fixtures, furnishings, and removable personal property, or for moving expenses of Lessee. In the event that the Term of this Lease is not terminated by reason of such condemnation, Lessor shall, to the extent of severance damages received by Lessor in connection with such condemnation, repair any damage to the Premises caused by such condemnation except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall pay any amount in excess of such severance damages required to complete such repair 14. Interest. In addition to and not in lieu of all amounts payable by Lessee pursuant to the provisions of this Lease, the Lessee shall pay simple interest on the amount of every delinquent payment at a floating or adjusting rate per annum equal to one hundred fifty percent (150%) of the per annum rate published or declared as "base" or "prime" by the Bank which is in effect on the first day of the month during which the delinquency first occurs and on the first day of each succeeding month thereafter until the delinquency, together with interest thereon, be paid; provided, however, that if such amount exceeds the highest amount allowed by law, then the interest rate shall be the highest amount allowed by law. The Bank is Boatmen's National Bank of St. Louis, or such other comparable financial institution doing business in the State in which the Premises are situate as Lessor may designate from time to time by Notice to Lessee. The accrual or payment of interest shall not excuse or cure any default by Lessee. 15. General Provisions. 15.1 Estoppel Certificate; Lessee's Financials. (a) Within ten (10) days after Notice from Lessor, the Lessee shall execute, acknowledge and deliver to Lessor, or to such other person as Lessor may designate, a written statement ("Estoppel Certificate") in form satisfactory to Lessor M certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force -20- and effect), (ii) the date to which the rent and other charges are paid in advance, if any, (iii) acknowledging that there are not, to Lessee's knowledge, any uncured defaults on the part of Lessor hereunder, or specifying such defaults if any are claimed and (iv) providing such other information as Lessor may reasonably request. Any such statement may be conclusively relied upon by Lessor and by any prospective purchaser or encumbrancer of the Premises. (b) Lessee's failure to deliver such Estoppel Certificate within ten (10) days after Notice from Lessor, shall be conclusive on Lessee M that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor's performance, and (iii) that not more than one month's rent has been paid in advance, and shall make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead to execute such Estoppel Certificate. Such failure may also be considered by Lessor as a default by Lessee under this Lease. (c) If Lessor desires to utilize the Premises or the obligations of Lessee under this Lease as security for any borrowing, credit or financing desired by Lessor, then within ten (10) days after Notice from Lessor, the Lessee shall deliver to any financier designated by Lessor such financial statements of Lessee as may be reasonably required by such financier. All such financial statements shall be received in confidence and shall be used only for the purposes herein set forth. 15.2 Definition of Lessor. "Lessor" means only the owner or owners at the time in question of the fee title and in the event of any transfer of such title or interest, the Lessor herein named (and in case of any subsequent transfers the then grantor) shall be released, from and after the date of such transfer, of all liability as respects Lessor's obligations thereafter to be performed. Any funds in the hands of Lessor (or the then grantor) at the time of such transfer in which Lessee has an interest, shall be delivered to the transferee. The obligations contained in this Lease to be performed by Lessor shall be binding on Lessor's successors and assigns, only during their respective periods of ownership. 15.3 Definition of Lessee. "Lessee" means (i) the party signing this Lease as Lessee ("Named Lessee") whether the Premises are at any time occupied by or in the possession of the Named Lessee or any direct or remote assignee, sublessee or successor of the Named Lessee or any other person claiming any rights by, through or under the Named Lessee; and (ii) every direct and remote assignee, sublessee and successor of the Named Lessee during whatever period such assignee, sublessee or successor occupies or is in possession of the Premises or asserts or has claim or right to occupy or be in possession of the Premises; and (iii) every other person claiming by, through or under the Named Lessee any right to occupy or be in possession of the Premises during whatever period such person occupies or is in possession of the Premises or asserts or has any claim or right to occupy or be in possession of the Premises. 15.4 Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 15.5 Time is of the Essence. Time is of the essence. -21- 15.6 Captions. Captions are for convenience only and are not part of this Lease. 15.7 Incorporation of Prior Agreements; Amendments. This Lease contains all agreements of the parties with respect to the subject matter hereof. No representation, declaration, promise, warranty, agreement or understanding which is not expressed in this document, or in any amendment of this document, shall be effective. This Lease may be amended only in a document signed by the parties. 15.8 Notices. Any Notice required or permitted to be given hereunder shall be in writing and may be given by personal delivery or by certified mail, return receipt requested, addressed to Lessee or to Lessor at the address noted below the signature of the respective parties, as the case may be. Either party may by Notice to the other specify a different address for Notice purposes except that on Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for Notice purposes. A copy of all Notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by Notice to Lessee. Notices given by personal delivery shall be deemed given on the date of delivery, and Notices given by certified mail shall be deemed given on the second regular business day after the date of mailing. 15.9 Waivers. No waiver by Lessor of any provision of this Lease shall be deemed a waiver of any other provision of this Lease or of any subsequent default by Lessee of the same or any other provision. Lessor's consent to or approval of any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to o approval of any subsequent act by Lessee. The acceptance of rent b Lessor shall not be a waiver of any -22- preceding default by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted, regardless of Lessor's knowledge of such preceding default at the time of acceptance of such rent. 15.10 Recording. Lessee shall not record this Lease without Lessor's prior written consent, and such recordation shall, at the option of Lessor, constitute a non-curable default of Lessee. Each party shall, on request of the other, execute, acknowledge and deliver to the other a "short form" memorandum of this Lease for recording purposes. 15.11 Holding Over. If Lessee remains in possession of the Premises or any part thereof after expiration of the Term without the express written consent of Lessor, such occupancy shall be a tenancy from month-to-month at a monthly rental in the amount of double the last monthly rental during the Term, plus all other charges payable hereunder, and subject to all provisions of this Lease which may be applicable to a month-to-month tenancy. 15.12 Cumulative Remedies. No remedy or election available to Lessor shall be deemed exclusive but shall be cumulative with all other remedies at law and in equity available to Lessor. 15.13 Covenants and Conditions. Each provision of this Lease shall be deemed both a covenant and a condition. 15.14 Binding Effect; Choice of Law. Subject to the provisions of Sss.15.2 and 15.3, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State in which the Premises are situate. 15.14 Subordination. (a) At Lessor's option, this Lease, and the leasehold interests and rights of Lessee, shall be subordinate to any ground lease, master or superior lease, mortgage, deed of trust, hypothecation, or security interest now or hereafter affecting the Premises or any part of the Premises, and to any and all renewals, modifications, consolidations, replacements and extensions thereof. Notwithstanding such subordination, Lessee's right to quiet possession of the Premises during the Term shall not be disturbed so long as Lessee shall observe and perform all of the provisions of this Lease to be observed and performed by Lessee. If any mortgagee, trustee, lessor or security interest holder shall elect to have this Lease regarded as being prior and superior to its mortgage, deed of trust, lease or security -23- interest, and shall give Notice thereof to Lessee, this Lease shall be deemed prior and superior to such mortgage, deed of trust, lease or security interest, whether this Lease is dated before or after the date of said mortgage, deed of trust, lease or security interest, or the date of recording thereof. (b) Lessee agrees to execute any documents required to effectuate such subordination or to make this Lease prior and superior to any mortgage, deed of trust, lease or security interest, as the case may be, and failing to do so within ten (10) days after Notice from Lessor shall make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and in Lessee's name, place and stead, to execute any such document. 15.16 Attorneys' Fees. If either party brings an action to enforce the provisions hereof or declare rights hereunder or recover for any loss or damage on account of the default of the other party, the prevailing party in any such action shall be entitled to reasonable attorneys' fees, costs of litigation and court costs to be paid by the losing party as fixed by the court. 15.17 Lessor's Access. Lessor and Lessor's agents shall have the right to enter the Premises at reasonable times for the purpose of inspecting the same, showing the same to prospective purchasers, lenders, or tenants, and making such alterations, repairs, improvements or additions to the Premises, or to the larger property of which they are a part, if so, as Lessor may deem necessary or desirable. Lessor may at any time place on or about the Premises any ordinary "For Sale" signs, and Lessor may at any time during the last 120 days of the Term place on or about the Premises any ordinary "For Lease" signs, all without rebate of rent or liability to Lessee. 15.18 Signs and Auctions. Lessee shall not place any sign on or visible from the exterior of the Premises, or conduct any auction in, on or about the Premises without Lessor's prior written consent. 15.19 Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination of the Term by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies. 15.20 Corporate Authority. If Lessee is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of -24- Directors of said corporation or in accordance with the Bylaws of said corporation, and that this Lease is binding on said corporation. If Lessee is a corporation, Lessee shall, within thirty (30) days after execution of this Lease, deliver to Lessor a certified copy of a resolution of the Board of Directors of Lessee authorizing or ratifying the execution of this Lease. 15.21 Approvals and Consents. If approval or consent of one party is required to an act of the other party, such approval or consent shall not be unreasonably withheld. 15.22 Quiet Possession. By observing and performing all of the provisions on Lessee's part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire Term, subject to all of the provisions of this Lease. 15.23 Options. In the event that Lessee has any option to extend the Term, or any option to purchase the Premises or any right of first refusal to purchase the Premises or other property of Lessor, then each of such options and rights are personal to the Named Lessee and may not be exercised by any one other than (i) the Named Lessee or (ii) an assignee or subtenant described in ss.11.2 of this Lease. If there are multiple options to extend the Term of this Lease, a later option to extend cannot be exercised unless every prior option has been duly exercised. Any option right referenced in this ss.15.23 may be exercised only if Lessee is not in default. 15.24 Multiple Tenant Property Rules and Regulations. In the event that the Premises are part of a larger property, then Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care and cleanliness of such larger property, the parking of vehicles and the preservation of good order therein as well as for the convenience of other occupants. Lessee will promptly pay its pro rata share, as reasonably determined by Lessor, of any maintenance or repair of such portion of the Premises or such portion of the larger property of which the Premises are a part, which are common areas or used by Lessee and others. The violation of any such rules and regulations, or the failure to pay such pro rata share of costs, shall be deemed a default of this Lease by Lessee. 15.25 Insuring Party. The Insuring Party under this Lease shall be the Lessee. 15.26 When Lessor is Obligated. The submission of this document by Lessor to Lessee does not constitute an offer or option of any kind capable of being accepted by Lessee: Lessor will be obligated if, and only if Lessor duly executes this -25- document by affixing its signature hereto, and delivers a signed copy hereof to Lessee. 15.27 Effect of Lease on Existing Tenancies. In the event any existing leases or tenancies are in effect with respect to the Premises as of the effective date hereof, Named Lessee nonetheless shall be directly liable to Lessor pursuant to all terms and provisions of this Lease, and such lease or tenancy shall effectively be deemed a sublease between Named Lessee and such lessee or tenant, with Named Lessee having all responsibilities and obligations of Lessor and being subject to all rights and occupancy of such lessee or tenant, pursuant to such lease or tenancy. Named Lessee further agrees to indemnify, defend, release and hold harmless Lessor from any and all claims of such lessee or tenant, unless due to a default by Lessor under this Lease. The parties hereto execute this Lease at the place and on the dates specified immediately adjacent to their respective signatures - -------------------------------------------------------------------------------- Executed at St. Louis, Missouri LESSOR: on ____________________________ Address: c/o Mark R. Gale REX REALTY CO. 10 S. Broadway Suite 1800 By: ________________________ St. Louis, Missouri 63102 Its: _______________________ (Corporate Seal) - -------------------------------------------------------------------------------- Executed at St. Louis, Missouri LESSEE; on ____________________________ Address:_______________________ UNITED INDUSTRIES CORPORATION ----------------------- _______________________ By: ________________________ Its: _______________________ (Corporate Seal)
-26- EX-23.1 23 CONSENT OF INDEPENDENT ACCOUNTANTS CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of United Industries Corporation of our report dated February 24, 1999 relating to the financial statements of United Industries Corporation, which appear in such Prospectus. /s/ PRICEWATERHOUSECOOPERS LLP St. Louis, Missouri April 5, 1999 - 1 - EX-23.2 24 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.2 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-4 of United Industries Corporation of our report dated February 25, 1999 relating to the financial statements of United Industries Corporation, which appear in such Prospectus. /s/ Rubin, Brown, Gornstein & Co., LLP. St. Louis, Missouri April 5, 1999 - 1 - -----END PRIVACY-ENHANCED MESSAGE-----